Forward-Looking Statements
The following discussion of our financial condition and results of operations for the nine months endedNovember 30, 2019 andNovember 30, 2018 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 endedFebruary 28, 2019 , as filed onAugust 26, 2019 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. - 26 - --------------------------------------------------------------------------------
Results of Operations for the Three Months Ended
The following table shows our results of operations for the three months endedNovember 30, 2019 and 2018. The historical results presented below are not necessarily indicative of the results that may be expected for any future period. Period Change Three Months Three Months Ended Ended November 30, 2019 November 30, 2018 Dollars Percentage Revenues $ 71,434 $ 38,864$ 32,570 84% Gross profit 66,466 38,864 27,602 71% Operating expenses 602,262 1,056,373 (454,111 ) (43% ) Loss from operations (535,796 ) (1,017,509 ) 481,713 (47% ) Other income (expense), net (2,860,235 ) 8,805,008 (11,665,243 ) (132% ) Net loss$ (3,396,031 ) $ 7,787,499$ (11,183,530 ) (144% ) Revenue Total revenue for the three-month period endedNovember 30, 2019 was$71,434 which represented an increase of$32,570 , compared to total revenue of$38,864 for the three months endedNovember 30, 2018 . As the Company only began its rental activities of its new products in the quarter endedMay 31, 2018 this 84% increase is a result of both a natural increase in business over time and as a result of the Company having a larger product line in 2019 compared to 2018. Gross profit
Total gross profit for the three-month period ended
Operating Expenses
Period Change
Three Months Three Months
Ended Ended
November 30, 2019 November 30, 2018 Dollars Percentage
Research and
development $ 94,759 $ 300,881 $ (206,122 ) (69% )
General and
administrative 487,412 724,003 (236,591 ) (33% )
Depreciation and
amortization 27,591 31,489 (3,898 ) (12% )
Loss (gain) on
(disposal) impairment
of fixed assets (7,500 ) - (7,500 ) -
Operating expenses $ 602,262 $ 1,056,373 $ (454,111 ) (43% )
Our operating expenses were comprised of general and administrative expenses,
research and development, depreciation and gain on disposal of fixed assets.
General and administrative expenses consisted primarily of professional
services, automobile expenses, advertising, salaries and wages, travel expenses
and rent. Our operating expenses during the three-month period ended November
30, 2019 and November 30, 2018 , were $602,262 and $1,056,373 , respectively. The
overall decrease of $451,111 was primarily attributable to the following changes
in operating expenses of:
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? General and administrative expenses decreased by decreased by
comparing the three months ended
this decrease was primarily due to decreases in wages and salaries of
consultants for other duties whereas in 2018 there were 15 employees. This
decrease in salary was partially offset by increases in fees paid to
subcontractors which increased
to a decrease in insurance costs by
decreased by
expenses and travel decreased by
in 2018 introducing new SCOT and other upcoming products, and rent
decreased by
to only one new location in 2019 as disclosed in Note 17.
? Research and development decreased by
prior year's comparative period as compared to during this period.
? Gain on disposal of fixed assets was
? Depreciation and amortization decreased by$3,898 . There were no significant changes in fixed assets. Other Income (Expense) Other income (expense) consisted of the change of fair value of derivative instruments and interest. Other income (expense) during the three months endedNovember 30, 2019 andNovember 30, 2018 , was$(2,860,235) and$8,805,008 , respectively. The$11,665,243 decrease in other income was primarily attributable to the change in the fair value of derivatives, interest expense, including interest expense related to derivative liability in excess of the face value of debt) 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.
? Change in fair value of derivative liabilities decreased by
to the re-valuation of derivative liability on convertible notes based on
the change in the market price of the Company's common stock.
? Interest expense decreased by $778,665 due to a decrease in interest
expense related to the derivative liability in excess of debt and a
decrease in debt discounts that was partially offset by an increase in
interest expense on debt.
? Gain on settlement of debt decreased by $111,881 due to a decrease in thenumber and amount of debt settlements this quarter over the prior year's
quarter.
Net (loss) income
We had net loss of $(3,396,031) for the three months ended November 30, 2019 ,
compared to net income of $7,787,499 for the three months ended November 30,
2018 . 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 ended
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Period Change
Nine Months Nine Months
Ended Ended
November 30, 2019 November 30, 2018 Dollars Percentage
Revenues $ 186,763 $ 65,705 $ 121,058 184%
Gross profit 181,592 30,251 151,341 500%
Operating expenses 1,609,123 3,097,430 (1,488,307 ) (48% )
Loss from operations (1,427,531 ) (3,067,179 ) 1,639,648 (53% )
Other income (expense), net (1,653,128 ) 21,058,280 (22,711,408 ) (108% )
Net loss $ (3,080,659 ) $ 17,991,101 $ (21,071,760 ) (117% )
Revenue
Total revenue for the nine-month period ended November 30, 2019 was $186,763
which represented an increase of $121,058 , compared to total revenue of $65,705
for the nine months ended November 30, 2018 . As the Company only began its
rental activities of its new products in the quarter ended May 31, 2018 this
184% increase is a result of both a natural increase in business over time
and as a result of the Company having a larger product line in 2019 compared to 2018.
Gross profit
Total gross profit for the nine-month period ended
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 rent. Our operating expenses during the nine-month period endedNovember 30, 2019 andNovember 30, 2018 , were$1,609,123 and$3,097,430 , respectively. The overall decrease of$1,488,307 was primarily attributable to the following changes in operating expenses of: Period Change Nine Months Nine Months Ended Ended November 30, 2019 November 30, 2018 Dollars Percentage Research and development $ 150,703 $ 534,012$ (383,309 ) (72% ) General and administrative 1,391,861 2,475,777 (1,083,916 ) (44% ) Depreciation and amortization 74,059 82,902 (8,843 ) (11% ) Loss on impairment of fixed assets (7,500 ) 4,739 (12,239 ) (258% ) Operating expenses $ 1,609,123 $ 3,097,430$ (1,488,307 ) (48% )
? General and administrative expenses decreased by
the nine months ended
was primarily due to decreases in wages and salaries of $856,912 as the
company had only one management employee in 2019 and used consultants for
other duties whereas in 2018 there were 15 employees. This decrease insalary was partially offset by increases in fees paid to subcontractors
which increased
in insurance costs by
decreased by
introducing new SCOT and other upcoming products, rent decreased by
due the company going from renting 3 locations in 2018 to only one new
location in 2019 as disclosed in Note 17.
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? Research and development decreased by
the quarter ended
(
decrease was also due to less product development being done overall this
period as in 2018 the new product line was being developed as well.
? Depreciation and amortization decreased by $8,943 . There were no
significant changes in fixed assets.
? Gain on disposal of fixed assets was
2018.
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, 2019 and November 30, 2018 , was $(1,653,128) and $21,058,280 ,
respectively. The $22,711,408 decrease in other income was primarily
attributable to the change in the fair value of derivatives, interest expense,
including interest expense related to derivative liability in excess of the face
value of debt) 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.
? Change in fair value of derivative liabilities decreased by
to the re-valuation of derivative liability on convertible notes based on
the change in the market price of the Company's common stock.
? Interest expense decreased by
expense related to the derivative liability in excess of debt and a
decrease in debt discounts that was partially offset by an increase in
interest expense on debt.
? Gain on settlement of debt increased by $55,238 due to an adjustment to a
loan settlement.
Net (loss) income
We had net loss of $(3,080,659) for the nine months ended November 30, 2019 ,
compared to net income of $17,999,101 for the nine months ended November 30,
2018 . The change is primarily the result of the change in the fair value of the
derivative liabilities and other items discussed above.
Liquidity, Capital Resources and Cash Flows
Management believes that we will continue to incur losses for the immediate future. Therefore, we will need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, if ever. These conditions raise substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include and adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. For the nine months endedNovember 30, 2019 , we have generated revenue and are trying to achieve positive cash flows from operations. As ofNovember 30, 2019 , we had a cash balance of$16,239 , accounts receivable of$79,989 and$16,295,028 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, 2019 February 28, 2019
Current assets $ 134,268 $ 366,681
Current liabilities(1) 16,295,028 15,743,601
Working capital $ (16,160,760 ) $ (15,376,920 )
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_________
(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
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