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ATI Airtest Technologies Inc. — Management Reports 2024
Dec 20, 2024
44844_rns_2024-12-20_52f868b0-65d6-4681-908f-66157957c0f8.pdf
Management Reports
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ATI AIRTEST TECHNOLOGIES INC.
Management Discussion and Analysis
For the year ended December 31, 2023
This Management Discussion and Analysis of ATI AirTest Technologies Inc. (the "Company") provides analysis of the Company's financial results for the year ended December 31, 2023. The following information should be read in conjunction with the accompanying audited financial statements and the notes to the audited financial statements for the year ended December 31, 2023.
1.0 Date of the Report
December 11, 2024
1.1 Introduction
The following management's discussion and analysis ("MD&A") is a review of operations, current financial position and outlook for the Company and should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2023. Readers are encouraged to review the Company's consolidated financial statements in conjunction with this document, copies of which are filed on the SEDAR website at www.sedar.com. The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS"). The consolidated financial statements have been prepared in accordance with IFRS 1, "First-time Adoption of International Reporting Standards" as issued by the International Accounting Standards Board ("IASB").
Unless otherwise specified, all dollar amounts are expressed in Canadian dollars and have been prepared in accordance with IFRS.
This MD&A contains forward-looking statements. Forward-looking statements may also be made in the Company's other reports filed with or furnished to Canadian securities commissions. In addition, from time to time, the Company through its management may make oral forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such statements. The words "aim," "anticipate," "believe," "continue," "could," "expect," "intend," "likely", "may," "optimistic," "plan," "potential", "predict", "should," "will," "would," and other similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance, and therefore you should not put undue reliance
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upon them. The material assumptions supporting these forward-looking statements include, among other things the Company's ability to:
- obtain any necessary financing on acceptable terms:
- keep pace with rapid changes in consumer demands:
- rely on third party manufacturers:
- manage expansion effectively:
- enforce its intellectual property rights:
- launch additional product lines:
- retain its skilled personnel:
- manage current tax and regulatory regimes:
- manage the fluctuation in foreign currency exchange rates and interest rates; and
- follow general economic and financial market conditions.
Some of the factors that may cause actual results to differ materially from those indicated in these statements are found in the section "Risk Factors" in this MD&A.
The forward-looking statements contained in this MD&A reflect our views and assumptions only as of the date of this MD&A. The Company undertakes no obligation to update or revise any forward-looking statements after the date on which the statement is made, except as required by applicable laws, including the securities laws of Canada.
1.2 Functional and Presentation Currency
The consolidated financial statements are presented in Canadian dollars. The Company's functional currency is the United States dollar.
1.3 Overall Performance
For the year ended December 31, 2023 the Company had a 16.8% decrease in sales from year 2022. The Company reported a Net Loss of $1,043,370 for the year ended December 31, 2023 as compared to a Net Loss of $415,788 in 2022.
The Company's working capital deficiency increased from $3,465,773 at December 31, 2022 to $4,349,761 as at December 31, 2023.
The decrease in sales volume in 2023 was primarily a function of a decrease in OEM sales.
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General and administrative expenses increased by $28,257, Business Development and Marketing Expenses decreased by $277,624. R&D expense also decreased by $48,015.
1.4 Selected Annual Information
The following tables provided selected financial information for the last three fiscal years.
| Fiscal Year | 2023 | 2022 | 2021 |
|---|---|---|---|
| Net Sales | $ 1,988,559 | $ 2,390,947 | $ 2,130,358 |
| Net and Comprehensive Gain (Loss) | $ (1,168,030) | $ (89,753) | $ (1,347,604) |
| Basic and diluted gain/(loss) per share | $ ( 0.00) | $ ( 0.00) | $ ( 0.01) |
| Total Assets | $ 497,281 | $1,668,885 | $1,111,646 |
| Total Long-Term Liabilities | $1,104,086 | $1,083,930 | $1,327,066 |
| Cash dividends per common share | N/A | N/A | N/A |
1.5 Results of Operations
Revenue
Sales for the year 2023 totaled $1,988,559 a decrease of $402,388 or 16.8% from sales for 2022 of $2,390,947. The decrease came from decreased demand from the OEM product offering.
Gross Profit
The Company wrote off inventory purchased for its unsuccessful new product launch in the amount of $867,552 which plunged the gross profit for 2023 into a negative figure of $(68,787). Actual Gross Profit on sales amounted to $798,764 in 2023 compared to $894,428 in 2022, a decrease of $95,664 or 10.7%. Gross margin as a % of sales increased from 37.4% to 40.2% for an increase of 7.5%. The increase can be attributed to the product category sales mix moving away from the lower margin OEM market during 2023.
Expenses
Total expenses for the year 2023 were $1,371,343 compared to $1,668,725 for the year 2022. Expenses in year 2023 decreased by $297,382 or 17.8% over year 2022.
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Profit
The Company recorded a net loss of $1,043,370 for the year 2023 as compared to a net loss of $415,788 for the same period in 2022.
With the unsuccessful launch of a new product line, The Company has streamlined its operations and pivoted to focus on the sales of its core products which has led to better use of its limited resources and a further decrease in expenses as it pushes towards profitability moving forward.
1.6 Summary of Quarterly Results
| 2023 | 2022 | |||||||
|---|---|---|---|---|---|---|---|---|
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |
| Net Sales | $482,727 | $313,346 | $679,043 | $513,443 | $583,753 | $447,024 | $631,336 | $728,834 |
| Net Profit(Loss) | ($449,635) | ($141,643) | ($58,437) | ($393,655) | 399,004 | ($306,557) | ($283,682) | ($224,553) |
| Basic and diluted loss per share | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.00 | $ 0.00 |
1.7 Liquidity
The Company was able to complete one private placement in 2023 to raise $801,000 with another small placement having closed in the first quarter 2024. With its operational changes and more focused sales direction, the Company looks to have attained profitability in 2024 which it hopes will attract further funding when needed.
1.8 Capital Resources
The Company has no commitments for capital expenditures as of the end of 2023. Capital will be required for growth, and for completion of some remaining product development projects. The necessary capital will be put in place primarily through equity financing and once the Company is able to report growth and consistent profitability there will be an opportunity to develop other forms of reasonable cost financing.
1.9 Off-Balance Sheet Arrangements
As of December 31, 2023, the Company had no material off-balance sheet arrangements.
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1.10 Transactions with Related Parties
(a) During the year 2023, the Company paid or accrued salaries to directors and officers of $307,766 (2022 - $255,573).
(b) At December 31, 2023, $286,632 is payable to directors and officers for accrued services and advances (2022 - $239,574).
| Relationship | December 31, 2023 | December 31, 2022 | |
|---|---|---|---|
| Murray Graham | CFO | $ 682 | $ 374 |
| George Graham | COO | 101,789 | 170,937 |
| Lorne Stewart | President | 1,464 | - |
| Maxwell Mercantile | Director Company | 163,697 | 49,263 |
| Robert Mebruer | Director | 19,000 | 19,000 |
| Total | $ 286,632 | $ 239,574 |
Amounts becoming due to related parties in the normal course of operations, except where specifically stated, are non-interest bearing, unsecured, and without terms of repayment.
During the year ended December 31, 2023, the Company incurred salaries of $164,400 to Lorne Stewart, President, $107,716 to Murray Graham, CFO, and $35,650 to George Graham (who retired in April of 2023), COO, totaling $307,766 (2022 - $255,573) to its key management personnel.
(c) Related Party Loans
During the year ended December 31, 2012, the Company was loaned $200,000 from a company controlled by a director of the Company. The loan bears interest at a rate of 24% per annum which is payable quarterly. The Company has not paid the interest due and pursuant to the loan agreement the unpaid interest as of December 31, 2017 was $486,081, and now accrues interest at a rate of 10% per annum. The loan is unsecured and is due on demand.
During the year ended December 31, 2017, the Company was advanced $300,000 from the same company controlled by a director of the Company. This advance is unsecured, non-interest bearing and has no fixed payment terms. As of December 31, 2017, total loan plus interest owing to the same company was $1,013,299.
During the year ended December 31, 2018, the Company signed an agreement with Omni Marketing Global Ltd. ("OMG"), a company controlled by a director. Under this agreement, OMG will eliminate loans
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and interest by ATI for an aggregate value of $1,013,299, which was included under convertible debt loan and related party payables, noted above, as of December 31, 2017.
In conjunction to the elimination above, OMG executed a royalty agreement with the Company, whereby OMG advanced $1,000,000 to the Company ("Additional Investment") and in return, the Company has paid OMG a 5% royalty on monthly gross sales commencing January 1, 2018, however the effective date was set back to January 1, 2019. All late monthly royalty payments are subject to 3% default interest rate. As at December 31, 2023, the Company is not in default.
Per the Royalty Agreement, if the agreement is terminated due to a breach, of any obligation herein, then OMG shall be entitled, in addition to the royalty payments, to a payment equal to $2,013,299 plus 25% per year that the Royalty Agreement has been in effect, less all royalty payments that have been made from the Company to OMG during the term of the Royalty Agreement.
As of December 31, 2023, the net owing to OMG, excluding the royalty payment and interest, is $2,013,299 (2021 - $2,013,299), of which $250,000 is accounted for as convertible debenture and $66,667 as accrued interest with the balance in due to related parties. During the year ended December 31, 2023, the Company recognized royalty expense and interest of $101,124 (2022 - $113,790). As of December 31, 2023, $76,074 (2022 - $17,000) has been accrued as royalty expense and interest owing.
1.11 Proposed Transactions
There are currently no proposed transactions by the Company.
1.12 Financial Instruments and Other Instruments
The Company's financial instruments consist of cash, accounts receivable, an asset-based loan, a merchant advance loan, shareholder loans, advances from related parties, and accounts payable.
The asset-based loan from Pivot Financial in Toronto is secured by the Company's accounts receivable. Both the shareholder loans and the advances from related parties have been included in the Sales Royalty Agreement and those debts will be eliminated when royalty payments total the balance of those shareholder loans and advances.
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Because a high percentage of the Company's sales are made in United States, and also because the Company has three important suppliers based in Europe, there is an element of risk related to any large fluctuation in the relationship between the Euro, the Canadian dollar and the US dollar.
1.13 Share Data
The number of common shares issued and outstanding as of the date of this filing is 64,512,144.
1.14 Evaluation and Effectiveness of Disclosure Controls and Procedures
Under National Instrument 52-109 management is now required to certify that they have caused the company to design suitable controls over external disclosure and financial reporting. Management must also undertake reviews of the effectiveness of such controls and discuss areas of significant weakness and the associated risks as well as their plans to address them.
The company has not had sufficient financial resources to maintain dedicated internal financial reporting and qualified professional accounting personnel. Accordingly, financial reporting controls and internal transaction controls are designed and provided primarily by management with limited involvement from external consultants and professionals. This approach has been determined by management to be the most cost effective to date. However, controls may not be as strong as other entities with access to greater resources.
Management and the audit committee have discussed and identified areas that need to be improved as the company expands its scope of operations and strives to meet current market and regulatory expectations relating to the effectiveness of controls.
When control weaknesses are identified there is increased risk of release of inappropriate disclosures. There is also increased risk of misstatement in financial reporting through errors, omissions or fraudulent activity that could occur and go undetected. The Company intends to direct additional resources to improving identified deficiencies and improve the overall control environment and governance processes within the company where deemed required.
The Company recognizes that its existing control measures do not comply with a recognized internal control framework such as COSO. The Company believes such a framework is not viable at this time due to the limited number of personnel, volume of transactions, and lack of financial resources.
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1.15 Risks and Uncertainties
The Company operates in a competitive market. The Company needs to deliver high quality, cost effective, components to market and meet the timelines required by customers. The Company must develop next generation components to satisfy the future needs of their customers. Should the Company be unable to continue to manufacture and develop their products or should a competitor beat them to the market this would adversely affect future sales.
The Company has been able to acquire increased working capital, but it may still require additional capital to fully carry out its business plan going forward and financing its anticipated growth will continue to represent a significant risk factor as the required financing may not be available when it is needed.
The Company does not have significant environmental risk and in fact makes a very positive contribution to improving the environment.