UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
FOR THE QUARTERLY PERIOD ENDED
OR
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NUMBER:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification Number) | |
(Address of principal executive offices) | (Zip code) |
(
(Registrant’s telephone number, including area code)
not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [_] | Accelerated filer | [_] | |
[X] | Smaller reporting company | |||
Emerging growth company | [ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
shares of common stock were issued and outstanding as of January 6, 2023.
- 2 -
PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
* | |||||||
November 30, 2022 (Unaudited) |
February 28, 2022* | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash | $ | $ | |||||
Accounts receivable, net | |||||||
Device parts inventory, net | |||||||
Prepaid expenses and deposits | |||||||
Total current assets | |||||||
Operating lease asset | |||||||
Revenue earning devices, net of accumulated depreciation of $ |
|||||||
Fixed assets, net of accumulated depreciation of $ |
|||||||
Trademarks | |||||||
Security deposit | |||||||
Total assets | $ | $ | |||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | $ | |||||
Advances payable | |||||||
Customer deposits | |||||||
Current operating lease liability | |||||||
Current portion of deferred variable payment obligation | |||||||
Current portion of convertible notes payable, net of discount of $ |
|||||||
Loan payable - related party | |||||||
Incentive compensation plan payable | |||||||
Current portion of loans payable, net of discount of $ |
|||||||
Vehicle loan - current portion | |||||||
Current portion of accrued interest payable | |||||||
Derivative liability | |||||||
Total current liabilities | |||||||
Non-current operating lease liability | |||||||
Loans payable, net of discount of $ |
|||||||
Deferred variable payment obligation | |||||||
Accrued interest payable | |||||||
Total liabilities | |||||||
Commitments and Contingencies | |||||||
Stockholders’ deficit: | |||||||
Preferred Stock, undesignated; shares authorized; shares issued and outstanding at November 30, 2022 and February 28, 2022, respectively | |||||||
Series E Preferred Stock, $ par value; shares authorized; and 3,350,000 shares issued and outstanding, respectively | |||||||
Series F Convertible Preferred Stock, $ par value; shares authorized; and shares issued and outstanding, respectively | |||||||
Series G Preferred Stock, $ par value; shares authorized, shares issued and outstanding at November 30, 2022 and February 28, 2022, respectively | |||||||
Common Stock, $ par value; shares authorized and shares issued, issuable and outstanding, respectively | |||||||
Additional paid-in capital | |||||||
Preferred stock to be issued | |||||||
Accumulated deficit | ( |
) | ( |
) | |||
Total stockholders’ deficit | ( |
) | ( |
) | |||
Total liabilities and stockholders’ deficit | $ | $ |
* |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
- 3 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended November 30, 2022 |
Three Months Ended November 30, 2021 |
Nine Months Ended November 30, 2022 |
Nine Months Ended November 30, 2021 |
||||||||||
Revenues | $ | $ | $ | $ | |||||||||
Cost of Goods Sold | |||||||||||||
Gross Profit | |||||||||||||
Operating expenses: | |||||||||||||
Research and development (Note 10) | |||||||||||||
General and administrative | |||||||||||||
Depreciation and amortization | |||||||||||||
Operating lease cost and rent | |||||||||||||
(Gain) loss on disposal of fixed assets | ( |
) | |||||||||||
Total operating expenses | |||||||||||||
Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | |||||
Other income (expense), net: | |||||||||||||
Change in fair value of derivative liabilities | |||||||||||||
Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | |||||
Gain (loss) on settlement of debt | ( |
) | ( |
) | |||||||||
Total other income (expense), net | ( |
) | ( |
) | ( |
) | ( |
) | |||||
Net Loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |
Net income (loss) per share - basic | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |
Net income ( loss) per share - diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |
Weighted average common share outstanding - basic | |||||||||||||
Weighted average common share outstanding - diluted |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
- 4 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S DEFICIT
(Unaudited)
Series E | Series F | Series G | Additional | Total | ||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-In | Accumulated | Shareholders' | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||
Balance at February 28, 2021 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||||
Series F Preferred Shares issued with amendment agreement | — | — | ||||||||||||||||||||||||||||
Series F Preferred Shares Warrants issued with amendment agreement | — | — | — | — | ||||||||||||||||||||||||||
Series F Preferred Shares cancelled in exchange for promissory notes | — | ( |
) | ( |
) | — | — | ( |
) | ( |
) | |||||||||||||||||||
Series F preferred shares issued on exercise of warrants | — | — | — | ( |
) | |||||||||||||||||||||||||
Series F Preferred Shares converted to common shares | — | ( |
) | ( |
) | — | ( |
) | ||||||||||||||||||||||
Relative fair value of warrants issued with debt | — | — | — | — | ||||||||||||||||||||||||||
Stock based compensation | — | — | — | |||||||||||||||||||||||||||
Net income | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
Balance at May 31, 2021 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
Adjustment to derivative liability | — | — | — | — | ||||||||||||||||||||||||||
Common stock issued for debt conversion | — | — | — | |||||||||||||||||||||||||||
Exercise of warrants | — | — | — | ( |
) | |||||||||||||||||||||||||
Relative fair value of warrants issued with debt | — | — | — | — | ||||||||||||||||||||||||||
Cancellation of Series E Shares | ( |
) | ( |
) | — | — | — | |||||||||||||||||||||||
Exchange of debt for common shares | — | — | — | |||||||||||||||||||||||||||
Stock based compensation on issuable shares | — | — | — | |||||||||||||||||||||||||||
Exchange of Series F Preferred Shares for debt | — | ( |
) | ( |
) | — | — | ( |
) | ( |
) | |||||||||||||||||||
Net income | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
Balance at August 31, 2021 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
Issuance of shares, net of $ |
— | — | — | |||||||||||||||||||||||||||
Cashless exercise of 100,000,000 warrants | — | — | — | ( |
) | |||||||||||||||||||||||||
Relative fair value of warrants issued with debt | — | — | — | — | ||||||||||||||||||||||||||
Redemption of 19 Issuable Series F shares | — | — | ( |
) | — | — | ( |
) | ( |
) | ||||||||||||||||||||
Issuance of Series G preferred as equity awards per employment agreement | — | — | — | |||||||||||||||||||||||||||
Redemption of Series G shares as compensation payment | — | — | ( |
) | ( |
) | — | ( |
) | |||||||||||||||||||||
Net income | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
Balance at November 30, 2021 | $ | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
- 5 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S DEFICIT
(Unaudited)
Series E | Series F | Additional | Total | ||||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | |||||||||||||||||
Balance at February 28, 2022 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
Issuance of shares, net of $ |
— | — | |||||||||||||||||||||||
Rounding | — | — | — | ( |
) | ( |
) | ||||||||||||||||||
Net income | — | — | — | ( |
) | ( |
) | ||||||||||||||||||
Balance at May 31, 2022 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
Issuance of shares, net of $ |
— | — | |||||||||||||||||||||||
Cashless exercise of warrants | — | — | ( |
) | |||||||||||||||||||||
Relative fair value of warrants issued with debt | — | — | — | ||||||||||||||||||||||
Cancelled shares | — | — | ( |
) | ( |
) | |||||||||||||||||||
Exchange of | warrants for debt— | — | — | ( |
) | ( |
) | ||||||||||||||||||
Shares as payment for services | — | — | |||||||||||||||||||||||
Net income | — | — | — | ( |
) | ( |
) | ||||||||||||||||||
Balance at August 31, 2022 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||
Issuance of shares, net of $ |
— | — | |||||||||||||||||||||||
Relative fair value of Series F warrants issued with debt | — | — | |||||||||||||||||||||||
Relative fair value of warrants issued with debt | — | — | — | ( |
) | ( |
) | ||||||||||||||||||
Net income | — | — | — | ( |
) | ( |
) | ||||||||||||||||||
Balance at November 30, 2022 | $ | $ | $ | $ | $ | ( |
) | $ | ( |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
- 6 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended November 30, 2022 |
Nine Months Ended November 30, 2021 |
||||||
CASH FLOWS USED IN OPERATING ACTIVITIES: | |||||||
Net loss | $ | ( |
) | $ | ( |
) | |
Adjustments to reconcile net income to net cash used in operating activities: | |||||||
Depreciation and amortization | |||||||
Revenue earning device sold and expensed in cost of sales | |||||||
Bad debts expense | |||||||
Inventory provision | |||||||
Reduction of right of use asset | |||||||
Accretion of lease liability | |||||||
(Gain) loss on disposal of fixed assets | ( |
) | |||||
Stock based compensation | |||||||
Change in fair value of derivative liabilities | ( |
) | ( |
) | |||
Interest expense related to penalties from debt defaults | |||||||
Amortization of debt discounts | |||||||
(Gain) loss on settlement of debt | ( |
) | |||||
Increase in related party accrued payroll and interest | |||||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | ( |
) | ( |
) | |||
Prepaid expenses | ( |
) | ( |
) | |||
Deposits on right of use asset | ( |
) | |||||
Device parts inventory | ( |
) | ( |
) | |||
Accounts payable and accrued expenses | |||||||
Accrued expense -related party | ( |
) | |||||
Customer deposits | ( |
) | ( |
) | |||
Operating lease liabilities | ( |
) | ( |
) | |||
Current portion of deferred variable payment obligation for payments | |||||||
Balance owed WeSecure | ( |
) | |||||
Accrued interest payable | |||||||
Net cash used in operating activities | ( |
) | ( |
) | |||
CASH FLOWS USED IN INVESTING ACTIVITIES: | |||||||
Purchase of fixed assets | ( |
) | ( |
) | |||
Acquisition of trademarks | ( |
) | |||||
Proceeds on disposal of fixed assets | |||||||
Cash paid for security deposit | ( |
) | |||||
Net cash used in investing activities | ( |
) | ( |
) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Share proceeds net of issuance costs | |||||||
Proceeds from loans payable | |||||||
Repayment of loans payable | ( |
) | ( |
) | |||
Proceeds from convertible debt and warrants issued | |||||||
Repayment of convertible debt | ( |
) | |||||
Series G preferred shares redeemed as payment on incentive plan payable | ( |
) | |||||
Dividend and redemption of cancelled issuable Series F preferred shares | ( |
) | |||||
Net borrowings (repayments) on loan payable - related party | ( |
) | |||||
Net cash provided by financing activities | |||||||
Net change in cash | ( |
) | |||||
Cash, beginning of period | |||||||
Cash, end of period | $ | $ | |||||
Supplemental disclosure of cash and non-cash transactions: | |||||||
Cash paid for interest | $ | $ | |||||
Cash paid for income taxes | $ | $ | |||||
Noncash investing and financing activities: | |||||||
Right of use asset for operating lease liability | $ | $ | |||||
Transfer from device parts inventory to revenue earning devices | $ | $ | |||||
Conversion of convertible notes and interest to shares of common stock | $ | $ | |||||
Release of derivative liability on conversion of convertible notes payable | $ | $ | |||||
Derivative debt discount on re-valuation on loan amendment | $ | $ | |||||
Exchange of notes payable for Series F preferred shares | $ | $ | |||||
Exchange of warrants for debt | $ | $ | |||||
Discount applied to face value of loans | $ | $ | |||||
Warrants issued as part of debt | $ | $ | |||||
Exercise of warrants | $ | $ | |||||
Series F preferred shares and warrants issued for debt | $ | $ | |||||
Issuance of Series G preferred shares as payment of incentive plan payable | $ | $ | |||||
Cancellation of Series E preferred shares and common shares | $ | $ | |||||
Series F preferred shares converted to common shares | $ | $ | |||||
Series F preferred shares issued on exercise of warrants | $ | $ |
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 Limited Liability Company. On July 25, 2017, Robotic Assistance Devices LLC converted to a C Corporation, Robotic Assistance Devices, Inc., through the issuance of
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
shares of AITX Series E Preferred Stock and shares of Series F Convertible Preferred Stock. AITX’s prior business focus was transportation services, and 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, and 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, 2022, the Company
had negative cash flow from operating activities of $
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 potentially raise an additional $1 million to $3 million before the end of the fiscal year. Management is committed to raise either non-dilutive funds or minimally dilutive funds. There is no assurance that these funds will be able to be raised nor can we provide assurance that these possible raises may not have dilutive effects.
The Company began raising money through its S-3 Registration Statement this year and made improvements in paying off debt, investing in inventory and at November 30, 2022 had $713,493 of cash on hand. Management is committed to raise either non-dilutive funds or minimally dilutive funds. There is no assurance that these funds will be able to be raised nor can we provide assurance that these possible raises may not have dilutive effects. For the fiscal period through to November 30, 2022, the Company has raised an additional $4.7 million net of issuance costs through the sale of its common shares and raised approximately $3.2 million in current debt.
- 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 May 27, 2022. 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, Robotic Assistance Devices Mobile, Inc., On the Move Experience, LLC and On the OMV Transports, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the six months ended November 30, 2022 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 principles 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 preferred stock and derivative liabilities.
Concentrations
Loans payable
At November 30, 2022 there were $30,506,346 of loans payable, $26,090,506 or 85% of these loans to companies controlled by one individual. At February 28, 2022 there were $26,233,598 of loans payable $21,709,459 or 83% of these loans to companies controlled by the same individual.
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 was an allowance of $
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 of November 30, 2022 and February 28, 2022 there was a
valuation reserve of $
- 9 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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 to years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently.
Computer equipment and software | or years | |
Office equipment | ||
Manufacturing equipment | ||
Warehouse equipment | ||
Tooling | ||
Demo Devices | ||
Vehicles | ||
Leasehold improvements |
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, 2022 and February 28, 2022, 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 8, 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:
- 10 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
● | Does the agreement purport, in substance, to be a sale | |
● | Does the Company have continuing involvement in the generation of cash flows due the investor | |
● | Is the transaction cancellable by either party through payment of a lump sum or other transfer of assets | |
● | Is the investors rate of return is implicitly limited by the terms of the agreement | |
● | Does the Company’s revenue for a reporting period underlying the agreement have only a minimal impact on the investor’s rate of return | |
● | Does the investor have recourse relating to payments due |
In the event a transaction is determined to be a sale of future revenues, it is recorded as deferred revenue and amortized using the sum-of-the-revenue method. In the event a transaction is determined to be debt, it is recorded as debt and amortized using the effective interest method. As of the date of these financial statements, the Company has determined that all such agreements are debt.
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. For the nine months ended November 30, 2022 , two customers accounted for 41% of total revenue (2021- 60%).
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, 2023, but the Company does not expect the Tax Act to have a material impact on the Company’s consolidated financial statements
Leases
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.
- 11 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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.
Our Chief Executive Officer/ Chairman holds sufficient shares of the Company’s voting preferred stock that give sufficient voting rights under the articles of incorporation and bylaws of the Company such that the CEO/ Chairman can at any time unilaterally vote to increase the number of authorized shares of common stock of the Company, without the need to call a general meeting of common shareholders of the Company.
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:
- 12 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
● | Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. | |
● | Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | |
● | Level 3 – Inputs that are unobservable for the asset or liability. |
Measured on a Recurring Basis
The following table presents information about our liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fell:
Amount at | Fair Value Measurement Using | ||||||||||||
Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||
November 30, 2022 | |||||||||||||
Liabilities | |||||||||||||
Incentive compensation plan payable- revaluation of equity awards payable in Series G shares | $ | $ | $ | $ | |||||||||
Derivative liability – conversion features pursuant to convertible notes payable | $ | $ | $ | $ | |||||||||
February 28, 2022 | |||||||||||||
Liabilities | |||||||||||||
Incentive compensation plan payable- revaluation of equity awards payable in Series G shares | $ | $ | $ | $ | |||||||||
Derivative liability – conversion features pursuant to convertible notes payable | $ | $ | $ | $ |
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.
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.
- 13 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Recently Issued Accounting Pronouncements
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (FASB) issued amended guidance on the accounting and reporting of income taxes. The guidance is intended to simplify the accounting for income taxes by removing exceptions related to certain intraperiod tax allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The Company adopted the new guidance effective February 1, 2021. There was no impact to the Company’s consolidated financial statements upon adoption.
In January 2020, the FASB issued new guidance intended to clarify certain interactions between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance addresses accounting for the transition into and out of the equity method of accounting and measuring certain purchased options and forward contracts to acquire investments. The Company adopted the new guidance effective February 1, 2021. There was no impact to the Company’s consolidated financial statements upon adoption.
In August 2020, the FASB issued amended guidance on the accounting for convertible instruments and contracts in an entity’s own equity. The guidance removes the separation model for convertible debt instruments and preferred stock, amends requirements for conversion options to be classified in equity as well as amends diluted earnings per share (EPS) calculations for certain convertible debt instruments. The amended guidance is effective for interim and annual periods in 2022. The application of the amendments in the new guidance are to be applied either on a modified retrospective or a retrospective basis. We are currently assessing the effect that the adoption of this standard will have on the Company’s consolidated financial statements upon adoption.
Recently Issued Accounting Standards Not Yet Adopted
In March 2020, the FASB issued optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and subsequently issued clarifying amendments. The guidance provides optional expedients and exceptions for accounting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The optional guidance is effective upon issuance and can be applied on a prospective basis at any time between January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
In October 2021, the FASB issued amended guidance that requires acquiring entities to recognize and measure contract assets and liabilities in a business combination in accordance with existing revenue recognition guidance. The amended guidance is effective for interim and annual periods in 2023 and is to be applied prospectively. Early adoption is permitted on a retrospective basis to the beginning of the fiscal year of adoption. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements for prior acquisitions; however, the impact in future periods will be dependent upon the contract assets and contract liabilities acquired in future business combinations.
In November 2021, the FASB issued new guidance to increase the transparency of transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The guidance requires annual disclosures of such transactions to include the nature of the transactions and the significant terms and conditions, the accounting treatment and the impact to the company’s financial statements. The guidance is effective for annual periods beginning in 2022 and is to be applied on either a prospective or retrospective basis. The Company is currently evaluating the impact of adoption on its consolidated financial statements.
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).
- 14 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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, 2022 |
Three Months Ended November 30, 2021 |
Nine Months Ended November 30, 2022 |
Nine Months Ended November 30, 2021 |
||||||||||
Device rental activities | $ | $ | $ | $ | |||||||||
Direct sales of goods and services | |||||||||||||
$ | $ | $ |
5. LEASES
We lease certain warehouses, and office space. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we did not combine lease and non-lease components.
There is no lease renewal. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
Below is a summary of our lease assets and liabilities at November 30, 2022 and February 28, 2022.
Leases | Classification | November 30, 2022 | February 28, 2022 | ||||||
Assets | |||||||||
Operating | Operating Lease Assets | $ | $ | ||||||
Liabilities | |||||||||
Current | |||||||||
Operating | Current Operating Lease Liability | $ | $ | ||||||
Noncurrent | |||||||||
Operating | Noncurrent Operating Lease Liabilities | ||||||||
Total lease liabilities | $ | $ |
Note: As most of our leases do not provide an implicit rate, we use our incremental borrowing rate of 10% which for the leases noted above was based on the information available at commencement date in determining the present value of lease payments. We compare against loans we obtain to acquire physical assets and not loans we obtain for financing. The loans we obtain for financing are generally at significantly higher rates and we believe that physical space or vehicle rental agreements are in line with physical asset financing agreements. CAM charges were not included in operating lease expense and were expensed in general and administrative expenses as incurred.
Rent expense and operating lease cost was $
- 15 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. REVENUE EARNING DEVICES
Revenue earning devices consisted of the following:
November 30, 2022 | February 28, 2022 | ||||||
Revenue earning devices | $ | $ | |||||
Less: Accumulated depreciation | ( |
) | ( |
) | |||
$ | $ |
During the three and nine months ended November 30,
2022 the Company made total additions to revenue earning devices of $
Depreciation expense was $
7. FIXED ASSETS
Fixed assets consisted of the following:
November 30, 2022 | February 28, 2022 | ||||||
Automobile | $ | $ | |||||
Manufacturing equipment | |||||||
Demo devices | |||||||
Computer equipment and software | |||||||
Office equipment | |||||||
Warehouse equipment | |||||||
Tooling | |||||||
Leasehold improvements | |||||||
Less: Accumulated depreciation | ( |
) | ( |
) | |||
$ | $ |
During the three months ended November 30, 2022, the
Company made additions of $
Depreciation expense was $
8. DEFERRED VARIABLE PAYMENT OBLIGATION
On February 1, 2019 the Company entered into an agreement
with an investor whereby the investor would pay up to $
On May 9, 2019 the Company entered into two similar arrangements with two investors:
- 16 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) | The investor would pay up to $ | |
(2) | The investor would pay up to $ |
In the event that at least 10% of the assets of the
Company are sold by the Company, the investors would be entitled to the fair market value (FMV) of all future Payments associated with
the assets sold as determined by an independent valuator to be chosen by the investors. The FMV cannot exceed 30% of the total asset disposition
price defined as the total price paid for the assets plus all future Payments associated with the assets sold. In the event that the common
or preferred shares are sold by the Company to a third party as to effect a change in control, then the investors must be paid the FMV
of all future Payments in one lump payment.
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 $
On December 30, 2019, the Company entered into another
similar arrangement with a new investor whereby the investor would advance up to $
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 $
On July 1, 2020, the Company entered into a similar
agreement with the first investor whereby the investor would pay up to $
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 $
In summary of all agreements mentioned above if in
the event that at least
- 17 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. As of February 28, 2022, the Company has accrued approximately $325,600 in Payments (February 28, 2021 -$91,587).
On March 1, 2021, the first investor referred to above whose aggregate
investment is $
1) | The rate payment was reduced from | |
2) | The asset disposition % (see below) was reduced from |
In consideration for the above changes, the investor
received 40 Series F Convertible Preferred Stock and a warrant to purchase
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 November 30, 2022, and February 28, 2022, the
long-term balances other than Payments already owed is the cash received of $
For both the three months and nine months ended November
30, 2022 and year ended February 28, 2022, the Company has received $0 related to the deferred payment obligation since there were no
new agreements during this period. The balance remains $
The Payments first become payable on June 30, 2019
(unless otherwise indicated) based on the quarterly Revenues for the quarter ended May 31, 2019 and accrue every quarter thereafter. As
of November 30, 2022, the Company has accrued $
9. CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following:
Balance | Balance | |||||||||||||
Interest | Conversion | November 30, | February 28, | |||||||||||
Issued | Maturity | Rate | Rate per Share | 2022 | 2022 | |||||||||
8% | $ |
$ | $ | |||||||||||
12% | $ |
|||||||||||||
$ | $ | |||||||||||||
(Less): current portion of convertible notes payable | ( |
) | ( |
) | ||||||||||
(Less): discount on noncurrent convertible notes payable | ||||||||||||||
Noncurrent convertible notes payable, net of discount | $ | $ | ||||||||||||
Current portion of convertible notes payable | $ | $ | ||||||||||||
(Less): discount on current portion of convertible notes payable | ( |
) | ||||||||||||
Current portion of convertible notes payable, net of discount | $ | $ |
__________
* | |
(1) | |
(2) |
- 18 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During both the three and nine months ended November 30, 2022, the Company incurred original issue discounts of $75,000, and relative fair value discounts debt discounts from derivative liabilities of $393,949 and fees of $55,750 related to new convertible notes payable. During both the three and nine months ended November 30, 2021 the Company recognized debt discounts from derivative liabilities of $438,835. During the three and nine months ended November 30, 2022, the Company recognized interest expense related to the amortization of debt discount of $78,149 and $90,767. During the three and nine months ended November 30, 2021, the Company recognized interest expense related to the amortization of debt discount of $694,855 and $775,986, respectively.
The note above is unsecured. As of November 30, 2022 and February 28, 2022, the Company had total accrued interest payable of $51,458 and $28,104, respectively, all of which is classified as current.
During the nine months ended November 30, 2022, the Company also had the following convertible note activity:
● | |
● |
During the nine months ended November 30, 2021, the Company had the following convertible note activity:
● | |
● |
|
● |
- 19 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
10. RELATED PARTY TRANSACTIONS
For the nine months ended November 30, 2022, the Company
had no repayments of net advances from its loan payable-related party. For the nine months ended November 30, 2021 the Company repaid
net advances of $
Pursuant to the amended Employment Agreement with
its Chief Executive Officer, for the three months and nine months ended November 30, 2022, the Company accrued $138,000 and $362,500 of
incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional
awards being met. This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at $
During the three months ended November 30, 2022 and
2021, the Company was charged $
During the nine months ended November 30, 2022 and
2021, the Company was charged $
11. OTHER DEBT – VEHICLE LOAN
In December 2016, RAD entered into a vehicle loan
for $
- 20 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
12. LOANS PAYABLE
Loans payable at November 30, 2022 consisted of the following:
Annual | ||||||||||
Date | Maturity | Description | Principal | Interest Rate | ||||||
July 18, 2017 | Promissory note | (35) * | $ | 22% | ||||||
June 11, 2019 | Promissory note | (2) (#) | — | 25% | ||||||
June 30, 2019 | Promissory note | (1) (#) | — | 15% | ||||||
June 30, 2019 | Promissory note | (3) (#) | — | 15% | ||||||
June 30, 2019 | Promissory note | (4) (#) | — | 15% | ||||||
June 26, 2020 | Promissory note | (5) (#) | — | 15% | ||||||
June 24, 2020 | Promissory note | (6) (#) | — | 15% | ||||||
January 30, 2021 | Promissory note | (7) (#) | — | 15% | ||||||
February 27, 2021 | Promissory note | (8) (#) | — | 15% | ||||||
April 16, 2021 | Promissory note | (9) (#) | — | 15% | ||||||
May 12, 2021 | Promissory note | (11) (#) | — | 15% | ||||||
May 22, 2021 | Promissory note | (12) (#) | — | 15% | ||||||
June 2, 2021 | Promissory note | (13) (#) | — | 15% | ||||||
June 9, 2021 | Promissory note | (14) (#) | — | 15% | ||||||
June 12, 2021 | Promissory note | (15) (#) | — | 15% | ||||||
June 16, 2021 | Promissory note | (16) (#) | — | 15% | ||||||
September 15, 2022 | Promissory note | (17) (#) | — | 10% | ||||||
March 6, 2023 | Promissory note | (18) (#) | — | 12% | ||||||
November 12, 2023 | Promissory note | (19) (#) | — | 12% | ||||||
October 23, 2022 | Promissory note | (20) (#) | — | 15.5% | ||||||
November 23, 2023 | Promissory note | (21) (#) | — | 15% | ||||||
December 10, 2023 | Promissory note | (22) (#) | — | 12% | ||||||
December 10, 2023 | Promissory note | (23) | 12% | |||||||
December 10, 2023 | Promissory note | (24) | 12% | |||||||
December 10, 2023 | Promissory note | (25) | 12% | |||||||
December 14, 2023 | Promissory note | (26) | 12% | |||||||
December 30, 2023 | Promissory note | (27) | 12% | |||||||
December 31, 2024 | Promissory note | (28) | 12% | |||||||
December 31, 2024 | Promissory note | (29) | 12% | |||||||
January 14, 2024 | Promissory note | (30) | 12% | |||||||
February 22, 2024 | Promissory note | (31) | 12% | |||||||
March 1, 2024 | Promissory note | (10) | 12% | |||||||
June 8, 2024 | Promissory note | (32) | 12% | |||||||
July 26, 2026 | Promissory note | (33) | 7% | |||||||
September 14, 2024 | Promissory note | (34) | 12% | |||||||
July 28, 2023 | Promissory note | (36) | 15% | |||||||
August 30,2024 | Promissory note | (38) | 15% | |||||||
September 7, 2023 | Promissory note | (37) | 15% | |||||||
September 8, 2023 | Promissory note | (39) | 15% | |||||||
October 13, 2023 | Promissory note | (40) | 15% | |||||||
October 31, 2026 | Promissory note | (41) | 15% | |||||||
October 31, 2026 | Promissory note | (41) | 15% | |||||||
October 31, 2026 | Promissory note | (41) | 15% | |||||||
October 31, 2026 | Promissory note | (41) | 15% | |||||||
$ | ||||||||||
Less: current portion of loans payable | ( |
) | ||||||||
Less: discount on non-current loans payable | ( |
) | ||||||||
Non-current loans payable, net of discount | $ | |||||||||
Current portion of loans payable | $ | |||||||||
Less: discount on current portion of loans payable | ( |
) | ||||||||
Current portion of loans payable, net of discount | $ |
- 21 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
* | |
(#) | |
(1) | |
(2) | |
(3) | |
(4) | |
(5) | |
(6) | |
(7) | |
(8) | |
(9) | |
(10) | |
(11) | |
(12) | |
(13) | |
(14) |
- 22 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(15) | |
(16) | |
(17) | |
(18) | |
(19) | |
(20) | |
(21) | |
(22) | |
(23) | |
(24) | |
(25) | |
(26) |
- 23 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(27) | |
(28) | |
(29) | |
(30) | |
(31) | |
(32) | |
(33) | |
(34) |
- 24 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(35) | |
(36) | |
(37) | |
(38) | |
(39) |
|
(40) | |
(41) |
October 28, 2022, $
November 9, 2022, $
November 10, 2022, $
November 15, 2022, $ |
- 25 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
13. DERIVATIVE LIABILITIES
As of November 30, 2022, and February 28, 2022, 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 $
14. STOCKHOLDERS’ EQUITY (DEFICIT)
Series F Preferred Shares
Each holder of Series E Convertible Preferred Shares may, at any time and from time to time convert all, but not less than all, of their shares into a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued and outstanding shares of common stock of the Company on the date of conversion by three and 45 100ths (3.45) on a pro rata basis.
On August 23, 2021, the Company filed amended Series F preferred shares such that Series F preferred shares are not convertible into common stock by a holder until (A) August 23, 2023 or (B) the date on which such a conversion may be required for the purpose of (i) uplisting the Company to a new stock exchange, or (ii) selling more than 50% of the Company’s assets.
Summary or Preferred Stock Activity
There was 1 Series F Preferred Share issued along with debt to a lender.
Summary of Preferred Stock Warrant Activity
Number of Series C Preferred Warrants | Weighted Average Exercise Price | Weighted Average Remaining Years | ||||
Outstanding at March 1, 2022 | $ |
|||||
Issued | $ |
|||||
Exercised | — | |||||
Forfeited and cancelled | — | |||||
Outstanding at November 30, 2022 | $ |
Summary of Common Stock Activity
The Company increased authorized common shares from 5,000,000,000 to
on July 8, 2022.
During the nine months ended, November 30, 2022, the
Company issued
Common shares | November 30, 2022 | February 28, 2022 | |||||
Issued | |||||||
Issuable | |||||||
Issued, issuable and outstanding |
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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Summary of Common Stock Warrant Activity
Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Years | ||||
Outstanding at March 1, 2022 | $ |
|||||
Issued | $ |
|||||
Adjusted(1) | $ |
|||||
Exercised | ( |
) | $ |
|||
Forfeited, extinguished and cancelled | ( |
) | $ |
|||
Outstanding at November 30, 2022 | $ |
(1) |