What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-15 compared with 2024-01-16 · 145 added, 220 removed, 19 unchanged (95% of the section changed)

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 and six months ended August 31, 2023 and August 31, 2022 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, 2023, as filed on June 14, 2023 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.

AITX was incorporated in Florida on March 25, 2010.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking

following discussion of our financial condition and results of operations for the three months ended May 31, 2024 and May 31, 2023 should

be read in conjunction with our unaudited consolidated financial statements and the notes to those statements that are included elsewhere

in this report.

Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties,

such as our plans, objectives, expectations and intentions.

Actual results and the timing of events could differ materially from those

anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A.

appearing in our Annual Report on Form 10-K/A for the year ended February 29, 2024, as filed on May 29, 2024 with the SEC.

such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,”

“expect,” “believe,” “intend,” “may,” “will,” “should,” “could,”

and similar expressions to identify forward-looking statements.

expressly indicated or the context requires otherwise, the terms “AITX”, the “Company”, “we”, “us”,

and “our” refer to Artificial Intelligence Technology Solutions Inc.

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).

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:

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.

Integrated hardware/software with AI-driven responses, simulating and expanding on what legacy or manned solutions could perform.

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:

Start with an AI-driven autonomous response utilizing cellular-optimized communications, while easily connecting to a human operator for a manned response, as needed.

Use unique hardware purpose-built by RAD for delivery of these solutions.

Various form factors have been customized to deliver this new functionality.

Deliver services through RAD-developed software and cloud services, allowing enterprise IT groups to focus on core competencies instead of maintenance of complex video and security platforms.

We encourage everyone to ensure they have the most up to date news by visiting AITX at AITX News - AITX - Artificial Intelligence Technology Solutions.

Management Discussion and Analysis

Results of Operations for the Three Months Ended

November 30, 2023 and 2022

The following table shows our results of operations

for the three months ended November 30, 2023 and 2022.

The historical results presented below are not necessarily indicative of the results

that may be expected for any future period.

November 30, 2023

November 30, 2022

Operating expenses

Loss from operations

Other income (expense), net

The following table presents revenues from contracts

with customers disaggregated by product/service:

November 30, 2023

November 30, 2022

Device rental activities

Direct sales of goods and services

Total revenue for the three-month period ended November

30, 2023 was $596,980 which represented an increase of $194,581 compared to total revenue of $402,399 for the three months ended November

This increase is a result of higher rental activities in the current year’s quarter due to 84 new deployments this quarter.

Total gross profit for the three-month period ended

November 30, 2023 was $461,066, which represented an increase of $184,627 compared to gross profit of $276,439 for the three months ended

November 30, 2022.

The gross profit increased due to the higher sales and higher proportion of rental activities at higher margins than

direct sales.

The gross profit % of 77% for the three-month period ended November 30, 2022 was higher than the gross profit % of 69% for

the prior year’s corresponding period.

Operating Expenses

November 30, 2023

November 30, 2022

Research and development

General and administrative

Depreciation and amortization

Operating lease cost and rent

Operating expenses

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 November 30, 2023 and November 30, 2022, were $2,847,017 and $3,090,941, respectively.

The overall decrease of $244,924 was

primarily attributable to the following changes in operating expenses of:

General and administrative expenses decreased by $114,721.

In comparing the three months ended November 30, 2023 and November 30, 2022 this decrease was primarily due to the following decreases:

stock based compensation by $28,598, sales and marketing by $79,451, travel by $30,478, insurance $35,606 and bad debts expense $77,135.

These were partially offset by increases in the following accounts:

subcontractors by $37,415, wages and salaries $72,071 and other G& A increases.

Research and development decreased by $256,187 due to due to a reduction in funding on development of future products.

Depreciation and amortization increased by $122,908 due to large increases in revenue earning devices, demo devices, tooling and computer equipment.

Operating lease cost and rent increased by $3,076 due to one less lease in the current period.

Other Income (Expense)

Other income (expense) during the three months ended

November 30, 2023 and November 30, 2022, was ($1,581,533) and ($1,271,158), respectively.

The $310,375 increase in other expense was primarily

attributable to the increase in interest and debt amortization expense which is a result of higher loans in 2023.

We had a net loss of $3,966,484 for the three months

ended November 30, 2023, compared to a net loss of $4,085,660 for the three months ended November 30, 2022.

The decrease in net loss of

$119,176 is due to a number of factors:

higher gross profit and lower general and administrative and other expense offset by higher other

expenses in the three months ended November 30, 2023.

Results of Operations for the Nine Months Ended

November 30, 2023 and 2022

The following table shows our results of operations

for the nine months ended November 30, 2023 and 2022.

The historical results presented below are not necessarily indicative of the results

that may be expected for any future period.

November 30, 2023

November 30, 2022

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.

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.

short list of basic examples include:

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.

hardware/software with AI-driven responses, simulating and expanding on what legacy or manned solutions could perform.

of common access control functions through technology utilizing facial recognition and machine vision, leapfrogging most legacy solutions

in use today.

solutions are unique because they:

with an AI-driven autonomous response utilizing cellular-optimized communications, while easily connecting to a human operator for

a manned response, as needed.

unique hardware purpose-built by RAD for delivery of these solutions.

Various form factors have been customized to deliver this new

functionality.

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.

encourage everyone to ensure they have the most up to date news by visiting AITX at AITX News - AITX - Artificial Intelligence Technology

Discussion and Analysis

of Operations for the Three Months Ended May 31, 2024 and 2023

following table shows our results of operations for the three months ended May 31, 2024 and 2023.

The historical results presented below

are not necessarily indicative of the results that may be expected for any future period.

Three Months Ended

Operating expenses

1 unchanged sentence

Other income (expense), net

The following table presents revenues from contracts

with customers disaggregated by product/service:

November 30, 2023

November 30, 2022

$ (4,194,359 )

$ (4,555,193 )

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

Three Months Ended

Device rental activities

Direct sales of goods and services

Total revenue for the nine-month period ended November

30, 2023 was $1,368,551 which represented an increase of $313,511 compared to total revenue of $1,055,040 for the nine months ended November

This 30% increase was because of higher rental activities due to 220 new deployments year to date November 30, 2023.

Total gross profit for the nine-month period ended

November 30, 2023 was 1,052,112 which represented an increase of $450,970, compared to gross profit of $601,142 for the nine months ended

November 30, 2022.

The gross profit increased due to the 30% higher sales and higher proportion of rental activities at higher margins

than direct sales.

The gross profit % of 77% for the nine-month period ended November 30, 2023 was higher than the gross profit % of 57%

for the prior year’s corresponding period.

Operating Expenses

November 30, 2023

November 30, 2022

revenue for the three-month period ended May 31, 2024 was $1,182,800 which represented an increase of $797,592 compared to total revenue

of $385,208 for the three months ended May 31, 2023.

Rental activities increased by $742,387 or 312%, as the Company continues to grow

its product line and customer base.

Direct sales grew by 38% driven by higher training revenue for the three months ended May 31, 2024.

gross profit for the three-month period ended May 31, 2024 was $887,207 which represented an increase of $513,341 compared to gross profit

of $373,866 for the three months ended May 31, 2023.

The increase is consistent with the increase in revenues as well as changes in product

And inventory adjustments.

The gross profit % of 75% for the three-month period ended May 31, 2024 compares with the gross profit

% of 97% for the three month period ended May 31, 2023.

The prior period gross margin % is higher due to inventory adjustments.

Three Months Ended

Research and development

3 unchanged sentences

Operating expenses

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 six-month period ended November 30, 2023 and November 30, 2022, were $9,431,292 and $10,090,732, respectively.

The overall decrease of $659 ,440 was primarily attributable to

the following changes in operating expenses of:

General and administrative expenses decreased by $ 338,651 .

In comparing the six months ended November 30, 2023 and November 30, 2022 the decrease may be partially explained by the following decreases:

wages and salaries by $18,426, stock based compensation by $143,104, sales and marketing by $128,797, travel by $70,449 and bad debts expense $197,405.

These were partially offset by increases in the following accounts:

professional fees by $68,350, subcontractors by $63,956 , dues and subscriptions by $ $25,977 and other G& A increases.

Research and development decreased by $557,493 due to a reduction in funding on development of future products.

Depreciation and amortization increased by $242,103 due to the acquisition of ERP computer software, computer equipment tooling, and 220 new revenue earning devices.

Operating lease cost and rent decreased by $5,489 due to one less lease in the current period.

Other Income (Expense)

Other income (expense) during the nine months ended

November 30, 2023 and November 30, 2022, was ($4,902,225) and (3,440,621), respectively.

The 1,461,604 increase in other expense was primarily

attributable to the increase in interest and debt amortization expense which is a result of higher loans in 2023.

We had a net loss of $13,281,405 for the nine months

ended November 30, 2023, compared to a net loss of $12,930,211 for the nine months ended November 30, 2022.

The increase in net loss of

$351,194 is primarily a result of higher other expenses consisting of interest and debt amortization costs.

This increase was partially

offset by higher gross profit and lower operating expenses.

Liquidity, Capital Resources and Cash Flows

Management believes that we will continue to incur

losses for the immediate future.

Therefore, we will need additional equity or debt financing until we can achieve profitability and positive

cash flows from operating activities, if ever.

These conditions raise substantial doubt about our ability to continue as a going concern.

Our unaudited condensed consolidated financial statements do not include and adjustments relating to the recovery of assets or the classification

of liabilities that may be necessary should we be unable to continue as a going concern.

As of November 30, 2023, we had a cash balance of

$97,478, accounts receivable of $505,438, device parts inventory of $2,220,159 and $16,459,125 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:

November 30, 2023

Our operating expenses during the three-month period ended May 31, 2024 and May 31, 2023, were $3,720,463 and $3,322,463, respectively.

The overall increase of $397,620 was primarily attributable to the following changes in operating expenses of:

and administrative expenses increased by $519,589.

In comparing the three months ended May 31, 2024 and May 31, 2023 this increase

was primarily due to the following increases:

wages and salaries by $129,516, freight and duties by $125,886, installation $30,754,

RMC costs by $72,603, commissions by $63,883, travel by $12,646, professional fees by $70,954, subcontractors by $47,924, insurance

by $13,585 and other G& A increases.

and development decreased by $251,047 due to a reduction in funding on development of future products.

and amortization increased by $129,607 due to large increases in revenue earning devices, demo devices, as well as some fixed assets.

lease cost and rent decreased by $529.

Income (Expense)

income (expense) during the three months ended May 31, 2024 and May 31, 2023, was ($1,361,103) and ($1,606,216), respectively.

$245,113 decrease in other expense was primarily attributable to the amortization of debt discount decreasing because of the

elimination of the unamortized relative fair value discount in the current quarter as a result of our implementation of ASU 2020-06.

had a net loss of $4,194,359 for the three months ended May 31, 2024, compared to a net loss of $4,555,193 for the three months

ended May 31, 2023.

The decrease in net loss of $360,834 is due to a number of factors:

higher gross profit is reduced by higher

general and administrative and depreciation in the three months ended May 31, 2024.

Capital Resources and Cash Flows

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

of May 31, 2024, we had a cash balance of $193,103, accounts receivable(net) of $616,464, device parts inventory(net) of $1,830,467 and

$28,749,738 in current liabilities.

At the current cash consumption rate, we will need to consider additional funding sources going forward.

We are taking proactive measures to reduce operating expenses and drive growth in revenue.

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.

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

February 29, 2024

2 unchanged sentences

Working capital

As of November 30, 2023 and February 28, 2023, we

had a cash balance of $97,478 and $939,759, respectively.

Summary of Cash Flows

November 30, 2023

November 30, 2022

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

$ (25,655,546 )

$ (18,099,085 )

of May 31, 2024 and February 29, 2024, we had a cash balance of $193,103 and $105,926, respectively.

of Cash Flows

Three Months Ended

Net cash used in operating activities

Net cash used in operating activities for the nine

months ended November 30, 2023 was $9,378,427 which included a net loss of $13,281,405, non-cash activity such as the bad debts expense

of $26,730, reduction of right of use asset of $88,378, accretion of lease liability $99,248, stock based compensation of $337,896, gain

on settlement of debt of ($38,740) , change in operating assets and liabilities of $966,052, amortization of debt discount of $1,755,897,

increase in related party accrued payroll and interest of $92,770 and depreciation and amortization of $574,746 to derive the uses of

cash in operations.

$ (3,045,831 )

$ (2,991,003 )

Net cash used in investing activities

Net cash used in investing activities for the nine

months ended November 30, 2023 was $10,044 which was the purchase of fixed assets of $13,903 offset by reimbursement of security deposit

Net cash provided by financing activities.

Net cash provided by financing activities was $8,546,100

for the nine months ended November 30, 2023.

This consisted of share proceeds net of issuance costs of 7,527,190, proceeds from loans

payable of $1,400,000, reduced by repayments on loans payable of $381,000.

Off-Balance Sheet Arrangements

Critical Accounting Policies and Estimates

Critical accounting policies and estimates are further

discussed in our Annual Report on Form 10-K for the year ended February 28, 2023, as filed on June 14, 2023.

Related Party Transactions

For both the three months ended November 30, 2023

and November 30, 2022 , the Company had no repayments of net advances from its loan payable-related party At November 30, 2023, the loan

payable-related party was $299,286 and $206,516 at February 28, 2023.

Included in the balance due to the related party at November 30,

2023 is $222,754 of deferred salary and interest, $183,625 of which bears interest at 12%.

At February 28, 2023, included in the balance

due to the related party is $108,000 of deferred salary with $108,000 bearing interest at 12%.

The accrued interest included in loan at

November 30, 2023 and February 28, 2023 was $28,267 and $15,660 respectively.

Pursuant to the amended Employment Agreement with

its Chief Executive Officer, for the three months and nine ended November 30, 2023, the Company accrued $62,000 (2022-$138,000) and $187,000

(2022-$362,500) of incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation

of additional awards being met.

This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at

$1,000 per share.

At November 30, 2023 and February 28, 2023 there was $1,166,000 and $979,000 of incentive compensation payable.

During the three months ended November 30, 2023 and

2022, the Company was charged $526,723 and $794,460, respectively for fees for research and development from a company partially owned

by a principal shareholder.

During the nine months ended November 30, 2023 and

2022, the Company was charged $2,185,998 and $2,735,589, respectively for fees for research and development from a company partially owned

by a principal shareholder.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Not applicable for a smaller reporting company.

Net cash (used in) provided by financing activities

cash used in operating activities.

cash used in operating activities for the three months ended May 31, 2024 was $3,045,831 which included a net loss of $4,194,359, non-cash

activity such as inventory provision $210,000 ,bad debts expense of $13,000, reduction of right of use asset of $31,425, accretion of

lease liability $31,065, stock based compensation of $83,323, change in operating assets and liabilities of $436,966, amortization of

debt discount of $27,625, increase in related party accrued payroll and interest of $17,575 and depreciation and amortization of $297,549

to derive the uses of cash in operations.

cash used in investing activities.

cash used in investing activities for the three months ended May 31, 2024 was $21,728 which was the purchase of fixed assets of $19,132

and an acquisition of trademark of $2,596.

cash provided by financing activities.

cash provided by financing activities for the three months ended May 31, 2024 was $3,154,736.

This consisted of share proceeds net

of issuance costs of 2,682,592, proceeds from loans payable of $350,000, reduced by repayments on loans payable of $27,000.

had proceeds on issuance of Series B Convertible Redeemable Preferred Shares of $278,000 reduced by a redemption on those shares of

Sheet Arrangements

Accounting Policies and Estimates

accounting policies and estimates are further discussed in our Annual Report on Form 10-K for the year ended February 28, 2023, as filed

on June 14, 2023.

Party Transactions

both the three months ended May 31, 2024 and May 31, 2023 , the Company had no repayments of net advances from its loan payable-related

At May 31, 2024, the loan payable-related party was $275,013 and $257,438 at February 29, 2024.

Included in the balance due to

the related party at May 31, 2024 is $198,481 of deferred salary and interest, $152,513 of which bears interest at 12%.

As of February

29, 2024, included in the balance due to the related party is $140,013 of deferred salary all of which bears interest at 12%.

interest included in loan at May 31, 2024 and February 29, 2024 was $36,974 and $32,468, respectively.

to the amended Employment Agreement with its Chief Executive Officer, for the three months ended May 31, 2024 the Company accrued $0

(three months ended May 31 2023-$63,000) of incentive compensation plan payable with a corresponding recognition of stock based compensation

due to the expectation of additional awards being met.

This will be payable in Series G Preferred Shares which are redeemable at the

Company’s option at $1,000 per share.

At May 31, 2024 and February 29, 2024 there was $2,500,000 and $2,500,000 of incentive compensation

the three months ended May 31, 2024 and 2023, the Company was charged $631,584 and $882,015, respectively for fees for research and development

from a company partially owned by a principal shareholder.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

applicable for a smaller reporting company.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis