Forward-Looking Statements
The following discussion of our financial condition and results of operations
for the three months and nine months ended
Unless expressly indicated or the context requires otherwise, the terms "AITX",
the "Company", "we", "us", and "our" refer to
Overview
AITX was incorporated in
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:
1. 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.
2. Integrated hardware/software with AI-driven responses, simulating and
expanding on what legacy or manned solutions could perform.
3. Automation of common access control functions through technology utilizing
facial recognition and machine vision, leapfrogging most legacy solutions in
use today.
4. Creation and deployment new solutions such as 'RAD Light My Way', which
allows end user personnel to activate RAD security devices to improve their
security, situational awareness, deploy a unique deterrent and connect to
monitoring security staff as may be available.
RAD solutions are unique because they:
1. Start with an AI-driven autonomous response utilizing cellular-optimized communications, while easily connecting to a human operator for a manned response, as needed. 2. Use unique hardware purpose-built by RAD for delivery of these solutions. Various form factors have been customized to deliver this new functionality. 3. 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. - 32 -
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Management Discussion and Analysis
Q3 Q2 Q1 Three Months Ended Three Months Ended Three Months Ended November 30, 2021 August 31, 2021 May 31, 2021 Revenues $ 373,897 $ 141,572 $ 560,334 Gross profit 230,473 99,618 449,408 Operating expenses 5,118,000 3,383,990 2,600,954 Loss from operations (4,887,527 ) (3,284,372 ) (2,151,546 ) Other income (expense), net (2,206,915 ) (1,548,001 ) (33,753,372 ) Net income (loss)$ (7,094,442 ) $ (4,832,373 ) $ (35,904,918 )
Sales grew by 166% in Q3 over Q2. This is due to direct sales of new products
increasing by
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 2023 as we start to deliver on new products.
Operating expense increases considerably in Q3 and Q2 mostly as a result of
Other expenses increased due to the Series F Preferred Stock and debt settlements that have been occurring throughout the fiscal year.
Results of Operations for the Three Months Ended
The following table shows our results of operations for the three months endedNovember 30, 2021 and 2020. The historical results presented below are not necessarily indicative of the results that may be expected for any future period. Revenue Period Change Three Months Ended Three Months Ended November 30, 2021 November 31, 2020 Dollars Percentage Revenues $ 373,897 $ 119,700$ 254,197 212% Gross profit 230,473 95,018 135,455 143% Operating expenses 5,118,000 995,092 4,122,908 414% Loss from operations (4,887,527 ) (900,074 ) (3,987,453 ) 443% Other income (expense), net (2,206,915 ) 4,308,379 (6,515,294 ) (151% ) Net loss $ (7,094,442 ) $ 3,408,305$ (10,502,747 ) (308% ) - 33 -
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The following table presents revenues from contracts with customers disaggregated by product/service:
Three Months Three Months Ended Ended Change November 30, 2021 November 30, 2020 Dollars Percentage Device rental activities $ 165,353 $ 84,600$ 80,753 95% Direct sales of goods 208,544 35,100 and services 173,444 494% $ 373,897 $ 119,700$ 254,197 212%
Total revenue for the three-month period ended
Gross profit
Total gross profit for the three-month period ended
Operating Expenses Period Change Three Months Ended Three Months Ended November 30, 2021 November 31, 2020 Dollars Percentage Research and development $ 982,446 $ 20,624$ 961,822 4,664% General and administrative 3,964,512 941,323 3,023,189 321% Depreciation and amortization 67,927 30,145 37,782 125% Operating lease cost and rent 103,115 3,000 100,115 3,337% Operating expenses $ 5,118,000 $ 995,092$ 4,122,908 414%
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
? General and administrative expenses increased by
three months ended
increase was primarily due to increases in advertising and promotion by
(including bonus expense to CEO of
distributed amongst other G&A accounts. These large increases may be explained
due to the large ramp up in costs this fiscal year to operate the new
manufacturing facility and the hiring of 18 additional full-time employees. In
addition, the expenses of the prior year's corresponding quarter were also much
lower due to the Covid 19 pandemic and the limited cash available at that time.
? Research and development increased by
new products as well as upgrades of existing products.
? Depreciation and amortization increased by
assets and revenue earning devices.
? Operating lease cost and rent increased by
including the new manufacturing facility for the three months ended November
30, 2021 as compared to a month-to-month lease of only office space for the
three months ended
- 34 -
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Other Income (Expense)
Other income (expense) during the three months ended
? In comparing the three months ended
ended
decreased by
months ended
liability on 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 quarter ended
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
in fair value of derivative liabilities.
? Interest expense increased by
payable, most significantly new loans totaling over
loans from the Series F preferred share exchanges, and other debt exchanges.
? Loss on settlement of debt was
and a
debt at a loss this quarter.
Net loss
We had a net loss of
Results of Operations for the Nine Months Ended
The following table shows our results of operations for the nine months endedNovember 30, 2021 and 2020. The historical results presented below are not necessarily indicative of the results that may be expected for any future period. Revenue Period Change Nine Months Ended Nine Months Ended November 30, 2021 November 31, 2020 Dollars Percentage Revenues $ 1,075,803 $ 259,103 $$816,700 315% Gross profit 779,499 189,120 590,379 312% Operating expenses 11,102,944 2,095,823 9,007,121 430% Loss from operations (10,323,445 ) (1,906,703 ) (8,416,742 ) 441% Other income (expense), net (37,508,288 ) (1,727,957 ) (35,780,331 ) (2,071% ) Net loss$ (47,831,733 ) $ (3,634,660 ) $ (44,197,073 ) (1,216% ) - 35 -
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The following table presents revenues from contracts with customers disaggregated by product/service:
Nine Months Ended Nine Months Ended Change November 30, 2021 November 30, 2020 Dollars Percentage Device rental 383,434 214,803 activities $ $$ 168,631 79% Direct sales of goods 692,369 44,300 and services 648,069 1,463%$ 1,075,803 $ 259,103$ 816,700 315%
Total revenue for the nine-month period ended
Gross profit
Total gross profit for the nine-month period ended
Operating Expenses Period Change Nine Months Ended Nine Months Ended November 30, 2021 November 31, 2020 Dollars Percentage Research and development $ 2,316,383 $ 211,025$ 2,105,358 998% General and administrative 8,455,224 1,780,824 6,674,400 375% Depreciation and amortization 153,261 88,621 64,640 73% Operating lease cost and rent 207,201 14,800 192,401 1,300% (Gain) loss on disposal of fixed assets (29,125 ) 553 (29,678 ) 5,367% Operating expenses$ 11,102,944 $ 2,095,823$ 9,007,121 430%
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
? General and administrative expenses increased by
nine months ended
increase was primarily due to increases in professional fees by
and salaries
compensation
payments under deferred variable payment obligation
debts expense
other G&A accounts. These large increases may be explained due to the large
ramp up in costs this year to operate the new manufacturing facility, the
hiring of 18 additional full-time employees and the termination costs of the
former director. In addition, the expenses of the prior year's corresponding
quarter were also much lower due to the Covid 19 pandemic and the limited cash
available at that time.
? Research and development increased by
new products as well as upgrades of existing products.
? Depreciation and amortization increased by
assets and revenue earning devices.
? Operating lease cost and rent increased by
including seven months of the new manufacturing facility for the nine months
ended
for the nine months ended
? (Gain) loss on disposal of fixed assets decreased by
sold this current quarter. - 36 -
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Other Expense
Other expense during the nine months ended
? In comparing the nine months ended
by
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. Fair value of derivatives was largely affected by the decrease
in the market price of the Company's common stock during the current period as
well as the significant reduction in convertible debt and accrued interest that
occurred at the end of fiscal 2021 and first nine months of fiscal 2022.
? Interest expense increased by
payable, most significantly new loans totaling over
loans from the Series F preferred share exchanges, and other debt exchanges.
? Loss on settlement of debt was
and a gain of
deferred variable payment obligation referred to in Note 8 led to a
loss which was partially offset by gains from accrued liabilities settlements
and the debt exchange for common shares which was partially offset by a loss on
the convertible debt amendment that resulted in an overall gain this quarter.
This loss on settlement of debt is non-cash and has no effect on the cash flows
of the Company. Net loss
We had a 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 ended
As of
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, 2021 February 28, 2021 Current assets $ 7,120,096 $ 1,207,033 Current liabilities(1) 7,418,470 4,410,710 Working capital $ (298,374 )$ (3,203,677 ) __________
(1) As of
approximately$7,299 and$444,466 , respectively, of derivative liabilities that are expected to be settled in shares of the Company in accordance with the various conversion terms. - 37 -
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As of
Nine Months Ended Nine Months EndedNovember 30, 2021 November 30, 2020
Net cash used in operating activities
(46,751 ) $ (76,577 ) Net cash provided by financing activities$ 13,540,949 $ 1,758,642
Net cash used in operating activities.
Net cash used in operating activities for the nine months ended
Net cash used in investing activities.
Net cash used in investing activities for the nine months ended
Net cash provided by financing activities.
Net cash provided by financing activities was
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 ended
Related Party Transactions
For the nine months ended
Pursuant to the amended Employment Agreement with its Chief Executive Officer in
Note 14, the Company accrued
- 38 -
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During the three and nine months ended
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