During the three months ended May 31, 2021 and May 31, 2020 the Company made additions of
$15,362 and $4,638, respectively.
Depreciation expense was $4,638 and $5,474 for the three months ended May 31, 2021, and 2020
respectively.
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 February 29, 2020 the investor has advanced the full $900,000.
On May 9, 2019 the Company entered into two similar arrangements with two investors:
These variable payments (Payments) are to be made 30 days after the end of each 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.
On November 18, 2019 the Company entered into another similar arrangement with the (February
1, 2019) investor above whereby the investor would advance up to $225,000 in exchange for a perpetual 2.25% rate Payment on the Company’s
quarterly Revenues (commencing on quarter ending May 31, 2020). At February 29, 2020 the investor has advanced $109,000 and the investor
advanced the $116,000 remainder as of May 2020.
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On December 30 , 2019 the Company entered into another similar arrangement with a new investor
whereby the investor would advance up to $100,000 in exchange for a perpetual 1.00% rate Payment on the Company’s quarterly Revenues
(commencing quarter ended November 30, 2020). At February 29, 2020 the investor has advanced $50,000 with the remainder to be advanced
no later than June 30, 2020. If the total investor advances turns out to be less than $100,000, this would not constitute a breach of
the agreement, rather the 1.00% rate would be adjusted on a pro-rata basis.
On April 22, 2020 the Company entered into another similar arrangement with the (first May
9, 2019) investor above whereby the investor would advance up to $100,000 in exchange for a perpetual 1.00% rate Payment on the Company’s
quarterly Revenues. At May 31, 2020 the investor has fully funded this commitment.
On July 1, 2020 the Company entered into a similar agreement with the first investor whereby
the investor would pay up to $800,000 in exchange for a perpetual 2.75% rate payment (Payment) on the Company’s reported quarterly
revenue. These Payments are to be made 90 days after the fiscal quarter with the first payment being due no later than May 31, 2021. If
the Payments would deplete RAD’s available cash by more than 20%, the payment may be deferred. The investor had agreed to pay $100,000
per month over an 8-month period with the first payment due July 2020 and the final payment no later than February 28, 2021. As at August
31, 2020 the investor had fully funded the $800,000 commitment.
On August 27, 2020 the Company and the first investor referred to above consolidated the three
separate agreements of February 1, 2019 for $900,000, November 18, 2019 for $225,000 and July 1, 2020 for $800,000 into a new agreement
for a total of $1,925,000. This new agreement is for similar terms as the above agreements save for the following: the rate payment is
revised to 14.25% payable on revenues commencing the quarter ended August 31, 2020 and the Payments are secured by the assets
of the Company. This interest may be secured by UCC filing but is subordinated to equipment financing on the products the Company
leases to its customers.
In summary of all agreements mentioned above if 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 43.77% 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 43.77% 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. As of March 1, 2021 as a result of the
amendment with the first investor noted below, this aggregate asset disposition % was reduced from 43.77 % to 33.77%.
On March 1, 2021 the first investor referred to above whose aggregate investment is $1,925,000 revised his agreements
as follows:
|
|
|
|
1)
|
The rate payment was reduced from 14.25 % to 9.65 %
|
|
|
|
|
2)
|
The asset disposition % (see below) was reduced from 31 % to 21%
|
In consideration for the above changes, the investor received 40 Series F Convertible Preferred
Stock and a warrant to purchase 367 shares of its Series F Convertible Preferred Stock with a five-year term and an exercise price of
$1.00. During the three months ended May31, 2021 the warrant holder exercised warrants to acquire 38 shares of Series F Convertible Preferred
Stock. The company attributed a fair value based on recent transactions for the Series F Preferred stock and warrants of $33,015,214 and
recorded a loss on settlement of debt with a corresponding adjustment to paid in capital.
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 May 31, 2021, 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 year end February 28, 2022 filing. As of May 31, 2021, and
February 28, 2021, the balances under these agreements were $2,525,000 and $2,525,000, respectively.
For the three months ended May 31, 2021, the Company has received $0 related to the deferred
payment obligation as the balance remains $2,525,000 at May 31, 2021. For the year ended February 28, 2021, $966,000 has been paid to
the Company bringing the balance to $2,525,000 at February 28, 2021.
- 15 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Payments first become payable on June 30, 2019 (unless otherwise indicated) based on the
quarterly Revenues for the quarter ended May 31, 2019 and accrue every quarter thereafter. As of May 31, 2021, the Company has accrued
$223,015 in Payments (February 28, 2021 -$91,857). No amounts have been recorded to date as interest, as the amounts are immaterial.
8. CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
Balance
|
|
|
|
|
|
|
Interest
|
|
Conversion
|
May 31,
|
|
February 28,
|
|
Issued
|
|
Maturity
|
|
|
Rate
|
|
Rate per Share
|
2021
|
|
2021
|
|
July 18, 2016
|
|
July 18, 2017*
|
|
|
10%
|
|
$0.003
|
(2)
|
|
3,500
|
|
|
3,500
|
|
December 31, 2016
|
|
December 31, 2020
|
|
|
8%
|
|
35% discount
|
(1)
|
|
—
|
|
|
65,000
|
|
January 19, 2021
|
|
January 19, 2022
|
|
|
12%
|
|
$0.04
|
|
|
275,000
|
|
|
275,000
|
|
January 27,2021
|
|
January 27, 2022
|
|
|
10%
|
|
$0.10
|
(3)
|
|
550,000
|
|
|
550,000
|
|
|
|
|
|
|
|
|
|
|
|
828,500
|
|
|
893,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion of convertible notes payable
|
|
|
(828,500
|
)
|
|
(893,500
|
)
|
Less: discount on noncurrent convertible notes payable
|
|
|
—
|
|
|
—
|
|
Noncurrent convertible notes payable, net of discount
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Current portion of convertible notes payable
|
|
$
|
828,500
|
|
$
|
893,500
|
|
Less: discount on current portion of convertible notes payable
|
|
|
(616,145
|
)
|
|
(697,276
|
)
|
Current portion of convertible notes payable, net of discount
|
|
$
|
212,355
|
|
$
|
196,224
|
|
__________
|
|
*
|
The indicated note was in default as of May 31, 2021. Default interest rate 22%
|
|
|
(1)
|
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.
|
|
|
(2)
|
The conversion price is not subject to adjustment from forward or reverse stock splits.
|
|
|
(3)
|
The per share conversion price into which Principal Amount and interest (including any Default
Interest) under this Note shall be convertible into shares of Common Stock hereunder (the “Conversion Price”) shall be equal
to $0.10 per share (the “Fixed Conversion Price”); provided, however, that if, the lowest traded price on the date
six (6) months from the issue date hereof is below the Fixed Conversion Price, and no default exists, the conversion shall be $0.05 (the
“Alternative Fixed Conversion Price”) provided, further, that upon any Event of Default (as defined herein) after the
Issue Date, the Conversion Price shall equal the lower of (i) $0.03 (the “Default Fixed Conversion Price”); or (ii) seventy
percent (70%) multiplied by the lowest closing price of the Common Stock during the fifteen (15) consecutive Trading Day period immediately
preceding the date of the respective event of default (the “Default Conversion Price”);
|
During both the three months ended May 31, 2021 and 2020, the Company incurred original issue
discounts of $0, and debt discounts from derivative liabilities of $0 related to new convertible notes payable. During the three months
ended May 31, 2021 and 2020, the Company recognized interest expense related to the amortization of debt discount of $81,131 and $72,029,
respectively.
All the notes above are unsecured. As of May 31, 2021 and February 28, 2021, the Company had
total accrued interest payable of $60,872 and $49,764, respectively, all of which is classified as current.
During the three months ended May 31, 2021, the Company also had the following convertible
note activity:
|
|
●
|
The company settled convertible notes of $65,000 and accrued interest $22,525 for a cash payment
of $93,984. A loss on settlement of debt of $6,459 was recorded.
|
- 16 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RELATED PARTY TRANSACTIONS
For the three months ended May 31, 2021, the Company repaid net advances of $121,147 from
its loan payable-related party. For the three months ended May 31, 2020 the Company repaid net advances of $21,726. At May 31, 2021, the
loan payable-related party was $885,417 and $904,806 at February 28, 2021. Included in the balance due to the related party at May 31,
2021 is $843,323 of deferred salary and interest, $702,000 of which bears interest at 12%. At February 28, 2021, included in the balance
due to the related party is $883,710 of deferred salary and interest, $642,000 of which bears interest at 12%. The accrued interest included
in loan at May 31, 2021 and May 31, 2020 was $138,858 and $50,730, respectively.
During the three months ended May 31, 2021 and 2020, the Company was charged $478,951 and
$50,695, respectively for consulting fees for research and development to a company partially owned by a principal shareholder during
the three months ended May 31, 2021 and another company fully owned by a principal shareholder during the three months ended May 31, 2020.
10. 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 made were $0 for both the year ended February
28, 2021 and February 29, 2020. 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 both February 28, 2021 and February 29, 2020. For the first vehicle
loan, the vehicle was retired in 2020, the proceeds of the disposal of $18,766 was applied against the balance of the loan with a $5,515
gain on the remaining asset value of $13,251. A balance of $16,944 remains on this vehicle loan at both February 28, 2021 and February
29, 2020. The remaining total balances of the amounts owed on the vehicle loans were $38,522 and $38,522 as of May 31, 2021 and February
28, 2021, respectively, of which all were classified as current.
- 17 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. LOANS PAYABLE
Loans payable at May 31, 2021 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
Date
|
|
Maturity
|
|
Description
|
|
Principal
|
|
Interest Rate
|
|
June 11, 2018
|
|
June 11, 2019
|
|
Promissory note
|
(3)
|
$
|
48,000
|
|
25%
|
*
|
August 10, 2018
|
|
September 1, 2018
|
|
Promissory note
|
(4)
|
|
—
|
|
25%
|
*
|
August 16, 2018
|
|
August 16, 2019
|
|
Promissory note
|
(1)
|
|
12,624
|
|
25%
|
*
|
August 16, 2018
|
|
October 1, 2018
|
|
Promissory note
|
(4)
|
|
—
|
|
25%
|
*
|
October 11, 2018
|
|
October 11, 2019
|
|
Promissory note
|
(7)
|
|
17,000
|
|
20%
|
*
|
January 31, 2019
|
|
June 30, 2019
|
|
Promissory note
|
(2)
|
|
78,432
|
|
15%
|
*
|
January 24, 2019
|
|
January 24, 2021
|
|
Loan
|
(8)
|
|
194,803
|
|
11%
|
*
|
May 9, 2019
|
|
June 30, 2019
|
|
Promissory note
|
(5)
|
|
7,850
|
|
15%
|
*
|
May 31, 2019
|
|
June 30, 2019
|
|
Promissory note
|
(6)
|
|
86,567
|
|
15%
|
*
|
June 26, 2019
|
|
June 26, 2020
|
|
Promissory note
|
(9)
|
|
79,104
|
|
15%
|
*
|
September 24, 2019
|
|
June 24, 2020
|
|
Promissory note
|
(13)
|
|
12,000
|
|
15%
|
*
|
January 30, 2020
|
|
January 30, 2021
|
|
Promissory note
|
(15)
|
|
11,000
|
|
15%
|
*
|
February 27, 2020
|
|
February 27, 2021
|
|
Promissory note
|
(16)
|
|
5,000
|
|
15%
|
*
|
April 16, 2020
|
|
April 16, 2021
|
|
Promissory note
|
(17)
|
|
13,000
|
|
15%
|
|
May 12, 2020
|
|
May 12, 2021
|
|
Promissory note
|
(18)
|
|
43,500
|
|
15%
|
|
May 22, 2020
|
|
May 22, 2021
|
|
Promissory note
|
(19)
|
|
85,000
|
|
15%
|
|
June 2, 2020
|
|
June 2, 2021
|
|
Promissory note
|
(23)
|
|
62,000
|
|
15%
|
|
June 9, 2020
|
|
June 9, 2021
|
|
Promissory note
|
(24)
|
|
31,000
|
|
15%
|
|
June 12, 2020
|
|
June 12, 2021
|
|
Promissory note
|
(25)
|
|
50,000
|
|
15%
|
|
June 16, 2020
|
|
June 16, 2021
|
|
Promissory note
|
(26)
|
|
42,000
|
|
15%
|
|
April 3, 2020
|
|
April 3, 2021
|
|
Promissory note
|
(20)
|
|
27,697
|
|
20%
|
|
August 13, 2020
|
|
August 13, 2021
|
|
Promissory note
|
(22)
|
|
—
|
|
20%
|
|
September 8, 2020
|
|
September 8, 2021
|
|
Promissory note
|
(27)
|
|
—
|
|
20%
|
|
September 15, 2020
|
|
September 15, 2022
|
|
Promissory note
|
(28)
|
|
300,000
|
|
10%
|
|
October 6, 2020
|
|
March 6, 2023
|
|
Promissory note
|
(29)
|
|
150,000
|
|
12%
|
|
November 12, 2020
|
|
November 12, 2023
|
|
Promissory note
|
(30)
|
|
110,000
|
|
12%
|
|
November 23, 2020
|
|
October 23, 2022
|
|
Promissory note
|
(31)
|
|
65,000
|
|
15.5%
|
|
November 23, 2020
|
|
November 23, 2023
|
|
Promissory note
|
(32)
|
|
300,000
|
|
15%
|
|
December 10, 2020
|
|
December 10, 2023
|
|
Promissory note
|
(33)
|
|
82,500
|
|
12%
|
|
December 10, 2020
|
|
December 10, 2023
|
|
Promissory note
|
(34)
|
|
3,921,168
|
|
12%
|
|
December 10, 2020
|
|
December 10, 2023
|
|
Promissory note
|
(35)
|
|
3,054,338
|
|
12%
|
|
December 10, 2020
|
|
December 10, 2023
|
|
Promissory note
|
(36)
|
|
165,605
|
|
12%
|
|
December 14, 2020
|
|
December 14, 2023
|
|
Promissory note
|
(37)
|
|
310,375
|
|
12%
|
|
December 14, 2020
|
|
December 14, 2023
|
|
Promissory note
|
(38)
|
|
—
|
|
12%
|
|
December 30, 2020
|
|
December 30, 2023
|
|
Promissory note
|
(39)
|
|
350,000
|
|
12%
|
|
December 31, 2021
|
|
December 31, 2024
|
|
Promissory note
|
(40)
|
|
25,000
|
|
12%
|
|
December 31, 2021
|
|
December 31, 2024
|
|
Promissory note
|
(41)
|
|
145,000
|
|
12%
|
|
January 14, 2021
|
|
January 14, 2024
|
|
Promissory note
|
(42)
|
|
550,000
|
|
12%
|
|
February 22, 2021
|
|
February 22, 2022
|
|
Promissory note
|
(43)
|
|
1,650,000
|
|
12%
|
|
March 1, 2021
|
|
March 1, 2022
|
|
Promissory note
|
(10)
|
|
6,000,000
|
|
12%
|
|
March 23, 2021
|
|
March 23, 2022
|
|
Promissory note
|
(11)
|
|
2,545,900
|
|
0%
|
|
March 23, 2021
|
|
March 23, 2023
|
|
Promissory note
|
(12)
|
|
5,000,875
|
|
0%
|
|
|
|
|
|
$
|
25,632,338
|
|
|
|
Less current portion of loans payable
|
|
|
|
|
(8,453,353
|
)
|
|
|
Less discount on loans payable
|
|
|
|
|
(7,780,664
|
)
|
|
|
Loans payable
|
|
|
|
$
|
9,398,321
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of loans payable
|
|
|
|
$
|
8,453,353
|
|
|
|
Less discount on loans payable
|
|
|
|
|
(657,136
|
)
|
|
|
Current portion of loans payable, net of discount
|
|
|
|
$
|
7,796,217
|
|
|
|
- 18 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
__________
|
|
*
|
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 $12,376 has been repaid by the Company and no notices have been
received.
|
|
|
(2)
|
The note may be pre-payable at any time. The note balance includes 33% original issue discount
of $25,882.
|
|
|
(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)
|
$20,000 loan repaid during the quarter ended May 31, 2021.
|
|
|
(5)
|
The note may be pre-payable at any time. The note balance includes 33% original issue discount
of $2,590.
|
|
|
(6)
|
The note may be pre-payable at any time. The note balance includes 33% original issue discount
of $28,567.
|
|
|
(7)
|
$6,000 repaid during the year ended February 29, 2020.
|
|
|
(8)
|
$257,000 Canadian loan. Interest payable every calendar quarter commencing June 30, 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 favor of the lender on a first priority basis subject to the following: the
lender’s security in this respect shall be postponeable to security in favor of institutional financing obtained by RAD. Additional
funding of $ 26,146 during the quarter ended May 31, 2021.
|
|
|
(9)
|
The note may be pre-payable at any time. The note balance includes 33% original issue discount
of $26,104.
|
|
|
(10)
|
The unsecured note may be pre-payable at any time. Cash proceeds of $5,400,000 were received.
The note balance of $6,000,000 includes an original issue discount of $600,0000 and was issued with a warrant to purchase 300,000,000
shares at an exercise price of $0.135 per share with a 3-year term and having a relative fair value of $4,749.005 using Black-Scholes
with assumptions described in note 13. The discounts are being amortized over the term of the loan. After allocating these charges to
debt and equity according to their respective values, a debt discount of $4,749.005 with a corresponding adjustment to paid in capital
for the relative value of the warrant. For the three months ended year ended May 31, 2021, the Company recorded amortization expense
of $37,925 with an unamortized discount of $5,311,080 at May 31, 2021.
|
|
|
(11)
|
In exchange for 28 Series F preferred shares, the Company issued a noninterest bearing unsecured
loan for $2,545,900. A fair value of the loan of $2,267,768 was determined with a debt discount off $278,132. For the three months
ended year ended May 31, 2021, the Company recorded amortization expense of $52,578 with an unamortized discount $225,554 at May 31, 2021.
|
|
|
(12)
|
In exchange for 55 Series F preferred shares, the Company issued a noninterest bearing unsecured
loan for $5,000,875. A fair value of the loan of $4,465,067 was determined with a debt discount off $538,808. For the three months
ended year ended May 31, 2021, the Company recorded amortization expense of $104,226 with an unamortized discount $431,582 at May 31,
2021.
|
|
|
(13)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $3,000.
|
|
|
(15)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $2,450.
|
|
|
(16)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $1,200.
|
|
|
(17)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $3,850.
|
- 19 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(18)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $8,000.
|
|
|
(19)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $15,000.
|
|
|
(20)
|
$ 40,000 CDN loan, both principal and interest are due at maturity, if unpaid there is a 10%
penalty on unpaid balance. By consent of all parties, lender may convert balance into Class F shares at $6,739 USD per share.
|
|
|
(21)
|
Principal repayable in one year. Interest repayable in 10 monthly instalments of $460 commencing
January 11 ,2019 and secured by revenue earning devices having a net book value of at least $186,000. $25,000 repaid during the
year. Repaid in full.
|
|
|
(22)
|
$ 60,000 CDN loan, principal is due at maturity, interest is payable commencing the third
month after the loan over the remaining 10 months. If principal or interest unpaid there is a 10% penalty on unpaid balance. By
consent of all parties, lender may convert balance into Class F shares at $6,739 USD per share. Total loan of $44,183 (in $USD) and related
accrued interest paid during the quarter ended May 31, 2021.
|
|
|
(23)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $12,000.
|
|
|
(24)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $6,000.
|
|
|
(25)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $10,000.
|
|
|
(26)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $7,000.
|
|
|
(27)
|
$ 10,000 CDN loan, principal is due at maturity, interest is payable monthly commencing the
third month after the loan over the remaining 10 months. If principal or interest unpaid there is a 10% penalty on unpaid balance.
By consent of all parties, lender may convert balance into Class F shares at $6,739 USD per share. Total loan of $7,381 (in $USD) and
related accrued interest paid during the quarter ended May 31, 2021.
|
|
|
(28)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $50,000. Interest payable monthly, principal due at maturity. Secured by a general security charging all of RAD’s present and
after-acquired property.
|
|
|
(29)
|
Principal and interest repayable in 28 monthly instalments commencing December 6, 2020, the
first 6 months at $2,000 per month, the remaining 22 payments at $ 8,500 per month. Secured by revenue earning devices.
|
|
|
(30)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $10,000 and was issued with a warrant to purchase 70,000,000 shares at an exercise price of $0.00165 per share, with a 3-year term
and having a relative fair value of $41,176 using Black-Scholes with assumptions described in Note 13. The discounts are being amortized
over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of
$41,176 with a corresponding adjustment to paid in capital. For the three months ended May 31, 2021, the Company recorded amortization
expense of $2,610 with an unamortized discount of $45,719 at May 31 ,2021.
|
|
|
(31)
|
Principal and interest repayable in 21 monthly instalments commencing December 6, 2020 of
$4,060 commencing February 21, 2021. Secured by revenue earning devices.
|
|
|
(32)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $25,000 and was issued with a warrant to purchase 230,000,000 shares at an exercise price of $0.00165 per share with a 3-year
term and having a relative fair value of $125,814 using Black-Scholes with assumptions described in note 13. The discounts are being
amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount
of $125,814 with a corresponding adjustment to paid in capital for the relative value of the warrant. For the three months
ended May 31, 2021, the Company recorded amortization expense of $7,245 with an unamortized discount of $136,555 at May 31 ,2021.
|
- 20 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(33)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of 7,500 and was issued with a warrant to purchase 100,000,000 shares at an exercise price of $0.002 per share with a 3-year term and
having a relative fair value of $54,545 using Black-Scholes with assumptions described in note 13. The discounts are being amortized over
the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $54,545
with a corresponding adjustment to paid in capital for the relative value of the warrant. For the three months ended May 31, 2021,
the Company recorded amortization expense of $1,844 with an unamortized discount of $58,726 at May 31 ,2021.
|
|
|
(34)
|
This promissory note was issued as part of a debt settlement as disclosed in Note 8 whereby
$2,683,357 in convertible notes and associated accrued interest of $1,237,811 totaling $3,921,168 was exchanged for this promissory note
of $3,921,168, and a warrant to purchase 450,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a
relative fair value of $990,000 using Black-Scholes with assumptions described in Note 13. This note is secured by a general security
charging all of the Company’s present and after-acquired property.
|
|
|
(35)
|
This promissory note was issued as part of a debt settlement as disclosed in Note 8 whereby
$1,460,794 in convertible notes and associated accrued interest of $1,593,544 totaling $3,054,338 was exchanged for this promissory note
of $3,054,338, and a warrant to purchase 250,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a
relative fair value of $550,000 using Black-Scholes with assumptions described in Note 13. This note is secured by a general security
charging all of the Company’s present and after-acquired property.
|
|
|
(36)
|
This promissory note was issued as part of a debt settlement as disclosed in Note 8 whereby
$103,180 in convertible notes and associated accrued interest of $62,425 totaling $165,605 was exchanged for this promissory note of $165,605,
and a warrant to purchase 80,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a fair value of $176,000
using Black-Scholes with assumptions described in Note 13.
|
|
|
(37)
|
This promissory note was issued as part of a debt settlement as disclosed in Note 8 whereby
$235,000 in convertible notes and associated accrued interest of $75,375 totaling $310,375 was exchanged for this promissory note of $310,375,
and a warrant to purchase 25,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a fair value of $182,500
using Black-Scholes with assumptions described in Note 13.
|
|
|
(38)
|
This promissory note was issued as part of a debt settlement as disclosed in Note 8 whereby
$100,000 in convertible notes and associated accrued interest of $37,589 totaling $137,589 was exchanged for this promissory note of $192,625.
Loan fully repaid at May 31,2021.
|
|
|
(39)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $35,000 and was issued with a warrant to purchase 50,000,000 shares at an exercise price of $0.025 per share with a 3-year term and
having a relative fair value of $271,250 using Black-Scholes with assumptions described in note 13. The discounts are being amortized
over the term of the loan. After allocating these charges to debt and equity according to their respective values , a debt discount of
$271,250 with a corresponding adjustment to paid in capital for the relative fair value of the warrant. For the three months ended May
31, 2021, the Company recorded amortization expense of $4,275 with an unamortized discount of $299,855 at May 31 ,2021.
|
|
|
(40)
|
This promissory note was issued as part of a debt settlement as disclosed in Note 8 whereby
$9,200 in convertible notes and associated accrued interest of $6,944 totaling $16,144 was exchanged for this promissory note of $25,000.
This note is secured by a general security charging all of the Company’s present and after-acquired property.
|
|
|
(41)
|
This promissory note was issued as part of a debt settlement as disclosed in Note 8 whereby
$79,500 in convertible notes and associated accrued interest of $28,925 totaling $108,425was exchanged for this promissory note of $145,000.
This note is secured by a general security charging all of the Company’s present and after-acquired property.
|
- 21 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(42)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $50,000 and was issued with a warrant to purchase 50,000,000 shares at an exercise price of $0.025 per share with a 3-year term and
having a relative fair value of $380,174 using Black-Scholes with assumptions described in note 13. The discounts are being amortized
over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of
$380,174 with a corresponding adjustment to paid in capital. For the three months ended May 31, 2021, the Company recorded amortization
expense of $10,579 with an unamortized discount of $414,877 at May 31 ,2021.
|
|
|
(43)
|
The note may be pre-payable at any time. The note balance includes an original issue discount
of $150,000 and was issued with a warrant to purchase 100,000,000 shares at an exercise price of $0.135 per share with a 3-year term and
having a relative fair value of $1,342,857 using Black-Scholes with assumptions described in note 13. The discount and warrant are
being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt
discount of $1,342,857 with a corresponding adjustment to paid in capital for the relative fair value of the warrant. For the three
months ended May 31, 2021, the Company recorded amortization expense of $11,556 with an unamortized discount of $1,481,022 at May 31 ,2021.
|
12. DERIVATIVE LIABILITIES
As of May 31, 2021, 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 $215,237.
The Company estimated the fair value of the derivative liabilities using the multinomial lattice
model using the following key assumptions during the three months ended May 31, 2021:
|
|
Strike price
|
$0.0660 - $0.0632
|
Fair value of Company common stock
|
$0.138 - $0.0013
|
Dividend yield
|
0.00%
|
Expected volatility
|
282.4% - 175.5%
|
Risk free interest rate
|
0.12% - 0.07%
|
Expected term (years)
|
0.64 - 0.13
|
During the three months ended May 31, 2021, and 2020, the Company released $0 and $167,498,
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 three months ended May 31, 2021 were as follows:
|
|
|
|
Balance as of February 28, 2021
|
$
|
444,466
|
|
Reduction of derivative liability due to debt settlement
|
|
(49,790
|
)
|
Change in fair value of derivative liabilities
|
|
(179,439
|
)
|
Balance as of May 31, 2021
|
$
|
215,237
|
|
- 22 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13. STOCKHOLDERS’ EQUITY (DEFICIT)
Summary or Preferred Stock Activity
Series F Preferred Stock
During the three months ended May 31, 2021 Series F shareholders had the following activity:
|
|
|
|
-
|
40 Series C Preferred Shares and a warrant to purchase 367 Series F Preferred Shares with
a five-year term and an exercise price of $1.00 were issued to an investor in exchange for amending their deferred variable payment obligation
agreement as disclosed in Note 7. The company attributed a fair value based on recent transactions for the Series F Preferred stock
and warrants of $33,015,214 and recorded a loss on settlement of debt with a corresponding adjustment to paid in capital.
|
|
|
|
|
-
|
The warrant holder exercised warrant to acquire 38 Series F Preferred Shares.
|
|
|
|
|
-
|
The shareholder converted 78 Series F Preferred Shares into 316,345,908 common shares.
|
|
|
|
|
-
|
Two Series F Preferred shareholders exchanged 83 Series F Preferred Shares for two promissory
notes as disclosed in point (11) and (12) in Note 11. The notes are non -interest bearing, have a one-year maturity and total $7,546,775.
|
Summary of Preferred Stock Warrant Activity
|
|
|
|
|
|
|
|
|
Number of Series C Preferred Warrants
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Years
|
|
|
|
|
|
|
|
Outstanding at March 1, 2021
|
|
—
|
|
—
|
|
—
|
Issued
|
|
367
|
|
$1.00
|
|
5.00
|
Exercised
|
|
(38)
|
|
1.00
|
|
5.00
|
Forfeited and cancelled
|
|
—
|
|
—
|
|
—
|
Outstanding at May 31, 2021
|
|
329
|
|
$1.00
|
|
4.75
|
Summary of Common Stock Activity
During the three months ended May 31, 2021 common shareholders had the following activity:
|
|
|
|
-
|
A Series C Preferred shareholder converted 78 Series F Preferred Shares for 316,345,998 common
shares.
|
Summary of Common Stock Warrant Activity
|
|
|
|
|
|
|
|
|
Number of Warrants
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Years
|
|
|
|
|
|
|
|
Outstanding at March 1, 2021
|
|
619,523,492
|
|
$0.0295
|
|
2.81
|
Issued
|
|
—
|
|
—
|
|
—
|
Exercised
|
|
—
|
|
—
|
|
—
|
Forfeited and cancelled
|
|
—
|
|
—
|
|
—
|
Outstanding at May 31, 2021
|
|
619,523,492
|
|
$0.0295
|
|
2.55
|
For the three months ended May 31, 2021 and May 31, 2020, the Company recorded a total of
$0 and $0, respectively, to stock-based compensation for options and warrants with a corresponding adjustment to additional paid-in capital.
- 23 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Summary of Common Stock Option Activity
On April 9, 2021 entered into an Employment Agreement with Chief Executive Officer, Steven
Reinharz with three year term under the following terms whereby stock option awards will be granted if certain conditions are met :
|
|
|
|
-
|
A stock option award (option 1) will be granted to the employee to purchase 10,000,000 shares
at an exercise price of $ $0.15 per share if the trading share price of the Company reaches an average of $0.30 per share for ten days
over a 30 day trading period.
|
|
|
|
|
-
|
A stock option award (option 2) will be granted to the employee to purchase 30,000,000 shares
at an exercise price of $ $0.25 per share if the trading share price of the Company reaches an average of $0.50 per share for ten days
over a 30 day trading period.
|
|
|
|
The fair value these two awards using a Monte Carlo method was $69,350 with a charge to stock
based compensation and a corresponding charge to paid in capital.
On April 14, 2021, the Shareholders of Series E Preferred Stock and the Board of Directors
of our Company (“Board”) approved and adopted the 2021 Incentive Stock Plan (the “2021 Plan”).
The purpose of the 2021 Plan is to promote the success of the Company by authorizing incentive
awards to retain Directors, executives, selected Employees and Consultants, and reward participants for making major contributions to
the success of the Company. The 2021 Plan authorizes the granting of stock options, restricted stock, restricted stock units, stock appreciation
rights and stock awards. A total of five million (5,000,000) shares of common stock may be issued under the 2021 Plan. All awards under
the 2021 Plan, whether vested or unvested, are subject to the terms of any recoupment, clawback or similar policy of the Company in effect
from time to time, as well as any similar provisions of applicable law, which could in certain circumstances require repayment or forfeiture
of awards or any shares of stock or other cash or property received with respect to the awards, including any value received from a disposition
of the shares acquired upon payment of the awards. The 2021 Plan will be administered by the Board or any Committee authorized by the
Board, if applicable, which will have the sole authority to, among other things: construe and interpret the 2021 Plan; make rules and
regulations relating to the administration of the 2021 Plan; select participants; and establish the terms and conditions of awards, all
in accordance with the terms of the 2021 Plan. The 2021 Plan will remain in effect until April 14, 2031, unless sooner terminated by the
Board. Termination will not affect awards then outstanding.
- 24 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
14. 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 March 2021, the Company settled with former landlords for $30,000. The Company had accrued
$62,552 at February 28, 2021. A gain on settlement of debt of $32,552 was recorded.
In April 2019 the principals of WeSecure filed a lawsuit against the Company in California
Superior Court seeking a total of $199,358 plus attorney’s fees and damages. The total included claims for the non-payment of a
balance from the sale of WeSecure assets to the Company, unpaid consulting fees payable to the two principals of WeSecure, and labor code
violations. In June 2019, the parties settled all claims for $180,000, payable in 14 monthly installments, and a full release. The $122,000
balance owing at February 28, 2021 was paid in full on March 17, 2021.
The related legal costs are expensed as incurred.
Operating Lease
On December 18, 2020, the Company entered into a 15-month lease agreement for office space
at 18009 Sky Park Circle Suite E, Irvine CA, 92614, commencing on December 18, 2020 through to March 31, 2022 with a minimum base rent
of $3,859 per month. The Company paid a security deposit of $3,859.
On March 10, 2021, the Company entered into a 10 year lease agreement for q manufacturing
facility at 10800 Galaxie Avenue, Ferndale, Michigan, 48220, commencing on May 1, 2021 through to April 30, 2031 with a minimum base rent
of $15,880 per month. The base rent increase by 3% per annum commencing May 1, 2024. The Company paid a security deposit of $15,880.
The Company’s leases are accounted for as operating leases. Rent expense and operating
lease cost are recorded over the lease terms on a straight-line basis. Rent expense and operating lease cost was $30,064 for the three
months May 31, 2021 and $3,000 for the three months May 31, 2020.
|
|
|
|
Maturity of Lease Liabilities
|
Operating
Leases
|
|
May 31, 2022
|
$
|
246,148
|
|
May 31, 2023
|
|
207,558
|
|
May 31, 2024
|
|
207,558
|
|
May 31, 2025
|
|
207,558
|
|
May 31, 2026
|
|
207,558
|
|
May 31, 2027 and after
|
|
1,020,494
|
|
Total lease payments
|
|
2,096,874
|
|
Less: Interest
|
|
(789,973
|
)
|
Present value of lease liabilities
|
$
|
1,306,901
|
|
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. Penalties earned through May 31, 2021 have been recorded in
these financial statements.
- 25 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
15. EARNINGS (LOSS) PER SHARE
The net income (loss) per common share amounts were determined as follows:
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
May 31, 2021
|
|
May 31, 2020
|
|
Numerator:
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
$
|
(35,904,918
|
)
|
$
|
1,975,276
|
|
|
|
|
|
|
|
|
Effect of common stock equivalents
|
|
|
|
|
|
|
Add: interest expense on convertible debt
|
|
24,954
|
|
|
411,149
|
|
Add (less) loss (gain) on change of derivative liabilities
|
|
(179,439
|
)
|
|
(2,843,491
|
)
|
Net income (loss) adjusted for common stock equivalents
|
|
(36,059,403
|
)
|
|
(457,066
|
)
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted average shares – basic
|
|
3,489,517,478
|
|
|
1,537,353
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic
|
$
|
(0.01
|
)
|
$
|
1.28
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock equivalents:
|
|
|
|
|
|
|
Convertible notes and accrued interest
|
|
—
|
|
|
565,423,796
|
|
Preferred shares
|
|
—
|
|
|
22,379,321
|
|
Warrants
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
587,803,117
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted average shares – diluted
|
|
3,489,517,478
|
|
|
589,340,470
|
|
|
|
|
|
|
|
|
Net income (loss) per share – diluted
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
The anti-dilutive shares of common stock equivalents for the three months ended May 31, 2021
and 2020 were as follows:
|
|
|
|
|
|
|
For the Year Ended
|
|
|
May 31, 2021
|
|
May 31, 2020
|
Convertible notes and accrued interest
|
|
14,072,341
|
|
—
|
Convertible Class F Preferred Shares
|
|
12,232,916,443
|
|
—
|
Stock options and warrants
|
|
659,523,492
|
|
2,043
|
Total
|
|
12,906,512,276
|
|
2,043
|
- 26 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
16. SUBSEQUENT EVENTS
Subsequent to May 31, 2021 through to July 12, 2021:
|
|
|
|
-
|
warrant holder exercised a warrant to acquire 11,000,000 common shares through cashless exercise
yielding 9,975,508 shares.
|
|
|
|
|
-
|
The promissory note holders denoted (11) and (12) in Note 11 exchanged $7,546,775 I in promissory
notes for 116,104,232 common shares having a fair value of $7,062,620 at the time of conversion.
|
|
|
|
|
-
|
On June 22, 2021, Mr. Garett Parsons submitted his resignation as a director of our Company
effective as of June 22, 2021 as a result of personal reasons. In connection with the resignation of Mr. Parsons, the Company and Mr.
Parsons entered into a resignation letter agreement. Pursuant to the terms of this letter, Mr. Parsons will receive, among other things,
a lump sum payment equal to $265,700 due and payable which was paid in June 2021. This amount was accrued for at May 31, 2021.Furthermore,
on July 6, 2021, Mr. Parsons surrendered his 1,000,000 Class E preferred shares for cancellation by the Company as part of his resignation.
|
|
|
|
|
-
|
On July 12, 2021, the former director agreed to surrender his remaining 184 Series F preferred
shares in exchange for a note payable from the Company of $4,000,160 bearing interest at 7% per annum with a 5 year term, maturing July
12, 2026.
|
|
|
|
|
-
|
On July 12, 2021 the Company and CEO amended the April 9, 2021 Employment Agreement effective
July 1, 2021 whereby the following objectives and awards were added to the two existing ones:
|
|
|
|
|
Objective #3:
|
Sales in any fiscal quarter exceed the total sales in fiscal year 2021 for the first time.
|
|
|
|
|
Award #3:
|
Five hundred (500) shares of Series G preferred stock.
|
|
|
|
|
Objective #4:
|
One hundred fifty (150) devices are deployed in the marketplace.
|
|
|
|
|
Award #4:
|
Two hundred fifty (250) shares of Series G preferred stock.
|
|
|
|
|
Objective #5:
|
Year-to-date sales at any point in fiscal year 2022 exceed One Million Dollars ($1,000,000).
|
|
|
|
|
Award #5:
|
Two hundred fifty (250) shares of Series G preferred stock.
|
|
|
|
|
Objective #6:
|
The price per share of common stock has increased to and maintains a price of Ten Cents ($0.10)
or more for ten (10) days in a thirty (30) day period.
|
|
|
|
|
Award #6:
|
Two hundred fifty (250) shares of Series G preferred stock.
|
|
|
|
|
Objective #7:
|
The price per share of common stock has increased to and maintains a price of Twenty Cents
($0.20) or more for ten (10) days in a thirty(30) day period.
|
|
|
|
|
Award #7:
|
Five hundred (500) shares of Series G preferred stock.
|
|
|
|
|
Objective #8:
|
The RAD 3.0 products are launched into the marketplace by November 30, 2022.
|
|
|
|
|
Award #8:
|
Five hundred (500) shares of Series G preferred stock.
|
|
|
|
|
Objective #9:
|
RAD receives an order for fifty (50) units from a single customer.
|
|
|
|
|
Award #9:
|
Five hundred (500) shares of Series G preferred stock.
|
- 27 -