Executive Summary / Key Takeaways

• Artificial Intelligence Technology Solutions Inc. (AITX) has demonstrated a significant turnaround in its fiscal second quarter ended August 31, 2025, reporting a net income of $763,064, a substantial improvement from a net loss of $3.93 million in the prior-year period. This profitability was primarily driven by a $4.37 million gain on debt settlement.
• The company's strategic focus on higher-margin device rental activities is yielding results, with rental revenues increasing by 59% for the three months and 62% for the six months ended August 31, 2025, contributing to overall revenue growth of 41% and 48% respectively.
• AITX's proprietary AI and robotic solutions, including ROAMEO, SARA, and RIO, are gaining traction in the $50 billion security market, offering significant cost savings (35-80%) and enhanced operational efficiency compared to traditional manned security.
• Despite recent operational and financial improvements, AITX faces substantial liquidity challenges, including negative cash flow from operations and a significant accumulated deficit, raising substantial doubt about its ability to continue as a going concern without additional capital.
• Management projects fiscal year 2026 revenues in the range of $12 million to $18 million and aims for operational profitability and a NASDAQ uplisting between 2027 and 2029, supported by cost reduction initiatives and ongoing funding efforts.

The AI Security Frontier: AITX's Strategic Transformation

Artificial Intelligence Technology Solutions Inc. (AITX) has undergone a profound transformation, pivoting from its origins in transportation services to become a dedicated provider of artificial intelligence and robotic solutions for operational, security, and monitoring needs. This strategic shift, solidified by the acquisition of Robotic Assistance Devices, Inc. (RAD) in 2017, positions AITX at the forefront of a rapidly evolving $50 billion security market where AI is increasingly replacing traditional security personnel. The company's mission is to leverage AI to solve enterprise problems characterized by high costs, repetitive tasks, staffing difficulties, and functions outside clients' core competencies.

AITX operates within a competitive landscape dominated by tech giants like NVIDIA (NVDA), Microsoft (MSFT), and Alphabet (GOOGL), which offer broad AI hardware, cloud services, and research capabilities. While these larger entities possess immense scale and R&D resources, AITX carves out a specialized niche by controlling its entire technology stack—from purpose-built hardware to proprietary software and AI. This integrated approach allows AITX to deliver tailored, AI-driven autonomous responses, often with cellular-optimized communications, that can seamlessly connect to human operators when necessary. This specialization and full-stack control represent a key differentiator, enabling the company to offer solutions that are both cost-effective and highly responsive in specific security and operational contexts.

The broader industry trend of economic uncertainty is paradoxically driving increased interest in AITX's solutions. As companies seek to reduce capital expenditures and operational costs, they are turning to high-performance security alternatives that do not carry the recurring expenses of traditional human personnel. This dynamic plays directly into AITX's value proposition, as its robotic solutions are designed to deliver significant cost savings to businesses, ranging from 35% to 80% when compared to existing manned security guarding and monitoring models.

Technological Edge: Powering Autonomous Security

AITX's core competitive advantage lies in its differentiated technology, which combines advanced AI with purpose-built robotic hardware. The company's solutions are not merely surveillance tools; they are intelligent, autonomous agents capable of deterrence, detection, and response.

Central to AITX's offerings is its suite of robotic devices and AI platforms:

• SARA (Speaking Autonomous Responsive Agent): This agentic AI security monitoring platform has garnered significant industry recognition, including top honors at the 2025 Security Industry Association (SIA) New Products and Solutions (NPS) Awards. A case study demonstrated SARA's ability to reduce false alarms by 85% and triple response speed at a dealer's operations. This translates directly into enhanced security efficacy and operational efficiency for clients.
• ROAMEO Gen 4: An autonomous, mobile security robotic vehicle designed for patrolling large outdoor spaces. Demand for ROAMEO is accelerating, with a large enterprise requesting a quote for 100 units and a Fortune 500 client initiating a pilot program with the potential to scale to 60 units. Production of ROAMEO Gen 4 units has been increased from 10 to 50 to meet this surging demand. Recent orders from a major healthcare network, national auto retailer, and a state university highlight its versatility in addressing critical guarding challenges and reducing costs.
• RIO (Robotic Indoor/Outdoor): A portable, solar-powered security tower. Expansion orders for RIO 360 units, equipped with SARA, have been placed by a major global logistics client. An order for ten RIO Mini units with SARA for a government construction site under a contract term of at least four years further underscores its utility in diverse environments. A Top 25 U.S. healthcare provider has also added seven RIO 360 units, signaling the ongoing displacement of legacy security systems across high-profile medical campuses.
• RADCam Enterprise: This new product line expands RAD-I's proven residential technology into enterprise, education, and public sectors. An existing dealer requested a quote for 1,000 units within hours of its launch, indicating strong market interest. RADCam Enterprise is positioned as a disruptive alternative to traditional, expensive cameras with limited features.
• Proprietary Vision-Language Model (VLM): AITX's subsidiary RAD-G has developed an in-house VLM "purpose-built for security applications." Unlike generic models, this VLM is "engineered in-house to deliver precise, real-time generative AI for action and analysis of visual and textual data specifically tuned for security professionals," offering potential licensing opportunities.

These technological advancements provide AITX with a competitive moat, enabling it to offer superior performance, cost savings, and specialized solutions that larger, more generalized tech companies may not match in specific security contexts. The company's ability to control the entire technology stack allows for rapid innovation and integration, leading to faster deployment and consistent performance across its product lines.

Financial Performance: A Glimmer of Profitability Amidst Growth

AITX's financial performance for the three and six months ended August 31, 2025, reflects a company in transition, demonstrating significant revenue growth and a notable shift towards profitability in the most recent quarter.

For the three months ended August 31, 2025, total revenue increased by 41% to $1.89 million, compared to $1.34 million in the prior-year period. This growth was primarily fueled by a 59% increase in device rental activities, reaching $1.70 million, as the company strategically focuses on this higher-margin segment. Direct sales of goods and services, however, decreased by 31% to $193,278. Gross profit for the quarter rose by 34% to $1.34 million, with the gross profit margin improving from 71% to 74%. Operating expenses saw a modest 1% increase to $3.65 million, influenced by a $242,304 rise in research and development due to software development, partially offset by a $131,995 decrease in general and administrative expenses. Crucially, the company reported a net income of $763,064 for the quarter, a substantial $4.69 million improvement from a net loss of $3.93 million in the comparable prior period. This profitability was largely attributable to a $4.37 million gain on the settlement of debt and corresponding lower interest charges.

Looking at the six months ended August 31, 2025, total revenue increased by 48% to $3.74 million, up from $2.53 million in the prior year. Device rental activities were the primary driver, growing by 62% to $3.32 million, while direct sales decreased by 12% to $420,829. Gross profit for the six-month period increased by 53% to $2.58 million, with the gross profit margin improving from 67% to 69%. Operating expenses for the six months increased by 13% to $8.07 million, driven by a $689,213 increase in research and development, partly due to new products like ROAMEO, and a $380,025 rise in general and administrative expenses. The net loss for the six months decreased by $4.29 million to $3.83 million, compared to $8.12 million in the prior year, again benefiting from higher gross profit and the debt settlement gain.

For the full fiscal year ended February 28, 2025, AITX reported annual revenue of $6.13 million, demonstrating continued multi-year growth and a 300% increase over the prior year's revenue. The company also achieved a remarkable 562% gross profit growth for FY2025.

Liquidity, Capital Resources, and Risks

Despite the recent positive shift to quarterly net income, AITX faces significant liquidity challenges that raise substantial doubt about its ability to continue as a going concern. As of August 31, 2025, the company reported negative cash flow from operating activities of $5.40 million for the six months, an accumulated deficit of $160.36 million, and negative working capital of $6.41 million. Management explicitly states that it does not anticipate positive cash flow from operations in the near future and that "Without additional capital, the Company will not be able to remain in business."

AITX is actively pursuing various funding strategies. Management is committed to raising "either non-dilutive funds or minimally dilutive funds." In June 2025, the company entered an equity financing agreement to potentially issue up to $30 million of common stock over two years, with $29 million remaining. Additionally, a term sheet for a revolving credit facility of up to $5 million was signed in July 2025, aimed at securing non-dilutive financing. Management also believes it has the necessary support to continue operations through growing revenues, equity proceeds, and issuing non-convertible debt, noting past extensions and strong support from its primary debt holder. Net cash provided by financing activities for the six months ended August 31, 2025, was $4.87 million, primarily from share proceeds ($4.36 million) and proceeds from loans payable ($1.05 million).

Key risks for investors include the ongoing going concern doubt, the company's dependence on additional capital, and the potential for future dilutive equity raises. Furthermore, AITX has material weaknesses in its internal control over financial reporting, including a lack of effectively communicated accounting policies and procedures, and the absence of independent board members or an audit committee financial expert. There is also a significant concentration of debt, with 95% ($26.67 million) of loans payable as of August 31, 2025, owed to companies controlled by one individual. Customer concentration is also a factor, with one customer accounting for 47% of total revenue for the six months ended August 31, 2025.

Outlook and Strategic Trajectory

AITX's management has provided concrete guidance, projecting fiscal year 2026 revenues in the range of $12 million to $18 million. This ambitious target underscores the company's confidence in the accelerating adoption of its AI-driven security solutions. The company is actively working towards achieving operational profitability and has a stated goal of uplisting to NASDAQ between 2027 and 2029.

To support these objectives, AITX is implementing various efficiencies expected to generate over $1.2 million in annualized savings, with full implementation anticipated by June 1, 2025. These cost reductions reflect the stability of its Gen 4 platform and a strategic shift from extensive product creation to focusing on production transition and iterative efficiency improvements. The CEO, Steve Reinharz, emphasizes the company's commitment to execution, stating, "We’ve built this Company on execution, not speculation. While others are still pitching ideas or waiting for capital, we’re shipping product, earning revenue, and scaling real-world deployments. We believe our disciplined approach, combined with relentless innovation, is exactly what this market needs and what the public should be watching closely."

Strategic initiatives, such as expanding its channel partner network (surpassing 100 partners), deepening its partnership with Immix for technology integration, and appointing Technon Cyber as a Master Distributor for Latin America, are designed to broaden market reach and accelerate adoption. The expansion of 'Bailey's Promise' to offer no-cost AI firearm detection software licenses to all K-12 schools nationwide also highlights the company's commitment to social impact while showcasing its technological capabilities.

Conclusion

Artificial Intelligence Technology Solutions Inc. stands at a pivotal juncture, demonstrating compelling growth in its core AI and robotics rental business and achieving a significant milestone with its first profitable quarter in Q2 FY2026. This resurgence is underpinned by its differentiated, full-stack AI technology, which offers substantial cost savings and enhanced security performance, positioning AITX as a specialized innovator in the burgeoning autonomous security market. The company's strategic focus on higher-margin rental activities, coupled with aggressive cost controls and a clear product roadmap, provides a narrative of a company executing its vision.

However, the path forward is not without considerable challenges. The persistent going concern warning, substantial accumulated deficit, and ongoing need for external capital underscore the financial tightrope AITX walks. While management's efforts to secure non-dilutive financing and extend debt maturities are critical, the inherent risks of capital dependence and potential dilution remain central to the investment thesis. For discerning investors, AITX represents a high-risk, high-reward opportunity. Its ability to convert its growing sales pipeline, achieve its ambitious revenue guidance, and ultimately reach sustainable operational profitability will depend on continued technological leadership, disciplined execution, and successful capital management, all of which are crucial for realizing its long-term goal of a NASDAQ uplisting.