PART I: FINANCIAL INFORMATION Presents unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) Presents unaudited condensed consolidated financial statements, including balance sheets, operations, equity, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) Provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity | ASSETS (Unaudited) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Cash | $805,596 | $1,970,719 | | Total current assets | $1,331,838 | $2,750,129 | | Total other assets | $2,207,493 | $2,199,814 | | TOTAL ASSETS | $3,539,331 | $4,949,943 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Total current liabilities | $809,911 | $893,926 | | Total long-term liabilities | $162,192 | $181,592 | | Total liabilities | $972,103 | $1,075,518 | | Total shareholders' equity | $2,567,228 | $3,874,425 | | Total liabilities and shareholders' equity | $3,539,331 | $4,949,943 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) Details the company's revenues, costs, and net loss for the three and six months ended June 30, 2025, and 2024 | (Unaudited) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Revenues | $92,753 | $642,989 | $277,555 | $950,642 | | Total Cost of Revenues | $61,196 | $458,374 | $184,432 | $638,812 | | Gross Profit | $31,557 | $184,615 | $93,123 | $311,830 | | Total Operating Expenses | $1,954,903 | $1,307,421 | $6,022,159 | $2,519,521 | | Loss from Operations | $(1,923,346) | $(1,122,806) | $(5,929,036) | $(2,207,691) | | Total Other Income (Expense), net | $8,787 | $(92,117) | $49,460 | $(151,092) | | Net loss | $(1,914,559) | $(1,214,923) | $(5,879,576) | $(2,358,783) | | Basic and diluted loss per share | $(0.13) | $(0.14) | $(0.39) | $(0.27) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20STOCKHOLDERS'%20EQUITY) Outlines changes in common stock, additional paid-in capital, and accumulated deficit for the periods presented | (Unaudited) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Common Stock ( of Shares) | 15,374,685 | 14,534,685 | | Common Stock (Amount) | $1,537 | $1,453 | | Additional Paid-in Capital | $22,696,018 | $18,123,723 | | Accumulated Deficit | $(20,130,327) | $(14,250,751) | | Total Shareholders' Equity | $2,567,228 | $3,874,425 | - For the six months ended June 30, 2025, the company issued **840,000 common shares** for stock-based compensation, contributing **$3,457,681** to additional paid-in capital. Additionally, **1,050 Series C preferred shares** were issued for cash, adding **$1,050,000** to additional paid-in capital[14](index=14&type=chunk) - The net loss for the six months ended June 30, 2025, was **$(5,879,576)**, significantly increasing the accumulated deficit[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) Summarizes cash inflows and outflows from operating, investing, and financing activities for the six months | CASH FLOWS (Unaudited) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(1,952,501) | $(1,159,475) | | Net cash used in investing activities | $(225,877) | $(223,509) | | Net cash provided by financing activities | $1,045,563 | $855,569 | | NET DECREASE IN CASH | $(1,132,815) | $(527,415) | | CASH, beginning of period | $1,970,719 | $703,368 | | CASH, end of period | $805,596 | $175,953 | - Cash used in operating activities increased by **68.4%** from **$(1,159,475)** in H1 2024 to **$(1,952,501)** in H1 2025, primarily due to a larger net loss[18](index=18&type=chunk) - Financing activities provided **$1,045,563** in H1 2025, mainly from the sale of Series C preferred shares and warrants (**$1,050,000**), an increase from **$855,569** in H1 2024[18](index=18&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=11&type=section&id=NOTES%20TO%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) Provides detailed explanations of accounting policies, financial instruments, and segment information [NOTE 1 - Nature of Organization, Liquidity and Summary of Significant Accounting Policies](index=11&type=section&id=NOTE%201%20-%20Nature%20of%20Organization%2C%20Liquidity%20and%20Summary%20of%20Significant%20Accounting%20Policies) Outlines business, liquidity challenges, going concern issues, and key accounting policies including revenue recognition - Safe Pro Group Inc. focuses on innovative security and protection solutions, integrating advanced AI/ML, drone-based remote sensing, and personal protective gear through its subsidiaries Safe-Pro USA, Airborne Response, and Safe Pro AI[20](index=20&type=chunk) - The company has incurred a net loss of **$5,879,576** and used **$1,952,501** in cash from operations for the six months ended June 30, 2025, resulting in an accumulated deficit of **$20,130,327** and raising substantial doubt about its ability to continue as a going concern[21](index=21&type=chunk)[23](index=23&type=chunk) - Management plans to address going concern risk by submitting bids for new customer business and seeking additional equity financing, while also investing in R&D and 'SpotlightAI' for future revenue growth[23](index=23&type=chunk) - On May 9, 2025, the Company closed a private offering, selling **1,050 shares of Series C convertible preferred stock** for **$1.05 million** and three-year warrants to purchase common stock[24](index=24&type=chunk) [NOTE 2 – Accounts Receivable and Other Receivables](index=16&type=section&id=NOTE%202%20%E2%80%93%20Accounts%20Receivable%20and%20Other%20Receivables) Details composition of accounts and other receivables, noting no allowance for doubtful accounts | Accounts Receivable | June 30, 2025 | December 31, 2024 | | :------------------ | :------------ | :---------------- | | Accounts receivable | $38,559 | $123,686 | | Less: allowance for doubtful accounts | - | - | | Accounts receivable, net | $38,559 | $123,686 | | Other Receivables | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | Other receivables | $142,526 | $142,526 | | Less: allowance for doubtful other receivables | $(142,526) | $(142,526) | | Other receivables, net | $- | $- | - The company had no performance bonds receivable and outstanding as of June 30, 2025, and December 31, 2024, as the full amount was offset by an allowance for doubtful receivables[51](index=51&type=chunk) [NOTE 3 – Inventory](index=17&type=section&id=NOTE%203%20%E2%80%93%20Inventory) Breaks down inventory into raw materials, work in process, and finished goods, showing a slight decrease | Inventory | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Raw materials | $273,530 | $259,658 | | Work in process | $10,548 | $60,229 | | Finished goods | $22,210 | $22,174 | | Less reserve for obsolete inventory | - | - | | Total | $306,288 | $342,061 | [NOTE 4 – Property and Equipment](index=17&type=section&id=NOTE%204%20%E2%80%93%20Property%20and%20Equipment) Details property and equipment, net of depreciation, showing a decrease in total net assets | Property and Equipment | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Manufacturing equipment | $340,009 | $340,009 | | Drones and related equipment | $129,537 | $115,423 | | Software library | $10,000 | $10,000 | | Furniture, fixtures and office equipment | $14,249 | $7,329 | | Less accumulated depreciation | $(196,863) | $(157,880) | | Total | $296,932 | $314,881 | - Depreciation expense for the three months ended June 30, 2025, was **$19,957**, and for the six months ended June 30, 2025, was **$24,649**[54](index=54&type=chunk) [NOTE 5 – Intangible Assets and Goodwill](index=17&type=section&id=NOTE%205%20%E2%80%93%20Intangible%20Assets%20and%20Goodwill) Provides details on intangible assets, primarily SpotlightAI™ software, and goodwill, including amortization - The acquisition of Safe Pro AI on March 9, 2023, resulted in a **$545,625** increase in finite-lived intangible assets, primarily the SpotlightAI™ software, used by the Ukrainian government and humanitarian aid organizations[55](index=55&type=chunk) | Intangible Assets (June 30, 2025) | Amortization period (years) | Gross Amount | Accumulated Amortization | Net finite intangible assets | | :---------------------------------- | :-------------------------- | :----------- | :----------------------- | :--------------------------- | | Customer relationships | 5 | $388,000 | $(222,300) | $165,700 | | Contractual employment agreements | 3 | $310,000 | $(307,652) | $2,348 | | Acquired capitalized internal-use software development costs | 3 | $1,123,056 | $(171,943) | $951,113 | | Total | | $1,721,325 | $(701,895) | $1,119,161 | - Amortization of intangible assets for the six months ended June 30, 2025, was **$174,327**, an increase from **$90,383** in the prior year period[59](index=59&type=chunk) | Goodwill | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | Safe-Pro USA | $518,255 | $518,255 | | Airborne Response | $166,612 | $166,612 | | Total goodwill | $684,867 | $684,867 | [NOTE 6 – Note Payable](index=18&type=section&id=NOTE%206%20%E2%80%93%20Note%20Payable) Details the company's long-term SBA COVID-19 EIDL Loan, secured by company assets - The company has a **$146,000 SBA COVID-19 EIDL Loan**, accruing interest at **3.75%** per annum, with payments deferred until 30 months from the note date and a term of 30 years[61](index=61&type=chunk) | Notes Payable | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Notes payable | $146,000 | $146,000 | | Less: current portion of notes payable | - | - | | Notes payable – long-term | $146,000 | $146,000 | | Future Note Payable Principal Payments | Amount | | :------------------------------------- | :----- | | 2025 | $- | | 2026 | $2,535 | | 2027 | $3,219 | | 2028 | $3,342 | | 2029 | $3,469 | | 2030 | $3,602 | | Thereafter | $129,833 | | Total note payable | $146,000 | [NOTE 7 – Convertible Notes Payable](index=19&type=section&id=NOTE%207%20%E2%80%93%20Convertible%20Notes%20Payable) Details convertible debt agreements from 2023 and 2024, which were converted into common shares - In December 2023, the Company received **$475,000** from a convertible debt agreement with a **15% interest rate**, maturing December 2024, and warrants to purchase **148,438 common shares** at **$1.00**[64](index=64&type=chunk) - In March 2024, an additional **$275,001** was received from a similar convertible debt agreement, maturing March 2025, with warrants for **85,938 common shares** at **$1.00**[65](index=65&type=chunk) - Both convertible notes, totaling **$750,001** in principal and **$58,531** in accrued interest, were converted into **252,666 common shares** on August 27, 2024[66](index=66&type=chunk) [NOTE 8 – Stockholders' Equity](index=20&type=section&id=NOTE%208%20%E2%80%93%20Stockholders'%20Equity) Provides comprehensive details on preferred and common stock issuances, warrants, and stock options - Series A and B Preferred shares were converted into common stock in August 2024, while Series C Preferred Stock was designated in May 2025, with a stated value of **$1,100 per share** and a conversion price of **$2.25**[71](index=71&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk)[77](index=77&type=chunk) - For the six months ended June 30, 2025, the company issued **840,000 common shares** for stock-based compensation and services, totaling **$3,457,765** in value[14](index=14&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk) - As of June 30, 2025, **651,366 warrants** were outstanding with a weighted average exercise price of **$3.18**, and **672,500 stock options** were outstanding with a weighted average exercise price of **$5.46**[93](index=93&type=chunk)[102](index=102&type=chunk) - The 2025 Equity Incentive Plan, approved by stockholders in June 2025, reserves **5,000,000 shares of common stock** for issuance and includes an evergreen increase of **5%** of outstanding common stock annually[105](index=105&type=chunk)[106](index=106&type=chunk) [NOTE 9 – Commitments and Contingencies](index=29&type=section&id=NOTE%209%20%E2%80%93%20Commitments%20and%20Contingencies) Addresses legal matters, product liability insurance, and a contingent liability to former Safe-Pro USA members - The company is not currently involved in any pending or threatened legal proceedings that are expected to have a material adverse effect on its financial condition[117](index=117&type=chunk)[229](index=229&type=chunk) - Safe-Pro USA carries a product liability policy covering up to **$2,000,000** in claims retroactive to June 26, 2020[118](index=118&type=chunk) - A contingent liability of **$381,581** is due to former Safe-Pro USA members, payable only from proceeds related to contracts with the Bangladesh Ministry of Defense customer[119](index=119&type=chunk) [NOTE 10 – Concentrations](index=29&type=section&id=NOTE%2010%20%E2%80%93%20Concentrations) Highlights concentrations of credit risk, geographic sales, customer base, and suppliers - The company uses an Insured Cash Sweep Service (ICS) to distribute deposits exceeding **$250,000** across multiple institutions, mitigating FDIC insurance limits[121](index=121&type=chunk) - For the six months ended June 30, 2025, **77.6%** of total sales were to a customer in the United States and **22.4%** to Canada. Three customers accounted for approximately **88.5%** of total sales[122](index=122&type=chunk)[123](index=123&type=chunk) - For the six months ended June 30, 2025, approximately **93.8%** of inventory was purchased from four suppliers, indicating a high supplier concentration[126](index=126&type=chunk) [NOTE 11 – Related Party Transactions](index=30&type=section&id=NOTE%2011%20%E2%80%93%20Related%20Party%20Transactions) Details transactions with related parties, including liabilities, waived salaries, and inventory purchases - As of June 30, 2025, **$381,581** is due to former Safe-Pro USA members (a current director), payable only from proceeds from Bangladesh Ministry of Defense contracts[129](index=129&type=chunk) - Mr. Borkar, CEO, and his spouse waived accrued salaries totaling **$56,538** each as of March 31, 2025, with portions recorded as contributed capital and offsets to wages[130](index=130&type=chunk)[131](index=131&type=chunk) - The company purchased **$5,299** in inventory and services from a company owned by Mr. Borkar's spouse during the six months ended June 30, 2025[134](index=134&type=chunk) [NOTE 12 – Operating Lease Right-of-Use ("ROU") Assets and Operating Lease Liabilities](index=31&type=section&id=NOTE%2012%20%E2%80%93%20Operating%20Lease%20Right-of-Use%20%28%22ROU%22%29%20Assets%20and%20Operating%20Lease%20Liabilities) Outlines operating lease agreements for office space and a vehicle, detailing ROU assets and lease liabilities - The company renewed an office lease through July 31, 2026, incurring an additional ROU asset and lease liability of **$33,084**[136](index=136&type=chunk) | ROU Assets | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Office lease right of use assets | $310,598 | $277,514 | | Auto lease right of use asset | $19,583 | $19,583 | | Less: accumulated amortization | $(233,448) | $(195,476) | | Balance of ROU assets | $96,733 | $101,621 | | Operating Lease Liabilities | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Lease liabilities related to office lease right of use assets | $87,678 | $91,113 | | Lease liabilities related to auto lease right of use asset | $6,075 | $7,595 | | Less: current portion of lease liabilities | $(77,561) | $(63,115) | | Lease liabilities – long-term | $16,192 | $35,592 | | Future Minimum Base Lease Payments (June 30, 2025) | Amount | | :------------------------------------------------- | :----- | | 2025 | $40,901 | | 2026 | $56,963 | | 2027 | $1,183 | | Total minimum non-cancellable operating lease payments | $99,047 | | Less: discount to fair value | $(5,295) | | Total lease liabilities on June 30, 2025 | $93,752 | [NOTE 13 – Segment Reporting](index=32&type=section&id=NOTE%2013%20%E2%80%93%20Segment%20Reporting) Presents financial information for the company's three reportable business segments: Safe-Pro USA, Airborne Response, and Safe Pro AI - The company operates in three segments: Safe-Pro USA (personal protective gear), Airborne Response (drone-based services), and Safe Pro AI (AI/ML software)[145](index=145&type=chunk) | Segment Revenues | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Safe-Pro USA | $48,748 | $430,039 | $189,348 | $652,395 | | Airborne Response | $14,673 | $212,950 | $18,877 | $298,247 | | Safe Pro AI | $29,333 | $- | $69,330 | $- | | Total Revenues | $92,753 | $642,989 | $277,555 | $950,642 | | Segment Net (Loss) Income | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Safe-Pro USA | $(100,303) | $(6,694) | $(165,993) | $(70,171) | | Airborne Response | $(127,403) | $(140,317) | $(273,828) | $(284,984) | | Safe Pro AI | $(172,019) | $(590) | $(318,949) | $(86,527) | | Other | $(1,514,834) | $(1,067,322) | $(5,120,806) | $(1,917,101) | | Total Net Loss | $(1,914,559) | $(1,214,923) | $(5,879,576) | $(2,358,783) | | Identifiable Long-Lived Tangible Assets, net by segment | June 30, 2025 | December 31, 2024 | | :------------------------------------------------------ | :------------ | :---------------- | | Safe-Pro USA | $193,261 | $217,134 | | Airborne Response | $68,084 | $71,444 | | Safe Pro AI | $31,095 | $22,143 | | Other | $4,492 | $4,160 | | Total | $296,932 | $314,881 | [NOTE 14 – Subsequent Events](index=34&type=section&id=NOTE%2014%20%E2%80%93%20Subsequent%20Events) Discloses events after the reporting period, including preferred stock conversion and additional stock-based compensation - In July 2025, **875 shares of Preferred Series C** were converted into **427,779 common shares**, and **145 shares** were converted into **70,889 common shares**[151](index=151&type=chunk) - The Compensation Committee approved the issuance of **145,000 shares** for services (**$562,600**) and **150,000 shares** for compensation (**$582,000**) in July 2025, pursuant to the 2022 Equity Plan[152](index=152&type=chunk)[153](index=153&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Provides management's perspective on financial condition, operational results, liquidity, capital resources, and critical accounting policies [Cautionary Note Regarding Forward-Looking Statements](index=35&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) Highlights that the report contains subjective forward-looking statements with inherent risks and uncertainties - This section emphasizes that the report contains forward-looking statements that are subjective and involve known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from expectations[158](index=158&type=chunk)[160](index=160&type=chunk)[161](index=161&type=chunk) [Business Overview](index=36&type=section&id=Business%20Overview) Introduces Safe Pro Group Inc. as a parent company focusing on AI/ML software, PPE, and drone services - Safe Pro Group Inc. is a parent company of Airborne Response Corp., Safe-Pro USA, LLC, and Safe Pro AI LLC, focusing on advanced AI/ML software, personal protective equipment, and drone-based aerial managed services[162](index=162&type=chunk) - The company expects to realize revenue from its Safe Pro AI segment and its Spotlight AI™ ecosystem, which has analyzed over **1.66 million drone images** and identified over **28,000 threats** across **6,705 hectares** in Ukraine[165](index=165&type=chunk) [Significant Components of Our Results of Operations](index=37&type=section&id=Significant%20Components%20of%20Our%20Results%20of%20Operations) Explains key drivers of revenues, gross profit, and operating expenses, including anticipated increases in R&D and S,G&A - Revenues are primarily generated from product sales (PPE, ballistic protective equipment) and aerial managed services (drones), recognized at shipment or service completion[171](index=171&type=chunk) - Gross profit is influenced by supply chain changes, product mix, operating performance, and production costs, with expected fluctuations[172](index=172&type=chunk) - Operating expenses are categorized into salaries, wages and payroll taxes, research and development, professional fees, selling, general and administrative expenses, and depreciation and amortization[173](index=173&type=chunk) - The company anticipates increases in R&D, selling, general and administrative expenses as it expands operations, sales, and marketing efforts for new products and services[175](index=175&type=chunk)[177](index=177&type=chunk)[191](index=191&type=chunk) [Results of Operations](index=39&type=section&id=Results%20of%20Operations) Analyzes the company's financial performance, detailing changes in revenues, costs, and net loss for the periods presented [Comparison of the Three months Ended June 30, 2025 and 2024](index=39&type=section&id=Comparison%20of%20the%20Three%20months%20Ended%20June%2030%2C%202025%20and%202024) Compares financial performance for the three months, highlighting significant decreases in revenue and increases in net loss | Financial Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------ | :------------ | :--------- | :--------- | | Total Revenues | $92,753 | $642,989 | $(550,236) | (85.6)% | | Total Cost of Revenues | $61,196 | $458,374 | $(397,178) | (86.6)% | | Gross profit | $31,557 | $184,615 | $(153,058) | (82.9)% | | Total operating expenses | $1,954,903 | $1,307,421 | $647,482 | 49.5% | | Loss from operations | $(1,923,346) | $(1,122,806) | $(800,540) | 71.3% | | Total other income (expense) | $8,787 | $(92,117) | $100,904 | (109.5)% | | Net loss | $(1,914,559) | $(1,214,923) | $(699,636) | 57.6% | - Total revenues decreased by **85.6%** due to a one-time contract for EOD gear completed in the prior period, with Safe-Pro USA sales down **88.7%** and Airborne Response sales down **93.1%**. Safe Pro AI generated **$29,333** in revenue from **$0** in the prior year[182](index=182&type=chunk)[184](index=184&type=chunk) - Operating expenses increased by **49.5%**, driven by a **10.0%** increase in salaries, wages, and payroll taxes, a significant increase in professional fees (**68.7%**), and a **98.3%** increase in depreciation and amortization[181](index=181&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk)[188](index=188&type=chunk)[190](index=190&type=chunk) [Comparison of the Six months Ended June 30, 2025 and 2024](index=40&type=section&id=Comparison%20of%20the%20Six%20months%20Ended%20June%2030%2C%202025%20and%202024) Compares financial performance for the six months, showing substantial declines in revenue and a significant increase in net loss | Financial Metric | June 30, 2025 | June 30, 2024 | Change ($) | Change (%) | | :----------------------------------- | :------------ | :------------ | :--------- | :--------- | | Total Revenues | $277,555 | $950,642 | $(673,087) | (70.8)% | | Total Cost of Revenues | $184,432 | $638,812 | $(454,380) | (71.1)% | | Gross profit | $93,123 | $311,830 | $(218,707) | (70.1)% | | Total operating expenses | $6,022,159 | $2,519,521 | $3,502,638 | 139.0% | | Loss from operations | $(5,929,036) | $(2,207,691) | $(3,721,345) | 168.6% | | Total other income (expense) | $49,640 | $(151,092) | $200,732 | (132.7)% | | Net loss | $(5,879,576) | $(2,358,783) | $(3,520,793) | 149.3% | - Total revenues decreased by **70.8%** for the six months, with Safe-Pro USA sales down **71.1%** and Airborne Response sales down **93.7%**. Safe Pro AI generated **$69,330** in revenue[183](index=183&type=chunk) - Operating expenses surged by **139.0%**, primarily due to a **196.5%** increase in salaries, wages, and payroll taxes (driven by **$1,606,070** in non-cash stock compensation) and a **145.2%** increase in professional fees (due to **$1,753,695** in non-cash share-based professional fees)[185](index=185&type=chunk)[186](index=186&type=chunk)[188](index=188&type=chunk) - Net loss increased by **149.3%** to **$(5,879,576)** for the six months ended June 30, 2025, compared to **$(2,358,783)** in the prior year, mainly due to increased operating expenses[193](index=193&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses the company's cash position, working capital, and sources and uses of cash from operating, investing, and financing activities | Balance Sheet Data | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :------------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash | $805,596 | $1,970,719 | $(1,165,123) | (59.1)% | | Current assets | $1,331,838 | $2,750,129 | $(1,418,291) | (51.6)% | | Current liabilities | $809,911 | $893,926 | $(84,015) | (9.4)% | | Working capital | $521,927 | $1,856,203 | $(1,334,276) | (71.9)% | | Total stockholders' equity | $2,567,228 | $3,874,425 | $(1,307,197) | (33.7)% | - Cash decreased by **59.1%** to **$805,596**, and working capital decreased by **71.9%** to **$521,927** as of June 30, 2025, primarily due to funding working capital needs from decreased revenue[195](index=195&type=chunk)[196](index=196&type=chunk) - Net cash used in operating activities was **$(1,952,500)** for the six months ended June 30, 2025, mainly due to the net loss, partially offset by non-cash expenses like stock-based compensation[198](index=198&type=chunk) - Financing activities provided **$1,045,563**, primarily from the sale of Series C preferred stock and warrants (**$1,050,000**)[201](index=201&type=chunk) [Critical Accounting Policies and Estimates](index=43&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Identifies key accounting policies and estimates, including revenue recognition, impairment, and stock-based compensation - Key accounting policies and estimates include allowances for credit losses on accounts receivable, revenue recognition (following ASU Topic 606), valuation of goodwill and intangible assets for impairment, and accounting for business and asset acquisitions[203](index=203&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk)[211](index=211&type=chunk)[214](index=214&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) - The company recognizes stock-based compensation based on grant-date fair value over the vesting period, electing to recognize forfeitures as they occur[216](index=216&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) States that the company is exempt from providing market risk disclosures due to its smaller reporting company status - The company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[219](index=219&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Reports ineffective disclosure controls and a material weakness in internal control over financial reporting, with a remediation plan - Disclosure controls and procedures were deemed **ineffective** as of June 30, 2025[221](index=221&type=chunk) - A **material weakness** in internal control over financial reporting was identified, specifically concerning segregation of duties and inventory management, attributed to limited resources and reliance on outside consultants[224](index=224&type=chunk)[225](index=225&type=chunk) - The company plans to engage a third party to conduct a full assessment of its controls and procedures to remediate the material weakness[226](index=226&type=chunk) PART II. OTHER INFORMATION Provides additional information including legal proceedings, risk factors, equity sales, and other disclosures [Item 1. Legal Proceedings](index=46&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Confirms the company is not involved in any material legal proceedings or litigation - The company is not currently involved in any pending legal proceedings or litigation that would likely have a material adverse effect on its business[229](index=229&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=ITEM%201A.%20RISK%20FACTORS) Refers to the Annual Report on Form 10-K for risk factors, noting no material changes - Readers should refer to the 'Risk Factors' section in the Form 10-K for the year ended December 31, 2024, as there have been no material changes to the company's risk factors[231](index=231&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) Details the issuance of restricted common shares for services under Section 4(a)(2) of the Securities Act - On June 13, 2025, **165,000 restricted common shares** were issued for services at a fair market value of **$3.01 per share**, resulting in **$496,650** recorded as professional fees[232](index=232&type=chunk) - These securities were issued pursuant to Section 4(a)(2) of the Securities Act and were not registered[233](index=233&type=chunk) [Item 3. Defaults Upon Senior Securities](index=47&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) Reports no defaults upon senior securities during the period - There were no defaults upon senior securities[234](index=234&type=chunk) [Item 4. Mine Safety Disclosures](index=47&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) States that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[235](index=235&type=chunk) [Item 5. Other Information](index=47&type=section&id=ITEM%205.%20OTHER%20INFORMATION) Discloses Rule 10b5-1 trading arrangements adopted by the CEO and President of Airborne Response Corp - CEO Daniyel Erdberg adopted a Rule 10b5-1 trading plan on June 11, 2025, for the sale of up to **1,000,000 shares** of his common stock, effective until August 31, 2026[236](index=236&type=chunk) - Christopher Todd, President of Airborne Response Corp., adopted a Rule 10b5-1 trading plan on June 27, 2025, for the sale of up to **62,500 shares** of his common stock, effective until March 17, 2026[237](index=237&type=chunk) [Item 6. Exhibits](index=47&type=section&id=ITEM%206.%20EXHIBITS) Lists exhibits filed with the Form 10-Q, including certificates, warrants, agreements, and certifications - Key exhibits include the Certificate of Designations of Series C Preferred Stock, Form of Warrant, Securities Purchase Agreement, and the Safe Pro Group Inc. 2025 Stock Plan[238](index=238&type=chunk) - Certifications by the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are also included[238](index=238&type=chunk) [SIGNATURES](index=49&type=section&id=SIGNATURES) Contains the required signatures of the registrant's authorized officers, including the CEO and CFO - The report is signed by Daniyel Erdberg, Chairman and Chief Executive Officer, and Theresa Carlise, Chief Financial Officer, Treasurer & Assistant Secretary, on August 14, 2025[242](index=242&type=chunk)

Core Viewpoint - Safe Pro Group Inc. is advancing its AI-powered computer vision technology for explosive threat detection, with recent patent applications published in Australia, Israel, and Europe, enhancing its global intellectual property protection strategy [2][4]. Group 1: Technology and Innovation - The company’s AI-powered technology has analyzed over 1.78 million drone images and identified more than 31,600 explosive threats across 7,819 hectares in Ukraine, showcasing its effectiveness in real-world applications [6]. - Safe Pro's patented Safe Pro Object Threat Detection (SPOTD) technology can detect over 150 types of small explosive threats, including landmines and unexploded ordnance, addressing a significant global challenge as nearly 60 countries are affected by landmines [5][6]. Group 2: Intellectual Property and Market Position - The publication of international patent applications under the Patent Cooperation Treaty (PCT) is a strategic move to secure exclusive rights to its technology, signaling to competitors the potential for infringement liabilities [2][4]. - The company’s existing US Patent No. 12,146,729, valid until 2043, covers autonomous detection and identification of explosives using AI, indicating the innovative nature of its technology [4]. Group 3: Industry Context and Challenges - The global landmine crisis is escalating, particularly as more European nations consider withdrawing from the Ottawa Convention, which could lead to increased threats to armed forces and allies [3]. - The company is actively pursuing global protection of its intellectual property to address the growing challenges posed by landmines and other explosive threats [3].

Core Insights - The FAA's proposed rules for normalizing Beyond Visual Line of Sight (BVLOS) operations are expected to significantly enhance the deployment of drone applications across various sectors, particularly benefiting Safe Pro Group Inc. and its AI technology [1][5]. Company Overview - Safe Pro Group Inc. is a leader in AI-powered defense and security solutions, focusing on enhancing situational awareness and critical information access for customers in defense, humanitarian aid, law enforcement, and commercial markets [4][9]. - The company operates a fleet of advanced drone platforms for both routine operations and disaster response, positioning itself as a key player in climate resilience and emergency management [6]. Industry Impact - The normalization of BVLOS operations is projected to unlock transformative drone applications in sectors such as agriculture, energy, public safety, emergency response, infrastructure inspection, and logistics [3][5]. - The drone services market was valued at approximately $8.66 billion in 2025 and is anticipated to grow at a CAGR of 14.3%, reaching around $32.96 billion by 2035 [3]. Technological Advancements - Safe Pro's patented AI-powered computer vision technology is capable of rapidly analyzing drone imagery to detect small objects, with proven applications in identifying landmines and unexploded ordnance [7]. - The company’s Safe Pro Object Threat Detection (SPOTD) technology has been battle-tested in Ukraine, analyzing over 1.66 million drone images and identifying more than 28,000 threats across a significant area [7]. Future Prospects - The proposed FAA rules aim to provide greater operational flexibility for drone operators and manufacturers, which is expected to drive rapid growth in the drone services sector and support the development of new AI-powered drone services [5][6].

Core Insights - The U.S. Army has selected Safe Pro Group Inc. for two components of its 2026 Concept Focused Warfighter Experiment, highlighting the company's advanced AI threat detection capabilities [1][2][3] - The Senate Committee on Appropriations has advanced a proposed $617 million funding increase for Small Unmanned Aircraft Systems, which presents significant opportunities for Safe Pro's technology [5] Group 1: Company Developments - Safe Pro Group's patented AI-driven computer vision technology is recognized for its ability to analyze drone imagery and detect battlefield threats in real time [2] - The company plans to demonstrate its SPOTD AI-powered drone-based imagery analysis platform, capable of detecting over 150 types of landmines and unexploded ordnance in a fraction of a second [3] - Safe Pro's technology has been validated through over 1.66 million drone images analyzed and 28,000+ threats identified in real-world operations conducted in Ukraine [3] Group 2: Industry Context - The U.S. Army's Futures Command aims to ensure soldiers remain at the forefront of technological innovation through collaborative experimentation at events like the CFWE [2] - The proposed funding increase for drone and AI technologies aligns with the Pentagon's strategy to enhance force protection and mission planning capabilities [5] - The integration of Safe Pro's technology into the U.S. Army's ATAK platform allows for rapid sharing of threat detections across a wide range of soldier-carried and vehicle-mounted devices [4]

Core Insights - Safe Pro Group Inc. has been selected by the U.S. Army to participate in the Army Futures Command's Concept Focused Warfighting Experiment Maneuver (CFWE-M) 2026 event, which will take place at Fort Benning, Georgia from March to April 2026 [1][2] Group 1: Company Overview - Safe Pro Group Inc. is a leader in AI-powered defense and security solutions, focusing on enhancing modern force protection through advanced technologies [1][4] - The company specializes in drone imagery processing and machine learning, providing rapid identification of explosive threats, which offers a safer alternative to traditional human-based analysis methods [7] Group 2: Technology and Capabilities - Safe Pro plans to demonstrate its patented AI-powered computer vision technologies, including the SpotlightAI™ platform, which can detect and identify over 150 types of landmines and unexploded ordnance in a fraction of a second per image [3] - The company has analyzed over 1.66 million drone images and identified more than 28,000 threats across 6,705 hectares, utilizing real-world datasets from operations in Ukraine [3] Group 3: Collaboration and Integration - Safe Pro is integrating its technology into the U.S. Army's ATAK (Android Tactical Assault Kit) platform, allowing for real-time detection of small explosive threats and rapid sharing of intelligence across connected devices used by the U.S. Armed Forces [5] - The CFWE-M event serves as a primary venue for collaboration between the Army, industry, and technology developers, focusing on small unit modernization [2]

Core Viewpoint - SPARC AI INC. has successfully closed a non-brokered private placement offering, raising $200,000 in gross proceeds to support its operations and growth initiatives [1][2]. Group 1: Private Placement Details - The company issued 1,333,334 units at a price of $0.15 per unit, resulting in net proceeds of $192,000 after expenses [1]. - Each unit consists of one common share and one warrant, allowing the purchase of an additional common share at the same price for a period of twelve months [2]. - The closing date for the issuance of the securities is set for August 1, 2025, with a statutory hold period expiring on December 2, 2025 [3]. Group 2: Use of Proceeds - The net proceeds from the offering will be allocated towards funding sales and marketing activities as well as general working capital [2]. Group 3: CEO Investment and Oversubscription - CEO Anoosh Manzoori personally invested $100,000 by subscribing to 666,667 shares, indicating strong insider confidence [1]. - Due to oversubscription, the company will not require a previously planned loan of $225,000 from the CEO [4]. Group 4: Company Overview - SPARC AI specializes in developing high-tech solutions for environments where GPS is unavailable, focusing on enhancing perception and awareness [5]. - The company has created an innovative Target Acquisition System and Autonomous Flight solution for drones that do not rely on GPS or other complex technologies [5].

Core Insights - SPARC AI INC. is expanding into the commercial drone sector with an AI-powered product currently in stealth mode, leveraging its expertise in drone software technology [1][3] - The new product will enable users to design, build, optimize, budget, and launch drones efficiently, integrating various engineering tools and SPARC AI's Target Acquisition System [2][3] - The global drone industry is valued at $63 billion, and SPARC AI aims to capture market share in high-growth sectors such as agriculture, logistics, and environmental monitoring [3] Company Developments - SPARC AI is conducting a non-brokered private placement offering of 1,000,000 units at $0.15 per unit, aiming to raise $150,000 to fund product development and market launch [4] - The CEO, Anoosh Manzoori, plans to subscribe to the placement shares, indicating strong confidence in the company's strategic direction [4] - A $225,000 loan agreement has been secured with the CEO to support ongoing operations and product development, with favorable terms including no interest and no fees [5]

Core Insights - SPARC AI INC. has been shortlisted for the 2025 Australian Association for Uncrewed Systems (AAUS) Innovation Award, recognizing its contributions to uncrewed systems and advanced air mobility (AAM) sectors in Australia [1][2] - The AAUS Innovation Award honors organizations that exhibit creativity and technical excellence in uncrewed systems across various domains [2] - SPARC AI is preparing for an investor roadshow in Canada in June 2025, including a presentation at the Investor Clubhouse event in Toronto, aimed at showcasing its AI solutions to 80 VIP investors [3] Company Overview - SPARC AI has developed a Target Acquisition System that determines geolocation coordinates of distant objects without relying on traditional technologies such as radar, lidar, GPS, sensors, satellites, or image recognition software [5]

PART I: FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=4&type=section&id=ITEM%201%2E%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) Presents unaudited financial statements for Q1 2025, showing a net loss and detailing a subsequent capital raise [Condensed Consolidated Balance Sheets](index=4&type=section&id=CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) Total assets decreased to $3.69 million, driven by a reduction in cash, leading to a decline in shareholders' equity Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $912,219 | $1,970,719 | | Total current assets | $1,485,653 | $2,750,129 | | Total Assets | $3,686,590 | $4,949,943 | | **Liabilities & Equity** | | | | Total current liabilities | $872,025 | $893,926 | | Total liabilities | $1,043,230 | $1,075,518 | | Accumulated deficit | $(18,215,768) | $(14,250,751) | | Total shareholders' equity | $2,643,360 | $3,874,425 | [Condensed Consolidated Statements of Operations](index=6&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) Q1 2025 revenue fell 39.9% year-over-year while operating expenses surged, resulting in a significantly wider net loss Statement of Operations Summary (Unaudited) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total Revenues | $184,802 | $307,653 | | Gross Profit | $61,566 | $127,215 | | Total Operating Expenses | $4,067,256 | $1,212,101 | | Loss from Operations | $(4,005,690) | $(1,084,886) | | Net Loss | $(3,965,017) | $(1,143,860) | | Net Loss Per Share (Basic & Diluted) | $(0.27) | $(0.13) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20STOCKHOLDERS'%20EQUITY) Shareholders' equity declined by $1.23 million, as the quarterly net loss outpaced non-cash compensation and capital additions - For the three months ended March 31, 2025, total shareholders' equity decreased by **$1,231,065**, mainly due to a net loss of **$3,965,017**, offset by stock-based compensation of **$2,435,625** and other capital additions[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) The company experienced increased cash burn from operations, leading to a total cash decrease of $1.06 million in Q1 2025 Cash Flow Summary (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(941,751) | $(568,016) | | Net Cash Used in Investing Activities | $(123,359) | $0 | | Net Cash Provided by Financing Activities | $6,610 | $264,255 | | **Net Decrease in Cash** | **$(1,058,500)** | **$(303,761)** | | **Cash, end of period** | **$912,219** | **$399,607** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=NOTES%20TO%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) Notes highlight substantial going concern uncertainty, segment details, significant customer concentration, and a subsequent equity offering - The company has a history of net losses (**$3.97M in Q1 2025**) and negative operating cash flow (**$941,751 in Q1 2025**), with an accumulated deficit of **$18.2M**, raising **substantial doubt about its ability to continue as a going concern**[19](index=19&type=chunk)[21](index=21&type=chunk) - On May 9, 2025, after the quarter ended, the company closed a private offering of Series C convertible preferred stock, raising aggregate gross proceeds of **$1.05 million** to mitigate liquidity concerns[23](index=23&type=chunk)[129](index=129&type=chunk) - The company operates in three segments: Safe-Pro USA (protective gear), Airborne Response (drone services), and Safe Pro AI (AI/ML software), with Q1 2025 revenues of **$140,600**, **$4,204**, and **$39,998** respectively[46](index=46&type=chunk)[126](index=126&type=chunk) - For Q1 2025, three customers accounted for **94.4% of total sales**, indicating significant customer concentration risk[104](index=104&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=29&type=section&id=ITEM%202%2E%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management attributes a 39.9% revenue decline to funding cuts and a 235.6% expense increase to non-cash stock compensation [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Q1 2025 revenue fell 39.9% while operating expenses rose 235.6%, driven by stock-based compensation, widening the net loss Comparison of Operations for the Three Months Ended March 31 | Item | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $184,802 | $307,653 | $(122,851) | (39.9)% | | Gross Profit | $61,566 | $127,215 | $(65,649) | (51.6)% | | Total Operating Expenses | $4,067,256 | $1,212,101 | $2,855,155 | 235.6% | | Net Loss | $(3,965,017) | $(1,143,860) | $(2,821,157) | 246.6% | - The increase in operating expenses was primarily due to non-cash stock-based compensation, including **$1,579,285** related to salaries and **$992,052** related to professional fees[166](index=166&type=chunk)[168](index=168&type=chunk) - The decrease in revenue was attributed to security services budgetary cuts in Federal Funding and the timing of a training contract with Florida Power and Light[163](index=163&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity weakened, with cash falling to $0.91 million and working capital decreasing to $0.61 million Key Liquidity Metrics | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash | $912,219 | $1,970,719 | | Working Capital | $613,628 | $1,856,203 | - Net cash used in operating activities for Q1 2025 was **$941,751**, primarily due to a net loss of **$3.97 million**, partially offset by non-cash expenses like stock-based compensation of **$2.44 million**[178](index=178&type=chunk) - Net cash used in investing activities was **$123,359** in Q1 2025 for the purchase of property, equipment, and intangible technologies[180](index=180&type=chunk) [Critical Accounting Policies and Estimates](index=36&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Key accounting policies include segment-specific revenue recognition, goodwill impairment testing, and stock-based compensation valuation - Revenue recognition policies are tailored to each business segment: Safe-Pro USA (goods shipped), Airborne Response (services completed), and Safe Pro AI (SaaS model based on usage)[187](index=187&type=chunk)[188](index=188&type=chunk)[190](index=190&type=chunk) - Goodwill is not amortized but is tested for impairment at least annually, while intangible assets with finite lives are amortized[192](index=192&type=chunk)[193](index=193&type=chunk) - Stock-based compensation is accounted for under ASC 718, requiring measurement at the grant-date fair value and recognition over the service period[195](index=195&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=ITEM%203%2E%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) As a smaller reporting company, Safe Pro Group Inc. is not required to provide the information for this item - The company is exempt from this disclosure requirement as it qualifies as a smaller reporting company[198](index=198&type=chunk) [Controls and Procedures](index=38&type=section&id=ITEM%204%2E%20CONTROLS%20AND%20PROCEDURES) Disclosure controls were deemed ineffective due to a material weakness in internal controls related to limited resources - Management concluded that **disclosure controls and procedures were ineffective** as of March 31, 2025[200](index=200&type=chunk) - A **material weakness was identified** in internal control over financial reporting due to a lack of segregation of duties and issues with inventory management, attributed to limited resources[202](index=202&type=chunk) - The company plans to remediate the material weakness by engaging a third party to conduct a full assessment of controls and procedures once resources become available[204](index=204&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=39&type=section&id=ITEM%201%2E%20LEGAL%20PROCEEDINGS) The company is not currently a party to any legal proceedings that would materially impact its business or financial condition - The company is not currently involved in any material pending legal proceedings[207](index=207&type=chunk) [Risk Factors](index=40&type=section&id=ITEM%201A%2E%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's 2024 Form 10-K - There have been no material changes to the company's risk factors from those set forth in its Annual Report on Form 10-K filed on March 31, 2025[209](index=209&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=ITEM%202%2E%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) In March 2025, the company issued 12,500 restricted shares for professional fees under a Securities Act exemption - On March 20, 2025, the Company issued **12,500 restricted shares valued at $36,625** for professional fees, outside of its 2022 Equity Plan, pursuant to Section 4(a)(2) of the Securities Act[210](index=210&type=chunk) [Defaults Upon Senior Securities](index=40&type=section&id=ITEM%203%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reported no defaults upon its senior securities during the period - None[211](index=211&type=chunk) [Mine Safety Disclosures](index=40&type=section&id=ITEM%204%2E%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company's operations - Not applicable[212](index=212&type=chunk) [Other Information](index=40&type=section&id=ITEM%205%2E%20OTHER%20INFORMATION) No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter[213](index=213&type=chunk) [Exhibits](index=40&type=section&id=ITEM%206%2E%20EXHIBITS) Lists all filed exhibits, including documents for the May 2025 private offering and Sarbanes-Oxley certifications - The report includes several exhibits, notably documents related to the **May 9, 2025, private offering** (Series C Preferred Stock, Warrants, Purchase Agreement) and Sarbanes-Oxley certifications[214](index=214&type=chunk) [Signatures](index=41&type=section&id=SIGNATURES) The report was duly authorized and signed on May 15, 2025, by the CEO and CFO - The report was signed on May 15, 2025, by Daniyel Erdberg (CEO) and Theresa Carlise (CFO)[217](index=217&type=chunk)

PART I: FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=6&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) Safe Pro Group Inc.'s unaudited financial statements as of September 30, 2024, reflect asset growth and a widened net loss, primarily due to its August 2024 IPO [Consolidated Balance Sheets](index=6&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) As of September 30, 2024, total assets increased to **$5.48 million** and stockholders' equity to **$4.23 million** due to the IPO and preferred share conversion Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2024 | Dec 31, 2023 | Change (%) | | :--- | :--- | :--- | :--- | | **Assets** | | | | | Cash | $2,334,715 | $703,368 | +231.9% | | Total Current Assets | $3,349,635 | $1,273,908 | +162.9% | | Total Assets | $5,476,549 | $3,430,199 | +59.7% | | **Liabilities & Equity** | | | | | Total Current Liabilities | $1,049,187 | $1,416,729 | -25.9% | | Convertible notes payable, net | $0 | $343,796 | -100.0% | | Total Liabilities | $1,242,593 | $1,653,841 | -24.9% | | Total Stockholders' Equity | $4,233,956 | $1,776,358 | +138.4% | - All **Series A and Series B preferred stock** was converted into **common stock** as of September 30, 2024, eliminating preferred stock from the balance sheet[13](index=13&type=chunk)[72](index=72&type=chunk) [Consolidated Statements of Operations](index=7&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS) For the nine months ended September 30, 2024, revenues doubled to **$1.28 million**, but net loss widened to **$6.04 million** due to increased operating expenses Statement of Operations Summary (Unaudited) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $1,281,399 | $640,062 | +100.2% | | Gross Profit | $442,301 | $233,166 | +89.7% | | Total Operating Expenses | $6,192,066 | $2,123,844 | +191.5% | | Loss from Operations | ($5,749,765) | ($1,890,678) | +204.1% | | Net Loss | ($6,044,239) | ($1,894,258) | +219.1% | | Basic and diluted loss per share | ($0.64) | ($0.25) | +156.0% | - Salaries, wages, and payroll taxes for the nine months ended Sep 30, 2024, surged to **$3.57 million** from **$0.91 million** YoY, primarily due to increased stock-based compensation[15](index=15&type=chunk) - Professional services expenses for the nine months ended Sep 30, 2024, increased to **$1.51 million** from **$0.54 million** YoY, also driven by higher stock-based compensation and costs associated with the IPO[15](index=15&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=9&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CHANGES%20IN%20STOCKHOLDERS'%20EQUITY) For the nine months ended September 30, 2024, stockholders' equity increased to **$4.23 million**, primarily due to preferred stock and debt conversions, IPO proceeds, and stock-based compensation - On August 28, 2024, all outstanding Series A and Series B preferred stock was converted into **1,500,000** and **1,310,000** shares of common stock, respectively[16](index=16&type=chunk)[112](index=112&type=chunk)[122](index=122&type=chunk) - The company issued **1,020,000** common shares for cash, raising **$4,179,500** in net proceeds from its IPO[16](index=16&type=chunk)[30](index=30&type=chunk) - Stock-based compensation for services and employees added **$2.95 million** to additional paid-in capital during the first nine months of 2024[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=11&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) For the nine months ended September 30, 2024, net cash used in operations increased to **$3.1 million**, while financing activities provided **$4.9 million**, primarily from IPO proceeds Cash Flow Summary (Unaudited) | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($3,065,107) | ($1,752,025) | | Net Cash Used in Investing Activities | ($226,397) | ($28,749) | | Net Cash Provided by Financing Activities | $4,922,851 | $668,571 | | **Net Increase (Decrease) in Cash** | **$1,631,347** | **($1,112,203)** | - Financing activities were dominated by **$4.18 million** in net proceeds from the IPO common stock offering and **$0.49 million** from other common stock sales[20](index=20&type=chunk)[193](index=193&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=12&type=section&id=NOTES%20TO%20UNAUDITED%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) The notes detail the company's three segments, **$4.18 million** IPO proceeds, preferred stock and convertible note conversions, and significant customer concentration - The company operates through three wholly-owned subsidiaries: **Safe-Pro USA** (ballistic solutions), **Airborne Response** (drone services), and **Safe Pro AI** (AI/ML software)[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) - Following its IPO, which raised net proceeds of **$4.18 million**, management believes it has sufficient cash to mitigate going concern risks for at least the next 12 months[30](index=30&type=chunk)[31](index=31&type=chunk) - For the nine months ended Sep 30, 2024, four customers accounted for **95.2%** of total sales, indicating significant customer concentration[166](index=166&type=chunk) - On August 27, 2024, convertible notes with a principal of **$750,001** and accrued interest of **$58,531** were converted into **252,666** common shares[102](index=102&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management attributes **100.2%** revenue growth to increased sales, while a widened net loss is due to higher operating expenses, with liquidity significantly improved post-IPO [Results of Operations](index=47&type=section&id=Results%20of%20Operations) For the nine months ended September 30, 2024, total revenues increased by **100.2%** to **$1.28 million**, but operating expenses surged **191.5%** to **$6.19 million**, leading to a **$6.04 million** net loss Revenue by Segment - Nine Months Ended Sep 30 | Segment | 2024 Revenue | 2023 Revenue | Change (%) | | :--- | :--- | :--- | :--- | | Safe-Pro USA | $751,031 | $519,728 | +44.5% | | Airborne Response | $525,992 | $120,334 | +337.1% | | Safe Pro AI | $4,375 | $0 | N/A | | **Total** | **$1,281,399** | **$640,062** | **+100.2%** | - The increase in operating expenses for the nine months ended Sep 30, 2024 was primarily driven by stock-based compensation of **$2.95 million** and increased audit, legal, and consulting fees related to the IPO[211](index=211&type=chunk)[213](index=213&type=chunk) - Gross profit margin for the nine months ended Sep 30, 2024, decreased to **34.5%** from **36.4%** in the prior year, attributed to a higher sales mix of non-manufactured products with lower margins[209](index=209&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2024, liquidity significantly improved with cash at **$2.33 million** and positive working capital, driven by **$4.9 million** in net financing cash flows from the IPO Key Liquidity Metrics | Metric | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash | $2,334,715 | $703,368 | | Working Capital | $2,300,448 | ($142,821) | - Net cash provided by financing activities for the nine months ended Sep 30, 2024, was **$4.92 million**, primarily from the IPO and other equity/debt issuances[228](index=228&type=chunk)[229](index=229&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is not required to provide this information as it qualifies as a smaller reporting company - As a **smaller reporting company**, Safe Pro Group Inc. is exempt from providing quantitative and qualitative disclosures about market risk[250](index=250&type=chunk) [Controls and Procedures](index=56&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) As of September 30, 2024, management concluded that disclosure controls were not effective due to material weaknesses in inventory control and segregation of duties, with remediation efforts underway - The CEO and CFO concluded that disclosure controls and procedures were **not effective** as of September 30, 2024[252](index=252&type=chunk) - Material weaknesses were identified in (i) **inventory control management** and (ii) a lack of **segregation of duties** within accounting functions[252](index=252&type=chunk) - Remediation efforts include engaging an inventory control consultant and implementing new policies for revenue recognition[255](index=255&type=chunk) PART II: OTHER INFORMATION [Legal Proceedings](index=57&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) The company is not currently involved in any pending legal proceedings that are expected to have a material adverse effect on its business, financial condition, or operating results - As of the filing date, the Company is not a party to any **material legal proceedings**[256](index=256&type=chunk) [Risk Factors](index=57&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes to the company's risk factors from those disclosed in its Prospectus dated August 28, 2024 - The company states there have been no **material changes** to its risk factors from those set forth in its Prospectus[257](index=257&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=57&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) During Q3 2024 and thereafter, the company conducted several unregistered sales of securities, including shares issued for convertible debt and preferred stock conversions, and compensation - In August 2024, the company issued **252,666** shares to convert **$750,002** in debt and **$58,531** in accrued interest[259](index=259&type=chunk) - In August 2024, a total of **2,810,000** common shares were issued upon the conversion of all outstanding Series A and Series B preferred stock[259](index=259&type=chunk) - In August 2024, **480,000** fully vested shares of common stock were issued for compensation, valued at **$2,400,000**[261](index=261&type=chunk) [Defaults Upon Senior Securities](index=58&type=section&id=ITEM%203%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reports no defaults upon its senior securities - None[262](index=262&type=chunk) [Mine Safety Disclosures](index=58&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[262](index=262&type=chunk) [Other Information](index=58&type=section&id=ITEM%205.%20OTHER%20INFORMATION) During the quarter, none of the company's directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or executive officer has adopted or terminated a **Rule 10b5-1 trading arrangement** during the reporting period[263](index=263&type=chunk) [Exhibits](index=59&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the quarterly report, including the Underwriting Agreement, various promissory notes and warrants, and officer certifications required by the Sarbanes-Oxley Act