ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. Forward-Looking Statements
The following discussion of our financial condition and results of operations for the nine months endedNovember 30, 2020 andNovember 30, 2019 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 10K for the year endedFebruary 29, 2020 , as filed onJuly 28, 2020 with theSEC . 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 toArtificial Intelligence Technology Solutions Inc. OverviewArtificial Intelligence Technology Solutions Inc. (formerly On theMove Systems Corp. ) was incorporated inFlorida onMarch 25, 2010 and reincorporated inNevada onFebruary 17, 2015 . OnAugust 24, 2018 AITX changed its name from On theMove Systems Corp. ("OMVS").
OnAugust 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, in which AITX purchased all of the outstanding shares of capital stock 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. The Company received pre-order letters of intent from dealers and end users for 76 ROAMEO units that represents approximately$320,000 in monthly recurring revenue. The Company is working to turn these pre-orders into firm orders with an expectation that conversions could begin in the first quarter of the new fiscal year endedFebruary 28, 2022 . It is expected that ROAMEO production ramp-up time will take at least two quarters during fiscal 2022 to fulfill converted pre-orders. The Company expects to form a new wholly owned subsidiary to provide services in the security and robotics space that are complimentary toRAD Inc and RAD Mobile sometime in the fiscal year endedFebruary 28, 2022 . - 28 - --------------------------------------------------------------------------------
Three Months Ended Three Months Ended Three Months Ended
November 30, 2020 August 31, 2020 May 31, 2020
Revenues $ 119,700 $ 76,082 $ 63,321
Gross profit 95,018 40,071 54,031
Operating expenses 995,092 707,969 392,762
Loss from operations (900,074 ) (667,898 ) (338,731 )
Other income (expense), net 4,308,379 (8,350,343 ) 2,314,007
Net income (loss) $ 3,408,305 $ (9,018,241 ) $ 1,975,276
Sales grew 20% from the quarter ended August 31, 2020 over the quarter ended May
31, 2020 and 57% from the quarter ended November 30, 2020 over the quarter ended
August 31, 2020 .
This sales growth is a result of an expansion of our customer base and product
line and our ability to ramp up production to meet demand. We expect to continue
this growth trend in the fourth quarter and in our next fiscal year as projects
accelerate through the sales funnel. We expect an increase to the rate of growth
in 2022 as we start to deliver on ROAMEO and AVA products.
Operating expenses in the quarter ended November 30, 2020 was $995,092 however
after adjusting for stock based consulting fees of $362,084 , was actually 10%
lower in this quarter vs the quarter ended August 31, 2020 . The company has made
improvements to continue to reduce non-operational costs.
The Company continues to reduce it's convertible debt both through conversions
and settlements that will take place next quarter and described in Note 8. This
reduces the derivative liability and should allow the Company to attract more
funding in the future form alternative sources as the dilutive effect of the
convertible debt is reduced. The changes in the market price of the stock as
well as the conversions, settlements and other factors described in Note 12 and
further in this management, discussion and analysis leads to large fluctuations
in other income and consequently net income (loss) for the Company.
Specifically, most of derivative liabilities shown in this filing will be eliminated in the year end filing. This will be a substantial improvement to the AITX balance sheet.
- 29 -
--------------------------------------------------------------------------------
Results of Operations for the Three Months Ended
The following table shows our results of operations for the three months endedNovember 30, 2020 and 2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period. Three Months Ended Three Months Ended November 30, 2020 November 30, 2019 Dollars Percentage Revenues $ 119,700 $ 71,434$ 48,266 68% Gross profit 95,018 44,573 50,445 113% Operating expenses 995,092 580,369 414,723 71% Loss from operations (900,074 ) (535,796 ) (364,278 ) 68% Other income (expense), net 4,308,379 (2,860,235 ) 7,168,614 251% Net income (loss) $ 3,408,305 $ (3,396,031 )$ 6,804,336 200% Revenue Total revenue for the three month period endedNovember 30, 2020 was$119,700 which represented an increase of$48,266 compared to total revenue of$71,434 for the three months endedNovember 30, 2019 . This 68% increase is explained by a 20% increase in rental revenues and a 758% increase in direct sales of goods. Gross profit
Total gross profit for the three month period ended
Operating Expenses
Period Change
Three Months Ended Three Months Ended
November 30, 2020 November 30, 2019 Dollars Percentage Research and development $ 20,624 $ 127,564$ (106,940 ) (84% ) General and administrative 944,323 432,714 511,609 118% Depreciation and amortization 30,145 27,591 2,554 9% (Gain) on disposal of fixed assets - (7,500 ) 7,500 - Operating expenses $ 995,092 $ 580,369$ 414,723 71% Our operating expenses were comprised of general and administrative expenses, research and development, loss on disposal of fixed assets 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 endedNovember 30, 2020 andNovember 30, 2019 , were$995,092 and$580,369 , respectively. The overall increase of$414,723 was primarily attributable to the following changes in operating expenses of:
? General and administrative expenses increased by
three months ended
was primarily due to increases in subcontractor and professional fees
including an accrual for
consultant as well as start up costs of
products.
? Research and development decreased by $106,940 primarily due to the
classification of ROAMEO start up costs of approximately $128,000
referenced above included in G&A for the quarter ended
? Depreciation and amortization increased by
revenue earning devices.
? Gain on disposal was
There were no disposals in the current period.
- 30 -
--------------------------------------------------------------------------------
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 endedNovember 30, 2020 andNovember 30, 2019 , was$4,308,379 and ($2,860,235 ), respectively. The 7,168,614 increase in other income was primarily attributable to the change in the fair value of derivatives, interest expense, and loss on settlement of debt. Fair value of derivatives was largely affected by the decrease in the market price of the Company's common stock during the current period.
? In comparing the three months ended
ended
increased by
convertible notes and accrued interest based on the change in the market
price of the Company's common stock. The valuation of the derivatives
associated with our convertible notes and accrued interest of the notes is
dependent upon a number of estimates developed by management. Included in
those estimates are the timing and availability of common stock underlying
the conversion of the notes and accrued interest. Our notes generally
contain provisions such that the holders are barred from conversion of any
amount of principal or interest should that conversion cause theirownership of common stock to exceed 4.99% of the then outstanding common
stock of the Company. Because of this, the amount of the derivative can at
times be limited due to this factor. In the quarter ended
2020, the reduction of convertible notes and accrued interest through
conversions as well as an increase in the subsequent redemption assumption
due to the settlement arrangements describe in Note 8. The result of this
was a significant decrease in the liability reported as of
2020 and an increase in the change in fair value of derivative liabilities.
? Interest expense increased by
interest of
amounts of outstanding convertible notes in 2020.
? Gain on settlement of debt was nil the nine month's ended
and
attributed to accounts payable settlements not convertible notes or loans
payable.
Net income (loss)
We had net income of $3,408,305 for the three months ended November 30, 2020 ,
compared to net loss of ($3,396,031 ) for the three months ended November 30,
2019 . The change is primarily the result of the change in the fair value of the
derivative liabilities and other items discussed above.
Results of Operations for the Nine Months Ended
The following table shows our results of operations for the nine months endedNovember 30, 2020 and 2019. The historical results presented below are not necessarily indicative of the results that may be expected for any future period. Nine Months Ended Nine Months Ended November 30, 2020 November 30, 2019 Dollars Percentage Revenues $ 259,103 $ 186,763$ 72,340 39% Gross profit 189,120 118,634 70,486 59% Operating expenses 2,095,823 1,546,165 549,658 36% Loss from operations (1,906,703 ) (1,427,531 ) (479,172 ) 34% Other income (expense), net (1,727,957 ) (1,653,128 ) (74,829 ) 5% Net loss$ (3,634,660 ) $ (3,080,659 ) $ (554,001 ) 18% Revenue Total revenue for the nine month period endedNovember 30, 2020 was$259,103 which represented an increase of$72,340 , compared to total revenue of$186,763 for the nine months endedNovember 30, 2019 . This 39% increase is a result of a natural growth over time as the customer grows its customer base and is explained by a 29% increase in rental revenues and a 28% increase in direct sales of goods. - 31 -
--------------------------------------------------------------------------------
Gross profit
Total gross profit for the nine month period endedNovember 30, 2020 was$189,120 which represented an increase of$70,486 , compared to gross profit of$118,634 for the nine months endedNovember 30, 2019 . The increase resulted primarily from the increased revenues noted above as well as higher margins on greater direct sales of goods. Operating Expenses Period Change Nine Months Ended Nine Months Ended November 30, 2020 November 30, 2019 Dollars Percentage Research and development $ 211,025 $ 246,872$ (35,847 ) (15% ) General and administrative 1,795,624 1,232,734 562,890 46% Depreciation and 88,621 74,059 14,562 amortization 20% Loss (gain) on impairment 8,053 of fixed assets 553 (7,500 ) (107% ) Operating expenses $ 2,095,823 $ 1,546,165$ 549,658 36% Our operating expenses were comprised of general and administrative expenses, research and development, loss on disposal of fixed assets 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 endedNovember 30, 2020 andNovember 30, 2019 , were$2,095,823 and$1,546,165 , respectively. The overall increase of$549,658 was primarily attributable to the following changes in operating expenses of:
? General and administrative expenses increased by
nine months ended
primarily due to increases in subcontractors by
by
approximately
offset by decreases in travel by $106,259 .
? Research and development decreased by $35,487 primarily due to the
classification of ROAMEO start up costs of approximately $128,000
referenced above included in G&A for the quarter ended
When considering those charges research and development actually increased
this nine month period over last.
? Depreciation and amortization increased by $14,562 due to increases in
revenue earning devices.
? Loss on disposal was $553 for the nine months ended November 30, 2020
compared to a gain of $7,500 in the corresponding prior year period.
Other Income (Expense)
Other income (expense) consisted of the change of fair value of derivative
instruments and interest. Other income (expense) during the nine months ended
November 30, 2020 and November 30, 2019 , was ($1,727,957 ) and ($1,653,128 ),
respectively. The 74,829 increase in other expense was primarily attributable to
the change in the fair value of derivatives, interest expense, and loss on
settlement of debt. Fair value of derivatives was largely affected by the
decrease in the market price of the Company's common stock during the current
period.
? In comparing the nine months ended
ended
increased by
convertible notes and accrued interest based on the change in the market
price of the Company's common stock. The valuation of the derivatives
associated with our convertible notes and accrued interest of the notes is
dependent upon a number of estimates developed by management. Included in
those estimates are the timing and availability of common stock underlying
the conversion of the notes and accrued interest. Our notes generally
contain provisions such that the holders are barred from conversion of any
amount of principal or interest should that conversion cause their
ownership of common stock to exceed 4.99% of the then outstanding common
stock of the Company. Because of this, the amount of the derivative can at
times be limited due to this factor. In the nine months ended
2020, the reduction of convertible notes and accrued interest through
conversions as well as an increase in the subsequent redemption assumption
due to the settlement arrangements describe in Note 8. The result of this
was a significant decrease in the liability reported as of November 30 ,2020 and an increase in the change in fair value of derivative liabilities.
- 32 -
--------------------------------------------------------------------------------
? Interest expense increased by
expense on debt of approximately
which was partially offset by a reduction in amortization of debt discounts
of
has been fully amortized. Interest expense for the 9 months ended November
30, 2020 was higher than in the prior year's period because most of the
debt is in default and interest is being accrued at a higher default rate
and most debt had penalties that were added to the principal amount when
the debt and interest was unpaid at maturity.
? Gain on settlement of debt was
2020 and
attributed to accounts payable settlements not convertible notes or loans
payable.
Net loss
We had net loss of
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 nine months endedNovember 30, 2020 , we have generated revenue and are trying to achieve positive cash flows from operations. As ofNovember 30, 2020 , we had a cash balance of$249,297 , accounts receivable of$111,709 , inventory of$104,360 and$16,139,162 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, 2020 February 29, 2020
Current assets $ 465,366 $ 88,213
Current liabilities(1) 16,139,161 19,677,221
Working capital $ (15,673,795 ) $ (19,589,008 )
__________
(1) As of
approximately
liabilities that are expected to be settled in shares of the Company in
accordance with the various conversion terms.
As of November 30, 2020 and February 29, 2020 , we had a cash balance of $249,297
and $13,307 , respectively.
Nine Months Ended Nine Months Ended
November 30, 2020 November 30, 2019
Net cash used in operating
activities $ (1,446,075 ) $ (1,407,531 )
Net cash used in investing
activities $ (76,577 ) $ (15,825 )
Net cash provided by financing
activities $ 1,758,642 $ 1,418,403
- 33 -
--------------------------------------------------------------------------------
Net cash used in operating activities.
Net cash used in operating activities for the nine months endedNovember 30, 2020 was$1,446,075 , which included a net loss of$3,634,660 , non-cash activity such as the change in fair value of derivative liabilities of$1,027,328 , change in operating assets and liabilities of$1,442,137 , interest expense related to penalties from debt defaults$939,705 , amortization of debt discount of$197,650 , increase in related party accrued payroll and interest of$215,196 ,stock based compensation of$362,084 , loss on disposal of fixed assets of$553 , gain on settlement of debt of$30,032 and depreciation and amortization of$88,621 to derive the uses of cash in operations.
Net cash used in investing activities.
Net cash used in investing activities for the nine months endedNovember 30, 2020 was$76,577 , which was the purchase of fixed assets$77,577 offset by the proceeds of disposal of fixed assets of$1,000 .
Net cash provided by financing activities.
Net cash provided by financing activities was$1,758,642 for the nine months endedNovember 30, 2020 . This consisted of proceeds from deferred payment obligation of$966,000 , proceeds from loans payable$1,213,623 , reduced by net repayments from loan payable - related party of$344,618 , cash acquired on consolidation of RAD G of$284 , and repayments on loans payable of$76,079 .
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies and Estimates
Critical accounting policies and estimates are further discussed in our Annual Report on Form 10-K for the year endedFebruary 29, 2020 filed with theSEC onJuly 28, 2020 . Related Party Transactions For the nine months endedNovember 30, 2019 , the Company had net repayments of$74,938 from its loan payable-related party. For the nine months endedNovember 30, 2020 the Company repaid net advances of$344,618 . AtNovember 30, 2020 , the loan payable-related party was$1,189,155 and$1,310,358 atFebruary 29, 2020 . Included in the balance due to the related party atNovember 30, 2020 is$874,374 of deferred salary and interest,$594,000 of which bears interest at 12%. AtFebruary 29, 2020 , included in the balance due to the related party is$656,334 of deferred salary and interest,$426,000 of which bears interest at 12%. The accrued interest included in loan atNovember 30, 2020 andNovember 30, 2019 was$84,418 and$34,917 , respectively. During the three and nine months endedNovember 30, 2020 and 2019, the Company was charged$10,157 and$121,973 , respectively for consulting fees for research and development to a company owned by a principal shareholder. During the three and nine months endedNovember 30, 2019 the Company was charged$90,090 and$47,238 , respectively in consulting fees for research and development to a company owned by a principal shareholder. The company received a credit in the quarter endedMay 31, 2019 that were a result of billing corrections of ($106,444 ) and after adjusting for this, would bring total charges in the nine months endedNovember 30, 2019 to$153,682 .
© Edgar Online, source
