UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 000-55079
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
(Exact name of registrant as specified in its charter)
| Nevada | 27-2343603 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| 10800 Galaxie Avenue, Ferndale, MI |
48220 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (877) 787-6268
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Common stock, $0.00001 par value | OTC PINK |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes [X] No
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.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] | |
| Non-accelerated filer | [X] | Smaller reporting company | [X] | |
| 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 Act).
[ ] Yes [X] No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of August 31, 2021 based upon the closing price reported on such date was approximately $171,197,367. Shares of voting stock held by each officer and director and by each person who, as of August 31, 2021, may be deemed as have beneficially owned more than 10% of the outstanding voting stock have been excluded. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for any other purpose.
As of May 24, 2022, there were shares of the registrant’s common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
The purpose of this Amendment No. 1 to the Registrant’s Annual Report on Form 10-K for the year ended February 28, 2022 (“Form 10-K”) is to submit Exhibit 101 to the Form 10-K in accordance with Rule 405 of Regulation S-T. Exhibit 101 consists of the Inline XBRL Interactive Data files for the Registrant’s Form 10-K for the year ended February 28, 2022, filed with the Securities and Exchange Commission on May 27, 2022.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(3) Exhibits.
| Exhibit No. | Description of Document | |
| 2.1 | Stock Purchase Agreement, dated August 28, 2017, by and among the registrant, Steve Reinharz and Robotic Assistance Devices Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the Commission on August 31, 2017). | |
| 3.1 | Articles of Incorporation of the registrant filed with the Nevada Secretary of State on September 8, 2014. (incorporated by reference to Exhibit 3.1 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). | |
| 3.2 | Plan and Agreement of Merger of Artificial Intelligence Technology Solutions Inc. (a Florida corporation) and Artificial Intelligence Technology Solutions Inc. (a Nevada corporation). (incorporated by reference to Exhibit 3.2 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). | |
| 3.3 | Bylaws of the registrant (incorporated by reference to Exhibit 3.2 to the registrant’s registration statement on Form S-1 (File No. 333-168530), filed with the Commission on August 4, 2010). | |
| 3.4 | Certificate of Designations filed with the Nevada Secretary of State on February 8, 2017. (incorporated by reference to Exhibit 3.4 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). | |
| 3.5 | Certificate of Designations filed with the Nevada Secretary of State on May 3, 2017. (incorporated by reference to Exhibit 3.5 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). | |
| 3.6 | Amendment to Certificate of Designations filed with the Nevada Secretary of State on May 3, 2017 (incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the Commission on May 12, 2017). | |
| 10.1 | Preferred Stock Purchase Agreement dated January 31, 2017 and entered into between the Company and Capital Venture Holdings LLC. (incorporated by reference to Exhibit 10.1 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). | |
| 14.1 | Code of Ethics (incorporated by reference to Exhibit 14.1 to the registrant’s registrant statement on Form S-1 (File No. 333-168530), filed with the Commission on August 4, 2010). | |
| 21.1 | List of Subsidiaries. * | |
| 23.1 | Consent of Independent Registered Public Accounting Firm. * | |
| 31.1 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer. * | |
| 31.2 | Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial and accounting officer. * | |
| 32.1 | Section 1350 Certification of principal executive officer. * | |
| 32.2 | Section 1350 Certification of principal financial and accounting officer. * | |
| 99.1 | Insider Trading Policy (incorporated by reference to Exhibit 99.1 to the registrant’s annual report on Form 10-K filed with the Commission on May 28, 2021). | |
| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. ** | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document ** | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document ** | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document ** | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document ** | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document ** | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) ** |
__________
| * | Previously filed or furnished with the original Form 10-K Annual Report for 02-28-2022, filed with the Commission on May 27, 2022. |
| ** | filed or furnished herewith. |
- 40 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: May 31, 2022 | By: | /s/ Steven Reinharz |
| Steven Reinharz | ||
| President, Chief Executive Officer | ||
| Date: May 31, 2022 | By: | /s/ Anthony Brenz |
| Anthony Brenz | ||
| Chief Financial Officer (principal financial and accounting officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Steven Reinharz | President, Chief Executive Officer and Director (principal executive officer) | May 31, 2022 | ||
| Steven Reinharz | ||||
| /s/ Anthony Brenz | Chief Financial Officer (principal financial and accounting officer) | May 31, 2022 | ||
| Anthony Brenz |
- 41 -
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
(FORMERLY ON THE MOVE SYSTEMS CORP.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Artificial Intelligence Technology Solutions, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Artificial Intelligence Technology Solutions, Inc. (the “Company”) as of February 28, 2022 and 2021, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two years ended February 28, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two years ended February 28, 2022, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully explained in Note 1, which includes management’s plans in regards to this uncertainty, the Company had a net loss of approximately $62 million, an accumulated deficit of approximately $94 million and stockholders’ deficit of approximately $21 million as of and for the year ended February 28, 2022, and therefore there is substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit Committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by F-2 communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Critical Audit Matter Description – Debt Settlements, Amendments and Extensions
In the year ended February 28, 2022, the Company entered into a number of agreements to settle outstanding notes payable and convertible notes payable and to amend debt provisions associated with the sale of future revenues through the issuance of shares of its common stock and different classes of preferred stock. In addition, at year end, the Company entered into three separate agreements to extend the maturity dates of several of its high dollar value notes payable that were then near maturity.
F-2
Critical Audit Matter Determination
Debt settlements, amendments to the debt provisions associated with the sales of future revenues and the extension of maturity dates can encompass significantly complex accounting issues. It takes a high degree of training to understand and recognize the accounting implications of the various terms of the settlement agreements in regards to notes payable and convertible notes, amendments to debt provisions associated with the sales of future revenues and the agreements to extend the maturity dates of notes payables.
Critical Audit Matter Audit Procedures
Our audit procedures related to evaluating the Company’s accounting for the settlements of convertible note payables and notes payable, the amendments to the debt associated with the sale of future revenues and for the maturity extensions of the notes payable were as follows:
| — | We read the various instruments, identified the features that impact the accounting for the settlements and extensions, including the grant of warrants as inducements to enter into the extension agreements. | |
| — | We reviewed the assumptions, methods and models used to calculate the allocation of fair value of the instruments at time of settlement, amendment or extension. | |
| — | We performed independent calculations on a test basis of specific instruments to evaluate the model used in calculating the settlement loss associated with the note payable and convertible note payable settlements, the amendments to debt provisions associated with the sales of future revenues and the interest expense associated with maturity extensions. |
Critical Audit Matter Relevant Financial Statement Disclosures
| — | We read the Company’s disclosures related to the settlements, amendments and maturity extensions to ensure the changes were properly accounted for and fully disclosed in the financial statements. |
Critical Audit Matter Description – Going Concern
As discussed in both Note 1 to the consolidated financial statements and above, the Company has incurred significant losses since inception, and has an accumulated deficit of approximately $94 million and a stockholders’ deficit of $21 million as of February 28, 2022.
Critical Audit Matter Determination
The following items were considered in determining that a going concern was a critical audit matter.
| — | Significant losses and significant cash used in operations in the year end February 28, 2022 | |
| — | We also took into consideration the Company’s need to raise additional debt and equity financing over the next twelve months and the amounts raised as of the time of filing of its financial statements |
Critical Audit Matter Audit Procedures
We reviewed the Company’s negative cash flows from operations
We noted the limited working capital resources
We noted subsequent events and proceeds received from the ongoing private placement offering as of the date of our opinion
We compared subsequent funding from the private placements of notes completed as of the filing of these financial statements to the estimated cash flows required to continue operations for the year subsequent to the date of our report.
Critical Audit Matter Relevant Financial Statement Disclosures
We reviewed the completeness of the Company’s Going Concern footnote and the details of the Company’s plans to continue operations for the next twelve months and management’s disclosure as noted above that there is substantial doubt about the Company’s ability to continue as a going concern.
F-3
/s/ L J Soldinger Associates, LLC
Deer Park, Illinois
May 27, 2022
We have served as the Company’s auditor since 2019.
PCAOB Auditor ID: 00318
F-4
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONSOLIDATED BALANCE SHEETS
| February 28, 2022 | February 28, 2021 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash | $ | 4,648,146 | $ | 1,044,418 | |||
| Accounts receivable, net | 429,469 | 98,544 | |||||
| Device parts inventory, net | 1,530,657 | 64,071 | |||||
| Prepaid expenses and deposits | 442,164 | ||||||
| Total current assets | 7,050,436 | 1,207,033 | |||||
| Operating lease asset | 1,331,605 | 47,753 | |||||
| Revenue earning devices, net of accumulated depreciation of $434,661 and $229,459, respectively | 709,063 | 273,714 | |||||
| Fixed assets, net of accumulated depreciation of $49,065 and $67,113, respectively | 137,952 | 34,994 | |||||
| Trademarks | 28,723 | ||||||
| Security deposit | 21,239 | 3,859 | |||||
| Total assets | $ | 9,279,018 | $ | 1,567,353 | |||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued expenses | $ | 968,853 | $ | 1,373,838 | |||
| Advances payable | 1,594 | 1,594 | |||||
| Balance owed WeSecure | 122,000 | ||||||
| Customer deposits | 10,000 | 10,500 | |||||
| Current operating lease liability | 254,027 | 43,894 | |||||
| Current portion of deferred variable payment obligation | 325,600 | 91,587 | |||||
| Current portion of convertible notes payable, net of discount of $0 and $697,276 respectively | 3,500 | 196,224 | |||||
| Loan payable - related party | 193,556 | 904,806 | |||||
| Incentive compensation plan payable | 479,500 | ||||||
| Current portion of loans payable, net of discount of $14,745 and $0 | 1,004,708 | 944,614 | |||||
| Vehicle loan - current portion | 38,522 | 38,522 | |||||
| Current portion of accrued interest payable | 1,260,271 | 238,665 | |||||
| Derivative liability | 7,587 | 444,466 | |||||
| Total current liabilities | 4,547,718 | 4,410,710 | |||||
| Non-current operating lease liability | 1,057,579 | 3,859 | |||||
| Loans payable, net of discount of $4,905,076 and $0, respectively | 20,309,069 | 8,867,998 | |||||
| Deferred variable payment obligation | 2,525,000 | 2,525,000 | |||||
| Accrued interest payable | 1,816,009 | 303,473 | |||||
| Vehicle loan | |||||||
| Total liabilities | 30,255,375 | 16,111,040 | |||||
| Commitments and Contingencies | |||||||
| Stockholders' deficit: | |||||||
| Preferred Stock, undesignated; shares authorized; shares issued and outstanding at February 28, 2022 and February 28, 2021, respectively | |||||||
| Series G Convertible Preferred Stock. $ par value; shares authorized, shares issued and outstanding at February 28, 2022 and February 28, 2021, respectively | — | — | |||||
| Series E Preferred Stock, $ par value; shares authorized; and shares issued and outstanding, respectively | 3,350 | 4,350 | |||||
| Series F Convertible Preferred Stock, $ par value; shares authorized; and shares issued and outstanding, respectively | 2,532 | 2,799 | |||||
| Common Stock, $ par value; shares authorized and shares issued and outstanding, respectively | 47,353 | 32,294 | |||||
| Additional paid-in capital | 73,015,576 | 16,764,554 | |||||
| Preferred stock to be issued | 99,086 | 174,070 | |||||
| Accumulated deficit | (94,144,254 | ) | (31,521,754 | ) | |||
| Total stockholders' deficit | (20,976,357 | ) | (14,543,687 | ) | |||
| Total liabilities and stockholders' deficit | $ | 9,279,018 | $ | 1,567,353 | |||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended February 28, 2022 |
Year Ended February 28, 2021 |
||||||
| Revenues | $ | 1,447,109 | $ | 360,888 | |||
| Cost of Goods Sold | 472,926 | 98,167 | |||||
| Gross Profit | 974,183 | 262,721 | |||||
| Operating expenses: | |||||||
| Research and development | 2,961,394 | 378,236 | |||||
| General and administrative | 10,905,129 | 2,748,494 | |||||
| Depreciation and amortization | 232,886 | 120,846 | |||||
| Operating lease cost and rent | 275,785 | 9,461 | |||||
| (Gain) loss on disposal of fixed assets | (29,125 | ) | 553 | ||||
| Total operating expenses | 14,346,069 | 3,257,590 | |||||
| Loss from operations | (13,371,886 | ) | (2,994,869 | ) | |||
| Other income (expense), net: | |||||||
| Change in fair value of derivative liabilities | 372,214 | 764,025 | |||||
| Interest expense | (16,129,499 | ) | (3,379,833 | ) | |||
| Loss on settlement of debt | (33,068,313 | ) | (288,234 | ) | |||
| Total other income (expense), net | (48,825,598 | ) | (2,904,042 | ) | |||
| Net Loss | $ | (62,197,484 | ) | $ | (5,898,911 | ) | |
| Net loss per share - basic | $ | (0.02 | ) | $ | (0.01 | ) | |
| Net loss per share - diluted | $ | (0.02 | ) | $ | (0.01 | ) | |
| Weighted average common share outstanding - basic | 4,029,658,082 | 1,015,115,270 | |||||
| Weighted average common share outstanding - diluted | 4,029,658,082 | 1,015,115,270 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED FEBRUARY 28, 2022 AND FEBRUARY 28, 2021
| 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 29, 2020 | 4,350,000 | $ | 4,350 | 3,450 | $ | 177,520 | — | $ | 418,415 | $ | 4 | $ | 4,334,564 | $ | (25,622,843 | ) | $ | (21,106,405 | ) | |||||||||||
| Contributed capital | — | — | — | — | (8,809 | ) | (8,809 | ) | ||||||||||||||||||||||
| Adjustment to derivative liability | — | — | — | — | 2,837,687 | 2,837,687 | ||||||||||||||||||||||||
| Common stock issued for debt conversion | — | — | — | 2,329,798,068 | 23,298 | 3,545,388 | 3,568,686 | |||||||||||||||||||||||
| Exercise of warrants | — | — | — | 894,210,392 | 8,942 | (8,942 | ) | |||||||||||||||||||||||
| Common shares and warrants issued with promissory notes | — | — | — | 5,000,000 | 50 | 2,652,265 | 2,652,315 | |||||||||||||||||||||||
| Class F shares issued for services | — | 110 | 110 | — | — | 361,974 | 362,084 | |||||||||||||||||||||||
| Cancellation of Series F Preferred Shares | — | (816 | ) | (816 | ) | — | — | 816 | ||||||||||||||||||||||
| Issuance of Series F shares as part of debt settlement | — | 55 | 55 | — | — | 1,151,111 | 1,151,166 | |||||||||||||||||||||||
| Warrants issued as part of debt settlement | — | — | — | — | 1,898,500 | 1,898,500 | ||||||||||||||||||||||||
| Rounding shares | — | — | — | 9 | ||||||||||||||||||||||||||
| Net income | — | — | — | — | (5,898,911 | ) | (5,898,911 | ) | ||||||||||||||||||||||
| Balance at February 28, 2021 | 4,350,000 | $ | 4,350 | 2,799 | $ | 176,869 | — | $ | 3,229,426,884 | $ | 32,294 | $ | 16,764,554 | $ | (31,521,754 | ) | $ | (14,543,687 | ) | |||||||||||
F-7
| 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 | 4,350,000 | 4,350 | 2,799 | 176,869 | — | $ | 3,229,426,884 | $ | 32,294 | $ | 16,764,554 | $ | (31,521,754 | ) | $ | (14,543,687 | ) | |||||||||||||
| Cancellation of Series E Shares | (1,000,000 | ) | (1,000 | ) | — | — | — | 1,000 | ||||||||||||||||||||||
| Series F Preferred Shares issued with amendment agreement | — | 40 | 40 | — | — | 3,244,700 | 3,244,740 | |||||||||||||||||||||||
| Series F Preferred Shares Warrants issued with amendment agreement | — | — | — | — | 29,770,474 | 29,770,474 | ||||||||||||||||||||||||
| Series F Preferred Shares cancelled in exchange for promissory notes | — | (83 | ) | (83 | ) | — | — | (6,732,752 | ) | (6,732,835 | ) | |||||||||||||||||||
| Series F preferred shares issued on exercise of warrants | — | 38 | 38 | — | — | (38 | ) | |||||||||||||||||||||||
| Series F Preferred Shares converted to common shares | — | (78 | ) | (78 | ) | — | 316,345,998 | 3,164 | (3,086 | ) | ||||||||||||||||||||
| Redemption of 19 Issuable Series F shares | — | — | (74,984 | ) | — | — | (425,016 | ) | (500,000 | ) | ||||||||||||||||||||
| Exchange of Series F Preferred Shares for debt | — | (184 | ) | (184 | ) | — | — | (3,999,976 | ) | (4,000,160 | ) | |||||||||||||||||||
| Issuance of Series G preferred as equity awards per employment agreement | — | — | 1,500 | 1,500,000 | — | 1,500,000 | ||||||||||||||||||||||||
| Redemption of Series G shares as compensation payment | — | — | (1,500 | ) | (1,500,000 | ) | — | (1,500,000 | ) | |||||||||||||||||||||
| Adjustment to derivative liability | — | — | — | — | 422,272 | 422,272 | ||||||||||||||||||||||||
| Common stock issued for debt conversion | — | — | — | 31,042,436 | 310 | 898,395 | 898,705 | |||||||||||||||||||||||
| Exercise of warrants | — | — | — | 300,251,561 | 3,003 | (3,003 | ) | |||||||||||||||||||||||
| Exchange of debt for common shares | — | — | — | 116,104,232 | 1,161 | 6,454,235 | 6,455,396 | |||||||||||||||||||||||
| Stock based compensation on issuable shares | — | — | — | 2,100,000 | 21 | 109,179 | 109,200 | |||||||||||||||||||||||
| Issuance of shares, net of $253,811 issuance costs | — | — | — | 645,168,473 | 6,452 | 12,515,480 | 12,521,932 | |||||||||||||||||||||||
| Cashless exercise of 100,000,000 warrants | — | — | — | 94,770,776 | 948 | (948 | ) | |||||||||||||||||||||||
| Relative fair value of warrants issued with debt | — | — | — | — | 3,319,816 | 3,319,816 | ||||||||||||||||||||||||
| Warrants issued as part of debt | — | — | — | — | 4,749,006 | 4,749,006 | ||||||||||||||||||||||||
| Warrants as issuance cost | — | — | — | — | 21,918 | 21,918 | ||||||||||||||||||||||||
| Warrants as consideration for debt extensions | — | — | — | — | 5,415,000 | 5,415,000 | ||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | 69,350 | 69,350 | ||||||||||||||||||||||||
| Net income | — | — | — | — | (62,197,484 | ) | (62,197,484 | ) | ||||||||||||||||||||||
| Balance at February 28, 2022 | 3,350,000 | $ | 3,350 | 2,532 | $ | 101,618 | — | $ | 4,735,210,360 | $ | 47,353 | $ | 73,015,576 | $ | (94,144,254 | ) | $ | (20,976,357 | ) | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-8
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended February 28, 2022 |
Year Ended February 28, 2021 |
||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
| Net loss | $ | (62,197,484 | ) | $ | (5,898,911 | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
| Depreciation and amortization | 232,886 | 120,846 | |||||
| Inventory provision | 65,000 | ||||||
| (Gain) loss on disposal of fixed assets | (29,125 | ) | 553 | ||||
| Bad debts expense | 9,022 | 24,868 | |||||
| Revenue earning device sold and expensed in cost of sales | 3,410 | ||||||
| Reduction of right of use asset | 110,148 | ||||||
| Accretion of lease liability | 122,930 | ||||||
| Stock based compensation | 2,158,050 | 362,084 | |||||
| Interest expense related to the issuance of warrants for debt extensions | 5,415,000 | ||||||
| Interest expense related to penalties from debt defaults | 939,705 | ||||||
| Change in fair value of derivative liabilities | (372,214 | ) | (764,025 | ) | |||
| Amortization of debt discounts | 7,597,242 | 201,567 | |||||
| (Gain) loss on settlement of debt | 33,068,313 | 288,234 | |||||
| Increase (decrease) in related party accrued payroll and interest | 264,331 | 294,744 | |||||
| Changes in operating assets and liabilities: | |||||||
| Accounts receivable | (339,947 | ) | (73,295 | ) | |||
| Prepaid expenses | (442,164 | ) | |||||
| Deposit on right of use asset | (19,999 | ) | |||||
| Device parts inventory | (2,191,571 | ) | (177,196 | ) | |||
| Accounts payable and accrued expenses | (596,615 | ) | 89,229 | ||||
| Accrued expense, related party | (167,187 | ) | (7,247 | ) | |||
| Customer deposits | (500 | ) | 500 | ||||
| Operating lease liability payments | (233,078 | ) | |||||
| Balance owed WeSecure | (122,000 | ) | (40,500 | ) | |||
| Current portion of deferred variable payment obligations for Payments | 234,013 | ||||||
| Accrued interest payable | 2,606,097 | 1,565,519 | |||||
| Net cash used in operating activities | (14,825,442 | ) | (3,073,325 | ) | |||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
| Purchase of fixed assets | (115,493 | ) | (37,764 | ) | |||
| Acquisition of trademarks | (26,327 | ) | |||||
| Cash paid for security deposit | (17,380 | ) | (3,859 | ) | |||
| Proceeds on disposal of fixed assets | 30,000 | 1,000 | |||||
| Net cash used in investing activities | (129,200 | ) | (40,623 | ) | |||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
| Share proceeds net of issuance costs | 12,521,932 | ||||||
| Proceeds from convertible notes payable | 692,650 | ||||||
| Repayment of convertible debt | (65,000 | ) | (250,000 | ) | |||
| Proceeds from deferred variable payment obligation | 966,000 | ||||||
| Proceeds from loans payable | 9,426,146 | 3,603,623 | |||||
| Repayment of loans payable | (516,314 | ) | (173,881 | ) | |||
| Series G preferred shares redeemed as payment on incentive plan payable | (1,500,000 | ) | |||||
| Dividend upon redemption of cancelled issuable Series F shares | (500,000 | ) | |||||
| Cash acquired on consolidation of RAD G | (284 | ) | |||||
| Net borrowings(repayments) on loan payable - related party | (808,394 | ) | (693,049 | ) | |||
| Net cash provided by financing activities | 18,558,370 | 4,145,059 | |||||
| Net change in cash | 3,603,728 | 1,031,111 | |||||
| Cash, beginning of period | 1,044,418 | 13,307 | |||||
| Cash, end of period | $4,648,146 | $1,044,418 | |||||
| Supplemental disclosure of cash and non-cash transactions: | |||||||
| Cash paid for interest | $225,003 | $321,553 | |||||
| Cash paid for income taxes | $ | $ | |||||
| Noncash investing and financing activities: | |||||||
| Right of use asset for lease liability | $ | 1,374,002 | $ | 56,396 | |||
| Transfer from device parts inventory to fixed assets | $ | 659,985 | $ | ||||
| Net assets on consolidation of RAD G | $ | $ | 106,256 | ||||
| Conversion of convertible notes and interest to shares of common stock | $ | 898,705 | $ | 3,568,686 | |||
| Release of derivative liability on conversion of convertible notes payable | $ | 422,272 | $ | 2,837,687 | |||
| Debt discount from derivative liabilities | $ | $ | 143,133 | ||||
| Derivative debt discount on revaluation of loan amendment | $ | 438,835 | $ | ||||
| Settlement and exchange of convertible notes payable | $ | $ | 7,091,576 | ||||
| Exchange of notes payable for Series F preferred shares | $ | 6,732,835 | $ | ||||
| Discount applied to face value of loans | $ | 6,162,945 | $ | 521,700 | |||
| Warrants issued as part of debt issuance | $ | 8,068,822 | $ | ||||
| Exercise of warrants | $ | 3,951 | $ | 8,942 | |||
| Series F preferred shares issued for debt | $ | 4,000,160 | $ | ||||
| Cancellation of Series E preferred shares | $ | 1,000 | $ | ||||
| Issuance of Series G preferred shares as payment on incentive plan payable | $ | 1,500,000 | $ | ||||
| Series F preferred shares converted to common shares | $ | 3,086 | $ | ||||
| Series F preferred shares issued on exercise of warrants | $ | 38 | $ | ||||
| Opening balance sheet RAD G | $ | $ | 8,809 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-9
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND GOING CONCERN
Artificial Intelligence Technology Solutions Inc. (formerly known as On the Move Systems Corp.) (“AITX” or the “Company”) was incorporated in Florida on March 25, 2010 and reincorporated in Nevada on February 17, 2015. On August 24, 2018, 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 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 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.
GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.
For the year ended February 28, 2021, the Company had negative cash flow from operating activities of $. As of February 28, 2022 the Company has an accumulated deficit of $ and working capital of $2,502,718. 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 all its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.
Management has plans to address the Company’s financial situation as follows:
The company began raising money through it’s S-3 this year and made improvements in paying off debt, investing in inventory and at February 28, 2022 had $4.6 million of cash on hard. 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 through to February 28, 2022 has raised approximately $12.5 million net of issuance costs through the sale of its common shares and approximately $9.4 million in proceeds from debt issuances.
F-10
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in conformity with the instructions on Form 10-K of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). The audited 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 OMV Transports, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.
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 equity instruments used in debt settlements, amendments and extensions.
Reclassifications
Certain amounts in the Company’s consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.
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 credit losses. 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 $33,890 and $24,868 provided as of February 28, 2022 and February 28, 2021, respectively. For the year ended February 28, 2022 , customers account for 63% of total accounts receivable (2021- 68%).
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. At February 28, 2022 and at February 28, 2021 there was a valuation reserve of $65,000 and $0, respectively.
Revenue Earning Devices
Revenue earning devices are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful life of 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.
F-11
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 | years | |
| Office equipment | years | |
| Warehouse equipment | years | |
| Demo Devices | years | |
| Vehicles | years | |
| Leasehold improvements | years, the life of the lease |
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 February 28, 2022 and February 28, 2021, the Company had deferred development costs.
Contingencies
Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
Sales of Future Revenues
The Company has entered into transactions, as more fully described in footnote 10, in which it has received funding from investors in exchange for which it will make payments to those investors based on the level of sales of certain revenue categories, generally based on a percentage of sales for those certain revenues. The Company determines whether these agreements constitute sales of future revenues or are in substance debt based on the facts and circumstances of each agreement, with the following primary criteria determinative of whether the agreement constitutes a sale of future revenues or debt:
| ● | Does the agreement purport, in substance, to be a sale | |
| ● | Does the Company have continuing involvement in the generation of cash flows due the investor | |
| ● | Is the transaction cancellable by either party through payment of a lump sum or other transfer of assets | |
| ● | Is the investors rate of return 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.
F-12
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.. For the year ended February 28, 2022 , customers accounted for 43% of total revenue (2021- 49%).
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, 2022, 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.
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.
F-13
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 CEO and Chairman holds sufficient shares of the Company’s voting stock that give sufficient voting rights under the articles of incorporation and bylaws of the Company such that the CEO and 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:
| ● | 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. |
F-14
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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:
| Fair Value Measurement Using | |||||||||||||
| Amount at Fair Value |
Level 1 | Level 2 | Level 3 | ||||||||||
| February 28, 2022 | |||||||||||||
| Liabilities | |||||||||||||
| Incentive compensation plan payable- revaluation of equity awards payable in Series G shares | $ | 479,500 | $ | — | $ | — | $ | 479,500 | |||||
| Derivative liability – conversion features pursuant to convertible notes payable | $ | 7,587 | $ | — | $ | — | $ | 7,587 | |||||
| February 28, 2021 | |||||||||||||
| Liabilities | |||||||||||||
| Incentive compensation plan payable- revaluation of equity awards payable in Series G shares | $ | — | $ | — | $ | — | $ | — | |||||
| Derivative liability – conversion features pursuant to convertible notes payable | $ | 444,466 | $ | — | $ | — | $ | 444,466 |
| ||||
See Note 12 for specific inputs used in determining fair value for derivative liability.
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.
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.
F-15
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
3. 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 was adopted. On March 1, 2019.
As disclosed in the revenue recognition section of Note 2 – Accounting Polices, the Company adopted Topic 606 in accordance with the effective date on March 1, 2018. Note 2 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.
Upon adoption of Topic 842, also referred to above in Note 2, the Company accounts 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 for periods greater than one year. To date none of the lease agreements entered into have been for periods longer than one year or greater, and the Company has availed itself of the practical expedient to exclude such leases from ASC 842 accounting and instead has accounted for these leases under ASC 606.
F-16
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following table presents revenues from contracts with customers disaggregated by product/service:
| Year Ended February 28, 2022 |
Year Ended February 28, 2021 |
||||||
| Device rental activities | $ | 592,401 | $ | 304,294 | |||
| Direct sales of goods and services | 854,708 | 56,594 | |||||
| Revenues | $ | 1,447,109 | $ | 360,888 | |||
NOTE 4 – LEASES
We lease certain warehouses, and office space. Leases with an initial term of 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 February 28, 2022 and February 28, 2021.
| Leases | Classification | February 28, 2022 | February 28, 2021 | ||||||
| Assets | |||||||||
| Operating | Operating Lease Assets | $ | 1,331,605 | $ | 47,753 | ||||
| Liabilities | |||||||||
| Current | |||||||||
| Operating | Current Operating Lease Liability | $ | 254,027 | $ | 43,894 | ||||
| Noncurrent | |||||||||
| Operating | Noncurrent Operating Lease Liabilities | 1,057,579 | 3,859 | ||||||
| Total lease liabilities | $ | 1,311,606 | $ | 47,753 | |||||
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.
Operating lease cost and rent was $275,785 and $9,461 for both the twelve months ended February 28, 2022 and February 28, 2021, respectively.
5. REVENUE EARNING ROBOTS
Revenue earning robots consisted of the following:
| February 28, 2022 | February 28, 2021 | ||||||
| Revenue earning devices | $ | 1,143,724 | $ | 500,173 | |||
| Less: Accumulated depreciation | (434,661 | ) | (226,459 | ) | |||
| $ | 709,063 | $ | 273,714 | ||||
During the year ended February 28, 2022, the Company made total additions to revenue earning devices of $647,116 including $647,116 in inventory transfers During the year ended February 28, 2021, the Company made total additions to revenue earning devices of $ which were transfers from inventory. During the year ended February 28, 2022, the company disposed of a revenue earning device having a net book value of $3,255 for revenues of $30,600 and included the $3,255 in cost of goods sold.
Depreciation expense for these devices was $208,510 and $103,371 for the years ended February 28, 2022 and February 28, 2021, respectively.
F-17
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. FIXED ASSETS
Fixed assets consisted of the following:
| February 28, 2022 | February 28, 2021 | ||||||
| Automobile | $ | 101,680 | $ | 70,896 | |||
| Demo devices | 16,539 | 3,670 | |||||
| Computer equipment | 36,742 | 23,399 | |||||
| Office equipment | 15,312 | 4,142 | |||||
| Warehouse equipment | 11,415 | — | |||||
| Leasehold improvements | 5,329 | — | |||||
| 187,017 | 102,107 | ||||||
| Less: Accumulated depreciation | (49,065 | ) | (67,113 | ) | |||
| $ | 137,952 | $ | 34,994 | ||||
During the year ended February 28, 2021, the Company made additions to fixed assets of $115,493, additions through inventory transfers of $12,868 and the Company sold a vehicle having a net book value of $875 for fair value proceeds of $30,000 and recorded a gain on disposal of fixed assets of $29,125.
During the year ended February 28, 2021, the Company made additions to fixed assets of $37,764 and the Company disposed of office equipment having a net book value of $1,553 for proceeds of $1,000 and recorded a loss on disposal of $553.
Depreciation expense was $24,376 and $17,475 for the years ended February 28, 2022 and February 28, 2021, 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 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). At February 29, 2020 the investor has advanced the full $900,000.
On May 9, 2019 the Company entered into two similar arrangements with two investors:
| (1) | The investor would pay up to $400,000 in exchange for a perpetual 4% rate Payment on the Company’s reported quarterly Revenues. At February 29, 2020, $400,000 has been paid to the Company. | |
| (2) | The investor would pay up to $50,000 in exchange for a perpetual 1.11% rate Payment on the Company’s reported quarterly Revenues. At February 29, 2020, $50,000 has been paid to the Company. |
These variable payments (Payments) are to be made 30 days after the end of each fiscal quarter. If the Payments would deplete RAD’s available cash by more than 30%, the Payments may be deferred for up to 12 months after the quarterly report at an interest rate of 6% per annum on the unpaid amount.
In the event that at least 10% of the assets of the Company are sold by the Company, the investors would be entitled to the fair market value (FMV) of all future Payments associated with the assets sold as determined by an independent valuator to be chosen by the investors. The FMV cannot exceed 30% of the total asset disposition price defined as the total price paid for the assets plus all future Payments associated with the assets sold. In the event that the common or preferred shares are sold by the Company to a third party as to effect a change in control, then the investors must be paid the FMV of all future Payments in one lump payment. The FMV cannot exceed 30% of the share disposition price defined as the total price the third party paid for the shares plus the total value of all future Payments.
On November 18, 2019 the Company entered into another similar arrangement with the (February 1, 2019) investor above whereby the investor would advance up to $225,000 in exchange for a perpetual 2.25% rate Payment on the Company’s quarterly Revenues (commencing on quarter ending May 31, 2020). At February 29, 2020 the investor has advanced $109,000 and the investor advanced the $116,000 remainder as of May 2020.
F-18
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On December 30, 2019 the Company entered into another similar arrangement with a new investor whereby the investor would advance up to $100,000 in exchange for a perpetual 1.00% rate Payment on the Company’s quarterly Revenues (commencing quarter ended November 30, 2020). At February 29, 2020 the investor has advanced $50,000 with the remainder to be advanced no later than June 30, 2020. If the total investor advances turns out to be less than $100,000, this would not constitute a breach of the agreement, rather the 1.00% rate would be adjusted on a pro-rata basis.
On April 22, 2020 the Company entered into another similar arrangement with the (first May 9, 2019) investor above whereby the investor would advance up to $100,000 in exchange for a perpetual 1.00% rate Payment on the Company’s quarterly Revenues. At May 31, 2020 the investor has fully funded this commitment.
On July 1, 2020 the Company entered into a similar agreement with the first investor whereby the investor would pay up to $800,000 in exchange for a perpetual 2.75% rate payment (Payment) on the Company’s reported quarterly revenue. These Payments are to be made 90 days after the fiscal quarter with the first payment being due no later than May 31, 2021. If the Payments would deplete RAD’s available cash by more than 20%, the payment may be deferred. The investor had agreed to pay $100,000 per month over an 8 month period with the first payment due July 2020 and the final payment no later than February 28, 2021. As at August 31, 2020 the investor had fully funded the $800,000 commitment
On August 27, 2020 the Company and the first investor referred to above consolidated the three separate agreements of February 1, 2019 for $900,000, November 18, 2019 for $225,000 and July 1, 2020 for $800,000 into a new agreement for a total of $1,925,000. This new agreement is for similar terms as the above agreements save for the following: the rate payment is revised to 14.25% payable on revenues commencing the quarter ended August 31, 2020 and the Payments are secured by the assets of the Company. This interest may be secured by UCC filing but is subordinated to equipment financing on the products the Company leases to its customers.
In summary of all agreements mentioned above if in the event that at least 10% of the assets of the Company are sold by the Company, the investors would be entitled to the fair market value (FMV) of all future Payments associated with the assets sold as determined by an independent valuator to be chosen by the investors. The FMV cannot exceed 43.77% of the total asset disposition price defined as the total price paid for the assets plus all future Payments associated with the assets sold. In the event that the common or preferred shares are sold by the Company to a third party as to effect a change in control, then the investors must be paid the FMV of all future Payments in one lump payment. The FMV cannot exceed 43.77% of the share disposition price defined as the total price the third party paid for the shares plus the total value of all future Payments. As of March 1, 2021 as a result of the amendment with the first investor noted below. This aggregate asset disposition % was reduced from 43.77 % to 33.77%
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 $1,925,000 revised his agreements as follows:
| 1) | The rate payment was reduced from 14.25 % to 9.65 % | |
| 2) | The asset disposition % (see below) was reduced from 31 % to 21% |
In consideration for the above changes, the investor received 40 Series F Convertible Preferred Stock and a warrant to purchase 367 shares of its Series F Convertible Preferred Stock with a five-year term and an exercise price of $1.00. During the three months ended May 31, 2021 the warrant holder exercised warrants to acquire 38 shares of Series F Convertible Preferred Stock. The company attributed a fair value based on recent transactions for the Series F Preferred stock and warrants of $33,015,214 and recorded a loss on settlement of debt with a corresponding adjustment to paid in capital.
The Company retains total involvement in the generation of cash flows from these revenue streams that form the basis of the payments to be made to the investors under this agreement. Because of this, the Company has determined that the agreements constitute debt agreements. As of February 28, 2022, and February 28, 2021, the long-term balances other than Payments already owed is the cash received of $2,525,000 and $2,525,000, respectively.
For the year ended February 28, 2022, the Company has received $0 related to the deferred payment obligation as the balance remains $2,525,000 at February 28, 2022. For the year ended February 28, 2021, $966,000 has been paid to the Company bringing the balance to $2,525,000 at February 28, 2021.
F-19
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8. CONVERTIBLE NOTES PAYABLE
Convertible notes payable consisted of the following:
| Balance | Balance | |||||||||||||
| Interest | Conversion | February 28, | February 28, | |||||||||||
| Issued | Maturity | Rate | Rate per Share | 2022 | 2021 | |||||||||
| July 18, 2016 | July 18, 2017* | 10% | $0.003 | (2) | 3,500 | 3,500 | ||||||||
| December 31, 2016 | December 31, 2020 | 8% | 35% discount | (1) | 65,000 | |||||||||
| January 19, 2021 | January 19, 2022 | 12% | $0.04 | 275,000 | ||||||||||
| January 27,2021 | January 27, 2022 | 10% | $0.10 | (3) | 550,000 | |||||||||
| 3,500 | 893,500 | |||||||||||||
| Less: current portion of convertible notes payable | (3,500 | ) | (893,500 | ) | ||||||||||
| Less: discount on noncurrent convertible notes payable | ||||||||||||||
| Noncurrent convertible notes payable, net of discount | $ | $ | ||||||||||||
| Current portion of convertible notes payable | $ | 3,500 | $ | 893,500 | ||||||||||
| Less: discount on current portion of convertible notes payable | — | (697,276 | ) | |||||||||||
| Current portion of convertible notes payable, net of discount | $ | 3,500 | $ | 196,224 | ||||||||||
__________
| * | The indicated note was in default as of February 28, 2022. Default interest rate 22% |
| (1) | The notes are convertible at a discount (as indicated) to the average market price and are accounted for and evaluated under ASC 480 as discussed in Note 3. |
| (2) | The conversion price is not subject to adjustment from forward or reverse stock splits. |
| (3) | The per share conversion price into which Principal Amount and interest (including any Default Interest) under this Note shall be convertible into shares of Common Stock hereunder (the “Conversion Price”) shall be equal to $0.10 per share (the “Fixed Conversion Price”); provided, however, that if, the lowest traded price on the date six (6) months from the issue date hereof is below the Fixed Conversion Price, and no default exists, the conversion shall be $0.05 (the “Alternative Fixed Conversion Price”) provided, further, that upon any Event of Default (as defined herein) after the Issue Date, the Conversion Price shall equal the lower of (i) $0.03 (the “Default Fixed Conversion Price”); or (ii) seventy percent (70%) multiplied by the lowest closing price of the Common Stock during the fifteen (15) consecutive Trading Day period immediately preceding the date of the respective event of default (the “Default Conversion Price”); the Company amended this agreement with the lender whereby the conversion rate was changed from $0.10 to $0.03 as a result of a dilutive issuance. This resulted an additional derivative discount of $438,835 and a loss on extinguishment of $360,125. |
During the years ended February 28, 2022 and February 28, 2021, the Company incurred original issue discounts of $0 and $77,500, respectively, and debt discounts from derivative liabilities of $438,835 and $143,133, respectively, related to both new and re-valued convertible notes payable. These amounts are included in discounts on convertible notes payable and are being amortized to interest expense over the life of the convertible notes payable. During the years ended February 28, 2022 and February 28, 2021, the Company recognized interest expense related to the amortization of debt discount of $$775,986 and $190,197, respectively. The Company recorded penalty interest of $0 during the year ended February 28, 2022 and $939,705 during the year ended February 28, 2021 that is payable upon maturity if not already converted or settled prior to maturity.
All the notes above are unsecured. As of February 28, 2022, the Company had total accrued interest payable of $28,104, all of which is classified as current. As of February 28, 2021, the Company had total accrued interest payable of $49,764, all of which is classified as current. See description below for details of the convertible notes issued during the years ended February 28, 2022 and February 28, 2021.
F-20
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Convertible notes issued
The Company determined that the embedded conversion features which result in a variable conversion rate, in the convertibles notes described below should be accounted for as derivative liabilities as a result of their variable conversion rates.
During the year ended February 28, 2022, the Company had the following convertible note activity:
| ● | the Company amended the January 27, 2021 agreement with the lender whereby the conversion rate was changed from $0.10 to $0.03 as a result of a dilutive issuance. This resulted a derivative discount of $438,835 and a loss on extinguishment of $360,125. |
| ● | holders of certain convertible notes payable elected to convert a total of $825,000 of principal and $71,955 accrued interest, and $1,750 of fees into 31,042,436 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. |
| ● | the conversion rate of the January 19, 2021 note included above was reduced to $0.027 due to the dilutive issuance provision in the January 19, 2021 agreement. |
During the year ended February 28, 2021, the Company had the following convertible note activity:
| ● | The Company entered into a convertible note agreement with a lender on January 27, 2021 with a principal amount of $550,000 received cash proceeds of $463,500 with an original issue discount of $50,000 and issuance fees of $36,500. The note has a one year maturity and bears interest at 10%. The note was issued with a warrant to purchase 8,250,000 shares at an exercise price of $0.10 per share with a 3 year term and having a fair value of $1,149,225 using Black-Scholes with assumptions described in note 13 and 5,000,000 common shares having a fair value of 697,000. After allocating these charges to debt and equity according to their respective values , the initial debt balance net of a debt discount was $70,377 and the adjustment to paid in capital was $310,961.The discounts are being amortized over the term of the loan. In addition for the year ended February 28, 2021, the Company recorded a derivative discount on the embedded conversion feature of $82,162, , amortization expense of $12,401 with an unamortized discount of $467,222 at February 28, 2021. |
| ● | The Company entered into a convertible note agreement with a lender on January 19, 2021 with a principal amount of $275,000 received cash proceeds of $229,150 with an original issue discount of $27,500, and issuance fees of $18,350. The note has a one year maturity and bears interest at 12%. The note was issued with a warrant to purchase 11,000,000 shares at an exercise price of $0.045per share with a 3 year term and having a fair value of $594,000 using Black-Scholes with assumptions described in note 13. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values , the initial debt balance net of a debt discount was $40,191 and the adjustment to paid in capital of $127,988. Also, for the year ended February 28, 2021, the Company recorded a derivative discount on the embedded conversion feature of $60,971, amortization expense of $8,255 with an unamortized discount of $226,554 at February 28, 2021. |
| ● | 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 $2,420,559 of principal and $1,148,127 accrued interest, into 2,329,798,068 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. |
| ● | The Company entered into various debt settlement during the year where they settled principal of $556,664 and interest of $260,514 totaling $817,718 for cash payments totaling $770,813. |
| ● | The Company entered into various debt settlement during the year where they exchanged principal of $4,671,030 and interest of $3,042,613 totaling $7,713,643 in exchange for new promissory notes totaling $7,713 ,643 bearing interest at 12% and with three year maturities. In addition as part of the debt exchange the Company issued 805,000,000 warrants with a 3 year term and an exercise price of $0.002 having a fair value using black-scholes of $1,898,500 and 55 Series F Preferred Stock having a fair value of $1,151,166. |
F-21
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. RELATED PARTY TRANSACTIONS
For the years ended February 28, 2022 and February 28, 2021, the Company made net repayments of $803,394 and $693,049, respectively, to its loan payable-related party. At February 28, 2022, the loan payable-related party was $193,556 and $904,806 at February 29, 2020. As of February 28, 2022, included in the balance due to the related party is $108,000 of deferred salary and interest, $90,000 of which bears interest at 12%. At February 28, 2021 there was $883,710, with $642,000 bearing interest at 12%. The accrued interest included at February 28, 2022 was $2,700 (2021- $118,098).
Pursuant to the amended Employment Agreement with its Chief Executive Officer, the Company issued 1,500 shares of Series G Preferred Shares which are redeemable at the Company’s option at $ per share and recorded $1,500,000 of stock based compensation. During the year ended February 28, 2022, the Company redeemed these shares for $1,500,000 and accrued $479,500 as incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional awards being met.
During the years ended February 28, 2022 and February 28, 2021, the Company was charged $2,258,819 and $121,973, respectively in consulting fees for research and development to a company partially owned by a principal shareholder.
10. OTHER DEBT – VEHICLE LOANS
In December 2016, RAD entered into a vehicle loan for $47,704 secured by the vehicle. The loan is repayable over 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 years, maturing October 24, 2022 and repayable at $923 per month including interest and principal. The principal repayments made were $0 for both the year ended February 28, 2022 and February 28, 2021. Regarding the second vehicle loan, the vehicle was returned at the end of fiscal 2019 and the car was subsequently sold by the lender for proceeds of $21,907 which went to reduce the outstanding balance of the loan. A loss of $3,257 was recorded as well. A balance of $21,578 remains on this vehicle loan at both February 28, 2021 and February 29, 2020. For the first vehicle loan, the vehicle was retired in 2020, the proceeds of the disposal of $18,766 was applied against the balance of the loan with a $5,515 gain on the remaining asset value of $13,251. A balance of $16,944 remains on this vehicle loan at both February 28, 2022 and February 28, 2021. The remaining total balances of the amounts owed on the vehicle loans were $38,522 and $38,522 as of February 28, 2022 and February 28, 2021, respectively, of which all were classified as current.
F-22
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. LOANS PAYABLE
Loans payable at February 28, 2022 consisted of the following:
| Annual | ||||||||||
| Date | Maturity | Description | Principal | Interest Rate | ||||||
| June 11, 2018 | June 11, 2019 | Promissory note | (3) | $ | 48,000 | 25% | * | |||
| August 10, 2018 | September 1, 2018 | Promissory note | (4) | — | 25% | |||||
| August 16, 2018 | August 16, 2019 | Promissory note | (1) | — | 25% | |||||
| August 16, 2018 | October 1, 2018 | Promissory note | (4) | — | 25% | |||||
| January 31, 2019 | June 30, 2019 | Promissory note | (2) | 78,432 | 15% | * | ||||
| January 24, 2019 | January 24, 2021 | Loan | (8) | — | 11% | |||||
| May 9, 2019 | June 30, 2019 | Promissory note | (5) | 7,850 | 15% | * | ||||
| May 31, 2019 | June 30, 2019 | Promissory note | (6) | 86,566 | 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) | — | 20% | |||||
| August 13, 2020 | August 13, 2021 | Promissory note | (22) | — | 20% | |||||
| September 8, 2020 | September 8, 2021 | Promissory note | (27) | — | 20% | |||||
| September 15, 2020 | September 15, 2022 | Promissory note | (28) | 300,000 | 10% | |||||
| October 6, 2020 | March 6, 2023 | Promissory note | (29) | 150,000 | 12% | |||||
| November 12, 2020 | November 12, 2023 | Promissory note | (30) | 110,000 | 12% | |||||
| November 23, 2020 | October 23, 2022 | Promissory note | (31) | 65,000 | 15.5% | |||||
| November 23, 2020 | November 23, 2023 | Promissory note | (32) | 300,000 | 15% | |||||
| December 10, 2020 | December 10, 2023 | Promissory note | (33) | 82,500 | 12% | |||||
| December 10, 2020 | December 10, 2023 | Promissory note | (34) | 3,921,168 | 12% | |||||
| December 10, 2020 | December 10, 2023 | Promissory note | (35) | 3,054,338 | 12% | |||||
| December 10, 2020 | December 10, 2023 | Promissory note | (36) | 165,605 | 12% | |||||
| December 14, 2020 | December 14, 2023 | Promissory note | (37) | 310,375 | 12% | |||||
| December 14, 2020 | December 14, 2023 | Promissory note | (38) | — | 12% | |||||
| December 30, 2020 | December 30, 2023 | Promissory note | (39) | 350,000 | 12% | |||||
| December 31, 2021 | December 31, 2024 | Promissory note | (40) | 25,000 | 12% | |||||
| December 31, 2021 | December 31, 2024 | Promissory note | (41) | 145,000 | 12% | |||||
| January 14, 2021 | January 14, 2024 | Promissory note | (42) | 550,000 | 12% | |||||
| February 22, 2021 | February 22, 2024 | Promissory note | (43) | 1,650,000 | 12% | |||||
| March 1, 2021 | March 1, 2024 | Promissory note | (10) | 6,000,000 | 12% | |||||
| March 23, 2021 | March 23, 2022 | Promissory note | (11) | — | 0% | |||||
| March 23, 2021 | March 23, 2022 | Promissory note | (12) | — | 0% | |||||
| June 8, 2021 | June 8, 2024 | Promissory note | (44) | 2,750,000 | 12% | |||||
| July 12, 2021 | July 26, 2026 | Promissory note | (45) | 4,000,160 | 7% | |||||
| September 14, 2021 | September 14, 2024 | Promissory note | (46) | 1,650,000 | 12% | |||||
| $ | 26,233,598 | |||||||||
| Less current portion of loans payable | ) | |||||||||
| Less discount on loans payable | (4,905,076 | ) | ||||||||
| Loans payable | $ | 20,309,069 | ||||||||
| Current portion of loans payable | $ | 1,019,453 | ||||||||
| Less discount on loans payable | (14,745 | ) | ||||||||
| Current portion of loans payable, net of discount | $ | 1,004,708 | ||||||||
F-23
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| * | Note is in default. No notice has been given by the note holder to the Company at the time of issuance of these financial statements. |
| (1) | $12,624 loan repaid during year ended February 28, 2022. |
| (2) | The note may be pre-payable at any time. The note balance includes 33% original issue discount of $25,882 at issuance. |
| (3) | Repayable in 12 monthly instalments of $4,562 commencing August 11, 2018 and secured by revenue earning devices having a net book value of at least $48,000. No repayments have been made by the Company and no notices have been received. |
| (4) | $20,000 loan repaid during the year ended February 28, 2022. |
| (5) | The note may be pre-payable at any time. The note balance includes 33% original issue discount of $2,590 at issuance. |
| (6) | The note may be pre-payable at any time. The note balance includes 33% original issue discount of $28,567 at issuance. |
| (8) | $257,000 Canadian loan. Interest payable every calendar quarter commencing June 30, 2019, if unpaid accrued interest to be paid at maturity. An additional interest amount calculated as 4% of RAD revenues from SCOT rentals for the fiscal years 2020 and 2021 shall be payable March 31, 2020 and March 31, 2021, respectively. Secured by a general security charging all of RAD’s present and after-acquired property in favor of the lender on a first priority basis subject to the following: the lender’s security in this respect shall be postponeable to security in favor of institutional financing obtained by RAD. Additional funding of $26,146 during the quarter ended May 31, 2021. This loan and accrued interest was fully repaid on November 15, 2021 for a cash payment of $443,978. The payment includes $194,804 of loan repayment $55,299 in accrued interest, $18,135 in interest expense, $18,492 in foreign exchange loss and $157,249 in loss on settlement of debt. |
| (9) | The note may be pre-payable at any time. The note balance includes 33% original issue discount of $26,104 at issuance. |
| (10) | The unsecured note may be pre-payable at any time. Cash proceeds of $5,400,000 were received. The note balance of $6,000,000 includes an original issue discount of $600,000 and was issued with a warrant to purchase 300,000,000 shares at an exercise price of $0.135 per share with a 3-year term and having a relative fair value of $4,749,005 using Black-Scholes with assumptions described in note 13. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $4,749.005 with a corresponding adjustment to paid in capital for the relative value of the warrant. For the year ended February 28, 2022, the Company recorded amortization expense of $5,349,005 with an unamortized discount of $0 at February 28, 2022. The maturity was extended from March 1, 2022 to March 1, 2024 on February 28, 2022 in exchange for warrants to purchase 150,000,000 shares of common stock at an exercise price of $.0164 and a 3 year term. These warrants have a fair value of $2,850,000 recorded as interest expense with a corresponding adjustment to paid in capital. |
| (11) | In exchange for 28 Series F preferred shares, the Company issued a noninterest bearing unsecured loan for $2,545,900. A fair value of the loan of $2,267,768 was determined with a debt discount off $278,132. For the year ended February 28, 2022, the Company recorded amortization expense $54,102. On June 2, 2021 the Company exchanged the $2,545,900 debt having a net book value of $2,321,870 for 39,167,693 common shares having a fair value of $2,177,724. The Company recorded a gain on settlement of debt of $144,146. |
| (12) | In exchange for 55 Series F preferred shares, the Company issued a noninterest bearing unsecured loan for $5,000,875. A fair value of the loan of $4,465,067 was determined with a debt discount off $535,808. For the year ended February 28, 2022, the Company recorded amortization expense of $107,162. On June 2, 2021 the Company exchanged the $5,000,875 debt having a net book value $4,572,229 for 76,936,539 common shares having a fair value of $4,277,672. The Company recorded a gain on settlement of debt of $294,557. |
| (13) | The note may be pre-payable at any time. The note balance includes an original issue discount of $3,000 at issuance. |
F-24
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| (15) | The note may be pre-payable at any time. The note balance includes an original issue discount of $2,450 at issuance. |
| (16) | The note may be pre-payable at any time. The note balance includes an original issue discount of $1,200 at issuance. |
| (17) | The note may be pre-payable at any time. The note balance includes an original issue discount of $3,850 at issuance. |
| (18) | The note may be pre-payable at any time. The note balance includes an original issue discount of $8,000 at issuance. |
| (19) | The note may be pre-payable at any time. The note balance includes an original issue discount of $15,000 at issuance. |
| (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. Total loan of $40,000 CDN and accrued interest repaid at February 28, 2022. |
| (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 $ USD per share. Total loan of $44,183 (in $USD) and related accrued interest paid during the quarter ended May 31, 2021. |
| (23) | The note may be pre-payable at any time. The note balance includes an original issue discount of $12,000 at issuance. |
| (24) | The note may be pre-payable at any time. The note balance includes an original issue discount of $6,000 at issuance. |
| (25) | The note may be pre-payable at any time. The note balance includes an original issue discount of $10,000 at issuance. |
| (26) | The note may be pre-payable at any time. The note balance includes an original issue discount of $7,000 at issuance. |
| (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 $ USD per share. Total loan of $7,381 (in $USD) and related accrued interest paid during the quarter ended May 31, 2021. |
| (28) | The note may be pre-payable at any time. The note balance includes an original issue discount of $50,000. Interest payable monthly, principal due at maturity. Secured by a general security charging all of RAD’s present and after-acquired property. . For the year ended February 28, 2022, the Company recorded amortization expense of $23,885 with an unamortized discount of $14,745 at February 28, 2022. |
| (29) | Principal and interest repayable in 28 monthly instalments commencing December 6, 2020, the first 6 months at $2,000 per month, the remaining 22 payments at $ 8,500 per month. Secured by revenue earning devices. |
| (30) | The note may be pre-payable at any time. The note balance includes an original issue discount of $10,000 and was issued with a warrant to purchase shares at an exercise price of $ per share, with a -year term and having a relative fair value of $41,176. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $41,176 with a corresponding adjustment to paid in capital. For the year ended February 28, 2022, the Company recorded amortization expense of $12,039 with an unamortized discount of $36,290 at February 28, 2022. |
| (31) | Principal and interest repayable in 21 monthly instalments commencing December 6, 2020 of $4,060 commencing February 21, 2021. Secured by revenue earning devices. |
F-25
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| (32) | The note may be pre-payable at any time. The note balance includes an original issue discount of $25,000 and was issued with a warrant to purchase shares at an exercise price of $ per share with a -year term and having a relative fair value of $125,814. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $125,814 with a corresponding adjustment to paid in capital for the relative value of the warrant. For the year ended February 28, 2022, the Company recorded amortization expense of $33,823 with an unamortized discount of $109,977 at February 28, 2022. |
| (33) | The note may be pre-payable at any time. The note balance includes an original issue discount of 7,500 and was issued with a warrant to purchase shares at an exercise price of $ per share with a -year term and having a relative fair value of $54,545. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $54,545 with a corresponding adjustment to paid in capital for the relative value of the warrant. For the year ended February 28, 2022, the Company recorded amortization expense of $9,856 with an unamortized discount of $50,714 at February 28, 2022. |
| (34) | This promissory note was issued as part of a debt settlement whereby $2,683,357 in convertible notes and associated accrued interest of $1,237,811 totaling $3,921,168 was exchanged for this promissory note of $3,921,168, and a warrant to purchase shares at an exercise price of $ per share and a three-year maturity having a relative fair value of $990,000. This note is secured by a general security charging all of the Company’s present and after-acquired property. |
| (35) | This promissory note was issued as part of a debt settlement whereby $1,460,794 in convertible notes and associated accrued interest of $1,593,544 totaling $3,054,338 was exchanged for this promissory note of $3,054,338, and a warrant to purchase shares at an exercise price of $ per share and a three-year maturity having a relative fair value of $550,000. This note is secured by a general security charging all of the Company’s present and after-acquired property. |
| (36) | This promissory note was issued as part of a debt settlement whereby $103,180 in convertible notes and associated accrued interest of $62,425 totaling $165,605 was exchanged for this promissory note of $165,605, and a warrant to purchase shares at an exercise price of $ per share and a three-year maturity having a fair value of $176,000. |
| (37) | This promissory note was issued as part of a debt settlement whereby $235,000 in convertible notes and associated accrued interest of $75,375 totaling $310,375 was exchanged for this promissory note of $310,375, and a warrant to purchase shares at an exercise price of $ per share and a three-year maturity having a fair value of $182,500. |
| (38) | This promissory note was issued as part of a debt settlement whereby $100,000 in convertible notes and associated accrued interest of $37,589 totaling $137,589 was exchanged for this promissory note of $192,625. Loan fully repaid at May 31,2021. |
| (39) | The note may be pre-payable at any time. The note balance includes an original issue discount of $35,000 and was issued with a warrant to purchase shares at an exercise price of $ per share with a -year term and having a relative fair value of $271,250. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $271,250 with a corresponding adjustment to paid in capital for the relative fair value of the warrant. For the year ended February 28, 2022, the Company recorded amortization expense of $27,277 with an unamortized discount of $276,853 at February 28, 2022. |
| (40) | This promissory note was issued as part of a debt settlement whereby $9,200 in convertible notes and associated accrued interest of $6,944 totaling $16,144 was exchanged for this promissory note of $25,000. This note is secured by a general security charging all of the Company’s present and after-acquired property. |
| (41) | This promissory note was issued as part of a debt settlement whereby $79,500 in convertible notes and associated accrued interest of $28,925 totaling $108,425 was exchanged for this promissory note of $145,000. This note is secured by a general security charging all of the Company’s present and after-acquired property. |
| (42) | The note may be pre-payable at any time. The note balance includes an original issue discount of $250,000 and was issued with a warrant to purchase shares at an exercise price of $ per share with a -year term and having a relative fair value of $380,174. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $380,174 with a corresponding adjustment to paid in capital. For the year ended February 28, 2022, the Company recorded amortization expense of $58,224 with an unamortized discount of $367,232 at February 28, 2022. |
F-26
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| (43) | The note may be pre-payable at any time. The note balance includes an original issue discount of $150,000 and was issued with a warrant to purchase shares at an exercise price of $ per share with a -year term and having a relative fair value of $1,342,857. The discount and warrant are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $1,342,857 with a corresponding adjustment to paid in capital for the relative fair value of the warrant. For the year ended February 28, 2022, the Company recorded amortization expense of $80,746 with an unamortized discount of $1,411,832 at February 28, 2022. The maturity date was extended from February 22, 2022 to February 22, 2024 on February 28, 2022 in exchange for warrants to purchase 50,000,000 at an exercise price of $.0164 and a 3 year term. These warrants have a fair value of $950,000 recorded as interest expense with a corresponding adjustment to paid in capital. |
| (44) | The note may be pre-payable at any time. The note balance includes an original issue discount of $50,000 and was issued with a warrant to purchase shares at an exercise price of $ per share with a -year term and having a relative fair value of $2,035,033. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $2,035,033 with a corresponding adjustment to paid in capital. For the year ended February 28, 2022, the Company recorded amortization expense of $1,035,288 with an unamortized discount of $1,249,745 at February 28, 2022. The maturity date was extended from June 8, 2022 to June 8, 2024 on February 28, 2022 in exchange for warrants to purchase 85,000,000 at an exercise price of $.0164 and a 3 year term. These warrants have a fair value of $1,615,000 recorded as interest expense with a corresponding adjustment to paid in capital. |
| (45) | This loan was in exchange for 184 Series F preferred shares from a former director. The interest and principal are payable at maturity. The loan is unsecured. |
| (46) | The note may be pre-payable at any time. The note balance includes an original issue discount of $150,000 and was issued with a warrant to purchase shares at an exercise price of $ per share with a -year term and having a relative fair value of $1,284,783 using Black-Scholes with assumptions described in note 14. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $1,284,783 with a corresponding adjustment to paid in capital. For the year ended February 28, 2022, the Company recorded amortization expense of $32,349 with an unamortized discount of $1,402,433at February 28, 2022. |
12. DERIVATIVE LIABILITIES
As of February 28, 2022, and February 28, 2021 the Company revalued the fair value of all of the Company’s derivative liabilities associated with the conversion features on the convertible notes payable and determined that it had a total derivative liability of $7,587 and $444,466, respectively.
The Company estimated the fair value of the derivative liabilities using the multinomial lattice model using the following key assumptions during the year ended February 28, 2021:
| Strike price | $ - $ |
| Fair value of Company common stock | $ - $ |
| Dividend yield | 0.00% |
| Expected volatility | 125.3% - 107.7% |
| Risk free interest rate | 0.15% - 0.13% |
| Expected term (years) | - |
The Company estimated the fair value of the derivative liabilities using the multinomial lattice model using the following key assumptions during the year ended February 28, 2021:
| Strike price | $ - $ |
| Fair value of Company common stock | $ - $ |
| Dividend yield | 0.00% |
| Expected volatility | 355.10% - 196.50% |
| Risk free interest rate | 0.09% - 0.15% |
| Expected term (years) | - |
F-27
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
During the years ended February 28, 2022, and February 28, 2021 the Company released $422,272 and $2,387,687, 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 year ended February 28, 2022 were as follows:
| Balance as of February 28, 2021 | $ | ||
| Derivative discount on loan amendment | 438,835 | ||
| Adjustment to derivative liability due to debt extinguishment | (81,228 | ) | |
| Release of derivative liability on conversion of convertible notes payable | (422,272 | ) | |
| Change in fair value of derivative liabilities | (372,214 | ) | |
| Balance as of February 28, 2022 | $ |
The changes in the derivative liabilities (Level 3 financial instruments) measured at fair value on a recurring basis for the year ended February 28, 2021 were as follows:
| Balance as of February 29, 2020 | $ | ||
| Release of derivative liability on conversion of convertible notes payable | (2,837,687 | ) | |
| Debt discount due to derivative liabilities | 143,133 | ||
| Adjustment to derivative liability due to debt settlement | (2,987,643 | ) | |
| Change in fair value of derivative liabilities | (764,025 | ) | |
| Balance as of February 28, 2021 | $ |
13. STOCKHOLDERS’ DEFICIT
Preferred Stock: The Company is authorized to issue up to shares of $ par value preferred stock. The board of directors is authorized to designate any series of preferred stock up to the total authorized number of shares.
Series E Preferred Stock
The board of directors has designated shares of Series E Preferred Stock. As of the date of this report, there are shares of Series E Preferred Stock outstanding. The Series E Preferred Stock ranks subordinate to the Company’s common stock as to distributions of assets upon liquidation, dissolution or winding up of the Corporation. The Series E preferred stock is non-redeemable, does not have rights upon liquidation of the Company and does not receive dividends. The outstanding shares of Series E Preferred Stock have the right to take action by written consent or vote based on the number of votes equal to twice the number of votes of all outstanding shares of equity instruments with voting rights. As a result, the holder of Series E Preferred Stock has 2/3rds of the voting power of all shareholders at any time corporate action requires a vote of shareholders.
Series F Convertible Preferred Stock
The board of directors has designated shares of Series F Convertible Preferred Stock with a par value of $ per share. As of the date of this report, there are shares of Series F Convertible Preferred Stock outstanding. The Series F Convertible Preferred Stock is non-redeemable, does not have rights upon liquidation of the Company, does not have voting rights and does not receive dividends. Each holder may, at any time and from time to time convert all, but not less than all, of their shares of Series F Convertible Preferred Stock 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. So long as any shares of Series F Convertible Preferred Stock are outstanding, the Company shall not, without first obtaining the approval of the majority of the holders: (a) alter or change the rights, preferences or privileges of any capital stock of the Company so as to affect adversely the Series F convertible preferred stock; (b) create any Senior Securities; (c) create any pari passu Securities; (d) do any act or thing not authorized or contemplated by the Certificate of Designation which would result in any taxation with respect to the Series F Convertible Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended, or any comparable provision of the Internal Revenue Code as hereafter from time to time amended, (or otherwise suffer to exist any such taxation as a result thereof).
F-28
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Summary of Preferred Stock Activity
Series G Preferred Stock
The board of directors has designated shares of Series G Preferred Stock. As of the date of this report, there are no shares of Series G Preferred Stock outstanding. The series G shares are redeemable at $1,000 per share The Series G preferred stock does not have voting rights, does not have rights upon liquidation of the Company and does not receive dividends.
Series E Preferred Stock
During the year ended February 28, 2022 Series E shareholders had the following activity:
| — | A shareholder cancelled Class E shares. The company recorded an adjustment to paid in capital. |
Series F Preferred Stock
During the year ended February 28, 2022 Series F shareholders had the following activity:
| — | Series F Preferred Shares and a warrant to purchase Series F Preferred Shares with a five-year term and an exercise price of $1.00 were issued to an investor in exchange for amending their deferred variable payment obligation agreement. The company attributed a fair value based on recent transactions for the Series F Preferred stock and warrants of $33,015,214 and recorded a loss on settlement of debt with a corresponding adjustment to paid in capital. | |
| — | The warrant holder exercised the warrant in part to acquire Series F Preferred Shares. | |
| — | The shareholder above converted Series F Preferred Shares into 316,345,908 common shares. | |
| — | Two Series F Preferred shareholders exchanged 83 Series F Preferred Shares for two promissory notes on March 23, 2021. The notes are non-interest bearing, have a one-year maturity and total $7,546,775. These notes were subsequently exchanged on June 2, 2021 for a total of 116,104.232 common shares. | |
| — | On July 12, 2021, the former director agreed to surrender his remaining 184 Series F preferred shares in exchange for a note payable from the Company of $4,000,160 bearing interest at 7% per annum with a 5 year term, maturing July 12, 2026. | |
| — | On August 24, 2021the Series F preferred warrant holder agreed to not exercise his warrant privileges on his remaining 329 warrant shares before September 1, 2023. |
Summary of Preferred Stock Warrant Activity
| Number of Series F Preferred Warrants | Weighted Average Exercise Price | Weighted Average Remaining Years | ||||
| Outstanding at March 1, 2021 | — | — | ||||
| Issued | 367 | $1.00 | ||||
| Exercised | (38 | ) | $1.00 | |||
| Forfeited and cancelled | — | — | — | |||
| Outstanding at February 28 2022 | 329 | $1.00 |
F-29
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
On July 22, 2020 the board of directors passed a resolution whereby the sole director agreed to return for cancellation, of his Series F preferred shares to the Company.
On December 1, 2020 the company issued Series F shares having a fair value of $to a consultant for services previously rendered which was recorded as professional fees with a corresponding adjustment to accrued liabilities.
Unissued Series F Preferred Stock
During the year ending February 28, 2022 the Company redeemed (through cancellation) 19 shares of issuable Series F preferred stock having a value of $ 74,984 for $500,000, with the difference of $425,016 recorded as a dividend. At November 30, 2021 there remains 46 issuable Series F preferred stock at a value of $99,086. At February 28, 2021 there was 65 issuable Series F preferred stock at a value of $174,070.
During the year ended February 28, 2021 the Company had the following 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. | |
| — | On December 14, 2020, as part of a debt settlement described in Note 8 , the company issued 55 Series F preferred shares to a lender at a fair value of $1,151,166. |
Series G Preferred Stock
During the year ending February 28, 2022 Series G shareholders had the following activity:
| — | On achievement of objectives 3,4,5 and 8 of the equity awards described below the CEO was granted 1500 Series G Preferred shares which were redeemed immediately for $1,500,000 | |
| — | The Company has accrued $1,979,500 of the equity awards and incentive compensation plan payable with the balance of $479,500 at February 28, 2022 after the $1,500,000 payment above. |
Summary of Common Stock Activity
During the year ending February 28, 2022 common shareholders had the following activity:
| — | A Series F Preferred shareholder converted 78 Series F Preferred Shares for 316,345,998 common shares. | |
| — | holders of certain convertible notes payable elected to convert a total of $825,000 of principal and $71,955 accrued interest, and $1,750 of fees into 31,042,436 shares of common stock. | |
| — | in June 2021, lenders exchanged debt having a face value of $7,546,775 and a net book value of $6,894,099 for 116,104,232 common shares having a fair value of $6,455,396. A gain on settlement of debt of $438,703 was recorded. | |
| — | the Company entered into an investor relations contract whereby 2,100,000 shares are issuable as of February 28, 2022. Stock based compensation of $109,200 was recorded in the period ended February 28, 2022. | |
| — | the Company issued 645,168,473 common shares with gross proceeds of $13,108,624 and cash proceeds of $12,521,932 after issuance costs of $586,692 | |
| — | warrant holders exercised warrants to acquire 411,000,000 shares on a cashless basis for 395,022,447 common shares with a corresponding adjustment to paid in capital. |
F-30
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On March 27, 2020 , the Company undertook a 10,000:1 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 13). Certain instruments issued prior to the reverse split that exercise into shares of our common stock are now shown in fractional units due to the effect of the reverse split. If exercised, the Company is required to issue whole shares under its articles of incorporation.
During the year ended February 28, 2021 the Company had the following common stock activity:
| — | The Company issued 2,329,798,068 shares of its common stock for the conversion of debt and related interest and fees totaling $3,568,686 including $2,420,559 of principal and $1,148,127 of interest, and additionally $20,500 in fees in connection with debt converted during the period, as well as the release of the related derivative liability. | |
| — | In connection with a note issuance in January 2021, the Company issued shares of common stock |
Summary of Warrant Activity
| Number of Warrants |
Weighted Average Exercise Price |
Weighted Average Remaining Years | ||||
| Outstanding at February 29, 2020 | 142,859,043 | $0.003 | ||||
| Issued | 1,424,521,449 | 0.002 | ||||
| Exercised | (947,857,000) | 0.002 | ||||
| Forfeited and cancelled | — | — | — | |||
| Outstanding at February 28, 2021 | 619,523,492 | $0.03 | ||||
| Issued | 1,008,324,212 | 0.06 | ||||
| Exercised | (411,000,000) | 0.06 | ||||
| Forfeited and cancelled | (2,043) | — | — | |||
| Outstanding at February 28, 2022 | 1,216,845,661 | $0.06 |
For the years ended February 28, 2022 and February 28, 2021, the Company recorded a total of $ and $, respectively on stock-based payments for warrants with a corresponding adjustment to additional paid-in capital.
For both the years ended February 28, 2022 and February 28, 2021 the Company recorded a total of $ and $ respectively, to stock-based compensation for options, and shares with a corresponding adjustment to additional paid-in capital.
During the year ended February 28, 2022 warrant holders had the following activity:
| — | warrant holders exercised warrants to acquire shares on a cashless basis for common shares with a corresponding adjustment to paid in capital. | |
| — | in conjunction with debt disclosed in Note 11 (44), the Company issued warrants to a lender to purchase 170,000,000 shares at an exercise price of $0.064 per share with a 3-year term and having a relative fair value of $2,035,033, in conjunction with debt disclosed in Note 11 (10), the Company issued warrants to a lender to purchase 300,000,000 shares at an exercise price of $0.135 per share with a 3-year term and having a relative fair value of $4,749,005,andin conjunction with debt disclosed in Note 11 (46), the Company issued warrants to a lender to purchase 250,000,000 shares at an exercise price of $0.037 per share with a 3-year term and having a relative fair value of $1,284,783 all using the Black-Scholes model with assumptions described below: |
| Strike price | $ - $ |
| Fair value of Company’s common stock | $ - $ |
| Dividend yield | 0.00% |
| Expected volatility | 411.0% - 403.33% |
| Risk free interest rate | 0.43% - 0.27% |
| Expected term (years) |
F-31
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| — | in conjunction with debt extensions on notes payable disclosed in Note 12 (10, 43, 44), the Company issued warrants to a lender to purchase a total shares at an exercise price of $0.164 per share with a 3-year term and having an aggregate fair value of $5,415,000, recorded as interest with a corresponding adjustment to paid in capital all using the Black-Scholes model with assumptions described below: |
| Strike price | $ |
| Fair value of Company’s common stock | $ |
| Dividend yield | 0.00% |
| Expected volatility | 385.60% |
| Risk free interest rate | 1.62% |
| Expected term (years) | 3.00 |
| — | As share issuance costs to a broker the company issued warrants to acquire a total of shares with a fair value of $21,929 recorded against share proceeds with a corresponding adjustment to paid in capital all using the Black-Scholes model with assumptions described below: |
| Strike price | $-$ |
| Fair value of Company’s common stock | $-$ |
| Dividend yield | 0.00% |
| Expected volatility | 35.30-35.90% |
| Risk free interest rate | 0.46-0.95% |
| Expected term (years) | 3.00 |
Summary of CEO Compensation Grant
On April 9, 2021 the Company entered into an Employment Agreement with Chief Executive Officer, Steven Reinharz with a three- year term under the following terms whereby stock option awards will be granted if certain conditions are met:
| — | A stock option award (option 1) will be granted to the employee to purchase 10,000,000 shares at an exercise price of $ $0.15 per share if the trading share price of the Company reaches an average of $0.30 per share for ten days over a 30 day trading period. | |
| — | A stock option award (option 2) will be granted to the employee to purchase 30,000,000 shares at an exercise price of $ $0.25 per share if the trading share price of the Company reaches an average of $0.50 per share for ten days over a 30 day trading period. |
| Objective #3: | Sales in any fiscal quarter exceed the total sales in fiscal year 2021 for the first time. |
| Award #3: | Five hundred (500) shares of Series G preferred stock. |
| Objective #4: | One hundred fifty (150) devices are deployed in the marketplace. |
| Award #4: | Two hundred fifty (250) shares of Series G preferred stock. |
| Objective #5: | Year-to-date sales at any point in fiscal year 2022 exceed One Million Dollars ($1,000,000). |
| Award #5: | Two hundred fifty (250) shares of Series G preferred stock. |
| Objective #6: | The price per share of common stock has increased to and maintains a price of Ten Cents ($0.10) or more for ten (10) days in a thirty (30) day period. |
| Award #6: | Two hundred fifty (250) shares of Series G preferred stock. |
| Objective #7: | The price per share of common stock has increased to and maintains a price of Twenty Cents ($0.20) or more for ten (10) days in a thirty (30) day period. |
| Award #7: | Five hundred (500) shares of Series G preferred stock. |
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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| Objective #8: | The RAD 3.0 products are launched into the marketplace by November 30, 2021. |
| Award #8: | Five hundred (500) shares of Series G preferred stock. |
| Objective #9: | RAD receives an order for fifty (50) units from a single customer. |
| Award #9: | Five hundred (500) shares of Series G preferred stock. |
The fair value of the first two awards was obtained through the use of the Monte Carlo method was $69,350 with a charge to stock- based compensation and a corresponding charge to paid in capital. The fair value of the remaining rewards was determined by calculating the vesting amounts of each reward and then determining for each reporting period the requisite service rendered and applying that against the cash redemption value of the number of shares of Series G issuable for each tier in the agreement. For the period ended January 31 2022 that amount totaled $1,979,500 with a charge to stock-based compensation and a corresponding charge to incentive compensation plan payable. With the achievement of objectives 3,4,5 and 8 of the equity awards described above the CEO was granted 1,500 Series G Preferred shares which were redeemed in the reporting period for $1,500,000 in cash. As part of the grant, the Company is responsible for grossing up the award value and has accrued additional compensation for the estimated taxes to be paid by the executive.
On April 14, 2021, the Shareholders of Series E Preferred Stock and the Board of Directors of our Company (“Board”) approved and adopted the 2021 Incentive Stock Plan (the “2021 Plan”).
The purpose of the 2021 Plan is to promote the success of the Company by authorizing incentive awards to retain Directors, executives, selected Employees and Consultants, and reward participants for making major contributions to the success of the Company. The 2021 Plan authorizes the granting of stock options, restricted stock, restricted stock units, stock appreciation rights and stock awards. A total of five million (5,000,000) shares of common stock may be issued under the 2021 Plan. All awards under the 2021 Plan, whether vested or unvested, are subject to the terms of any recoupment, clawback or similar policy of the Company in effect from time to time, as well as any similar provisions of applicable law, which could in certain circumstances require repayment or forfeiture of awards or any shares of stock or other cash or property received with respect to the awards, including any value received from a disposition of the shares acquired upon payment of the awards. The 2021 Plan will be administered by the Board or any Committee authorized by the Board, if applicable, which will have the sole authority to, among other things: construe and interpret the 2021 Plan; make rules and regulations relating to the administration of the 2021 Plan; select participants; and establish the terms and conditions of awards, all in accordance with the terms of the 2021 Plan. The 2021 Plan will remain in effect until April 14, 2031, unless sooner terminated by the Board. Termination will not affect awards then outstanding.
14. COMMITMENTS AND CONTINGENCIES
Litigation
Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.
In March 2021, the Company settled with former landlords for $30,000. The Company had accrued $62,552 at February 28, 2021. A gain on settlement of debt of $32,552 was recorded.
In April 2019 the principals of WeSecure filed a lawsuit against the Company in California Superior Court seeking a total of $199,358 plus attorney’s fees and damages. The total included claims for the non-payment of a balance from the sale of WeSecure assets to the Company, unpaid consulting fees payable to the two principals of WeSecure, and labor code violations. In June 2019, the parties settled all claims for $180,000, payable in 14 monthly installments, and a full release. The $122,000 balance owing at February 28, 2021 was paid in full on March 17, 2021.
The related legal costs are expensed as incurred.
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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Purchase Commitment
On August 15 ,2021 the Company entered into a memorandum of understanding with Ghost Robotics whereby the Company will modify and resell a Ghost Robotics (“Ghost”) product (“V50”) in development in exchange for the following:
| — | the Company will pay Ghost a non refundable marketing fee of $500,000 with $100,000 payable September 1, 2021 with the remaining $400,000 to be paid in instalments of $40,000 per month over the following 10 months commencing October 1, 2021. | |
| — | the Company will purchase $85,000 of other Ghost products for research and development purposes. This amount will be credited against future purchases of 6 V50’s that the Company will modify and resell. | |
| — | Ghost agrees not to sell its V50 to three specific customers for a three-year period commencing after the first commercial sales of the V50. | |
| — | the Company will re-brand their modified version of the V50 and be responsible for its testing and support. |
Operating Lease
On December 10, 2020, the Company entered into a 15-month lease agreement for office space at 18009 Sky Park Circle Suite E, Irvine CA, 92614, commencing on December 18, 2020 through to March 31, 2022 with a minimum base rent of $3,859 per month. The Company paid a security deposit of $3,859.
On March 10, 2021, the Company entered into a 10-year lease agreement for a manufacturing facility at 10800 Galaxie Avenue, Ferndale, Michigan, 48220, commencing on May 1, 2021 through to April 30, 2031 with a minimum base rent of $15,880 per month. The base rent increase by 3% per annum commencing May 1, 2024. The Company paid a security deposit of $15,880.
On September 30, 2021, the Company entered into a 3-year lease agreement for a vehicle commencing September 30, 2021 through to April 30, 2031 with a minimum base rent of $1,538 per month. The Company paid a down payment of $18,462.
On January 28, 2022, the Company entered into a 2-year lease agreement for office space at 1516 E Edinger, Santa Ana, California, 92705, commencing on February 1, 2022 through to January 31, 2024 with a minimum base rent of $1,500 per month. The Company paid a security deposit of $1,500.
| Maturity of Lease Liabilities | Operating Leases |
||
| February 28, 2023 | $ | 236,028 | |
| February 28, 2024 | 232,169 | ||
| February 28, 2025 | 219,863 | ||
| February 28, 2026 | 207,558 | ||
| February 28, 2027 | 207,558 | ||
| February 28, 2028 and after | 864,825 | ||
| Total lease payments | 1,968,001 | ||
| Less: Interest | (656,395 | ) | |
| Present value of lease liabilities | $ | 1,311,606 | |
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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The net income (loss) per common share amounts were determined as follows:
| For the Year Ended | |||||||
| February 28, | February 28, | ||||||
| 2022 | 2021 | ||||||
| Numerator: | |||||||
| Net income (loss) available to common shareholders | $ | (62,197,484 | ) | $ | (5,898,911 | ) | |
| Effect of common stock equivalents | |||||||
| Add: interest expense on convertible debt | 24,954 | 1,647,935 | |||||
| Add: penalty interest on convertible debt | 939,705 | ||||||
| Add (less) loss (gain) on change of derivative liabilities | (372,214 | ) | (764,025 | ) | |||
| Net income (loss) adjusted for common stock equivalents | (62,544,744 | ) | (4,075,296 | ) | |||
| Denominator: | |||||||
| Weighted average shares - basic | 4,029,658,082 | 1,015,115,270 | |||||
| Net income (loss) per share – basic | $ | (0.02 | ) | $ | (0.01 | ) | |
| Denominator: | |||||||
| Weighted average shares – diluted | 4,029,658,082 | 1,015,115,270 | |||||
| Net income (loss) per share – diluted | $ | (0.02 | ) | $ | (0.01 | ) | |
| For the Year Ended | |||||||
| February 28, | February 28, | ||||||
| 2022 | 2021 | ||||||
| Convertible notes and accrued interest | 4,927,561 | 4,842,500 | |||||
| Convertible Class F Preferred Shares | 16,336,475,742 | 11,141,522,749 | |||||
| Stock options and warrants | 1,256,845,661 | 619,523,492 | |||||
| Total | 17,598,248,964 | 11,765,888,741 | |||||
16. INCOME TAXES
The Company has adopted ASC 740-10, “Income Taxes”, which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset). Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
The income tax expense (benefit) consisted of the following for the fiscal years ended February 28, 2022 and February 28, 2021:
| February 28, 2022 | February 28, 2021 | ||||||
| Total current | $ | $ | |||||
| Total deferred | |||||||
| Total | $ | $ | |||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax benefit for the fiscal years ended February 28, 2022 and February 28, 2021:
| February 28, 2022 | ||||
| Federal statutory rate | $ | (13,061,500 | ) | |
| State income tax benefit, net of federal benefit | (2,954,400 | ) | ||
| Non deductible interest | 4,027,800 | |||
| Non deductible settlement losses | 8,515,100 | |||
| Non deductible stock based compensation | 169,400 | |||
| Non deductible changes in fair value of instruments | (95,800) | |||
| Other non deductible expenses | 600 | |||
| Change in valuation allowance | 3,398,800 | |||
| Total | $ | |||
| February 28, 2021 | ||||
| Federal statutory rate | $ | (1,239,000 | ) | |
| Non deductible stock based compensation | 77,000 | |||
| Non deductible (non-includable gains) changes in fair value of instruments | (467,000 | ) | ||
| Warrant values within debt discount | (114,000 | ) | ||
| Change in valuation allowance | 1,743,000 | |||
| Total | $ | |||
For the year ended February 28, 2022 and February 28, 2021, the expected tax benefit, temporary timing differences and long-term timing differences are calculated at the 21% statutory rate.
Significant components of the Company’s deferred tax assets and liabilities were as follows for the fiscal years February 28, 2022 and February 28, 2021:
| February 28, 2022 | February 28, 2021 | ||||||
| Deferred tax assets: | |||||||
| Net operating loss carryforwards | $ | 8,445,915 | $ | 5,047,115 | |||
| Debt discount | 114,000 | 114,000 | |||||
| Total deferred tax assets | 8,559,915 | 5,161,115 | |||||
| Deferred tax liabilities: | |||||||
| Depreciation | |||||||
| Deferred revenue | |||||||
| Total deferred tax liabilities | |||||||
| Net deferred tax assets: | |||||||
| Less valuation allowance | (8,559,915 | ) | (5,161,115 | ) | |||
| Net deferred tax assets (liabilities) | $ | $ | |||||
The Company has incurred losses since inception, therefore, the Company has no federal tax liability. Additionally there are limitations imposed by certain transactions which are deemed to be ownership changes which occurred in the Company on August 28, 2017. The net deferred tax asset generated by the loss carryforward has been fully reserved. The cumulative net operating loss carryforward was approximately $28,200,000 at February 28, 2022 and $14,994,000 at February 28, 2021, that is available for carryforward for federal income tax purposes and begin to expire in 2030.
Although the Company has tax loss carry-forwards, there is uncertainty as to utilization prior to their expiration. Accordingly, the future income tax asset amounts have been fully reserved by a valuation allowance.
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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The Company has maintained a full valuation allowance against its deferred tax assets at February 28, 2022 and February 28, 2021. A valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Since the Company cannot be assured of realizing the net deferred tax asset, a full valuation allowance has been provided.
The Company does not have any uncertain tax positions at February 28, 2022 and February 28, 2021 that would affect its effective tax rate. The Company does not anticipate a significant change in the amount of unrecognized tax benefits over the next twelve months. Because the Company is in a loss carryforward position, the Company is generally subject to US federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available. If and when applicable, the Company will recognize interest and penalties as part of income tax expense.
The Company’s tax returns for the years ended February 28, 2022, and February 28, 2021, and February 29, 2020 are open for examination under Federal statute of limitations.
17. SUBSEQUENT EVENTS
Subsequent to February 28, 2022 through to May 27 2022,
— in May 2022, the Company issued common shares pursuant to a share purchase agreement for gross proceeds of $1,350,650, issuance costs of $95,545 and cash proceeds of $1,255,105.
— in March 2022 the Company repaid debt totaling $1,613,953 and related accrued interest of $349,879 to a lender.
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