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Steve Reinharz Info
Steve Reinharz
CEO, Artificial Intelligence Technology Solutions, Inc. ($AITX)
Founder and CEO, Robotic Assistance Devices
Steve Reinharz is the CEO of Artificial Intelligence Technology Solutions, Inc., (OTCPK:AITX) and Founder and CEO of the company’s three wholly-owned subsidiary Robotic Assistance Devices (RAD), RAD-M, developing mobile security solutions, and RAG-G, specializing in software, firmware and engineering solutions for robotics. Reinharz is a seasoned leader in the physical security industry with over 25 years of experience holding various roles across multiple disciplines. Reinharz has led RAD to create and launch a successful line of artificial intelligence-powered solutions specifically developed for the guarding and facility management industries. As of January 2023, the company has over 300 units installed globally, and these devices have logged over 2.5 million paid operating hours in the field.
Mr. Reinharz’ experience is multi-faceted in that he started and managed his own security integration company at the age of 24, becoming one of California’s premier systems integrator. Subsequently, he was an integral member of the team that successfully sold an integrator to a global security firm for $42 million and has since held various other security industry roles. regularly speaks and contributes to panels at ISC East and West, other SIA events, GSX, plus ASIS. Reinharz was recently named as a SIA Board of Directors member as well as Chair of SIA’s ‘AI, Drones and Robotics Interest Group’.
Mr. Reinharz credits almost two years of work performed with the LAPD, work with the California State Prison System, plus the fundamentals of the book on AI he wrote when he was 19 years old as the basis for many of the technological innovations he has launched. Mr. Reinharz’ professional interests include the application of AI in the 4th Industrial Revolution, the new economy, NFTs and finance.
RAD’s current customers include 3 of the top 5 global security firms and 5 of the Fortune 25. Reinharz’ vision has grabbed the attention of Allied Universal as they were his first dealer and are currently his largest dealer. RAD has over 40 guarding company dealers and Reinharz is regularly featured on security industry podcasts and other media outlets.
Under Reinharz’ leadership and vision, RAD has become the leader in the delivery of artificial intelligence-based security and facility robots. Some believe that he literally wrote the book on it, the ARS (Autonomous Remote Services) Manifesto with over 5,000 unique downloads. By applying the concepts that he introduces in his ARS Manifesto, RAD clients have been able to augment the duties and functions of existing guarding staff and gain higher levels of situational awareness, all at drastically reduced costs. RAD’s robotic solutions are quickly moving into a variety of industries such as government, transportation, critical infrastructure, education, and healthcare.
Steve is a champion for change, developing AI-powered solutions that perform the duties of traditional manned staff and gain higher levels of situational awareness, at dramatically lower costs. His recent safety solutions, such as RAD Light My Way and Firearm Detection are examples of Reinharz’ efforts to turn the once futuristic promises of AI and automation into today’s realities.
For additional information on the company and Mr. Reinharz, please visit aitx.ai and radsecurity.com
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Mark Folmer Info
Mark Folmer is President of RAD. here’s some info on him.
● A transformational security industry executive and business leader with 25 years of experience driving growth, innovation, change, effectiveness, and performance in the security industry. Leveraging exceptional expertise in physical and corporate security that he developed exceeding the expectations of SMEs through to Fortune 500 companies, Mark Folmer excels in building and leading high performing, customer centric, and profitable operations and teams defined by an uncompromising commitment to excellence, changing the game, and breaking the status quo.
● A two-time IFSEC award winning ‘Global Influencer in Security Thought Leadership’ who is “a mix of security services specialist, security practitioner, technology proponent, thought leader and teacher who makes meaningful connections between business goals and security programs industry-wide.”
● Among the security “industry’s leading figures” and “influencers truly at the forefront of shaping the security agenda in 2021 and beyond.” (International Security Journal).
● An experienced security industry guest speaker, expert contributor, and panelist/facilitator who has contributed at renowned international conferences and events such as Global Security Exchange, the International Security Expo, Security Industry Association’s AcceleRISE, as well as contributing to initiatives by organizations such as IAHSS, IFSEC Global, ASIS International, and others.
You can reach Mark at mark.folmer@roboticassistancedevices.com.
Doug Clemons Info
Doug Clemons is Chief Marketing Officer at AITX’s primary subsidiary Robotic Assistance Devices (RAD). lemons oversees the company’s traditional and digital marketing, branding and advertising activities. Clemons is an experienced marketing executive with decades of experience in propelling tech companies.
You can reach Doug at doug.c@radsecurity.com
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Board of Advisor info
The AITX Board of Advisors
This impressive assembly of security industry, tech startup and finance leaders is an endorsement of AITX’s business model and the competency of the company’s management team.
Jeffrey A. Slotnick
CPP, PSP
Chairman of Board of Advisors
President, Setracon Enterprise Security Risk Management Services,Founder Safe Washington, United States Army Engineer Corp, CSM Retired Mr. Jeffrey A. Slotnick,
Tony Dong
Tony Dong is an enterprise risk management professional with 3 years’ experience advising large multi-million dollar organizations in the public
Ricky R. Davis,
MA, CPD
Mr. Ricky Davis’ security and risk management career began during his honorable and faithful service in the United States Army,
Rene Pasculescu,
MBA, MSc, CPP
Rene has been managing the Civitas Group for the last 9 years and he is one of the group’s shareholders.
Antoinette King
Antoinette King, founder of Credo Cyber Consulting, LLC, has over 20 years of experience in the security industry holding roles
Hope Casserly
Hope Casserly is a developing electrical engineer in training (EIT). She obtained her Bachelor of Engineering in Computer Engineering from
Dennis Crowley
Dennis Crowley is the Managing Member of Belenus Holdings, LLC, an investment, business, and management consulting firm. In addition, he
Michael Martin
CEO, Circadian Risk
An acclaimed leader and innovator in the Security Services & Risk Assessment industry, Michael Martin is known throughout the industry
Michael Gips
JD, CPP, CSyP, CAE
Mike Gips is the principal of Global Insights in Professional Security, LLC, a firm that helps security providers and executives
Shannon McDougall
MBA, CHSP
Currently Shannon McDougall holds the position of Chief Safety Officer and Executive Director, for The City of Hope, Enterprise Occupational
Martin Girard
Martin Girard is currently the Director of Corporate Security & Integrity at Bell and leads teams responsible for managing various
Chuck Harold
Host, SecurityGuyTV.com
Chuck Harold has been working in law enforcement & private security for over 37 years. His career began as a
Mivil Deschenes
Mivil Deschênes has been a successful pioneer in the private and corporate security industry for over 30 years. Hailing from
Brian C. McIlravey
Brian currently oversees the Customer Experience Team at Igloo Software with the single goal of making sure our customers are
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10Q Financial Info
PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, 2022
(Unaudited) February 28, 2022* ASSETS Current assets: Cash $713,493 $4,648,146 Accounts receivable, net 464,044 429,469 Device parts inventory, net 1,573,380 1,530,657 Prepaid expenses and deposits 672,794 442,164 Total current assets 3,423,711 7,050,436 Operating lease asset 1,241,152 1,331,605 Revenue earning devices, net of accumulated depreciation of $676,615 and $434,661, respectively 1,092,203 709,063 Fixed assets, net of accumulated depreciation of $139,751 and $49,065, respectively 312,307 137,952 Trademarks 28,723 28,723 Security deposit 21,239 21,239 Total assets $6,119,335 $9,279,018 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable and accrued expenses $1,166,171 $968,853 Advances payable 1,594 1,594 Customer deposits 2,383 10,000 Current operating lease liability 111,985 254,027 Current portion of deferred variable payment obligation 497,150 325,600 Current portion of convertible notes payable, net of discount of $433,932 and $0, respectively 316,068 3,500 Loan payable – related party 203,276 193,556 Incentive compensation plan payable 842,000 479,500 Current portion of loans payable, net of discount of $158,194 and $14,745, respectively 1,240,306 1,004,708 Vehicle loan – current portion 38,522 38,522 Current portion of accrued interest payable 50,963 1,260,271 Derivative liability — 7,587 Total current liabilities 4,470,418 4,547,718 Non-current operating lease liability 1,115,323 1,057,579 Loans payable, net of discount of $5,378,890 and $4,905,076, respectively 23,728,956 20,309,069 Deferred variable payment obligation 2,525,000 2,525,000 Accrued interest payable 4,775,150 1,816,009 Total liabilities 36,614,847 30,255,375 Commitments and Contingencies Stockholders’ deficit: Preferred Stock, undesignated; 15,545,650 shares authorized; no shares issued and outstanding at November 30, 2022 and February 28, 2022, respectively — — Series E Preferred Stock, $0.001 par value; 4,350,000 shares authorized; 3,350,000 and 3,350,000 shares issued and outstanding, respectively 3,350 3,350 Series F Convertible Preferred Stock, $1.00 par value; 4,350 shares authorized; 2,533 and 2,532 shares issued and outstanding, respectively 2,533 2,532 Series G Preferred Stock, $0.001 par value; 4,350,000 shares authorized, no shares issued and outstanding at November 30, 2022 and February 28, 2022, respectively — — Common Stock, $0.00001 par value; 6,000,000,000 shares authorized 5,260,515,892 and 4,735,210,360 shares issued, issuable and outstanding, respectively 52,607 47,353 Additional paid-in capital 76,421,377 73,015,576 Preferred stock to be issued 99,086 99,086 Accumulated deficit (107,074,465) (94,144,254)Total stockholders’ deficit (30,495,512) (20,976,357)Total liabilities and stockholders’ deficit $6,119,335 $9,279,018
*Derived from audited information
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months
Ended
November 30, 2022 Three Months
Ended
November 30, 2021 Nine Months
Ended
November 30, 2022 Nine Months
Ended
November 30, 2021 Revenues $402,399 $373,897 $1,055,040 $1,075,803 Cost of Goods Sold 125,960 143,424 453,898 296,304 Gross Profit 276,439 230,473 601,142 779,499 Operating expenses: Research and development (Note 10) 813,313 982,446 2,800,834 2,316,383 General and administrative 2,123,768 3,964,512 6,762,602 8,455,224 Depreciation and amortization 92,855 67,927 332,643 153,261 Operating lease cost and rent 61,005 103,115 194,653 207,201 (Gain) loss on disposal of fixed assets — — — (29,125)Total operating expenses 3,090,941 5,118,000 10,090,732 11,102,944 Loss from operations (2,814,502) (4,887,527) (9,489,590) (10,323,445) Other income (expense), net: Change in fair value of derivative liabilities — — 3,595 372,502 Interest expense (1,271,158) (2,050,254) (3,448,208) (4,812,477)Gain (loss) on settlement of debt — (156,661) 3,992 (33,068,313)Total other income (expense), net (1,271,158) (2,206,915) (3,440,621) (37,508,288) Net Loss $(4,085,660)$(7,094,442)$(12,930,211)$(47,831,733) Net income (loss) per share – basic $(0.00)$(0.00)$(0.00)$(0.01) Net income ( loss) per share – diluted $(0.00)$(0.00)$(0.00)$(0.01) Weighted average common share outstanding – basic 5,140,405,652 4,183,357,145 4,969,080,716 4,162,382,783 Weighted average common share outstanding – diluted 5,140,405,652 4,183,357,145 4,969,080,716 4,162,382,783
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S DEFICIT
(Unaudited)
Series E Series F Series G Additional Total Preferred Stock Preferred Stock Preferred Stock Common Stock Paid-In Accumulated Shareholders’ Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Deficit Balance at February 28, 2021 4,350,000 4,350 2,799 176,869 — $— 3,229,426,884 $32,294 $16,764,554 $(31,521,754)$(14,543,687)Series F Preferred Shares issued with amendment agreement — — 40 40 — — 3,244,700 — 3,244,740 Series F Preferred Shares Warrants issued with amendment agreement — — — — — — — — 29,770,474 — 29,770,474 Series F Preferred Shares cancelled in exchange for promissory notes — — (83) (83)— — — — (6,732,752) — (6,732,835)Series F preferred shares issued on exercise of warrants — — 38 38 — — — — (38) — — Series F Preferred Shares converted to common shares — — (78) (78)— — 316,345,998 3,164 (3,086) — — Relative fair value of warrants issued with debt — — — — — — — — 4,749,006 — 4,749,006 Stock based compensation — — — — — — 69,350 — 69,350 Net income — — — — — — — — — (35,904,918) (35,904,918)Balance at May 31, 2021 4,350,000 $4,350 2,716 $176,786 — $— 3,545,772,882 $35,458 $47,862,208 $(67,426,672)$(19,347,870)Adjustment to derivative liability — — — — — — — — 422,272 — 422,272 Common stock issued for debt conversion — — — — — — 31,042,436 310 898,395 — 898,705 Exercise of warrants — — — — — — 300,251,561 3,003 (3,003) — — Relative fair value of warrants issued with debt — — — — — — — — 2,035,033 — 2,035,033 Cancellation of Series E Shares (1,000,000) (1,000)— — — — — — 1,000 — — Exchange of debt for common shares — — — — — — 116,104,232 1,161 6,454,235 — 6,455,396 Stock based compensation on issuable shares — — — — — — 2,100,000 21 109,179 — 109,200 Exchange of Series F Preferred Shares for debt — — (184) (184)— — — — (3,999,976) — (4,000,160)Net income — — — — — — — — — (4,832,373) (4,832,373)Balance at August 31, 2021 3,350,000 $3,350 2,532 $176,602 — $— 3,995,271,111 $39,953 $53,779,343 $(72,259,045)$(18,259,797)Issuance of shares, net of $253,811 issuance costs — — — — — — 345,168,473 3,452 8,466,551 — 8,470,003 Cashless exercise of 100,000,000 warrants — — — — — — 94,770,776 948 (948) — — Relative fair value of warrants issued with debt — — — — — — — — 1,284,783 — 1,284,783 Redemption of 19 Issuable Series F shares — — — (74,984)— — — — — (425,016) (500,000)Issuance of Series G preferred as equity awards per employment agreement — — — — 1,500 1,500,000 — — — — 1,500,000 Redemption of Series G shares as compensation payment — — — — (1,500) (1,500,000)— — — — (1,500,000)Net income — — — — — — — — — (7,094,442) (7,094,442)Balance at November 30, 2021 3,350,000 $3,350 2,532 $101,618 — $— 4,435,210,360 $44,353 $63,529,729 $(79,778,503)$(16,099,453)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S DEFICIT
(Unaudited)
Series E Series F Additional Total Preferred Stock Preferred Stock Common Stock Paid-In Accumulated Stockholders’ Shares Amount Shares Amount Shares Amount Capital Deficit Deficit Balance at February 28, 2022 3,350,000 $3,350 2,532 $101,618 4,735,210,360 $47,353 $73,015,576 $(94,144,254)$(20,976,357)Issuance of shares, net of $117,157 issuance costs — — — — 133,881,576 1,339 1,643,883 — 1,645,222 Rounding — — — — — — (1) — (1)Net income — — — — — — — (4,671,686) (4,671,686)Balance at May 31, 2022 3,350,000 $3,350 2,532 $101,618 4,869,091,936 $48,692 $74,659,458 $(98,815,940)$(24,002,822)Issuance of shares, net of $95,293 issuance costs — — — — 191,691,135 1,917 1,889,350 — 1,891,267 Cashless exercise of warrants — — — — 9,688,179 97 (97) — — Relative fair value of warrants issued with debt — — — — — — 404,374 — 404,374 Cancelled shares — — — — (17,116,894) (171) 171 — — Exchange of 955,000,000 warrants for debt — — — — — — (2,960,500) (2,960,500)Shares as payment for services — — — — 10,000,000 100 118,400 — 118,500 Net income — — — — — — — (4,172,865) (4,172,865)Balance at August 31, 2022 3,350,000 $3,350 2,532 $101,618 5,063,354,356 $50,635 $74,111,156 $(102,988,805)$(28,722,046)Issuance of shares, net of $68,732 issuance costs — — — — 197,161,536 1,972 1,119,518 — 1,121,490 Relative fair value of Series F warrants issued with debt — — 1 1 — — 1,201,127 — 1,201,128 Relative fair value of warrants issued with debt — — — — — — (10,424) — (10,424)Net income — — — — — — — (4,085,660) (4,085,660)Balance at November 30, 2022 3,350,000 $3,350 2,533 $101,619 5,260,515,892 $52,607 $76,421,377 $(107,074,465)$(30,495,512)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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ARTIFICIAL INTELLIGENCE TECHNOLOGY SOLUTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
November 30, 2022 Nine Months Ended
November 30, 2021 CASH FLOWS USED IN OPERATING ACTIVITIES: Net loss $(12,930,211)$(47,831,733)Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 332,643 153,261 Revenue earning device sold and expensed in cost of sales — 3,410 Bad debts expense 224,215 107,022 Inventory provision 90,000 — Reduction of right of use asset 84,298 75,609 Accretion of lease liability 107,187 86,350 (Gain) loss on disposal of fixed assets — (29,125)Stock based compensation 481,000 2,158,050 Change in fair value of derivative liabilities (3,595) (372,502)Interest expense related to penalties from debt defaults — — Amortization of debt discounts 1,094,388 2,700,233 (Gain) loss on settlement of debt (3,992) 33,068,313 Increase in related party accrued payroll and interest 9,720 220,140 Changes in operating assets and liabilities: Accounts receivable (258,790) (289,485)Prepaid expenses (224,476) (392,811)Deposits on right of use asset — (18,462)Device parts inventory (805,257) (1,864,340)Accounts payable and accrued expenses 197,317 177,240 Accrued expense -related party — (178,478)Customer deposits (7,617) (500)Operating lease liabilities (191,485) (161,959)Current portion of deferred variable payment obligation for payments 171,550 173,640 Balance owed WeSecure — (122,000)Accrued interest payable 1,749,833 1,903,365 Net cash used in operating activities (9,883,272) (10,434,762) CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of fixed assets (217,601) (34,534)Acquisition of trademarks — (26,327)Proceeds on disposal of fixed assets — 30,000 Cash paid for security deposit — (15,880)Net cash used in investing activities (217,601) (46,741) CASH FLOWS FROM FINANCING ACTIVITIES: Share proceeds net of issuance costs 4,657,979 7,463,654 Proceeds from loans payable 2,600,000 9,426,146 Repayment of loans payable (1,711,009) (471,617)Proceeds from convertible debt and warrants issued 619,250 — Repayment of convertible debt — (65,000)Series G preferred shares redeemed as payment on incentive plan payable — (1,500,000)Dividend and redemption of cancelled issuable Series F preferred shares — (500,000)Net borrowings (repayments) on loan payable – related party — (812,234)Net cash provided by financing activities 6,166,220 13,540,949 Net change in cash (3,934,653) 3,059,446 Cash, beginning of period 4,648,146 1,044,418 Cash, end of period $713,493 $4,103,864 Supplemental disclosure of cash and non-cash transactions: Cash paid for interest $405,117 $165,163 Cash paid for income taxes $— $— Noncash investing and financing activities: Right of use asset for operating lease liability $— $1,341,506 Transfer from device parts inventory to revenue earning devices $672,534 $592,346 Conversion of convertible notes and interest to shares of common stock $— $898,705 Release of derivative liability on conversion of convertible notes payable $— $422,272 Derivative debt discount on re-valuation on loan amendment $— $438,835 Exchange of notes payable for Series F preferred shares $— $6,732,835 Exchange of warrants for debt $3,000,000 $— Discount applied to face value of loans $434,500 $6,162,945 Warrants issued as part of debt $— $8,068,822 Exercise of warrants $97 $3,951 Series F preferred shares and warrants issued for debt $1,240,628 $4,000,160 Issuance of Series G preferred shares as payment of incentive plan payable $— $1,500,000 Cancellation of Series E preferred shares and common shares $171 $1,000 Series F preferred shares converted to common shares $— $3,086 Series F preferred shares issued on exercise of warrants $— $38
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10Q Financial Info
Management Discussion and Analysis
Results of Operations for the Three Months Ended November 30, 2022 and 2021
The following table shows our results of operations for the three months ended November 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
Ended Three Months
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%
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Revenue
The following table presents revenues from contracts with customers disaggregated by product/service:
Three Months
Ended Three Months
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
Ended Three Months
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 $1,840,744. In comparing the three months ended November 30, 2022 and November 30, 2021 this decrease was primarily due to the following decreases: stock based compensation of $819,500 for higher prior year charges based on the CEO incentive plan, wages and salaries for prior year bonuses paid, bad debts expense of $25,785 and professional fees of $126,435. These decreases were offset by the following increases: insurance of $51,485 due to health plan for new employees and increased liability and property insurance due to new manufacturing facility, advertising , sales and marketing of $82,893, subcontractor fees of $13,802, travel of $18,004, duty and freight of $36,230 and bad debts expense due to a general provision of $40,000 on slow payers due to present economic factors. ●Research and development decreased by $169,133 due to higher activity in the 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 $146,995. ●Depreciation and amortization increased by $24,928 due to the acquisition of computer equipment and new revenue earning devices. ●Operating lease cost and rent decreased by $42,110 due to one less office lease for the three months ended November 30, 2022 comparing to the three months ended November 30, 2021.
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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 November 30, 2022 and November 30, 2021, was ($1,271,158) and ($2,206,915), respectively. The $935,757 decrease in other expense, net was primarily attributable to reduced interest expense.
●Interest expense decreased by $779,096 due to a decrease in debt amortization expense. The three months ended November 30, 2021 had higher amortization due to debt settlements. ●Loss on settlement of debt was $0 the quarter ended November 30, 2022 and $156,661 in the quarter ended November 30, 2022.
Net loss
We had a net loss of $4,085,660 for the three months ended November 30, 2022, compared to a net loss of $7,094,442 for the three months ended November 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 ended November 30, 2022.
Results of Operations for the Nine Months Ended November 30, 2022 and 2021
The following table shows our results of operations for the nine months ended November 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
Ended Nine Months
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
Ended Nine Months
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
Ended Nine Months
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 $1,692,622. In comparing the nine-months ended November 30, 2022 and November 30, 2021 may be partially 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 $229,562, duty and freight by $66,067,bad debts expense $117,193, and office expense by $73,922. ●Research and development increased by $484,451 due to funding development of 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 $1,064,636. This increase was partially offset by the higher development costs incurred in equipment and design on new products for the nine-month period ended November 30, 2021. ●Depreciation and amortization increased by $179,382 due to the acquisition of ERP computer software, computer equipment tooling, and 54 new revenue earning devices. ●Operating lease cost and rent decreased by $12,548 due to the expiration of one lease in early fiscal 2022. ●(Gain) loss on disposal of fixed assets increase by $29,125 due to a vehicle sold in the prior year.
Other Income (Expense)
Other income (expense) during the nine months ended November 30, 2022 and November 30, 2021, was ($3,440,621) and ($37,508,288), respectively. The $34,067,677 increase in other income was primarily attributable to the change in the fair value of derivatives, interest expense, and loss on settlement of debt.
●In comparing the nine months ended November 30, 2022 and the nine months ended November 30, 2021, the change in fair value of derivative liabilities decreased by $368,907 due to the re-valuation of derivative liability on convertible 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 $1,364,269 due to the decrease in debt amortization expense. The three months ended November 30, 2021 had higher amortization due to debt settlements. ●Gain (loss) on settlement of debt was $3,992 the nine months ended November 30, 2022 and ($33,068,313) in the nine months ended November 30, 2021. This current 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 $33,015,215 loss which was partially offset by gains 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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Net loss
We had a net loss of $12,930,211 for the nine months ended November 30, 2022, compared to a net loss of $47,831,733 for the nine months ended November 30, 2021. The change is primarily the result of the loss on settlement in the nine months ended November 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 of November 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 November 30, 2022 and February 28, 2022, we had a cash balance of $713,493 and $4,648,146, respectively.
Summary of Cash Flows
Summary of Cash Flows Nine Months
Ended
November 30, 2022 Nine Months
Ended
November 30, 2021 Net cash used in operating activities $(9,883,272)$(10,434,762)Net cash used in investing activities $(217,601)$(46,741)Net cash provided by financing activities $6,166,220 $13,540,949
Net cash used in operating activities.
Net cash used in operating activities for the nine months ended November 30, 2022 was $9,883,272, which included a net loss of $12,930,211, non-cash activity such as the bad debts expense of $224,215, inventory provision $90,000, reduction of right of use asset of $84,298, accretion of lease liability $107,187, stock based compensation of $481,000, change in value of derivative liabilities of ($3,595), gain on settlement of debt of ($3,992), amortization of debt discount of $1,094,388, increase in related party accrued payroll and interest of $9,720, depreciation and amortization of $332,643 and change in operating assets of $631,074, to derive the uses of cash in operations.
Net cash used in investing activities.
Net cash used in investing activities for the nine months ended November 30, 2022 was $217,601, which was the purchase of fixed assets.
Net cash provided by financing activities.
Net cash provided by financing activities was $6,166,220 for the nine months ended November 30, 2022. This consisted of share proceeds net of issuance costs of $4,657,979, proceeds from convertible notes payable of $619,250, proceeds from loans payable of $2,600,000, reduced by repayments on loans payable of $1,711,009.
