ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (form 10-Q)

ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

Forward-Looking Statements




The following discussion of our financial condition and results of operations
for the three and nine months ended November 30, 2022 and November 30, 2021
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, 2022, as filed on May 27, 2022 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



Artificial Intelligence Technology Solutions Inc. ("we", "our, "us", "AITX" or
the "Company") was incorporated in Florida on March 25, 2010 as On the Move
Systems Inc. and was quoted on OTC Pinks as 'OMVS'. We reincorporated in Nevada
on February 17, 2015. Our fiscal year end is February 28 (February 29 during
leap year). We are located at 10800 Galaxie Ave., Ferndale, Michigan 48220, and
our telephone number is 877-767-6268. We completed a stock ticker change to AITX
in 2018. Steve Reinharz became our Chief Executive Officer in March 2021 and is
the founder of our primary wholly owned subsidiary, Robotic Assistance Devices,
Inc. (RAD). We have a 3-year executive compensation agreement with our CEO.



Our mission is to apply artificial intelligence (AI) technology to solve
enterprise security-related problems categorized as expensive, repetitive,
difficult to staff, dangerous, and outside of the core competencies of the
client organization.



For example:


? 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.

? Performance of difficult, rare, and high value tasks such as firearm detection

and immediate response whether autonomously or with human assistance.

? Automation of common access control functions through technology utilizing

facial recognition and machine vision, leapfrogging over most legacy solutions

in use today.

? Patrol and response of commercial, industrial and government areas requiring

  heightened security work to be completed via autonomous mobile robotics
  devices.



RAD solutions are unique due to their functionalities, as follows:

? 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 RAD’s exclusive hardware and software, purpose-built by for delivery of

these solutions. Various form factors have been customized to deliver this new

functionality, both mobile and stationary.

? 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.

? Perform workflow functions via purpose-built fixed and mobile devices with

  unique technology and methodology.




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Through our subsidiary, Robotic Assistance Devices, Inc. (RAD), AITX is
redefining the $25 billion (US) security and guarding services industry through
its broad lineup of innovative, AI-driven Solutions-as-a-Service business model.
RAD solutions are specifically designed to provide a cost savings to businesses
of between 35% and 80% when compared to the industry's existing and costly
manned security guarding and monitoring model. RAD delivers this costs savings
via a suite of stationary and mobile robotic security solutions that complement,
and at times, directly replace the need for human personnel in environments
better suited for machines.



At the beginning of the prior fiscal year ended February 28, 2022, AITX began
its 10-year lease at its 29,316 sq ft manufacturing facility outside of Detroit,
Michigan, hired the employees, and acquired the infra-structure to support it.
This facility, referred to by RAD as 'the REX' positions AITX to achieve its
growth objectives and meet future sales demands.



As of January 16, 2023, there were approximately 300 RAD units deployed with
approximately 290 units on backorder, in production or en route to deployment.
Additionally, RAD has reported a total authorized dealer count of 55. RAD
distributes its products through a combination of direct sales to end-users and
opportunities developed through its dealer channel.



Our 85 employees as of January 16, 2023 constitute our workforce that supports
the necessary infrastructure (Engineering, Production, Business Development,
Marketing, Administration) built to achieve our growth objectives and meet
future sales demands. We strive for rapid growth and creation/expansion of our
departments and teams; however, this creates significant challenges that if
unsuccessful will negatively impact our results of operations.



We and our subsidiaries have launched several new solutions during the 3rd
quarter of the current fiscal year (FY2023), including:

? RIO™, a portable, solar-powered, wide-area security device. RIO was formally

introduced to the security industry at one of its premier trade shows, GSX 2022

in Atlanta in September 2022.

? ROSA-P, a switched-powered security and safety solution that powers RAD’s

best-selling ROSA 3.x where power does not currently exist in the industry at

night.

? RADDOG™, the security industry’s purpose-built mobile robot dog.

? ROSS™, a software solution which enables millions of IP security cameras

presently deployed with the ability to connect with the RAD ecosystem (RADSoC).

ROSS empowers these non-RAD cameras to run the same AI analytic capabilities as

other RAD hardware solutions.

? Wholly owned subsidiary Robotic Assistance Devices Group, Inc. (RAD-G)

announced the launch of a sales initiative targeting OEM markets. This market

development endeavor marks our first of its kind and involves the placement of

hardware and software solutions developed across all subsidiaries for use in

other vertical markets through OEM suppliers.

? Wholly owned subsidiary Robotic Assistance Devices Mobile, Inc., is expected to

  make a new solution announcement sometime in FY2024.




These solutions utilize the comprehensive RAD platform to offer unparalleled,
all-in-one, security and safety solutions that can be implemented within a half
hour. These solutions include cutting-edge features such as the detection of
firearms, deterrents for trespassing, peripheral surveillance, management of
visitors, and more.


RAD’s sales funnel has experienced substantial growth in both volume and value.

RAD is working towards adding the following deployments to be in place by
February 29, 2024:

? 25 ROAMEOs, the robust mobile-patrolling security robot. The current schedule,

subject to engineering development timelines, parts availability and

manufacturing, has these ROAMEO units available to ship to clients and start

billing as soon as August 2023. We expect to deploy 5-10 a month beginning in

August. Pre-selling has begun with the goal of exceeding 25 units for FY2024.

? 150 RIOs, portable solar-powered, wide-area security devices. RAD’s largest

dealer is expected to add this to their line card by May 2023 which we can

reasonably expect will drive significant volume. Management expects RIO revenue

  to begin significance towards the end of Q2 FY2024.




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? 350 ROSAs / ROSA-Ps, stationary security and safety solutions. This number of

ROSA & ROSA P units is roughly at the same run rate as the last few months of

calendar year 2022 and is considered by management to be easily achievable.

Management expects a minimum of 30 units being added monthly to recurring

monthly revenue beginning March 1, 2023.

? 100 AVAs, an autonomous access control / vehicle access device. AVA 3.0 units

hit 10 deployed units by mid-January. Early indications of market reception are

positive and it’s expected that dealers will begin ordering in greater

quantities as management gathers more case studies and references.

? 15 RADDOG™, the security industry’s purpose-built robot dog. RADDOG version 1.0

was first publicly displayed on December 7, 2022 at the Company’s Investor Open

House and Technology Reveal. As was stated at that time all of our tests were

successful and we are moving forward with a larger, stronger version to

commercialize. This version will be shown at the ISC West trade show in Las

Vegas at the end of March and will be available to ship to clients in the May

time frame. The projected number of 15 is considered conservative by management

for FY2024.

? 5000 IP camera integrations via ROSS. These are expected to be ‘take-over’ or

‘side-by-side’ type deployments featuring pre-existing LAN connected IP

security cameras. ‘Take-over’ deployments would replace the pre-existing Video

Management System and ‘side-by-side’ deployments would leave the existing

systems in place and use secondary camera feeds through ROSS.

? 35 TOM autonomous visitor management devices. TOM, an acronym for ‘The Office

Manager’ is the evolution and replacement for Wally™. ‘TOM+’ is scheduled for

development and release in FY2024. Currently RAD’s largest single client has

deployed TOM units throughout the US and at two European locations. Given

monthly sales orders it is expected that this 35 unit target could be met

entirely by this one client. We are discussing rolling the product out to its

dealer channel as at the moment it is only available to this single client.





The realization of the deployments, if successful and if within a 10% range of
standard RAD dealer pricing, will result in our recurring monthly revenues
reaching approximately $800,000, and if achieved, would enable us to attain
positive cash flow. As such, we will continue to focus on improving existing
team members' efficiency and productivity with a focus on retention. Achievement
of the sales goals listed herein will require approximately 5% to 10% headcount
growth in the production and deployment teams which could push back the goals of
positive cash flow.



Several significant new clients are expected to receive their deployments in
FY2024 and are expected to be public. Security is generally a private corporate
function and we note that prior clients that have been publicized have been
inundated with shareholder phone calls looking for further verification. It is
for these reasons that we will continue to rarely pursue publicization of end
users.


FY2024 will feature balancing efforts on cost savings with accelerated growth in
order to increase probability of achieving targeted positive cash flow targets.

Management Discussion and Analysis

Results of Operations for the Three Months Ended November 30, 2022 and 2021




The following table shows our results of operations for the three months ended
November 30, 2022 and 2021. The historical results presented below are not
necessarily indicative of the results that may be expected for any future
period.



                                               Period
                                 Three Months          Three Months
                                     Ended                 Ended                   Change
                               November 30, 2022     November 30, 2021      Dollars      Percentage
Revenues                      $           402,399   $           373,897   $     28,502           8%
Gross profit                              276,439               230,473         45,966          20%
Operating expenses                      3,090,941             5,118,000     (2,027,059 )       (40% )
Loss from operations                   (2,814,502 )          (4,887,527 )    2,073,025          42%
Other income (expense), net            (1,271,158 )          (2,206,915 )      935,757          42%
Net income (loss)             $        (4,085,660 ) $        (7,094,442 ) $  3,008,782          42%




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Revenue


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



                               Three Months          Three Months
                                   Ended                 Ended                   Change
                             November 30, 2022     November 30, 2021      Dollars     Percentage
Device rental activities    $           154,628   $           165,353   $   (10,725 )        (6% )
Direct sales of goods and
services                                247,771               208,544        39,227          19%
                            $           402,399   $           373,897   $    28,502           8%




Total revenue for the three-month period ended November 30, 2022 was $402,399
which represented an increase of $28,502 compared to total revenue of $373,897
for the three months ended November 30, 2021. This increase is a result of
higher direct sales in the current year's quarter.



Gross profit



Total gross profit for the three-month period ended November 30, 2022 was
$276,439, which represented an increase of $45,966 compared to gross profit of
$230,473 for the three months ended November 30, 2021. The gross profit
increased due to the higher sales and variations in product mix sales. The gross
profit % of 69% for the three-month period ended November 30, 2022 was higher
than the gross profit % of 62% for the prior year's corresponding period.



Operating Expenses



                                                 Period
                                   Three Months          Three Months
                                       Ended                 Ended                   Change
                                 November 30, 2022     November 30, 2021      Dollars      Percentage
Research and development        $           813,313   $           982,446   $   (169,133 )       (17% )
General and administrative                2,123,768             3,964,512     (1,840,744 )       (46% )
Depreciation and amortization                92,855                67,927         24,928          37%
Operating lease cost and rent                61,005               103,115        (42,110 )       (41% )
Operating expenses              $         3,090,941   $         5,118,000   $ (2,027,059 )       (40% )




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, 2022 and November 30, 2021,
were $3,090,941 and $5,118,000, respectively. The overall decrease of $2,027,059
was primarily attributable to the following changes in operating expenses of:



? General and administrative expenses decreased by $1,840,744. In comparing the

three months ended November 30, 2022 and November 30, 2021 this decrease was

primarily due to the following decreases: stock based compensation of $819,500

for higher prior year charges based on the CEO incentive plan, wages and

salaries for prior year bonuses paid, bad debts expense of $25,785 and

professional fees of $126,435. These decreases were offset by the following

increases: insurance of $51,485 due to health plan for new employees and

increased liability and property insurance due to new manufacturing

facility, advertising , sales and marketing of $82,893, subcontractor fees of

$13,802, travel of $18,004, duty and freight of $36,230 and bad debts expense

due to a general provision of $40,000 on slow payers due to present economic

factors.

? Research and development decreased by $169,133 due to higher activity in the

prior year in R&D design and equipment for the development of new products such

as ROAMEO and AVA, as well as upgrades of existing products. That decrease was

partially offset by an increase in research and development paid to a related

party of $146,995.

? Depreciation and amortization increased by $24,928 due to the acquisition of

computer equipment and new revenue earning devices.

? Operating lease cost and rent decreased by $42,110 due to one less office lease

  for the three months ended November 30, 2022 comparing to the three months
  ended November 30, 2021.




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Other Income (Expense)


Other income (expense) consisted of the change of fair value of derivative
instruments, loss on settlement of debt and interest. Other income (expense)
during the three months ended November 30, 2022 and November 30, 2021, was
($1,271,158) and ($2,206,915), respectively. The $935,757 decrease in other
expense, net was primarily attributable to reduced interest expense.

? Interest expense decreased by $779,096 due to a decrease in debt amortization

expense. The three months ended November 30, 2021 had higher amortization due

to debt settlements.

? Loss on settlement of debt was $0 the quarter ended November 30, 2022 and

$156,661 in the quarter ended November 30, 2022.




Net loss



We had a net loss of $4,085,660 for the three months ended November 30, 2022,
compared to a net loss of $7,094,442 for the three months ended November 30,
2021. The decrease in net loss of $3,008,782 is due to a number of factors:
higher gross profit and lower general and administrative and other expense in
the three months ended November 30, 2022.



Results of Operations for the Nine Months Ended November 30, 2022 and 2021




The following table shows our results of operations for the nine months ended
November 30, 2022 and 2021. The historical results presented below are not
necessarily indicative of the results that may be expected for any future
period.



Revenue



                                               Period
                                  Nine Months           Nine Months
                                     Ended                 Ended                   Change
                               November 30, 2022     November 30, 2021      Dollars      Percentage
Revenues                      $         1,055,040   $         1,075,803   $    (20,763 )        (2% )
Gross profit                              601,142               779,499       (178,357 )       (23% )
Operating expenses                     10,090,732            11,102,944     (1,012,212 )        (9% )
Loss from operations                   (9,489,590 )         (10,323,445 )      833,855          (8% )
Other income (expense), net            (3,440,621 )         (37,508,288 )   34,067,667          91%
Net loss                      $       (12,930,211 ) $       (47,831,733 ) $ 34,901,522          73%



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



                                 Nine Months           Nine Months
                                    Ended                 Ended                   Change
                              November 30, 2022     November 30, 2021      Dollars     Percentage
Device rental activities     $           622,647   $           383,434   $   239,213          62%
Direct sales of goods and
services                                 432,393               692,369      (259,976 )       (38% )
                             $         1,055,040   $         1,075,803   $   (20,763 )        (2% )




Total revenue for the nine-month period ended November 30, 2022 was $1,055,040
which represented a decrease of $20,763 compared to total revenue of $1,075,803
for the nine months ended November 30, 2021. The small decrease was a result of
unusually large unit sales which includes sales of new units totaling $692,369
which occurred in the nine months ended November 30, 2021. This was partially
offset by a 62% increase in rental activities increased as the Company continues
to grow its rental business.



Gross profit



Total gross profit for the nine-month period ended November 30, 2022 was
$601,142 which represented a decrease of $178,357, compared to gross profit of
$779,449 for the nine months ended November 30, 2021. The decrease resulted both
from lower revenues noted above as well as cost of sales increases in 2022 due
to inventory changes. The gross profit percentage of 57% for the nine-month
period ended November 30, 2022 was lower than the margin of 72% for the prior
year's corresponding period was primarily due to inventory adjustments due to
shrinkage and obsolescence totaling $123,309, which occurred in the first
quarter. Before these adjustments the gross profit % for the nine months ended
November 30, 2022 would have been a comparable 69%.



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Operating Expenses

                                              Period
                                 Nine Months           Nine Months
                                    Ended                 Ended                   Change
                              November 30, 2022     November 30, 2021      Dollars      Percentage
Research and development     $         2,800,834   $         2,316,383   $    484,451          21%
General and administrative             6,762,602             8,455,224     (1,692,622 )       (20% )
Depreciation and
amortization                             332,643               153,261        179,382         117%
Operating lease cost and
rent                                     194,653               207,201        (12,548 )        (6% )
(Gain) loss on disposal of
fixed assets                                   -               (29,125 )       29,125         100%
Operating expenses           $        10,090,732   $        11,102,944   $ (1,012,212 )        (9% )




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 nine-month period ended November 30, 2022 and November 30, 2021, were
$10,090,732 and $11,102,944, respectively. The overall decrease of $1,012,212
was primarily attributable to the following changes in operating expenses of:



? General and administrative expenses decreased by $1,692,622. In comparing the

nine-months ended November 30, 2022 and November 30, 2021 may be partially

  explained by the following decreases: wages and salaries by $144,439,
  professional fees by $535,117, subcontractor fees $89,492 and stock-based
  compensation $1,677,050. These were partially offset by increases in the
  following accounts: sales and marketing by $314,098, travel by $115,122,

insurance by $229,562, duty and freight by $66,067,bad debts expense $117,193,

and office expense by $73,922.

? Research and development increased by $484,451 due to funding development of

new products as well as upgrades of existing products that mostly took place in

the first two quarters of 2022. Included in that increase is the increase in

research and development paid to a related party of $1,064,636. This increase

was partially offset by the higher development costs incurred in equipment and

design on new products for the nine-month period ended November 30, 2021.

? Depreciation and amortization increased by $179,382 due to the acquisition of

ERP computer software, computer equipment tooling, and 54 new revenue earning

devices.

? Operating lease cost and rent decreased by $12,548 due to the expiration of one

lease in early fiscal 2022.

? (Gain) loss on disposal of fixed assets increase by $29,125 due to a vehicle

  sold in the prior year.




Other Income (Expense)


Other income (expense) during the nine months ended November 30, 2022 and
November 30, 2021, was ($3,440,621) and ($37,508,288), respectively. The
$34,067,677 increase 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 nine months ended November 30, 2022 and the nine months ended

November 30, 2021, the change in fair value of derivative liabilities decreased

by $368,907 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 as

well as reductions in derivative liability as a result of settlements on the

underlying debt.

? Interest expense decreased by $1,364,269 due to the decrease in debt

amortization expense. The three months ended November 30, 2021 had higher

amortization due to debt settlements.

? Gain (loss) on settlement of debt was $3,992 the nine months ended November 30,

2022 and ($33,068,313) in the nine months ended November 30, 2021. This current

period the gain was a result of the reduction of the derivative liability , the

prior year’s period has an amendment of the deferred variable payment

obligation that led to a $33,015,215 loss which was partially offset by gains

from accrued liabilities settlements and the debt exchange for common shares.

  This loss on settlement of debt was non-cash and has no effect on the cash
  flows of the Company.




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Net loss



We had a net loss of $12,930,211 for the nine months ended November 30, 2022,
compared to a net loss of $47,831,733 for the nine months ended November 30,
2021. The change is primarily the result of the loss on settlement in the nine
months ended November 30, 2021 as well as the lower general and administrative
expenses 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.



As of November 30, 2022, we had a cash balance of $713,493, net accounts
receivable of $464,044, net device parts inventory of $1,573,380 and $4,470,418
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, 2022     February 28, 2022
Current assets        $         3,423,711   $         7,050,436
Current liabilities             4,470,418             4,547,718
Working capital       $        (1,046,707 ) $         2,502,718



As of November 30, 2022 and February 28, 2022, we had a cash balance of $713,493
and $4,648,146, respectively.

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