Quarterly Report for Quarter Ending AUGUST 31, 2026 (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, 2026 and August 31, 2025 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, 2026, as filed on June 9, 2026 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, under the name On the Move Systems Corp., and reincorporated into Nevada on February 17, 2015. On August 24, 2018, the Company changed its name to Artificial Intelligence Technology Solutions Inc. AITX's fiscal year end is February 28 (February 29 during leap year). AITX's principal executive offices are located at 10800 Galaxie Avenue, Ferndale, Michigan 48220, and our telephone number is (877) 787-6268.

AITX's mission is to apply artificial intelligence to solve enterprise problems that are expensive, repetitive, difficult to staff, and outside the core competencies of the client organization.

AITX is a vertically integrated developer and operator of artificial intelligence-driven security and operational automation solutions. Through our wholly owned subsidiaries, principally Robotic Assistance Devices, Inc. ("RAD"), we design, manufacture, deploy, and support a portfolio of stationary devices, mobile autonomous platforms, and software products powered by SARA™ (Speaking Autonomous Responsive Agent), our proprietary agentic AI platform. SARA enables our devices to perceive, decide, communicate, and act in real time, escalating to human operators only when needed. Our long-term design target for the portfolio, which we refer to as "RAD Town," is described in Item 1 of our Annual Report on Form 10-K for the fiscal year ended February 28, 2026 (the "Annual Report").

Substantially all of our revenue is generated through recurring monthly subscription contracts, typically with minimum twelve-month initial terms, under a Solutions-as-a-Service model in which the Company retains ownership of the deployed hardware; we also sell units outright to a limited number of enterprise customers. Device rental revenue represented approximately 89% of total revenue for the three months ended August 31, 2026.

We view our commercial activity as proceeding along three principal sales avenues, each conducted through a dedicated wholly owned subsidiary and each integrated with SARA:

	●	Stationary solutions (RAD-I). Robotic Assistance Devices, Inc. operates our stationary product portfolio, including ROSA™, our most widely deployed device; RIO™, a portable solar-powered security tower; AVA™, a vehicle gate access solution; TOM™, a visitor and front-desk management solution; and ROSS™ and RAM™, which add SARA-enabled analytics and response to existing third-party cameras. These solutions are typically deployed at building entries, gates, perimeters, parking facilities, and interior chokepoints, and RAD-I remains the largest contributor to consolidated revenue.
	●	Mobile autonomous solutions (PURSUON). Our mobile autonomous platform business is centered on ROAMEO™, a fully autonomous outdoor security patrol vehicle that operates without on-site human pilots. In August 2026, Robotic Assistance Devices Mobile, Inc. was renamed Pursuon Inc. ("PURSUON"); PURSUON remains wholly owned by the Company, and RAD is the exclusive reseller of ROAMEO. Commercial deployment and recurring billing of ROAMEO commenced in May 2026, and as of August 31, 2026, two ROAMEO units were deployed and generating recurring revenue.
	●	Agentic AI platform and partnerships (RAD-G). Robotic Assistance Devices Group, Inc. holds, develops, and commercializes the SARA platform and operates our platform partnership strategy with monitoring platforms and central stations, third-party hardware manufacturers, dealers and integrators, and enterprise end users. During the quarter, RAD stationary devices completed user acceptance testing and became available on the production environment of Immix, a central station monitoring software platform, following the integration announced in March 2026. Robotic Assistance Devices Lanka (Private) Limited, our Sri Lanka subsidiary, operates as a wholly owned subsidiary of RAD-G and provides engineering and production capacity.

RAD solutions are differentiated because they:

	1.	Begin with an AI-driven autonomous response through SARA, and escalate to a human operator only when needed.
	2.	Run on hardware purpose-built by RAD and assembled at our facility in Ferndale, Michigan, in form factors designed for each application.
	3.	Are delivered through RAD-developed software and cloud services, allowing enterprise IT and security teams to focus on their core competencies instead of maintaining complex video and security platforms.

We sell business-to-business through a direct enterprise sales team and an authorized dealer network of more than one hundred dealers across the United States, Canada, and the European Union, which addresses small and middle-market accounts and provides geographic reach that direct sales cannot economically cover. As of August 31, 2026, we had approximately 1,000 devices deployed, primarily in the United States and Canada, with early deployments in Europe. Our customer base spans logistics, healthcare, commercial real estate, manufacturing, retail, education, and government, and includes one Fortune Top 10 enterprise and several additional Fortune 500 enterprises. We have maintained SOC 2 Type 2 status since February 2025.

Our principal corporate website is www.aitx.ai, where our press releases and SEC filings are available. Information on our websites is not incorporated by reference into this report.

Management Discussion and Analysis

Results of Operations for the Three Months Ended August 31, 2026 and 2025

The following table shows our results of operations for the three months ended August 31, 2026 and 2025. 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, 2026				August 31, 2025				Dollars				Percentage
Revenues		$	1,985,604			$	1,888,749			$	96,855				5	%
Gross profit			1,063,301				1,344,865				(281,564	)			(21	%)
Operating expenses			3,743,697				3,654,024				89,673				2	%
Loss from operations			(2,680,396	)			(2,309,159	)			(371,238	)			16	%
Other income (expense), net			(4,158,077	)			3,072,223				(7,230,300	)			(235	%)
Net Income (Loss)		$	(6,838,473	)		$	763,064			$	(7,601,539	)			(996	%)

Revenue

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

		Three Months Ended				Three Months Ended				Change
		August 31, 2026				August 31, 2025				Dollars				Percentage
Device rental activities		$	1,765,293			$	1,695,471			$	69,822				4	%
Direct sales of goods and services			220,311				193,278				27,033				14	%
		$	1,985,604			$	1,888,749			$	96,855				5	%

Total revenue for the three-month period ended August 31, 2026 was $1,985,604 which represented an increase of $96,855 compared to total revenue of $1,888,749 for the three months ended August 31, 2025. Rental activities increased by 2% over the prior year's quarter and direct sales increased by 14%. Rental activities small increase is attributable to the loss of business from one customer, who due to its own cost cutting initiatives which began in December 2025, went from contributing to 46% of the Company's revenues in 2025, to 18% of the Company's revenues in 2026. The Company managed to increase its revenues from other customers by approximately $617,000 to overcome this lost revenue and end up with 5% growth over the prior year's quarter.

Gross profit

Total gross profit for the three-month period ended August 31, 2026 was $1,063,301, which represented an decrease of $281,564 compared to gross profit of $1,344,865 for the three months ended August 31, 2025. The gross profit decreased due to an inventory write down of $270,987. The Company was not able to realize sales on this product due to the high cost of developing and selling to a new retail market. The Company has decided to rather focus on software initiatives instead. The gross profit % of 54% for the three-month period ended August 31, 2026 was lower than the gross profit % of 71% for the prior year's corresponding period. Without the inventory write down the 2026 gross profit would have been 67% which is more consistent with the prior year but still slightly lower due to overhead allocations and different product mix.

Operating Expenses

		Period
		Three Months Ended				Three Months Ended				Change
		August 31, 2026				August 31, 2025				Dollars				Percentage
Research and development		$	1,062,671			$	919,714			$	142,957				16	%
General and administrative			2,579,273				2,634,832				(55,559	)			(2	%)
Depreciation and amortization			34,426				36,900				(2,474	)			(7	%)
Operating lease cost and rent			67,327				62,578				4,749				8	%
Operating expenses		$	3,743,697			$	3,654,024			$	89,674				2	%

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, 2026 and August 31, 2025, were $3,743,697and $3,654,024, respectively. The overall increase of $89,674 was primarily attributable to the following changes in operating expenses of:

	●	General and administrative expenses decreased by $55,559. In comparing the three months ended August 31, 2026 and August 31, 2025 the decrease in G&A was primarily due to decreases in: wages and salaries of $95,188, stock-based compensation of $46,380, and travel $53,262. These increases were partially offset by increase in: professional fees of $77,716, repairs and maintenance of $49,065 ,office expenses of $8,603 and with other net G& A account increases.
	●	Research and development increased by $142,957 due to an increase in software development.
	●	Depreciation and amortization decreased by $2,474 due to changes in estimates for the allocation of revenue earning devices not in use.
	●	Operating lease cost and rent increased by $4,749.

Other Income (Expense)

Other income (expense) consisted of interest , change in fair value of derivatives, and gains (losses) on settlement of debt . Other income (expense) during the three months ended August 31, 2026 and August 31, 2025, was (4,158,077) and $3,072,223, respectively. The $7,230,300 increase in other expense was primarily attributable to the gain on settlement of debt of $4,370,185 in the prior year as well as increases, in interest expense , amortization of discounts including new derivative discounts, derivative liability loss and losses on debt settlements.

Net income (loss)

We had a net loss of $6,838,473 for the three months ended August 31, 2026, compared to net income of $763,064 for the three months ended August 31, 2025. The increase in net loss of $7,601,539 is a result of lower gross profit and higher other expense.

Results of Operations for the Six Months Ended August 31, 2026 and 2025

The following table shows our results of operations for the six months ended August 31, 2026 and 2025 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, 2026				August 31, 2025				Dollars				Percentage
Revenues		$	3,816,806			$	3,743,586			$	73,220				2	%
Gross profit			2,247,125				2,578,366				(331,241	)			(13	%)
Operating expenses			7,636,884				8,066,193				(429,309	)			(5	%)
Loss from operations			(5,389,759	)			(5,487,827	)			98,068				(2	%)
Other income (expense), net			(7,164,551	)			1,656,874				(8,821,425	)			532	%
Net loss		$	(12,554,310	)		$	(3,830,953	)		$	(8,723,357	)			228	%

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

		Six Months Ended				Six Months Ended				Change
		August 31, 2026				August 31, 2025				Dollars				Percentage
Device rental activities		$	3,378,388			$	3,322,757			$	55,631				2	%
Direct sales of goods and services			438,418				420,829				17,589				4	%
		$	3,816,806			$	3,743,586			$	73,220				2	%

Total revenue for the six-month period ended August 31, 2026 was $3,816,806 which represented an increase of $73,220 compared to total revenue of $3,743,586 for the six months ended August 31, 2025. Rental activities increased by 2% over the prior year's six-month period and direct sales increased by 4%. Rental activities small increase is attributable to the loss of business from one customer, who due to its own cost cutting initiatives which began in December 2025, went from contributing to 47% of the Company's revenues in 2025, to 19% of the Company's revenues in 2026. The Company managed to increase its revenues from other customers by approximately $1,094,000 to overcome this lost revenue and end up with 2% growth over the prior year's six-month period.

Gross profit

Total gross profit for the six-month period ended August 31, 2026 was $2,247,125 which represented a decrease of $331,241, compared to gross profit of $2,578,366 for the six months ended August 31, 2025. The gross profit decreased due to an inventory write down of $270,987. The Company was not able to realize sales on this product due to the high cost of developing and selling to a new retail market. The Company has decided to rather focus on software initiatives instead. The gross profit % of 59% for the six-month period ended August 31, 2026 was lower than the gross profit % of 69% for the prior year's corresponding period. Without the inventory write down the 2026 gross profit would have been 66% which is more consistent with the prior year but still slightly lower due to overhead allocations and different product mix.

Operating Expenses

		Period
		Six Months Ended				Six Months Ended				Change
		August 31, 2026				August 31, 2025				Dollars				Percentage
Research and development		$	1,948,264			$	2,007,333			$	(59,069	)			(3	%)
General and administrative			5,486,849				5,867,042				(380,193	)			(6	%)
Depreciation and amortization			67,072				71,021				(3,949	)			(6	%)
Operating lease cost and rent			134,699				120,797				13,902				12	%
Operating expenses		$	7,636,884			$	8,066,193			$	(429,309	)			(5	%)

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, 2026 and August 31, 2025, were $7,636,884 and $8,066,193, respectively. The overall decrease of $429,309 was primarily attributable to the following changes in operating expenses of:

	●	General and administrative expenses decreased by $380,193. In comparing the six months ended August 31, 2026 and August 31, 2025 the increase may be partially explained by the following decreases: wages and salaries by $322,332, travel by $21,500, stock-based compensation by $66,727, and RMC costs by $123,940. These were partially offset by increases in the following accounts: office expenses by $112,470, professional fees by $32,549 commission by $14,858 and with other net G& A account increases.
	●	Research and development decreased by $59,069 due to a shift in personnel from R&D paid to a company partially owned by a principal shareholder , to more cost efficient outside contractors.
	●	Depreciation and amortization decreased by $3,949.
	●	Operating lease cost and rent increased by $13,902 due to an increase in short term leases.

Other Income (Expense)

Other income (expense) during the six months ended August 31, 2026 and August 31, 2025, was (7,164,551) and $1,656,874, respectively. The $8,821,425 increase in other expense was primarily to the gain on settlement of debt of $4,370,185 in the prior year as well as increases, in interest expense , amortization of discounts including new derivative discounts, derivative liability loss and losses on debt settlements.

Net loss

We had a net loss of $12,554,310 for the six months ended August 31, 2026, compared to a net loss of $3,830,953 for the six months ended August 31, 2025. The increase in net loss of $8,723,357 is a result of lower gross profit and higher other expense.

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, 2026, we had a cash balance of $220,275, accounts receivable of $947,146, device parts inventory of $1,261,080 and $58,906,967 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, 2026				February 28, 2026
Current assets		$	3,012,097			$	2,935,003
Current liabilities			58,906,967				19,952,748
Working capital		$	(55,894,870	)		$	(17,017,745	)

As of August 31, 2026 and February 28, 2026, we had a cash balance of $220,275 and $109,043, respectively.

Summary of Cash Flows

Summary of Cash Flows		Six Months Ended August 31, 2026				Six Months Ended August 31, 2025
Net cash used in operating activities		$	(4,820,842	)		$	(5,400,554	)
Net cash used in investing activities		$	(16,438	)		$	(10,420	)
Net cash provided by financing activities		$	4,948,512			$	4,868,020

Net cash used in operating activities.

Net cash used in operating activities for the six months ended August 31, 2026 was $4,820,842 which included a net loss of $12,554,310 non-cash activity such as , inventory provision $270,987 ,bad debts expense of $40,000, reduction of right of use asset of $77,960, accretion of lease liability $44,627, stock based compensation of $94,483, loss on settlement of debt $893,510, derivative discount in excess of fair value of debt $1,270,038, change in fair value of derivative liabilities $225,092, change in operating assets and liabilities of $2,782,608, amortization of debt discount of $1,036,482, decrease in related party accrued payroll and interest of $117,239 and depreciation and amortization of $1,114,920 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, 2026 was $16,438 and consisted of $15,600 for the purchase of fixed assets, and $838 for acquisition of trademarks.

Net cash provided by financing activities.

Net cash provided by financing activities was $4,948,512 for the six months ended August 31, 2026. This consisted of share proceeds net of issuance costs of 1,332,722, proceeds from loans payable of $4,594,328, proceeds from Series C redeemable convertible preferred shares of $200,000 and reduced by repayments on loans payable of $1,178,538.

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, 2026, as filed on June 9, 2026.

Related Party Transactions

For the three months ended August 31, 2026, the Company had net advances from its loan payable-related party of $12,448 and for the six months ended August 31, 2026, the Company had net repayments from its loan payable-related party of 117,239. For the three months and six months ended August 31, 2025 , the Company had no repayments of net advances from its loan payable-related party. At August 31, 2026 the loan payable-related party was $344,394 and $461,633 at February 28, 2026. Included in the balance due to the related party at August 31, 2026 is $267,862 of deferred salary and interest, $159,263 of which bears interest at 12%. As of February 28, 2026, included in the balance due to the related party is $285,638 of deferred salary all of which bears interest at 12%. The accrued interest included in the loan at August 31, 2026, and February 28, 2026, was $89,699, and $79,268, respectively.

During the six months ended August 31, 2026, the Company paid out gross payments to the CEO of $359,888 offset by a bonus accrual of $500,000, which yields a net increase of $140,112 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, board action which provided an additional $1.5 million in compensation. The balance of deferred compensation for CEO was $1,951,968 and $1,811,856 at August 31, 2026, and February 28, 2026, 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.

For the three and six months ended August 31, 2026, the Company accrued $0 (three and six months ended August 31 2025-$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, 2026, and February 28, 2026, there was $5,500,000 and $5,500,000 of incentive compensation payable.

During the three months ended August 31, 2026 and 2025, the Company was charged $555,186 and $598,277, respectively for fees for research and development from a company partially owned by a principal shareholder.

During the six months ended August 31, 2026 and 2025, the Company was charged $945,316 and $1,335,152, 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, 2026, and February 28, 2026, the balance due to this company was $76,532 and $160,557, respectively.