Artificial Intelligence Technology Solutions Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of February 28, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of February 28, 2021, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Limitations on Systems of Controls Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses identified in our evaluation, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that: - 33 - Table of Contents ● Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; ● Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and ● Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. As of February 28, 2023, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses. The matters involving internal controls and procedures that our management considered to be material weaknesses under the criteria established in Internal Control – Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) were: lack of a functioning audit committee; lack of a majority of independent members and a lack of a majority of outside directors on our board of directors; inadequate segregation of duties consistent with control objectives; management is dominated by a single individual; use of the inappropriate methodology of allocating proceeds in certain debt transactions and the expensing timing of the related debt discount; use of inappropriate fair values in certain preferred stock issuances and settlements. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of February 28, 2023. Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods. This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report. Changes in Internal Control over Financial Reporting No changes were made to our internal control over financial reporting during the year ended February 28, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. - 34 - Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table sets forth the names, positions and ages of our directors and executive officers as of the date of this report. Our directors serve for one year and until their successors are elected and qualified. Our officers are elected by the board of directors to a term of one year and serve until their successor is duly elected and qualified, or until they are removed from office. The board of directors has no nominating, auditing or compensation committees. Name Age Position Steven Reinharz (1) 48 Chief Executive Officer, Secretary and Director (2) Anthony Brenz 62 Chief Financial Officer __________ (1) Director as of March 2, 2021 (2) All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. Biographical information concerning our director and executive officers listed above is set forth below. Steven Reinharz . RAD was founded by Mr. Reinharz in July of 2016, and he has been continuously employed by RAD and its affiliated companies since that time. He is the holder of a majority of our capital stock. Mr. Reinharz has served as a member of the Board of Directors since March 2, 2021 and as our Chief Executive Officer, Chief Financial Officer, and Secretary of the Company since March 2, 2021 and resigned as our Chief Financial Officer as of April 26, 2021 upon Anthony Brenz’s appointment as our Chief Financial Officer. As our Chief Executive Officer and President of RAD, Mr. Reinharz leverages his extensive knowledge and interest in robotics and artificial intelligence to design and develop robotic solutions that increase business efficiency and deliver immediate and impressive cost savings. Mr. Reinharz is an active voice in both the security and artificial intelligence industries. He started and ran his own security integration company from the age of 24 to 31, becoming one of California’s leading system integrators. Mr. Reinharz later was part of a team that successfully sold an integrator to a global security firm for $42 million and has held various other security industry roles. Mr. Reinharz speaks and contributes to panels at ISC East and West, and ASIS. Mr. Reinharz is a leading member of several industry association committees, mostly through the Security Industry Association. Mr. Reinharz has called Orange County, California home since 1995, having grown up in Montreal and Toronto. He earned a dual Bachelor of Science degree in Political Science and Commercial Studies. Anthony Brenz was appointed as our Chief Financial Officer on April 26, 2021. He is an accomplished senior financial and operational executive for over 20 years of experience in finance and operations, including corporate strategy, procurement and supply chain, human resources, and customer service. From April 2018 to December 2020, Anthony Brenz was the Vice President/Director Finance of AirBoss Flexible Products Company. From September 2014 to April 2018, he was the Chief Financial Officer/Vice President of Finance of Thomson Aerospace and Defense (a Parker Meggitt Company). From August 2012 to September 2014, he was the Vice President/Director of Finance of M B Aeospace US Holdings, Inc. Anthony Brenz received a Bachelor of Accountancy from Walsh College in Troy Michigan in 1989 and has been licensed as a Certified Public Accountant in Michigan since 1989. There are no family relationships between any of the executive officers and directors. Board Committees and Director Independence Mr. Reinharz serves as director, and we do not have a separately designated audit committee, compensation committee or nominating and corporate governance committee. The functions of those committees are being undertaken by our directors. Since we do not have any independent directors and have only two directors, our directors believes that the establishment of committees of the Board would not provide any benefits to our company and could be considered more form than substance. We currently have an employee director, Mr. Reinharz, but no independent directors, as such term is defined in the listing standards of The NASDAQ Stock Market, and we do not anticipate appointing additional directors in the near future. - 35 - Table of Contents Our directors are not “audit committee financial experts” within the meaning of Item 401(e) of Regulation S-K. As with most small, early stage companies, until such time that the Company further develops its business, achieves a stronger revenue base and has sufficient working capital to purchase directors and officer’s insurance, the Company does not have any immediate prospects to attract independent directors. When the Company is able to expand our Board of Directors to include one or more independent directors, the Company intends to establish an Audit Committee of our Board of Directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent, and the Company is not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors. Procedures for Nominating Directors There have been no material changes to the procedures by which security holders may recommend nominees to the Board since the most recently completed fiscal quarter. We do not have a policy regarding the consideration of any director candidates that may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our sole director established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our sole director has not considered or adopted any of these policies, as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our Board will participate in the consideration of director nominees. Director Qualifications Mr. Steve Reinharz is our sole director and was appointed on March 2, 2021. He is the founder of our operating company, Robotoc Assistance Devices, Inc. (see bio on page 33). Code of Ethics and Business Conduct We have adopted a code of ethics meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely, and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of violations; and provide accountability for adherence to the provisions of the code of ethics. Director Compensation Apart from a settlement paid upon Mr. Parsons resignation on June 22, 2021 totaling $265,700 no other compensation was paid for his services as a director. We reimburse our directors for all reasonable ordinary and necessary business-related expenses, but we did not pay any other director’s fees or any other cash compensation for services rendered as a director during the years ended February 28, 2023 and February 28, 2022 to any of the individuals serving on our Board during that period. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, or written representations that no other reports were required, and to the best of our knowledge, we believe that all of our officers, directors, and owners of 10% or more of our common stock filed all required Forms 3, 4, and 5. - 36 - Table of Contents ITEM 11. EXECUTIVE COMPENSATION The following table summarizes all compensation recorded by us in the past two fiscal years for Mr. Reinharz , our President and Chief Executive Officer , Anthony Brenz, our Chief Financial Officer and Garret Parsons our former President, Chief Executive Officer and Chief Financial Officer. 2023 AND 2022 SUMMARY COMPENSATION TABLE Name and Principal Position Year Salary or Fees ($) Bonus ($) Stock Awards ($) Option Awards ($) Non-Equity Incentive Plan Compensation ($) Non-Qualified Deferred Compensation Earnings ($) All Other Compensation ($) Total ($) Steven Reinharz 2023 300,000 280,908 499,500 — — — — 1,080,408 Chief Executive Officer, Chief Financial Officer, Secretary (1) 2022 240,000 1,429,328 1,979,500 69,350 — — — 3,718,178 Anthony Brenz 2023 190,000 1,500 — — — — — 191,500 Chief Financial Officer (1) 2022 155,928 6,000 — — — — — 161,928 __________ (1) Steven Reinharz was appointed Chief Executive Officer, Chief Financial Officer and Secretary on March 2, 2021.Mr.Reinharz ceased being Chief Financial Officer on June 24, 2021 and on that date appointed Anthony Brenz as Chief Financial Officer Employment Agreements On March 1, 2021, Mr. Parsons entered into a consulting agreement with us whereby he would provide services for a three-year term. The consulting agreement sets his annual compensation as $96,000 for the first year, $108,000 for the second year, and $120,000 for the third year. On June 22, 2021, Mr. Garett Parsons submitted his resignation as our director effective as of June 22, 2021 as a result of personal reasons. In connection with the resignation of Mr. Parsons, we and Mr. Parsons entered into a resignation letter agreement which cancels the previous consulting agreement. Pursuant to the terms of this letter, Mr. Parsons will receive, among other things, a lump sum payment equal to $265,700 which was paid in June 2021.This payment was a settlement as director of the company and not included as executive compensation above. On April 9, 2021 Mr. Reinharz entered into an employment agreement with the Company in connection with his service as Chief Executive Officer. The agreement began on April 9, 2021 and has a three-year term, renewable thereafter on an annual basis if neither party files a notice of termination 90 days prior to the term renewal date. The agreement provides for compensation of $240,000 base salary (to be reviewed annually by the Board of Directors) and bonuses to be granted at the discretion of the Board of Directors. In addition, the Company will grant stock options to Mr. Reinharz under the following conditions: Award #1 Mr. Reinharz shall be granted an award of 10,000,000 million shares/options/warrants if Objective #1 is achieved. Objective #1 : the price per share of the Company’s common stock has increased in value to an average of $0.30 for ten (10) days in a thirty-day trading period. For example, pursuant to a Company Stock Plan, if one is adopted, Mr. Reinharz may elect to exercise Award #1 on a cash or cashless basis at an exercise price of $0.15 per share/option/warrant. Award #2 Mr. Reinharz shall be granted an award of 30,000,000 million shares/options/warrants if Objective #2 is achieved. Objective #2 : the price per share of the Company’s common stock has increased in value to an average of $0.50 for ten (10) days in a thirty-day trading period. For example, pursuant to a Company Stock Plan, if one is adopted, Mr. Reinharz may elect to exercise Award #2 on a cash or cashless basis at an exercise price of $0.25 per share/option/warrant. On July 12, 2021 the Company and CEO amended the April 9, 2021 Employment Agreement effective July 1, 2021 whereby the following objectives and awards were added to the two existing ones: Objective #3 : Sales in any fiscal quarter exceed the total sales in fiscal year 2021 for the first time. Award #3 : Five hundred (500) shares of Series G preferred stock. Objective #4 : One hundred fifty (150) devices are deployed in the marketplace. Award #4 : Two hundred fifty (250) shares of Series G preferred stock. - 37 - Table of Contents Objective #5 : Year-to-date sales at any point in fiscal year 2022 exceed One Million Dollars ($1,000,000). Award #5 : Two hundred fifty (250) shares of Series G preferred stock. Objective #6 : The price per share of common stock has increased to and maintains a price of Ten Cents ($0.10) or more for ten (10) days in a thirty (30) day period. Award #6 : Two hundred fifty (250) shares of Series G preferred stock. Objective #7 : The price per share of common stock has increased to and maintains a price of Twenty Cents ($0.20) or more for ten (10) days in a thirty(30) day period. Award #7 : Five hundred (500) shares of Series G preferred stock. Objective #8 : The RAD 3.0 products are launched into the marketplace by November 30, 2022. Award #8 : Five hundred (500) shares of Series G preferred stock. Objective #9 : RAD receives an order for fifty (50) units from a single customer. Award #9 : Five hundred (500) shares of Series G preferred stock. The fair value of the first two awards was obtained through the use of the Monte Carlo method was $69,350 with a charge to stock- based compensation and a corresponding charge to paid in capital. The fair value of the remaining rewards was determined by calculating the vesting amounts of each reward and then determining for each reporting period the requisite service rendered and applying that against the cash redemption value of the number of shares of Series G issuable for each tier in the agreement. For the period ended February 28, 2023 that amount totaled $499,500 with a charge to stock-based compensation and a corresponding charge to incentive compensation plan payable. For the period ended February 28, 2022 that amount totaled $1,979,500 with a charge to stock-based compensation and a corresponding charge to incentive compensation plan payable. With the achievement of objectives 3,4,5 and 8 of the equity awards described above the CEO was granted 1,500 Series G Preferred shares which were redeemed in the reporting period for $1,500,000 in cash. As part of the grant, the Company is responsible for grossing up the award value and has accrued additional compensation for the estimated taxes to be paid by the executive. On April 20,2021 an offer letter was agreed with Anthony Brenz for a base salary of $180,000, a discretionary quarterly bonus and future participation in the Employee Stock Option Plan. Employment commenced on April 26, 2021 and Mr. Brenz was appointed the Company’s Chief Financial Officer on June 24, 2021. The base salary was amended to $190,000 on January 1, 2022. O utstanding Equity Awards at 2022 Fiscal Year-End The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for Mr. Reinharz and Mr Brenz, our sole executive officers outstanding as of February 28, 2023: OPTION AWARDS STOCK AWARDS Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested ($) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) Steven Reinharz 0 10,000,000 10,000,000 $0.15 April 9, 2024 0 0 770.5 $770,500 Steven Reinharz 0 30,000,000 30,000,000 $0.25 April 9, 2024 Anthony Brenz 0 0 4,500,000 $0.02 Sept. 1, 2027 4,500,000 $26,550 0 0 - 38 - Table of Contents On April 14, 2021, the Shareholders of Series E Preferred Stock and the Board of Directors of our Company (“Board”) approved and adopted the 2021 Incentive Stock Plan (the “2021 Plan”). On August 11, 2022 the Company amended the 2021 Plan increasing the maximum number of shares applicable to the 2021 Plan from 5,000,000 to 100,000,000. The purpose of the 2021 Plan is to promote the success of the Company by authorizing incentive awards to retain Directors, executives, selected Employees and Consultants, and reward participants for making major contributions to the success of the Company. The 2021 Plan authorizes the granting of stock options, restricted stock, restricted stock units, stock appreciation rights and stock awards. A total of one hundred million (100,000,000) shares of common stock may be issued under the 2021 Plan. All awards under the 2021 Plan, whether vested or unvested, are subject to the terms of any recoupment, clawback or similar policy of the Company in effect from time to time, as well as any similar provisions of applicable law, which could in certain circumstances require repayment or forfeiture of awards or any shares of stock or other cash or property received with respect to the awards, including any value received from a disposition of the shares acquired upon payment of the awards. The 2021 Plan will be administered by the Board or any Committee authorized by the Board, if applicable, which will have the sole authority to, among other things: construe and interpret the 2021 Plan; make rules and regulations relating to the administration of the 2021 Plan; select participants; and establish the terms and conditions of awards, all in accordance with the terms of the 2021 Plan. The 2021 Plan will remain in effect until April 14, 2031, unless sooner terminated by the Board. Termination will not affect awards then outstanding. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS At May 31, 2023, we had 6,117,570,789 shares of Common Stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our Common Stock as of May 3, 2023, and reflects: ● each of our executive officers; ● each of our directors; ● all of our directors and executive officers as a group; and ● each stockholder known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock. Information on beneficial ownership of securities is based upon a record list of our stockholders and we have determined beneficial ownership in accordance with the rules of the SEC. We believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws, except as otherwise provided below. Amount and Nature of Percent of Name Beneficial Ownership (1) Common Stock (2) Named Executive Officers and Directors: Steven Reinharz (3) 20,414,041,490 74.99 % Anthony Brenz 0 0 Mark Folmer 0 0 All executive officers and directors as a group (3 persons) 20,414,041,490 74.99 % 5% Shareholders: Steven Reinharz 20,414,041,490 74.99 % __________ (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Beneficial ownership also includes shares of stock subject to options and warrants currently exercisable or exercisable within 60 days of the date of this table. In determining the percent of common stock owned by a person or entity as of the date of this Report, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on as of May 31, 2023 6,117,570,789 shares, and (ii) the total number of shares that the beneficial owner may acquire upon exercise of the derivative securities. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares. (2) Based on 6,117,570,789 shares of the Company’s common stock issued and outstanding as of May 31, 2023. - 39 - Table of Contents (3) Steve Reinharz is a director and the Company’s Chief Executive Officer, Chief Financial Officer and Secretary as well as the CEO of RAD and is the holder of (i) 3,350,000 shares of our Series E Preferred Stock and, (ii) 2,450 shares of our Series F Convertible Preferred Stock. If Mr. Reinharz converted the 2,450 shares of the Company’s Series F Convertible Preferred Stock, he would receive 20,414,041,490 shares of the Company’s common stock, which is included in the chart above as if such conversion has occurred. Further, the outstanding shares of Series E preferred stock have the right to take action by written consent or vote based on the number of votes equal to twice the number of votes of all outstanding shares of common stock. As a result, the holders of Series E preferred stock has 2/3rds of the voting power of all shareholders at any time corporate action requires a vote of shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE We do not have a written policy for the review, approval or ratification of transactions with related parties or conflicted transactions. When such transactions arise, they are referred to our board of directors for its consideration. For the years ended February 28, 2023 and February 28, 2021, the Company made net repayments of $0 and $803,394, respectively, to its loan payable-related party. At February 28, 2023, the loan payable-related party was $206,516 and $193,556 at February 28, 2022. As of February 28, 2023, included in the balance due to the related party is $108,000 of deferred salary all of which bears interest at 12%. At February 28, 2023 there was $108,000 of deferred salary with $90,000 bearing interest at 12%. The accrued interest included at February 28, 2023 was $15,660 (2022- $2,700). During the year ended February 28, 2023 pursuant to the amended Employment Agreement with its Chief Executive Officer the Company accrued $499,500 as incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional awards being met. At February 28, 2023, the balance of incentive compensation plan payable was $979,000 (2022-$479,500). This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at $1,000 per share. During the year ended February 28, 2022, pursuant to the amended Employment Agreement with its Chief Executive Officer, the Company issued 1,500 shares of Series G Preferred Shares which are redeemable at the Company’s option at $1,000 per share and recorded $1,500,000 of stock based compensation. The Company redeemed these shares for $1,500,000 and accrued $479,500 as incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional awards being met. During the years ended February 28, 2023 and February 28, 2022, the Company was charged $3,578,981 and $2,258,819, respectively in consulting fees for research and development to a company partially owned by a principal shareholder. The principal shareholder received no compensation from this partially owned research and development company and the fees were spent on core development projects. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES On October 31, 2019 the Board of Directors of the Company approved and ratified the engagement (“Engagement”) of LJ Soldinger & Associates LLC (“LJ Soldinger”) as the Company’s new independent registered public accounting firm.. The following table shows the fees that were billed for the audit and other services provided by LJ Soldinger for the fiscal years ended February 28, 2023 and 2022. 2022 Audit Fees $ 298,698 Audit-Related Fees — Tax Fees — All Other Fees — Total $ 298,698 2021 Audit Fees $ 275,000 Audit-Related Fees 15,000 Tax Fees — All Other Fees — Total $ 290,000 - 40 - Table of Contents Audit Fees - This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements. Audit-Related Fees - This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category would include consultation regarding correspondence with the SEC, other accounting consulting and other audit services. Tax Fees - This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice. All Other Fees - This category consists of fees for other miscellaneous items. As part of its responsibility for oversight of the independent registered public accountants, the Board has established a pre-approval policy for engaging audit and permitted non-audit services provided by our independent registered public accountants. In accordance with this policy, each type of audit, audit-related, tax and other permitted service to be provided by the independent auditors is specifically described and each such service, together with a fee level or budgeted amount for such service, is pre-approved by the Board. All of the services provided by LJ Soldinger described above were approved by our Board. The Company’s principal accountant did not engage any other persons or firms other than the principal accountant’s full-time, permanent employees. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a)(1) Financial Statements The consolidated financial statements and Report of Independent Registered Public Accounting Firm are listed in the Index to Financial Statements and Financial Statement Schedules on page F-1 and included on pages F-2 through F-36. (2) Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the SEC are either not required under the related instructions, are not applicable (and therefore have been omitted), or the required disclosures are contained in the financial statements included herein. - 41 - Table of Contents (3) Exhibits. Exhibit No. Description of Document 2.1 Stock Purchase Agreement, dated August 28, 2017, by and among the registrant, Steve Reinharz and Robotic Assistance Devices Inc. (incorporated by reference to Exhibit 10.1 to the registrant’s current report on Form 8-K filed with the Commission on August 31, 2017). 3.1 Articles of Incorporation of the registrant filed with the Nevada Secretary of State on September 8, 2014. (incorporated by reference to Exhibit 3.1 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). 3.2 Plan and Agreement of Merger of Artificial Intelligence Technology Solutions Inc. (a Florida corporation) and Artificial Intelligence Technology Solutions Inc. (a Nevada corporation). (incorporated by reference to Exhibit 3.2 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). 3.3 Bylaws of the registrant (incorporated by reference to Exhibit 3.2 to the registrant’s registration statement on Form S-1 (File No. 333-168530), filed with the Commission on August 4, 2010). 3.4 Certificate of Designations filed with the Nevada Secretary of State on February 8, 2017. (incorporated by reference to Exhibit 3.4 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). 3.5 Certificate of Designations filed with the Nevada Secretary of State on May 3, 2017. (incorporated by reference to Exhibit 3.5 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). 3.6 Amendment to Certificate of Designations filed with the Nevada Secretary of State on May 3, 2017 (incorporated by reference to Exhibit 3.1 to the registrant’s current report on Form 8-K filed with the Commission on May 12, 2017). 10.1 Preferred Stock Purchase Agreement dated January 31, 2017 and entered into between the Company and Capital Venture Holdings LLC. (incorporated by reference to Exhibit 10.1 to the registrant’s transition report on Form 10-KT filed with the Commission on March 12, 2018). 14.1 Code of Ethics (incorporated by reference to Exhibit 14.1 to the registrant’s registrant statement on Form S-1 (File No. 333-168530), filed with the Commission on August 4, 2010). 21.1 List of Subsidiaries . * 23.1 Consent of Independent Registered Public Accounting Firm for Form S-3 (333-259260) . * 23.2 Consent of Independent Registered Public Accounting Firm for Form S-1 (333-271031) . * 31.1 Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer . * 31.2 Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial and accounting officer . * 32.1 Section 1350 Certification of principal executive officer . * 32.2 Section 1350 Certification of principal financial and accounting officer . * 99.1 Insider Trading Policy . (incorporated by reference to Exhibit 99.1 to the registrant’s annual report on Form 10-K filed with the Commission on May 28, 2021). 101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. * 101.SCH Inline XBRL Taxonomy Extension Schema Document * 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document * 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document * 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document * 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document * 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * __________ * Filed or furnished herewith. - 42 - Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. Date: June 14, 2023 By: /s/ Steven Reinharz Steven Reinharz President, Chief Executive Officer Date: June 14, 2023 By: /s/ Anthony Brenz Anthony Brenz Chief Financial Officer (principal financial and accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Steven Reinharz President, Chief Executive Officer and Director (principal executive officer) June 14, 2023 Steven Reinharz /s/ Anthony Brenz Chief Financial Officer (principal financial and accounting officer) June 14, 2023 Anthony Brenz - 43 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. (FORMERLY ON THE MOVE SYSTEMS CORP.) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statement of Stockholders’ Deficit F-5-6 Consolidated Statements of Cash Flows F-7 Notes to the Consolidated Financial Statements F-8 F-1 Index to Financial Statements REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Artificial Intelligence Technology Solutions, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Artificial Intelligence Technology Solutions, Inc. and subsidiaries (the “Company”) as of February 28, 2023 and 2022, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two years ended February 28, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two years ended February 28, 2023, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully explained in Note 1, which includes management’s plans in regards to this uncertainty, the Company had a net loss of approximately $18 million, an accumulated deficit of approximately $112 million and stockholders’ deficit of approximately $32 million as of and for the year ended February 28, 2023, and therefore there is substantial doubt about the ability of the Company to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there were no critical audit matters. /s/ L J Soldinger Associates, LLC Deer Park, Illinois June 14, 2023 We have served as the Company’s auditor since 2019. PCAOB Audit ID: 318 F-2 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. CONSOLIDATED BALANCE SHEETS February 28, 2023 February 28, 2022 ASSETS Current assets: Cash $ 939,759 $ 4,648,146 Accounts receivable, net 265,024 429,469 Device parts inventory, net 1,637,899 1,530,657 Prepaid expenses and deposits 596,310 442,164 Total current assets 3,438,992 7,050,436 Operating lease asset 1,208,440 1,331,605 Revenue earning devices, net of accumulated depreciation of $ 778,839 and $ 434,661 , respectively 1,235,219 709,063 Fixed assets, net of accumulated depreciation of $ 182,002 and $ 49,065 , respectively 315,888 137,952 Trademarks 27,080 28,723 Investment at cost 50,000 — Security deposit 21,239 21,239 Total assets $ 6,296,858 $ 9,279,018 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable and accrued expenses $ 1,343,379 $ 968,853 Advances payable- related party 1,594 1,594 Customer deposits 9,900 10,000 Current operating lease liability 248,670 254,027 Current portion of deferred variable payment obligation 542,177 325,600 Current portion of convertible notes payable, net of discount of $ 0 and $ 0 , respectively — 3,500 Loan payable - related party 206,516 193,556 Incentive compensation plan payable 979,000 479,500 Current portion of loans payable, net of discount of $ 1,651,597 and $ 14,745 9,918,389 1,004,708 Vehicle loan - current portion 38,522 38,522 Current portion of accrued interest payable 2,761,446 1,260,271 Derivative liability — 7,587 Total current liabilities 16,049,593 4,547,718 Non-current operating lease liability 950,541 1,057,579 Loans payable, net of discount of $ 4,130,291 and $ 4,905,076 , respectively 15,554,069 20,309,069 Deferred variable payment obligation 2,525,000 2,525,000 Accrued interest payable 3,060,656 1,816,009 Total liabilities 38,139,859 30,255,375 Commitments and Contingencies Stockholders' deficit: Preferred Stock, undesignated; 15,545,650 shares authorized; no shares issued and outstanding at February 28, 2023 and February 28, 2022, respectively — — Series G Convertible Preferred Stock. $ 0.001 par value; 100,000 shares authorized, no shares issued and outstanding at February 28, 2023 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 Common Stock, $ 0.00001 par value; 7,225,000,000 shares authorized 5,848,741,599 and 4,735,210,360 shares issued, issuable and outstanding, respectively 58,489 47,353 Additional paid-in capital 80,247,252 73,015,576 Preferred stock to be issued 99,086 99,086 Accumulated deficit ( 112,253,711 ) ( 94,144,254 ) Total stockholders' deficit ( 31,843,001 ) ( 20,976,357 ) Total liabilities and stockholders' deficit $ 6,296,858 $ 9,279,018 The accompanying notes are an integral part of these consolidated financial statements. F-3 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended February 28, 2023 Year Ended February 28, 2022 Revenues $ 1,331,956 $ 1,447,109 Cost of Goods Sold 678,073 472,926 Gross Profit 653,883 974,183 Operating expenses: Research and development 3,625,468 2,961,394 General and administrative 8,980,709 10,905,129 Depreciation and amortization 478,115 232,886 Operating lease cost and rent 260,271 275,785 (Gain) loss on disposal of fixed assets — ( 29,125 ) Total operating expenses 13,344,563 14,346,069 Loss from operations ( 12,690,680 ) ( 13,371,886 ) Other income (expense), net: Change in fair value of derivative liabilities 3,595 372,214 Interest expense ( 5,426,364 ) ( 16,129,499 ) Gain (loss) on settlement of debt 3,992 ( 33,068,313 ) Total other income (expense), net ( 5,418,777 ) ( 48,825,598 ) Net Loss $ ( 18,109,457 ) $ ( 62,197,484 ) Net loss per share - basic $ ( 0.00 ) $ ( 0.02 ) Net loss per share - diluted $ ( 0.00 ) $ ( 0.02 ) Weighted average common share outstanding - basic 5,091,857,082 4,029,658,082 Weighted average common share outstanding - diluted 5,091,857,082 4,029,658,082 The accompanying notes are an integral part of these consolidated financial statements. F-4 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED FEBRUARY 28, 2023 AND FEBRUARY 28, 2022 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 ) Cancellation of Series E Shares ( 1,000,000 ) ( 1,000 ) — — — — — — 1,000 — — 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 ) — — Redemption of 19 Issuable Series F shares — — — ( 74,984 ) — — — — — ( 425,016 ) ( 500,000 ) Exchange of Series F Preferred Shares for debt — — ( 184 ) ( 184 ) — — — — ( 3,999,976 ) — ( 4,000,160 ) 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 ) 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 ) — — 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 Issuance of shares, net of $ 253,811 issuance costs — — — — — — 645,168,473 6,452 12,515,480 — 12,521,932 Cashless exercise of 100,000,000 warrants — — — — — — 94,770,776 948 ( 948 ) — — Relative fair value of warrants issued with debt — — — — — — — — 3,319,816 — 3,319,816 Warrants issued as part of debt — — — — — — — — 4,749,006 — 4,749,006 Warrants as issuance cost — — — — — — — — 21,918 — 21,918 Warrants as consideration for debt extensions — — — — — — — — 5,415,000 — 5,415,000 Stock based compensation — — — — — — — — 69,350 — 69,350 Net income — — — — — — — — — ( 62,197,484 ) ( 62,197,484 ) 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 ) F-5 Index to Financial Statements 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, 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 $ 447,858 issuance costs — — — — — — 1,057,841,576 10,579 7,760,590 — 7,771,169 Cashless exercise of 108,378,210 warrants — — — — — — 45,306,557 453 ( 453 ) — — Penalty shares issued pursuant to a share purchase agreement — — — — — — 17,500,000 175 ( 175 ) — — 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 — — — — — — — — 990,467 — 990,467 Fair value of 955,000,000 warrants cancelled for debt issuance — — — — — — — — ( 2,960,500 ) — ( 2,960,500 ) Shares issued for services — — — — — — 10,000,000 100 118,400 — 118,500 Cancelled shares — — — — — — ( 17,116,894 ) ( 171 ) 171 — — Stock based compensation - employee stock option plan — — — — — — — — 122,050 — 122,050 Rounding — — — — — — — — ( 1 ) — ( 1 ) Net income — — — — — — — — — ( 18,109,457 ) ( 18,109,457 ) Balance at February 28, 2023 3,350,000 $ 3,350 2,533 $ 101,619 — $ — 5,848,741,599 $ 58,489 $ 80,247,252 $ ( 112,253,711 ) $ ( 31,843,001 ) The accompanying notes are an integral part of these consolidated financial statements. F-6 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended February 28, 2023 Year Ended February 28, 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 18,109,457 ) $ ( 62,197,484 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 478,115 232,886 Inventory provision 130,000 65,000 (Gain) loss on disposal of fixed assets — ( 29,125 ) Bad debts expense 45,110 9,022 Revenue earning device sold and expensed in cost of sales — 3,410 Reduction of right of use asset 112,396 110,148 Accretion of lease liability 141,631 122,930 Stock based compensation 740,050 2,158,050 Interest expense related to the issuance of warrants for debt extensions — 5,415,000 Interest expense related to penalties from debt defaults — — Change in fair value of derivative liabilities ( 3,595 ) ( 372,214 ) Amortization of debt discounts 1,980,033 7,597,242 (Gain) loss on settlement of debt ( 3,992 ) 33,068,313 Increase (decrease) in related party accrued payroll and interest 12,960 264,331 Changes in operating assets and liabilities: Accounts receivable 119,335 ( 339,947 ) Prepaid expenses ( 141,734 ) ( 442,164 ) Deposit on right of use asset — ( 19,999 ) Device parts inventory ( 1,161,047 ) ( 2,191,571 ) Accounts payable and accrued expenses 374,529 ( 596,615 ) Accrued expense, related party — ( 167,187 ) Customer deposits ( 100 ) ( 500 ) Operating lease liability payments ( 254,028 ) ( 233,078 ) Balance owed WeSecure — ( 122,000 ) Current portion of deferred variable payment obligations for Payments 216577 234,013 Accrued interest payable 2,745,822 2,606,097 Net cash used in operating activities ( 12,577,395 ) ( 14,825,442 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets ( 258,402 ) ( 115,493 ) Purchase of investment ( 50,000 ) — Acquisition of trademarks — ( 26,327 ) Cash paid for security deposit — ( 17,380 ) Proceeds on disposal of fixed assets — 30,000 Net cash used in investing activities ( 308,402 ) ( 129,200 ) CASH FLOWS FROM FINANCING ACTIVITIES: Share proceeds net of issuance costs 7,771,169 12,521,932 Proceeds from convertible notes payable 619,250 Repayment of convertible debt ( 750,000 ) ( 65,000 ) Proceeds from loans payable 3,300,000 9,426,146 Repayment of loans payable ( 1,763,009 ) ( 516,314 ) Series G preferred shares redeemed as payment on incentive plan payable — ( 1,500,000 ) Dividend upon redemption of cancelled issuable Series F shares — ( 500,000 ) Net borrowings(repayments) on loan payable - related party — ( 808,394 ) Net cash provided by financing activities 9,177,410 18,558,370 Net change in cash ( 3,708,387 ) 3,603,728 Cash, beginning of period 4,648,146 1,044,418 Cash, end of period $ 939,759 $ 4,648,146 Supplemental disclosure of cash and non-cash transactions: Cash paid for interest $ 451,192 $ 225,003 Cash paid for income taxes $ — $ — Noncash investing and financing activities: Right of use asset for lease liability $ — $ 1,374,002 Transfer from device parts inventory to fixed assets $ 932,805 $ 659,985 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 revaluation of loan amendment $ — $ 438,835 Exchange of notes payable for Series F preferred shares $ — $ 6,732,835 Discount applied to face value of loans $ 1,797,645 $ 6,162,945 Warrants issued as part of debt issuance $ — $ 8,068,822 Exchange of warrants for debt $ 3,000,000 $ — Refund on abandoned trademarks $ 1,643 $ — Penalty shares pursuant to a share purchase agreement $ 171 $ — Exercise of warrants $ 453 $ 3,951 Series F preferred shares issued for debt $ — $ 4,000,160 Cancellation of Series E preferred shares $ — $ 1,000 Issuance of Series G preferred shares as payment on incentive plan payable $ — $ 1,500,000 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 consolidated financial statements. F-7 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL INFORMATION AND GOING CONCERN Artificial Intelligence Technology Solutions Inc. (formerly known as On the Move Systems Corp.) (“AITX” or the “Company”) was incorporated in Florida on March 25, 2010 and reincorporated in Nevada on February 17, 2015. On August 24, 2018, Artificial Intelligence Technology Solutions Inc., changed its name from On the Move Systems Corp (“OMVS”). Robotic Assistance Devices, LLC (“RAD”), was incorporated in the State of Nevada on July 26, 2016 as a LLC. On July 25, 2017, Robotic Assistance Devices LLC converted to a C Corporation, Robotic Assistance Devices, Inc. through the issuance of 10,000 common shares to its sole shareholder. On August 28, 2017, AITX completed the acquisition of RAD (the “Acquisition”), whereby AITX acquired all the ownership and equity interest in RAD for 3,350,000 shares of AITX Series E Preferred Stock and 2,450 shares of Series F Convertible Preferred Stock. AITX’s prior business focus was transportation services, and AITX was exploring the on-demand logistics market by developing a network of logistics partnerships. As a result of the closing of the Acquisition, AITX has succeeded to the business of RAD, in which AITX purchased all of the outstanding shares of capital stock of RAD. As a result, AITX’s business going forward will consist of one segment activity which is the delivery of artificial intelligence and robotic solutions for operational, security and monitoring needs. The Acquisition was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of AITX’s operations were disposed of as part of the consummation of the transaction. Therefore, no goodwill or other intangible assets were recorded by AITX as a result of the Acquisition. RAD is treated as the accounting acquirer as its stockholders control the Company after the Acquisition, even though AITX was the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in these financial statements are those of RAD as if RAD had always been the reporting company. GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern. For the year ended February 28, 2023, the Company had negative cash flow from operating activities of $ 12,577,395 . As of February 28, 2023 the Company has an accumulated deficit of $ 112,253,711 and negative working capital of $ 12,610,601 . Management does not anticipate having positive cash flow from operations in the near future. These factors raise 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 all 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. At the same time management points to its successful history with maintaining Company operations and reminds all with reasonable confidence this will continue. Management has plans to address the Company’s financial situation as follows: 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. In March 2023, the Company entered into an equity financing agreement whereby an investor will purchase up to $ 30,000,000 of the Company’s common stock at a discount over a two-year period. In March and April the Company reduced personnel that were working on far-future solutions as well as other department reductions. Combined with other cost cutting measures management estimates it reduced the monthly expense burn by $ 200,000 - $ 300,000 with little impact on short and medium term operations. Management believes that it has the necessary support to continue operations by continuing its funding methods in the following ways : growing revenues ,equity proceeds and non-convertible debt. Management has had many recent conversations with the Company’s primary debt holder and believes that the non-convertible debt on the balance sheet will be extended. Management notes that non-convertible debt on the books has been extended by this debt holder twice in the past and notes that this debt holder has been a strong supporter of the Company. F-8 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. ACCOUNTING POLICIES Basis of Presentation and Consolidation The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in conformity with the instructions on Form 10-K of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”). The audited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Robotic Assistance Devices, Inc., Robotic Assistance Devices Group , Inc, Robotic Assistance Devices Mobile , Inc. , On the Move Experience, LLC and OMV Transports, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates In order to prepare financial statements in conformity with accounting principals generally accepted in the United States, management must make estimates , judgements and assumptions that affect the amounts reported in the financial statements and determine whether contingent assets and liabilities, if any, are disclosed in the financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based. The most significant estimates included in these consolidated financial statements are those associated with the assumptions used to value equity instruments used in debt settlements, amendments and extensions. Concentrations Loans payable At February 28, 2023 there were $ 31,254,345 of loans payable, $ 26,540,506 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 credit losses. 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 $ 39,000 and $ 33,890 provided as of February 28, 2023 and February 28, 2022, respectively. For the year ended February 28, 2023 , two customers account for 48 % of total accounts receivable . For the year ended February 28, 2022 , three customers account for 63 % of total accounts receivable. Device Parts Inventory Device parts inventory is stated at the lower of cost or net realizable value using the weighted average cost method. The Company records a valuation reserve for obsolete and slow-moving inventory, relying principally on specific identification of such inventory. The Company uses these device parts in the assembly of revenue earning devices (and demo devices) as well as research and development. Depending on use, the Company will transfer the parts to the corresponding asset or expense if used in research and development. A charge to income is taken when factors that would result in a need for an increase in the valuation, such as excess or obsolete inventory, are noted. At February 28, 2023 and at February 28, 2022 there was a valuation reserve of $ 195,000 and $ 65,000 , respectively. F-9 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Revenue Earning Devices Revenue earning devices are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful life of 48 months. The Company continually evaluates revenue earning devices to determine whether events or changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the devices should be evaluated for possible impairment. The Company uses a combination of the undiscounted cash flows and market approaches in assessing whether an asset has been impaired. The Company measures impairment losses based upon the amount by which the carrying amount of the asset exceeds the fair value. Fixed Assets Fixed assets are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from three to five years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently. Computer equipment 3 years Furniture and fixtures 3 years Office equipment 4 years Warehouse equipment 5 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 February 28, 2023 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 10, in which it has received funding from investors in exchange for which it will make payments to those investors based on the level of sales of certain revenue categories, generally based on a percentage of sales for those certain revenues. The Company determines whether these agreements constitute sales of future revenues or are in substance debt based on the facts and circumstances of each agreement, with the following primary criteria determinative of whether the agreement constitutes a sale of future revenues or debt: F-10 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ● Does the agreement purport, in substance, to be a sale ● Does the Company have continuing involvement in the generation of cash flows due the investor ● Is the transaction cancellable by either party through payment of a lump sum or other transfer of assets ● Is the investors rate of return implicitly limited by the terms of the agreement ● Does the Company’s revenue for a reporting period underlying the agreement have only a minimal impact on the investor’s rate of return ● Does the investor have recourse relating to payments due In the event a transaction is determined to be a sale of future revenues, it is recorded as deferred revenue and amortized using the sum-of-the-revenue method. In the event a transaction is determined to be debt, it is recorded as debt and amortized using the effective interest method. As of the date of these financial statements, the Company has determined that all such agreements are debt. Revenue Recognition ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” , supersedes the revenue recognition requirements and industry specific guidance under Revenue Recognition (Topic 605) . Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Topic 606 defines a five-step process that must be evaluated and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing accounting principles generally accepted in the United States of America (“U.S. GAAP”) including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.. For the year ended February 28, 2023 , two customers accounted for 45 % of total revenue (2022- 43 %). 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. F-11 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 CEO and Chairman holds sufficient shares of the Company’s voting stock that give sufficient voting rights under the articles of incorporation and bylaws of the Company such that the CEO and 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: F-12 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ● Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. ● Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. ● Level 3 – Inputs that are unobservable for the asset or liability. Measured on a Recurring Basis The following table presents information about our liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fell: Fair Value Measurement Using Amount at Fair Value Level 1 Level 2 Level 3 February 28, 2023 Liabilities Incentive compensation plan payable – revaluation of equity awards payable in Series G shares $ 979,000 $ — $ — $ 979,000 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. F-13 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. 3. 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 was adopted. On March 1, 2019. As disclosed in the revenue recognition section of Note 2 – Accounting Polices, the Company adopted Topic 606 in accordance with the effective date on March 1, 2018. Note 2 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. F-14 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Upon adoption of Topic 842, also referred to above in Note 2, the Company accounts for revenue earned from rental activities where an identified asset is transferred to the customer and the customer has the ability to control that asset for periods greater than one year. To date none of the lease agreements entered into have been for periods longer than one year or greater, and the Company has availed itself of the practical expedient to exclude such leases from ASC 84 2accountiong and instead has accounted for these leases under ASC 606. The following table presents revenues from contracts with customers disaggregated by product/service: Year Ended February 28, 2023 Year Ended February 28, 2022 Device rental activities $ 754,126 $ 592,401 Direct sales of goods and services 577,830 854,708 Revenues $ 1,331,956 $ 1,447,109 4. 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 February 28, 2023 and February 28, 2022. Leases Classification February 28, 2023 February 28, 2022 Assets Operating Operating Lease Assets $ 1,208,440 $ 1,331,605 Liabilities Current Operating Current Operating Lease Liability $ 248,670 $ 254,027 Noncurrent Operating Noncurrent Operating Lease Liabilities 950,541 1,057,579 Total lease liabilities $ 1,199,211 $ 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. Operating lease cost and rent was $ 260,271 and $ 275,785 for both the twelve months ended February 28, 2023 and February 28, 2022, respectively. F-15 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 5. INVESTMENT On December 23, 2022 the Company entered into a Simple Agreement for Future Equity (SAFE) contract to invest $ 50,000 to acquire shares of a company’s capital stock at a discount. 6. REVENUE EARNING ROBOTS Revenue earning robots consisted of the following: February 28, 2022 February 28, 2021 Revenue earning devices $ 2,015,058 $ 1,143,724 Less: Accumulated depreciation ( 779,839 ) ( 434,661 ) $ 1,235,219 $ 709,063 During the year ended February 28, 2023, the Company made total additions to revenue earning devices of $ 871,334 which was transferred from inventory. During the year ended February 28, 2022, the Company made total additions to revenue earning devices of $ 647,116 including $ 647,116 in inventory transfers. During the year ended February 28, 2022, the company disposed of 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 for these devices was $ 345,178 and $ 208,510 for the years ended February 28, 2023 and February 28, 2022, respectively. 7. FIXED ASSETS Fixed assets consisted of the following: February 28, 2023 February 28, 2022 Automobile $ 101,680 $ 101,680 Demo devices 69,010 16,539 Tooling 101,322 — Machinery and equipment 8,825 — Computer equipment 150,387 36,742 Office equipment 15,312 15,312 Furniture and fixtures 21,225 — Warehouse equipment 14,561 11,415 Leasehold improvements 15,568 5,329 497,890 187,017 Less: Accumulated depreciation ( 182,002 ) ( 49,065 ) $ 315,888 $ 137,952 During the year ended February 28, 2023, the Company made additions to fixed assets of $ 258,402 and also additions through inventory transfers of $ 52,471 . During the year ended February 28, 2022, the Company made additions to fixed assets of $ 115,493 , additions through inventory transfers of $ 12,868 and 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 $ 132,937 and $ 24,376 for the years ended February 28, 2023 and February 28, 2022, respectively. F-16 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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: (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 August 31, 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 August 31, 2020 and the Payments are secured by the assets of the Company. This interest may be secured by UCC filing but is subordinated to equipment financing on the products the Company leases to its customers. F-17 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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% 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, 2023, the Company has accrued approximately $542,1777 in Payments, of which $325,600 is in arrears. As of February 28, 2022, the Company has accrued approximately $325,600 in Payments, of which $90,300 is in arrears. No notices have been received by the Company. 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 February 28, 2023, 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 years ended February 28, 2023 and February 28, 2022, the Company has received $ 0 related to the deferred payment obligation as the balance remains $ 2,525,000 at both February 28, 2023 and February 28, 2022. 9. CONVERTIBLE NOTES PAYABLE Convertible notes payable consisted of the following: Balance Balance Interest Conversion February 28, February 28, Issued Maturity Rate Rate per Share 2023 2022 July 18, 2016 July 18, 2017 * 8% $ 0.003 (1) $ — $ 3,500 August 9, 2022 August 9, 2023 12% $ 0.009 (2) — — $ — $ 3,500 (Less): current portion of convertible notes payable — ( 3,500 ) (Less): discount on noncurrent convertible notes payable — — Noncurrent convertible notes payable, net of discount $ — $ — Current portion of convertible notes payable $ — $ 3,500 (Less): discount on current portion of convertible notes payable — — Current portion of convertible notes payable, net of discount $ — $ 3,500 F-18 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS __________ * 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 During the years ended February 28, 2023 and February 28, 2022, the Company incurred original issue discounts of $ 75,000 and $ 0 , respectively, and debt discounts (and relative fair value debt discounts) from derivative liabilities of $ $ 393,949 and $ 438,835 , respectively, related to both new and re-valued convertible notes payable. These amounts are included in discounts on convertible notes payable and are being amortized to interest expense over the life of the convertible notes payable. During the years ended February 28, 2023 and February 28, 2022, the Company recognized interest expense related to the amortization of debt discount of $ 524,699 and $ 775,986 , respectively. All the notes above are unsecured. As of February 28, 2023, the Company had total accrued interest payable of $ 28,104 , all of which is classified as current. As of February 28, 2022, the Company had total accrued interest payable of $ 28,104 , all of which is classified as current. See description below for details of the convertible notes issued during the years ended February 28, 2022 and February 28, 2021. Convertible notes issued During the year ended February 28, 2023, the Company 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 and related accrued interest have been fully repaid at February 28, 2023. The Company determined that the embedded conversion features which result in a variable conversion rate, in the convertibles notes described below should be accounted for as derivative liabilities as a result of their variable conversion rates. During the year ended February 28, 2022, 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. F-19 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. RELATED PARTY TRANSACTIONS For the years ended February 28, 2023 and February 28, 2022, the Company made net repayments of $ 0 and $ 803,394 , respectively, to its loan payable-related party. At February 28, 2023, the loan payable-related party was $ 206,516 and $ 193,556 at February 28, 2022. As of February 28, 2023, included in the balance due to the related party is $ 108,000 of deferred salary all of which bears interest at 12 %. At February 28, 2023 there was $ 108,000 of deferred salary with $ 90,000 bearing interest at 12 %. The accrued interest included at February 28, 2023 was $ 15,660 (2022- $ 2,700 ). During the year ended February 28, 2023 pursuant to the amended Employment Agreement with its Chief Executive Officer the Company accrued $ 499,500 as incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional awards being met. At February 28, 2023, the balance of incentive compensation plan payable was $ 979,000 (2022-$ 479,500 ). This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at $ 1,000 per share. During the year ended February 28, 2022, pursuant to the amended Employment Agreement with its Chief Executive Officer, the Company issued 1,500 shares of Series G Preferred Shares which are redeemable at the Company’s option at $ 1,000 per share and recorded $ 1,500,000 of stock based compensation. The Company redeemed these shares for $ 1,500,000 and accrued $ 479,500 as incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional awards being met. During the years ended February 28, 2023 and February 28, 2022, the Company was charged $ 3,578,981 and $ 2,258,819 , respectively in consulting fees for research and development to a company partially owned by a principal shareholder. The principal shareholder received no compensation from this partially owned research and development company and the fees were spent on core development projects. 11. OTHER DEBT – VEHICLE LOANS In December 2016, RAD entered into a vehicle loan for $ 47,704 secured by the vehicle. The loan is repayable over 5 years maturing November 9, 2021, and repayable $ 1,019 per month including interest and principal. In November 2017, RAD entered into another vehicle loan secured by the vehicle for $ 47,661 . The loan is repayable over 5 years, maturing October 24, 2022 and repayable at $ 923 per month including interest and principal. The principal repayments made were $0 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, 2023 and February 29, 2022. 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, 2023 and February 28, 2022. The remaining total balances of the amounts owed on the vehicle loans were $ 38,522 and $ 38,522 as of February 28, 2023 and February 28, 2022, respectively, of which all were classified as current. F-20 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12. LOANS PAYABLE Loans payable at February 28, 2023 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) 3,884,360 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 % January 11, 2023 October 31,2026 Promissory note (41) 400,000 15 % February 6, 2023 October 31,2026 Promissory note (41) 400,000 15 % $ 31,254,346 Less: current portion of loans payable ( 11,569,986 ) Less: discount on non-current loans payable ( 4,130,291 ) Non-current loans payable, net of discount $ 15,554,069 Current portion of loans payable $ 11,569,986 Less: discount on current portion of loans payable ( 1,651,597 ) Current portion of loans payable, net of discount $ 9,918,389 F-21 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS __________ * 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 years ended February 28, 2023, the Company recorded amortization expense of $ 0 with an unamortized discount of $ 0 at February 28, 2023. 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. F-22 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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 . F-23 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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 year ended February 28, 2023, the Company recorded amortization expense of $ 83,338 , with an unamortized discount of $ 193,515 at February 28, 2023. (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 year ended February 28, 2023, the Company recorded amortization expense of $ 127,897 , respectively, with an unamortized discount of $ 239,336 at February 28, 2023. (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 year ended February 28, 2023, the Company recorded amortization expense of $ 2,995,719 , with an unamortized discount of $ 1,112,261 at February 28, 2023. 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 year ended February 28, 2023, the Company recorded amortization expense of $ 455,527 , with an unamortized discount of $ 794,218 at February 28, 2023. 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 year ended February 28, 2023 there was repayments $ 115,800 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 year ended February 28, 2023, the Company recorded amortization expense of $ 188,002 , with an unamortized discount of $ 1,214,431 at February 28, 2023. (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. F-24 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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 year ended February 28, 2023, the Company recorded amortization expense of $ 10,974 , with an unamortized discount of $ 9,026 at February 28, 2023. (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 the year ended February 28, 2023, the Company recorded amortization expense of $ 22,179 with an unamortized discount of $ 27,821 at February 28, 2023. (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 the year ended February 28, 2023, the Company recorded amortization expense of $ 8,632 , with an unamortized discount of $ 30,868 at February 28, 2023. (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 the year ended February 28, 2023, the Company recorded amortization expense of $ 38,271 with an unamortized discount of $ 32,909 at February 28, 2023. (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 the year ended February 28, 2023, the Company recorded amortization expense of $ 17,091 with an unamortized discount of $ 46,407 at February 28, 2023. (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 6 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 the year ended February 28, 2023, the Company recorded amortization expense of $ 1,375 with an unamortized discount of $ 348,024 at February 28, 2023. 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 the year ended February 28, 2023, the Company recorded amortization expense of $ 1,312 with an unamortized discount of $ 348,438 at February 28, 2023. 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 the year ended February 28, 2023, the Company recorded amortization expense of $ 1,139 with an unamortized discount of $ 350,881 at February 28, 2023. 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 the year ended February 28, 2023, the Company recorded amortization expense of $ 2,143 with an unamortized discount of $ 347,815 at February 28, 2023. January 11, 2023, $ 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 the year ended February 28, 2023, the Company recorded amortization expense of $ 802 with an unamortized discount of $ 347,189 at February 28, 2023. February 6, 2023, $ 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 the year ended February 28, 2023, the Company recorded amortization expense of $ 100 with an unamortized discount of $ 348,426 at February 28, 2023. F-25 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. DERIVATIVE LIABILITIES As of February 28, 2023, 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 year ended February 28, 2023, 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. For the year ended February 28, 2022, the Company recorded a change in fair value of derivative liabilities of $ 372,214 and a gain on settlement of debt (with a corresponding adjustment to derivative liabilities) of $ 81,228 , respectively. 14. STOCKHOLDERS’ DEFICIT Preferred Stock: The Company is authorized to issue up to 20,000,000 shares of $ 0.001 par value preferred stock. The board of directors is authorized to designate any series of preferred stock up to the total authorized number of shares. Series E Preferred Stock The board of directors has designated 4,350,000 shares of Series E Preferred Stock. As of the date of this report, there are 3,350,000 shares of Series E Preferred Stock outstanding. The Series E Preferred Stock ranks subordinate to the Company’s common stock as to distributions of assets upon liquidation, dissolution or winding up of the Corporation. The Series E preferred stock is non-redeemable, does not have rights upon liquidation of the Company and does not receive dividends. The outstanding shares of Series E Preferred Stock have the right to take action by written consent or vote based on the number of votes equal to twice the number of votes of all outstanding shares of equity instruments with voting rights. As a result, the holder of Series E Preferred Stock has 2/3rds of the voting power of all shareholders at any time corporate action requires a vote of shareholders. Series F Convertible Preferred Stock The board of directors has designated 4,350 shares of Series F Convertible Preferred Stock with a par value of $ 1.00 per share. As of the date of this report, there are 2,533 shares of Series F Convertible Preferred Stock outstanding. The Series F Convertible Preferred Stock is non-redeemable, does not have rights upon liquidation of the Company, does not have voting rights and does not receive dividends. Each holder may, at any time and from time to time convert all, but not less than all, of their shares of Series F Convertible Preferred Stock into a number of fully paid and nonassessable shares of common stock determined by multiplying the number of issued and outstanding shares of common stock of the Company on the date of conversion by three and 45 100ths (3.45) on a pro rata basis. So long as any shares of Series F Convertible Preferred Stock are outstanding, the Company shall not, without first obtaining the approval of the majority of the holders: (a) alter or change the rights, preferences or privileges of any capital stock of the Company so as to affect adversely the Series F convertible preferred stock; (b) create any Senior Securities; (c) create any pari passu Securities; (d) do any act or thing not authorized or contemplated by the Certificate of Designation which would result in any taxation with respect to the Series F Convertible Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended, or any comparable provision of the Internal Revenue Code as hereafter from time to time amended, (or otherwise suffer to exist any such taxation as a result thereof). Series G Preferred Stock The board of directors has designated 100,000 shares of Series G Preferred Stock. As of the date of this report, there are no shares of Series G Preferred Stock outstanding. The series G shares are redeemable at $ 1,000 per share The Series G preferred stock does not have voting rights, does not have rights upon liquidation of the Company and does not receive dividends. Summary of Preferred Stock Activity Series E Preferred Stock During the year ended February 28, 2023 there was no Series E share activity. During the year ended February 28, 2022 Series E shareholders had the following activity: — A shareholder cancelled 1,000,000 Class E shares. The company recorded an adjustment to paid in capital. F-26 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Series F Preferred Shares Each holder of Series F 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 During the year ended February 28, 2023 Series F shareholders had the following activity: — 1 Series F Preferred Share and a total of 366 Series F Preferred Stock Warrants issued along with debt to a lender. During the year ended February 28, 2022 Series F shareholders had the following activity: — 40 Series F Preferred Shares and a warrant to purchase 367 Series F Preferred Shares with a five-year term and an exercise price of $ 1.00 were issued to an investor in exchange for amending their deferred variable payment obligation agreement. 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 warrant holder exercised the warrant in part to acquire 38 Series F Preferred Shares. — The shareholder above converted 78 Series F Preferred Shares into 316,345,908 common shares. — Two Series F Preferred shareholders exchanged 83 Series F Preferred Shares for two promissory notes on March 23, 2021. The notes are non-interest bearing, have a one-year maturity and total $7,546,775. These notes were subsequently exchanged on June 2, 2021 for a total of 116,104.232 common shares. — On July 12, 2021, the former director agreed to surrender his remaining 184 Series F preferred shares in exchange for a note payable from the Company of $4,000,160 bearing interest at 7% per annum with a 5 year term, maturing July 12, 2026. — On August 24, 2021the Series F preferred warrant holder agreed to not exercise his warrant privileges on his remaining 329 warrant shares before September 1, 2023. Unissued Series F Preferred Stock At both February 28, 2023 and February 28, 2022 there remains 46 issuable Series F preferred stock at a value of $99,086. During the year ending February 28, 2022 the Company redeemed (through cancellation) 19 shares of issuable Series F preferred stock having a value of $ 74,984 for $500,000, with the difference of $425,016 recorded as a dividend. On October 28, 2022 as part of a $4,000,000 loan facility (described in Note 12) the Company extended the maturity date of the 329 existing Series F Preferred Warrants currently held by the lender to October 31, 2033 from October 31, 2026. Summary of Preferred Stock Warrant Activity Schedule of Summary of stock Option Activity Number of Series F Preferred Warrants Weighted Average Exercise Price Weighted Average Remaining Years Outstanding at March 1, 2022 329 $ 1.00 11.50 Issued 366 $ 1.00 10.00 Exercised — — — Forfeited and cancelled — — — Outstanding at February 28, 2023 695 $ 1.00 10.00 F-27 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Series G Preferred Stock During the year ended February 28, 2023 there was no Series G share activity. During the year ending February 28, 2022 Series G shareholders had the following activity: — On achievement of objectives 3,4,5 and 8 of the equity awards described below the CEO was granted 1500 Series G Preferred shares which were redeemed immediately for $1,500,000 — The Company has accrued $ 1,979,500 of the equity awards and incentive compensation plan payable with the balance of $479,500 at February 28, 2022 after the $1,500,000 payment above. 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 and again increased authorized common shares from 6,000,000,000 to 7,225,000,000 on March 19, 2023. Summary of Common Stock Activity During the year ended, February 28, 2023, common shareholders had the following activity: — the Company issued 1,057,841,576 common shares with gross proceeds of $ 8,21,027 and net proceeds of $ 7,771,169 after issuance costs of $ 447,858 . — the Company issued 17,500,000 common shares as penalty to an investor pursuant to a share purchase agreement. — the Company issued 45,306,557 shares through the cashless exercise of 108,378,210 warrants. — the Company 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. During the year ending February 28, 2022, common shareholders had the following activity: — A Series F Preferred shareholder converted 78 Series F Preferred Shares for 316,345,998 common shares. — 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. — in June 2021, lenders exchanged debt having a face value of $ 7,546,775 and a net book value of $ 6,894,099 for 116,104,232 common shares having a fair value of $ 6,455,396 . A gain on settlement of debt of $ 438,703 was recorded. — the Company entered into an investor relations contract whereby 2,100,000 shares are issuable as of February 28, 2022. Stock based compensation of $ 109,200 was recorded in the period ended February 28, 2022. — the Company issued 645,168,473 common shares with gross proceeds of $ 13,108,624 and cash proceeds of $ 12,521,932 after issuance costs of $ 586,692 — warrant holders exercised warrants to acquire 411,000,000 shares on a cashless basis for 395,022,447 common shares with a corresponding adjustment to paid in capital. The table below represent the common shares issued, issuable and outstanding at February 28, 2023 and February 28, 2022: Common shares February 28, 2023 February 28, 2022 Issued 5,836,641,599 4,733,110,360 Issuable 12,100,000 2,100,000 Issued, issuable and outstanding 5,848,741,599 4,735,210,360 F-28 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Summary of Warrant and Stock Option Activity Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Years Outstanding at February 29, 2021 619,523,492 $ 0.03 2.81 Issued 1,008,324,212 0.06 2.47 Exercised ( 411,000,000 ) 0.06 1.70 Forfeited and cancelled ( 2,043 ) — — Outstanding at February 28, 2022 1,216,845,661 $ 0.06 2.38 Adjusted (1) 66,750,000 0.011 1.41 Issued 94,000,000 0.010 4.69 Exercised ( 108,378,210 ) ( 0.011 ) 2.44 Forfeited and cancelled ( 955,000,000 ) ( 0.008 ) 1.33 Outstanding at February 28, 2023 314,217,451 $ 0.114 1.95 __________ (1) Required dilution adjustment per warrant agreement For the years ended February 28, 2023 and February 28, 2022, the Company recorded a total of $ 0 and $ 0 , respectively on stock-based payments for warrants with a corresponding adjustment to additional paid-in capital. For the years ended February 28, 2023 and February 28, 2022 the Company recorded a total of $ 240,550 and $ 1,678,550 respectively, to stock-based compensation for options, and shares with a corresponding adjustment to additional paid-in capital. In addition the Company recorded other stock based compensation of $ 499,500 and $ 479,500 , respectively with a corresponding adjustment to incentive compensation plan payable, payable in Series G Preferred shares which have not yet been issued. During the year ended February 28, 2023 warrant holders had the following activity: — On August 30, 2022 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. — On August 9, 2022 as part of a debt issuance the Company issued two 47,000,000 warrants at an exercise price of $ 0.01 and $ 0.008 per share, respectively both with a 5 -year term and with a total relative fair value of $ 393,949 all using a Monte Carlo simulation to include reset events, exercise at maturity, and cashless exercise features with assumptions described below: Schedule of valuation techniques Strike price $ 0.008 - $ 0.01 Fair value of Company’s common stock $ 0.012 Dividend yield 0.00 % Expected volatility 88.2 % - 90.00 % Risk free interest rate 2.98 % Expected term (years) 5.00 — Cashless exercise of 108,378,210 warrants for 45,306,557 common shares During the year ended February 28, 2022 warrant holders had the following activity: — warrant holders exercised warrants to acquire 411,000,000 shares on a cashless basis for 395,022,447 common shares with a corresponding adjustment to paid in capital. — in conjunction with debt disclosed in Note 11 (44), the Company issued warrants to a lender 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, in conjunction with debt disclosed in Note 11 (10), the Company issued warrants to a lender 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,and in conjunction with debt disclosed in Note 11 (46), the Company issued warrants to a lender 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 all using the Black-Scholes model with assumptions described below: F-29 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Schedule of valuation techniques for warrants Strike price $ 0.135 - $ 0.037 Fair value of Company’s common stock $ 0.146 - $ 0.0071 Dividend yield 0.00 % Expected volatility 411.0 % - 403.33 % Risk free interest rate 0.43 % - 0.27 % Expected term (years) 3.00 — in conjunction with debt extensions on notes payable disclosed in Note 12 (10, 43, 44), the Company issued warrants to a lender to purchase a total 285,000,000 shares at an exercise price of $ 0.164 per share with a 3 -year term and having an aggregate fair value of $ 5,415,000 , recorded as interest with a corresponding adjustment to paid in capital all using the Black-Scholes model with assumptions described below: Strike price $ 0.0164 Fair value of Company’s common stock $ 0.019 Dividend yield 0.00 % Expected volatility 385.60 % Risk free interest rate 1.62 % Expected term (years) 3.00 — As share issuance costs to a broker the company issued warrants to acquire a total of 3,324,212 shares with a fair value of $ 21,929 recorded against share proceeds with a corresponding adjustment to paid in capital all using the Black-Scholes model with assumptions described below: Strike price $ 0.041 - $ 0.029 Fair value of Company’s common stock $ 0.039 - $ 0.028 Dividend yield 0.00 % Expected volatility 35.30 - 35.90 % Risk free interest rate 0.46 - 0.95 % Expected term (years) 3.00 Summary of Common Stock Option Activity Summary of CEO Compensation Grant On April 9, 2021 the Company entered into an Employment Agreement with Chief Executive Officer, Steven Reinharz with a three- year term under the following terms whereby stock option awards will be granted if certain conditions are met: — A stock option award (option 1) will be granted to the employee to purchase 10,000,000 shares at an exercise price of $ $ 0.15 per share if the trading share price of the Company reaches an average of $ 0.30 per share for ten days over a 30 day trading period. — A stock option award (option 2) will be granted to the employee to purchase 30,000,000 shares at an exercise price of $ $ 0.25 per share if the trading share price of the Company reaches an average of $ 0.50 per share for ten days over a 30 day trading period. Objective #3 : Sales in any fiscal quarter exceed the total sales in fiscal year 2021 for the first time. Award #3 : Five hundred (500) shares of Series G preferred stock. Objective #4 : One hundred fifty (150) devices are deployed in the marketplace. Award #4 : Two hundred fifty (250) shares of Series G preferred stock. Objective #5 : Year-to-date sales at any point in fiscal year 2022 exceed One Million Dollars ($1,000,000). Award #5 : Two hundred fifty (250) shares of Series G preferred stock. F-30 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Objective #6 : The price per share of common stock has increased to and maintains a price of Ten Cents ($0.10) or more for ten (10) days in a thirty (30) day period. Award #6 : Two hundred fifty (250) shares of Series G preferred stock. Objective #7 : The price per share of common stock has increased to and maintains a price of Twenty Cents ($0.20) or more for ten (10) days in a thirty (30) day period. Award #7 : Five hundred (500) shares of Series G preferred stock. Objective #8 : The RAD 3.0 products are launched into the marketplace by November 30, 2021. Award #8 : Five hundred (500) shares of Series G preferred stock. Objective #9 : RAD receives an order for fifty (50) units from a single customer. Award #9 : Five hundred (500) shares of Series G preferred stock. The fair value of the first two awards was obtained through the use of the Monte Carlo method was $ 69,350 with a charge to stock- based compensation and a corresponding charge to paid in capital. The fair value of the remaining rewards was determined by calculating the vesting amounts of each reward and then determining for each reporting period the requisite service rendered and applying that against the cash redemption value of the number of shares of Series G issuable for each tier in the agreement. For the period ended February 28, 2023 that amount totaled $ 499,500 with a charge to stock-based compensation and a corresponding charge to incentive compensation plan payable. For the period ended February 28, 2022 that amount totaled $ 1,979,500 with a charge to stock-based compensation and a corresponding charge to incentive compensation plan payable. With the achievement of objectives 3,4,5 and 8 of the equity awards described above the CEO was granted 1,500 Series G Preferred shares which were redeemed in the reporting period for $ 1,500,000 in cash. As part of the grant, the Company is responsible for grossing up the award value and has accrued additional compensation for the estimated taxes to be paid by the executive. On April 14, 2021, the Shareholders of Series E Preferred Stock and the Board of Directors of our Company (“Board”) approved and adopted the 2021 Incentive Stock Plan (the “2021 Plan”). On August 11, 2022 the Company amended the 2021 Plan increasing the maximum number of shares applicable to the 2021 Plan from 5,000,000 to 100,000,000. The purpose of the 2021 Plan is to promote the success of the Company by authorizing incentive awards to retain Directors, executives, selected Employees and Consultants, and reward participants for making major contributions to the success of the Company. The 2021 Plan authorizes the granting of stock options, restricted stock, restricted stock units, stock appreciation rights and stock awards. A total of one hundred million (100,000,000) shares of common stock may be issued under the 2021 Plan. All awards under the 2021 Plan, whether vested or unvested, are subject to the terms of any recoupment, clawback or similar policy of the Company in effect from time to time, as well as any similar provisions of applicable law, which could in certain circumstances require repayment or forfeiture of awards or any shares of stock or other cash or property received with respect to the awards, including any value received from a disposition of the shares acquired upon payment of the awards. The 2021 Plan will be administered by the Board or any Committee authorized by the Board, if applicable, which will have the sole authority to, among other things: construe and interpret the 2021 Plan; make rules and regulations relating to the administration of the 2021 Plan; select participants; and establish the terms and conditions of awards, all in accordance with the terms of the 2021 Plan. The 2021 Plan will remain in effect until April 14, 2031, unless sooner terminated by the Board. Termination will not affect awards then outstanding. During the year ended February 28, 2023 the Company had the following common stock option activity: — On September 1, 2022, the Company as part of the afore-mentioned Incentive Stock Option Plan issued 100,000,000 shares to 64 employees. The shares were issued with an exercise price of $0.02, vest after 4 years with a 5 year term having a fair value of $1,020,000 using the Black-Scholes model with assumptions described below: F-31 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Strike price $ 0.02 Fair value of Company’s common stock $ 0.01 Dividend yield 0.00 % Expected volatility 340.9 Risk free interest rate 3.39 % Expected term (years) 4.50 The Company recorded $ 122,050 in stock-based compensation which represents the current expense over the vesting period. — Options to purchase 4,275,000 shares were forfeited due to employee terminations During the year ended February 28, 2022 the Company had no common stock option activity: Summary of Common Stock Option Activity Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Years Outstanding at March 1, 2022 — $ — — Issued 100,000,000 $ 0.02 4.75 Exercised — — — Forfeited, extinguished and cancelled ( 4,275,000 ) $ 0.02 (4.75) Outstanding at November 30, 2022 95,725,000 $ 0.02 4.75 15. COMMITMENTS AND CONTINGENCIES Litigation Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s condensed consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The related legal costs are expensed as incurred. Operating Lease On December 18, 2020, the Company entered into a 15-month lease agreement for office space at 18009 Sky Park Circle Suite E, Irvine CA, 92614, commencing on December 18, 2020 through to March 31, 2022 with a minimum base rent of $ 3,859 per month. The Company paid a security deposit of $ 3,859 . On March 10, 2021, the Company entered into a 10 year lease agreement for q manufacturing facility at 10800 Galaxie Avenue, Ferndale, Michigan, 48220, commencing on May 1, 2021 through to April 30, 2031 with a minimum base rent of $ 15,880 per month. The base rent increase by 3% per annum commencing May 1, 2024. The Company paid a security deposit of $ 15,880 . On September 30, 2021, the Company entered into a 3-year lease agreement for a vehicle commencing September 30, 2021 through to April 30, 2031 with a minimum base rent of $1,538 per month. The Company paid a down payment of $18,462. On January 28, 2022, the Company entered into a 2-year lease agreement for office space at 1516 E Edinger, Santa Ana, California, 92705, commencing on February 1, 2022 through to January 31, 2024 with a minimum base rent of $ 1,500 per month. The Company paid a security deposit of $ 1,500 . The Company’s leases are accounted for as operating leases. Rent expense and operating lease cost are recorded over the lease terms on a straight-line basis. Rent expense and operating lease cost was $ 260,271 and $ 275,785 for the years ended February 28, 023 and February 28, 2022, respectively. F-32 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Maturity of Lease Liabilities Operating Leases February 28, 2024 $ 248,669 February 28, 2025 219,863 February 28, 2026 207,558 February 28, 2027 207,558 February 28, 2028 207,558 February 28, 2029 and after 657,268 Total lease payments 1,748,474 Less: Interest ( 549,263 ) Present value of lease liabilities $ 1,199,211 16. EARNINGS (LOSS) PER SHARE The net income (loss) per common share amounts were determined as follows: For the Year Ended February 28, February 28, 2023 2022 Numerator: Net income (loss) available to common shareholders $ ( 18,109,457 ) $ ( 62,197,484 ) Effect of common stock equivalents Add: interest expense on convertible debt 47,075 24,954 Add (less) loss (gain) on change of derivative liabilities ( 3,595 ) ( 372,214 ) Net income (loss) adjusted for common stock equivalents ( 18,065,977 ) ( 62,544,744 ) Denominator: Weighted average shares - basic 5,091,857,082 4,029,658,082 Net income (loss) per share – basic $ ( 0.00 ) $ ( 0.02 ) Denominator: Weighted average shares – diluted 5,091,857,082 4,029,658,082 Net income (loss) per share – diluted $ ( 0.00 ) $ ( 0.02 ) The anti-dilutive shares of common stock equivalents for the years ended February 28, 2023 and February 28, 2022 were as follows : For the Year Ended February 28, February 28, 2023 2022 Convertible notes and accrued interest — 4,927,561 Convertible Class F Preferred Shares * — — Stock options and warrants 496,942,251 1,256,845,661 Total 496,942,251 1,261,773,222 __________ * 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. Had these Series F preferred shares been convertible at February 28, 2023 and 2022 the dilutive effects would be as follows: Series F Preferred shares been convertible the dilutive effects would be as follows: For the Year Ended February 28 2023 2022 Convertible Series F Preferred Shares 20,178,158,517 16,336,475,742 F-33 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 17. INCOME TAXES The Company has adopted ASC 740-10, “ Income Taxes” , which requires the use of the liability method in the computation of income tax expense and the current and deferred income taxes payable (deferred tax liability) or benefit (deferred tax asset). Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax expense (benefit) consisted of the following for the fiscal years ended February 28, 2023 and February 28, 2022: Schedule of income tax expense February 28, 2023 February 28, 2023 Total current $ — $ — Total deferred — — Total $ — $ — Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following is a reconciliation of the expected statutory federal income tax provision to the actual income tax benefit for the fiscal years ended February 28, 2023 and February 28, 2022: Schedule of federal statutory income tax February 28, 2023 Federal statutory rate $ ( 3,803,000 ) State income tax benefit, net of federal benefit ( 859,400 ) Non deductible interest 415,800 Non deductible stock based compensation 155,400 Change in valuation allowance 4,091,200 Total $ — February 28, 2022 Federal statutory rate $ ( 13,061,500 ) State income tax benefit, net of federal benefit ( 2,954,400 ) Non deductible interest 4,027,800 Non deductible settlement losses 8,515,100 Non deductible stock based compensation 169,400 Non deductible changes in fair value of instruments ( 95,800 ) Other non deductible expenses 600 Change in valuation allowance 3,398,800 Total $ — For the year ended February 28, 2023 and February 28, 2022, the expected tax benefit, temporary timing differences and long-term timing differences are calculated at the 21 % statutory rate. F-34 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Significant components of the Company’s deferred tax assets and liabilities were as follows for the fiscal years February 28, 2023 and February 28, 2022: Schedule of deferred income tax assets February 28, 2023 February 28, 2022 Deferred tax assets: Net operating loss carryforwards $ 12,651,115 $ 8,445,915 Debt discount 114,000 Total deferred tax assets 12,651,115 8,559,915 Deferred tax liabilities: Depreciation — — Deferred revenue — — Total deferred tax liabilities — — Net deferred tax assets: Less valuation allowance ( 12,651,115 ) ( 8,559,915 ) Net deferred tax assets (liabilities) $ — $ — The Company has incurred losses since inception, therefore, the Company has no federal tax liability. Additionally there are limitations imposed by certain transactions which are deemed to be ownership changes which occurred in the Company on August 28, 2017. The net deferred tax asset generated by the loss carryforward has been fully reserved. The cumulative net operating loss carryforward was approximately $ 44,448,800 at February 28, 2023 and $ 28,200,000 at February 28, 2022, that is available for carryforward for federal income tax purposes and begin to expire in 2030 . Although the Company has tax loss carry-forwards, there is uncertainty as to utilization prior to their expiration. Accordingly, the future income tax asset amounts have been fully reserved by a valuation allowance. The Company has maintained a full valuation allowance against its deferred tax assets at February 28, 2023 and February 28, 2022. A valuation allowance is required to be recorded when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Since the Company cannot be assured of realizing the net deferred tax asset, a full valuation allowance has been provided. The Company does not have any uncertain tax positions at February 28, 2023 and February 28, 2022 that would affect its effective tax rate. The Company does not anticipate a significant change in the amount of unrecognized tax benefits over the next twelve months. Because the Company is in a loss carryforward position, the Company is generally subject to US federal and state income tax examinations by tax authorities for all years for which a loss carryforward is available. If and when applicable, the Company will recognize interest and penalties as part of income tax expense. The Company’s tax returns for the years ended February 28, 2022, and February 28, 2021, and February 29, 2020 are open for examination under Federal statute of limitations. F-35 Index to Financial Statements ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. SUBSEQUENT EVENTS Subsequent to February 28, 2023 through to June 5, 2023, — the Company issued 280,929,190 common shares pursuant to a share purchase agreement for gross proceeds of $ 1,400,194 , issuance costs of $ 81,285 and cash proceeds of $ 1,318,909 . — on March 19 ,2023 the shareholders approved an increase to its authorized common stock by 1,225,000,000 shares — on March 22, 2023 the Company entered into an Equity Financing Agreement whereby an investor shall invest up to $30,000,000 over the course of twenty four (24) month at a purchase price of eighty percent (80%) of the lowest trade price in the 9 day preceding period. If the average Closing Price for the Common Stock during the three (3) trading days preceding a purchase is equal to or greater than one cent ($.01) per share, the applicable purchase price shall equal eighty five percent (85%) of the lowest trade price in the 9 day preceding period. Following an up-list to the NASDAQ or an equivalent national exchange by the Company, the purchase price shall equal ninety percent (90%) of the lowest Volume Weighted Average Price (“VWAP”) for the Common Stock during the 9 day preceding period subject to a floor of $4.50 per share, below which the Company shall not be required to sell shares. In conjunction with the above agreement, the Company entered into a Registration Rights Agreement . F-36