ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended May 31, 2021			Three Months Ended May 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(35,904,918	)	$	1,975,276
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		37,643			28,116
Revenue earning device sold and expensed in cost of sales		3,411			—
Reduction of right of use asset		15,822			—
Accretion of lease liability		13,052			—
Stock based compensation		69,350			—
Change in fair value of derivative liabilities		(179,439	)		(2,843,491	)
Amortization of debt discounts		317,269			72,029
(Gain) loss on settlement of debt		32,984,361			—
Increase in related party accrued payroll and interest		80,760			70,164
Changes in operating assets and liabilities:
Accounts receivable		(466,887	)		(14,664	)
Deposits on inventory		(80,000	)		—
Device parts inventory		(253,762	)		—
Accounts payable and accrued expenses		(225,006	)		(16,387	)
Accrued expense, related party		20,998			(1,030	)
Operating lease liability payments		(28,874	)		—
Balance owed WeSecure		(122,000	)		—
Current portion of deferred variable payment obligations for payments		131,428			10,993
Accrued interest payable		546,016			447,162
Net cash used in operating activities		(3,040,776	)		(271,832	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(15,362	)		(4,638	)
Cash paid for security deposit		(15,880	)		—
Net cash used in investing activities		(31,242	)		(4,638	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of convertible debt		(65,000	)		—
Proceeds from deferred variable payment obligation		—			166,000
Proceeds from loans payable		5,426,146			153,243
Repayment of loans payable		(264,189	)		(24,525	)
Net borrowings(repayments) on loan payable - related party		(121,147	)		(21,726	)
Net cash provided by financing activities		4,975,810			272,992

Net change in cash		1,903,792			(3,478	)

Cash, beginning of period		1,044,418			13,307

Cash, end of period	$	2,948,210		$	9,829

Supplemental disclosure of cash and non-cash transactions:
Cash paid for interest	$	114,710		$	—
Cash paid for income taxes	$	—		$	—

Noncash investing and financing activities:
Right of use asset for operating lease liability	$	1,275,970		$	—
Transfer from device parts inventory to fixed assets	$	70,162		$	—
Conversion of convertible notes and interest to shares of common stock	$	—		$	159,657
Release of derivative liability on conversion of convertible notes payable	$	—		$	167,497
Exchange of notes payable for Series F preferred shares	$	6,732,835		$	—
Discount applied to face value of loans	$	6,162,945		$	—
Warrants issued as part of debt issuance	$	4,749,006		$	—
Series F preferred shares converted to common shares	$	3,086		$	—
Series F preferred shares issued on exercise of warrants	$	38		$	—

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

- 6 -

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 an LLC. On July 25, 2017, Robotic Assistance Devices LLC converted to a C Corporation, Robotic Assistance Devices, Inc., through the issuance of 10,000 common shares to its sole shareholder.

On August 28, 2017, AITX completed the acquisition of RAD (the “Acquisition”), whereby AITX acquired all the ownership and equity interest in RAD for 3,350,000 shares of AITX Series E Preferred Stock and 2,450 shares of Series F Convertible Preferred Stock. AITX’s prior business focus was transportation services, and AITX was exploring the on-demand logistics market by developing a network of logistics partnerships. As a result of the closing of the Acquisition, AITX has succeeded to the business of RAD. As a result, AITX’s business going forward will consist of one segment activity which is the delivery of artificial intelligence and robotic solutions for operational, security and monitoring needs.

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

2. GOING CONCERN

The accompanying 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, 2021, the Company had negative cash flow from operating activities of $3,040,776. As of May 31, 2021, the Company has an accumulated deficit of $67,426,672, and negative working capital of $7,049,695. Management does not anticipate having positive cash flow from operations in the near future. These factors raise a substantial doubt about the Company’s ability to continue as a going concern for the twelve months following the issuance of these financial statements.

The Company does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.

Management has plans to address the Company’s financial situation as follows:

In the near term, management plans to raise an additional $ 15 million to $ 50 million before the end of the fiscal year. Management is committed to raise either non-dilutive funds or minimally dilutive funds. There is no assurance that these funds will be able to be raised nor can we provide assurance that these possible raises may not have dilutive effects.

The Company currently projects that 2022 fiscal year’s revenues will be between 5 and 15 times greater than the 2021 fiscal year’s revenues. This projection is based on the following factors: 1. an anticipated significant increase in the orders; 2. an expected significant improvement in the Company’s ability to make timely deliveries; and 3. an anticipated significant improvement in the Company’s ability to support many more devices than this it could support during the 2021’s fiscal year. However, there can be no assurance that the revenues will increase to the extent projected or that the anticipated improvements will actually occur.

This expansion plan will require the Company to expend significant resources, including the hiring of additional staffing, which the Company expects to finish the next fiscal year with between 75 – 125 employees.

- 7 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

3. ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and in conformity with the condensing instructions on Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto in the Company’s latest Annual Report filed with the SEC on Form 10-K as filed on June 1, 2021. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Robotic Assistance Devices, Inc., On the Move Experience, LLC and OMV Transports, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation. 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, 2021 are not necessarily indicative of the results that may be expected for the entire year.

Use of Estimates

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

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 $24,868 provided as of May 31, 2021 and February 28, 2021.

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 both May 31, 2021 and February 28, 2021 there was no valuation reserve.

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.

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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Fixed Assets

Fixed assets are stated at cost. Depreciation is provided on the straight-line method based on the estimated useful lives of the respective assets which range from three to five years. Major repairs or improvements are capitalized. Minor replacements and maintenance and repairs which do not improve or extend asset lives are expensed currently.


Computer equipment		3 years
Office equipment		4 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, 2021 and February 28, 2021, 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 7, in which it has received funding from investors in exchange for which it will make payments to those investors based on the level of sales of certain revenue categories, generally based on a percentage of sales for those certain revenues. The Company determines whether these agreements constitute sales of future revenues or are in substance debt based on the facts and circumstances of each agreement, with the following primary criteria determinative of whether the agreement constitutes a sale of future revenues or debt:


	●	Does the agreement purport, in substance, to be a sale
	●	Does the Company have continuing involvement in the generation of cash flows due the investor
	●	Is the transaction cancellable by either party through payment of a lump sum or other transfer of assets
	●	Is the investors rate of return 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.

- 9 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

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.

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.

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.

- 10 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Distinguishing Liabilities from Equity

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

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

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

Initial Measurement

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

Subsequent Measurement – Financial Instruments Classified as Liabilities

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

Fair Value of Financial Instruments

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

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

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


	●	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.

- 11 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Measured on a Recurring Basis

The following table presents information about our liabilities measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fell:


	Amount at		Fair Value Measurement Using
	Fair Value		Level 1		Level 2		Level 3
May 31, 2021
Liabilities
Derivative liability – conversion features pursuant to convertible notes payable	$	215,237	$	—	$	—	$	215,237

February 28, 2021
Liabilities
Derivative liability – conversion features pursuant to convertible notes payable	$	444,466	$	—	$	—	$	444,466

See Note 12 for specific inputs used in the multinomial lattice model used in determining fair value.

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

Earnings (Loss) per Share

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

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

Recently Issued Accounting Pronouncements

Accounting for Income Taxes

In December 2019, the FASB issued a new standard to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard will be effective for us beginning July 1, 2021, with early adoption permitted. The Company does not expect any material impact of this standard in our consolidated financial statements, including accounting policies, processes, and systems.

- 12 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Recently Adopted Accounting Pronouncements

In September 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. ASU 2016-13 was issued to provide more decision-useful information about the expected credit losses on financial instruments and changes the loss impairment methodology. ASU 2016-13 is effective for reporting periods beginning after December 15, 2019 using a modified retrospective adoption method. A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The Company is currently assessing the impact this accounting standard will have on its financial statements and related disclosures. The Company adopted this on March 1, 2020.

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:


	Three Months Ended May 31, 2021		Three Months Ended May 31, 2020
Device rental activities	$	125,992	$	60,321
Direct sales of goods and services*		434,342		3,000
	$	560,334	$	63,321

5. REVENUE EARNING DEVICES

Revenue earning devices consisted of the following:


	May 31, 2021			February 28, 2021
Revenue earning devices	$	566,924		$	500,173
Less: Accumulated depreciation		(259,464	)		(226,459	)
	$	307,460		$	273,714

During the three months ended May 31, 2021 the Company made total additions to revenue earning devices of $70,162 which were transfers from inventory During the three months ended May 31, 2021, the Company made total additions to revenue earning devices of $0.

During the three months ended May 31, 2021 the Company sold a revenue earning device having a net book value of $3,411 for revenues of $30,600 and included the $3,411 in cost of goods sold.

Depreciation expense was $33,005 and $22,641 for the three months ended May 31, 2021, and 2020 respectively.

- 13 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

6. FIXED ASSETS

Fixed assets consisted of the following:


	May 31, 2021			February 28, 2021
Automobile	$	70,896		$	70,896
Demo devices		3,670			3,670
Computer equipment		36,742			23,399
Office equipment		6,162			4,142
		117,470			102,107
Less: Accumulated depreciation		(71,751	)		(67,113	)
	$	45,719		$	34,994

During the three months ended May 31, 2021 and May 31, 2020 the Company made additions of $15,362 and $4,638, respectively.

Depreciation expense was $4,638 and $5,474 for the three months ended May 31, 2021, and 2020 respectively.

7. DEFERRED VARIABLE PAYMENT OBLIGATION

On February 1, 2019 the Company entered into an agreement with an investor whereby the investor would pay up to $900,000 (including $192,500 paid in January and February 2019) in exchange for a perpetual 9% rate payment (Payments) on the Company’s reported quarterly revenue from operations excluding any gains or losses from financial instruments (Revenues). If the total investor advances turns out to be less than $900,000, this would not constitute a breach of the agreement, rather the 9% rate would be adjusted on a pro-rata basis. The investor has agreed to pay the remaining balance in minimum $60,000 monthly installments, concluding November 30, 2019. At February 29, 2020 the investor has advanced the full $900,000.

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


	(1)	The investor would pay up to $400,000 in exchange for a perpetual 4% rate Payment on the Company’s reported quarterly Revenues. If the total investor advances turns out to be less than $400,000, this would not constitute a breach of the agreement, rather the 4% rate would be adjusted on a pro-rata basis. The investor has agreed to pay the remaining balance in four monthly installments of $64,111 starting July 1, 2019. At February 29, 2020, $400,000 has been paid to the Company.

	(2)	The investor would pay up to $50,000 in exchange for a perpetual 1.11% rate Payment on the Company’s reported quarterly Revenues. If the total investor advances turns out to be less than $50,000, this would not constitute a breach of the agreement, rather the 1.11% rate would be adjusted on a pro-rata basis. The investor has agreed to pay the remaining balance in four monthly installments of $8,014 starting July 1, 2019. At February 29, 2020, $50,000 has been paid to the Company.

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

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

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.

- 14 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

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

On August 27, 2020 the Company and the first investor referred to above consolidated the three separate agreements of February 1, 2019 for $900,000, November 18, 2019 for $225,000 and July 1, 2020 for $800,000 into a new agreement for a total of $1,925,000. This new agreement is for similar terms as the above agreements save for the following: the rate payment is revised to 14.25% payable on revenues commencing the quarter ended August 31, 2020 and the Payments are secured by the assets of the Company. This interest may be secured by UCC filing but is subordinated to equipment financing on the products the Company leases to its customers.

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%.

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 May31, 2021 the warrant holder exercised warrants to acquire 38 shares of Series F Convertible Preferred Stock. The company attributed a fair value based on recent transactions for the Series F Preferred stock and warrants of $33,015,214 and recorded a loss on settlement of debt with a corresponding adjustment to paid in capital.

The Company retains total involvement in the generation of cash flows from these revenue streams that form the basis of the payments to be made to the investors under this agreement. Because of this, the Company has determined that the agreements constitute debt agreements. As of May 31, 2021, the Company has not yet completed its assessment of the likely cash flows under these agreements, and thus, has not yet determined the effective interest rate under these agreements. The Company expects to have completed its analysis of the expected cash flows prior to the filing of the year end February 28, 2022 filing. As of May 31, 2021, and February 28, 2021, the balances under these agreements were $2,525,000 and $2,525,000, respectively.

For the three months ended May 31, 2021, the Company has received $0 related to the deferred payment obligation as the balance remains $2,525,000 at May 31, 2021. For the year ended February 28, 2021, $966,000 has been paid to the Company bringing the balance to $2,525,000 at February 28, 2021.

- 15 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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, 2021, the Company has accrued $223,015 in Payments (February 28, 2021 -$91,857). No amounts have been recorded to date as interest, as the amounts are immaterial.

8. CONVERTIBLE NOTES PAYABLE

Convertible notes payable consisted of the following:


					Balance			Balance
		Interest	Conversion		May 31,			February 28,
Issued	Maturity	Rate	Rate per Share		2021			2021
July 18, 2016	July 18, 2017*	10%	$0.003	⁽²⁾		3,500			3,500
December 31, 2016	December 31, 2020	8%	35% discount	⁽¹⁾		—			65,000
January 19, 2021	January 19, 2022	12%	$0.04			275,000			275,000
January 27,2021	January 27, 2022	10%	$0.10	⁽³⁾		550,000			550,000
						828,500			893,500

Less: current portion of convertible notes payable						(828,500	)		(893,500	)
Less: discount on noncurrent convertible notes payable						—			—
Noncurrent convertible notes payable, net of discount					$	—		$	—

Current portion of convertible notes payable					$	828,500		$	893,500
Less: discount on current portion of convertible notes payable						(616,145	)		(697,276	)
Current portion of convertible notes payable, net of discount					$	212,355		$	196,224

__________


*	The indicated note was in default as of May 31, 2021. Default interest rate 22%

(1)	The notes are convertible at a discount (as indicated) to the average market price and are accounted for and evaluated under ASC 480 as discussed in Note 3.

(2)	The conversion price is not subject to adjustment from forward or reverse stock splits.

(3)	The per share conversion price into which Principal Amount and interest (including any Default Interest) under this Note shall be convertible into shares of Common Stock hereunder (the “Conversion Price”) shall be equal to $0.10 per share (the “Fixed Conversion Price”); provided, however, that if, the lowest traded price on the date six (6) months from the issue date hereof is below the Fixed Conversion Price, and no default exists, the conversion shall be $0.05 (the “Alternative Fixed Conversion Price”) provided, further, that upon any Event of Default (as defined herein) after the Issue Date, the Conversion Price shall equal the lower of (i) $0.03 (the “Default Fixed Conversion Price”); or (ii) seventy percent (70%) multiplied by the lowest closing price of the Common Stock during the fifteen (15) consecutive Trading Day period immediately preceding the date of the respective event of default (the “Default Conversion Price”);

During both the three months ended May 31, 2021 and 2020, the Company incurred original issue discounts of $0, and debt discounts from derivative liabilities of $0 related to new convertible notes payable. During the three months ended May 31, 2021 and 2020, the Company recognized interest expense related to the amortization of debt discount of $81,131 and $72,029, respectively.

All the notes above are unsecured. As of May 31, 2021 and February 28, 2021, the Company had total accrued interest payable of $60,872 and $49,764, respectively, all of which is classified as current.

During the three months ended May 31, 2021, the Company also had the following convertible note activity:


●	The company settled convertible notes of $65,000 and accrued interest $22,525 for a cash payment of $93,984. A loss on settlement of debt of $6,459 was recorded.

- 16 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

9. RELATED PARTY TRANSACTIONS

For the three months ended May 31, 2021, the Company repaid net advances of $121,147 from its loan payable-related party. For the three months ended May 31, 2020 the Company repaid net advances of $21,726. At May 31, 2021, the loan payable-related party was $885,417 and $904,806 at February 28, 2021. Included in the balance due to the related party at May 31, 2021 is $843,323 of deferred salary and interest, $702,000 of which bears interest at 12%. At February 28, 2021, included in the balance due to the related party is $883,710 of deferred salary and interest, $642,000 of which bears interest at 12%. The accrued interest included in loan at May 31, 2021 and May 31, 2020 was $138,858 and $50,730, respectively.

During the three months ended May 31, 2021 and 2020, the Company was charged $478,951 and $50,695, respectively for consulting fees for research and development to a company partially owned by a principal shareholder during the three months ended May 31, 2021 and another company fully owned by a principal shareholder during the three months ended May 31, 2020.

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, 2021 and February 29, 2020. 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, 2021 and February 29, 2020. The remaining total balances of the amounts owed on the vehicle loans were $38,522 and $38,522 as of May 31, 2021 and February 28, 2021, respectively, of which all were classified as current.

- 17 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

11. LOANS PAYABLE

Loans payable at May 31, 2021 consisted of the following:


										Annual
Date	Maturity	Description				Principal				Interest Rate
June 11, 2018	June 11, 2019	Promissory note		(3)		$		48,000		25%		*
August 10, 2018	September 1, 2018	Promissory note		(4)				—		25%		*
August 16, 2018	August 16, 2019	Promissory note		(1)				12,624		25%		*
August 16, 2018	October 1, 2018	Promissory note		(4)				—		25%		*
October 11, 2018	October 11, 2019	Promissory note		(7)				17,000		20%		*
January 31, 2019	June 30, 2019	Promissory note		(2)				78,432		15%		*
January 24, 2019	January 24, 2021	Loan		(8)				194,803		11%		*
May 9, 2019	June 30, 2019	Promissory note		(5)				7,850		15%		*
May 31, 2019	June 30, 2019	Promissory note		(6)				86,567		15%		*
June 26, 2019	June 26, 2020	Promissory note		(9)				79,104		15%		*
September 24, 2019	June 24, 2020	Promissory note		(13)				12,000		15%		*
January 30, 2020	January 30, 2021	Promissory note		(15)				11,000		15%		*
February 27, 2020	February 27, 2021	Promissory note		(16)				5,000		15%		*
April 16, 2020	April 16, 2021	Promissory note		(17)				13,000		15%
May 12, 2020	May 12, 2021	Promissory note		(18)				43,500		15%
May 22, 2020	May 22, 2021	Promissory note		(19)				85,000		15%
June 2, 2020	June 2, 2021	Promissory note		(23)				62,000		15%
June 9, 2020	June 9, 2021	Promissory note		(24)				31,000		15%
June 12, 2020	June 12, 2021	Promissory note		(25)				50,000		15%
June 16, 2020	June 16, 2021	Promissory note		(26)				42,000		15%
April 3, 2020	April 3, 2021	Promissory note		(20)				27,697		20%
August 13, 2020	August 13, 2021	Promissory note		(22)				—		20%
September 8, 2020	September 8, 2021	Promissory note		(27)				—		20%
September 15, 2020	September 15, 2022	Promissory note		(28)				300,000		10%
October 6, 2020	March 6, 2023	Promissory note		(29)				150,000		12%
November 12, 2020	November 12, 2023	Promissory note		(30)				110,000		12%
November 23, 2020	October 23, 2022	Promissory note		(31)				65,000		15.5%
November 23, 2020	November 23, 2023	Promissory note		(32)				300,000		15%
December 10, 2020	December 10, 2023	Promissory note		(33)				82,500		12%
December 10, 2020	December 10, 2023	Promissory note		(34)				3,921,168		12%
December 10, 2020	December 10, 2023	Promissory note		(35)				3,054,338		12%
December 10, 2020	December 10, 2023	Promissory note		(36)				165,605		12%
December 14, 2020	December 14, 2023	Promissory note		(37)				310,375		12%
December 14, 2020	December 14, 2023	Promissory note		(38)				—		12%
December 30, 2020	December 30, 2023	Promissory note		(39)				350,000		12%
December 31, 2021	December 31, 2024	Promissory note		(40)				25,000		12%
December 31, 2021	December 31, 2024	Promissory note		(41)				145,000		12%
January 14, 2021	January 14, 2024	Promissory note		(42)				550,000		12%
February 22, 2021	February 22, 2022	Promissory note		(43)				1,650,000		12%
March 1, 2021	March 1, 2022	Promissory note		(10)				6,000,000		12%
March 23, 2021	March 23, 2022	Promissory note		(11)				2,545,900		0%
March 23, 2021	March 23, 2023	Promissory note	(12)				5,000,875				0%
					$		25,632,338
Less current portion of loans payable							(8,453,353		)
Less discount on loans payable							(7,780,664		)
Loans payable					$		9,398,321

Current portion of loans payable					$		8,453,353
Less discount on loans payable							(657,136		)
Current portion of loans payable, net of discount					$		7,796,217

- 18 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

__________


*	Note is in default. No notice has been given by the note holder.

(1)	Repayable in 12 monthly instalments of $2,376 commencing September 16 ,2018 and secured by revenue earning devices having a net book value of at least $25,000. Only $12,376 has been repaid by the Company and no notices have been received.

(2)	The note may be pre-payable at any time. The note balance includes 33% original issue discount of $25,882.

(3)	Repayable in 12 monthly instalments of $4,562 commencing August 11, 2018 and secured by revenue earning devices having a net book value of at least $48,000. No repayments have been made by the Company and no notices have been received.

(4)	$20,000 loan repaid during the quarter ended May 31, 2021.

(5)	The note may be pre-payable at any time. The note balance includes 33% original issue discount of $2,590.

(6)	The note may be pre-payable at any time. The note balance includes 33% original issue discount of $28,567.

(7)	$6,000 repaid during the year ended February 29, 2020.

(8)	$257,000 Canadian loan. Interest payable every calendar quarter commencing June 30, 2019, if unpaid accrued interest to be paid at maturity. An additional interest amount calculated as 4% of RAD revenues from SCOT rentals for the fiscal years 2020 and 2021 shall be payable March 31, 2020 and March 31, 2021, respectively. Secured by a general security charging all of RAD’s present and after-acquired property in favor of the lender on a first priority basis subject to the following: the lender’s security in this respect shall be postponeable to security in favor of institutional financing obtained by RAD. Additional funding of $ 26,146 during the quarter ended May 31, 2021.

(9)	The note may be pre-payable at any time. The note balance includes 33% original issue discount of $26,104.

(10)	The unsecured note may be pre-payable at any time. Cash proceeds of $5,400,000 were received. The note balance of $6,000,000 includes an original issue discount of $600,0000 and was issued with a warrant to purchase 300,000,000 shares at an exercise price of $0.135 per share with a 3-year term and having a relative fair value of $4,749.005 using Black-Scholes with assumptions described in note 13. The discounts are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $4,749.005 with a corresponding adjustment to paid in capital for the relative value of the warrant. For the three months ended year ended May 31, 2021, the Company recorded amortization expense of $37,925 with an unamortized discount of $5,311,080 at May 31, 2021.

(11)	In exchange for 28 Series F preferred shares, the Company issued a noninterest bearing unsecured loan for $2,545,900. A fair value of the loan of $2,267,768 was determined with a debt discount off $278,132. For the three months ended year ended May 31, 2021, the Company recorded amortization expense of $52,578 with an unamortized discount $225,554 at May 31, 2021.

(12)	In exchange for 55 Series F preferred shares, the Company issued a noninterest bearing unsecured loan for $5,000,875. A fair value of the loan of $4,465,067 was determined with a debt discount off $538,808. For the three months ended year ended May 31, 2021, the Company recorded amortization expense of $104,226 with an unamortized discount $431,582 at May 31, 2021.

(13)	The note may be pre-payable at any time. The note balance includes an original issue discount of $3,000.

(15)	The note may be pre-payable at any time. The note balance includes an original issue discount of $2,450.

(16)	The note may be pre-payable at any time. The note balance includes an original issue discount of $1,200.

(17)	The note may be pre-payable at any time. The note balance includes an original issue discount of $3,850.

- 19 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


(18)	The note may be pre-payable at any time. The note balance includes an original issue discount of $8,000.

(19)	The note may be pre-payable at any time. The note balance includes an original issue discount of $15,000.

(20)	$ 40,000 CDN loan, both principal and interest are due at maturity, if unpaid there is a 10% penalty on unpaid balance. By consent of all parties, lender may convert balance into Class F shares at $6,739 USD per share.

(21)	Principal repayable in one year. Interest repayable in 10 monthly instalments of $460 commencing January 11 ,2019 and secured by revenue earning devices having a net book value of at least $186,000. $25,000 repaid during the year. Repaid in full.

(22)	$ 60,000 CDN loan, principal is due at maturity, interest is payable commencing the third month after the loan over the remaining 10 months. If principal or interest unpaid there is a 10% penalty on unpaid balance. By consent of all parties, lender may convert balance into Class F shares at $6,739 USD per share. Total loan of $44,183 (in $USD) and related accrued interest paid during the quarter ended May 31, 2021.

(23)	The note may be pre-payable at any time. The note balance includes an original issue discount of $12,000.

(24)	The note may be pre-payable at any time. The note balance includes an original issue discount of $6,000.

(25)	The note may be pre-payable at any time. The note balance includes an original issue discount of $10,000.

(26)	The note may be pre-payable at any time. The note balance includes an original issue discount of $7,000.

(27)	$ 10,000 CDN loan, principal is due at maturity, interest is payable monthly commencing the third month after the loan over the remaining 10 months. If principal or interest unpaid there is a 10% penalty on unpaid balance. By consent of all parties, lender may convert balance into Class F shares at $6,739 USD per share. Total loan of $7,381 (in $USD) and related accrued interest paid during the quarter ended May 31, 2021.

(28)	The note may be pre-payable at any time. The note balance includes an original issue discount of $50,000. Interest payable monthly, principal due at maturity. Secured by a general security charging all of RAD’s present and after-acquired property.

(29)	Principal and interest repayable in 28 monthly instalments commencing December 6, 2020, the first 6 months at $2,000 per month, the remaining 22 payments at $ 8,500 per month. Secured by revenue earning devices.

(30)	The note may be pre-payable at any time. The note balance includes an original issue discount of $10,000 and was issued with a warrant to purchase 70,000,000 shares at an exercise price of $0.00165 per share, with a 3-year term and having a relative fair value of $41,176 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 $41,176 with a corresponding adjustment to paid in capital. For the three months ended May 31, 2021, the Company recorded amortization expense of $2,610 with an unamortized discount of $45,719 at May 31 ,2021.

(31)	Principal and interest repayable in 21 monthly instalments commencing December 6, 2020 of $4,060 commencing February 21, 2021. Secured by revenue earning devices.

(32)	The note may be pre-payable at any time. The note balance includes an original issue discount of $25,000 and was issued with a warrant to purchase 230,000,000 shares at an exercise price of $0.00165 per share with a 3-year term and having a relative fair value of $125,814 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 $125,814 with a corresponding adjustment to paid in capital for the relative value of the warrant. For the three months ended May 31, 2021, the Company recorded amortization expense of $7,245 with an unamortized discount of $136,555 at May 31 ,2021.

- 20 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


(33)	The note may be pre-payable at any time. The note balance includes an original issue discount of 7,500 and was issued with a warrant to purchase 100,000,000 shares at an exercise price of $0.002 per share with a 3-year term and having a relative fair value of $54,545 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 $54,545 with a corresponding adjustment to paid in capital for the relative value of the warrant. For the three months ended May 31, 2021, the Company recorded amortization expense of $1,844 with an unamortized discount of $58,726 at May 31 ,2021.

(34)	This promissory note was issued as part of a debt settlement as disclosed in Note 8 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 using Black-Scholes with assumptions described in Note 13. This note is secured by a general security charging all of the Company’s present and after-acquired property.

(35)	This promissory note was issued as part of a debt settlement as disclosed in Note 8 whereby $1,460,794 in convertible notes and associated accrued interest of $1,593,544 totaling $3,054,338 was exchanged for this promissory note of $3,054,338, and a warrant to purchase 250,000,000 shares at an exercise price of $.002 per share and a three-year maturity having a relative fair value of $550,000 using Black-Scholes with assumptions described in Note 13. This note is secured by a general security charging all of the Company’s present and after-acquired property.

(36)	This promissory note was issued as part of a debt settlement as disclosed in Note 8 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 using Black-Scholes with assumptions described in Note 13.

(37)	This promissory note was issued as part of a debt settlement as disclosed in Note 8 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 using Black-Scholes with assumptions described in Note 13.

(38)	This promissory note was issued as part of a debt settlement as disclosed in Note 8 whereby $100,000 in convertible notes and associated accrued interest of $37,589 totaling $137,589 was exchanged for this promissory note of $192,625. Loan fully repaid at May 31,2021.

(39)	The note 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 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 $271,250 with a corresponding adjustment to paid in capital for the relative fair value of the warrant. For the three months ended May 31, 2021, the Company recorded amortization expense of $4,275 with an unamortized discount of $299,855 at May 31 ,2021.

(40)	This promissory note was issued as part of a debt settlement as disclosed in Note 8 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.

(41)	This promissory note was issued as part of a debt settlement as disclosed in Note 8 whereby $79,500 in convertible notes and associated accrued interest of $28,925 totaling $108,425was 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.

- 21 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


(42)	The note 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 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 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 $380,174 with a corresponding adjustment to paid in capital. For the three months ended May 31, 2021, the Company recorded amortization expense of $10,579 with an unamortized discount of $414,877 at May 31 ,2021.

(43)	The note 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 using Black-Scholes with assumptions described in note 13. The discount and warrant are being amortized over the term of the loan. After allocating these charges to debt and equity according to their respective values, a debt discount of $1,342,857 with a corresponding adjustment to paid in capital for the relative fair value of the warrant. For the three months ended May 31, 2021, the Company recorded amortization expense of $11,556 with an unamortized discount of $1,481,022 at May 31 ,2021.

12. DERIVATIVE LIABILITIES

As of May 31, 2021, the Company revalued the fair value of all of the Company’s derivative liabilities associated with the conversion features on the convertible notes payable and determined that it had a total derivative liability of $215,237.

The Company estimated the fair value of the derivative liabilities using the multinomial lattice model using the following key assumptions during the three months ended May 31, 2021:


Strike price	$0.0660 - $0.0632
Fair value of Company common stock	$0.138 - $0.0013
Dividend yield	0.00%
Expected volatility	282.4% - 175.5%
Risk free interest rate	0.12% - 0.07%
Expected term (years)	0.64 - 0.13

During the three months ended May 31, 2021, and 2020, the Company released $0 and $167,498, respectively, of the Company’s derivative liability to equity due to the conversions of principal and interest on the associated notes.

The changes in the derivative liabilities (Level 3 financial instruments) measured at fair value on a recurring basis for the three months ended May 31, 2021 were as follows:


Balance as of February 28, 2021	$	444,466
Reduction of derivative liability due to debt settlement		(49,790	)
Change in fair value of derivative liabilities		(179,439	)
Balance as of May 31, 2021	$	215,237

- 22 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

13. STOCKHOLDERS’ EQUITY (DEFICIT)

Summary or Preferred Stock Activity

Series F Preferred Stock

During the three months ended May 31, 2021 Series F shareholders had the following activity:


	-	40 Series C Preferred Shares and a warrant to purchase 367 Series F Preferred Shares with a five-year term and an exercise price of $1.00 were issued to an investor in exchange for amending their deferred variable payment obligation agreement as disclosed in Note 7. The company attributed a fair value based on recent transactions for the Series F Preferred stock and warrants of $33,015,214 and recorded a loss on settlement of debt with a corresponding adjustment to paid in capital.

	-	The warrant holder exercised warrant to acquire 38 Series F Preferred Shares.

	-	The shareholder converted 78 Series F Preferred Shares into 316,345,908 common shares.

	-	Two Series F Preferred shareholders exchanged 83 Series F Preferred Shares for two promissory notes as disclosed in point (11) and (12) in Note 11. The notes are non -interest bearing, have a one-year maturity and total $7,546,775.

Summary of Preferred Stock Warrant Activity


	Number of Series C Preferred Warrants	Weighted Average Exercise Price	Weighted Average Remaining Years

Outstanding at March 1, 2021	—	—	—
Issued	367	$1.00	5.00
Exercised	(38)	1.00	5.00
Forfeited and cancelled	—	—	—
Outstanding at May 31, 2021	329	$1.00	4.75

Summary of Common Stock Activity

During the three months ended May 31, 2021 common shareholders had the following activity:


	-	A Series C Preferred shareholder converted 78 Series F Preferred Shares for 316,345,998 common shares.

Summary of Common Stock Warrant Activity


	Number of Warrants	Weighted Average Exercise Price	Weighted Average Remaining Years

Outstanding at March 1, 2021	619,523,492	$0.0295	2.81
Issued	—	—	—
Exercised	—	—	—
Forfeited and cancelled	—	—	—
Outstanding at May 31, 2021	619,523,492	$0.0295	2.55

For the three months ended May 31, 2021 and May 31, 2020, the Company recorded a total of $0 and $0, respectively, to stock-based compensation for options and warrants with a corresponding adjustment to additional paid-in capital.

- 23 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Summary of Common Stock Option Activity

On April 9, 2021 entered into an Employment Agreement with Chief Executive Officer, Steven Reinharz with three year term under the following terms whereby stock option awards will be granted if certain conditions are met :


	-	A stock option award (option 1) will be granted to the employee to purchase 10,000,000 shares at an exercise price of $ $0.15 per share if the trading share price of the Company reaches an average of $0.30 per share for ten days over a 30 day trading period.

	-	A stock option award (option 2) will be granted to the employee to purchase 30,000,000 shares at an exercise price of $ $0.25 per share if the trading share price of the Company reaches an average of $0.50 per share for ten days over a 30 day trading period.

The fair value these two awards using a Monte Carlo method was $69,350 with a charge to stock based compensation and a corresponding charge to paid in capital.

On April 14, 2021, the Shareholders of Series E Preferred Stock and the Board of Directors of our Company (“Board”) approved and adopted the 2021 Incentive Stock Plan (the “2021 Plan”).

The purpose of the 2021 Plan is to promote the success of the Company by authorizing incentive awards to retain Directors, executives, selected Employees and Consultants, and reward participants for making major contributions to the success of the Company. The 2021 Plan authorizes the granting of stock options, restricted stock, restricted stock units, stock appreciation rights and stock awards. A total of five million (5,000,000) shares of common stock may be issued under the 2021 Plan. All awards under the 2021 Plan, whether vested or unvested, are subject to the terms of any recoupment, clawback or similar policy of the Company in effect from time to time, as well as any similar provisions of applicable law, which could in certain circumstances require repayment or forfeiture of awards or any shares of stock or other cash or property received with respect to the awards, including any value received from a disposition of the shares acquired upon payment of the awards. The 2021 Plan will be administered by the Board or any Committee authorized by the Board, if applicable, which will have the sole authority to, among other things: construe and interpret the 2021 Plan; make rules and regulations relating to the administration of the 2021 Plan; select participants; and establish the terms and conditions of awards, all in accordance with the terms of the 2021 Plan. The 2021 Plan will remain in effect until April 14, 2031, unless sooner terminated by the Board. Termination will not affect awards then outstanding.

- 24 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

14. COMMITMENTS AND CONTINGENCIES

Litigation

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

In March 2021, the Company settled with former landlords for $30,000. The Company had accrued $62,552 at February 28, 2021. A gain on settlement of debt of $32,552 was recorded.

In April 2019 the principals of WeSecure filed a lawsuit against the Company in California Superior Court seeking a total of $199,358 plus attorney’s fees and damages. The total included claims for the non-payment of a balance from the sale of WeSecure assets to the Company, unpaid consulting fees payable to the two principals of WeSecure, and labor code violations. In June 2019, the parties settled all claims for $180,000, payable in 14 monthly installments, and a full release. The $122,000 balance owing at February 28, 2021 was paid in full on March 17, 2021.

The related legal costs are expensed as incurred.

Operating Lease

On December 18, 2020, the Company entered into a 15-month lease agreement for office space at 18009 Sky Park Circle Suite E, Irvine CA, 92614, commencing on December 18, 2020 through to March 31, 2022 with a minimum base rent of $3,859 per month. The Company paid a security deposit of $3,859.

On March 10, 2021, the Company entered into a 10 year lease agreement for q manufacturing facility at 10800 Galaxie Avenue, Ferndale, Michigan, 48220, commencing on May 1, 2021 through to April 30, 2031 with a minimum base rent of $15,880 per month. The base rent increase by 3% per annum commencing May 1, 2024. The Company paid a security deposit of $15,880.

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 $30,064 for the three months May 31, 2021 and $3,000 for the three months May 31, 2020.


Maturity of Lease Liabilities	Operating Leases
May 31, 2022	$	246,148
May 31, 2023		207,558
May 31, 2024		207,558
May 31, 2025		207,558
May 31, 2026		207,558
May 31, 2027 and after		1,020,494
Total lease payments		2,096,874
Less: Interest		(789,973	)
Present value of lease liabilities	$	1,306,901

Convertible Notes Payable

Certain convertible notes payable carry conditions whereby in the event of ant default of any condition the Company would be subject to certain financial penalties. Penalties earned through May 31, 2021 have been recorded in these financial statements.

- 25 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

15. EARNINGS (LOSS) PER SHARE

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


	For the Year Ended
	May 31, 2021			May 31, 2020
Numerator:
Net income (loss) available to common shareholders	$	(35,904,918	)	$	1,975,276

Effect of common stock equivalents
Add: interest expense on convertible debt		24,954			411,149
Add (less) loss (gain) on change of derivative liabilities		(179,439	)		(2,843,491	)
Net income (loss) adjusted for common stock equivalents		(36,059,403	)		(457,066	)

Denominator:
Weighted average shares – basic		3,489,517,478			1,537,353

Net income (loss) per share – basic	$	(0.01	)	$	1.28

Dilutive effect of common stock equivalents:
Convertible notes and accrued interest		—			565,423,796
Preferred shares		—			22,379,321
Warrants		—			—
		—			587,803,117

Denominator:
Weighted average shares – diluted		3,489,517,478			589,340,470

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

The anti-dilutive shares of common stock equivalents for the three months ended May 31, 2021 and 2020 were as follows:


	For the Year Ended
	May 31, 2021	May 31, 2020
Convertible notes and accrued interest	14,072,341	—
Convertible Class F Preferred Shares	12,232,916,443	—
Stock options and warrants	659,523,492	2,043
Total	12,906,512,276	2,043

- 26 -

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

16. SUBSEQUENT EVENTS

Subsequent to May 31, 2021 through to July 12, 2021:


	-	warrant holder exercised a warrant to acquire 11,000,000 common shares through cashless exercise yielding 9,975,508 shares.

	-	The promissory note holders denoted (11) and (12) in Note 11 exchanged $7,546,775 I in promissory notes for 116,104,232 common shares having a fair value of $7,062,620 at the time of conversion.

	-	On June 22, 2021, Mr. Garett Parsons submitted his resignation as a director of our Company effective as of June 22, 2021 as a result of personal reasons. In connection with the resignation of Mr. Parsons, the Company and Mr. Parsons entered into a resignation letter agreement. Pursuant to the terms of this letter, Mr. Parsons will receive, among other things, a lump sum payment equal to $265,700 due and payable which was paid in June 2021. This amount was accrued for at May 31, 2021.Furthermore, on July 6, 2021, Mr. Parsons surrendered his 1,000,000 Class E preferred shares for cancellation by the Company as part of his resignation.

	-	On July 12, 2021, the former director agreed to surrender his remaining 184 Series F preferred shares in exchange for a note payable from the Company of $4,000,160 bearing interest at 7% per annum with a 5 year term, maturing July 12, 2026.

	-	On July 12, 2021 the Company and CEO amended the April 9, 2021 Employment Agreement effective July 1, 2021 whereby the following objectives and awards were added to the two existing ones:


	Objective #3:	Sales in any fiscal quarter exceed the total sales in fiscal year 2021 for the first time.

	Award #3:	Five hundred (500) shares of Series G preferred stock.

	Objective #4:	One hundred fifty (150) devices are deployed in the marketplace.

	Award #4:	Two hundred fifty (250) shares of Series G preferred stock.

	Objective #5:	Year-to-date sales at any point in fiscal year 2022 exceed One Million Dollars ($1,000,000).

	Award #5:	Two hundred fifty (250) shares of Series G preferred stock.

	Objective #6:	The price per share of common stock has increased to and maintains a price of Ten Cents ($0.10) or more for ten (10) days in a thirty (30) day period.

	Award #6:	Two hundred fifty (250) shares of Series G preferred stock.

	Objective #7:	The price per share of common stock has increased to and maintains a price of Twenty Cents ($0.20) or more for ten (10) days in a thirty(30) day period.

	Award #7:	Five hundred (500) shares of Series G preferred stock.

	Objective #8:	The RAD 3.0 products are launched into the marketplace by November 30, 2022.

	Award #8:	Five hundred (500) shares of Series G preferred stock.

	Objective #9:	RAD receives an order for fifty (50) units from a single customer.

	Award #9:	Five hundred (500) shares of Series G preferred stock.

- 27 -

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, 2021 and May 31, 2020 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 for the year ended February 28, 2021, as filed on June 1, 2021 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.

- 28 -

Management Discussion and Analysis

Results of Operations for the Three Months Ended May 31, 2021 and 2020

The following table shows our results of operations for the three months ended May 31, 2021 and 2020. The historical results presented below are not necessarily indicative of the results that may be expected for any future period.


	Period						Change
	Three Months Ended May 31, 2021			Three Months Ended May 31, 2020			Dollars			Percentage
Revenues	$	560,334		$	63,321		$	497,013		785%

Gross profit		449,408			54,031			395,377		732%

Operating expenses		2,600,954			392,762			2,208,192		562%

Loss from operations		(2,151,546	)		(338,731	)		(1,812,815	)	535%

Other income (expense), net		(33,753,372	)		2,314,007			(36,067,379	)	(1,559%	)

Net income	$	(35,904,918	)	$	1,975,276		$	(37,880,194	)	(1,918%	)

Revenue

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


	Three Months Ended		Three Months Ended		Change
	May 31, 2021		May 31, 2020		Dollars		Percentage
Device rental activities	$	125,992	$	60,321	$	65,671	109%
Direct sales of goods and services		434,342		3,000		431,342	14,378%
	$	560,334	$	63,321	$	497,013	785%

Total revenue for the three-month period ended May 31, 2021 was $560,334 which represented an increase of $497,013 compared to total revenue of $63,321 for the three months ended May 31, 2020. This large increase is a result of unit sales which includes sales of new units totaling $434,342. Rental activities increased by 109% as well as the Company continues to grow its business.

Gross profit

Total gross profit for the three-month period ended May 31, 2021 was $449,408 which represented an increase of $395,377, compared to gross profit of $54,031 for the three months ended May 31, 2020. The increase resulted primarily from the increased revenues noted above. The gross profit % of 80% for the three-month period ended May 31, 2021 was slightly lower than the margin of 85% for the prior year’s corresponding period dure to the shift in sales mix.

Operating Expenses


	Period				Change
	Three Months Ended May 31, 2021		Three Months Ended May 31, 2020		Dollars		Percentage
Research and development	$	634,645	$	81,723	$	552,922	677%
General and administrative		1,899,792		279,923		1,619,869	579%
Depreciation and amortization		37,643		28,116		9,527	34%
Operating lease cost		28,874		3,000		25,874	862%
Operating expenses	$	2,600,954	$	392,762	$	2,208,192	562%

- 29 -

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, 2021 and May 31, 2020, were $2,600,954 and $392,762, respectively. The overall increase of $2,208,192 was primarily attributable to the following changes in operating expenses of:


●	General and administrative expenses increased by $1,619,869. In comparing the three months ended May 31, 2021 and May 31, 2020 this significant increase was primarily due to increases in production supplies by $196,219, professional fees by $489,255, wages and salaries $349,717, subcontractor fees $142,108, stock based compensation $69,350, duty and freight $61,043, office expenses $56,279, travel $40,267 and advertising $25,879 with the remaining increase distributed amongst other G&A accounts. These large increases may be explained due to the large ramp up in costs this quarter to operate the new manufacturing facility, the hiring of 18 additional full-time employees and the termination costs of the former director (see Note 16). In addition, the expenses of the prior year’s corresponding quarter were also much lower due to the Covid 19 pandemic and the limited cash available at that time.

●	Research and development increased by $552,922 due to funding development of new products as well as upgrades of existing products.

●	Depreciation and amortization increased by $9,527 due to increases in fixed assets and revenue earning devices.

●	Operating lease cost and rent increased by $25,874 due to the two new leases including one month of the new manufacturing facility for the three months ended May 31, 2021 as compared to a month-to-month lease of office space for the three months ended May 31, 2020.

Other Income (Expense)

Other income (expense) consisted of the change of fair value of derivative instruments and interest. Other income (expense) during the three months ended May 31, 2021 and May 31, 2020, was ($33,753,372) and $2,314,007, respectively. The $36,067,379 decrease in other income was primarily attributable to the change in the fair value of derivatives, interest expense, and loss on settlement of debt.


●	In comparing the three months ended May 31, 2021 and the three months ended May 31, 2020, the change in fair value of derivative liabilities decreased by $2,664,052 due to the re-valuation of derivative liability on convertible notes based on the change in the market price of the Company’s common stock. Fair value of derivatives was largely affected by the decrease in the market price of the Company’s common stock during the current period as well as the significant reduction in convertible debt and accrued interest that occurred at the end of fiscal 2021.

●	Interest expense increased by $418,966 due to a significant increase loan payable, most significantly a new $6 million loan, and the approximately $7M in loans from the Series F preferred share exchange.

●	Loss on settlement of debt was $32,984,361 the quarter ended May 31, 2021 and nil in the prior year’s quarter. The amendment of the deferred variable payment obligation referred to in Note 7 led to a $33,015,215 loss which was partially offset by gains from accrued liabilities settlements. This loss on settlement of debt is non-cash and has no effect on the cash flows of the Company.

Net incomes

We had a net loss of $35,904,918 for the three months ended May 31, 2021, compared to net income of $1,975,276 for the three months ended May 31, 2020. The change is primarily the result of the loss on settlement in the three months ended May 31, 2021 as well as the change in the fair value of the derivative liabilities and other items discussed above.

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. For the three months ended May 31, 2021, we have generated revenue and are trying to achieve positive cash flows from operations.

- 30 -

As of May 31, 2021, we had a cash balance of $2,948,210, accounts receivable of $565,431,device parts inventory of $247,671 and $10,891,007 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, 2021			February 28, 2021
Current assets	$	3,841,312		$	1,207,033
Current liabilities⁽¹⁾		10,891,007			4,410,710
Working capital	$	(7,049,695	)	$	(3,203,677	)

__________


(1)	As of May 31, 2021 and February 28, 2021, current liabilities included approximately $0.24 million and $0.44 million, respectively, of derivative liabilities that are expected to be settled in shares of the Company in accordance with the various conversion terms.

As of May 31, 2021 and February 28, 2021, we had a cash balance of $2,948,210 and $1,044,418, respectively.

Summary of Cash Flows


	Three Months Ended May 31, 2021			Three Months Ended May 31, 2020
Net cash used in operating activities	$	(3,040,776	)	$	(271,832	)
Net cash used in investing activities	$	(31,242	)	$	(4,638	)
Net cash provided by financing activities	$	4,975,810		$	272,992

Net cash used in operating activities.

Net cash used in operating activities for the three months ended May 31, 2021 was $3,040,776, which included a net loss of $35,904,918, non-cash activity such as the loss on settlement of debt of $32,984,361, revenue earning device sold and expensed in cost of sales $3,411, reduction of right of use asset of $ 15,822, accretion of lease liability $13,052,stock based compensation of $69,350, change in fair value of derivative liabilities of ($179,439), change in operating assets of $478,088, amortization of debt discount of $317,269, increase in related party accrued payroll and interest of $80,760 and depreciation and amortization of $37,643 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, 2021 was $15,362, which was the purchase of fixed assets and $15,880 paid for a security deposit.

Net cash provided by financing activities.

Net cash provided by financing activities was $4,975,810 for the three months ended May 31, 2021. This consisted of proceeds from loans payable of $5,426,146, reduced by net repayments from loan payable – related party of $121,147, settlement of convertible debt $65,000, and repayments on loans payable of $264,189.

Off-Balance Sheet Arrangements

None.

- 31 -

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, 2021 filed with the SEC on June 1, 2021.

Related Party Transactions

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, 2021. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of May 31, 2021, 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, 2021, 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, 2021, 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.

Change in Internal Controls over Financial Reporting

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

- 32 -

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The related legal costs are expensed as incurred.

ITEM 1A. RISK FACTORS

This item is not applicable to smaller reporting companies.

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

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company has not defaulted upon senior securities.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable to the Company.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


3.1	Articles of Incorporation (1)

3.2	Bylaws (2)

10.1	Amendment No. 1 to Reinharz Employment Agreement (3)

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	XBRL data files of Financial Statement and Notes contained in this Quarterly Report on Form 10-Q. (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.

- 33 -

SIGNATURES

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


	Artificial Intelligence Technology Solutions Inc.


Date: July 14, 2021	BY: /s/ Steven Reinharz
	Steven Reinharz
	President, Chief Executive Officer (principal executive officer)


Date: July 14, 2021	BY: /s/ Anthony Brenz
	Anthony Brenz
	Chief Financial Officer (principal financial officer)

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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)


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


	May 31, 2021 (Unaudited)			February 28, 2021*
ASSETS
Current assets:
Cash	$	2,948,210		$	1,044,418
Accounts receivable		565,431			98,544
Deposits on inventory		80,000			—
Device parts inventory		247,671			64,071
Total current assets		3,841,312			1,207,033
Operating lease asset		1,306,901			47,753
Revenue earning devices, net of accumulated depreciation of $259,464 and $226,459, respectively		307,460			273,714
Fixed assets, net of accumulated depreciation of $71,751 and $67,113, respectively		45,719			34,994
Security deposit		19,739			3,859
Total assets	$	5,521,131		$	1,567,353

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	1,167,768		$	1,373,838
Advances payable		1,594			1,594
Balance owed WeSecure		—			122,000
Customer deposits		10,500			10,500
Current operating lease liability		103,765			43,894
Current portion of deferred variable payment obligation		223,015			91,587
Current portion of convertible notes payable, net of discount of $616,145 and $697,276 respectively		212,355			196,224
Loan payable - related party		885,417			904,806
Current portion of loans payable, net of discount of $657,136 and $0, respectively		7,796,217			944,614
Vehicle loan - current portion		38,522			38,522
Current portion of accrued interest payable		236,617			238,665
Derivative liability		215,237			444,466
Total current liabilities		10,891,007			4,410,710
Non-current operating lease liability		1,203,136			3,859
Loans payable, net of discount of $7,780,664 and $2,510,994, respectively		9,398,321			8,867,998
Deferred variable payment obligation		2,525,000			2,525,000
Accrued interest payable		851,537			303,473
Total liabilities		24,869,001			16,111,040

Commitments and Contingencies
Stockholders’ deficit:
Preferred Stock, undesignated; 15,545,650 shares authorized; no shares issued and outstanding at May 31, 2021 and February 28, 2021, respectively		—			—
Series E Preferred Stock, $0.001 par value; 4,350,000 shares authorized; 4,350,000 and 4,350,000 shares issued and outstanding, respectively		4,350			4,350
Series F Convertible Preferred Stock, $1.00 par value; 4,350 shares authorized; 2,716 and 2,799 shares issued and outstanding, respectively		2,716			2,799
Series G Preferred Stock, $0.001 par value; 4,350,000 shares authorized, no shares issued and outstanding at May 31, 2021 and February 28, 2021, respectively		—			—
Common Stock, $0.00001 par value; 5,000,000,000 shares authorized 3,545,772,882 and 3,229,426,884 shares issued and outstanding, respectively		35,458			32,294
Additional paid-in capital		47,862,208			16,764,554
Preferred stock to be issued		174,070			174,070
Accumulated deficit		(67,426,672	)		(31,521,754	)
Total stockholders’ deficit		(19,347,870	)		(14,543,687	)
Total liabilities and stockholders’ deficit	$	5,521,131		$	1,567,353


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


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


		PAGE
PART I	FINANCIAL INFORMATION

ITEM 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of May 31, 2021 and February 28, 2021 (Unaudited)	3

	Condensed Consolidated Statements of Operations for the Three Months Ended May 31, 2021 and 2020 (Unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended May 31, 2021 and 2020 (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 31, 2021 and 2020 (Unaudited)	6

	Notes to the Consolidated Financial Statements (Unaudited)	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	32

ITEM 4.	Controls and Procedures	32

PART II	OTHER INFORMATION

ITEM 1.	Legal Proceedings	33

ITEM 1A.	Risk Factors	33

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

ITEM 3.	Defaults Upon Senior Securities	33

ITEM 4.	Mine Safety Disclosures	33

ITEM 5.	Other Information	33

ITEM 6.	Exhibits	33

SIGNATURES		34


	Three Months Ended May 31, 2021			Three Months Ended May 31, 2020

Revenues	$	560,334		$	63,321

Cost of Goods Sold		110,926			9,290

Gross Profit		449,408			54,031

Operating expenses:
Research and development		634,645			81,723
General and administrative		1,899,792			279,923
Depreciation and amortization		37,643			28,116
Operating lease cost		28,874			3,000
Total operating expenses		2,600,954			392,762

Loss from operations		(2,151,546	)		(338,731	)

Other income (expense), net:
Change in fair value of derivative liabilities		179,439			2,843,491
Interest expense		(948,450	)		(529,484	)
(Loss) on settlement of debt		(32,984,361	)		—
Total other income (expense), net		(33,753,372	)		2,314,007

Net income (loss)	$	(35,904,918	)	$	1,975,276

Net income (loss) per share - basic	$	(0.01	)	$	1.28

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

Weighted average common share outstanding - basic		3,489,517,478			1,537,353

Weighted average common share outstanding - diluted		3,489,517,478			589,340,470


	Series E			Series F								Additional						Total
	Preferred Stock			Preferred Stock					Common Stock			Paid-In			Accumulated			Stockholders’
	Shares	Amount		Shares		Amount			Shares	Amount		Capital			Deficit			Deficit

Balance at February 29, 2020	4,350,000	$	4,350	3,450		$	177,520		418,415	$	4	$	4,334,564		$	(25,622,843	)	$	(21,106,405	)
Adjustment to derivative liability	—		—	—			—		—		—		167,497			—			167,497
Common stock issued for debt conversion	—		—	—			—		6,068,336		61		159,597			—			159,658
Rounding shares	—		—	—			—		9		—		—			—			—
Net income	—		—	—			—		—		—		—			1,975,276			1,975,276
Balance at May 31, 2020	4,350,000	$	4,350	3,450		$	177,520		6,486,760	$	65	$	4,661,658		$	(23,647,567	)	$	(18,803,974	)

Balance at February 28, 2021	4,350,000	$	4,350	2,799		$	176,869		3,229,426,884	$	32,294	$	16,764,554		$	(31,521,754	)	$	(14,543,687	)
Series F preferred shares and warrants issued with deferred variable payment obligation amendment agreement	—		—	40			40		—		—		33,015,174			—			33,015,214
Series F preferred shares cancelled in exchange for promissory notes	—		—	(83	)		(83	)	—		—		(6,732,752	)		—			(6,732,835	)
Series F preferred shares issued on exercise of warrants	—		—	38			38		—		—		(38	)		—			—
Series F preferred shares converted to common shares	—		—	(78	)		(78	)	316,345,998		3,164		(3,086	)		—			—
Warrants issued as part of a debt issuance	—		—	—			—		—		—		4,749,006			—			4,749,006
Stock based compensation	—		—	—			—		—		—		69,350			—			69,350
Net income	—		—	—			—		—		—		—			(35,904,918	)		(35,904,918	)
Balance at May 31, 2021	4,350,000	$	4,350	2,716		$	176,786		3,545,772,882	$	35,458	$	47,862,208		$	(67,426,672	)	$	(19,347,870	)