ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
|
|
|
|
August 31,
2019
|
|
August 31,
2018
|
|
CASH FLOWS USED IN
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
315,372
|
|
$
|
10,203,602
|
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
46,468
|
|
|
51,413
|
|
Provision for note receivable
|
|
|
—
|
|
|
40,000
|
|
Loss on
impairment of fixed assets
|
|
|
—
|
|
|
4,739
|
|
Stock
based compensation
|
|
|
—
|
|
|
9,571
|
|
Change
in fair value of derivative liabilities
|
|
|
(2,476,567
|
)
|
|
(15,992,640
|
)
|
Interest expense related to penalties from debt defaults
|
|
|
—
|
|
|
221,055
|
|
Interest expense related to derivative liability in excess of face
value of debt
|
|
|
—
|
|
|
684,781
|
|
Amortization of debt discounts
|
|
|
657,058
|
|
|
2,352,222
|
|
(Gain)
loss on settlement of debt
|
|
|
(112,509
|
)
|
|
54,610
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(17,222
|
)
|
|
9,627
|
|
Prepaid
expenses
|
|
|
18,778
|
|
|
12,826
|
|
Device
parts inventory
|
|
|
(3,153
|
)
|
|
50,529
|
|
Accounts payable and accrued expenses
|
|
|
(46,510
|
)
|
|
784,172
|
|
Balance
owed WeSecure
|
|
|
(10,000
|
)
|
|
—
|
|
Accrued
interest payable
|
|
|
504,616
|
|
|
403,799
|
|
Advances payable
|
|
|
(11,043
|
)
|
|
—
|
|
Net cash
used in operating activities
|
|
|
(1,134,712
|
)
|
|
(1,109,694
|
)
|
|
|
|
|
|
|
|
|
CASH FLOWS USED IN
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
(23,572
|
)
|
|
(188,690
|
)
|
Cash
paid for security deposit
|
|
|
—
|
|
|
(75
|
)
|
Net cash
used in investing activities
|
|
|
(23,572
|
)
|
|
(188,765
|
)
|
|
|
|
|
|
|
|
|
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable, net
|
|
|
—
|
|
|
818,108
|
|
Proceeds from deferred variable payment obligation
|
|
|
819,750
|
|
|
—
|
|
Proceeds from loans payable
|
|
|
263,429
|
|
|
171,040
|
|
Repayment of loans payable
|
|
|
(100,038
|
)
|
|
—
|
|
Net
borrowings on loan payable - related party
|
|
|
159,526
|
|
|
135,908
|
|
Repayment of vehicle loan
|
|
|
—
|
|
|
(8,984
|
)
|
Proceeds from sale of preferred shares
|
|
|
—
|
|
|
174,070
|
|
Net cash
provided by financing activities
|
|
|
1,142,667
|
|
|
1,290,142
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(15,617
|
)
|
|
(8,317
|
)
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
21,192
|
|
|
24,773
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
5,575
|
|
$
|
16,456
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of
cash and non-cash transactions:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
8,654
|
|
$
|
3,213
|
|
Cash
paid for taxes
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Noncash investing and
financing activities:
|
|
|
|
|
|
|
|
Debt
discount from derivative liabilities
|
|
$
|
—
|
|
$
|
924,009
|
|
Inventory converted to revenue earning devices
|
|
$
|
97,788
|
|
$
|
94,575
|
|
Conversion of convertible notes and interest to shares of common
stock
|
|
$
|
394,697
|
|
$
|
550,913
|
|
Release
of derivative liability on conversion of convertible notes
payable
|
|
$
|
383,318
|
|
$
|
757,222
|
|
Settlement and exchange of convertible notes payable
|
|
$
|
—
|
|
$
|
575,286
|
|
Capitalization of accrued interest to convertible notes payable and
loans payable
|
|
$
|
56,280
|
|
$
|
58,288
|
|
The accompanying notes
are an integral part of these unaudited condensed consolidated
financial statements.
- 6 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
INFORMATION
Artificial Intelligence
Technology Solutions Inc. (“AITX” or the “Company”) was
incorporated in Florida on March 25, 2010 and reincorporated in
Nevada on February 17, 2015. On August 24, 2018, Artificial
Intelligence Technology Solutions Inc., changed its name from On
the Move Systems Corp (“OMVS”).
Robotic Assistance
Devices, LLC (“RAD”), was incorporated in the State of Nevada on
July 26, 2016 as a LLC. On July 25, 2017, Robotic Assistance
Devices LLC converted to a C Corporation, Robotic Assistance
Devices, Inc. through the issuance of 10,000 common shares to its
sole shareholder.
On August 28, 2017, AITX
completed the acquisition of RAD (the “Acquisition”), whereby AITX
acquired all the ownership and equity interest in RAD for 3,350,000
shares of AITX Series E Preferred Stock and 2,450 shares of Series
F Convertible Preferred Stock. AITX’s prior business focus was
transportation services, and AITX was exploring the on-demand
logistics market by developing a network of logistics partnerships.
As a result of the closing of the Acquisition, AITX has succeeded
to the business of RAD, in which AITX purchased all of the
outstanding shares of capital stock of RAD. As a result, AITX’s
business going forward will consist of one segment activity which
is the delivery of artificial intelligence and robotic solutions
for operational, security and monitoring needs.
The Acquisition was
treated as a reverse recapitalization effected by a share exchange
for financial accounting and reporting purposes since substantially
all of AITX’s operations were disposed of as part of the
consummation of the transaction. Therefore, no goodwill or other
intangible assets were recorded by AITX as a result of the
Acquisition. RAD is treated as the accounting acquirer as its
stockholders control the Company after the Acquisition, even though
AITX was the legal acquirer. As a result, the assets and
liabilities and the historical operations that are reflected in
these financial statements are those of RAD as if RAD had always
been the reporting company.
2. GOING
CONCERN
The accompanying
unaudited 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 six months ended
August 31, 2019, the Company had negative cash flow from operating
activities of $1,134,712. As of August 31, 2019, the Company has an
accumulated deficit of $19,093,822, and negative working capital of
$13,434,190. Management does not anticipate having positive cash
flow from operations in the near future. These factors raise a
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 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.
Management has plans to
address the Company’s financial situation as follows:
In the near term,
management plans to continue to focus on raising the funds
necessary to implement the Company’s business plan. Management will
continue to seek out debt financing to obtain the capital required
to meet the Company’s financial obligations. There is no assurance,
however, that lenders will continue to advance capital to the
Company or that the new business operations will be profitable. The
possibility of failure in obtaining additional funding and the
potential inability to achieve profitability raises substantial
doubts about the Company’s ability to continue as a going
concern.
- 7 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. ACCOUNTING
POLICIES
Basis of
Presentation and Consolidation
The accompanying
unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles in the United States (“GAAP”) and in conformity with the
condensing instructions on Form 10-Q and Rule 8-03 of Regulation
S-X and the related rules and regulations of the Securities and
Exchange Commission (“SEC”) and should be read in conjunction with
the audited financial statements and notes thereto in the Company’s
latest Annual Report filed with the SEC on Form 10-K as amended and
filed on November 4, 2019. The unaudited condensed consolidated
financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Robotic Assistance Devices, Inc., On the
Move Experience, LLC and OMV Transports, LLC. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The unaudited consolidated financial statements
reflect all adjustments, consisting of normal recurring accruals,
which are, in the opinion of management, necessary for a fair
presentation of such statements. The results of operations for the
six months ended August 31, 2019 are not necessarily indicative of
the results that may be expected for the entire year.
Use of
Estimates
The preparation of
financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reported period. Actual results
could differ from those estimates. Estimates are used in the fair
value calculation of the derivative liability, in determination of
cash flows and fair value determinations in impairment testing.
Cash
The Company considers
all highly liquid investments with an original maturity of three
months or less to be cash equivalents. Cash and cash equivalents
consist of cash on deposit with banks and money market instruments.
The Company places its cash and cash equivalents with high-quality,
U.S. financial institutions and, to date has not experienced losses
on any of its balances.
Accounts
Receivable
Accounts receivable are
comprised of balances due from customers, net of estimated
allowances for uncollectible accounts. In determining
collectability, historical trends are evaluated, and specific
customer issues are reviewed on a periodic basis to arrive at
appropriate allowances. There were no allowances provided for the
six months ended August 31, 2019 and the year ended February 28,
2019.
Device Parts
Inventory
Device parts inventory
is stated at the lower of cost or net realizable value using the
weighted average cost method. The Company records a valuation
reserve for obsolete and slow-moving inventory, relying principally
on specific identification of such inventory. The Company uses
these device parts in the assembly of revenue earning devices (and
demo devices) as well as research and development. Depending on
use, the Company will transfer the parts to the corresponding asset
or expense if used in research and development. A charge to income
is taken when factors that would result in a need for an increase
in the valuation, such as excess or obsolete inventory, are
noted.
Revenue Earning
Devices
Revenue earning devices
are stated at cost. Depreciation is provided on a straight-line
basis over the estimated useful life of 48 months. The Company
continually evaluates revenue earning devices to determine whether
events or changes in circumstances have occurred that may warrant
revision of the estimated useful life or whether the devices should
be evaluated for possible impairment. The Company uses a
combination of the undiscounted cash flows and market approaches in
assessing whether an asset has been impaired. The Company measures
impairment losses based upon the amount by which the carrying
amount of the asset exceeds the fair value.
- 8 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Fixed
Assets
Fixed assets are stated
at cost. Depreciation is provided on the straight-line method based
on the estimated useful lives of the respective assets which range
from three to five years. Major repairs or improvements are
capitalized. Minor replacements and maintenance and repairs which
do not improve or extend asset lives are expensed currently.
|
|
|
Demo Devices
|
|
4 years
|
Vehicles
|
|
3 years
|
Computer equipment
|
|
3 years
|
Office equipment
|
|
4 years
|
The Company periodically
evaluates the fair value of fixed assets whenever events or changes
in circumstances indicate that its carrying amounts may not be
recoverable. Upon retirement or other disposition of fixed assets,
the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss, if any, is recognized in
income.
Research and
Development
Research and development
costs are expensed in the period they are incurred in accordance
with ASC 730, Research and Development unless they meet
specific criteria related to technical, market and financial
feasibility, as determined by Management, including but not limited
to the establishment of a clearly defined future market for the
product, and the availability of adequate resources to complete the
project. If all criteria are met, the costs are deferred and
amortized over the expected useful life or written off if a product
is abandoned. At August 31, 2019 and February 28, 2019, the Company
had no deferred development costs.
Contingencies
Occasionally, the
Company may be involved in claims and legal proceedings arising
from the ordinary course of its business. The Company records a
provision for a liability when it believes that it is both probable
that a liability has been incurred, and the amount can be
reasonably estimated. If these estimates and assumptions change or
prove to be incorrect, it could have a material impact on the
Company’s consolidated financial statements. Contingencies are
inherently unpredictable, and the assessments of the value can
involve a series of complex judgments about future events and can
rely heavily on estimates and assumptions.
Sales of Future
Revenues
The Company has entered
into transactions, as more fully described in footnote 10, in which
it has received funding from investors in exchange for which it
will make payments to those investors based on the level of sales
of certain revenue categories, generally based on a percentage of
sales for those certain revenues. The Company determines whether
these agreements constitute sales of future revenues or are in
substance debt based on the facts and circumstances of each
agreement, with the following primary criteria determinative of
whether the agreement constitutes a sale of future revenues or
debt:
|
|
|
|
●
|
Does the agreement
purport, in substance, to be a sale
|
|
●
|
Does the Company have
continuing involvement in the generation of cash flows due the
investor
|
|
●
|
Is the transaction cancellable by either
party through payment of a lump sum or other transfer of assets
|
|
●
|
Is the investors rate of return is implicitly
limited by the terms of the agreement
|
|
●
|
Does the Company’s revenue
for a reporting period underlying the agreement have only a minimal
impact on the investor’s rate of
return
|
|
●
|
Does the investor have recourse relating to
payments due
|
In the event a
transaction is determined to be a sale of future revenues, it is
recorded as deferred revenue and amortized using the
sum-of-the-revenue method. In the event a transaction is determined
to be debt, it is recorded as debt and amortized using the
effective interest method. As of the date of these financial
statements, the Company has determined that all such agreements are
debt.
- 9 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Revenue
Recognition
ASU 2014-09, “Revenue
from Contracts with Customers (Topic 606)”, supersedes the
revenue recognition requirements and industry specific guidance
under Revenue Recognition (Topic 605). Topic 606 requires an
entity to recognize revenue when it transfers promised goods or
services to customers in an amount that reflects the consideration
the entity expects to be entitled to in exchange for those goods or
services. Topic 606 defines a five-step process that must be
evaluated and, in doing so, it is possible more judgment and
estimates may be required within the revenue recognition process
than required under existing accounting principles generally
accepted in the United States of America (“U.S. GAAP”) including
identifying performance obligations in the contract, estimating the
amount of variable consideration to include in the transaction
price and allocating the transaction price to each separate
performance obligation. The Company adopted Topic 606 on March 1,
2018, using the modified retrospective method. Under the modified
retrospective method, prior period financial positions and results
will not be adjusted. There was no cumulative effect adjustment
recognized as a result of this adoption. Refer to Note 5 – Revenue
from Contracts with Customers for additional information.
Income
Taxes
On July 25, 2017,
Robotic Assistance Devices LLC converted to a C Corporation,
Robotic Assistance Devices, Inc., through the issuance of 10,000
common shares to its sole shareholder. Prior to the conversion on
July 25, 2017, income taxes are not provided in the financial
statements as presented as RAD was an LLC and the income or loss
flowed through to the shareholder for the two months ended February
28, 2017. Thereafter, income taxes are accounted for under the
asset and liability method from that date forward. Deferred income
tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and
liabilities, and net operating loss and other tax credit
carry-forwards. These items are measured using the enacted tax
rates and laws that will be in effect when the differences are
expected to reverse.
Leases
Lease agreements are
evaluated to determine if they are capital leases meeting any of
the following criteria at inception: (a) transfer of ownership; (b)
bargain purchase option; (c) the lease term is equal to 75 percent
or more of the estimated economic life of the leased property; or
(d) the present value at the beginning of the lease term of the
minimum lease payments, excluding that portion of the payments
representing executory costs such as insurance, maintenance, and
taxes to be paid by the lessor, including any profit thereon,
equals or exceeds 90 percent of the excess of the fair value of the
leased property to the lessor at lease inception over any related
investment tax credit retained by the lessor and expected to be
realized by the lessor.
If at its inception, a
lease meets any of the four lease criteria above, the lease is
classified by the Company as a capital lease; and if none of the
four criteria are met, the lease is classified by the Company as an
operating lease.
Operating lease payments
are recognized as an expense in the income statement on a
straight-line basis over the lease term, whereby an equal amount of
rent expense is attributed to each period during the term of the
lease, regardless of when actual payments are made. This generally
results in rent expense in excess of cash payments during the early
years of a lease and rent expense less than cash payments in the
later years. The difference between rent expense recognized and
actual rental payments is recorded as deferred rent and included in
liabilities.
Distinguishing
Liabilities from Equity
The Company relies on
the guidance provided by ASC Topic 480, Distinguishing
Liabilities from Equity, to classify certain redeemable and/or
convertible instruments. The Company first determines whether a
financial instrument should be classified as a liability. The
Company will determine the liability classification if the
financial instrument is mandatorily redeemable, or if the financial
instrument, other than outstanding shares, embodies a conditional
obligation that the Company must or may settle by issuing a
variable number of its equity shares.
Once the Company
determines that a financial instrument should not be classified as
a liability, the Company determines whether the financial
instrument should be presented between the liability section and
the equity section of the balance sheet (“temporary equity”). The
Company will determine temporary equity classification if the
redemption of the financial instrument is outside the control of
the Company (i.e. at the option of the holder). Otherwise, the
Company accounts for the financial instrument as permanent
equity.
- 10 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Initial
Measurement
The Company records its
financial instruments classified as liability, temporary equity or
permanent equity at issuance at the fair value, or cash
received.
Subsequent
Measurement – Financial Instruments Classified as
Liabilities
The Company records the
fair value of its financial instruments classified as liabilities
at each subsequent measurement date. The changes in fair value of
its financial instruments classified as liabilities are recorded as
other income (expenses).
Fair Value of
Financial Instruments
ASC Topic
820, Fair Value Measurements and Disclosures (“ASC
Topic 820”) provides a framework for measuring fair value in
accordance with generally accepted accounting principles.
ASC Topic 820 defines
fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. ASC Topic 820
establishes a fair value hierarchy that distinguishes between (1)
market participant assumptions developed based on market data
obtained from independent sources (observable inputs) and (2) an
entity’s own assumptions about market participant assumptions
developed based on the best information available in the
circumstances (unobservable inputs).
The fair value hierarchy
consists of three broad levels, which gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable
inputs (Level 3). The three levels of the fair value hierarchy
under ASC Topic 820 are described as follows:
|
|
|
|
●
|
Level 1 – Unadjusted
quoted prices in active markets for identical assets or liabilities
that are accessible at the measurement date.
|
|
|
|
|
●
|
Level 2 – Inputs
other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices for similar assets
or liabilities in active markets; quoted prices for identical or
similar assets or liabilities in markets that are not active;
inputs other than quoted prices that are observable for the asset
or liability; and inputs that are derived principally from or
corroborated by observable market data by correlation or other
means.
|
|
|
|
|
●
|
Level 3 – Inputs that
are unobservable for the asset or liability.
|
Measured on a
Recurring Basis
The following table
presents information about our liabilities measured at fair value
on a recurring basis, aggregated by the level in the fair value
hierarchy within which those measurements fell:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at
|
|
Fair Value Measurement
Using
|
|
|
|
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
August 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability – conversion features pursuant to convertible
notes payable
|
|
$
|
3,310,254
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,310,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability – conversion features pursuant to convertible
notes payable
|
|
$
|
6,170,139
|
|
$
|
—
|
|
$
|
—
|
|
$
|
6,170,139
|
|
- 11 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
See Note 15 for specific
inputs used and a description of the model used in determining fair
value.
The carrying amounts of
the Company’s financial assets and liabilities, such as cash,
accounts receivable, prepaid expenses and advances, accounts
payable and accrued expenses, approximate their fair values because
of the short maturity of these instruments.
Earnings (Loss)
per Share
Basic earnings (loss)
per share (“EPS”) is computed by dividing net income (loss)
available to common shareholders (numerator) by the weighted
average number of shares outstanding (denominator) during the
period. Diluted EPS give effect to all dilutive potential common
shares outstanding during the period using the treasury stock
method and convertible preferred stock using the if-converted
method. In computing diluted EPS, the average stock price for the
period is used to determine the number of shares assumed to be
purchased from the exercise of stock options and/or warrants.
Diluted EPS excluded all dilutive potential shares if their effect
is anti-dilutive.
Basic loss per common
share is computed based on the weighted average number of shares
outstanding during the period. Diluted loss per share is computed
in a manner similar to the basic loss per share, except the
weighted-average number of shares outstanding is increased to
include all common shares, including those with the potential to be
issued by virtue of convertible debt and other such convertible
instruments. Diluted loss per share contemplates a complete
conversion to common shares of all convertible instruments only if
they are dilutive in nature with regards to earnings per share.
See additional
disclosure in Note 18.
Recently Adopted
Accounting Pronouncements
See discussion of the
adoption of ASU 2014-09, “Revenue from Contracts with Customers
(Topic 606)”, above.
In May 2017, the FASB
issued ASU 2017-09, Modification Accounting for Share-Based
Payment Arrangements. The standard amends the scope of
modification accounting for share-based payment arrangements and
provides guidance on the types of changes to the terms or
conditions of share-based payment awards to which an entity would
be required to apply modification accounting under ASC 718. The new
standard is effective for fiscal years beginning after December 15,
2017. There was no impact on the financial statements of adopting
this new standard on March 1, 2018.
On March 1, 2019 the
Company adopted ASU No. 2016-02, Leases (Topic 842), which
is effective for public entities for annual reporting periods
beginning after December 15, 2018. Under ASU 2016-02, lessees will
be required to recognize the following for all leases (with the
exception of short-term leases) at the commencement date: 1) a
lease liability, which is a lessee’s obligation to make lease
payments arising from a lease, measured on a discounted basis, and
2) a right-of-use asset, which is an asset that represents the
lessee’s right to use, or control the use of, a specified asset for
the lease term. The Company adopted ASU 2016-02 but does not expect
any material impact on the financial statements because the leases
commencing March 1, 2019 are month to month.
Recently Issued
Accounting Pronouncements
In September 2016, the
FASB issued ASU 2016-13, Financial Instruments-Credit
Losses. ASU 2016-13 was issued to provide more decision-useful
information about the expected credit losses on financial
instruments and changes the loss impairment methodology. ASU
2016-13 is effective for reporting periods beginning after December
15, 2019 using a modified retrospective adoption method. A
prospective transition approach is required for debt securities for
which an other-than-temporary impairment had been recognized before
the effective date. The Company is currently assessing the impact
this accounting standard will have on its financial statements and
related disclosures. The Company will adopt this March 1, 2020.
- 12 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. CORRECTION
OF AN ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS
At February 28, 2019 the
company corrected an error on how it was recording the issuance of
warrants that were issued along with share conversions throughout
the fiscal year. The Company had been recording it as a separate
transaction recording the fair value of the warrants at conversion
when the Company should have been including the warrants as part of
the fair value of the share conversion. Accordingly $57,538 and
$530,498 in stock based compensation was reduced for the three
months and six ending August 31, 2018, respectively from the
results originally reported, with a corresponding decease in paid
in capital. The comparative figures have been adjusted throughout
this document to reflect this change.
The impact on the
financial statements for the three and six months ended August 31,
2018 are as follows:
ARTIFICIAL INTELLIGENCE TECHNOLOGY SYSTEMS
INC.
CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally
stated
|
|
|
|
Restated
|
|
|
|
Three
Months
Ended
August 31, 2018
|
|
Adjustment
|
|
Three
Months
Ended
August 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
10,175
|
|
$
|
—
|
|
$
|
10,175
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
31,250
|
|
|
—
|
|
|
31,250
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
(21,075
|
)
|
|
—
|
|
|
(21,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
64,501
|
|
|
—
|
|
|
64,501
|
|
General
and administrative
|
|
|
898,290
|
|
|
(57,538
|
)
|
|
840,752
|
|
Depreciation and amortization
|
|
|
29,560
|
|
|
—
|
|
|
29,560
|
|
Loss on
impairment of fixed assets
|
|
|
4,739
|
|
|
—
|
|
|
4,739
|
|
Total
operating expenses
|
|
|
997,090
|
|
|
(57,538
|
)
|
|
939,552
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,018,165
|
)
|
|
57,538
|
|
|
(960,627
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense), net
|
|
|
(3,713,682
|
)
|
|
—
|
|
|
(3,713,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,731,847
|
)
|
$
|
57,538
|
|
$
|
(4,674,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income ( loss) per share
- basic
|
|
$
|
(2.52
|
)
|
|
—
|
|
$
|
(2.49
|
)
|
Net income (loss) per share -
diluted
|
|
$
|
(2.52
|
)
|
|
—
|
|
$
|
(2.49
|
)
|
- 13 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
Originally
stated
|
|
|
|
Restated
|
|
|
|
Six Months
Ended
August 31, 2018
|
|
Adjustment
|
|
Six Months
Ended
August 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
26,841
|
|
$
|
—
|
|
$
|
26,841
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
35,509
|
|
|
—
|
|
|
35,509
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
(8,668
|
)
|
|
—
|
|
|
(8,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
233,131
|
|
|
—
|
|
|
233,131
|
|
General
and administrative
|
|
|
2,282,217
|
|
|
(530,498
|
)
|
|
1,751,719
|
|
Depreciation and amortization
|
|
|
51,413
|
|
|
|
|
|
51,413
|
|
Loss on
impairment of fixed assets
|
|
|
4,739
|
|
|
—
|
|
|
4,739
|
|
Total
operating expenses
|
|
|
2,571,500
|
|
|
(530,498
|
)
|
|
2,041,002
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,580,168
|
)
|
|
530,498
|
|
|
(2,049,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense), net
|
|
|
12,253,272
|
|
|
—
|
|
|
12,253,272
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
9,673,104
|
|
$
|
530,498
|
|
$
|
10,203,602
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income ( loss) per share
- basic
|
|
$
|
6.07
|
|
|
—
|
|
$
|
6.40
|
|
Net income (loss) per share -
diluted
|
|
$
|
(0.01
|
)
|
|
—
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
9,673,104
|
|
$
|
530,498
|
|
$
|
10,203,602
|
|
Adjustments to reconcile net
loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
51,413
|
|
|
—
|
|
|
51,413
|
|
Provision for note receivable
|
|
|
40,000
|
|
|
—
|
|
|
40,000
|
|
Loss on
impairment of fixed assets
|
|
|
4,739
|
|
|
—
|
|
|
4,739
|
|
Stock
based compensation
|
|
|
540,069
|
|
|
(530,498
|
)
|
|
9,571
|
|
Change
in fair value of derivative liabilities
|
|
|
(15,992,640
|
)
|
|
—
|
|
|
(15,992,640
|
)
|
Interest expense related to penalties from debt defaults
|
|
|
221,055
|
|
|
—
|
|
|
221,055
|
|
Interest expense related to derivative liability in excess of face
value of debt
|
|
|
684,781
|
|
|
—
|
|
|
684,781
|
|
Amortization of debt discounts
|
|
|
2,352,222
|
|
|
—
|
|
|
2,352,222
|
|
Loss on
settlement of debt
|
|
|
54,610
|
|
|
—
|
|
|
54,610
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
—
|
|
|
|
|
Accounts receivable
|
|
|
9,627
|
|
|
—
|
|
|
9,627
|
|
Prepaid
expenses
|
|
|
12,826
|
|
|
—
|
|
|
12,826
|
|
Device
parts inventory
|
|
|
50,529
|
|
|
—
|
|
|
50,529
|
|
Accounts payable and accrued expenses
|
|
|
784,172
|
|
|
—
|
|
|
784,172
|
|
Accrued
interest payable
|
|
|
403,799
|
|
|
—
|
|
|
403,799
|
|
Net
cash used in operating activities
|
|
|
(1,109,694
|
)
|
|
—
|
|
|
(1,109,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(188,765
|
)
|
|
—
|
|
|
(188,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
1,290,142
|
|
|
—
|
|
|
1,290,142
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(8,317
|
)
|
|
—
|
|
|
(8,317
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
24,773
|
|
|
—
|
|
|
24,773
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
16,456
|
|
$
|
—
|
|
$
|
16,456
|
|
- 14 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. REVENUE FROM
CONTRACTS WITH CUSTOMERS
Revenue is earned
primarily from two sources: 1) direct sales of goods or services
and 2) short-term rentals. Direct sales of goods or services are
accounted for under Topic 606, and short-term rentals are accounted
for under Topic 840 (which addresses lease accounting and will be
updated after the adoption of Topic 842 on March 1, 2019) as
operating leases.
As disclosed in the
revenue recognition section of Note 3 – Accounting Polices, the
Company adopted Topic 606 in accordance with the effective date on
March 1, 2018. Note 3 includes disclosures regarding the Company’s
method of adoption and the impact on the Company’s financial
statements. Revenue is recognized on direct sales of goods or
services when it transfers promised goods or services to customers
in an amount that reflects the consideration the entity expects to
be entitled to in exchange for those goods or services.
After adopting Topic
842, also referred to above in Note 3, the Company is accounting
for revenue earned from rental activities where an identified asset
is transferred to the customer and the customer has the ability to
control that asset. The Company recognizes revenue from its device
rental activities when persuasive evidence of a contract exists,
the performance obligations have been satisfied, the transaction
price is fixed or determinable and collection is reasonably
assured. Performance obligations associated with device rental
transactions are satisfied over the rental period. Rental periods
are short-term in nature. Therefore, the Company has elected to
apply the practical expedient which eliminates the requirement to
disclose information about remaining performance obligations.
Payments are due from customers at the completion of the rental,
except for customers with negotiated payment terms, generally net
30 days or less, which are invoiced and remain as accounts
receivable until collected.
The following table presents revenues from
contracts with customers disaggregated by product/service:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
August 31, 2019
|
|
Six Months Ended
August 31, 2019
|
|
Device rental activities
|
|
$
|
75,024
|
|
$
|
115,329
|
|
Direct sales of goods and services
|
|
|
—
|
|
|
—
|
|
|
|
$
|
75,024
|
|
$
|
115,329
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
August 31, 2018
|
|
Six Months Ended
August 31, 2018
|
|
Device rental activities
|
|
$
|
10,175
|
|
$
|
26,431
|
|
Direct sales of goods and services
|
|
|
—
|
|
|
410
|
|
|
|
$
|
10,175
|
|
$
|
26,841
|
|
6. PREPAID EXPENSES
AND DEPOSITS
Prepaid expenses and
deposits on device parts expected to be received within one year
were comprised of the following:
|
|
|
|
|
|
|
|
|
|
August 31, 2019
|
|
February 28, 2019
|
|
Prepaid insurance
|
|
$
|
—
|
|
$
|
18,778
|
|
|
|
$
|
—
|
|
$
|
18,778
|
|
- 15 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. REVENUE EARNING DEVICES
Revenue earning devices
consisted of the following:
|
|
|
|
|
|
|
|
|
|
August 31, 2019
|
|
February 28, 2019
|
|
Revenue earning devices
|
|
$
|
351,318
|
|
$
|
229,958
|
|
Less: Accumulated depreciation
|
|
|
(78,340
|
)
|
|
(42,784
|
)
|
|
|
$
|
272,978
|
|
$
|
187,174
|
|
During the six months
ended August 31, 2019, the Company made total additions to revenue
earning devices of $121,360 including $97,788 in inventory
transfers. During the six months ended August 31, 2018, the Company
made total additions to revenue earning devices of $188,690.
Depreciation expense was
$19,789 and $35,556 for the three and six months ended August 31,
2019, respectively, and $11,579 and $14,788 for the three and six
months ended August 31, 2018, respectively.
8. FIXED ASSETS
Fixed assets consisted
of the following:
|
|
|
|
|
|
|
|
|
|
August 31, 2019
|
|
February 28, 2019
|
|
Automobile
|
|
$
|
40,953
|
|
$
|
40,953
|
|
Computer equipment
|
|
|
20,262
|
|
|
20,262
|
|
Office equipment
|
|
|
5,680
|
|
|
5,680
|
|
Leasehold improvements
|
|
|
—
|
|
|
—
|
|
|
|
|
66,895
|
|
|
66,895
|
|
Less: Accumulated depreciation
|
|
|
(40,614
|
)
|
|
(29,701
|
)
|
|
|
$
|
26,281
|
|
$
|
37,194
|
|
During the six months
ended August, 2019 and August 31, 2018, the Company made no
additions to fixed assets.
Depreciation expense was
$5,461 and $10,912 for the three and six months ended August 31,
2018, respectively, and $14,886 and $29,898 for the three and six
months ended August 31, 2018, respectively.
9. CUSTOMER
DEPOSITS
As of February 28, 2017,
the Company received a $10,000 deposit from a customer towards the
rental of equipment with no expected delivery, and accordingly the
deposit is expected to be returned to the customer sometime in
fiscal 2020.
- 16 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. DEFERRED VARIABLE
PAYMENT OBLIGATION
On February 1, 2019 the
Company entered into an agreement with an investor whereby the
investor would pay up to $900,000 (including $192,500 paid in
January and February 2019) in exchange for a perpetual 9% rate
payment (Payments) on the Company’s reported quarterly revenue from
operations excluding any gains or losses from financial instruments
(Revenues). If the total investor advances turns out to be less
than $900,000, this would not constitute a breach of the agreement,
rather the 9% rate would be adjusted on a pro-rata basis. The
investor has agreed to pay the remaining balance in minimum $60,000
monthly installments, concluding November 30, 2019. At August 31,
2019, $706,500 has been paid to the Company.
On May 9, 2019 the
Company entered int two similar arrangements with two
investors:
|
|
|
|
(1)
|
The investor would pay
up to $400,000 (including $143,556 paid in May 2019) in exchange
for a perpetual 4% rate Payment on the Company’s reported quarterly
Revenues. If the total investor advances turns out to be less than
$400,000, this would not constitute a breach of the agreement,
rather the 4% rate would be adjusted on a pro-rata basis. The
investor has agreed to pay the remaining balance in four monthly
installments of $64,111 starting July 1, 2019. At August 31, 2019,
$271,778 has been paid to the Company.
|
|
|
|
|
(2)
|
The investor would pay
up to $50,000 (including $17,444 paid in May 2019) in exchange for
a perpetual 1.11% rate Payment on the Company’s reported quarterly
Revenues. If the total investor advances turns out to be less than
$50,000, this would not constitute a breach of the agreement,
rather the 1.11% rate would be adjusted on a pro-rata basis. The
investor has agreed to pay the remaining balance in four monthly
installments of $8,014 starting July 1, 2019. At August 31, 2019,
$33,972 has been paid to the Company.
|
These variable payments
(Payments) are to be made 30 days after the fiscal quarter. If the
Payments would deplete RAD’s available cash by more than 30%, the
Payments may be deferred for up to 12 months after the quarterly
report at an interest rate of 6% per annum on the unpaid
amount.
In the event that at
least 10% of the assets of the Company are sold by the Company, the
investors would be entitled to the fair market value (FMV) of all
future Payments associated with the assets sold as determined by an
independent valuator to be chosen by the investors. The FMV cannot
exceed 30% of the total asset disposition price defined as the
total price paid for the assets plus all future Payments associated
with the assets sold. In the event that the common or preferred
shares are sold by the Company to a third party as to effect a
change in control, then the investors must be paid the FMV of all
future Payments in one lump payment. The FMV cannot exceed 30% of
the share disposition price defined as the total price the third
party paid for the shares plus the total value of all future
Payments.
The Payments will first
become payable on June 30, 2019 based on the quarterly Revenues for
the quarter ended May 31, 2019 and will accrue every quarter
thereafter.
The Company retains
total involvement in the generation of cash flows from these
revenue streams that form the basis of the payments to be made to
the investors under this agreement. Because of this, the Company
has determined that the agreements constitute debt agreements. As
of August 31, 2019, the Company has not yet completed its
assessment of the likely cash flows under these agreements, and
thus, has not yet determined the effective interest rate under
these agreements. The Company expects to have completed its
analysis of the expected cash flows prior to the filing of the
fiscal third quarter November 30, 2019 filing. As of August 31,
2019, the Company owes the investors approximately $10,000. No
amounts have been recorded to date as interest, as the amounts are
immaterial. As of August 31, 2019, and February 28, 2019, the
balances under these agreements were $1,012,250 and $192,500,
respectively.
As of the date of these
financial statements the investors had fully funded their
commitments under the agreements.
- 17 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. CONVERTIBLE NOTES PAYABLE
Convertible notes
payable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
Balance
|
|
|
|
|
Interest
|
|
Conversion
|
August
31,
|
|
February
28,
|
Issued
|
|
Maturity
|
|
Rate
|
|
Rate per
Share
|
2019
|
|
2019
|
February 28, 2011
|
|
February 26, 2013 *
|
|
7%
|
|
$0.015
|
|
$—
|
|
$32,600
|
January 31, 2013
|
|
February 28, 2017 *
|
|
10%
|
|
$0.010
|
(3)
|
119,091
|
|
119,091
|
May 31, 2013
|
|
November 30, 2016 *
|
|
10%
|
|
$0.010
|
(3)
|
261,595
|
|
261,595
|
August 31, 2014
|
|
November 30, 2016 *
|
|
10%
|
|
$0.002
|
(3)
|
355,652
|
|
355,652
|
November 30, 2014
|
|
November 30, 2016 *
|
|
10%
|
|
$0.002
|
(3)
|
103,950
|
|
103,950
|
February 28, 2015
|
|
February 28, 2017 *
|
|
10%
|
|
$0.001
|
(3)
|
63,357
|
|
63,357
|
May 31, 2015
|
|
August 31, 2017*
|
|
10%
|
|
$1.000
|
(3)
|
65,383
|
|
65,383
|
August 31, 2015
|
|
August 31, 2017*
|
|
10%
|
|
$0.300
|
(3)
|
91,629
|
|
91,629
|
November 30, 2015
|
|
November 30, 2018*
|
|
10%
|
|
$0.300
|
(3)
|
269,791
|
|
269,791
|
February 29, 2016
|
|
February 28, 2019*
|
|
10%
|
|
60%
discount
|
(2)
|
95,245
|
|
95,245
|
May 31, 2016
|
|
May 31, 2019*
|
|
10%
|
|
$0.003
|
(3)
|
35,100
|
|
35,100
|
July 18, 2016
|
|
July 18, 2017*
|
|
10%
|
|
$0.003
|
(3)
|
3,500
|
|
3,500
|
December 31, 2016
|
|
December 31, 2020
|
|
8%
|
|
35%
discount
|
(2)
|
65,000
|
|
65,000
|
January 15, 2017
|
|
January 15, 2021
|
|
8%
|
|
35%
discount
|
(2)
|
50,000
|
|
50,000
|
January 15, 2017
|
|
January 15, 2021
|
|
8%
|
|
35%
discount
|
(2)
|
100,000
|
|
100,000
|
January 16, 2017
|
|
January 16, 2021
|
|
8%
|
|
35%
discount
|
(2)
|
150,000
|
|
150,000
|
March 8, 2017
|
|
March 8, 2020
|
|
10%
|
|
40%
discount
|
(2)
|
100,000
|
|
100,000
|
March 9, 2017
|
|
March 9, 2021
|
|
8%
|
|
35%
discount
|
(2)
|
50,000
|
|
50,000
|
April 19, 2017
|
|
April 19, 2018*
|
|
15%
|
|
50%
discount
|
(2)
|
—
|
|
96,250
|
April 26, 2017
|
|
April 26, 2018*
|
|
0%
|
|
$0.001
|
|
68
|
|
68
|
May 1, 2017
|
|
May 1, 2021
|
|
8%
|
|
35%
discount
|
(2)
|
50,000
|
|
50,000
|
May 4, 2017
|
|
May 4, 2018*
|
|
8%
|
|
40%
discount
|
(2)
|
35,585
|
|
131,450
|
May 15, 2017
|
|
May 15, 2018*
|
|
0%
|
|
$0.001
|
|
1,280
|
|
1,280
|
May 17, 2017
|
|
May 17, 2020
|
|
10%
|
|
40%
discount
|
(1)
|
85,000
|
|
85,000
|
June 7, 2017
|
|
June 7, 2018*
|
|
8%
|
|
40%
discount
|
(2)
|
156,764
|
|
180,964
|
June 16, 2017
|
|
June 16, 2018*
|
|
0%
|
|
$0.001
|
|
750
|
|
750
|
July 6, 2017
|
|
July 6, 2018*
|
|
8%
|
|
40%
discount
|
(2)
|
200,000
|
|
200,000
|
August 8, 2017
|
|
August 8, 2018*
|
|
8%
|
|
40%
discount
|
(2)
|
125,000
|
|
125,000
|
August 29, 2017
|
|
August 29, 2018*
|
|
15%
|
|
50%
discount
|
(2)
|
147,500
|
|
147,500
|
October 4, 2017
|
|
May 4, 2018*
|
|
8%
|
|
40%
discount
|
(2)
|
150,000
|
|
150,000
|
October 16, 2017
|
|
October 16, 2018*
|
|
15%
|
|
50%
discount
|
(2)
|
175,093
|
|
204,067
|
November 22, 2017
|
|
November 22, 2018*
|
|
15%
|
|
50%
discount
|
(2)
|
500,250
|
|
500,250
|
December 28, 2017
|
|
December 28, 2017*
|
|
10%
|
|
40%
discount
|
(2)
|
28,150
|
|
28,150
|
December 29, 2017
|
|
December 29, 2018*
|
|
15%
|
|
50%
discount
|
(2)
|
330,000
|
|
330,000
|
January 9, 2018
|
|
January 9, 2019*
|
|
8%
|
|
40%
discount
|
(2)(1)
|
79,508
|
|
79,508
|
January 30, 2018
|
|
January 30, 2019*
|
|
15%
|
|
50%
discount
|
(2)(1)
|
300,000
|
|
300,000
|
February 21, 2018
|
|
February 21, 2019*
|
|
15%
|
|
50%
discount
|
(2)(1)
|
300,000
|
|
300,000
|
March 14, 2018
|
|
March 14, 2019*
|
|
10%
|
|
40%
discount
|
(2)
|
50,000
|
|
50,000
|
June 7, 2017
|
|
June 9, 2019*
|
|
8%
|
|
40%
discount
|
(2)
|
200,000
|
|
200,000
|
April 9, 2018
|
|
April 9, 2019*
|
|
15%
|
|
50%
discount
|
(2)
|
55,000
|
|
55,000
|
March 21, 2017
|
|
March 21, 2018*
|
|
8%
|
|
40%
discount
|
(2)
|
40,000
|
|
40,000
|
April 20, 2018
|
|
April 20, 2019*
|
|
8%
|
|
40%
discount
|
(2)
|
97,659
|
|
65,106
|
May 2, 2018
|
|
December 2, 2018*
|
|
10%
|
|
40%
discount
|
(2)
|
70,682
|
|
70,682
|
May 4, 2018
|
|
May 4, 2019*
|
|
12%
|
|
50%
discount
|
(2)
|
123,750
|
|
123,750
|
May 14, 2018
|
|
December 14, 2018*
|
|
10%
|
|
50%
discount
|
(2)
|
33,542
|
|
33,542
|
May 23, 2018
|
|
May 23, 2019*
|
|
10%
|
|
50%
discount
|
(2)
|
110,000
|
|
110,000
|
June 6, 2018
|
|
June 6, 2019*
|
|
15%
|
|
50%
discount
|
(2)
|
282,949
|
|
282,949
|
June 19, 2018
|
|
March 19, 2019*
|
|
15%
|
|
50%
discount
|
(2)
|
87,274
|
|
87,274
|
July 6, 2017
|
|
June 9, 2019*
|
|
8%
|
|
40%
discount
|
(2)
|
200,000
|
|
200,000
|
August 1, 2018
|
|
August 1, 2019*
|
|
15%
|
|
50%
discount
|
(2)
|
32,500
|
|
32,500
|
August 23, 2018
|
|
August 23, 2019*
|
|
8%
|
|
45%
discount
|
(2)
|
70,123
|
|
77,435
|
September 13, 2018
|
|
June 30, 2019*
|
|
12%
|
|
45%
discount
|
(2)
|
9,200
|
|
79,500
|
September 17, 2018
|
|
March 17, 2019*
|
|
10%
|
|
50%
discount
|
(2)
|
4,945
|
|
4,945
|
September 20, 2018
|
|
September 20, 2019
|
|
15%
|
|
50%
discount
|
(2)
|
34,950
|
|
39,350
|
September 24, 2018
|
|
June 24, 2019*
|
|
8%
|
|
40%
discount
|
(2)
|
44,000
|
|
44,000
|
August 8, 2017
|
|
June 9, 2019*
|
|
8%
|
|
40%
discount
|
(2)
|
125,000
|
|
125,000
|
November 8, 2018
|
|
August 15, 2019*
|
|
12%
|
|
45%
discount
|
(2)
|
79,500
|
|
79,500
|
November 26, 2018
|
|
May 26, 2019*
|
|
10%
|
|
50%
discount
|
(2)
|
44,799
|
|
44,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,440,114
|
|
6,767,461
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of
convertible notes payable
|
|
(5,875,114)
|
|
(6,202,461)
|
Less: discount on noncurrent
convertible notes payable
|
|
(213,510)
|
|
(302,105)
|
Noncurrent convertible notes
payable, net of discount
|
|
$351,490
|
|
$262,895
|
|
|
|
|
|
Current portion of
convertible notes payable
|
|
$5,875,114
|
|
$6,202,461
|
Less: discount on current
portion of convertible notes payable
|
|
(60,960)
|
|
(718,015)
|
Current portion of
convertible notes payable, net of discount
|
|
$5,814,154
|
|
$5,484,446
|
- 18 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
__________
|
|
*
|
The indicated notes were
in default as of August 31, 2019. Default interest rate 24%
|
|
|
(1)
|
The note is convertible
beginning six months after the date of issuance.
|
|
|
(2)
|
The notes are
convertible at a discount (as indicated) to the average market
price and are accounted for and evaluated under ASC 480 as
discussed in Note 3.
|
|
|
(3)
|
The conversion price is
not subject to adjustment from forward or reverse stock splits.
|
During the three months
ended August 31, 2019 and 2019, the Company incurred original issue
discounts of $0 and $13,960, respectively, and derivative discounts
of $0 and $123,401, respectively, related to new convertible notes
payable. These amounts are included in discounts on convertible
notes payable and are being amortized to interest expense over the
life of the convertible notes payable. During the three months
ended August 31, 2019 and 2018, the Company recognized
interest expense related to the amortization of debt discount of
$161,870 and $1,218,459, respectively. The Company recorded penalty
interest of $35,265 during the three months ended August 31,
2018.
During the six months
ended August 31, 2019 and 2018, the Company incurred original issue
discounts of $0 and $62,853, respectively, and derivative discounts
of $0 and $924,009, respectively, related to new convertible notes
payable. These amounts are included in discounts on convertible
notes payable and are being amortized to interest expense over the
life of the convertible notes payable. During the six months ended
August 31, 2019 and 2018, the Company recognized interest expense
related to the amortization of debt discount of $660,100 and
$2,352,222, respectively. The Company recorded penalty interest of
$32,553 and $221,055 during the six months ended August 31, 2019
and August 31, 2018, respectively.
All the notes above are
unsecured. As of August 31, 2019, the Company had total accrued
interest payable of $1,760,352, of which $1,651,214 is classified
as current and $109,138 is classified as noncurrent.
The Company determined
that the embedded conversion features in the convertibles notes
described below should be accounted for as derivative liabilities
as a result of their variable conversion rates.
During the six months
ended August 31, 2019, the Company also had the following
convertible note activity:
|
|
●
|
The Company wrote off a
note payable for $32,600 and related interest of $97,139. The note
has matured in February 2013, the company cannot contact the
lender and the note is legally prescribed. A gain on settlement of
debt of $129,739 was recorded..
|
|
|
●
|
The company recorded a
$32,553 penalty as increase on the 4/20/2018 note, with a
corresponding charge to interest.
|
|
|
●
|
During the six months
ended August 31, 2019, holders of certain convertible notes payable
elected to convert a total of $327,302 of principal and $66,895
accrued interest, and $500 of fees into 1,164,044,625 shares of
common stock. No gain or loss was recognized on conversions as they
occurred within the terms of the agreement that provided for
conversion.
|
12. RELATED PARTY
TRANSACTIONS
For the six months ended
August 31, 2019 and 2018, the Company received net advances of
$159,526 and $135,908, respectively, from its loan payable-related
party. At August 31, 2019, the loan payable-related party was
$1,153,904 and $782,844 at February 28, 2019. At August 31, 2019,
included in the balance due to the related party is $526,633 of
deferred salary and interest, $331,602 of which bears interest at
12%. At February 28, 2019, included in the balance due to the
related party is $352,392 of deferred salary and interest, $210,000
of which bears interest at 12%. The accrued interest included at
August 31, 2019 and February 28, 2019 was $34,917 and $13,650,
respectively.
- 19 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During the three and six
months ended August 31, 2019 the Company paid $54,222 and
$(42,852), respectively in consulting fees for research and
development to a company owned by a principal shareholder. The
credit received in the quarter ended May 31, 2019 were a result of
billing corrections of ($106,444) and after adjusting for this,
would bring total charges in the six months ended August 31, 2019
to $63,592. During the three and six months ended August 31, 2018,
the Company paid $60,768 and $196,108 in consulting fees for
research and development to a company owned by a principal
shareholder.
13. OTHER DEBT –
VEHICLE LOAN
In December 2016, RAD
entered into a vehicle loan for $47,704 secured by the vehicle. The
loan is repayable over 5 years maturing November 9, 2021, and
repayable $1,019 per month including interest and principal. In
November 2017, RAD entered into another vehicle loan secured by the
vehicle for $47,661. The loan is repayable over 5 years, maturing
October 24, 2022 and repayable at $923 per month including interest
and principal. The principal repayments were $0 and $8,984 for the
six months ended August 31, 2019 and 2018, respectively. Regarding
the second vehicle loan, the vehicle was returned at the end of
fiscal 2019 and the car was subsequently sold by the lender for
proceeds of $21,907 which went to reduce the outstanding balance of
the loan. A loss of $3,257 was recorded as well. A balance of
$21,578 remains on this vehicle loan at August 31, 2019. The
remaining total balances of the amounts owed on the vehicle loans
were $57,286 and $57,287 as of August 31, 2019 and February 28,
2019, respectively, of which all is current. The Company ceased
making payments of principal and interest during the year and the
company will return the remaining vehicle to the financing company
for disposal in the upcoming months. The company has re-allocated
the remaining vehicle from fixed assets to vehicles for disposal at
the remaining net book value of $13,251 at August 31, 2019 and
February 28, 2019.
14. LOANS
PAYABLE
Loans payable consisted
of the following at August 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
|
|
|
|
|
Interest
|
|
Date
|
Maturity
|
Description
|
|
Principal
|
Rate
|
|
June 11, 2018
|
June 11, 2019
|
Promissory note
|
(3)
|
48,000
|
25%
|
*
|
August 10, 2018
|
September 1, 2018
|
Promissory note
|
|
10,000
|
25%
|
*
|
August 16, 2018
|
August 16, 2019
|
Promissory note
|
(1)
|
22,624
|
25%
|
*
|
August 16, 2018
|
October 1, 2018
|
Promissory note
|
|
10,000
|
25%
|
*
|
August 23, 2018
|
October 20, 2018
|
Promissory note
|
|
5,506
|
20%
|
*
|
October 10, 2018
|
December 10, 2018
|
Promissory note
|
(8)
|
4,956
|
20%
|
*
|
October 11, 2018
|
October 11, 2019
|
Promissory note
|
(10)
|
23,000
|
20%
|
|
August 5, 2019
|
March 11, 2020
|
Factoring Agreement
|
(4)
|
70,725
|
(4)
|
|
July 22, 2019
|
November 15, 2019
|
Factoring Agreement
|
(9)
|
27,813
|
(9)
|
|
July 9, 2019
|
January 5, 2020
|
Factoring Agreement
|
(5)
|
28,843
|
(5)
|
|
January 31, 2019
|
June 30, 2019
|
Promissory note
|
(2)
|
78,432
|
15%
|
*
|
January 24, 2019
|
January 24,2021
|
Loan
|
(11)
|
140,535
|
11%
|
|
May 9, 2019
|
June 30, 2019
|
Promissory note
|
(6)
|
7,850
|
15%
|
*
|
May 31, 2019
|
June 30, 2019
|
Promissory note
|
(7)
|
86,567
|
15%
|
*
|
June 26, 2019
|
June 26, 2020
|
Promissory note
|
(12)
|
79,104
|
15%
|
|
|
|
|
|
643,955
|
|
|
Less current portion of loans payable
|
|
|
140,535
|
|
|
Non-current portion of loans payable
|
|
|
503,420
|
|
|
__________
|
|
*
|
Note is in default. No
notice has been given by the note holder.
|
|
|
(1)
|
Repayable in 12 monthly
instalments of $2,376 commencing September 16, 2018 and secured by
revenue earning devices having a net book value of at least
$25,000.Only one $2,376 repayment has been made by the Company and
no notices have been received. Accrued interest of $795 has been
recorded this quarter.
|
|
|
(2)
|
The note may be
pre-payable at any time. The note balance includes 33% original
issue discount of $25,882.
|
- 20 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(3)
|
Repayable in 12 monthly
instalments of $4,562 commencing August 11, 2018 and secured by
revenue earning devices having a net book value of at least
$48,000. No repayments have been made by the Company and no notices
have been received.
|
|
|
(4)
|
Total loan $79,750,
repayable $475 per business day including fees and interest of
$25,170. Original cash proceeds of $31,353 and $23,227 carried from
previous loan less repayment of $9,025. Previous loan ending
December 19, 2019 of $31,080 including additional interest and fees
of $11,111 was repaid this quarter. The Company has pledged a
security interest on all accounts receivable and bank accounts of
the Company. Obligation under personal guaranty bv the controlling
shareholder of the Company.
|
|
|
(5)
|
Total loan of $41.700,
repayable $348 per business day including fees and interest of
$11,700. Original proceeds of $30,000 less repayment of $12,058.The
Company has pledged a security interest on all accounts receivable
and bank accounts of the Company. Obligation under personal
guarantee by the controlling shareholder of the Company.
|
(6)
|
The note may be
pre-payable at any time. The note balance includes 33% original
issue discount of $2,590.
|
|
|
(7)
|
The note may be
pre-payable at any time. The note balance includes 33% original
issue discount of $28,567.
|
|
|
(8)
|
Repayable in 10 monthly
instalments of $848 commencing January 10, 2019 and secured by
revenue earning devices having a net book value of at least
$186,000. $2,544 repaid this quarter.
|
|
|
(9)
|
Total loan $52,150,
repayable $869 per business day including fees and interest of
$17,150. Original cash proceeds of $35,000 less repayment of
24,337. The Company has pledged a security interest on all accounts
receivable and bank accounts of the Company. Obligation under
personal guaranty bv the controlling shareholder of the
Company.
|
|
|
(10)
|
$20,000 repaid in
quarter ended February 28, 2019.
|
|
|
(11)
|
$185,000 Canadian loan.
Interest payable every calendar quarter commencing June30, 2019, if
unpaid accrued interest to be paid at maturity. An additional
interest amount calculated as 4% of RAD revenues from SCOT rentals
for the fiscal years 2020 and 2021 shall be payable March 31, 2020
and March 31, 2021, respectively. Secured by a general security
charging all of RAD’s present and after-acquired property in favour
of the lender on a first priority basis subject to the following:
the lender’s security in this respect shall be post-poneable to
security in favour of institutional financing obtained by RAD.
|
|
|
(12)
|
The note may be
pre-payable at any time. The note balance includes 33% original
issue discount of $26,104.
|
During the six months
ended August 31, 2019 the Company received proceeds of $263,429 and
repaid $100,038 of loan payable.
During the three months
ended August 31, 2019 the Company received proceeds of $159,573 and
repaid $69,498 of loan payable.
15. DERIVATIVE
LIABILITES
As of August 31, 2019,
the Company revalued the fair value of all of the Company’s
derivative liabilities associated with the conversion features on
the convertible notes payable and determined that it had a total
derivative liability of $3,310,254.
The Company estimated
the fair value of the derivative liabilities using the multinomial
lattice model using the following key assumptions during the six
months ended August 31, 2019:
|
|
Strike price
|
$1.00 - $0.001
|
Fair value of Company common stock
|
$0.0003 - $0.0015
|
Dividend yield
|
0.00%
|
Expected volatility
|
293.32% - 183.6%
|
Risk free interest
rate
|
1.20% - 2.58%
|
Expected term
(years)
|
0.05 - 3.12
|
- 21 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During the three and six
months ended August 31, 2019, the Company released $228,634 and
$383,318, respectively, of the Company’s derivative liability to
equity due to the conversions of principal and interest on the
associated notes. During the three and six months ended August 31,
2018, the Company released $75,092 and $757,222, respectively, of
the Company’s derivative liability to equity due to the conversions
of principal and interest on the associated notes.
The changes in the
derivative liabilities (Level 3 financial instruments) measured at
fair value on a recurring basis for the six months ended August 31,
2019 were as follows:
|
|
|
|
Balance as of February 28, 2019
|
$
|
6,170,139
|
|
Release of derivative liability on conversion
of convertible notes payable
|
|
(383,318
|
)
|
Change in fair value of derivative
liabilities
|
|
(2,476,567
|
)
|
Balance as of August 31, 2019
|
$
|
3,310,254
|
|
16. STOCKHOLDERS’
EQUITY (DEFICIT)
Summary of Common
Stock Activity
On April 23, 2019 the
Board of Directors approved an increase in authorized share capital
to 5,000,000,000 shares of common stock and to change the par value
of the common stock to $0.00001 per share. This became effective on
June 20, 2019. The share capital has been retrospectively adjusted
accordingly to reflect this change in par value.
On April 23, 2019 the
Board of Directors were granted approval to effectuate at its sole
discretion a Reverse Stock Split of the Company’s Common Stock, by
a ratio of no less than 2:1 and not more than 2000:1, with such
ratio to be determined at the sole discretion of the Board and with
the process to effect such Reverse Split to be commenced at any
time, if at all, within a period of 6 months after May 31, 2019. As
of this filing no Reverse splits have been authorized by the Board
of Directors.
During the six months
ended August 31, 2019, the Company issued 1,164,044,625 shares of
its common stock for the conversion of debt and related interest
and fees totaling $394.697 including $327,302 of principal and
$66,895 accrued interest, and $500 of fees in connection with debt
converted during the period, as well as the release of the related
derivative liability (see Note 15).
Summary of Stock
Option Activity
|
|
|
|
|
|
|
|
|
Number of Warrants
|
|
Weighted Average Exercise
Price
|
|
Weighted Average Remaining
Years
|
|
|
|
|
|
|
|
Outstanding at March 1, 2019
|
|
20,436,309
|
|
$ 0.01
|
|
2.56
|
Issued
|
|
—
|
|
—
|
|
—
|
Exercised
|
|
—
|
|
—
|
|
—
|
Forfeited and cancelled
|
|
—
|
|
—
|
|
—
|
Outstanding at August 31, 2019
|
|
20,436,309
|
|
$ 0.01
|
|
2.31
|
For the six months ended
August 31, 2019 and August 31, 2018, the Company recorded a total
of $0 and $9,571, respectively, to stock-based compensation for
options and warrants with a corresponding adjustment to additional
paid-in capital.
- 22 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
17. COMMITMENTS AND
CONTINGENCIES
Litigation
Occasionally, the
Company may be involved in claims and legal proceedings arising
from the ordinary course of its business. The Company records a
provision for a liability when it believes that is both probable
that a liability has been incurred, and the amount can be
reasonably estimated. If these estimates and assumptions change or
prove to be incorrect, it could have a material impact on the
Company’s condensed consolidated financial statements.
Contingencies are inherently unpredictable, and the assessments of
the value can involve a series of complex judgments about future
events and can rely heavily on estimates and assumptions.
In April 2019 the
principals of WeSecure (see Note 8) filed lawsuit in California
Superior Court seeking damages for non-payment balance of sale of
WeSecure assets totaling $25,000, unpaid consulting fees payable to
the two principals through to September 2019 totaling $125,924, and
labor code violations of $48,434 all totaling $199,358 plus
attorney’s fees and damages. The parties finally settled all claims
with a full release for $180,000 in June 2019 payable in 14 monthly
instalments as follows:
|
|
|
|
|
|
|
2019
|
|
2020
|
|
Total
|
6/30/19
|
$5,000
|
|
1/26/2020
|
$15,000
|
|
|
7/30/19
|
$5,000
|
|
2/25/2020
|
$15,000
|
|
|
8/29/19
|
$7,500
|
|
3/26/2020
|
$15,000
|
|
|
9/28/19
|
$7,500
|
|
4/25/2020
|
$15,000
|
|
|
10/28/19
|
$10,000
|
|
5/25/2020
|
$20,000
|
|
|
11/27/19
|
$10,000
|
|
6/25/2020
|
$20,000
|
|
|
12/27/19
|
$15,000
|
|
7/24/2020
|
$20,000
|
|
|
|
|
|
|
|
|
|
Total
|
$60,000
|
|
|
$120,000
|
|
$180,000
|
The company has fully
accrued the above $180,000.
As of October 14, 2019
the Company has paid $17,500. As of filing the September through
November instalments are in arrears.
The related legal costs
are expensed as incurred.
The Company currently
maintains an office at 1218-1222 Magnolia Ave, Suite 106 Bldg. H,
Corona, California 92881 pursuant to a month to month lease
commencing March 1, 2019. The Company’s annual rent is $12,000 per
year.
RAD maintains a mailing
address for 31103 Ranch Viejo Road, Suite d2114 for a nominal fee
of $264/yr. RAD previously had its offices at 23121 La Cadena Suite
B/C Laguna Hills, California 92675, pursuant to a five-year term
ending March 31, 2022. Its annual rental cost for this facility was
approximately $65,000, plus a proportionate share of operating
expenses of approximately $35,000 annually. The Company also leased
premises in northern California. The lease was for three years,
beginning in August 2017, and would expire in August 2020. The
Company shared these premises with a former supplier who was the
co-lessee. Through agreement with the supplier, the Company was to
pay 75% of the lease costs and the supplier was to pay 25%. The
Company’s share of rent costs was approximately $43,000 annually.
On February 1, 2018 the
Company entered into an additional lease for premises for a robotic
control center. The lease ran from February 1, 2018 to January 31,
2021 for $6,600 annually. At the end of fiscal 2019 the Company
terminated all three preceding leases through verbal arrangement
with the landlord. Regarding the lease at La Cadena, the Company
agreed to a settlement amount to cover unpaid rent, commissions and
leasehold improvements paid by the landlord totaling $62,039 to be
paid by the Company in 4 monthly instalments of $5,000 commencing
August 1, 2019 with the remaining balance to be paid in $10,000
monthly instalments thereafter. The Company recorded the $62,039 as
a loss on settlement. No further liability was recorded for both
the northern California and robotic control center
leases.
- 23 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company’s leases are
accounted for as operating leases. Rent expense is recorded over
the lease terms on a straight-line basis. Rent expense was $1,000
and $4,000 for the three and six months ended August 31, 2019,
respectively and $30,157 and $59,762 for the three and six months
ended August 31, 2018, respectively.
At August 31, 2019 there
were no Company’s future minimum payments.
Convertible Notes
Payable
Certain convertible
notes payable carry conditions whereby in the event of ant default
of any condition the Company would be subject to certain financial
penalties.
18. EARNINGS (LOSS)
PER SHARE
The net income (loss)
per common share amounts were determined as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
For the Six Months
Ended
|
|
|
|
August 31,
|
|
August 31,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common shareholders
|
|
|
(375,234
|
)
|
|
(4,674,309
|
)
|
|
315,372
|
|
|
10,203,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of common stock equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: interest expense on convertible debt
|
|
|
150,848
|
|
|
—
|
|
|
281,204
|
|
|
410,184
|
|
Add (less) loss (gain) on change of derivative liabilities
|
|
|
(712,466
|
)
|
|
—
|
|
|
(2,476,567
|
)
|
|
(15,992,640
|
)
|
Net income (loss) adjusted for common stock equivalents
|
|
|
(936,852
|
)
|
|
(4,674,309
|
)
|
|
(1,879,991
|
)
|
|
(5,378,854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares – basic
|
|
|
543,026,486
|
|
|
1,878,320
|
|
|
305,487,172
|
|
|
1,594,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic
|
|
$
|
(0.00
|
)
|
$
|
(2.49
|
)
|
$
|
(0.01
|
)
|
$
|
6.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
—
|
|
|
1,357,411
|
|
|
—
|
|
|
16,436
|
|
Convertible Debt
|
|
|
9,406,564,462
|
|
|
1,781,310,333
|
|
|
9,406,564,462
|
|
|
553,933,579
|
|
Preferred shares*
|
|
|
4,706,857,132
|
|
|
542,550,095
|
|
|
4,706,857,132
|
|
|
9,377,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares – diluted
|
|
|
14,782,274,832
|
|
|
2,327,096,159
|
|
|
14,418,908,766
|
|
|
564,921,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – diluted
|
|
$
|
(0.00
|
)
|
$
|
(2.49
|
)
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
- 24 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDEDNSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
18. SUBSEQUENT EVENTS
Subsequent to August 31,
2019:
|
|
|
|
-
|
convertible note holders
converted $234,904 principal, and $110,965 interest into
2,300,380,444 shares of the Company’s common stock.
|
|
|
|
|
-
|
the Company entered into
a factoring loan on September 17, 2019 with a 10 week maturity
totaling $24,000 including cash proceeds of $20,000 and $4,000 in
interest and fees. Repayable $2,480 per week with $9,920 repaid to
date.
|
|
|
|
|
-
|
the Company entered into
a factoring loan on September 27, 2019 with a 5 month maturity
totaling $59,600 including cash proceeds of $40,000 and $19,600 in
interest and fees Repayable $590 per business day with $5,905
repaid to date.
|
|
|
|
|
-
|
On September 5, 2019,
the Company received $25,000 of proceeds from an investor for a
promissory note with a principal amount of $26,250, maturing on
August 29, 2020. The promissory note is convertible into common
shares of the Company at a conversion price equal to 60% of the
lowest trading price of the Company’s common stock for the last 20
trading days prior to conversion, and has a 8% per annum interest
rate.
|
|
|
|
|
-
|
the Company repaid
$66,127 in various other loans.
|
|
|
|
|
-
|
the Company received
$194,250 from investors in advances on the deferred variable
payment obligation.
|
- 25 -
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking
Statements
The following discussion
of our financial condition and results of operations for the six
months ended August 31, 2019 and August 31, 2018 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, 2019, as filed on
August 26, 2019 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
Artificial Intelligence
Technology Solutions Inc. (formerly On the Move Systems Corp.) was
incorporated in Florida on March 25, 2010 and reincorporated in
Nevada on February 17, 2015. On August 24, 2018 AITX changed
its name from On the Move Systems Corp. (“OMVS”).
Robotic Assistance
Devices, LLC (“RAD”), was incorporated in the State of Nevada on
July 26, 2016 as a LLC. On July 25, 2017, Robotic Assistance
Devices LLC converted to a C Corporation, Robotic Assistance
Devices, Inc. through the issuance of its 10,000 authorized common
shares to its sole shareholder.
On August 28, 2017, AITX
completed the acquisition of RAD (the “Acquisition”), whereby AITX
acquired all the ownership and equity interest in RAD for 3,350,000
shares of AITX Series E Preferred Stock and 2,450 shares of Series
F Convertible Preferred Stock. AITX’s prior business focus was
transportation services, and AITX was exploring the on-demand
logistics market by developing a network of logistics partnerships.
As a result of the closing of the Acquisition, AITX has succeeded
to the business of RAD, in which AITX purchased all of the
outstanding shares of capital stock of RAD. As a result, AITX’s
business going forward will consist of one segment activity which
is the delivery of artificial intelligence and robotic solutions
for operational, security and monitoring needs.
The Acquisition was
treated as a reverse recapitalization effected by a share exchange
for financial accounting and reporting purposes since substantially
all of AITX’s operations were disposed of as part of the
consummation of the transaction. Therefore, no goodwill or other
intangible assets were recorded by AITX as a result of the
Acquisition. RAD is treated as the accounting acquirer as its
stockholders control the Company after the Acquisition, even though
AITX was the legal acquirer. As a result, the assets and
liabilities and the historical operations that are reflected in
these financial statements are those of RAD as if RAD had always
been the reporting company.
- 26 -
Results of
Operations for the Three Months Ended August 31, 2019 and
2018
The following table
shows our results of operations for the three months ended August
31, 2019 and 2018. The historical results presented below are not
necessarily indicative of the results that may be expected for any
future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Change
|
|
|
|
Three Months
Ended
August 31, 2019
|
|
Three Months
Ended
August 31, 2018
|
|
Dollars
|
|
Percentage
|
|
Revenues
|
|
$
|
75,024
|
|
$
|
10,175
|
|
$
|
64,849
|
|
637%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
75,024
|
|
|
(21,075
|
)
|
|
96,099
|
|
(456%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
637,705
|
|
|
939,552
|
|
|
(301,847
|
)
|
(32%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(562,681
|
)
|
|
(960,627
|
)
|
|
397,946
|
|
(41%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
187,447
|
|
|
(3,713,682
|
)
|
|
3,901,129
|
|
105%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(375,234
|
)
|
$
|
(4,674,309
|
)
|
$
|
4,299,075
|
|
(92%
|
)
|
Revenue
Total revenue for the
three-month period ended August 31, 2019 was $75,024 which
represented an increase of $64,489, compared to total revenue of
$10,175 for the three months ended August 31, 2018. As the Company
only began its rental activities of its new products in the quarter
ended May 31, 2018 this 637% increase is a result of both a natural
increase in business over time and a larger product line.
Gross profit
Total gross profit for
the three-month period ended August 31, 2019 was $75,024 which
represented an increase of $96,099, compared to gross loss of
$21,075 for the three months ended August 31, 2018. The increase
resulted primarily from the increased revenues noted above.
Operating Expenses
Our operating expenses
were comprised of general and administrative expenses, research and
development, and depreciation. General and administrative expenses
consisted primarily of professional services, automobile expenses,
advertising, salaries and wages, travel expenses and rent. Our
operating expenses during the three-month period ended August
31, 2019 and August 31, 2018, were $637,705 and $939,552,
respectively. The overall decrease of $301,847 was primarily
attributable to the following changes in operating expenses of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Change
|
|
|
|
Three Months
Ended
August 31, 2019
|
|
Three Months
Ended
August 31, 2018
|
|
Dollars
|
|
Percentage
|
|
Research and development
|
|
$
|
108,097
|
|
$
|
64,501
|
|
$
|
43,596
|
|
68%
|
|
General and administrative
|
|
|
504,358
|
|
|
840,752
|
|
|
(336,394
|
)
|
(40%
|
)
|
Depreciation and amortization
|
|
|
25,250
|
|
|
29,560
|
|
|
(4,310
|
)
|
(15%
|
)
|
Loss on impairment of fixed assets
|
|
|
—
|
|
|
4,739
|
|
|
(4,739
|
)
|
(100%
|
)
|
Operating expenses
|
|
$
|
637,705
|
|
$
|
939,552
|
|
$
|
(301,847
|
)
|
(32%
|
)
|
- 27 -
|
|
●
|
General and
administrative expenses decreased by decreased by $336,394. In
comparing the three months ended August 31, 2019 and August 31,
2018 this decrease was primarily due to decreases in wages and
salaries of $259,385 as the company had only one management
employee in 2019 and used consultants for other duties whereas in
2018 there were 15 employees. This decrease in salary was partially
offset by increases in fees paid to subcontractors which increased
88,114. The decrease in personnel also lead to a decrease in
insurance costs by $68,603. Also, professional fees decreased by
$29,543 mostly due to a reduction in auditor fees, trade show
expenses and travel decreased by $13,737 as the Company had more
trade shows in 2018 introducing new SCOT and other upcoming
products, and rent decreased by $25,556 due the company going from
renting 3 locations in 2018 to only one new location in 2019 as
disclosed in Note 17.
|
|
|
●
|
Research and development
increased by $43,596 for the 3 months ended August 31, 2019 due to
more product development on new products being done this period as
compared to the prior year’s
comparative period.
|
|
|
●
|
Depreciation and
amortization decreased by $4,310. There were no significant changes
in fixed assets.
|
Other Income (Expense)
Other income (expense)
consisted of the change of fair value of derivative instruments and
interest. Other income (expense) during the three months ended
August 31, 2019 and August 31, 2018, was $187,447 and $(3,713,682),
respectively. The $3,901,129 increase in other income was primarily
attributable to the change in the fair value of derivatives,
interest expense, including interest expense related to derivative
liability in excess of the face value of debt) and loss on
settlement of debt. Fair value of derivatives was largely affected
by the decrease in the market price of the Company’s common
stock during the current period.
|
|
●
|
Change in fair value of
derivative liabilities increased by $2,571,719 due to the
re-valuation of derivative liability on convertible notes based on
the change in the market price of the Company’s common
stock.
|
|
|
●
|
Interest expense
decreased by $1,006,655 due to a decrease in interest expense
related to the derivative liability in excess of debt and a
decrease in debt discounts that was partially offset by an increase
in interest expense on debt.
|
|
|
●
|
Loss on settlement of
debt decreased by $322,755 due to a decrease in the number and
amount of debt settlements this quarter over the prior
year’s
quarter.
|
Net incomes
We had net loss of
$375,234 for the three months ended August 31, 2019, compared to
net loss of $4,674,309 for the three months ended August 31, 2018.
The change is primarily the result of the change in the fair value
of the derivative liabilities and other items discussed above.
Results of
Operations for the Six Months Ended August 31, 2019 and
2018
The following table
shows our results of operations for the six months ended August 31,
2019 and 2018. The historical results presented below are not
necessarily indicative of the results that may be expected for any
future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Change
|
|
|
|
Six Months
Ended
August 31, 2019
|
|
Six Months
Ended
August 31, 2018
|
|
Dollars
|
|
Percentage
|
|
Revenues
|
|
$
|
115,329
|
|
$
|
26,841
|
|
$
|
88,488
|
|
330%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
115,126
|
|
|
(8,668
|
)
|
|
123,794
|
|
1428%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
1,006,861
|
|
|
2,041,002
|
|
|
(1,034,141
|
)
|
(51%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(891,735
|
)
|
|
(2,049,670
|
)
|
|
1,157,935
|
|
(56%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
1,207,107
|
|
|
12,253,272
|
|
|
(11,046,165
|
)
|
90%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
315,372
|
|
$
|
10,203,602
|
|
$
|
(9,888,230
|
)
|
(97%
|
)
|
- 28 -
Revenue
Total revenue for the
six-month period ended August 31, 2019 was $115,329 which
represented an increase of $84,448, compared to total revenue of
$26,841 for the six months ended August 31, 2018. As the Company
only began its rental activities of its new products in the quarter
ended May 31, 2018 this 330% increase is a result of both a natural
increase in business over time and a larger product line.
Gross profit
Total gross profit for
the six-month period ended August 31, 2019 was $115,126 which
represented an increase of $123,794, compared to gross loss of
$8,075 for the six months ended August 31, 2018. The increase
resulted primarily from the increased revenues noted above.
Operating Expenses
Our operating expenses
were comprised of general and administrative expenses, research and
development, and depreciation. General and administrative expenses
consisted primarily of professional services, automobile expenses,
advertising, salaries and wages, travel expenses and rent. Our
operating expenses during the six-month period ended August
31, 2019 and August 31, 2018, were $1,006,861 and $2,041,002,
respectively. The overall decrease of $1,034,141 was primarily
attributable to the following changes in operating expenses of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Change
|
|
|
|
Six Months
Ended
August 31, 2019
|
|
Six Months
Ended
August 31, 2018
|
|
Dollars
|
|
Percentage
|
|
Research and development
|
|
$
|
55,944
|
|
$
|
233,131
|
|
$
|
(177,187
|
)
|
(76%
|
)
|
General and administrative
|
|
|
904,449
|
|
|
1,751,719
|
|
|
(847,270
|
)
|
(48%
|
)
|
Depreciation and amortization
|
|
|
46,468
|
|
|
51,413
|
|
|
(4,945
|
)
|
(10%
|
)
|
Loss on impairment of fixed assets
|
|
|
—
|
|
|
4,739
|
|
|
(4,739
|
)
|
(100%
|
)
|
Operating expenses
|
|
$
|
1,006,861
|
|
$
|
2,041,002
|
|
$
|
(1,034,141
|
)
|
(51%
|
)
|
|
|
●
|
General and
administrative expenses decreased by $847,270. In comparing the six
months ended August 31, 2019 and August 31, 2018 this decrease was
primarily due to decreases in wages and salaries of $540,025 as the
company had only one management employee in 2019 and used
consultants for other duties whereas in 2018 there were 15
employees. This decrease in salary was partially offset by
increases in fees paid to subcontractors which increased 189,654.
The decrease in personnel also lead to a decrease in insurance
costs by $71,955. Also, professional fees decreased by $86,463
mostly due to a reduction in auditor fees, trade show expenses
decreased by $129,895 as the Company had more trade shows in 2018
introducing new SCOT and other upcoming products, travel decreased
by $43,480 and rent decreased by $55,762 due the company going from
renting 3 locations in 2018 to only one new location in 2019 as
disclosed in Note 17.
|
|
|
●
|
Research and development
decreased by $177,187 due to credits received in the quarter ended
May 31, 2019 that were a result of billing corrections of
($106,444) and the charges in the six months ended August 31, 2019
were $162,388 compared to $233,131 for the prior year’s six month
period. This decrease was due to less product development being
done overall this period as in 2018 the new product line was being
developed.
|
|
|
●
|
Depreciation and
amortization decreased by $4,945. There were no significant changes
in fixed assets.
|
|
|
●
|
Loss on impairment of
fixed assets decreased by $4,739. There were no fixed asset
impairments in 2019.
|
Other Income (Expense)
Other income (expense)
consisted of the change of fair value of derivative instruments and
interest. Other income during the six months ended August 31, 2019
and August 31, 2018, was $1,207,107 and $12,253,272, respectively.
The $11,046,165 increase in other income was primarily attributable
to the change in the fair value of derivatives, interest expense,
including interest expense related to derivative liability in
excess of the face value of debt) and loss on settlement of debt.
Fair value of derivatives was largely affected by the decrease in
the market price of the Company’s common
stock during the current period.
- 29 -
|
|
●
|
Change in fair value of
derivative liabilities increased by $13,516,073 due to the
re-valuation of derivative liability on convertible notes based on
the change in the market price of the Company’s common
stock.
|
|
|
●
|
Interest expense
decreased by $2,302,789 due to a decrease in interest expense
related to the derivative liability in excess of debt and a
decrease in debt discounts that was partially offset by an increase
in interest expense on debt.
|
|
|
●
|
Gain on settlement of
debt increased by $167,119 due to a decrease in the number and
amount of debt settlements this quarter over the prior
year’s
quarter.
|
Net incomes
We had net income of
$315,372 for the six months ended August 31, 2019, compared to net
income of $10,203,602 for the six months ended August 31, 2019. The
change is primarily the result of the change in the fair value of
the derivative liabilities and other items discussed above.
Liquidity, Capital
Resources and Cash Flows
Management believes that
we will continue to incur losses for the immediate future.
Therefore, we will need additional equity or debt financing until
we can achieve profitability and positive cash flows from operating
activities, if ever. These conditions raise substantial doubt about
our ability to continue as a going concern. Our unaudited condensed
consolidated financial statements do not include and adjustments
relating to the recovery of assets or the classification of
liabilities that may be necessary should we be unable to continue
as a going concern. For the six months ended August 31, 2019, we
have generated revenue and are trying to achieve positive cash
flows from operations.
As of August 31, 2019,
we had a cash balance of $5,575, accounts receivable of $57,186 and
$13,689,064 in current liabilities. At the current cash consumption
rate, we may need to consider additional funding sources going
forward. We are taking proactive measures to reduce operating
expenses and drive growth in revenue.
The successful outcome
of future activities cannot be determined at this time and there is
no assurance that, if achieved, we will have sufficient funds to
execute our intended business plan or generate positive operating
results.
Capital
Resources
The following table
summarizes total current assets, liabilities and working capital
(deficit) for the periods indicated:
|
|
|
|
|
|
|
|
|
|
August 31, 2019
|
|
February 28, 2019
|
|
Current assets
|
|
$
|
254,874
|
|
$
|
366,681
|
|
Current liabilities(1)
|
|
|
13,689,064
|
|
|
15,743,601
|
|
Working capital
|
|
$
|
(13,434,190
|
)
|
$
|
(15,376,920
|
)
|
__________
|
|
(1)
|
As of August 31, 2019
and February 28, 2019, current liabilities included approximately
$3.3 million and $6.2 million, respectively, of derivative
liabilities that are expected to be settled in shares of the
Company in accordance with the various conversion terms.
|
As of August 31, 2019
and February 28, 2019, we had a cash balance of $5,575 and $21,192,
respectively.
Summary of Cash
Flows
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
August 31, 2019
|
|
Six Months
Ended
August 31, 2018
|
|
Net cash used in operating activities
|
|
$
|
(1,134,712
|
)
|
$
|
(1,109,694
|
)
|
Net cash used in investing activities
|
|
$
|
(23,572
|
)
|
$
|
(188,765
|
)
|
Net cash provided by financing activities
|
|
$
|
1,142,667
|
|
$
|
1,290,142
|
|
- 30 -
Net cash used in
operating activities.
Net cash used in
operating activities for the six months ended August 31, 2019 was
$1,134,712, which included a net income of $315,372, non-cash
activity such as the change in fair value of derivative liabilities
of ($2,476,567), gain on settlement of debt of ($112,509), change
in operating assets of $435,466, amortization of debt discount of
$657,058, and depreciation and amortization of $46,468 to derive
the uses of cash in operations.
Net cash used in
investing activities.
Net cash used in
investing activities for the six months ended August 31, 2019 was
$23,572, which was the purchase of fixed assets.
Net cash provided
by financing activities.
Net cash provided by
financing activities was $1,142,667 for the six months ended August
31, 2019. This consisted of proceeds from deferred payment
obligation of $819,750, proceeds from loans payable $263,429,and
net borrowings from loan payable – related party of $159,526 offset
by payments on loans payable of $100,038.
Off-Balance Sheet
Arrangements
None.
Critical
Accounting Policies and Estimates
Critical accounting
policies and estimates are further discussed in our Annual Report
on Form 10-K/A for the year ended February 28, 2019 filed with the
SEC on August 29, 2019 and should be read in conjunction with the
Original filing on Form 10-K filed with the SEC on August 26,
2019.
Related Party
Transactions
For the six months ended
August 31, 2019 and 2018, the Company received net advances of
$125,021 and $135,908, respectively, from its loan payable-related
party. At August 31, 2019, the loan payable-related party was
$1,153,904 and $782,844 at February 28, 2019. At August 31, 2019,
included in the balance due to the related party is $526,633 of
deferred salary and interest, $331,602 of which bears interest at
12%. At February 28, 2019, included in the balance due to the
related party is $352,392 of deferred salary and interest, $210,000
of which bears interest at 12%. The accrued interest included at
August 31, 2019 and February 28, 2019 was $34,917 and $13,650,
respectively.
During the three and six
months ended August 31, 2019 the Company paid $54,222 and
$(42,852), respectively in consulting fees for research and
development to a company owned by a principal shareholder. The
credit received in the quarter ended May 31, 2019 were a result of
billing corrections of ($106,444) from the prior period and after
adjusting for this, would bring total charges in the six months
ended August 31, 2019 to $63,592. During the three and six months
ended August 31, 2018, the Company paid $60,768 and $196,108 in
consulting fees for research and development to a company owned by
a principal shareholder.
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for a
smaller reporting company.
ITEM 4. CONTROLS AND
PROCEDURES
Management’s Report
on Internal Control over Financial Reporting
We carried out an
evaluation, under the supervision and with the participation of our
management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of August 31, 2019. Based upon that evaluation, our
principal executive officer and principal financial officer
concluded that, as of August 31, 2019, our disclosure controls and
procedures were not effective to ensure that information required
to be disclosed in reports filed by us under the Securities
Exchange Act of 1934 is recorded, processed, summarized and
reported within the required time periods and is accumulated and
communicated to our management, including our principal executive
officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
- 31 -
|
|
|
|
1.
|
As of August 31, 2019,
we did not maintain effective controls over our control
environment. Specifically, we have not developed and effectively
communicated to our employees our accounting policies and
procedures. This has resulted in inconsistent practices. Further,
the Board of Directors does not currently have any independent
members and no director qualifies as an audit committee financial
expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since
these entity level programs have a pervasive effect across the
organization, management has determined that these circumstances
constitute a material weakness.
|
|
|
|
|
2.
|
As of August 31, 2019,
we did not maintain effective controls over financial statement
disclosure. Specifically, controls were not designed and in place
to ensure that all disclosures required were originally addressed
in our financial statements. Accordingly, management has determined
that this control deficiency constitutes a material weakness.
|
Our management,
including our principal executive officer and principal financial
officer, who is the same person, does not expect that our
disclosure controls and procedures or our internal controls will
prevent all error or fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that
there are resource constraints and the benefits of controls must be
considered relative to their costs. Due to the inherent limitations
in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud,
if any, have been detected.
Change in Internal
Controls over Financial Reporting
There was no change in
our internal controls over financial reporting that occurred during
the period covered by this report, which has materially affected,
or is reasonably likely to materially affect, our internal controls
over financial reporting.
PART II — OTHER
INFORMATION
ITEM 1. LEGAL
PROCEEDINGS
In April 2019 the
principals of WeSecure (see Note 8) filed lawsuit in California
Superior Court seeking damages for non-payment balance of sale of
WeSecure assets totaling $25,000, unpaid consulting fees payable to
the two principals through to September 2019 totaling $125,924, and
labor code violations of $48,434 all totaling $199,358 plus
attorney’s fees and damages. The parties finally settled all claims
with a full release for $180,000 in June 2019 payable in 14 monthly
instalments as follows:
|
|
|
|
|
|
|
2019
|
|
2020
|
|
Total
|
6/30/19
|
$5,000
|
|
1/26/2020
|
$15,000
|
|
|
7/30/19
|
$5,000
|
|
2/25/2020
|
$15,000
|
|
|
8/29/19
|
$7,500
|
|
3/26/2020
|
$15,000
|
|
|
9/28/19
|
$7,500
|
|
4/25/2020
|
$15,000
|
|
|
10/28/19
|
$10,000
|
|
5/25/2020
|
$20,000
|
|
|
11/27/19
|
$10,000
|
|
6/25/2020
|
$20,000
|
|
|
12/27/19
|
$15,000
|
|
7/24/2020
|
$20,000
|
|
|
|
|
|
|
|
|
|
Total
|
$60,000
|
|
|
$120,000
|
|
$180,000
|
The company has fully
accrued the above $180,000 and has paid $17,500 to October 1, 2019.
As of filing the September through November instalments are in
arrears.
ITEM 1A. RISK
FACTORS
This item is not
applicable to smaller reporting companies.
ITEM 2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Each issuance of
securities was issued without registration in reliance of the
exemption from registration Section 3(a)9 of the Securities Act of
1933.
- 32 -
ITEM 3. DEFAULTS UPON
SENIOR SECURITIES
The Company has not
defaulted upon senior securities.
ITEM 4. MINE SAFETY
DISCLOSURES
Not applicable to the
Company.
ITEM 5. OTHER
INFORMATION
None.
ITEM 6.
EXHIBITS
__________
|
|
(1)
|
Incorporated by
reference to our Form 10-KT file with the Securities and Exchange
Commission on March 12, 2018.
|
|
|
(2)
|
Incorporated by
reference to our Form S-1 filed with the Securities and Exchange
Commission on August 4, 2010.
|
|
|
(3)
|
Filed or furnished
herewith.
|
|
|
(4)
|
To be submitted by
amendment.
|
- 33 -
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
|
Artificial Intelligence Technology Solutions
Inc.
|
|
|
|
|
Date: December 5, 2019
|
BY: /s/ Garett Parsons
|
|
Garett Parsons
|
|
President, Chief Executive Officer, Chief
Financial Officer,
Principal Accounting Officer, Treasurer and Director
|
- 34 -