Safe Pro Group Inc

Previous wording

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, (iii) 252,666 shares of common stock was issued upon conversion of convertible notes and accrued interest.

Current wording

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.

Previous wording

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 $4,304,000, after fees and expenses of $796,000. The Underwriters did not exercise the option to purchase up to an additional 153,000 shares of common stock from the Company.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of the Three and Nine months Ended September 30, 2024 and 2023

Previous wording

*Net Revenue.*For the three months ended June 30, 2024 and 2023, revenues generated were $642,989 and $103,008, an increase of $539,981 or 524.2%. Comparable sales for Safe-Pro USA were $430,039 for the three months ended June 30, 2024 as compared to $94,169 for the same period in 2023, an increase of $389,150 or 562.2%. Comparable sales for Airborne Response were $212,950 for the three months ended June 30, 2024 as compared to $8,839 for the same period in 2023, an increase of $204,111 or 2309.2%. The increase in revenue was attributable to two additional customers, which represented 79.0% of the total sales for the three months ended June 30, 2024.

Current wording

*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.

Previous wording

For the six months ended June 30, 2024 and 2023, revenues generated were $950,642 and $476,515, an increase of $474,127 or 99.5%. Comparable sales for Safe-Pro USA were $652,395 for the six months ended June 30, 2024 as compared to $461,138 for the same period in 2023, an increase of $191,256 or 41.5%. Comparable sales for Airborne Response were $298,248 for the six months ended June 30, 2024 as compared to $15,377 for the same period in 2023, an increase of $282,871 or 1839.6%. The increase in revenue was attributable to two additional customers, which represented 60.3% of the total sales for the six months ended June 30, 2024.

Current wording

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.

Previous wording

*Cost of Revenue.*During the three months ended June 30, 2024 and 2023, cost of revenues increased to $458,374 compared to $69,224, an increase of $389,150, or 562.2%. Gross profit margins were 28.7% and 32.8%, respectively. The increase in cost of revenue is attributable to the increase in revenue of product at a lower gross profit margin. For the six months ended June 30, 2024 and 2023, cost of revenue increased to $638,812, as compared to $305,795, for the same period in the prior year, an increase of $333,017 or 108.9%. Gross profit margins were 32.8% and 35.8%, respectively. The decrease in margin was attributable to increase in sales for Fragmentation and Blast resistant personal protective equipment (PPE), which have a lower gross profit margin, as compared to law enforcement safety equipment. 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.

Current wording

*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.

Previous wording

*Operating Expenses.*Total operating expenses for the three months ended June 30, 2024 and 2023 were $1,307,421 and $764,121, an increase of $543,300 or 71.1%. Total operating expenses for the six months ended June 30, 2024 and 2023 of $2,519,521 and $1,383,179, an increase of $1,136,342 or 82.2%. Factors resulting in the increase are described more fully below.

Current wording

*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.

Previous wording

Salaries, wages and payroll taxes. Total salaries, wages and payroll taxes for the three months ended June 30, 2024 and 2023 were $394,898 and $317,611, an increase of $77,287 or 24.3%. Total salaries, wages and payroll taxes for the six months ended June 30, 2024 and 2023 were $829,476 and $572,327, an increase of $257,149 or 54.2%. The increases were primarily attributable pursuant to new employment agreements, in preparation for the Company’s initial public offering.

Current wording

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.

Previous wording

Research and Development expenses were $0 and $130,474, for the three months ended June 30, 2024 and 2023, respectively, a decrease of $130,474 or 100.0%. Research and Development expenses were $85,937 and $152,432, for the six months ended June 30, 2024 and 2023, respectively, a decrease of $66,945 or 14.0%.The decrease is primarily attributable to the Company’s capitalization of development costs of $172,596 for the advanced artificial intelligence (“AI”) -powered object detection and data analysis and reporting tools for hyper-scalable, cloud-based processing of drone imagery, which will be put in service on July 1, 2024.

Current wording

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.

Previous wording

Professional fees were $617,438 and $175,548 for the three months ended June 30, 2024 and 2023, respectively, an increase of $441,890 or 251.7%. Professional fees were $1,078,210 and $366,490 for the six months ended June 30, 2024 and 2023, respectively, an increase of $711,720 or 150.1%. The increases for the three and six months ended June 30, 2024 and 2023, are indicative by the increase for the six months ended June 30, 2024, as compared to the prior period in 2023, of $711,720, which was attributable to; an increase in audit related expenses of $196,721, investor relations of $39,170, public company expense of $11,128, other professional fees of $61,762 associated with the preparation of the Company’s initial public offering, non-cash expenses for share-based compensation of $418,000, offset by a decrease of legal fees of $15,061.

Current wording

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.

Previous wording

Selling, general and administrative expenses were $249,499 and $94,959 for the three months ended June 30, 2024 and 2023, respectively, an increase of $154,540 or 162.7%. Selling, general and administrative expenses were $434,712 and $200,873 for the six months ended June 30, 2024 and 2023, respectively, an increase of $233,839 or 49.3%. The increases for the three and six months ended June 30, 2024 and 2023, are indicative by the increase for the six months ended June 30, 2024 and 2023, of $233,839 which is attributable to increases in: advertising of $26,331, employee benefits of $51,926, variable costs which fluctuates by an increase in sales $68,142, insurance of $10,948, travel of $79,655, franchise taxes of $10,954, other selling, general and administrative costs of $16,444, offset by product costs incurred in the prior year of $30,561.

Current wording

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.

Previous wording

Depreciation and amortization expenses were $45,586 and $45,529 for the three months ended June 30, 2024 and 2023, respectively, an increase of $57, or 0.1%. For the six months ended June 30, 2024 and 2023, depreciation and amortization costs were $91,186 and $91,057 respectively, an increase of $129, or 0.1%.

Current wording

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.

Previous wording

Total Other (Income) Expense. Our total other expenses were $92,117 compared to $1,151, during the three months ended June 30, 2024 and 2023 respectively, an increase of $90,966 or 7903.2%. Our total other expenses were $151,092 compared to $2,015, during the six months ended June 30, 2024 and 2023 respectively, an increase of $149,077 or 31.4%. The increase is primarily attributed to an increase in interest expense related to convertible debt in the six months ended June 30, 2024 of $148,572, and an increase in interest expense of $90,966, from the three months ended June 30, 2023, which was further offset by a decrease of interest income of $505.

Current wording

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.

Previous wording

Net Loss. We recorded a net loss of $1,214,923 for the three months ended June 30, 2024 as compared to a net loss of $731,488, for the three months ended June 30, 2023. We recorded a net loss of $2,358,783 for the six months ended June 30, 2024 as compared to a net loss of $1,214,474, for the six months ended June 30, 2023. The increase is a result of the factors as described above.

Current wording

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.

Previous wording

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At June 30, 2024, we had a cash balance of $175,953 and negative working capital of $1,502,950.

Current wording

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At September 30, 2024, we had a cash balance of $2,334,715 and working capital of $2,300,448.

Previous wording

Our current assets at June 30, 2024 decreased by $497,506, or 39.1%, to $776,402 from $1,273,908, from December 31, 2023. The decreases included cash of $527,415 and accounts receivable of $121,954, offset by an increase in inventory of $5,413 and prepaid expenses and other current assets of $146,450.

Current wording

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.

Previous wording

Our current liabilities at June 30, 2024 increased to $2,279,352 from $1,416,729 or an increase of $862,623, or 60.9% from December 31, 2023. The increase is comprised of increases in; convertible note payable, net of discount of $287,205, notes payable of $110,000, accrued compensation of $344,633, current portion of lease liabilities of $5,112, accounts payable of $58,206, accrued expenses of $83,157 and offset by a decreases in due to related parties of $18,434 and contract liabilities of $7,257.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

Net cash flows used in operating activities for six months ended June 30, 2023 amounted to $1,170,373 and were primarily attributable to our net loss of $1,214,474 offset by depreciation and amortization expense of $118,558, stock-based compensation of $113,200 and lease costs of $1,398. Changes in operating assets and liabilities were reflected by increases in; accounts receivable of $226,106 and accounts payable of $40,415 and offset by decreases in; inventory of $50,842, prepaid and other current assets of $44,874, accrued expenses of $24,288, contract liabilities of $43,978 and accrued compensation of $30,814.

Current wording

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.

Previous wording

Net cash flows used in investing activities were $223,509 and $0, for the six months ended June 30, 2024 and 2023, respectively. During the six months ended June 30, 2024, we purchased property and equipment of $50,913 and investment in intangible technologies of $172,596.

Current wording

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.

Previous wording

Net cash flows provided by financing activities were $855,569 and $83,381 for the six months ended June 30, 2024 and 2023, respectively.

Current wording

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.

Previous wording

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

Current wording

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.

Previous wording

During the six months ended June 30, 2023, we had proceeds from the sale of convertible notes payable of $393,000 offset by repayments due to related party for $309,619.

Current wording

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.