Artificial Intelligence Technology Solutions Inc.: Form 10-Q for the period ended May 31, 2025

Forward-Looking Statements

The 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. 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.

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Management Discussion and Analysis

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

The 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.

Revenue

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

Total 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 31, 2025.

Gross profit

Total 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.

Operating Expenses

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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 May 31, 2025 and May 31, 2024, were $4,412,170 and $3,518,590, respectively. The overall increase of $893,580 was primarily attributable to the following changes in operating expenses of:

• General 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.
• Research and development increased by $277,469 due to an increase in software development.
• Depreciation 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.
• Operating lease cost and rent decreased by $3,794 due to one less lease in 2025.

Other Income (Expense)

Other income (expense) during the three months ended May 31, 2025 and May 31, 2024, was ($1,415,349) and ($1,361,103), respectively. The $54,246 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.

Net loss

We 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.

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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 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 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:

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

Summary of Cash Flows

Net cash used in operating activities.

Net 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.

Net cash used in investing activities.

Net 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.

Net cash provided by financing activities.

Net cash provided by financing activities for the three months ended May 31, 2025 was $2,789,777. This consisted of share proceeds net of issuance costs of 2,839,777 reduced by repayments on loans payable of $50,000.

Off-Balance Sheet Arrangements

None.

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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 ended May 31, 2025, and May 31, 2024, the Company had no repayments of net advances from its loan payable-related party. 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 at 12%. The accrued interest included in the loan at May 31, 2025, and February 28, 2025, was $57,275, and $51,575, respectively.

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 yields a net change of $1,246,687 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 for CEO. The balance of deferred compensation for CEO was $955,913 and $2,202,600 at May 31, 2025, and February 28, 2025, respectively

For the three months ended May 31, 2025, the Company accrued $0 (three months ended May 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 May 31, 2025, and February 28, 2025, there was $4,000,000 and $4,000,000 of incentive compensation payable.

During the three months ended May 31, 2025, and 2024, the Company was charged $736,875 and $631,584, 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.

Management’s Report on Internal Control over Financial Reporting

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of May 31, 2025. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of May 31, 2025, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

1. As of May 31, 2025, we did not maintain effective controls over our control environment. Specifically, we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

2. As of May 31, 2025, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.

Our management, including our principal executive officer and principal financial officer, do not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

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