SPAI.NASDAQSafe Pro Group INC
10-Q: Safe Pro Group Reports Steep Q3 Losses Amid Revenue Decline
Sentiment:
Quarterly Report
Safe Pro Group Inc. reported a significant increase in net loss and a sharp decline in revenue for the nine months ended September 30, 2025, despite substantial capital raises improving liquidity.
Capital raiseOn August 21, 2025, the company sold 2,000,000 shares of common stock and three 3-year warrants for $8.0 million in gross proceeds.On October 17, 2025, the company closed a private placement of 2,000,000 shares of common stock at $7.00 per share, generating $14.0 million in gross proceeds.On October 10, 2025, the company filed a shelf registration statement on Form S-3 with the SEC, allowing for the potential offering of up to $100 million of various securities.On May 9, 2025, the company sold 1,050 shares of Series C convertible preferred stock for $1.05 million, along with warrants.
Worse than expectedNet loss increased by 80.2% to $10,889,934 for the nine months ended September 30, 2025, indicating a significant deterioration in profitability.Total revenues decreased by 70.4% to $378,977 for the nine months ended September 30, 2025, reflecting a substantial decline in sales across core segments.Gross profit fell by 71.4% and gross profit margins decreased, indicating reduced efficiency or unfavorable product mix.Operating expenses increased by 65.8%, outpacing the significant decline in revenue, leading to a larger operating loss.The company recognized substantial goodwill and intangible asset impairment charges totaling $830,868, signaling a reevaluation of asset values due to poor performance.
Summary
- Net loss for the nine months ended September 30, 2025, increased by 80.2% to $10,889,934, compared to $6,044,239 for the same period in 2024.
- Total revenues decreased by 70.4% to $378,977 for the nine months ended September 30, 2025, down from $1,281,399 in the prior year period.
- Gross profit fell by 71.4% to $126,717 for the nine months ended September 30, 2025, with gross profit margins decreasing from 34.5% to 33.4%.
- Operating expenses surged by 65.8% to $10,263,387, primarily due to increased professional fees and stock-based compensation.
- The company recognized a full goodwill impairment charge of $684,867 and an other intangibles impairment charge of $146,001 during the three and nine months ended September 30, 2025.
- Cash balance significantly increased by 285.5% to $7,597,009 as of September 30, 2025, from $1,970,719 at December 31, 2024, largely due to financing activities.
- Working capital improved by 294.0% to $7,313,982 as of September 30, 2025, from $1,856,203 at December 31, 2024.
- Safe-Pro USA's revenue decreased by 64.0% due to U.S. Tariffs on Chinese products, leading to a reevaluation of its business model.
- Airborne Response's revenue decreased by 92.6% due to positive weather patterns resulting in fewer disruptions to the FPL electrical power grid and thus less maintenance work.
- Safe Pro AI's sales increased to $69,330 for the nine months ended September 30, 2025, from $4,375 in the prior year, with expectations of further revenue realization from its SPOTD technology ecosystem.
- Management identified a material weakness in internal control over financial reporting related to segregation of duties due to limited resources and headcount.
Sentiment
Score: 3
Explanation: The sentiment is negative due to substantial increases in net loss and operating expenses, coupled with a severe decline in revenue across key segments. Significant impairment charges further reflect operational challenges. While recent capital raises have improved liquidity and mitigated going concern risk, they do not address the underlying poor operational performance. The material weakness in internal controls is an additional concern.
Positives
- Cash balance increased significantly by $5,626,290 (285.5%) to $7,597,009 as of September 30, 2025, compared to December 31, 2024.
- Working capital improved substantially by $5,457,779 (294.0%) to $7,313,982 as of September 30, 2025.
- Successful capital raises, including $8.0 million in August 2025 and $14.0 million in October 2025, have mitigated going concern doubts and provided sufficient cash for at least twelve months.
- Safe Pro AI segment showed revenue growth, increasing to $69,330 for the nine months ended September 30, 2025, from $4,375 in the prior year.
- Safe Pro AI's SpotlightAI technology has analyzed over 2.13 million drone images from Ukraine, identifying more than 38,195 landmines and unexploded remnants of war across 10,966 hectares.
- Airborne Response is developing a new revenue stream by completing a training program for nested flight services with FPL/NextEra.
- The company remedied a material weakness related to inventory management during the first quarter of 2025.
Negatives
- Net loss increased by 80.2% to $10,889,934 for the nine months ended September 30, 2025.
- Total revenues decreased by 70.4% to $378,977 for the nine months ended September 30, 2025.
- Gross profit declined by 71.4% to $126,717, and gross profit margins decreased from 34.5% to 33.4% for the nine months ended September 30, 2025.
- Operating expenses increased by 65.8% to $10,263,387, driven by higher professional fees and stock-based compensation.
- A full goodwill impairment charge of $684,867 and an other intangibles impairment charge of $146,001 were recognized due to declining operating performance and stock price.
- Safe-Pro USA's revenue decreased by 64.0% due to the impact of U.S. Tariffs on Chinese products, necessitating a business model reevaluation.
- Airborne Response's revenue decreased by 92.6% due to favorable weather conditions reducing demand for maintenance and repair work.
- The company continues to use cash in operating activities, with a net cash outflow of $3,549,597 for the nine months ended September 30, 2025.
- Accumulated deficit grew to $25,140,685 as of September 30, 2025.
Risks
- The company's results of operations could be adversely affected by general conditions in the global economy and financial markets, including health and safety concerns, and war in Ukraine and the Middle East.
- A severe or prolonged economic downturn could weaken demand for products and services and impact the ability to raise additional capital on acceptable terms.
- Weak or declining economy could strain domestic and international customers, potentially delaying payments.
- A substantial portion of Airborne Response's revenue is with one customer, Florida Power & Light (FPL), making the company vulnerable to changes in FPL's needs or contract terms.
- Sales of Airborne Response are seasonal based on weather conditions, leading to revenue volatility.
- Safe-Pro USA's business model is being reevaluated and recalibrated due to high U.S. Tariffs on Chinese products, which could impact future revenue.
- The company relies on a few key customers, with three customers accounting for 69.9% of total sales for the nine months ended September 30, 2025, and three customers accounting for 95.1% of total accounts receivable.
- The loss of key suppliers (three suppliers accounted for 78.5% of inventory purchases in Q3 2025) may have a material adverse effect on operations and financial condition.
- The company identified a material weakness in internal control over financial reporting related to segregation of duties due to limited resources and headcount.
- The contingent liability of $435,656 due to former Safe-Pro USA members is only payable from proceeds related to contracts with the Bangladesh Ministry of Defense customer, which may not materialize.
Future Outlook
The company expects to begin realizing revenue from its Safe Pro AI SPOTD technology ecosystem (Spotlight AI, SpotlightAI OnSight, and SPOTD NODE) as a result of multiple completed demonstrations and evaluations in Ukraine, the Philippines, and the United States during 2025, and planned demonstrations with the U.S. Army in early 2026. It anticipates that as SaaS and subscription customers for AI offerings increase, revenue growth will become more predictable and less volatile. The company also expects selling, general, and administrative expenses to increase in fiscal year 2025 and beyond as it ramps up sales and marketing efforts for personal protective gear, AI solutions, and new drone-based services like Drone as a First Responder (DFR).
Management Comments
- Management acknowledges its responsibility for the preparation of the accompanying unaudited condensed consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its operations for the periods presented.
- The Company believes that the Company has sufficient cash to meet its obligations for a minimum of twelve months from the date of this filing, mitigated by recent private placements totaling $22,000,000.
- 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.
- Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2025, and concluded that our disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting related to segregation of duties.
Industry Context
The company operates in the innovative security and protection solutions sector, encompassing advanced AI/ML software for aerial imagery analysis, drone-based remote sensing, and personal protective gear. The decline in revenue for Safe-Pro USA due to U.S. Tariffs on Chinese products highlights the impact of global trade policies on supply chains and business models in the PPE industry. The seasonal nature of Airborne Response's services, tied to weather patterns affecting infrastructure maintenance, indicates a segment susceptible to environmental factors. The progress of Safe Pro AI in demining efforts in Ukraine and planned demonstrations with the U.S. Army positions the company within the growing defense and humanitarian aid technology markets, where AI and drone applications are increasingly critical for threat detection and operational efficiency.
Comparison to Industry Standards
- NA
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| CEO | NA | Daniyel Erdberg | 2025-02-28 | Issued 400,000 common shares as stock-based compensation pursuant to contractual agreement. |
| President of Safe-Pro USA | NA | Mr. Borkar | 2025-03-31 | Waived accrued salary of $56,538, recorded as contributed capital. |
| Employee (Spouse of Mr. Borkar) | NA | Spouse of Mr. Borkar | 2025-03-31 | Waived accrued salary of $56,538, recorded as contributed capital. |
Corporate Governance
| Change Type | Description | Effective Date | Impact Assessment |
|---|---|---|---|
| Equity Incentive Plan Adoption | The Compensation Committee of the Board of Directors approved the 2025 Stock Plan, which was subsequently approved by stockholders on June 26, 2025. This plan provides for discretionary grants of stock options, stock awards, stock unit awards, and stock appreciation rights. | 2025-06-26 | Aims to encourage ownership among employees, officers, directors, and consultants, aligning their interests with stockholders and supporting long-term service and progress. The share reserve is subject to annual automatic increases. |
| Internal Control Weakness Remediation Plan | Management is engaging a third party to conduct a full assessment of controls and procedures and adding an accounting professional to facilitate segregation of duties to address a material weakness in internal control over financial reporting. | NA | Expected to improve the reliability of financial reporting and prevent or detect material misstatements on a timely basis. Management expects to complete the assessment for the Form 10-K for the year ended December 31, 2025. |
Legal Proceedings
- The company is not currently involved in any pending or threatened legal proceedings that it believes could reasonably be expected to have a material adverse effect on its financial condition, results of operations, or cash flows.
Related Party Transactions
- A contingent liability of $435,656 is due to former members of Safe-Pro USA (one of whom is a current director), payable only from proceeds received from contracts with the Bangladesh Ministry of Defense customer.
- Mr. Borkar, President of Safe-Pro USA, waived accrued salary of $56,538 on March 31, 2025, which was recorded as contributed capital.
- The spouse of Mr. Borkar waived accrued salary of $56,538 on March 31, 2025, which was recorded as contributed capital.
- During the nine months ended September 30, 2025, the company purchased $6,139 of inventory and services from a company owned by the spouse of Mr. Borkar.
Stakeholder Impact
- Shareholders: Experienced an 80.2% increase in net loss and a 70.4% decrease in revenue, leading to a higher loss per share. However, recent capital raises have significantly increased cash and working capital, mitigating immediate liquidity concerns and potentially stabilizing the stock price in the short term.
- Employees: Stock-based compensation and incentive bonuses increased, but a material weakness in internal controls related to segregation of duties due to limited headcount suggests potential strain or risk for accounting personnel. Mr. Borkar and his spouse waived accrued salaries, impacting their personal compensation.
- Customers: Safe-Pro USA's customers may face disruptions or changes in product offerings due to business model reevaluation caused by tariffs. Airborne Response's customers benefit from positive weather patterns reducing maintenance needs, but the company is developing new services.
- Suppliers: The company's reliance on a few key suppliers (e.g., three suppliers for 78.5% of Q3 2025 inventory) poses a risk of material adverse effects if these relationships are disrupted, though the company believes alternate vendors are available.
- Creditors: The company's improved cash position and working capital from capital raises enhance its ability to meet obligations, despite ongoing operational losses. The SBA COVID-19 EIDL Loan remains a long-term liability.
Next Steps
- Begin realizing revenue from Safe Pro AI's SPOTD technology ecosystem following demonstrations in Ukraine, the Philippines, and the United States during 2025.
- Conduct planned demonstrations of Safe Pro AI's technology with the U.S. Army in early 2026.
- Complete a training program for Airborne Response to offer new nested flight services with FPL/NextEra.
- Reevaluate and recalibrate Safe-Pro USA's business model due to U.S. Tariffs on Chinese products.
- Safe-Pro USA to source additional customers and obtain government certifications to become a supplier for the U.S. government.
- Engage a third party to conduct a full assessment of controls and procedures to address the material weakness in internal control over financial reporting.
- Add an accounting professional to facilitate segregation of duties to address the material weakness in internal control over financial reporting.
- File a registration statement to register the resale of shares from the October 17, 2025 private placement within fifteen business days of closing.
Key Dates
| Date | Description |
|---|---|
| 2020-06-26 | Retroactive date for Safe-Pro USA's product liability policy. |
| 2020-09-30 | Safe-Pro USA entered into a Loan and Authorization Agreement (SBA COVID-19 EIDL Loan) for $146,000. |
| 2021-07-01 | Start of a 62-month lease agreement for office, manufacturing, and warehouse space for Safe-Pro USA. |
| 2021-07-31 | End of the initial period for Safe-Pro USA's 62-month lease agreement. |
| 2021-12-15 | Company incorporated in Delaware under the name Cybernate Corp. |
| 2022-01-01 | Company started doing business. |
| 2022-06-07 | Company acquired 100% of Safe-Pro USA and issued 3,000,000 shares of Series A preferred stock. |
| 2022-07-01 | Company's Board of Directors authorized and adopted the 2022 Equity Incentive Plan. |
| 2022-07-13 | Company changed its name from Cybernate Corp. to Safe Pro Group Inc. and entered into a 36-month lease agreement for office space. |
| 2022-08-01 | Effective date for the 36-month office space lease agreement. |
| 2022-08-29 | Company acquired 100% of Airborne Response and issued 3,275,000 shares of Series B preferred stock. |
| 2023-03-09 | Safe Pro Group Inc. acquired Safe Pro AI LLC. |
| 2023-08-28 | Company amended its Series A Preferred Certificate of Designation, changing stated value to $2.50 per share. |
| 2023-12-27 | Company received net proceeds of $475,000 from a convertible debt agreement. |
| 2024-01-09 | Company issued 50,000 vested restricted common shares to a director for services. |
| 2024-03-01 | Start of the period during which the company received net proceeds of $275,002 from a convertible debt agreement in March 2024. |
| 2024-04-01 | Start of the period during which Airborne Response entered into a 39-month lease agreement for a vehicle. |
| 2024-06-24 | Company issued 180,000 fully vested restricted common shares to consultants for services. |
| 2024-08-27 | December 2023 and March 2024 Convertible Notes were converted into 252,666 common shares. Series B Preferred shares were converted into 1,310,000 common shares. |
| 2024-08-28 | Series A Preferred shares were converted into 1,500,000 shares of common stock. |
| 2024-08-29 | Company completed its initial public offering (IPO), selling 1,020,000 shares for gross proceeds of $5,100,000. Issued 80,000 restricted common shares to consultants and 400,000 restricted common shares to Daniyel Erdberg, Theresa Carlise, and an employee. Entered into an underwriting agreement with Dawson James Securities, Inc. and issued a common stock purchase warrant for 51,000 shares. |
| 2024-12-31 | End of the fiscal year 2024. Company received cash consideration of $878,078 for the exercise of warrants during December 2024. |
| 2025-02-27 | Company issued 100,000 common shares pursuant to its 2022 Equity Plan for services. Contractual employment agreement date for 50,000 shares issued on October 17, 2025. |
| 2025-02-28 | Company issued 400,000 common shares to CEO Mr. Erdberg and 100,000 common shares to an individual for services, both pursuant to its 2022 Equity Plan. |
| 2025-03-11 | Company issued 25,000 common shares pursuant to its 2022 Equity Plan for services. Contractual employment agreement date for 25,000 shares issued on October 17, 2025. |
| 2025-03-19 | Company received $37,615 in regard to a contingent obligation from Bangladesh receivables. |
| 2025-03-20 | Company issued 12,500 common shares outside of its 2022 Equity Plan for services. |
| 2025-03-31 | Mr. Borkar and his spouse waived accrued salary of $56,538 each. End of Q1 2025. |
| 2025-05-07 | Company's board of directors approved an Amendment to its Articles of Incorporation to designate 2,000 shares of Series C Preferred. |
| 2025-05-08 | Company's Certificate of Designation for Series C Preferred Stock became effective. Company entered into convertible Series C Preferred agreements with investors for $1,050,000. |
| 2025-06-13 | Company issued 37,500 common shares pursuant to 2022 Equity Plan and 165,000 restricted shares for services. |
| 2025-06-20 | Company renewed an operating lease through July 31, 2026. |
| 2025-06-26 | Stockholders approved the 2025 Stock Plan. |
| 2025-07-22 | Company issued 427,778 common shares from conversion of 875 Series C Preferred shares. Issued 265,000 common shares and 30,000 restricted shares pursuant to its 2022 Equity Plan for services. |
| 2025-07-23 | Company issued 70,889 common shares from conversion of 145 Series C Preferred shares. |
| 2025-07-25 | Company received $56,325 in regard to a contingent obligation from Bangladesh receivables. |
| 2025-07-31 | End of the renewed operating lease term for office space. |
| 2025-08-04 | Company granted 30,000 common shares pursuant to its 2022 Equity Plan, vesting over 12 months. |
| 2025-08-19 | Company sold 2,000,000 common shares and 2,000,000 warrants in a private placement for $8,000,000. |
| 2025-08-21 | Date of the private placement of common stock and warrants for $8.0 million. |
| 2025-08-22 | Company issued 187,500 common shares pursuant to its 2022 Equity Plan for services. |
| 2025-09-11 | Company issued 14,667 common shares from conversion of 30 Series C Preferred shares. |
| 2025-09-30 | End of the quarterly reporting period. All Series C Preferred Stock had been converted into common shares. |
| 2025-10-01 | Company issued 2,500 shares of common stock as the second installment of a 30,000-share award under the 2022 Equity Incentive Plan. |
| 2025-10-02 | Company issued 48,889 shares of common stock pursuant to a warrant exercise. |
| 2025-10-10 | Company filed a shelf registration statement on Form S-3 with the SEC for up to $100 million. |
| 2025-10-17 | Company closed a private placement of 2,000,000 shares of common stock for $14,000,000. Issued 50,000 shares and 25,000 shares of common stock pursuant to its 2022 Equity Incentive Plan. |
| 2025-10-21 | Date of the private placement of common stock for $14.0 million. |
| 2025-10-22 | Board of Directors approved payments totaling $1,400,000 to advisory service providers and employees in connection with the private placement. |
| 2025-10-31 | Compensation Committee approved accelerated vesting and issuance of 25,000 shares of common stock under the 2022 Equity Incentive Plan. |
| 2025-11-01 | As of this date, SpotlightAI has analyzed over 2.13 million drone images from Ukraine. |
| 2025-11-14 | Filing date of the 10-Q report. As of this date, 20,973,270 shares of common stock were outstanding. |
| 2026-07-31 | End of the renewed operating lease term for office space. |
| 2027-07-31 | Option for an additional 12 months on the office space lease at a base rent of $3,053. |
Recommendation
holdWhile the company successfully raised significant capital, substantially improving its cash position and mitigating immediate going concern risks, the underlying operational performance is severely concerning. A 70.4% revenue decline and an 80.2% increase in net loss, coupled with goodwill and intangible asset impairments, indicate fundamental business challenges. The material weakness in internal controls is an additional red flag. The potential for Safe Pro AI to generate future revenue is a positive, but it is not yet a significant contributor. Given the high operational risk and the speculative nature of future AI revenue, a 'hold' recommendation is appropriate for existing investors who might await further clarity on the business model reevaluation and AI revenue realization. New investors should exercise extreme caution due to the significant operational headwinds despite improved liquidity.
Keywords
Drone technology, Artificial intelligence, Machine learning, Personal protective equipment, Ballistic protection, EOD equipment, Aerial managed services, SEC filing, Quarterly report, Financial results, Net loss, Revenue decline, Capital raise, Liquidity, Impairment, Internal controls, SPOTD, Safe Pro AI, Airborne Response, Safe-Pro USA
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