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Item 2. Management’s Discussion and Analysis

2026-07-14 compared with 2026-01-14 · 124 added, 148 removed, 61 unchanged (82% of the section changed)

1 unchanged sentence

Forward-Looking

following discussion of our financial condition and results of operations for the three and nine months ended November 30, 2025 and November

30, 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.

following discussion of our financial condition and results of operations for the three months ended May 31, 2026 and May 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.

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.

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 November 30, 2025, and 2024

following table shows our results of operations for the three months ended November 30, 2025, and 2024.

The historical results presented

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

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

following table shows our results of operations for the three months ended May 31, 2026 and 2025.

The historical results presented below

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

Three Months Ended

November 30, 2025

Three Months Ended

November 30, 2024

Operating expenses

Loss from operations

Other income (expense), net

Other expense, net

$ (5,715,838 )

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

Three Months Ended

Device rental activities

Direct sales of goods and services

Total revenues

revenue for the three-month period ended November 30, 2025, was $2,010,158 which represented an increase of $259,190 compared to total

revenue of $1,750,968 for the three months ended November 30, 2024.

There has been a 15% increase in revenues as a result of higher rental

activities growing each quarter through the deployment of new revenue earning devices.

gross profit for the three-month period ended November 30, 2025, was $1,173,830, which represented an increase of $126,622 compared to

gross profit of $1,173,830 for the three months ended November 30, 2024.

The gross profit increased due to the higher sales.

profit % of 65% for the three-month period ended November 30, 2025, was slightly lower than the gross profit % of 67% for the prior year’s

corresponding period.

and development

and administrative

and amortization

lease cost and rent

revenue for the three-month period ended May 31, 2026 was $1,831,202which represented a decrease of $23,635 or 1% compared to total revenue

of 1,854,837 for the three months ended May 31, 2025.

The decrease in revenue was attributable to a significant drop in the sales for

one major customer due to their internal cost cutting initiatives.

This major customer previously represented about 48% of the Company’s

revenues for the three months ended May 31, 2025 represented 21% of the Company’s revenues for the three months ended May 31, 2026.

The Company managed to mitigate this reduction by gaining new customers and diversifying its customer base.

For the three months ended

May 31, 2026, two customers accounted for 36% of total revenue and for the three months ended May 31, 2025, two customers accounted for

65% of total revenue.

The Company expects to see sales growth through new mobile products and software starting in the second quarter

of this fiscal year.

The mobile products will see a slow steady rollout over the fiscal year due to the capital intensive nature of these

gross profit for the three-month period ended May 31, 2026 was $1,183,824which represented a decrease of $49,677 compared to gross profit

of $1,233,501 for the three months ended May 31, 2025.

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

The gross profit % of 65% for the three-month period ended May 31, 2026 compared with the gross profit % of 67% for the

three month period ended May 31, 2025.

Operating Expenses

Three Months Ended

Research and development

General and administrative

Depreciation and amortization

Operating lease cost and rent

Operating expenses

operating expenses were comprised of general and administrative expenses, research and development, and depreciation.

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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 November 30, 2025, and November 30, 2024, were $3,931,952 and $3,476,728,

respectively.

The overall increase of $455,224 was primarily attributable to the following changes in operating expenses of:

and administrative expenses increased by $3,782.

There were no significant changes.

and development increased by $517,925 as the Company continues to develop new hardware and software solutions.

and amortization decreased by $60,903 due to changes in estimates for the allocation of revenue earning devices not in use.

lease cost and rent increased by $3,420 due to one more lease in the current period.

Income (Expense)

income (expense) during the three months ended November 30, 2024, and November 30, 2023, was ($2,099,300) and ($1,401,076), respectively.

The $698,224 increase in other expense was due to higher interest expense and a loss on settlement of debt.

had a net loss of $4,730,800 for the three months ended November 30, 2025, compared to a net loss of $3,703,974 for the three months

ended November 30, 2024.

Our operating expenses during the three-month period ended May 31, 2026 and May 31, 2025, were $3,893,188 and $4,412,170, respectively.

The overall decrease of $518,982 was primarily attributable to the following changes in operating expenses of:

and administrative expenses decreased by $324,634.

In comparing the three months ended May 31, 2026 and May 31, 2025 this decrease

was primarily due to the following decreases:

wages and salaries by $227,585, professional fees by $45,167, stock based compensation

by $19,847, production supplies by $45,525, RMC costs by $59,948, marketing by $53,486, freight and duty costs by $49,508 and dues

and subscriptions by $27,858.

These costs were partially offset by increases in subcontractor by $198,837 and with other net G&

A account decreases.

and development decreased by $202,026 due to a decrease in software development as the product is being released.

and amortization decreased by $1,475.

lease cost and rent increased by $9,153 due to one new lease in 2026.

expense during the three months ended May 31, 2026 and May 31, 2025, was $3,006,474 and $1,415,349, respectively.

The $1,591,125

increase in other expense was primarily attributable to a $885,525 increase in interest expense due to an approximately $338,000 increase

in debt discount amortization expense, an approximately $204,000 increase in interest on DVPO balance with the balance due to the switch

to some notes (see Note 11) to compounding interest and interest on approximately $2.7 million increase in loans payable.

loss on settlement was on the exchange of loans payable and accrued interest for the three months ended May 31, 2026

had a net loss of $5,715,838 for the three months ended May 31, 2026, compared to a net loss of $4,594,018 for the three months ended

May 31, 2025.

The increase in net loss of $1,121,820 is due to a number of factors:

higher research and development expenses

partially offset by higher gross profit in the three months ended November 30, 2025.

of Operations for the Nine Months Ended November 30, 2025, and 2024

following table shows our results of operations for the nine months ended November 30, 2025, and 2024.

The historical results presented

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

from operations

income (expense), net

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

rental activities

sales of goods and services

revenue for the nine-month period ended November 30, 2025, was $5,753,744 which represented an increase of $1,475,793 compared to total

revenue of $4,277,951 for the nine months ended November 30, 2024.

This 34% increase was because of higher rental activities partially

offset by lower direct sales for the year to date November 30, 2025.

gross profit for the nine-month period ended November 30, 2025, was $3,878,818 which represented an increase of $1,018,563, compared

to gross profit of $2,860,255 for the nine months ended November 30, 2024.

The gross profit increased due to the higher sales.

profit percentage of 67% for the nine-month period ended November 30, 2025, was slightly lower than the gross profit percentage of 69%

for the prior year’s corresponding period.

and development

and administrative

and amortization

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 November 30, 2025 and November 30, 2024, were $11,998,145and

$10,610,283, respectively.

The overall increase of $1,387,862 was primarily attributable to the following changes in operating expenses

and administrative expenses increased by $383,807.

In comparing the nine months ended November 30, 2025, and November 30, 2024 the

increase may be partially explained by the following increases:

wages and salaries by $337,125, sub-contractors by $265,245 and office

expenses by $88,545.

These were partially offset by decreases in the following accounts:

installation costs by $85,402, professional

fees by $58,326, repairs and maintenance by $39,911 and freight by $63,997.

and development increased by $1,207,138 due to an increase in software development and new products such as the ROAMEO.

and amortization decreased by $202,320 due to due to changes in estimates for the allocation of revenue earning devices not in use.

lease cost and rent decreased by $763 due to the reduction of one lease offset by the addition of another.

Income (Expense)

income (expense) during the nine months ended November 30, 2025, and November 30, 2024, was ($442,426) and ($4,078,628), respectively.

The $3,636,202 decrease in other expense was primarily attributable to the gain on settlement of debt of $3,740,185 offset by an increase

in interest expense.

had a net loss of $8,561,753 for the nine months ended November 30, 2025, compared to a net loss of $11,828,656 for the nine months

ended November 30, 2024.

The decrease in net loss of $3,266,903 is due to a number of factors:

higher gross profit and lower other

expenses (due to gain on settlement of debt) offset by higher operating expenses for the nine months ended November 30,

Capital Resources and Cash Flows

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

of November 30, 2025, we had a cash balance of $143,801, accounts receivable of $1,306,020, device parts inventory of $1,138,333 and

higher other expenses is reduced by lower operating

expenses for the three months ended May 31, 2026.

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.

of May 31, 2026, we had a cash balance of $94,643, accounts receivable (net) of $974,897, device parts inventory(net) of $1,378,950 and

$44,890,383 in current liabilities.

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

of November 30, 2025 and February 28, 2025, we had a cash balance of $143,801 and $865,975, respectively.

February 28, 2026

Current assets

Current liabilities

Working capital

$ (41,885,156 )

$ (17,017,745 )

of May 31, 2026 and February 28, 2026, we had a cash balance of $94,643 and $109,043, respectively.

of Cash Flows

cash used in operating activities

cash used in investing activities

cash provided by financing activities

Three Months Ended

Net cash used in operating activities

$ (2,759,307 )

$ (3,321,185 )

Net cash used in investing activities

Net cash provided by financing activities

cash used in operating activities.

cash used in operating activities for the nine months ended November 30, 2025, was $7,451,163 which included a net loss of $8,561,753,

non-cash activity such as the bad debts expense of $141,482, reduction of right of use asset of $104,585, accretion of lease liability

$79,294, stock based compensation of $241,065,penalty added to face value of loan of $16,560, gain on settlement of debt of $3,740,185,

change in operating assets and liabilities of $2,301,738, amortization of debt discount of $301,615, increase in related party accrued

payroll and interest of $108,619 and depreciation and amortization of $1,555,817 to derive the uses of cash in operations.

cash used in operating activities for the three months ended May 31, 2026 was $2,759,307 which included a net loss of $5,715,838, non-cash

activity such as bad debts expense of $70,000, reduction of right of use asset of $38,013, accretion of lease liability $23,281, stock

based compensation of $60,508, change in operating assets and liabilities of $1,255,482, amortization of debt discount of $385,493, decrease

in related party accrued payroll and interest of $129,687 and depreciation and amortization of $545,841 to derive the uses of cash in

cash used in investing activities.

cash used in investing activities for the nine months ended November 30, 2025, was $12,861 which was the purchase of fixed assets of

$10,863, and $1,998 for acquisition of trademarks.

cash used in investing activities for the three months ended May 31, 2026 was $16,438 which was the purchase of fixed assets of $15,600

and an acquisition of trademark of $838.

cash provided by financing activities.

cash provided by financing activities was $6,741,850 for the nine months ended November 30, 2025.

This consisted of share proceeds net

of issuance costs of 5,219,853, proceeds from loans payable of $2,375,671, reduced by repayments on loans payable of $728,604 and the

redemption of Series C redeemable convertible preferred shares of $125,000.

cash provided by financing activities for the three months ended May 31, 2026 was $2,761,345.

This consisted of share proceeds net of

issuance costs of $823,480 , proceeds on the issuance of Series C Preferred Shares of $200,000, proceeds from loans payable of $2,714,028

reduced by repayments on loans payable of $976,163.

Sheet Arrangements

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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 May 29, 2025.

on June 9, 2026.

Party Transactions

both the three months and nine months ended November 30, 2025 and November 30, 2024, the Company had no repayments of net advances from

its loan payable-related party.

At November 30, 2025, the loan payable-related party was $437,984 and $329,635 at February 28, 2025.

Included in the balance due to the related party at November 30, 2025 is $361,452 of deferred salary and interest, $239,600 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 November 30, 2025, and February 28, 2025, was $70,689,

and $51,575, respectively.

the nine months ended November 30, 2025, the Company paid out gross payments to the CEO of $1,560,370 offset by a bonus accrual of

both the three months ended May 31, 2026, and May 31, 2025, the Company had repayments of net advances of $129,687 and $0, respectively.

At May 31, 2026, the loan payable-related party was $331,946 and $461,633 at February 28, 2026.

Included in the balance due to the related

party at May 31, 2026, is $255,414 of deferred salary and interest, $157,513 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 May 31, 2026, and February 28, 2026, was $84,956, and $79,268, respectively.

the three months ended May 31, 2026, the Company paid out gross payments to the CEO of $71,105 offset by a bonus accrual of $250,000,

which yields a net change of $178,895 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 $1,392,230 and

$2,202,600 at November 30, 2025, and February 28, 2025, respectively

the three and nine months ended November 30, 2025, the Company accrued $0 (three and nine months ended November 30, 2024-$0) of incentive

compensation plan payable to the CEO.

This would be payable in Series G Preferred Shares which are redeemable at the Company’s

option at $1,000 per share.

At November 30, 2025, and February 28, 2025, there was $4,000,000 and $4,000,000 of incentive compensation

the three months ended November 30, 2025, and 2024, the Company was charged $655,721 and $556,175, respectively for fees for research

and development from a company partially owned by a principal shareholder.

the nine months ended November 30, 2025, and 2024, the Company was charged $1,990,873 and $1,846,005, 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 November 30, 2025,

and February 28, 2025, the balance due to this company was $76,532.

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, 2026, board action which provided an additional

$1.5 million in compensation.

During 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, which yielded a net change of $1,246,687 relating to deferred compensation for CEO.

of deferred compensation for CEO was $1,990,751 and $1,811,856 at May 31, 2026, and February 28, 2026, respectively

the three months ended May 31, 2026, the Company accrued $0 (three months ended May 31, 2025-$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.

On May 31, 2026, and February 28, 2026, there was $5,500,000 and $5,500,000 incentive compensation payable.

the three months ended May 31, 2026, and 2025, the Company was charged $390,130 and $736,875, 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 May 31, 2026, and February 28, 2026,

the balance due to this company was $76,532 and $160,557, 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