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)  Nevada27-2343603(State or other jurisdiction of(I.R.S. Employerincorporation or organization)Identification No.)  1 East Liberty, 6th Floor
Reno, NV 8950189501(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 className of each exchange on which registeredCommon stock, $0.001 par valueOTC 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

PagePART IItem 1.Business1Item 1A.Risk Factors8Item 1B.Unresolved Staff Comments8Item 2.Properties8Item 3.Legal Proceedings8Item 4.Mine Safety Disclosures8PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities9Item 6.Selected Financial Data17Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations17Item 7A.Quantitative and Qualitative Disclosures About Market Risk24Item 8.Financial Statements and Supplementary Data24Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosures24Item 9A.Controls and Procedures25Item 9B.Other Information26PART IIIItem 10.Directors, Executive Officers and Corporate Governance26Item 11.Executive Compensation28Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters29Item 13.Certain Relationships and Related Transactions, and Director Independence30Item 14.Principal Accounting Fees and Services30PART IVItem 15.Exhibits, Financial Statement Schedules31Signatures33

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 LLCand 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.

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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.


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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 SuiteTM, as all RAD security solutions do. This software suite is a cloud and mobile solution that is the heart of RAD’s 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 SCOTTM’s 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 SCOTTM’s 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 andits 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.

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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).


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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.


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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.


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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.


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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:

20192020Total6/30/19$5,0001/26/2020$15,0007/30/19$5,0002/25/2020$15,0008/29/19$7,5003/26/2020$15,0009/28/19$7,5004/25/2020$15,00010/28/19$10,0005/25/2020$20,00011/27/19$10,0006/25/2020$20,00012/27/19$15,0007/24/2020$20,000Total$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.


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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.

HighLowFiscal Year Ended February 29, 2020:Quarter ended February 29, 2020$0.00$0.00Quarter ended November 30, 2019$0.00$0.00Quarter ended August 31, 2019$0.01$0.00Quarter ended May 31, 2019$0.02$0.00Fiscal Year Ended February 28, 2019:Quarter ended February 28, 2019$0.02$0.00Quarter ended November 30, 2018$0.31$0.00Quarter ended August 31, 2018$1.56$0.12Quarter 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 CategoryNumber of Securities to
be issued upon exercise
of outstanding options,
warrants and rightsWeighted average
exercise price of
outstanding options,
warrants and rightsNumber of securities
remaining available for
future issuanceEquity compensation plans approved by security holders.——1Equity 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.


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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.

DateTransaction (1)Principal ConvertedInterest ConvertedFees ConvertedTotal Amount ConvertedShares Issued**Number of shares outstanding February 28, 201718March 7, 2017conversion$1,840$—$—$1,8401March 22, 2017conversion1,971——1,9711March 27, 2017cancelation ***————(1)April 3, 2017conversion1,4873,397—4,8841April 7, 2017conversion1,000——1,0001April 20, 2017conversion920——9201April 24, 2017conversion6,876——6,8761April 26, 2017conversion1,130——1,1301May 2, 2017conversion1,130——1,1301May 4, 2017conversion1,240——1,2401May 4, 2017conversion8,854——8,8541May 8, 2017conversion9,296——9,2961May 12, 2017conversion1,432——1,4321May 15, 2017conversion11,661——11,6611May 15, 2017conversion1,550——1,5502May 18, 2017conversion13,629——13,6292May 23, 2017conversion9,6843,059—12,7431May 24, 2017conversion1,730——1,7302May 30, 2017conversion1,890——1,8902June 7, 2017conversion1,985——1,9852June 9, 2017conversion2,085——2,0852June 12, 2017conversion2,185——2,1852

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(continued)
DateTransaction (1)Principal ConvertedInterest ConvertedFees ConvertedTotal Amount ConvertedShares Issued**June 14, 2017conversion2,295——2,2952June 19, 2017conversion2,400——2,4002June 20, 2017conversion2,500——2,5003June 20, 2017conversion3,000358—3,358—June 22, 2017warrant exercise****————3June 28, 2017conversion2,800——2,8003June 28, 2017warrant exercise****————3July 5, 2017conversion3,050——3,0503July 6, 2017warrant exercise****————3July 7, 2017warrant exercise****—————July 7, 2017conversion3,400——3,4003July 26, 2017conversion3,500——3,5004July 28, 2017conversion9,750——9,7501July 28, 2017conversion4,000——4,0004August 2, 2017conversion75,000——75,0004August 2, 2017conversion75,0002,483—77,4834August 4, 2017conversion11,184——11,184—August 14, 2017conversion4,500——4,5005August 21, 2017conversion4,700——4,7005August 29, 2017conversion4,900——4,9005September 5, 2017conversion26,250——26,2505September 18, 2017conversion27,250——27,2505September 27, 2017conversion29,000——29,0006October 16, 2017conversion30,500——30,5006October 16, 2017conversion10,000——10,000—Number of shares outstanding February 28, 2018124April 16, 2018conversion132,160——132,1606April 26, 2018conversion14,500—50015,0001May 1, 2018conversion26,250——26,2503May 3, 2018conversion5,000——5,000—May 7, 2018conversion27,900——27,9003May 10, 2018conversion32,400——32,4004May 11, 2018conversion14,500—50015,0002May 15, 2018conversion7,060—5007,5602May 15, 2018conversion8,000——8,0001May 21, 2018conversion20,250——20,2503May 22, 2018conversion6,075——6,0751May 24, 2018conversion13,0563,300—16,3562May 30, 2018conversion8,182——8,1822May 30, 2018conversion15,000——15,0003June 7, 2018conversion2,922——2,9221June 18, 2018conversion17,000——17,0004June 19, 2018conversion14,500—50015,0003June 28, 2018conversion18,000——18,0004June 28, 2018cancellation(7,060)—(500)(7,560)(2)July 5, 2018conversion14,500—50015,0004July 5, 2018conversion8,818——8,8183July 11, 2018conversion10,200——10,2004July 11, 2018conversion14,500—50015,0005July 19, 2018conversion16,000—50016,5005July 19, 2018conversion11,0001,366—12,3664July 23, 2018conversion14,500—50015,0007July 25, 2018conversion5,000——5,0002July 31, 2018conversion11,0001,455—12,4556August 24, 2018conversion—15,300—15,30010August 27, 2018conversion5,500—5006,00010

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(continued)
DateTransaction (1)Principal ConvertedInterest ConvertedFees ConvertedTotal Amount ConvertedShares Issued**August 29, 2018conversion4,280—5004,78011August 30, 2018conversion6,000——6,00010August 30, 2018rounding shares—————August 31, 2018conversion20,000——20,00011August 31, 2018conversion7,500—5008,00011September 5, 2018conversion8,8001,375—10,17513September 5, 2018conversion7,800——7,80013September 7, 2018conversion7,000—5007,50013September 12, 2018conversion5,355——5,35515September 12, 2018conversion6,500—5007,00014September 13, 2018conversion5,395——5,39513September 13, 2018conversion3,436—5003,93614September 18, 2018conversion5,670——5,67019September 20, 2018conversion3,448—5003,94819September 21, 2018conversion6,720——6,72019September 24, 2018conversion5,250——5,25018September 26, 2018conversion6,132——6,13223September 28, 2018conversion3,084—5003,58423October 1, 2018conversion3,100——3,10020October 3, 2018conversion4,030——4,03026October 3, 2018conversion2,202—5002,70225October 5, 2018conversion2,750485—3,23516October 5, 2018conversion4,449——4,44929October 8, 2018conversion8,835——8,835105October 9, 2018conversion4,158—5004,65830October 10, 2018conversion4,988——4,98829October 15, 2018conversion5,935——5,93533October 18, 2018conversion9,000——9,000113October 19, 2018conversion4,400713—5,11333October 23, 2018conversion9,840——9,840317November 1, 2018conversion9,400——9,40094November 5, 2018conversion6,195——6,19552November 15, 2018conversion7,980——7,98095November 27, 2018conversion3,850724—4,574123December 6, 2018conversion4,056797—4,853141December 7, 2018conversion2,034——2,03466December 10, 2018conversion2,367——2,36776December 10, 2018conversion2,333—5002,83391December 10, 2018conversion1,475—5001,97591December 10, 2018conversion3,348——3,34890December 11, 2018conversion2,489——2,48980December 11, 2018conversion4,340——4,340140December 12, 2018conversion3,500——3,50094December 12, 2018conversion6,6001,306—7,906213December 13, 2018conversion2,408—5002,908134December 13, 2018conversion3,426——3,426111December 14, 2018conversion4,154——4,154134December 18, 2018conversion4,368——4,368141December 19, 2018conversion3,100—5003,600160December 19, 2018conversion1,0003,348—4,348161December 20, 2018conversion————130December 20, 2018conversion2,155—5002,655169December 20, 2018conversion3,636——3,636117December 20, 2018conversion7,4801,520—9,000333December 24, 2018conversion2,970——2,970110December 26, 2018conversion3,213——3,213143December 27, 2018conversion1,8701,381—3,252120

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(continued)
DateTransaction (1)Principal ConvertedInterest ConvertedFees ConvertedTotal Amount ConvertedShares Issued**December 28, 2018conversion3,700—5004,200227December 31, 2018conversion4,869——4,869216December 31, 2018conversion5,365——5,365290January 2, 2019conversion7,3701,562—8,932425January 7, 2019conversion3,360——3,360240January 7, 2019conversion3,944——3,944290January 8, 2019conversion4,080——4,080300January 9, 2019conversion3,161—5003,661317January 10, 2019conversion3,380——3,380325January 11, 2019conversion5,2801,150—6,430397January 11, 2019conversion3,625——3,625290January 14, 2019conversion3,400——3,400340January 15, 2019conversion4,100——4,100410January 15, 2019conversion4,300——4,300430January 17, 2019conversion4,800——4,800480January 22, 2019conversion4,435——4,435504January 22, 2019conversion4,230——4,230470January 23, 2019conversion3,816——3,816530January 25, 2019conversion3,781——3,781556January 28, 2019conversion3,276——3,276585January 29, 2019conversion3,690——3,690615January 29, 2019conversion3,870——3,870645January 30, 2019conversion4,080——4,080680January 31, 2019conversion4,500——4,500750January 31, 2019conversion4,290——4,290715February 4, 2019conversion4,740——4,740790February 5, 2019cancellation(2,658)——(2,658)(17)February 5, 2019conversion4,980——4,980830February 12, 2019conversion5,340——5,340890February 14, 2019conversion5,236——5,236935February 21, 2019conversion4,956——4,956900Number of shares outstanding February 28, 201920,026May 6, 2019conversion5,768——5,7681,030May 6, 2019conversion15,000——15,000882May 6, 2019conversion11,900——11,900992May 7, 2019conversion6,048——6,0481,080May 7, 2019conversion11,900——11,900992May 8, 2019conversion6,384——6,3841,140May 8, 2019conversion11,800——11,800983May 8, 2019conversion7,312—5007,8121,240May 9, 2019conversion12,500——12,5001,136May 10, 2019conversion7,200——7,200655May 8, 2019conversion4,400——4,4001,000May 13, 2019conversion7,493——7,4931,338May 13, 2019conversion12,6503,786—16,4361,957May 21, 2019conversion3,281——3,281586May 22, 2019conversion11,5503,526—15,0762,094July 11, 2019conversion11,0003,984—14,9841,921July 25, 2019conversion8,584——8,5842,000July 30, 2019conversion16,9406,350—23,2903,882July 31, 2019conversion9,872——9,8722,300August 2, 2019conversion10,301——10,3012,400August 8, 2019conversion21,4508,170—29,6204,937August 11, 2019conversion10,945——10,9452,550August 11, 2019conversion5,837——5,8371,360August 12, 2019conversion8,800——8,8002,750

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(continued)
DateTransaction (1)Principal ConvertedInterest ConvertedFees ConvertedTotal Amount ConvertedShares Issued**August 12, 2019conversion13,9155,337—19,2524,011August 13, 2019conversion3,528——3,5281,260August 14, 2019conversion5,920——5,9202,960August 15, 2019conversion12,6504,877—17,5275,842August 15, 2019conversion6,200——6,2003,100August 16, 2019conversion8,060——8,0604,030August 19, 2019conversion6,784——6,7844,240August 20, 2019conversion7,136——7,1364,460August 20, 2019conversion12,1004,705—16,8057,002August 21, 2019conversion4,2845,628—9,9124,690August 22, 2019conversion—6,348—6,3485,290August 23, 2019conversion—4,400—4,4005,500August 26, 2019conversion7,8103,068—10,8789,065August 26, 2019conversion—3,416—3,4164,270August 27, 2019conversion—2,240—2,2402,800August 29, 2019conversion—5,344—5,3446,680September 3, 2019conversion—5,616—5,6167,020September 3, 2019conversion6,1492,449—8,59814,329September 4, 2019conversion—2,956—2,9567,390September 5, 2019conversion—3,240—3,2408,100September 6, 2019conversion—3,560—3,5608,900September 9, 2019conversion—3,752—3,7529,380September 10, 2019conversion—3,944—3,9449,860September 10, 2019conversion6,8262,750—9,57515,959September 11, 2019conversion—4,129—4,12910,300September 12, 2019conversion2,4472,233—4,68011,700September 13, 2019conversion4,920——4,92012,300September 16, 2019conversion2,8182,342—5,16012,900September 17, 2019conversion—2,960—2,9607,400September 18, 2019conversion—4,760—4,76011,900September 19, 2019conversion—2,920—2,9207,300September 20, 2019conversion2021,998—2,2005,500September 25, 2019conversion4,506234—4,74012,600October 3, 2019conversion5,651349—6,00015,000October 10, 2019conversion3,760280—4,04010,100October 25, 2019conversion2,584556—3,14015,700November 4, 2019conversion2,926354—3,28016,400November 27, 2019conversion2,970770—3,74018,700January 3, 2020conversion—2,640—2,64013,200January 27, 2020conversion3,360——3,36016,800February 1, 2020cancellation(3,360)——(3,360)(16,800)February 5, 2020cancellation—(640)—(640)(3,200)February 5, 2020conversion—4,060—4,06020,300February 29, 2020rounding shares issuable————2,946Number of shares outstanding February 29, 2020418,415__________
* 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


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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.


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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.


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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.

PeriodChangeYear Ended
February 29, 2020Year Ended
February 28, 2019DollarsPercentageRevenues$260,768$114,671$146,097127%Gross profit177,008110,14966,85961%Operating expenses1,959,8143,524,545(1,564,731)(44%)Loss from operations(1,782,806)(3,414,396)1,631,590(48%)Other income (expense), net(4,430,843)19,509,231(23,940,074)(123%)Net Income (loss)$(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:

PeriodChangeYear Ended
February 29, 2020Year Ended
February 28, 2019DollarsPercentageResearch and development$332,520$540,971$(208,451)(39%)General and administrative1,536,5682,795,790(1,259,222)(45%)Depreciation and amortization102,241114,612(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:


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●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 Company’s 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.


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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, 2020February 28, 2019Current assets$88,213$366,681Current liabilities(1)19,677,22115,743,601Working capital$(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, 2020Year Ended
February 28, 2019Net 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.


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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 equipment3 yearsOffice equipment4 yearsVehicles3 yearsLeasehold improvements5 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.


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Sales of Future Revenues

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

●Does the agreement purport, in substance, to be a sale●Does the Company have continuing involvement in the generation of cash flows due the investor●Is the transaction cancellable by either party through payment of a lump sum or other transfer of assets●Is the investors rate of return implicitly limited by the terms of the agreement●Does the Company’s revenue for a reporting period underlying the agreement have only a minimal impact on the investor’s rate of return●Does the investor have recourse relating to payments due
In the event a transaction is determined to be a sale of future revenues, it is recorded as deferred revenue and amortized using the sum-of-the-revenue method. In the event a transaction is determined to be debt, it is recorded as debt and amortized using the effective interest method. As of the date of these financial statements, the Company has determined that all such agreements are debt.

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).


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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 UsingAmount at
Fair ValueLevel 1Level 2Level 3February 29, 2020LiabilitiesDerivative liability – conversion features pursuant to convertible notes payable$6,890,688$—$—$6,890,688February 28, 2019LiabilitiesDerivative 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.


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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.


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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.

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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.

NameAgePosition(s)Garett Parsons36President, Chief Executive Officer, Chief Financial Officer and Director
Biographical information concerning our director and executive officer listed above is set forth below.


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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.


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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 PositionYearSalary
or
Fees
($)Bonus
($)Stock
Awards
($)Option
Awards
($)Non-Equity
Incentive Plan
Compensation
($)Non-Qualified
Deferred
Compensation
Earnings
($)All Other
Compensation
($)Total
($)Garett Parsons,2020132,690——————132,690President, Chief Executive Officer and Chief Financial Officer (1)2019101,410——————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.


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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 AWARDSSTOCK AWARDSNameNumber of Securities Underlying Unexercised Options (#) ExercisableNumber of Securities Underlying Unexercised Options (#) UnexercisableEquity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options 
(#)Option Exercise Price
($)Option Expiration DateNumber of Shares or Units of Stock That Have Not Vested (#)Market Value of Shares or Units of Stock That Have Not Vested ($)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 Parsons000000000

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.

NameAmount and Nature of Beneficial Ownership (1)Percent of
Class (2)Named Executive Officers and Directors:Garett Parsons (3)195,549,34322.47%All executive officers and directors as a group (1 persons)195,549,34322.47%5% Stockholders:Steve Reinharz (4)479,095,89055.06%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.

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(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.


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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.

2020Audit Fees$72,500Audit-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.


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(3) Exhibits.



Exhibit No.Description of Document2.1Stock 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).3.1Articles 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).3.2Plan 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).3.3Bylaws 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).3.4Certificate 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).3.5Certificate 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).3.6Amendment 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).10.1Preferred 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).14.1Code 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).21.1List of Subsidiaries. *31.1Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32.1Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *101.INSXBRL Instance **101.SCHXBRL Taxonomy Extension Schema **101.CALXBRL Taxonomy Extension Calculation **101.DEFXBRL Taxonomy Extension Definition **101.LABXBRL Taxonomy Extension Labels **101.PREXBRL Taxonomy Extension Presentation **__________
*Filed or furnished herewith.**To be submitted by amendment.


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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, 2020By:/s/ Garett ParsonsGarett ParsonsPresident, 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.

SignatureTitleDate/s/ Garett ParsonsPresident, Chief Executive Officer, Chief Financial Officer, and Director (principal executive officer, principal financial officer and principal accounting officer)July 28, 2020Garett Parsons

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
(FORMERLY ON THE MOVE SYSTEMS CORP.)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting FirmF-2Report of Independent Registered Public Accounting FirmF-3Consolidated Balance SheetsF-4Consolidated Statements of OperationsF-5Consolidated Statement of Stockholders’ DeficitF-6Consolidated Statements of Cash FlowsF-7Notes to the Consolidated Financial StatementsF-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, 2020February 28, 2019ASSETSCurrent assets:Cash$13,307$21,192Accounts receivable50,11739,964Device parts inventory24,789273,496Prepaid expenses and deposit—18,778Vehicles for disposal—13,251Total current assets88,213366,681Revenue earning devices, net of accumulated depreciation of $123,088 and $42,784 respectively239,171187,174Fixed assets, net of accumulated depreciation of $51,637 and $29,701, respectively16,25837,194Total assets$343,642$591,049LIABILITIES AND STOCKHOLDERS’ DEFICITCurrent liabilities:Accounts payable and accrued expenses$1,144,660$1,486,488Advances payable1,59712,637Balance owed WeSecure162,50025,000Customer deposits10,00010,000Current portion of deferred variable payment obligation30,5342,108Current portion of convertible notes payable, net of discount of $120,602 and $718,015, respectively6,613,6255,484,446Loan payable - related party1,310,358782,844Current portion of loans payable696,154321,946Vehicle loan - current portion38,52257,287Current portion of accrued interest payable2,778,5831,390,706Derivative liability6,890,6886,170,139Total current liabilities19,677,22115,743,601Convertible notes payable, net of discount of $30,486 and $302,105 respectively69,515262,895Loans payable—140,535Deferred variable payment obligation1,559,000190,392Accrued interest payable144,31185,344Customer depositsTotal liabilities21,450,04716,422,767Commitments and ContingenciesStockholders’ 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 ,respectively4,3504,350Series F Convertible Preferred Stock, $1.00 par value; 4,350 shares authorized; 3,450 and 3,450 shares issued and outstanding, respectively3,4503,450Common Stock, $0.00001 par value; 5.000,000,000 shares authorized 418,415 and 20,026 shares issued and outstanding, respectively4—Additional paid-in capital4,334,5643,395,606Preferred stock to be issued174,070174,070Accumulated 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, 2020Year Ended
February 28, 2019Revenues$260,768$114,671Cost of Goods Sold83,7604,522Gross Profit177,008110,149Operating expenses:Research and development332,520540,971General and administrative1,536,5682,795,790Depreciation and amortization102,241114,612Loss (gain) on (disposal) impairment of fixed assets(11,515)73,172Total operating expenses1,959,8143,524,545Loss from operations(1,782,806)(3,414,396)Other income (expense), net:Change in fair value of derivative liabilities(1,127,119)26,039,039Interest expense(3,465,098)(6,747,025)Gain (loss) on settlement of debt161,374217,217Total other income (expense), net(4,430,843)19,509,231Net income (loss)$(6,213,649)$16,094,835Net income ( loss) per share - basic$(21.06)$5,804.57Net income (loss) per share - diluted$(31.46)$(46.82)Weighted average common share outstanding - basic197,5392,773Weighted average common share outstanding - diluted197,539195,618
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 ESeries FAdditionalTotalPreferred StockPreferred StockCommon StockPaid-InAccumulatedStockholders’SharesAmountSharesAmountSharesAmountCapitalDeficitDeficitBalance at February 28, 20184,350,000$4,3503,450$3,450125$—$1,233,312$(35,504,029)$(34,262,917)Preferred stock payable174,070174,070Adjustment to derivative liability——————1,215,588—1,215,588Common stock issued for debt conversion————19,901—851,687—851,687Common Stock adjustment for reverse split——————82,052—82,052Stock based compensation——————12,967—12,967Net income (loss)———————16,094,83516,094,835Balance at February 28, 20194,350,000$4,3503,450$177,52020,026$—$3,395,606$(19,409,194)$(15,831,718)Adjustment to derivative liability——————440,294—440,294Common stock issued for debt conversion————395,4434498,664—498,668Common stock adjustment issuable on reverse split————2,946————Net income (loss)———————(6,213,649)(6,213,649)Balance at February 29, 20204,350,000$4,3503,450$177,520418,415$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, 2020Year Ended
February 28, 2019CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)$(6,213,649)$16,094,835Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization102,241114,612Provision for note receivable——Provision for note receivable—40,000Loss (gain) on (disposal) impairment of fixed assets(11,515)73,172Stock based compensation—12,967Provision for inventory54,702—Change in fair value of derivative liabilities1,127,119(26,039,039)Interest expense related to penalties from debt defaults314,347352,493Interest expense related to derivative liability in excess of face value of debt198,4921,017,250Amortization of debt discounts874,1874,641,181(Gain) loss on settlement of debt(159,370)(217,217)Changes in operating assets and liabilities:Accounts receivable(10,153)(11,964)Prepaid expenses18,77864,325Device parts inventory(6,875)42,617Accounts payable and accrued expenses157,1651,219,703Balance owed WeSecure(17,500)—Customer discounts——Current portion of deferred variable payment obligation30,534—Accrued interest payable1,795,514790,804Advances 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 assets9,500—Cash paid for security deposit—30,141Net cash used in investing activities(17,325)(202,717)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from convertible notes payable, net25,0001,227,608Principal repayments on convertible notes payable—(187,000)Proceeds from deferred variable payment obligation1,366,500192,500Proceeds from loans payable768,563539,575Repayment of loans payable(534,890)(156,500)Net borrowings on loan payable - related party141,290218,890Repayment of vehicle loan—(5,746)Proceeds from sale of preferred shares—174,070Net cash provided by financing activities1,766,4632,003,397Net change in cash(7,885)(3,581)Cash, beginning of period21,19224,773Cash, end of period$13,307$21,192Supplemental disclosure of cash and non-cash transactions:Cash paid for interest$40,815$3,213Cash paid for income taxes$—$—Noncash investing and financing activities:Inventory converted to revenue earning devices$106,256$—Transfer from accounts payable to loan payable related party$—$247,812Debt discount from derivative liabilities$—$914,010Conversion of convertible notes and interest to shares of common stock$498,664$851,687Release of derivative liability on conversion of convertible notes payable$440,294$1,215,588Settlement and exchange of convertible notes payable$—$670,286Reclassification of fixed assets to vehicle for disposal$—$13,251Proceeds of disposal offset against vehicle loan$13,251$21,907Capitalization 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 equipment3 yearsOffice equipment4 yearsVehicles3 yearsLeasehold improvements5 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 Company’s revenue for a reporting period underlying the agreement have only a minimal impact on the investor’s rate of return●Does the investor have recourse relating to payments due
In the event a transaction is determined to be a sale of future revenues, it is recorded as deferred revenue and amortized using the sum-of-the-revenue method. In the event a transaction is determined to be debt, it is recorded as debt and amortized using the effective interest method. As of the date of these financial statements, the Company has determined that all such agreements are debt.


F-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 UsingAmount at
Fair ValueLevel 1Level 2Level 3February 29, 2020LiabilitiesDerivative liability – conversion features pursuant to convertible notes payable$6,890,688$—$—$6,890,688February 28, 2019LiabilitiesDerivative 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, 2020Year Ended
February 28, 2019Device rental activities$234,956$114,261Direct sales of goods and services25,812410$260,768$114,671
5. REVENUE EARNING ROBOTS

Revenue earning robots consisted of the following:

February 29, 2020February 28, 2019Revenue earning devices$362,259$229,958Less: 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:

February 29, 2020February 28, 2019Automobile$41,953$40,953Computer equipment20,26220,262Office equipment5,6805,68067,89566,895Less: Accumulated depreciation(51,637)(29,701)$16,258$37,194
During the year ended February 29, 2020, the Company made additions to fixed assets of $1,000. During the year ended February 28, 2019, the Company made additions to fixed assets of $2,900 and wrote-off fixed assets having a net book value of $25,938 and recorded a corresponding loss on impairment of fixed assets. The company transferred automobiles having a net book value of $38,405 to vehicles for disposal since they will be given back to the lender in the future.

Depreciation expense was $21,936 and $58,177 for the years ended February 29, 2020 and February 28, 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 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 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 end of each fiscal quarter. If the Payments would deplete RAD’s available cash by more than 30%, the Payments may be
deferred for up to 12 months after the quarterly report at an interest rate of 6% per annum on the unpaid amount.

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


F-15

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

On November 18, 2019 the Company entered into another similar arrangement with the (February 1, 2019) investor above whereby the investor would advance up to $225,000 in exchange for a perpetual 2.25% rate Payment on the Company’s quarterly Revenues
(commencing on quarter ending May 31, 2020). At February 29, 2020 the investor has advanced $109,000 and the investor advanced the $116,000 remainder as of May 2020.

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

On April 22 , 2020 the Company entered into another similar arrangement with the (first May 9, 2019) investor above whereby the investor would advance up to $100,000 in exchange for a perpetual 1.00% rate Payment on the Company’s quarterly Revenues. At February 29, 2020 the investor has advanced $50,000 with the remainder advanced on April 28, 2020.

The Company retains total involvement in the generation of cash flows from these
revenue streams that form the basis of the payments to be made to the investors under this agreement. Because of this, the
Company has determined that the agreements constitute debt agreements. As of February 29, 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. As of February 29, 2020, and February 28, 2019, the balances under these
agreements were $1,559,000 and $192,500, (including $2,108 current portion, described below) respectively.

For the year ended February 29, 2020, $1,366,500 has been paid to the Company bringing the balance to $1,559,000 at February 29, 2020.

The Payments will first become payable on June 30, 2019 (unless otherwise indicated) based on the quarterly Revenues for the quarter ended May 31, 2019 and will accrue every quarter thereafter. As of February 29, 2020, the Company has accrued approximately $30,534 in Payments (February 28, 2019 -$2,108). No amounts have been recorded to date as interest, as the amounts are immaterial.


F-16

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8. CONVERTIBLE NOTES PAYABLE

Convertible notes payable consisted of the following:
BalanceBalanceInterestConversionFebruary 29,February 28,IssuedMaturityRateRate per Share20192019February 28, 2011February 26, 2013 *7%$0.015$—$32,600January 31, 2013February 28, 2017 *10%$0.010(3)119,091119,091May 31, 2013November 30, 2016 *10%$0.010(3)261,595261,595August 31, 2014November 30, 2016 *10%$0.002(3)355,652355,652November 30, 2014November 30, 2016 *10%$0.002(3)103,950103,950February 28, 2015February 28, 2017 *10%$0.001(3)63,35763,357May 31, 2015August 31, 2017*10%$1.000(3)65,38365,383August 31, 2015August 31, 2017*10%$0.300(3)91,62991,629November 30, 2015November 30, 2018*10%$0.300(3)269,791269,791February 29, 2016February 28, 2019*10%60% discount(2)95,24595,245May 31, 2016May 31, 2019*10%$0.003(3)35,10035,100July 18, 2016July 18, 2017*10%$0.003(3)3,5003,500December 31, 2016December 31, 20208%35% discount(2)65,00065,000January 15, 2017January 15, 20218%35% discount(2)50,00050,000January 15, 2017January 15, 20218%35% discount(2)100,000100,000January 16, 2017January 16, 20218%35% discount(2)150,000150,000March 8, 2017March 8, 202010%40% discount(2)100,000100,000March 9, 2017March 9, 20218%35% discount(2)50,00050,000April 19, 2017April 19, 2018*15%50% discount(2)—96,250April 26, 2017April 26, 2018*0%$0.0016868May 1, 2017May 1, 20218%35% discount(2)50,00050,000May 4, 2017May 4, 2018*8%40% discount(2)22,610131,450May 15, 2017May 15, 2018*0%$0.0011,2801,280May 17, 2017May 17, 202010%40% discount(1)85,00085,000June 7, 2017June 7, 2018*8%40% discount(2)156,764180,964June 16, 2017June 16, 2018*0%$0.001750750July 6, 2017July 6, 2018*8%40% discount(2)200,000200,000August 8, 2017August 8, 2018*8%40% discount(2)125,000125,000July 28, 2017July 28, 2018*15%40% discount(2)47,913—August 29, 2017August 29, 2018*15%50% discount(2)162,250147,500October 4, 2017May 4, 2018*8%40% discount(2)150,000150,000October 16, 2017October 16, 2018*15%50% discount(2)328,537204,067November 22, 2017November 22, 2018*15%50% discount(2)550,275500,250December 28, 2017December 28, 2017*10%40% discount(2)57,00828,150December 29, 2017December 29, 2018*15%50% discount(2)363,000330,000January 9, 2018January 9, 2019*8%40% discount(2)(1)79,50879,508January 30, 2018January 30, 2019*15%50% discount(2)(1)330,000300,000February 21, 2018February 21, 2019*15%50% discount(2)(1)330,000300,000March 14, 2018March 14, 2019*10%40% discount(2)50,00050,000June 7, 2017June 9, 2019*8%40% discount(2)200,000200,000April 9, 2018April 9, 2019*15%50% discount(2)60,50055,000March 21, 2017March 21, 2018*8%40% discount(2)40,00040,000April 20, 2018April 20, 2019*8%40% discount(2)97,65965,106May 2, 2018December 2, 2018*10%40% discount(2)70,68270,682May 4, 2018May 4, 2019*12%50% discount(2)123,750123,750May 14, 2018December 14, 2018*10%50% discount(2)33,54233,542May 23, 2018May 23, 2019*10%50% discount(2)110,000110,000June 6, 2018June 6, 2019*15%50% discount(2)282,949282,949June 19, 2018March 19, 2019*15%50% discount(2)43,12587,274July 6, 2017June 9, 2019*8%40% discount(2)200,000200,000August 1, 2018August 1, 2019*15%50% discount(2)35,75032,500August 23, 2018August 23, 2019*8%45% discount(2)70,12377,435September 13, 2018June 30, 2019*12%45% discount(2)9,20079,500September 17, 2018March 17, 2019*10%50% discount(2)4,9454,945September 20, 2018September 20, 2019*15%50% discount(2)43,28539,350September 24, 2018June 24, 2019*8%40% discount(2)63,91344,000August 8, 2017June 9, 2019*8%40% discount(2)125,000125,000November 8, 2018August 15, 2019*12%45% discount(2)79,50079,500November 26, 2018May 26, 2019*10%50% discount(2)44,79944,798August 29. 2019August 29. 20208%40% discount(2)26,250—6,834,2286,767,461Less: current portion of convertible notes payable(6,734,227)(6,202,461)Less: discount on noncurrent convertible notes payable(30,486)(302,105)Noncurrent convertible notes payable, net of discount$69,515$262,895Current portion of convertible notes payable$6,734,227$6,202,461Less: discount on current portion of convertible notes payable(120,602)(718,015)Current portion of convertible notes payable, net of discount$6,613,625$5,484,446

F-17

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
__________
*The indicated notes were in default as of February 29, 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 the years ended February 29, 2020 and February 28, 2019,
the Company incurred original issue discounts of $1,250 and $85,143, respectively, and debt discounts from derivative liabilities
of $26,250 and $1,668,025, respectively, related to new convertible notes payable. These amounts are included in discounts on convertible
notes payable and are being amortized to interest expense over the life of the convertible notes payable. During the years ended
February 29, 2020 and February 28, 2019, the Company recognized interest expense related to the amortization of debt discount of
$874,187 and $4,641,181, respectively. The Company recorded penalty interest of $313,347 during the year February 29, 2020 (February
28, 2019-$352,943) that is payable upon maturity if not already converted or settled prior to maturity.

All the notes above are unsecured. As of February 29, 2020, the
Company had total accrued interest payable of $2,922,894, of which $2,778,583 is classified as current and $144,311 is classified
as noncurrent. As of February 28, 2019, the Company had total accrued interest payable of $1,476,050, of which $1,390,706 is classified
as current and $85,344 is classified as noncurrent.

See description below for description of the convertible notes issued during the years ended February 29, 2020 and February 28, 2019.

Convertible notes issued

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

During the year ended February 29, 2020, the Company had the following convertible note activity:

●On September 5, 2019, the Company received $25,000 of proceeds from an investor for a promissory note with a principal amount of $26,250, including an original issue discounts of $1,250 and maturing August 29, 2020. The promissory note is convertible into common shares of the Company at a conversion price equal to 60% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and has an 8% per annum interest rate.●The Company wrote off a note payable for $32,600 and related interest
of $97,139. The note has matured in February 2013, the company cannot contact the lender and the note is legally prescribed. A
gain on settlement of debt of $129,739 was recorded The Company determined that certain Texas state legal requirements were met
that allow the Company to treat the liability as no longer enforceable against the Company.●The company recorded default penalties totaling $314,347 as increases
to various notes, with a corresponding charge to interest.●During the year ended February 29, 2020, holders of certain convertible
notes payable elected to convert a total of $254,118 of principal, $244,050 accrued interest, and $500 of fees into 395,443 shares
of common stock. No gain or loss was recognized on conversions as they occurred within the terms of the agreement that provided
for conversion. Immediately prior to the conversion, the Company performed a valuation of the derivative liability attached to
the notes and accrued interest converted and determined that the final derivative liability was $440,294. Upon conversion this
amount was transferred from derivative liabilities to additional paid-in capital.

F-18

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

During the year ended February 28, 2019, the Company had the following convertible note activity:

On January 5, 2018, the Company issued a convertible promissory note to an investor with an aggregate principal amount of $250,000, due on January 5, 2019 for cash proceeds of $225,000 payable in tranches, with an original issue discount of $25,000. Each tranche matures one year after disbursement. The promissory note is convertible into common shares of the Company and a conversion price equal to 60% of the lowest trading price of the Company’s common stock for the last 25 trading days prior to conversion, and has a 10% per annum interest rate commencing on January 5, 2018. On March 14, 2018, this note was amended to include the issuance of warrants to purchase 333,333 shares of the Company’s common stock with an exercise price of $0.15 with a 3-year maturity, and to change the date of the note to March 14, 2018, coinciding with the payment of the first tranche of $50,000 including cash proceeds of $43,000, fees of $2,000 and an original issue discount of $5,000.

On March 1, 2018, the Company issued a convertible redeemable note to an investor with an aggregate principal amount of $95,000, due on March 1, 2019 for cash proceeds of $95,000. The promissory note is convertible into units of the Company comprised of one share of common stock and one warrant to purchase a share of common stock with a three-year maturity and a conversion price equal to 50% of the lowest bid price of the Company’s common stock for the last 40 trading days prior to conversion, and has a 15% per annum interest rate.

In March 2018 and April 2018, an investor paid the Company $200,000 in exchange for a June 7, 2017 back-end note for $200,000, whose maturity was extended to June 9, 2019. The note is convertible into common shares of the Company and a conversion price equal to 60% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and has an 8% per annum interest rate.

On April 9, 2018, the Company issued a convertible redeemable note to an investor with an aggregate principal amount of $55,000, due on April 9, 2019 for cash proceeds of $55,000. The promissory note is convertible into units of the Company comprised of one share of common stock and one warrant to purchase a share of common stock with a three-year maturity and a conversion price equal to 50% of the lowest bid price of the Company’s common stock for the last 40 trading days prior to conversion, and has a 15% per annum interest rate.

In April 2018, the Company received $76,000 of proceeds from an investor for two back-end notes with a total principal amount of $80,000, including original issue discounts of $4,000 and a one-year maturity. The back-end notes are convertible into common shares of the Company at a conversion price equal to 60% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and have an 8% per annum interest rate.

On May 2, 2018, the Company received $70,000 of proceeds from an investor for a promissory note with a principal amount of $77,000, including an original issue discounts of $7,000 and an eight-month maturity. The promissory note is convertible into common shares of the Company at a conversion price equal to 60% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and has a 10% per annum interest rate.

On May 4, 2018, the Company received $71,500 of proceeds from an investor for a promissory note with a principal amount of $82,500, including an original issue discounts of $11,000 and a one-year maturity. The promissory note is convertible into common shares of the Company at a conversion price equal to 50% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and has a 12% per annum interest rate.

On May 23, 2018, the Company received $90,108 of proceeds from an investor for a promissory note with a principal amount of $110,000, including an original issue discounts of $19,892 and an eight-month maturity. The promissory note is convertible into common shares of the Company at a conversion price equal to 50% of the lowest trading price of the Company’s common stock for the last 40 trading days prior to conversion, and has a 10% per annum interest rate.

In July and August 2018,and December 2018 the Company received $180,000 of proceeds from an investor for a back-end note date July 6, 2017 principal amount of $200,000, including original issue discounts of $20,000 and a June 30, 2019 maturity. The promissory note is convertible into common shares of the Company at a conversion price equal to 60% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and has an 8% per annum interest rate.


F-19

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In July and August 2018, the Company received $32,500 of proceeds from an investor for a promissory note with a principal amount of $32,500, and a one-year maturity. The promissory note is convertible into common shares of the Company at a conversion price equal to 50% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and has a 15% per annum interest rate commencing on August 1, 2018.

On September 13, 2018, the Company received $50,000 of proceeds from an investor for a promissory note with a principal amount of $53,000, including an original issue discounts of $3,000 and a nine-month maturity. The promissory note is convertible into common shares of the Company at a conversion price equal to 45% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and has a 12% per annum interest rate.

On September 20, 2018, the Company received $39,350 of proceeds from an investor for a promissory note with a principal amount of $39,350 and a one-year maturity. The promissory note is convertible into common shares of the Company at a conversion price equal to 50% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and has a 15% per annum interest rate.

On September 24, 2018, the Company received $40,000 of proceeds from an investor for a promissory note with a principal amount of $44,000, including an original issue discounts of $4,000 and a nine-month maturity. The promissory note is convertible into common shares of the Company at a conversion price equal to 40% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and has a 8% per annum interest rate.

On November 1, 2018, the Company received $50,000 of proceeds from an investor for a promissory note with a principal amount of $53,000, including an original issue discounts of $3,000 maturing August 15, 2019. The promissory note is convertible into common shares of the Company at a conversion price equal to 45% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and has a 12% per annum interest rate.

On November 30, 2018, the Company received $118,750 of proceeds from an investor for a back-end promissory note dated August 8, 2017 with a principal amount of $125,000, including an original issue discounts of $6,250 maturing June 9, 2019. The promissory note is convertible into common shares of the Company at a conversion price equal to 40% of the lowest trading price of the Company’s common stock for the last 20 trading days prior to conversion, and has a 8% per annum interest rate.

During the year ended February 28, 2019, the Company also had the following convertible note activity:

●A debt holder transferred debt of $344,040, including accrued interest, to third parties who exchanged it for new convertible notes totaling $344,040, $100,000 with a one-year maturity, maturing on April 17, 2019, bearing interest at 8% per annum and are convertible into common shares of the Company at a conversion price equal to 50% of the lowest bid price of the Company’s common stock for the last 40 trading days prior to conversion; $144,404, with a one-year maturity, maturing on April 20, 2019, bearing interest at 8% per annum, and are convertible into common shares of the Company at a conversion price equal to 60% of the lowest bid price of the Company’s common stock for the last 30 trading days prior to conversion; and $100,000 with an eight-month maturity, maturing on December 14, 2018, bearing interest at 10% per annum, and are convertible into common shares of the Company at a conversion price equal to 55% of the lowest bid price of the Company’s common stock for the last 30 trading days prior to conversion. A gain on settlement of debt of $268,145 was recorded that includes the amount of associated derivative liability that was written-off.●A debt holder transferred debt of $299,200, including accrued interest, to third parties who exchanged it for a replacement convertible note totaling $299,200, a one-year maturity, maturing on September 25, 2018, and bearing interest at 15% per annum. The replacement convertible note is convertible into units of the Company comprised of one share of common stock and one warrant to purchase a share of common stock with a three-year maturity and a conversion price equal to 50% of the lowest bid price of the Company’s common stock for the last 40 trading days prior to conversion. A loss on settlement of debt of $484,484 was recorded that includes the amount of associated derivative liability that was written-off.●A debt holder transferred debt of $132,149, including accrued interest, to third parties who exchanged it for a replacement convertible note totaling $132,149, with an eight-month maturity, maturing on March 19, 2019, bearing interest at 15% per annum, and are convertible into common shares of the Company at a conversion price equal to 50% of the lowest bid price of the Company’s common stock for the last 40 trading days prior to conversion. A gain on settlement of debt of $71,100 was recorded that includes the amount of associated derivative liability that was written-off.

F-20

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

●The Company exchanged a replacement note issued on April 17, 2018 with a principal of $100,000 and a one-year maturity, maturing on April 17, 2019, and bearing interest at 8% per annum for another replacement note issued on August 23, 2018 with a principal of $100,000 and a one-year maturity, maturing on August 23, 2019, and bearing interest at 8% per annum, and are convertible into common shares of the Company at a conversion price equal to 55% of the lowest bid price of the Company’s common stock for the last 30 trading days prior to conversion. A gain on settlement of debt of $90,629 was recorded that includes the amount of associated derivative liability that was written-off.●A debt holder transferred debt of $103,984, including accrued interest, to third parties who exchanged it for new convertible notes totaling $344,040: $50,000 with a six-month maturity, maturing on March 17, 2019, bearing interest at 10% per annum, and are convertible into common shares of the Company at a conversion price equal to 50% of the lowest bid price of the Company’s common stock for the last 20 trading days prior to conversion; $53,984, with a six-month maturity, maturing on May 26, 2019, bearing interest at 10% per annum, and are convertible into common shares of the Company at a conversion price equal to 50% of the lowest bid price of the Company’s common stock for the last 20 trading days prior to conversion. A gain on settlement of debt of $121,305 was recorded that includes the amount of associated derivative liability that was written-off.●The Company settled a September 1, 2017 note for repayment $125,000, and a gain of $64,441 was recorded due to the associated derivative liability that was written-off.●During the year ended February 28, 2019, holders of certain convertible note payables elected to convert principal and accrued interest in the amounts shown below into shares of common stock. No gain or loss was recognized on conversions as they occurred within the terms of the agreement that provided for conversion. Accordingly, for the year ended February 28, 2019, holders of certain convertible notes payable elected to convert a total of $803,905 of principal and $35,782 accrued interest, and $12,000 of fees into 19,901 shares of common stock and warrants to purchase 2,043 shares of common stock (see Note 18 for detail of warrants issued).
9. RELATED PARTY TRANSACTIONS

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.As of February 29, 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%. At February 28,2019
there was $352,392, with $210,000 bearing interest at 12%. The accrued interest included at February 29, 2020 was $50,730 (2019-
$13,650).

During the years ended February 29, 2020 and February 28, 2019, the Company was charged $95,562 and $484,251, respectively in consulting fees for research and development to a company owned by a principal shareholder.

10. OTHER DEBT – VEHICLE LOANS

In December 2016, RAD entered into a vehicle loan for $47,704 secured by the vehicle. The loan is repayable over 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 February 29, 2020 and February 28, 2019. 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 $16,943 remains on this vehicle loan at February 29, 2020 and $35,708 at February 28, 2019. The remaining total balances of the amounts owed on the vehicle loans were $38,522 and $57,287 as of February 29, 2020 and February 28, 2019, 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.


F-21

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. LOANS PAYABLE

Loans payable at February 29, 2020 consisted of the following:

AnnualInterestDateMaturityDescriptionPrincipalRateJune 11, 2018June 11, 2019Promissory note(3)$48,00025%*August 10, 2018September 1, 2018Promissory note10,00025%*August 16, 2018August 16, 2019Promissory note(1)12,62425%*August 16, 2018October 1, 2018Promissory note10,00025%*August 23, 2018October 20, 2018Promissory note(21)25,00020%*October 10, 2018December 10, 2018Promissory note(8)—20%*October 11, 2018October 11, 2019Promissory note(10)17,00020%*August 5, 2019March 11, 2020Factoring Agreement(4)27,025(4)*July 22, 2019November 15, 2019Factoring Agreement(9)—(9)July 9, 2019January 5, 2020Factoring Agreement(5)—(5)September 17, 2019November 26, 2019Factoring Agreement(13)—(13)*November 12, 2019August 11, 2020Factoring Agreement(14)74,392(14)*December 20, 2019March 5, 2020Factoring Agreement(18)7,480*October 17,2019April 29, 2020Factoring Agreement(15)29,252(15)*September 27, 2019April 4, 2020Factoring Agreement(16)14,893(16)*January 31, 2019June 30, 2019Promissory note(2)78,43215%*January 24, 2019January 24, 2021Loan(11)140,53511%*May 9, 2019June 30, 2019Promissory note(6)7,85015%May 31, 2019June 30, 2019Promissory note(7)86,56715%June 26, 2019June 26, 2020Promissory note(12)79,10415%September 24, 2019June 24 2020Promissory note(17)12,00015%January 30, 2020January 30, 2021Promissory note(19)11,00015%February 27, 2020February 27, 2021Promissory note(20)5,00015%$696,154Less current portion of loans payable$696,154Non-current portion of loans payable$—__________
*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 $38,000. 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.(6)The note may be pre-payable at any time. The note balance includes 33% original issue discount of $2,590.(7)The note may be pre-payable at any time. The note balance includes 33% original issue discount of $28,567.

F-22

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(8)Repayable in 10 monthly instalments of $848 commencing January 10 ,2019 and secured by revenue earning devices having a net book value of at least $186,000. Repaid in full.(9)Total loan $52,150 , repayable $869 per business day including fees and interest of $17,150. Original cash proceeds of $35,000. The loan has been fully repaid for $52,150.(10)$6,000 repaid during the year ended February 29,2020(11)$185,000 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.(12)The note may be pre-payable at any time. The note balance includes 33% original issue discount of $26,104.(13)Total loan of $24,800 , repayable $2,480 per week including fees and interest of $4,800. Original proceeds of $20,000 less repayment of $19,840.The remaining balance of $4,960 has been transferred to new loan (14).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.(14)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 $77,869. 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)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 $41,758. 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.(16)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 $45,067. 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.(17)The note may be pre-payable at any time. The note balance includes 33% original issue discount of $3,000.(18)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.(19)The note may be pre-payable at any time. The note balance includes 22% original issue discount of $2,450.(20)The note may be pre-payable at any time. The note balance includes 24% original issue discount of $1,200.(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.

F-23

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12. DERIVATIVE LIABILITES

As of February 29, 2020, and February 28, 2019 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 $6,890,688 and $6,170,139, respectively.

The Company estimated the fair value of the derivative liabilities using the multinomial lattice model using the following key assumptions during the year ended February 29, 2020:

Strike price$1.40 - $1.00Fair value of Company common stock$86,500 - $0.0001Dividend yield0.00%Expected volatility590.10% - 396.40%Risk free interest rate1.05% - 2.63%Expected term (years)0.04 - 3.33
The Company estimated the fair value of the derivative liabilities using the multinomial lattice model using the following key assumptions during the year ended February 28, 2019:

Strike price$10,000 - $10Fair value of Company common stock$3,375 - $110Dividend yield0.00%Expected volatility424% - 102%Risk free interest rate1.20% - 2.59%Expected term (years)0.00 - 3.66
During the years ended February 29, 2020, and February 28, 2019 the Company released $440,294 and $1,215,588, respectively, of the Company’s derivative liability to equity due to the conversions of principal and interest on the associated notes.

The changes in the derivative liabilities (Level 3 financial instruments)
measured at fair value on a recurring basis for the year ended February 29, 2020 were as follows:

Balance as of February 28, 2019$6,170,139Release of derivative liability on conversion of convertible notes payable(440,294)Debt discount due to derivative liabilities26,250Derivative liability in excess of face value upon issuance of debt
recorded to interest expense172,242Adjustment to derivative liability due to debt settlement(164,768)Change in fair value of derivative liabilities1,127,119Balance as of February 29, 2020$6,890,688
The changes in the derivative liabilities (Level 3 financial instruments) measured at fair value on a recurring basis for the year ended February 28, 2019 were as follows:

Balance as of February 28, 2018$31,113,844Release of derivative liability on conversion of convertible notes payable(1,215,588)Debt discount due to derivative liabilities914,010Derivative liability in excess of face value of debt recorded to interest expense784,160Increase in derivative liability due to debt settlement612,752Change in fair value of derivative liabilities(26,039,039)Balance as of February 28, 2019$6,170,139

F-24

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13. STOCKHOLDERS’ DEFICIT

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.

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).

Summary of Preferred Stock Activity

During the year ended February 28 2019, the Company received $174,070 for the sale of 65 Series F preferred shares. As of the reporting date, these shares have not been issued and are included in preferred stock to be issued on the balance sheet.

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 13). Certain instruments issued prior to the
reverse split that exercise into shares of our common stock are now shown in fractional units due to the effect of the reverse
split. If exercised, the Company is required to issue whole shares under its articles of incorporation.

On April 23, 2019 the Board of Directors approved an increase in authorized share capital to 5,000,000,000 shares of common stock and to change the par value of the common stock to $0.00001 per share. This became effective on June 20, 2019. The share capital has been retrospectively adjusted accordingly to reflect this change in par value.

The Company has 2,846 shares issuable due to partial shares as a result of the March 27,2020 reverse split that will be issued in April 2020.

During the year ended February 29, 2020, the Company issued 395,443 shares of its common stock for the conversion of debt and related interest and fees totaling $498,668 including $254,118 for of principal, $245,050 interest, $500 in fees in connection with debt converted during the period, as well as the release of the related derivative liability (see Note 13).


F-25

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

During the year ended February 28, 2019, the Company issued 19,901 shares of its common stock for the conversion of debt and related interest and fees totaling $851,687 including $803,905 for of principal, $35,782 interest, $12,000 in fees in connection with debt converted during the period, as well as the release of the related derivative liability (see Note 13).

During the year ended February 29, 2020 the company cancelled 0.45
warrants as a result of the settlement arrangement described in Note 14.

●On April 16, 2018, the Company issued warrants to purchase 6.4 shares of the Company’s common stock in connection with its issuance of 6.4 shares of the Company’s common stock to an investor. The warrants have an exercise price of $20,000 per share and a three-year term.●On June 6, 2018, the Company issued warrants to purchase 0.7 shares of the Company’s common stock in connection with its issuance of 0.7 shares of the Company’s common stock to an investor. The warrants have an exercise price of $4,400 per share and a three-year term.●On August 24, 2018, the Company issued warrants to purchase 10.2 shares of the Company’s common stock in connection with its issuance of 10.2 shares of the Company’s common stock to an investor. The warrants have an exercise price of $1,500 per share and a three-year term.●In September and October 2018, the Company issued warrants to purchase 111.6 shares of the Company’s common stock in connection with its issuance of 111.6 shares of the Company’s common stock to an investor. The warrants have an exercise price ranging from $150-$350 per share and a three-year term●During the period December 1, 2018 to February 28, 2019 , the Company issued warrants to purchase 1,914 shares of the Company’s common stock in connection with its issuance of 1,914 shares of the Company’s common stock to an investor. The warrants have an exercise price ranging from $140-$310 per share and a three-year term
The above 2043 warrants issued along with the converted shares were recorded as an adjustment to paid in capital included with the value of the common shares converted.

Number of WarrantsWeighted Average Exercise PriceWeighted Average Remaining YearsOutstanding at March 1, 2019—$    ——Issued2,0431002.81Exercised———Forfeited and cancelled———Outstanding at February 28, 20192,043$  1002.81Issued———Exercised———Forfeited and cancelled0.455—Outstanding at February 29, 20202,043$  1001.81
The Company also issued 0.25 warrants with an exercise price of $30,000 per share and a 3-year term on June 11, 2018, and 0.33 warrants with an exercise price of $150,000 and a three year term on March 14, 2018 in connection with loan payables (see Note 12).

The above warrants have an aggregate grant date fair value of $12,967 based on the Black-Scholes Option Pricing model with the following assumptions:

Strike price$30,000 - $150,000Fair value of Company’s common stock$13,000 - $61,000Dividend yield0.00%Expected volatility305.71% - 341.5%Risk free interest rate2.41% - 2.66%Expected term (years)3.00

F-26

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended February 29, 2020 and February 28, 2019, the Company recorded a total of $0 and $12,967, respectively to stock-based compensation for options and warrants with a corresponding adjustment to additional paid-in capital.

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 non-payment balance of sale of WeSecure assets totaling $25,000, unpaid consulting fees payable to the two principals through to September 2019 totaling $ $125,924.48, 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:

20192020Total6/30/19$5,0001/26/2020$15,0007/30/19$5,0002/25/2020$15,0008/29/19$7,5003/26/2020$15,0009/28/19$7,5004/25/2020$15,00010/28/19$10,0005/25/2020$20,00011/27/19$10,0006/25/2020$20,00012/27/19$15,0007/24/2020$20,000Total$60,000$120,000$180,000
The company has fully accrued the above $180,000 as of February
28, 2019.

As of February 29, 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.

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 commencing 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 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 instalments of $5,000 commencing August 1, 2019 with the remaining balance to be paid in $10,000 monthly instalments 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.


F-27

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company’s leases are accounted for as operating leases. Rent expense is recorded over the lease terms on a straight-line basis. Rent expense was $10,000 for the year ended February 29, 2020 and $134,940 for the year ended February 28, 2019.

At February 29, 2020 there were no Company’s 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. Penalties earned through February
29, 2020 have been recorded in these financial statements (see Note 8).

15. EARNINGS (LOSS) PER SHARE

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

For the Years EndedFebruary 29,February 28,20202019Numerator:Net income (loss) available to common shareholders$(6,213,649)$16,094,835Effect of common stock equivalentsAdd: interest expense on convertible debt1,299,785784,504Add (less) loss (gain) on change of derivative liabilities1,127,119(26,039,039)Net income (loss) adjusted for common stock equivalents(3,786,745)(9,159,700)Denominator:Weighted average shares - basic197,5392,773Net income (loss) per share – basic$(21.06)$5,804.57Dilutive effect of common stock equivalents:Warrants—51Convertible Debt—123,704Preferred shares*—69,090Denominator:Weighted average shares – diluted197,539195,618Net income (loss) per share – diluted$(31.46)$(46.82)
The anti-dilutive shares of common stock equivalents for the years ended February 28, 2019 and February 28, 2018 were as follows:

For the Years EndedFebruary 29, 2020February 28, 2019Stock options and warrants77Convertible debt62,692,265,100—Preferred stock1,443,532—Total62,693,708,6397

F-28

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

16. INCOME TAXES

The Company has adopted ASC 740-10, “Income Taxes”, which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset). Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The income tax expense (benefit) consisted of the following for the fiscal years ended February 29, 2020 and February 28, 2019:

February 29, 2020February 28, 2019Total current$—$—Total deferred——$—$—
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax benefit for the fiscal year ended February 29, 2020 (in thousands):

February 29, 2020Federal statutory rate$(1,305,000)Non deductible interest169,000Non deductible changes in fair value of instruments237,000Other non deductible expenses31,000Change in valuation allowance868,000$—

Year Ended
February 28, 2019U.S. federal statutory income tax$3,225,923Amortization of debt discount1,024,740Fair value of derivative liabilities on issuance215,295Change in fair value of derivative liabilities(5,527,483)Gain on debt settlement(60,734)Stock-based compensation133,284Valuation allowance for deferred income tax assets988,975Effective income tax rate$—
For the year ended February 29, 2020, the expected tax benefit is calculated at the 2019 statutory rate of 21%. The effect for temporary timing differences are also calculated at the 25% statutory rate effective for fiscal year ended February 28, 2019.

For the year ended February 29, 2020, the expected tax benefit, temporary timing differences and long-term timing differences are calculated at the 21% statutory rate.


F-29

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Significant components of the Company’s deferred tax assets and liabilities were as follows for the fiscal years February 29, 2020 and February 28, 2019:

February 29, 2020February 28, 2019Deferred tax assets:Net operating loss carryforwards$3,418,115$2,550,115Total deferred tax assets3,418,1152,550,115Deferred tax liabilities:Depreciation——Deferred revenue——Total deferred tax liabilities——Net deferred tax assets:Less valuation allowance(3,418,115)(2,550,115)Net deferred tax assets (liabilities)$—$—
The Company has incurred losses since inception, therefore, the Company has no federal tax liability.  Additionally there are limitations imposed by certain transactions which are deemed to be ownership changes which occurred in the Company on August 28, 2017.  The net deferred tax asset generated by the loss carryforward has been fully reserved.  The cumulative net operating loss carryforward was approximately $6,694,000 at February 29, 2020 and $2,550,000 at February 28, 2019, that is available for carryforward for federal income tax purposes and begin to expire in 2030.

Although the Company has tax loss carry-forwards, there is uncertainty as to utilization prior to their expiration.  Accordingly, the future income tax asset amounts have been fully reserved by a valuation allowance.

The Company has maintained a full valuation allowance against its deferred tax assets at February 29, 2020 and February 28, 2019. A valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Since the Company cannot be assured of realizing the net deferred tax asset, a full valuation allowance has been provided.

The Company does not have any uncertain tax positions at February 29, 2020 and February 28, 2019 that would affect its effective tax rate. The Company does not anticipate a significant change in the amount of unrecognized tax benefits over the next twelve months. Because the Company is in a loss carryforward position, the Company is generally subject to US federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available. If and when applicable, the Company will recognize interest and penalties as part of income tax expense.

During the fiscal years ended February 29, 2020 and February 28, 2019, the Company recognized no amounts related to tax interest or penalties related to uncertain tax positions. The Company is subject to taxation in the United States and various state jurisdictions. The Company currently has no years under examination by any jurisdiction.

On August 28, 2017, the Company consummated a share exchange agreement whereby there was a change of control and any net operating losses up to the date of the transaction were forfeited.

The Company’s tax returns for the years ended February 29, 2020,and February 28, 2019, and 2018 are open for examination under Federal statute of limitations.


F-30

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

17. SUBSEQUENT EVENTS

Subsequent to February 29, 2020 through to July 21 ,2020, convertible note holders converted 638,815 of principal, $340,078 interest and $16,000 in fees into 195,130,928 shares of the Company’s common stock.

On April 22, 2020 the Company entered into a similar agreement as that described in Note 8 with the second investor (therein described) whereby the investor would pay up to $100,000 in exchange for a perpetual 1% royalty on the Company’s reported quarterly revenue. These royalty payments are to be made 90 days after the fiscal quarter with the first payment being due no later than July 1, 2020. If the royalty payments would deplete RAD’s available cash by more than 2.22%, the payment may be deferred. The investor has fully funded the $100,000 in April 2020.

On April 3, 2020 the Company entered into a loan agreement for cash proceeds of $27,697 ($40,000 CDN). The loan bears interest at 20% per annum, with interest payments commencing on the third month following the loan and then paid over the following 10 months. The loan matures on April 3, 2021. Should the loan and interest be unpaid at maturity a 10% (annual rate) penalty would apply on the unpaid balance for each day unpaid. By consent of all parties, the lender may convert balance into Class F shares at $6,739 USD per share at maturity.

On April 16, 2020 the Company entered into a loan agreement for $13,000 with cash proceeds of $9,150 and an original issue discount of $3,850. The loan bears interest at 15% per annum, and matures on April 16, 2021.

On May 12, 2020 the Company entered into a loan agreement for $43,500 with cash proceeds of $35,500 and an original issue discount of $8,000. The loan bears interest at 15% per annum, and matures on May 12, 2021.

On May 22, 2020 the Company entered into a loan agreement for $85,000 with cash proceeds of $70,000 and an original issue discount of $15,000. The loan bears interest at 15% per annum, and matures on May 22, 2021.

On July 1, 2020 the Company entered into a similar agreement as that described in Note 8 with the first investor (therein described) whereby the investor would pay up to $800,000 in exchange for a perpetual 2.75% royalty on the Company’s reported quarterly revenue. These royalty 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 royalty 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 in July 2020 and the final payment no later than February 28, 2021. If the total investment turns out to be less than $800,000, this would not constitute a breach of the agreement, rather the royalty rate would be adjusted on a pro-rata basis.

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


F-31