Artificial Intelligence Technology Solutions Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2024 OR ☐ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________ COMMISSION FILE NUMBER: 000-55079 ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. (Exact name of registrant as specified in its charter) Nevada 27-2343603 (State or other jurisdiction of Incorporation or organization) (I.R.S. Employer Identification Number) 10800 Galaxie Avenue Ferndale , MI 48220 (Address of principal executive offices) (Zip code) (877) 787-6268 (Registrant’s telephone number, including area code) not applicable (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 11,157,761,604 shares of common stock were issued and outstanding as of July 12, 2024. Table of Contents PAGE PART I FINANCIAL INFORMATION ITEM 1. Financial Statements 3 Condensed Consolidated Balance Sheets as of May 31, 2024 and February 29, 2024 (Unaudited) 3 Condensed Consolidated Statements of Operations for the Three Months Ended May 31, 2024 and 2023 (Unaudited) 4 Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended May 31, 2024 and 2023 (Unaudited) 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 31, 2024 and 2023 (Unaudited) 6 Notes to the Consolidated Financial Statements (Unaudited) 7-25 ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 30 ITEM 4. Controls and Procedures 30 PART II OTHER INFORMATION ITEM 1. Legal Proceedings 31 ITEM 1A. Risk Factors 31 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 31 ITEM 3. Defaults Upon Senior Securities 31 ITEM 4. Mine Safety Disclosures 31 ITEM 5. Other Information 31 ITEM 6. Exhibits 32 SIGNATURES 33 - 2 - Table of Contents PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. CONDENSED CONSOLIDATED BALANCE SHEETS May 31, 2024 (unaudited) February 29, 2024 * ASSETS Current assets: Cash $ 193,103 $ 105,926 Accounts receivable, net 616,464 756,084 Device parts inventory, net 1,830,467 2,131,599 Prepaid expenses and deposits 454,158 622,957 Total current assets 3,094,192 3,616,566 Operating lease asset 1,105,225 1,139,188 Revenue earning devices, net of accumulated depreciation of $ 1,209,072 and $ 952,844 , respectively 3,351,949 2,480,002 Fixed assets, net of accumulated depreciation of $ 391,199 and $ 349,878 , respectively 278,931 268,075 Trademarks 29,676 27,080 Investment at cost 50,000 50,000 Security deposit 15,880 15,880 Total assets $ 7,925,853 $ 7,596,791 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable and accrued expenses $ 2,011,624 $ 2,032,707 Advances payable- related party 1,594 1,594 Customer deposits 62,233 73,702 Current operating lease liability 231,141 237,653 Current portion of deferred variable payment obligation 1,096,700 904,377 Loan payable - related party 275,013 257,438 Deferred compensation for CEO 538,767 538,767 Current portion of loans payable, net of discount of $ 65,629 and $ 688,598 17,554,356 13,190,882 Vehicle loan - current portion 38,522 38,522 Current portion of accrued interest payable 6,939,788 4,440,009 Total current liabilities 28,749,738 21,715,651 Non-current operating lease liability 864,447 889,360 Loans payable, net of discount of $ 538,143 and $ 4,118,332 , respectively 14,961,218 14,798,532 Deferred variable payment obligation 2,525,000 2,525,000 Incentive compensation plan payable 2,500,000 2,500,000 Accrued interest payable 3,979,841 5,367,805 Total liabilities 53,580,244 47,796,348 Commitments and Contingencies - - Redeemable Preferred Stock (Temporary Equity): Series B Convertible, Redeemable Preferred Stock. $ 0.001 par value; 8 % cumulative dividend payable quarterly, $ 1,200 stated value, 5,000 shares authorized, 215 and 0 shares issued and outstanding at May 31, 2024 and February 29, 2024, respectively 257,712 — Stockholders’ deficit: Preferred Stock, undesignated; 15,535,000 shares authorized; no shares issued and outstanding at May 31, 2024 and February 29, 2024, respectively — — Series G Redeemable Preferred Stock. $ 0.001 par value; 100,000 shares authorized, no shares issued and outstanding at May 31, 2024 and February 29, 2024, 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; 10,000 shares authorized; 2,533 and 2,533 shares issued and outstanding, respectively 2,533 2,533 Preferred stock, value 2,533 2,533 Common Stock, $ 0.00001 par value; 12,500,000,000 shares authorized 10,318,917,383 and 9,238,750,958 shares issued, issuable and outstanding, respectively 103,190 92,388 Additional paid-in capital 95,240,915 92,565,513 Preferred stock to be issued 99,086 99,086 Accumulated deficit ( 141,361,177 ) ( 132,962,427 ) Total stockholders’ deficit ( 45,912,103 ) ( 40,199,557 ) Total liabilities and stockholders’ deficit $ 7,925,853 $ 7,596,791 * Derived from audited information The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. - 3 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended May 31, 2024 Three Months Ended May 31, 2023 Revenues $ 1,182,800 $ 385,208 Cost of Goods Sold 295,593 11,342 Gross Profit 887,207 373,866 Operating expenses: Research and development (including related party charges of $ 631,584 (2023-$ 882,015 )) 640,710 891,757 General and administrative 2,720,191 2,200,602 Depreciation and amortization 297,549 167,942 Operating lease cost and rent 62,013 62,542 Total operating expenses 3,720,463 3,322,843 Loss from operations ( 2,833,256 ) ( 2,948,977 ) Other income (expense), net: Interest expense ( 1,361,103 ) ( 1,606,216 ) Total other income (expense), net ( 1,361,103 ) ( 1,606,216 ) Net income (loss) $ ( 4,194,359 ) $ ( 4,555,193 ) Net income (loss) per share - basic $ ( 0.00 ) $ ( 0.00 ) Net income (loss) per share - diluted $ ( 0.00 ) $ ( 0.00 ) Weighted average common share outstanding - basic 9,882,118,105 5,964,709,322 Weighted average common share outstanding - diluted 9,882,118,105 5,964,709,322 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. - 4 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ DEFICIT (Unaudited) Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Deficit Temporary Equity Shareholder’s Deficit Series B Series E Series F 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, 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 ) Issuance of shares, net of $ 81,285 issuance costs — — — — — — 280,929,190 2,809 1,316,100 — 1,318,909 Relative fair value of Series F warrants issued with debt — — — — — — — — 947,447 — 947,447 Stock based compensation — — — — — — — — 52,721 — 52,721 Net income — — — — — — — — — ( 4,555,193 ) ( 4,555,193 ) Balance at May 31, 2023 — $ — 3,350,000 $ 3,350 2,533 $ 101,619 6,129,670,789 $ 61,298 $ 82,563,520 $ ( 116,808,904 ) $ ( 34,079,117 ) Temporary Equity Shareholder’s Deficit Series B Series E Series F 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 29, 2024 — — 3,350,000 $ 3,350 2,533 $ 101,619 9,238,750,958 $ 92,388 $ 92,565,513 $ ( 132,962,427 ) $ ( 40,199,557 ) Balance — — 3,350,000 $ 3,350 2,533 $ 101,619 9,238,750,958 $ 92,388 $ 92,565,513 $ ( 132,962,427 ) $ ( 40,199,557 ) Cumulative Effect Adjustment RFVdiscount per adoption of ASU 2020-06 at March 1, 2024 — — — — — — — — — ( 4,175,535 ) ( 4,175,535 ) Issuance of shares, net of $ 116,046 issuance costs — — — — — — 1,080,166,425 10,802 2,671,791 — 2,682,593 Issuance of shares, net of issuance costs — — — — — — 1,080,166,425 10,802 2,671,791 — 2,682,593 Issuance of Series B Preferred Shares 300 360,000 — — — — — — ( 82,000 ) — ( 82,000 ) Series B Preferred Shares issued as commitment fee 20 24,000 — — — — — — ( 24,000 ) — ( 24,000 ) Series B Preferred shares issued as dividend 2 2,568 — — — — — — ( 2,568 ) — ( 2,568 ) Redemption of Series B Preferred shares ( 107 ) ( 128,856 ) — — — — — — 28,856 ( 28,856 ) — Stock based compensation — — — — — — — — 83,323 — 83,323 Net income — — — — — — — — — ( 4,194,359 ) ( 4,194,359 ) Balance at May 31, 2024 215 $ 257,712 3,350,000 $ 3,350 2,533 $ 101,619 10,318,917,383 $ 103,190 $ 95,240,915 $ ( 141,361,177 ) $ ( 45,912,103 ) Balance 215 $ 257,712 3,350,000 $ 3,350 2,533 $ 101,619 10,318,917,383 $ 103,190 $ 95,240,915 $ ( 141,361,177 ) $ ( 45,912,103 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. - 5 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended May 31, 2024 Three Months Ended May 31, 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 4,194,359 ) $ ( 4,555,193 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 297,549 167,942 Bad debts expense 13,000 16,000 Inventory provision 210,000 — Reduction of right of use asset 31,425 28,767 Accretion of lease liability 31,065 33,775 Stock based compensation 83,323 115,721 Amortization of debt discounts 27,625 557,219 Increase in related party accrued payroll and interest 17,575 36,740 Changes in operating assets and liabilities: Accounts receivable 126,620 ( 142,799 ) Prepaid expenses and deposits on inventory 167,562 74,809 Device parts inventory ( 1,070,087 ) ( 324,652 ) Accounts payable and accrued expenses ( 21,083 ) ( 7,354 ) Customer deposits ( 11,469 ) 26,560 Operating lease liability payments ( 58,715 ) ( 62,542 ) Current portion of deferred variable payment obligations for payments 192,323 62,634 Accrued interest payable 1,111,815 981,370 Net cash used in operating activities ( 3,045,831 ) ( 2,991,003 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets ( 19,132 ) ( 3,463 ) Acquisition of trademarks ( 2,596 ) — Net cash (used in) investing activities ( 21,728 ) ( 3,463 ) CASH FLOWS FROM FINANCING ACTIVITIES: Share proceeds net of issuance costs 2,682,592 1,318,909 Proceeds on issuance of Series B shares 278,000 — Redemption of Series B shares ( 128,856 ) — Proceeds from loans payable 350,000 1,050,000 Repayment of loans payable ( 27,000 ) ( 27,000 ) Net cash provided by (used in) financing activities 3,154,736 2,341,909 Net change in cash 87,177 ( 652,557 ) Cash, beginning of period 105,926 939,759 Cash, end of period $ 193,103 $ 287,202 Supplemental disclosure of cash and non-cash transactions: Cash paid for interest $ 25,015 $ 1,375 Cash paid for income taxes $ — $ — Noncash investing and financing activities: Transfer from device parts inventory to fixed assets $ 1,161,219 $ 473,122 Cumulative Effect Adjustment RFV discount per adoption of ASU 2020-06 at March 1, 2024 $ 4,175,535 $ — Series B preferred shares issued as dividend $ 2,568 $ — Discount applied to face value of loans $ — $ 150,000 Series F warrants issued as part of debt issuance $ — $ 947,447 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. - 6 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. GENERAL INFORMATION Artificial Intelligence Technology Solutions Inc. (“AITX” or the “Company”) was incorporated in Florida on March 25, 2010 and reincorporated in Nevada on February 17, 2015. On August 24, 2018, Artificial Intelligence Technology Solutions Inc., changed its name from On the Move Systems Corp (“OMVS”). Robotic Assistance Devices, LLC (“RAD”), was incorporated in the State of Nevada on July 26, 2016 as a Limited Liability Company. On July 25, 2017, Robotic Assistance Devices LLC converted to a C Corporation, Robotic Assistance Devices, Inc., through the issuance of 10,000 common shares to its sole shareholder. On August 28, 2017, AITX completed the acquisition of RAD (the “Acquisition”), whereby AITX acquired all the ownership and equity interest in RAD for 3,350,000 shares of AITX Series E Preferred Stock and 2,450 shares of Series F Convertible Preferred Stock. AITX’s prior business focus was transportation services, and was exploring the on-demand logistics market by developing a network of logistics partnerships. As a result of the closing of the Acquisition, AITX has succeeded to the business of RAD, and AITX’s business going forward will consist of one segment activity, which is the delivery of artificial intelligence and robotic solutions for operational, security and monitoring needs. The Acquisition was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of AITX’s operations were disposed of as part of the consummation of the transaction. Therefore, no goodwill or other intangible assets were recorded by AITX as a result of the Acquisition. RAD is treated as the accounting acquirer as its stockholders control the Company after the Acquisition, even though AITX was the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in these financial statements are those of RAD as if RAD had always been the reporting company. 2. GOING CONCERN The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern. For the three months ended May 31, 2024, the Company had negative cash flow from operating activities of $ 3,045,831 . As of May 31, 2024, the Company has an accumulated deficit of $ 141,361,177 , and negative working capital of $ 25,655,546 . Management does not anticipate having positive cash flow from operations in the near future. These factors raise a substantial doubt about the Company’s ability to continue as a going concern for the twelve months following the issuance of these financial statements. The Company does not have the resources at this time to repay 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. There remains approximately $ 16 million left to issue under this arrangement. Management believes that it has the necessary support to continue operations by continuing its funding methods in the following ways: growing revenues, through equity proceeds, and issuing 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. - 7 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3. ACCOUNTING POLICIES Basis of Presentation and Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in conformity with the condensing instructions on Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto in the Company’s latest Annual Report filed with the SEC on Form 10-K/A as filed on May 29, 2024. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Robotic Assistance Devices, Inc., Robotic Assistance Devices Group , Inc, Robotic Assistance Devices Mobile, Inc., and Robotic Assistance Devices Residential, Inc.. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three months ended May 31, 2024, are not necessarily indicative of the results that may be expected for the entire year. Use of Estimates In order to prepare financial statements in conformity with accounting principles generally accepted in the United States, management must make estimates, judgements and assumptions that affect the amounts reported in the financial statements and determine whether contingent assets and liabilities, if any, are disclosed in the financial statements. The ultimate resolution of issues requiring these estimates and assumptions could differ significantly from resolution currently anticipated by management and on which the financial statements are based. The most significant estimates included in these consolidated financial statements are those associated with the assumptions used to value preferred stock. Reclassifications Certain amounts in the Company’s consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods. Concentrations Loans payable At May 31, 2024 there were $ 33,119,346 of loans payable, $ 28,890,506 or 87 % of these loans to companies controlled by one individual. At February 29, 2024 there were $ 32,796,345 of loans payable, $ 28,540,506 or 87 % of these loans to companies controlled by the same individual. Cash The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market instruments. The Company places its cash and cash equivalents with high-quality, U.S. financial institutions and, to date has not experienced losses on any of its balances. Accounts Receivable Accounts receivable are comprised of balances due from customers, net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated, and specific customer issues are reviewed on a periodic basis to arrive at appropriate allowances. There was an allowance of $ 81,000 and $ 68,000 provided as of May 31, 2024 and February 29, 2024, respectively. For the three months ended May 31, 2024, two customers account for 57 % of total accounts receivable . For the three months ended May 31, 2023, two customers account for 51 % 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. As of May 31, 2024, and February 29, 2024, there was a valuation reserve of $ 1,169,000 and $ 959,000 , respectively. - 8 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Revenue Earning Devices Revenue earning devices are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful life of 48 months. The Company continually evaluates revenue earning devices to determine whether events or changes in circumstances have occurred that may warrant revision of the estimated useful life or whether the devices should be evaluated for possible impairment. The Company uses a combination of the undiscounted cash flows and market approaches in assessing whether an asset has been impaired. The Company measures impairment losses based upon the amount by which the carrying amount of the asset exceeds the fair value. Fixed Assets Fixed assets are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from two to five years . Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently. SCHEDULE OF FIXED ASSETS STATED AT COST Computer equipment and software 2 or 3 years Office equipment 4 years Manufacturing equipment 7 years Warehouse equipment 5 years Tooling 2 years Demo Devices 4 years Vehicles 3 years Leasehold improvements 5 years, the life of the lease The Company periodically evaluates the fair value of fixed assets whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable. Upon retirement or other disposition of fixed assets, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss, if any, is recognized in income. Research and Development Research and development costs are expensed in the period they are incurred in accordance with ASC 730, Research and Development unless they meet specific criteria related to technical, market and financial feasibility, as determined by Management, including but not limited to the establishment of a clearly defined future market for the product, and the availability of adequate resources to complete the project. If all criteria are met, the costs are deferred and amortized over the expected useful life or written off if a product is abandoned. At May 31, 2024 and February 29, 2024, the Company had no deferred development costs. Contingencies Occasionally, the Company may be involved in claims and legal proceedings arising from the ordinary course of its business. The Company records a provision for a liability when it believes that it is both probable that a liability has been incurred, and the amount can be reasonably estimated. If these estimates and assumptions change or prove to be incorrect, it could have a material impact on the Company’s consolidated financial statements. Contingencies are inherently unpredictable, and the assessments of the value can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. Sales of Future Revenues The Company has entered into transactions, as more fully described in footnote 8, in which it has received funding from investors in exchange for which it will make payments to those investors based on the level of sales of certain revenue categories, generally based on a percentage of sales for those certain revenues. The Company determines whether these agreements constitute sales of future revenues or are in substance debt based on the facts and circumstances of each agreement, with the following primary criteria determinative of whether the agreement constitutes a sale of future revenues or debt: - 9 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ● Does the agreement purport, in substance, to be a sale ● Does the Company have continuing involvement in the generation of cash flows due the investor ● Is the transaction cancellable by either party through payment of a lump sum or other transfer of assets ● Is the investors rate of return is implicitly limited by the terms of the agreement ● Does the Company’s revenue for a reporting period underlying the agreement have only a minimal impact on the investor’s rate of return ● Does the investor have recourse relating to payments due In the event a transaction is determined to be a sale of future revenues, it is recorded as deferred revenue and amortized using the sum-of-the-revenue method. In the event a transaction is determined to be debt, it is recorded as debt and amortized using the effective interest method. As of the date of these financial statements, the Company has determined that all such agreements are debt. Revenue Recognition ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” , supersedes the revenue recognition requirements and industry specific guidance under Revenue Recognition (Topic 605) . Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. Topic 606 defines a five-step process that must be evaluated and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing accounting principles generally accepted in the United States of America (“U.S. GAAP”) including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The Company adopted Topic 606 on March 1, 2018, using the modified retrospective method. Under the modified retrospective method, prior period financial positions and results will not be adjusted. There was no cumulative effect adjustment recognized as a result of this adoption. Refer to Note 4 – Revenue from Contracts with Customers for additional information. For the three months ended May 31, 2024, two customers accounted for 65 % of total revenue and for the three months ended May 31, 2023, three customers accounted for 57 % of total revenue. 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, 2025, 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. - 10 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) If at its inception, a lease meets any of the four lease criteria above, the lease is classified by the Company as a sales/finance; and if none of the four criteria are met, the lease is classified by the Company as an operating lease. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the lease term, whereby an equal amount of rent expense is attributed to each period during the term of the lease, regardless of when actual payments are made. This generally results in rent expense in excess of cash payments during the early years of a lease and rent expense less than cash payments in the later years. The difference between rent expense recognized and actual rental payments is recorded as deferred rent and included in liabilities. Distinguishing Liabilities from Equity The Company relies on the guidance provided by ASC Topic 480, Distinguishing Liabilities from Equity , to classify certain redeemable and/or convertible instruments. The Company first determines whether a financial instrument should be classified as a liability. The Company will determine the liability classification if the financial instrument is mandatorily redeemable, or if the financial instrument, other than outstanding shares, embodies a conditional obligation that the Company must or may settle by issuing a variable number of its equity shares. Once the Company determines that a financial instrument should not be classified as a liability, the Company determines whether the financial instrument should be presented between the liability section and the equity section of the balance sheet (“temporary equity”). The Company will determine temporary equity classification if the redemption of the financial instrument is outside the control of the Company (i.e. at the option of the holder). Otherwise, the Company accounts for the financial instrument as permanent equity. Our Chief Executive Officer/ Chairman holds sufficient shares of the Company’s voting preferred stock that give sufficient voting rights under the articles of incorporation and bylaws of the Company such that the CEO/ Chairman can at any time unilaterally vote to increase the number of authorized shares of common stock of the Company, without the need to call a general meeting of common shareholders of the Company. Initial Measurement The Company records its financial instruments classified as liability, temporary equity or permanent equity at issuance at the fair value, or cash received. Subsequent Measurement – Financial Instruments Classified as Liabilities The Company records the fair value of its financial instruments classified as liabilities at each subsequent measurement date. The changes in fair value of its financial instruments classified as liabilities are recorded as other income (expenses). Fair Value of Financial Instruments ASC Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”) provides a framework for measuring fair value in accordance with generally accepted accounting principles. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). - 11 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC Topic 820 are described as follows: ● Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. ● Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. ● Level 3 – Inputs that are unobservable for the asset or liability. Measured on a Recurring Basis The following table presents information about our liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fell: SCHEDULE OF LIABILITIES MEASURED AT FAIR VALUE Amount at Fair Value Measurement Using Fair Value Level 1 Level 2 Level 3 May 31, 2024 Liabilities Incentive compensation plan payable- revaluation of equity awards payable in Series G shares $ 2,500,000 $ — $ — $ 2,500,000 February 29, 2024 Liabilities Incentive compensation plan payable- revaluation of equity awards payable in Series G shares $ 2,500,000 $ — $ — $ 2,500,000 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. - 12 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Recently Issued Accounting Pronouncements Recently Issued Accounting Standards Adopted In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) : Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity . Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments. The amendments in ASU 2020-06 are effective for public entities, excluding smaller reporting companies as defined, for fiscal years beginning after December 15, 2021. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. A reporting entity is not permitted to adopt the guidance in an interim period, other than the first interim period of its fiscal year. The Company adopted the standard using a modified retrospective approach. The adjustment to the Company’s accumulated deficit at March 1, 2024 was $ 4,175,535 with a corresponding adjustment to loans payable. 4. REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue is earned primarily from two sources: 1) direct sales of goods or services and 2) short-term rentals. Direct sales of goods or services are accounted for under Topic 606, and short-term rentals are accounted for under Topic 842 (which addresses lease accounting and was adopted on March 1, 2019). As disclosed in the revenue recognition section of Note 3 – Accounting Polices, the Company adopted Topic 606 in accordance with the effective date on March 1, 2018. Note 3 includes disclosures regarding the Company’s method of adoption and the impact on the Company’s financial statements. Revenue is recognized on direct sales of goods or services when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. After adopting Topic 842, also referred to above in Note 3, the Company is accounting for revenue earned from rental activities where an identified asset is transferred to the customer and the customer has the ability to control that asset. The Company recognizes revenue from its device rental activities when persuasive evidence of a contract exists, the performance obligations have been satisfied, the transaction price is fixed or determinable and collection is reasonably assured. Performance obligations associated with device rental transactions are satisfied over the rental period. Rental periods are short-term in nature. Therefore, the Company has elected to apply the practical expedient which eliminates the requirement to disclose information about remaining performance obligations. Payments are due from customers at the completion of the rental, except for customers with negotiated payment terms, generally net 30 days or less, which are invoiced and remain as accounts receivable until collected. The following table presents revenues from contracts with customers disaggregated by product/service: SCHEDULE OF REVENUES FROM CONTRACTS WITH CUSTOMERS Three Months Ended May 31, 2024 Three Months Ended May 31, 2023 Device rental activities $ 980,536 $ 238,149 Direct sales of goods and services 202,264 147,059 Revenue $ 1,182,800 $ 385,208 - 13 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 5. LEASES We lease certain warehouses, and office space. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we did not combine lease and non-lease components. There is no lease renewal. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Below is a summary of our lease assets and liabilities at May 31, 2024 and February 29, 2024. SCHEDULE OF LEASE ASSETS AND LIABILITIES Leases Classification May 31, 2024 February 29, 2024 Assets Operating Operating Lease Assets $ 1,105,225 $ 1,139,188 Liabilities Current Operating Current Operating Lease Liability $ 231,141 $ 237,653 Noncurrent Operating Noncurrent Operating Lease Liabilities 864,447 889,360 Total lease liabilities $ 1,095,588 $ 1,127,013 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 $ 62,013 and $ 62,542 for the three months ended May 31, 2024 and May 31, 2023, respectively. 6. REVENUE EARNING DEVICES Revenue earning devices consisted of the following: SCHEDULE OF REVENUE EARNING DEVICES May 31, 2024 February 29, 2024 Revenue earning devices $ 4,561,021 $ 3,432,846 Less: Accumulated depreciation ( 1,209,072 ) ( 952,844 ) Total $ 3,351,949 $ 2,480,002 During the three months ended May 31, 2024, the Company made total additions to revenue earning devices of $ 1,128,175 which were transfers from inventory. During the three months ended May 31, 2023, the Company made total additions to revenue earning devices of $ 444,412 which were transfers from inventory. Depreciation expense was $ 256,228 and $ 122,841 for the three months ended May 31, 2024, and 2023 respectively. - 14 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7. FIXED ASSETS Fixed assets consisted of the following: SCHEDULE OF FIXED ASSETS May 31, 2024 February 29, 2024 Automobile $ 74,237 $ 74,237 Demo devices 227,395 194,352 Tooling 107,020 107,020 Machinery and equipment 8,825 8,825 Computer equipment 157,448 150,387 Office equipment 15,312 15,312 Furniture and fixtures 21,225 21,225 Warehouse equipment 31,712 19,639 Leasehold improvements 26,956 26,956 Fixed assets gross 670,130 617,953 Less: Accumulated depreciation ( 391,199 ) ( 349,878 ) Fixed assets, net of accumulated depreciation $ 278,931 $ 268,075 During the three months ended May 31, 2024, the Company made additions of $ 52,177 of which $ 33,045 were transfers from inventory with remaining additions of $ 19,132 . During the three months ended May 31, 2023, the Company made additions of $ 32,173 of which $ 28,710 were transfers from inventory with remaining additions of $ 3,463 . Depreciation expense was $ 41,321 and $ 45,101 for the three months ended May 31, 2024, and 2023 respectively. 8. DEFERRED VARIABLE PAYMENT OBLIGATION On February 1, 2019 the Company entered into an agreement with an investor whereby the investor would pay up to $ 900,000 in exchange for a perpetual 9 % rate payment (Payments) on the Company’s reported quarterly revenue from operations excluding any gains or losses from financial instruments (Revenues). At February 29, 2020 the investor has advanced the full $ 900,000 . On May 9, 2019 the Company entered into two similar arrangements with two investors: (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 . - 15 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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. Upon an event of default that we are unable to cure in the time allotted under the agreements, these Payments may be secured with a priority lien by UCC filing against all of our assets, but is subordinated to equipment financing or leasing agreements on the products the Company leases to its customers. In summary of all agreements mentioned above if in the event that at least 10 % of the assets of the Company are sold by the Company, the investors would be entitled to the fair market value (FMV) of all future Payments associated with the assets sold as determined by an independent valuator to be chosen by the investors. The FMV cannot exceed 43.77% of the total asset disposition price defined as the total price paid for the assets plus all future Payments associated with the assets sold. In the event that the common or preferred shares are sold by the Company to a third party as to effect a change in control, then the investors must be paid the FMV of all future Payments in one lump payment. The FMV cannot exceed 43.77% of the share disposition price defined as the total price the third party paid for the shares plus the total value of all future Payments. As of March 1, 2021 as a result of the amendment with the first investor noted below. This aggregate asset disposition % was reduced from 43.77 % to 33.77% . The Payments first become payable on June 30, 2019 (unless otherwise indicated) based on the quarterly Revenues for the quarter ended May 31, 2019 and accrue every quarter thereafter. As of May 31, 2024, the Company has accrued $ 1,096,700 in Payments of which $ 604,811 are in arrears. As of February 29, 2024, the Company has accrued approximately $ 904,377 in Payments, of which $ 542,176 is in arrears. No notices have been sent to 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. - 16 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The Company retains total involvement in the generation of cash flows from these revenue streams that form the basis of the payments to be made to the investors under this agreement. Because of this, the Company has determined that the agreements constitute debt agreements. As of May 31, 2024, and February 29, 2024, the long-term balances other than Payments already owed is the cash received of $ 2,525,000 and $ 2,525,000 , respectively. For both the three months ended May 31, 2024, and year ended February 29, 2024, the Company has received $ 0 related to the deferred payment obligation since there were no new agreements during this period. The balance remains $ 2,525,000 at both May 31, 2024 and February 29, 2024. 9. RELATED PARTY TRANSACTIONS For both the three months ended May 31, 2024 and May 31, 2023 , the Company had no repayments of net advances from its loan payable-related party. At May 31, 2024, the loan payable-related party was $ 275,013 and $ 257,438 at February 29, 2024. Included in the balance due to the related party at May 31, 2024 is $ 198,481 of deferred salary and interest, $ 152,513 of which bears interest at 12 %. As of February 29, 2024, included in the balance due to the related party is $ 140,013 of deferred salary all of which bears interest at 12 %. The accrued interest included in loan at May 31, 2024 and February 29, 2024 was $ 36,974 and $ 32,468 , respectively. Pursuant to the amended Employment Agreement with its Chief Executive Officer, for the three months ended May 31, 2024 the Company accrued $ 0 (three months ended May 31 2023-$ 63,000 ) of incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional awards being met. This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at $ 1,000 per share. At May 31, 2024 and February 29, 2024 there was $ 2,500,000 and $ 2,500,000 of incentive compensation payable. During the three months ended May 31, 2024 and 2023, the Company was charged $ 631,584 and $ 882,015 , respectively for fees for research and development from a company partially owned by a principal shareholder. 10. OTHER DEBT – VEHICLE LOAN In December 2016, RAD entered into a vehicle loan for $ 47,704 secured by the vehicle. The loan is repayable over 5 years maturing November 9, 2021, and repayable $ 1,019 per month including interest and principal. In November 2017, RAD entered into another vehicle loan secured by the vehicle for $ 47,661 . The loan is repayable over 5 years, maturing October 24, 2022 and repayable at $ 923 per month including interest and principal. The principal repayments made were $ 0 for both the year ended February 28, 2022 and February 28, 2021. Regarding the second vehicle loan, the vehicle was returned at the end of fiscal 2019 and the car was subsequently sold by the lender for proceeds of $ 21,907 which went to reduce the outstanding balance of the loan. A loss of $ 3,257 was recorded as well. A balance of $ 21,578 remains on this vehicle loan at both February 28, 2021 and February 29, 2020. For the first vehicle loan, the vehicle was retired in 2020, the proceeds of the disposal of $ 18,766 was applied against the balance of the loan with a $ 5,515 gain on the remaining asset value of $ 13,251 . A balance of $ 16,944 remains on this vehicle loan at both February 28, 2022 and February 28, 2021. The remaining total balances of the amounts owed on the vehicle loans were $ 38,522 and $ 38,522 as of May 31, 2024 and February 29, 2024, respectively, of which all were classified as current. - 17 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 11. LOANS PAYABLE Loans payable at May 31, 2024 consisted of the following: SCHEDULE OF LOANS PAYABLE Annual Date Maturity Description Principal Interest Rate July 18, 2016 July 18, 2017 Promissory note (1 )* $ 3,500 22 % December 10, 2020 March 1, 2025 Promissory note (2 ) 3,921,168 12 % December 10, 2020 March 1, 2025 Promissory note (3 ) 2,754,338 12 % December 10, 2020 December 10, 2024 Promissory note (4 ) 165,605 12 % December 14, 2020 December 14, 2023 Promissory note (5 )* 310,375 12 % December 30, 2020 March 1, 2025 Promissory note (6 ) 350,000 12 % January 1, 2021 March 1, 2025 Promissory note (7 ) 25,000 12 % January 1, 2021 March 1, 2025 Promissory note (8 ) 145,000 12 % January 14, 2021 March 1, 2025 Promissory note (9 ) 550,000 12 % February 22, 2021 March 1, 2025 Promissory note (10 ) 1,650,000 12 % March 1, 2021 March 1, 2025 Promissory note (11 ) 6,000,000 12 % June 8, 2021 June 8, 2025 Promissory note (12 ) 2,750,000 12 % July 12, 2021 July 26, 2026 Promissory note (13 ) 3,749,360 7 % September 14, 2021 September 14, 2025 Promissory note (14 ) 1,650,000 12 % July 28, 2022 March 1, 2025 Promissory note (15 ) 170,000 15 % August 30, 2022 August 30,2025 Promissory note (16 ) 3,000,000 15 % September 7, 2022 March 1, 2025 Promissory note (17 ) 400,000 15 % September 8, 2022 March 1, 2025 Promissory note (18 ) 475,000 15 % October 13, 2022 March 1, 2025 Promissory note (19 ) 350,000 15 % October 28, 2022 October 31, 2026 Promissory note (20 ) 400,000 15 % November 9, 2022 October 31, 2026 Promissory note (20 ) 400,000 15 % November 10, 2022 October 31, 2026 Promissory note (20 ) 400,000 15 % November 15, 2022 October 31, 2026 Promissory note (20 ) 400,000 15 % January 11, 2023 October 31, 2026 Promissory note (20 ) 400,000 15 % February 6, 2023 October 31, 2026 Promissory note (20 ) 400,000 15 % April 5. 2023 October 31, 2026 Promissory note (20 ) 400,000 15 % April 20, 23 October 31, 2026 Promissory note (20 ) 400,000 15 % May 11, 2023 October 31, 2026 Promissory note (20 ) 400,000 15 % October 27, 2023 October 31, 2026 Promissory note (20 ) 400,000 15 % November 30, 2023 April 30, 2025 Purchase Agreement (21 ) 350,000 35 % March 8, 2024 August 8, 2025 Purchase Agreement (22 ) 350,000 35 % $ 33,119,346 Less: current portion of loans payable ( 17,619,985 ) Less: discount on non-current loans payable ( 538,143 ) Non-current loans payable, net of discount $ 14,961,218 Current portion of loans payable $ 17,619,985 Less: discount on current portion of loans payable ( 65,629 ) Current portion of loans payable, net of discount $ 17,554,356 * In default On March 1, 2024 the Company adjusted the relative fair value unamortized discount on the above notes by $ 4,175,535 with a corresponding adjustment to accumulated deficit to apply ASU 2020-06. (1) This note was transferred from convertible notes payable because in August 2022 it was no longer convertible due to restrictions placed on the lender. - 18 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (2) 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. On November 28, 2023, the parties extended the maturity date from December 10, 2023 to March 1, 2025 with all other terms and conditions remaining the same . (3) 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 $ 0.002 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. $ 300,000 has been repaid during the year ended February 29, 2024. On November 28, 2023, the parties extended the maturity date from December 10, 2023 to March 1, 2025 with all other terms and conditions remaining the same . (4) 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 . The maturity date was extended from December 10, 2023 to December 10, 2024 on February 29, 2024 and a fee of $ 22,958 was paid and charged to interest expense . (5) 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 . (6) 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. On March 1, 2024, the unamortized relative fair value discount of $ 65,092 was removed with a corresponding adjustment to accumulated deficit. A $ 8,399 unamortized discount remained. On November 28, 2023, the parties extended the maturity date from December 10, 2023 to March 1, 2025 with all other terms and conditions remaining the same . For the three months ended May 31, 2024, the Company recorded amortization expense of $ 1,515 , with an unamortized discount of $ 6,884 at May 31, 2024. (7) 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. On November 28, 2023, the parties extended the maturity date from January 1, 2024 to March 1, 2025 with all other terms and conditions remaining the same . (8) 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. On November 28, 2023, the parties extended the maturity date from January 1, 2024 to March 1, 2025 with all other terms and conditions remaining the same . (9) 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. On March 1, 2024, the unamortized relative fair value discount of $ 80,284 was removed with a corresponding adjustment to accumulated deficit. A $ 10,559 unamortized discount remained. On November 28, 2023, the parties extended the maturity date from January 14, 2024 to March 1, 2025 with all other terms and conditions remaining the same . For the three months ended May 31, 2024, the Company recorded amortization expense of $ 1,936 , with an unamortized discount of $ 8,623 at May 31, 2024. - 19 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (10) 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. 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. On March 1, 2024, the unamortized relative fair value discount of $ 497,614 was removed with a corresponding adjustment to accumulated deficit. A $ 55,585 unamortized discount remained. On November 28, 2023, the parties extended the maturity date from February 22, 2024 to March 1, 2025 with all other terms and conditions remaining the same . For the three months ended May 31, 2024, the Company recorded amortization expense of $ 9,484 , with an unamortized discount of $ 46,101 at May 31, 2024. (11) 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.. 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. This note has been fully amortized. This note was again extended to March 1, 2025. (12) 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. 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. On March 1, 2024, the unamortized relative fair value discount of $ 33,547 was removed with a corresponding adjustment to accumulated deficit. A $ 4,121 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 100 , with an unamortized discount of $ 4,021 at May 31, 2024. This note was extended to June 8, 2025. (13) 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 three and nine months ended November 30, 2023 there were repayments of $ 27,000 and $ 81,000 , respectively on the note. (14) 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. On March 1, 2024, the unamortized relative fair value discount of $ 572,549 was removed with a corresponding adjustment to accumulated deficit. A $ 66,846 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 5,627 , with an unamortized discount of $ 61,219 at May 31, 2024. This note was extended to September 14, 2025. (15) 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. On November 29, 2023, the parties extended the maturity date from July 28, 2023 to March 1, 2025 with all other terms and conditions remaining the same. This note has been fully amortized . - 20 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (16) 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. On March 1, 2024, the unamortized relative fair value discount of $ 11,535 was removed with a corresponding adjustment to accumulated deficit. This note has been fully amortized. This note was extended to August 30, 2025. (17) 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. On November 29, 2023, the parties extended the maturity date from September 7, 2023 to March 1, 2025 with all other terms and conditions remaining the same. This note has been fully amortized . (18) 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. On November 29, 2023, the parties extended the maturity date from September 8, 2023 to March 1, 2025 with all other terms and conditions remaining the same. This note has been fully amortized . (19) 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. On November 29, 2023, the parties extended the maturity date from October 13, 2023 to March 1, 2025 with all other terms and conditions remaining the same. This note has been fully amortized . (20) 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 tranche 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 February 29, 2024 the Company has issued all 10 tranches totaling $ 4,000,000 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 . On March 1, 2024, the unamortized relative fair value discount of $ 286,775 was removed with a corresponding adjustment to accumulated deficit. A $ 47,892 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 610 , with an unamortized discount of $ 47,282 at May 31, 2024. November 9, 2022, $ 400,000 loan, original issue discount of $ 50,000 , 61 Series F Preferred Share warrants having a relative fair value of $ 299,750 . On March 1, 2024, the unamortized relative fair value discount of $ 288,513 was removed with a corresponding adjustment to accumulated deficit. A $ 48,126 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 803 , with an unamortized discount of $ 47,323 at May 31, 2024. November 10, 2022, $ 400,000 loan, original issue discount of $ 50,000 , 61 Series F Preferred Share warrants having a relative fair value of $ 302,020 . On March 1, 2024, the unamortized relative fair value discount of $ 291,694 was removed with a corresponding adjustment to accumulated deficit. A $ 48,290 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 791 , with an unamortized discount of $ 47,499 at May 31, 2024. November 15, 2022, $ 400,000 loan, original issue discount of $ 50,000 , 61 Series F Preferred Share warrants having a relative fair value of $ 299,959 . On March 1, 2024, the unamortized relative fair value discount of $ 287,814 was removed with a corresponding adjustment to accumulated deficit. A $ 47,976 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 814 , with an unamortized discount of $ 47,162 at May 31, 2024. January 11, 2023, $ 400,000 loan, original issue discount of $ 50,000 , 61 Series F Preferred Share warrants having a relative fair value of $ 299,959 . On March 1, 2024, the unamortized relative fair value discount of $ 286,813 was removed with a corresponding adjustment to accumulated deficit. A $ 48,124 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 830 , with an unamortized discount of $ 47,294 at May 31, 2024. February 6, 2023, $ 400,000 loan, original issue discount of $ 50,000 , 61 Series F Preferred Share warrants having a relative fair value of $ 299,959 . On March 1, 2024, the unamortized relative fair value discount of $ 288,342 was removed with a corresponding adjustment to accumulated deficit. A $ 48,294 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 806 , with an unamortized discount of $ 47,488 at May 31, 2024. - 21 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (20) April 5, 2023, $ 400,000 loan, original issue discount of $ 50,000 , 61 Series F Preferred Share warrants having a relative fair value of $ 296,245 . On March 1, 2024, the unamortized relative fair value discount of $ 286,821 was removed with a corresponding adjustment to accumulated deficit. A $ 48,409 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 830 , with an unamortized discount of $ 47,579 at May 31, 2024. April 20, 2023, $ 400,000 loan, original issue discount of $ 50,000 , 61 Series F Preferred Share warrants having a relative fair value of $ 302,219 . On March 1, 2024, the unamortized relative fair value discount of $ 294,824 was removed with a corresponding adjustment to accumulated deficit. A $ 48,777 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 702 , with an unamortized discount of $ 48,075 at May 31, 2024. May 11, 2023, $ 400,000 loan, original issue discount of $ 50,000 , 61 Series F Preferred Share warrants having a relative fair value of $ 348,983 . On March 1, 2024, the unamortized relative fair value discount of $ 348,831 was removed with a corresponding adjustment to accumulated deficit. A $ 49,978 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 81 , with an unamortized discount of $ 49,897 at May 31, 2024. October 27 2023, $ 400,000 loan, original issue discount of $ 50,000 , 61 Series F Preferred Share warrants having a relative fair value of $ 261,759 . On March 1, 2024, the unamortized relative fair value discount of $ 254,487 was removed with a corresponding adjustment to accumulated deficit. A $ 48,611 unamortized discount remained. For the three months ended May 31, 2024, the Company recorded amortization expense of $ 1,287 , with an unamortized discount of $ 47,324 at May 31, 2024. (21) On November 30, 2023 , the Company entered into an agreement where the lender will buy pay the Company $ 350,000 in exchange for thirteen future monthly payments of $36,750 commencing on April 30,2024 through to April 30, 2025 totaling $ 477,750 . The effective interest rate is 35 % per annum. Secured by a general security charging all of RAD’s present and after-acquired property. Default rate of 15 % per annum calculated daily on any missed monthly payment. The Company has missed the April and May 2024 payments and is in discussions with lender to remedy this. No notices have been sent. (22 ) On March 8, 2024 , the Company entered into another agreement where the lender will buy pay the Company $ 350,000 in exchange for thirteen future monthly payments of $36,750 commencing on August 8, 2024 through to August 80, 2025 totaling $ 477,750 . The effective interest rate is 35 % per annum. Secured by a general security charging all of RAD’s present and after- acquired property. Default rate of 15 % per annum calculated daily on any missed monthly payment - 22 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 12. STOCKHOLDERS’ EQUITY (DEFICIT) Summary or Preferred Stock Activity Series B Convertible, Redeemable Preferred Stock (Temporary Equity) On April 27, 2024, in connection with a Share Purchase Agreement the Company created a new class Of Series B Convertible Redeemable Preferred Shares with 5,000 authorized shares. The Company received gross proceeds of $ 300,000 with net proceeds of $ 278,000 less $ 10,000 in legal fees and 12,000 in broker fees both charged against paid in capital. In addition, as a commitment fee the Company issued an additional 20 Series B Convertible Redeemable Preferred Shares, with a fair value of $ 24,000 charged to paid in capital. The shares have a redemption value of $ 1,200 per share. The Company must redeem one third of these shares in 30, days and each 30 days thereafter until all the shares are redeemed at 90 days. The Company must also pay an 8 % dividend from issue date to redemption date. On May 30, the Company issued a dividend of 2.14 shares Series B Convertible Redeemable Preferred Shares having a value of $ 2,568 and redeemed 107.38 Series B shares for $ 128,856 including a deemed dividend of $ 28,856 which represents the redemption value over the purchase cost of the shares. At May 31, 2024 there remains 215 Series B Convertible Redeemable Preferred Shares having a value of $ $ 257,712 in Temporary Equity. Summary of Preferred Stock Warrant Activity SUMMARY OF PREFERRED STOCK WARRANT ACTIVITY Number of Series F Preferred Warrants Weighted Average Exercise Price Weighted Average Remaining Years Outstanding at March 1, 2024 939 $ 1.00 9.50 Issued — — — Exercised — — — Forfeited and cancelled — — — Outstanding at May 31, 2024 939 $ 1.00 9.40 Summary of Common Stock Activity For the three months ended May 31, 2024, the Company issued 1,080,166,425 common shares with gross proceeds of 2,789,639 and net proceeds of $ 2,682,593 after issuance costs of $ 116,046 . Summary of Common Stock Warrant Activity For the three months ended May 31, 2024 and May 31, 2023, the Company recorded a total of $ 47,462 and $ 0 respectively, to stock-based compensation for options and warrants with a corresponding adjustment to additional paid-in capital. SUMMARY OF COMMON STOCK WARRANT ACTIVITY Number of Warrants Weighted Average Exercise Price Weighted Average Remaining Years Outstanding at March 1, 2024 300,595,661 $ 0.003 1.00 Issued — — — Exercised — — — Forfeited and cancelled — — — Outstanding at May 31, 2024 300,595,661 $ 0.003 0.75 - 23 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Summary of Common Stock Option Activity -Employee Stock Options SUMMARY OF COMMON STOCK OPTION ACTIVITY Number of Options Weighted Average Exercise Price Weighted Average Remaining Years Outstanding at March 1, 2024 188,667,035 $ 0.02 4.10 Issued — — — Exercised — — — Forfeited, extinguished and cancelled ( 3,011,029 ) $ 0.02 ( 4.60 ) Outstanding at May 31, 2024 185,656,006 $ 0.02 4.00 13. 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 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 September 30, 2024 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 . This lease expired on January 31, 2024 and was not renewed. On February 5, 2024, the Company entered into a 3-year lease agreement for a vehicle commencing February 5, 2024 through to February 5, 2027 with a minimum base rent of $ 1,223 per month. The Company paid a down payment of $ 9,357 . 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 $ 62,013 and $ 62,542 for the three months ended May 31, 2024 and May 31, 2023, respectively. SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES Maturity of Lease Liabilities Operating Leases May 31, 2025 $ 231,141 2025 $ 231,141 May 31, 2026 225,348 2026 225,348 May 31, 2027 219,418 2027 219,418 May 31, 2028 207,557 2028 207,557 May 31, 2029 207,558 2029 207,558 May 31, 2030 and after 397,820 2030 and after 397,820 Total lease payments 1,488,842 Less: Interest ( 393,254 ) Present value of lease liabilities $ 1,095,588 - 24 - Table of Contents ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 14. EARNINGS (LOSS) PER SHARE The net income (loss) per common share amounts were determined as follows: SCHEDULE OF NET INCOME (LOSS) PER COMMON SHARE May 31, 2024 May 31, 2023 For the Three Months Ended May 31, 2024 May 31, 2023 Numerator: Net income (loss) available to common shareholders $ ( 4,194,359 ) $ ( 4,555,193 ) Effect of common stock equivalents Add: interest expense on convertible debt — — Net income (loss) adjusted for common stock equivalents ( 4,194,359 ) ( 4,555,193 ) Denominator: Weighted average shares – basic 9,882,118,105 5,964,709,322 Net income (loss) per share – basic $ ( 0.00 ) $ ( 0.00 ) Denominator: Weighted average shares – diluted 9,882,118,105 5,964,709,322 Net income (loss) per share – diluted $ ( 0.00 ) $ ( 0.00 ) The anti-dilutive shares of common stock equivalents for the three months ended May 31, 2024 and 2023 were as follows: SCHEDULE OF ANTI-DILUTIVE SHARES OF COMMON STOCK EQUIVALENTS May 31, 2024 May 31, 2023 * For the Three Months Ended May 31, 2024 May 31, 2023* Convertible Series F Preferred Shares 35,600,264,971 — Convertible Redeemable Series B Preferred Shares 59,933,023 — Stock options and warrants 486,251,667 396,917,451 Total 36,146,449,661 396,917,451 * 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 November 30, 2023 and 2022 the dilutive effects would be as follows: May 31, 2024 May 31, 2023 For the Three Months Ended May 31, 2024 May 31, 2023 Convertible Series F Preferred Shares — 21,147,364,222 Anti-dilutive shares of common stock — 21,147,364,222 15. SUBSEQUENT EVENTS During June and July 2024, the Company issued 838,844,221 common shares pursuant to a share purchase agreement for gross proceeds of $ 3,261,225 , issuance costs of $ 130,449 and net proceeds of $ 3,127,701 . In June 2024, the Company issued an 8 % dividend Series B Convertible Redeemable Preferred Shares of 1.39 shares having a value $ 1,668 and redeemed 108.08 shares for $ 129,670 which includes a dividend of $ 29,670 . - 25 - Table of Contents ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements The following discussion of our financial condition and results of operations for the three months ended May 31, 2024 and May 31, 2023 should be read in conjunction with our unaudited consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors appearing in our Annual Report on Form 10-K/A for the year ended February 29, 2024, as filed on May 29, 2024 with the SEC. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. Unless expressly indicated or the context requires otherwise, the terms “AITX”, the “Company”, “we”, “us”, and “our” refer to Artificial Intelligence Technology Solutions Inc. Overview AITX was incorporated in Florida on March 25, 2010. AITX reincorporated into Nevada on February 17, 2015. AITX’s fiscal year end is February 28 (February 29 during leap year). AITX is located at 10800 Galaxie Ave., Ferndale Michigan, 48220, and our telephone number is 877-767-6268. AITX’s mission is to apply Artificial Intelligence (AI) technology to solve enterprise problems categorized as expensive, repetitive, difficult to staff, and outside of the core competencies of the client organization. A short list of basic examples include: 1. Typical security guard-related functions such as monitoring a parking lot during and after hours and responding appropriately. This scenario applies to perimeters, interior yard areas, and related similar environments. 2. Integrated hardware/software with AI-driven responses, simulating and expanding on what legacy or manned solutions could perform. 3. Automation of common access control functions through technology utilizing facial recognition and machine vision, leapfrogging most legacy solutions in use today. RAD solutions are unique because they: 1. Start with an AI-driven autonomous response utilizing cellular-optimized communications, while easily connecting to a human operator for a manned response, as needed. 2. Use unique hardware purpose-built by RAD for delivery of these solutions. Various form factors have been customized to deliver this new functionality. 3. Deliver services through RAD-developed software and cloud services, allowing enterprise IT groups to focus on core competencies instead of maintenance of complex video and security platforms. We encourage everyone to ensure they have the most up to date news by visiting AITX at AITX News - AITX - Artificial Intelligence Technology Solutions. - 26 - Table of Contents Management Discussion and Analysis Results of Operations for the Three Months Ended May 31, 2024 and 2023 The following table shows our results of operations for the three months ended May 31, 2024 and 2023. The historical results presented below are not necessarily indicative of the results that may be expected for any future period. Period Three Months Ended Three Months Ended Change May 31, 2024 May 31, 2023 Dollars Percentage Revenues $ 1,182,800 $ 385,208 $ 797,592 207 % Gross profit 887,207 373,866 513,341 137 % Operating expenses 3,720,463 3,322,843 397,620 12 % Loss from operations (2,833,256 ) (2,948,977 ) 115,721 4 % Other income (expense), net (1,361,103 ) (1,606,216 ) (245,113 ) 15 % Net loss $ (4,194,359 ) $ (4,555,193 ) $ (360,834 ) (8 %) Revenue The following table presents revenues from contracts with customers disaggregated by product/service: Three Months Ended Three Months Ended Change May 31, 2024 May 31, 2023 Dollars Percentage Device rental activities $ 980,536 $ 238,149 $ 742,387 312 % Direct sales of goods and services 202,264 147,059 55,205 38 % $ 1,182,800 $ 385,208 $ 797,592 207 % Total revenue for the three-month period ended May 31, 2024 was $1,182,800 which represented an increase of $797,592 compared to total revenue of $385,208 for the three months ended May 31, 2023. Rental activities increased by $742,387 or 312%, as the Company continues to grow its product line and customer base. Direct sales grew by 38% driven by higher training revenue for the three months ended May 31, 2024. Gross profit Total gross profit for the three-month period ended May 31, 2024 was $887,207 which represented an increase of $513,341 compared to gross profit of $373,866 for the three months ended May 31, 2023. The increase is consistent with the increase in revenues as well as changes in product mix. And inventory adjustments. The gross profit % of 75% for the three-month period ended May 31, 2024 compares with the gross profit % of 97% for the three month period ended May 31, 2023. The prior period gross margin % is higher due to inventory adjustments. Operating Expenses Period Change Three Months Ended May 31, 2024 Three Months Ended May 31, 2023 Dollars Percentage Research and development $ 640,710 $ 891,757 $ (251,047 ) (28 )% General and administrative 2,720,191 2,200,602 519,589 24 % Depreciation and amortization 297,549 167,942 129,607 77 % Operating lease cost and rent 62,013 62,542 (529 ) (1 )% Operating expenses $ 3,720,463 $ 3,322,843 $ 397,620 12 % - 27 - Table of Contents Our operating expenses were comprised of general and administrative expenses, research and development, and depreciation. General and administrative expenses consisted primarily of professional services, automobile expenses, advertising, salaries and wages, travel expenses and consultants. Our operating expenses during the three-month period ended May 31, 2024 and May 31, 2023, were $3,720,463 and $3,322,463, respectively. The overall increase of $397,620 was primarily attributable to the following changes in operating expenses of: ● General and administrative expenses increased by $519,589. In comparing the three months ended May 31, 2024 and May 31, 2023 this increase was primarily due to the following increases: wages and salaries by $129,516, freight and duties by $125,886, installation $30,754, RMC costs by $72,603, commissions by $63,883, travel by $12,646, professional fees by $70,954, subcontractors by $47,924, insurance by $13,585 and other G& A increases. ● Research and development decreased by $251,047 due to a reduction in funding on development of future products. ● Depreciation and amortization increased by $129,607 due to large increases in revenue earning devices, demo devices, as well as some fixed assets. ● Operating lease cost and rent decreased by $529. Other Income (Expense) Other income (expense) during the three months ended May 31, 2024 and May 31, 2023, was ($1,361,103) and ($1,606,216), respectively. The $245,113 decrease in other expense was primarily attributable to the amortization of debt discount decreasing because of the elimination of the unamortized relative fair value discount in the current quarter as a result of our implementation of ASU 2020-06. Net loss We had a net loss of $4,194,359 for the three months ended May 31, 2024, compared to a net loss of $4,555,193 for the three months ended May 31, 2023. The decrease in net loss of $360,834 is due to a number of factors: higher gross profit is reduced by higher general and administrative and depreciation in the three months ended May 31, 2024. - 28 - Table of Contents Liquidity, Capital Resources and Cash Flows Management believes that we will continue to incur losses for the immediate future. Therefore, we will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include and adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. As of May 31, 2024, we had a cash balance of $193,103, accounts receivable(net) of $616,464, device parts inventory(net) of $1,830,467 and $28,749,738 in current liabilities. At the current cash consumption rate, we will need to consider additional funding sources going forward. We are taking proactive measures to reduce operating expenses and drive growth in revenue. The successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operating results. Capital Resources The following table summarizes total current assets, liabilities and working capital (deficit) for the periods indicated: May 31, 2024 February 29, 2024 Current assets $ 3,094,192 $ 3,616,566 Current liabilities 28,749,738 21,715,651 Working capital $ (25,655,546 ) $ (18,099,085 ) As of May 31, 2024 and February 29, 2024, we had a cash balance of $193,103 and $105,926, respectively. Summary of Cash Flows Three Months Ended May 31, 2024 Three Months Ended May 31, 2023 Net cash used in operating activities $ (3,045,831 ) $ (2,991,003 ) Net cash used in investing activities $ (21,728 ) $ (3,463 ) Net cash (used in) provided by financing activities $ 3,154,736 $ 2,341,909 Net cash used in operating activities. Net cash used in operating activities for the three months ended May 31, 2024 was $3,045,831 which included a net loss of $4,194,359, non-cash activity such as inventory provision $210,000 ,bad debts expense of $13,000, reduction of right of use asset of $31,425, accretion of lease liability $31,065, stock based compensation of $83,323, change in operating assets and liabilities of $436,966, amortization of debt discount of $27,625, increase in related party accrued payroll and interest of $17,575 and depreciation and amortization of $297,549 to derive the uses of cash in operations. Net cash used in investing activities. Net cash used in investing activities for the three months ended May 31, 2024 was $21,728 which was the purchase of fixed assets of $19,132 and an acquisition of trademark of $2,596. Net cash provided by financing activities. Net cash provided by financing activities for the three months ended May 31, 2024 was $3,154,736. This consisted of share proceeds net of issuance costs of 2,682,592, proceeds from loans payable of $350,000, reduced by repayments on loans payable of $27,000. We also had proceeds on issuance of Series B Convertible Redeemable Preferred Shares of $278,000 reduced by a redemption on those shares of $128,856. Off-Balance Sheet Arrangements None. - 29 - Table of Contents Critical Accounting Policies and Estimates Critical accounting policies and estimates are further discussed in our Annual Report on Form 10-K for the year ended February 28, 2023, as filed on June 14, 2023. Related Party Transactions For both the three months ended May 31, 2024 and May 31, 2023 , the Company had no repayments of net advances from its loan payable-related party. At May 31, 2024, the loan payable-related party was $275,013 and $257,438 at February 29, 2024. Included in the balance due to the related party at May 31, 2024 is $198,481 of deferred salary and interest, $152,513 of which bears interest at 12%. As of February 29, 2024, included in the balance due to the related party is $140,013 of deferred salary all of which bears interest at 12%. The accrued interest included in loan at May 31, 2024 and February 29, 2024 was $36,974 and $32,468, respectively. Pursuant to the amended Employment Agreement with its Chief Executive Officer, for the three months ended May 31, 2024 the Company accrued $0 (three months ended May 31 2023-$63,000) of incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional awards being met. This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at $1,000 per share. At May 31, 2024 and February 29, 2024 there was $2,500,000 and $2,500,000 of incentive compensation payable. During the three months ended May 31, 2024 and 2023, the Company was charged $631,584 and $882,015, respectively for fees for research and development from a company partially owned by a principal shareholder. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable for a smaller reporting company. ITEM 4. CONTROLS AND PROCEDURES Management’s Report on Internal Control over Financial Reporting We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of May 31, 2024. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of May 31, 2024, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. 1. As of May 31, 2024, we did not maintain effective controls over our control environment. Specifically, we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. 2. As of May 31, 2024, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness. Our management, including our principal executive officer and principal financial officer, do 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. - 30 - Table of Contents PART II — OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 1A. RISK FACTORS This item is not applicable to smaller reporting companies. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Each issuance of securities was issued without registration in reliance of the exemption from registration Section 3(a)9 of the Securities Act of 1933. ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company has not defaulted upon senior securities. ITEM 4. MINE SAFETY DISCLOSURES Not applicable to the Company. ITEM 5. OTHER INFORMATION None. - 31 - Table of Contents ITEM 6. EXHIBITS Exhibit No. Description of Document 3.1 Articles of Incorporation (1) 3.2 Bylaws (2) 14 Code of Ethics (2) 21 Subsidiaries of the Registrant (3) 31.1 Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer. (3) 31.2 Rule 13(a)-14(a)/15(d)-14(a) Certification of principal financial and accounting officer. (3) 32.1 Section 1350 Certification of principal executive officer. (3) 32.2 Section 1350 Certification of principal financial accounting officer. (3) 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. (3) 101.SCH Inline XBRL Taxonomy Extension Schema Document (3) 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (3) 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document (3) 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document (3) 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (3) 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) (3) (1) Incorporated by reference to our Form 10-KT file with the Securities and Exchange Commission on March 12, 2018. (2) Incorporated by reference to our Form S-1 filed with the Securities and Exchange Commission on August 4, 2010. (3) Filed or furnished herewith. - 32 - Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Artificial Intelligence Technology Solutions Inc. Date: July 15, 2024 BY: /s/ Steven Reinharz Steven Reinharz President, Chief Executive Officer (principal executive officer) Date: July 15, 2024 BY: /s/ Anthony Brenz Anthony Brenz Chief Financial Officer (principal financial officer) - 33 -