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EX-32 - CERTIFICATION OF CEO & CFO PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002 - Artificial Intelligence Technology Solutions Inc.ex_32-1.htm
EX-31 - CERTIFICATION OF CEO & CFO PURSUANT TO SECTION 302 OF SARBANES-OXLEY ACT OF 2002 - Artificial Intelligence Technology Solutions Inc.ex_31-1.htm
EX-21 - LIST OF SUBSIDIARIES - Artificial Intelligence Technology Solutions Inc.ex_21-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended February 29, 2020

 

or

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission file number: 000-55079

 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

(Exact name of registrant as specified in its charter)

 

Nevada

 

27-2343603

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

1 East Liberty, 6th Floor
Reno, NV 89501

 

89501

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (702) 990-3271

 

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

 

Securities registered pursuant to section 12(g) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common stock, $0.001 par value

 

OTC PINK

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

[  ] Yes    [X] No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

[  ] Yes    [X] No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes    [  ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] Yes    [  ] No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

[X]      

 

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

 

 

Large accelerated filer

[  ]

Accelerated filer

[  ]

 

 

 

 

 

Non-accelerated filer

[X]

Smaller reporting company

[X]

 

 

Emerging growth company

[  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

[  ]       

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

[  ] Yes    [X] No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of August 31, 2019 based upon the closing price reported on such date was approximately $409. Shares of voting stock held by each officer and director and by each person who, as of August 31, 2019, may be deemed as have beneficially owned more than 10% of the outstanding voting stock have been excluded. This determination of affiliate status is not necessarily a conclusive determination of affiliate status for any other purpose.

 

As of July 22, 2020, there were 195,549,343 shares of the registrant’s common stock issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.




Table of Contents

 

 

 

Page

PART I 

 

 

 

 

Item 1.

Business

1

 

 

 

Item 1A.

Risk Factors

8

 

 

 

Item 1B.

Unresolved Staff Comments

8

 

 

 

Item 2.

Properties

8

 

 

 

Item 3.

Legal Proceedings

8

 

 

 

Item 4.

Mine Safety Disclosures

8

 

 

 

PART II 

 

 

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

9

 

 

 

Item 6.

Selected Financial Data

17

 

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

24

 

 

 

Item 8.

Financial Statements and Supplementary Data

24

 

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

24

 

 

 

Item 9A.

Controls and Procedures

25

 

 

 

Item 9B.

Other Information

26

 

 

 

PART III 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

26

 

 

 

Item 11.

Executive Compensation

28

 

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

29

 

 

 

Item 13.

Certain Relationships and Related Transactions, and Director Independence

30

 

 

 

Item 14.

Principal Accounting Fees and Services

30

 

 

 

PART IV 

 

 

 

 

Item 15.

Exhibits, Financial Statement Schedules

31

 

 

 

 

Signatures

33




CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

Certain statements in this report contain or may contain forward-looking statements. These statements, identified by words such as “plan”, “anticipate”, “believe”, “estimate”, “should”, “expect” and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements are subject to known and unknown risks, uncertainties and other factors, which may cause actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to secure suitable financing to continue with our existing business or change our business and conclude a merger, acquisition or combination with a business prospect, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this report in its entirety, including but not limited to our financial statements and the notes thereto and the risks described in our Annual Report on Form 10-K for the fiscal year ended February 28, 2019. We advise you to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly our quarterly reports on Form 10-Q and our current reports on Form 8-K. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.




PART I


ITEM 1. BUSINESS


Business Overview


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


Robotic Assistance Devices, LLC (“RAD”), was incorporated in the State of Nevada on July 26, 2016 as a LLC and was founded by current President Steve Reinharz. 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, in which AITX purchased all the outstanding shares of capital stock of RAD. As a result, AITX’s business going forward will consist of one segment activity which is the delivery of artificial intelligence and robotic solutions for operational, security and monitoring needs.


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


AITX’s prior business focus was transportation services, and we were previously exploring the on-demand logistics market by seeking to develop a network of logistics partnerships. On August 28, 2017, AITX acquired all the outstanding shares of RAD. Following the RAD acquisition, the Company is focused on applying advanced artificial intelligence (AI) driven technologies, paired with multi-use hardware and supported by custom software and cloud services, to intelligently automate and integrate a variety of high frequency security, concierge and operational tasks.


RAD’s solutions are offered as a recurring monthly subscription, typically with a minimum 12 month subscription contract. RAD’s solutions earn over 75% gross margin over the life of each deployed asset. Specifically, RAD provides workflow automation solutions delivered through a system of hardware, software and cloud services. All elements of hardware and software design offered by RAD are 100% designed, developed and owned by RAD.


Mission


AITX’ mission is to apply Artificial Intelligence (AI) technology to solve enterprise problems that can be categorized as expensive, repetitive and outside of the core competencies of the prospect 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 Artificial Intelligence driven responses, simulating and expanding on what legacy or manned solutions could perform.

 

 

 

 

3.

Automation of common access control functions through technology utilized facial recognition and machine vision, leapfrogging most legacy solutions in use today.


- 1 -



RAD solutions are unique in the fact they:


 

1.

Start with an AI-driven response with the easy ability to connect to manned response.

 

 

 

 

2.

Use unique hardware purpose built by RAD for delivery of these solutions.

 

 

 

 

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.


RAD’s first industry focus is the $ 100B+ global security services market. (1)


RAD’s founder, Steve Reinharz, has 20+ years in various leadership/ownership roles in the security industry and was part of a successful exit to a global multinational security company in 2004. Mr. Reinharz has built a committed team of employees that have demonstrated tremendous productivity and self-sacrifice to advance the stated mission.


RAD’s current goal is to disrupt and capture a significant portion of both the human security guard market ($30B +) (2) and ‘physical security’ (cctv, access control, etc.) market ($20B +) through it’s innovative RAD solution ecosystem.


(1)  https://www.statista.com/statistics/323113/distribution-of-the-security-services-market-worldwide/

(2)  https://www.statista.com/statistics/294206/revenue-of-security-services-in-the-us/


AITX Expected Acquisitions


It is expected that AITX will acquire 3 remaining complementary companies owned by Mr. Reinharz sometime before the end of fiscal year 2021. These companies will be completely rolled into AITX as-is with no special compensation to Mr. Reinharz as setout below.


BOLO Technologies, Inc., wholly owned by Mr. Reinharz, has had its limited assets of Intellectual Property and software formally integrated into RAD without necessity of any acquisition by RAD. BOLO created an innovative security-centric platform that integrates additional technologies to give security directors and law enforcement the easiest access to create, manage and track ‘Be On The Lookout’ (BOLO) alerts. ‘BOLO’ is a security industry term used to label interesting suspects such as disgruntled former employees, persons of interest wanted for questioning related to suspicious events and several other similar types of functions and services. BOLO Technologies will use advanced AI for data correlation and pattern matching and is focused on giving customers the ability to pre-empt, predict and prevent possible incidents. BOLO uses a service model similar to RAD’s robots-as-a-service model.


‘RAD Canada’, wholly owned by Mr. Reinharz, provides most of the Research & Development for RAD’s solutions. Specifically, all RAD hardware solutions are designed and developed by this entity as well as some firmware, software and cloud software elements. All but two RAD Canada resources have been absorbed into RAD.


‘RAD Group’, wholly owned by Mr. Reinharz, provides additional sales channels for AITX. This will be acquired by AITX with no compensation to Mr. Reinharz.


AITX, with these acquisitions, will enjoy the benefits of a skilled R&D group that includes skilled industrial and software engineers plus a security-focused platform that provides unique services in high demand. Mr. Reinharz will remain President of all AITX subsidiaries.


Mr. Reinharz has not taken any cash salary or earnings from RAD, AITX or any related entity since inception of the RAD in 2016.


Background - First Commercial Rugged Outdoor Security Robot


RAD was started by Mr. Reinharz in the summer of 2016. RAD originally partnered with SMP Robotics Systems Corp (SMP). and commercialized the SMP S5 Robot for the security market. RAD’s commercialization of the platform focused on integrating traditional security industry manufacturers’ solutions onto the robotics platform. After two paid Proof of Concepts for large utility companies (under NDA) and over 18 months of development and testing RAD began deployments with various Fortune 500 customers. These deployments were scheduled to begin in October 2017 but were delayed until December 2017 due to various supply chain challenges.


By March 2018 it was apparent that S5 platform promotion and development was not sustainable and RAD began to pull robots out of service.


- 2 -



The Robots were rejected by customers due to unsatisfactory reliability and some technical flaws that could not be solved despite full efforts by SMP and RAD. RAD now considers this phase of the company ‘Phase 1’ into robotics. Over 40 deployments were attempted during this period.


RAD has had no contact with SMP Robotics since April 2018.


Much of RAD’s existing convertible debt was acquired in support of the RAD/SMP robotics program.


Background – RAD’s 2nd Generation Ecosystem


RAD’s primary strategy has always been to use AI technology and modern systems to transform the security industry. Mobile robots, indoor and outdoor, are a part of that strategy. However, to completely realize the delivery of these solutions a set of ‘stationary robots’ required development.


These stationary robots launched in April 2018 with the Security Control and Observation Tower (SCOT, development of which began in August 2017. SCOT performs many of the same functions of a stationary human security guard, plus many features that human guards cannot perform, and at approximately 15% of the cost. There is no known comparable solution available today that blends technology, usability, special features and cost. This is why SCOT has growing demand and has received considerable accolades.


SCOT’s positive market reception reinvigorated RAD and the focus turned to accelerating the development of the software and cloud services that support SCOT.


SCOT runs on the RAD Software Suite, as all RAD security solutions do. This software suite is a cloud and mobile solution that is the heart of RADs security solution.


After extraordinary efforts by the team, beta SCOT was first shown to customers in Ohio at the end of February 2018. This beta exposition was to test customer reception and receive final voice-of-the-customer input. Security representatives from Cincinnati Reds, Cincinnati Bengals, Cincinnati Police Departments and County of Hamilton Sheriff’s Department were shown this early SCOT and gave SCOT and the preliminary RAD Software Suite a tremendous endorsement. Feedback was incorporated into SCOT and ideas on SCOT derivatives were added to the hardware development roadmap.


At the ISC West show in April 2018 SCOT won three awards: (1) a SIA New Product Award for Law Enforcement/Guarding, (2) 2018 Secure Campus Award from Campus Security and Life Safety and (3) a ‘Govie’ award for government security solutions from Security Today.


(1) SIA’s New Product Showcase recognizes innovative products, services and solutions in electronic physical security, and SCOTs award comes in the Law Enforcement/Guarding Systems category. Technologies within the program are used in the protection of life and property in residential, commercial and institutional settings, displaying SCOTs importance in long-range human detection and acting as a force multiplier for safety and defense against outside threats.


(2) RAD’s pivot to SCOT and its future derivatives is complete and current facilities can produce a mix of up to 100 units per month with moderate additional investment in equipment and manpower.


RAD has not submitted for any awards since mid-2018 but expects future awards participation.


Currently Available Hardware Solutions


RAD’s hardware lineup has improved and expanded since initial launch in April 2018. RAD’s hardware lineup includes:


 

1.

’SCOT 2.0’ has replaced SCOT 1.x. SCOT 1 went through three significant upgrades over the first 12 months of launch to arrive at SCOT 1.4. SCOT 1.4 features a mature software platform and a refined hardware platform. SCOT solutions have operated with over 99% uptime since inception. ’SCOT’ is an acronym for ’Security Control and Observation Tower’. It embodies and offers the full complement of solutions driven by the RAD Cloud.

 

 

 

 

 

SCOT 2.0 is a SCOT 1.4 enclosed in an appealing modern enclosure. It also features additional LCD monitors (like a Wally), curved LED panels to support visibility and flexible messaging (as opposed to SCOT 1.x flat LED panels) and an advanced locking system. SCOT 2.0 is the realization of the concepts pioneered, demonstrated and tested throughout the 1.x lineup. The SCOT lineup is indoor/outdoor rated.


- 3 -



 

 

All SCOT1.x units continue to perform and generate revenue for the company. There are no immediately plans to replace 1.x units with 2.0 units. SCOT 1.x units can be supported indefinitely under RAD’s software architecture. It is expected that in time these 1.x units will be applied to industrial applications where aesthetics are secondary to functionality.

 

 

 

 

2.

‘WALLY’ was announced in June 2018 in the Allied Universal Services, Inc., booth at the BOMA International Show in San Antonio. WALLY is a wall-mounted derivative of SCOT that is also indoor/outdoor rated. It’s designed to bring the RAD ecosystem to areas such as main lobbies, elevator lobbies, dock access areas and more.

 

 

 

 

3.

‘FRED’ was announced in September 2018 and is a complement to the RAD ecosystem by just focusing on various verified entry methods. Appropriate for office access and to be mounted on gate stanchions. FRED has since been dropped.

 

 

 

 

4.

‘ROSA’ was announced to specific dealers and customers in May 2019. Official general market introduction should happen by August of 2019. ROSA is an acronym for Responsive Observation Security Agent.

 

 

 

 

5.

‘AVA’ was announced by the company at the beginning of fiscal 2021 and replaces ‘FRED’. RAD took it’s first AVA order in June 2020 and expects to deliver it in September. AVA performs FRED tasks and much more.


Software Solutions


RAD has created a variety of front-end and back-end software solutions to power its ecosystem. Customer facing software includes RADGUARD (on the touchscreens of RAD’s field devices) and RADSOC (Security Operations Center) and RADPMC (Property Management Center).


RAD has developed a variety of utilities that allow automatic over-the-air updates, most of which is within a back-end application called SCOT Manager.


RAD has written world class Visitor Management, Access Control and other applications instead of seeking to partner with legacy manufacturers. It is RAD’s opinion that the legacy paradigm in the physical space underserves the markets in terms of cost, functionality and integration.


RAD has recently integrated its own Video Management System into RADSOC that includes full integration to a variety of features related to security and properly management functions.


RAD’s ability to deliver easy to use, easy to obtain, and easy to support software, combined with custom workflow-automation applications, is the key to RAD’s value proposition.


Manufacturing & Assembly


RAD uses a variety of domestic and overseas machine shops for raw material procurement and machining of the required plastic and metal pieces that build RAD devices.


RAD’s sourcing has redundancy through use of multiple machine shops producing the same products for RAD.


There is no piece of any RAD device that can only be procured from one supplier.


RAD’s margins are based on current small batch production and assembly. Economies of scale will drive greater gross margin as quantities and efficiencies increase.


RAD’s primary assembly and configuration location is in Southern California. It is anticipated that as RAD outgrows its existing facility these functions will be moved out of state, most likely to mid-west location. RAD’s California location would remain as the West Coast Sales & Service Center.


Anticipated location for a comprehensive assembly location is Michigan. This location provides central access to RAD’s largest markets as well as easy access from RAD’s R&D center outside of Toronto, Canada.


Tariff Impact


Anticipated tariffs of 25% across all imported items, not yet in effect, would impact US production costs by an additional 10%. If this happens RAD anticipates absorbing this cost for US units but supplying Canadian demand from local Canadian production (instead of from the US).


- 4 -



Covid Impact


The company issued a Covid Impact notice on March 24, 2020 that can be found here: https://secureservercdn.net/198.71.233.11/48b.407.myftpupload.com/wp-content/uploads/2020/03/covidUpdate.pdf. In summary, Covid accelerated some sales and prospects and stunted others. Overall the company believes that the Covid pandemic will spur the use of innovative cost saving technology such as created by RAD. Indeed, at the time of this writing RAD is engaged in several large and high level discussions with companies actively looking to reduce cost due to the pandemic. RAD expects this to be a general activity of all companies due to the long-term impact of Covid and regardless of if a vaccine is discovered in the short term.


Roadmap


RAD announced three major hardware solutions in fiscal 2020, specifically ROAMEO, AVA and ROSA.


1) RAD announced a return to the mobile unmanned ground vehicle market at the end of July 2019. This ground drone will benefit from significant innovations during the first 12 months following launch. It’s expected these advanced applications will spawn several ‘killer apps’ that will put this unit, and the RAD Ecosystem, in high demand. Expect release in September 2021.


2) RAD announced the AVA solution as a replacement to FRED.


3) RAD released ROSA, which has subsequently become the highest volume in shortest amount of time RAD solution to date.


In fiscal 2021 RAD released one significant hardware solution and one significant software solution.


RAD released Wally 2.0 with or without the ‘Health Services Option’. Wally 2.0 adds functionality in the way of advanced notification and improved response panel. The Health Services Option includes the ability to record people’s temperature and perform appropriate action based on the person’s skin temperature. This solution has garnered significant interest to date.


RAD released it’s ‘Face Mask Detection & Alert’ software upgrade. This software now runs on all RAD units and can be activated by customers as they see fit. It’s part of RAD’s commitment to provide advanced analytics on a continuous basis.


RAD’s hardware and software have benefited from continuous significant improvements and to date has over 400,000 paid operating hours.


Team and Culture


AITX has built a strong start-up culture based on performance, sacrifice and rewards. RAD begins every interview with a review of the eight elements that comprise RAD Culture and candidates are encouraged to understand that this is not a traditional company. As a startup RAD faces challenges of limited resources and time and as such, the team members are open to multitasking and wearing multiple hats, as the situation demands, thus allowing the management team to focus on the larger goals and steer the company in the right direction. Our solid RAD team, all share in the same beliefs and core values of the Company; so we easily adjust to changes thus giving RAD an edge in the market. The core team really determines the fate of a company and RAD is no stranger to the difficulties that face a startup, such as unexpected setbacks, delays in funding or a cash crunch. At RAD the whole team has pitched in, doing whatever they can, from working to meet tight deadlines; or willing partaking in financial sacrifices; to assisting where and whenever needed, creating a core team willing to standby the company through the testing times.


RAD’s culture has provided strength throughout the difficult period of robot deployments and the transition to 2nd generation solutions.


Market Environment


RAD experience has proved that the security market is ripe for disruption. Having captured the interest of many Fortune 500 companies (names generally protected under NDA) including Microsoft, Verizon, Boeing, Lockheed Martin, among many others, no other known company has the solutions, distribution channel, reputation, sales or support model to rival RAD in the near term.


Furthermore, the launch of RAD’s mobile solutions will create additional significant distance between any would-be competitors. RAD will be a one-stop shop for proven and comprehensive mobile and stationary workflow improvement devices and systems.


- 5 -



RAD’s technology model includes a ‘new paradigm’ for the security industry: Security in a box. Every RAD solution features connection to the RAD Software Suite which is a platform for AI processing, usage analytics, cloud served video, communications interface, audit logs and much more.


Positive market reception for RAD solutions are due to the following existing conditions:


 

1.

The security guard industry is characterized by poor customer satisfaction and industry consolidation. It’s self-described to be a ‘race to the bottom’ to provide the lowest cost services to end users because generally speaking end users require some security for general crime deterrent and insurance purposes. There are 1.1M security guards in the United States and the security guard industry represents over $20B in annual sales and the average security guard bill rate is $20/hour.

 

 

 

 

2.

Enterprise organizations’ security divisions/groups are continuously challenged to reduce cost. For example, Universal Parcel Service (UPS) spends over $120M/year in security guard services, Lockheed Martin over $60M/year and NBC Universal over $25M/year. The security guard industry has not had any significant disruption or innovation since inception.

 

 

 

 

3.

Guarding companies struggle to offer quality service at a reasonable price. Security organizations are eagerly receptive to solutions that improve performance and reduce cost.

 

 

 

 

4.

RAD’s device rental model allows clients to immediately save significant operating costs. With RAD’s current stationary solutions retailing from under $1/hour to $5/hour we can immediately provide substantial savings and significant additional security.

 

 

 

 

5.

RAD’s services options allow end users to incorporate or fully replace their existing Security Operation Centers with RAD solutions. This integrated with RAD’s “Solutions-As-A-Service” Rental Program offers customized options to help organizations achieve operational and security goals.


The above conditions speak to the historical lack of innovation in the guarding market largely driven by the lack of development of truly revolutionary systems. This market is now positioned for major disruption with the application of AI based solutions, as lead by RAD. As such, the interest in RAD solutions has been overwhelming. Major companies, including the U.S. largest guarding company Allied Universal Services, are aligning with RAD to offer these services to their customer base.


Prospective ROAMEO Impact


The Company’s release of ROAMEO bring it into comparison with Knightscope, a Palo Alto based robotics company in business since 2012. RAD’s approach is very different than Knightscope’s on all elements of technology. RAD believes that it’s pricing is up to 45% less expensive than the K5.


RAD expects that a small amount of ROAMEO orders, which RAD believes it has ‘queued up’ will make a significant impact on RAD’s financial performance and create momentum for significant adoption of the entire RAD lineup.


RAD Solutions Customer Acceptance


RAD end users include one Top 10 company and many Fortune 500 companies. RAD is currently deployed in logistics, commercial real estate, healthcare and retail industries. If RAD deployed to only 5% of any one of these industries facilities the company would enjoy tremendous profitability.


Due to the nature of existing non-disclosure agreements RAD does not normally share customer lists or specific deployment details.


RAD’s batch production of SCOTs & WALLYS have all been committed prior to the completion of the production cycle, with an average delivery time of 45 days. RAD has set a goal, predicated on regular demand, to reduce delivery time to 15 days.


RAD Industry Leadership Role


Mr. Reinharz has earned a prominent role as a spokesperson for AI and change in the security industry. He has lectured and participated in several panels for some of the security industries largest events and organizations. Mr. Reinharz sits on the SIA’s Autonomous Working Group committee which is dedicated to helping shape the industry and support progressive legislation. Most recently Mr. Reinharz provided NY City’s ASIS CPP group a lecture that qualified as a continuing education credit.


- 6 -



RAD gets exposure to prospects, customers and investors through Mr. Reinharz’s efforts to educate the security market. Blogs and industry published articles can be found in the news section of www.roboticassistancedevices.com


It is expected that Mr. Reinharz continues his promotion of the new paradigm for the next few years until adoption is widespread.


Financing


RAD has entered into three royalty revenue agreements and taken on limited additional direct debt to sustain operations and research and development as the company drives towards positive cash flow. Furthermore Steve Reinharz has provided over an additional $250,000 plus 100% deferred earnings during this rebuilding period. Steve Reinharz has received no cash salary and has pledged to receive no salary payouts until RAD has positive cash flow. All RAD employees have also made financial contributions and sacrifices during this period of focus on profitability.


However, positive cash flow cannot fund the pace of expected deployments. As such RAD has been working on alternative funding options. The expected success and durability of RAD’s solutions, and depth and breadth of the sales funnel has attracted the attention of various asset funding companies.


RAD is engaged in supplemental financing efforts based on existing and future streams of revenue that will provide additional non-dilutive funding to the company. As these efforts mature updates will be issued or shared in the relevant filings.


Go To Market Strategy


RAD’s strategy continues to focus on creation and support of a strong dealer channel. This affords multiple benefits to RAD with few downsides. RAD has successfully integrated through the largest US guarding company and recently signed another top 3 guarding company as a RAD dealer. Furthermore, RAD has been signing up and developing mid-sized and smaller dealers. RAD is on track to develop a focused group of dealers of which most will exclusively represent RAD solutions.


Supplemental to that RAD will, under certain circumstances, accept subscriptions directly from end users. These situations are largely characterized by the end user not having a guarding company, having a guarding company that RAD does not want as a dealer or other extenuating circumstances. RAD has no desired ratio of dealer vs direct subscriptions. Dealer subscriptions remain the primary focus.


Competition


RAD has no direct competition save for one immediate competitor and one potential competitor..


RAD is considered part of the ‘drones’ category of the security industry although at RAD we consider ourselves to be in the workflow automation industry.


RAD deliberately restricts information that is public for three main reasons:


 

1.

Usually activities are covered by mutual non-disclosure agreements and RAD generally will not ask for permission to publicize customer activities.

 

 

 

 

2.

These are generally security applications and most companies prefer to not advertise the details of their security systems.

 

 

 

 

3.

Until RAD hits the ‘tipping point’ we prefer to keep our solutions stealthy to some extent so as not to give our would-be competitors tips to copy us.


It is anticipated that at some point some competition may enter the market. RAD seeks to maintain a 2+ year competitive advantage through a broad line of hardware solutions, the fastest and smoothest user interface and the strongest feature set with the most mature back-end. Furthermore RAD seeks to expand its sales staff and become the dominant incumbent in this new market that it has created.


Employees


As of June 17, 2020 we have 1 employee, 17 full time contract employees and 4 part time contract employees. None of our employees are represented by a union. We consider our employee relations to be excellent.


- 7 -



Legal Proceedings


See Item 3 - Legal Proceedings.


ITEM 1A. RISK FACTORS


Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), we are not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).


ITEM 1B. UNRESOLVED STAFF COMMENTS


Not applicable.


ITEM 2. PROPERTIES


We maintain our corporate offices at 701 North Green Valley Parkway, Suite 200,Henderson, Nevada, 89704 pursuant to a month-to-month lease. Our annual rental cost for this facility is approximately $936 annually. RAD currently maintains an office at 1218-1222 Magnolia Ave, Suite 106 Bldg. H, Corona, California 92881 pursuant to a month to month lease commencing March 1, 2019. RAD’s annual rent is $12,000 per year. RAD maintains a mailing address for 31103 Ranch Viejo Road, Suite d2114 for a nominal fee of $ 264/yr. RAD previously had its offices at 23121 La Cadena Suite B/C Laguna Hills, California 92675, pursuant to a five-year term ending March 31, 2022. Its annual rental cost for this facility was approximately $65,000, plus a proportionate share of operating expenses of approximately $35,000 annually. The Company also leased premises in northern California. The lease was for three years, beginning in August 2017, and would expire in August 2020. The Company shared these premises with a former supplier who was the co-lessee. Through agreement with the supplier, the Company was to pay 75% of the lease costs and the supplier was to pay 25%. The Company’s share of rent costs was approximately $43,000 annually. On February 1, 2018 the Company entered into an additional lease for premises for a robotic control center. The lease ran from February 1, 2018 to January 31, 2021 for $6,600 annually. At the end of fiscal 2019 the Company terminated all three preceding leases through verbal arrangement with the landlord. Regarding the lease at La Cadena, the Company agreed to a settlement amount to cover unpaid rent, commissions and leasehold improvements paid by the landlord totaling $62,039 to be paid by the Company in 4 monthly installments of $5,000 commencing August 1, 2019 with the remaining balance to be paid in $10,000 monthly installments thereafter. The Company recorded the $62,039 as a loss on settlement. No further liability was recorded for both the northern California and robotic control center leases.


ITEM 3. LEGAL PROCEEDINGS


From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. There are no legal proceedings pending at this time.


In April 2019 the principals of WeSecure filed lawsuit in California Superior Court seeking damages for non-payment balance of sale of WeSecure assets totaling $25,000, unpaid consulting fees payable to the two principals through to September 2019 totaling $125,924, and labor code violations of $48,434 all totaling $199,358 plus attorney’s fees and damages. The parties finally settled all claims with a full release for $180,000 in June 2019 payable in 14 monthly instalments as follows:


2019

 

2020

 

Total

 

6/30/19

$

5,000

 

1/26/2020

$

15,000

 

 

 

 

7/30/19

$

5,000

 

2/25/2020

$

15,000

 

 

 

 

8/29/19

$

7,500

 

3/26/2020

$

15,000

 

 

 

 

9/28/19

$

7,500

 

4/25/2020

$

15,000

 

 

 

 

10/28/19

$

10,000

 

5/25/2020

$

20,000

 

 

 

 

11/27/19

$

10,000

 

6/25/2020

$

20,000

 

 

 

 

12/27/19

$

15,000

 

7/24/2020

$

20,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

60,000

 

 

$

120,000

 

$

180,000

 


As of June 17, 2020 the Company has paid $17,500. As of this filing the September 2019 through May 2020 instalments are in arrears.


ITEM 4. MINE SAFETY DISCLOSURES


Not applicable.


- 8 -



PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES


Market Information


AITX’s common stock began trading on the “Over the Counter” Bulletin Board (“OTC”) under the symbol “AITX” in June 2011 and as AITX on August 24, 2018. The following table sets forth, for the period indicated, the prices of the common stock in the over-the-counter market, as reported and summarized by OTC Markets Group, Inc. On August 24, 2018, the Company undertook a 100:1 reverse stock split and on March 27, 2020 a 10,000:1 reverse split. The share capital has been retrospectively adjusted accordingly to reflect this reverse stock split, except for the conversion price of certain convertible notes as the conversion price is not subject to adjustment from forward and reverse stock splits.


These quotations represent inter-dealer quotations, without adjustment for retail markup, markdown, or commission and may not represent actual transactions. There is an absence of an established trading market for the Company’s common stock, as the market is limited, sporadic and highly volatile, which may affect the prices listed below.


 

 

High

 

Low

Fiscal Year Ended February 29, 2020:

 

 

 

 

 

 

Quarter ended February 29, 2020

 

$

0.00

 

$

0.00

Quarter ended November 30, 2019

 

$

0.00

 

$

0.00

Quarter ended August 31, 2019

 

$

0.01

 

$

0.00

Quarter ended May 31, 2019

 

$

0.02

 

$

0.00

 

 

 

 

 

 

 

Fiscal Year Ended February 28, 2019:

 

 

 

 

 

 

Quarter ended February 28, 2019

 

$

0.02

 

$

0.00

Quarter ended November 30, 2018

 

$

0.31

 

$

0.00

Quarter ended August 31, 2018

 

$

1.56

 

$

0.12

Quarter ended May 31, 2018

 

$

7.57

 

$

0.90


On June 15, 2020, the closing price per share of the Company’s common stock as quoted on the OTC was $0.01.


Dividends


To date, we have not paid dividends on shares of the Company’s common stock and we do not expect to declare or pay dividends on shares of our common stock in the foreseeable future. The payment of any dividends will depend upon our future earnings, if any, AITX’s financial condition, and other factors deemed relevant by its Board of Directors.


Holders of Common Stock


As of June 18, 2020, there were 65 holders of AITX’s common stock of which 15 were active. The number of foregoing holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.


Common Stock


The Company is authorized to issue 5,000,000,000 shares of common stock, with a par value of $0.00001. The closing price of its common stock on July 22, 2020, as quoted by OTC Markets Group, Inc., was $0.0157. There were 195,549.343 shares of common stock issued and outstanding as of July 22, 2020. All shares of common stock have one vote per share on all matters including election of directors, without provision for cumulative voting. The common stock is not redeemable and has no conversion or preemptive rights. The common stock currently outstanding is validly issued, fully paid and non-assessable. In the event of liquidation of the Company, the holders of common stock will share equally in any balance of its assets available for distribution to them after satisfaction of creditors and preferred shareholders, if any. The holders of the Company’s common are entitled to equal dividends and distributions per share with respect to the common stock when, as and if, declared by the Board of Directors from funds legally available.


- 9 -



Our Articles of Incorporation, Bylaws, and the applicable statutes of the state of Nevada contain a more complete description of the rights and liabilities of holders of our securities.


During the year ended February 28, 2020 and 2019, there was no modification of any instruments defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.


On March 5, 2015, AITX effected a 500-for-1 reverse split, upon its reincorporation in Nevada. Each common shareholder received one common share in the Nevada company for every 500 common shares they held in the Florida company. Fractional shares were rounded up, and each share shareholder received at least 5 shares.


On August 24, 2018, the Company undertook a 100:1 reverse stock split and on March 27, 2020 the Company undertook a 10,000:1 reverse stock split. The share capital has been retrospectively adjusted accordingly to reflect this reverse stock split, except for the conversion price of certain convertible notes as the conversion price is not subject to adjustment from forward and reverse stock splits.


Non-cumulative voting


Holders of shares of the Company’s common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.


Securities Authorized for Issuance under Equity Compensation Plans


The following table shows the number of shares of common stock that could be issued upon exercise of outstanding options and warrants, the weighted average exercise price of the outstanding options and warrants, and the remaining shares available for future issuance.


Plan Category

 

Number of Securities to

be issued upon exercise

of outstanding options,

warrants and rights

 

Weighted average

exercise price of

outstanding options,

warrants and rights

 

Number of securities

remaining available for

future issuance

Equity compensation plans approved by security holders.

 

 

 

1

 

 

 

 

 

 

 

Equity compensation plans not approved by security holders.

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

1


Preferred Stock


The Company is authorized to issue up to 20,000,000 shares of $0.001 par value preferred stock. The board of directors is authorized to designate any series of preferred stock up to the total authorized number of shares.


Series E Preferred Stock


The board of directors has designated 4,350,000 shares of Series E Preferred Stock. As of the date of this report, there are 4,350,000 shares of Series E Preferred Stock outstanding. The Series E Preferred Stock ranks subordinate to the Company’s common stock as to distributions of assets upon liquidation, dissolution or winding up of the Corporation. The Series E preferred stock is non-redeemable, does not have rights upon liquidation of the Company and does not receive dividends. The outstanding shares of Series E Preferred Stock have the right to take action by written consent or vote based on the number of votes equal to twice the number of votes of all outstanding shares of equity instruments with voting rights. As a result, the holder of Series E Preferred Stock has 2/3rds of the voting power of all shareholders at any time corporate action requires a vote of shareholders.


- 10 -



Series F Convertible Preferred Stock


The board of directors has designated 4,350 shares of Series F Convertible Preferred Stock with a par value of $1.00 per share. As of the date of this report, there are 4,350 shares of Series F Convertible Preferred Stock outstanding. The Series F Convertible Preferred Stock is non-redeemable, does not have rights upon liquidation of the Company, does not have voting rights and does not receive dividends. Each holder may, at any time and from time to time convert all, but not less than all, of their shares of Series F Convertible Preferred Stock into a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued and outstanding shares of common stock of the Company on the date of conversion by three and 45 100ths (3.45) on a pro rata basis. So long as any shares of Series F Convertible Preferred Stock are outstanding, the Company shall not, without first obtaining the approval of the majority of the holders: (a) alter or change the rights, preferences or privileges of any capital stock of the Company so as to affect adversely the Series F convertible preferred stock; (b) create any Senior Securities; (c) create any pari passu Securities; (d) do any act or thing not authorized or contemplated by the Certificate of Designation which would result in any taxation with respect to the Series F Convertible Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended, or any comparable provision of the Internal Revenue Code as hereafter from time to time amended, (or otherwise suffer to exist any such taxation as a result thereof).


Series G Preferred Stock


The board of directors has designated 1,000 shares of Series G Preferred Stock. As of the date of this report, there are no shares of Series G Preferred Stock outstanding. The Series G preferred stock does not have voting rights, does not have rights upon liquidation of the Company and does not receive dividends.


Transfer Agent and Registrar


The Transfer Agent for our capital stock is Transhare with an address at 15500 Roosevelt Boulevard, Suite 302, Clearwater, Florida 33760. Their telephone number is Office phone: 303-662-1112.


Recent Sales of Unregistered Securities


The following is a summary of transactions by AITX involving sales of its securities that were not registered under the Securities Act.


Date

 

Transaction (1)

 

Principal Converted

 

Interest Converted

 

Fees Converted

 

Total Amount Converted

 

Shares Issued**

Number of shares outstanding February 28, 2017

 

 

 

 

 

 

 

 

 

 

 

18

March 7, 2017

 

conversion

 

$1,840

 

$—

 

$—

 

$1,840

 

1

March 22, 2017

 

conversion

 

1,971

 

 

 

1,971

 

1

March 27, 2017

 

cancelation ***

 

 

 

 

 

(1)

April 3, 2017

 

conversion

 

1,487

 

3,397

 

 

4,884

 

1

April 7, 2017

 

conversion

 

1,000

 

 

 

1,000

 

1

April 20, 2017

 

conversion

 

920

 

 

 

920

 

1

April 24, 2017

 

conversion

 

6,876

 

 

 

6,876

 

1

April 26, 2017

 

conversion

 

1,130

 

 

 

1,130

 

1

May 2, 2017

 

conversion

 

1,130

 

 

 

1,130

 

1

May 4, 2017

 

conversion

 

1,240

 

 

 

1,240

 

1

May 4, 2017

 

conversion

 

8,854

 

 

 

8,854

 

1

May 8, 2017

 

conversion

 

9,296

 

 

 

9,296

 

1

May 12, 2017

 

conversion

 

1,432

 

 

 

1,432

 

1

May 15, 2017

 

conversion

 

11,661

 

 

 

11,661

 

1

May 15, 2017

 

conversion

 

1,550

 

 

 

1,550

 

2

May 18, 2017

 

conversion

 

13,629

 

 

 

13,629

 

2

May 23, 2017

 

conversion

 

9,684

 

3,059

 

 

12,743

 

1

May 24, 2017

 

conversion

 

1,730

 

 

 

1,730

 

2

May 30, 2017

 

conversion

 

1,890

 

 

 

1,890

 

2

June 7, 2017

 

conversion

 

1,985

 

 

 

1,985

 

2

June 9, 2017

 

conversion

 

2,085

 

 

 

2,085

 

2

June 12, 2017

 

conversion

 

2,185

 

 

 

2,185

 

2


- 11 -



(continued)

Date

 

Transaction (1)

 

Principal Converted

 

Interest Converted

 

Fees Converted

 

Total Amount Converted

 

Shares Issued**

June 14, 2017

 

conversion

 

2,295

 

 

 

2,295

 

2

June 19, 2017

 

conversion

 

2,400

 

 

 

2,400

 

2

June 20, 2017

 

conversion

 

2,500

 

 

 

2,500

 

3

June 20, 2017

 

conversion

 

3,000

 

358

 

 

3,358

 

June 22, 2017

 

warrant exercise****

 

 

 

 

 

3

June 28, 2017

 

conversion

 

2,800

 

 

 

2,800

 

3

June 28, 2017

 

warrant exercise****

 

 

 

 

 

3

July 5, 2017

 

conversion

 

3,050

 

 

 

3,050

 

3

July 6, 2017

 

warrant exercise****

 

 

 

 

 

3

July 7, 2017

 

warrant exercise****

 

 

 

 

 

July 7, 2017

 

conversion

 

3,400

 

 

 

3,400

 

3

July 26, 2017

 

conversion

 

3,500

 

 

 

3,500

 

4

July 28, 2017

 

conversion

 

9,750

 

 

 

9,750

 

1

July 28, 2017

 

conversion

 

4,000

 

 

 

4,000

 

4

August 2, 2017

 

conversion

 

75,000

 

 

 

75,000

 

4

August 2, 2017

 

conversion

 

75,000

 

2,483

 

 

77,483

 

4

August 4, 2017

 

conversion

 

11,184

 

 

 

11,184

 

August 14, 2017

 

conversion

 

4,500

 

 

 

4,500

 

5

August 21, 2017

 

conversion

 

4,700

 

 

 

4,700

 

5

August 29, 2017

 

conversion

 

4,900

 

 

 

4,900

 

5

September 5, 2017

 

conversion

 

26,250

 

 

 

26,250

 

5

September 18, 2017

 

conversion

 

27,250

 

 

 

27,250

 

5

September 27, 2017

 

conversion

 

29,000

 

 

 

29,000

 

6

October 16, 2017

 

conversion

 

30,500

 

 

 

30,500

 

6

October 16, 2017

 

conversion

 

10,000

 

 

 

10,000

 

Number of shares outstanding February 28, 2018

 

 

 

 

 

 

 

 

 

 

 

124

April 16, 2018

 

conversion

 

132,160

 

 

 

132,160

 

6

April 26, 2018

 

conversion

 

14,500

 

 

500

 

15,000

 

1

May 1, 2018

 

conversion

 

26,250

 

 

 

26,250

 

3

May 3, 2018

 

conversion

 

5,000

 

 

 

5,000

 

May 7, 2018

 

conversion

 

27,900

 

 

 

27,900

 

3

May 10, 2018

 

conversion

 

32,400

 

 

 

32,400

 

4

May 11, 2018

 

conversion

 

14,500

 

 

500

 

15,000

 

2

May 15, 2018

 

conversion

 

7,060

 

 

500

 

7,560

 

2

May 15, 2018

 

conversion

 

8,000

 

 

 

8,000

 

1

May 21, 2018

 

conversion

 

20,250

 

 

 

20,250

 

3

May 22, 2018

 

conversion

 

6,075

 

 

 

6,075

 

1

May 24, 2018

 

conversion

 

13,056

 

3,300

 

 

16,356

 

2

May 30, 2018

 

conversion

 

8,182

 

 

 

8,182

 

2

May 30, 2018

 

conversion

 

15,000

 

 

 

15,000

 

3

June 7, 2018

 

conversion

 

2,922

 

 

 

2,922

 

1

June 18, 2018

 

conversion

 

17,000

 

 

 

17,000

 

4

June 19, 2018

 

conversion

 

14,500

 

 

500

 

15,000

 

3

June 28, 2018

 

conversion

 

18,000

 

 

 

18,000

 

4

June 28, 2018

 

cancellation

 

(7,060)

 

 

(500)

 

(7,560)

 

(2)

July 5, 2018

 

conversion

 

14,500

 

 

500

 

15,000

 

4

July 5, 2018

 

conversion

 

8,818

 

 

 

8,818

 

3

July 11, 2018

 

conversion

 

10,200

 

 

 

10,200

 

4

July 11, 2018

 

conversion

 

14,500

 

 

500

 

15,000

 

5

July 19, 2018

 

conversion

 

16,000

 

 

500

 

16,500

 

5

July 19, 2018

 

conversion

 

11,000

 

1,366

 

 

12,366

 

4

July 23, 2018

 

conversion

 

14,500

 

 

500

 

15,000

 

7

July 25, 2018

 

conversion

 

5,000

 

 

 

5,000

 

2

July 31, 2018

 

conversion

 

11,000

 

1,455

 

 

12,455

 

6

August 24, 2018

 

conversion

 

 

15,300

 

 

15,300

 

10

August 27, 2018

 

conversion

 

5,500

 

 

500

 

6,000

 

10


- 12 -



(continued)

Date

 

Transaction (1)

 

Principal Converted

 

Interest Converted

 

Fees Converted

 

Total Amount Converted

 

Shares Issued**

August 29, 2018

 

conversion

 

4,280

 

 

500

 

4,780

 

11

August 30, 2018

 

conversion

 

6,000

 

 

 

6,000

 

10

August 30, 2018

 

rounding shares

 

 

 

 

 

August 31, 2018

 

conversion

 

20,000

 

 

 

20,000

 

11

August 31, 2018

 

conversion

 

7,500

 

 

500

 

8,000

 

11

September 5, 2018

 

conversion

 

8,800

 

1,375

 

 

10,175

 

13

September 5, 2018

 

conversion

 

7,800

 

 

 

7,800

 

13

September 7, 2018

 

conversion

 

7,000

 

 

500

 

7,500

 

13

September 12, 2018

 

conversion

 

5,355

 

 

 

5,355

 

15

September 12, 2018

 

conversion

 

6,500

 

 

500

 

7,000

 

14

September 13, 2018

 

conversion

 

5,395

 

 

 

5,395

 

13

September 13, 2018

 

conversion

 

3,436

 

 

500

 

3,936

 

14

September 18, 2018

 

conversion

 

5,670

 

 

 

5,670

 

19

September 20, 2018

 

conversion

 

3,448

 

 

500

 

3,948

 

19

September 21, 2018

 

conversion

 

6,720

 

 

 

6,720

 

19

September 24, 2018

 

conversion

 

5,250

 

 

 

5,250

 

18

September 26, 2018

 

conversion

 

6,132

 

 

 

6,132

 

23

September 28, 2018

 

conversion

 

3,084

 

 

500

 

3,584

 

23

October 1, 2018

 

conversion

 

3,100

 

 

 

3,100

 

20

October 3, 2018

 

conversion

 

4,030

 

 

 

4,030

 

26

October 3, 2018

 

conversion

 

2,202

 

 

500

 

2,702

 

25

October 5, 2018

 

conversion

 

2,750

 

485

 

 

3,235

 

16

October 5, 2018

 

conversion

 

4,449

 

 

 

4,449

 

29

October 8, 2018

 

conversion

 

8,835

 

 

 

8,835

 

105

October 9, 2018

 

conversion

 

4,158

 

 

500

 

4,658

 

30

October 10, 2018

 

conversion

 

4,988

 

 

 

4,988

 

29

October 15, 2018

 

conversion

 

5,935

 

 

 

5,935

 

33

October 18, 2018

 

conversion

 

9,000

 

 

 

9,000

 

113

October 19, 2018

 

conversion

 

4,400

 

713

 

 

5,113

 

33

October 23, 2018

 

conversion

 

9,840

 

 

 

9,840

 

317

November 1, 2018

 

conversion

 

9,400

 

 

 

9,400

 

94

November 5, 2018

 

conversion

 

6,195

 

 

 

6,195

 

52

November 15, 2018

 

conversion

 

7,980

 

 

 

7,980

 

95

November 27, 2018

 

conversion

 

3,850

 

724

 

 

4,574

 

123

December 6, 2018

 

conversion

 

4,056

 

797

 

 

4,853

 

141

December 7, 2018

 

conversion

 

2,034

 

 

 

2,034

 

66

December 10, 2018

 

conversion

 

2,367

 

 

 

2,367

 

76

December 10, 2018

 

conversion

 

2,333

 

 

500

 

2,833

 

91

December 10, 2018

 

conversion

 

1,475

 

 

500

 

1,975

 

91

December 10, 2018

 

conversion

 

3,348

 

 

 

3,348

 

90

December 11, 2018

 

conversion

 

2,489

 

 

 

2,489

 

80

December 11, 2018

 

conversion

 

4,340

 

 

 

4,340

 

140

December 12, 2018

 

conversion

 

3,500

 

 

 

3,500

 

94

December 12, 2018

 

conversion

 

6,600

 

1,306

 

 

7,906

 

213

December 13, 2018

 

conversion

 

2,408

 

 

500

 

2,908

 

134

December 13, 2018

 

conversion

 

3,426

 

 

 

3,426

 

111

December 14, 2018

 

conversion

 

4,154

 

 

 

4,154

 

134

December 18, 2018

 

conversion

 

4,368

 

 

 

4,368

 

141

December 19, 2018

 

conversion

 

3,100

 

 

500

 

3,600

 

160

December 19, 2018

 

conversion

 

1,000

 

3,348

 

 

4,348

 

161

December 20, 2018

 

conversion

 

 

 

 

 

130

December 20, 2018

 

conversion

 

2,155

 

 

500

 

2,655

 

169

December 20, 2018

 

conversion

 

3,636

 

 

 

3,636

 

117

December 20, 2018

 

conversion

 

7,480

 

1,520

 

 

9,000

 

333

December 24, 2018

 

conversion

 

2,970

 

 

 

2,970

 

110

December 26, 2018

 

conversion

 

3,213

 

 

 

3,213

 

143

December 27, 2018

 

conversion

 

1,870

 

1,381

 

 

3,252

 

120


- 13 -



(continued)

Date

 

Transaction (1)

 

Principal Converted

 

Interest Converted

 

Fees Converted

 

Total Amount Converted

 

Shares Issued**

December 28, 2018

 

conversion

 

3,700

 

 

500

 

4,200

 

227

December 31, 2018

 

conversion

 

4,869

 

 

 

4,869

 

216

December 31, 2018

 

conversion

 

5,365

 

 

 

5,365

 

290

January 2, 2019

 

conversion

 

7,370

 

1,562

 

 

8,932

 

425

January 7, 2019

 

conversion

 

3,360

 

 

 

3,360

 

240

January 7, 2019

 

conversion

 

3,944

 

 

 

3,944

 

290

January 8, 2019

 

conversion

 

4,080

 

 

 

4,080

 

300

January 9, 2019

 

conversion

 

3,161

 

 

500

 

3,661

 

317

January 10, 2019

 

conversion

 

3,380

 

 

 

3,380

 

325

January 11, 2019

 

conversion

 

5,280

 

1,150

 

 

6,430

 

397

January 11, 2019

 

conversion

 

3,625

 

 

 

3,625

 

290

January 14, 2019

 

conversion

 

3,400

 

 

 

3,400

 

340

January 15, 2019

 

conversion

 

4,100

 

 

 

4,100

 

410

January 15, 2019

 

conversion

 

4,300

 

 

 

4,300

 

430

January 17, 2019

 

conversion

 

4,800

 

 

 

4,800

 

480

January 22, 2019

 

conversion

 

4,435

 

 

 

4,435

 

504

January 22, 2019

 

conversion

 

4,230

 

 

 

4,230

 

470

January 23, 2019

 

conversion

 

3,816

 

 

 

3,816

 

530

January 25, 2019

 

conversion

 

3,781

 

 

 

3,781

 

556

January 28, 2019

 

conversion

 

3,276

 

 

 

3,276

 

585

January 29, 2019

 

conversion

 

3,690

 

 

 

3,690

 

615

January 29, 2019

 

conversion

 

3,870

 

 

 

3,870

 

645

January 30, 2019

 

conversion

 

4,080

 

 

 

4,080

 

680

January 31, 2019

 

conversion

 

4,500

 

 

 

4,500

 

750

January 31, 2019

 

conversion

 

4,290

 

 

 

4,290

 

715

February 4, 2019

 

conversion

 

4,740

 

 

 

4,740

 

790

February 5, 2019

 

cancellation

 

(2,658)

 

 

 

(2,658)

 

(17)

February 5, 2019

 

conversion

 

4,980

 

 

 

4,980

 

830

February 12, 2019

 

conversion

 

5,340

 

 

 

5,340

 

890

February 14, 2019

 

conversion

 

5,236

 

 

 

5,236

 

935

February 21, 2019

 

conversion

 

4,956

 

 

 

4,956

 

900

Number of shares outstanding February 28, 2019

 

 

 

 

 

 

 

 

 

 

 

20,026

May 6, 2019

 

conversion

 

5,768

 

 

 

5,768

 

1,030

May 6, 2019

 

conversion

 

15,000

 

 

 

15,000

 

882

May 6, 2019

 

conversion

 

11,900

 

 

 

11,900

 

992

May 7, 2019

 

conversion

 

6,048

 

 

 

6,048

 

1,080

May 7, 2019

 

conversion

 

11,900

 

 

 

11,900

 

992

May 8, 2019

 

conversion

 

6,384

 

 

 

6,384

 

1,140

May 8, 2019

 

conversion

 

11,800

 

 

 

11,800

 

983

May 8, 2019

 

conversion

 

7,312

 

 

500

 

7,812

 

1,240

May 9, 2019

 

conversion

 

12,500

 

 

 

12,500

 

1,136

May 10, 2019

 

conversion

 

7,200

 

 

 

7,200

 

655

May 8, 2019

 

conversion

 

4,400

 

 

 

4,400

 

1,000

May 13, 2019

 

conversion

 

7,493

 

 

 

7,493

 

1,338

May 13, 2019

 

conversion

 

12,650

 

3,786

 

 

16,436

 

1,957

May 21, 2019

 

conversion

 

3,281

 

 

 

3,281

 

586

May 22, 2019

 

conversion

 

11,550

 

3,526

 

 

15,076

 

2,094

July 11, 2019

 

conversion

 

11,000

 

3,984

 

 

14,984

 

1,921

July 25, 2019

 

conversion

 

8,584

 

 

 

8,584

 

2,000

July 30, 2019

 

conversion

 

16,940

 

6,350

 

 

23,290

 

3,882

July 31, 2019

 

conversion

 

9,872

 

 

 

9,872

 

2,300

August 2, 2019

 

conversion

 

10,301

 

 

 

10,301

 

2,400

August 8, 2019

 

conversion

 

21,450

 

8,170

 

 

29,620

 

4,937

August 11, 2019

 

conversion

 

10,945

 

 

 

10,945

 

2,550

August 11, 2019

 

conversion

 

5,837

 

 

 

5,837

 

1,360

August 12, 2019

 

conversion

 

8,800

 

 

 

8,800

 

2,750


- 14 -



(continued)

Date

 

Transaction (1)

 

Principal Converted

 

Interest Converted

 

Fees Converted

 

Total Amount Converted

 

Shares Issued**

August 12, 2019

 

conversion

 

13,915

 

5,337

 

 

19,252

 

4,011

August 13, 2019

 

conversion

 

3,528

 

 

 

3,528

 

1,260

August 14, 2019

 

conversion

 

5,920

 

 

 

5,920

 

2,960

August 15, 2019

 

conversion

 

12,650

 

4,877

 

 

17,527

 

5,842

August 15, 2019

 

conversion

 

6,200

 

 

 

6,200

 

3,100

August 16, 2019

 

conversion

 

8,060

 

 

 

8,060

 

4,030

August 19, 2019

 

conversion

 

6,784

 

 

 

6,784

 

4,240

August 20, 2019

 

conversion

 

7,136

 

 

 

7,136

 

4,460

August 20, 2019

 

conversion

 

12,100

 

4,705

 

 

16,805

 

7,002

August 21, 2019

 

conversion

 

4,284

 

5,628

 

 

9,912

 

4,690

August 22, 2019

 

conversion

 

 

6,348

 

 

6,348

 

5,290

August 23, 2019

 

conversion

 

 

4,400

 

 

4,400

 

5,500

August 26, 2019

 

conversion

 

7,810

 

3,068

 

 

10,878

 

9,065

August 26, 2019

 

conversion

 

 

3,416

 

 

3,416

 

4,270

August 27, 2019

 

conversion

 

 

2,240

 

 

2,240

 

2,800

August 29, 2019

 

conversion

 

 

5,344

 

 

5,344

 

6,680

September 3, 2019

 

conversion

 

 

5,616

 

 

5,616

 

7,020

September 3, 2019

 

conversion

 

6,149

 

2,449

 

 

8,598

 

14,329

September 4, 2019

 

conversion

 

 

2,956

 

 

2,956

 

7,390

September 5, 2019

 

conversion

 

 

3,240

 

 

3,240

 

8,100

September 6, 2019

 

conversion

 

 

3,560

 

 

3,560

 

8,900

September 9, 2019

 

conversion

 

 

3,752

 

 

3,752

 

9,380

September 10, 2019

 

conversion

 

 

3,944

 

 

3,944

 

9,860

September 10, 2019

 

conversion

 

6,826

 

2,750

 

 

9,575

 

15,959

September 11, 2019

 

conversion

 

 

4,129

 

 

4,129

 

10,300

September 12, 2019

 

conversion

 

2,447

 

2,233

 

 

4,680

 

11,700

September 13, 2019

 

conversion

 

4,920

 

 

 

4,920

 

12,300

September 16, 2019

 

conversion

 

2,818

 

2,342

 

 

5,160

 

12,900

September 17, 2019

 

conversion

 

 

2,960

 

 

2,960

 

7,400

September 18, 2019

 

conversion

 

 

4,760

 

 

4,760

 

11,900

September 19, 2019

 

conversion

 

 

2,920

 

 

2,920

 

7,300

September 20, 2019

 

conversion

 

202

 

1,998

 

 

2,200

 

5,500

September 25, 2019

 

conversion

 

4,506

 

234

 

 

4,740

 

12,600

October 3, 2019

 

conversion

 

5,651

 

349

 

 

6,000

 

15,000

October 10, 2019

 

conversion

 

3,760

 

280

 

 

4,040

 

10,100

October 25, 2019

 

conversion

 

2,584

 

556

 

 

3,140

 

15,700

November 4, 2019

 

conversion

 

2,926

 

354

 

 

3,280

 

16,400

November 27, 2019

 

conversion

 

2,970

 

770

 

 

3,740

 

18,700

January 3, 2020

 

conversion

 

 

2,640

 

 

2,640

 

13,200

January 27, 2020

 

conversion

 

3,360

 

 

 

3,360

 

16,800

February 1, 2020

 

cancellation

 

(3,360)

 

 

 

(3,360)

 

(16,800)

February 5, 2020

 

cancellation

 

 

(640)

 

 

(640)

 

(3,200)

February 5, 2020

 

conversion

 

 

4,060

 

 

4,060

 

20,300

February 29, 2020

 

rounding shares issuable

 

 

 

 

 

2,946

Number of shares outstanding February 29, 2020

 

 

 

 

 

 

 

 

 

 

 

418,415

__________

* Conversions occur at discounts ranging from 40-50% of average market price

** Shares adjusted for reverse stock splits: 100: 1 on August 24, 2018 and 10,000:1 on March 27, 2020

*** Total proceeds $600

**** Total proceeds $8,922


- 15 -



On August 28, 2017, AITX entered into a Stock Purchase Agreement with RAD and Steve Reinharz, as sole stockholder of RAD. Pursuant to the terms of the Stock Purchase Agreement, AITX acquired, on August 28, 2017, 10,000 shares of RAD’s common stock, representing all of RAD’s issued and outstanding capital stock, from Mr. Reinharz in exchange for the issuance by AITX of (i) 3,350,000 shares of our Series E Preferred Stock and, (ii) 2,450 shares of our Series F Convertible Preferred Stock. In connection with the foregoing, the Registrant relied upon the exemption from registration under the Securities Act of 1933, as amended and the rules and regulations of the Securities and Exchange Commission thereunder, in reliance upon Section 4(a)(2) thereof and Regulation D thereunder.


During the period from June 1, 2017 through July 25, 2017, AITX issued 8,922,279 shares of common stock upon cashless exercise of warrants held by one of the Company’s lenders who also converted $3,358 in interest and principal for 395,667 shares for a total of 9,317,946 shares issued.


On July 8, 2017, AITX issued a convertible note payable for $200,000 which bears interest at 8% per annum and is due July 6, 2018. The note is convertible into common stock of the Company at a 40% discount to the lowest trading price in during the 20 trading days prior to conversion.


In connection with the foregoing, the Registrant relied upon the exemption from registration under the Securities Act of 1933, as amended and the rules and regulations of the Securities and Exchange Commission thereunder, in reliance upon Section 4(a)(2) thereof and Regulation D thereunder.


On February 16, 2017, AITX closed on a Share Purchase Agreement with Capital Venture Holdings LLC (“Capital Venture”), a Wyoming Limited Liability Company, whereby AITX issued Capital Venture 1,000 shares of Series F Convertible Preferred Stock, representing all of the issued and outstanding shares of Series F Convertible Preferred Stock to Capital Venture in consideration for $5,000. Mr. Garett Parsons is the sole and managing member of Capital Venture.


In connection with the foregoing, AITX relied upon the exemption from registration under the Securities Act of 1933, as amended and the rules and regulations of the Securities and Exchange Commission thereunder, in reliance upon Section 4(a)(2) thereof and Regulation D thereunder.


Penny Stock Regulations


The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share. Our Common Stock falls within the definition of penny stock and therefore is subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 individually, or $300,000, together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Securities and Exchange Commission relating to the penny stock market. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. In addition, the broker-dealer must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our Common Stock and may affect the ability of investors to sell their Common Stock in the secondary market. In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the investors’ ability to buy and sell our stock.


Purchases of Equity Securities by the Registrant and Affiliated Purchasers


We have not repurchased any shares of our common stock during the fiscal year ended February 29, 2020.


- 16 -



ITEM 6. SELECTED FINANCIAL DATA


Not applicable.


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes to those financial 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 the Risk Factors, Forward-Looking Statements and Business sections in this report. 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.


Overview


AITX was incorporated in Florida on March 25, 2010. AITX reincorporated into Nevada on February 17, 2015. AITX’ fiscal year end is February 28 (February 29 during leap year). AITX is located at 701 North Green Valley Parkway, Suite 200 Henderson, Nevada, 89074, and our telephone number is 702-990-3271.


On August 28, 2017, AITX entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with RAD and Steve Reinharz, as sole stockholder of RAD. Pursuant to the terms of the Stock Purchase Agreement, AITX acquired, on August 28, 2017, 10,000 shares of RAD’s common stock, representing all of RAD’s issued and outstanding capital stock, from Mr. Reinharz in exchange for the issuance by AITX of (i) 3,350,000 shares of its Series E Preferred Stock and, (ii) 2,450 shares of its Series F Convertible Preferred Stock. As a result of the RAD acquisition, RAD is a wholly owned subsidiary of AITX. As a result of the closing of the RAD acquisition, AITX has succeeded to the business of RAD, in which it purchased all of the outstanding shares of capital stock of RAD. As a result, AITX’ 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 RAD acquisition is being treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of our prior operations were disposed of as part of the consummation of the transaction and therefore no goodwill or other intangible assets were recorded. RAD is treated as the accounting acquirer as its stockholders control the Company after the RAD Acquisition, even though the Company 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.


AITX’s prior business focus was transportation services, and we were previously exploring the on-demand logistics market by seeking to develop a network of logistics partnerships. Following the RAD acquisition described above, the Company took on RAD’s business of applying advanced artificial intelligence (AI) driven technologies, paired with multi-use hardware and supported by custom software and cloud services, to intelligently automate and integrate a variety of high frequency security, concierge and operational tasks.


RAD’s solutions are offered as a recurring monthly subscription, typically with a minimum 12 month subscription contract. RAD’s solutions earn over 75% gross margin over the life of each deployed asset. Specifically, RAD provides workflow automation solutions delivered through a system of hardware, software and cloud services. All elements of hardware and software design offered by RAD are 100% designed, developed and owned by RAD.


- 17 -



Results of Operations


The following table shows our results of operations for the years ended February 29, 2020 and February 28, 2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.


 

 

Period

 

Change

 

 

Year Ended

February 29, 2020

 

Year Ended

February 28, 2019

 

Dollars

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

260,768

 

$

114,671

 

$

146,097

 

127%

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

177,008

 

 

110,149

 

 

66,859

 

61%

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

1,959,814

 

 

3,524,545

 

 

(1,564,731

)

(44%)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,782,806

)

 

(3,414,396

)

 

1,631,590

 

(48%)

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

(4,430,843

)

 

19,509,231

 

 

(23,940,074

)

(123%)

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (loss)

 

$

(6,213,649

)

$

16,094,835

 

$

(22,308,484

)

(139%)


Revenue


Total revenue for the year ended February 29, 2020 was $260,768, which represented an increase of $146,097 compared to total revenue of $114,671 for the year ended February 28, 2019. Although limited by resources the Company continues its efforts to grow its business.


Gross profit


Total gross profit for the year ended February 29, 2020 was $177,008, which represented an increase of $66,859 compared to total gross profit of $110,149 for the year ended February 28, 2019. The increase is a result of the increase in revenues above.


Operating expenses


Operating expenses for the years ended February 29, 2020 and February 28, 2019 comprised of the following:


 

 

Period

 

Change

 

 

Year Ended

February 29, 2020

 

Year Ended

February 28, 2019

 

Dollars

 

Percentage

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

332,520

 

$

540,971

 

$

(208,451

)

(39%)

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

 

1,536,568

 

 

2,795,790

 

 

(1,259,222

)

(45%)

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

102,241

 

 

114,612

 

 

(12,371

)

(11%)

 

 

 

 

 

 

 

 

 

 

 

 

Loss on impairment of fixed assets

 

 

(11,515

)

 

73,172

 

 

(84,687

)

(116%)

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

$

$1,959,814

 

$

3,524,545

 

$

(1,564,731

)

(44%)


Our operating expenses were comprised of general and administrative expenses, research and development, depreciation and amortization, and a loss on impairment of fixed assets. General and administrative expenses consisted primarily of professional services, automobile expenses, advertising, salaries and wages, travel expenses and rent. Our operating expenses during the years ended February 29, 2020 and February 28, 2019 were $1,959,814 and $3,524,545, respectively. The overall $1,564,731 decrease in operating expenses was primarily attributable to the following increases in operating expenses of:


- 18 -



Research and development expenses decreased by $208,451 which resulted from a decrease in R&D Consultation fees from RAD Canada of $388,289 because of higher initial development costs in 2019 on the new products Scott, Wally and Rosa. This decrease is partially offset by other fees due to the elimination of employees in 2020 whose work is being now carried out by subcontractors.

 

 

General and administrative expenses decreased by $1,259,222 primarily due to the following decreases:


 

-

Professional fees decreased by $178,102 due to higher reporting costing 2019 as a result of multiple auditor changes and amendments.

 

 

 

 

-

Wages, salaries and payroll levies decreased by $861,472 as a result of eliminating employees and shifting work to subcontractors.

 

 

 

 

-

Rent decreased by $124,940 as a result of terminating three leases in 2019.

 

 

 

 

-

Trade shows and travel decreased by $153,657 as a result of larger marketing push in 2019 on the release of the new products.

 

 

 

 

-

In general , due to limited resources the Company had to reduce expenditures in all areas of the business. These reductions as well as those mentioned above were partially offset by increase in subcontractor fees of $343,080 that were a result replacing the employees as mentioned above.


Depreciation and amortization decreased by $12,371 due to lower fixed assets.

 

 

Gain loss on disposal /impairment of fixed assets increased by $84,687 sue to 2019 write downs and disposals in 2020 that generated small gains.


Other income (expense)


Other income (expense) consisted of the change of fair value of derivative instruments interest expense and gain on settlement of debt. Other income (expense) during the years ended February 29, 2020 and February 28, 2019, was ($4,430,843) and $19,509,231, respectively. The $23,940,074 decrease in other income was primarily attributable to the change in the fair value of derivatives and interest expense, including interest expense related to derivative liability in excess of the face value of debt and gain on settlement of debt. Fair value of derivatives was largely affected by the decrease in the market price of the Company’s common stock during the current period.


Change in fair value of derivative liabilities decreased by $27,166,158 due to the re-valuation of derivative liability on convertible notes based on the change in the market price of the Companys common stock.

 

 

Interest expense decreased by $3,281,927 due to a decrease in interest expense related to the derivative liability in excess of debt and the amortization of discounts , partially offset by an increase in interest expense on debt.

 

 

Gain on settlement of debt decreased by $55,843 due to a decrease in the number and amount of debt settlements this year over last year.


The Company’s loss from operations for the year ended February 29, 2020 was $1,782,806, which represented a reduction in loss of $1,631,590 compared to $3,414,386 for the year ended February 28, 2019. The reduction is due to higher revenues and lower in expense in fiscal 2020 as explained above.  Note that the Company had a net loss of 6,213,649 for the year ended February 29, 2020 as compared to net income of $16,094,835 for the year ended February 28, 2019. This change is mostly attributable to the change in fair value of derivatives described in other income above.


Going Concern


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


- 19 -



For the year ended February 29, 2020, the Company had negative cash flow from operating activities of $1,757,023. As of February 29, 2020 the Company has an accumulated deficit of $25,622,843 and negative working capital of $19,589,008. Management does not anticipate having positive cash flow from operations in the near future. These factors raise a substantial doubt about the Company’s ability to continue as a going concern for the twelve months following the issuance of these financial statements.


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


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


In the near term, management plans to continue to focus on raising the funds necessary to implement the Company’s business plan. Management will continue to seek out debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders will continue to advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raises doubts about the Company’s ability to continue as a going concern.


Capital Resources


The following table summarizes total current assets, liabilities and working capital for the period indicated:


 

 

February 29, 2020

 

February 28, 2019

 

 

 

 

 

 

 

 

 

Current assets

 

$

88,213

 

$

366,681

 

Current liabilities(1)

 

 

19,677,221

 

 

15,743,601

 

Working capital

 

$

(19,589,008

)

$

(15,376,920

)

__________

(1)

 As February 29, 2020 and February 28, 2019, current liabilities included approximately $6.9 million and $6.2 million, respectively, of derivative liabilities that are expected to be settled in shares of the Company in accordance with the various conversion terms.


As of February 29, 2020 and February 28, 2019, we had a cash balance of $13,307 and $21,192, respectively.


Summary of Cash Flows


 

 

Year Ended

February 29, 2020

 

Year Ended

February 28, 2019

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(1,732,023

)

$

(1,804,261

)

Net cash used in investing activities

 

$

(17,325

)

$

(202,717

)

Net cash provided by financing activities

 

$

1,766,463

 

$

2,003,397

 


Net cash used in operating activities for the year ended February 29, 2020 was $1,757,023, which included a net loss of $6,213,649, non-cash activity such as the change in fair value of derivative liabilities of $1,127,119, (gain) on settlement of debt of ($159,370), interest expense related to penalties from debt defaults of $314,347, interest expense related to derivative liabilities in excess of face value of debt of $198,492, amortization of debt discount of $874,187, (gain) on impairment of fixed assets ($11,515), provision for inventory of $54,702, depreciation and amortization of $102,241 and change in operating assets and liabilities of $1,956,423.


Net cash used in investing activities.


Net cash used in investing activities for the year ended February 29, 2020 was $17,325. This consisted primarily of the purchase of fixed assets of $26,825 offset by proceeds of disposal of fixed assets of $9,500.


- 20 -



Net cash provided by financing activities.


Net cash provided by financing activities was $1,766,463 for the year ended February 29, 2020. This consisted of proceeds from convertible notes payable of $25,000, proceeds from loans payable $768,563, proceeds from deferred variable payment obligation of $1,366,500, and net borrowings from loan payable – related party of $141,290, offset by repayments of loan payable $534,890.


Off-Balance Sheet Arrangements


We do not have any outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.


Significant Accounting Policies


Use of Estimates


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


Revenue Earning Devices


Revenue earning devices are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful life of 48 months. The Company continually evaluates revenue earning devices to determine whether events or changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the devices should be evaluated for possible impairment. The Company uses a combination of the undiscounted cash flows and market approaches in assessing whether an asset has been impaired. The Company measures impairment losses based upon the amount by which the carrying amount of the asset exceeds the fair value.


Fixed Assets


Fixed assets are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from 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

 

3 years

Office equipment

 

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 February 29, 2020 and February 28, 2019, the Company had no deferred development costs.


- 21 -



Sales of Future Revenues


The Company has entered into transactions, as more fully described in footnote 10, in which it has received funding from investors in exchange for which it will make payments to those investors based on the level of sales of certain revenue categories, generally based on a percentage of sales for those certain revenues. The Company determines whether these agreements constitute sales of future revenues or are in substance debt based on the facts and circumstances of each agreement, with the following primary criteria determinative of whether the agreement constitutes a sale of future revenues or debt:


 

Does the agreement purport, in substance, to be a sale

 

Does the Company have continuing involvement in the generation of cash flows due the investor

 

Is the transaction cancellable by either party through payment of a lump sum or other transfer of assets

 

Is the investors rate of return implicitly limited by the terms of the agreement

 

Does the Companys revenue for a reporting period underlying the agreement have only a minimal impact on the investors rate of return

 

Does the investor have recourse relating to payments due


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


Revenue Recognition 


ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, supersedes the revenue recognition requirements and industry specific guidance under Revenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Topic 606 defines a five-step process that must be evaluated and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing accounting principles generally accepted in the United States of America (“U.S. GAAP”) including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The Company adopted Topic 606 on March 1, 2018, using the modified retrospective method. Under the modified retrospective method, prior period financial positions and results will not be adjusted. There was no cumulative effect adjustment recognized as a result of this adoption. While the Company does not expect fiscal year 2020 net earnings to be materially impacted by revenue recognition timing changes, Topic 606 requires certain changes to the presentation of revenues and related expenses beginning March 1, 2018. Refer to Note 5 – Revenue from Contracts with Customers for additional information.


Distinguishing Liabilities from Equity


The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.


Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.


Initial Measurement


The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.


Subsequent Measurement – Financial Instruments Classified as Liabilities


The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other income (expenses).


- 22 -



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.


Measured on a Recurring Basis


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


 

 

 

 

Fair Value Measurement Using

 

 

 

Amount at
Fair Value

 

Level 1

 

Level 2

 

Level 3

 

February 29, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability – conversion features pursuant to convertible notes payable

 

$

6,890,688

 

$

 

$

 

$

6,890,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability – conversion features pursuant to convertible notes payable

 

$

6,170,139

 

$

 

$

 

$

6,170,139

 


See Note 12 for specific inputs used in determining fair value.


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


Earnings (Loss) per Share


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


- 23 -



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


Recently Adopted Accounting Pronouncements


See discussion of the adoption of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, above.


In May 2017, the FASB issued ASU 2017-09, Modification Accounting for Share-Based Payment Arrangements. The standard amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. The new standard is effective for fiscal years beginning after December 15, 2017. There was no impact on the financial statements of adopting this new standard on March 1, 2018.


On March 1, 2019 the Company adopted ASU No. 2016-02, Leases (Topic 842), which is effective for public entities for annual reporting periods beginning after December 15, 2018. Under ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and 2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company adopted ASU 2016-02 but does not expect any material impact on the financial statements because the leases commencing March 1, 2019 are month to month.


Recently Issued Accounting Pronouncements


In September 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. ASU 2016-13 was issued to provide more decision-useful information about the expected credit losses on financial instruments and changes the loss impairment methodology. ASU 2016-13 is effective for reporting periods beginning after December 15, 2019 using a modified retrospective adoption method. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The Company is currently assessing the impact this accounting standard will have on its financial statements and related disclosures. The Company will adopt this March 1, 2020.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


We do not have any financial instruments that are exposed to significant market risk. We maintain our cash and cash equivalents in bank deposits and short-term, highly liquid money market investments. A hypothetical 100-basis point increase or decrease in market interest rates would not have a material impact on the fair value of our cash equivalents securities, or our earnings on such cash equivalents.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


See Index to Financial Statements and Financial Statement Schedules appearing on pages F-1 through F-31 of this annual report on Form 10-K.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


On October 31, 2019, Fruci & Associates II, PLLC (“Fruci PLLC”) resigned (‘Termination”) as the independent registered public accounting firm of Artificial Intelligence Technology Solutions Inc. (the “Company”). The Board of Directors of the Company approved and ratified the Termination and the engagement (“Engagement”) of LJ Soldinger & Associates LLC (“LJ Soldinger”) as the Company’s new independent registered public accounting firm. The Engagement is effective immediately.


From May 13, 2019 through October 31, 2019, there were (i) no disagreements (as described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Fruci PLLC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.


- 24 -



On May 13, 2019, the Board of Directors of the Company approved and ratified the engagement of Fruci PLLC as the Company’s independent registered public accounting firm effective immediately, and dismissed Marcum LLP (“Marcum LLP”) as the Company’s independent registered public accounting firm.


From October 18, 2018 through May13, 2019, there were (i) no disagreements (as described in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Marcum LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.


On October 18, 2018, the Company engaged Marcum LLP (“Marcum”) as its independent registered public accountants. This engagement occurred in connection with the Company’s prior independent public accountants, GBH CPAs, PC (“GBH”) resigning, effective July 1, 2018, as a result of combining its practice with Marcum. The engagement of Marcum has been approved by the Audit Committee of the Company’s Board of Directors.


ITEM 9A. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


As of February 29, 2020, 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)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of February 28, 2019, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed 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.


Limitations on Systems of Controls


Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses identified in our evaluation, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.


Management’s Report on Internal Control over Financial Reporting


Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:


Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

 

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

 

 

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


- 25 -



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.


As of February 29, 2020, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.


The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: lack of a functioning audit committee; lack of a majority of independent members and a lack of a majority of outside directors on our board of directors; inadequate segregation of duties consistent with control objectives; and, management is dominated by a single individual. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of February 29, 2020.


Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.


This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.


Changes in Internal Control over Financial Reporting


No changes were made to our internal control over financial reporting during the quarter ended February 28, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B. OTHER INFORMATION


None.


PART III


ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


The following table sets forth the names, positions and ages of our directors and executive officers as of the date of this report. Our directors serve for one year and until their successors are elected and qualified. Our officers are elected by the board of directors to a term of one year and serve until their successor is duly elected and qualified, or until they are removed from office. The board of directors has no nominating, auditing or compensation committees.


Name

 

Age

 

Position(s)

Garett Parsons

 

36

 

President, Chief Executive Officer, Chief Financial Officer and Director


Biographical information concerning our director and executive officer listed above is set forth below.


- 26 -



Garett Parsons. Mr. Parsons has served as our President, Chief Executive Officer, Chief Financial Officer and member of our board of directors since February 2017. Mr. Parsons has over 10 years of financial consulting for both private and public equity markets. Mr. Parsons has extensive experience in the field of asset valuation, funding structures and public release document generation. His education includes a Bachelor of Arts in Political Science/Economics from California State University Sacramento and an Associate of Arts in Liberal Studies/ Business San Joaquin Delta College and West Hills College.


There are no family relationships between any of the executive officers and directors. During the past 10 years, Mr. Parsons was involved in any of the legal proceedings listed in Item 401(f) of Regulation S-K. There are no arrangements or understandings between Mr. Parsons and any other person pursuant to which he was or is to be selected as an executive officer or director.


Board Committees and Director Independence


As Mr. Parsons serves as our sole director, we do not have a separately designated audit committee, compensation committee or nominating and corporate governance committee. The functions of those committees are being undertaken by our sole director. Because we do not have any independent directors and have only one director, our sole director believes that the establishment of committees of the Board would not provide any benefits to our company and could be considered more form than substance.


We currently do not have any non-employee or independent directors, as such term is defined in the listing standards of The NASDAQ Stock Market, and we do not anticipate appointing additional directors in the near future.


Our sole director is not an “audit committee financial expert” within the meaning of Item 401(e) of Regulation S-K. As with most small, early stage companies until such time our company further develops its business, achieves a stronger revenue base and has sufficient working capital to purchase directors and officer’s insurance, the Company does not have any immediate prospects to attract independent directors. When the Company is able to expand our Board of Directors to include one or more independent directors, the Company intends to establish an Audit Committee of our Board of Directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent, and the Company is not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.


Procedures for Nominating Directors


There have been no material changes to the procedures by which security holders may recommend nominees to the Board since the most recently completed fiscal quarter. We do not have a policy regarding the consideration of any director candidates that may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our sole director established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our sole director has not considered or adopted any of these policies, as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future.


While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our Board will participate in the consideration of director nominees.


Director Qualifications


Mr. Parsons was appointed to our board in February 2017. Mr. Parsons has significant operational experience in our industry and brings both a practical understanding of the industry and as well as hands-on experience in our business sector to our board and a greater understanding of certain of the challenges we face in executing our growth strategy.


Code of Ethics and Business Conduct


We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely, and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethics.


- 27 -



Director Compensation


Mr. Parsons, our sole director, does not receive any additional compensation for his services as a director. We reimburse our directors for all reasonable ordinary and necessary business-related expenses, but we did not pay director’s fees or other cash compensation for services rendered as a director during the years ended February 28, 2019 and February 29, 2018 to any of the individuals serving on our Board during that period. We have no standard arrangement pursuant to which our directors are compensated for their services in their capacity as directors. We may pay fees for services rendered as a director when and if additional directors are appointed to the Board of Directors.


Compliance with Section 16(a) of the Securities Exchange Act of 1934


Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, or written representations that no other reports were required, and to the best of our knowledge, we believe that all of our officers, directors, and owners of 10% or more of our common stock filed all required Forms 3, 4, and 5.


ITEM 11. EXECUTIVE COMPENSATION


The following table summarizes all compensation recorded by us in the past two fiscal years for Mr. Parsons, our President, Chief Executive Officer and Chief Financial Officer.


2019 SUMMARY COMPENSATION TABLE


Name and Principal Position

 

Year

 

Salary
or
Fees
($)

 

Bonus
($)

 

Stock
Awards
($)

 

Option
Awards
($)

 

Non-Equity
Incentive Plan
Compensation
($)

 

Non-Qualified
Deferred
Compensation
Earnings
($)

 

All Other
Compensation
($)

 

Total
($)

Garett Parsons,

 

2020

 

132,690

 

 

 

 

 

 

 

132,690

President, Chief Executive Officer and Chief Financial Officer (1)

 

2019

 

101,410

 

 

 

 

 

 

 

101,410

__________

(1)

Mr. Parsons was appointed President, Chief Executive Officer and Chief Financial Officer on February 16, 2017.


Employment Agreements


We are not currently a party to an employment agreement with Mr. Parsons, our sole executive officer. We may enter into an employment agreement with Mr. Parsons in the future, however. We have no plans providing for the payment of any retirement benefits.


- 28 -



Outstanding Equity Awards at 2020 Fiscal Year-End


The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for Mr. Parsons, our sole executive officer outstanding as of February 29, 2020:


OPTION AWARDS

 

STOCK AWARDS

 

Name

 

Number of Securities Underlying Unexercised Options (#) Exercisable

 

Number of Securities Underlying Unexercised Options (#) Unexercisable

 

Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)

 

Option Exercise Price
($)

 

Option Expiration Date

 

Number of Shares or Units of Stock That Have Not Vested (#)

 

Market Value of Shares or Units of Stock That Have Not Vested ($)

 

Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)

 

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)

 

Garett Parsons

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 

0

 


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


At February 29, 2020, AITX had 418,415 shares of its common stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of February 29, 2020, and reflects:


each of our executive officers;

 

 

each of our directors;

 

 

all of our directors and executive officers as a group; and

 

 

each stockholder known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock.


Information on beneficial ownership of securities is based upon a record list of our stockholders and we have determined beneficial ownership in accordance with the rules of the SEC. We believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws, except as otherwise provided below.


Name

 

Amount and Nature of Beneficial Ownership (1)

 

Percent of
Class (2)

Named Executive Officers and Directors:

 

 

 

 

Garett Parsons (3)

 

195,549,343

 

22.47%

All executive officers and directors as a group (1 persons)

 

195,549,343

 

22.47%

 

 

 

 

 

5% Stockholders:

 

 

 

 

Steve Reinharz (4)

 

479,095,890

 

55.06%

c/o Robotic Assistance Devices

 

 

 

 


(1)

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Beneficial ownership also includes shares of stock subject to options and warrants currently exercisable or exercisable within 60 days of the date of this table. In determining the percent of common stock owned by a person or entity as of the date of this Report, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on as of July 22, 2020 195,549,3435 shares, and (ii) the total number of shares that the beneficial owner may acquire upon exercise of the derivative securities. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares.


- 29 -



(2)

Based on 195,549,343 shares of the Company’s common stock issued and outstanding as of July 22, 2020.

 

 

(3)

Mr. Parsons is the Company’s President, Chief Executive Officer and Chief Financial Officer and owns 1,000,000 shares of our Series E Preferred Stock and 1,000 shares of our Series F Preferred Stock. If Mr. Parsons converted the 1,000 shares of the Company’s Series F Preferred stock, he would receive 195,549,343 shares of the Company’s common stock, which is included in the chart above as if such conversion has occurred. Further, the outstanding shares of Series E preferred stock have the right to take action by written consent or vote based on the number of votes equal to twice the number of votes of all outstanding shares of common stock. As a result, the holder of Series E preferred stock has 2/3rds of the voting power of all shareholders at any time corporate action requires a vote of shareholders.

 

 

(4)

Steve Reinharz is the CEO of RAD and is the holder of (i) 3,350,000 shares of our Series E Preferred Stock and, (ii) 2,450 shares of our Series F Convertible Preferred Stock. If Mr. Reinharz converted the 2,450 shares of the Company’s Series F Convertible Preferred Stock, he would receive 479,095,890 shares of the Company’s common stock, which is included in the chart above as if such conversion has occurred. Further, the outstanding shares of Series E preferred stock have the right to take action by written consent or vote based on the number of votes equal to twice the number of votes of all outstanding shares of common stock. As a result, the holder of Series E preferred stock has 2/3rds of the voting power of all shareholders at any time corporate action requires a vote of shareholders.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE


We do not have a written policy for the review, approval or ratification of transactions with related parties or conflicted transactions. When such transactions arise, they are referred to our board of directors for its consideration.


For the years ended February 29, 2020 and February 28, 2019, the Company received net advances of $141,290 and $218,890, respectively, from its loan payable-related party. At February 29, 2020, the loan payable-related party was $1,310,358 and $782,844 at February 28, 2019. Included in the balance due to the related party is $656,334 of deferred salary and interest, $426,000 of which bears interest at 12%. At February 28,2018 there was $352,392, with $210,000 bearing interest at 12%. The accrued interest included at February 29, 2020 was $50,730 (2018- $13,650).


During the years ended February 29, 2020 and February 28, 2019, the Company was charged $484,251 and $484,251, respectively in consulting fees for research and development to a company owned by a principal shareholder.


ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES


On October 31, 2019, Fruci & Associates II, PLLC (“Fruci PLLC”) resigned (‘Termination”) as the independent registered public accounting firm of Artificial Intelligence Technology Solutions Inc. (the “Company”). The Board of Directors of the Company approved and ratified the Termination and the engagement (“Engagement”) of LJ Soldinger & Associates LLC (“LJ Soldinger”) as the Company’s new independent registered public accounting firm. The Engagement is effective immediately.


On May 13, 2019, the Board of Directors of the Company approved and ratified the engagement of Fruci PLLC as the Company’s independent registered public accounting firm effective immediately, and dismissed Marcum LLP (“Marcum”) as the Company’s independent registered public accounting firm.


On October 18, 2018, the Registrant engaged Marcum as its independent registered public accountants. This engagement occurred in connection with the Company’s prior independent public accountants, GBH CPA’s resigning, effective July 1, 2018, as a result of combining its practice with Marcum. The engagement of Marcum has been approved by the Audit Committee of the Company’s Board of Directors.


On September 25, 2017, our Board of Directors approved and ratified the engagement of GBH CPAs, PC (“GBH”) as our independent registered public accounting firm for the Company’s fiscal year ending February 28, 2018, effective immediately, and dismissed Malone Bailey as the Company’s independent registered public accounting firm.


- 30 -



The following table shows the fees that were billed for the audit and other services provided by LJ Soldinger for the fiscal year ended February 29, 2020.


 

 

2020

 

Audit Fees

 

$

72,500

 

Audit-Related Fees

 

 

 

Tax Fees

 

 

 

All Other Fees

 

 

 

Total

 

$

72,500

 


Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.


Audit-Related Fees - This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category would include consultation regarding correspondence with the SEC, other accounting consulting and other audit services.


Tax Fees - This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.


All Other Fees - This category consists of fees for other miscellaneous items.


As part of its responsibility for oversight of the independent registered public accountants, the Board has established a pre-approval policy for engaging audit and permitted non-audit services provided by our independent registered public accountants. In accordance with this policy, each type of audit, audit-related, tax and other permitted service to be provided by the independent auditors is specifically described and each such service, together with a fee level or budgeted amount for such service, is pre-approved by the Board. All of the services provided by LJ Soldinger, Fruci,,Marcum, GBH and MaloneBailey described above were approved by our Board.


The Company’s principal accountant did not engage any other persons or firms other than the principal accountant’s full-time, permanent employees.


PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES


(a)(1) Financial Statements


The consolidated financial statements and Report of Independent Registered Public Accounting Firm are listed in the Index to Financial Statements and Financial Statement Schedules on page F-1 and included on pages F-2 through F-31.


(2) Financial Statement Schedules


All schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein.


- 31 -



(3) Exhibits.


Exhibit No.

 

Description of Document

2.1

 

Stock Purchase Agreement, dated August 28, 2017, by and among the registrant, Steve Reinharz and Robotic Assistance Devices Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the Commission on August 31, 2017).

 

 

 

3.1

 

Articles of Incorporation of the registrant filed with the Nevada Secretary of State on September 8, 2014. (incorporated by reference to Exhibit 3.1 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018).

 

 

 

3.2

 

Plan and Agreement of Merger of Artificial Intelligence Technology Solutions Inc. (a Florida corporation) and Artificial Intelligence Technology Solutions Inc. (a Nevada corporation). (incorporated by reference to Exhibit 3.2 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018).

 

 

 

3.3

 

Bylaws of the registrant (incorporated by reference to Exhibit 3.2 to the registrant’s registration statement on Form S-1 (File No. 333-168530), filed with the Commission on August 4, 2010).

 

 

 

3.4

 

Certificate of Designations filed with the Nevada Secretary of State on February 8, 2017. (incorporated by reference to Exhibit 3.4 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018).

 

 

 

3.5

 

Certificate of Designations filed with the Nevada Secretary of State on May 3, 2017. (incorporated by reference to Exhibit 3.5 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018).

 

 

 

3.6

 

Amendment to Certificate of Designations filed with the Nevada Secretary of State on May 3, 2017 (incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the Commission on May 12, 2017).

 

 

 

10.1

 

Preferred Stock Purchase Agreement dated January 31, 2017 and entered into between the Company and Capital Venture Holdings LLC. (incorporated by reference to Exhibit 10.1 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018).

 

 

 

14.1

 

Code of Ethics (incorporated by reference to Exhibit 14.1 to the registrant’s registrant statement on Form S-1 (File No. 333-168530), filed with the Commission on August 4, 2010).

 

 

 

21.1

 

List of Subsidiaries. *

 

 

 

31.1

 

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

 

 

 

32.1

 

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

 

 

 

101.INS

 

XBRL Instance **

101.SCH

 

XBRL Taxonomy Extension Schema **

101.CAL

 

XBRL Taxonomy Extension Calculation **

101.DEF

 

XBRL Taxonomy Extension Definition **

101.LAB

 

XBRL Taxonomy Extension Labels **

101.PRE

 

XBRL Taxonomy Extension Presentation **

__________

*

Filed or furnished herewith.

**

To be submitted by amendment.


- 32 -



SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

 

 

 

Date: July 28, 2020

By:

/s/ Garett Parsons

 

 

Garett Parsons

 

 

President, Chief Executive Officer and Chief Financial Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature

 

Title

 

Date

/s/ Garett Parsons

 

President, Chief Executive Officer, Chief Financial Officer, and Director (principal executive officer, principal financial officer and principal accounting officer)

 

July 28, 2020

Garett Parsons

 

 

 

 


- 33 -



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

(FORMERLY ON THE MOVE SYSTEMS CORP.)


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm

F-2

 

 

Report of Independent Registered Public Accounting Firm

F-3

 

 

Consolidated Balance Sheets

F-4

 

 

Consolidated Statements of Operations

F-5

 

 

Consolidated Statement of Stockholders’ Deficit

F-6

 

 

Consolidated Statements of Cash Flows

F-7

 

 

Notes to the Consolidated Financial Statements

F-8


F-1



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS


To the Shareholders and Board of Directors of

Artificial Intelligence Technology Solutions, Inc.


Opinion on the Financial Statements


We have audited the accompanying consolidated balance sheet of Artificial Intelligence Technology Solutions, Inc. and Subsidiaries (the “Company”) as of February 29, 2020, the related consolidated statement of operations, stockholders’ deficit and cash flows for the year ended February 29, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 29, 2020, and the results of its operations and its cash flows for the year ended February 29, 2020, in conformity with accounting principles generally accepted in the United States of America.


Explanatory Paragraph – Going Concern


The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, incurred significant operating and cash flow losses and needs to raise additional capital to sustain operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.


Change in Accounting Principle


As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for revenue recognition in accordance with the adoption of new lease accounting standards within ASC 842.


Basis for Opinion


These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.


Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.


/s/ LJ Soldinger Associates, LLC

Deer Park, IL

July 28, 2020


We have served as the Company’s auditor since 2019.


F-2




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of Artificial Intelligence Technology Solutions Inc.


Opinion on the Financial Statements


We have audited the accompanying consolidated balance sheets of Artificial Intelligence Technology Solutions Inc. (“the Company”) as of February 28, 2019, and the related consolidated statements of operations, stockholders’ deficit, and cash flows the year ended February 28, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2019, and the results of its operations and its cash flows for the year ended February 28, 2019, in conformity with accounting principles generally accepted in the United States of America.


Going Concern


The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit, negative working capital, and management does not anticipate positive cash flows in the near future. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


Basis for Opinion


These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.


Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.


/s/ Fruci & Associates II, PLLC


We have served as the Company’s auditor during 2019 and resigned on October 31, 2019.


Spokane, Washington

October 30, 2019, except as to the 10,000 to 1 reverse stock split disclosed under “Stockholders’ Deficit” in Note 13 to the consolidated financial statements, of which the date is July 28, 2020.


F-3



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONSOLIDATED BALANCE SHEETS


 

 

February 29, 2020

 

February 28, 2019

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

 

$

13,307

 

$

21,192

 

Accounts receivable

 

 

50,117

 

 

39,964

 

Device parts inventory

 

 

24,789

 

 

273,496

 

Prepaid expenses and deposit

 

 

 

 

18,778

 

Vehicles for disposal

 

 

 

 

13,251

 

Total current assets

 

 

88,213

 

 

366,681

 

Revenue earning devices, net of accumulated depreciation of $123,088 and $42,784 respectively

 

 

239,171

 

 

187,174

 

Fixed assets, net of accumulated depreciation of $51,637 and $29,701, respectively

 

 

16,258

 

 

37,194

 

Total assets

 

$

343,642

 

$

591,049

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,144,660

 

$

1,486,488

 

Advances payable

 

 

1,597

 

 

12,637

 

Balance owed WeSecure

 

 

162,500

 

 

25,000

 

Customer deposits

 

 

10,000

 

 

10,000

 

Current portion of deferred variable payment obligation

 

 

30,534

 

 

2,108

 

Current portion of convertible notes payable, net of discount of $120,602 and $718,015, respectively

 

 

6,613,625

 

 

5,484,446

 

Loan payable - related party

 

 

1,310,358

 

 

782,844

 

Current portion of loans payable

 

 

696,154

 

 

321,946

 

Vehicle loan - current portion

 

 

38,522

 

 

57,287

 

Current portion of accrued interest payable

 

 

2,778,583

 

 

1,390,706

 

Derivative liability

 

 

6,890,688

 

 

6,170,139

 

Total current liabilities

 

 

19,677,221

 

 

15,743,601

 

Convertible notes payable, net of discount of $30,486 and $302,105 respectively

 

 

69,515

 

 

262,895

 

Loans payable

 

 

 

 

140,535

 

Deferred variable payment obligation

 

 

1,559,000

 

 

190,392

 

Accrued interest payable

 

 

144,311

 

 

85,344

 

Customer deposits

 

 

 

 

 

 

 

Total liabilities

 

 

21,450,047

 

 

16,422,767

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock, undesignated; 15,645,650 shares authorized; no shares issued and outstanding at May 31, 2018 and February 28, 2018, respectively

 

 

 

 

 

Series E Preferred Stock, $0.001 par value; 4,350,000 shares authorized; 4,350,000 and 4,350,000 shares issued and outstanding ,respectively

 

 

4,350

 

 

4,350

 

Series F Convertible Preferred Stock, $1.00 par value; 4,350 shares authorized; 3,450 and 3,450 shares issued and outstanding, respectively

 

 

3,450

 

 

3,450

 

Common Stock, $0.00001 par value; 5.000,000,000 shares authorized 418,415 and 20,026 shares issued and outstanding, respectively

 

 

4

 

 

 

Additional paid-in capital

 

 

4,334,564

 

 

3,395,606

 

Preferred stock to be issued

 

 

174,070

 

 

174,070

 

Accumulated deficit

 

 

(25,622,843

)

 

(19,409,194

)

Total stockholders’ deficit

 

 

(21,106,405

)

 

(15,831,718

)

Total liabilities and stockholders’ deficit

 

$

343,642

 

$

591,049

 


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


F-4



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


 

 

Year Ended
February 29, 2020

 

Year Ended
February 28, 2019

 

 

 

 

 

 

 

 

 

Revenues

 

$

260,768

 

$

114,671

 

 

 

 

 

 

 

 

 

Cost of Goods Sold

 

 

83,760

 

 

4,522

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

177,008

 

 

110,149

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

332,520

 

 

540,971

 

General and administrative

 

 

1,536,568

 

 

2,795,790

 

Depreciation and amortization

 

 

102,241

 

 

114,612

 

Loss (gain) on (disposal) impairment of fixed assets

 

 

(11,515

)

 

73,172

 

Total operating expenses

 

 

1,959,814

 

 

3,524,545

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,782,806

)

 

(3,414,396

)

 

 

 

 

 

 

 

 

Other income (expense), net:

 

 

 

 

 

 

 

Change in fair value of derivative liabilities

 

 

(1,127,119

)

 

26,039,039

 

Interest expense

 

 

(3,465,098

)

 

(6,747,025

)

Gain (loss) on settlement of debt

 

 

161,374

 

 

217,217

 

Total other income (expense), net

 

 

(4,430,843

)

 

19,509,231

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(6,213,649

)

$

16,094,835

 

 

 

 

 

 

 

 

 

Net income ( loss) per share - basic

 

$

(21.06

)

$

5,804.57

 

Net income (loss) per share - diluted

 

$

(31.46

)

$

(46.82

)

 

 

 

 

 

 

 

 

Weighted average common share outstanding - basic

 

 

197,539

 

 

2,773

 

 

 

 

 

 

 

 

 

Weighted average common share outstanding - diluted

 

 

197,539

 

 

195,618

 


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


F-5



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED FEBRUARY 29, 2020 AND FEBRUARY 28, 2019


 

 

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, 2018

 

4,350,000

 

$

4,350

 

3,450

 

$

3,450

 

125

 

$

 

$

1,233,312

 

$

(35,504,029

)

$

(34,262,917

)

Preferred stock payable

 

 

 

 

 

 

 

 

 

174,070

 

 

 

 

 

 

 

 

 

 

 

 

 

174,070

 

Adjustment to derivative liability

 

 

 

 

 

 

 

 

 

 

 

1,215,588

 

 

 

 

1,215,588

 

Common stock issued for debt conversion

 

 

 

 

 

 

 

19,901

 

 

 

 

851,687

 

 

 

 

851,687

 

Common Stock adjustment for reverse split

 

 

 

 

 

 

 

 

 

 

 

82,052

 

 

 

 

82,052

 

Stock based compensation

 

 

 

 

 

 

 

 

 

 

 

12,967

 

 

 

 

12,967

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

16,094,835

 

 

16,094,835

 

Balance at February 28, 2019

 

4,350,000

 

$

4,350

 

3,450

 

$

177,520

 

20,026

 

$

 

$

3,395,606

 

$

(19,409,194

)

$

(15,831,718

)

Adjustment to derivative liability

 

 

 

 

 

 

 

 

 

 

 

440,294

 

 

 

 

440,294

 

Common stock issued for debt conversion

 

 

 

 

 

 

 

395,443

 

 

4

 

 

498,664

 

 

 

 

498,668

 

Common stock adjustment issuable on reverse split

 

 

 

 

 

 

 

2,946

 

 

 

 

 

 

 

 

 

 Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,213,649

)

 

(6,213,649

)

Balance at February 29, 2020

 

4,350,000

 

$

4,350

 

3,450

 

$

177,520

 

418,415

 

$

4

 

$

4,334,564

 

$

(25,622,843

)

$

(21,106,405

)


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


F-6



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


 

 

Year Ended
February 29, 2020

 

Year Ended
February 28, 2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income (loss)

 

$

(6,213,649

)

$

16,094,835

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

102,241

 

 

114,612

 

Provision for note receivable

 

 

 

 

 

Provision for note receivable

 

 

 

 

40,000

 

Loss (gain) on (disposal) impairment of fixed assets

 

 

(11,515

)

 

73,172

 

Stock based compensation

 

 

 

 

12,967

 

Provision for inventory

 

 

54,702

 

 

 

Change in fair value of derivative liabilities

 

 

1,127,119

 

 

(26,039,039

)

Interest expense related to penalties from debt defaults

 

 

314,347

 

 

352,493

 

Interest expense related to derivative liability in excess of face value of debt

 

 

198,492

 

 

1,017,250

 

Amortization of debt discounts

 

 

874,187

 

 

4,641,181

 

(Gain) loss on settlement of debt

 

 

(159,370

)

 

(217,217

)

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(10,153

)

 

(11,964

)

Prepaid expenses

 

 

18,778

 

 

64,325

 

Device parts inventory

 

 

(6,875

)

 

42,617

 

Accounts payable and accrued expenses

 

 

157,165

 

 

1,219,703

 

Balance owed WeSecure

 

 

(17,500

)

 

 

Customer discounts

 

 

 

 

 

Current portion of deferred variable payment obligation

 

 

30,534

 

 

 

Accrued interest payable

 

 

1,795,514

 

 

790,804

 

Advances payable

 

 

(11,040

)

 

 

Net cash used in operating activities

 

 

(1,757,023

)

 

(1,804,261

)

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(26,825

)

 

(232,858

)

Proceeds of disposal of fixed assets

 

 

9,500

 

 

 

Cash paid for security deposit

 

 

 

 

30,141

 

Net cash used in investing activities

 

 

(17,325

)

 

(202,717

)

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from convertible notes payable, net

 

 

25,000

 

 

1,227,608

 

Principal repayments on convertible notes payable

 

 

 

 

(187,000

)

Proceeds from deferred variable payment obligation

 

 

1,366,500

 

 

192,500

 

Proceeds from loans payable

 

 

768,563

 

 

539,575

 

Repayment of loans payable

 

 

(534,890

)

 

(156,500

)

Net borrowings on loan payable - related party

 

 

141,290

 

 

218,890

 

Repayment of vehicle loan

 

 

 

 

(5,746

)

Proceeds from sale of preferred shares

 

 

 

 

174,070

 

Net cash provided by financing activities

 

 

1,766,463

 

 

2,003,397

 

 

 

 

 

 

 

 

 

Net change in cash

 

 

(7,885

)

 

(3,581

)

 

 

 

 

 

 

 

 

Cash, beginning of period

 

 

21,192

 

 

24,773

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$

13,307

 

$

21,192

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash and non-cash transactions:

 

 

 

 

 

 

 

Cash paid for interest

 

$

40,815

 

$

3,213

 

Cash paid for income taxes

 

$

 

$

 

 

 

 

 

 

 

 

 

Noncash investing and financing activities:

 

 

 

 

 

 

 

Inventory converted to revenue earning devices

 

$

106,256

 

$

 

Transfer from accounts payable to loan payable related party

 

$

 

$

247,812

 

Debt discount from derivative liabilities

 

$

 

$

914,010

 

Conversion of convertible notes and interest to shares of common stock

 

$

498,664

 

$

851,687

 

Release of derivative liability on conversion of convertible notes payable

 

$

440,294

 

$

1,215,588

 

Settlement and exchange of convertible notes payable

 

$

 

$

670,286

 

Reclassification of fixed assets to vehicle for disposal

 

$

 

$

13,251

 

Proceeds of disposal offset against vehicle loan

 

$

13,251

 

$

21,907

 

Capitalization of accrued interest to convertible notes payable and loans payable

 

$

160,282

 

$

67,272

 


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


F-7



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1. GENERAL INFORMATION


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


Robotic Assistance Devices, LLC (“RAD”), was incorporated in the State of Nevada on July 26, 2016 as a LLC. On July 25, 2017, Robotic Assistance Devices LLC converted to a C Corporation, Robotic Assistance Devices, Inc. through the issuance of 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, in which AITX purchased all of the outstanding shares of capital stock of RAD. As a result, AITX’s business going forward will consist of one segment activity which is the delivery of artificial intelligence and robotic solutions for operational, security and monitoring needs.


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


2. GOING CONCERN


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


For the year ended February 29, 2020, the Company had negative cash flow from operating activities of $1,757,023. As of February 29, 2020 the Company has an accumulated deficit of $25,622,843 and negative working capital of $19,589,088. 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. The Company is in default on many of its loans and obligations.  Without additional capital, the Company will not be able to remain in business.


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


In the near term, management plans to continue to focus on raising the funds necessary to implement the Company’s business plan. Management will continue to seek out debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders will continue to advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raises substantial doubts about the Company’s ability to continue as a going concern.


F-8



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


3. ACCOUNTING POLICIES


Basis of Presentation and Consolidation


The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in conformity with the instructions on Form 10-K of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). The audited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Robotic Assistance Devices, Inc., On the Move Experience, LLC and OMV Transports, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.


Use of Estimates


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


Cash


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


Accounts Receivable


Accounts receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances. There were no allowances provided for the years ended February 29, 2020 and February 28, 2019.


Device Parts Inventory


Device parts inventory is stated at the lower of cost or net realizable value using the weighted average cost method. The Company records a valuation reserve for obsolete and slow-moving inventory, relying principally on specific identification of such inventory. The Company uses these device parts in the assembly of revenue earning devices (and demo devices) as well as research and development. Depending on use, the Company will transfer the parts to the corresponding asset or expense if used in research and development. A charge to income is taken when factors that would result in a need for an increase in the valuation, such as excess or obsolete inventory, are noted. At February 29, 2020 we had a valuation reserve of $160,000.


Revenue Earning Devices


Revenue earning devices are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful life of 48 months. The Company continually evaluates revenue earning devices to determine whether events or changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the devices should be evaluated for possible impairment. The Company uses a combination of the undiscounted cash flows and market approaches in assessing whether an asset has been impaired. The Company measures impairment losses based upon the amount by which the carrying amount of the asset exceeds the fair value.


F-9



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Fixed Assets


Fixed assets are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from 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

 

3 years

Office equipment

 

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 February 29, 2020 and February 28, 2018, 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 10, in which it has received funding from investors in exchange for which it will make payments to those investors based on the level of sales of certain revenue categories, generally based on a percentage of sales for those certain revenues. The Company determines whether these agreements constitute sales of future revenues or are in substance debt based on the facts and circumstances of each agreement, with the following primary criteria determinative of whether the agreement constitutes a sale of future revenues or debt:


 

Does the agreement purport, in substance, to be a sale

 

 

 

 

Does the Company have continuing involvement in the generation of cash flows due the investor

 

 

 

 

Is the transaction cancellable by either party through payment of a lump sum or other transfer of assets

 

 

 

 

Is the investors rate of return implicitly limited by the terms of the agreement

 

 

 

 

Does the Companys revenue for a reporting period underlying the agreement have only a minimal impact on the investors rate of return

 

 

 

 

Does the investor have recourse relating to payments due


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


F-10



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Revenue Recognition


ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, supersedes the revenue recognition requirements and industry specific guidance under Revenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Topic 606 defines a five-step process that must be evaluated and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing accounting principles generally accepted in the United States of America (“U.S. GAAP”) including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. 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. While the Company does not expect fiscal year 2019 net earnings to be materially impacted by revenue recognition timing changes, Topic 606 requires certain changes to the presentation of revenues and related expenses beginning March 1, 2018. Refer to Note 5 – Revenue from Contracts with Customers for additional information.


Income Taxes


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


On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. ASC 740, Accounting for Income Taxes requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company’s gross deferred tax assets were revalued based on the reduction in the federal statutory tax rate from 35% to 21%. A corresponding offset has been made to the valuation allowance, and any potential other taxes arising due to the Tax Act will result in reductions to the Company’s net operating loss carryforward and valuation allowance. The Company will continue to analyze the Tax Act to assess its full effects on the Company’s financial results, including disclosures, for the Company’s fiscal year ending February 29, 2020, but the Company does not expect the Tax Act to have a material impact on the Company’s consolidated financial statements.


Leases


We adopted ASU No. 2016—02—Leases (topic 842), as amended as of march 1, 2019 using the modified retrospective approach. The modified retrospective approach provided a method for recording the existing leases at adoption and in comparative periods. In addition, we elected the package of practical expedient permitted under the transition guidance within the new standard.


In addition, we elected the hindsight practical expedient to determine the lease term for existing leases. The standard did not materially impact our consolidated net loss, accumulated deficit, and had no impact on cash flows.


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


If at its inception, a lease meets any of the four lease criteria above, the lease is classified by the Company as a sales/finance; and if none of the four criteria are met, the lease is classified by the Company as an operating lease.


F-11



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term, whereby an equal amount of rent expense is attributed to each period during the term of the lease, regardless of when actual payments are made. This generally results in rent expense in excess of cash payments during the early years of a lease and rent expense less than cash payments in the later years. The difference between rent expense recognized and actual rental payments is recorded as deferred rent and included in liabilities.


Distinguishing Liabilities from Equity


The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity, to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares.


Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity.


Initial Measurement


The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received.


Subsequent Measurement – Financial Instruments Classified as Liabilities


The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other income (expenses).


Fair Value of Financial Instruments


ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles.


ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).


The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows:


 

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.

 

 

 

 

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

 

 

 

Level 3 Inputs that are unobservable for the asset or liability.


F-12



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


Measured on a Recurring Basis


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


 

 

 

 

Fair Value Measurement Using

 

 

 

Amount at
Fair Value

 

Level 1

 

Level 2

 

Level 3

 

February 29, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability – conversion features pursuant to convertible notes payable

 

$

6,890,688

 

$

 

$

 

$

6,890,688

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

February 28, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liability – conversion features pursuant to convertible notes payable

 

$

6,170,139

 

$

 

$

 

$

6,170,139

 


See Note 12 for specific inputs used in determining fair value.


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


Earnings (Loss) per Share


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


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


Recently Issued Accounting Pronouncements


In September 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. ASU 2016-13 was issued to provide more decision-useful information about the expected credit losses on financial instruments and changes the loss impairment methodology. ASU 2016-13 is effective for reporting periods beginning after December 15, 2019 using a modified retrospective adoption method. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The Company is currently assessing the impact this accounting standard will have on its financial statements and related disclosures. The Company will adopt this March 1, 2020.


F-13



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO THE 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 842which was adopted. On March 1, 2019.


As disclosed in the revenue recognition section of Note 4 – Accounting Polices, the Company adopted Topic 606 in accordance with the effective date on March 1, 2018. Note 4 includes disclosures regarding the Company’s method of adoption and the impact on the Company’s financial statements. Revenue is recognized on direct sales of goods or services when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services.


Upon adoption of Topic 842, also referred to above in Note 4, the Company accounts for revenue earned from rental activities where an identified asset is transferred to the customer and the customer has the ability to control that asset.


The Company recognizes revenue from its rental operations on a straight line basis over the term for each individual robotic device, as the Company has determined that to date, its leases for these devices are classified as operating leases.


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


 

 

Year Ended
February 29, 2020

 

Year Ended
February 28, 2019

 

Device rental activities

 

$

234,956

 

$

114,261

 

Direct sales of goods and services

 

 

25,812

 

 

410

 

 

 

$

260,768

 

$

114,671

 


5. REVENUE EARNING ROBOTS


Revenue earning robots consisted of the following:


 

 

February 29, 2020

 

February 28, 2019

 

Revenue earning devices

 

$

362,259

 

$

229,958

 

Less: Accumulated depreciation

 

 

(123,088

)

 

(42,784

)

 

 

$

239,171

 

$

187,174

 


During the year ended February 29, 2020, the Company made total additions to revenue earning devices of $132,301 including $106,476 in inventory transfers. The company disposed of a revenue earning device having a net book value of $3,500 for $9,500 and recorded a gain on disposal of $6,000. During the year ended February 28, 2019, the Company made total additions to revenue earning devices of $229,958.


Depreciation expense for these devices was $80,305 and $22,107 for the years ended February 29, 2020 and February 28, 2019.


F-14



ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


6. FIXED ASSETS


Fixed assets consisted of the following: