Artificial Intelligence Technology Solutions Inc. - Quarter Report: 2020 May (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

FOR THE QUARTERLY PERIOD ENDED MAY 31, 2020


[_]	TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _______________ TO _______________

COMMISSION FILE NUMBER: 0-55079

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

(Exact name of registrant as specified in its charter)


Nevada		27-2343603
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification Number)

701 North Green Valley Parkway, Suite 200 Henderson, Nevada		89074
(Address of principal executive offices)		(Zip code)

(702) 990-3271

(Registrant’s telephone number, including area code)

not applicable

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

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

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

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

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


Large accelerated filer	[_]	Accelerated filer	[_]
Non-accelerated filer	[X]	Smaller reporting company	[X]
		Emerging growth company	[_]

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 195,549,343 shares of common stock were issued and outstanding as of July 22, 2020.


		PAGE
PART I	FINANCIAL INFORMATION

ITEM 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of May 31, 2020 and February 29, 2020 (Unaudited)	3

	Condensed Consolidated Statements of Operations for the Three Months Ended May 31, 2020 and 2019 (Unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended May 31, 2020 and 2019 (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 31, 2020 and 2019 (Unaudited)	6

	Notes to the Consolidated Financial Statements (Unaudited)	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	26

ITEM 4.	Controls and Procedures	27

PART II	OTHER INFORMATION

ITEM 1.	Legal Proceedings	28

ITEM 1A.	Risk Factors	28

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

ITEM 3.	Defaults Upon Senior Securities	28

ITEM 4.	Mine Safety Disclosures	28

ITEM 5.	Other Information	28

ITEM 6.	Exhibits	29

SIGNATURES		30

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PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	May 31, 2020 (Unaudited)			February 29, 2020 *
ASSETS
Current assets:
Cash	$	9,829		$	13,307
Accounts receivable		64,781			50,117
Device parts inventory		24,789			24,789
Total current assets		99,399			88,213
Revenue earning devices, net of accumulated depreciation of $145,729 and $123,088 respectively		216,530			239,171
Fixed assets, net of accumulated depreciation of $57,111 and $51,637, respectively		15,421			16,258
Total assets	$	331,350		$	343,642

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	1,128,274		$	1,144,660
Advances payable		1,594			1,597
Balance owed WeSecure		162,500			162,500
Customer deposits		10,000			10,000
Current portion of deferred variable payment obligation		41,527			30,534
Current portion of convertible notes payable, net of discount of $105,909 and $23,957 respectively		6,652,263			6,613,625
Loan payable - related party		1,357,766			1,310,358
Current portion of loans payable		851,722			696,154
Vehicle loan - current portion		38,522			38,522
Current portion of accrued interest payable		3,286,457			2,778,583
Derivative liability		3,879,699			6,890,688
Total current liabilities		17,410,324			19,677,221
Convertible notes payable, net of discount of $0 and $127,131 respectively		—			69,515
Deferred variable payment obligation		1,725,000			1,559,000
Accrued interest payable		—			144,311
Total liabilities		19,135,324			21,450,047

Commitments and Contingencies
Stockholders’ deficit:
Preferred Stock, undesignated; 15,645,650 shares authorized; no shares issued and outstanding at May 31, 2020 and February 29, 2020, 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; 3,450 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 6,486,760 and 418,415 shares issued and outstanding, respectively		65			4
Additional paid-in capital		4,661,658			4,334,564
Preferred stock to be issued		174,070			174,070
Accumulated deficit		(23,647,567	)		(25,622,843	)
Total stockholders’ deficit		(18,803,974	)		(21,106,405	)
Total liabilities and stockholders’ deficit	$	331,350		$	343,642

* Derived from audited information

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

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended May 31, 2020			Three Months Ended May 31, 2019

Revenues	$	63,321		$	40,305

Cost of Goods Sold		9,290			19,119

Gross Profit		54,031			21,186

Operating expenses:
Research and development		81,723			(26,994	)
General and administrative		282,923			356,016
Depreciation and amortization		28,116			21,218
Total operating expenses		392,762			350,240

Loss from operations		(338,731	)		(329,054	)

Other income (expense), net:
Change in fair value of derivative liabilities		2,843,491			1,764,101
Interest expense		(529,484	)		(856,950	)
Gain (loss) on settlement of debt		—			112,509
Total other income (expense), net		2,314,007			1,019,660

Net income	$	1,975,276		$	690,606

Net income per share - basic and diluted	$	1.28		$	28.81

Weighted average common share outstanding - basic		1,537,353			23,970

Weighted average common share outstanding - diluted		1,537,353			23,970

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

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S DEFICIT

(Unaudited)


	Series E			Series F						Additional					Total
	Preferred Stock			Preferred Stock			Common Stock			Paid-In		Accumulated			Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit			Deficit

Balance at February 28, 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	—		—	—		—	—		—		154,684		—			154,684
Common stock issued for debt conversion	—		—	—		—	17,104		—		142,998		—			142,998
Stock based compensation	—		—	—		—	—		—		—		—			—
Net income	—		—	—		—	—		—		—		690,606			690,606
Balance at May 31 2019	4,350,000	$	4,350	3,450	$	177,520	37,130	$	—	$	3,693,288	$	(18,718,588	)	$	(14,843,430	)

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	)
Adjustment to derivative liability	—		—	—		—	—		—		167,497		—			167,497
Common stock issued for debt conversion	—		—	—		—	6,068,336		61		159,597		—			159,658
Rounding shares	—		—	—		—	9		—		—		—			—
Net income	—		—	—		—	—		—		—		1,975,276			1,975,276
Balance at May 31, 2020	4,350,000	$	4,350	3,450	$	177,520	6,486,760	$	65	$	4,661,658	$	(23,647,567	)	$	(18,803,974	)

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

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended May 31, 2020			Three Months Ended May 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,975,276		$	690,606
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		28,116			21,218
Change in fair value of derivative liabilities		(2,843,491	)		(1,764,101	)
Amortization of debt discounts		72,029			483,350
(Gain) loss on settlement of debt		—			(112,509	)
Increase in related party accrued payroll and interest		70,164			—
Changes in operating assets and liabilities:
Accounts receivable		(14,664	)		(9,023	)
Prepaid expenses		—			6,174
Accounts payable and accrued expenses		(16,387	)		(35,825	)
Accrued expense -related party		(1,030	)		—
Current portion of deferred variable payment obligation for Payments (see Note 7)		10,993			—
Accrued interest payable		447,162			287,766
Advances payable		—			(11,043	)
Net cash used in operating activities		(271,832	)		(443,387	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(4,638	)		(5,715	)
Net cash used in investing activities		(4,638	)		(5,715	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on convertible notes payable		—			308,500
Proceeds from deferred variable payment obligation		166,000			—
Proceeds from loans payable		153,243			103,856
Repayment of loans payable		(24,525	)		(30,540	)
Net borrowings (repayments) on loan payable - related party		(21,726	)		67,427
Net cash provided by financing activities		272,992			449,243

Net change in cash		(3,478	)		141

Cash, beginning of period		13,307			21,192

Cash, end of period	$	9,829		$	21,333

Supplemental disclosure of cash and non-cash transactions:
Cash paid for interest	$	—		$	3,213
Cash paid for income taxes	$	—		$	—

Noncash investing and financing activities:
Conversion of convertible notes and interest to shares of common stock	$	159,657		$	325,517
Release of derivative liability on conversion of convertible notes payable	$	167,497		$	—
Capitalization of accrued interest to convertible notes payable and loans payable	$	—		$	56,280

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

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. GENERAL INFORMATION

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

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

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

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

2. GOING CONCERN

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

For the three months ended May 31, 2020, the Company had negative cash flow from operating activities of $271,832. As of May 31, 2020, the Company has an accumulated deficit of $23,647,567, and negative working capital of $17,310,925. Management does not anticipate having positive cash flow from operations in the near future. These factors raise a substantial doubt about the Company’s ability to continue as a going concern for the twelve months following the issuance of these financial statements.

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

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

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

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in conformity with the condensing instructions on Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto in the Company’s latest Annual Report filed with the SEC on Form 10-K as filed on July 28, 2020. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Robotic Assistance Devices, Inc., On the Move Experience, LLC and OMV Transports, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three months ended May 31, 2020 are not necessarily indicative of the results that may be expected for the entire year.

Use of Estimates

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

Cash

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

Accounts Receivable

Accounts receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances. There were no allowances provided for the three months ended May 31, 2020 and the year ended February 29, 2020.

Device Parts Inventory

Device parts inventory is stated at the lower of cost or net realizable value using the weighted average cost method. The Company records a valuation reserve for obsolete and slow-moving inventory, relying principally on specific identification of such inventory. The Company uses these device parts in the assembly of revenue earning devices (and demo devices) as well as research and development. Depending on use, the Company will transfer the parts to the corresponding asset or expense if used in research and development. A charge to income is taken when factors that would result in a need for an increase in the valuation, such as excess or obsolete inventory, are noted. As at both May 31, 2020 and February 29, 2020 we had a valuation reserve of $160,000.

Revenue Earning Devices

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

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Fixed Assets

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


Vehicles		3 years
Computer equipment		3 years
Office equipment		4 years

The Company periodically evaluates the fair value of fixed assets whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable. Upon retirement or other disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is recognized in income.

Research and Development

Research and development costs are expensed in the period they are incurred in accordance with ASC 730, Research and Development unless they meet specific criteria related to technical, market and financial feasibility, as determined by Management, including but not limited to the establishment of a clearly defined future market for the product, and the availability of adequate resources to complete the project. If all criteria are met, the costs are deferred and amortized over the expected useful life or written off if a product is abandoned. At May 31, 2020 and February 29, 2020, the Company had no deferred development costs.

Contingencies

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

Sales of Future Revenues

The Company has entered into transactions, as more fully described in footnote 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 is implicitly limited by the terms of the agreement
	●	Does the Company’s revenue for a reporting period underlying the agreement have only a minimal impact on the investor’s rate of return
	●	Does the investor have recourse relating to payments due

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

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Revenue Recognition

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

Income Taxes

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

On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law. ASC 740, Accounting for Income Taxes requires companies to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities and the retroactive effects of changes in tax laws in the period in which the new legislation is enacted. The Company’s gross deferred tax assets were revalued based on the reduction in the federal statutory tax rate from 35% to 21%. A corresponding offset has been made to the valuation allowance, and any potential other taxes arising due to the Tax Act will result in reductions to the Company’s net operating loss carryforward and valuation allowance. The Company will continue to analyze the Tax Act to assess its full effects on the Company’s financial results, including disclosures, for the Company’s fiscal year ending February 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.

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

Distinguishing Liabilities from Equity

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

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

Initial Measurement

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

Subsequent Measurement – Financial Instruments Classified as Liabilities

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

Fair Value of Financial Instruments

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

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

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


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

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

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

- 11 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Measured on a Recurring Basis

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


	Amount at		Fair Value Measurement Using
	Fair Value		Level 1		Level 2		Level 3
May 31, 2020
Liabilities
Derivative liability – conversion features pursuant to convertible notes payable	$	3,879,699	$	—	$	—	$	3,879,699

February 29, 2020
Liabilities
Derivative liability – conversion features pursuant to convertible notes payable	$	6,890,688	$	—	$	—	$	6,890,688

See Note 12 for specific inputs used in the multinomial lattice model used in determining fair value.

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

Earnings (Loss) per Share

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

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

See additional disclosure in Note-18.

Recently Adopted Accounting Pronouncements

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

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvement to Nonemployee Share-Based Payment Accounting, which is part of the FASB’s simplification initiative to maintain or improve the usefulness of the information provided to the users of financial statements while reducing cost and complexity in financial reporting. This update provides consistency in the accounting for share-based payments to nonemployees with that of employees. The updated guidance had no impact on the Company’s consolidated financial position, results of operations or cash flows.

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

- 12 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

Reclassifications

Certain reclassifications have been made in the 2019 financial statements to conform to the 2020 presentation. These reclassifications have no effect on net loss for 2019.

4. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

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

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

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


	Three Months Ended May 31, 2020		Three Months Ended May 31, 2019
Device rental activities	$	60,321	$	40,305
Direct sales of goods and services		3,000		—
	$	63,321	$	40,305

5. REVENUE EARNING DEVICES

Revenue earning devices consisted of the following:


	May 31, 2020			February 29, 2020
Revenue earning devices	$	362,259		$	362,259
Less: Accumulated depreciation		(145,729	)		(123,088	)
	$	216,530		$	239,171

During the three months ended May 31, 2020, the Company made total additions to revenue earning devices of $0.

- 13 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

During the three months ended May 31, 2019, the Company made total additions to revenue earning devices of $32,843 including $27,128 in inventory transfers.

Depreciation expense was $22,641 and $15,765 for the three months ended May 31, 2020, and 2019 respectively.

6. FIXED ASSETS

Fixed assets consisted of the following:


	May 31, 2020			February 29, 2020
Automobile	$	43,453		$	41,953
Computer equipment		23,399			20,262
Office equipment		5,680			5,680
		72,532			67,895
Less: Accumulated depreciation		(57,111	)		(51,637	)
	$	15,421		$	16,258

During the three months ended May 31, 2020 made additions of $4,638 (May 31, 2019-$0).

Depreciation expense was $5,474 and $5,453 for the three months ended May 31, 2020, and 2019 respectively.

7. DEFERRED VARIABLE PAYMENT OBLIGATION

On February 1, 2019 the Company entered into an agreement with an investor whereby the investor would pay up to $900,000 (including $192,500 paid in January and February 2019) in exchange for a perpetual 9% rate payment (Payments) on the Company’s reported quarterly revenue from operations excluding any gains or losses from financial instruments (Revenues). If the total investor advances turns out to be less than $900,000, this would not constitute a breach of the agreement, rather the 9% rate would be adjusted on a pro-rata basis. The investor has agreed to pay the remaining balance in minimum $60,000 monthly installments, concluding November 30, 2019. At February 29, 2020 the investor has advanced the full $900,000.

On May 9, 2019 the Company entered into two similar arrangements with two investors:


	(1)	The investor would pay up to $400,000 (including $143,556 paid in May 2019) in exchange for a perpetual 4% rate Payment on the Company’s reported quarterly Revenues. If the total investor advances turns out to be less than $400,000, this would not constitute a breach of the agreement, rather the 4% rate would be adjusted on a pro-rata basis. The investor has agreed to pay the remaining balance in four monthly installments of $64,111 starting July 1, 2019. At February 29, 2020, $400,000 has been paid to the Company.

	(2)	The investor would pay up to $50,000 (including $17,444 paid in May 2019) in exchange for a perpetual 1.11% rate Payment on the Company’s reported quarterly Revenues. If the total investor advances turns out to be less than $50,000, this would not constitute a breach of the agreement, rather the 1.11% rate would be adjusted on a pro-rata basis. The investor has agreed to pay the remaining balance in four monthly installments of $8,014 starting July 1, 2019. At February 29, 2020, $50,000 has been paid to the Company.

These variable payments (Payments) are to be made 30 days after the fiscal quarter. If the Payments would deplete RAD’s available cash by more than 30%, the Payments may be deferred for up to 12 months after the quarterly report at an interest rate of 6% per annum on the unpaid amount.

- 14 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In the event that at least 10% of the assets of the Company are sold by the Company, the investors would be entitled to the fair market value (FMV) of all future Payments associated with the assets sold as determined by an independent valuator to be chosen by the investors. The FMV cannot exceed 30% of the total asset disposition price defined as the total price paid for the assets plus all future Payments associated with the assets sold. In the event that the common or preferred shares are sold by the Company to a third party as to effect a change in control, then the investors must be paid the FMV of all future Payments in one lump payment. The FMV cannot exceed 30% of the share disposition price defined as the total price the third party paid for the shares plus the total value of all future Payments.

On November 18, 2019 the Company entered into another similar arrangement with the (February 1, 2019) investor above whereby the investor would advance up to $225,000 in exchange for a perpetual 2.25% rate Payment on the Company’s quarterly Revenues (commencing on quarter ending May 31, 2020). At May 31, 2020 the investor has fully funded this commitment.

On December 30, 2019 the Company entered into another similar arrangement with a new investor whereby the investor would advance up to $100,000 in exchange for a perpetual 1.00% rate Payment on the Company’s quarterly Revenues (commencing quarter ended November 30, 2020). At May 31, 2020 the investor has advanced $50,000 with the remainder to be advanced no later than June 30, 2020. If the total investor advances turns out to be less than $100,000, this would not constitute a breach of the agreement, rather the 1.00% rate would be adjusted on a pro-rata basis to 0.50%.

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

The Company retains total involvement in the generation of cash flows from these revenue streams that form the basis of the payments to be made to the investors under this agreement. Because of this, the Company has determined that the agreements constitute debt agreements. As of May 31, 2020, the Company has not yet completed its assessment of the likely cash flows under these agreements, and thus, has not yet determined the effective interest rate under these agreements. The Company expects to have completed its analysis of the expected cash flows prior to the filing of the year end February 28, 2021 filing.

For the three months ended May 31, 2020, the Company has received $166,000 related to the deferred payment obligation bringing the balance to $1,725,000 at May 31, 2020. (February 29, 2020 -$1,559,000).

The Payments will first become payable on June 30, 2019 (unless otherwise indicated) based on the quarterly Revenues for the quarter ended May 31, 2019 and will accrue every quarter thereafter. As of May 31, 2020, the Company has accrued approximately $41,527 in Payments (February 29, 2020 -$30,534). No amounts have been recorded to date as interest, as the amounts are immaterial.

- 15 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

8. CONVERTIBLE NOTES PAYABLE

Convertible notes payable consisted of the following:


						Balance	Balance
			Interest	Conversion		May 31,	February 29,
Issued		Maturity	Rate	Rate per Share		2020	2020
January 31, 2013		February 28, 2017 *	10%	$0.010	⁽³⁾	$ 119,091	$ 119,091
May 31, 2013		November 30, 2016 *	10%	$0.010	⁽³⁾	261,595	261,595
August 31, 2014		November 30, 2016 *	10%	$0.002	⁽³⁾	355,652	355,652
November 30, 2014		November 30, 2016 *	10%	$0.002	⁽³⁾	103,950	103,950
February 28, 2015		February 28, 2017 *	10%	$0.001	⁽³⁾	63,357	63,357
May 31, 2015		August 31, 2017*	10%	$1.000	⁽³⁾	65,383	65,383
August 31, 2015		August 31, 2017*	10%	$0.300	⁽³⁾	91,629	91,629
November 30, 2015		November 30, 2018*	10%	$0.300	⁽³⁾	269,791	269,791
February 29, 2016		February 28, 2019*	10%	60% discount	⁽²⁾	95,245	95,245
May 31, 2016		May 31, 2019*	10%	$0.003	⁽³⁾	35,100	35,100
July 18, 2016		July 18, 2017*	10%	$0.003	⁽³⁾	3,500	3,500
December 31, 2016		December 31, 2020	8%	35% discount	⁽²⁾	65,000	65,000
January 15, 2017		January 15, 2021	8%	35% discount	⁽²⁾	50,000	50,000
January 15, 2017		January 15, 2021	8%	35% discount	⁽²⁾	100,000	100,000
January 16, 2017		January 16, 2021	8%	35% discount	⁽²⁾	150,000	150,000
March 8, 2017		March 8, 2020*	10%	40% discount	⁽²⁾	100,000	100,000
March 9, 2017		March 9, 2021	8%	35% discount	⁽²⁾	50,000	50,000
April 26, 2017		April 26, 2018*	0%	$0.001		68	68
May 1, 2017		May 1, 2021	8%	35% discount	⁽²⁾	50,000	50,000
May 4, 2017		May 4, 2018*	8%	40% discount	⁽²⁾	22,610	22,610
May 15, 2017		May 15, 2018*	0%	$0.001		1,280	1,280
May 17, 2017		May 17, 2020*	10%	40% discount	⁽¹⁾	85,000	85,000
June 7, 2017		June 7, 2018*	8%	40% discount	⁽²⁾	131,409	156,764
June 16, 2017		June 16, 2018*	0%	$0.001		750	750
July 6, 2017		July 6, 2018*	8%	40% discount	⁽²⁾	200,000	200,000
August 8, 2017		August 8, 2018*	8%	40% discount	⁽²⁾	125,000	125,000
July 28, 2017		July 28, 2018*	15%	40% discount	⁽²⁾	47,913	47,913
August 29, 2017		August 29, 2018*	15%	50% discount	⁽²⁾	162,250	162,250
October 4, 2017		May 4, 2018*	8%	40% discount	⁽²⁾	150,000	150,000
October 16, 2017		October 16, 2018*	15%	50% discount	⁽²⁾	328,537	328,537
November 22, 2017		November 22, 2018*	15%	50% discount	⁽²⁾	550,275	550,275
December 28, 2017		December 28, 2017*	10%	40% discount	⁽²⁾	55,508	57,008
December 29, 2017		December 29, 2018*	15%	50% discount	⁽²⁾	363,000	363,000
January 9, 2018		January 9, 2019*	8%	40% discount	⁽²⁾⁽¹⁾	79,508	79,508
January 30, 2018		January 30, 2019*	15%	50% discount	⁽²⁾⁽¹⁾	330,000	330,000
February 21, 2018		February 21, 2019*	15%	50% discount	⁽²⁾⁽¹⁾	330,000	330,000
March 14, 2018		March 14, 2019*	10%	40% discount	⁽²⁾	37,873	50,000
June 7, 2017		June 9, 2019*	8%	40% discount	⁽²⁾	200,000	200,000
April 9, 2018		April 9, 2019*	15%	50% discount	⁽²⁾	60,500	60,500
March 21, 2017		March 21, 2018*	8%	40% discount	⁽²⁾	40,000	40,000
April 20, 2018		April 20, 2019*	8%	40% discount	⁽²⁾	97,659	97,659
May 2, 2018		December 2, 2018*	10%	40% discount	⁽²⁾	70,682	70,682
May 4, 2018		May 4, 2019*	12%	50% discount	⁽²⁾	123,750	123,750
May 14, 2018		December 14, 2018*	10%	50% discount	⁽²⁾	33,542	33,542
May 23, 2018		May 23, 2019*	10%	50% discount	⁽²⁾	110,000	110,000
June 6, 2018		June 6, 2019*	15%	50% discount	⁽²⁾	282,949	282,949
June 19, 2018		March 19, 2019*	15%	50% discount	⁽²⁾	23,151	43,125
July 6, 2017		June 9, 2019*	8%	40% discount	⁽²⁾	200,000	200,000
August 1, 2018		August 1, 2019*	15%	50% discount	⁽²⁾	35,750	35,750
August 23, 2018		August 23, 2019*	8%	45% discount	⁽²⁾	70,123	70,123
September 13, 2018		June 30, 2019*	12%	45% discount	⁽²⁾	9,200	9,200
September 17, 2018		March 17, 2019*	10%	50% discount	⁽²⁾	4,945	4,945
September 20, 2018		September 20, 2019*	15%	50% discount	⁽²⁾	43,285	43,285
September 24, 2018		June 24, 2019*	8%	40% discount	⁽²⁾	46,813	63,913
August 8, 2017		June 9, 2019*	8%	40% discount	⁽²⁾	125,000	125,000
November 8, 2018		August 15, 2019*	12%	45% discount	⁽²⁾	79,500	79,500
November 26, 2018		May 26, 2019*	10%	50% discount	⁽²⁾	44,799	44,799
August 29. 2019		August 29. 2020	8%	40% discount	⁽²⁾	26,250	26,250
						6,758,172	6,834,228

	Less: current portion of convertible notes payable					(6,758,172)	(6,734,227)
	Less: discount on noncurrent convertible notes payable					—	(30,486)
	Noncurrent convertible notes payable, net of discount					$ —	$ 69,515

	Current portion of convertible notes payable					$ 6,758,172	$ 6,734,227
	Less: discount on current portion of convertible notes payable					(105,909)	(120,602)
	Current portion of convertible notes payable, net of discount					$ 6,652,263	$ 6,613,625

- 16 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

__________


*	The indicated notes were in default as of May 31, 2020. Default interest rate 24%

(1)	The note is convertible beginning six months after the date of issuance.

(2)	The notes are convertible at a discount (as indicated) to the average market price and are accounted for and evaluated under ASC 480 as discussed in Note 3.

(3)	The conversion price is not subject to adjustment from forward or reverse stock splits.

During both the three months ended May 31, 2020 and 2019, the Company incurred original issue discounts of $0, and debt discounts from derivative liabilities of $0 related to new convertible notes payable. During the three months ended May 31, 2020 and 2019, the Company recognized interest expense related to the amortization of debt discount of $72,029 and $483,350, respectively.

All the notes above are unsecured. As of May 31, 2020, the Company had total accrued interest payable of $3,286,457, all of which is classified as current.

The Company determined that the embedded conversion features in the convertibles notes described below should be accounted for as derivative liabilities as a result of their variable conversion rates.

During the three months ended May 31, 2020, the Company also had the following convertible note activity:


●	holders of certain convertible notes payable elected to convert a total of $76,055 of principal and $73,102 accrued interest, and $10,500 of fees into 6,068,336 shares of common stock. No gain or loss was recognized on conversions as these conversions occurred within the terms of the agreement that provided for conversion.

9. RELATED PARTY TRANSACTIONS

For the three months ended May 31, 2019, the Company received net advances of $67,427 from its loan payable-related party. For the three months ended May 31, 2020 the Company repaid net advances of $21,726. At May 31, 2020, the loan payable-related party was $1,357,766 and $1,310,358 at February 28, 2020. Included in the balance due to the related party at May 31, 2020 is $726,498 of deferred salary and interest, $480,000 of which bears interest at 12%. At February 28, 2020, included in the balance due to the related party is $656,334 of deferred salary and interest, $426,000 of which bears interest at 12%. The accrued interest included in loan at May 31, 2020 and May 31, 2019 was $50,730 and $8,950, respectively.

During the three months ended May 31, 2020 and 2019, the Company was charged $50,695 and credited $97,074, respectively for consulting fees for research and development to a company owned by a principal shareholder. The credit received in the quarter ended May 31, 2019 were a result of billing corrections of $106,444 in credits from the prior period and the charges in the quarter ended May 31, 2019 were $9,370.

10. OTHER DEBT – VEHICLE LOAN

In December 2016, RAD entered into a vehicle loan for $47,704 secured by the vehicle. The loan is repayable over 5 years maturing November 9, 2021, and repayable $1,019 per month including interest and principal. In November 2017, RAD entered into another vehicle loan secured by the vehicle for $47,661. The loan is repayable over 5 years, maturing October 24, 2022 and repayable at $923 per month including interest and principal. The principal repayments made were $0 and $5,746 for the years ended February 29, 2020 and February 28, 2019, respectively. Regarding the second vehicle loan, the vehicle was returned at the end of fiscal 2019 and the car was subsequently sold by the lender for proceeds of $21,907 which went to reduce the outstanding balance of the loan. A loss of $3,257 was recorded as well. A balance of $21,578 remains on this vehicle loan at both May 31, 2020 and February 29, 2020. For the first vehicle loan, the vehicle was retired in 2020, the proceeds of the disposal of $18,766 was applied against the balance of the loan with a $5,515 gain on the remaining asset value of $13,251. A balance of $16,944 remains on this vehicle loan at both May 31, 2020 and February 29, 2020 The remaining total balances of the amounts owed on the vehicle loans were $38,522 and $38,522 as of May 31, 2020 and February 28, 2020, respectively, of which all were classified as current.. The Company ceased making payments of principal and interest in fiscal 2019 and the company has returned the remaining vehicles to the financing company for disposal.

- 17 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11. LOANS PAYABLE

Loans payable consisted of the following:


					Annual
					Interest
Date	Maturity	Description		Principal	Rate
June 11, 2018	June 11, 2019	Promissory note	(3)	48,000	25%	*
August 10, 2018	September 1, 2018	Promissory note		10,000	25%	*
August 16, 2018	August 16, 2019	Promissory note	(1)	12,624	25%	*
August 16, 2018	October 1, 2018	Promissory note		10,000	25%	*
August 23, 2018	October 20, 2018	Promissory note	(21)	25,000	20%	*
October 11, 2018	October 11, 2019	Promissory note	(7)	17,000	20%	*
August 5, 2019	March 11, 2020	Factoring Agreement	(4)	25,775	(4)	*
November 12, 2019	August 11, 2020	Factoring Agreement	(10)	64,394	(10)
December 20, 2019	March 5, 2020	Factoring Agreement	(14)	7,480		*
October 17,2019	April 29, 2020	Factoring Agreement	(11)	20,761	(11)	*
September 27, 2019	April 4, 2020	Factoring Agreement	(12)	10,107	(12)	*
January 31, 2019	June 30, 2019	Promissory note	(2)	78,432	15%	*
January 24, 2019	January 24, 2021	Loan	(8)	151,431	11%
May 9, 2019	June 30, 2019	Promissory note	(5)	7,850	15%	*
May 31, 2019	June 30, 2019	Promissory note	(6)	86,567	15%	*
June 26, 2019	June 26, 2020	Promissory note	(9)	79,104	15%
September 24, 2019	June 24 2020	Promissory note	(13)	12,000	15%
January 30, 2020	January 30, 2021	Promissory note	(15)	11,000	15%
February 27, 2020	February 27, 2021	Promissory note	(16)	5,000	15%
April 16, 2020	April 16, 2021	Promissory note	(17)	13,000	15%
May 12, 2020	May 12, 2021	Promissory note	(18)	43,500	15%
May 22, 2020	May 22, 2021	Promissory note	(19)	85,000	15%
April 3, 2020	April 3, 2021	Promissory note	(20)	27,697	20%

				851,722
Less current portion of loans payable				851,722
Non-current portion of loans payable				—

__________


*	Note is in default. No notice has been given by the note holder.

(1)	Repayable in 12 monthly instalments of $2,376 commencing September 16 ,2018 and secured by revenue earning devices having a net book value of at least $25,000.Only $12,376 has been repaid by the Company and no notices have been received. Accrued interest of $1,511 has been recorded.

(2)	The note may be pre-payable at any time. The note balance includes 33% original issue discount of $25,882.

(3)	Repayable in 12 monthly instalments of $4,562 commencing August 11 ,2018 and secured by revenue earning devices having a net book value of at least $48,000. No repayments have been made by the Company and no notices have been received.

(4)	Total loan $79,750, repayable $475 per business day including fees and interest of $25,170. Original cash proceeds of $31,353 and $23,227 carried from previous loan less repayment of $39,250 ,including payments of $1,250 made during the quarter ended May 31, 2020. The Company has pledged a security interest on all accounts receivable and bank accounts of the Company. Obligation under personal guaranty by the controlling shareholder of the Company.

(5)	The note may be pre-payable at any time. The note balance includes 33% original issue discount of $2,590.

- 18 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


(6)	The note may be pre-payable at any time. The note balance includes 33% original issue discount of $28,567.

(7)	$6,000 repaid during the year ended February 29,2020.

(8)	$200,000 Canadian loan. Interest payable every calendar quarter commencing June30, 2019, if unpaid accrued interest to be paid at maturity. An additional interest amount calculated as 4% of RAD revenues from SCOT rentals for the fiscal years 2020 and 2021 shall be payable March 31, 2020 and March 31, 2021, respectively. Secured by a general security charging all of RAD’s present and after-acquired property in favor of the lender on a first priority basis subject to the following: the lender’s security in this respect shall be postponeable to security in favor of institutional financing obtained by RAD. Bonus interest of 10,304 has been accrued payable March 31, 2020.

(9)	The note may be pre-payable at any time. The note balance includes 33% original issue discount of $26,104.

(10)	Total loan of $243,639, repayable $1,509 per week including fees and interest of $60,042. Original cash proceeds of $7,877, repayment of loans (5) and (13) totaling $15,732, partial repayment of fees of $5,566 all totaling $29,175, additional advances of $88,772 with remaining $65,551 to be advanced to the company over the remaining 18 weeks. The Company has repaid a total of $87,867, including payments of $9,998 made during the quarter ended May 31, 2020. The Company has pledged a security interest on all accounts receivable and bank accounts of the Company. Obligation under personal guaranty by the controlling shareholder of the Company.

(11)	Total loan of $71,000, repayable $710 per business day including fees and interest of $21,000. Original proceeds of $50,000 less repayment of $50,249, including payments of $8,491 made during the quarter ended May 31, 2020. The Company has pledged a security interest on all accounts receivable and bank accounts of the Company. Obligation under personal guaranty by the controlling shareholder of the Company.

(12)	Total loan of $59,960, repayable $590 per business day including fees and interest of $19,960. Original proceeds of $40,000 less repayment of $49,853, including payments of $4,786 made during the quarter ended May 31, 2020. The Company has pledged a security interest on all accounts receivable and bank accounts of the Company. Obligation under personal guaranty by the controlling shareholder of the Company.

(13)	The note may be pre-payable at any time. The note balance includes 33% original issue discount of $3,000.

(14)	Total loan of $12,400, repayable $1,240 per week including fees and interest of $2,400. Original cash proceeds of $10,000, repayments of $4,920. The Company has pledged a security interest on all accounts receivable and bank accounts of the Company. Obligation under personal guaranty by the controlling shareholder of the Company.

(15)	The note may be pre-payable at any time. The note balance includes 22% original issue discount of $2,450.

(16)	The note may be pre-payable at any time. The note balance includes 24% original issue discount of $1,200.

(17)	The note may be pre-payable at any time. The note balance includes an original issue discount of $3,850.

(18)	The note may be pre-payable at any time. The note balance includes an original issue discount of $8,000.

(19)	The note may be pre-payable at any time. The note balance includes an original issue discount of $15,000.

(20)	$40,000 CDN loan, both principal and interest are due at maturity, if unpaid there is a 10% penalty on unpaid balance. By consent of all parties lender may convert balance into Class F shares at $6,739 USD per share.

(21)	Principal repayable in one year. Interest repayable in 10 monthly instalments of $460 commencing January 11 ,2019 and secured by revenue earning devices having a net book value of at least $186,000. 25,000 repaid.

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

12. DERIVATIVE LIABILITIES

As of May 31, 2020, the Company revalued the fair value of all of the Company’s derivative liabilities associated with the conversion features on the convertible notes payable and determined that it had a total derivative liability of $3,879,699.

The Company estimated the fair value of the derivative liabilities using the multinomial lattice model using the following key assumptions during the three months ended May 31, 2020:


Strike price	$0.035 - $0.035
Fair value of Company common stock	$86,900 - $0.0001
Dividend yield	0.00%
Expected volatility	592.1% -439.3%
Risk free interest rate	0.15% - 0.12%
Expected term (years)	0.79 - 0.25

During the three months ended May 31, 2020, and 2019, the Company released $167,498 and $154,684, respectively, of the Company’s derivative liability to equity due to the conversions of principal and interest on the associated notes.

The changes in the derivative liabilities (Level 3 financial instruments) measured at fair value on a recurring basis for the three months ended May 31, 2020 were as follows:


Balance as of February 28, 2020	$	6,890,688
Release of derivative liability on conversion of convertible notes payable		(167,498	)
Change in fair value of derivative liabilities		(2,843,491	)
Balance as of May 31, 2020	$	3,879,699

13. STOCKHOLDERS’ EQUITY (DEFICIT)

Summary of Common Stock Activity

On March 27, 2020, the Company undertook a 10,000:1 reverse stock split and on August 24, 2018, the Company undertook a 100:1 reverse stock split. The share capital has been retrospectively adjusted accordingly to reflect this reverse stock split, except for the conversion price of certain convertible notes as the conversion price is not subject to adjustment from forward and reverse stock splits (see Note 8).

During the three months ended May 31, 2020, the Company issued 6,086,345 shares of its common stock for the conversion of debt and related interest and fees totaling $159,658 including $76,055 for of principal, $73,102 interest, $10,500 in fees in connection with debt converted during the period, as well as the release of the related derivative liability (see Note 12).

Summary of Stock Option Activity


	Number of Warrants	Weighted Average Exercise Price	Weighted Average Remaining Years

Outstanding at March 1, 2020	2,043	$ 156	1.81
Issued	—	—	—
Exercised	—	—	—
Forfeited and cancelled	—	—	—
Outstanding at May 31, 2020	2,043	$ 156	1.79

For the three months ended May 31, 2020 and May 31, 2019, the Company recorded a total of $0 and $0, respectively, to stock-based compensation for options and warrants with a corresponding adjustment to additional paid-in capital.

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14. COMMITMENTS AND CONTINGENCIES

Litigation

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

In April 2019 the principals of WeSecure (see Note 9) filed lawsuit in California Superior Court seeking damages for this non-payment of this balance of WeSecure assets sold totaling $25,000, unpaid consulting fees payable to the two principals through September 2019 totaling $ $125,924.48, and labor code violations of $48,434.40, all totaling $199,358.88 plus attorney’s fees and damages. The parties finally settled all claims with a full release for $180,000 in June 2019 payable in 14 monthly instalments as follows:


2019			2020			Total
6/30/19	$	5,000	1/26/2020	$	15,000
7/30/19	$	5,000	2/25/2020	$	15,000
8/29/19	$	7,500	3/26/2020	$	15,000
9/28/19	$	7,500	4/25/2020	$	15,000
10/28/19	$	10,000	5/25/2020	$	20,000
11/27/19	$	10,000	6/25/2020	$	20,000
12/27/19	$	15,000	7/24/2020	$	20,000

Total	$	60,000		$	120,000	$	180,000

The company has fully accrued the above $180,000 at February 28, 2019.

As of May 31,2020 the Company paid $17,500. As of this filing the September 2019 through July 2020 instalments are in arrears.

The related legal costs are expensed as incurred.

Operating Lease

The Company currently maintains an office at 1218-1222 Magnolia Ave, Suite 106 Bldg. H ,Corona, California 92881 pursuant to a month to month lease which commenced March 1, 2019. The Company’s annual rent is $12,000 per year. RAD maintains a mailing address for 31103 Ranch Viejo Road, Suite d2114, San Juan Capistrano, California, for a nominal fee of $ 264/yr.

The Company’s leases are accounted for as operating leases. Rent expense is recorded over the lease terms on a straight-line basis. The Company has not paid but has accrued rent this quarter due to Covid-19. Rent expense was $3,000 for the three months ended May 31, 2020 and $3,000 for the three months ended May 31, 2019.

At May 31, 2020 the Company had no future minimum payments.

Convertible Notes Payable

Certain convertible notes payable carry conditions whereby in the event of ant default of any condition the Company would be subject to certain financial penalties.

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

15. EARNINGS (LOSS) PER SHARE

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


	For the Three Months Ended May 31,
	2020		2019

Numerator:
Net income available to common shareholders	$	1,975,276	$	690,606

Denominator:
Weighted average shares - basic		1,537,353		23,970

Net income (loss) per share – basic	$	1.28	$	28.81

The anti-dilutive shares of common stock equivalents for the three months ended May 31, 2020 and 2019 were as follows:


	For the Three Months Ended May 31,
	2020		2019

Stock options and warrants		2,043		2,043
Convertible debt		565,423,796		934,488
Preferred stock		22,379,321		128,101
Total		587,805,160		1,064,632

16. SUBSEQUENT EVENTS

Subsequent to May 31, 2020:

Convertible note holders converted $567,766 of principal, $299,676 of interest and $5,500 of fees into 189,062,583 shares of the Company’s common stock.

On July 1, 2020 the Company entered into a similar agreement as that described in Note 7 with the first investor (therein described) whereby the investor would pay up to $800,000 in exchange for a perpetual 2.75% rate payment(Payment) on the Company’s reported quarterly revenue. These Payments are to be made 90 days after the fiscal quarter with the first payment being due no later than May 31, 2021. If the Payments would deplete RAD’s available cash by more than 20%, the payment may be deferred. The investor has agreed to pay $100,000 per ,month over an 8 month period with the first payment due July 2020 and the final payment no later than February 28, 2021. If the total investment turns out to be less than $800,000, there would not be a breach of the agreement, rather the Payment percentage would be adjusted on a pro-rata basis.

On July 22, 2020 the board of directors passed a resolution whereby the sole director agreed to return for cancellation, 816 of his 1000 Series F preferred shares to the Company.

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

Forward-Looking Statements

The following discussion of our financial condition and results of operations for the three months ended May 31, 2019 and May 31, 2018 should be read in conjunction with our unaudited consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended February 28, 2019, as filed on August 26, 2019 with the SEC. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

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

Overview

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

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

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

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Results of Operations for the Three Months Ended May 31, 2020 and 2019

The following table shows our results of operations for the three months ended May 31, 2020 and 2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.


	Period						Change
	Three Months Ended May 31, 2020			Three Months Ended May 31, 2019			Dollars			Percentage
Revenues	$	63,321		$	40,305		$	23,016		57%

Gross profit		54,031			21,186			32,845		155%

Operating expenses		392,762			350,240			42,522		12%

Loss from operations		(338,731	)		(329,054	)		(9,677	)	3%

Other income (expense), net		2,314,007			1,019,660			1,294,347		127%

Net income	$	1,975,276		$	690,606		$	1,284,670		186%

Revenue

Total revenue for the three-month period ended May 31, 2020 was $63,321 which represented an increase of $23,016, compared to total revenue of $40,305 for the three months ended May 31, 2019. This 57% increase is a result of a natural increase in business over time.

Gross profit

Total gross profit for the three-month period ended May 31, 2020 was $54,031 which represented an increase of $32,845, compared to gross profit of $21,186 for the three months ended May 31, 2019. The increase resulted primarily from the increased revenues noted above.

Operating Expenses


	Period					Change
	Three Months Ended May 31, 2020		Three Months Ended May 31, 2019			Dollars			Percentage
Research and development	$	81,723	$	(26,994	)	$	108,717		(403%	)
General and administrative		282,923		356,016			(73,093	)	(21%	)
Depreciation and amortization		28,116		21,218			6,898		33%
Operating expenses	$	392,762	$	350,240		$	42,522		12%

Our operating expenses were comprised of general and administrative expenses, research and development, and depreciation. General and administrative expenses consisted primarily of professional services, automobile expenses, advertising, salaries and wages, travel expenses and consultants. Our operating expenses during the three-month period ended May 31, 2020 and May 31, 2019, were $392,762 and $350,240, respectively. The overall increase of $42,522 was primarily attributable to the following changes in operating expenses of:


●	General and administrative expenses decreased by $73,093. In comparing the three months ended May 31, 2020 and May 31, 2019 this decrease was primarily due to decreases in professional fees by $56,420 mostly due to a reduction in auditor fees, and travel decreased by $26,862.

●	Research and development increased by $108,717 due to credits received in the quarter ended May 31, 2019 that were a result of billing corrections of ($106,444) and the charges in the quarter ended May 31, 2019 were $9,370 compared to $50,695 for the quarter ended May 31, 2020.

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●	Depreciation and amortization increased by $6,898 due to increases in fixed assets and revenue earning devices.

Other Income (Expense)

Other income (expense) consisted of the change of fair value of derivative instruments and interest. Other income (expense) during the three months ended May 31, 2020 and May 31, 2019, was $2,314,007 and $1,019,660, respectively. The $1,294,347 decrease in other income was primarily attributable to the change in the fair value of derivatives, interest expense, and loss on settlement of debt. Fair value of derivatives was largely affected by the decrease in the market price of the Company’s common stock during the current period.


●	In comparing the three months ended May 31, 2020 and the three months ended May 31, 2019, the change in fair value of derivative liabilities increased by $1,079,390 due to the re-valuation of derivative liability on convertible notes based on the change in the market price of the Company’s common stock.

●	Interest expense decreased by $327,466 due to a decrease in debt discounts that was partially offset by an increase in interest expense on debt. At May 31, 2020 convertible debt has reached maturity and in not being amortized any longer.

●	Gain on settlement of debt was nil the quarter ended May 31, 2020 and $112,509 in the prior year’s quarter.

Net incomes

We had net income of $1,975,276 for the three months ended May 31, 2020, compared to net income of $690,606 for the three months ended May 31, 2019. The change is primarily the result of the change in the fair value of the derivative liabilities and other items discussed above.

Liquidity, Capital Resources and Cash Flows

Management believes that we will continue to incur losses for the immediate future. Therefore, we will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include and adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. For the three months ended May 31, 2019, we have generated revenue and are trying to achieve positive cash flows from operations.

As of May 31, 2020, we had a cash balance of $9,829, accounts receivable of $64,781 and $17,410,324 in current liabilities. At the current cash consumption rate, we will need to consider additional funding sources going forward. We are taking proactive measures to reduce operating expenses and drive growth in revenue.

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

Capital Resources

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


	May 31, 2020			February 29, 2020
Current assets	$	99,399		$	88,213
Current liabilities⁽¹⁾		17,410,324			19,677,221
Working capital	$	(17,310,925	)	$	(19,589,008	)

__________


(1)	As of May 31, 2020 and February 28, 2020, current liabilities included approximately $3.9 million and $6.9 million, respectively, of derivative liabilities that are expected to be settled in shares of the Company in accordance with the various conversion terms.

As of May 31, 2020 and February 28, 2020, we had a cash balance of $9,829 and $13,307, respectively.

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Summary of Cash Flows


	Three Months Ended May 31, 2020			Three Months Ended May 31, 2019
Net cash used in operating activities	$	(271,832	)	$	(443,387	)
Net cash used in investing activities	$	(4,637	)	$	(5,715	)
Net cash provided by financing activities	$	272,992		$	449,243

Net cash used in operating activities.

Net cash used in operating activities for the three months ended May 31, 2020 was $271,832, which included a net income of $1,975,276, non-cash activity such as the change in fair value of derivative liabilities of ($2,843,491), change in operating assets of $426,074, amortization of debt discount of $72,029, increase in related party accrued payroll and interest of $70,164 and depreciation and amortization of $28,116 to derive the uses of cash in operations.

Net cash used in investing activities.

Net cash used in investing activities for the three months ended May 31, 2020 was $4,637, which was the purchase of fixed assets.

Net cash provided by financing activities.

Net cash provided by financing activities was $272,992 for the three months ended May 31, 2020. This consisted of proceeds from deferred payment obligation of $166,000, proceeds from loans payable $153,243,reduced by net repayments from loan payable – related party of $21,726 and repayments on loans payable of $24,525.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are further discussed in our Annual Report on Form 10-K for the year ended February 29, 2020 filed with the SEC on July 28, 2010.

Related Party Transactions

During the three months ended May 31, 2020 and 2019, the Company was charged $50,695 and credited $97,074, respectively for consulting fees for research and development to a company owned by a principal shareholder. The credit received in the quarter ended May 31, 2019 were a result of billing corrections of $106,444in credits from the prior period and the charges in the quarter ended May 31, 2019 were $9,370.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for a smaller reporting company.

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ITEM 4. CONTROLS AND PROCEDURES

Management’s Report on Internal Control over Financial Reporting

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of May 31, 2020. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of May 31, 2020, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.


	1.	As of May 31, 2020, we did not maintain effective controls over our control environment. Specifically, we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

	2.	As of May 31, 2020, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.

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

Change in Internal Controls over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In April 2019 the principals of WeSecure (see Note 8) filed lawsuit in California Superior Court seeking damages for non-payment balance of sale of WeSecure assets totaling $25,000, unpaid consulting fees payable to the two principals through to September 2019 totaling $125,924, and labor code violations of $48,434 all totaling $199,358 plus attorney’s fees and damages. The parties finally settled all claims with a full release for $180,000 in June 2019 payable in 14 monthly instalments as follows:


2019		2020		Total
6/30/19	$5,000	1/26/2020	$15,000
7/30/19	$5,000	2/25/2020	$15,000
8/29/19	$7,500	3/26/2020	$15,000
9/28/19	$7,500	4/25/2020	$15,000
10/28/19	$10,000	5/25/2020	$20,000
11/27/19	$10,000	6/25/2020	$20,000
12/27/19	$15,000	7/24/2020	$20,000

Total	$60,000		$120,000	$180,000

The company has fully accrued the above $180,000.

As of May 31, 2020 the Company has paid $17,500. As of this filing the September 2019 through July 2020 instalments are in arrears.

The related legal costs are expensed as incurred.

ITEM 1A. RISK FACTORS

This item is not applicable to smaller reporting companies.

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

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company has not defaulted upon senior securities.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable to the Company.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


3.1	Articles of Incorporation (1)

3.2	Bylaws (2)

14	Code of Ethics (2)

21	Subsidiaries of the Registrant (3)

31.1	Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer and principal financial and accounting officer. (3)

32.1	Section 1350 Certification of principal executive officer and principal financial accounting officer. (3)

101	XBRL data files of Financial Statement and Notes contained in this Quarterly Report on Form 10-Q. (4)

__________


(1)	Incorporated by reference to our Form 10-KT file with the Securities and Exchange Commission on March 12, 2018.

(2)	Incorporated by reference to our Form S-1 filed with the Securities and Exchange Commission on August 4, 2010.

(3)	Filed or furnished herewith.

(4)	To be submitted by amendment.

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SIGNATURES

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


	Artificial Intelligence Technology Solutions Inc.


Date: August 7, 2020	BY: /s/ Garett Parsons
	Garett Parsons
	President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Treasurer and Director

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