UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 2023

or

[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 000-55079

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (877)787-6268

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

[  ] Yes    [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

[  ] Yes    [X] No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes    [  ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] Yes    [  ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

[X]      

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

[  ]       

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

[  ] Yes    [X] No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of August 31, 2022 based upon the closing price reported on such date was approximately $63,910,563. Shares of voting stock held by each officer and director and by each person who, as of August 31, 2022, may be deemed as have beneficially owned more than 10% of the outstanding voting stock have been excluded. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for any other purpose.

As of June 5, 2023, there were 6,117,570,789 shares of the registrant’s common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this report contain or may contain forward-looking statements. These statements, identified by words such as “plan”, “anticipate”, “believe”, “estimate”, “should”, “expect” and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements are subject to known and unknown risks, uncertainties and other factors, which may cause actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to secure suitable financing to continue with our existing business or change our business and conclude a merger, acquisition or combination with a business prospect, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this report in its entirety, including but not limited to our financial statements and the notes thereto and the risks described in our Annual Report on Form 10-K for the fiscal year ended February 28, 2023. We advise you to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly our quarterly reports on Form 10-Q and our current reports on Form 8-K. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

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PART I

ITEM 1. BUSINESS

Business Overview

Robotic Assistance Devices, LLC was incorporated in the State of Nevada on July 26, 2016, as an LLC and was founded by current President Steve Reinharz. Mr. Reinharz, has 25+ years in various leadership/ownership roles in the security industry and was part of a successful exit to a global multinational security company in 2004. Mr. Reinharz started his first security integration company in 1996, which he grew to 30+ employees before closing that company in 2003. In 2017, Robotic Assistance Devices LLC converted to a C Corporation, Robotic Assistance Devices, Inc. (“RAD”), through the issuance of 10,000 common shares to its sole shareholder.

Artificial Intelligence Technology Solutions Inc. (formerly known as On the Move Systems Corp.) (“AITX” or the “Company”) was incorporated in Florida on March 25, 2010, and reincorporated in Nevada on February 17, 2015. On August 24, 2018, On the Move Systems Corp. changed its name to Artificial Intelligence Technology Solutions Inc. (“AITX”).

In 2017, AITX acquired all the ownership and equity interests in RAD (the “Acquisition”). Before the Acquisition, AITX’s business focus had been transportation services, and AITX was exploring the on-demand logistics market by developing a network of logistics partnerships. After the Acquisition, AITX shifted its business focus to align with RAD’s mission. Since that time, AITX has been engaged in pursuing the delivery of artificial intelligence (AI) and robotic solutions for operational, security, and monitoring needs. More specifically, the Company is focused on applying advanced AI-driven technologies, paired with multi-use hardware and supported by custom software and cloud services, to intelligently automate and integrate a variety of high-frequency security, concierge, and operational tasks.

Since substantially all of AITX’s operations were disposed of with the transaction’s consummation, the Acquisition was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes. AITX recorded no goodwill or other intangible assets as a result of the Acquisition. RAD is treated as the accounting acquirer as its stockholders control the Company after the Acquisition, even though AITX was the legal acquirer. Therefore, the assets, liabilities, and historical operations reflected in these financial statements are those of RAD as if RAD had always been the reporting company.

RAD’s solutions are generally offered as a recurring monthly subscription, typically with a minimum 12-month subscription contract. RAD also sells their units and the client that RAD has had longest opts to do this. RAD’s solutions are expected to earn over 75% gross margin over the life of each deployed asset when under subscription and over 50% gross margin when sold. Specifically, RAD provides workflow automation solutions delivered through a system of hardware, software and cloud services. All elements of hardware and software design offered by RAD are 100% designed, developed and owned by RAD.

Company Strategies

We apply our Artificial Intelligence (AI) technology to solve enterprise problems categorized as expensive, repetitive, difficult to staff, and outside of the core competencies of our client or prospective client organizations.

A short list of basic examples include:

RAD’s first industry focus is the more than $100 billion global security services market.¹ RAD’s current goal is to disrupt and capture a significant portion of both the human security guard market (over $30 billion)² and “physical security” (video surveillance, access control, visitor management, etc.) market (over $20 billion) through its innovative RAD solution ecosystem.

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¹ https://www.statista.com/statistics/323113/distribution-of-the-security-services-market-worldwide/

² https://www.statista.com/statistics/294206/revenue-of-security-services-in-the-us/

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RAD solutions are unique because they:

AITX Subsidiaries

AITX owns and operates three (3) wholly-owned subsidiaries.

AITX’ main website is aitx.ai. Company and investor information can be found at this site and it is updated regularly.

Background - First Commercial Rugged Outdoor Security Robot

Mr. Reinharz started RAD in the summer of 2016. RAD originally partnered with SMP Robotics Systems Corp. (SMP) and commercialized the SMP S5 Robot for the security market. RAD’s commercialization of the platform focused on integrating traditional security industry manufacturers’ solutions onto the robotics platform. After two paid proofs-of-concept for large utility companies (under NDA) and over 18 months of development and testing, RAD began deployments with various Fortune 500 customers. These deployments were scheduled to start in October 2017 but were delayed until December 2017 due to various supply chain challenges.

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By March 2018 it was apparent that S5 platform was not sustainable and RAD began to pull robots out of service.

The robots were rejected by customers due to unsatisfactory reliability and some technical flaws that could not be solved, despite full efforts by SMP and RAD. RAD now considers this phase of the Company ‘Phase 1’ into robotics. The Company attempted over 40 deployments during this period.

RAD has had no contact with SMP Robotics since April 2018.

Much of RAD’s existing convertible debt was acquired in support of the RAD/SMP robotics program. This convertible debt has largely been converted to long-term debt and warrants as shown in these financial filings.

ROAMEO will deliver on AITX’s goal of bringing the first outdoor, rugged, commercial security and facility robot to market. This mobile solution will complement the stationary systems AITX already has operating in physical security applications serving customers in a wide range of environments.

Background – RAD’s 2^nd Generation Ecosystem

RAD’s primary strategy has always been to use AI technology and modern systems to transform the security industry. Mobile robots, indoor and outdoor, are a part of that strategy. However, to ultimately realize the delivery of these solutions, a set of “stationary robots” required development.

These stationary robots launched in April 2018 with the Security Control and Observation Tower (SCOT), development of which began in August 2017. SCOT performs many of the same functions as a stationary human security guard, plus many tasks that human guards cannot, and does so at approximately 15% of the cost. There is no known comparable solution available today that blends technology, usability, unique features, and price. SCOT received an enthusiastic response from the security market and industry accolades. SCOT’s positive reception reinvigorated RAD, which accelerated the development of the software and cloud services that support SCOT. SCOT runs on the RAD Software Suite™. This software suite is a cloud and mobile platform at the heart of all RAD security solutions.

A beta version SCOT was first shown to potential customers at the end of February 2018 in an exposition held in Ohio that tested customer reception and elicited voice-of-the-customer input. SCOT and the preliminary RAD Software Suite received a favorable customer response. Customer feedback was incorporated into SCOT, and ideas on SCOT derivatives were added to the hardware development roadmap.

In April 2018, at the ISC West, a large annual physical security event held in the United States, SCOT won three awards: (1) The Security Industry Association’s (SIA) New Product Award for Law Enforcement/Guarding³, (2) A 2018 Secure Campus Award from Campus Security and Life Safety Magazine, and (3) A ‘Govie’ award for government security solutions from Security Today Magazine.

RAD has since won numerous awards for its solutions, including:

RAD Light My Way™, Secure Campus 2022 Awards, in the categories of ‘Security & Personal Safety Devices’ & ‘Artificial Intelligence’

AVA™ 3.0 with STAN™, Security Industry Association NPS Awards, in the category of ‘Access Control Software, Hardware, Devices and Peripherals’

ROSA™ with RAD Light My Way, CBRE Innovation Challenge 2021, in the category of ‘Best Workplace Experience Solution Award’

ROSA 180™, American Security Today 2021 ASTORS Awards, in the categories of ‘Best Robotic Perimeter Protection’ & ‘Best Motion Detection Solution’

ROADMAP & Product Development

__________

³ SIA’s New Product Showcase recognizes innovative products, services and solutions in electronic physical security, and SCOT™’s award comes in the Law Enforcement/Guarding Systems category. Technologies within the program are used in the protection of life and property in residential, commercial, and institutional settings, displaying SCOT™’s importance in long-range human detection and acting as a force multiplier for safety and defense against outside threats.

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RAD’s product line has continued to develop with both new solutions being added and older solutions being phased out. Specifically:

On the mobility side the Company has made significant progress. Specifically:

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Software Solutions

RAD has created a variety of front-end and back-end software solutions to power its ecosystem. RADGUARD is customer-facing software (on the touchscreens of RAD’s field devices), and management solutions include RADSOC (Security Operations Center) and RADPMC (Property Management Center).

RAD has developed a variety of utilities that allow automatic over-the-air updates, most of which are within a back-end application called SCOT Manager.

RAD has developed Visitor Management, Access Control, and other applications itself instead of seeking to partner with legacy manufacturers. It is RAD’s opinion that the legacy paradigm in the physical space underserves the markets in terms of cost, functionality, and integration.

RAD recently introduced its own Video Management System into RADSOC, delivering a fully integrated solution that facilitates robust security and property management capabilities.

Towards the end of the prior fiscal year the company announced ‘ROSS’ which is the company’s video management system. This allows non-RAD cameras to be managed by RADSOC alongside RAD stationary and mobile devices. It further allows for RADSOC’s analytics and communication features to be accessible and applied to these non-RAD cameras.

RAD launched it’s Fire Arm Detection (‘FAD’) analytic last fiscal year and closed it’s first ROSS/FAD/ROSA project with Rosenbaum Yeshiva in New Jersey. The company has built a modest sales funnel for similar opportunities.

The Company believes that RAD’s ability to deliver easy-to-use, easy-to-obtain, and easy-to-support software, combined with custom workflow-automation applications, is key to the company’s success.

The company believes that the R&D work it has completed makes AITX’ vision for a single all encompassing security and property technology platform complete. With the addition of the stationary and mobile solutions, plus the ability to integrate existing cameras into the system, RAD can now provide solutions in almost every situation at a cost less than most others.

Manufacturing & Assembly

RAD uses various domestic and overseas machine shops for raw material procurement and machining of the required plastic and metal pieces that build RAD devices. RAD’s sourcing has redundancy through use of multiple machine shops producing the same products for RAD. In addition, all pieces within any RAD device can be procured from a choice of suppliers.

RAD’s margins are based on current small batch production and assembly. The Company expects that economies of scale will drive greater gross margin as quantities and efficiencies increase.

Team and Culture

AITX has built a strong start-up culture based on performance, sacrifice, and rewards. Attracting employees who can thrive in this environment requires a different approach to corporate growth and development. RAD’s governing philosophy centers around the principles of “Emotional Intelligence. Self-awareness, composure, internal motivation, empathy, and social skills are prerequisites for joining the RAD team, and each candidate interview begins with a review of the foundational elements that comprise RAD culture.

Team members are open to multitasking and wearing multiple hats, as situations demand. This allows management to focus on larger goals and long-term strategies. We try to ensure that our entire staff shares the same core beliefs and values as the Company, allowing us to adapt and adjust quickly to changes that might grind other companies to a halt. Members have been no stranger to the difficulties that face a startup, including unexpected setbacks, delays in funding, or a cash crunch, but they have persevered with dedication and enthusiasm for our greater mission. They have met incredibly tight deadlines, volunteered to make financial sacrifices, and assisted wherever and however they can.

We believe that RAD’s high-EQ work culture creates productive, motivated employees that has allowed the Company to weather the difficult period of robot deployments and our transition to 2^nd generation solutions.

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Subsequent to the end of fiscal year ending February 28, 2023, the Company completed two Reduction In Force events that brought headcount from 92 full time equivalent employees to 69. The Company largely cut development teams working on future solutions, reduced engineering staff and trimmed other positions for cost control efforts. Additionally, the Company instituted cost control methods revolving around tasks such as freight and purchasing processes. These efforts will take full effect in July 2023 and are expect to save the Company between $ 200,000 to $ 300,000/month between reduced labor costs in addition to other efficiencies.

The Company is focused on sequential product development while sales grow in order to get close to positive cash flow.

Market Environment

RAD believes that its experience has shown that the security market is ripe for disruption. It has captured the interest of many Fortune 500 companies. The Company believes that no other company operating in the physical security space has the solutions, distribution channel, reputation, sales or support model to rival RAD in the near term. In addition, the Company expects that the launch of RAD’s mobile solutions will significantly increase the gap between it and would-be competitors. RAD will be a one-stop-shop for proven and comprehensive mobile and stationary workflow improvement devices and systems.

RAD’s technology model includes a “new paradigm” for the security industry: Security in a Box. Every RAD solution features connection to the RAD Software Suite, a platform for AI processing, usage analytics, cloud-sided video, communications interface, audit logs, and much more.

Customer Acceptance of RAD Solutions

RAD end-users include one Fortune Top 10 company and a number of other Fortune 500 companies. RAD is currently deployed in logistics, commercial real estate, healthcare, amusement, manufacturing and retail industries. The Company believes that if RAD is ultimately deployed to only 5% of the facilities within any of these industries, the Company will be profitable.

RAD Industry Leadership Role

Mr. Reinharz has earned a prominent role as a spokesperson for AI and change in the security industry. He has lectured and participated in several panels for some of the security industry’s largest events and organizations. Mr. Reinharz chairs Security Industry Association’s Autonomous Working Group committee, which is dedicated to helping shape the industry and support progressive legislation. Most recently, Mr. Reinharz provided a lecture to NYC’s ASIS CPP group that qualified as a continuing education credit.

In March 2023 Steve Reinharz was elected to a Board seat for Security Industry Association, Inc (SIA). SIA is the foremost security group steering policy, lobbying various governments and promoting education within the security industry.

It is expected that Mr. Reinharz will continue his promotion of the new paradigm for the next few years until adoption is widespread.

Go To Market Strategy

RAD’s strategy has been to focus on the creation and support of a strong dealer channel. RAD has successfully executed this strategy and has added over 60 qualified dealers to our dealer channel. The expectations were that this approach affords multiple benefits to RAD with few downsides and almost all dealers exclusively represent RAD solutions in the area of ai-enabled autonomous devices.

However, over the past year it’s become clear that the dealer channel has exceptional benefits with a limited number of dealers. Forward-thinking dealers that invest the time and energy into RAD have the ability to be successful. Unfortunately many dealers are happy to sign up and continue their normal business operations without giving proper efforts to promote RAD solutions to their client bases. As such the company has about 20 active dealers with the rest being more opportunistic. As such the Company has been increasingly focusing on a limited number of dealers, including a strong and growing relationship with the world’s largest security company, Allied Universal Inc. (AUS). AUS and RAD are working on a large roll out to all integration offices as this report is filed. Furthermore the Company is devoting more time to direct sales, an area of effort that gives the Company more control over the sales process. It is expected that going forward the relationship with active dealers will strengthen while continuing to strengthen direct sales.

Competition

We may be subject to competition by competitors that have greater operating histories, cash and operational resources than we do.

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Employees

As of March 23, 2023, we have a headcount of 90 fully dedicated full-time equivalents, including 42 RAD Inc. employees, 18 overseas contractors, and 30 employees of a Canadian research and development company. None of our employees are represented by a union. We consider our employee relations to be excellent. AITX’ principle shareholder owns a minority interest in the Canadian research and develop company but has not received any compensation of any kind from that company to date.

Since the close of the year the Company completed two Reduction In Force events that brought the team size to 69 people and added one additional sale focused employee for a headcount of 70 full time equivalent employees as of June 12, 2023.

Accomplishments & Highlights

AITX, and its subsidiaries RAD I, RAD M, and RAD G, list of accomplishments highlights successes in adding to the strength of its executive leadership team, expanding its sales and distribution channels, launching new products, while growing its presence, visibility and profile within its existing marketplaces. Milestones and accomplishments over the past 12 months include:

Cyber and data protection and compliance

The Company continues it’s focus on delivery of safe and secure software and systems to its clients. As such, last year the Company achieved SOC 2 Report status. The SOC 2 Report has become a benchmark standard, and now an often-specified requirement, in the software procurement process. Established by the American Institute of Certified Public Accountants (AICPA), criteria and reporting principles are outlined as a means for organizations to create a documented framework of policies and procedures to prove how they manage and secure data in the cloud and ensure protection of customer privacy and ensure internal communications are suitably handled. This achievement reflects the Company’s stated goals of best-in-class data protection and internal processes.

The Company has subsequently maintained SOC 2 Type 2 status and has achieved a cyber certification from a Fortune Five company which was more difficult to obtain than either SOC certifications. Due to non-disclosure agreements with the Fortune Five company AITX can not disclose who it is from.

Implementation of ERP (enterprise resource planning) System - Update

The Company’s implementation of NetSuite ERP continued through the year with a successful transition to all accounting and human resources now fully functionality. Sales is using some of the CRM features of the ERP but still using a non-ERP platform for management of the sales funnel. Production’s use of the ERP significantly increased over the course of the year. There remain some challenges for full production implementation related to change management. Management expects full implementation of the ERP to complete this fiscal year. The will allow realization of efficiencies in purchasing, kitting and production.

Authorized Dealers Added to Dealer Network

At the end of FY 2023 RAD has more than 57 authorized dealers, up from 32 at the beginning of the fiscal year. These dealers are located across the United States, Canada, and the EU, with plans for continued expansion. Dealers include the largest security companies in the world, including Allied Universal and GardaWorld, which are respectively the largest and 3^rd largest guarding companies in the world. The ongoing addition of authorized dealers introduces and delivers RAD products to new markets.

Discussion on Sales

The sales funnel has grown significantly over the course of this fiscal year although expectations and goals were not fully achieved. The sales team has matured and stabilized with a Senior Vice President of Sales with three full time direct sales reports. There was no salesperson turnover in this fiscal year. Additional sales drivers are RAD’s President as well as AITX’ CEO. Furthermore operations team members are instrumental in encouraging clients to expand existing systems.

In the fiscal year ended February 28, 2022 RAD added 311 sales opportunities to the sales funnel. An opportunity is mostly defined as an account that is exhibiting a pain that can be solved by RAD, has a budget, and has reached the point in the sales process where they have a quote they can sign. In the fiscal year that ended February 28, 2023 sales activity skyrocketed with the Company issuing approximately 840 quotes for various opportunities. Of those 840 quotes at least 120 are in the final stages of customer acceptance and sign off.

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Management has identified that conversion of accounts from opportunities to clients is low and has identified some of the reasons for the low conversion rate as well as new tactics to break through these obstacles. Advanced new technology sales often involve multiple decision-makers and require a skilled and passionate internal champion. The security industry breeds risk-averse personnel. The Company is pressing several initiatives to change the industry to create an environment where trying new things in the norm as opposed to the exception. An example of these efforts are the Security Industry Association’s (SIA) upcoming Town Hall where three Fortune 500 security practitioners that have implemented new technologies will share their tips for successful internal selling. AITX will be putting more emphasis on these efforts this year.

Subsequent to the close this fiscal year the Company’s largest dealer has accelerated RAD device sales roll out to all of it’s branches. The Company expects this relationship and roll out will drive significantly more sales than the Company has experienced to date.

Management projects that RIO’s introduction will drive higher gross sales and greater RAD adoption of unique software functions such as RAD Light My Way and Fire Arm Detection. It is further expected that the Company’s first RAD Light My Way client will be public in the summer of 2023 and will drive significant sales in healthcare. RAD’s first Fire Arm Detection client, the Rosenbaum Yeshiva in New Jersey, will complete it’s installation in the summer of 2023 and is expected to drive additional system sales.

Between a maturing hardware and software line up, an increasing number of deployments/case studies/success stories, management is excited for the next year’s sales. Management feels that ironing out technical and production challenges are well in hand and clearing the way for a greater volume of deployments.

Press Announcements

During the fiscal year, the Company issued over 100 press releases, the vast majority of them being sales announcements and new authorized dealers being signed. Public events, conferences, awards and new product announcements were also publicized via press releases. All Company press releases can be found here: AITX News - AITX - Artificial Intelligence Technology Solutions

Awards and Industry Recognition

During the period, RAD solutions were honored with six security industry awards, primarily for ROSA 3.0, AVA 3.0 and RAD Light My Way. ROSA 3.0 was also selected for a ‘Good Design’ award for its stylish design and high-performance features.

Trade Shows and Conferences

As in previous years, RAD attended several large security industry events including ISC West, GSX, plus dozens of regional conferences with the purpose of presenting the Company’s solutions to a buying audience and continually loading the sales pipeline with new opportunities. RAD often utilizes the events for speaking engagements or panel discussions to propel the Company’s ‘thought leadership’ regarding its AI-powered security and safety solutions.

Additional Points of Interest

This fiscal year was significant for stabilization of technology, better understanding of the sales process and related challenges, positioning as a true leader in the industry and the achievement of several high profile deployments. The Company continues its focus on sales, efficiencies with the goal of achieving positive cash flow within 18 months.

Technology reliability issues caused some slower sales adoption in the fiscal year. As a response the Company has concentrated on it’s next-generation system ‘brain’ called the RADPack Millie Gen 2. As of June 14 the final prototype was technically approved and is going in production. This will drive the ‘3.2’ series of devices that production is scheduled for in the August/September timeframe. This new board allows quicker production, full on and off board peripheral control, advanced fleet management and automated maintenance and reporting. This board is expected to significantly reduce and/or eliminate various ongoing technical challenges and allow the operations team to accelerate the quantity of system deployments without increasing the size of the deployment team.

Management, based on regular conversations with the Company’s largest debt holder, expects no issues regarding pushing out debt deadlines as it has done so in years past. Management confirms the support of this lender and notes the most recent non-convertible $4M loan facility. As of June 13, 2023, $3.2M of that facility has been used.

Management reiterates that the plan continues to be to grow revenues, achieve positive cash flow, reduce debt and prepare for an uplist to Nasdaq. Management estimates this timeline to be in the two to four year range. On June 14, 2023 the company extended it’s ‘No Reverse Split’ policy by 12 months, to now end January 1, 2025. It is expected the company will continue 1 year extensions until the conditions merit an uplist to Nasdaq or NYSE.

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Legal Proceedings

See Item 3 - Legal Proceedings.

ITEM 1A. RISK FACTORS

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), we are not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

We maintain our corporate offices at 701 North Green Valley Parkway, Suite 200, Henderson, Nevada, 89704 pursuant to a month-to-month lease. Our annual rental cost for this facility is approximately $936 per year. RAD maintains a mailing address of 31103 Ranch Viejo Road, Suite D2114, San Juan Capistrano, CA 92675, USA for a nominal fee of $264 per year. RAD entered into a 15-month lease at 18009 Sky Park Circle Suite E , Irvine, California 92614, that began on December 18, 2020 and terminated on March 31, 2022, at annual cost of  $46,308. This property is used as the West Coast Sales and Service Center. The lease is not renewable.

 On March 10, 2021 the Company entered into a ten-year lease of a 29,316 square foot building located  at 10800 Galaxie Avenue,  Ferndale, Michigan 48220. The lease began on May 1, 2021. These premises are being used for offices, manufacturing and distribution. The annual rental cost for this facility is approximately $190,000, plus a proportionate share of operating expenses of approximately $28,000 annually.

On January 28, 2022, the Company entered into a 2-year lease agreement for office space at 1516 E Edinger, Santa Ana, California, 92705, commencing on February 1, 2022 through to January 31, 2024 with a minimum base rent of $1,500 per month. The Company paid a security deposit of $1,500.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. There are no legal proceedings pending at this time.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

Market Information

AITX’s common stock began trading on the “Over the Counter” Bulletin Board (“OTC”) under the symbol “AITX” in June 2011 and as AITX on August 24, 2018. The following table sets forth, for the period indicated, the prices of the common stock in the over-the-counter market, as reported and summarized by OTC Markets Group, Inc. On August 24, 2018, the Company undertook a 100:1 reverse stock split and on March 27, 2020 a 10,000:1 reverse split. The share capital has been retrospectively adjusted accordingly to reflect this reverse stock split, except for the conversion price of certain convertible notes as the conversion price is not subject to adjustment from forward and reverse stock splits.

These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions. There is an absence of an established trading market for the Company’s common stock, as the market is limited, sporadic and highly volatile, which may affect the prices listed below.

On April 3, 2022, the closing price per share of the Company’s common stock as quoted on the OTC was $0.0057.

Dividends

To date, we have not paid dividends on shares of the Company’s common stock and we do not expect to declare or pay dividends on shares of our common stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, AITX’s financial condition, and other factors deemed relevant by its Board of Directors.

Holders of Common Stock

As of April 3, 2023, there were 84 holders of AITX’s common stock of which 21 were active. The number of foregoing holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.

Common Stock

The Company is authorized to issue 7.225,000,000 shares of common stock, with a par value of $0.00001. The closing price of its common stock on April 3, 2023, as quoted by OTC Markets Group, Inc., was $0.0057. There were 5,919,914,956 shares of common stock issued and outstanding as of April 3, 2023. All shares of common stock have one vote per share on all matters including election of directors, without provision for cumulative voting. The common stock is not redeemable and has no conversion or preemptive rights. The common stock currently outstanding is validly issued, fully paid and non-assessable. In the event of liquidation of the Company, the holders of common stock will share equally in any balance of its assets available for distribution to them after satisfaction of creditors and preferred shareholders, if any. The holders of the Company’s common are entitled to equal dividends and distributions per share with respect to the common stock when, as and if, declared by the Board of Directors from funds legally available.

Our Articles of Incorporation, Bylaws, and the applicable statutes of the state of Nevada contain a more complete description of the rights and liabilities of holders of our securities.

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During the years ended February 28, 2023 and February 28, 2022, there was no modification of any instruments defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.

Non-cumulative voting

Holders of shares of the Company’s common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.

Securities Authorized for Issuance under Equity Compensation Plans

On April 14, 2021 the Company adopted an Incentive Stock Option Plan where full details are disclosed in Exhibit 10.1 of the Company’s 8K filing of April 20,2021. Under the plan the Company may grant options to service providers and employees to acquire up to 5,000,000 shares of the Company’s common stock. The options will be under the varying terms and conditions of an agreement but the exercise price cannot be lower than 100% to 110% of the fair value of the stock at date of grant and the term of the grant can be no longer than 5 years. On August 11, 2022 the Company amended the 2021 Plan increasing the maximum number of shares applicable to the 2021 Plan from 5,000,000 to 100,000,000.

On September 1, 2022, the Company as part of the afore-mentioned Incentive Stock Option Plan issued 100,000,000 shares to 64 employees. The shares were issued with an exercise price of $0.02, vest after 4 years with a 5 year term having a fair value of $1,020,000. For the year ended February 28, 2023 the Company recorded $122,050 in stock-based compensation. At February 28, 2023 there remains 95,725,000 options outstanding.

The following table shows the number of shares of common stock that could be issued upon exercise of outstanding options and warrants, the weighted average exercise price of the outstanding options and warrants, and the remaining shares available for future issuance at February 29, 2023.

Preferred Stock

The Company is authorized to issue up to 20,000,000 shares of $0.001 par value preferred stock. The board of directors is authorized to designate any series of preferred stock up to the total authorized number of shares.

Series E Preferred Stock

The Board of Directors has designated 4,350,000 shares of Series E Preferred Stock. As of the date of this report, there are 3,350,000 shares of Series E Preferred Stock outstanding. The Series E Preferred Stock ranks subordinate to the Company’s common stock as to distributions of assets upon liquidation, dissolution or winding up of the Corporation. The Series E preferred stock is non-redeemable, does not have rights upon liquidation of the Company and does not receive dividends. The outstanding shares of Series E Preferred Stock have the right to take action by written consent or vote based on the number of votes equal to twice the number of votes of all outstanding shares of equity instruments with voting rights. As a result, the holders of Series E Preferred Stock have 2/3rds of the voting power of all shareholders at any time corporate action requires a vote of shareholders.

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Series F Convertible Preferred Stock

The Board of Directors has designated 4,350 shares of Series F Convertible Preferred Stock with a par value of $1.00 per share. As of the date of this report, there are 2,532 shares of Series F Convertible Preferred Stock outstanding. The Series F Convertible Preferred Stock is non-redeemable, does not have rights upon liquidation of the Company, does not have voting rights and does not receive dividends. Each holder may, at any time and from time to time convert all, but not less than all, of their shares of Series F Convertible Preferred Stock into a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued and outstanding shares of common stock of the Company on the date of conversion by three and 45 100ths (3.45) on a pro rata basis. So long as any shares of Series F Convertible Preferred Stock are outstanding, the Company shall not, without first obtaining the approval of the majority of the holders: (a) alter or change the rights, preferences or privileges of any capital stock of the Company so as to affect adversely the Series F convertible preferred stock; (b) create any Senior Securities; (c) create any pari passu Securities; (d) do any act or thing not authorized or contemplated by the Certificate of Designation which would result in any taxation with respect to the Series F Convertible Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended, or any comparable provision of the Internal Revenue Code as hereafter from time to time amended, (or otherwise suffer to exist any such taxation as a result thereof).

Series G Preferred Stock

The board of directors has designated 100,000 shares of Series G Preferred Stock. As of the date of this report, there are no shares of Series G Preferred Stock outstanding. The Series G preferred stock does not have voting rights, does not have rights upon liquidation of the Company and does not receive dividends.

Transfer Agent and Registrar

The Transfer Agent for our capital stock is Transhare with an address at 15500 Roosevelt Boulevard, Suite 302, Clearwater, Florida 33760. Their telephone number is Office phone: 303-662-1112.

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Recent Sales of Unregistered Securities

The following is a summary of transactions by AITX involving sales of its securities that were not registered under the Securities Act.

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