| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 $ 6,044,239 3,065,107 12,866,529 2,300,448 1,020,000 5,100,000 4,179,500 920,500 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. 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 $ 250,000 0 338,739 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. 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 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 no 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
five ten years 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: SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
Years
Manufacturing equipment 7 10
Drones and related equipment 5
Furniture, fixtures and office equipment 5 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 $ 172,596 545,625 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 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. 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 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 80
● 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 (See Note 11 – Commitments regarding this revenue stream). 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 $ 257 30,788 52,988 70,555 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 $ 70,288 84,670 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. 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 $ 85,572 116,170 4,311 8,578 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 no no Stock-based
compensation Stock-based
compensation is accounted for based on the requirements of ASC 718 – “Compensation –Stock Compensation Improvements
to Employee Share-Based Payment Net
loss per common share 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: SCHEDULE
OF ANTI-DILUTIVE IMPACT ON NET LOSSES
September 30, 2024 September 30, 2023
Stock warrants (1) 849,768 457,579
Common shares issuable upon conversion of Series A Preferred - 1,500,000
Common shares issuable upon conversion of Series B Preferred - 1,310,000
Non-vested forfeitable shares - 1,615,000
Total 849,768 4,696,251
(1) Does
not include Representative warrants issued to underwriter for 51,000 SAFE
PRO GROUP INC. AND SUBSIDIARIES NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER
30, 2024 AND 2023 The
Company has 3,000,000 3,275,000 3,000,000 3,275,000 1,500,000 1,310,000 0 0 3,000,000 3,275,000 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 three Leases The
Company accounts for its leases using the method prescribed by ASC 842 – Lease Accounting. 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) 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. SAFE
PRO GROUP INC. AND SUBSIDIARIES NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER
30, 2024 AND 2023 |
