What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-10-15 compared with 2025-07-15 · 131 added, 89 removed, 82 unchanged (73% of the section changed)

1 unchanged sentence

Forward-Looking

following discussion of our financial condition and results of operations for the three months ended May 31, 2025 and May 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.

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.

such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,”

“expect,” “believe,” “intend,” “may,” “will,” “should,” “could,”

and similar expressions to identify forward-looking statements.

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.

expressly indicated or the context requires otherwise, the terms “AITX”, the “Company”, “we”, “us”,

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Discussion and Analysis

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

following table shows our results of operations for the three months ended May 31, 2025 and 2024.

The historical results presented below

are not necessarily indicative of the results that may be expected for any future period.

Three Months Ended

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

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.

Operating expenses

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Other income (expense), net

$ (4,594,018 )

Net Income (Loss)

$ (3,930,323 )

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

Three Months Ended

Device rental activities

Direct sales of goods and services

revenue for the three-month period ended May 31, 2025 was $1,854,837 which represented an increase of $672,037 or 57% compared to total

revenue of $1,182,800 for the three months ended May 31, 2024.

Rental activities increased by $646,750 or 66%, as the Company continues

to grow its product line and customer base.

Direct sales grew by 13% driven by higher training revenue for the three months ended May

gross profit for the three-month period ended May 31, 2025 was $1,233,501 which represented an increase of $548,167 compared to gross

profit of $685,334 for the three months ended May 31, 2024.

The increase is consistent with the increase in revenues as well as changes

in product mix.

The gross profit % of 67% for the three-month period ended May 31, 2025 compared with the gross profit % of 58% for the

three month period ended May 31, 2024.

The gross profit % was higher because of higher proportion of rental revenues.

Three Months Ended

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 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..

Research and development

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expenses consisted primarily of professional services, automobile expenses, advertising, salaries and wages, travel expenses and consultants.

Our operating expenses during the three-month period ended May 31, 2025 and May 31, 2024, were $4,412,170 and $3,518,590, respectively.

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:

and administrative expenses increased by $681,460.

In comparing the three months ended May 31, 2025 and May 31, 2024 this increase

was primarily due to the following increases:

wages and salaries by $388,250, commissions by $43,018, production supplies by $44,308,

professional fees by $57,997, marketing by $106,977, and bad debts expenses by $42,066 offset with other net G&

A account decreases.

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.

and development increased by $242,304 due to an increase in software development.

and amortization decreased by $61,555 due to fixed assets being fully depreciated in 2025 as well as a lower allocation of revenue

earning devices to operating expenses due to a change in estimate based on experience.

lease cost and rent decreased by $3,794 due to one less lease in 2025.

and amortization decreased by $70,862 due to changes in estimates for the allocation of revenue earning devices not in use.

lease cost and rent decreased by $389.

Income (Expense)

income (expense) during the three months ended May 31, 2025 and May 31, 2024, was ($1,415,349) and ($1,361,103), respectively.

increase in other expense was primarily attributable to a $65,000 settlement accrued for as described in Note 13 during the three months

ended May 31, 2025.

had a net loss of $4,594,018 for the three months ended May 31, 2025, compared to a net loss of $4,194,359 for the three months ended

May 31, 2024.

The increase in net loss of $399,659 is due to a number of factors:

higher research and development and general and administrative

expenses is reduced by higher gross profit for the three months ended May 31, 2025.

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.

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.

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

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.

Operating expenses

Loss from operations

Other income (expense), net

$ (3,830,953 )

$ (8,124,682 )

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

Device rental activities

Direct sales of goods and services

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 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.

Research and development

General and administrative

Depreciation and amortization

Operating lease cost and rent

Operating expenses

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

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.

and development increased by $689,213 due to an increase in software development and new products such as the ROAMEO.

and amortization decreased by $132,417 due to due to changes in estimates for the allocation of revenue earning devices not in use.

lease cost and rent decreased by $4,183 due to one less lease.

Income (Expense)

income (expense) during the six months ended August 31, 2025 and August 31, 2024, was $1,656,874 and ($2,677,552), respectively.

$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.

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.

Capital Resources and Cash Flows

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relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going

of May 31, 2025, we had a cash balance of $324,847, accounts receivable (net) of $893,694, device parts inventory(net) of $1,511,783

and $7,076,967 in current liabilities.

At the current cash consumption rate, we will need to consider additional funding sources going

We are taking proactive measures to reduce operating expenses and drive growth in revenue.

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.

taking proactive measures to reduce operating expenses and drive growth in revenue.

successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, we will have sufficient

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following table summarizes total current assets, liabilities and working capital (deficit) for the periods indicated:

February 28, 2025

Current assets

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$ (2,548,138 )

of May 31, 2025 and February 28, 2025, we had a cash balance of $324,857 and $865,975, respectively.

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

of Cash Flows

Three Months Ended

Summary of Cash Flows

Net cash used in operating activities

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Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash provided by financing activities

cash used in operating activities.

cash used in operating activities for the three months ended May 31, 2025 was $3,321,185 which included a net loss of $4,594,018, non-cash

activity such as bad debts expense of $48,982, reduction of right of use asset of $33,865, accretion of lease liability $27,428, stock

based compensation of $80,355, change in operating assets and liabilities of $547,338 amortization of debt discount of $47,089, increase

in related party accrued payroll and interest of $5,700 and depreciation and amortization of $482,076 to derive the uses of cash in operations.

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.

cash used in investing activities.

cash used in investing activities for the three months ended May 31, 2025 was $9,720 which was the purchase of fixed assets of $8,422

and an acquisition of trademark of $1,298.

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.

cash provided by financing activities.

cash provided by financing activities for the three months ended May 31, 2025 was $2,789,777.

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 2,839,777 reduced by repayments on loans payable of $50,000.

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.

Sheet Arrangements

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Party Transactions

both the three months ended May 31, 2025, and May 31, 2024, the Company had no repayments of net advances from its loan payable-related

At May 31, 2025, the loan payable-related party was $335,065 and $329,365 at February 28, 2025.

Included in the balance due to

the related party at May 31, 2025, is $258,533 of deferred salary and interest, $190,013 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

The accrued interest included in the loan at May 31, 2025, and February 28, 2025, was $57,275, and $51,575, respectively.

the three months ended May 31, 2025, the Company paid out gross payments to the CEO of $1,496,687 offset by a bonus accrual of $250,000,

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.

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

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.

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, board action which provided an additional

$1.5 million in compensation.

There were no payments or accruals for the three months ended May 31, 2025, relating to deferred compensation

The balance of deferred compensation for CEO was $955,913 and $2,202,600 at May 31, 2025, and February 28, 2025, respectively

the three months ended May 31, 2025, the Company accrued $0 (three months ended May 31 2024-$0) of incentive compensation plan payable

This will be payable in Series G Preferred Shares which are redeemable at the Company’s option at $1,000 per share.

At May 31, 2025, and February 28, 2025, there was $4,000,000 and $4,000,000 of incentive compensation payable.

the three months ended May 31, 2025, and 2024, the Company was charged $736,875 and $631,584, respectively for fees for research and

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

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

At August 31, 2025, and February 28, 2025, there was $4,000,000 and $4,000,000 of incentive compensation payable.

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.

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 May 31, 2025, and February 28,

2025, the balance due to this company was $76,532.

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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis