Artificial Intelligence Technology Solutions Inc. [AITX] Filings

10-Q 1 form_10-q.htm FORM 10-Q QUARTERLY REPORT FOR 11-30-2022

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED November 30, 2022

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

FOR THE TRANSITION PERIOD FROM _______________ TO _______________

COMMISSION FILE NUMBER: 000-55079

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

(Exact name of registrant as specified in its charter)

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

10800 Galaxie Avenue Ferndale, MI		48220
(Address of principal executive offices)		(Zip code)

(877) 787-6268

(Registrant’s telephone number, including area code)

not applicable

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

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

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

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

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

Large accelerated filer	[_]	Accelerated filer	[_]

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 5,378,004,171 shares of common stock were issued and outstanding as of January 6, 2023.

		PAGE
PART I	FINANCIAL INFORMATION

ITEM 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of November 30, 2022 and February 28, 2022 (Unaudited)	3

	Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended November 30, 2022 and 2021 (Unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Deficit for the Nine Months Ended November 30, 2022 and 2021 (Unaudited)	5-6

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 2022 and 2021 (Unaudited)	7

	Notes to the Consolidated Financial Statements (Unaudited)	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	37

ITEM 4.	Controls and Procedures	37

PART II	OTHER INFORMATION

ITEM 1.	Legal Proceedings	38

ITEM 1A.	Risk Factors	38

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

ITEM 3.	Defaults Upon Senior Securities	38

ITEM 4.	Mine Safety Disclosures	38

ITEM 5.	Other Information	38

ITEM 6.	Exhibits	38

SIGNATURES		38

- 2 -

Table of Contents

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

				^*
	November 30, 2022 (Unaudited)			February 28, 2022^*
ASSETS
Current assets:
Cash	$	713,493		$	4,648,146
Accounts receivable, net		464,044			429,469
Device parts inventory, net		1,573,380			1,530,657
Prepaid expenses and deposits		672,794			442,164
Total current assets		3,423,711			7,050,436
Operating lease asset		1,241,152			1,331,605
Revenue earning devices, net of accumulated depreciation of $676,615 and $434,661, respectively		1,092,203			709,063
Fixed assets, net of accumulated depreciation of $139,751 and $49,065, respectively		312,307			137,952
Trademarks		28,723			28,723
Security deposit		21,239			21,239
Total assets	$	6,119,335		$	9,279,018

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	1,166,171		$	968,853
Advances payable		1,594			1,594
Customer deposits		2,383			10,000
Current operating lease liability		111,985			254,027
Current portion of deferred variable payment obligation		497,150			325,600
Current portion of convertible notes payable, net of discount of $433,932 and $0, respectively		316,068			3,500
Loan payable - related party		203,276			193,556
Incentive compensation plan payable		842,000			479,500
Current portion of loans payable, net of discount of $158,194 and $14,745, respectively		1,240,306			1,004,708
Vehicle loan - current portion		38,522			38,522
Current portion of accrued interest payable		50,963			1,260,271
Derivative liability		—			7,587
Total current liabilities		4,470,418			4,547,718
Non-current operating lease liability		1,115,323			1,057,579
Loans payable, net of discount of $5,378,890 and $4,905,076, respectively		23,728,956			20,309,069
Deferred variable payment obligation		2,525,000			2,525,000
Accrued interest payable		4,775,150			1,816,009
Total liabilities		36,614,847			30,255,375

Commitments and Contingencies
Stockholders’ deficit:
Preferred Stock, undesignated; 15,545,650 shares authorized; no shares issued and outstanding at November 30, 2022 and February 28, 2022, respectively		—			—
Series E Preferred Stock, $0.001 par value; 4,350,000 shares authorized; 3,350,000 and 3,350,000 shares issued and outstanding, respectively		3,350			3,350
Series F Convertible Preferred Stock, $1.00 par value; 4,350 shares authorized; 2,533 and 2,532 shares issued and outstanding, respectively		2,533			2,532
Series G Preferred Stock, $0.001 par value; 4,350,000 shares authorized, no shares issued and outstanding at November 30, 2022 and February 28, 2022, respectively		—			—
Common Stock, $0.00001 par value; 6,000,000,000 shares authorized 5,260,515,892 and 4,735,210,360 shares issued, issuable and outstanding, respectively		52,607			47,353
Additional paid-in capital		76,421,377			73,015,576
Preferred stock to be issued		99,086			99,086
Accumulated deficit		(107,074,465	)		(94,144,254	)
Total stockholders’ deficit		(30,495,512	)		(20,976,357	)
Total liabilities and stockholders’ deficit	$	6,119,335		$	9,279,018

*	Derived from audited information

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

- 3 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended November 30, 2022			Three Months Ended November 30, 2021			Nine Months Ended November 30, 2022			Nine Months Ended November 30, 2021

Revenues	$	402,399		$	373,897		$	1,055,040		$	1,075,803

Cost of Goods Sold		125,960			143,424			453,898			296,304

Gross Profit		276,439			230,473			601,142			779,499

Operating expenses:
Research and development (Note 10)		813,313			982,446			2,800,834			2,316,383
General and administrative		2,123,768			3,964,512			6,762,602			8,455,224
Depreciation and amortization		92,855			67,927			332,643			153,261
Operating lease cost and rent		61,005			103,115			194,653			207,201
(Gain) loss on disposal of fixed assets		—			—			—			(29,125	)
Total operating expenses		3,090,941			5,118,000			10,090,732			11,102,944

Loss from operations		(2,814,502	)		(4,887,527	)		(9,489,590	)		(10,323,445	)

Other income (expense), net:
Change in fair value of derivative liabilities		—			—			3,595			372,502
Interest expense		(1,271,158	)		(2,050,254	)		(3,448,208	)		(4,812,477	)
Gain (loss) on settlement of debt		—			(156,661	)		3,992			(33,068,313	)
Total other income (expense), net		(1,271,158	)		(2,206,915	)		(3,440,621	)		(37,508,288	)

Net Loss	$	(4,085,660	)	$	(7,094,442	)	$	(12,930,211	)	$	(47,831,733	)

Net income (loss) per share - basic	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.01	)

Net income ( loss) per share - diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.01	)

Weighted average common share outstanding - basic		5,140,405,652			4,183,357,145			4,969,080,716			4,162,382,783

Weighted average common share outstanding - diluted		5,140,405,652			4,183,357,145			4,969,080,716			4,162,382,783

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

- 4 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S DEFICIT

(Unaudited)


	Series E					Series F					Series G								Additional						Total
	Preferred Stock					Preferred Stock					Preferred Stock					Common Stock			Paid-In			Accumulated			Shareholders'
	Shares		Amount			Shares		Amount			Shares		Amount			Shares	Amount		Capital			Deficit			Deficit

Balance at February 28, 2021	4,350,000			4,350		2,799			176,869		—		$	—		3,229,426,884	$	32,294	$	16,764,554		$	(31,521,754	)	$	(14,543,687	)
Series F Preferred Shares issued with amendment agreement	—			—		40			40							—		—		3,244,700			—			3,244,740
Series F Preferred Shares Warrants issued with amendment agreement	—			—		—			—		—			—		—		—		29,770,474			—			29,770,474
Series F Preferred Shares cancelled in exchange for promissory notes	—			—		(83	)		(83	)	—			—		—		—		(6,732,752	)		—			(6,732,835	)
Series F preferred shares issued on exercise of warrants	—			—		38			38		—			—		—		—		(38	)		—			—
Series F Preferred Shares converted to common shares	—			—		(78	)		(78	)	—			—		316,345,998		3,164		(3,086	)		—			—
Relative fair value of warrants issued with debt	—			—		—			—		—			—		—		—		4,749,006			—			4,749,006
Stock based compensation	—			—		—			—							—		—		69,350			—			69,350
Net income	—			—		—			—		—			—		—		—		—			(35,904,918	)		(35,904,918	)
Balance at May 31, 2021	4,350,000		$	4,350		2,716		$	176,786		—		$	—		3,545,772,882	$	35,458	$	47,862,208		$	(67,426,672	)	$	(19,347,870	)
Adjustment to derivative liability	—			—		—			—		—			—		—		—		422,272			—			422,272
Common stock issued for debt conversion	—			—		—			—		—			—		31,042,436		310		898,395			—			898,705
Exercise of warrants	—			—		—			—		—			—		300,251,561		3,003		(3,003	)		—			—
Relative fair value of warrants issued with debt	—			—		—			—		—			—		—		—		2,035,033			—			2,035,033
Cancellation of Series E Shares	(1,000,000	)		(1,000	)	—			—		—			—		—		—		1,000			—			—
Exchange of debt for common shares	—			—		—			—		—			—		116,104,232		1,161		6,454,235			—			6,455,396
Stock based compensation on issuable shares	—			—		—			—		—			—		2,100,000		21		109,179			—			109,200
Exchange of Series F Preferred Shares for debt	—			—		(184	)		(184	)	—			—		—		—		(3,999,976	)		—			(4,000,160	)
Net income	—			—		—			—		—			—		—		—		—			(4,832,373	)		(4,832,373	)
Balance at August 31, 2021	3,350,000		$	3,350		2,532		$	176,602		—		$	—		3,995,271,111	$	39,953	$	53,779,343		$	(72,259,045	)	$	(18,259,797	)
Issuance of shares, net of $253,811 issuance costs	—			—		—			—		—			—		345,168,473		3,452		8,466,551			—			8,470,003
Cashless exercise of 100,000,000 warrants	—			—		—			—		—			—		94,770,776		948		(948	)		—			—
Relative fair value of warrants issued with debt	—			—		—			—		—			—		—		—		1,284,783			—			1,284,783
Redemption of 19 Issuable Series F shares	—			—		—			(74,984	)	—			—		—		—		—			(425,016	)		(500,000	)
Issuance of Series G preferred as equity awards per employment agreement	—			—		—			—		1,500			1,500,000		—		—		—			—			1,500,000
Redemption of Series G shares as compensation payment	—			—		—			—		(1,500	)		(1,500,000	)	—		—		—			—			(1,500,000	)
Net income	—			—		—			—		—			—		—		—		—			(7,094,442	)		(7,094,442	)
Balance at November 30, 2021	3,350,000		$	3,350		2,532		$	101,618		—		$	—		4,435,210,360	$	44,353	$	63,529,729		$	(79,778,503	)	$	(16,099,453	)

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

- 5 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S DEFICIT

(Unaudited)


	Series E			Series F								Additional						Total
	Preferred Stock			Preferred Stock			Common Stock					Paid-In			Accumulated			Stockholders’
	Shares	Amount		Shares	Amount		Shares		Amount			Capital			Deficit			Deficit
Balance at February 28, 2022	3,350,000	$	3,350	2,532	$	101,618	4,735,210,360		$	47,353		$	73,015,576		$	(94,144,254	)	$	(20,976,357	)
Issuance of shares, net of $117,157 issuance costs	—		—	—		—	133,881,576			1,339			1,643,883			—			1,645,222
Rounding	—		—	—		—	—			—			(1	)		—			(1	)
Net income	—		—	—		—	—			—			—			(4,671,686	)		(4,671,686	)
Balance at May 31, 2022	3,350,000	$	3,350	2,532	$	101,618	4,869,091,936		$	48,692		$	74,659,458		$	(98,815,940	)	$	(24,002,822	)
Issuance of shares, net of $95,293 issuance costs	—		—	—		—	191,691,135			1,917			1,889,350			—			1,891,267
Cashless exercise of warrants	—		—	—		—	9,688,179			97			(97	)		—			—
Relative fair value of warrants issued with debt	—		—	—		—	—			—			404,374			—			404,374
Cancelled shares	—		—	—		—	(17,116,894	)		(171	)		171			—			—
Exchange of 955,000,000 warrants for debt	—		—	—		—	—			—			(2,960,500	)					(2,960,500	)
Shares as payment for services	—		—	—		—	10,000,000			100			118,400			—			118,500
Net income	—		—	—		—	—			—			—			(4,172,865	)		(4,172,865	)
Balance at August 31, 2022	3,350,000	$	3,350	2,532	$	101,618	5,063,354,356		$	50,635		$	74,111,156		$	(102,988,805	)	$	(28,722,046	)
Issuance of shares, net of $68,732 issuance costs	—		—	—		—	197,161,536			1,972			1,119,518			—			1,121,490
Relative fair value of Series F warrants issued with debt	—		—	1		1	—			—			1,201,127			—			1,201,128
Relative fair value of warrants issued with debt	—		—	—		—	—			—			(10,424	)		—			(10,424	)
Net income	—		—	—		—	—			—			—			(4,085,660	)		(4,085,660	)
Balance at November 30, 2022	3,350,000	$	3,350	2,533	$	101,619	5,260,515,892		$	52,607		$	76,421,377		$	(107,074,465	)	$	(30,495,512	)

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

- 6 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended November 30, 2022			Nine Months Ended November 30, 2021
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss	$	(12,930,211	)	$	(47,831,733	)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		332,643			153,261
Revenue earning device sold and expensed in cost of sales		—			3,410
Bad debts expense		224,215			107,022
Inventory provision		90,000			—
Reduction of right of use asset		84,298			75,609
Accretion of lease liability		107,187			86,350
(Gain) loss on disposal of fixed assets		—			(29,125	)
Stock based compensation		481,000			2,158,050
Change in fair value of derivative liabilities		(3,595	)		(372,502	)
Interest expense related to penalties from debt defaults		—			—
Amortization of debt discounts		1,094,388			2,700,233
(Gain) loss on settlement of debt		(3,992	)		33,068,313
Increase in related party accrued payroll and interest		9,720			220,140
Changes in operating assets and liabilities:
Accounts receivable		(258,790	)		(289,485	)
Prepaid expenses		(224,476	)		(392,811	)
Deposits on right of use asset		—			(18,462	)
Device parts inventory		(805,257	)		(1,864,340	)
Accounts payable and accrued expenses		197,317			177,240
Accrued expense -related party		—			(178,478	)
Customer deposits		(7,617	)		(500	)
Operating lease liabilities		(191,485	)		(161,959	)
Current portion of deferred variable payment obligation for payments		171,550			173,640
Balance owed WeSecure		—			(122,000	)
Accrued interest payable		1,749,833			1,903,365
Net cash used in operating activities		(9,883,272	)		(10,434,762	)

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of fixed assets		(217,601	)		(34,534	)
Acquisition of trademarks		—			(26,327	)
Proceeds on disposal of fixed assets		—			30,000
Cash paid for security deposit		—			(15,880	)
Net cash used in investing activities		(217,601	)		(46,741	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Share proceeds net of issuance costs		4,657,979			7,463,654
Proceeds from loans payable		2,600,000			9,426,146
Repayment of loans payable		(1,711,009	)		(471,617	)
Proceeds from convertible debt and warrants issued		619,250			—
Repayment of convertible debt		—			(65,000	)
Series G preferred shares redeemed as payment on incentive plan payable		—			(1,500,000	)
Dividend and redemption of cancelled issuable Series F preferred shares		—			(500,000	)
Net borrowings (repayments) on loan payable - related party		—			(812,234	)
Net cash provided by financing activities		6,166,220			13,540,949

Net change in cash		(3,934,653	)		3,059,446

Cash, beginning of period		4,648,146			1,044,418

Cash, end of period	$	713,493		$	4,103,864

Supplemental disclosure of cash and non-cash transactions:
Cash paid for interest	$	405,117		$	165,163
Cash paid for income taxes	$	—		$	—

Noncash investing and financing activities:
Right of use asset for operating lease liability	$	—		$	1,341,506
Transfer from device parts inventory to revenue earning devices	$	672,534		$	592,346
Conversion of convertible notes and interest to shares of common stock	$	—		$	898,705
Release of derivative liability on conversion of convertible notes payable	$	—		$	422,272
Derivative debt discount on re-valuation on loan amendment	$	—		$	438,835
Exchange of notes payable for Series F preferred shares	$	—		$	6,732,835
Exchange of warrants for debt	$	3,000,000		$	—
Discount applied to face value of loans	$	434,500		$	6,162,945
Warrants issued as part of debt	$	—		$	8,068,822
Exercise of warrants	$	97		$	3,951
Series F preferred shares and warrants issued for debt	$	1,240,628		$	4,000,160
Issuance of Series G preferred shares as payment of incentive plan payable	$	—		$	1,500,000
Cancellation of Series E preferred shares and common shares	$	171		$	1,000
Series F preferred shares converted to common shares	$	—		$	3,086
Series F preferred shares issued on exercise of warrants	$	—		$	38

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

- 7 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. GENERAL INFORMATION

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

Robotic Assistance Devices, LLC (“RAD”), was incorporated in the State of Nevada on July 26, 2016 as a Limited Liability Company. 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 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, and AITX’s business going forward will consist of one segment activity, which is the delivery of artificial intelligence and robotic solutions for operational, security and monitoring needs.

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

2. GOING CONCERN

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

For the nine months ended November 30, 2022, the Company had negative cash flow from operating activities of $9,883,272. As of November 30, 2022, the Company has an accumulated deficit of $107,074,465, and negative working capital of $1,046,707. 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 potentially raise an additional $1 million to $3 million before the end of the fiscal year. Management is committed to raise either non-dilutive funds or minimally dilutive funds. There is no assurance that these funds will be able to be raised nor can we provide assurance that these possible raises may not have dilutive effects.

The Company began raising money through its S-3 Registration Statement this year and made improvements in paying off debt, investing in inventory and at November 30, 2022 had $713,493 of cash on hand. Management is committed to raise either non-dilutive funds or minimally dilutive funds. There is no assurance that these funds will be able to be raised nor can we provide assurance that these possible raises may not have dilutive effects. For the fiscal period through to November 30, 2022, the Company has raised an additional $4.7 million net of issuance costs through the sale of its common shares and raised approximately $3.2 million in current debt.

- 8 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in conformity with the condensing instructions on Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto in the Company’s latest Annual Report filed with the SEC on Form 10-K as filed on May 27, 2022. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Robotic Assistance Devices, Inc., Robotic Assistance Devices Group , Inc, Robotic Assistance Devices Mobile, Inc., On the Move Experience, LLC and On the OMV Transports, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the six months ended November 30, 2022 are not necessarily indicative of the results that may be expected for the entire year.

Use of Estimates

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

Concentrations

Loans payable

At November 30, 2022 there were $30,506,346 of loans payable, $26,090,506 or 85% of these loans to companies controlled by one individual. At February 28, 2022 there were $26,233,598 of loans payable $21,709,459 or 83% of these loans to companies controlled by the same individual.

Cash

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

Accounts Receivable

Accounts receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances. There was an allowance of $109,890 and $33,890 provided as of November 30, 2022 and February 28, 2022, respectively.

Device Parts Inventory

Device parts inventory is stated at the lower of cost or net realizable value using the weighted average cost method. The Company records a valuation reserve for obsolete and slow-moving inventory, relying principally on specific identification of such inventory. The Company uses these device parts in the assembly of revenue earning devices (and demo devices) as well as research and development. Depending on use, the Company will transfer the parts to the corresponding asset or expense if used in research and development. A charge to income is taken when factors that would result in a need for an increase in the valuation, such as excess or obsolete inventory, are noted. As of November 30, 2022 and February 28, 2022 there was a valuation reserve of $155,000 and $65,000, respectively.

- 9 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 two to five years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently.

Computer equipment and software		2 or 3 years
Office equipment		4 years
Manufacturing equipment		7 years
Warehouse equipment		5 years
Tooling		2 years
Demo Devices		4 years
Vehicles		3 years
Leasehold improvements		5 years, the life of the lease

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

Research and Development

Research and development costs are expensed in the period they are incurred in accordance with ASC 730, Research and Development unless they meet specific criteria related to technical, market and financial feasibility, as determined by Management, including but not limited to the establishment of a clearly defined future market for the product, and the availability of adequate resources to complete the project. If all criteria are met, the costs are deferred and amortized over the expected useful life or written off if a product is abandoned. At November 30, 2022 and February 28, 2022, the Company had no deferred development costs.

Contingencies

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

Sales of Future Revenues

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

- 10 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

Revenue Recognition

ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, supersedes the revenue recognition requirements and industry specific guidance under Revenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Topic 606 defines a five-step process that must be evaluated and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing accounting principles generally accepted in the United States of America (“U.S. GAAP”) including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The Company adopted Topic 606 on March 1, 2018, using the modified retrospective method. Under the modified retrospective method, prior period financial positions and results will not be adjusted. There was no cumulative effect adjustment recognized as a result of this adoption. Refer to Note 4 – Revenue from Contracts with Customers for additional information. For the nine months ended November 30, 2022 , two customers accounted for 41% of total revenue (2021- 60%).

Income Taxes

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

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

Leases

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

- 11 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

Distinguishing Liabilities from Equity

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

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

Our Chief Executive Officer/ Chairman holds sufficient shares of the Company’s voting preferred stock that give sufficient voting rights under the articles of incorporation and bylaws of the Company such that the CEO/ Chairman can at any time unilaterally vote to increase the number of authorized shares of common stock of the Company, without the need to call a general meeting of common shareholders of the Company.

Initial Measurement

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

Subsequent Measurement – Financial Instruments Classified as Liabilities

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

Fair Value of Financial Instruments

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

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

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

- 12 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	●	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:

	Amount at		Fair Value Measurement Using
	Fair Value		Level 1		Level 2		Level 3
November 30, 2022
Liabilities
Incentive compensation plan payable- revaluation of equity awards payable in Series G shares	$	842,000	$	—	$	—	$	842,000
Derivative liability – conversion features pursuant to convertible notes payable	$	—	$	—	$	—	$	—

February 28, 2022
Liabilities
Incentive compensation plan payable- revaluation of equity awards payable in Series G shares	$	479,500	$	—	$	—	$	479,500
Derivative liability – conversion features pursuant to convertible notes payable	$	7,587	$	—	$	—	$	7,587

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

Earnings (Loss) per Share

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

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

- 13 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (FASB) issued amended guidance on the accounting and reporting of income taxes. The guidance is intended to simplify the accounting for income taxes by removing exceptions related to certain intraperiod tax allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The Company adopted the new guidance effective February 1, 2021. There was no impact to the Company’s consolidated financial statements upon adoption.

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

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

Recently Issued Accounting Standards Not Yet Adopted

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

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

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

4. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

- 14 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

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


	Three Months Ended November 30, 2022		Three Months Ended November 30, 2021		Nine Months Ended November 30, 2022		Nine Months Ended November 30, 2021
Device rental activities	$	154,628	$	165,353	$	622,647	$	383,434
Direct sales of goods and services		247,771		208,544		432,393		692,369
	$	402,399	$	373,897	$	1,055,040		1,075,803

5. LEASES

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

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

Below is a summary of our lease assets and liabilities at November 30, 2022 and February 28, 2022.

Leases	Classification	November 30, 2022		February 28, 2022
Assets
Operating	Operating Lease Assets	$	1,241,152	$	1,331,605
Liabilities
Current
Operating	Current Operating Lease Liability	$	111,985	$	254,027
Noncurrent
Operating	Noncurrent Operating Lease Liabilities		1,115,323		1,057,579
Total lease liabilities		$	1,227,308	$	1,311,606

Note: As most of our leases do not provide an implicit rate, we use our incremental borrowing rate of 10% which for the leases noted above was based on the information available at commencement date in determining the present value of lease payments. We compare against loans we obtain to acquire physical assets and not loans we obtain for financing. The loans we obtain for financing are generally at significantly higher rates and we believe that physical space or vehicle rental agreements are in line with physical asset financing agreements. CAM charges were not included in operating lease expense and were expensed in general and administrative expenses as incurred.

Rent expense and operating lease cost was $61,005 and $194,653 for the three and nine months ended November 30, 2022, respectively, and $103,115 and $207,201 for the three and nine months ended November 30, 2021, respectively.

- 15 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. REVENUE EARNING DEVICES

Revenue earning devices consisted of the following:

	November 30, 2022			February 28, 2022
Revenue earning devices	$	1,768,818		$	1,143,724
Less: Accumulated depreciation		(676,615	)		(434,661	)
	$	1,092,203		$	709,063

During the three and nine months ended November 30, 2022 the Company made total additions to revenue earning devices of $199,047 and $625,094, respectively, which were transfers from inventory. During the three and nine months ended November 30, 2021, the Company made total additions to revenue earning devices of $310,009 and $592,346, respectively, which were transfers from inventory. During the nine months ended November 30, 2021 the Company sold a revenue earning device having a net book value of $3,255 for revenues of $30,600 and included the $3,255 in cost of goods sold.

Depreciation expense was $54,418 and $241,957 for the three and nine months ended November 30, 2022, respectively, and $61,976 and $138,815 for the three and nine months ended November 30, 2021, respectively.

7. FIXED ASSETS

Fixed assets consisted of the following:

	November 30, 2022			February 28, 2022
Automobile	$	84,880		$	84,880
Manufacturing equipment		25,625			16,800
Demo devices		63,979			16,539
Computer equipment and software		133,959			36,742
Office equipment		15,312			15,312
Warehouse equipment		11,415			11,415
Tooling		101,320			—
Leasehold improvements		15,568			5,329
		452,058			187,017
Less: Accumulated depreciation		(139,751	)		(49,065	)
	$	312,307		$	137,952

During the three months ended November 30, 2022, the Company made additions of $31,365 of which $19,961 were transfers from inventory with remaining additions of $11,404. During the nine months ended November 30, 2022, the Company made additions of $265,041 of which $47,440 were transfers from inventory with remaining additions of $217,601. During the three months and nine months ended November 30, 2021, the Company made additions of $2,372 and $34,534, respectively. During the nine months ended November 30, 2021, the Company sold a vehicle having a net book value of $875 for fair value proceeds of $30,000 and recorded a gain on disposal of fixed assets of $29,125.

Depreciation expense was $38,437 and $90,686 for the three and nine months ended November 30, 2022, respectively, and $5,951 and $14,446 for the three and nine months ended November 30, 2021, respectively.

8. DEFERRED VARIABLE PAYMENT OBLIGATION

On February 1, 2019 the Company entered into an agreement with an investor whereby the investor would pay up to $900,000 in exchange for a perpetual 9% rate payment (Payments) on the Company’s reported quarterly revenue from operations excluding any gains or losses from financial instruments (Revenues). At February 29, 2020 the investor has advanced the full $900,000.

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

- 16 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	(1)	The investor would pay up to $400,000 in exchange for a perpetual 4% rate Payment on the Company’s reported quarterly Revenues. At February 29, 2020, $400,000 has been paid to the Company.

	(2)	The investor would pay up to $50,000 in exchange for a perpetual 1.11% rate Payment on the Company’s reported quarterly Revenues. At February 29, 2020, $50,000 has been paid to the Company.

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

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

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

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

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

On July 1, 2020, the Company entered into a similar agreement with the first investor whereby the investor would pay up to $800,000 in exchange for a perpetual 2.75% rate payment (Payment) on the Company’s reported quarterly revenue. These Payments are to be made 90 days after the fiscal quarter with the first payment being due no later than May 31, 2021. If the Payments would deplete RAD’s available cash by more than 20%, the payment may be deferred. The investor had agreed to pay $100,000 per month over an 8 month period with the first payment due July 2020 and the final payment no later than February 28, 2021. As at November 30, 2020 the investor had fully funded the $800,000 commitment

On August 27, 2020, the Company and the first investor referred to above consolidated the three separate agreements of February 1, 2019 for $900,000, November 18, 2019 for $225,000 and July 1, 2020 for $800,000 into a new agreement for a total of $1,925,000. This new agreement is for similar terms as the above agreements save for the following: the rate payment is revised to 14.25% payable on revenues commencing the quarter ended November 30, 2020. Upon an event of default that we are unable to cure in the time allotted under the agreements, these Payments may be secured with a priority lien by UCC filing against all of our assets, but is subordinated to equipment financing or leasing agreements on the products the Company leases to its customers.

In summary of all agreements mentioned above if in the event that at least 10% of the assets of the Company are sold by the Company, the investors would be entitled to the fair market value (FMV) of all future Payments associated with the assets sold as determined by an independent valuator to be chosen by the investors. The FMV cannot exceed 43.77% of the total asset disposition price defined as the total price paid for the assets plus all future Payments associated with the assets sold. In the event that the common or preferred shares are sold by the Company to a third party as to effect a change in control, then the investors must be paid the FMV of all future Payments in one lump payment. The FMV cannot exceed 43.77% of the share disposition price defined as the total price the third party paid for the shares plus the total value of all future Payments. As of March 1, 2021 as a result of the amendment with the first investor noted below. This aggregate asset disposition % was reduced from 43.77 % to 33.77%

- 17 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The Payments will first become payable on June 30, 2019 (unless otherwise indicated) based on the quarterly Revenues for the quarter ended May 31, 2019 and will accrue every quarter thereafter. As of February 28, 2022, the Company has accrued approximately $325,600 in Payments (February 28, 2021 -$91,587).

On March 1, 2021, the first investor referred to above whose aggregate investment is $1,925,000 revised his agreements as follows:

	1)	The rate payment was reduced from 14.25 % to 9.65 %
	2)	The asset disposition % (see below) was reduced from 31 % to 21%

In consideration for the above changes, the investor received 40 Series F Convertible Preferred Stock and a warrant to purchase 367 shares of its Series F Convertible Preferred Stock with a five-year term and an exercise price of $1.00. During the three months ended May 31, 2021, the warrant holder exercised warrants to acquire 38 shares of Series F Convertible Preferred Stock. The Company attributed a fair value based on recent transactions for the Series F Preferred stock and warrants of $33,015,214 and recorded a loss on settlement of debt with a corresponding adjustment to paid in capital.

The Company retains total involvement in the generation of cash flows from these revenue streams that form the basis of the payments to be made to the investors under this agreement. Because of this, the Company has determined that the agreements constitute debt agreements. As of November 30, 2022, and February 28, 2022, the long-term balances other than Payments already owed is the cash received of $2,525,000 and $2,525,000, respectively.

For both the three months and nine months ended November 30, 2022 and year ended February 28, 2022, the Company has received $0 related to the deferred payment obligation since there were no new agreements during this period. The balance remains $2,525,000 at both November 30, 2022 and February 28, 2022.

The Payments first become payable on June 30, 2019 (unless otherwise indicated) based on the quarterly Revenues for the quarter ended May 31, 2019 and accrue every quarter thereafter. As of November 30, 2022, the Company has accrued $497,150 in Payments (February 28, 2022 -$325,600). At November 30, 2022, and February 28, 2022 the Company was in default on $265,226 and $90,300 of those Payments. No notices have been sent to the Company.

9. CONVERTIBLE NOTES PAYABLE

Convertible notes payable consisted of the following:

				Balance			Balance
		Interest	Conversion	November 30,			February 28,
Issued	Maturity	Rate	Rate per Share	2022			2022
July 18, 2016	July 18, 2017^*	8%	$0.003⁽¹⁾	$	—		$	3,500
August 9, 2022	August 9, 2023	12%	$0.009⁽²⁾		750,000			—
				$	750,000		$	3,500

(Less): current portion of convertible notes payable					(750,000	)		(3,500	)
(Less): discount on noncurrent convertible notes payable					—			—
Noncurrent convertible notes payable, net of discount				$	—		$	—

Current portion of convertible notes payable				$	750,000		$	3,500
(Less): discount on current portion of convertible notes payable					(433,932	)		—
Current portion of convertible notes payable, net of discount				$	316,068		$	3,500

__________

*	This note was in default as of February 28, 2022. Default interest rate 22%
(1)	The conversion price was not subject to adjustment from forward or reverse stock splits. Effective in August 2022 this note (and accrued interest) was no longer convertible.
(2)	Subject to adjustment for dilutive issuances

- 18 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

During both the three and nine months ended November 30, 2022, the Company incurred original issue discounts of $75,000, and relative fair value discounts debt discounts from derivative liabilities of $393,949 and fees of $55,750 related to new convertible notes payable. During both the three and nine months ended November 30, 2021 the Company recognized debt discounts from derivative liabilities of $438,835. During the three and nine months ended November 30, 2022, the Company recognized interest expense related to the amortization of debt discount of $78,149 and $90,767. During the three and nine months ended November 30, 2021, the Company recognized interest expense related to the amortization of debt discount of $694,855 and $775,986, respectively.

The note above is unsecured. As of November 30, 2022 and February 28, 2022, the Company had total accrued interest payable of $51,458 and $28,104, respectively, all of which is classified as current.

During the nine months ended November 30, 2022, the Company also had the following convertible note activity:

●	The Company transferred the above July 18, 2016 $3,500 note to loans payable as the note was no longer convertible. This was a result of an SEC action against the debt holder who was also a common stockholder.

●	On August 9, 2022 the Company entered into a new convertible note for $750,000 with a one year maturity, interest rate of 12%, with a warrant (Warrant 1) to purchase 47,000,000 common shares with a five year maturity and an exercise price of $0.01, and an additional warrant (Warrant 2) to purchase 47,000,000 common shares with a five year maturity and an exercise price of $0.008 to be cancelled and extinguished if the note balance is $375,000 or less by February 9. 2023. The Company received $619,250 in cash proceeds, recorded an original issue discount of $75,000, recognized $393,949 based on a relative fair value calculation as debt discount with a corresponding adjustment to paid-in capital for the attached warrants, and transaction fees of $55,750. The discount is amortized over the term of the loan. This Note shall have priority over all unsecured indebtedness of the Company. The note has certain default provisions such as failure to pay any principal or interest when due and failure to maintain a minimum market capitalization of $30 million. In the event of these or any other default provisions, the note becomes due and payable at 125%.

During the nine months ended November 30, 2021, the Company had the following convertible note activity:

●	The Company amended the January 27, 2021 agreement with the lender whereby the conversion rate was changed from $0.10 to $0.03 as a result of a dilutive issuance; this resulted a derivative discount of $438,835 and a loss on extinguishment of $360,125.

●	Holders of certain convertible notes payable elected to convert a total of $825,000 of principal and $71,955 accrued interest, and $1,750 of fees into 31,042,436 shares of common stock; no gain or loss was recognized on conversions as these conversions occurred within the terms of the agreement that provided for conversion.
●	The conversion rate of the January 19, 2021 note included above was reduced to $0.027 due to the dilutive issuance provision in the January 19, 2021 agreement.

- 19 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

10. RELATED PARTY TRANSACTIONS

For the nine months ended November 30, 2022, the Company had no repayments of net advances from its loan payable-related party. For the nine months ended November 30, 2021 the Company repaid net advances of $812,234. At November 30, 2022, the loan payable-related party was $203,276 and $193,556 at February 28, 2022. Included in the balance due to the related party at November 30, 2022 is $126,744 of deferred salary and interest, $108,000 of which bears interest at 12%. At February 28, 2022, included in the balance due to the related party is $110,700 of deferred salary and interest, $90,000 of which bears interest at 12%. The accrued interest included in loan at November 30, 2022 and November 30, 2021 was $12,420 and $540 respectively.

Pursuant to the amended Employment Agreement with its Chief Executive Officer, for the three months and nine months ended November 30, 2022, the Company accrued $138,000 and $362,500 of incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional awards being met. This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at $1,000 per share. At November 30, 2022 and February 28, 2022 there was $842,000 and $479,500 of incentive compensation payable.

During the three months ended November 30, 2022 and 2021, the Company was charged $794,460 and $647,465, respectively for fees for research and development from a company partially owned by a principal shareholder.

During the nine months ended November 30, 2022 and 2021, the Company was charged $2,735,589 and $1,689,253, respectively for fees for research and development from a company partially owned by a principal shareholder.

11. OTHER DEBT – VEHICLE LOAN

In December 2016, RAD entered into a vehicle loan for $47,704 secured by the vehicle. The loan is repayable over 5 years maturing November 9, 2021, and repayable $1,019 per month including interest and principal. In November 2017, RAD entered into another vehicle loan secured by the vehicle for $47,661. The loan is repayable over 5 years, maturing October 24, 2022 and repayable at $923 per month including interest and principal. The principal repayments made were $0 for both the year ended February 28, 2022 and February 28, 2021. Regarding the second vehicle loan, the vehicle was returned at the end of fiscal 2019 and the car was subsequently sold by the lender for proceeds of $21,907 which went to reduce the outstanding balance of the loan. A loss of $3,257 was recorded as well. A balance of $21,578 remains on this vehicle loan at both February 28, 2021 and February 29, 2020. For the first vehicle loan, the vehicle was retired in 2020, the proceeds of the disposal of $18,766 was applied against the balance of the loan with a $5,515 gain on the remaining asset value of $13,251. A balance of $16,944 remains on this vehicle loan at both February 28, 2022 and February 28, 2021. The remaining total balances of the amounts owed on the vehicle loans were $38,522 and $38,522 as of November 30, 2022 and February 28, 2022, respectively, of which all were classified as current.

- 20 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

12. LOANS PAYABLE

Loans payable at November 30, 2022 consisted of the following:

							Annual
Date	Maturity	Description		Principal			Interest Rate
July 18, 2016	July 18, 2017	Promissory note	(35) *	$	3,500		22%
June 11, 2018	June 11, 2019	Promissory note	(2) (#)		—		25%
January 31, 2019	June 30, 2019	Promissory note	(1) (#)		—		15%
May 9, 2019	June 30, 2019	Promissory note	(3) (#)		—		15%
May 31, 2019	June 30, 2019	Promissory note	(4) (#)		—		15%
June 26, 2019	June 26, 2020	Promissory note	(5) (#)		—		15%
September 24, 2019	June 24, 2020	Promissory note	(6) (#)		—		15%
January 30, 2020	January 30, 2021	Promissory note	(7) (#)		—		15%
February 27, 2020	February 27, 2021	Promissory note	(8) (#)		—		15%
April 16, 2020	April 16, 2021	Promissory note	(9) (#)		—		15%
May 12, 2020	May 12, 2021	Promissory note	(11) (#)		—		15%
May 22, 2020	May 22, 2021	Promissory note	(12) (#)		—		15%
June 2, 2020	June 2, 2021	Promissory note	(13) (#)		—		15%
June 9, 2020	June 9, 2021	Promissory note	(14) (#)		—		15%
June 12, 2020	June 12, 2021	Promissory note	(15) (#)		—		15%
June 16, 2020	June 16, 2021	Promissory note	(16) (#)		—		15%
September 15, 2020	September 15, 2022	Promissory note	(17) (#)		—		10%
October 6, 2020	March 6, 2023	Promissory note	(18) (#)		—		12%
November 12, 2020	November 12, 2023	Promissory note	(19) (#)		—		12%
November 23, 2020	October 23, 2022	Promissory note	(20) (#)		—		15.5%
November 23, 2020	November 23, 2023	Promissory note	(21) (#)		—		15%
December 10, 2020	December 10, 2023	Promissory note	(22) (#)		—		12%
December 10, 2020	December 10, 2023	Promissory note	(23)		3,921,168		12%
December 10, 2020	December 10, 2023	Promissory note	(24)		3,054,338		12%
December 10, 2020	December 10, 2023	Promissory note	(25)		165,605		12%
December 14, 2020	December 14, 2023	Promissory note	(26)		310,375		12%
December 30, 2020	December 30, 2023	Promissory note	(27)		350,000		12%
December 31, 2021	December 31, 2024	Promissory note	(28)		25,000		12%
December 31, 2021	December 31, 2024	Promissory note	(29)		145,000		12%
January 14, 2021	January 14, 2024	Promissory note	(30)		550,000		12%
February 22, 2021	February 22, 2024	Promissory note	(31)		1,650,000		12%
March 1, 2021	March 1, 2024	Promissory note	(10)		6,000,000		12%
June 8, 2021	June 8, 2024	Promissory note	(32)		2,750,000		12%
July 12, 2021	July 26, 2026	Promissory note	(33)		3,936,360		7%
September 14, 2021	September 14, 2024	Promissory note	(34)		1,650,000		12%
July 28, 2022	July 28, 2023	Promissory note	(36)		170,000		15%
August 30, 2022	August 30,2024	Promissory note	(38)		3,000,000		15%
September 7, 2022	September 7, 2023	Promissory note	(37)		400,000		15%
September 8, 2022	September 8, 2023	Promissory note	(39)		475,000		15%
October 13, 2022	October 13, 2023	Promissory note	(40)		350,000		15%
October 28, 2022	October 31, 2026	Promissory note	(41)		400,000		15%
November 9, 2022	October 31, 2026	Promissory note	(41)		400,000		15%
November 10, 2022	October 31, 2026	Promissory note	(41)		400,000		15%
November 15, 2022	October 31, 2026	Promissory note	(41)		400,000		15%
				$	30,506,346

Less: current portion of loans payable					(1,398,500	)
Less: discount on non-current loans payable					(5,378,890	)
Non-current loans payable, net of discount				$	23,728,956

Current portion of loans payable				$	1,398,500
Less: discount on current portion of loans payable					(158,194	)
Current portion of loans payable, net of discount				$	1,240,306

- 21 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

*	In default. Default interest rate 22%

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

(1)	Original $78,432 note may be pre-payable at any time. The note balance includes 33% original issue discount of $25,882 at issuance. The loan and accrued interest were fully paid in March 2022.

(2)	Repayable in 12 monthly instalments of $4,562 commencing August 11, 2018 and secured by revenue earning devices having a net book value of at least $48,000. The loan and accrued interest were fully paid in March 2022.

(3)	Original $7,850 note may be pre-payable at any time. The note balance includes 33% original issue discount of $2,590 at issuance. The loan and accrued interest were fully paid in March 2022.

(4)	Original $86,567 note may be pre-payable at any time. The note balance includes 33% original issue discount of $28,567 at issuance. The loan and accrued interest were fully paid in March 2022.

(5)	Original $79,104 note may be pre-payable at any time. The note balance includes 33% original issue discount of $26,104 at issuance. The loan and accrued interest were fully paid in March 2022.

(6)	Original $12,000 note may be pre-payable at any time. The note balance includes an original issue discount of $3,000 at issuance. The loan and accrued interest were fully paid in March 2022.

(7)	Original $11,000 note may be pre-payable at any time. The note balance includes an original issue discount of $2,450 at issuance. The loan and accrued interest were fully paid in March 2022.

(8)	Original $5,000 note may be pre-payable at any time. The note balance includes an original issue discount of $1,200 at issuance. The loan and accrued interest were fully paid in March 2022.

(9)	Original $13,000 note may be pre-payable at any time. The note balance includes an original issue discount of $3,850 at issuance. The loan and accrued interest were paid in March 2022.

(10)	The unsecured note may be pre-payable at any time. Cash proceeds of $5,400,000 were received. The note balance of $6,000,000 includes an original issue discount of $600,000 and was issued with a warrant to purchase 300,000,000 shares at an exercise price of $0.135 per share with a 3-year term and having a relative fair value of $4,749,005 using Black-Scholes with assumptions described in note 13. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $4,749,005 with a corresponding adjustment to paid in capital for the relative value of the warrant. For both the three and six months ended November 30, 2022, the Company recorded amortization expense of $0 with an unamortized discount of $0 at November 30, 2022. The maturity was extended from March 1, 2022 to March 1, 2024 on February 28, 2022 in exchange for warrants to purchase 150,000,000 shares of common stock at an exercise price of $.0164 and a 3 year term. These warrants have a fair value of $2,850,000 recorded as interest expense with a corresponding adjustment to paid in capital recorded in the year ended February 28, 2022.

(11)	Original $43,500 note may be pre-payable at any time. The note balance includes an original issue discount of $8,000 at issuance. The loan and accrued interest were fully paid in March 2022.

(12)	Original $85,000 note may be pre-payable at any time. The note balance includes an original issue discount of $15,000 at issuance. The loan and accrued interest were fully paid in March 2022.

(13)	Original $62,000 note may be pre-payable at any time. The note balance includes an original issue discount of $12,000 at issuance. The loan and accrued interest were fully paid in March 2022.

(14)	Original $31,000 note may be pre-payable at any time. The note balance includes an original issue discount of $6,000 at issuance. The loan and accrued interest were fully paid in March 2022.

- 22 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(15)	Original $50,000 note may be pre-payable at any time. The note balance includes an original issue discount of $10,000 at issuance. The loan and accrued interest were fully paid in March 2022.

(16)	Original $42,000 note may be pre-payable at any time. The note balance includes an original issue discount of $7,000 at issuance. The loan and accrued interest were fully paid in March 2022.

(17)	Original $300,000 note may be pre-payable at any time. The note balance includes an original issue discount of $50,000. Interest payable monthly, principal due at maturity. Secured by a general security charging all of RAD’s present and after-acquired property. The loan and accrued interest were fully paid in March 2022.

(18)	Original principal of $150,000 and interest repayable in 28 monthly instalments commencing December 6, 2020, the first 6 months at $2,000 per month, the remaining 22 payments at $ 8,500 per month. Secured by revenue earning devices. The loan and accrued interest were fully paid in March 2022.

(19)	Original $110,000 note may be pre-payable at any time. The note balance includes an original issue discount of $10,000 and was issued with a warrant to purchase 70,000,000 shares at an exercise price of $0.00165 per share, with a 3-year term and having a relative fair value of $41,176. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $41,176 with a corresponding adjustment to paid in capital. The loan and accrued interest were fully paid in March 2022.

(20)	Original principal of $65,000 and interest repayable in 21 monthly instalments of $4,060 commencing February 23, 2021. Secured by revenue earning devices. The loan and accrued interest were fully paid in March 2022.

(21)	Original $300,000 note may be pre-payable at any time. The note balance includes an original issue discount of $25,000 and was issued with a warrant to purchase 230,000,000 shares at an exercise price of $0.00165 per share with a 3-year term and having a relative fair value of $125,814. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $125,814 with a corresponding adjustment to paid in capital for the relative value of the warrant. The loan and accrued interest were fully paid in March 2022.

(22)	Original $82,500 note may be pre-payable at any time. The note balance includes an original issue discount of 7,500 and was issued with a warrant to purchase 100,000,000 shares at an exercise price of $0.002 per share with a 3-year term and having a relative fair value of $54,545. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $54,545 with a corresponding adjustment to paid in capital for the relative value of the warrant. The loan and accrued interest were fully paid in March 2022.

(23)	This promissory note was issued as part of a debt settlement whereby $2,683,357 in convertible notes and associated accrued interest of $1,237,811 totaling $3,921,168 was exchanged for this promissory note of $3,921,168, and a warrant to purchase 450,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a relative fair value of $990,000. This note is secured by a general security charging all of the Company’s present and after-acquired property.

(24)	This promissory note was issued as part of a debt settlement whereby $1,460,794 in convertible notes and associated accrued interest of $1,593,544 totaling $3,054,338 was exchanged for this promissory note of $3,054,338, and a warrant to purchase 250,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a relative fair value of $550,000. This note is secured by a general security charging all of the Company’s present and after-acquired property.

(25)	This promissory note was issued as part of a debt settlement whereby $103,180 in convertible notes and associated accrued interest of $62,425 totaling $165,605 was exchanged for this promissory note of $165,605, and a warrant to purchase 80,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a fair value of $176,000.

(26)	This promissory note was issued as part of a debt settlement whereby $235,000 in convertible notes and associated accrued interest of $75,375 totaling $310,375 was exchanged for this promissory note of $310,375, and a warrant to purchase 25,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a fair value of $182,500.

- 23 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(27)	The note, with an original principal amount of $350,000, may be pre-payable at any time. The note balance includes an original issue discount of $35,000 and was issued with a warrant to purchase 50,000,000 shares at an exercise price of $0.025 per share with a 3-year term and having a relative fair value of $271,250. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $271,250 with a corresponding adjustment to paid in capital for the relative fair value of the warrant. For the three and nine months ended November 30, 2022, the Company recorded amortization expense of $22,829 and $53,156, respectively, with an unamortized discount of $223,697 at November 30, 2022.

(28)	This promissory note was issued as part of a debt settlement whereby $9,200 in convertible notes and associated accrued interest of $6,944 totaling $16,144 was exchanged for this promissory note of $25,000. This note is secured by a general security charging all of the Company’s present and after-acquired property.

(29)	This promissory note was issued as part of a debt settlement whereby $79,500 in convertible notes and associated accrued interest of $28,925 totaling $108,425 was exchanged for this promissory note of $145,000. This note is secured by a general security charging all of the Company’s present and after-acquired property.

(30)	The note, with an original principal amount of $550,000, may be pre-payable at any time. The note balance includes an original issue discount of $250,000 and was issued with a warrant to purchase 50,000,000 shares at an exercise price of $0.025 per share with a 3-year term and having a relative fair value of $380,174. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $380,174 with a corresponding adjustment to paid in capital. For the three and nine months ended November 30, 2022, the Company recorded amortization expense of $34,441 and $85,968, respectively, with an unamortized discount of $281,264 at November 30, 2022.

(31)	The note, with an original principal balance of $1,650,000, may be pre-payable at any time. The note balance includes an original issue discount of $150,000 and was issued with a warrant to purchase 100,000,000 shares at an exercise price of $0.135 per share with a 3-year term and having a relative fair value of $1,342,857. The discount and warrant are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $1,342,857 with a corresponding adjustment to paid in capital for the relative fair value of the warrant. For the three and nine months ended November 30, 2022, the Company recorded amortization expense of $82,582 and $184,959, respectively, with an unamortized discount of $1,309,454 at November 30, 2022. The maturity date was extended from February 22, 2022 to February 22, 2024 on February 28, 2022 in exchange for warrants to purchase 50,000,000 at an exercise price of $.0164 and a 3 year term. These warrants have a fair value of $950,000 recorded as interest expense with a corresponding adjustment to paid in capital recorded in the year ended February 28, 2022.

(32)	The note, with an original principal balance of $2,750,000, may be pre-payable at any time. The note balance includes an original issue discount of $50,000 and was issued with a warrant to purchase 170,000,000 shares at an exercise price of $0.064 per share with a 3-year term and having a relative fair value of $2,035,033. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $2,035,033 with a corresponding adjustment to paid in capital. For the three and nine months ended November 30, 2022, the Company recorded amortization expense of $120,297 and $319,016, respectively, with an unamortized discount of $930,729 at November 30, 2022. The maturity date was extended from June 8, 2022 to June 8, 2024 on February 28, 2022 in exchange for warrants to purchase 85,000,000 at an exercise price of $.0164 and a 3 year term. These warrants have a fair value of $1,615,000 recorded as interest expense with a corresponding adjustment to paid in capital recorded in the year ended February 28, 2022.

(33)	This loan, with an original principal balance of $4,000,160, was in exchange for 184 Series F preferred shares from a former director. The interest and principal are payable at maturity. The loan is unsecured. For the quarter and nine months ended November 30, 2022 there was repayments $27,800 and $63,800, respectively on the note.

(34)	The note, with an original principal balance of $1,650,000, may be pre-payable at any time. The note balance includes an original issue discount of $150,000 and was issued with a warrant to purchase 250,000,000 shares at an exercise price of $0.037 per share with a 3-year term and having a relative fair value of $1,284,783, The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $1,284,783 with a corresponding adjustment to paid in capital. For the three and nine months ended November 30, 2022, the Company recorded amortization expense of $59,646 and $122,486 respectively. with an unamortized discount of $1,279,947 at November 30, 2022.

- 24 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(35)	This note was transferred from convertible notes payable because in August 2022 it was no longer convertible due to restrictions placed on the lender.

(36)	Original $170,000 note may be pre-payable at any time. The note balance includes an original issue discount of $20,000. Principal and interest due at maturity. Secured by a general security charging all of RAD’s present and after-acquired property. For the three and nine months ended November 30, 2022, the Company recorded amortization expense of $4,589 and $6,048 with an unamortized discount of $13,952 at November 30, 2022.

(37)	Original $400,000 note may be pre-payable at any time. The note balance includes an original issue discount of $50,000. Principal and interest due at maturity. Secured by a general security charging all of RAD’s present and after-acquired property. For both the three and nine months ended November 30, 2022, the Company recorded amortization expense of $10,691 with an unamortized discount of $39,309 at November 30, 2022.

(38)	A warrant holder exchanged 955,000,000 warrants for a promissory note of $3,000,000, bearing interest at 15% with a two year maturity. The fair value of the warrants was determined to be $2,960,500 with a corresponding adjustment to paid-in capital and a debt discount of $39,500 which will be amortized over the term of the loan. Principal and interest due at maturity. For both the three and nine months ended November 30, 2022, the Company recorded amortization expense of $4,248, with an unamortized discount of $35,252 at November 30, 2022

(39)	Original $475,000 note may be pre-payable at any time. The note balance includes an original issue discount of $75,000. Principal and interest due at maturity. Secured by a general security charging all of RAD’s present and after-acquired property. For both the three and nine months ended November 30, 2022, the Company recorded amortization expense of $16,473 with an unamortized discount of $58,527 at November 30, 2022.

(40)	Original $350,000 note may be pre-payable at any time. The note balance includes an original issue discount of $50,000. Principal and interest due at maturity. Secured by a general security charging all of the Company’s s present and after-acquired property. For both the three and nine months ended November 30, 2022, the Company recorded amortization expense of $3,593 with an unamortized discount of $46,407 at November 30, 2022.

(41)	On October 28, 2022 the Company entered into an loan facility with a lender for up to $4,000,000 including an original issue discount of $500,000. In exchange the Company will issue one series F Preferred Share, extended 329 series F warrants with a March 1, 2026 maturity to a new October 31, 2033 maturity, and issue up to 10 tranches with each trance of $400,000, with cash proceeds of $350,000 an original issue discount of $50,000, October 31, 2026 maturity, and 61 Series F warrants with a October 31, 2033 maturity. Secured by a general security charging all of the Company’s present and after-acquired property. At November 30, 2022 the Company has issued 4 tranches as follows: October 28, 2022, $400,000 loan, original issue discount of $50,000, 61 Series F Preferred Share warrants and 1 Series F Preferred Share having a relative fair value of $299,399. For both the three and nine months ended November 30, 2022, the Company recorded amortization expense of $0 with an unamortized discount of $349,399 at November 30, 2022. November 9, 2022, $400,000 loan, original issue discount of $50,000 , 61 Series F Preferred Share warrants e having a relative fair value of $299,750. For both the three and nine months ended November 30, 2022, the Company recorded amortization expense of $0 with an unamortized discount of $349,750 at November 30, 2022. November 10, 2022, $400,000 loan, original issue discount of $50,000, 61 Series F Preferred Share warrants e having a relative fair value of $302,020. For both the three and nine months ended November 30, 2022, the Company recorded amortization expense of $0 with an unamortized discount of $352,020 at November 30, 2022. November 15, 2022, $400,000 loan, original issue discount of $50,000, 61 Series F Preferred Share warrants e having a relative fair value of $299,959. For both the three and nine months ended November 30, 2022, the Company recorded amortization expense of $0 with an unamortized discount of $349,959 at November 30, 2022.

- 25 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

13. DERIVATIVE LIABILITIES

As of November 30, 2022, and February 28, 2022, the Company revalued the fair value of all of the Company’s derivative liabilities associated with the conversion features on the convertible notes payable and determined that it had a total derivative liability of $0, and $7,587, respectively. For the three and nine months ended November 30, 2022, the Company recorded a change in fair value of derivative liabilities of $0 and $3,595, respectively and a gain on settlement of debt (with a corresponding adjustment to derivative liabilities) of $0 and $3,992, respectively.

14. STOCKHOLDERS’ EQUITY (DEFICIT)

Series F Preferred Shares

Each holder of Series E Convertible Preferred Shares may, at any time and from time to time convert all, but not less than all, of their shares 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.

On August 23, 2021, the Company filed amended Series F preferred shares such that Series F preferred shares are not convertible into common stock by a holder until (A) August 23, 2023 or (B) the date on which such a conversion may be required for the purpose of (i) uplisting the Company to a new stock exchange, or (ii) selling more than 50% of the Company’s assets.

Summary or Preferred Stock Activity

There was 1 Series F Preferred Share issued along with debt to a lender.

Summary of Preferred Stock Warrant Activity

	Number of Series C Preferred Warrants	Weighted Average Exercise Price	Weighted Average Remaining Years
Outstanding at March 1, 2022	329	$1.00	11.50
Issued	244	$1.00	10.00
Exercised	—	—	—
Forfeited and cancelled	—	—	—
Outstanding at November 30, 2022	573	$1.00	10.00

Summary of Common Stock Activity

The Company increased authorized common shares from 5,000,000,000 to 6,000,000,000 on July 8, 2022.

During the nine months ended, November 30, 2022, the Company issued 522,734,247 common shares with gross proceeds of $4,939,161 and net proceeds of $4,657,979 after issuance costs of $282,182, issued 9,688,179 shares through the cashless exercise of 61,378,210 warrants, cancelled 17,116,894 shares as a result of an SEC enforcement action against a lender and issued 10,000,000 shares for $118,500 as payment for services.

The table below represent the common shares issued, issuable and outstanding at November 30, 2022 and February 28, 2022:

Common shares	November 30, 2022		February 28, 2022
Issued		5,248,415,892		4,733,110,360
Issuable		12,100,000		2,100,000
Issued, issuable and outstanding		5,260,515,892		4,735,210,360

- 26 -

Table of Contents

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Summary of Common Stock Warrant Activity

	Number of Warrants		Weighted Average Exercise Price	Weighted Average Remaining Years
Outstanding at March 1, 2022	1,216,845,661		$0.07	2.38
Issued	94,000,000		$0.009	4.94
Adjusted⁽¹⁾	66,750,000		$0.011	1.41
Exercised	(61,378,210	)	$0.011	(1.41)
Forfeited, extinguished and cancelled	(955,000,000	)	$0.008	(1.61)
Outstanding at November 30, 2022	361,217,451		$0.03	2.52

(1)	Required dilution adjustment per warrant agreement