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As filed with the Securities and Exchange Commission on May 9, 2024

 

Registration No. 333-278493

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1/Amendment 1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

(Exact name of registrant as specified in its charter)

 

Nevada   3714   27-2343603
(State or jurisdiction of incorporation or organization)   (Primary Standard Industrial Classification Code Number)   (IRS Employer Identification Number)

 

10800 Galaxie Avenue

Ferndale, Michigan 48220

(877) 787-6268

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Steven Reinharz

Chief Executive Officer

10800 Galaxie Avenue

Ferndale, Michigan 48220

(877) 787-6268

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

Frederick M. Lehrer, P. A.

Frederick M. Lehrer, Esquire

2108 Emil Jahna Road

Clermont, Florida 34711

flehrer@securitiesattorney1.com

(561) 706-7646

 

Approximate date of commencement of proposed sale to the public: From time to time after the effectiveness of this registration statement.

 

If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☒

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

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 7(a)(2)(B) of the Securities Act. ☐

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant files a further amendment that specifically states that this registration statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement becomes effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

 

 

 

 
 

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission, of which this prospectus is a part, shall have been declared effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MAY 9, 2024

 

2,500,000,000 Shares of Common Stock

 

This prospectus relates to the sale by the Selling Stockholder, GHS Investments, LLC (“GHS”), of Artificial Intelligence Technology Solutions, Inc. (the “Company”) of up to 2,500,000,000) shares of common stock, par value $0.00001 per share. We will not receive proceeds from the sale of the shares by the Selling Stockholder. However, we may receive aggregate gross proceeds of up to $13.4 million from the sale of our common stock registered herein to the Selling Stockholder, pursuant to the March 22, 2023 Equity Financing Agreement entered into with GHS (the “Purchase Agreement”).

 

Our common stock is quoted on the OTC Pink under the symbol “AITX.” On May 6, 2024, the last reported sales price of our common stock on the OTC Pink was $0.0067 per share.

 

The Purchase Agreement provides that the Company may discretionarily sell to GHS up to $30,000,000 of shares (“Purchase Shares”) of the Company’s common stock upon our issuance of Purchase Notices to GHS (See “Purchase Agreement with GHS Investments, LLC” on page 1 of this prospectus for a description of the GHS Purchase Agreement). The Selling Stockholder will sell its Purchase Shares at prevailing market prices or in privately negotiated transactions, other details of the sales which are contained in the section titled “Plan of Distribution” on page 13.

 

GHS is an underwriter within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. We will bear all costs, expenses and fees in connection with the registration of the common stock. The Selling Stockholder will bear all commissions and discounts, if any, attributable to its sales of our common stock.

 

Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the risks and uncertainties described under the heading “Risk Factors” beginning on page 3 of this prospectus before making a decision to purchase our securities.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.

 

The date of this prospectus is May 9, 2024.

 

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Table of Contents

 

  PAGE
   
PROSPECTUS SUMMARY 1
   
ABOUT THE OFFERING 1
   
RISK FACTORS 3
   
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 11
   
USE OF PROCEEDS 12
   
SELLING STOCKHOLDER 12
   
PLAN OF DISTRIBUTION 13
   
DESCRIPTION OF BUSINESS 13
   
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 20
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20
   
MANAGEMENT 25
   
EXECUTIVE COMPENSATION 27
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 29
   
LEGAL MATTERS 35
   
EXPERTS 35
 
AVAILABLE INFORMATION 35
   
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1

 

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You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information from that contained in this prospectus. The Selling Stockholder is offering to sell and seeking offers to buy shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy the securities in any circumstances under which the offer or solicitation is unlawful. Neither the delivery of this prospectus nor any distribution of securities in accordance with this prospectus shall, under any circumstances, imply that there has been no change in our affairs since the date of this prospectus.

 

PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our financial statements and the related notes and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in each case included elsewhere in this prospectus.

 

Unless the context otherwise requires, references to “we,” “our,” “us,” “Artificial Intelligence” or the “Company” in this prospectus mean Artificial Intelligence Technology Solutions, Inc. and its wholly-owned subsidiaries.

 

Company Overview

 

We apply AI technology to solve enterprise problems that are expensive, repetitive, difficult to staff, and outside of the core competencies of the client organization. Our main focus is disrupting and capturing a significant portion of the global security services market, specifically the human security guard market and the physical security market. RAD solutions are unique in that they start with an AI-driven autonomous response utilizing cellular optimized communications, while easily connecting to a human operator for a manned response as needed. We use purpose-built hardware and deliver our services through RAD-developed software and cloud services allowing enterprises IT groups to focus on their core competencies.

 

Definitive Information Statement

 

On March 26, 2024, we filed a Schedule 14C Definitive Information Statement to provide notice that our Board of Directors approving the filing of a Certificate of Amendment to the Company’s Articles of Incorporation to increase its authorized common stock by two billion five hundred million (2,500,000,000) common stock shares to a total of twelve billion five hundred million (12,500,000,000) common stock shares (the “Authorized Share Increase”) and our consenting shareholder executing a written consent authorizing the Authorized Share Increase. On (date), the state of Nevada approved the Authorized Share Increase.

 

About this Offering

 

Equity Financing Agreement with GHS Investments, LLC

 

On March 22, 2023, we entered into the Equity Financing Agreement with GHS referred to herein as the “Purchase Agreement”.

 

Pursuant to the Purchase Agreement, we have the right, in our sole discretion, subject to the conditions and limitations contained therein, to direct GHS, by delivery of a purchase notice (a “Purchase Notice”) to purchase (each, a “Purchase”) over the 24 month term of the Purchase Agreement, a minimum of $10,000 and up to a maximum of $1,500,000. Puts are further limited to the Investor owning no more than 4.99% of the outstanding stock of the Company at any given time. The aggregate value of Purchase Shares sold to GHS may not exceed $30,000,000. Each Purchase Notice will set forth the Purchase Price and number of Purchase Shares in accordance with the terms of the Purchase Agreement. The maximum dollar amount of each Put will not exceed 250% of the average daily trading volume for the common stock during the 10 consecutive trading days preceding the Put Notice Date.

 

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The Purchase Price is defined in the Purchase Agreement as 80% of the Market Price. If the average Closing Price for the Common Stock during the three (3) trading days preceding a Put Notice is equal to or greater than one cent ($.01) per share, the applicable Purchase Price shall equal eighty five percent (85%) of the Market Price. Following an up-list to the NASDAQ or an equivalent national exchange by the Company, the Purchase price shall equal 90% of the lowest Volume Weighted Average Price for the Common Stock during the Pricing Period, subject to a floor of $4.50 per share, below which the Company shall not deliver a Put.

 

The Purchase Agreement prohibits GHS from purchasing any shares of common stock if those shares, when aggregated with all other shares of our common stock then beneficially owned by GHS would result in GHS having beneficial ownership, at any single point in time, of more than 4.99% of the then total outstanding shares of our common stock. There are no trading volume requirements or restrictions under the Purchase Agreement and we will control the timing and amount of any sales of its common stock to GHS.

 

We may not deliver a Purchase Notice to GHS and GHS is not obligated to purchase the Purchase Shares unless each of the following conditions are satisfied: there is an effective Registration Statement; the Common Stock is listed or quoted for trading on the Principal Market; we are not in breach of in default of the Purchase Agreement or Registration Rights Agreement; no injunction has been issued prohibiting the purchase of the or the issuance of the Securities; and the issuance of the Securities does not violate the Principal Market requirements.

 

The Purchase Agreement is for a term of twenty four months but may terminate earlier on the date that GHS has purchased the aggregate Offering Amount of $30,000,000 of the Purchase Shares that are sold to GHS. We and GHS each have the right to terminate the Purchase Agreement at any time upon thirty days-notice. The Purchase Agreement will be suspended and remain suspended if any of the following events occur: if our Common Stock is suspended by the applicable authority, our Common Stock ceases to be quoted; we breach a representation, warranty, covenant in the Purchase Agreement;, and upon the occurrence of bankruptcy proceedings by or against us.

 

Subject to the foregoing, actual sales of Purchase Shares to GHS under the Purchase Agreement will depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by us as to the appropriate sources of funding for our operations.

 

April 29, 2024 Securities Purchase Agreement with GHS

 

On April 29, 2024, we completed a Securities Purchase Agreement with GHS, which provides for GHS’ purchase of 300 Shares of our Convertible Redeemable Series B Preferred Shares for a total purchase price of $300,000 with net proceeds of $290,000. In addition as a commitment fee the Company issued an additional 20 Series B Convertible, Redeemable Preferred Shares. The shares have a redemption value of $1,200 per share. The Company must redeem one third of these shares or 106 2/3 for $108,000 in 30, days and each 30 days thereafter until all the shares are redeemed at 90 days. The Company must pay an 8% dividend from issue date to redemption date. Each holder may, at any time and from time to time convert all, but not less than all, of their shares of Series B Convertible, Redeemable Preferred Stock into a number of fully paid and nonassessable shares of common stock determined by dividing the redemption value by the Conversion Price. The Conversion price is equal to the lower of (1) a fixed price equaling the closing bid price of the Common Stock on the trading day immediately preceding the date of the acquisition of the shares and (2) the lowest traded price of the Common Stock during the ten (10) calendar days immediately preceding, but not including, the Conversion Date. Following an event of default,” as defined in the Purchase Agreement, the Conversion price shall equal the lower of: (a) the then applicable Conversion Price; or (b) a price per share equaling eighty five percent (85%) of the lowest traded price for the Company’s common stock during the fifteen (15) Trading Days immediately preceding, but not including, the Conversion Date.

 

Prior Issuances with GHS

 

From July 11, 2023 to April 7, 2024, we issued 3,478,774,156 common stock shares to GHS.

 

Agreement with JH Darbie & Company

 

September 24, 2023 Placement Agent Agreement

 

We have a September 24, 2023 Placement Agreement with JH Darbie & Company (“Darbie”) to introduce third party investors to us for which we are obligated to pay Darbie: (a) upon consummation of the closing of a financing on our behalf, a finder’s fee in cash equal to 8% of the gross proceeds of an equity/convertible security (4% of for Equity Lines of Credit) and/or cash equal to 3% of the gross proceeds of a non-convertible debt transaction; (b) pay Darbie non-callable warrants equal to 8% warrant coverage of the amount raised (0% warrant coverage for Equity Lines of Credit. In conjunction with (b), the warrants will entitle the holder to purchase our securities at a purchase price equal to 120% of the introduced party’s exercise price of the transaction or the public market closing price of our common stock on the date of the transaction, whichever is lower.

 

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RISK FACTORS

 

Risks Related to Our Business

 

Our business is at an early stage, and we have not yet generated any profits.

 

RAD I, our primary operating subsidiary, was formed in 2016 and made its first sale in 2016. Accordingly, we have a limited operating history upon which to evaluate its performance and prospects. Our current and proposed operations are subject to all the business risks associated with young enterprises. These include likely fluctuations in operating results as we make significant investments in research, development and product opportunities, we react to developments in our market, including purchasing patterns of customers, and the entry of competitors into the market. We cannot assure you that we will generate enough revenue to be profitable in the next three years or at all, which could lead to a loss of part or all of an investment.

 

Our auditor has expressed substantial doubt about our ability to continue as a going concern.

 

Our financial statements of which this prospectus is a part have been prepared on a going concern basis. We may be unable to generate profitable operations in the future and/or obtain the necessary financing to meet our obligations and pay liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty at this time. These factors raise substantial doubt that we will be able to continue as a going concern. Our financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

 

Our financial results will fluctuate in the future, which makes them difficult to predict.

 

Our financial results may fluctuate in the future. Additionally, we have a limited operating history with the current scale of our business, which makes it difficult to forecast future results. As a result, you should not rely upon our past financial results as indicators of future performance. In addition, you should take into account the risks and uncertainties frequently encountered by rapidly growing companies in evolving markets. Our financial results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including, but not limited to the following:

 

  our ability to maintain and grow our client base;
     
  clients suffering downturns, financial instability or becoming subject to mergers or acquisitions;
     
  our ability to develop and introduce new products and the ability of our competitors to do the same;
     
  our ability to maintain gross margins and operating margins;
     
  increases in marketing, sales, service and other operating expenses incurred in expanding our operations and remaining competitive;
     
  changes affecting our suppliers and other third-party service providers;
     
  adverse litigation judgments, settlements, or other litigation-related costs; and
     
  changes in business or macroeconomic conditions, including regulatory changes.

 

We have a limited number of deployments and our success depends on an unproven market.

 

The market for advanced physical security technology is relatively new and unproven and is subject to risks and uncertainties. In order to grow our business and extend our market position, we will need to place into service additional robots, expand our service offerings, and expand our presence. Our ability to expand the market for our products depends on a number of factors, including the cost, performance and perceived value associated with our products and services. Furthermore, the public’s perception of the use of robots to perform tasks traditionally reserved for humans may negatively affect demand for our products and services. Ultimately, our success will depend largely on our customers’ acceptance that security services can be performed more efficiently and cost effectively through the use of our robots and ancillary services, of which there can be no assurance.

 

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We cannot assure you that we can effectively manage our growth.

 

Our business growth and expansion and additional products, which create significant challenges for our management, operational, and financial resources, including managing multiple relationships and interactions with users, distributors, vendors, and other third parties. As we continue to grow, our information technology systems, internal management processes, internal controls and procedures and production processes may be inadequate to support our operations. To ensure success, we must continue to improve our operational, financial, and management processes and systems and to effectively expand, train, and manage our employee base. As we implement more complex organizational and management structures consistent with our growth, we may find it increasingly difficult to maintain the benefits of our corporate culture, including our current team’s efficiency and expertise, which could negatively affect our business performance.

 

Our costs may grow more quickly than our revenues, harming our business and profitability.

 

We expect our expenses to continue to increase in the future as we expand our product offerings, expand production capabilities and hire additional employees. We expect to continue to incur increasing costs, in particular for working capital to purchase inventory, marketing and product deployments as well as costs associated with customer support in the field. Our expenses may be greater than we anticipate which would have a negative impact on our financial position, assets and ability to invest further in the growth and expansion of our business.

 

The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business.

 

We depend on the continued services and performance of key members of the management team, in particular, founder and Chief Executive Officer, Steven Reinharz, Chief Financial Officer, Anthony Brenz, and RAD I Chief Executive Officer, Mark Folmer. While we currently have employment agreements with Messrs. Reinharz and Brenz, we do not have any employment agreements in place with our other officers. If we cannot call upon Messrs. Reinharz and Mr. Brenz or Mark Folmer or other key management personnel for any reason, our operations and development could be harmed. We have not yet developed a succession plan. Furthermore, as we grow, we will be required to hire and attract additional qualified professionals such as accounting, legal, finance, production, service and engineering experts. We may be unable to locate or attract qualified individuals for such positions, which will affect our ability to grow and expand our business.

 

Because our Board of Directors does not currently have an audit committee, compensation committee, nomination committee, or any other form of corporate governance committee, shareholders will have to rely on our only director, who is not independent, to perform these functions.

 

We do not have an audit committee, compensation committee, nomination committee, or any form of corporate governance committees that includes any independent members. Instead, the Board of Directors performs these functions as a whole. As a result, we do not receive the independent advice of other persons.

 

If we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished and our business may be adversely affected.

 

We rely and expect to continue to rely on a combination of confidentiality agreements with its employees, consultants, and third parties with whom it has relationships, as well as trademark, copyright, patent, trade secret, and domain name protection laws, to protect its proprietary rights. As of the date of this report, there are no patents filed on our behalf. We plan to file various applications in the United States for protection of certain aspects of its intellectual property. However, third parties may knowingly or unknowingly infringe our proprietary rights, may challenge proprietary rights held by us, and pending and future trademark and patent applications may not be approved. In addition, effective intellectual property protection may not be available in every country in which we intend to operate in the future. In any or all of these cases, we may be required to expend significant time and expense in order to prevent infringement or to enforce our rights. Although we plan to take measures to protect our proprietary rights, there can be no assurance that others will not offer products or concepts that are substantially similar to those offered through RAD I and compete with our business. If the protection of our proprietary rights is inadequate to prevent unauthorized use or appropriation by third parties, the value of our brand and other intangible assets may be diminished, and competitors may be able to more effectively mimic our service and methods of operations. Any of these events could have a material adverse effect on our business and financial results.

 

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Economic factors generally may negatively affect our operations.

 

We are subject to the general risks of the marketplace where we conduct business. Our results of operations will depend on a number of factors over which we have no control, including changes in general economic or local economic conditions, changes in supply of or demand for similar and/or competing products and services, and changes in tax and governmental regulations that may affect demand for such products and services. Any significant decline in general economic conditions or uncertainties regarding future economic prospects that affect industrial and consumer spending could have a material adverse effect on our business. For these and other reasons, no assurance of profitable operations can be given.

 

General political, social and economic conditions can adversely affect our business.

 

Demand for our products and services depends, to a significant degree, on general political, social and economic conditions in our markets. Worsening economic and market conditions, downside shocks, or a return to recessionary economic conditions could serve to reduce demand for our products and services and adversely affect our operating results. In addition, an economic downturn could impact the valuation and collectability of certain long-term receivables held by us. Additionally, the global economy and financial markets may be adversely affected by geopolitical events, including the current or anticipated impact of military conflict and related sanctions imposed on Russia by the United States and other countries due to Russia’s recent invasion of Ukraine.

 

Our businesses may be materially adversely affected by the recent coronavirus (COVID-19) outbreak or the related market decline and volatility.

 

On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (“COVID-19”) a “Public Health Emergency of International Concern.” On March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. The significant outbreak of COVID-19 has resulted in a widespread health crisis that adversely affected economies and financial markets worldwide during 2020 and 2021, including the businesses which we operate and own a percentage of. The recent market decline and volatility in connection with the COVID-19 pandemic could also materially and adversely affect any future potential acquisitions. Furthermore, with restrictions on travel, the limited ability to have meetings with personnel, vendors and services providers are expected to have an adverse effect on our businesses. While we expect the effects of the pandemic to negatively impact our results from operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time. We have experienced customer delays and extensions for projects, supply chain delays, furloughs of personnel, increased utilization of telework, increased safety protocols to address COVID-19 risks, decreased installations and other impacts from the COVID-19 pandemic. We have experienced workforce shortages in connection with the COVID-19 pandemic. Our ability to attract and retain additional employees may limit its ability to grow across its businesses.

 

We are proactively working to adjust our operations to properly reflect the market environment during the immediate pandemic while maintaining sufficient resources for the expected rebound later this year. The extent to which COVID-19 impacts our businesses will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our operations may be materially adversely affected.

 

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The future reoccurrence of the COVID-19 pandemic could adversely affect our business, financial condition and results of operations.

 

A future COVID-19 pandemic, including the emergence of variants for which vaccines may not be effective, may negatively affect our business by causing or contributing to, among other things:

 

  Higher shipping costs and longer shipping times, especially for shipments from China and Europe;
     
  Limited access to parts needed for our products due to the ongoing issues with global chip supply, which may affect our ability to meet our production goals;
     
  Higher labor costs due to a diminished supply of potential employees and higher employee recruitment and retention costs; and
     
  Disruptions in production due to employees becoming ill from Covid.

 

The extent of COVID-19’s effect on our operational and financial performance in the future will depend on future developments, including the duration, spread and intensity of the pandemic, our continued ability to manufacture and distribute our products, any future government actions affecting consumers and the economy generally, changing economic conditions and any resulting inflationary impacts, as well as timing and effectiveness of global vaccines, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. Although the potential effects that COVID-19 may continue to have on us are not clear, these effects could materially adversely affect our business, financial condition and results of operations.

 

Our business is subject to data security risks, including security breaches.

 

Our products employ technologies that are subject to various data security risks including security breaches and hacking, and we cannot guarantee that our products may not be negatively affected by these risks causing them to suffer damages. We use wireless data carrier providers to transmit data and information of all kinds, and those wireless providers may suffer security breaches that release our confidential information. The occurrence of the foregoing may damage our brand and increase our costs. Any of these events or circumstances could materially adversely affect our business, financial condition, and results of operations.

 

Our business success depends on large part on the success of our efforts to lease our products through dealerships.

 

Although we engage in some direct sales to potential customers, our primary focus is on leasing its robots to end-users through dealers that market to firms providing security guard and integrated security services. We believe our model based on partnerships with these dealers is valuable and currently has such partnerships with over twenty dealers, with plans to sign on additional dealers. However, there can be no assurance that we can successfully secure agreements with dealerships for the use of our products, which could materially impair our sales, financial condition, and business prospects.

 

We currently face competition and may face additional competition in the future; if we are unable to compete effectively, our business prospects and operations would be harmed.

 

RAD I’s re-entry into the mobile security robotics market presents us with two potential competitors. Knightscope, Inc., states that it has available one outdoor security robot called the ‘K5’ and has another outdoor robotic device under development, the ‘K9’. Cobalt Robotics Inc., offers an indoor robotic device that is designed to perform various security functions. Although either or both of these companies may create direct competition to RAD I’s products, neither of these companies has a mobile robot that performs the breadth of duties that can be performed by ROAMEO. We are also aware of other companies that are already active in our industry and other companies that are developing physical security technology in the U.S. and abroad that may potentially compete with our technology and services. These, or additional new, competitors may have more resources than we do or may be better capitalized, which may give them a significant advantage because they may be able to offer better pricing, survive an economic downturn or reach profitability compared with us. We cannot guarantee that we will be able to compete successfully against existing or emerging competitors. In addition, existing private security firms may also compete on price by lowering their operating costs, developing new business models or providing other incentives. We cannot give any assurance that we can adequately compete with existing or new competitors, and additional attempts to compete could lead us to expend additional funds toward our marketing efforts and further adversely affect our business operations.

 

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Our ability to operate and collect digital information on behalf of our clients is dependent on the privacy laws of jurisdictions in which our machines operate, as well as the corporate policies of our clients, which may limit our ability to fully deploy our technologies in various markets.

 

Our robots collect, store, and analyze certain types of personal or identifying information regarding individuals that interact with the machines. While we maintain stringent data security procedures, the regulatory framework for privacy and security issues is rapidly evolving worldwide and is likely to remain uncertain for the foreseeable future. Federal and state government bodies and agencies have in the past adopted, and may in the future adopt, laws and regulations affecting data privacy, which in turn affect the breadth and type of features that we can offer to our clients. In addition, our clients have separate internal policies, procedures and controls regarding privacy and data security with which we may be required to comply. Because the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted or applied in a manner that is inconsistent with our current data management practices or the features of our products. If so, in addition to the possibility of fines, lawsuits and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our products, which could have an adverse effect on our business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, regulations, and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of our clients may limit the use and adoption of, and reduce the overall demand for, our products. Privacy and data security concerns, whether valid or not valid, may inhibit market adoption of our products, particularly in certain industries and foreign countries. If we are not able to adjust to changing laws and regulations, our business may be harmed.

 

Our success depends on the growth of our industry, most specifically on the growing adoption and use of physical security technology in general and the adoption and use of our products.

 

The market for our products and for physical security technology in general is relatively new and unproven and is subject to many risks and uncertainties. Our ability to gain growing market acceptance and adoption of our products depends on the market’s acceptance of physical security technology in general. If we are unable to increase acceptance of our products, and if the market for physical security technology generally does not develop as we hope, we will not be able to sell our products, which would adversely affect our financial performance.

 

Risks Related to our Securities

 

An investment in our securities is extremely speculative, and there can be no assurance of any return on the investment.

 

An investment in our securities is extremely speculative, and there is no assurance that investors will obtain any return on their investment. Investors will be subject to substantial risks, including the risk of losing their entire investment in our securities. For example, the market price of our common stock is subject to significant fluctuations in response to variations in our quarterly operating results, general trends in the market and other factors, many of which we have little or no control over. In addition, broad market fluctuations, as well as general economic, business and political conditions, may adversely affect the market for our common stock, regardless of our actual or projected performance.

 

Our common stock shareholders do not have voting control over us due to the rights granted to holders of our Series E Convertible Preferred Stock.

 

Steven Reinharz, our Chief Executive Officer, is currently the holder of all 3,350,000 shares of our Series E Convertible Preferred Stock. The Series E Convertible Preferred Stock holds 2/3rds of the voting power of all shareholders at any time that corporate action requires a vote of shareholders. As a result, holders of common stock do not have voting control over the Company.

 

Because we are a “smaller reporting company,” we may take advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less information than they would receive from a public company that is not a smaller reporting company.

 

We are a “smaller reporting company” as defined in the Exchange Act. As a smaller reporting company, we may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or(ii) our annual revenue is less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. To the extent we take advantage of any reduced disclosure obligations, it may make it harder for investors to analyze our results of operations and financial prospectus in comparison with other public companies.

 

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To fund our operations, we may conduct further offerings in the future, in which case our common stock may be diluted.

 

To fund our business operations, we anticipate continuing to rely on sales of its securities, which may include common stock, preferred stock, convertible debt and/or warrants convertible or exercisable into shares of common stock. Common stock may be issued in return for additional funds or upon conversion or exercise of outstanding convertible debentures or warrants. If additional common stock is issued, the price per share of the common stock could be lower than the price paid by existing holders of common stock, and the percentage interest of those shareholders will be lower. This result is referred to as “dilution,” which could result in a reduction in the per share value of your shares of common stock. Our failure or inability to raise capital when needed or on terms acceptable to us and our shareholders could have a material adverse effect on our business, financial condition and results of operations and would also have a negative adverse effect on the price of our common stock.

 

We have and may in the future utilize debt financing to fund our operations.

 

If we undertake debt financing to fund our operations, the financing may involve significant restrictive covenants. In addition, there can be no assurance that such financing will be available on terms satisfactory to us, if at all. Our failure or inability to obtain financing when needed or on terms acceptable to us and our shareholders could have a material adverse effect on our business, financial condition and results of operations and would also have a negative adverse effect on the price of our common stock.

 

The trading price of our common stock may fluctuate significantly.

 

Volatility in the trading price of shares of our common stock may prevent shareholders from being able to sell shares of common stock at prices equal to or greater than their purchase price. The trading price of our common stock could fluctuate significantly for various reasons, including:

 

  our operating and financial performance and prospects;
     
  our quarterly or annual earning or those of other companies in the same industry;
     
  sales of our common stock by our management;
     
  public reaction to our press releases, public announcements and filing with the SEC;
     
  changes in earnings estimates or recommendations by research analysts who track common stock or the stock of other companies in the same industry;
     
  strategic actions by us or our competitors;
     
  new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
     
  changes in accounting standards, policies, guidance, interpretations or principles; and
     
  changes in general economic conditions in the U.S. and in global economies and financial markets, including changes resulting from war or terrorist incidents.

 

In addition, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a substantial impact on the trading price of securities issued by many companies. The changes frequently occur irrespective of the operating performance of the affected companies. As a result, the trading price of our common stock could fluctuate based upon factors that have little or nothing to do with our business.

 

Because we are a small company with a limited operating history, holders of common stock may find it difficult to sell their stock in the public markets.

 

The number of persons interested in purchasing our common stock at any given time may be relatively small. This situation is attributable to a number of factors. One factor is that we are a small company that is still relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume. Another factor is that, even if we came to the attention of these persons, they tend to be risk-averse and would likely be reluctant to follow an unproven company such as ours. Furthermore, many brokerage firms may not be willing to effect transactions in our securities, including our common stock. As a consequence, there may be periods when trading activity in our common stock is minimal or even non-existent, as compared to trading activity in the securities of a seasoned issuer with a large and steady volume of trading activity. We cannot give you any assurance that an active public trading market for our common stock or other securities will develop or be sustained, or that, if developed, the trading levels will be sustained.

 

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Our shares of common stock are subject to the SEC’s “penny stock” rules that limit trading activity in the market, which may make it more difficult for holders of common stock to sell their shares.

 

Penny stocks are generally defined as equity securities with a price of less than $5.00. Because our common stock trades at less than $5.00 per share, we are subject to the SEC’s penny stock rules that require a broker-dealer to deliver extensive disclosure to its customers before executing trades in penny stocks not otherwise exempt from the rules. The broker-dealer must also provide its customers with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, and provide monthly account statements showing the market value of each penny stock held by the customer. Under the penny stock regulations, unless the broker-dealer is otherwise exempt, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction before the sale. As a general rule, an individual with a net worth over $1,000,000 or an annual income over $200,000 individually or $300,000 together with his or her spouse, is considered an accredited investor. The additional burdens from the penny stock requirements may deter broker-dealers from effecting transactions in our securities, which could limit the liquidity and market price of shares of our common stock. These disclosure requirements may reduce the trading activity of our common stock, which may make it more difficult for shareholders of our common stock to resell their securities.

 

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted Rule 2111 that requires a broker-dealer to have reasonable grounds for believing that an investment is suitable for a customer before recommending the investment. Before recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell shares of common stock and may have an adverse effect on the market for our securities.

 

We do not anticipate paying dividends in the future.

 

We have never declared or paid any cash dividends on our common stock. Our current policy is to retain earnings to reinvest in our business. Therefore, we do not anticipate paying cash dividends in the foreseeable future. Our dividend policy will be reviewed from time to time by our Board of Directors in the context of its earnings, financial condition and other relevant factors. Until we pay dividends, which we may never do, the holders of shares of common stock will not receive a return on those shares unless they are able to sell those shares at the desired price, if at all, of which there can be no assurance. In addition, there is no guarantee that our common stock will appreciate in value or even maintain the price at which holders purchased their common stock.

 

We will continue to incur significant costs to ensure compliance with United States corporate governance and accounting requirements.

 

We will continue to incur significant costs associated with our public company reporting requirements, including costs associated with applicable corporate governance requirements such as those required by the Sarbanes-Oxley Act of 2002, and with other rules issued or implemented by the SEC. We expect all of these applicable rules and regulations will result in significant legal and financial compliance costs and to make some activities more time consuming and costly. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 

Our business is at an early stage, and we have not yet generated any profits.

 

RAD I, our primary operating subsidiary, was formed and made its first sale in 2016. Accordingly, we have a limited operating history upon which to evaluate its performance and prospects. Our current and proposed operations are subject to all the business risks associated with young enterprises. These include likely fluctuations in operating results as we makes significant investments in research, development and product opportunities, and reacts to developments in its market, including purchasing patterns of customers, and the entry of competitors into the market. We cannot assure you that we will generate enough revenue to be profitable in the next three years or at all, which could lead to a loss of part or all of an investment in us.

 

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Due to his ownership of Series E Preferred Stock, our Chief Executive Officer has voting rights equal to 66-2/3% of the voting rights held by all of our outstanding capital stock, giving him substantial control over our business and affairs and creating actual or potential conflicts of interests between his interests and the interests of the shareholders.

 

Our Chief Executive Officer holds 3,350,000 shares of Series E Preferred Stock. Because the Series E Preferred Stock has voting rights equal to 66-2/3% of the voting rights held by all of our outstanding capital stock, he has voting control over any matter to be voted upon by the shareholders of the Company, allowing him to exercise substantial control over our business and affairs. Moreover, his ownership of the Series E Preferred Stock creates the potential for conflicts of interest between his interests and the interests of the shareholders holding junior shares, including those holding common shares.

 

The Chief Executive Officer’s ownership of Series F Preferred Stock permits him to convert the Series F Preferred Shares into a multiple of shares of the then-outstanding common stock. Any such conversion of his Series F Preferred Shares would cause substantial dilution of the shares of common stock held by our common stock shareholders.

 

The Chief Executive Officer owns 2,450 shares of Series F Preferred Stock. The Series F Preferred Stock is convertible at the option of the holder into a multiple of the then-outstanding shares of common stock. The Chief Executive Officer’s conversion of shares of Series F Preferred Stock into common stock would substantially dilute the outstanding shares of common stock held by the common stock shareholders.

 

RISKS RELATED TO THE EQUITY FINANCING AGREEMENT WITH GHS

 

Should GHS sell the ____ shares being registered herein or some lesser material amount pursuant to the Equity Financing Agreement and/or the Securities Purchase Agreement, , sales of our Shares into the open market may cause material decreases in our stock price and decrease the percentage ownership of shares held by our other  shareholders.

 

The one billion shares of our common stock that are being registered herein may be sold into the market by GHS, thereby causing dilution of the shares and material  stock price declines.  Additionally, the respective percentage ownership held by each of our shareholders will materially decrease as a result of GHS sale of one billion shares  or a lesser material share amount.

 

Funding from the Purchase Agreement and the Securities Purchase Agreement may be limited or insufficient to fund our operations or to implement our strategy.

 

Under our Purchase Agreement with GHS, upon effectiveness of the registration statement of which this prospectus is a part, and subject to other conditions, we may direct GHS to purchase up to 6,000,000,000 shares of our common stock over a 24-month period. Under our Securities Purchase Agreement with GHS. Factors may negatively affect the amount of proceeds we receive, including our share price, discount to market, and other factors relating to our common stock.

 

There can be no assurance that we will be able to receive all or any of the total commitment from GHS because the Purchase Agreement contains certain limitations, restrictions, requirements, conditions and other provisions that could limit our ability to cause GHS to buy common stock from us. For instance, we are prohibited from issuing a Draw Down Notice if the amount requested in such Draw Down Notice exceeds the Maximum Draw Down Amount, or the sale of Shares pursuant to the Draw Down Notice would cause us to sell or GHS to purchase an aggregate number of shares of our common stock which would result in beneficial ownership by GHS of more than 4.99% of our common stock (as calculated pursuant to Section 13(d) of the Exchange Act and the rules and regulations thereunder). Moreover, there are limitations with respect to the frequency with which we may provide Draw Down Notices to GHS under the Purchase Agreement. Also, as discussed above, there must be an effective registration statement covering the resale of any Shares to be issued pursuant to any draw down under the Purchase Agreement, and the registration statement of which this prospectus is a part, which covers the resale of up to 6,000,000,000 shares that may be issuable pursuant to draw downs under the Purchase Agreement.

 

The extent to which we rely on GHS as a source of funding will depend on a number of factors, including the amount of working capital needed, the prevailing market price of our common stock and the extent to which we are able to secure working capital from other sources. If obtaining sufficient funding from GHS were to prove unavailable or prohibitively dilutive, we would need to secure another source of funding. Even if we sell all 16000,000,000 shares of common stock under the Purchase Agreement with GHS, we will still need additional capital to fully implement our current business, operating plans, and development plans.

 

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You may experience future dilution as a result of this offering or future equity offerings.

 

We are registering for resale one billion shares that we may sell to GHS under the Purchase Agreement, which GHS may sell in the open market or in private transactions. Sales of our common stock shares under the Purchase Agreement may cause the material declines in the trading price of our common stock.

 

The Selling Stockholder will pay less than the then-prevailing market price for our common stock.

 

The common stock to be issued to Selling Stockholder GHS pursuant to the Purchase Agreement will be purchased at a discount to the closing price of the shares of our common stock during the applicable pricing period. The Selling Stockholder has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If GHS sells the shares, the price of our common stock could decrease. If our stock price decreases, GHS may have a further incentive to sell the shares of our common stock that it holds. These sales may have a further impact on our stock price.

 

We may use the net proceeds from sales of our common stock to GHS pursuant to the EFA in ways with which you may disagree.

 

We intend to use the net proceeds from sales of our common stock to GHS pursuant to the Purchase Agreement for working capital and general corporate purposes. As of the date of this prospectus, we cannot specify with certainty all of the particular uses of the proceeds from sales of common stock to GHS pursuant to the Purchase Agreement. Accordingly, we will have significant discretion in the use of the net proceeds of sales of common stock to GHS pursuant to the Purchase Agreement. It is possible that we may allocate the proceeds differently than investors in this offering desire or that we will fail to maximize our return on these proceeds. We may, subsequent to this offering, modify our intended use of the proceeds from sales of common stock to GHS pursuant to the Purchase Agreement to pursue strategic opportunities that may arise, such as potential acquisition opportunities. You will be relying on the judgment of our management with regard to the use of the net proceeds from the sales of common stock to GHS pursuant to the Purchase Agreement, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. Any failure to apply the proceeds from sales of common stock to GHS pursuant to the Purchase Agreement effectively could have a material adverse effect on our business and cause a decline in the market price of our common stock.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.

 

In some cases, you can identify forward-looking statements by terminology, such as “expects”, “anticipates”, “intends”, “estimates”, “plans”, “potential”, “possible”, “probable”, “believes”, “seeks”, “may”, “will”, “should”, “could” or the negative of such terms or other similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus.

 

You should read this prospectus and the documents that we reference herein and have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus, and particularly our forward-looking statements, by these cautionary statements.

 

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USE OF PROCEEDS

 

We will not receive any proceeds from the sale of common stock offered by the Selling Stockholder. However, we will receive proceeds from the sale of our common stock to Selling Stockholder pursuant to the Financing Agreement. The proceeds from our exercise of the Put right pursuant to the Financing Agreement will be used for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for such other corporate purposes as the Board deems to be in our best interests. As of the date of this prospectus, we cannot specify with certainty all of the particular uses, and the respective amounts we may allocate to those uses, for the proceeds we may receive. Accordingly, we will have broad discretion in the way that we use these proceeds.

 

SELLING STOCKHOLDER

 

This prospectus relates to the resale from time to time by the selling stockholder identified herein of up to an aggregate of one billion shares of our common stock.

 

The Purchase Shares are being registered to permit public sales of such securities, and the selling stockholder may offer the Purchase Shares for resale from time to time pursuant to this prospectus. The selling stockholder may also sell, transfer or otherwise dispose of all or a portion of their Purchase Shares in transactions exempt from the registration requirements of the Securities Act or pursuant to another effective registration statement covering the sale of such securities.

 

The following table sets forth, based on information provided to us by the selling stockholder or known to us, the name of the selling stockholder, and the number of shares of our common stock beneficially owned by the selling stockholder before and after this offering. The number of shares owned are those beneficially owned, as determined under the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares of common stock as to which a person has sole or shared voting power or investment power and any shares of common stock that the person has the right to acquire within 60 days through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement. The selling stockholder is not a broker-dealer or an affiliate of a broker-dealer. The selling stockholder has not had any material relationship with us or any of our predecessors or affiliates within the past three years.

 

We have assumed all of the Purchase Shares reflected offered hereunder will be sold from time to time in the offering covered by this prospectus. Because the selling stockholder may offer all or any portions of the Purchase Shares listed in the table below, no estimate can be given as to the amount of those Purchase Shares covered by this prospectus that will be held by the selling stockholder upon the termination of the offering.

 

GHS will be deemed to be an underwriter within the meaning of the Securities Act. Any profits realized by the selling stockholder may be deemed to be underwriting commissions.

 

Selling Stockholder 

Number of Shares

Beneficially

Owned Prior to

Offering

  

Maximum

Number of

Shares Offered

  

Number of

Shares owned

After Offering

  

Percentage of

Shares Owned

After Offering

 
GHS Investments, LLC                                 0*        0*

 

* The Maximum Number of Shares Offered is comprised of: (a) (  ) shares being registered herein with respect to the Equity and Financing Agreement. Assumes that all of the Purchase Shares held by the selling stockholder covered by this prospectus are sold and that the selling stockholder acquires no additional shares of common stock before the completion of this offering. However, as the selling stockholder can offer all, some, or none of their Purchase Shares, no definitive estimate can be given as to the number of Purchase Shares that the selling stockholders will ultimately offer or sell under this prospectus. Mark Grober exercises dispositive power over the shares. The address of GHS is 420 Jericho Turnpike, Suite 102, Jericho, NY 11753.

 

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PLAN OF DISTRIBUTION

 

The selling stockholder may, from time to time, sell any or all of its shares of our common stock on OTC Pink or any other stock exchange, market officers existing as of the time of such repeal or modification trading facility on which the shares of our common stock are traded, or in private transactions. These sales may be at fixed prices, prevailing market prices at the time of sale, at varying prices, or at negotiated prices. The selling stockholder may use any one or more of the following methods when selling shares:

 

  ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
     
  block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
     
  purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
     
  privately negotiated transactions;
     
  broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share; or
     
  a combination of any such methods of sale.

 

Additionally, broker-dealers engaged by the selling stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commissions.

 

GHS is an underwriter within the meaning of the Securities Act, and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. Any commissions received by such broker-dealers or agents, and any profit on the resale of the shares purchased by them, may be deemed to be underwriting commissions or discounts under the Securities Act. GHS has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute our common stock.

 

Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the selling stockholder. The selling stockholder may agree to indemnify any agent, dealer, or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

 

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares covered by this prospectus. We will not receive any proceeds from the resale of any of the shares of our common stock by the selling stockholder. We will receive proceeds from the sale of our common stock to GHS under the GHS Purchase Agreement. Neither the GHS Purchase Agreement with GHS nor any rights of the parties under the GHS Purchase Agreement may be assigned or delegated to any other person.

 

The Purchase Shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the Purchase Shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the Purchase Shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the selling stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling stockholder or any other person. We will make copies of this prospectus available to the selling stockholder.

 

DESCRIPTION OF BUSINESS

 

Business and Historical Overview

 

Robotic Assistance Devices, LLC was incorporated in the State of Wyoming 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”).

 

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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, we 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 over us 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 offered as a recurring monthly subscription, typically with a minimum 12-month subscription contract. RAD’s solutions are expected to earn over 75% gross margin over the life of each deployed asset when under subscription. RAD also sells units which generally limits gross margin to the 50% range. 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:

 

  1. Typical security guard-related functions such as monitoring a parking lot during and after hours and responding appropriately. This scenario applies to perimeters, interior yard areas, and related similar environments.
     
  2. Integrated hardware/software with AI-driven responses, simulating and expanding on what legacy or manned solutions could perform.
     
  3. Automation of common access control functions through technology utilizing facial recognition and machine vision, leapfrogging most legacy solutions in use today.

 

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.

 

RAD solutions are unique because they:

 

  1. Start with an AI-driven autonomous response utilizing cellular-optimized communications, while easily connecting to a human operator for a manned response, as needed.
     
  2. Use unique hardware purpose-built by RAD for delivery of these solutions. Various form factors have been customized to deliver this new functionality.
     
  3. Deliver services through RAD-developed software and cloud services, allowing enterprise IT groups to focus on core competencies instead of maintenance of complex video and security platforms.

 

 

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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AITX Subsidiaries

 

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

 

1. Robotic Assistance Devices, Inc. (RAD I) is the primary operating company of AITX. We hold the dealer and end-user contracts, employ all US employees, operates the California and Michigan facilities, and is the primary industry-facing entity of AITX. RAD I owns all intellectual property related to RADSoC™, RAD Mobile SOC™, RADGuard™, and their core operating architecture. RAD I owns everything related to AITX’s line of stationary devices and their manufacturing. RAD I also implements and services the devices.
   
2. Robotic Assistance Devices Group, Inc. (RAD G) is RAD G is an AITX subsidiary, separate from RAD I and RAD M, created for the purposes of expected future sales through a channel that is incompatible and non-competitive with RAD I’s existing channel. RAD G is focused on the development of advanced software and electronics solutions Additional solutions under development are likely to have a direct go-to-market strategy that complements RAD I’s strategy. Development efforts for these entities are highly confidential and will remain so until marketable solutions are ready to launch.
   
3. Robotic Assistance Devices Mobile, Inc. (RAD M) is RAD M is an AITX subsidiary, separate from RAD I and RAD G, created for the purposes of future developments, partnerships, and marketing in which we may engage in the future. RAD M is focused on the development of autonomous mobile devices, both ground-based and airborne.

 

Background - First Commercial Rugged Outdoor Security Robot

 

Steven 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.

 

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 2nd 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.

 

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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’

 

RAD’s pivot to SCOT and its future derivatives is complete, and RAD’s current facilities can produce a mix of up to 100 units per month with moderate additional investment in equipment and manpower.

 

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.

 

We believe 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 our success.

 

 

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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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. We expect 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 , 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 us to weather the difficult period of robot deployments and our transition to 2nd generation solutions.

 

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. We belief 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, we expect 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.

 

Prospective ROAMEO Impact

 

Our release of ROAMEO positions it as a near-competitor to Knightscope, a Palo Alto based robotics company in business since 2012. RAD’s approach is different from Knightscope’s on many elements of technology.

 

RAD expects that a small number of expected ROAMEO orders will make a substantial impact on RAD’s financial performance and create momentum for significant adoption of the entire RAD lineup.

 

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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. We believe that if RAD is ultimately deployed to only 5% of the facilities within any of these industries, we will be profitable.

 

RAD’s batch production of SCOTs & WALLYs have all been committed prior to the completion of the production cycle, with an average delivery time of 45 days. RAD has set a goal, predicated on steady demand, to reduce delivery time to 15 days.

 

RAD Industry Leadership Role

 

Steven 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 sits on the SIA’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.

 

It is expected that Steven 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 continues to focus on the creation and support of a strong dealer channel. This approach affords multiple benefits to RAD with few downsides. RAD has successfully integrated through the largest U.S. guarding company and recently signed another top-three guarding company as a RAD dealer. Furthermore, RAD has been signing up and developing mid-sized and smaller dealers. RAD is on track to establish a focused group of dealers, most of whom will exclusively represent RAD solutions.

 

Supplemental to nurturing a solid dealer channel, RAD will, under certain circumstances, accept subscriptions directly from end-users. These situations are largely characterized by the end-user not having a guarding company, having a guarding company that RAD does not want as a dealer, or other extenuating circumstances. RAD has no desired ratio of dealer vs. direct subscriptions. Dealer subscriptions remain the primary focus.

 

Competition

 

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

 

Employees

 

As of May , 7, 2024, we have a headcount of 97 fully dedicated full-time equivalents, including 46 RAD Inc. employees, 28 overseas contractors, and 23 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.

 

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:

 

SOC 2 Compliance

 

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 our stated goals of best-in-class data protection and internal processes.

 

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  Implementation of ERP (enterprise resource planning) System

 

During the fiscal year the Company made a strategic investment in state-of-the-art ERP software to optimize its business process management, production capabilities and to better serve customers. We expect to have greater visibility on sales activities, trends, lead management and sales forecasting utilizing the new ERP.

 

  Announced Strategic Alliances and Partnerships

 

We took steps to integrate its technology portfolio with other tech companies, working to bring solutions to market in a faster, more financially efficient manner. Announced alliances include:

 

March 24, 2021 - RAD to Integrate EAGL Gunshot Detection Technology into All Security Devices

https://radsecurity.com/robotic-assistance-devices-to-integrate-eagl-gunshot-detection-technology-into-all-security-devices/

 

August 19, 2021 - AITX Announces Details of Strategic Relationship with Ghost Robotics Corporation

https://radsecurity.com/aitx-announces-details-of-strategic-relationship-with-ghost-robotics-corporation/

 

  Authorized Dealers Added to Dealer Network

 

RAD has more than 40 authorized dealers 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 Securitas. The ongoing addition of authorized dealers introduces and delivers RAD products to new markets. Dealer announcement and highlights include:

 

  Discussion on Sales

 

Sales funnel growth continued throughout the fiscal year with 419 net new sales account opportunities added to the funnel. An opportunity is mostly defined as an account that is exhibiting a problem 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.

 

During the fiscal year the sales team grew to 5 full time business development managers including the senior VP of Revenue, Troy McCanna. Mr. McCanna was elevated to this role in September of 2023 and leads four sales people. These four sales people include two long-term team members that have proven their capabilities and two newer sales team members that each have over 10 years of security industry sales experience.

 

The Company recognizes that conversion rate of opportunities remains low, which is somewhat typical for new-technology companies seeking to change the paradigm of operations for existing and mature industries. Specifically the Company identifies these obstacles to shortening the sales cycle:

 

Buyer fear of deploying new technology and the perceived risks associated with trying something new. The Company is tackling this challenge with using more referrals and references from existing clients as well as additional credibility-building through existing clients and industry organizations such as ASIS (RAD’s President holds a Board seat) and SIA (AITX’ CEO holds a Board seat).

 

Compliance questionnaires can take up 18 months, slowing down final approvals. Company addresses this with packages of information related to penetration testing and cyber standards compliance and is set up to quickly turnaround detailed IT compliance questionnaires, some of which can be hundreds of detailed questions.

 

Security Director’s perceived need for ‘1 pane of glass’ and related integration challenges. The Company works through these by sharing the RAD paradigm and allowing integration with outside companies such as Immix and Milestone.

 

As of February 29, 2024, the Company had 444 devices deployed with a backlog of 116 contracted and not deployed. Deployed devices include 67 sold units, about one third of which contribute SaaS revenue with the rest scheduled to produce SaaS revenue this fiscal year.

 

In fiscal year the company forecasted new device contracts in the range between 250-1250. The final number of new device contracts was 400. These 400 new contracts and general FY2024 performance grew monthly recurring revenue by approximately 4 times.

 

Currently the company has a defined and quoted sales pipeline of 1230 units of which 70% are ROSA, 21% RIO and 8% AVA. The company expects the % of sales for this fiscal year to weigh more heavily towards RIO with over 50% of the quotes and opportunities to be RIO related. The company is expected between 800-1,200 additional RAD Inc devices to be contracted this fiscal year.

 

Additionally the company expects to sell up to 20,000 of it’s ‘RADCAM’ product from it’s RAD R subsidiary.

 

Uniformly end users and dealers report significant problems with recruiting and retaining manned labor. This fact is the primary driver of clients’ and dealers interest in RAD solutions. Management feels that the labor problem is going to increase in severity as inflationary pressures continue to drive up employee wages (making guard services more expensive) and reduce economic activity (presumably forcing companies to search out lower cost solutions to existing problems).

 

Management, based on daily conversations with clients, dealers and prospects, feels very strongly that there will be continued increasing demand for our solutions.

 

  Additional Points of Interest

 

Management expects that as volume production grows, starting with ROSA, the company can achieve significant improvements in cost of goods sold. Part of these savings will be passed to the market in the form of reduced costs. Timing is dependent on parts costs reduction and timing of improvement of production efficiencies.

 

Management has registered a portfolio of Trademarks. Management may, depending on budget and finance, seek to acquire utility patents for a few innovations that the Company feels desire patent protection and are easily defensible.

 

Management suggests that revenue from device monitoring from RAD partners could, over time, become up to 15% of company revenues. There is little to no cost associated with this revenue stream.

 

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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market for Common Stock

 

Our common stock trades on the OTC Pink under the symbol “AITX”.

 

Holders

 

As of May 7), 2024, there were approximately 34 holders of our common stock, not including shares held in “street name” in brokerage accounts, which are unknown.

 

Dividends

 

We have not declared or paid any cash dividends on its common stock and does not anticipate paying dividends for the foreseeable future.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Management Discussion and Analysis

 

Results of Operations for the year end of February 29, 2024 and February 28, 2023

 

Forward-Looking Statements

 

The following discussion of our financial condition and results of operations for the year ends ended February 29, 2024 and February 28, 2023 should be read in conjunction with our unaudited consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended February 28, 2023, as filed on June 14, 2023 with the SEC. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

Unless expressly indicated or the context requires otherwise, the terms “AITX”, the “Company”, “we”, “us”, and “our” refer to Artificial Intelligence Technology Solutions Inc.

 

Overview

 

AITX was incorporated in Florida on March 25, 2010. AITX reincorporated into Nevada on February 17, 2015. AITX’s fiscal year end is February 28 (February 29 during leap year). AITX is located at 10800 Galaxie Ave., Ferndale Michigan, 48220, and our telephone number is 877-767-6268.

 

AITX’s mission is to apply Artificial Intelligence (AI) technology to solve enterprise problems categorized as expensive, repetitive, difficult to staff, and outside of the core competencies of the client organization.

 

A short list of basic examples include:

 

  1. Typical security guard-related functions such as monitoring a parking lot during and after hours and responding appropriately. This scenario applies to perimeters, interior yard areas, and related similar environments.
     
  2. Integrated hardware/software with AI-driven responses, simulating and expanding on what legacy or manned solutions could perform.
     
  3. Automation of common access control functions through technology utilizing facial recognition and machine vision, leapfrogging most legacy solutions in use today.

 

RAD solutions are unique because they:

 

  1. Start with an AI-driven autonomous response utilizing cellular-optimized communications, while easily connecting to a human operator for a manned response, as needed.
     
  2. Use unique hardware purpose-built by RAD for delivery of these solutions. Various form factors have been customized to deliver this new functionality.
     
  3. Deliver services through RAD-developed software and cloud services, allowing enterprise IT groups to focus on core competencies instead of maintenance of complex video and security platforms.

 

We encourage everyone to ensure they have the most up to date news by visiting AITX at AITX News - AITX - Artificial Intelligence Technology Solutions.

 

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Results of Operations

 

The following table shows our results of operations for the years ended February 29, 2024 and February 28, 2023. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

   Period     
   Year Ended   Year Ended   Change 
   February 29, 2024   February 28, 2023   Dollars   Percentage 
                    
Revenues  $2,227,559   $1,331,956   $895,603    67%
Gross profit   1,096,457    653,883    442,574    68%
Operating expenses   15,085,869    13,344,563    1,741,306    13%
Loss from operations   (13,989,412)   (12,690,680)   (1,298.732)   10%
Other income (expense), net   (6,719,304)   (5,418,777)   (1,300,527)   (24)%
Net loss  $(20,708,716)  $(18,109,457)  $(2,599,259)   14%

 

The following table presents revenues from contracts with customers disaggregated by product/service:

 

   Year Ended   Year Ended   Change 
   February 29, 2024   February 28, 2023   Dollars   Percentage 
Device rental activities  $1,626,207   $754,126   $872,081    116%
Direct sales of goods and services   601,352    577,830    23,522    4%
   $2,227,559   $1,331,956   $895,603    67%

 

Revenue

 

Total revenue for the year ended February 29, 2024 was $2,227,559, which represented an increase of $895,603 compared to total revenue of $1,331,956 for the year ended February 28, 2023. Rental activities increased by $872,071 or 116%, as the Company continues to grow its product line and customer base. Direct sales grew by 4% driven by higher training revenue for the year ended February 29, 2024.

 

Gross profit

 

Total gross profit for the year ended February 29, 2024 was $1,096,457, which represented an increase of $442.574, compared to total gross profit of $653,883 for the year ended February 28, 2023. The increase is a result of the increase in revenues above, and gross profit % which was 49% for the year ended February 29, 2024 was also 49% for the prior year. The Gross profit % was stable as the increase in higher margin rental activities in the product mix, and overhead being allocated over a higher sales base was offset by a higher inventory provision for the permanent impairment in value of two products that the Company will not be continuing.in their current form

 

Operating expenses

 

Operating expenses for the years ended February 29, 2024 and February 28, 2023 comprised of the following:

 

   Period   Change 
  

Year Ended

February 29, 2024

  

Year Ended

February 28, 2023

   Dollars   Percentage 
                 
Research and development  $2,878,134   $3,625,468   $(747,334)   (21)%
General and administrative   10,525,531    8,980,709    1,544,822    17%
Depreciation and amortization   854,047    478,115    375,932    79%
Impairment on revenue earning devices   584,177    -    548,177    - 
Operating lease cost and rent   260,406    260,271    135    0%
(Gain) loss on disposal of fixed assets   (16,426)   -    (16,426)   - 
 Operating expenses  $15,085,869   $13,344,563   $1,741,306    13%

 

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Our operating expenses were comprised of general and administrative expenses, research and development, depreciation and amortization, operating lease and rent and a (gain) loss on disposal of fixed assets. General and administrative expenses consisted primarily of professional services, automobile expenses, advertising, salaries and wages, travel expenses and rent. Our operating expenses during the years ended February 29, 2024 and February 28, 2023 were $15,085,869 and $13,344,563, respectively. The overall $1,741,206 decrease in operating expenses was primarily attributable to the following changes in operating expenses:

 

  Research and development expenses decreased by $747,334 as the Company focused on current product development and spent less money on longer term projects.
     
  General and administrative expenses increased by $1,544,822 primarily due to the following changes:

 

 

For the year ended February 29, 2024 stock based compensation to CEO in equity awards was $1,521,000 with a charge of $272,599 for the Employee Stock Option Plan (ESOP) all totaling $1,793,599 compare with stock based compensation to CEO in equity awards was $499,500 with $118,500 fees paid to consultants and a charge of $ 122,050 for the ESOP all totaling $740,050 for the year ended February 28, 2023. This represents an increase of $1,053,549 in stock based compensation. The stock based compensation for the CEO is payable in Series G and has been deferred until after a year.

     
  Wages, salaries and payroll levies for the CEO increased by $731,447 in discretionary bonus charged, $537,747 of which is deferred compensation and will not be paid out this year.
     
  Wages, salaries and payroll levies for the staff decreased by $218,382 due to staff reductions early in the fiscal year.
     
 

Professional fees decreased by $117,726 due to decreases in financial reporting and consulting costs.

     
  Office expense increased by $74,476.
     
  Freight, duty and brokerage increased by $154,172 due to higher purchases in 2024.
     
  Advertising and marketing costs decreased by $179,742 as the Company reduced its promotion efforts.
     
  Bad debts expense decreased by $139,989 due to write off of uncollectible accounts in the prior year.
     
  Supplies increased slightly by $11,102.
     
  Trade shows and travel decreased by $111,752 as a result of less promotional and business travel in fiscal 2024.
     
  The remaining increases were distributed amongst other general and administrative accounts such as website design warehouse expense, repairs and maintenance, and utilities amongst others.

 

  Operating lease cost and rent increased by $135.There was a new vehicle lease and a lease for premises that expired during the current fiscal year.
     
  Depreciation and amortization increased by $375,932 due to the increase in revenue earning devices and demo devices, computer equipment, tooling ,leasehold improvements and manufacturing equipment in fixed assets.
     
  (Gain) loss on disposal of fixed assets increased by $16,426 due to a vehicle disposal in 2024 that yielded a gain.

 

  Impairment on revenue earning devices was $584,177 for the year ending February 29,2024 due to the discontinuance of two products in their present form. There was no such impairment in the prior year’s period

 

Other income (expense)

 

Other income (expense) consisted of the change of fair value of derivative instruments interest expense and gain on settlement of debt. Other income (expense) during the years ended February 29, 2024 and February 28, 2023, was ($6719,304) and ($5,418,777), respectively.

 

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The change in other income (expense) was due to the following:

 

  Change in fair value of derivative liabilities decreased by $3,595 due to the re-valuation of derivative liability on convertible notes that were converted or settled during the prior year ended February 28, 2023. At both February29, 2024 and February 28, 2023 there was no longer any convertible debt.
     
  Interest expense increased by $1,331,580. Amortization of debt discounts for the year ended February 29, 2024 of $2,384,163 compared with $1,980,033 for the year ended February 28, 2023. Interest expense was $4,011,681 for the year ended February 29, 2024 compared with $ $3,196,882 for the year ended February 28, 2023. Deferred variable payment obligation (DVPO) expense was $362,200 for the year ended February 29,2024 compared with $216,577 for the year ended February 28, 2023. Interest and debt amortization were both higher during the current year due to approximately $2 million in new debt. The increase in DVPO is related to the increase in sales.
     
  Gain on settlement of debt increased by $34,788 due to a settlement in accounts payable during the current fiscal year.

 

The Company’s loss from operations for the year ended February 29, 2024 was $13,989,412 which represented an increase in loss of $1,298,732 compared to a loss of $12,690,680 for the year ended February 28, 2023. The higher revenues and gross profit in 2024 were offset by higher operating expenses for the reasons set out above. Note that the Company had a net loss of $20.708,716 for the year ended February 29, 2024, as compared to net loss of $18,109,457 for the year ended February 28, 2023. This change is mostly attributable to an increase in other expense and an increase in general and administrative costs.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

For the year ended February 29, 2024, the Company had negative cash flow from operating activities of $12,951,743. As of February 29, 2024 the Company has an accumulated deficit of $132,962,457 and negative working capital of $18,099,085. Management does not anticipate having positive cash flow from operations in the near future. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months following the issuance of these financial statements.

 

The Company does not have the resources at this time to repay all its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business. At the same time management points to its successful history with maintaining Company operations and reminds all with reasonable confidence this will continue. Management has plans to address the Company’s financial situation as follows:

 

Management is committed to raise either non-dilutive funds or minimally dilutive funds. There is no assurance that these funds will be able to be raised nor can we provide assurance that these possible raises may not have dilutive effects. In March 2023, the Company entered into an equity financing agreement whereby an investor will purchase up to $30,000,000 of the Company’s common stock at a discount over a two-year period. There remains approximately $21 million left to issue under this arrangement. Management believes that it has the necessary support to continue operations by continuing its funding methods in the following ways : growing revenues ,through equity proceeds, and issuing non-convertible debt. Management has had many recent conversations with the Company’s primary debt holder and believes that the non-convertible debt on the balance sheet will be extended. Management notes that non-convertible debt on the books has been extended by this debt holder twice in the past and notes that this debt holder has been a strong supporter of the Company.

 

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Capital Resources

 

The following table summarizes total current assets, liabilities and working capital for the period indicated:

 

   February 29, 2024   February 28, 2023 
         
Current assets  $3,616,566   $3,438,992 
Current liabilities   21,715,651    15,070,593 
Working capital  $(18,099,085)  $(11,631,601)

 

As of February 29, 2024 and February 28, 2023, we had a cash balance of $105,926 and $939,759, respectively.

 

Summary of Cash Flows

 

   Year Ended
February 29, 2024
   Year Ended
February 28, 2023
 
         
Net cash used in operating activities  $(12,951,743)  $(12,577,395)
Net cash provided by (used in) investing activities  $4,194   $(308,402)
Net cash provided by financing activities  $12,113,716   $9,177,410 

 

Net cash used in operating activities for the year ended February 29, 2024 was $12,951,753, which included a net loss of $20,708,716, non-cash activity such as the gain on settlement of debt of ($16,426), amortization of debt discount of $2,384,163, stock based compensation of $1,793,599, reduction in right of use asset $120,131, accretion of lease liability $130,020, increase in related party accrued payroll and interest $105,101, inventory provision of $437,820, bad debts expense $42,892, depreciation and amortization of $854,047 and change in operating assets and liabilities of $1,360,189.

 

Net cash provided by (used in) investing activities.

 

Net cash provided by investing activities for the year ended February 29, 2024 was $4,194. This consisted of the purchase of fixed assets of ($22,165) ,proceeds of disposal of fixed asset of $21,000 an reimbursement of security deposit of $5,359.

 

Net cash provided by (used in) financing activities.

 

Net cash provided by financing activities was $12,113,716 for the year ended February 29, 2024. This consisted of share proceeds net of issuance costs of $10,825,895 and proceeds from loans payable $1,750,000 offset by repayments of loans payable of $408,000 and net repayments on loan payable-related party of $54,179, respectively.

 

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MANAGEMENT

 

Directors and Executive Officers

 

Our business and affairs are managed under the direction of our Board and committees of the Board. Directors serve until the next annual meeting and until their successors are elected and qualified. Officers are appointed to serve until serve at the pleasure of the Board, subject to all rights, if any, of such officer under any contract of employment. The following table presents information regarding our executive officers and directors as of the date of this prospectus(1):

 

Name   Age   Position
Steven Reinharz (1)   49   Chief Executive Officer, Secretary and Director (2)
Anthony Brenz   63   Chief Financial Officer

 

 

(1) Director as of March 2, 2021
(2) All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified.

 

There are no agreements with respect to electing directors. Except as set forth below, none of the directors held any directorships during the past five years in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of such act, or of any company registered as an investment company under the Investment Company Act of 1940.

 

Executive Officers

 

Biographical information concerning our director and executive officers listed above is set forth below.

 

Steven Reinharz. RAD was founded by Mr. Reinharz in July of 2016, and he has been continuously employed by RAD and its affiliated companies since that time. He is the holder of a majority of our capital stock. Mr. Reinharz has served as a member of the Board of Directors since March 2, 2021 and as our Chief Executive Officer, Chief Financial Officer, and Secretary of the Company since March 2, 2021 and resigned as our Chief Financial Officer as of April 26, 2021 upon Anthony Brenz’s appointment as our Chief Financial Officer. As our Chief Executive Officer and President of RAD, Mr. Reinharz leverages his extensive knowledge and interest in robotics and artificial intelligence to design and develop robotic solutions that increase business efficiency and deliver immediate and impressive cost savings. Mr. Reinharz is an active voice in both the security and artificial intelligence industries. He started and ran his own security integration company from the age of 24 to 31, becoming one of California’s leading system integrators. Mr. Reinharz later was part of a team that successfully sold an integrator to a global security firm for $42 million and has held various other security industry roles. Mr. Reinharz speaks and contributes to panels at ISC East and West, and ASIS. Mr. Reinharz is a leading member of several industry association committees, mostly through the Security Industry Association. Mr. Reinharz has called Orange County, California home since 1995, having grown up in Montreal and Toronto. He earned a dual Bachelor of Science degree in Political Science and Commercial Studies.

 

Anthony Brenz was appointed as our Chief Financial Officer on April 26, 2021. He is an accomplished senior financial and operational executive for over 20 years of experience in finance and operations, including corporate strategy, procurement and supply chain, human resources, and customer service. From April 2018 to December 2020, Anthony Brenz was the Vice President/Director Finance of AirBoss Flexible Products Company. From September 2014 to April 2018, he was the Chief Financial Officer/Vice President of Finance of Thomson Aerospace and Defense (a Parker Meggitt Company). From August 2012 to September 2014, he was the Vice President/Director of Finance of M B Aeospace US Holdings, Inc. Anthony Brenz received a Bachelor of Accountancy from Walsh College in Troy Michigan in 1989 and has been licensed as a Certified Public Accountant in Michigan since 1989.

 

There are no family relationships between any of the executive officers and directors.

 

Board Committees and Director Independence

 

Mr. Reinharz serves as director, and we do not have a separately designated audit committee, compensation committee or nominating and corporate governance committee. The functions of those committees are being undertaken by our directors. Since we do not have any independent directors and have only two directors, our directors believes that the establishment of committees of the Board would not provide any benefits to us and could be considered more form than substance.

 

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We currently have an employee director, Mr. Reinharz, but no independent directors, as such term is defined in the listing standards of The NASDAQ Stock Market, and we do not anticipate appointing additional directors in the near future.

 

Our directors are not “audit committee financial experts” within the meaning of Item 401(e) of Regulation S-K. As with most small, early stage companies, until such time that we further develop our business, achieves a stronger revenue base and has sufficient working capital to purchase directors and officer’s insurance, the Company does not have any immediate prospects to attract independent directors. When we are s able to expand our Board of Directors to include one or more independent directors, we intend to establish an Audit Committee of our Board of Directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent, and the Company is not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.

 

Procedures for Nominating Directors

 

There have been no material changes to the procedures by which security holders may recommend nominees to the Board since the most recently completed fiscal quarter. We do not have a policy regarding the consideration of any director candidates that may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our sole director established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our sole director has not considered or adopted any of these policies, as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future.

 

While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our Board will participate in the consideration of director nominees.

 

Director Qualifications

 

Steven Reinharz is our sole director and was appointed on March 2, 2021. He is the founder of our operating company, Robotic Assistance Devices, Inc. (see Steven Reinharz’ biography on page 25).

 

Code of Ethics and Business Conduct

 

We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely, and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethics.

 

Director Compensation

 

Apart from a settlement paid upon Garett Parsons resignation on June 22, 2021 totaling $265,700 no other compensation was paid for his services as a director. We reimburse our directors for all reasonable ordinary and necessary business-related expenses, but we did not pay any other director’s fees or any other cash compensation for services rendered as a director during the years ended February 28, 2023 and February 28, 2022 to any of the individuals serving on our Board during that period.

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, or written representations that no other reports were required, and to the best of our knowledge, we believe that all of our officers, directors, and owners of 10% or more of our common stock filed all required Forms 3, 4, and 5.

 

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EXECUTIVE COMPENSATION

 

The following table summarizes all compensation recorded by us in the past two fiscal years for Mr. Reinharz , our President and Chief Executive Officer , Anthony Brenz, our Chief Financial Officer and Garret Parsons our former President, Chief Executive Officer and Chief Financial Officer.

 

2024 AND 2023 SUMMARY COMPENSATION TABLE

 

Name and Principal Position  Year   Salary
or
Fees
($)
   Bonus
($)
   Stock
Awards(2)
($)
   Option
Awards
($)
   Non-Equity
Incentive Plan
Compensation
($)
   Non-Qualified
Deferred
Compensation
Earnings
($)
   All Other
Compensation
($)
   Total
($)
 
Steven Reinharz   2024    300,000    461,233    1,521,000            538,767        2,821,000 
Chief Executive Officer, Chief Financial Officer, Secretary (1)   2023    300,000    280,908    499,500                    1,080,408 
                                              
Anthony Brenz   2024    188,813    1,000        17,975            1,200    208,988 
Chief Financial Officer (1)   2023    190,000    1,500                        191,500 

 

 

 

(1) Steven Reinharz was appointed Chief Executive Officer, Chief Financial Officer and Secretary on March 2, 2021.Mr.Reinharz ceased being Chief Financial Officer on June 24, 2021 and on that date appointed Anthony Brenz as Chief Financial Officer
(2) Stock awards are payable in Series G and are included in long term liabilities as they will not be paid out in the current year.

 

Employment Agreements

 

On April 9, 2021 Mr. Reinharz entered into an employment agreement with us in connection with his service as Chief Executive Officer. The agreement began on April 9, 2021 and has a three-year term, renewable thereafter on an annual basis if neither party files a notice of termination 90 days prior to the term renewal date. The agreement provides for compensation of $240,000 base salary (to be reviewed annually by the Board of Directors) and bonuses to be granted at the discretion of the Board of Directors. In addition, we will grant stock options to Mr. Reinharz under the following conditions:

 

Award #1 Mr. Reinharz shall be granted an award of 10,000,000 million shares/options/warrants if Objective #1 is achieved. Objective #1: the price per share of our common stock has increased in value to an average of $0.30 for ten (10) days in a thirty-day trading period. For example, pursuant to our Stock Plan, if one is adopted, Mr. Reinharz may elect to exercise Award #1 on a cash or cashless basis at an exercise price of $0.15 per share/option/warrant.

 

Award #2 Mr. Reinharz shall be granted an award of 30,000,000 million shares/options/warrants if Objective #2 is achieved. Objective #2: the price per share of our Company’s common stock has increased in value to an average of $0.50 for ten (10) days in a thirty-day trading period. For example, pursuant to our Company Stock Plan, if one is adopted, Mr. Reinharz may elect to exercise Award #2 on a cash or cashless basis at an exercise price of $0.25 per share/option/warrant.

 

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On July 12, 2021 the Company and CEO amended the April 9, 2021 Employment Agreement effective July 1, 2021 whereby the following objectives and awards were added to the two existing ones:

 

Objective #3: Sales in any fiscal quarter exceed the total sales in fiscal year 2021 for the first time.
   
Award #3: Five hundred (500) shares of Series G preferred stock
   
Objective #4: One hundred fifty (150) devices are deployed in the marketplace.
   
Award #4: Two hundred fifty (250) shares of Series G preferred stock.
   
Objective #5: Year-to-date sales at any point in fiscal year 2022 exceed One Million Dollars ($1,000,000).
   
Award #5: Two hundred fifty (250) shares of Series G preferred stock.
   
Objective #6: The price per share of common stock has increased to and maintains a price of Ten Cents ($0.10) or more for ten (10) days in a thirty (30) day period.
   
Award #6: Two hundred fifty (250) shares of Series G preferred stock.
   
Objective #7: The price per share of common stock has increased to and maintains a price of Twenty Cents ($0.20) or more for ten (10) days in a thirty(30) day period.
   
Award #7: Five hundred (500) shares of Series G preferred stock.
   
Objective #8: The RAD 3.0 products are launched into the marketplace by November 30, 2022
   
Award #8: Five hundred (500) shares of Series G preferred stock
   
Objective #9 RAD receives an order for fifty (50) units from a single customer.
   
Award #9: Five hundred (500) shares of Series G preferred stock.

 

On January 31, 2024 the Company added the following Objective effective March 1, 2022:

 

Objective # 10 In any fiscal quarter, attrition , measured by loss of recurring monthly revenue does not exceed 10%
   
Award #10 Two hundred fifty (250) shares of Series G preferred stock.

 

The fair value of the first two awards was obtained through the use of the Monte Carlo method was $69,350 with a charge to stock- based compensation and a corresponding charge to paid in capital. The fair value of the remaining rewards was determined by calculating the vesting amounts of each reward and then determining for each reporting period the requisite service rendered and applying that against the cash redemption value of the number of shares of Series G issuable for each tier in the agreement. For the period ended January 31, 2022 that amount totaled $1,979,500 with a charge to stock-based compensation and a corresponding charge to incentive compensation plan payable. With the achievement of objectives 3,4,5 and 8 of the equity awards described above the CEO was granted 1,500 Series G Preferred shares which were redeemed in the reporting period for $1,500,000 in cash. As part of the grant, we are responsible for grossing up the award value and has accrued additional compensation for the estimated taxes to be paid by the executive.

 

On April 20,2021 an offer letter was agreed with Anthony Brenz for a base salary of $180,000, a discretionary quarterly bonus and future participation in the Employee Stock Option Plan. Employment commenced on April 26, 2021 and Mr. Brenz was appointed as our Chief Financial Officer on June 24, 2021. The base salary was amended to $190,000 on January 1, 2022.

 

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Outstanding Equity Awards at 2024 Fiscal Year-End

 

The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for Steven and Anthony Brenz, our sole executive officers outstanding as of February 29, 2024:

 

OPTION AWARDS  STOCK AWARDS 
Name  Number of Securities Underlying Unexercised Options (#) Exercisable   Number of Securities Underlying Unexercised Options (#) Unexercisable  

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options

(#)

  

Option Exercise Price

($)

   Option Expiration Date  Number of Shares or Units of Stock That Have Not Vested (#)   Market Value of Shares or Units of Stock That Have Not Vested ($)   Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)   Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) 
Steven Reinharz   0    10,000,000    10,000,000   $0.15   April 9, 2024   0    0    2,500   $2,500,000 
Steven Reinharz   0    30,000,000    30,000,000   $0.25   April 9, 2024                    
Anthony Brenz   0    0    4,500,000   $0.02   Sept. 1, 2027   4,500,000   $12,825           
Anthony Brenz   0    0    10,000,000   $0.02   Sept. 1, 2028   10,000,000   $28,500    0    0 

 

On April 14, 2021, the Shareholders of Series E Preferred Stock and the Board of Directors (“Board”) approved and adopted the 2021 Incentive Stock Plan (the “2021 Plan”).

 

The purpose of the 2021 Plan is to promote our success by authorizing incentive awards to retain Directors, executives, selected Employees and Consultants, and reward participants for making major contributions to our success. The 2021 Plan authorizes the granting of stock options, restricted stock, restricted stock units, stock appreciation rights and stock awards. A total of five million (5,000,000) shares of common stock may be issued under the 2021 Plan. All awards under the 2021 Plan, whether vested or unvested, are subject to the terms of any recoupment, clawback or similar policy of the Company in effect from time to time, as well as any similar provisions of applicable law, which could in certain circumstances require repayment or forfeiture of awards or any shares of stock or other cash or property received with respect to the awards, including any value received from a disposition of the shares acquired upon payment of the awards. The 2021 Plan will be administered by the Board or any Committee authorized by the Board, if applicable, which will have the sole authority to, among other things: construe and interpret the 2021 Plan; make rules and regulations relating to the administration of the 2021 Plan; select participants; and establish the terms and conditions of awards, all in accordance with the terms of the 2021 Plan. The 2021 Plan will remain in effect until April 14, 2031, unless sooner terminated by the Board. Termination will not affect awards then outstanding.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

At May 7, 2024, we had 9,943,917,383 shares of Common Stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our Common Stock as of May 7, 2024, and reflects:

 

each of our executive officers;
   
each of our directors;
   
all of our directors and executive officers as a group; and
   
each shareholder known by us to be the beneficial owner of more than 5% of our outstanding shares of Common Stock.

 

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Information on beneficial ownership of securities is based upon a record list of our shareholders. Beneficial ownership has been determined in accordance with Rule 13d-3(d)(1) under the Exchange Act. Based on the information furnished to us, the Company believes that each of the persons and entities named in the table below has sole voting and investment power with respect to all shares of Common Stock that he beneficially owns, subject to applicable community property laws, except as otherwise provided below.

 

Name 

Amount and Nature

of Beneficial

Ownership (1)

  

Percent of

Common Stock (2)

 
         
Named Executive Officers and Directors:          
Steven Reinharz (3)   33,182,377,292    74.99%
Anthony Brenz   0    0 
Mark Folmer   0    0 
           
All executive officers and directors as a group (3 persons)   33,182,277,292    74.99%
           
5% Shareholders:          
Steven Reinharz   33,182,377,292    74.99%

 

(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Beneficial ownership also includes shares of stock subject to options and warrants currently exercisable or exercisable within 60 days of the date of this table. In determining the percent of Common Stock owned by a person or entity as of the date of this proxy statement, (a) the numerator is the number of shares of Common Stock beneficially owned by the person, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of Common Stock outstanding on as of May 7, 2024, and (ii) the total number of shares that the beneficial owner may acquire upon exercise of the derivative securities. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of the shares.
   
(2) Based on 9,943,917,383 shares of Common Stock outstanding as of May 7, 2024.
   
(3) Mr. Reinharz holds (a) 2,450 shares of Series F Convertible Preferred Stock and (b) 3,350,000 shares of Series E Preferred Stock. If Mr. Reinharz converted the 2,450 shares of the Series F Convertible Preferred Stock, he would receive 33,182,377,292 shares of Common Stock, which is reported in the table as if the conversion has occurred. In addition, the outstanding 3,350,000 shares of Series E Preferred Stock held by Mr. Reinharz have a vote equal to twice the number of votes of all outstanding shares of Common Stock. As a result, Mr. Reinharz holds 2/3rds of the voting power of all shareholders at any time a corporate action requires a shareholder vote.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Transactions with Related Persons

 

Except as set out below, since the beginning of our last two fiscal years, there have been no transactions, or currently proposed transactions, in which he was or is to be a participant and the amount involved exceeds $120,000, and in which any of the following people had or will have a direct or indirect material interest:

 

Any of our directors or executive officers;
   
Any immediate family member of our directors or executive officers; and
   
Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;

 

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Related Party Transactions

 

For the years ended February 29, 2024 and February 28, 2023, the Company made net repayments of $54,179 and $0, respectively, to its loan payable-related party. At February 29, 2024, the loan payable-related party was $257,438 and $206,516 at February 28, 2023. As of February 29, 2024, included in the balance due to the related party is $140,013 of deferred salary all of which bears interest at 12%. As of February 28, 2023, included in the balance due to the related party is $108,000 of deferred salary all of which bears interest at 12%. The accrued interest included at February 29, 2024 was $32,468 (February 28, 2023- $15,660).

 

During the year ended February 28, 2023 pursuant to the amended Employment Agreement with its Chief Executive Officer the Company accrued $1,521,000 as incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional awards being met. In January 2024 the Company added an Objective 10 which required the accrual of $2,000,000. There was also a net adjustment reduction of $479,000 for objectives accrued for but not met.

 

At February 28, 2023, the balance of incentive compensation plan payable was $979,000. This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at $1,000 per share.

 

During the year ended February 29, 2024, the Company accrued $538,767 in deferred compensation for the CEO. This was in accordance with a December 2023 board action allowing for $ 1 million of discretionary compensation. The Company had already recorded $461,233 in bonus compensation. There was no deferred compensation for the year ended February 28, 2023, the Company recorded a bonus to the CEO of $280,908.

 

During the years ended February 29, 2024 and February 28, 2023, the Company was charged $2,810,839 and $3,578,981, respectively in consulting fees for research and development to a company partially owned by a principal shareholder included in research and development expenses. The principal shareholder received no compensation from this partially owned research and development company and the fees were spent on core development projects. As at both February 29, 2024 and February 28, 2023 the balance due to this company was $76,532.

 

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

On October 31, 2019, our Board of Directors approved and ratified the engagement (“Engagement”) of LJ Soldinger & Associates LLC (“LJ Soldinger”) as our new independent registered public accounting firm.

 

The following table shows the fees that were billed for the audit and other services provided by LJ Soldinger for the fiscal years ended February 29, 2024 and February 28 2023.

 

   2024 
Audit Fees  $

422,540

 
Audit-Related Fees    
Tax Fees    
All Other Fees    
Total  $422,540 

 

   2023 
Audit Fees  $298,000 
Audit-Related Fees    
Tax Fees    
All Other Fees    
Total  $298,000 

 

Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

 

Audit-Related Fees - This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category would include consultation regarding correspondence with the SEC, other accounting consulting and other audit services.

 

Tax Fees - This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

 

All Other Fees - This category consists of fees for other miscellaneous items.

 

As part of its responsibility for oversight of the independent registered public accountants, the Board has established a pre-approval policy for engaging audit and permitted non-audit services provided by our independent registered public accountants. In accordance with this policy, each type of audit, audit-related, tax and other permitted service to be provided by the independent auditors is specifically described and each such service, together with a fee level or budgeted amount for such service, is pre-approved by the Board. All of the services provided by LJ Soldinger described above were approved by our Board.

 

Our principal accountant did not engage any other persons or firms other than the principal accountant’s full-time, permanent employees.

 

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Indemnification and Limitation on Liability of Directors

 

Our Articles of Incorporation limit the liability of our directors to the fullest extent permitted by Nevada law. Nothing contained in the provisions will be construed to deprive any director of his right to all defenses ordinarily available to the director nor will anything herein be construed to deprive any director of any right he may have for contribution from any other director or other person.

 

At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification will be required or permitted. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

Committees of the Board

 

We do not currently have a standing audit, nominating, or compensation committee of the Board of Directors, or any committee performing similar functions. Our Board of Directors performs the functions of nominating and compensation committees

 

Meetings of the Board

 

During its fiscal year ended February 29, 2024, the Board, consisting of one member did not hold meetings but corporate action approvals were all approved via Unanimous Board Resolutions.

 

Code of Business Conduct and Ethics

 

We have adopted a written code of business conduct and ethics (the “Code of Ethics”). The Code of Ethics is intended to document the principles of conduct and ethics to be followed by all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. Its purpose is to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest.

 

Indemnification and Limitation on Liability of Directors

 

Our Articles of Incorporation limit the liability of our directors to the fullest extent permitted by Nevada law. Nothing contained in the provisions will be construed to deprive any director of his right to all defenses ordinarily available to the director nor will anything herein be construed to deprive any director of any right he may have for contribution from any other director or other person.

 

At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification will be required or permitted. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

DESCRIPTION OF OUR CAPITAL STOCK

 

Our Articles of Incorporation, as amended, authorizes us to issue up to 12,500,000,000 shares of common stock, $0.00001 par value per share, and 20,000,000 shares of preferred stock, $0.001 par value per share. There is only one class of common stock. There are four classes of preferred stock. See “—Preferred Stock,” below. Our board of directors may establish the rights and preferences of additional series of preferred stock from time to time.

 

Transfer Agent and Registrar

 

The transfer agent and registrar for our common stock is Transhare, Bayside Center 1, 17755 North US Highway 19, Suite 140, Clearwater, Florida 33764, Phone: (303) 662-1112.

 

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Common Stock

 

Rights of Shareholders

 

All shares of our common stock that we offer will be fully paid and nonassessable upon issuance. Holders of our common stock are entitled to one vote per share of common stock on all matters submitted to a vote of shareholders. They do not have cumulative voting rights. Electing a director requires a plurality of the votes cast by shareholders that are entitled to vote in the election. However, it should be noted that the Series E Convertible Preferred Stock has voting rights equal to twice the number of votes of all outstanding shares of capital stock; that is, the holders of Series E Convertible Preferred Stock will always have 2/3rds of our voting power. Holders of common stock are entitled to receive proportionately any dividends that may be declared by our Board of Directors, subject to any preferential dividend rights of any series of preferred stock that we may designate and issue in the future.

 

If we are liquidated or dissolved, the holders of common stock are entitled to receive a proportionate share of our net assets that are available for distribution to shareholders after the payment of all our debts and other liabilities and subject to the senior rights of the holders of Series F Convertible Preferred Stock and Series G Preferred Stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future. See “—Preferred Stock” below.

 

Nevada Law

 

Nevada law contains provisions that govern an “acquisition of controlling interest” in a Nevada corporation. The control share provisions generally provide that any person or entity that acquires 20% or more of the outstanding voting shares of a publicly held Nevada corporation in the secondary public or private market may be denied voting rights with respect to the acquired shares, unless a majority of the disinterested shareholders of the corporation elects to restore those voting rights in whole or in part. However, our securities are not subject to these control share provisions because our articles of incorporation, as permitted by Nevada law, specifically exempt us from the control share provisions.

 

In addition, Nevada law contains a provision that prevents an “ “interested stockholder” and a resident domestic Nevada corporation from entering into a business “combination,” unless certain conditions are met. Nevertheless, our articles of incorporation, as permitted by Nevada law, specifically exempt us from these “interested stockholder” provisions.

 

Preferred Stock

 

We have four series of preferred stock, none of which have voting rights on any matters other than those directly affecting the respective series:

 

Series B Convertible, Redeemable Preferred Stock

 

The board of directors has designated 5,000 shares of Series B Convertible, Redeemable Preferred Stock with a par value of $0.001 per share. As of the date of this report, there are no shares of Series B Preferred Stock outstanding. The Series B Convertible Preferred Stock are redeemable at $1,200 per share, rank in priority to common stock and common stock equivalents upon liquidation of the Company, have voting rights on a converted basis and receives quarterly dividends of 8%. Each holder may, at any time and from time to time convert all, but not less than all, of their shares of Series B Convertible, Redeemable Preferred Stock into a number of fully paid and nonassessable shares of common stock determined by dividing the redemption value by the Conversion Price. The Conversion price is equal to the lower of (1) a fixed price equaling the closing bid price of the Common Stock on the trading day immediately preceding the date of the acquisition of the shares and (2) the lowest traded price of the Common Stock during the ten (10) calendar days immediately preceding, but not including, the Conversion Date. Following an event of default,” as defined in the Purchase Agreement, the Conversion price shall equal the lower of: (a) the then applicable Conversion Price; or (b) a price per share equaling eighty five percent (85%) of the lowest traded price for the Company’s common stock during the fifteen (15) Trading Days immediately preceding, but not including, the Conversion Date. Each share of Preferred Stock shall be entitled to receive, and the Corporation shall pay, cumulative dividends of eight percent (8%) per annum, payable quarterly, beginning on the Original Issuance Date and ending on the date that such share of Preferred Share has been converted or redeemed. Dividends may be paid in cash or in shares of Preferred Stock at the discretion of the Company. Any dividends that are not paid a shall continue to accrue and shall entail a late fee, which must be paid in cash, at the rate of 14% per annum or the lesser rate permitted by applicable law which shall accrue and compound daily from the dividend payment date through and including the date of actual payment in full. On the thirtieth day following the issue date of this Preferred Stock the Company shall have the obligation to redeem one-third of the Preferred Stock outstanding for a redemption price equal to the redemption value of each such share of Preferred Stock, plus any accrued but unpaid dividends, plus all other amounts due to the Holder including, but not limited to Late Fees, liquidated damages and the legal fees and expenses of the Holder’s counsel. On the sixtieth (60th) calendar day following the date Preferred Stock is issued, the Corporation shall have the obligation to redeem one-half of the Preferred Stock then outstanding for the redemption price. On the ninetieth (90th) calendar day following the date Preferred Stock is issued, the Corporation shall have the obligation to redeem all of the Preferred Stock then outstanding for the redemption price. From the date of issuance until the date no shares of Series B Preferred Stock are issued and outstanding, unless Holders of at least 75% in Stated Value of the then outstanding shares of Preferred Stock shall have otherwise given prior written consent, the Corporation shall not, and shall not permit any of the Subsidiaries to, directly or indirectly: (a) other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom; (b) other than Permitted Liens, enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom; (c) amend its charter documents, including, without limitation, its articles of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder; (d) repay, repurchase or offer to repay, repurchase or otherwise acquire of any shares of its Common Stock, Common Stock Equivalents or Junior Securities, other than as to the Conversion Shares as permitted or required under the Transaction Documents: (e) pay cash dividends or distributions on Junior Securities of the Corporation; f) enter into any transaction with any Affiliate of the Corporation which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Corporation (even if less than a quorum otherwise required for board approval); or(g) enter into any agreement with respect to any of the foregoing.

 

Series E Convertible Preferred Stock: There are 3,350,000 shares of Series E Convertible Preferred Stock (“Series E Preferred Shares”) authorized, issued and outstanding. Despite its title, the Series E Preferred Shares have no conversion rights. Moreover, they have no dividend rights, no preemptive rights, no redemption rights, and no liquidation rights. As noted above, the Series E Preferred Shares hold voting rights equal to twice the number of votes of all outstanding shares of capital stock; that is, the holders of Series E Preferred Shares will always have 2/3rds of our voting power. The Series E Preferred Shares vote together with the common stock and not as a separate class. All of the Series E Preferred Shares are held by Steven Reinharz.

 

The Series E Preferred Shares must unanimously approve any changes to increase the authorized number of shares or the rights, preferences, and privileges of the Series E Preferred Shares. In addition, the Series E Preferred Shares must unanimously approve the following actions :

 

alteration of or change to the rights, preferences or privileges of any of our capital stock that would adversely affect the Series E Preferred Shares;
   
create or designate any series or class of shares;
   
issue any shares of any series of preferred stock;
   
increase the authorized number of shares of any series or class of our stock;

 

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amend, repeal or modify our bylaws
   
sell or otherwise dispose of any of our assets not in the ordinary course of business;
   
elect members of the Board of Directors;
   
incur debt not in the ordinary course of business; or
   
effect or undergo any change of our control.

 

Series F Convertible Preferred Stock: There are 4,350 shares of Series F Convertible Preferred Stock (“Series F Preferred Shares”) authorized, of which 2,532 Shares are issued and outstanding. The Series F Preferred Shares have no dividend rights, no preemptive rights, and, unless and until they are converted into common stock, no voting rights (other than as to changes to any class or series of our capital stock that could adversely affect the Series F Preferred Shares or as required by Nevada law). The Series F Preferred Shares have liquidation rights senior to those of the common stock, the Series E Preferred Shares and Series G Preferred Shares. Steven Reinharz owns 2,450 Series F Preferred Shares, and the remaining 82 Series F Preferred Shares are held by two other persons who are not employed by us We have also issued a “Warrant to Purchase Stock,” which gave the holder of the Warrant the right to purchase 367 Series F Preferred Shares at any time. After prior exercises, the holder currently holds the right to purchase 329 Series F Preferred Shares.

 

After August 23, 2023, each holder of Series F Preferred Shares has the right to convert all, but not less than all, of the holder’s Series F Preferred Shares into shares of common stock that would be a multiple of the number of then-outstanding shares of common stock. At that time, there would be a substantial dilution of our common stock.

 

Series G Preferred Stock: There are 100,000 shares of Series G Preferred Stock (“Series G Preferred Shares”) authorized but no shares have been issued. The Series G Preferred Shares have no dividend rights, no voting rights, and no preemptive rights. The Series G shares have liquidation rights senior to those of the common stock but junior to those of the Series F Preferred Shares. At any time, we may at our option, redeem any or all of the outstanding Series G Preferred Shares at $1,000 per share.

 

DESCRIPTION OF WARRANTS

 

We may issue warrants to purchase common stock. We may offer warrants separately or together with one or more additional warrants or common stock, as described in the related prospectus supplement. If we issue warrants as part of a unit, the accompanying prospectus supplement will specify whether those warrants may be separated from the common stock in the unit before the expiration date of the warrants. The terms of any warrants offered under a prospectus supplement may differ from the terms described below. We urge you to read the related prospectus supplement and any related free writing prospectus as well as the complete warrant agreements and warranty certificates that contain the terms of the warrants. Each related prospectus supplement will describe the terms of any warrants being offered, including but not limited to the following:

 

the specific designation and total number of warrants and the offering price at which the warrants will be issued;
   
the date on which the right to exercise the warrants will begin and will end, or if the warrants are not continuously exercisable, the specific dates or periods in which you may exercise the warrants;
   
whether the warrants will be sold separately or with common stock as parts of units;
   
if the warrants are issued as part of a unit, the date, if any, on which the common stock will be separately transferable;
   
a description of the common stock purchasable upon exercise of the warrants;
   
the number of shares of common stock purchasable upon exercise of a warrant and the price at which those shares may be purchased;
   
if applicable, the minimum or maximum amount of warrants that may be exercised at any one time;
   
any redemption or call provisions of the warrants;
   
if any, the anti-dilution provisions of, and other provisions for changes to or adjustment in the exercise price of, the warrants;

 

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information with respect to book-entry procedures, if any;
   
the identity of the warrant agent for the warrants;
   
any additional terms of the warrants, including terms, procedures and limitations relating to the exchange or exercise of the warrants; and
   
any applicable material U.S. federal income tax consequences.

 

It should be noted that holders of warrants will not be entitled to:

 

vote, consent or receive dividends;
   
receive notice of shareholders with respect to any meeting of shareholders on any matter; and
   
exercise any rights as shareholders of the Company.

 

Dividend Policy

 

To date we have never declared a dividend for our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business and for general corporate purposes. We cannot assure you that we will distribute any cash in the future. Our cash distribution policy is within the discretion of our Board and will depend upon various factors, including our results of operations, financial condition, capital requirements and investment opportunities.

 

LEGAL MATTERS

 

Certain legal matters with respect to the validity of the securities being offered by this prospectus will be passed upon Frederick M. Lehrer, P. A.

 

EXPERTS

 

The audited consolidated financial statements for AITX, as of February 28, 2024 and 2023 and for the years then ended included in this prospectus and elsewhere in the registration statement have been so included in reliance upon the report, which contains an explanatory paragraph describing the conditions which raise substantial doubt about the ability of the Company to continue as a going concern, of L J Soldinger Associates, LLC, independent registered public accounting firm, upon the authority of said firm as experts in accounting and auditing.

 

AVAILABLE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete.

 

We file reports, proxy statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and information statements and other information about issuers, such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov. You may also request a copy of those filings, excluding exhibits, from us at no cost. These requests should be addressed to us at: 10800 Galaxie Avenue, Ferndale, Michigan 48220. Our website address is www.aitx.ai The information on, or accessible through, our website is not part of, and is not incorporated into, this prospectus supplement or the accompanying prospectus and should not be considered part of this prospectus.

 

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Disclosure of Commission Position of Indemnification for Securities Act Liabilities

 

Nevada Revised Statutes (“NRS”) Sections 78.7502 and 78.751 provide us with the power to indemnify any of our directors and officers. The director or officer must have conducted himself/herself in good faith and reasonably believe that his/her conduct was in, or not opposed to, our best interests. In a criminal action, the director, officer, employee or agent must not have had reasonable cause to believe his/her conduct was unlawful. Under NRS Section 78.751, advances for expenses may be made by agreement if the director or officer affirms in writing that he/she believes he/she has met the standards and will personally repay the expenses if it is determined such officer or director did not meet the standards.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

Our Amended Bylaws provides that the Company shall indemnify its directors and officers from and against any liability arising out of their service as a director or officer of the Corporation or any subsidiary or affiliate of which they serve as an officer or director at the request of the Corporation to the fullest extent not prohibited by NRS Chapter 78.

 

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

(FORMERLY ON THE MOVE SYSTEMS CORP.)

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets F-3
   
Consolidated Statements of Operations F-4
   
Consolidated Statement of Stockholders’ Deficit F-5
   
Consolidated Statements of Cash Flows F-6
   
Notes to the Consolidated Financial Statements F-7

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Artificial Intelligence Technology Solutions, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Artificial Intelligence Technology Solutions, Inc. and its subsidiaries (the “Company”) as of February 29, 2024 and February 28, 2023, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended February 29, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 29, 2024, and February 28, 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended February 29, 2024, in conformity with accounting principles generally accepted in the United States of America.

 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company had a net loss of approximately $20.7 million, an accumulated deficit of approximately $133.0 million and stockholders’ deficit of approximately $40.2 million as of and for the year ended February 29, 2024, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters.

 

/s/ L J Soldinger Associates, LLC

 

Deer Park, Illinois

May 9, 2024

We have served as the Company’s auditor since 2019.

PCAOB Audit ID: 318

 

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONSOLIDATED BALANCE SHEETS

 

   February 29, 2024   February 28, 2023 
ASSETS          
Current assets:          
Cash  $105,926   $939,759 
Accounts receivable, net   756,084    265,024 
Device parts inventory, net   2,131,599    1,637,899 
Prepaid expenses and deposits   622,957    596,310 
Total current assets   3,616,566    3,438,992 
Operating lease asset   1,139,188    1,208,440 
Revenue earning devices, net of accumulated depreciation of $952,844 and $779,839, respectively   2,480,002    1,235,219 
Fixed assets, net of accumulated depreciation of $349,878 and $182,002, respectively   268,075    315,888 
Trademarks   27,080    27,080 
Investment at cost   50,000    50,000 
Security deposit   15,880    21,239 
Total assets  $7,596,791   $6,296,858 
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable and accrued expenses  $2,032,707   $1,343,379 
Advances payable- related party   1,594    1,594 
Customer deposits   73,702    9,900 
Current operating lease liability   237,653    248,670 
Current portion of deferred variable payment obligation   904,377    542,177 
Loan payable - related party   257,438    206,516 
Deferred compensation for CEO   538,767     
Current portion of loans payable, net of discount of $688,598 and $1,651,597   13,190,882    9,918,389 
Vehicle loan - current portion   38,522    38,522 
Current portion of accrued interest payable   4,440,009    2,761,446 
Total current liabilities   21,715,651    15,070,593 
Non-current operating lease liability   889,360    950,541 
Loans payable, net of discount of $4,118,332 and $4,130,291, respectively   14,798,532    15,554,069 
Deferred variable payment obligation   2,525,000    2,525,000 
Incentive compensation plan payable   2,500,000    979,000 
Accrued interest payable   5,367,805    3,060,656 
Total liabilities   47,796,348    38,139,859 
           
Commitments and Contingencies   -     -  
Stockholders’ deficit:          
Preferred Stock, undesignated; 15,535,000 shares authorized; no shares issued and outstanding at February 29, 2024 and February 28, 2023, respectively        
Series B Convertible, Redeemable Preferred Stock. $0.001 par value; 8% cumulative dividend payable quarterly,$1,200 stated value, 5,000 shares authorized, no shares issued and outstanding at February 29, 2024 and February 28, 2023, respectively          
Series G Redeemable Preferred Stock. $0.001 par value; 100,000 shares authorized, no shares issued and outstanding at February 29, 2024 and February 28, 2023, respectively        
Series E Preferred Stock, $0.001 par value; 4,350,000 shares authorized; 3,350,000 and 3,350,000 shares issued and outstanding, respectively   3,350    3,350 
Series F Convertible Preferred Stock, $1.00 par value; 10,000 shares authorized; 2,533 and 2,533 shares issued and outstanding, respectively   2,533    2,533 
Common Stock, $0.00001 par value; 12,500,000,000 shares authorized 9,238,750,958 and 5,848,741,599 shares issued, issuable and outstanding, respectively   92,388    58,489 
Additional paid-in capital   92,565,513    80,247,252 
Preferred stock to be issued   99,086    99,086 
Accumulated deficit   (132,962,427)   (112,253,711)
Total stockholders’ deficit   (40,199,557)   (31,843,001)
Total liabilities and stockholders’ deficit  $7,596,791   $6,296,858 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   Year Ended
February 29, 2024
   Year Ended
February 28, 2023
 
         
Revenues  $2,227,559   $1,331,956 
           
Cost of Goods Sold   1,131,102    678,073 
           
Gross Profit   1,096,457    653,883 
           
Operating expenses:          
Research and development (note 9)   2,878,134    3,625,468 
General and administrative   10,525,531    8,980,709 
Depreciation and amortization   854,047    478,115 
Impairment on revenue earning devices   584,177     
Operating lease cost and rent   260,406    260,271 
(Gain) loss on disposal of fixed assets   (16,426)    
Total operating expenses   15,085,869    13,344,563 
           
Loss from operations   (13,989,412)   (12,690,680)
           
Other income (expense), net:          
Change in fair value of derivative liabilities       3,595 
Interest expense   (6,758,044)   (5,426,364)
Gain (loss) on settlement of debt   38,740    3,992 
Total other income (expense), net   (6,719,304)   (5,418,777)
           
Net Loss  $(20,708,716)  $(18,109,457)
           
Net loss per share - basic  $(0.00)  $(0.00)
           
Net loss per share - diluted  $(0.00)  $(0.00)
           
Weighted average common share outstanding – basic and diluted   7,080,914,317    5,091,857,082 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED FEBRUARY 29, 2024 AND FEBRUARY 28, 2023

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
   Series E   Series F   Series G       Additional       Total 
   Preferred Stock   Preferred Stock   Preferred Stock   Common Stock   Paid-In   Accumulated   Shareholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
                                             
Balance at February 28, 2022   3,350,000    3,350    2,532    101,618       $    4,735,210,360   $47,353   $73,015,576   $(94,144,254)  $(20,976,357)
Issuance of shares net of $447,858 issuance costs                           1,057,841,576    10,579    7,760,590        7,771,169 
Cashless exercise of 108,378,210 warrants                           45,306,557    453    (453)        
Penalty shares issued pursuant to a share purchase agreement                           17,500,000    175    (175)        
Relative fair value of Series F warrants issued with debt           1    1                    1,201,127        1,201,128 
Relative fair value of warrants issued with debt                                   990,467        990,467 
Fair value of 955,000,000 warrants cancelled for debt issuance                                   (2,960,500)       (2,960,500)
Shares issued for services                           10,000,000    100    118,400        118,500 
Cancelled shares                           (17,116,894)   (171)   171         
Stock based compensation - employee stock option plan                                   122,050        122,050 
Rounding                                   (1)       (1)
Net income                                       (18,109,457)   (18,109,457)
Balance at February 28, 2023   3,350,000   $3,350    2,533   $101,619       $    5,848,741,599   $58,489   $80,247,252   $(112,253,711)  $(31,843,001)

 

   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
   Series E   Series F   Series G       Additional       Total 
   Preferred Stock   Preferred Stock   Preferred Stock   Common Stock   Paid-In   Accumulated   Shareholders’ 
   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit 
                                             
Balance at February 28, 2023   3,350,000    3,350    2,533    101,619       $    5,848,741,599   $58,489   $80,247,252   $(112,253,711)  $(31,843,001)
Issuance of shares net of $457,060 issuance costs                           3,383,509,359    33,834    10,792,061        10,825,895 
Relative fair value of Series F warrants issued with debt                                   1,209,206        1,209,206 
Shares issued for services                           6,500,000    65    44,395        44,460 
Stock based compensation - employee stock option plan