ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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|
|
|
|
|
|
|
|
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Nine Months
Ended November 30, 2020
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Nine Months
Ended November 30, 2019
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CASH FLOWS FROM OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,634,660
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)
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$
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(3,080,659
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)
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Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
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Depreciation and amortization
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88,621
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|
|
74,059
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Loss
(gain) on (disposal) impairment of fixed assets
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|
|
553
|
|
|
(7,500
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)
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Stock
based compensation
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|
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362,084
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|
|
—
|
|
Provision for inventory
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|
|
—
|
|
|
—
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|
Provision for inventory
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|
|
—
|
|
|
54,702
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|
Change
in fair value of derivative liabilities
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|
|
(1,027,328
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)
|
|
(367,971
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)
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Interest expense related to derivative liability in excess of face
value of debt
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|
|
—
|
|
|
172,242
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|
Interest expense related to penalties from debt defaults
|
|
|
939,705
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|
|
207,116
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|
Amortization of debt discounts
|
|
|
197,650
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|
|
739,334
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|
(Gain)
loss on settlement of debt
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|
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(30,032
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)
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|
(186,374
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)
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Increase in related party accrued payroll and interest
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|
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215,196
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|
|
209,695
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|
Changes
in operating assets and liabilities:
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|
|
|
|
|
|
|
Accounts receivable
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|
|
(61,142
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)
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|
(40,025
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)
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Prepaid
expenses
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|
|
—
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|
|
18,778
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|
Device
parts inventory
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|
|
(79,571
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)
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|
(3,154
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)
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Accounts payable and accrued expenses
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|
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(6,636
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)
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|
113,533
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|
Accrued
expense , related party
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(2,955
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)
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(10,967
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)
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Customer deposits
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|
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—
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4,000
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Balance
owed WeSecure
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|
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(23,000
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)
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|
(17,500
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)
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Current
portion of deferred variable payment obligation
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|
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47,149
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|
|
20,092
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Accrued
interest payable
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1,568,291
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|
|
704,111
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Advances payable
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|
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—
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(11,043
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)
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Net cash
used in operating activities
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|
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(1,446,075
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)
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(1,407,531
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)
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CASH FLOWS FROM INVESTING
ACTIVITIES:
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Purchase of fixed assets
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(77,577
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)
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(26,825
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)
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Proceeds of disposal of fixed assets
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1,000
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|
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11,000
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Net cash
used in investing activities
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|
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(76,577
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)
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(15,825
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)
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|
|
|
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CASH FLOWS FROM FINANCING
ACTIVITIES:
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Proceeds from deferred variable payment obligation
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966,000
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1,197,500
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Proceeds from loans payable
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1,213,623
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|
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681,877
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Repayment of loans payable
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|
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(76,079
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)
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(411,036
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)
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Net
proceeds from convertible notes payable
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|
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—
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25,000
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|
Cash on
consolidation of RAD G
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|
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(284
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)
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—
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Net
borrowings (repayments) on loan payable - related party
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(344,618
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)
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(74,938
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)
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Net cash
provided by financing activities
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1,758,642
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1,418,403
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Net change in cash
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235,990
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(4,953
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)
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Cash, beginning of period
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13,307
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21,192
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Cash, end of period
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$
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249,297
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$
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16,239
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|
|
|
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Supplemental disclosure of
cash and non-cash transactions:
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Cash paid for interest
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$
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2,630
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|
$
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40,815
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|
Cash paid for income taxes
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|
$
|
—
|
|
$
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—
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|
|
|
|
|
|
|
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Noncash investing and financing activities:
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Debt discount from derivative liabilities
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$
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—
|
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$
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26,250
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Transfer from device parts inventory to fixed assets
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$
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—
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$
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106,256
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|
Conversion of convertible notes, interest and fees to shares of
common stock
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$
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3,199,416
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|
$
|
492,608
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|
Release of derivative liability on conversion of convertible notes
payable
|
|
$
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2,601,903
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$
|
493,405
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Settlement of convertible notes payable to accounts payable and
accrued expenses
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|
$
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75,000
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$
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—
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Discount added to face value of loans
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|
$
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85,000
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$
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—
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Warrants issued with loans
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$
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330,000
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$
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—
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Capitalization of accrued interest to convertible notes payable and
loans payable
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$
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—
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$
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160,282
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Opening balance sheet RAD G
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$
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11,508
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$
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—
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The accompanying notes
are an integral part of these unaudited condensed consolidated
financial statements.
- 7 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
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. 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 nine months
ended November 30, 2020, the Company had negative cash flow from
operating activities of $1,446,075. As of November 30, 2020, the
Company has an accumulated deficit of $29,257,504, and negative
working capital of $15,673,795. 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.
- 8 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
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 filed on
July 28, 2020. The unaudited condensed consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries, Robotic Assistance Devices, Inc., Robotic Assistance
Devices Group, Inc. (see Note 16), Robotic Assistance Devices
Mobile, 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 nine months ended November 30, 2020 are not necessarily
indicative of the results that may be expected for the entire
year.
Use of
Estimates
In order to prepare
financial statements in conformity with accounting principals
generally accepted in the United States, management must make
estimates, judgements and assumptions that affect the amounts
reported in the financial statements and determine whether
contingent assets and liabilities, if any, are disclosed in the
financial statements. The ultimate resolution of issues requiring
these estimates and assumptions could differ significantly from
resolution currently anticipated by management and on which the
financial statements are based. The most significant estimates
included in these consolidated financial statements are those
associated with the assumptions used to value derivative
liabilities.
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
nine months ended November 30, 2020 and the year ended February 29,
2020.
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. As at both nine months ended November 30, 2020 and
February 29, 2020 we had a valuation reserve of $160,000.
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.
- 9 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
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.
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|
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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 November 30, 2020 and February 29, 2020, 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 7, 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:
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|
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|
●
|
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
|
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|
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●
|
Is the investors rate of return is implicitly
limited by the terms of the agreement
|
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|
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●
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Does the Company’s revenue for a reporting
period underlying the agreement have only a minimal impact on the
investor’s rate of return
|
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●
|
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.
- 10 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
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 4 – Revenue
from Contracts with Customers for additional information.
Income
Taxes
Income taxes are
accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized when items of income and
expense are recognized in the financial statements in different
periods than when recognized in the tax return. Deferred tax assets
arise when expenses are recognized in the financial statements
before the tax returns or when income items are recognized in the
tax return prior to the financial statements. Deferred tax assets
also arise when operating losses or tax credits are available to
offset tax payments due in future years. Deferred tax liabilities
arise when income items are recognized in the financial statements
before the tax returns or when expenses are recognized in the tax
return prior to the financial statements. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
On December 22, 2017,
the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. ASC 740,
Accounting for Income Taxes requires companies to recognize the
effects of changes in tax laws and rates on deferred tax assets and
liabilities and the retroactive effects of changes in tax laws in
the period in which the new legislation is enacted. The Company’s
gross deferred tax assets were revalued based on the reduction in
the federal statutory tax rate from 35% to 21%. A corresponding
offset has been made to the valuation allowance, and any potential
other taxes arising due to the Tax Act will result in reductions to
the Company’s net operating loss carryforward and valuation
allowance. The Company will continue to analyze the Tax Act to
assess its full effects on the Company’s financial results,
including disclosures, for the Company’s fiscal year ending
February 28, 2021, but the Company does not expect the Tax Act to
have a material impact on the Company’s consolidated financial
statements.
Leases
We adopted ASU No.
2016—02—Leases (topic 842), as amended as of March 1, 2019
using the modified retrospective approach. The modified
retrospective approach provided a method for recording the existing
leases at adoption and in comparative periods. In addition, we
elected the package of practical expedient permitted under the
transition guidance within the new standard.
In addition, we elected
the hindsight practical expedient to determine the lease term for
existing leases. The standard did not materially impact our
consolidated net loss, accumulated deficit, and had no impact on
cash flows.
Lease agreements are
evaluated to determine if they are sales/finance leases meeting any
of the following criteria at inception: (a) transfer of ownership
of the underlying asset; (b) purchase option that is reasonably
certain of being exercised; (c) the lease term is greater than a
major part of the remaining estimated economic life of the
underlying asset; or (d) if the present value of the sum of lease
payments and any residual value guaranteed by the lessee that has
not already been included in lease payments in accordance with ASC
842-10-30-5(f) equals or exceeds substantially all of the fair
value of the underlying asset.
If at its inception, a
lease meets any of the four lease criteria above, the lease is
classified by the Company as a sales/finance; and if none of the
four criteria are met, the lease is classified by the Company as an
operating lease.
- 11 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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.
|
- 12 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
|
|
November 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability – conversion features pursuant to convertible
notes payable
|
|
$
|
3,261,457
|
|
$
|
—
|
|
$
|
—
|
|
$
|
3,261,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability – conversion features pursuant to convertible
notes payable
|
|
$
|
6,890,688
|
|
$
|
—
|
|
$
|
—
|
|
$
|
6,890,688
|
|
See Note 12 for specific
inputs used in the multinomial lattice 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.
Recently Adopted
Accounting Pronouncements
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 on March 1, 2019
but does not expect any material impact on the financial statements
because the leases commencing March 1, 2019 are month to month.
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 adopted this March 1, 2020.
- 13 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Reclassifications
Certain
reclassifications have been made in the 2019 financial statements
to conform to the 2020 presentation. These reclassifications
have no effect on net loss for 2019.
4. 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 842 (which addresses lease accounting and was
adopted on March 1, 2019).
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
November 30, 2020
|
|
Nine Months Ended
November 30, 2020
|
|
Device rental activities
|
|
$
|
84,600
|
|
$
|
214,803
|
|
Direct sales of goods and services
|
|
|
35,100
|
|
|
44,300
|
|
|
|
$
|
119,700
|
|
$
|
259,103
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30, 2019
|
|
Nine Months Ended
November 30, 2019
|
|
Device rental activities
|
|
$
|
67,343
|
|
$
|
152,267
|
|
Direct sales of goods and services
|
|
|
4,091
|
|
|
34,496
|
|
|
|
$
|
71,434
|
|
$
|
186,763
|
|
5. REVENUE EARNING DEVICES
Revenue earning devices
consisted of the following:
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
February 29, 2020
|
|
Revenue earning devices
|
|
$
|
435,199
|
|
$
|
362,259
|
|
Less: Accumulated depreciation
|
|
|
(197,138
|
)
|
|
(123,088
|
)
|
|
|
$
|
238,061
|
|
$
|
239,171
|
|
- 14 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During the nine months
ended November 30, 2020, the Company made total additions to
revenue earning devices of $72,940. During the nine months ended
November 30, 2019, the Company made total additions to revenue
earning devices of $132,081 including $106,256 in inventory
transfers. During the nine months ended November 30, 2019 the
Company disposed of a revenue earning device having a net book
value of $3,500 for $11,000 and recorded a gain on disposal of
$7,500.
Depreciation expense was
$26,589 and $74,050 for the three and nine months ended November
30, 2020, respectively, and $22,107 and $57,662 for the three and
nine months ended November 30, 2019, respectively.
6. FIXED ASSETS
Fixed assets consisted
of the following:
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
February 29, 2020
|
|
Automobile
|
|
$
|
43,453
|
|
$
|
41,953
|
|
Computer equipment
|
|
|
23,399
|
|
|
20,262
|
|
Office equipment
|
|
|
2,127
|
|
|
5,680
|
|
|
|
|
68,979
|
|
|
67,895
|
|
Less: Accumulated depreciation
|
|
|
(64,212
|
)
|
|
(51,637
|
)
|
|
|
$
|
4,767
|
|
$
|
16,258
|
|
During the three months
and nine months ended November 30, 2020 the Company made additions
of $0 and $4,638. The Company made additions of $1,000 for both the
three and nine months ended November 30, 2019.During the nine
months ended November 30 ,2020, the Company disposed of office
equipment having an original cost of $3,550 and a net book value of
$1,553 for $1,000 in proceeds and recorded a $553 loss on disposal
of fixed assets.
Depreciation expense was
$3,556 and $14,571 for the three and nine months ended November 30,
2020, respectively, and $5,484 and $16,397 for the three and nine
months ended November 30, 2019, respectively.
7. 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 turned 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 had agreed to pay the remaining balance in minimum $60,000
monthly installments, concluding November 30, 2019. At February 29,
2020 the investor had advanced the full $900,000.
On May 9, 2019 the
Company entered into 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 turned 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 had agreed to pay the remaining balance in four monthly
installments of $64,111 starting July 1, 2019. At February 29,
2020, $400,000 had 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 turned 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 February 29, 2020,
$50,000 had been paid to the Company.
|
These variable payments
(Payments) are to be made either 30 days up to 90 days after the
fiscal quarter depending on the agreement. If the Payments would
deplete RAD’s available cash by a percentage between 1% and 31%
depending on the rate Payment, 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.
- 15 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 May 31, 2020 the investor has fully funded this
commitment.
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
May 31, 2020 the investor has advanced $50,000 with the remainder
to be advanced no later than June 30, 2020. As the investor has
only advanced the $50,000 the 1.00% rate Payment has been
adjusted on a pro-rata basis to 0.50%.
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.
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 30, 2020, 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, 2021 filing.
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.
For the nine months
ended November 30, 2020, the Company has received $966,000 related
to the deferred payment obligation bringing the balance to
$2,525,000 at November 30, 2020. (February 29, 2020
-$1,559,000).
The Payments will first
become payable on June 30, 2019 (unless otherwise indicated) based
on the quarterly Revenues for the quarter ended May 31, 2019 and
will accrue every quarter thereafter. For the three months and nine
months ended November 30, 2020 the Company accrued $18,455 and
$57,149 in Payments. As of November 30, 2020, the Company has
accrued a total of $77,683 in payments (February 29, 2020
-$30,534).
- 16 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
8. CONVERTIBLE NOTES PAYABLE
Convertible notes
payable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
Balance
|
|
|
|
|
|
|
Interest
|
|
Conversion
|
November
30,
|
|
February
29,
|
|
Issued
|
|
Maturity
|
|
|
Rate
|
|
Rate per
Share
|
2020
|
|
2020
|
|
January 31, 2013
|
|
February 28,
2017*X
|
|
|
10%
|
|
$0.010
|
(3)
|
$
|
119,091
|
|
$
|
119,091
|
|
May 31, 2013
|
|
November 30,
2016*X
|
|
|
10%
|
|
$0.010
|
(3)
|
|
261,595
|
|
|
261,595
|
|
August 31, 2014
|
|
November 30,
2016*X
|
|
|
10%
|
|
$0.002
|
(3)
|
|
355,652
|
|
|
355,652
|
|
November 30, 2014
|
|
November 30,
2016*X
|
|
|
10%
|
|
$0.002
|
(3)
|
|
103,950
|
|
|
103,950
|
|
February 28, 2015
|
|
February 28,
2017*X
|
|
|
10%
|
|
$0.001
|
(3)
|
|
63,357
|
|
|
63,357
|
|
May 31, 2015
|
|
August 31,
2017*X
|
|
|
10%
|
|
$1.000
|
(3)
|
|
65,383
|
|
|
65,383
|
|
August 31, 2015
|
|
August 31,
2017*X
|
|
|
10%
|
|
$0.300
|
(3)
|
|
91,629
|
|
|
91,629
|
|
November 30, 2015
|
|
November 30,
2018*X
|
|
|
10%
|
|
$0.300
|
(3)
|
|
269,791
|
|
|
269,791
|
|
February 29, 2016
|
|
February 28,
2019*X
|
|
|
10%
|
|
60%
discount
|
(2)
|
|
95,245
|
|
|
95,245
|
|
May 31, 2016
|
|
May 31, 2019*X
|
|
|
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,
2021XXX
|
|
|
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,
2021XXX
|
|
|
8%
|
|
35%
discount
|
(2)
|
|
50,000
|
|
|
50,000
|
|
April 26, 2017
|
|
April 26, 2018*
|
|
|
0%
|
|
$0.001
|
|
|
68
|
|
|
68
|
|
May 1, 2017
|
|
May 1, 2021XXX
|
|
|
8%
|
|
35%
discount
|
(2)
|
|
50,000
|
|
|
50,000
|
|
May 4, 2017
|
|
May 4, 2018*
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
—
|
|
|
22,610
|
|
May 15, 2017
|
|
May 15, 2018*
|
|
|
0%
|
|
$0.001
|
|
|
1,280
|
|
|
1,280
|
|
May 17, 2017
|
|
May 17,
2020*XXX
|
|
|
10%
|
|
40%
discount
|
(1)
|
|
85,000
|
|
|
85,000
|
|
June 7, 2017
|
|
June 7, 2018*
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
—
|
|
|
156,764
|
|
June 16, 2017
|
|
June 16, 2018*
|
|
|
0%
|
|
$0.001
|
|
|
750
|
|
|
750
|
|
July 6, 2017
|
|
July 6, 2018
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
—
|
|
|
200,000
|
|
August 8, 2017
|
|
August 8, 2018
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
—
|
|
|
125,000
|
|
July 28, 2017
|
|
July 28,
2018*XX
|
|
|
15%
|
|
40%
discount
|
(2)
|
|
57,495
|
|
|
47,913
|
|
August 29, 2017
|
|
August 29,
2018*XX
|
|
|
15%
|
|
50%
discount
|
(2)
|
|
9,705
|
|
|
162,250
|
|
October 4, 2017
|
|
May 4, 2018*
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
44,662
|
|
|
150,000
|
|
October 16, 2017
|
|
October 16,
2018*XX
|
|
|
15%
|
|
50%
discount
|
(2)
|
|
394,244
|
|
|
328,537
|
|
November 22, 2017
|
|
November 22,
2018*XX
|
|
|
15%
|
|
50%
discount
|
(2)
|
|
660,330
|
|
|
550,275
|
|
December 28, 2017
|
|
December 28, 2017
|
|
|
10%
|
|
40%
discount
|
(2)
|
|
—
|
|
|
57,008
|
|
December 29, 2017
|
|
December 29,
2018*XX
|
|
|
15%
|
|
50%
discount
|
(2)
|
|
435,600
|
|
|
363,000
|
|
January 9, 2018
|
|
January 9, 2019*
|
|
|
8%
|
|
40%
discount
|
(2)(1)
|
|
79,508
|
|
|
79,508
|
|
January 30, 2018
|
|
January 30,
2019*XX
|
|
|
15%
|
|
50%
discount
|
(2)(1)
|
|
396,000
|
|
|
330,000
|
|
February 21, 2018
|
|
February 21,
2019*XX
|
|
|
15%
|
|
50%
discount
|
(2)(1)
|
|
279,591
|
|
|
330,000
|
|
March 14, 2018
|
|
March 14, 2019*
|
|
|
10%
|
|
40%
discount
|
(2)
|
|
—
|
|
|
50,000
|
|
June 7, 2017
|
|
June 9, 2019
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
200,000
|
|
|
200,000
|
|
April 9, 2018
|
|
April 9,
2019*XX
|
|
|
15%
|
|
50%
discount
|
(2)
|
|
72,600
|
|
|
60,500
|
|
March 21, 2017
|
|
March 21, 2018
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
—
|
|
|
40,000
|
|
April 20, 2018
|
|
April 20, 2019*
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
97,659
|
|
|
97,659
|
|
May 2, 2018
|
|
December 2, 2018*
|
|
|
10%
|
|
40%
discount
|
(2)
|
|
—
|
|
|
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
|
|
May 23, 2018
|
|
May 23, 2019
|
|
|
10%
|
|
50%
discount
|
(2)
|
|
—
|
|
|
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)
|
|
—
|
|
|
43,125
|
|
July 6, 2017
|
|
June 9, 2019
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
—
|
|
|
200,000
|
|
August 1, 2018
|
|
August 1,
2019*XX
|
|
|
15%
|
|
50%
discount
|
(2)
|
|
42,900
|
|
|
35,750
|
|
August 23, 2018
|
|
August 23, 2019*
|
|
|
8%
|
|
45%
discount
|
(2)
|
|
—
|
|
|
70,123
|
|
September 13, 2018
|
|
June 30, 2019*
|
|
|
12%
|
|
45%
discount
|
(2)
|
|
9,200
|
|
|
9,200
|
|
September 17, 2018
|
|
March 17, 2019*
|
|
|
10%
|
|
50%
discount
|
(2)
|
|
—
|
|
|
4,945
|
|
September 20, 2018
|
|
September 20,
2019*XX
|
|
|
15%
|
|
50%
discount
|
(2)
|
|
51,942
|
|
|
43,285
|
|
September 24, 2018
|
|
June 24, 2019*
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
45,663
|
|
|
63,913
|
|
August 8, 2017
|
|
June 9, 2019
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
—
|
|
|
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
|
|
August 29, 2019
|
|
August 29, 2020*
|
|
|
8%
|
|
40%
discount
|
(2)
|
|
28,875
|
|
|
26,250
|
|
|
|
|
|
|
|
|
|
|
|
5,508,564
|
|
|
6,834,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
current portion of convertible notes payable
|
|
|
(5,508,564
|
)
|
|
(6,734,227
|
)
|
Less:
discount on noncurrent convertible notes payable
|
|
|
—
|
|
|
(30,486
|
)
|
Noncurrent
convertible notes payable, net of discount
|
|
$
|
—
|
|
$
|
69,515
|
|
|
|
|
|
|
|
|
|
Current
portion of convertible notes payable
|
|
$
|
5,508,564
|
|
$
|
6,734,227
|
|
Less:
discount on current portion of convertible notes payable
|
|
|
(22,488
|
)
|
|
(120,602
|
)
|
Current
portion of convertible notes payable, net of discount
|
|
$
|
5,486,076
|
|
$
|
6,613,625
|
|
- 17 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
*
|
The indicated notes were
in default as of November 30, 2020. Default interest rate 24%
|
|
|
X
|
On December 10, 2020
(subsequent to quarter end) the Company settled the above notes
indicated totaling $1,460,794 and associated accrued interest of
$1,593,544 totaling $3,054,338 in exchange for promissory
notes dated December 10, 2020 totaling $3,054,338, maturing
December 10, 2023 and bearing interest at 12% per annum and a
warrant to purchase 250,000,000 shares at an exercise price of
$.002 per share and a three year maturity having a fair value of
$550,000. These notes are secured by a general security charging
all of RAD’s present and after-acquired property.
|
|
|
XX
|
On December 10, 2020
(subsequent to quarter end) the Company settled the above notes
indicated totaling $2,683,357 and associated accrued interest of
$1,237,811 totaling $3,921,1688 in exchange for a promissory note
dated December 10, 2020 of $3,921,1688, maturing December 10, 2023
and bearing interest at 12% per annum and a warrant to purchase
450,000,000 shares at an exercise price of $.002 per share and a
three year maturity having a fair value of $990,000.
|
|
|
XXX
|
On December 14, 2020
(subsequent to quarter end) the Company settled the above notes
indicated totaling $235,000 and associated accrued interest of
$75,375 totaling $310,375 in exchange for a promissory note dated
December 14, 2020 of $310,375, maturing December 10, 2023 and
bearing interest at 12% per annum, 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 and 55 shares of Series F
Preferred Shares having a fair value of $1,151,166.
|
|
|
(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 November 30, 2020 and 2019, the Company incurred original
issue discounts of $0 and $1,250 respectively, and debt discounts
from derivative liabilities of $0 and $ 25,000, respectively,
related to new convertible notes payable. During the three months
ended November 30, 2020 and 2019, the Company recognized interest
expense related to the amortization of debt discount of $0 and
$56,171, respectively. The Company recorded penalty interest of
$494,428 and $175,463 during the three months ended November 30,
2020 and November 30, 2019, respectively.
During the nine months
ended November 30, 2020 and 2019, the Company incurred original
issue discounts of $0 and $1,250, respectively and derivative
discounts of $0 and $26,250, respectively, related to new
convertible notes payable. During the nine months ended November
30, 2020 and 2019, the Company recognized interest expense related
to the amortization of debt discount of $23,957 and $739,334,
respectively. The Company recorded penalty interest of $939,705 and
$207,116 during the nine months ended November 30, 2020 and
November 30, 2019, respectively.
All the notes above are
unsecured. As of November 30, 2020, the Company had total accrued
interest payable of $3,486,043 all of which is classified as
current.
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 nine months
ended November 30, 2020, the Company also had the following
convertible note activity:
|
|
●
|
The company
recorded $939,705 in penalties as increases on various notes,
with a corresponding charge to interest.
|
|
|
●
|
holders of certain
convertible notes payable elected to convert a total of $2,094,934
of principal and $1,083,982 accrued interest, and $20,500 of fees
into 1,889,155,010 shares of common stock. No gain or loss was
recognized on conversions as these conversions occurred within the
terms of the agreement that provided for conversion.
|
- 18 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
9. RELATED PARTY
TRANSACTIONS
For the nine months
ended November 30, 2019, the Company had net repayments of $74,938
from its loan payable-related party. For the nine months ended
November 30, 2020 the Company repaid net advances of $344,618. At
November 30, 2020, the loan payable-related party was $1,189,155
and $1,310,358 at February 29, 2020. Included in the balance due to
the related party at November 30, 2020 is $874,374 of deferred
salary and interest, $594,000 of which bears interest at 12%. At
February 29, 2020, included in the balance due to the related party
is $656,334 of deferred salary and interest, $426,000 of which
bears interest at 12%. The accrued interest included in loan at
November 30, 2020 and November 30, 2019 was $84,418 and $34,917,
respectively.
During the three and
nine months ended November 30, 2020 and 2019, the Company was
charged $10,157 and $121,973, respectively for consulting fees for
research and development to a company owned by a principal
shareholder. During the three and nine months ended November 30,
2019 the Company was charged $90,090 and $47,238, respectively in
consulting fees for research and development to a company owned by
a principal shareholder. The company received a credit in the
quarter ended May 31, 2019 that were a result of billing
corrections of ($106,444) and after adjusting for this, would bring
total charges in the nine months ended November 30, 2019 to
$153,682.
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 and $5,746 for
the years ended February 29, 2020 and February 28, 2019,
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 both
November 30, 2020 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 November 30, 2020 and
February 29, 2020 The remaining total balances of the amounts
owed on the vehicle loans were $38,522 and $38,522 as of November
30, 2020 and February 28, 2020, respectively, of which all were
classified as current. The Company ceased making payments of
principal and interest in fiscal 2019 and the company has returned
the remaining vehicles to the financing company for disposal.
- 19 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
11. LOANS
PAYABLE
Loans payable 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
|
|
|
10,000
|
|
25%
|
*
|
August 16, 2018
|
|
August 16, 2019
|
|
Promissory note
|
(1)
|
|
12,624
|
|
25%
|
*
|
August 16, 2018
|
|
October 1, 2018
|
|
Promissory note
|
|
|
10,000
|
|
25%
|
*
|
August 23, 2018
|
|
October 20, 2018
|
|
Promissory note
|
(21)
|
|
15,000
|
|
20%
|
*
|
October 11, 2018
|
|
October 11, 2019
|
|
Promissory note
|
(7)
|
|
17,000
|
|
20%
|
*
|
August 5, 2019
|
|
March 11, 2020
|
|
Factoring Agreement
|
(4)
|
|
18,750
|
(4)
|
|
*
|
November 12, 2019
|
|
August 11, 2020
|
|
Factoring Agreement
|
(10)
|
|
53,465
|
(10)
|
|
*
|
December 20, 2019
|
|
March 5, 2020
|
|
Factoring Agreement
|
(14)
|
|
7,480
|
|
|
*
|
October 17,2019
|
|
April 29, 2020
|
|
Factoring Agreement
|
(11)
|
|
—
|
(11)
|
|
|
September 27, 2019
|
|
April 4, 2020
|
|
Factoring Agreement
|
(12)
|
|
8,857
|
(12)
|
|
*
|
January 31, 2019
|
|
June 30, 2019
|
|
Promissory note
|
(2)
|
|
78,432
|
|
15%
|
*
|
January 24, 2019
|
|
January 24, 2021
|
|
Loan
|
(8)
|
|
168,658
|
|
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 31, 2020
|
|
August 31, 2021
|
|
Promissory note
|
(22)
|
|
44,183
|
|
20%
|
|
September 8, 2020
|
|
September 8, 2021
|
|
Promissory note
|
(27)
|
|
7,380
|
|
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 22, 2023
|
|
Promissory note
|
(31)
|
|
65,000
|
|
15.5%
|
|
November 23, 2020
|
|
November 23, 2023
|
|
Promissory note
|
(32)
|
|
300,000
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,980,547
|
|
|
|
Less current portion of loans payable
|
|
|
|
|
(1,130,997
|
)
|
|
|
Less discount on loans payable
|
|
|
|
|
(200,300
|
)
|
|
|
Loans payable
|
|
|
|
$
|
649,250
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of loans payable
|
|
|
|
$
|
1,130,997
|
|
|
|
Less discount on current portion of loans
payable
|
|
|
|
|
(207,500
|
)
|
|
|
Loans payable net of discount
|
|
|
|
$
|
923,497
|
|
|
|
- 20 -
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. Accrued interest of $1,511 has been
recorded.
|
|
|
(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)
|
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 $58,500, including payments of
$8,275 made during the nine months ended November 30, 2020. The
Company has pledged a security interest on all accounts
receivable and bank accounts of the Company. Obligation under
personal guaranty of the controlling shareholder of the
Company.
|
|
|
(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)
|
$200,000 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 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. Bonus
interest of 10,304 has been accrued payable March 31, 2020.
|
|
|
(9)
|
The note may be
pre-payable at any time. The note balance includes 33% original
issue discount of $26,104.
|
|
|
(10)
|
Total loan of $243,639,
repayable $1,509 per week including fees and interest of $60,042.
Original cash proceeds of $7,877, repayment of loans (5) and (13)
totaling $15,732, partial repayment of fees of $5,566 all totaling
$29,175, additional advances of $88,772 with remaining $65,551 to
be advanced to the company over the remaining 18 weeks. The Company
has repaid a total of $98,616, including payments of $20,827 made
during the nine months ended November 30, 2020. The Company has
pledged a security interest on all accounts receivable and bank
accounts of the Company. Obligation under personal guaranty of the
controlling shareholder of the Company.
|
|
|
(11)
|
Total loan of $71,000,
repayable $710 per business day including fees and interest of
$21,000. Original proceeds of $50,000. Loan fully repaid at August
31, 2020.
|
|
|
(12)
|
Total loan of $59,960,
repayable $590 per business day including fees and interest of
$19,960. Original proceeds of $40,000 less repayment of $51,103,
including payments of $6,036 made during the quarter ended August
31, 2020. The Company has pledged a security interest on all
accounts receivable and bank accounts of the Company. Obligation
under personal guaranty of the controlling shareholder of the
Company.
|
|
|
(13)
|
The note may be
pre-payable at any time. The note balance includes 33% original
issue discount of $3,000.
|
|
|
(14)
|
Total loan of $12,400,
repayable $1,240 per week including fees and interest of $2,400.
Original cash proceeds of $10,000, repayments of $4,920. The
Company has pledged a security interest on all accounts receivable
and bank accounts of the Company. Obligation under personal
guaranty of the controlling shareholder of the Company.
|
|
|
(15)
|
The note may be
pre-payable at any time. The note balance includes 22% original
issue discount of $2,450.
|
- 21 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
|
(16)
|
The note may be
pre-payable at any time. The note balance includes 24% 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.
|
|
|
(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.
|
|
|
(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.
|
|
|
(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.
|
|
|
(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 warrant to purchase
70,000,000 shares at an exercise price of $0.00165 per share, with
a 3 year term and having a fair value of $77,000 using
Black-Scholes with assumptions described in Note 13. The discount
and warrant are being amortized over the term of the loan.
|
|
|
(31)
|
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.
|
|
|
(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 warrant to purchase
230,000,000 shares at an exercise price of $0.00165 per share
with a 3 year term and having a fair value of $253,000 using
Black-Scholes with assumptions described in note 13. The discount
and warrant are being amortized over the term of the
loan.
|
12. DERIVATIVE
LIABILITIES
As of November 30, 2020,
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 $3,261,457.
- 22 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 November 30, 2020:
|
|
Strike price
|
$0.002 - $0.0006
|
Fair value of Company common stock
|
$0.004 - $0.0011
|
Dividend yield
|
0.00%
|
Expected volatility
|
383.4% - 167.5%
|
Risk free interest
rate
|
0.09% - 0.07%
|
Expected term
(years)
|
0.50 - 0.13
|
During the three months
ended November 30, 2020, and 2019, the Company released $873,673
and $109,987, respectively, of the Company’s derivative liability
to equity due to the conversions of principal and interest on the
associated notes. During the nine months ended November 30, 2020,
and 2019, the Company released $2,601,903 and $493,405,
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 nine months ended November
30, 2020 were as follows:
|
|
|
|
Balance as of February 29, 2020
|
$
|
6,890,688
|
|
Release of derivative liability on conversion
of convertible notes payable
|
|
(2,601,903
|
)
|
Change in fair value of derivative
liabilities
|
|
(1,027,328
|
)
|
Balance as of November 30, 2020
|
$
|
3,261,457
|
|
13. STOCKHOLDERS’
EQUITY (DEFICIT)
Summary of Common
Stock Activity
On March 27, 2020, the
Company undertook a 10,000:1 reverse stock split and on August 24,
2018, the Company undertook a 100:1 reverse stock split. The share
capital has been retrospectively adjusted accordingly to reflect
this reverse stock split, except for the conversion price of
certain convertible notes as the conversion price is not subject to
adjustment from forward and reverse stock splits (see Note 8).
During the nine months
ended November 30, 2020, the Company issued 1,889,155,010 shares of
its common stock for the conversion of debt and related interest
and fees totaling $3,199,416 including $2,094,934 of principal,
$1,083,982 interest, $20,500 in fees in connection with debt
converted during the period, as well as the release of the related
derivative liability (see Note 12).
Summary of
Preferred Stock Activity
On July 22, 2020 the
board of directors passed a resolution whereby the sole director
agreed to return for cancellation, 816 of his 1000 Series F
preferred shares to the Company.
On December 1, 2020 the
company issued 110 Series F shares having a fair value of $362,084
to a consultant for services previously rendered which was recorded
as professional fees with a corresponding adjustment to accrued
liabilities.
Summary of Warrant
Activity
|
|
|
|
|
|
|
|
|
Number of Warrants
|
|
Weighted Average Exercise
Price
|
|
Weighted Average Remaining
Years
|
|
|
|
|
|
|
|
Outstanding at March 1, 2020
|
|
2,043
|
|
$106.00
|
|
1.81
|
Issued
|
|
300,000,000
|
|
$0.0016
|
|
2.98
|
Exercised
|
|
—
|
|
—
|
|
—
|
Forfeited and cancelled
|
|
—
|
|
—
|
|
—
|
Outstanding at November 30, 2020
|
|
300,002,043
|
|
$0.0024
|
|
2.98
|
- 23 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the nine months
ended November 30, 2020 and November 30, 2019, 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.
During the nine months
ended November 30, 2020 the Company issued warrants to purchase a
total 300,000,000 common shares along with promissory notes (see
Note 11) recorded as a discount and amortized over the respective
loan term with a corresponding adjustment to paid in capital.
These warrants (a) have an aggregate grant date fair value of
$300,000 based on the Black-Scholes Option Pricing model with the
following assumptions:
|
|
Strike price
|
$.00165
|
Fair value of Company’s common stock
|
$0.0011
|
Dividend yield
|
0.00%
|
Expected volatility
|
404.8%
|
Risk free interest
rate
|
0.39% - 0.41%
|
Expected term
(years)
|
3.00
|
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 April 2019 the
principals of WeSecure (see Note 9) filed lawsuit in California
Superior Court seeking damages for this non-payment of this balance
of WeSecure assets sold totaling $25,000, unpaid consulting fees
payable to the two principals through 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 at February 28, 2019. At November 30,
2020 an outstanding balance of $139,500 remains.
As of November 30, 2020
the Company paid $40,500. As of this filing the November 2019
through July 2020 instalments are in arrears. The Company repaid
$10,000 towards these arrears in the three months ended November
30, 2020 included in the total payments above.
The related legal costs
are expensed as incurred.
- 24 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Operating
Lease
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 which
commenced 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, San Juan Capistrano, California, for a nominal fee of
$264/yr.
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 $3,000
and $14,800 for the three and nine months ended November 30, 2020,
respectively and $2,000 and $6,000 for the three and nine months
ended November 30, 2019, respectively.
At November 30, 2020 the
Company had no 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.
15. EARNINGS (LOSS)
PER SHARE
The net income (loss)
per common share amounts were determined as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
For the Nine Months
Ended
|
|
|
|
November 30
|
|
November 30
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
3,408,305
|
|
$
|
(3,396,031
|
)
|
$
|
(3,634,660
|
)
|
$
|
(3,080,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of common stock equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: interest expense on convertible debt
|
|
|
479,387
|
|
|
225,109
|
|
|
1,503,148
|
|
|
608,965
|
|
Add Penalty interest on convertible debt
|
|
|
494,428
|
|
|
—
|
|
|
939,705
|
|
|
—
|
|
Add (less) loss (gain) on change of derivative liabilities
|
|
|
(5,354,622
|
)
|
|
2,108,596
|
|
|
(1,027,328
|
)
|
|
(367,971
|
)
|
Net income (loss) adjusted for common stock equivalents
|
|
|
(972,502
|
)
|
|
(1,062,326
|
)
|
|
(2,219,135
|
)
|
|
(2,839,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic
|
|
|
679,536,441
|
|
|
312,730
|
|
|
470,273,731
|
|
|
185,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – basic
|
|
$
|
0.00
|
|
$
|
(3.40
|
)
|
$
|
0.00
|
|
$
|
(15.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of common stock equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Preferred shares
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Warrants
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares – diluted
|
|
|
679,536,441
|
|
|
312,730
|
|
|
470,273,731
|
|
|
185,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share – diluted
|
|
$
|
0.00
|
|
$
|
(3.40
|
)
|
$
|
0.00
|
|
$
|
(15.30
|
)
|
- 25 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The anti-dilutive shares
of common stock equivalents for the three and nine months ended
November 30, 2020 and November 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended
|
|
For the Nine Months
Ended
|
|
|
|
November 30,
|
|
November 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Convertible notes and accrued interest
|
|
13,732,671,277
|
|
13,852,676
|
|
13,732,671,277
|
|
13,852,676
|
|
Convertible Class F Preferred shares
|
|
6,519,028,347
|
|
1,328,832
|
|
6,519,028,347
|
|
1,328,832
|
|
Warrants
|
|
300,002,043
|
|
2,043
|
|
300,002,043
|
|
2,043
|
|
Total
|
|
20,551,701,667
|
|
15,183,551
|
|
20,551,701,667
|
|
15,183,551
|
|
16. ROBOTIC
ASSISTANCE DEVICES GROUP, INC. CONSOLIDATION
In the quarter ended
August 31, 2020, one of Robotics Assistance Devices, Inc.’s (“RAD”)
lenders entered receivership under the US Bankruptcy Courts
supervision. The trustee assigned to the bankruptcy estate used
powers granted under the loan agreement with RAD to take over and
control RAD’s bank accounts which allowed the trustee to transfer
all funds available to the bankruptcy estate in partial repayment
of the loan, which amounted to approximately
$50,200. Because the
trustee of the bankruptcy estate maintained effective control of
RAD’s bank accounts, one member of Management transferred control
of an entity under his control to the Company in order to transfer
the conduct of RAD business to the new entity, Robotics Assistance
Devices Group, Inc. (“RAD G”) Because of this, the Company has
consolidated RAD G beginning on June 1, 2020. The table below shows
the assets and liabilities consolidated on June 1, 2020 that were
contributed:
|
|
|
|
Cash
|
$
|
(283
|
)
|
Accounts receivable
|
|
450
|
|
Other liabilities
|
|
(11,675
|
)
|
Net liabilities contributed
|
$
|
(11,508
|
)
|
17. SUBSEQUENT
EVENTS
Subsequent to November
30, 2020 through to January 12, 2021:
Convertible note holders
converted $161,480 of principal and $100,471 interest into
436,567,860 shares of the Company’s common stock.
On December 1, 2020 the
Company issued 110 Series F Preferred Shares to a consultant for
services rendered at a fair value of $362,084. The company recorded
this as payment for accrued liabilities with a corresponding
adjustment to paid in capital.
On December 10, 2020 the
Company settled convertible notes (see Note 8) totaling $1,460,794
and associated accrued interest of $1,593,544 totaling $3,054,338
in exchange for promissory notes dated December 10, 2020
totaling $3,054,338, maturing December 10, 2023 and bearing
interest at 12% per annum and a warrant to purchase 250,000,000
shares at an exercise price of $.002 per share and a three year
maturity having a fair value of $550,000.These notes are secured by
a general security charging all of RAD’s present and after-acquired
property.
On December 10, 2020 the
Company settled additional convertible notes (see Note 8) totaling
$2,683,357 and associated accrued interest of $1,237,811 totaling
$3,921,1688 in exchange for a promissory note dated December 10,
2020 of $3,921,168, maturing December 10, 2023 and bearing interest
at 12% per annum and a warrant to purchase 450,000,000 shares at an
exercise price of $.002 per share and a three year maturity having
a fair value of $990,000.
On December 10, 2020 RAD
Inc. entered into a 15 month lease commencing December 18, 2020 and
ending March 31, 2022. The monthly lease payments are $3,859 with
a$3,859 security deposit. The Company will account for this
according to ASC 842.
- 26 -
ARTIFICIAL INTELLIGENCE
TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On December 14, 2020 the
Company settled additional convertible notes (see Note 8) totaling
$235,000 and associated accrued interest of $75,375 totaling
$310,375 in exchange for a promissory note dated December 14, 2020
of $310,375, maturing December 10, 2023 and bearing interest at 12%
per annum , 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 and 55 shares of Series F Preferred Shares having
a fair value of $ 1,151,166.
On December 28, 2020 and
January 1, 2021 a warrant holder exercised 145,741.573 and
131,345,178 warrant shares through cashless exercise and received
119,000,000 and 125,000,000 shares, respectively.
- 27 -
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 nine
months ended November 30, 2020 and November 30, 2019 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 10K for the year ended February 29, 2020, as filed on July 28,
2020 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.
The Company received
pre-order letters of intent from dealers and end users for 76
ROAMEO units that represents approximately $320,000 in monthly
recurring revenue. The Company is working to turn these pre-orders
into firm orders with an expectation that conversions could begin
in the first quarter of the new fiscal year ended February 28,
2022. It is expected that ROAMEO production ramp-up time will take
at least two quarters during fiscal 2022 to fulfill converted
pre-orders.
The Company expects to
form a new wholly owned subsidiary to provide services in the
security and robotics space that are complimentary to RAD Inc and
RAD Mobile sometime in the fiscal year ended February 28, 2022.
- 28 -
Selected Results Per Quarter for Fiscal
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30, 2020
|
|
Three Months Ended
August 31, 2020
|
|
Three Months Ended
May 31, 2020
|
|
Revenues
|
|
$
|
119,700
|
|
$
|
76,082
|
|
$
|
63,321
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
95,018
|
|
|
40,071
|
|
|
54,031
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
995,092
|
|
|
707,969
|
|
|
392,762
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(900,074
|
)
|
|
(667,898
|
)
|
|
(338,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
4,308,379
|
|
|
(8,350,343
|
)
|
|
2,314,007
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,408,305
|
|
$
|
(9,018,241
|
)
|
$
|
1,975,276
|
|
Sales grew 20% from the
quarter ended August 31, 2020 over the quarter ended May 31, 2020
and 57% from the quarter ended November 30, 2020 over the quarter
ended August 31, 2020.
This sales growth is a
result of an expansion of our customer base and product line and
our ability to ramp up production to meet demand. We expect to
continue this growth trend in the fourth quarter and in our next
fiscal year as projects accelerate through the sales funnel. We
expect an increase to the rate of growth in 2022 as we start to
deliver on ROAMEO and AVA products.
Operating expenses in
the quarter ended November 30, 2020 was $995,092 however after
adjusting for stock based consulting fees of $362,084, was actually
10% lower in this quarter vs the quarter ended August 31, 2020. The
company has made improvements to continue to reduce non-operational
costs.
The Company continues to
reduce it’s convertible debt both through conversions and
settlements that will take place next quarter and described in Note
8. This reduces the derivative liability and should allow the
Company to attract more funding in the future form alternative
sources as the dilutive effect of the convertible debt is reduced.
The changes in the market price of the stock as well as the
conversions, settlements and other factors described in Note 12 and
further in this management, discussion and analysis leads to large
fluctuations in other income and consequently net income (loss) for
the Company.
Specifically, most of
derivative liabilities shown in this filing will be eliminated in
the year end filing. This will be a substantial improvement to the
AITX balance sheet.
- 29 -
Results of Operations for the Three
Months Ended November 30, 2020 and 2019
The following table
shows our results of operations for the three months ended November
30, 2020 and 2019. The historical results presented below are not
necessarily indicative of the results that may be expected for any
future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
November 30, 2020
|
|
Three Months Ended
November 30, 2019
|
|
Dollars
|
|
Percentage
|
|
Revenues
|
|
$
|
119,700
|
|
$
|
71,434
|
|
$
|
48,266
|
|
68%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
95,018
|
|
|
44,573
|
|
|
50,445
|
|
113%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
995,092
|
|
|
580,369
|
|
|
414,723
|
|
71%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(900,074
|
)
|
|
(535,796
|
)
|
|
(364,278
|
)
|
68%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
4,308,379
|
|
|
(2,860,235
|
)
|
|
7,168,614
|
|
251%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,408,305
|
|
$
|
(3,396,031
|
)
|
$
|
6,804,336
|
|
200%
|
|
Revenue
Total revenue for the
three month period ended November 30, 2020 was $119,700 which
represented an increase of $48,266 compared to total revenue of
$71,434 for the three months ended November 30, 2019. This 68%
increase is explained by a 20% increase in rental revenues and a
758% increase in direct sales of goods.
Gross profit
Total gross profit for
the three month period ended November 30, 2020 was $95,018 which
represented an increase of $50,445, compared to gross profit of
$44,573 for the three months ended November 30, 2019. The increase
decrease resulted primarily from an increase in sales and higher
margins on greater direct sales of goods.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Change
|
|
|
|
Three Months Ended
November 30, 2020
|
|
Three Months Ended
November 30, 2019
|
|
Dollars
|
|
Percentage
|
|
Research and development
|
|
$
|
20,624
|
|
$
|
127,564
|
|
$
|
(106,940
|
)
|
(84%
|
)
|
General and administrative
|
|
|
944,323
|
|
|
432,714
|
|
|
511,609
|
|
118%
|
|
Depreciation and amortization
|
|
|
30,145
|
|
|
27,591
|
|
|
2,554
|
|
9%
|
|
(Gain) on disposal of fixed assets
|
|
|
—
|
|
|
(7,500
|
)
|
|
7,500
|
|
—
|
|
Operating expenses
|
|
$
|
995,092
|
|
$
|
580,369
|
|
$
|
414,723
|
|
71%
|
|
Our operating expenses
were comprised of general and administrative expenses, research and
development, loss on disposal of fixed assets and depreciation.
General and administrative expenses consisted primarily of
professional services, automobile expenses, advertising, salaries
and wages, travel expenses and consultants. Our operating expenses
during the three-month period ended November 30, 2020 and November
30, 2019, were $995,092 and $580,369, respectively. The overall
increase of $414,723 was primarily attributable to the following
changes in operating expenses of:
|
|
●
|
General and
administrative expenses increased by $511,609. In comparing the
three months ended November 30, 2020 and November 30, 2019 this
increase was primarily due to increases in subcontractor and
professional fees including an accrual for $362,085 in stock
based compensation payable to a consultant as well as start up
costs of $128,000 related to our new ROAMEO products.
|
|
|
●
|
Research and development
decreased by $106,940 primarily due to the classification of ROAMEO
start up costs of approximately $128,000 referenced above included
in G&A for the quarter ended November 30, 2020.
|
|
|
●
|
Depreciation and
amortization increased by $2,554 due to increases in revenue
earning devices.
|
|
|
●
|
Gain on disposal was
$7,500 for the three months ended November 30, 2020. There were no
disposals in the current period.
|
- 30 -
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
November 30, 2020 and November 30, 2019, was $4,308,379 and
($2,860,235), respectively. The 7,168,614 increase in other income
was primarily attributable to the change in the fair value of
derivatives, interest expense, 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.
|
|
●
|
In comparing the three
months ended November 30, 2020 and the three months ended November
30, 2019, the change in fair value of derivative liabilities
increased by $7,463.218 due to the re-valuation of derivative
liability on convertible notes and accrued interest based on the
change in the market price of the Company’s common stock. The
valuation of the derivatives associated with our convertible notes
and accrued interest of the notes is dependent upon a number of
estimates developed by management. Included in those estimates are
the timing and availability of common stock underlying the
conversion of the notes and accrued interest. Our notes generally
contain provisions such that the holders are barred from conversion
of any amount of principal or interest should that conversion cause
their ownership of common stock to exceed 4.99% of the then
outstanding common stock of the Company. Because of this, the
amount of the derivative can at times be limited due to this
factor. In the quarter ended November 30, 2020, the reduction of
convertible notes and accrued interest through conversions as well
as an increase in the subsequent redemption assumption due to the
settlement arrangements describe in Note 8. The result of this was
a significant decrease in the liability reported as of November 30,
2020 and an increase in the change in fair value of derivative
liabilities.
|
|
|
●
|
Interest expense
increased by $250,771 due to an increase in penalty interest of
$494,428 offset by a decrease in accrued interest due to lower
amounts of outstanding convertible notes in 2020.
|
|
|
●
|
Gain on settlement of
debt was nil the nine month’s ended November 30, 2020 and $73,865
in the prior year’s period. The 2020 gain of $30,032 is attributed
to accounts payable settlements not convertible notes or loans
payable.
|
Net income
(loss)
We had net income of
$3,408,305 for the three months ended November 30, 2020, compared
to net loss of ($3,396,031) for the three months ended November 30,
2019. 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 Nine Months Ended November 30, 2020 and
2019
The following table
shows our results of operations for the nine months ended November
30, 2020 and 2019. The historical results presented below are not
necessarily indicative of the results that may be expected for any
future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
November 30, 2020
|
|
Nine Months Ended
November 30, 2019
|
|
Dollars
|
|
Percentage
|
|
Revenues
|
|
$
|
259,103
|
|
$
|
186,763
|
|
$
|
72,340
|
|
39%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
189,120
|
|
|
118,634
|
|
|
70,486
|
|
59%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
2,095,823
|
|
|
1,546,165
|
|
|
549,658
|
|
36%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,906,703
|
)
|
|
(1,427,531
|
)
|
|
(479,172
|
)
|
34%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
|
|
(1,727,957
|
)
|
|
(1,653,128
|
)
|
|
(74,829
|
)
|
5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,634,660
|
)
|
$
|
(3,080,659
|
)
|
$
|
(554,001
|
)
|
18%
|
|
Revenue
Total revenue for the
nine month period ended November 30, 2020 was $259,103 which
represented an increase of $72,340, compared to total revenue of
$186,763 for the nine months ended November 30, 2019. This 39%
increase is a result of a natural growth over time as the customer
grows its customer base and is explained by a 29% increase in
rental revenues and a 28% increase in direct sales of goods.
- 31 -
Gross profit
Total gross profit for
the nine month period ended November 30, 2020 was $189,120 which
represented an increase of $70,486, compared to gross profit of
$118,634 for the nine months ended November 30, 2019. The increase
resulted primarily from the increased revenues noted above as well
as higher margins on greater direct sales of goods.
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Change
|
|
|
|
Nine Months Ended
November 30, 2020
|
|
Nine Months Ended
November 30, 2019
|
|
Dollars
|
|
Percentage
|
|
Research and development
|
|
$
|
211,025
|
|
$
|
246,872
|
|
$
|
(35,847
|
)
|
(15%
|
)
|
General and administrative
|
|
|
1,795,624
|
|
|
1,232,734
|
|
|
562,890
|
|
46%
|
|
Depreciation and amortization
|
|
|
88,621
|
|
|
74,059
|
|
|
14,562
|
|
20%
|
|
Loss (gain) on impairment of fixed assets
|
|
|
553
|
|
|
(7,500
|
)
|
|
8,053
|
|
(107%
|
)
|
Operating expenses
|
|
$
|
2,095,823
|
|
$
|
1,546,165
|
|
$
|
549,658
|
|
36%
|
|
Our operating expenses
were comprised of general and administrative expenses, research and
development, loss on disposal of fixed assets and depreciation.
General and administrative expenses consisted primarily of
professional services, automobile expenses, advertising, salaries
and wages, travel expenses and consultants. Our operating expenses
during the nine month period ended November 30, 2020 and November
30, 2019, were $2,095,823 and $1,546,165, respectively. The overall
increase of $549,658 was primarily attributable to the following
changes in operating expenses of:
|
|
●
|
General and
administrative expenses increased by $562,890. In comparing the
nine months ended November 30, 2020 and November 30, 2019 this
increase was primarily due to increases in subcontractors by
$63,882, professional fees by $118,164, stock based compensation of
$362,085, ROAMEO start-up costs of approximately $128,000, investor
relations and regulatory fees of $ 58,542 offset by decreases in
travel by $106,259.
|
|
|
●
|
Research and development
decreased by $35,487 primarily due to the classification of ROAMEO
start up costs of approximately $128,000 referenced above included
in G&A for the quarter ended November 30, 2020. When
considering those charges research and development actually
increased this nine month period over last.
|
|
|
●
|
Depreciation and
amortization increased by $14,562 due to increases in revenue
earning devices.
|
|
|
●
|
Loss on disposal was
$553 for the nine months ended November 30, 2020 compared to a gain
of $7,500 in the corresponding prior year period.
|
Other Income (Expense)
Other income (expense)
consisted of the change of fair value of derivative instruments and
interest. Other income (expense) during the nine months ended
November 30, 2020 and November 30, 2019, was ($1,727,957) and
($1,653,128), respectively. The 74,829 increase in other expense
was primarily attributable to the change in the fair value of
derivatives, interest expense, 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.
|
|
●
|
In comparing the nine
months ended November 30, 2020 and the nine months ended November
30, 2019, the change in fair value of derivative liabilities
increased by $659,357 due to the re-valuation of derivative
liability on convertible notes and accrued interest based on the
change in the market price of the Company’s common stock. The
valuation of the derivatives associated with our convertible notes
and accrued interest of the notes is dependent upon a number of
estimates developed by management. Included in those estimates are
the timing and availability of common stock underlying the
conversion of the notes and accrued interest. Our notes generally
contain provisions such that the holders are barred from conversion
of any amount of principal or interest should that conversion cause
their ownership of common stock to exceed 4.99% of the then
outstanding common stock of the Company. Because of this, the
amount of the derivative can at times be limited due to this
factor. In the nine months ended November 30, 2020, the reduction
of convertible notes and accrued interest through conversions as
well as an increase in the subsequent redemption assumption due to
the settlement arrangements describe in Note 8. The result of this
was a significant decrease in the liability reported as of November
30, 2020 and an increase in the change in fair value of derivative
liabilities.
|
- 32 -
|
|
●
|
Interest expense
increased by $577,844 due to an increase in interest expense on
debt of approximately $387,000 and $732,589 in penalty interest
which was partially offset by a reduction in amortization of debt
discounts of $541,644. At November 30, 2020 most of the debt has
reached maturity and has been fully amortized. Interest expense for
the 9 months ended November 30, 2020 was higher than in the prior
year’s period because most of the debt is in default and interest
is being accrued at a higher default rate and most debt had
penalties that were added to the principal amount when the debt and
interest was unpaid at maturity.
|
|
|
●
|
Gain on settlement of
debt was $30,032 the nine month’s ended November 30, 2020 and
$186,374 in the prior year’s period. The 2020 gain of $30,032 is
attributed to accounts payable settlements not convertible notes or
loans payable.
|
Net loss
We had net loss of
$3,634,660 for the nine months ended November 30, 2020, compared to
net loss of $3,080,659 for the nine months ended November 30, 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 nine months ended November 30, 2020, we
have generated revenue and are trying to achieve positive cash
flows from operations.
As of November 30, 2020,
we had a cash balance of $249,297, accounts receivable of $111,709,
inventory of $104,360 and $16,139,162 in current liabilities. At
the current cash consumption rate, we will 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:
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
February 29, 2020
|
|
Current assets
|
|
$
|
465,366
|
|
$
|
88,213
|
|
Current liabilities(1)
|
|
|
16,139,161
|
|
|
19,677,221
|
|
Working capital
|
|
$
|
(15,673,795
|
)
|
$
|
(19,589,008
|
)
|
__________
|
|
(1)
|
As of November 30, 2020
and February 29, 2020, current liabilities included approximately
$3.3 million and $6.9 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 November 30, 2020
and February 29, 2020, we had a cash balance of $249,297 and
$13,307, respectively.
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
November 30, 2020
|
|
Nine Months Ended
November 30, 2019
|
|
Net cash used in operating activities
|
|
$
|
(1,446,075
|
)
|
$
|
(1,407,531
|
)
|
Net cash used in investing activities
|
|
$
|
(76,577
|
)
|
$
|
(15,825
|
)
|
Net cash provided by financing activities
|
|
$
|
1,758,642
|
|
$
|
1,418,403
|
|
- 33 -
Net cash used in operating
activities.
Net cash used in
operating activities for the nine months ended November 30, 2020
was $1,446,075, which included a net loss of $3,634,660, non-cash
activity such as the change in fair value of derivative liabilities
of $1,027,328, change in operating assets and liabilities of
$1,442,137, interest expense related to penalties from debt
defaults $939,705, amortization of debt discount of $197,650,
increase in related party accrued payroll and interest of
$215,196,stock based compensation of $362,084, loss on disposal of
fixed assets of $553, gain on settlement of debt of $30,032 and
depreciation and amortization of $88,621 to derive the uses of cash
in operations.
Net cash used in
investing activities.
Net cash used in
investing activities for the nine months ended November 30, 2020
was $76,577, which was the purchase of fixed assets $77,577 offset
by the proceeds of disposal of fixed assets of $1,000.
Net cash provided
by financing activities.
Net cash provided by
financing activities was $1,758,642 for the nine months ended
November 30, 2020. This consisted of proceeds from deferred payment
obligation of $966,000, proceeds from loans payable $1,213,623,
reduced by net repayments from loan payable – related party of
$344,618, cash acquired on consolidation of RAD G of $284, and
repayments on loans payable of $76,079.
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 for the year ended February 29, 2020 filed with the
SEC on July 28, 2020.
Related Party
Transactions
For the nine months
ended November 30, 2019, the Company had net repayments of $74,938
from its loan payable-related party. For the nine months ended
November 30, 2020 the Company repaid net advances of $344,618. At
November 30, 2020, the loan payable-related party was $1,189,155
and $1,310,358 at February 29, 2020. Included in the balance due to
the related party at November 30, 2020 is $874,374 of deferred
salary and interest, $594,000 of which bears interest at 12%. At
February 29, 2020, included in the balance due to the related party
is $656,334 of deferred salary and interest, $426,000 of which
bears interest at 12%. The accrued interest included in loan at
November 30, 2020 and November 30, 2019 was $84,418 and $34,917,
respectively.
During the three and
nine months ended November 30, 2020 and 2019, the Company was
charged $10,157 and $121,973, respectively for consulting fees for
research and development to a company owned by a principal
shareholder. During the three and nine months ended November 30,
2019 the Company was charged $90,090 and $47,238, respectively in
consulting fees for research and development to a company owned by
a principal shareholder. The company received a credit in the
quarter ended May 31, 2019 that were a result of billing
corrections of ($106,444) and after adjusting for this, would bring
total charges in the nine months ended November 30, 2019 to
$153,682.
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for a
smaller reporting company.
- 34 -
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 November 30, 2020. Based upon that evaluation, our
principal executive officer and principal financial officer
concluded that, as of November 30, 2020, 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.
|
|
|
|
|
|
|
1.
|
As of November 30, 2020,
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 November 30, 2020,
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.
- 35 -
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.
As of November 30, 2020
the Company has paid $30,500. As of this filing the November 2019
through July 2020 instalments are in arrears.
The related legal costs
are expensed as incurred.
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.
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.
- 36 -
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)
|
In accordance with
Regulation S-T, the Interactive Data Files in Exhibit 101 to the
Quarterly Report on Form 10-Q shall be deemed “furnished” and not
“filed.”
|
- 37 -
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: January 19, 2021
|
BY: /s/ Garett Parsons
|
|
Garett Parsons
|
|
President, Chief Executive Officer, Chief
Financial Officer,
Principal Accounting Officer, Treasurer and Director
|
- 38 -