Form 10-Q/A Artificial Intelligence For: Nov 30


Other income (expense) consisted of the change of fair value of derivative instruments and interest. Other income (expense) during the nine months ended November 30, 2019 and November 30, 2018, was $(1,653,128) and $21,058,280, respectively. The $22,711,408 decrease in other income was primarily attributable to the change in the fair value of derivatives, interest expense, including interest expense related to derivative liability in excess of the face value of debt) and loss on settlement of debt. Fair value of derivatives was largely affected by the decrease in the market price of the Company’s common stock during the current period.

We had net loss of $(3,080,659) for the nine months ended November 30, 2019, compared to net income of $17,999,101 for the nine months ended November 30, 2018. The change is primarily the result of the change in the fair value of the derivative liabilities and other items discussed above.

Management believes that we will continue to incur losses for the immediate future. Therefore, we will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include and adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. For the nine months ended November 30, 2019, we have generated revenue and are trying to achieve positive cash flows from operations.

As of November 30, 2019, we had a cash balance of $16,239, accounts receivable of $79,989 and $16,295,028 in current liabilities. At the current cash consumption rate, we will need to consider additional funding sources going forward. We are taking proactive measures to reduce operating expenses and drive growth in revenue.

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

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

_________

(1)

As of November 30, 2019 and February 28, 2019, current liabilities included approximately $5.3 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 November 30, 2019 and February 28, 2019, we had a cash balance of $16,239 and $21,192, respectively.

Summary of Cash Flows

 

 

Nine Months Ended
November 30, 2019

 

Nine Months Ended
November 30, 2018

 

Net cash used in operating activities

 

$

(1,606,259

)

$

(1,678,281

)

Net cash used in investing activities

 

$

(15,825

)

$

(232,933

)

Net cash provided by financing activities

 

$

1,617,131

 

$

1,903,992

 

Net cash used in operating activities.

Net cash used in operating activities for the nine months ended November 30, 2019 was $1,606,259, which included a net loss of $3,080,659, non-cash activity such as the change in fair value of derivative liabilities of ($367.971), gain on settlement of debt of ($186,374), change in operating assets of $788,792, amortization of debt discount of $771,887, interest expense related to penalties from debt defaults of $174,563, interest expense related to derivative liability in excess of face value of debt of $172,242, provision for inventory $54,702, and depreciation and amortization of $74,059 to derive the uses of cash in operations.

Net cash used in investing activities.

Net cash used in investing activities for the nine months ended November 30, 2019 was $26,825, which was the purchase of fixed assets and disposal of a fixed asset for proceeds of $11,000.

Net cash provided by financing activities.

Net cash provided by financing activities was $1,614,131 for the nine months ended November 30, 2019. This consisted of proceeds from deferred payment obligation of $1,197,500,proceeds from convertible notes payable of $25,000, proceeds from loans payable $681,877,and net borrowings from loan payable – related party of $123,790 offset by payments on loans payable of $411,036.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are further discussed in our Annual Report on Form 10-K/A for the year ended February 28, 2019 filed with the SEC on November 29, 2019 and should be read in conjunction with the Original filing on Form 10-K filed with the SEC on November 26, 2019.

Related Party Transactions

For the nine months ended November 30, 2019 and 2018, the Company received net advances of $123,790 and $401,473, respectively, from its loan payable-related party. At November 30, 2019, the loan payable-related party was $1,232,704 and $782,844 at February 28, 2019. At November 30, 2019, included in the balance due to the related party is $588,290 of deferred salary and interest, $386,438 of which bears interest at 12%. At February 28, 2019, included in the balance due to the related party is $351,384 of deferred salary and interest, $210,000 of which bears interest at 12%. The accrued interest included at November 30, 2019 and February 28, 2019 was $39,530 and $13,650, respectively.

During the three and nine months ended November 30, 2019 the Company was charged $90,090 and $47,238, respectively in consulting fees for research and development to a company owned by a principal shareholder. The credit received in the quarter ended May 31, 2019 were a result of billing corrections of ($106,444) and after adjusting for this, would bring total charges in the nine months ended November 30, 2019 to $153,662. During the three and nine months ended November 30, 2018, the Company was charged $288,143 and $484,251 in consulting fees for research and development to a company owned by a principal shareholder.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

Management’s Report on Internal Control over Financial Reporting

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of November 30, 2019. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of November 30, 2019, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

1.

As of November 30, 2019, we did not maintain effective controls over our control environment. Specifically, we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

 

 

 

 

2.

As of November 30, 2019, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.

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

Change in Internal Controls over Financial Reporting

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

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

2019

 

2020

 

Total

6/30/19

$5,000

 

1/26/2020

$15,000

 

 

7/30/19

$5,000

 

2/25/2020

$15,000

 

 

8/29/19

$7,500

 

3/26/2020

$15,000

 

 

9/28/19

$7,500

 

4/25/2020

$15,000

 

 

10/28/19

$10,000

 

5/25/2020

$20,000

 

 

11/27/19

$10,000

 

6/25/2020

$20,000

 

 

12/27/19

$15,000

 

7/24/2020

$20,000

 

 

 

 

 

 

 

 

 

Total

$60,000

 

 

$120,000

 

$180,000

– 32 –


The company has fully accrued the above $180,000 and has paid $17,500. As of filing the September through December instalments are in arrears.

ITEM 1A. RISK FACTORS

This item is not applicable to smaller reporting companies.

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

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company has not defaulted upon senior securities.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable to the Company.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

__________

(1)

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

 

 

(2)

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

 

 

(3)

Filed or furnished herewith.

 

 

(4)

In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”

– 33 –


SIGNATURES

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

 

Artificial Intelligence Technology Solutions Inc.

 

 

 

 

Date: January 22, 2020

BY: /s/ Garett Parsons

 

Garett Parsons

 

President, Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer, Treasurer and Director

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