Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-Looking Statements
The following discussion of our financial condition
and results of operations for the three months ended May 31, 2022 and May 31, 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
AITX was incorporated in Florida on March 25, 2010.
AITX reincorporated into Nevada on February 17, 2015. AITX’s fiscal year end is February 28 (February 29 during leap year). AITX
is located at 10800 Galaxie Ave., Ferndale Michigan, 48220, and our telephone number is 877-767-6268.
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.
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.
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Management Discussion and Analysis
Results of Operations for the Three Months Ended
May 31, 2023 and 2022
The following table shows our results of operations
for the three months ended May 31, 2023 and 2022. The historical results presented below are not necessarily indicative of the results
that may be expected for any future period.
Period
Three Months
Ended
Three Months
Ended
Change
May 31, 2023
May 31, 2022
Dollars
Percentage
Revenues
$
385,208
$
385,157
$
51
0%
Gross profit
293,697
91,433
202,264
221%
Operating expenses
3,242,674
3,588,089
(345,415
)
(10%
)
Loss from operations
(2,948,977
)
(3,496,656
)
547,679
16%
Other income (expense), net
(1,606,216
)
(1,175,030
)
(431,186
)
(37%
)
Net loss
$
(4,555,193
)
$
(4,671,686
)
$
116,493
2%
Revenue
The following table presents revenues from contracts
with customers disaggregated by product/service:
Three Months
Ended
Three Months
Ended
Change
May 31, 2023
May 31, 2022
Dollars
Percentage
Device rental activities
$
238,149
$
239,805
$
(1,656
)
(1%
)
Direct sales of goods and services
147,059
145,352
1,707
1%
$
385,208
$
385,157
$
51
0%
Total revenue for the three-month period ended May
31, 2023 was $385,208 which represented a small increase of $51 compared to total revenue of $385,157 for the three months ended May 31,
2022.
Gross profit
Total gross profit for the three-month period ended
May 31, 2023 was $293,697 which represented an increase of $202,264 compared to gross profit of $ 91,433 for
the three months ended May 31, 2022. The increase resulted primarily from inventory adjustments incurred in the prior three month period
ended May 31, 2022 totaling $177,475. This was broken down as $152,475 in inventory adjustments due to shrinkage and obsolescence and
a $25,000 increase in the inventory provision to account for obsolescence. The gross profit % of 24% for the three-month period ended
May 31, 2022 was lower than the gross profit % of 76% for the three month period ended May 31, 2023 due to inventory adjustments previously
mentioned. After accounting for those inventory adjustments totaling $177,475, the adjusted gross profit for the three months ended May
31, 2022 would have been 70% for comparative purposes.
Operating Expenses
Period
Three Months
Ended
Three Months
Ended
Change
May 31, 2023
May 31, 2022
Dollars
Percentage
Research and development
$
891,757
$
1,023,735
$
(131,978
)
(13%
)
General and administrative
2,120,433
2,400,392
(279,959
)
(12%
)
Depreciation and amortization
167,942
93,995
73,947
79%
Operating lease cost and rent
62,542
69,967
(7,425
)
(11%
)
Operating expenses
$
3,242,674
$
3,588,089
$
(345,415
)
(10%
)
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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 May 31, 2023 and May 31, 2022, were $3,242,674 and $3,588,089, respectively. The overall decrease of $345,415 was primarily
attributable to the following changes in operating expenses of:
●
General and administrative expenses decreased by $279,959. In the three months ended May 31, 2023 the Company undertook cost savings measures including a reduction in force. In comparing the three months ended May 31, 2023 and May 31, 2022 the decrease in G& A was primarily due to decreases in wages and salaries of $50,527 due to reduction in force, stock-based compensation of $45,779, office expenses of $7,087, travel $43,876, production supplies by $85,246 and bad debts expense of $89,000 due to fewer slow payers. These decreases were partially offset by increases in sales and marketing of $62,731and professional fees of $61,631 mostly due compliance and audit fees increase.
●
Research and development decreased by $131,978 due to a reduction in funding on development of future products.
●
Depreciation and amortization increased by $73,947 due to large increases in revenue earning devoices , demo devices, tooling and computer equipment.
●
Operating lease cost and rent decreased by $7,425 due to one less lease in three month period ended May 31, 2023.
Other Income (Expense)
Other income (expense) consisted of interest. Other
income (expense) during the three months ended May 31, 2023 and May 31, 2022, was ($1,606,216) and ($1,175,030), respectively. The $431,186
increase in other expense was primarily attributable to the increase in interest and amortization of debt due to higher loans.
Net incomes
We had a net loss of $4,555,193 for the three months
ended May 31, 2023, compared to a net loss of $4,671,686 for the three months ended May 31, 2022. The change is primarily the result of
the loss on settlement in the three months ended May 31, 2021.
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 three months ended May 31, 2023, we have
generated revenue and are trying to achieve positive cash flows from operations.
As of May 31, 2023, we had a cash balance of $287,202,
accounts receivable of $391,823, device parts inventory of $1,489,429 and $24,509,171 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:
May 31, 2023
February 28, 2023
Current assets
$
2,689,955
$
3,438,992
Current liabilities
24,509,171
16,049,593
Working capital
$
(21,819,216
)
$
(12,610,601
)
As of May 31, 2023 and February 28, 2023, we had a
cash balance of $287,202 and $939,759, respectively.
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Summary of Cash Flows
Three Months
Ended
May 31, 2023
Three Months
Ended
May 31, 2022
Net cash used in operating activities
$
(2,991,003
)
$
(3,621,572
)
Net cash used in investing activities
$
(3,463
)
$
(88,214
)
Net cash (used in) provided by financing activities
$
2,341,909
$
(16,731
)
Net cash used in operating activities.
Net cash used in operating activities for the three
months ended May 31, 2023 was $2,991,003, which included a net loss of $4,555,193, non-cash activity such as the bad debts expense of
$16,000, reduction of right of use asset of $28,767, accretion of lease liability $33,775, stock based compensation of $115,721, change
in operating assets of $608,025, amortization of debt discount of $557,219, increase in related party accrued payroll and interest of
$36,740 and depreciation and amortization of $167,942 to derive the uses of cash in operations.
Net cash used in investing activities.
Net cash used in investing activities for the three
months ended May 31, 2023 was $3,463, which was the purchase of fixed assets,
Net cash provided (used) in financing activities.
Net cash provided by financing activities was $2,341,909
for the three months ended May 31, 2023. This consisted of share proceeds net of issuance costs of $1,318,909, and proceeds from loans
payable of $1,050,000, reduced by repayments on loans payable of $27,000.
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 February 28, 2023, as filed on June 14, 2023.
Related Party Transactions
For both the three months ended May 31, 2023 and May
31, 2022 , the Company had no repayments of net advances from its loan payable-related party. At May 31, 2023, the loan payable-related
party was $243,256 and $206,516 at February 28, 2022. Included in the balance due to the related party at May 31, 2023 is $139,250 of
deferred salary and interest, $133,000 of which bears interest at 12%. At February 28, 2023 there was $108,000 of deferred salary with
$108,000 bearing interest at 12%. The accrued interest included in loan at May 31, 2023 and February 28, 2022 was $19,275 and $15,660,
respectively.
Pursuant to the amended Employment Agreement with
its Chief Executive Officer, for the three months ended May 31, 2023 the Company accrued $63,000 (three months ended May 31 2022-$161,500)
of incentive compensation plan payable with a corresponding recognition of stock based compensation due to the expectation of additional
awards being met. This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at $1,000 per share.
At May 31, 2023 and February 28, 2023 there was $1,042,000 and $979,000 of incentive compensation payable.
During the three months ended May 31, 2023 and 2022,
the Company was charged $882,015 and $1,001,734, respectively for fees for research and development from a company partially owned by
a principal shareholder.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable for a smaller reporting company.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.