美國
證券交易委員會 及交易所
華盛頓特區，20549
表單
| 報告 依據1934年證券交易法第13條或第15(d)條進行的季報告 |
截至年度季度結束
或
| 根據《交易所法》第13條或第15(d)條提交的過渡報告 |
用於 從 ______________ 到 _______________ 的過渡期。
委員會
檔案編號
(根據公司章程所述的註冊人的正確名稱)
（州或其他管轄區 註冊或組織） |
（美國國稅局雇主識別號碼） 識別號碼） | |
| （總執行辦公室地址） | （郵政編碼） |
（申報人的電話號碼，包括區號）
根據該法案第12(b)條紀錄的證券：
| 每個類別的標題 | 交易標誌 | 在哪個交易所上市的名字 | ||
| 你接受的訓練數據截止到2023年10月。 |
請勾選表示公司是否在過去12個月內（或公司被要求提交這些報告的短期）根據1934年證券交易法的第13條或第15(d)條的規定提交了所有要求提交的報告。公司是否在過去90天內也需要提交這些報告？是 ☐
請用勾選框表示，是否本登記人在過去12個月內（或本登記人應遞交此類文件的較短期間內）按照S-t條例第405條的規定，已經以電子方式提交每一份所需提交的互動資料檔案。
請以勾選的方式表明登記者是大型加速報告者、加速報告者、非加速報告者、較小的報告公司或新興成長公司。請參閱《交易所法》第120億2條中對「大型加速報告者」、「加速報告者」、「較小的報告公司」和「新興成長公司」的定義。
| 大型加速文件申報者 ☐ | 加速申報者 ☐ |
| 較小的報告公司 | |
| 新興成長型企業 |
如為新興成長企業，則應打勾選項表示申報人已選擇不使用交易所法第13(a)條所提供的任何新或修訂財務會計準則延長過渡期遵守。
請打勾表示公司是否為殼公司（根據《交易所法》第120億2條的定義）。是 ☐ 否
指明截至最近可行日期，註冊人每類普通股的已發行股份數量。
截至2024年11月12日，登記人持有未清償 股普通股。
表格 10-Q
指数
| 頁面 | |
| 第一部分：財務資訊 | |
| 項目一。財務報表（未經審核） | 2 |
| 合併資產負債表 | 2 |
| 綜合營運報表 | 3 |
| 合併股東權益變動報表 | 4 |
| 綜合現金流量報表 | 6 |
| 未經審核簡明合併財務報表附註 | 7 |
| 第二項。管理層對財務狀況及營運結果進行討論及分析 | 32 |
| 第三項。關於市場風險的定量和定性披露 | 41 |
| 第四項。控制和程序 | 41 |
| 第二部分其他資訊 | |
| 項目一。法律程序 | 42 |
| 第一項。風險因素 | 42 |
| 第二項。未登記出售股份證券及利用所得款項 | 42 |
| 第 3 項高級證券違約 | 43 |
| 第四項。礦山安全披露 | 43 |
| 第五項。其他資訊 | 43 |
| 第六項。展品 | 44 |
| 簽名 | 45 |
| i |
關於前瞻性聲明的注意事項
本10-Q表格包含前瞻性聲明。這些聲明涉及我們已知的風險、重大不確定性和其他因素，這些因素可能導致我們的實際結果、活動水平、表現或成就與未來結果、活動水平、表現或那些前瞻性聲明所暗示的有實質不同。
報告中使用的部分聲明構成"前瞻性聲明"，代表我們對未來事件的信仰、預測和預測。前瞻性聲明是指除了歷史事實陳述之外的所有聲明，包括涉及計劃、意圖、目標、目標、策略、希望、信念、預測、前景、期望或其他未來事件或績效特徵的聲明，以及這些聲明的基礎假設。"可能"、"可能"、"應"、"將"、"項目"、"打算"、"繼續"、"相信"、"預期"、"估計"、"預測"、"期望"、"計劃"、"潛力"、"機會"、"計劃"、"目標"和"未來"等詞，以及其他類似的術語和類似表達常常被用來識別前瞻性聲明。前瞻性聲明的例子包括但不限於以下聲明：
| ● | 我們的前景，包括未來的業務、營收、費用、凈利潤、每股收益、毛利率、盈利能力、現金流量、現金頭寸、流動性、財務狀況和營運結果，訂單和營收的積壓情況，我們的目標增長率，我們未來營收和盈利的目標，以及我們對於實現積壓營收及銷售管道中營收的期望； | |
| ● | 我們業務、財務狀況及營運結果受目前和未來經濟、業務、市場和監管條件的影響，包括目前的經濟和市場條件及其對我們客戶、客戶的資本支出、購買我們產品、服務、技術和系統的能力的影響； | |
| ● | 銷售波動對我們業務、營收、費用、凈利潤、每股收益、利潤率、盈利能力、現金流量、資本支出、流動性、財務狀況和營運結果的影響； | |
| ● | 我們的產品、服務、技術和系統，包括絕對品質和性能與競爭對手的比較，對我們客戶的好處以及滿足客戶需求的能力，我們成功開發和推廣新產品、服務、技術和系統的能力； | |
| ● | 我們的市場，包括我們的市場地位和我們的市場份額； | |
| ● | 我們成功開發、運營、成長和多元化我們的業務和業務的能力； | |
| ● | 我們的業務計劃、策略、目標和目標，以及我們成功實現它們的能力； | |
| ● | 我們資本資源的充足性，包括我們的現金及現金等價物、業務產生的資金、在我們的信貸和融資安排下可借款的可用性和其他資本資源，以滿足我們未來營運資金、資本支出、租約和債務償還、業務增長需求； | |
| ● | 我們的資產和業務價值，包括未來能夠產生的營業收入、利潤和現金流。 | |
| ● | 對我們業務運營、財務結果和商業收購、組合、銷售、聯盟、合作等類似業務交易和關係的影響。 | |
| ● | 行業趨勢和客戶偏好，以及我們產品、服務、技術和系統的需求。 | |
| ● | 我們競爭的性質和強度，以及我們在市場上成功競爭的能力。 |
這些 陳述必然是主觀的，基於我們當前的計畫、意圖、目標、策略、信念、預測 和期望，並涉及已知和未知的風險、不確定性以及其他重要因素，這些因素可能導致我們的實際結果、 績效或成就，或行業的結果，與這些陳述中描述或暗示的任何未來結果、績效或成就顯著不同。實際結果可能會顯著不同於我們前瞻性陳述中所描述的預期結果， 包括與正確測量和識別影響我們業務的因素或這些因素可能影響的程度、 關於我們的業務策略所依賴的因素的公開資訊的準確性和完整性， 或我們業務的成功。此外，行業預測在長期內可能會不準確。
前瞻性陳述不應被視為未來表現或結果的保證，也不一定能準確指示我們的表現或結果是否能夠達到，或達到的時間。前瞻性陳述是基於在發表這些聲明時的可用資訊，以及當時管理層對未來事件的信念，並受到可能導致實際表現或結果與前瞻性陳述中所表達或暗示的表現有重大差異的風險和不確定性的影響。可能導致實際結果、我們的表現或成就，或行業結果與這些前瞻性陳述所考慮的差異的重要因素包括，但不限於，在我們根據1933年修訂的證券法第424(b)(4)條提出的向SEC提交的招股書中討論的那些標題下的"風險因素"。
第一部分：財務資訊
項目 1. 基本報表
Safe Pro Group Inc.（下稱“公司”、“我們”或“我們的”）截至2024年9月30日三個月和九個月的未經審計的簡明綜合基本報表，以及前一年相應期間的基本報表如下。這些基本報表應與後續的簡明綜合基本報表附註一同閱讀。
安全 PRO集團公司及其子公司
簡明的 合併資產負債表截至
| 2024年9月30日 | 2023年12月31日 | |||||||
| (未經查核) | ||||||||
| 資產 | ||||||||
| 流動資產: | ||||||||
| 現金 | $ | $ | ||||||
| 應收賬款 | ||||||||
| 存貨 | ||||||||
| 預付費用及其他流動資產 | ||||||||
| 流動資產總額 | ||||||||
| 不動產及設備，淨額 | ||||||||
| 使用權，淨值 | ||||||||
| 商譽 | ||||||||
| 無形資產，扣除累計攤銷 | ||||||||
| 保證金 | ||||||||
| 其他總資產 | ||||||||
| 總資產 | $ | $ | ||||||
| 負債及股東權益 | ||||||||
| 流動負債： | ||||||||
| 應付賬款 | $ | $ | ||||||
| 應計費用 | ||||||||
| 應計的薪資和福利費用 | ||||||||
| 合同負債 | ||||||||
| 可轉換票據應付，扣除折扣後的淨額 | ||||||||
| 因為關聯方 | ||||||||
| 202,614 | ||||||||
| 流動負債總額 | ||||||||
| 長期負債: | ||||||||
| 應付款項 - 長期 | ||||||||
| 租賃負債 - 長期 | ||||||||
| 長期負債總額 | ||||||||
| 總負債 | ||||||||
| 承諾與或有事項（見第11註釋） | ||||||||
| 股東權益： | ||||||||
| 每股面額$面值； 授權的股票數量 | ||||||||
| A系列優先股； 指定股份， 和 於2024年9月30日和2023年12月31日，分別發行和流通的股份。 | ||||||||
| 優先股系列B； 指定的股份， 和 截至2024年9月30日及2023年12月31日已發行及流通的股份。 | ||||||||
| 採納新會計準則 par value, 授權的股份； 和 2024年9月30日和2023年12月31日分別發行並流通的股份 | ||||||||
| 資本公積額額外增資 | ||||||||
| 累積虧損 | ( | ) | ( | ) | ||||
| 股東權益總額 | ||||||||
| 負債和股東權益總額 | $ | $ | ||||||
請參閱未經審核的簡明綜合財務報表附註。
| 2 |
安全 PRO GROUP INC.及其附屬公司
未經審核 簡明列出的合並經營結果報表
| 結束的三個月 | 九個月結束 | |||||||||||||||
| 九月三十日， | 九月三十日， | 九月三十日， | 九月三十日， | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 營業收入： | ||||||||||||||||
| 產品銷售 | $ | $ | $ | $ | ||||||||||||
| 服務 | ||||||||||||||||
| 總收入 | ||||||||||||||||
| 營收成本： | ||||||||||||||||
| 產品銷售 | ||||||||||||||||
| 服務 | ||||||||||||||||
| 折舊費用 | ||||||||||||||||
| 總收益成本 | ||||||||||||||||
| 毛利潤 | ||||||||||||||||
| 營運費用： | ||||||||||||||||
| 薪金、工資和薪資稅 | ||||||||||||||||
| 研發 | ||||||||||||||||
| 專業服務 | ||||||||||||||||
| 銷售、一般及行政費用 | ||||||||||||||||
| 折舊及攤銷 | ||||||||||||||||
| 總營運費用 | ||||||||||||||||
| 營業損失 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 其他收入（費用）： | ||||||||||||||||
| 利息收入 | ||||||||||||||||
| 利息支出 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 總其他費用，淨額 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 淨損失 | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 普通股的基本及稀釋每股虧損 | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| 普通股權基本及稀釋加權平均股數 | ||||||||||||||||
請參閱未經審核的簡明綜合財務報表附註。
| 3 |
安全 PRO集團公司及其子公司
未經審計的簡明綜合股東權益變動表
截至2024年9月30日的九個月
系列 A 優先股 股票 | 系列 b 優先股 股票 | 普通 股 | 追加 | 總計 | ||||||||||||||||||||||||||||||||
# 股數 股數 | 金額 | # 的 股份 | 金額 | # 的 股份 | 金額 | 已繳資本 Capital | Accumulated Deficit | Shareholders’ Equity | ||||||||||||||||||||||||||||
| 2023年12月31日 餘額 | $ | $ | $ | $ | $ | ( | ) | $ | | |||||||||||||||||||||||||||
| Issuance of common shares for stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||
| Issuance of common shares for services | - | - | ||||||||||||||||||||||||||||||||||
| 發行普通股及warrants以籌集現金 | - | - | ||||||||||||||||||||||||||||||||||
| 發行普通股以配發A系列優先股 | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||
| 發行普通股以配發B系列優先股 | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||
| 發行普通股以籌集現金 | - | - | ||||||||||||||||||||||||||||||||||
| 與可轉換債務一起發行的warrants的相對公平價值 | - | - | ||||||||||||||||||||||||||||||||||
| 從債務轉換而發行的普通股 | ||||||||||||||||||||||||||||||||||||
| 淨 損失 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| 截至2024年9月30日結餘 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
截至2023年9月30日的九個月
系列 A 優先股 股票 | 系列 b 優先股 股票 | 普通 股 | 追加 | 總計 | ||||||||||||||||||||||||||||||||
# 的 股份 | 金額 | # 股份 股數 | 金額 | # 股份 股數 | 金額 | 實收資本 資本 | 累積 赤字 | 股東的 權益 | ||||||||||||||||||||||||||||
| 2022年12月31日的結餘 | $ | $ | $ | $ | $ | ( | ) | $ | | |||||||||||||||||||||||||||
| 基於資產收購發行的普通股 | - | - | ||||||||||||||||||||||||||||||||||
| 關於限制性股票獎勵的股票補償 | - | - | ||||||||||||||||||||||||||||||||||
| 為現金發行的普通股和認股權單位 | - | - | ||||||||||||||||||||||||||||||||||
| 股票補償和專業費用的增值 | - | - | - | |||||||||||||||||||||||||||||||||
| 淨 損失 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| 2023年9月30日結餘 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
請參閱附註以了解未經審核的簡明綜合基本報表
| 4 |
截至2024年9月30日三個月的結束
系列 A 優先股 股票 | 系列 b 優先股 股票 | 普通 股票 | 追加 | 總計 | ||||||||||||||||||||||||||||||||
# 的 股份 | 金額 | # 數量 股份 | 金額 | # 數量 股份 | 金額 | 實收資本 資本 | 累積 赤字 | 股東的 權益 | ||||||||||||||||||||||||||||
| 2024年6月30日 餘額 | $ | $ | $ | $ | $ | ( | ) | $ | | |||||||||||||||||||||||||||
| 發行 以股票作為補償的普通股 | - | - | ||||||||||||||||||||||||||||||||||
| 發行 普通股以提供服務 | ||||||||||||||||||||||||||||||||||||
| 發行 普通股和warrants以換取現金 | - | - | - | |||||||||||||||||||||||||||||||||
| 發行 普通股以換取優先A系列 | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||
| 發行 普通股以換取優先B系列 | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| 發行 普通股以換取現金 | - | - | ||||||||||||||||||||||||||||||||||
| 發行 普通股以償還債務 | ||||||||||||||||||||||||||||||||||||
| 淨 損失 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| 截至2024年9月30日結餘 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
截至2023年9月30日的三個月
A級優先股 股票 | B級優先股 股票 | 普通 股 | 追加 | 總計 | ||||||||||||||||||||||||||||||||
數量 的 股份 | 金額 | # 數量 股份 | 金額 | # 數量 股份 | 金額 | 實收資本 資本 | 累積 赤字 | 股東的 權益 | ||||||||||||||||||||||||||||
| 餘額，2023年6月30日 | $ | $ | $ | $ | $ | ( | ) | $ | | |||||||||||||||||||||||||||
| 普通股份和認股權單位發行以換取現金 | - | - | ||||||||||||||||||||||||||||||||||
| 淨 損失 | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| 2023年9月30日結餘 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
參閱未經審計的簡明綜合財務報表附註。
| 5 |
安全 專業集團公司及其子公司
未經審核 資金流量匯總表
| 截至九個月結束 | ||||||||
| 九月三十日， | ||||||||
| 2024 | 2023 | |||||||
| 營業活動之現金流量： | ||||||||
| 淨損失 | $ | ( | ) | $ | ( | ) | ||
| 調整為使淨虧損轉化為經營活動所使用現金： | ||||||||
| 折舊和攤銷費用 | ||||||||
| 股票為基礎的補償 | ||||||||
| 債務折價攤銷 | ||||||||
| 營運資產及負債的變動： | ||||||||
| 應收賬款 | ( | ) | ( | ) | ||||
| 存貨 | ( | ) | ( | ) | ||||
| 預付費用及其他資產 | ( | ) | ||||||
| 應付賬款 | ||||||||
| 應計費用 | ( | ) | ||||||
| 合同負債 | ( | ) | ||||||
| 租賃負債 | ( | ) | ||||||
| 應付補償 | ( | ) | ||||||
| 營運活動中的凈現金支出 | ( | ) | ( | ) | ||||
| 投資活動產生的現金流量: | ||||||||
| 購買不動產和設備 | ( | ) | ( | ) | ||||
| 投資於無形科技 | ( | ) | ||||||
| 投資活動中的凈現金支出 | ( | ) | ( | ) | ||||
| 融資活動產生的現金流量: | ||||||||
| 可轉換應付票據的收益 | ||||||||
| 應付票據款項收益 | ||||||||
| 應付票據的償還 | ( | ) | ||||||
| 普通股和warrants的出售收入 | ||||||||
| 來自發行普通股的出售收入 | ||||||||
| 應還相關方的還款 | ( | ) | ( | ) | ||||
| 籌集資金活動提供的淨現金 | ||||||||
| 現金的淨增加（減少） | ( | ) | ||||||
| 期初現金 | ||||||||
| 期末現金 | $ | $ | ||||||
| 現金流資訊的補充性披露 | ||||||||
| 支付現金： | ||||||||
| 利息 | $ | $ | ||||||
| 所得稅 | $ | $ | ||||||
| $ | ||||||||
| 無形資產和權益增加，用於資產收購。 | $ | $ | ||||||
| 發行普通股和權益，用於可轉債務。 | $ | $ | ||||||
| 發行普通股以支付應計利息 | $ | $ | ||||||
| 增加額外的股本以將優先股轉換為普通股 | $ | $ | ||||||
| 增加債務折扣和額外資本金 | $ | $ | ||||||
See accompanying unaudited notes to the consolidated financial statements.
| 6 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
NOTE 1 - NATURE OF ORGANIZATION
Safe Pro Group. Inc. (the “Company”) is a Delaware corporation organized on December 15, 2021 under the name of Cybernate Corp and started doing business on January 1, 2022. On July 13, 2022, the Company changed its name from Cybernate Corp. to Safe Pro Group Inc. Through a layered approach to the development and integration of advanced artificial intelligence and machine learning, drone-based remote sensing technologies and services, and personal protective gear, the Company has acquired companies with unique safety and security technologies and solutions that can provide governments, enterprises and non-government organizations with innovative solutions designed to respond to evolving threats.
On June 7, 2022 and amended on October 27, 2022, May 12, 2022, August 15, 2023, August 26, 2023 and April 11, 2024, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with (i) Safe-Pro USA, LLC. (“Safe-Pro USA”), a Florida limited liability company organized on November 19, 2008, (ii) the members of Safe-Pro USA (the “Safe-Pro USA Members”), and (iii) the Representative of the Safe-Pro USA Members. Pursuant to the Exchange Agreement, the Company acquired % of the Safe-Pro USA Members units, representing % of Safe-Pro USA’s issued and outstanding member interests (the “Safe Pro USA Member Interests”). On June 7, 2022, the Company closed the Exchange Agreement and acquired % of the Safe-Pro USA Member Interests. The Safe-Pro USA Member Interests were exchanged for shares of the Company’s Series A preferred stock. Safe-Pro USA is a premier manufacturer and seller of high-performance ballistics solutions, including ballistic protective equipment, consisting of explosive ordinance disposal and unexploded ordinance disposal products, ballistic vests, body armor, helmets, ballistic blankets, and more.
On
August 29, 2022, the Company entered into an Acquisition Agreement (the “Acquisition Agreement”) with (i) Airborne Response
Corp. (“Airborne Response”), a company incorporated under the laws of the State of Florida on September 7, 2016 under the
name of Airborne Response, LLC. and (ii) the shareholders of Airborne Response. On March 21, 2022, Airborne Response, LLC changed its
name to Airborne Response Corp. and converted from a limited liability company to a corporation. Pursuant to the Acquisition Agreement,
the Company acquired
On March 9, 2023 (the “Closing Date”), the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with (i) Safe Pro AI LLC (“Safe Pro AI”), organized under the state of New York on February 22, 2021, under the name of Demining Development LLC. and (ii) the members of Safe Pro AI. Pursuant to the Share Exchange Agreement, the Company acquired % of the member interests of Safe Pro AI in exchange for shares of the Company’s common stock, which shares vested on September 9, 2023 and remaining shares were to vest as follows: shares twelve-month anniversary of the Closing Date, on the eighteen-month anniversary of the Closing Date, and on the twenty-four-month anniversary of the Closing Date. On December 31, 2023, the Company’s board of directors approved the vesting of the remaining shares. Safe Pro AI owns certain software technologies that enable the rapid, automated processing of aerial and ground-based imagery making it an ideal solution for several applications including demining and in law enforcement and security. These shares were valued at $, or $ per share, on the measurement date based on recent sales of units of common stock and warrants. Other than owning certain technologies, Safe Pro AI had no operations and no employees and was not considered a business. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the Exchange Agreement and the business of Safe Pro AI to determine if the Company acquired a business or acquired assets. Based on this analysis, it was determined that the Company acquired assets. No goodwill was recorded since the Exchange Agreement was accounted for as an asset purchase. In accordance with ASC 805, the fair value of the assets acquired is based on either the fair value of the consideration given or the fair value of the assets acquired, whichever is more clearly evident, and thus, more reliably measurable. The Company used the fair value of the common shares issued of $ as the fair value of the assets acquired since this value was more clearly evident, and thus, more reliably measurable than the fair value of the software technologies acquired.
| 7 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, Safe-Pro USA since its acquisition on June 7, 2022, Airborne Response since its acquisition on August 29, 2022 and Safe Pro AI since its acquisition on March 9, 2023. All intercompany accounts and transactions have been eliminated in consolidation.
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 accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) for interim financial information and with the instructions Article 8-03 of Regulation S-X. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole.
Certain information and note disclosure normally included in consolidated financial statements prepared in accordance with U.S. GAAP has been condensed or omitted from these statements pursuant to such accounting principles and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to the consolidated financial statements for the years ended December 31, 2023 and 2022 of the Company which is included in our Registration Statement on Form S-1 on July 19, 2024.
Liquidity
As
reflected in the accompanying unaudited condensed consolidated financial statements; the Company generated a net loss of $
The IPO net proceeds serve to mitigate the conditions that historically raised substantial doubt about the Company’s ability to continue as a going concern. 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.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates during the three and nine months ended September 30, 2024 and 2023, include estimates for allowance for credit losses on accounts receivable and other receivables, estimates for obsolete or slow-moving inventory, the useful life of property and equipment, the valuation of assets acquired in an asset acquisition, the valuation of intangible assets and goodwill to determine any impairment, the estimate of the fair value of lease liabilities and related right of use assets, assumptions used in assessing impairment of long-lived assets, estimates related to the allocation of the transaction price for revenue recognition purposes, estimates of current and deferred income taxes and deferred tax valuation allowances, and the fair value of non-cash equity transactions.
| 8 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Fair value of financial instruments and fair value measurements
The Company measures and discloses the fair value of assets and liabilities to be carried at fair value in accordance with ASC 820 – Fair Value Measurements. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on the reporting dates. Accordingly, the estimates presented in these unaudited condensed consolidated financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash, accounts and other receivables, inventory, prepaid expenses and other current assets, notes and convertible notes payable, accounts payable, accrued expenses, contract liabilities, accrued compensation and benefits and due to related parties approximate their fair market value based on the short-term maturity of these instruments.
“ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding instruments.
Risks and uncertainties
The
Company’s cash is held at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation (“FDIC”)
limit. In August 2024, the Company has entered into a deposit placement agreement for Insured Cash Sweep Service (“ICS”).
This service is a secure, and convenient way to access FDIC protection on large deposits and earn a return. This service provides for
deposits in excess of $
The Company’s results of operations could be adversely affected by general conditions in the global economy and in the global financial markets, including conditions that are outside of its control, including the impact of health and safety concerns, such as the war in Ukraine and the Middle East. The most recent global financial crisis caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including weakened demand for the Company’s products and services and its ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could strain the Company’s domestic and international customers, possibly resulting in delays in customer payments. Any of the foregoing could harm the Company’s business and it cannot anticipate all the ways in which the current economic climate and financial market conditions could adversely impact the Company’s business.
| 9 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Business acquisitions
The Company accounts for business acquisitions using the acquisition method of accounting where the assets acquired, and 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 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 unaudited condensed consolidated statements of operations, if any.
Cash and cash equivalents
For
purposes of the statements of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less
at the purchase date and money market accounts to be cash equivalents. The Company has
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 credit losses related to accounts receivable and other receivables is recognized in selling, general and administrative expenses.
Inventory
Inventory, consisting of finished goods, work in process and raw materials, are stated at the lower of cost and net realizable value utilizing the first-in, first-out (FIFO) method. A reserve is established when management determines that certain inventories may not be saleable. If inventory costs exceed the expected net realizable value due to obsolescence or quantities in excess of expected demand, the Company will record reserves for the difference between the cost and the net realizable value. These reserves are recorded based on estimates and are included in the cost of sales.
Property and equipment
Property
and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, which range from
to
| 10 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
The estimated useful lives of property and equipment are generally as follows:
| Years | ||
| Manufacturing equipment | ||
| Drones and related equipment | ||
| Furniture, fixtures and office equipment |
Capitalized internal-use software
Costs
incurred to develop internal-use software are expensed as incurred during the preliminary project stage. Internal-use software development
costs are capitalized during the application development stage, which is after: (i) the preliminary project stage is completed; and (ii)
management authorizes and commits to funding the project and it is probable the project will be completed and used to perform the function
intended. Capitalization ceases at the point the software project is substantially complete and ready for its intended use, and after
all substantial testing is completed. Upgrades and enhancements are capitalized if it is probable that those expenditures will result
in additional functionality. Amortization is provided for on a straight-line basis over the expected useful life of the internal-use
software development costs and related upgrades and enhancements, which currently is five years. When existing software is replaced with
new software, the unamortized costs of the old software are expensed when the new software is ready for its intended use. During the
nine months ended September 30, 2024 and 2023, the Company capitalized $
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.
See Note 7 for additional information regarding intangible assets and goodwill.
| 11 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
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.
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.
Safe-Pro USA
The Company 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.
For a Bangladesh customer for which Safe-Pro USA historically derived a significant portion of its revenue (see Note 12), the Company has identified two performance obligations:
| 1) | The sale and delivery of safety equipment, ballistic and bomb vests, helmets, and other equipment. | |
| 2) | Training and final inspections related to the sale of the equipment. |
The Company estimated the allocation of the transaction price to each of the above performance obligations since it does not have evidence of the standalone selling process, which is summarized as follows:
| ● | Performance
Obligation 1 - Historically, the Company has received | |
| ● | Performance
Obligation 2 - |
In
connection with the revenue associated with the significant customer discussed above, the Company shall pay a commission of approximately
10% of the amounts collected to local agents that assist with the facilitation of training, shipment, and documentation. For the nine
months ended September 30, 2024 and 2023, there were $
| 12 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Revenue from other Safe-Pro USA customers is generally recognized at the time of shipment, which is the time that the Company satisfies its performance obligations.
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 will sell subscriptions 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 demining, in law enforcement and security. The Company’s SaaS offerings shall be sold under a 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.
Contract liabilities
Advance
payments received from customers, as well as unpaid amounts that customers are contractually obligated to pay, are deferred until all
revenue recognition criteria are satisfied. As of September 30, 2024 and December 31, 2023, customer advanced payments amounted to $
Product warranties
The Company’s subsidiary, Safe-Pro USA, provides product warranties on its equipment or components of equipment sold from one to five years. For Safe-Pro USA’s significant customer, Safe-Pro USA provides product warranties of twelve months from the date of receipt of the inspection note, which should occur after the completion of performance obligation 2 discussed above under the revenue recognition policy footnote. 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.
Cost of sales
The cost of sales includes the cost of labor and fringe benefits, sub-contractor costs, production costs, supplies and materials, freight, production, services and related depreciation, and other direct and indirect costs.
| 13 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Advertising costs
All
costs related to advertising of the Company’s services and products are expensed in the period incurred. For the three and nine
months ended September 30, 2024 and 2023, advertising costs charged to operations for the three and nine months ended September 30, 2024
were $
Federal and state income taxes
The Company accounts for income tax using the liability method prescribed by ASC 740, “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”.
Using that guidance, tax positions initially need to be recognized in the consolidated financial statements when it is more likely than
not the position will be sustained upon examination by the tax authorities. As of September 30, 2024 and December 31, 2023, the Company
had
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.
ASC 260 “Earnings Per Share”, requires dual presentation of basic and diluted earnings (loss) per common share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilutive securities and non-vested forfeitable shares. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares or resulted in the issuance of common shares that then shared in the earnings of the entity. Basic net loss per common share is computed by dividing net loss available to shareholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares, common share equivalents and potentially dilutive securities outstanding during each period. Potentially dilutive common shares were excluded from the computation of diluted shares outstanding for the nine months ending September 30, 2024 and 2023, as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:
| September 30, 2024 | September 30, 2023 | |||||||
| Stock warrants (1) | ||||||||
| Common shares issuable upon conversion of Series A Preferred | ||||||||
| Common shares issuable upon conversion of Series B Preferred | ||||||||
| Non-vested forfeitable shares | ||||||||
| Total | ||||||||
| (1) |
| 14 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
The Company has Series A Preferred and Series B Preferred shares authorized. On August 28, 2024, Series A Preferred and Series B Preferred shares were converted into and common shares respectively. During the three and nine months ending September 30, 2024 and September 30, 2023, the Company had Series A Preferred and Series B Preferred shares issued and outstanding and Series A Preferred and Series B Preferred shares issued and outstanding, respectively. (See Note 10).
Segment reporting
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 and nine months ended September 30, 2024 and 2023, the Company operated in
Leases
The Company accounts for its leases using the method prescribed by ASC 842 – Lease Accounting. The Company assess whether the contract is, or contains, a lease at the inception of a contract which is based on (i) whether the contract involves the use of a distinct identified asset, (ii) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (iii) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments. The Company has elected not to recognize right-of-use (“ROU”) assets and lease liabilities for short-term leases that have a term of 12 months or less.
Operating and financing lease ROU assets represents the right to use the leased asset for the lease term. Operating and financing lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the unaudited condensed consolidated statements of operations.
Recent accounting pronouncements
In August 2020, FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40), (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The adoption of ASU 2020-06 on January 1, 2024 had no impact on the Company’s consolidated financial statements
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
| 15 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
NOTE 3 – ACQUISITION
Safe Pro AI
On March 9, 2023 (the “Closing Date” and measurement date), the Company entered into and closed on a Share Exchange Agreement (the “Share Exchange Agreement”) with (i) Safe Pro AI and (ii) the members of Safe Pro AI. Pursuant to the Share Exchange Agreement, the Company acquired % of the member interests of Safe Pro AI in exchange for shares of the Company’s common stock, which shares vested on September 9, 2023 and remaining shares were to vest as follows: shares twelve-month anniversary of the Closing Date, on the eighteen-month anniversary of the Closing Date, and shares on the twenty-four-month anniversary of the Closing Date. On December 31, 2023, the Company’s board of directors approved the vesting of the remaining shares. Safe Pro AI owns certain software technologies that enables the rapid, automated processing of aerial and ground-based imagery making it an ideal solution for a number of applications including demining and in law enforcement and security. These shares were valued at $, or $ per share, on the measurement date based on recent sales of units of common stock and warrants. Other than owning certain technologies, Safe Pro AI had no operations or no employees and was not considered a business. Pursuant to ASU 2017-01 and ASC 805, the Company analyzed the Exchange Agreement and the business of Safe Pro AI to determine if the Company acquired a business or acquired assets. Based on this analysis, it was determined that the Company acquired an asset. No goodwill was recorded since the Exchange Agreement was accounted for as an asset purchase. In accordance with ASC 805, the fair value of the assets acquired is based on either the fair value of the consideration given or the fair value of the assets acquired, whichever is more clearly evident, and thus, more reliably measurable. The Company used the fair value of the common shares issued of $ as the fair value of the assets acquired since this value was more clearly evident, and thus, more reliable measurable than the fair value of the software acquired. This acquisition was treated as an asset acquisition under ASC 805 “Business Combinations” since Safe Pro AI did not meet the definition of a business under ASC 805. ACS 805 requires the use of the relative fair value method for asset acquisitions to allocate the purchase price, however, since only a single software asset was acquired, the entire purchase price was allocated to this asset.
NOTE 4 – ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
Accounts receivable
On September 30, 2024 and December 31, 2023, accounts receivable consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ||||||||
| Accounts receivable, net | $ | $ | ||||||
For
the three and nine months ended September 30, 2024 and 2023, the Company recorded $
Performance bond receivable
On September 30, 2024 and December 31, 2023, other receivables consisted solely of performance bond receivables as follows:
| September 30, 2024 | December 31, 2023 | |||||||
| Other receivables | $ | $ | ||||||
| Less: allowance for doubtful other receivables | ( | ) | ( | ) | ||||
| Other receivables, net | $ | $ | ||||||
| 16 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
In
relation to Safe-Pro USA’s historically significant customer, Safe-Pro USA was required to obtain a Performance Guarantee (PG)
at a bank designated by the customer. The amount of each separate Performance Guarantee is
NOTE 5 – INVENTORY
On September 30, 2024 and December 31, 2023, inventories consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Less reserve for obsolete inventory | ||||||||
| Total | $ | $ | ||||||
NOTE 6 – PROPERTY AND EQUIPMENT
On September 30, 2024 and December 31, 2023, property and equipment consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Manufacturing equipment | $ | $ | ||||||
| Drones and related equipment | ||||||||
| Furniture, fixtures and office equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
For
the three and nine months ending September 30, 2024, depreciation expense amounted to $
NOTE 7 – INTANGIBLE ASSETS AND GOODWILL
Intangible assets
As
a result of the acquisition of Safe Pro AI on March 9, 2023, there was a $
On
June 30, 2024, the Company capitalized $
As of September 30, 2024, intangible assets subject to amortization consisted of the following:
| September 30, 2024 | |||||||||||||||
| Amortization period (years) | Gross Amount | Accumulated Amortization | Net finite intangible assets | ||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | ||||||||||
| Contractual employment agreements | ( | ) | |||||||||||||
| Acquired capitalized internal-use software development costs | ( | ) | |||||||||||||
| $ | $ | ( | ) | $ | |||||||||||
For
the three and nine months ended September 30, 2024, amortization of intangible assets amounted to $
| 17 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
As of December 31, 2023, intangible assets subject to amortization consisted of the following:
| December 31, 2023 | |||||||||||||||
| Amortization period (years) | Gross Amount | Accumulated Amortization | Net finite intangible assets | ||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | ||||||||||
| Contractual employment agreements | ( | ) | |||||||||||||
| Acquired capitalized internal-use software development costs | |||||||||||||||
| $ | $ | ( | ) | $ | |||||||||||
Goodwill
On September 30, 2024 and December 31, 2023, goodwill consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Safe-Pro USA | $ | $ | ||||||
| Airborne Response | ||||||||
| Total goodwill | $ | $ | ||||||
Amortization of intangible assets with finite lives attributable to future periods is as follows:
| Year ending September 30: | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 and after | ||||
| Total | $ | |||
NOTE 8 – NOTE PAYABLE
On
September 30, 2020, Safe-Pro USA entered into a Loan and Authorization Agreement (the “SBA COVID-19 EIDL Loan”) with respect
to a loan of $
| 18 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
On
June 17, 2024, the Company entered into a promissory note with an investor for $
On September 30, 2024 and December 31, 2023, note payable consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Notes payable | $ | $ | ||||||
| Less: current portion of notes payable | ||||||||
| Notes payable – long-term | $ | $ | ||||||
The following schedule provides minimum future note payable principal payments required during future periods:
| Year ending September 30: | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| Thereafter | ||||
| Total note payable | $ | |||
NOTE 9 – CONVERTIBLE NOTES PAYABLE
On
December 27, 2023, the Company entered into convertible debt agreements with an investor pursuant to which the Company issued and sold
to the Investor (i) a convertible note in the principal amount of $
The
During
March 2024, the Company entered into convertible debt agreements with investors pursuant to which the Company issued and sold to the
Investors (i) convertible notes in the principal amount of $
The
The December 2023 Convertible Note, March 2024 Convertible Notes, December 2023 Warrants, and March 2024 Warrants contain conversion limitations providing that a holder thereof may not convert the Notes or exercise the Warrants to the extent (but only to the extent) that, if after giving effect to such conversion, the holder or any of its affiliates would beneficially own in excess of 4.9% of the outstanding shares of the Company’s common stock immediately after giving effect to such conversion or exercise.
During
the three and nine months ended September 30, 2024, amortization of debt discount, which is reflected in interest expense on the accompanying
consolidated statements of operations, amounted to $
On
August 27, 2024, the December 2023 Convertible Note and March 2024 Convertible Notes with principal balances of $
On September 30, 2024 and December 31, 2023, convertible notes payable consisted of the following:
| September 30, 2024 | December 31, 2023 | |||||||
| Convertible notes payable | $ | $ | ||||||
| Less: debt discount | ( | ) | ||||||
| Convertible notes payable, net | ||||||||
| Less: current portion of convertible notes payable | ( | ) | ||||||
| Convertible notes payable – long-term | $ | $ | ||||||
NOTE 10 – STOCKHOLDERS’ EQUITY
Preferred Stock
Series A Preferred Stock
On June 7, 2022, the Company’s board of directors approved an Amendment to its Articles of Incorporation to designate a series of preferred stock, the Series A Convertible Preferred Stock (the “Series A Preferred”). The Series A Preferred Certificate of Designation became effective on January 20, 2023, with the Secretary of State of the State of Delaware. The Certificate of Designations established shares of the Series A Preferred, par value $, having such designations, preferences, and rights as determined by the Company’s Board of Directors in its sole discretion, in accordance with the Company’s Articles of Incorporation and Amended and Restated Bylaws.
| 19 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Each share of Series A Preferred has an initial stated value of $ per share. On August 28, 2023, the Company amended its Series A Preferred Certificate of Designation to amend the Series A Stated Value to $ per share (the “Series A Stated Value”).
The holders of the Series A Preferred Stock shall have conversion rights as follows. Each share of Series A Preferred is convertible into the number of common shares equal to the Series A Stated Value divided by the Fair Market Value of the common stock. The Series A Stated Value is $ per share and the Fair Market Value is equal to the average of the closing price for the Company’s common stock on a National Market Exchange, for the 20 trading days prior to conversion or in the case of an initial public offering the initial listing price which is $ per share. Series A Preferred has voting rights equal to the number of common shares into which it may convert. The conversion rights of Preferred Series A were contingent upon the Company’s completion of the initial public offering and/or listing on a National Market Exchange.
The holders of the Series A Preferred shall be entitled to any dividend that is payable to the holders of the Company’s common stock. The holders of the Series A Preferred then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A Preferred in an amount at least equal to (i) in the case of a dividend on common stock or any class or series that is convertible into common stock, that dividend per Share of Series A Preferred as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common stock and (B) the number of shares of common stock issuable upon conversion of a share of Series A Preferred, in each case calculated on the record date for determination of holders entitled to receive such dividend.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, each share of Series A Preferred shall automatically be converted into shares of the Company’s common stock at the then applicable conversion rate determined in accordance with the Series A Preferred Certificate of Designation. In the case of a Deemed Liquidation Event, as defined in the Certificate of Designation, each share of Series A Preferred shall automatically be converted into shares of common stock at the then applicable conversion rate, except that the Series A Conversion Price was equal to the per share Series A Stated Value, as amended.
The Series A Preferred contains certain protection provisions, as defined.
In any matter presented to the shareholders of the Company for their action or consideration at any meeting of shareholders of the Company (or by written consent of shareholders in lieu of meeting), each holder of outstanding shares of Series A Preferred shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A Preferred held by such holder are convertible as of the record date for determining shareholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Articles of Incorporation, holders of Series A Preferred shall vote together with the holders of common stock as a single class.
The Series A Preferred were evaluated to determine whether temporary or permanent equity classification on the consolidated balance sheet was appropriate. As per the terms of the Series A Preferred Certificate of Designation, Series A Preferred is not redeemable for cash. As such, the Series A Preferred is classified as permanent equity. The Company concluded that the conversion rights under the Series A Preferred were clearly and closely related to the equity host instrument. Accordingly, the conversion rights feature on the Series A Preferred were not considered an embedded derivative that required bifurcation.
On
June 7, 2022, in connection with the acquisition of
On August 28, 2024, in conjunction with the Company’s initial public offering, the Series A Preferred shares were converted into shares of common stock.
| 20 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Series B Preferred Stock
On August 29, 2022, the Company’s board of directors approved an Amendment to its Articles of Incorporation to designate a series of preferred stock, the Series B Convertible Preferred Stock (the “Series B Preferred”). The Series B Preferred Certificate of Designation became effective on January 30, 2023, with the Secretary of State of the State of Delaware. The Series B Preferred Certificate of Designations established shares of the Series B Preferred, par value $, having such designations, preferences, and rights as determined by the Company’s Board of Directors in its sole discretion, in accordance with the Company’s Articles of Incorporation and Amended and Restated Bylaws.
Each share of Series B Preferred shall have a stated value of $ per share (the “Series B Stated Value”).
The holders of the Series B Preferred Stock shall have conversion rights as follows. Each share is convertible into that number of common shares equal to the Series B Stated Value divided by the Fair Market Value of the common stock. The Series B Stated Value is $ per share and the Fair Market Value is equal to the average of the closing price for the Company’s common stock, a National Market Exchange, for the 20 trading days prior to conversion or in the case of an initial public offering the initial listing price. The Series B Preferred has voting rights equal to the number of common shares into which it may convert. The conversion rights of Series B Preferred are contingent upon the Company’s completion of the initial public offering and/or listing on a National Market Exchange.
The holders of the Series B Preferred shall be entitled to any dividend that is payable to the holders of the Company’s common stock. The holders of the Series B Preferred then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series B Preferred in an amount at least equal to (i) in the case of a dividend on common stock or any class or series that is convertible into common stock, that dividend per Share of Series B Preferred as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common stock and (B) the number of shares of common stock issuable upon conversion of a share of Series A Preferred, in each case calculated on the record date for determination of holders entitled to receive such dividend.
In
the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, each share of Series B Preferred shall
automatically be converted into shares of the Company’s common stock at the then applicable conversion rate determined in accordance
with the Series B Preferred Certificate of Designation. In the case of a Deemed Liquidation Event, as defined in the Certificate of Designation,
each share of Series B Preferred shall automatically be converted into shares of common stock at the Series B Conversion Price equal
to $
In any matter presented to the shareholders of the Company for their action or consideration at any meeting of shareholders of the Company (or by written consent of shareholders in lieu of meeting), each holder of outstanding shares of Series B Preferred shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series B Preferred held by such holder are convertible as of the record date for determining shareholders entitled to vote on such matter. Except as provided by law or by the other provisions of the Articles of Incorporation, holders of Series B Preferred shall vote together with the holders of common stock as a single class.
The Series B Preferred also contains certain protection provisions, as defined.
The Series B Preferred were evaluated to determine whether temporary or permanent equity classification on the consolidated balance sheet was appropriate. As per the terms of the Series B Preferred Certificate of Designation, Series B Preferred is not redeemable for cash. As such, the Series B Preferred is classified as permanent equity. The Company concluded that the conversion rights under the Series B Preferred were clearly and closely related to the equity host instrument. Accordingly, the conversion rights feature on the Series B Preferred were not considered an embedded derivative that required bifurcation.
On
August 29, 2022, in connection with the acquisition of
On August 27, 2024, in conjunction with the Company’s initial public offering, the Series B Preferred shares were converted into shares of common stock.
| 21 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Common Stock
On August 29, 2024, the Company consummated its initial public offering (“IPO”), shares of common stock were offered at $ per share, pursuant to the Company’s registration statement on Form S-1 (File No. 333-280599), as amended (the “Registration Statement”).
Common stock issued for stock based compensation
2024
On January 9, 2024, the Company issued restricted common shares to a director for services rendered pursuant to a board of directors’ agreement (See Note 11). The Company valued these common shares at the fair value of $, or $ per share based on sales of common stock units in recent private placements.
On June 24, 2024, the Company issued restricted common shares to consultants for services rendered. The Company valued these common shares at $ or $ per share based on sales of common stock units in recent private placements.
On August 29, 2024, the Company issued restricted common shares to consultants for services rendered. The Company valued these common shares at $ or $ per share based on the initial listing price for its public offering.
Additionally, on August 29, 2024, the Company issued restricted common shares to Daniyel Erdberg, restricted common shares to Theresa Carlise and restricted common shares to an Employee. The Company valued these common shares at $ or $ per share based on the initial listing price for its public offering
In connection with these shares, during the three and nine months ending September 30, 2024, the Company recorded stock-based professional fees of $ and $, respectively.
2023
On June 22, 2023, the Company issued fully vested restricted common shares pursuant to an employment agreement with Theresa Carlise. The Company valued these common shares at the fair value of $, or $ per share based on sales of common stock units in recent private placements.
Common stock issued for asset acquisition
2023
On
March 9, 2023, the Company entered into and closed on a Share Exchange Agreement (the “Share Exchange Agreement”) with (i)
Safe Pro AI and (ii) the members of Safe Pro AI. Pursuant to the Share Exchange Agreement, the Company acquired % of the member interests
of Safe Pro AI in exchange for shares of the Company’s common stock, These shares were valued at $
Common stock and warrants issued for cash
2024
For
the three months ending September 30, 2024, the Company issued 0 common shares for cash. During the nine months ended September 30, 2024,
the Company completed a private placement of (i) Units for aggregate proceeds of $
| 22 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
2023
For
the three and nine months ending September 30, 2023, the Company completed private placements of and Units, respectively,
for aggregate proceeds of $
Representative warrants
In
connection with the IPO, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Dawson James
Securities, Inc., as representative of the underwriters listed on Schedule I thereto (the “Underwriters”). Pursuant to the
Underwriting Agreement, the Company issued a common stock purchase warrant to the Underwriter for the purchase of
Warrants
A summary of the status of the Company’s total outstanding warrants and changes during the nine months ended September 30, 2024 are as follows:
| Number of Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (1) | |||||||||||||
| Balance Outstanding on December 31, 2023 | $ | $ | ||||||||||||||
| Issued | ||||||||||||||||
| Balance Outstanding on September 30, 2024 | $ | $ | ||||||||||||||
| Exercisable, September 30, 2024 | $ | $ | ||||||||||||||
| (1) |
The Company determined that the warrants do not meet the definition of liability under FASB ASC Topic 480 and therefore classified the warrants as equity instruments.
Warrants issued for convertible debt
2024
During
March 2024, the Company entered into convertible note agreements with investors pursuant to which the Company issued and sold to the
Investors (i) convertible notes in the principal amount of $
2023
During
December 2023, the Company entered into a convertible note agreement with an investor whereby the Company issued and sold to the Investor
(i) convertible note in the principal amount of $
2022 Equity Incentive Plan
On July 1, 2022, the Company’s Board of Directors authorized and adopted the 2022 Equity Incentive Plan (the “2022 Plan”) and reserved shares of common stock for issuance thereunder. The 2022 Plan’s purpose is to encourage ownership in the Company by employees, officers, directors and consultants whose long-term service the Company considers essential to its continued progress and, thereby, encourage recipients to act in the stockholders’ interest and share in the Company’s success. The 2022 Plan provides for the issuance of incentive stock options, non-statutory stock options, restricted stock, restricted stock units (“RSUs”), and other stock-based awards. During the year ended December 31, 2023 and 2022, and of the Company’s common shares issued for services, as described above, were issued pursuant to the 2022 Plan, respectively. During the nine months ended September 30, 2024, of the Company’s common shares issued for services, as described above, were issued pursuant to the 2022 Plan. As of September 30, 2024 and December 31, 2023, the Company had and shares available for issuance under the 2022 Plan.
| 23 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Legal matters
From time to time, the Company may be involved in litigation related to claims arising out of its operations in the normal course of business. As of September 30, 2024, the Company is not 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.
Executive employment and consulting agreements
Daniyel Erdberg – Chief Executive Officer – Airborne Response Corp.
On
March 21, 2022, the Company’s wholly owned subsidiary, Airborne Response Corp. (“Airborne”), entered into a three-year
Employment Agreement, (“Agreement”) with Daniyel Erdberg, that extends for successive -year renewal terms unless either
party gives 30-days’ advance notice of non-renewal. Under the Agreement Mr. Erdberg will serve as Airborne’s Chief Executive
Officer and will receive an annual base salary of $
Christopher Todd – Chief Operating Officer – Airborne Response Corp.
On
March 21, 2022, Airborne entered into a three-year Employment Agreement, (“Agreement”) with Christopher Todd, that extends
for successive -year renewal terms unless either party gives 30-days’ advance notice of non-renewal. Under the Agreement Mr.
Todd will serve as Airborne’s Chief Operating Officer and will receive an annual base salary of $
| 24 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Pravin Borkar – Chief Technical Officer Safe Pro Group Inc and President – Safe-Pro USA LLC
On
June 7, 2022, the Company’s wholly owned subsidiary, Safe-Pro USA LLC. (“SPUSA”), entered into a three-year Employment
Agreement, (“Agreement”) with Pravin Borkar, that extends for five additional terms of -year each, unless either party
gives 30-days’ advance notice of non-renewal. Under the Agreement Mr. Borkar will serve as SPUSA’s President and Chief Technical
Officer of Safe Pro Group Inc., (“Parent”). Mr. Borkar will receive an annual base salary of $225,000 with participation
in retirement and welfare benefits of up to $
Anjali Borkar – Vice President of Operations of Safe-Pro USA
On
June 7, 2022, the Company’s wholly owned subsidiary, Safe-Pro USA entered into a three-year employment agreement, (“Agreement”)
with Anjali Borkar, that extends for five additional terms of one-year each, unless either party gives 30-days’ advance notice
of non-renewal. Under the Agreement Ms. Borkar will serve as Safe-Pro USA’s vice president of operations. Ms. Borkar will receive
an annual base salary of $
Theresa Carlise – Chief Financial Officer – Safe Pro Group Inc.
On
June 22, 2023, the Company entered into a one-year Employment Agreement, (“Agreement”) that extends for an additional -year
renewal term unless either party gives 30-days’ advance notice of non-renewal, with Theresa Carlise. Under the Agreement, Ms. Carlise
shall serve as Chief Financial Officer with annual base salary as follows (i) $
| 25 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
On
November 1, 2023, the Company entered into Amendment No. 1 to the June 22, 2023 Agreement. Section 4(a)(i) and Section 4(a)(ii) of the
Employment Agreement, regarding Annual Base Salary is hereby amended to read as follows: “(i) $
On
March 27, 2024, the Company and Ms. Carlise entered into Amendment No. 2 to the June 22, 2023 Agreement. On April 12, 2024, the Compensation
and Nominating Committees of the Company’s Board of Directors and the Board of Directors approved the Amended and Restated Employment
Agreement (“A&R Agreement’) for Theresa Carlise. The Nominating Committee appointed Ms. Carlise as Assistant Secretary,
in addition to her current positions as Chief Financial Officer and Treasurer. The Compensation Committee approved the following: (i)
the benefits provided within the Agreement, upon the listing on a National Market Exchange, were to be accrued from the effective date
of June 22, 2023 forward, to include $
As
of September 30, 2024 and December 31, 2023, in connection with this employment agreement, the Company had accrued wages and benefits
due to this executive of $
Daniyel Erdberg – Chief Executive Officer – Safe Pro Group Inc.
On November 1, 2023, the Company entered into a five-year Employment Agreement, (“Agreement”) with Mr. Erdberg, (“Executive”), which extends automatically for successive one-year renewal terms unless either party gives 90-days’ advance notice of non-renewal. Upon listing on Nasdaq or other National Market System exchange, the term of this agreement will automatically be amended to re-commence a new one-year term, from the listing date thereof.
Base
Salary. During the first year of the Term, the Company shall pay to the Executive an annual salary of $
Additional
Benefits. Certain other employee benefits and perquisites, including reimbursement of necessary and reasonable travel and participation
in retirement and welfare benefits, and a car allowance of $
Long-term incentive award. During the Term, the Executive shall have an annual target long-term incentive award opportunity of 300% of one year’s Base Salary. The Committee will award the Executive’s long-term incentive award based on an evaluation of performance and Peer Group compensation practices, taking into account Company and individual performance objectives. In its sole discretion, the Committee may award a long-term incentive award in excess of the target long-term incentive award opportunity. Notwithstanding the foregoing, the Committee may grant a special long-term incentive award at any time. Long-term incentive awards not granted under the 2022 Safe Pro Group Equity Incentive Plan (collectively with any successor plan thereto, the “Equity Incentive Plan”) shall be deemed “earned” if Executive is employed on the last day of the applicable performance period and shall be paid no later than March 15th of the year immediately following the year in which the applicable performance period expired. Awards granted under the Equity incentive Plan shall be subject to the terms and conditions of such a plan and the award agreement.
| 26 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Annual Target Cash Bonus Opportunity. During the Term, Mr. Erdberg shall have an annual target cash bonus opportunity of 100% of one year’s Base Salary with a minimum guaranteed annual cash bonus of 25% of one year’s Base Salary. The Committee shall award the Executive’s annual cash bonus based on an evaluation of performance and Peer Group compensation practices, taking into account Company and individual performance objectives. In its sole discretion, the Committee may award an annual cash bonus in excess of the annual cash bonus opportunity. Notwithstanding the foregoing, the Committee may grant a special bonus at any time. Annual cash bonuses shall be deemed “earned” if Executive is employed on the last day of the year to which the bonus relates and shall be paid no later than March 15th of the year immediately following the year to which the annual bonus relates.
Adjusted EBITDA Milestone Equity Award. In addition to the bonus awards set forth above, the Executive shall be entitled to the bonus awards as follows; for each calendar year during the Term, in which the Company achieves the adjusted EBITDA. For the purposes hereof “Adjusted EBITDA” shall mean Earnings before payment of interest, taxes, depreciation or amortization and shall not include unrealized gains or losses, non-cash expenses, gains or losses on foreign exchange, goodwill impairments, non-operating income, and share-based compensation. See table below.
Market Cap Milestone Performance Award. Upon the Company meeting the Market Cap Milestones listed below and maintaining such market cap for a period of 22 consecutive trading days, the Executive will be awarded that number of shares set forth in the as referenced in the table below and shall be based upon the value of all shares issued and outstanding during the period as used in the Basic” earnings per share calculation.
Adjusted EBITDA Milestones | Bonus Awards Shares | Market Cap Milestones | Bonus Awards Shares | |||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
| $ | ||||||||||||||
National Security Exchange Registration Equity Award. Upon the Company going public on a National Securities Exchange, the Executive will be entitled to an award of shares of common stock. On June 17, 2024, Mr. Erdberg, requested that the bonus of common shares, earned upon going public be reduced by shares to allow for the award of shares to others within in Company.
Significant
Transaction Bonus. Upon the Company closing a Significant Transaction, as defined below, the Executive shall be granted that
number of shares of common stock or a new series of preferred shares of the Company that is convertible into common stock of the Company
equal to 5% of the of the value of all of the consideration, including any stock, cash or debt, of such completed transaction. The Executive
can earn this grant of stock for each Significant Transaction closed by the Company during the Term of this Agreement. “Significant
Transaction” shall mean the Company closing a financing for at least $, not including the Company’s initial public
offering, or the closing of an acquisition with a valuation (determined by the value of the consideration paid by the Company) of not
less than $
As
of December 31, 2023, in connection with this employment agreement, the Company accrued wages and other benefits due to this executive
of $
| 27 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Director agreements
On
May 4, 2022, the Company entered into Letter Agreements with three Directors of the Company. For services to be performed, the Company
agrees to pay each director an annual fee of $
On
January 9, 2024, the Company entered into a Letter Agreement with a Director of the Company. For services to be performed, the Company
agrees to pay this director an annual fee of $
Product liability insurance
The
Company’s subsidiary, Safe-Pro USA, carries a product liability policy that covers up to $
Contingent amounts due to related parties
As
discussed in Note 13 – Related Party Transactions, the Company agreed to assume liability to the former members of Safe-Pro USA
of $
NOTE 12 – CONCENTRATIONS
Concentrations of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of trade accounts receivable and cash deposits.
The
Company’s cash is held at major commercial banks, which may at times exceed the Federal Deposit Insurance Corporation (“FDIC”)
limit. In August 2024, the Company has entered into a deposit placement agreement for Insured Cash Sweep Service (“ICS”).
This service is a secure, and convenient way to access FDIC protection on large deposits and earn a return. This service provides for
deposits in excess of $
Geographic concentrations of sales
The following table sets forth revenue as to each geographic location, for the nine months ended September 30, 2024 and 2023:
| September 30, 2024 | September 30, 2023 | |||||||||||||||
| Europe | $ | % | $ | |||||||||||||
| USA | % | % | ||||||||||||||
| Asia & Pacific | ( | ) | ( | )% | % | |||||||||||
| $ | $ | |||||||||||||||
The following table sets forth revenue as to each geographic location, for the three months ended September 30, 2024 and 2023:
| September 30, 2024 | September 30, 2023 | |||||||||||||||
| Europe | $ | % | $ | |||||||||||||
| USA | % | % | ||||||||||||||
| $ | $ | |||||||||||||||
| 28 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
Customer concentration
For
the three months ending September 30, 2024, two customers accounted for approximately
For
the three months ending September 30, 2023, two customers accounted for approximately
A
reduction in sales from or the loss of such customers would have a material adverse effect on the Company’s results of operations
and financial condition. On September 30, 2024, one customer accounted for
Supplier concentration
Suppliers:
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchases for the nine months ending September 30, 2024 and 2023.
| September 30, 2024 | September 30, 2023 | |||||||||||||||
| Minelab Electronics | $ | % | $ | - | ||||||||||||
| Mithix Pro | $ | % | $ | - | ||||||||||||
| Industries Bitossi Inc | $ | $ | % | |||||||||||||
The following table sets forth information as to each supplier that accounted for 10% or more of the Company’s purchases for the three months ending September 30, 2024 and 2023.
| September 30, 2024 | September 30, 2023 | |||||||||||||||
| Matrix Space | $ | % | $ | - | ||||||||||||
| Southeast Drone Technologies | $ | % | $ | % | ||||||||||||
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.
NOTE 13 – RELATED PARTY TRANSACTIONS
Due to related parties
In
connection with the Acquisition of Safe-Pro USA, the Company agreed to assume a liability due to the former member of Safe-Pro USA, who
is a current director of the Company, of $
Production expenses – related party
During
the three and nine months ended September 30, 2024 and 2023, the Company incurred production services from a company owned by the former
member of Safe-Pro USA in the amount of $
NOTE 14 – OPERATING LEASE RIGHT-OF-USE (“ROU”) ASSETS AND OPERATING LEASE LIABILITIES
On
August 1, 2022, the Company entered into a
| 29 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
In
July 2021, Safe-Pro USA entered into a
In
April 2024, Airborne Response entered into a
In adopting ASC Topic 842, Leases (Topic 842) on January 1, 2022 the Company had elected the ‘package of practical expedients’, which permitted it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs (see Note 2). In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 months or less. Upon signing of new leases for property and equipment, the Company analyzed the new leases and determined it is required to record a lease liability and a right of use asset on its consolidated balance sheets, at fair value.
During
the three and nine months ended September 30, 2024, in connection with its property operating leases, the Company recorded rent expense
of $
The
significant assumption used to determine the present value of the lease liabilities on August 1, 2022 and June 7, 2022, and April 2024
was a discount rate ranging from
On September 30, 2024 and December 31, 2023, right-of-use asset (“ROU”) is summarized as follows:
| September 30, 2024 | December 31, 2023 | |||||||
| Office lease right of use assets | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Balance of ROU assets | $ | $ | ||||||
On September 30, 2024 and December 31, 2023, operating lease liabilities related to the ROU assets are summarized as follows:
| September 30, 2024 | December 31, 2023 | |||||||
| Lease liabilities related to office lease right of use assets | $ | $ | ||||||
| Less: current portion of lease liabilities | ( | ) | ( | ) | ||||
| Lease liabilities – long-term | $ | $ | ||||||
On September 30, 2024, future minimum base lease payments due under non-cancelable operating leases are as follows:
| Year ending September 30, | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| Total minimum non-cancellable operating lease payments | ||||
| Less: discount to fair value | ( | ) | ||
| Total lease liabilities on September 30, 2024 | $ | |||
| 30 |
SAFE PRO GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024 AND 2023
NOTE 15 – SEGMENT REPORTING
During
the three and nine months ending September 30, 2024 and 2023, the Company operated in
Information with respect to these reportable business segments for the three and nine months ending September 30, 2024 and 2023 was as follows:
| For the Three Months Ended September 30, | For the Nine months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues: | ||||||||||||||||
| Safe-Pro USA | $ | $ | $ | $ | ||||||||||||
| Airborne Response | ||||||||||||||||
| Safe Pro AI | ||||||||||||||||
| Depreciation and amortization: | ||||||||||||||||
| Safe-Pro USA | ||||||||||||||||
| Airborne Response | ||||||||||||||||
| Safe Pro AI | ||||||||||||||||
| Other (a) | ||||||||||||||||
| Interest expense: | ||||||||||||||||
| Safe-Pro USA | ||||||||||||||||
| Airborne Response | ||||||||||||||||
| Safe Pro AI | ||||||||||||||||
| Other (a) | ||||||||||||||||
| Net (loss) income: | ||||||||||||||||
| Safe-Pro USA | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Airborne Response | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Safe Pro AI | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (a) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| (a) |
| September 30, 2024 | December 31, 2023 | |||||||
| Identifiable long-lived tangible assets, net by segment: | ||||||||
| Safe-Pro USA | $ | $ | ||||||
| Airborne Response | ||||||||
| Safe Pro AI | ||||||||
| Other (a) | ||||||||
| $ | $ | |||||||
NOTE 16 – SUBSEQUENT EVENTS
On
October 2, 2024, the Company’s board of directors approved the issuance on October 4, 2024 of
shares of restricted common stock, which was
valued at $
On
October 3, 2024, we issued fully vested restricted common shares, to professionals for services, valued at the per share price,
at market close of $ per share or $
| 31 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 prospectus dated August 28, 2024 (“Prospectus”) filed with the Securities and Exchange Commission (the “SEC”) on August 29, 2024 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.
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 and services, and personal protective gear, Safe Pro Group seeks to provide government, NGOs and enterprises with innovative solutions designed to respond to evolving threats.
Recent Developments
On August 29, 2024, we consummated our initial public offering (“IPO”), pursuant to which we sold 1,020,000 shares of common stock at an offering price of $5.00 per share. In connection with the IPO, we entered into an underwriting agreement (the “Underwriting Agreement”) with Dawson James Securities, Inc., as representative of the underwriters listed on Schedule I thereto (the “Underwriters”). Pursuant to the Underwriting Agreement, we issued a common stock purchase warrant to the Underwriter for the purchase of 51,000 shares of common stock at an exercise price of $6.25, subject to adjustments (the “Warrant”). The Warrant will be exercisable at any time and from time to time, in whole or in part, during the period commencing on March 1, 2025 and ending on August 28, 2029 and may be exercised on a cashless basis under certain circumstances. In connection with the IPO, (i) our outstanding Series A preferred stock and Series B preferred stock were converted into an aggregate of 2,810,000 shares of common stock; (ii) 480,000 shares of common stock was issued to certain executives pursuant to their respective employment agreements, and (iii) 252,666 shares of common stock was issued upon conversion of convertible notes and accrued interest.
In connection with the IPO, we sold 1,020,000 shares of common for gross proceeds of $5,100,000 and received net proceeds of $4,179,500, after fees and expenses of $920,500. The Underwriters did not exercise the option to purchase up to an additional 153,000 shares of common stock from the Company.
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.
Segment Information
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 nine months ending September 30, 2024 and 2023, 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.
| 32 |
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, 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. Wages consist primarily of manufacturing wages. 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. We generally recognize research and development expenses as incurred. Development costs incurred prior to establishment of technological feasibility are expensed as incurred. 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.
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, 2024, 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 Responder (DaaR).
| 33 |
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 and Nine months Ended September 30, 2024 and 2023
For the Three Months Ended September 30, 2024 and 2023:
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| REVENUES: | ||||||||||||||||
| Product Sales | $ | 98,636 | $ | 58,590 | $ | 40,046 | 68.3 | % | ||||||||
| Services | 232,120 | 104,957 | 127,163 | 121.2 | % | |||||||||||
| Total Revenues | 330,756 | 163,547 | 167,209 | 102.2 | % | |||||||||||
| COST OF REVENUES: | ||||||||||||||||
| Product sales | 55,815 | 33,967 | 21,848 | 64.3 | % | |||||||||||
| Services | 122,851 | 52,898 | 69,953 | 132.2 | % | |||||||||||
| Cost of depreciation | 17,857 | 14,236 | 3,621 | 25.4 | % | |||||||||||
| Total Cost of Revenues | 196,523 | 101,011 | 95,422 | 94.4 | % | |||||||||||
| Gross profit | 134,233 | 62,446 | 71,787 | 115.0 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Salary, wages and payroll taxes: | ||||||||||||||||
| Salary, wages and payroll taxes | 545,525 | 339,210 | 206,315 | 60.8 | % | |||||||||||
| Stock based compensation | 2,200,000 | - | 2,200,000 | |||||||||||||
| Total Salary, wages and payroll taxes | 2,745,525 | 339,210 | 2,406,315 | 709.4 | % | |||||||||||
| Research and development | - | 91,537 | (91,537 | ) | -100.0 | % | ||||||||||
| Professional fees: | ||||||||||||||||
| Professional fees - other | 230,698 | 175,246 | 55,452 | 31.6 | % | |||||||||||
| Stock based compensation – professional fees | 200,000 | - | 200,000 | |||||||||||||
| Total Professional fees | 430,698 | 175,246 | 255,452 | 145.8 | % | |||||||||||
| Selling, general and administrative expenses | 418,366 | 89,142 | 329,224 | 369.3 | % | |||||||||||
| Depreciation and amortization | 81,718 | 45,529 | 36,189 | 79.5 | % | |||||||||||
| Total operating expenses | 3,676,307 | 740,664 | 2,935,643 | 396.4 | % | |||||||||||
| Loss from operations | (3,542,074 | ) | (678,218 | ) | (2,863,856 | ) | 422.3 | % | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 10,082 | - | 10,082 | % | ||||||||||||
| Interest expense | (153,464 | ) | (1,566 | ) | (151,898 | ) | 9699.7 | % | ||||||||
| Total other income (expense) | (143,382 | ) | (1,566 | ) | (141,816 | ) | 9055.9 | % | ||||||||
| Net loss | $ | (3,685,456 | ) | $ | (679,784 | ) | $ | 3,005,672 | ) | 442.2 | % | |||||
| 34 |
For the Nine months Ended September 30, 2024 and 2023:
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| REVENUES: | ||||||||||||||||
| Product Sales | $ | 907,260 | $ | 519,728 | $ | 387,532 | 74.6 | % | ||||||||
| Services | 374,139 | 120,334 | 253,805 | 210.9 | % | |||||||||||
| Total Revenues | 1,281,399 | 640,062 | 641,337 | 100.2 | % | |||||||||||
| COST OF REVENUES: | ||||||||||||||||
| Product sales | 604,000 | 305,871 | 298,129 | 97.5 | % | |||||||||||
| Services | 185,302 | 59,288 | 126,014 | 212.5 | % | |||||||||||
| Cost of depreciation | 49,796 | 41,737 | 8,059 | 19.3 | % | |||||||||||
| Total Cost of Revenues | 839,098 | 406,896 | 432,202 | 106.2 | % | |||||||||||
| Gross profit | 442,301 | 233,166 | 209,135 | 89.7 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Salary, wages and payroll taxes: | ||||||||||||||||
| Salary, wages and payroll taxes | 1,371,310 | 853,337 | 517,973 | 60.7 | % | |||||||||||
| Stock based compensation | 2,200,000 | 58,200 | 2,141,800 | 3680.1 | % | |||||||||||
| Total Salary, wages and payroll taxes | 3,571,310 | 911,537 | 2,659,773 | 291.8 | % | |||||||||||
| Research and development | 85,937 | 243,972 | (158,035 | ) | -64.8 | % | ||||||||||
| Professional fees: | ||||||||||||||||
| Professional fees - other | 760,908 | 486,736 | 274,172 | 56.3 | % | |||||||||||
| Stock based compensation – professional fees | 748,000 | 55,000 | 693,000 | 1260.0 | % | |||||||||||
| Total Professional fees | 1,508,908 | 541,736 | 967,172 | 178.5 | % | |||||||||||
| Selling, general and administrative expenses | 853,077 | 290,014 | 563,063 | 194.2 | % | |||||||||||
| Depreciation and amortization | 172,834 | 136,586 | 36,248 | 26.5 | % | |||||||||||
| Total operating expenses | 6,192,066 | 2,123,845 | 4,068,221 | 191.5 | % | |||||||||||
| Loss from operations | (5,749,765 | ) | (1,890,679 | ) | (3,859,086 | ) | 204.1 | % | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 10,082 | 506 | 9,576 | 1892.5 | % | |||||||||||
| Interest expense | (304,556 | ) | (4,086 | ) | (300,470 | ) | 7353.6 | % | ||||||||
| Total other income (expense) | (294,474 | ) | (3,580 | ) | (290,894 | ) | 8125.5 | % | ||||||||
| Net loss | $ | (6,044,239 | ) | $ | (1,894,259 | ) | $ | (4,149,980 | ) | 219.1 | % | |||||
Net Revenue. For the three months ended September 30, 2024 and 2023, revenues generated were $330,756 and $163,547, an increase of $167,209 or 102.2%. Comparable sales for Safe-Pro USA were $98,637 for the three months ended September 30, 2024 as compared to $58,590 for the same period in 2023, an increase of $40,047 or 68.4%. Comparable sales for Airborne Response were $227,745 for the three months ended September 30, 2024 as compared to $104,957 for the same period in 2023, an increase of $122,788 or 117.0%. Safe Pro AI had sales of $4,375, for the three months ended September 30, 2024, which related to the launch of Spotlight AI on July 1, 2024. The increase in revenue was attributable to an increase in recurring revenue from existing customers.
For the nine months ended September 30, 2024 and 2023, revenues generated were $1,281,399 and $640,062, an increase of $641,337 or 100.2%. Comparable sales for Safe-Pro USA were $751,031 for the nine months ended September 30, 2024 as compared to $519,728 for the same period in 2023, an increase of $231,303 or 44.5%. Comparable sales for Airborne Response were $525,992 for the nine months ended September 30, 2024 as compared to $120,334 for the same period in 2023, an increase of $405,658 or 337.1%. Safe Pro AI had sales of $4,375, for the nine months ended September 30, 2024, which related to the launch of Spotlight AI on July 1, 2024. The increase in revenue was attributable to two additional customers, which represented 44.7% of the total sales and an increase in recurring revenue from existing customers for the nine months ended September 30, 2024.
Cost of Revenue. During the three months ended September 30, 2024 and 2023, cost of revenues increased to $196,523 compared to $101,011, an increase of $95,422, or 94.4%. Gross profit margins were 40.6% and 38.2%, respectively. The increase in gross profit margins for the three months ended September 30, 2024 and 2023 were due to increased sales of manufactured product which has a higher gross profit. For the nine months ended September 30, 2024 and 2023, cost of revenue increased to $839,098, as compared to $406,896, for the same period in the prior year, an increase of $432,202 or 106.2%. Gross profit margins were 34.5% and 36.4%, respectively. The decrease in margin was attributable to an increase in sales for two new customers that represented 44.7% of our total sales for the nine months ended September 30, 2024, which was for non-manufactured product which has a lower gross profit margin. We expect our cost of revenues to continue to increase during fiscal 2024 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.
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Operating Expenses. Total operating expenses for the three months ended September 30, 2024 and 2023 were $3,676,307 and $740,664, an increase of $2,935,643 or 396.4%. Total operating expenses for the nine months ended September 30, 2024 and 2023 of $6,192,066 and $2,123,845, an increase of $4,068,221 or 191.5%. Factors resulting in the increase are described more fully below.
Salaries, wages and payroll taxes. Total salaries, wages and payroll taxes for the three months ended September 30, 2024 and 2023 were $2,745,525 and $339,210, an increase of $2,406,315 or 709.4%. Total salaries, wages and payroll taxes for the nine months ended September 30, 2024 and 2023 were $3,571,310 and $911,537, an increase of $2,659,773 or 291.8%. The increases were primarily attributable stock-based compensation of $2,200,000 and $464,199, pursuant to new employment agreements, in preparation for the Company’s initial public offering.
Research and Development expenses were $0 and $91,537, for the three months ended September 30, 2024 and 2023, respectively, a decrease of $91,537 or 100.0%. Research and Development expenses were $85,937 and $243,972, for the nine months ended September 30, 2024 and 2023, respectively, a decrease of $158,035 or -64.8%. The decrease is primarily attributable to the second quarter capitalization of development costs of $172,596 for the Company’s advanced artificial intelligence (“AI”) -powered object detection and data analysis and reporting tools for hyper-scalable, cloud-based processing of drone imagery, which was put in service on July 1, 2024.
Professional fees were $430,698 and $175,246 for the three months ended September 30, 2024 and 2023, respectively, an increase of $255,452 or 145.8%. The increase for the quarter is due to stock based compensation of $200,000. Professional fees were $1,508,908 and $541,736 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $967,172 or 178.5%. The increase for the nine months ended September 30, 2024 and 2023, was attributable to; an increase in non-cash expenses for share-based compensation of $603,000, audit related expenses of $251,675, investor relations of $53,372, public company expense of $27,125, director fees $12,789, other professional fees of $29,889, associated with the preparation of the Company’s initial public offering, offset by a decrease of legal fees of $10,678.
Selling, general and administrative expenses were $418,366 and $89,142 for the three months ended September 30, 2024 and 2023, respectively, an increase of $329,224 or 369.3%. Selling, general and administrative expenses were $853,077 and $290,014 for the nine months ended September 30, 2024 and 2023, respectively, an increase of $563,063 or 194.2%. The increases for the three months ended September 30, 2024 and 2023, are indicative of the increase for the nine months ended September 30, 2024 and 2023, of $563,063 which is primarily attributable to increases in: advertising of $107,592, related to social media branding, employee benefits of $51,366, related to amended employment agreements, franchise taxes of $24,654, other selling, general and administrative costs of $22,866, variable costs which fluctuates to an increase in sales of $212,628 and D&O insurance of $17,708, offset by product costs incurred in the prior year of $30,531.
Depreciation and amortization expenses were $81,718 and $45,529 for the three months ended September 30, 2024 and 2023, respectively, an increase of $36,189, or 79.5%. For the nine months ended September 30, 2024 and 2023, depreciation and amortization costs were $172,834 and $136,586 respectively, an increase of $36,248, or 26.5%. The increase relates to the implementation of Spotlight AI on July 1, 2024, which resulted in its amortization with a useful life of five years of $36,000 at September 30, 2024.
We expect our expenses in each of these areas to continue to increase during fiscal 2024 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 $143,382 compared to $1,566, during the three months ended September 30, 2024 and 2023 respectively, an increase of $141,816 or 9055.9%. Our total other expenses were $294,474 compared to $3,580, during the nine months ended September 30, 2024 and 2023 respectively, an increase of $290,894 or 8125.5%. For the nine months ended September 30, 2024, the increase is primarily attributed to an increase in interest expense related to convertible debt of $300,470, offset by an increase in interest income of $9,576 and an increase in interest expense of, from the three months ended September 30, 2023 of $151,898, which was further offset by an increase in interest income of $10,082.
Net Loss. We recorded a net loss of $3,685,456 for the three months ended September 30, 2024 as compared to a net loss of $679,784, for the three months ended September 30, 2023. We recorded a net loss of $6,044,239 for the nine months ended September 30, 2024 as compared to a net loss of $1,894,259, for the nine months ended September 30, 2023. The increase is a result of the factors as described above.
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Consolidated Balance Sheet Data:
| September 30, | December 31, | |||||||||||||||
| 2024 | 2023 | Change | % | |||||||||||||
| (Unaudited) | ||||||||||||||||
| Cash | $ | 2,334,715 | $ | 703,368 | $ | 1,631,347 | 231.9 | % | ||||||||
| Property and equipment, net | 323,834 | 320,928 | 2,906 | 0.9 | % | |||||||||||
| Current assets | 3,349,635 | 1,273,908 | 2,075,727 | 162.9 | % | |||||||||||
| Total assets | 5,476,549 | 3,430,199 | 2,046,350 | 59.7 | % | |||||||||||
| Current liabilities | 1,049,187 | 1,416,729 | (367,542 | ) | -25.9 | % | ||||||||||
| Working capital (deficit) | 2,300,448 | (142,821 | ) | 2,443,269 | 1710.7 | % | ||||||||||
| Total liabilities | 1,242,593 | 1,653,841 | (411,248 | ) | -24.9 | % | ||||||||||
| Additional paid in capital | 17,099,117 | 8,597,147 | 8,501,970 | 98.9 | % | |||||||||||
| Accumulated deficit | (12,866,529 | ) | (6,822,290 | ) | (6,044,239 | ) | 88.6 | % | ||||||||
| Total stockholders’ equity | $ | 4,233,956 | $ | 1,776,358 | $ | 2,457,598 | ) | 138.4 | % | |||||||
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, 2024, we had a cash balance of $2,334,715 and working capital of $2,300,448.
Our current assets at September 30, 2024 increased by $2,075,727, or 162.9%, to $3,349,635 from $1,273,908, from December 31, 2023. The increases included cash of $1,631,347, accounts receivable of $58,141, inventory of $16,115 and prepaid expenses and other current assets of $370,124.
Our current liabilities at September 30, 2024 decreased to $1,049,187 from $1,416,729 or a decrease of $367,542, or 25.9% from December 31, 2023. The decrease is comprised of decreases in: convertible note payable, net of discount of $343,796, accrued compensation and benefits of $157,945, amounts due to related parties of $20,654, contract liabilities of $14,382, and was offset by increases in accounts payable of $64,661, accrued expenses of $103,122 and lease liabilities of $1,452.
Operating Activities
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 of $2,948,000 and amortization of debt discount of $208,006. Changes in operating assets and liabilities were reflected by increases in: inventory of $16,115, accounts receivable of $58,141, prepaid and other current assets of $370,124, accounts payable of $64,661, accrued expenses of $161,652, and was offset by decreases in: accrued compensation and benefits of $157,945, lease liabilities of $9,110 and contract liabilities of $14,382.
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Net cash flows used in operating activities for nine months ended September 30, 2023 amounted to $1,752,025 and were primarily attributable to our net loss of $1,894,258 offset by depreciation and amortization expense of $178,323, stock-based compensation of $113,200 and lease costs of $1,882. Changes in operating assets and liabilities were reflected by increases in; accounts receivable of $318,236, inventory of $314, prepaid and other current assets of $20,193, contract liabilities of $34,855, accrued compensation of $55,971, accounts payable of $117,248, and offset by decreases in accrued expenses of $60,889.
Investing Activities
Net cash flows used in investing activities were $226,397 and $28,749, for the nine months ended September 30, 2024 and 2023, respectively. During the nine months ended September 30, 2024, we purchased property and equipment of $53,801 and investment in intangible technologies of $172,596. For the nine months ended September 30, 2023, we purchased property and equipment of $28,749.
Financing Activities
Net cash flows provided by financing activities were $4,922,851 and $668,971 for the nine months ended September 30, 2024 and 2023, respectively.
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.
During the nine months ended September 30, 2023, we had proceeds from the sale of convertible notes payable of $989,250 offset by repayments due to related party for $320,679.
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.
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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
The Company 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.
For a Bangladesh customer for which Safe-Pro USA historically derived a significant portion of its revenue the Company has identified two performance obligations:
| 1) | The sale and delivery of safety equipment, ballistic and bomb vests, helmets, and other equipment. |
| 2) | Training and final inspections related to the sale of the equipment. |
The Company estimated the allocation of the transaction price to each of the above performance obligations since it does not have evidence of standalone selling process, which is summarized as follows:
● Performance Obligation 1 - Historically, the Company has received 80% of the contract price upon shipment and presentation of required documents.
● Performance Obligation 2 - The remaining 20% of the contract price shall be authorized and received after 1) post-shipment inspection is performed, functionality testing is performed, and approval of the testing is granted. The 20% is triggered after testing and training. Local training with the contracted items consists of 1) use and care training, 2) engineering, repair, & maintenance, and 3) inventory management. Historically, the remaining 20% has not been collected. Although the Company believes this 20% will ultimately be collected, due to the historical non-payment of this 20%, the Company will not record such revenue until such time as collection is probable and all training and inspections are completed.
In connection with the revenue associated with the significant customer discussed above, the Company shall pay a commission of approximately 10% of amounts collected to local agents that assist with the facilitation of training, shipment, and documentation.
Revenue from other Safe-Pro USA customers is generally recognized at the time of shipment, which is the time that the Company satisfies its performance obligations.
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.
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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 will sell subscriptions 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 demining, in law enforcement and security. The Company’s SaaS offerings shall be sold under a 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.
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Business acquisitions
The Company accounts for business acquisitions using the acquisition method of accounting where the assets acquired and 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 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to our Chief Executive Officer, who serves as our principal executive officer, and Chief Financial Officer, who serves as our principal financial officer, as appropriate, to allow timely discussions regarding required disclosure. We, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were not effective as of September 30, 2024 to provide assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management as appropriate, to allow timely decisions regarding disclosures due to management identifying material weaknesses in internal controls over financials reporting related to (i) inventory control management; and (ii) a lack of segregation of duties within accounting functions. Therefore, our internal controls over financial reporting were not effective as of September 30, 2024.
Due to our size and nature, segregation of all conflicting duties may not always be possible or economically feasible. However, to the extent possible, we are implementing procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.
Notwithstanding this conclusion, we believe that our unaudited condensed consolidated financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects.
Changes in Internal Control over Financial Reporting
Except as set forth in the following sentence, there were no changes to our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. During the quarter ended September 30, 2024, we engaged a third-party inventory control management consultant to assist us in implementing an inventory control management system. Additionally, we have designed and implemented new internal policies and procedures to address a prior material weakness related to revenue recognition cut-offs.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company may become involved in litigation relating to claims arising out of our operations in the normal course of business. The Company is not currently involved in any pending legal proceeding or litigation, and to the best of our knowledge, no governmental authority is contemplating any proceeding to which the Company is a party or to which any of the Company’s properties is subject, which would reasonably be likely to have a material adverse effect on the Company’s business, financial condition and operating results.
Item 1A. Risk Factors.
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 our Prospectus, which is incorporated herein by reference. The risks described in the Prospectus 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 Prospectus.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth all unregistered sales of securities made by us during the three months ended September 30, 2024:
July 2024 Promissory Notes
On July 12, 2024, we entered into promissory notes in the principal amount of $110,000, at an interest rate of 8% per annum that matures on the earlier of August 31, 2024 or five business days after the closing of our IPO with Sixth Borough Fund LP, an entity controlled by a principal of the representative of the underwriters in our IPO. On July 12, 2024, we entered into a promissory note in the aggregate principal amount of $16,500 at an interest rate of 8% per annum that matures on the earlier of August 31, 2024 or five business days after the closing of our IPO with an accredited investor. These notes were repaid subsequent to our IPO. These notes were issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated under the Securities Act.
August 2024 Common Stock Issued for Conversion of Convertible Notes and Accrued Interest
On August 27, 2024, we issued 252,666 shares upon the conversion of convertible debt of $750,002 and accrued interest of $58,531, at $3.20 per share, as pursuant to the respective notes and issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Rule 701 promulgated under the Securities Act.
August 2024 Common Stock Issued for Conversion of Preferred Stock
On August 28, 2024, we issued (i) 1,500,000 shares of common stock upon the conversion of 3,000,000 shares of Series A Preferred stock and (ii) 1,310,000 shares of common stock upon the conversion of 3,275,000 shares of Series B Preferred stock and issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated under the Securities Act.
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August 2024 Common Stock Issued for Compensation
On August 30, 2024, we issued 480,000 fully vested shares of common stock for compensation. The shares of common stock were valued at $2,400,000 and issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated under the Securities Act and corresponding provisions of state securities or “blue sky” laws.
October 2024 Common Stock Issued for Services
On October 4, 2024 we issued 29,999 fully vested shares of common stock for services. The shares of common stock were valued at $125,000, based upon the average volume weighted price of $4.28 per share in accordance with the Services Agreement and invoice dated September 9, 2024. and issued in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated under the Securities Act and corresponding provisions of state securities or “blue sky” laws.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During
the period covered by this Quarterly Report, none of the Company’s directors or executive officers has
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ITEM 6. EXHIBITS
| + | Management contract or compensatory plan. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: November 14, 2024 | SAFE PRO GROUP INC. | |
| By: | /s/ Daniyel Erdberg | |
| Daniyel Erdberg | ||
| Chairman and Chief Executive Officer | ||
| (principal executive officer) | ||
| /s/ Theresa Carlise | ||
| Theresa Carlise | ||
| Chief Financial Officer, Treasurer & Assistant Secretary | ||
| (principal financial and accounting officer) | ||
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