Safe Pro Group Inc.

Previous wording

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”), pursuant to Rule 4245(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”), which is available on the SEC’s EDGAR website at 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.

Current wording

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, 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.

Previous wording

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 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.

Current wording

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.

Previous wording

During the three months ended March 31, 2025, the Company purchased approximately 88.9% of its inventory from four suppliers (American Protection Works 10.0%, Avient Protective Materials 42.0%, Lincoln Fabrics 15.3% and Chatsuboo.net 21.7%. During the three months ended March 31, 2024, the Company purchased approximately 72.2% of its inventory from two suppliers, (Minelab Electronics 40.1% and Hextronics 42.1%.)

Current wording

During the six months ended June 30, 2025, the Company purchased approximately 40.0% of its inventory from one supplier (Minelab Electronics 40.0%). During the six months ended June 30, 2024, the Company purchased approximately 72.2% of its inventory from two suppliers, (Minelab Electronics 40.1% and Hextronics 42.1%).

Previous wording

The Company uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s chief operating decision maker is the chief executive officer of the Company, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. During the three months ended March 31, 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.

Current wording

During the six months ended June 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.

Previous wording

*Cost of Revenue.*During the three months ended March 31, 2025 and 2024, cost of revenues decreased to $123,236 compared to $180,438, a decrease of $57,202, or 31.7%. Gross profit margins were 33.3% and 41.4%, respectively. The decrease in cost of revenue is attributable to the decrease in revenue of services at a higher gross profit margin. The decrease in margin was attributable to a decrease in sales for services which have a higher gross profit margin. We expect our cost of revenues to continue to increase during fiscal 2025 and beyond, as we expand our operations and begin generating additional revenues under our current business. However, we are unable at this time to estimate the amount of the expected increases.

Current wording

Cost of Revenue During the three months ended June 30, 2025 and 2024, cost of revenues decreased to $61,196 compared to $458,374, a decrease of $397,178, or 86.6%. Gross profit margins were 34.0% and 28.7%, respectively. The decrease in cost of revenue is directly attributable to a decrease in revenue. For the six months ended June 30, 2025 and 2024, gross profit margins were 33.6% and 32.8%, respectively. The increase in margin was attributable to a decrease in sales for products which have a lower gross profit margin.

Previous wording

Salaries, wages and payroll taxes. Total salaries, wages and payroll taxes for the three months ended March 31, 2025 and 2024 were $2,024,543 and $434,578, an increase of $1,589,965 or 365.9%. The increases were primarily attributable to stack based compensation of $1,579,285, pursuant to certain contractual obligations relating to an employment agreement.

Current wording

Salaries, wages and payroll taxes. Total salaries, wages and payroll taxes for the three months ended June 30, 2025 and 2024 were $434,470 and $394,898, an increase of $39,572 or 10.0 %. Total salaries, wages and payroll taxes for the six months ended June 30, 2025 and 2024 were $2,459,013 and $829,476, an increase of $1,629,537 or 196.5%. The increases were attributable to non-cash stock compensation of $1,606,070 pursuant to certain contractual obligations relating to an employment agreement.

Previous wording

Total Other (Income) Expense, Our total other expenses were $(40,673) compared to $58,974, during the three months ended March 31, 2025 and 2024 respectively, an increase of other income of $42,318 or 100.0% and a decrease in interest expense of $57,329. The increase is primarily attributed to a decrease in interest expense related to convertible debt which was offset by an increase of interest income of $12,703 and other income $29,615.

Current wording

Total Other Income (Expense). Our total other income (expenses) was $8,787 compared to $(92,117), during the three months ended June 30, 2025 and 2024 respectively, a decrease of $100,904, or 109.5%. Our total other income (expenses) was $49,640 compared to $(151,092), during the six months ended June 30, 2025 and 2024 respectively, an increase of $200,552 or 132.7%. The increase is primarily attributed to an increase in interest earned and other income offset by interest expense related to convertible debt for the six months ended June 30, 2024.

Previous wording

Net Loss. We recorded a net loss of $3,965,017 for the three months ended March 31, 2025 as compared to a net loss of $1,143,860, for the three months ended March 31, 2024. The increase is a result of the factors as described above.

Current wording

Net Loss. We recorded a net loss of $1,914,559 for the three months ended June 30, 2025 as compared to a net loss of $1,214,923 an increase of $699,636, or 57.6%, for the three months ended June 30, 2024. We recorded a net loss of $5,879,576 for the six months ended June 30, 2025 as compared to a net loss of $2,358,783 for the six months ended June 30, 2024, an increase of $3,520,793, or 149.3%. The increase is a result of the factors as described above.

Previous wording

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 March 31, 2025, we had a cash balance of $912,219 and working capital of $613,628.

Current wording

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 June 30, 2025, we had a cash balance of $805,596 and working capital of $521,927.

Previous wording

Our current assets at March 31, 2025 decreased by $1,264,476, or 46.0%, to $1,485,653 from $2,750,129, from December 31, 2024. The decreases included cash of $1,058,500, accounts receivable of $107,901, inventory of $28,344 and prepaid expenses and other current assets of $69,731.

Current wording

Our current assets at June 30, 2025 decreased by $1,418,291, or 51.6%, to $1,331,838 from $2,750,129, from December 31, 2024. The decreases included cash of $1,165,123, accounts receivable of $85,127, inventory of $35,773 and prepaid expenses and other current assets of $132,268, which is primarily a result of the need to fund working capital due to the decrease in revenue.

Previous wording

Our current liabilities at March 31, 2025 decreased to $872,025 from $893,926 or an increase of $21,901, or 2.4% from December 31, 2024. The decrease is comprised of increases in; accounts payable of $106,247, accrued expenses $33,316, due to related parties of $6,610 and offset by decreases in; accrued compensation of $102,532, current portion of lease liabilities of $8,516, and contract liabilities of $57,026.

Current wording

Our current liabilities at June 30, 2025 decreased to $809,911 from $893,926 or a decrease of $84,015, or 9.4% from December 31, 2024. The decrease is comprised of decreases in accrued compensation of $111,279, due to related parties of $36,745 and contract liabilities of $38,367, offset by increases in accounts payable of $48,881, accrued expenses of $39,050, and current portion of lease liabilities of $14,446.

Previous wording

Net cash flows used in operating activities for the three months ended March 31, 2025 amounted to $941,751 and were primarily attributable to our net loss of $3,965,017, offset by depreciation and amortization expense of $103,366 and stock-based compensation and professional fees of $2,435,625 and fair value of options and warrants of $233,712. Changes in operating assets and liabilities were reflected by increases in; inventory of $28,344, prepaid and other current assets of $69,731, accounts payable of $106,247, accrued expenses of $97,931, accrued compensation of $102,532; and offset by decreases in accounts receivable of $107,901, lease liabilities $33 and contract liabilities of $57,026.

Current wording

Net cash flows used in operating activities for the six months ended June 30, 2025 amounted to $1,952,500 and were primarily attributable to our net loss of $5,879,576, offset by depreciation and amortization expense of $213,309 and stock-based compensation and professional fees of $3,457,765. Changes in operating assets and liabilities were reflected by increases in accounts payable of $48,881 and accrued expenses of $103,665, which were offset by decreases in accounts receivable of $85,127, inventory 35,773, prepaid and other current assets of 132,268, accrued compensation of $111,279 and contract liabilities of $38,367.

Previous wording

Net cash flows used in operating activities for the three months ended March 31, 2024 amounted to $568,016 and were primarily attributable to our net loss of $1,143,860 and lease costs of $6, offset by depreciation and amortization expense of $60,677, stock-based compensation and professional fees of $98,000 and amortization of debt discount of $36,785. Changes in operating assets and liabilities were reflected by increases in; inventory of $ 43,480, prepaid and other current assets of $163,113, contract liabilities of $343,517, accrued compensation of $187,559; and offset by decreases in accounts receivable of $90,491, accounts payable $14,083 and accrued expenses of $20,503.

Current wording

Net cash flows used in operating activities for the six months ended June 30, 2024 amounted to $1,159,475 and were primarily attributable to our net loss of $2,358,783, offset by depreciation and amortization expense of $123,054, stock-based compensation and professional fees of $548,000, lease costs of $9,584, and amortization of debt discount of $89,006. Changes in operating assets and liabilities were reflected by increases in; inventory of $5,413, prepaid and other current assets of $146,449, accounts payable of $58,207, accrued expenses of $83,157, accrued compensation of $344,633; offset by decreases in accounts receivable of $121,954, and contract liabilities of $7,257.

Previous wording

Net cash flows used in investing activities were $123,359 and $0, for the three months ended March 31, 2025 and 2024, respectively. During the three months ended March 31, 2025, we purchased property and equipment of $18,247 and investment in intangible technologies of $105,112.

Current wording

Net cash flows used in investing activities were $225,877 and $223,509, for the six months ended June 30, 2025 and 2024, respectively. During the six months ended June 30, 2025, we purchased property and equipment of $21,034 and investment in intangible technologies of $204,843.

Previous wording

Net cash flows provided by financing activities were $6,610 and $264,255 for the three months ended March 31, 2025 and 2024, respectively.

Current wording

Net cash flows provided by financing activities were $1,045,563 and $855,569 for the six months ended June 30, 2025 and 2024, respectively.

Previous wording

During the three months ended March 31, 2025, we had related party advances of $15,816 and related party repayments of $9,206.

Current wording

During the six months ended June 30, 2025, we had proceeds from the sale of common stock and warrants of $1,050,000, related party advances of $75,651 and offset by related party repayments of $80,888.

Previous wording

Net cash flows provided by (used in) financing activities were $264,255, for the three months ended March 31, 2024. During the three months ended March 31, 2024, we had proceeds from the sale of convertible notes payable of $275,001, offset by repayments due to related party for $10,746.

Current wording

During the six months ended June 30, 2024, we had proceeds from the sale of convertible notes payable of $275,001, proceeds from the sale of common stock and warrants of $489,002, and proceeds of notes payable of $110,000, offset by repayments due to related party for $18,434.

Previous wording

The Company accounts for business acquisitions using the acquisition method of accounting where the assets 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.

Current wording

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.