Quarterly Report for Quarter Ending AUGUST 31, 2025 (Form 10-Q)

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 and six months ended August 31, 2025 and August 31, 2024 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, 2025, as filed on May 29, 2025 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.

We encourage everyone to ensure they have the most up to date news by visiting AITX at AITX News - AITX - Artificial Intelligence Technology Solutions.

Management Discussion and Analysis

Results of Operations for the Three Months Ended August 31, 2025 and 2024

The following table shows our results of operations for the three months ended August 31, 2025 and 2024. 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
		August 31, 2025				August 31, 2024				Dollars				Percentage
Revenues		$	1,888,749			$	1,344,183			$	544,566				41	%
Gross profit			1,344,865				1,001,091				343,774				34	%
Operating expenses			3,654,024				3,614,964				39,060				1	%
Loss from operations			(2,309,159	)			(2,613,874	)			304,715				12	%
Other income (expense), net			3,072,223				(1,316,449	)			4,388,672				333	%
Net Income (Loss)		$	763,064			$	(3,930,323	)		$	4,693,387				119	%

Revenue

The following table presents revenues from contracts with customers disaggregated by product/service:

		Three Months Ended				Three Months Ended				Change
		August 31, 2025				August 31, 2024				Dollars				Percentage
Device rental activities		$	1,695,471			$	1,065,898			$	629,573				59	%
Direct sales of goods and services			193,278				278,285				(85,007	)			(31	)%
		$	1,888,749			$	1,344,183			$	544,566				41	%

Total revenue for the three-month period ended August 31, 2025 was $1,888,749 which represented an increase of $544,566 compared to total revenue of $1,344,183 for the three months ended August 31, 2024. Rental activities increased by 59% over the prior year's quarter and direct sales decreased by 31% as the Company continues to grow its core business of rental activities.

Gross profit

Total gross profit for the three-month period ended August 31, 2025 was $1,344,865, which represented an increase of $343,444 compared to gross profit of $1,001,091 for the three months ended August 31, 2024. The gross profit increased due to the higher sales. The gross profit % of 71% for the three-month period ended August 31, 2024 was slightly lower than the gross profit % of 74% for the prior year's corresponding period..

Operating Expenses

		Period
		Three Months Ended				Three Months Ended				Change
		August 31, 2025				August 31, 2024				Dollars				Percentage
Research and development		$	919,714			$	677,410			$	242,304				36	%
General and administrative			2,634,832				2,766,826				(131,994	)			(5	)%
Depreciation and amortization			36,900				107,762				(70,862	)			(66	)%
Operating lease cost and rent			62,578				62,967				(389	)			(1	)%
Operating expenses		$	3,654,024			$	3,614,965			$	39,059				1	%

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 August 31, 2025 and August 31, 2024, were $3,654,024 and $3,614,965, respectively. The overall increase of $39,059 was primarily attributable to the following changes in operating expenses of:

	●	General and administrative expenses decreased by $131,995. In comparing the three months ended August 31, 2025 and August 31, 2024 the decrease in G&A was primarily due to decreases in freight of $210,259 and installation costs of $110,074. These increases were partially offset by an increase in wages and salaries of $177,744.
	●	Research and development increased by $242,304 due to an increase in software development.
	●	Depreciation and amortization decreased by $70,862 due to changes in estimates for the allocation of revenue earning devices not in use.
	●	Operating lease cost and rent decreased by $389.

Other Income (Expense)

Other income (expense) consisted of interest and gain on settlement of debt . . Other income (expense) during the three months ended August 31, 2025 and August 31, 2024, was $3,072,223 and ($1,316,449), respectively. The $4,388,672 increase in other income was primarily attributable to the gain on settlement of debt of $4,370,185 in the current year and the corresponding lower interest charges on the reduced debt.

Net loss

We had net income of $763,064 for the three months ended August 31, 2025, compared to a net loss of $3,930,323 for the three months ended August 31, 2024. The increase in net income of $4,693,388 is a result of higher gross profit and higher other income (expense) from the gain on settlement of debt.

Results of Operations for the Six Months Ended August 31, 2025 and 2024

The following table shows our results of operations for the six months ended August 31, 2025 and 2024 The historical results presented below are not necessarily indicative of the results that may be expected for any future period.

Revenue

		Period
		Six Months Ended				Six Months Ended				Change
		August 31, 2025				August 31, 2024				Dollars				Percentage
Revenues		$	3,743,586			$	2,526,983			$	1,216,603				48	%
Gross profit			2,578,366				1,686,425				891,941				53	%
Operating expenses			8,066,193				7,133,555				932,638				13	%
Loss from operations			(5,487,827	)			(5,447,130	)			(40,697	)			(1	)%
Other income (expense), net			1,656,874				(2,677,552	)			4,334,426				162	%
Net loss		$	(3,830,953	)		$	(8,124,682	)		$	4,293,729				53	%

The following table presents revenues from contracts with customers disaggregated by product/service:

		Six Months Ended				Six Months Ended				Change
		August 31, 2025				August 31, 2024				Dollars				Percentage
Device rental activities		$	3,322,757			$	2,046,434			$	1,276,323				62	%
Direct sales of goods and services			420,829				480,549				(59,720	)			(12	)%
		$	3,743,586			$	2,526,983			$	1,216,603				48	%

Total revenue for the six-month period ended August 31, 2025 was $3,743,586 which represented an increase of $891,941 compared to total revenue of $2,526,983 for the six months ended August 31, 2024. This increase is a result of an increase in rental sales of $1,276,323 which was reduced slightly by a decrease in direct sales of $50,720. The Company's focus is on higher margin rental activities.

Gross profit

Total gross profit for the six-month period ended August 31, 2025 was $2,578,366 which represented an increase of $891,941, compared to gross profit of $1,686,425 for the six months ended August 31, 2024. The gross profit increased due to the higher sales. The gross profit % was 69% for the six month period ended August 31, 2025 and 67% for the six month period ended August 31, 2024.

Operating Expenses

		Period
		Six Months Ended				Six Months Ended				Change
		August 31, 2025				August 31, 2024				Dollars				Percentage
Research and development		$	2,007,333			$	1,318,120			$	689,213				52	%
General and administrative			5,867,042				5,487,017				380,025				7	%
Depreciation and amortization			71,021				203,438				(132,417	)			(65	)%
Operating lease cost and rent			120,797				124,980				(4,183	)			(3	)%
Operating expenses		$	8,066,193			$	7,133,555			$	932,638				13	%

General and administrative expenses consisted primarily of professional services, automobile expenses, advertising, salaries and wages, travel expenses and consultants. Our operating expenses during the six-month period ended August 31, 2025 and August 31, 2024, were $8,066,193 and $7,133,555, respectively. The overall increase of $932,638 was primarily attributable to the following changes in operating expenses of:

	●	General and administrative expenses increased by $380,025. In comparing the six months ended August 31, 2025 and August 31, 2024 the increase may be partially explained by the following increases: wages and salaries by $307,260, commissions by $135,559 and marketing by $103,785.44. These were partially offset by decreases in the following accounts: installation costs by $79,310 and freight by $84,373.
	●	Research and development increased by $689,213 due to an increase in software development and new products such as the ROAMEO.
	●	Depreciation and amortization decreased by $132,417 due to due to changes in estimates for the allocation of revenue earning devices not in use.
	●	Operating lease cost and rent decreased by $4,183 due to one less lease.

Other Income (Expense)

Other income (expense) during the six months ended August 31, 2025 and August 31, 2024, was $1,656,874 and ($2,677,552), respectively. The $4,334,426 increase in other income was primarily to the gain on settlement of debt of $4,370,185 in the current year and the corresponding lower interest charges on the reduced debt.

Net loss

We had a net loss of $3,830,953 for the six months ended August 31, 2025, compared to a net loss of $8,124,682 for the six months ended August 31, 2024. The decrease in net loss of $1,190,237 is a result of higher gross profit and higher other income (expense) from the gain on settlement of debt.

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 August 31, 2025, we had a cash balance of $323,021, accounts receivable of $931,219, device parts inventory of $1,075,239 and $9,191,674 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:

		August 31, 2025				February 28, 2025
Current assets		$	2,782,306			$	5,028,543
Current liabilities			9,191,674				7,576,681
Working capital		$	(6,409,368	)		$	(2,548,138	)

As of August 31, 2025 and February 28, 2025, we had a cash balance of $323,021 and $865,975, respectively.

Summary of Cash Flows

Summary of Cash Flows		Six Months Ended August 31, 2025				Six Months Ended August 31, 2024
Net cash used in operating activities		$	(5,400,554	)		$	(6,433,906	)
Net cash used in investing activities		$	(10,420	)		$	(77,868	)
Net cash provided by financing activities		$	4,868,020			$	6,948,981

Net cash used in operating activities.

Net cash used in operating activities for the six months ended August 31, 2025 was $5,400,554 which included a net loss of $3,830,953 non-cash activity such as the bad debts expense of $71,482, reduction of right of use asset of $68,809, accretion of lease liability $53,778, stock based compensation of $160,710, gain on settlement of debt of $4,370,185, change in operating assets and liabilities of $1,222,817, amortization of debt discount of $143,217, increase in related party accrued payroll and interest of $67,575 and depreciation and amortization of $1,012,196 to derive the uses of cash in operations.

Net cash used in investing activities.

Net cash used in investing activities for the six months ended August 31, 2025 was $10,420, $8,422 for the purchase of fixed assets, and $1,998 for acquisition of trademarks.

Net cash provided by financing activities.

Net cash provided by financing activities was $4,868,020 for the six months ended August 31, 2025. This consisted of share proceeds net of issuance costs of 4,362,349, proceeds from loans payable of $1,050,671, reduced by repayments on loans payable of $420,000 and redemption of Series C redeemable convertible preferred shares of $125,000.

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, 2025, as filed on May 29, 2025.

Related Party Transactions

For both the three months and six months ended August 31, 2025 and August 31, 2024, the Company had no repayments of net advances from its loan payable-related party. At August 31, 2025 the loan payable-related party was $396,940 and $329,635 at February 28, 2025. Included in the balance due to the related party at August 31, 2025 is $320,408 of deferred salary and interest, $225,013 of which bears interest at 12%. As of February 28, 2025, included in the balance due to the related party is $252,833 of deferred salary and interest, $190,013 of which bears interest at 12%. The accrued interest included in the loan at August 31, 2025, and February 28, 2025, was $63,501, and $51,575, respectively.

During the six months ended August 31, 2025, the Company paid out gross payments to the CEO of $1,504,917 offset by a bonus accrual of $500,000, which yields a net change of $1,004,917 relating to deferred compensation for CEO. This was all in accordance with a December 2023 board action allowing for $1 million of annual discretionary compensation as well as a February 28, 2025. The balance of deferred compensation for CEO was $1,197,683 and $2,202,600 at August 31, 2025, and February 28, 2025, respectively

For the three and six months ended August 31, 2025, the Company accrued $0 (three and six months ended August 31 2024-$0) of incentive compensation plan payable to the CEO . This will be payable in Series G Preferred Shares which are redeemable at the Company's option at $1,000 per share. At August 31, 2025, and February 28, 2025, there was $4,000,000 and $4,000,000 of incentive compensation payable.

During the three months ended August 31, 2025 and 2024, the Company was charged $598,277 and $777,260, respectively for fees for research and development from a company partially owned by a principal shareholder.

During the six months ended August 31, 2025 and 2024, the Company was charged $1,335,152 and $1,289,830, respectively for fees for research and development from a company partially owned by a principal shareholder. The principal shareholder received no compensation from this partially owned research and development company and the fees were spent on core development projects. As at both August 31, 2025, and February 28, 2025, the balance due to this company was $160,557 and $76,532, respectively.