0001498148 false 2023 Q1 --02-28 179619 P2Y P3Y 4 years 7 years 5 years 2 years 4 years 3 years P5Y P5Y P5Y P3Y P3Y P3Y P3Y P3Y P3Y P3Y P3Y P3Y P4Y6M P4Y2M30D P2Y4M17D P2Y1M13D 4,798,657,871 3,489,517,478 0001498148 2022-03-01 2022-05-31 0001498148 2022-07-07 0001498148 2022-05-31 0001498148 2022-02-28 0001498148 us-gaap:SeriesEPreferredStockMember 2022-05-31 0001498148 us-gaap:SeriesEPreferredStockMember 2022-02-28 0001498148 us-gaap:SeriesFPreferredStockMember 2022-05-31 0001498148 us-gaap:SeriesFPreferredStockMember 2022-02-28 0001498148 us-gaap:SeriesGPreferredStockMember 2022-05-31 0001498148 us-gaap:SeriesGPreferredStockMember 2022-02-28 0001498148 2021-03-01 2021-05-31 0001498148 us-gaap:SeriesEPreferredStockMember 2021-02-28 0001498148 us-gaap:SeriesFPreferredStockMember 2021-02-28 0001498148 us-gaap:CommonStockMember 2021-02-28 0001498148 us-gaap:AdditionalPaidInCapitalMember 2021-02-28 0001498148 us-gaap:RetainedEarningsMember 2021-02-28 0001498148 2021-02-28 0001498148 us-gaap:CommonStockMember 2022-02-28 0001498148 us-gaap:AdditionalPaidInCapitalMember 2022-02-28 0001498148 us-gaap:RetainedEarningsMember 2022-02-28 0001498148 us-gaap:SeriesEPreferredStockMember 2021-03-01 2021-05-31 0001498148 us-gaap:SeriesFPreferredStockMember 2021-03-01 2021-05-31 0001498148 us-gaap:CommonStockMember 2021-03-01 2021-05-31 0001498148 us-gaap:AdditionalPaidInCapitalMember 2021-03-01 2021-05-31 0001498148 us-gaap:RetainedEarningsMember 2021-03-01 2021-05-31 0001498148 us-gaap:SeriesEPreferredStockMember 2022-03-01 2022-05-31 0001498148 us-gaap:SeriesFPreferredStockMember 2022-03-01 2022-05-31 0001498148 us-gaap:CommonStockMember 2022-03-01 2022-05-31 0001498148 us-gaap:AdditionalPaidInCapitalMember 2022-03-01 2022-05-31 0001498148 us-gaap:RetainedEarningsMember 2022-03-01 2022-05-31 0001498148 us-gaap:SeriesEPreferredStockMember 2021-05-31 0001498148 us-gaap:SeriesFPreferredStockMember 2021-05-31 0001498148 us-gaap:CommonStockMember 2021-05-31 0001498148 us-gaap:AdditionalPaidInCapitalMember 2021-05-31 0001498148 us-gaap:RetainedEarningsMember 2021-05-31 0001498148 2021-05-31 0001498148 us-gaap:CommonStockMember 2022-05-31 0001498148 us-gaap:AdditionalPaidInCapitalMember 2022-05-31 0001498148 us-gaap:RetainedEarningsMember 2022-05-31 0001498148 aitx:RoboticAssistanceDevicesLLCMember 2017-07-25 0001498148 aitx:RoboticAssistanceDevicesLLCMember us-gaap:SeriesEPreferredStockMember 2017-08-27 2017-08-28 0001498148 aitx:RoboticAssistanceDevicesLLCMember us-gaap:SeriesFPreferredStockMember 2017-08-27 2017-08-28 0001498148 us-gaap:ComputerEquipmentMember srt:MinimumMember 2022-03-01 2022-05-31 0001498148 us-gaap:ComputerEquipmentMember srt:MaximumMember 2022-03-01 2022-05-31 0001498148 us-gaap:OfficeEquipmentMember 2022-03-01 2022-05-31 0001498148 us-gaap:ManufacturingFacilityMember 2022-03-01 2022-05-31 0001498148 aitx:WarehouseEquipmentMember 2022-03-01 2022-05-31 0001498148 us-gaap:ToolsDiesAndMoldsMember 2022-03-01 2022-05-31 0001498148 aitx:DemoDevicesMember 2022-03-01 2022-05-31 0001498148 us-gaap:VehiclesMember 2022-03-01 2022-05-31 0001498148 us-gaap:LeaseholdImprovementsMember 2022-03-01 2022-05-31 0001498148 us-gaap:FairValueInputsLevel1Member 2022-05-31 0001498148 us-gaap:FairValueInputsLevel2Member 2022-05-31 0001498148 us-gaap:FairValueInputsLevel3Member 2022-05-31 0001498148 us-gaap:FairValueInputsLevel1Member 2022-02-28 0001498148 us-gaap:FairValueInputsLevel2Member 2022-02-28 0001498148 us-gaap:FairValueInputsLevel3Member 2022-02-28 0001498148 aitx:RoboticAssistanceDevicesLLCMember 2022-03-01 2022-05-31 0001498148 aitx:RoboticAssistanceDevicesLLCMember 2021-03-01 2021-05-31 0001498148 aitx:RoboticAssistanceDevicesLLCMember srt:MinimumMember 2022-03-01 2022-05-31 0001498148 aitx:RoboticAssistanceDevicesLLCMember srt:MaximumMember 2022-03-01 2022-05-31 0001498148 aitx:RoboticAssistanceDevicesLLCMember 2022-05-31 0001498148 us-gaap:AutomobilesMember 2022-05-31 0001498148 us-gaap:AutomobilesMember 2022-02-28 0001498148 us-gaap:ManufacturingFacilityMember 2022-05-31 0001498148 us-gaap:ManufacturingFacilityMember 2022-02-28 0001498148 aitx:DemoDevicesMember 2022-05-31 0001498148 aitx:DemoDevicesMember 2022-02-28 0001498148 us-gaap:ComputerEquipmentMember 2022-05-31 0001498148 us-gaap:ComputerEquipmentMember 2022-02-28 0001498148 us-gaap:OfficeEquipmentMember 2022-05-31 0001498148 us-gaap:OfficeEquipmentMember 2022-02-28 0001498148 aitx:WarehouseEquipmentMember 2022-05-31 0001498148 aitx:WarehouseEquipmentMember 2022-02-28 0001498148 us-gaap:ToolsDiesAndMoldsMember 2022-05-31 0001498148 us-gaap:ToolsDiesAndMoldsMember 2022-02-28 0001498148 us-gaap:LeaseholdImprovementsMember 2022-05-31 0001498148 us-gaap:LeaseholdImprovementsMember 2022-02-28 0001498148 us-gaap:InvestorMember 2019-01-30 2019-02-01 0001498148 us-gaap:InvestorMember 2020-02-27 2020-02-29 0001498148 aitx:InvestorOneMember 2019-05-08 2019-05-09 0001498148 aitx:InvestorOneMember 2020-02-27 2020-02-29 0001498148 aitx:InvestorTwoMember 2019-05-08 2019-05-09 0001498148 aitx:InvestorTwoMember 2020-02-27 2020-02-29 0001498148 us-gaap:InvestorMember 2022-03-01 2022-05-31 0001498148 us-gaap:InvestorMember 2019-11-18 0001498148 aitx:InvestorFoureMember 2019-11-17 2019-11-18 0001498148 us-gaap:InvestorMember 2020-02-29 0001498148 us-gaap:InvestorMember 2019-12-28 2019-12-30 0001498148 aitx:InvestorThreeMember 2019-11-17 2019-11-18 0001498148 us-gaap:InvestorMember 2020-04-21 2020-04-22 0001498148 us-gaap:InvestorMember 2020-06-30 2020-07-02 0001498148 aitx:InvestorFiveMember 2020-06-30 2020-07-02 0001498148 us-gaap:InvestorMember 2020-08-26 2020-08-27 0001498148 aitx:InvestorSixMember 2020-08-27 0001498148 us-gaap:InvestorMember 2021-02-26 2021-08-27 0001498148 2021-03-02 0001498148 us-gaap:InvestorMember srt:MaximumMember 2021-02-27 2021-03-02 0001498148 us-gaap:InvestorMember srt:MinimumMember 2021-02-27 2021-03-02 0001498148 us-gaap:InvestorMember us-gaap:SeriesFPreferredStockMember 2021-02-27 2021-03-02 0001498148 us-gaap:InvestorMember us-gaap:SeriesFPreferredStockMember 2021-03-01 2021-05-31 0001498148 aitx:InvestorEightMember 2022-05-31 0001498148 aitx:InvestorEightMember 2022-02-28 0001498148 aitx:InvestorEightMember 2022-03-01 2022-05-31 0001498148 aitx:InvestorEightMember 2021-03-01 2022-02-28 0001498148 2022-05-28 0001498148 aitx:ConvertibleNotesPayable12MembeMember 2016-02-01 2016-07-18 0001498148 aitx:ConvertibleNotesPayable12MembeMember 2022-03-01 2022-05-31 0001498148 aitx:ConvertibleNotesPayable12Member 2021-07-18 0001498148 aitx:ConvertibleNotesPayable12Member 2022-05-31 0001498148 aitx:ConvertibleNotesPayable12Member 2022-02-28 0001498148 2021-03-01 2022-02-28 0001498148 aitx:IncentivesCompensationPlanMember 2022-05-31 0001498148 aitx:RoboticAssistanceDevicesLLCMember us-gaap:SecuredDebtMember 2016-12-31 0001498148 aitx:RoboticAssistanceDevicesLLCMember us-gaap:SecuredDebtMember 2016-12-01 2016-12-31 0001498148 aitx:RoboticAssistanceDevicesLLCMember us-gaap:SecuredDebtMember 2017-11-30 0001498148 aitx:RoboticAssistanceDevicesLLCMember us-gaap:SecuredDebtMember 2017-11-01 2017-11-30 0001498148 aitx:RoboticAssistanceDevicesLLCMember us-gaap:SecuredDebtMember 2022-03-01 2022-05-31 0001498148 aitx:RoboticAssistanceDevicesLLCMember us-gaap:SecuredDebtMember 2020-02-29 0001498148 aitx:RoboticAssistanceDevicesLLCMember us-gaap:SecuredDebtMember 2021-02-28 0001498148 aitx:RoboticAssistanceDevicesLLCMember us-gaap:SecuredDebtMember 2022-02-28 0001498148 aitx:RoboticAssistanceDevicesLLCMember us-gaap:SecuredDebtMember 2022-05-31 0001498148 aitx:PromissoryNotePayable3030Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotesPayable958Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotesPayable968Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotesPayable977Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable303022Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable303Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable304Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable305Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable306Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable307Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable309Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable310Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable311Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable312Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable316Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable318Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable319Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable320Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable321Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable322Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable323Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable323Member 2022-05-31 0001498148 aitx:PromissoryNotePayable400Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable400Member 2022-05-31 0001498148 aitx:PromissoryNotePayable401Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable401Member 2022-05-31 0001498148 aitx:PromissoryNotePayable402Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable402Member 2022-05-31 0001498148 aitx:PromissoryNotePayable404Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable404Member 2022-05-31 0001498148 aitx:PromissoryNotePayable405Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable405Member 2022-05-31 0001498148 aitx:PromissoryNotePayable406Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable406Member 2022-05-31 0001498148 aitx:PromissoryNotePayable407Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable407Member 2022-05-31 0001498148 aitx:PromissoryNotePayable408Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable408Member 2022-05-31 0001498148 aitx:PromissoryNotePayableMember 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayableMember 2022-05-31 0001498148 aitx:PromissoryNotePayable01Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable01Member 2022-05-31 0001498148 aitx:PromissoryNotePayable02Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable02Member 2022-05-31 0001498148 aitx:PromissoryNotePayable03Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable03Member 2022-05-31 0001498148 aitx:PromissoryNotesPayable958Member 2022-05-31 0001498148 aitx:PromissoryNotesPayable7010Member 2018-09-14 2018-09-16 0001498148 aitx:PromissoryNotePayable3030Member 2018-08-09 2018-08-11 0001498148 aitx:PromissoryNotePayable3030Member 2018-08-11 0001498148 aitx:PromissoryNotesPayable968Member 2022-05-31 0001498148 aitx:PromissoryNotesPayable977Member 2022-05-31 0001498148 aitx:PromissoryNotePayable303022Member 2022-05-31 0001498148 aitx:PromissoryNotePayable303Member 2022-05-31 0001498148 aitx:PromissoryNotePayable304Member 2022-05-31 0001498148 aitx:PromissoryNotePayable305Member 2022-05-31 0001498148 aitx:PromissoryNotePayable306Member 2022-05-31 0001498148 aitx:PromissoryNotePayable307Member 2022-05-31 0001498148 aitx:PromissoryNotePayable308Member 2022-05-31 0001498148 aitx:PromissoryNotePayable308Member 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable309Member 2022-05-31 0001498148 aitx:PromissoryNotePayable310Member 2022-05-31 0001498148 aitx:PromissoryNotePayable311Member 2022-05-31 0001498148 aitx:PromissoryNotePayable312Member 2022-05-31 0001498148 aitx:PromissoryNotePayable316Member 2022-05-31 0001498148 aitx:PromissoryNotePayable318Member 2022-05-31 0001498148 aitx:PromissoryNotePayable319Member 2022-05-31 0001498148 aitx:PromissoryNotePayable320Member 2022-05-31 0001498148 aitx:PromissoryNotePayable321Member 2022-05-31 0001498148 aitx:PromissoryNotePayable322Member 2022-05-31 0001498148 aitx:PromissoryNotePayable323Member us-gaap:WarrantMember 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable323Member us-gaap:WarrantMember 2022-05-31 0001498148 aitx:PromissoryNotePayable400Member us-gaap:WarrantMember 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable400Member us-gaap:WarrantMember 2022-05-31 0001498148 aitx:PromissoryNotePayable401Member us-gaap:WarrantMember 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable401Member us-gaap:WarrantMember 2022-05-31 0001498148 aitx:PromissoryNotePayable402Member us-gaap:WarrantMember 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable402Member us-gaap:WarrantMember 2022-05-31 0001498148 aitx:PromissoryNotePayable405Member us-gaap:WarrantMember 2022-03-01 2022-05-31 0001498148 aitx:PromissoryNotePayable406Member us-gaap:WarrantMember 2022-03-01 2022-05-31 0001498148 aitx:PrincipalBalanceMember 2022-05-31 0001498148 us-gaap:PreferredStockMember us-gaap:WarrantMember 2022-02-28 0001498148 us-gaap:PreferredStockMember us-gaap:WarrantMember 2021-03-01 2022-02-28 0001498148 us-gaap:PreferredStockMember us-gaap:WarrantMember 2021-03-01 2021-10-31 0001498148 us-gaap:PreferredStockMember us-gaap:WarrantMember 2022-03-01 2022-05-31 0001498148 us-gaap:PreferredStockMember us-gaap:WarrantMember 2021-03-01 2021-11-30 0001498148 us-gaap:PreferredStockMember us-gaap:WarrantMember 2022-05-31 0001498148 aitx:EmploymentAgreementMember srt:ChiefExecutiveOfficerMember aitx:StockOptionAwardMember 2021-04-07 2021-04-09 0001498148 aitx:EmploymentAgreementMember srt:ChiefExecutiveOfficerMember aitx:StockOptionAwardMember 2021-04-09 0001498148 aitx:EmploymentAgreementMember srt:ChiefExecutiveOfficerMember aitx:StockOptionAward1Member 2021-04-07 2021-04-09 0001498148 aitx:EmploymentAgreementMember srt:ChiefExecutiveOfficerMember aitx:StockOptionAward1Member 2021-04-09 0001498148 us-gaap:CommonStockMember us-gaap:WarrantMember 2022-02-28 0001498148 us-gaap:CommonStockMember us-gaap:WarrantMember 2022-03-01 2022-05-31 0001498148 us-gaap:CommonStockMember us-gaap:WarrantMember 2022-05-31 0001498148 aitx:GhostRoboticsMember 2021-08-14 2021-08-15 0001498148 aitx:GhostRoboticsMember 2021-08-15 0001498148 2020-12-17 2020-12-18 0001498148 2020-12-18 0001498148 2021-03-09 2021-03-10 0001498148 2021-03-10 0001498148 2021-09-29 2022-09-30 0001498148 2022-01-27 2022-01-28 0001498148 us-gaap:ConvertibleDebtSecuritiesMember 2022-03-01 2022-05-31 0001498148 us-gaap:ConvertibleDebtSecuritiesMember 2021-03-01 2021-05-31 0001498148 aitx:StockOptionsAndWarrantsMember 2022-03-01 2022-05-31 0001498148 aitx:StockOptionsAndWarrantsMember 2021-03-01 2021-05-31 0001498148 us-gaap:SubsequentEventMember aitx:SharePurchaseAgreementMember 2022-06-01 2022-06-30 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2022

 

OR

 

[_]  TRANSITION REPORT UNDER 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 Incorporation or organization)   (I.R.S. Employer Identification Number)
     
10800 Galaxie Avenue
Ferndale, MI
  48220
(Address of principal executive offices)   (Zip code)

 

(877) 787-6268

(Registrant’s telephone number, including area code)

 

not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:  None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No [_]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X]   No [_]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer [_] Accelerated filer [_]
         
  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 Exchange Act). Yes [_]   No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 4,945,967,695 shares of common stock were issued and outstanding as of July 7, 2022.

 


 

  PAGE
PART I FINANCIAL INFORMATION  
     
ITEM 1. Financial Statements 3
     
  Condensed Consolidated Balance Sheets as of May 31, 2022 and February 28, 2022 (Unaudited) 3
     
  Condensed Consolidated Statements of Operations for the Three Months Ended May 31, 2022 and 2021 (Unaudited) 4
     
  Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended May 31, 2022 and 2021 (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 31, 2022 and 2021 (Unaudited) 6
     
  Notes to the Consolidated Financial Statements (Unaudited) 7
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
     
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 30
     
ITEM 4. Controls and Procedures 30
     
PART II OTHER INFORMATION  
     
ITEM 1. Legal Proceedings 31
     
ITEM 1A. Risk Factors 31
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
     
ITEM 3. Defaults Upon Senior Securities 31
     
ITEM 4. Mine Safety Disclosures 31
     
ITEM 5. Other Information 31
     
ITEM 6. Exhibits 32
     
SIGNATURES 32

 

- 2 -


 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

           
    May 31, 2022
(Unaudited)
  February 28, 2022*  
ASSETS              
Current assets:              
Cash   $ 921,629   $ 4,648,146  
Accounts receivable, net     364,720     429,469  
Device parts inventory, net     1,609,248     1,530,657  
Prepaid expenses and deposits     320,169     442,164  
Total current assets     3,215,766     7,050,436  
Operating lease asset     1,296,944     1,331,605  
Revenue earning devices, net of accumulated depreciation of $506,075 and $434,661, respectively     811,750     709,063  
Fixed assets, net of accumulated depreciation of $71,646 and $49,065, respectively     209,101     137,952  
Trademarks     28,723     28,723  
Security deposit     21,239     21,239  
Total assets   $ 5,583,523   $ 9,279,018  
               
LIABILITIES AND STOCKHOLDERS’ DEFICIT              
Current liabilities:              
Accounts payable and accrued expenses   $ 1,070,410   $ 968,853  
Advances payable     1,594     1,594  
Customer deposits         10,000  
Current operating lease liability     250,168     254,027  
Current portion of deferred variable payment obligation     388,227     325,600  
Current portion of convertible notes payable, net of discount of $0 and $0, respectively     3,500     3,500  
Loan payable - related party     196,796     193,556  
Incentive compensation plan payable     641,000     479,500  
Current portion of loans payable, net of discount of $0 and $14,745, respectively         1,004,708  
Vehicle loan - current portion     38,522     38,522  
Current portion of accrued interest payable         1,260,271  
Derivative liability     7,587     7,587  
Total current liabilities     2,597,804     4,547,718  
Non-current operating lease liability     1,031,392     1,057,579  
Loans payable, net of discount of $4,504,793 and $4,905,076, respectively     20,066,853     20,309,069  
Deferred variable payment obligation     2,525,000     2,525,000  
Accrued interest payable     3,365,296     1,816,009  
Total liabilities     29,586,345     30,255,375  
               
Commitments and Contingencies              
Stockholders’ deficit:              
Preferred Stock, undesignated; 15,545,650 shares authorized; no shares issued and outstanding at May 31, 2022 and February 28, 2022, respectively          
Series E Preferred Stock, $0.001 par value; 4,350,000 shares authorized; 3,350,000 and 3,350,000 shares issued and outstanding, respectively     3,350     3,350  
Series F Convertible Preferred Stock, $1.00 par value; 4,350 shares authorized; 2,532 and 2,532 shares issued and outstanding, respectively     2,532     2,532  
Series G Preferred Stock, $0.001 par value; 4,350,000 shares authorized, no shares issued and outstanding at May 31, 2022 and February 28, 2022, respectively          
Common Stock, $0.00001 par value; 5,000,000,000 shares authorized 4,869,091,936 and 4,735,210,360 shares issued and outstanding, respectively     48,692     47,353  
Additional paid-in capital     74,659,458     73,015,576  
Preferred stock to be issued     99,086     99,086  
Accumulated deficit     (98,815,940)   (94,144,254 )
Total stockholders’ deficit     (24,002,822 )   (20,976,357 )
Total liabilities and stockholders’ deficit   $ 5,583,523   $ 9,279,018  

* Derived from audited information

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

- 3 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

           
    Three Months Ended
May 31, 2022
  Three Months Ended
May 31, 2021
 
               
Revenues   $ 385,157   $ 560,334  
               
Cost of Goods Sold     293,724     110,926  
               
Gross Profit     91,433     449,408  
               
Operating expenses:              
Research and development (including related party charges of  $1,001,734 (2021-$478,951))     1,023,735     634,645  
General and administrative     2,400,392     1,899,792  
Depreciation and amortization     93,995     37,643  
Operating lease cost and rent     69,967     28,874  
Total operating expenses     3,588,089     2,600,954  
               
Loss from operations     (3,496,656 )   (2,151,546 )
               
Other income (expense), net:              
Change in fair value of derivative liabilities         179,439  
Interest expense     (1,175,030 )   (948,450 )
(Loss) on settlement of debt         (32,984,361 )
Total other income (expense), net     (1,175,030 )   (33,753,372 )
               
Net income (loss)   $ (4,671,686 ) $ (35,904,918 )
               
Net income (loss) per share - basic   $ (0.00 ) $ (0.01 )
               
Net income (loss) per share - diluted   $ (0.00 ) $ (0.01 )
               
Weighted average common share outstanding - basic     4,798,657,871     3,489,517,478  
               
Weighted average common share outstanding - diluted     4,798,657,871     3,489,517,478  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

- 4 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S DEFICIT

(Unaudited)

 

                                                   
    Series E   Series F       Additional       Total  
    Preferred Stock   Preferred Stock   Common Stock   Paid-In   Accumulated   Stockholders’  
    Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   Deficit  
Balance at February 28, 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 )
Series F preferred shares and warrants issued with deferred variable payment obligation amendment agreement         40     40           33,015,174         33,015,214  
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 )        
Warrants issued as part of a debt issuance                       4,749,006         4,749,006  
Stock based compensation                       69,350         69,350  
Net income                           (35,904,918 )   (35,904,918 )
Balance at May 31, 2021   4,350,000   $ 4,350   2,716   $ 176,786   3,545,772,882   $ 35,458   $ 47,862,208   $ (67,426,672 ) $ (19,347,870 )
                                                   
                                                   
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 )
Issuance of shares, net of $117,157 issuance costs               133,881,576     1,339     1,643,883         1,645,222  
Rounding                       (1 )       (1 )
Net income                           (4,671,686 )   (4,671,686 )
Balance at May 31, 2022   3,350,000   $ 3,350   2,532   $ 101,618   4,869,091,936   $ 48,692   $ 74,659,458   $ (98,815,940 ) $ (24,002,822 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

- 5 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

           
    Three Months Ended
May 31, 2022
  Three Months Ended
May 31, 2021
 
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net income (loss)   $ (4,671,686 ) $ (35,904,918 )
Adjustments to reconcile net loss to net cash used in operating activities:              
Depreciation and amortization     93,995     37,643  
Revenue earning device sold and expensed in cost of sales         3,411  
Bad debts expense     105,000      
Inventory provision     25,000      
Reduction of right of use asset     30,046     15,822  
Accretion of lease liability     36,355     13,052  
Stock based compensation     161,500     69,350  
Change in fair value of derivative liabilities         (179,439 )
Amortization of debt discounts     415,029     317,269  
(Gain) loss on settlement of debt         32,984,361  
Increase in related party accrued payroll and interest     3,240     80,760  
Changes in operating assets and liabilities:              
Accounts receivable     (40,251 )   (466,887 )
Prepaid expenses and deposits on inventory     126,610     (80,000 )
Device parts inventory     (283,209 )   (253,762 )
Accounts payable and accrued expenses     101,557     (225,006 )
Customer deposits     (10,000 )    
Accrued expense, related party         20,998  
Operating lease liability payments     (66,401 )   (28,874 )
Balance owed WeSecure         (122,000 )
Current portion of deferred variable payment obligations for payments     62,627     131,428  
Accrued interest payable     289,016     546,016  
Net cash used in operating activities     (3,621,572 )   (3,040,776 )
               
CASH FLOWS FROM INVESTING ACTIVITIES:              
Purchase of fixed assets     (88,214 )   (15,362 )
Cash paid for security deposit         (15,880 )
Net cash used in investing activities     (88,214 )   (31,242 )
               
CASH FLOWS FROM FINANCING ACTIVITIES:              
Share proceeds net of issuance costs     1,645,222      
Proceeds from loans payable         5,426,146  
Repayment of loans payable     (1,661,953 )   (264,189 )
Repayment of convertible debt         (65,000 )
Net borrowings(repayments) on loan payable - related party         (121,147 )
Net cash provided by financing activities     (16,731 )   4,975,810  
               
Net change in cash     (3,726,517 )   1,903,792  
               
Cash, beginning of period     4,648,146     1,044,418  
               
Cash, end of period   $ 921,629   $ 2,948,210  
               
Supplemental disclosure of cash and non-cash transactions:              
Cash paid for interest   $ 342,138   $ 114,710  
Cash paid for income taxes   $   $  
               
Noncash investing and financing activities:              
Right of use asset for operating lease liability   $   $ 1,275,970  
Transfer from device parts inventory to fixed assets   $ 179,,619   $ 70,162  
Exchange of notes payable for Series F preferred shares   $   $ 6,732,835  
Discount applied to face value of loans   $   $ 6,162,945  
Warrants issued as part of debt issuance   $   $ 4,749,006  
Series F preferred shares converted to common shares   $   $ 3,086  
Series F preferred shares issued on exercise of warrants   $   $ 38  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

- 6 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. GENERAL INFORMATION

 

Artificial Intelligence Technology Solutions Inc. (“AITX” or the “Company”) was incorporated in Florida on March 25, 2010 and reincorporated in Nevada on February 17, 2015. On August 24, 2018, Artificial Intelligence Technology Solutions Inc., changed its name from On the Move Systems Corp (“OMVS”).

 

Robotic Assistance Devices, LLC (“RAD”), was incorporated in the State of Nevada on July 26, 2016 as an LLC. On July 25, 2017, Robotic Assistance Devices LLC converted to a C Corporation, Robotic Assistance Devices, Inc., through the issuance of 10,000 common shares to its sole shareholder.

 

On August 28, 2017, AITX completed the acquisition of RAD (the “Acquisition”), whereby AITX acquired all the ownership and equity interest in RAD for 3,350,000 shares of AITX Series E Preferred Stock and 2,450 shares of Series F Convertible Preferred Stock. AITX’s prior business focus was transportation services, and AITX was exploring the on-demand logistics market by developing a network of logistics partnerships. As a result of the closing of the Acquisition, AITX has succeeded to the business of RAD. As a result, AITX’s business going forward will consist of one segment activity which is the delivery of artificial intelligence and robotic solutions for operational, security and monitoring needs.

 

The Acquisition was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of AITX’s operations were disposed of as part of the consummation of the transaction. Therefore, no goodwill or other intangible assets were recorded by AITX as a result of the Acquisition. RAD is treated as the accounting acquirer as its stockholders control the Company after the Acquisition, even though AITX was the legal acquirer.  As a result, the assets and liabilities and the historical operations that are reflected in these financial statements are those of RAD as if RAD had always been the reporting company.

 

2. GOING CONCERN

 

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

For the three months ended May 31, 2022, the Company had negative cash flow from operating activities of $3,621,572. As of May 31, 2022, the Company has an accumulated deficit of $98,815,940, and working capital of $617,962. Management does not anticipate having positive cash flow from operations in the near future. These factors raise a substantial doubt about the Company’s ability to continue as a going concern for the twelve months following the issuance of these financial statements.

 

The Company does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.

 

Management has plans to address the Company’s financial situation as follows:

 

In the near term, management plans to raise an additional $ 15 million to $ 50 million before the end of the fiscal year. Management is committed to raise either non-dilutive funds or minimally dilutive funds. There is no assurance that these funds will be able to be raised nor can we provide assurance that these possible raises may not have dilutive effects.

 

The company began raising money through it’s S-3 this year and made improvements in paying off debt, investing in inventory and at May 31, 2022 had $921,629 of cash on hand. Management is committed to raise either non-dilutive funds or minimally dilutive funds. There is no assurance that these funds will be able to be raised nor can we provide assurance that these possible raises may not have dilutive effects. The Company this fiscal period through to June 30, 2022 has raised an additional $2.5 million net of issuance costs through the sale of its common shares and paid approximately $1.6 million in current debt.

 

- 7 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3. ACCOUNTING POLICIES

 

Basis of Presentation and Consolidation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in conformity with the condensing instructions on Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto in the Company’s latest Annual Report filed with the SEC on Form 10-K as filed on May 27, 2022. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Robotic Assistance Devices, Inc., Robotic Assistance Devices Group , Inc, Robotic Assistance Devices Mobile, Inc., On the Move Experience, LLC and On the OMV Transports, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three months ended May 31, 2022 are not necessarily indicative of the results that may be expected for the entire year.

 

Use of Estimates

 

In order to prepare financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgements and assumptions that affect the amounts reported in the financial statements and determine whether contingent assets and liabilities, if any, are disclosed in the financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based. The most significant estimates included in these consolidated financial statements are those associated with the assumptions used to value preferred stock and derivative liabilities.

 

Cash

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market instruments. The Company places its cash and cash equivalents with high-quality, U.S. financial institutions and, to date has not experienced losses on any of its balances.

 

Accounts Receivable

 

Accounts receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances. There was an allowance of $138,890 and $33,890 provided as of May 31, 2022 and February 28, 2022, respectively.

 

Device Parts Inventory

 

Device parts inventory is stated at the lower of cost or net realizable value using the weighted average cost method. The Company records a valuation reserve for obsolete and slow-moving inventory, relying principally on specific identification of such inventory. The Company uses these device parts in the assembly of revenue earning devices (and demo devices) as well as research and development. Depending on use, the Company will transfer the parts to the corresponding asset or expense if used in research and development.  A charge to income is taken when factors that would result in a need for an increase in the valuation, such as excess or obsolete inventory, are noted. As of both May 31, 2022 and February 28, 2021 there was a valuation reserve of $90,000 and $65,000, 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 48 months. The Company continually evaluates revenue earning devices to determine whether events or changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the devices should be evaluated for possible impairment. The Company uses a combination of the undiscounted cash flows and market approaches in assessing whether an asset has been impaired. The Company measures impairment losses based upon the amount by which the carrying amount of the asset exceeds the fair value.

 

- 8 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Fixed Assets

 

Fixed assets are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from three to five years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently.

 

Computer equipment and software   2 or 3 years
Office equipment   4 years
Manufacturing equipment   7 years
Warehouse equipment   5 years
Tooling   2 years
Demo Devices   4 years
Vehicles   3 years
Leasehold improvements   5 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 May 31, 2022 and February 28, 2022, the Company had no deferred development costs.

 

Contingencies

 

Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions.

 

Sales of Future Revenues

 

The Company has entered into transactions, as more fully described in footnote 8, in which it has received funding from investors in exchange for which it will make payments to those investors based on the level of sales of certain revenue categories, generally based on a percentage of sales for those certain revenues. The Company determines whether these agreements constitute sales of future revenues or are in substance debt based on the facts and circumstances of each agreement, with the following primary criteria determinative of whether the agreement constitutes a sale of future revenues or debt:

 

  Does the agreement purport, in substance, to be a sale
  Does the Company have continuing involvement in the generation of cash flows due the investor
  Is the transaction cancellable by either party through payment of a lump sum or other transfer of assets
  Is the investors rate of return is implicitly limited by the terms of the agreement
  Does the Company’s revenue for a reporting period underlying the agreement have only a minimal impact on the investor’s rate of return
  Does the investor have recourse relating to payments due

 

In the event a transaction is determined to be a sale of future revenues, it is recorded as deferred revenue and amortized using the sum-of-the-revenue method. In the event a transaction is determined to be debt, it is recorded as debt and amortized using the effective interest method. As of the date of these financial statements, the Company has determined that all such agreements are debt.

 

- 9 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Revenue Recognition

 

ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, supersedes the revenue recognition requirements and industry specific guidance under Revenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Topic 606 defines a five-step process that must be evaluated and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing accounting principles generally accepted in the United States of America (“U.S. GAAP”) including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The Company adopted Topic 606 on March 1, 2018, using the modified retrospective method. Under the modified retrospective method, prior period financial positions and results will not be adjusted. There was no cumulative effect adjustment recognized as a result of this adoption. Refer to Note 4 – Revenue from Contracts with Customers for additional information. For the three months ended May 31, 2022 , two customers accounted for 29% of total revenue (2021- 88%).

 

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized when items of income and expense are recognized in the financial statements in different periods than when recognized in the tax return. Deferred tax assets arise when expenses are recognized in the financial statements before the tax returns or when income items are recognized in the tax return prior to the financial statements. Deferred tax assets also arise when operating losses or tax credits are available to offset tax payments due in future years. Deferred tax liabilities arise when income items are recognized in the financial statements before the tax returns or when expenses are recognized in the tax return prior to the financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. ASC 740, Accounting for Income Taxes requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company’s gross deferred tax assets were revalued based on the reduction in the federal statutory tax rate from 35% to 21%. A corresponding offset has been made to the valuation allowance, and any potential other taxes arising due to the Tax Act will result in reductions to the Company’s net operating loss carryforward and valuation allowance. The Company will continue to analyze the Tax Act to assess its full effects on the Company’s financial results, including disclosures, for the Company’s fiscal year ending February 28, 2023, but the Company does not expect the Tax Act to have a material impact on the Company’s consolidated financial statements

 

Leases

 

Lease agreements are evaluated to determine if they are sales/finance leases meeting any of the following criteria at inception: (a) transfer of ownership of the underlying asset; (b) purchase option that is reasonably certain of being exercised; (c) the lease term is greater than a major part of the remaining estimated economic life of the underlying asset; or (d) if the present value of the sum of lease payments and any residual value guaranteed by the lessee that has not already been included in lease payments in accordance with ASC 842-10-30-5(f) equals or exceeds substantially all of the fair value of the underlying asset.

 

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.

 

- 10 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 preferred 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.

 

- 11 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Measured on a Recurring Basis

 

The following table presents information about our liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fell:

 

        Fair Value Measurement Using  
    Amount at
Fair Value
  Level 1   Level 2   Level 3  
May 31, 2022                          
Liabilities                          
Incentive compensation plan payable- revaluation of equity awards payable in Series G shares   $ 641,000   $   $   $ 641,000  
Derivative liability – conversion features pursuant to convertible notes payable   $ 7,587   $   $   $ 7,587  
                           
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  

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses and advances, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments.

 

Earnings (Loss) per Share

 

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS give effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used to determine the number of shares assumed to be purchased from the exercise of stock options and/or warrants. Diluted EPS excluded all dilutive potential shares if their effect is anti-dilutive.

 

Basic loss per common share is computed based on the weighted average number of shares outstanding during the period. Diluted loss per share is computed in a manner similar to the basic loss per share, except the weighted-average number of shares outstanding is increased to include all common shares, including those with the potential to be issued by virtue of convertible debt and other such convertible instruments. Diluted loss per share contemplates a complete conversion to common shares of all convertible instruments only if they are dilutive in nature with regards to earnings per share.

 

Recently 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.

 

- 12 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

In January 2020, the FASB issued new guidance intended to clarify certain interactions between accounting standards related to equity securities, equity method investments and certain derivatives. The guidance addresses accounting for the transition into and out of the equity method of accounting and measuring certain purchased options and forward contracts to acquire investments. The Company adopted the new guidance effective February 1, 2021. There was no impact to the Company’s consolidated financial statements upon adoption.

 

In August 2020, the FASB issued amended guidance on the accounting for convertible instruments and contracts in an entity’s own equity. The guidance removes the separation model for convertible debt instruments and preferred stock, amends requirements for conversion options to be classified in equity as well as amends diluted earnings per share (EPS) calculations for certain convertible debt instruments. The amended guidance is effective for interim and annual periods in 2022. The application of the amendments in the new guidance are to be applied either on a modified retrospective or a retrospective basis. We are currently assessing the effect that the adoption of this standard will have on the Company’s consolidated financial statements upon adoption.

 

Recently Issued Accounting Standards Not Yet Adopted

 

In March 2020, the FASB issued optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting and subsequently issued clarifying amendments. The guidance provides optional expedients and exceptions for accounting for contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued because of reference rate reform. The optional guidance is effective upon issuance and can be applied on a prospective basis at any time between January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact of adoption on its consolidated financial statements.

 

In October 2021, the FASB issued amended guidance that requires acquiring entities to recognize and measure contract assets and liabilities in a business combination in accordance with existing revenue recognition guidance. The amended guidance is effective for interim and annual periods in 2023 and is to be applied prospectively. Early adoption is permitted on a retrospective basis to the beginning of the fiscal year of adoption. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements for prior acquisitions; however, the impact in future periods will be dependent upon the contract assets and contract liabilities acquired in future business combinations.

 

In November 2021, the FASB issued new guidance to increase the transparency of transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The guidance requires annual disclosures of such transactions to include the nature of the transactions and the significant terms and conditions, the accounting treatment and the impact to the company’s financial statements. The guidance is effective for annual periods beginning in 2022 and is to be applied on either a prospective or retrospective basis. The Company is currently evaluating the impact of adoption on its consolidated financial statements.

 

 

4. REVENUE FROM CONTRACTS WITH CUSTOMERS

 

Revenue is earned primarily from two sources: 1) direct sales of goods or services and 2) short-term rentals. Direct sales of goods or services are accounted for under Topic 606, and short-term rentals are accounted for under Topic 842 (which addresses lease accounting and was adopted on March 1, 2019).

 

As disclosed in the revenue recognition section of Note 3 – Accounting Polices, the Company adopted Topic 606 in accordance with the effective date on March 1, 2018. Note 3 includes disclosures regarding the Company’s method of adoption and the impact on the Company’s financial statements. Revenue is recognized on direct sales of goods or services when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services.

 

After adopting Topic 842, also referred to above in Note 3, the Company is accounting for revenue earned from rental activities where an identified asset is transferred to the customer and the customer has the ability to control that asset. The Company recognizes revenue from its device rental activities when persuasive evidence of a contract exists, the performance obligations have been satisfied, the transaction price is fixed or determinable and collection is reasonably assured. Performance obligations associated with device rental transactions are satisfied over the rental period. Rental periods are short-term in nature. Therefore, the Company has elected to apply the practical expedient which eliminates the requirement to disclose information about remaining performance obligations. Payments are due from customers at the completion of the rental, except for customers with negotiated payment terms, generally net 30 days or less, which are invoiced and remain as accounts receivable until collected.

 

- 13 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The following table presents revenues from contracts with customers disaggregated by product/service:

 

    Three Months Ended
May 31, 2022
  Three Months Ended
May 31, 2021
 
Device rental activities   $ 239,805   $ 125,992  
Direct sales of goods and services     145,352     434,342  
    $ 385,157   $ 560,334  

 

 

5. LEASES

 

We lease certain warehouses, and office space. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we did not combine lease and non-lease components.

 

There is no lease renewal. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

 

Below is a summary of our lease assets and liabilities at May 31, 2022 and February 28, 2022.

 

Leases   Classification   May 31, 2022   February 28, 2022  
Assets                  
Operating   Operating Lease Assets   $ 1,296,944   $ 1,331,605  
Liabilities                  
Current                  
Operating   Current Operating Lease Liability   $ 250,168   $ 254,027  
Noncurrent                  
Operating   Noncurrent Operating Lease Liabilities     1,031,392     1,057,579  
Total lease liabilities       $ 1,281,560   $ 1,311,606  

 

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 $69,967 and $28,874 for the three months ended May 31, 2022 and May 31, 2021, respectively.

 

6. REVENUE EARNING DEVICES

 

Revenue earning devices consisted of the following:

 

    May 31, 2022   February 28, 2022  
Revenue earning devices   $ 1,317,825   $ 1,143,724  
Less: Accumulated depreciation     (506,075 )   (434,661 )
    $ 811,750   $ 709,063  

 

During the three months ended May 31, 2022 the Company made total additions to revenue earning devices of $174,101 which were transfers from inventory. During the three months ended May 31, 2021, the Company made total additions to revenue earning devices of $70,162 which were transfers from inventory. During the three months ended May 31, 2021 the Company sold a revenue earning device having a net book value of $3,411 for revenues of $30,600 and included the $3,411 in cost of goods sold.

 

Depreciation expense was $71,414 and $33,005 for the three months ended May 31, 2022, and 2021 respectively.

 

- 14 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

7. FIXED ASSETS

 

Fixed assets consisted of the following:

 

    May 31, 2022   February 28, 2022  
Automobile   $ 84,880   $ 84,880  
Manufacturing equipment     16,800     16,800  
Demo devices     22,056     16,539  
Computer equipment and software     117,873     36,742  
Office equipment     15,312     15,312  
Warehouse equipment     11,415     11,415  
Tooling     7,082      
Leasehold improvements     5,329     5,329  
      280,747     187,017  
Less: Accumulated depreciation     (71,646 )   (49,065 )
    $ 209,101   $ 137,952  

 

During the three months ended May 31, 2022 the Company made additions of $93,730 of which $5,516 were transfers from inventory with remaining additions of $88,214. During the three months ended May 31, 2021 the Company made additions of $15,362.

 

Depreciation expense was $22,581 and $4,638 for the three months ended May 31, 2022, and 2021 respectively.

 

8. DEFERRED VARIABLE PAYMENT OBLIGATION

 

On February 1, 2019 the Company entered into an agreement with an investor whereby the investor would pay up to $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.

 

- 15 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

On December 30, 2019 the Company entered into another similar arrangement with a new investor whereby the investor would advance up to $100,000 in exchange for a perpetual 1.00% rate Payment on the Company’s quarterly Revenues (commencing quarter ended November 30, 2020). At February 29, 2020 the investor has advanced $50,000 with the remainder to be advanced no later than June 30, 2020. If the total investor advances turns out to be less than $100,000, this would not constitute a breach of the agreement, rather the 1.00% rate would be adjusted on a pro-rata basis.

 

On April 22, 2020 the Company entered into another similar arrangement with the (first May 9, 2019) investor above whereby the investor would advance up to $100,000 in exchange for a perpetual 1.00% rate Payment on the Company’s quarterly Revenues. At May 31, 2020 the investor has fully funded this commitment.

 

On July 1, 2020 the Company entered into a similar agreement with the first investor whereby the investor would pay up to $800,000 in exchange for a perpetual 2.75% rate payment (Payment) on the Company’s reported quarterly revenue. These Payments are to be made 90 days after the fiscal quarter with the first payment being due no later than May 31, 2021. If the Payments would deplete RAD’s available cash by more than 20%, the payment may be deferred. The investor had agreed to pay $100,000 per month over an 8 month period with the first payment due July 2020 and the final payment no later than February 28, 2021. As at August 31, 2020 the investor had fully funded the $800,000 commitment

 

On August 27, 2020 the Company and the first investor referred to above consolidated the three separate agreements of February 1, 2019 for $900,000, November 18, 2019 for $225,000 and July 1, 2020 for $800,000 into a new agreement for a total of $1,925,000. This new agreement is for similar terms as the above agreements save for the following: the rate payment is revised to 14.25% payable on revenues commencing the quarter ended August 31, 2020. Upon an event of default that we are unable to cure in the time allotted under the agreements, these Payments may be secured with a priority lien by UCC filing against all of our assets, but is subordinated to equipment financing or leasing agreements 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 May 31, 2022, and February 28, 2022, the long-term balances other than Payments already owed is the cash received of $2,525,000 and $2,525,000, respectively.

 

- 16 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

For the three months ended May 31, 2022 and year ended February 28, 2022 , the Company has received $0 related to the deferred payment obligation since there were no new agreements during this period. The balance remains $2,525,000 at both May 31, 2022 and February 28, 2022.

 

The Payments first become payable on June 30, 2019 (unless otherwise indicated) based on the quarterly Revenues for the quarter ended May 31, 2019 and accrue every quarter thereafter. As of May 31, 2022, the Company has accrued $388,227 in Payments (February 28, 2022 -$325,600). At May 31, 2022, and February 28, 2022 the Company was in default on $181,410 and $90,300 of those Payments. No notices have been sent to the Company.

 

9. CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consisted of the following:

 

                  Balance   Balance  
          Interest   Conversion   May 31,   February 28,  
Issued   Maturity     Rate   Rate per Share   2022   2022  
July 18, 2016   July 18, 2017*     10%   $0.003 (1)   3,500     3,500  
                    3,500     3,500  
                             
Less: current portion of convertible notes payable     (3,500 )   (3,500 )
Less: discount on noncurrent convertible notes payable          
Noncurrent convertible notes payable, net of discount   $   $  
               
Current portion of convertible notes payable   $ 3,500   $ 3,500  
Less: discount on current portion of convertible notes payable          
Current portion of convertible notes payable, net of discount   $ 3,500   $ 3,500  

__________

* This note was in default as of May 31, 2022. Default interest rate 22%
(1) The conversion price is not subject to adjustment from forward or reverse stock splits.

 

During both the three months ended May 31, 2022 and 2021, the Company incurred original issue discounts of $0, and debt discounts from derivative liabilities of $0 related to new convertible notes payable. During the three months ended May 31, 2022 and 2021, the Company recognized interest expense related to the amortization of debt discount of $0 and $81,131, respectively.

 

The note above is unsecured. As of May 31, 2022 and February 28, 2022, the Company had total accrued interest payable of $28,454 and $28,104, respectively, all of which is classified as current.

 

During the three months ended May 31, 2022, the Company had no convertible note activity

 

During the three months ended May 31, 2021, the Company also had the following convertible note activity:

 

The company settled convertible notes of $65,000 and accrued interest $22,525 for a cash payment of $93,984. A loss on settlement of debt of $6,459 was recorded.

 

- 17 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

10. RELATED PARTY TRANSACTIONS

 

For the three months ended May 31, 2022, the Company had no repayments of net advances from its loan payable-related party. For the three months ended May 31, 2021 the Company repaid net advances of $121,147. At May 31, 2022, the loan payable-related party was $196,796 and $193,556 at February 28, 2022. Included in the balance due to the related party at May 31, 2022 is $113,940 of deferred salary and interest, $108,000 of which bears interest at 12%. At February 28, 2022, included in the balance due to the related party is $110,700 of deferred salary and interest, $90,000 of which bears interest at 12%. The accrued interest included in loan at May 31, 2022 and May 31, 2021 was $5,940 and $138,858, respectively.

 

Pursuant to the amended Employment Agreement with its Chief Executive Officer, for the three months ended May 31, 2022 the Company accrued $161,500 of incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional awards being met. This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at $1,000 per share. At May 31, 2022 and February 28, 2022 there was $641,000 and $479,500 of incentive compensation payable.

 

During the three months ended May 31, 2022 and 2021, the Company was charged $1,001,734 and $478,951, respectively for fees for research and development from a company partially owned by a principal shareholder.

 

11. OTHER DEBT – VEHICLE LOAN

 

In December 2016, RAD entered into a vehicle loan for $47,704 secured by the vehicle. The loan is repayable over 5 years maturing November 9, 2021, and repayable $1,019 per month including interest and principal. In November 2017, RAD entered into another vehicle loan secured by the vehicle for $47,661. The loan is repayable over 5 years, maturing October 24, 2022 and repayable at $923 per month including interest and principal. The principal repayments made were $0 for both the year ended February 28, 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 May 31, 2022 and February 28, 2022, respectively, of which all were classified as current.

 

- 18 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

12. LOANS PAYABLE

 

Loans payable at May 31, 2022 consisted of the following:

                Annual  
Date   Maturity   Description   Principal   Interest Rate  
June 11, 2018   June 11, 2019   Promissory note (2) (#) $   25%  
January 31, 2019   June 30, 2019   Promissory note (1) (#)     15%  
May 9, 2019   June 30, 2019   Promissory note (3) (#)     15%  
May 31, 2019   June 30, 2019   Promissory note (4) (#)     15%  
June 26, 2019   June 26, 2020   Promissory note (5) (#)     15%  
September 24, 2019   June 24, 2020   Promissory note (6) (#)     15%  
January 30, 2020   January 30, 2021   Promissory note (7) (#)     15%  
February 27, 2020   February 27, 2021   Promissory note (8) (#)     15%  
April 16, 2020   April 16, 2021   Promissory note (9) (#)     15%  
May 12, 2020   May 12, 2021   Promissory note (11) (#)     15%  
May 22, 2020   May 22, 2021   Promissory note (12) (#)     15%  
June 2, 2020   June 2, 2021   Promissory note (13) (#)     15%  
June 9, 2020   June 9, 2021   Promissory note (14) (#)     15%  
June 12, 2020   June 12, 2021   Promissory note (15) (#)     15%  
June 16, 2020   June 16, 2021   Promissory note (16) (#)     15%  
September 15, 2020   September 15, 2022   Promissory note (17) (#)     10%  
October 6, 2020   March 6, 2023   Promissory note (18) (#)     12%  
November 12, 2020   November 12, 2023   Promissory note (19) (#)     12%  
November 23, 2020   October 23, 2022   Promissory note (20) (#)     15.5%  
November 23, 2020   November 23, 2023   Promissory note (21) (#)     15%  
December 10, 2020   December 10, 2023   Promissory note (22) (#)     12%  
December 10, 2020   December 10, 2023   Promissory note (23)   3,921,168   12%  
December 10, 2020   December 10, 2023   Promissory note (24)   3,054,338   12%  
December 10, 2020   December 10, 2023   Promissory note (25)   165,605   12%  
December 14, 2020   December 14, 2023   Promissory note (26)   310,375   12%  
December 30, 2020   December 30, 2023   Promissory note (27)   350,000   12%  
December 31, 2021   December 31, 2024   Promissory note (28)   25,000   12%  
December 31, 2021   December 31, 2024   Promissory note (29)   145,000   12%  
January 14, 2021   January 14, 2024   Promissory note (30)   550,000   12%  
February 22, 2021   February 22, 2024   Promissory note (31)   1,650,000   12%  
March 1, 2021   March 1, 2024   Promissory note (10)   6,000,000   12%  
June 8, 2021   June 8, 2024   Promissory note (32)   2,750,000   12%  
July 12, 2021   July 26, 2026   Promissory note (33)   4,000,160   7%  
September 14, 2021   September 14, 2024   Promissory note (34)   1,650,000   12%  
        $ 24,571,646      
Less discount on loans payable         (4,504,793)    
Loans payable       $ 20,066,853      

__________

(#) Loans with a principal balance of $1,661,953 along with associated accrued interest of $342,138 totaling $2,004,091 were paid in March 2022, with a remaining accrued liability of $62,979.

 

- 19 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

(1) Original $78,432 note may be pre-payable at any time. The note balance includes 33% original issue discount of $25,882 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(2) 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. The loan and accrued interest were fully paid in March 2022.
   
(3) Original $7,850 note may be pre-payable at any time. The note balance includes 33% original issue discount of $2,590 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(4) Original $86,567 note may be pre-payable at any time. The note balance includes 33% original issue discount of $28,567 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(5) Original $79,104 note may be pre-payable at any time. The note balance includes 33% original issue discount of $26,104 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(6) Original $12,000 note may be pre-payable at any time. The note balance includes an original issue discount of $3,000 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(7) Original $11,000 note may be pre-payable at any time. The note balance includes an original issue discount of $2,450 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(8) Original $5,000 note may be pre-payable at any time. The note balance includes an original issue discount of $1,200 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(9) Original $13,000 note may be pre-payable at any time. The note balance includes an original issue discount of $3,850 at issuance. The loan and accrued interest were paid in March 2022.
   
(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 three months ended May 31, 2022, the Company recorded amortization expense of $0 with an unamortized discount of $0 at May 31, 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 recorded in the year ended February 28, 2022.
   
(11) Original $43,500 note may be pre-payable at any time. The note balance includes an original issue discount of $8,000 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(12) Original $85,000 note may be pre-payable at any time. The note balance includes an original issue discount of $15,000 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(13) Original $62,000 note may be pre-payable at any time. The note balance includes an original issue discount of $12,000 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(14) Original $31,000 note may be pre-payable at any time. The note balance includes an original issue discount of $6,000 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(15) Original $50,000 note may be pre-payable at any time. The note balance includes an original issue discount of $10,000 at issuance. The loan and accrued interest were fully paid in March 2022.
   
(16) Original $42,000 note may be pre-payable at any time. The note balance includes an original issue discount of $7,000 at issuance. The loan and accrued interest were fully paid in March 2022.

 

- 20 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

(17) Original $300,000 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. The loan and accrued interest were fully paid in March 2022. For the three months ended May 31, 2022, the Company recorded amortization expense of $14,745 with an unamortized discount of $0 at May 31, 2022.
   
(18) Original principal of $150,000 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. The loan and accrued interest were fully paid in March 2022.
   
(19) Original $110,000 note may be pre-payable at any time. The note balance includes an original issue discount of $10,000 and was issued with a warrant to purchase 70,000,000 shares at an exercise price of $0.00165 per share, with a 3-year term and having a relative fair value of $41,176. 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. The loan and accrued interest were fully paid in March 2022. For the three months ended May 31, 2022, the Company recorded amortization expense of $36,290 with an unamortized discount of $0 at May 31, 2022.
   
(20) Original principal of $65,000 and interest repayable in 21 monthly instalments of $4,060 commencing February 23, 2021. Secured by revenue earning devices. The loan and accrued interest were fully paid in March 2022.
   
(21) Original $300,000 note may be pre-payable at any time. The note balance includes an original issue discount of $25,000 and was issued with a warrant to purchase 230,000,000 shares at an exercise price of $0.00165 per share with a 3-year term and having a relative fair value of $125,814. 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. The loan and accrued interest were fully paid in March 2022. For the three months ended May 31, 2022, the Company recorded amortization expense of $109,977 with an unamortized discount of $0 at May 31, 2022
   
(22) Original $82,500 note may be pre-payable at any time. The note balance includes an original issue discount of 7,500 and was issued with a warrant to purchase 100,000,000 shares at an exercise price of $0.002 per share with a 3-year term and having a relative fair value of $54,545. 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. The loan and accrued interest were fully paid in March 2022. For the three months ended May 31, 2022 the Company recorded amortization expense of $50,714 with an unamortized discount of $0 at May 31, 2022.
   
(23) 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 450,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a relative fair value of $990,000. This note is secured by a general security charging all of the Company’s present and after-acquired property.
   
(24) 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 250,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a relative fair value of $550,000. This note is secured by a general security charging all of the Company’s present and after-acquired property.
   
(25) 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 80,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a fair value of $176,000.
   
(26) 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 25,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a fair value of $182,500.

 

- 21 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

(27) The note, with an original principal amount of $350,000, may be pre-payable at any time. The note balance includes an original issue discount of $35,000 and was issued with a warrant to purchase 50,000,000 shares at an exercise price of $0.025 per share with a 3-year term and having a relative fair value of $271,250. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $271,250 with a corresponding adjustment to paid in capital for the relative fair value of the warrant. For the three months ended May 31, 2022, the Company recorded amortization expense of $13,060 with an unamortized discount of $263,793 at May 31, 2022.
   
(28) 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.
   
(29) 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.
   
(30) The note, with an original principal amount of $550,000, 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 50,000,000 shares at an exercise price of $0.025 per share with a 3-year term and having a relative fair value of $380,174. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $380,174 with a corresponding adjustment to paid in capital. For the three months ended May 31, 2022, the Company recorded amortization expense of $23,238 with an unamortized discount of $343,995 at May 31, 2022.
   
(31) The note, with an original principal balance of $1,650,000, may be pre-payable at any time. The note balance includes an original issue discount of $150,000 and was issued with a warrant to purchase 100,000,000 shares at an exercise price of $0.135 per share with a 3-year term and having a relative fair value of $1,342,857. The discount and warrant are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $1,342,857 with a corresponding adjustment to paid in capital for the relative fair value of the warrant. For the three months ended May 31, 2022, the Company recorded amortization expense of $42,874 with an unamortized discount of $1,368,957 at May 31, 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 recorded in the year ended February 28, 2022.
   
(32) The note, with an original principal balance of $2,750,000, 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 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. 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 three months ended May 31, 2022, the Company recorded amortization expense of $92,711 with an unamortized discount of $1,157,035 at May 31, 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 recorded in the year ended February 28, 2022.
   
(33) This loan, with an original principal balance of $4,000,160, 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.
   
(34) The note, with an original principal balance of $1,650,000, 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 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 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 three months ended May 31, 2022, 2022, the Company recorded amortization expense of $31,420 with an unamortized discount of $1,371,013 at May 31, 2022.

 

 

- 22 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

13. DERIVATIVE LIABILITIES

 

As of both May 31, 2022, and February 28, 2022 the Company revalued the fair value of all of the Company’s derivative liabilities associated with the conversion features on the convertible notes payable and determined that it had a total derivative liability of $7,587. There was no change during the period.

 

14. STOCKHOLDERS’ EQUITY (DEFICIT)

 

Summary or Preferred Stock Activity

 

No preferred stock activity during the period

 

Summary of Preferred Stock Warrant Activity

 

    Number of Series C Preferred Warrants   Weighted Average Exercise Price   Weighted Average Remaining Years
Outstanding at March 1, 2022   329   $1.00   4.50
Issued      
Exercised      
Forfeited and cancelled      
Outstanding at May 31, 2022   329   $1.00   4.25

 

Summary of Common Stock Activity

 

The Company issued 133,881,576 common shares with gross proceeds of $1,762,379 and net proceeds of $1,645,222 after issuance costs of $117,157

 

Summary of Common Stock Warrant Activity

 

    Number of Warrants   Weighted Average Exercise Price   Weighted Average Remaining Years
Outstanding at March 1, 2022   1,216,845,661   $0.07   2.38
Issued      
Exercised      
Forfeited and cancelled      
Outstanding at May 31, 2022   1,216,845,661   $0.07   2.12

 

For the three months ended May 31, 2022 and May 31, 2021, the Company recorded a total of $0 and $0, respectively, to stock-based compensation for options and warrants with a corresponding adjustment to additional paid-in capital.

 

Summary of Common Stock Option Activity

 

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 the following 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.

 

- 23 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

15. 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.

 

The related legal costs are expensed as incurred.

 

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 18, 2020, the Company entered into a 15-month lease agreement for office space at 18009 Sky Park Circle Suite E, Irvine CA, 92614, commencing on December 18, 2020 through to March 31, 2022 with a minimum base rent of $3,859 per month. The Company paid a security deposit of $3,859.

 

On March 10, 2021, the Company entered into a 10 year lease agreement for q manufacturing facility at 10800 Galaxie Avenue, Ferndale, Michigan, 48220, commencing on May 1, 2021 through to April 30, 2031 with a minimum base rent of $15,880 per month. The base rent increase by 3% per annum commencing May 1, 2024. The Company paid a security deposit of $15,880.

 

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.

 

The Company’s leases are accounted for as operating leases. Rent expense and operating lease cost are recorded over the lease terms on a straight-line basis. Rent expense and operating lease cost was $69,967 for the three months May 31, 2022 and $30,064 for the three months May 31, 2020.

 

- 24 -


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Maturity of Lease Liabilities Operating
Leases
 
May 31, 2023 $ 250,169  
May 31, 2024   244,169  
May 31, 2025   213,711  
May 31, 2026   207,558  
May 31, 2027   207,558  
May 31, 2028 and after   812,935  
Total lease payments   1,936,100  
Less: Interest   (654,540 )
Present value of lease liabilities $ 1,281,560  

 

 

16. EARNINGS (LOSS) PER SHARE

 

The net income (loss) per common share amounts were determined as follows:

 

             
  For the Year Ended  
  May 31, 2022   May 31, 2021  
Numerator:            
Net income (loss) available to common shareholders $ (4,671,686 ) $ (35,904,918 )
             
Effect of common stock equivalents            
Add: interest expense on convertible debt   194     24,954  
Add (less) loss (gain) on change of derivative liabilities       (179,439 )
Net income (loss) adjusted for common stock equivalents   (4,671,492 )   (36,059,403 )
             
Denominator:            
Weighted average shares – basic   4,798,657,871     3,489,517,478  
             
Net income (loss) per share – basic $ (0.00 ) $ (0.01 )
             
Denominator:            
Weighted average shares – diluted   4,798,657,871     3,489,517,478  
             
Net income (loss) per share – diluted $ (0.00 ) $ (0.01 )

 

The anti-dilutive shares of common stock equivalents for the three months ended May 31, 2022 and 2021 were as follows:

 

    For the Year Ended
    May 31, 2022   May 31, 2021
Convertible notes and accrued interest   7,093,255   14,072,341
Convertible Class F Preferred Shares   16,798,367,179   12,232,916,443
Stock options and warrants   1,256,845,661   659,523,492
Total   18,062,306,095   12,906,512,276

 

 

17. SUBSEQUENT EVENTS

 

Subsequent to May 31, 2022 through to July 12, 2022:

 

—   in June 2022, the Company issued 78,975,759 common shares pursuant to a share purchase agreement for gross proceeds of $902,499, issuance costs of $48,200 and net proceeds of $854,299.

 

- 25 -


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

The following discussion of our financial condition and results of operations for the three months ended May 31, 2022 and May 31, 2021 should be read in conjunction with our unaudited consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended February 28, 2022, as filed on May 27, 2022 with the SEC. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

 

Unless expressly indicated or the context requires otherwise, the terms “AITX”, the “Company”, “we”, “us”, and “our” refer to Artificial Intelligence Technology Solutions Inc.

 

Overview

 

AITX was incorporated in Florida on March 25, 2010. AITX reincorporated into Nevada on February 17, 2015. AITX’s fiscal year end is February 28 (February 29 during leap year). AITX is located at 10800 Galaxie Ave., Ferndale Michigan, 48220, and our telephone number is 877-767-6268.

 

AITX’s mission is to apply Artificial Intelligence (AI) technology to solve enterprise problems categorized as expensive, repetitive, difficult to staff, and outside of the core competencies of the client organization.

 

A short list of basic examples include:

 

  1. Typical security guard-related functions such as monitoring a parking lot during and after hours and responding appropriately. This scenario applies to perimeters, interior yard areas, and related similar environments.
     
  2. Integrated hardware/software with AI-driven responses, simulating and expanding on what legacy or manned solutions could perform.
     
  3. Automation of common access control functions through technology utilizing facial recognition and machine vision, leapfrogging most legacy solutions in use today.

 

RAD solutions are unique because they:

 

  1. Start with an AI-driven autonomous response utilizing cellular-optimized communications, while easily connecting to a human operator for a manned response, as needed.
     
  2. Use unique hardware purpose-built by RAD for delivery of these solutions. Various form factors have been customized to deliver this new functionality.
     
  3. Deliver services through RAD-developed software and cloud services, allowing enterprise IT groups to focus on core competencies instead of maintenance of complex video and security platforms.

 

- 26 -


 

Management Discussion and Analysis

 

Results of Operations for the Three Months Ended May 31, 2022 and 2021

 

The following table shows our results of operations for the three months ended May 31, 2022 and 2021. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 

    Period      
    Three Months
Ended
  Three Months
Ended
  Change  
    May 31, 2022   May 31, 2021   Dollars   Percentage  
Revenues   $ 385,157   $ 560,334   $ (175,177 ) (31% )
Gross profit     91,433     449,408     (357,975 ) (80% )
Operating expenses     3,588,089     2,600,954     987,135   38%  
Loss from operations     (3,496,656 )   (2,151,546 )   (1,345,110 ) 63%  
Other income (expense), net     (1,175,030 )   (33,753,372 )   32,578,342   97%  
Net loss   $ (4,671,686 ) $ (35,904,918 ) $ 31,233,232   87%  

 

Revenue

 

The following table presents revenues from contracts with customers disaggregated by product/service:

 

    Three Months
Ended
  Three Months
Ended
  Change  
    May 31, 2022   May 31, 2021   Dollars   Percentage  
Device rental activities   $ 239,805   $ 125,992   $ 113,813   90%  
Direct sales of goods and services     145,352     434,342     (288,990 ) (67% )
    $ 385,157   $ 560,334   $ (175,177 ) (31% )

 

Total revenue for the three-month period ended May 31, 2022 was $385,157 which represented a decrease of $175,177 compared to total revenue of $560,334 for the three months ended May 31, 2021. This decrease is a result of unusually high unit sales in the previous year’s quarter. Rental activities increased by 90% over the prior year’s quarter as the Company continues to grow its core business.

 

Gross profit

 

Total gross profit for the three-month period ended May 31, 2022 was $91,433 which represented a decrease of $357,975 compared to gross profit of $449,408 for the three months ended May 31, 2021. The decrease resulted primarily from inventory adjustments totaling $177,475 broken down as $152,475 in inventory adjustments due to shrinkage and obsolescence and a $25,000 increase in the inventory provision to account for obsolescence. The gross profit % of 24% for the three-month period ended May 31, 2022 was lower than the gross profit % of 80% for the prior year’s corresponding period due to inventory adjustments previously mentioned. After accounting for those inventory adjustments totaling $177,475, the adjusted gross profit for the three months ended May 31, 2022 would be 70%.

 

Operating Expenses

 

    Period      
    Three Months
Ended
  Three Months
Ended
  Change  
    May 31, 2022   May 31, 2021   Dollars   Percentage  
Research and development   $ 1,023,735   $ 634,645   $ 389,090   61%  
General and administrative     2,400,392     1,899,792     500,600   26%  
Depreciation and amortization     93,995     37,643     56,352   150%  
Operating lease cost and rent     69,967     28,874     41,093   142%  
Operating expenses   $ 3,588,089   $ 2,600,954   $ 987,135   38%  

 

- 27 -


 

Our operating expenses were comprised of general and administrative expenses, research and development, and depreciation. General and administrative expenses consisted primarily of professional services, automobile expenses, advertising, salaries and wages, travel expenses and consultants. Our operating expenses during the three-month period ended May 31, 2022 and May 31, 2021, were $3,588,089 and $2,600,954, respectively. The overall increase of $987,135 was primarily attributable to the following changes in operating expenses of:

 

General and administrative expenses increased by $500,600. In comparing the three months ended May 31, 2022 and May 31, 2021 this increase was primarily due to increases in wages and salaries of $587,855 due to staffing of new manufacturing facility and increases in office and management staff , stock based compensation of $92,150, insurance of $102,815 due to health plan for new employees and increased liability and property insurance due to new manufacturing facility, office expenses of $35,947, travel $175,538 and advertising , marketing of $55,604 and bad debts expense due to a general provision of $105,000 on slow payers due to present economic factors. These increases were partially offset by decreases in production supplies by $183,904 due to better inventory management, professional fees of $292,374 mostly due to the severance  costs of a former director in the prior year’s quarter, software and technology costs of $50,642 and subcontractor fees of $117,228 due to increase in staffing.
   
Research and development increased by $389,090 due to funding development of new products as well as upgrades of existing products.
   
Depreciation and amortization increased by $56,352 due to the acquisition of ERP computer software, and computer equipment and 34 new revenue earning devices.
   
Operating lease cost and rent increased by $41,093 due to a new office lease for the 3 months ended May 31, 2022 leases and only one month of the new manufacturing facility for the three months ended May 31, 2021 as compared to a three full months for the three months ended May 31, 2022.

 

Other Income (Expense)

 

Other income (expense) consisted of the change of fair value of derivative instruments, loss on settlement of debt and interest. Other income (expense) during the three months ended May 31, 2022 and May 31, 2021, was ($1,175,030) and ($33,753,372), respectively. The $32,578,342 increase in other income was primarily attributable to the loss on settlement of debt realized in the prior year’s quarter.

 

In comparing the three months ended May 31, 2022 and the three months ended May 31, 2021, the change in fair value of derivative liabilities decreased by $179,439. This represents the change in fair value for the three months ended May 31, 2021. There was no change in fair value of derivative liabilities for the three months ended May 31, 2022 as most of the underlying convertible debt has been repaid with only $3,500 remaining.  The change in fair value of derivative liabilities in 2021 was due to the re-valuation of derivative liability on convertible notes based on the change in the market price of the Company’s common stock.
   
Interest expense increased by $226,580 due to an increase in both debt amortization expense and interest expense because of increases in loans payable
   
Loss on settlement of debt was $32,984,361 the quarter ended May 31, 2021 and nil in the quarter ended May 31, 2022. The amendment of the deferred variable payment obligation during the prior year’s quarter led to a $33,015,215 loss which was partially offset by gains from accrued liabilities settlements. This loss on settlement of debt was  non-cash and had no effect on the cash flows of the Company.

 

Net incomes

 

We had a net loss of $4,671,686 for the three months ended May 31, 2022, compared to a net loss of $35,904,918 for the three months ended May 31, 2021. The change is primarily the result of the loss on settlement in the three months ended May 31, 2021 as well as and other items discussed above.

 

- 28 -


 

Liquidity, Capital Resources and Cash Flows

 

Management believes that we will continue to incur losses for the immediate future. Therefore, we will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include and adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. For the three months ended May 31, 2022, we have generated revenue and are trying to achieve positive cash flows from operations.

 

As of May 31, 2022, we had a cash balance of $921,629, accounts receivable of $364,720, device parts inventory  of $1,609,248 and $2,597,804 in current liabilities. At the current cash consumption rate, we will need to consider additional funding sources going forward. We are taking proactive measures to reduce operating expenses and drive growth in revenue.

 

The successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operating results.

 

Capital Resources

 

The following table summarizes total current assets, liabilities and working capital (deficit) for the periods indicated:

 

    May 31, 2022   February 28, 2022  
Current assets   $ 3,215,766   $ 7,050,436  
Current liabilities     2,597,804     4,547,718  
Working capital   $ 617,972   $ 2,502,718  

 

As of May 31, 2022 and February 28, 2022, we had a cash balance of $921,629 and $4,648,146, respectively.

 

Summary of Cash Flows

 

    Three Months
Ended
May 31, 2022
  Three Months
Ended
May 31, 2022
 
Net cash used in operating activities   $ (3,621,572 ) $ (3,040,776 )
Net cash used in investing activities   $ (88,214 ) $ (31,242 )
Net cash (used in) provided by financing activities   $ (16,731 $ 4,975,810  

 

Net cash used in operating activities.

 

Net cash used in operating activities for the three months ended May 31, 2022 was $3,621,572, which included a net loss of $4,671,686, non-cash activity such as the bad debts expense of $105,000, inventory provision $25,000, reduction of right of use asset of $30,046, accretion of lease liability $36,355, stock based compensation of $161,500, change in operating assets of $179,948, amortization of debt discount of $415,029, increase in related party accrued payroll and interest of $3,240 and depreciation and amortization of $93,995 to derive the uses of cash in operations.

 

Net cash used in investing activities.

 

Net cash used in investing activities for the three months ended May 31, 2022 was $88,214, which was the purchase of fixed assets,

 

Net cash used in financing activities.

 

Net cash used in financing activities was $16,731 for the three months ended May 31, 2022. This consisted of share proceeds net of issuance costs of $1,645,222, reduced by repayments on loans payable of $1,661,953.

 

Off-Balance Sheet Arrangements

 

None.

 

- 29 -


 

Critical Accounting Policies and Estimates

 

Critical accounting policies and estimates are further discussed in our Annual Report on Form 10-K for the year ended February 28, 2022, as filed on May 27, 2022.

 

Related Party Transactions

 

For the three months ended May 31, 2022, the Company had no repayments of net advances from its loan payable-related party. For the three months ended May 31, 2021 the Company repaid net advances of $121,147. At May 31, 2022, the loan payable-related party was $196,796 and $193,556 at February 28, 2022. Included in the balance due to the related party at May 31, 2022 is $113,940 of deferred salary and interest, $108,000 of which bears interest at 12%. At February 28, 2022, included in the balance due to the related party is $110,700 of deferred salary and interest, $90,000 of which bears interest at 12%. The accrued interest included in loan at May 31, 2022 and May 31, 2021 was $5,940 and $138,858, respectively.

 

Pursuant to the amended Employment Agreement with its Chief Executive Officer, for the three months ended May 31, 2022 the Company accrued $161,500 of incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional awards being met. This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at $1,000 per share. At May 31, 2022 and February 28, 2022 there was $641,000 and $479,500 of incentive compensation payable.

 

During the three months ended May 31, 2022 and 2021, the Company was charged $1,001,734 and $478,951, respectively for consulting fees for research and development from a company partially owned by a principal shareholder.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable for a smaller reporting company.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Management’s Report on Internal Control over Financial Reporting

 

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of May 31, 2022. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of May 31, 2022, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

  1. As of May 31, 2022, we did not maintain effective controls over our control environment. Specifically, we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
     
  2. As of May 31, 2022, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.

 

Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

 

- 30 -


 

Change in Internal Controls over Financial Reporting

 

The only change in internal controls was the implementation of the Company’s new CRM/ERP/Accounting software. This change in our internal controls over financial reporting that occurred during the period covered by this report, should not have materially affected, or is not reasonably likely to materially affect, our internal controls over financial reporting.

 

PART II — OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

This item is not applicable to smaller reporting companies.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Each issuance of securities was issued without registration in reliance of the exemption from registration Section 3(a)9 of the Securities Act of 1933.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

The Company has not defaulted upon senior securities.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable to the Company.

 

ITEM 5. OTHER INFORMATION

 

None.

 

- 31 -


 

ITEM 6. EXHIBITS

 

Exhibit No. Description of Document
   
3.1 Articles of Incorporation (1)
   
3.2 Bylaws (2)
   
14 Code of Ethics (2)
   
21 Subsidiaries of the Registrant (3)
   
31.1 Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer. (3)
   
31.2 Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial and accounting officer. (3)
   
32.1 Section 1350 Certification of principal executive officer. (3)
   
32.2 Section 1350 Certification of principal financial accounting officer. (3)
   
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. (3)
101.SCH Inline XBRL Taxonomy Extension Schema Document (3)
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (3)
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (3)
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document (3)
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (3)
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) (3)

__________

(1) Incorporated by reference to our Form 10-KT file with the Securities and Exchange Commission on March 12, 2018.
   
(2) Incorporated by reference to our Form S-1 filed with the Securities and Exchange Commission on August 4, 2010.
   
(3) Filed or furnished herewith.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Artificial Intelligence Technology Solutions Inc.
   
   
Date: July 12, 2022 BY: /s/ Steven Reinharz
  Steven Reinharz
  President, Chief Executive Officer (principal executive officer)
   
   
Date: July 12, 2022 BY: /s/ Anthony Brenz
  Anthony Brenz
  Chief Financial Officer (principal financial officer)

 

- 32 -



Exhibit 21.1

 

Artificial Intelligence Technology Solutions Inc.

 

Subsidiaries

 

Name

 

Jurisdiction of Incorporation

Robotic Assistance Devices, Inc.

 

Nevada

Robotic Assistance Devices Group, Inc.

 

Nevada

Robotic Assistance Devices Mobile, Inc.

 

Nevada



 

Exhibit 31.1

 

RULE 13A-14(A)/15D-14(A) CERTIFICATION

 

I, Steven Reinharz, certify that:

 

1. I have reviewed this Form 10-Q for the period ended May 31, 2022 of Artificial Intelligence Technology Solutions Inc.

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the registrant and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

   
Date: July 12, 2022 BY: /s/ Steven Reinharz
  Steven Reinharz
  President, Chief Executive Officer (principal executive officer)

 


 

Exhibit 31.2

 

RULE 13A-14(A)/15D-14(A) CERTIFICATION

 

I, Anthony Brenz, certify that:

 

1. I have reviewed this Form 10-Q for the period ended May 31, 2022 of Artificial Intelligence Technology Solutions Inc.

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the registrant and have:

 

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

   
Date: July 12, 2022 BY: /s/ Anthony Brenz
  Anthony Brenz
  Chief Financial Officer (principal financial officer)

 


 

Exhibit 32.1

 

SECTION 1350 CERTIFICATION

 

In connection with the quarterly report of Artificial Intelligence Technology Solutions Inc. (the “Company”) on Form 10-Q for the period ended May 31, 2022 as filed with the Securities and Exchange Commission (the “Report”), I, Steven Reinharz, President of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

   
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

   
Date: July 12, 2022 BY: /s/ Steven Reinharz
  Steven Reinharz
  President, Chief Executive Officer (principal executive officer)

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 


 

Exhibit 32.2

 

SECTION 1350 CERTIFICATION

 

In connection with the quarterly report of Artificial Intelligence Technology Solutions Inc. (the “Company”) on Form 10-Q for the period ended May 31, 2022 as filed with the Securities and Exchange Commission (the “Report”), I, Anthony Brenz, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. SS. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

   
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

   
Date: July 12, 2022 BY: /s/ Anthony Brenz
  Anthony Brenz
  Chief Financial Officer (principal financial officer)

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.