Safe Pro Group Inc.: Form 10-Q for the period ended Sep 30, 2025

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. See the section titled “Risk Factors” in our Form 10-K dated March 31, 2025 as filed with the Securities and Exchange Commission (the “SEC”), which is available on the SEC’s EDGAR website at www.sec.gov (http://www.sec.gov), for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q includes forward-looking statements. These statements involve risks known to us, significant uncertainties, and other factors which may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by those forward-looking statements.

Some of the statements used in this report constitute “forward-looking statements” that represent our beliefs, projections and predictions about future events. Forward-looking statements are all statements other than statements of historical fact, including statements that refer to plans, intentions, objectives, goals, targets, strategies, hopes, beliefs, projections, prospects, expectations or other characterizations of future events or performance, and assumptions underlying the foregoing. The words “may,” “could,” “should,” “would,” “will,” “project,” “intend,” “continue,” “believe,” “anticipate,” “estimate,” “forecast,” “expect,” “plan,” “potential,” “opportunity,” “scheduled,” “goal,” “target,” and “future,” variations of such words, and other comparable terminology and similar expressions and references to future periods are often, but not always, used to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements about the following:

• our prospects, including our future business, revenues, expenses, net income, earnings per share, gross margins, profitability, cash flows, cash position, liquidity, financial condition and results of operations, backlog of orders and revenue, our targeted growth rate, our goals for future revenues and earnings, and our expectations about realizing the revenues in our backlog and in our sales pipeline;
• the effects on our business, financial condition, and results of operations of current and future economic, business, market and regulatory conditions, including the current economic and market conditions and their effects on our customers and their capital spending and ability to finance purchases of our products, services, technologies and systems;
• the effects of fluctuations in sales on our business, revenues, expenses, net income, earnings per share, margins, profitability, cash flows, capital expenditures, liquidity, financial condition, and results of operations;
• our products, services, technologies, and systems, including their quality and performance in absolute terms and as compared to competitive alternatives, their benefits to our customers and their ability to meet our customers’ requirements, and our ability to successfully develop and market new products, services, technologies and systems;
• our markets, including our market position and our market share;

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• our ability to successfully develop, operate, grow and diversify our operations and businesses;
• our business plans, strategies, goals and objectives, and our ability to successfully achieve them;
• the sufficiency of our capital resources, including our cash and cash equivalents, funds generated from operations, availability of borrowings under our credit and financing arrangements and other capital resources, to meet our future working capital, capital expenditure, lease and debt service and business growth needs;
• the value of our assets and businesses, including the revenues, profits and cash flows they are capable of delivering in the future;
• the effects on our business operations, financial results, and prospects of business acquisitions, combinations, sales, alliances, ventures and other similar business transactions and relationships;
• industry trends and customer preferences and the demand for our products, services, technologies and systems; and
• the nature and intensity of our competition, and our ability to successfully compete in our markets.

These statements are necessarily subjective, are based upon our current plans, intentions, objectives, goals, strategies, beliefs, projections and expectations, and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based, or the success of our business. Furthermore, industry forecasts are likely to be inaccurate, especially over long periods of time.

Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that may cause actual results, our performance or achievements, or industry results to differ materially from those contemplated by such forward-looking statements include, without limitation, those discussed under the caption “Risk Factors” in our Annual Report on Form 10-K as filed with the SEC.

Business Overview

We were incorporated in the State of Delaware on December 15, 2021. Safe Pro Group Inc. is the parent company of Airborne Response Corp. and Safe-Pro USA, LLC, which were both incorporated in Florida, in 2016 and 2008, respectively. On March 9, 2023, Safe Pro Group Inc. acquired Safe Pro AI LLC (formerly known as Demining Development LLC), a privately held developer of Artificial Intelligence (“AI”) and Machine Learning (“ML”) software technology for processing of drone-based imagery and data. We are a company focused on innovative security and protection solutions, specifically, advanced artificial intelligence / machine learning (AI/ML) software technology for the creation of robust datasets sourced from the analysis of aerial imagery, bullet and blast resistant personal protection equipment and providing mission-critical aerial managed services.

Through a layered approach to the development and integration of advanced technologies in artificial intelligence, drone-based remote sensing technologies, services, and personal protective gear, Safe Pro Group seeks to provide government, NGOs and enterprises with innovative solutions designed to respond to evolving threats.

Currently, the Company’s revenue is primarily generated by its subsidiaries Airborne Response and Safe-Pro USA. We expect to begin realizing revenue from Safe Pro AI for its Safe Pro Object Threat Detection (SPOTD) technology ecosystem - Spotlight AI™, SpotlightAI™ OnSight and SPOTD NODE (Navigation, Observation and Detection Engine)- as a result of multiple completed demonstrations and evaluations in Ukraine, the Philippines and the United States during 2025, as well as planned demonstrations including events hosted by the U.S. Army in early 2026. As of November 1, 2025, SpotlightAI™, has analyzed more than 2,130,777 drone images from Ukraine, identifying more than 38,195 landmines and unexploded remnants of war across 10,966 hectares (27,086 acres) of Ukrainian territory.

Furthermore, the Company expects to generate revenue through a number of strategic relationships formed during August and September of 2025 with select drone industry vendors introduced through its most recent investors, such as Ondas Holdings Inc. and Unusual Machines Inc.

Principle of Consolidation

Our consolidated financial statements included in this report include our accounts and those of our subsidiaries: Airborne Response Corp., Safe-Pro USA LLC, and Safe Pro AI LLC from their respective dates of acquisition.

Supplier Concentration

During the three months ended September 30, 2025, the Company purchased approximately 78.5% of its inventory from three suppliers (Barrday Corp 21.9%, Industries Bitossi Inc. 32.2%, and Lincoln Fabrics 24.4%). During the nine months ended September 30, 2025, the Company purchased approximately 56.8% of its inventory from two suppliers (Avient Protective Materials 29.6% and Lincoln Fabrics 27.3%).

During the three months ended September 30, 2024, the Company purchased approximately 37.9% of its inventory from two suppliers (Matrix Space 10.8% and Southeast Drone Technologies 27.1%).

During the nine months ended September 30, 2024, the Company purchased approximately 50.1% of its inventory from two suppliers, (Minelab Electronics 36.7% and Mithix Pro 13.4%).

The loss of these suppliers may have a material adverse effect on the Company’s results of operations and financial condition. However, the Company believes that, if necessary, alternate vendors could supply similar products in adequate quantities to avoid material disruptions to operations.

Segment Information

During the nine months ended September 30, 2025 and 2024, the Company operated in three reportable business segments which consisted of (1) the business of Safe-Pro USA, (2) the business of Airborne Response, and (3) the business of Safe Pro AI. The Company’s reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations and locations.

Significant Components of Our Results of Operations

Revenues. Our revenues are generated primarily from the sale of our products, which consist primarily of personal protective gear (“PPE”) and ballistic protective equipment including Explosive Ordnance Disposal (“EOD”) and blast and fragmentation resistant vests and body armor, as well as aerial managed services (drones) for the inspection of customer’s critical infrastructure including radio towers and power grids. At contract inception, we assess the goods and services promised in the contract with customers and identify a performance obligation for each. To determine the performance obligation, we consider all products and services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not subject to significant judgment. We measure revenue as the amount of consideration expected to be received in exchange for transferring goods and services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met.

Cost of Goods Sold and Gross Profit. Gross profit has been and will continue to be affected by various factors, including changes in our supply chain and the evolving product mix. The margin profile of our current products and future products will vary depending on operating performance, features, materials, manufacturer and supply chain. Gross margin will vary as a function of changes in pricing due to competitive pressure, our third-party manufacturing, labor costs for services and depreciation for our drone-related fixed assets and our production costs, which includes depreciation related costs for manufacturing equipment, costs of shipping and logistics, provision for excess and obsolete inventory and other factors. We expect our gross margins will fluctuate from period to period depending on the interplay of these various factors.

Operating Expenses. We classify our operating expenses as salary, wages and payroll taxes, research and development, professional fees, selling, general, administrative, non-production and services related depreciation and amortization. Additionally, we separate depreciation and amortization expense into its own category.

Salary, Wages and Payroll Taxes. Salaries are representative of officer and stock-based compensation and administrative personnel costs. The salary and wages associated payroll tax is reflected here as well.

Research and Development expenses consist of costs associated with personnel and contractor fees associated with the design and development of our products, product certification, travel, recruiting and information technology. Development costs incurred prior to establishment of technological feasibility were expensed as incurred. Software development costs related to design enhancement of the product are capitalized. We expect our research and development costs to continue to increase as we develop new products and modify existing products to meet the changes within our markets.

Professional Fees primarily represent certain costs for legal, audit, accounting, public company expense, investor relations, consulting fees and share-based compensation for services.

Selling, General and Administrative expenses consist of expenses associated with our training programs, trade shows, marketing programs, promotional materials, demonstration equipment, commissions payable, national and local regulatory approvals of our products, travel, entertainment, recruiting, operating supplies such as, computer equipment, drones, EOD testing supplies; and facilities and other supporting overhead costs. For the year ending December 31, 2025, we expect selling, general and administrative expenses to increase, as we ramp up our sales and marketing expansion efforts to correspond with our increased production efforts, relating to our personal protective gear, the availability of additional AI-powered image processing solutions and new drone-based services such as Drone as a First Responder (DFR).

Depreciation and Amortization expense consists of depreciation related to computer and related office equipment, as well as amortization related to finite-lived intangibles.

Interest Expense is comprised of interest expense associated with our secured notes payable and convertible notes. The amortization of debt discounts is also recorded as part of interest expense.

Provision for Income Taxes. Current and deferred income tax expense or benefit in any given period will depend upon a number of events and circumstances, one of which is the income tax net income or loss from operations for the period which is usually different from the U.S. GAAP net income or loss, for the period due to differences in tax laws and timing differences. Management assesses our deferred tax assets in each reporting period, and if it is determined that it is not more likely than not to be realized, we will record a change in our valuation allowance in that period.

Results of Operations

Comparison of the Three months Ended September 30, 2025 and 2024

For the Three months Ended September 30, 2025 and 2024:

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Comparison of the Nine Months Ended September 30, 2025 and 2024

For the Nine Months Ended September 30, 2025 and 2024:

Net Revenue. For the three months ended September 30, 2025 and 2024, revenues generated were $101,422 and $330,756, a decrease of $229,334 or 69.3%. Comparable sales for Safe-Pro USA were $81,141 for the three months ended September 30, 2025 as compared to $98,637 for the same period in 2024, a decrease of $17,496 or 17.7%. Comparable sales for Airborne Response were $20,280 for the three months ended September 30, 2025 as compared to $227,745 for the same period in 2024, a decrease of $207,465 or 91.1%. Comparable sales for Safe Pro AI were $0 for the three months ended September 30, 2025 as compared to $4,375 for the same period in 2024.

For the nine months ended September 30, 2025 and 2024, revenues generated were $378,977 and $1,281,399, a decrease of $902,422 or 70.4%. Comparable sales for Safe-Pro USA were $270,489 for the nine months ended September 30, 2025 as compared to $751,031 for the same period in 2024, a decrease of $480,542 or 64.0%. Comparable sales for Airborne Response were $39,157 for the nine months ended September 30, 2025 as compared to $525,992 for the same period in 2024, a decrease of $486,835 or 92.6%. Comparable sales for Safe Pro AI were $69,330 for the nine months ended September 30, 2025 as compared to $4,375 for the same period in 2024.

A substantial portion of revenue for Airborne Response, is with one customer, Florida Power & Light, (“FPL”). If there is positive weather patterns, the electrical power grid remains in stable condition requiring less maintenance and repair work which results in fewer work orders for Airborne Response. For the three and nine months ended September 30, 2025 and 2024, the decrease in revenue for Airborne Response was primarily attributable the lack of disruptions to the FPL electrical power grid, due to positive weather patterns, which included no active hurricanes. Airborne Response is currently in the process of completing a training program for a new revenue stream, providing nested flight services with FPL/NextEra.

For the three and nine months ended September 30, 2025 and 2024, Safe-Pro USA’s decrease in revenue is attributable to the effects of U.S. Tariffs on Chinese products. The Company imports Security Guards’ uniforms from China As the result of the high tariffs of goods imported from China, a our business model is being reevaluated and recalibrated at this time, with the consequence that business is at its lowest level. Safe-Pro USA is in the process of sourcing additional customers along with obtaining government certifications to become a supplier for the U.S. government.

We expect to begin realizing revenue from Safe Pro AI for its Safe Pro Object Threat Detection (SPOTD) technology ecosystem - Spotlight AI™, SpotlightAI™ OnSight and SPOTD NODE (Navigation, Observation and Detection Engine)- as a result of multiple completed demonstrations and evaluations in Ukraine, the Philippines and the United States during 2025, as well as planned demonstrations including events hosted by the U.S. Army in early 2026. As the Company begins to bring on SaaS and subscription customers related to its AI offerings, it is expected that revenue growth will have a more predictable trajectory, and decrease the volatility from one-time contracts.

Cost of Revenue During the three months ended September 30, 2025 and 2024, cost of revenues decreased to $67,828 compared to $196,523, a decrease of $128,695, or 65.5%. Gross profit margins were 33.1% and 40.7%, respectively. The decrease in cost of revenue is directly attributable to a decrease in revenue. For the nine months ended September 30, 2025 and 2024, gross profit margins were 33.4% and 34.5%, respectively. The decrease in margin was attributable to an increase in sales for products which have a lower gross profit margin.

Operating Expenses. Total operating expenses for the three months ended September 30, 2025 and 2024 were $4,241,228 and $3,676,307, an increase of $564,922 or 15.4%. Total operating expenses for the nine months ended September 30, 2025 and 2024 were $10,263,387 and $6,192,066, an increase of $4,071,321 or 65.8%. Factors resulting in the increase are described more fully below. For the year ending December 31, 2025, we expect selling, general and administrative expenses to increase, as we ramp up our sales and marketing expansion efforts to correspond with our increased production efforts, relating to our personal protective gear, the availability of additional AI-powered image processing solutions and new drone-based services such as Drone as a First Responder (DFR).

Salaries, wages and payroll taxes. Total salaries, wages and payroll taxes for the three months ended September 30, 2025 and 2024 were $1,285,814 and $2,745,525, a decrease of $1,459,711 or 53.2%. The decrease was primarily driven by higher stock-based compensation expense of $2,200,000 recorded during the three months ended September 30, 2024, compared to $831,385 in the current period. The prior year expense was associated with new employment agreements executed in preparation for the Company’s initial public offering.

Total salaries, wages and payroll taxes for the nine months ended September 30, 2025 and 2024 were $3,744,827 and $3,571,310, an increase of $173,517 or 4.9%. The increases were primarily attributable to additional compensation expense related to employment agreements and incentive bonuses associated with current-year equity issuances, partially offset by a reduction in officer wages incurred pursuant to the terms of employment agreements with the Chief Executive Officer.

Research and Development expenses were $109,763 and $0, for the three months ended September 30, 2025 and 2024, respectively, an increase of $109,763. Research and Development expenses were $127,638 and $85,937, for the nine months ended September 30, 2025 and 2024, respectively, an increase of $41,701 or 48.5%. The increase is primarily attributable to expanded development efforts and the engagement of external contractors to support enhancements to the artificial intelligence business.

Professional fees were $2,168,082 and $430,698 for the three months ended September 30, 2025 and 2024, respectively, an increase of $1,737,384 or 403.4%. Professional fees were $4,811,591 and $1,508,908 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $3,302,683 or 218.9%. The increases for nine months ended September 30, 2025 as compared to the same period in 2024, were attributable to non-cash expenses for share-based professional fees of $2,862,955 recognized pursuant to contractual agreements, additional public company expenses of $344,518 including legal and investor relations fees, and additional director fees of $95,210. The increase is partially offset by the reduction of reclassification of contractor expenses from professional fees to selling, general and administrative expenses in 2025.

Selling, general and administrative expenses were $602,715 and $418,366 for the three months ended September 30, 2025 and 2024, respectively, an increase of $184,349 or 44.1%. Selling, general and administrative expenses were $1,329,374 and $853,077 for the nine months ended September 30, 2025 and 2024, respectively, an increase of $476,297 or 55.8%. The increases for the nine months ended September 30, 2025 as compared to the same period in 2024, are primarily attributable to increases in advertising and D&O insurance premiums and the reclassification of contractor fees from professional fees to selling, general and administrative expenses.

Depreciation and amortization expenses were $74,855 and $81,718 for the three months ended September 30, 2025 and 2024, respectively, a decrease of $6,863, or 8.4%. For the nine months ended September 30, 2025 and 2024, depreciation and amortization costs were $249,957 and $172,834 respectively, an increase of $77,123, or 44.6%.

We expect our expenses in each of these areas to continue to increase during fiscal 2025 and beyond as we expand our operations and begin generating additional revenues for our current business. However, we are unable at this time to estimate the amount of the expected increases.

Total Other Income (Expense). Our total other expenses were $802,723 compared to $143,382 during the three months ended September 30, 2025 and 2024 respectively, an increase of $659,341, or 459.8%. Our total other expenses were $753,264 compared to $294,474, during the nine months ended September 30, 2025 and 2024 respectively, an increase of $458,790, or 155.8%. The increase is primarily attributable to the goodwill and intangible asset impairment charges recognized during the three months ended September 30, 2025.

Net Loss. We recorded a net loss of $5,010,358 for the three months ended September 30, 2025 as compared to a net loss of $3,685,456 an increase of $1,324,902, or 36.0%, for the three months ended September 30, 2024. We recorded a net loss of $10,889,934 for the nine months ended September 30, 2025 as compared to a net loss of $6,044,239 for the nine months ended September 30, 2024, an increase of $4,845,695, or 80.2%. The increase is a result of the factors as described above.

Consolidated Balance Sheet Data:

(Unaudited)

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At September 30, 2025, we had a cash balance of $7,597,009 and working capital of $7,313,982.

Our current assets at September 30, 2025 increased by $5,672,161, or 206.3%, to $8,422,290 from $2,750,129, from December 31, 2024. The increases included cash of $5,626,290 and inventory of $151,486, and are partially offset by decreases in accounts receivable of $83,292 and prepaid expenses and other current assets of $22,323, which is primarily a result of the proceeds from the private placement and the exercise of warrants during the three months ended September 30, 2025.

Our current liabilities at September 30, 2025 increased to $1,108,308 from $893,926 or an increase of $214,382, or 24.0% from December 31, 2024. The increase is comprised of increases in accounts payable of $141,301, accrued expenses of $170,210, due to related parties of $11,108, current portion of lease liabilities of $10,302 and are partially offset by decreases in accrued compensation of $107,778 and contract liabilities of $10,761.

Operating Activities

Net cash flows used in operating activities for the nine months ended September 30, 2025 amounted to $3,549,597 and were primarily attributable to our net loss of $10,889,934, offset by depreciation and amortization expense of $305,760, impairment of goodwill of $684,687, impairment of other intangibles of $146,001, and stock-based compensation and professional fees of $6,048,410. Changes in operating assets and liabilities were reflected by increases in accounts receivable of $83,292, prepaid and other current assets of $22,323, accounts payable of $141,301, accrued expenses of $170,210 and lease liability of $122 which were offset by decreases in inventory of $151,486, contract liabilities of $10,761 and accrued compensation of $99,702.

Net cash flows used in operating activities for the nine months ended September 30, 2024 amounted to $3,065,107 and were primarily attributable to our net loss of $6,044,239, offset by depreciation and amortization expense of $222,630, stock-based compensation and professional fees of $2,948,000, and amortization of debt discount of $208,006. Changes in operating assets and liabilities were reflected by increases in accounts payable of $64,661 and accrued expenses of $161,652 offset by decreases in accounts receivable of $58,141, inventory of $16,115, prepaid and other current assets of $370,124, contract liabilities of $14,382, lease liability of $9,110 and accrued compensation of $157,945.

Investing Activities

Net cash flows used in investing activities were $233,580 and $266,397, for the nine months ended September 30, 2025 and 2024, respectively. During the nine months ended September 30, 2025, we purchased property and equipment of $26,035 and investment in intangible technologies of $207,545.

Financing Activities

Net cash flows provided by financing activities were $9,409,467 and $4,922,851 for the nine months ended September 30, 2025 and 2024, respectively.

During the nine months ended September 30, 2025, we had proceeds from the sale of common stock in private placement offering of $6,767,500, proceeds from exercise of warrants of $1,511,570, proceeds from sale of Preferred Series C shares and warrants of $1,050,000, proceeds from exercise of options of $12,750, and proceeds from related party advances of $129,051 and partially offset by related party repayments of $61,404.

During the nine months ended September 30, 2024, we had proceeds from the sale of convertible notes payable of $275,002, proceeds from the sale of common stock and warrants of $489,003, proceeds from our initial public offering of $4,179,500, proceeds from notes payable of $236,500, which were offset by repayments due to related party for $20,564 and repayments of notes payable of $236,500.

Critical Accounting Policies and Estimates

The following is not intended to be a comprehensive list of our accounting policies or estimates. Our significant accounting policies are more fully described in Note 2 — Summary of Significant Accounting Policies in the Notes. In preparing our consolidated financial statements and accounting for the underlying transactions and balances, we apply our accounting policies and estimates as disclosed in the Notes. We consider the policies and estimates discussed below as critical to an understanding of our consolidated financial statements because their application places the most significant demands on our judgment, with financial reporting results dependent on estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Specific risks for these critical accounting estimates are described in the following paragraphs. Preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates.

Besides estimates that meet the “critical” accounting estimate criteria, we make many other accounting estimates in preparing our consolidated financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenue and expenses as well as disclosures of contingent assets and liabilities. Estimates are based on experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known, including for estimates that we do not deem “critical.”

Accounts receivable and other receivables

The Company adopted ASC 326 “Financial Instruments – Credit Losses” on January 1, 2023. The Company recognizes an allowance for losses on accounts receivable and other receivables in an amount equal to the estimated probable losses net of recoveries under the current expected credit loss method. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts or other accounts considered at risk or uncollectible. The bad debt expense associated with the allowance for doubtful accounts related to accounts receivable and other receivables is recognized in selling, general and administrative expenses.

Revenue recognition

In accordance with ASU Topic 606 - Revenue from Contracts with Customers, the Company recognizes revenue in accordance with that core principle by applying the following steps:

Step 1: Identify the contract(s) with a customer.

Step 2: Identify the performance obligations in the contract.

Step 3: Determine the transaction price.

Step 4: Allocate the transaction price to the performance obligations in the contract.

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

The Company offers a warranty on its manufactured products. The Company considered the need to make an accrual for warranty expenses that may be incurred. Historically, the Company has incurred no warranty expense and accordingly, the Company believes that no warranty expense accrual is deemed necessary.

Safe-Pro USA

Safe-Pro USA recognizes revenue when, or as, the performance obligation is satisfied. Performance obligations are determined through a review of customer contracts and may differ between customers depending upon contract terms. Revenue from product sales is recognized when the related goods are shipped whereas revenue from training and inspection activities is recognized when the services are completed, and payment is probable. Discounts in multiple elements sold as a single arrangement are allocated proportionately to the individual elements based on the fair value charged when the element is sold separately.

Airborne Response

Airborne Response recognizes revenue when, or as, the performance obligation is satisfied. Performance obligations are determined through a review of customer contracts and may differ between customers depending upon contract terms. Revenues from services are recognized at a point in time when Airborne Response completes services pursuant to its agreements with clients and collectability is probable.

Safe Pro AI

Safe Pro AI sells subscriptions and licenses to its customers for the use of its software under a software-as-a-service subscription model (“SaaS”), which will allow for the rapid, automated processing of aerial and ground-based imagery uploaded by customers, making it an ideal solution for a number of applications including defense, demining, in law enforcement and border security. Safe Pro AI’s, SaaS offerings are sold under a license or prepaid or postpaid, usage-based pricing system pursuant to a tiers model, allowing customers to choose the subscription level to be charged based upon their intended usage. The subscription tiers will utilize declining prices as the volume grows. Under this model, customers are charged an upfront fee based upon the number of gigapixels of aerial images uploaded into the system for processing. For customer convenience, Safe Pro AI will initially charge data processing fees on a per hectare basis (1 hectare = 1,000 square meters). Under prepaid pay-as-you-go plans, revenues related to contracts that do not include a specified contract period are recognized upon usage by the customer and satisfaction of the Company’s performance obligation. These usage-based revenues are constrained to the amount the Company expects to be entitled to and receive in exchange for providing access to its platform. If professional services are deemed to be distinct, revenue is recognized as services are performed. The Company does not view the signing of the contract or the provision of initial setup services as discrete earnings events that are distinct.

Goodwill and intangible assets

The Company’s business acquisitions typically result in the recording of goodwill and other intangible assets, which affect the amount of amortization expense and possibly impairment write-downs that the Company may incur in future periods.

Intangible assets are carried at cost less accumulated amortization for finite-lived assets, computed using the straight-line method over the estimated useful life, less any impairment charges.

Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business acquisitions. Goodwill is not subject to amortization but is subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill by reporting unit at least annually, or when indicators of impairment are present, to determine if goodwill may be impaired. To test goodwill impairment, the Company may first assess qualitative factors to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value. The Company would not be required to quantitatively determine the fair value of goodwill unless it determines, based on the qualitative assessment there are indicators of impairment. Under the quantitative test of goodwill, the Company compares the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value exceeds the fair value, then the goodwill is impaired by the excess amount. The Company performs its annual testing for goodwill during the fourth quarter of each fiscal year or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit.

Intangibles assets, net consists of contractual employment agreements, customer relationships and acquired capitalized internal-use software. All intangible assets determined to have finite lives are amortized over their estimated useful lives. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to future cash flows. The Company periodically evaluates both finite and indefinite lived intangible assets for impairment upon occurrence of events or changes in circumstances that indicate the carrying amount of intangible assets may not be recoverable.

Impairment of long-lived assets

In accordance with ASC Topic 360, the Company reviews long-lived assets, including intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation”, which requires recognition in the consolidated financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee, director, and non-employee services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to recognize forfeitures as they occur as permitted under the FASB’s Accounting Standards Update (“ASU”) 2016-09 Improvements to Employee Share-Based Payment.

Business acquisitions

The Company accounts for business acquisitions using the acquisition method of accounting where the assets are acquired, and the liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses, and cash flows, weighted average cost of capital, discount rates, and estimates of terminal values. Business acquisitions are included in the Company’s consolidated financial statements as of the date of the acquisition.

Asset Acquisitions

The Company evaluates acquisitions pursuant to ASC 805, “Business Combinations,” to determine whether the acquisition should be classified as either an asset acquisition or a business combination. Acquisitions for which substantially all of the fair value of the gross assets acquired are concentrated in a single identifiable asset or a group of similar identifiable assets are accounted for as an asset acquisition. For acquisitions of an asset or a group of assets that does not constitute a business, the Company applies ASC 805-50 which provides guidance on acquisitions of assets rather than a business. Acquisitions of assets are accounted for using the cost accumulation and allocation model. For asset acquisitions, the Company allocates the purchase price of these acquired assets on a relative fair value basis and capitalizes direct acquisition related costs as part of the purchase price. Acquisition costs that do not meet the criteria to be capitalized are expensed as incurred and presented in general and administrative costs in the consolidated statements of operations, if any.

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

Management, with the participation of our Chief Executive Officer, who is our principal executive officer, and Chief Financial Officer, who is our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2025. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that we file or submit under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of September 30, 2025, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were ineffective due to the material weakness in internal control over financial reporting discussed below.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2025. In making this assessment, management used the criteria set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.

In its assessment of the effectiveness of internal control over financial reporting as of September 30, 2025, management identified a material weakness related to segregation of duties. Specifically, due to limited resources and headcount we did not have multiple people in the accounting function for a full segregation of duties and were reliant on outside consultants for external reporting. During the first quarter of 2025, the Company has remedied the material weakness related to inventory management by its implementation of a new system.

Based on this assessment, management concluded that we did not maintain effective internal control over financial reporting as of September 30, 2025, based on the criteria in Internal Control – Integrated Framework (2013).

Plan for Remediation of Material Weakness

We are in the process of; (i) engaging a third party to conduct a full assessment of our controls and procedures and (ii) adding an accounting professional to facilitate segregation of duties. Management’s current expectation is to have completed its assessment of its controls and procedures for the filing of its Form 10-K for the year ended December 31, 2025.

Changes in Internal Control over Financial Reporting

Except as disclosed above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in the Form 10-K for the year ended December 31, 2024, as filed on March 31, 2025. The risks described in the Form 10-Q are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes to our risk factors from those set forth in our Form 10-K.