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Item 2. Management’s Discussion and Analysis

2024-10-15 compared with 2024-07-15 · 146 added, 81 removed, 83 unchanged (73% of the section changed)

1 unchanged sentence

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.

following discussion of our financial condition and results of operations for the three and six months ended August 31, 2024 and August

31, 2023 should be read in conjunction with our unaudited consolidated financial statements and the notes to those statements that are

included elsewhere in this report.

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

and uncertainties, such as our plans, objectives, expectations and intentions.

Actual results and the timing of events could differ materially

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

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

We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,”

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

“could,” and similar expressions to identify forward-looking statements.

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

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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

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

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

The historical results presented

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

August 31, 2024

August 31, 2023

Operating expenses

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

Three Months Ended

August 31, 2024

August 31, 2023

Device rental activities

Direct sales of goods and services

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

revenue for the three-month period ended August 31, 2024 was $1,344,183 which represented an increase of $957,820 compared to total revenue

of $386,363 for the three months ended August 31, 2023.

Rental activities increased by 210% over the prior year’s quarter and direct

sales by $235,465 as the Company continues to grow its core business.

gross profit for the three-month period ended August 31, 2024 was $559,218, which represented an increase of $373,444 compared to gross

profit of $185,774 for the three months ended August 31, 2023.

The gross profit increased due to the higher sales.

The gross profit %

of 42% for the three-month period ended August 31, 2024 was lower than the gross profit % of 48% for the prior year’s corresponding

August 31, 2024

August 31, 2023

Research and development

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expenses consisted primarily of professional services, automobile expenses, advertising, salaries and wages, travel expenses and consultants.

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

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

Our operating expenses during the three-month period ended August 31, 2024 and August 31, 2023, were $3,173,092 and $3,231,026, respectively.

The overall decrease of $57,934 was primarily attributable to the following changes in operating expenses of:

and administrative expenses increased by $30,482.

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.

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

in G&A was primarily due to increases in wages and salaries of $348,837 and subcontractors of $46,581.

These increases were partially

offset by decreases in:

professional fees of $170,274, stock-based compensation of $58,984, production supplies of $19,712, marketing

of $19,712, freight of $4,362 and travel of $79,408

and development decreased by $117,138 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.

and amortization increased by $28,926 due to increases in revenue earning devices, demo devices, warehouse equipment and computer

lease cost and rent increased by $426.

Income (Expense)

income (expense) consisted of interest.

Other income (expense) during the three months ended August 31, 2024 and August 31, 2023, was

($1,316,449) and ($1,714,476), respectively.

The $398,027 decrease in other expense was primarily attributable to the application of

ASU-2020 06 in the current year which resulted in lower amortization expense.

had a net loss of $3,930,323 for the three months ended August 31, 2024, compared to a net loss of $4,759,728 for the three months ended

August 31, 2023.

The decrease in net loss of $829,405 is primarily a result of higher gross profit and lower other expense.

of Operations for the Six Months Ended August 31, 2024 and 2023

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

The historical results presented below

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

August 31, 2024

August 31, 2023

Operating expenses

Loss from operations

Other income (expense), net

$ (8,124,682 )

$ (9,314,919 )

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

August 31, 2024

August 31, 2023

Device rental activities

Direct sales of goods and services

revenue for the six-month period ended August 31, 2024 was $2,526,983 which represented an increase of $1,755,412 compared to total revenue

of $771,571 for the six months ended August 31, 2023.

This increase is a result of an increase in rental sales of $1,464,742 as

the Company deployed more units as well as an increase in direct sales of $290,670.

gross profit for the six-month period ended August 31, 2024 was $1,244,552 which represented an increase of $862,045, compared to gross

profit of $382,507 for the six months ended August 31, 2023.

The gross profit increased due to the higher sales.

The gross profit % was

49% for both the six month period ended August 31, 2024 and 2023.

August 31, 2024

August 31, 2023

Research and development

General and administrative

Depreciation and amortization

Operating lease cost and rent

Operating expenses

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 August 31, 2024 and August 31, 2023, were $6,691,682

and $6,376,734, respectively.

The overall increase of $314,948 was primarily attributable to the following changes in operating expenses

and administrative expenses increased by $630,932.

In comparing the six months ended August 31, 2024 and August 31, 2023 the increase

may be partially explained by the following decreases:

wages and salaries by $478,383, subcontractors by $94,505, professional fees

by $173,272, commissions by $110,694.

freight by $121,524, installation costs by$85,403, and RMC costs by $164,710.

These were partially

offset by decreases in the following accounts:

professional fees by $144,064, stock-based compensation by $91,382, travel by $66,762,

repairs and maintenance by $66,478, sales and marketing by $41,630, production supplies by $38,244 and other general and administrative

and development decreased by $368,185 due to a reduction in funding on development of future products.

and amortization increased by $52,994 due to the acquisition of revenue earning devices, demo devices, warehouse equipment and computer

lease cost and rent decreased by $103.

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.

income (expense) during the six months ended August 31, 2024 and August 31, 2023, was ($2,677,552) and ($3,320,692), respectively.

$643,140 decrease in other expense was primarily attributable to the application of ASU-2020 06 in the current year which resulted in

lower amortization expense.

had a net loss of $8,124,682 for the six months ended August 31, 2024, compared to a net loss of $9,314,919 for the six months ended

August 31, 2023.

The decrease in net loss of $1,190,237 is a result of higher gross profit and a reduction on other expense.

Capital Resources and Cash Flows

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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.

of August 31, 2024, we had a cash balance of $543,133, accounts receivable of $650,293, device parts inventory of $2,063,229 and $37,080,711in

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.

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

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$ (18,099,085 )

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

of August 31, 2024 and February 29, 2024, we had a cash balance of $543,133 and $105,926, respectively.

of Cash Flows

Three Months Ended

Summary of Cash Flows

August 31, 2024

August 31, 2023

Net cash used in operating activities

2 unchanged sentences

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash 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 operating activities for the six months ended August 31, 2024 was $6,433,906 which included a net loss of $8,124,682

non-cash activity such as the bad debts expense of $11,995, inventory provision of $111,000, reduction of right of use asset of

$63,821, accretion of lease liability $61,159, stock based compensation of $166,646, loss on settlement of debt of $6,520, change in

operating assets and liabilities of $472,840, amortization of debt discount of $129,333, increase in related party accrued payroll

and interest of $22,151 and depreciation and amortization of $645,311 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 used in investing activities for the six months ended August 31, 2024 was $77,868, $23,724 for the purchase of fixed assets, $4,144

for acquisition of trademarks and $50,000 for a convertible note receivable.

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

cash provided by financing activities was $6,948,981 for the six months ended August 31, 2024.

This consisted of share proceeds net of

issuance costs of 6,893,169, proceeds from loans payable of $350,000, reduced by repayments on loans payable of $183,000, proceeds on

the issuance of Series B redeemable convertible preferred shares of $278,000 reduced by redemption of those same Series B redeemable

convertible preferred shares of $389,188.

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.

accounting policies and estimates are further discussed in our Annual Report on Form 10-K for the year ended February 29, 2024,

as filed on May 29, 2024.

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.

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

party At August 31, 2024 the loan payable-related party was $279,589 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%.

the related party at August 31, 2024 is $203,057 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.

interest included in loan at August 31, 2024 and February 29, 2024 was $41,549 and $32,468, respectively.

to the amended Employment Agreement with its Chief Executive Officer, for the three months and six ended August 31, 2023, the Company

accrued $0 (2023-$62,000) and $0 (2023-$125,000) 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 August 31, 2024 and February 29, 2024 there was $2,500,000 and $2,500,000 of incentive

compensation payable.

August 31, 2024 deferred compensation for CEO was $204,091.

For the 6 months ended August 31, 2024,the net change was a decrease of $334,676

comprising of cash repayment of $505,000 offset by accruals and adjustments of $170,324.

At February 29, 2024 deferred compensation for

CEO was $538,767.

the three months ended August 31, 2024 and 2023, the Company was charged $777,260 and $777,260, respectively for fees for research and

development from a company partially owned by a principal shareholder.

the six months ended August 31, 2024 and 2023, the Company was charged $1,289,830 and $1,659,275, respectively for fees for research

and development from a company partially owned by a principal shareholder.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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