ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC. Forward-Looking Statements
The following discussion of our financial condition and results of operations for the three and nine months endedNovember 30, 2022 andNovember 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 endedFebruary 28, 2022 , as filed onMay 27, 2022 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. ("we", "our, "us", "AITX" or the "Company") was incorporated inFlorida onMarch 25, 2010 as On theMove Systems Inc. and was quoted on OTC Pinks as 'OMVS'. We reincorporated inNevada onFebruary 17, 2015 . Our fiscal year end isFebruary 28 (February 29 duringleap year ). We are located at10800 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 inMarch 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 endedFebruary 28, 2022 , AITX began its 10-year lease at its 29,316 sq ft manufacturing facility outside ofDetroit, 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 ofJanuary 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 ofJanuary 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
? 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
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
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
? 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. 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
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
? 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
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
The following table shows our results of operations for the three months endedNovember 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% - 32 -
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Table of Contents 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
three months ended
primarily due to the following decreases: stock based compensation of
for higher prior year charges based on the CEO incentive plan, wages and
salaries for prior year bonuses paid, bad debts expense of
professional fees of
increases: insurance of
increased liability and property insurance due to new manufacturing
facility, advertising , sales and marketing of
due to a general provision of
factors.
? Research and development decreased by
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
? Depreciation and amortization increased by
computer equipment and new revenue earning devices.
? Operating lease cost and rent decreased by
for the three months endedNovember 30, 2022 comparing to the three months endedNovember 30, 2021 . - 33 -
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Table of Contents 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
? Interest expense decreased by
expense. The three months ended
to debt settlements.
? Loss on settlement of debt was
Net loss We had a net loss of$4,085,660 for the three months endedNovember 30, 2022 , compared to a net loss of$7,094,442 for the three months endedNovember 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 endedNovember 30, 2022 .
Results of Operations for the Nine Months Ended
The following table shows our results of operations for the nine months endedNovember 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
nine-months ended
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
and office expense by
? Research and development increased by
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
was partially offset by the higher development costs incurred in equipment and
design on new products for the nine-month period ended
? Depreciation and amortization increased by
ERP computer software, computer equipment tooling, and 54 new revenue earning
devices.
? Operating lease cost and rent decreased by
lease in early fiscal 2022.
? (Gain) loss on disposal of fixed assets increase by
sold in the prior year. Other Income (Expense)
Other income (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.
? Interest expense decreased by
amortization expense. The three months ended
amortization due to debt settlements.
? Gain (loss) on settlement of debt was
2022 and (
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
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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Table of Contents Net loss We had a net loss of$12,930,211 for the nine months endedNovember 30, 2022 , compared to a net loss of$47,831,733 for the nine months endedNovember 30, 2021 . The change is primarily the result of the loss on settlement in the nine months endedNovember 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 ofNovember 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
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