Safe Pro Group Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 100% of the Safe-Pro USA Members units, representing 100% 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 100% of the Safe-Pro USA Member Interests. The Safe-Pro USA Member Interests were exchanged for 3,000,000 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 100% of the issued and outstanding shares of Airborne Response in exchange for 3,275,000 Series B preferred stock of the Company. Airborne Response is a provider of mission critical aerial intelligence solutions using uncrewed aircraft systems (UAS), more commonly known as “drones,” to its customers. Airborne Response delivers a full range of drone-based, aerial services including site surveys/mapping, infrastructure inspection, data capture, analytics and processing powered by machine learning and artificial intelligence (AI) to provide customers with comprehensive data-driven insights and reporting.

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 100% of the member interests of Safe Pro AI in exchange for 281,250 shares of the Company’s common stock, which 70,312 shares vested on September 9, 2023 and remaining shares were to vest as follows:70,314 shares twelve-month anniversary of the Closing Date,70,312 on the eighteen-month anniversary of the Closing Date, and 70,312 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 210,938 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 a number of applications including demining and in law enforcement and security. These shares were valued at $545,625, or $1.94 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 281,250 shares of common stock issued of $545,625 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.

On December 23, 2025, the Company formed SPAI Ventures LLC, a Florida limited liability company, with Safe Pro Group Inc. listed as sole manager. As of December 31, 2025, SPAI Ventures LLC had no operations, assets, or liabilities and no impact on the consolidated financial statements for the period presented.

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principles of consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company 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 consolidated financial statements. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ASUs, of the Financial Accounting Standards Board (“FASB”).

***Liquidity ***

Wehave generated limited revenues to date from the sale of products and services. We have never been profitable and have incurred significant net losses each year since our inception. As reflected in the accompanying consolidated financial statements; the Company generated a net loss of $14,322,779 and used cash in operations of $6,216,366 during the year ended December 31, 2025. As of December 31, 2025, the Company has an accumulated deficit of $28,573,530 and had working capital of $16,677,602. As of December 31, 2025, we had cash on hand of $16,793,088.

On October 21, 2025, the Company sold 2,000,000 shares of the Company’s common stock at a purchase price of $7.00 per share. The gross proceeds to the Company from the offering were approximately $14.0 million, before deducting the fees and expenses.

On August 21, 2025, the Company sold (i)2,000,000 shares of the Company’s common stock, and (ii) three-year warrants to purchase up to 2,000,000 shares of the Company’s common stock at an exercise price of $6.00 per share (the “August Warrants”). The combined purchase price of one share of common stock and one accompanying August Warrant was $4.00. The gross proceeds to the Company from the offering were approximately $8.0 million, before deducting the fees and expenses, and excluding the proceeds, if any, from the exercise of the August Warrants.

On May 9, 2025, the Company sold: (i)1,050 shares of Series C convertible preferred stock (the “Preferred Stock”) a price of $1,000 per share of Preferred Stock for aggregate gross proceeds of $1.05 million, and (ii) three-year warrants to purchase the number of shares of Company’s common stock equal to the number of Conversion Shares (defined below) underlying the Preferred Stock on the date of issuance at an exercise price of $2.93 per share (the “May Warrants”). Each share of Preferred Stock has a stated value (the “Stated Value”) of $1,100 per share. Each holder of Preferred Stock may convert all, or any part, of the Stated Value the outstanding Preferred Stock, at any time at such holder’s option, into shares of the Common Stock (which converted shares of Common Stock are referred to as “Conversion Shares”)at an initial fixed “Conversion Price” of $2.25, which is subject to proportional adjustment upon the occurrence of any stock split, stock dividend, stock combination and/or similar transactions.

On August 29, 2024, pursuant to the initial public offering (“IPO”), the Company 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. During December 2024, the company received cash consideration of $878,078 for the exercise of warrants.

The aggregate gross proceeds $22,000,000 pursuant to the August 21, 2025 and October 21, 2025 private placements of $8,000,000 and $14,000,000, respectively, 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 years ended December 31, 2025 and 2024, include estimates for allowance for doubtful accounts 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 and liabilities assumed in business acquisitions including intangible assets, the valuation of the purchase price in business acquisitions, 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.

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 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 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 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 to be distributed over multiple institutions, so that at any given time there are no sums in excess of FDIC insured levels. To date, the Company has not experienced any losses on its invested cash. As of December 31, 2025 and 2024, the Company hadno cash in bank in excess of FDIC insured levels.

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, and 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.

Business acquisitions

The Company accounts for business acquisitions using the acquisition method of accounting where the assets are acquired, and the liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses, and cash flows, weighted average cost of capital, discount rates, and estimates of terminal values. Business acquisitions are included in the Company’s consolidated financial statements as of the date of the acquisition.

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 acquisition of an asset or a group of assets that does not constitute a business, the Company applies ASC 805-50 which provides guidance on acquisitions of assets rather than a business. Acquisitions of assets are accounted for using the cost accumulation and allocation model. 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.

Cash and cash equivalents

For the 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 hasno cash equivalents as of December 31, 2025 and 2024.

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 toten years. Leasehold improvements are depreciated over the shorter of the useful life or lease term including scheduled renewal terms. Maintenance and repairs are charged to expense as incurred. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of these assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

The estimated useful lives of property and equipment are generally as follows:

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 intended function. Capitalization ceases at the point where 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 the 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.

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 thannot 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.

FOR THE YEARS ENDED DECEMBER 31, 2025 and 2024

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.

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.

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 December 31, 2025 and 2024, customer advanced payments amounted to $18,897 and $83,768, respectively, which are included in contract liabilities on the accompanying consolidated balance sheets.

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, sub-contractor costs, production costs, supplies and materials, freight, production services and related depreciation, and other direct and indirect costs.

Advertising costs

All costs related to advertising the Company’s services and products are expensed in the period incurred. For the years ended December 31, 2025, and 2024, advertising costs charged to operations were $169,651 and $197,572, respectively, are included in general and administrative expenses on the accompanying consolidated statements of operations.

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 December 31, 2025 and 2024, the Company hadno uncertain tax positions that qualify for either recognition or disclosure in the consolidated financial statements. The tax years that remain subject to examination are the years ending on and after December 31, 2025, 2024 and 2023. The Company recognizes interest and penalties related to uncertain income tax positions in other expenses. However, no such interest and penalties were recorded during the years ended December 31, 2025 and 2024.

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”) 2016-09Improvements 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 years ended December 31, 2025 and 2024, as they would have an anti-dilutive impact on the Company’s net losses and consisted of the following:

The Company has 3,000,000 Series A Preferred,3,275,000 Series B Preferred, and 2,000 Series C Preferred shares authorized. On August 28, 2024,3,000,000 Series A Preferred and 3,275,000 Series B Preferred shares were converted into 1,500,000 and 1,310,000 common shares respectively. During the years ended December 31, 2025 and 2024, the Company had 0 of Series A Preferred,0 of Series B Preferred, and 0 of Series C Preferred shares issued and outstanding (See Note 9).

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 years ended December 31, 2025 and 2024, the Company operated in three reportable business segments which consisted of (1) the business of Safe-Pro USA, (2) the business of Airborne Response, and (3) the business of Safe Pro AI. The Company’s reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations and locations.

Leases

The Company accounts for its leases using the method prescribed by ASC 842 –*Lease Accounting.*The Company assesses 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 consolidated statements of operations.

Recent accounting pronouncements

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740*): Improvements to Income Tax Disclosures*. This ASU requires disclosure of specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold. The amendment also includes other changes to improve the effectiveness of income tax disclosures, including further disaggregation of income taxes paid for individually significant jurisdictions. This ASU is effective for annual periods beginning after December 15, 2024. The Company adopted ASU 2023-09 on December 31, 2025. The adoption of the standard did not result in any significant disclosure changes in the Notes to the Consolidated Financial Statements.

In November 2024, FASB issued ASU 2024-03,Income Statement - Reporting Comprehensive Income (Topic 220): Disaggregation of Income Statement Expenses(“ASU 2024-03”). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement. ASU 2024-03 is effective for annual periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted, and application may be applied prospectively or retrospectively. We are currently evaluating the potential effect that ASU 2024-03 will have on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-04,“Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments,” which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion or extinguishment of convertible debt. The new guidance is effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual periods. The Company is currently evaluating the impact of the standard on its consolidated financial statements and related disclosures.

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.

NOTE 3 –ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES

Accounts receivable

On December 31, 2025 and 2024, accounts receivable consisted of the following:

For the years ended December 31, 2025 and 2024, the Company didnot record any bad debt expense related to accounts receivable.

Performance bond receivable

On December 31, 2025 and 2024, other receivables consisted solely of performance bond receivables as follows:

Safe-Pro USA was required to obtain a Performance Guarantee (PG) at a bank designated by a former customer. The amount of each separate Performance Guarantee is 10% of the CFR (Cost and Freight) value of the contract in US Dollars. The Performance Guarantee was required to be submitted prior to the Contract being executed. In case of the supplier’s failure to fulfill the contractual obligations as per the terms of the contract, the Performance Guarantee may be forfeited. Upon certain conditions being met, the Company would be entitled to reimbursement from the Performance Guarantee being held. The Company has yet to receive any receipts from their performance bonds being held at the designated bank. As of December 31, 2025 and 2024, there were no performance bonds receivable and outstanding.

NOTE 4 –INVENTORY

On December 31, 2025 and 2024, inventories consisted of the following:

NOTE 5 –PROPERTY AND EQUIPMENT

On December 31, 2025 and 2024, property and equipment consisted of the following:

For the year ended December 31, 2025 and 2024, depreciation expense amounted to $80,602 and $69,848, respectively.

NOTE 6 –INTANGIBLE ASSETS AND GOODWILL

Impairments

During the year ended December 31, 2025, the Company conducted an impairment test of its goodwill and other intangibles due to a decline in operating performance and a sustained decline in its stock price. As part of the analysis, the Company updated the forecasted future cash flows and revenues in the impairment assessment to reflect current conditions. Based on the results of the impairment test performed, the Company recognized a full goodwill impairment charge of $684,867 and another intangibles impairment charge of $146,001 during the year ended December 31, 2025. No impairment charges were recognized during the year ended December 31, 2024.

Intangible assets

As a result of the acquisition of Safe Pro AI on March 9, 2023, there was a $545,625 increase in the gross intangible assets made up of $545,625 of finite lived intangible assets, consisting of a single software asset, SpotlightAI™. Spotlight AI detects threats from drone imagery, relaying precise GPS location and actionable reporting information to decision makers and ground personnel. The Company intends to utilize its AI, ML and computer vision technology to create and analyze large datasets. The Company’s technology is being used in the field by the Ukrainian government, as well as several humanitarian aid organizations.

During the years ended December 31, 2025 and 2024, the Company capitalized $192,545 and $372,588 of its direct costs, respectively. As of December 31, 2025 and 2024, the Company has $834,461 and$1,088,645 of finite lived intangible assets, net, respectively.

As of December 31, 2025, intangible assets subject to amortization consisted of the following:

As of December 31, 2024, intangible assets subject to amortization consisted of the following:

For the years ended December 31, 2025 and 2024, amortization of intangible assets amounted to $300,728 and $271,235, respectively. For the year ended December 31, 2025, impairment of intangible assets amounted to $146,001. There wereno impairment charges during the year ended December 31, 2024.

Amortization of intangible assets with finite lives attributable to future periods is as follows:

Goodwill

On December 31, 2025 and 2024, goodwill consisted of the following:

For the year ended December 31, 2025, impairment of goodwill amounted to $684,867.

NOTE 7 –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 $146,000 from the U.S. Small Business Administration (the “SBA”). The SBA deferred the first payment due from 12 months from the date of the promissory note to 30 months from the date of the Note, with a term of 30 years or July 1, 2050. Interest shall accrue at the rate of 3.75% per annum. The SBA Loan is secured by a continuing security interest in and to any and all Safe Pro USA’s tangible and intangible personal property, including, but not limited to inventory, equipment, accounts receivable, and deposit accounts. As of December 31, 2025 and 2024, accrued interest related to this note amounted to $2,158 and $5,227, respectively, and is included in accrued expenses on the accompanying consolidated balance sheets.

On June 17, 2024, the Company entered into a promissory note with an investor for $110,000. On July 11, 2024, the Company entered into a promissory note with an investor for $110,000. On July 17, 2024, the Company entered into an additional promissory note with an investor for $16,500. Each Note bears interest at 8% per annum and isdue on the earlier of August 31, 2024 or 5 business days after the Company’s IPO. The Notes were repaid on August 30, 2024.

On December 31, 2025 and 2024, note payable consisted of the following:

The following schedule provides minimum future note payable principal payments required during future periods:

NOTE 8 –CONVERTIBLE NOTES PAYABLE

On December 27, 2023, the Company received net proceeds of $475,000 in relation to a convertible debt agreement with an investor in the principal amount of $475,000, which matured on December 27, 2024, at an interest rate of 15% per annum and a default interest rate of 18% per annum. The convertible debt agreement provided warrants to purchase up to 148,438 shares of the Company’s common stock at an exercise price of $1.00, with a term ofthree years. The investor may convert any outstanding and unpaid principal portion and accrued and unpaid interest of the convertible note into shares of the Company’s common stock at the conversion price of $3.20 per share, subject to price protection and 4.9% beneficial conversion limitation. The warrants were valued at $184,063, or $1.24, and using the relative fair value method, the Company recorded as a debt discount of $132,658 to be amortized over the life of the convertible note. The warrants were valued on the grant date using a Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 2.91%, expected dividend yield of 0%, expected option term ofthree years, and expected volatility of 70.0% based on the calculated volatility of comparable companies.

During March 2024, the Company received net proceeds of $275,002 in relation to a convertible debt agreement with an investor in the principal amount of $475,000, which mature in March of 2025 at an interest rate of 15% per annum and a default interest rate of 18% per annum. The convertible debt agreement provided warrants to purchase up to 85,938 shares of the Company’s common stock at an exercise price of $1.00, with a term ofthree years. The investor may convert any outstanding and unpaid principal portion and accrued and unpaid interest of the convertible note into shares of the Company’s common stock at the conversion price of $3.20 per share, subject to price protection and 4.9% beneficial conversion limitation. The warrants were valued on the grant date at $106,563, or $1.24, using the relative fair value method. Warrants were valued on the grant date using a Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 2.91%, expected dividend yield of 0%, expected option term ofthree years, and expected volatility of 70.0% based on the calculated volatility of comparable companies.

On August 27, 2024, the December 2023 Convertible Note and March 2024 Convertible Notes with principal balances of $750,002 and accrued interest payable of $58,530, were converted into 252,666 common shares of the Company, pursuant to contractual conversion terms.

During the year ended December 31, 2024, amortization of debt discount, which is reflected in interest expense on the accompanying consolidated statement of operations, amounted to $208,006. There wasno amortization of debt discount during the year ended December 31, 2025 as the notes converted in 2024.

NOTE 9 –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 3,000,000 shares of the Series A Preferred, par value $0.0001. The Certificate of Designation became effective in the state of Delaware on January 20, 2023. Each share of Series A Preferred had an initial stated value of $10.00 per share. On August 28, 2023, the Company amended its Series A Preferred Certificate of Designation, to amend the Series A Stated Value to $2.50 per share.

Each share of Series A Preferred was convertible into the number of common shares equal to the Series A Stated Value ($2.50) divided by the Fair Market Value of the common stock. 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, subject to price protection. 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 a dividend that is payable to the holders of the Company’s common stock as well as certain liquidation rights.

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 100% of the Safe-Pro USA, the Company issued 3,000,000 share of Series A preferred stock. On August 28, 2024, in conjunction with the Company’s initial public offering, the Series A Preferred shares were converted into 1,500,000 shares of common stock.

Series B Preferred Stock

On August 29, 2022, the Company’s board of directors approved an Amendment to its Articles of Incorporation, to designate 3,275,000 shares of the Series B Preferred, par value $0.0001. The Certificate of Designation became effective in the state of Delaware on January 20, 2023. Each share of Series B Preferred had a stated value of $2.00 per share.

Each share of Series B Preferred was convertible into the number of common shares equal to the Series B Stated Value ($2.00) divided by the Fair Market Value of the common stock. 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, subject to price protection. Series B Preferred has voting rights equal to the number of common shares into which it may convert. The conversion rights of Preferred Series B 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 B Preferred shall be entitled to a dividend that is payable to the holders of the Company’s common stock as well as certain liquidation rights.

On August 29, 2022, in connection with the acquisition of 100% of Airborne Response, the Company issued 3,275,000 shares of Series B preferred stock. On August 27, 2024, in conjunction with the Company’s initial public offering, the Series B Preferred shares were converted into 1,310,000 shares of common stock.

Series C Preferred Stock

On May 7, 2025, the Company’s board of directors approved an Amendment to its Articles of Incorporation, to designate 2,000 shares of the Series C Preferred, par value $0.0001. On May 8, 2025, the Company’s Certificate of Designation for Series C Preferred Stock became effective, authorizing 2,000 shares with a stated value of $1,100 per share. The Series C Preferred Stock was non-voting, entitled to dividends on an as-converted basis, and convertible into common stock at a fixed price of $2.25 per share. The Company had the option to redeem the shares at stated value, and holders were entitled to liquidation preference equal to the stated value.

On July 22, 2025, the Company issued 427,778 common shares pursuant to the conversion of 875 shares of Preferred Series Cat a conversion ratio of $2.25 per share.

On July 23, 2025, the Company issued 70,889 common shares pursuant to the conversion of 145 shares of Preferred Series Cat a conversion ratio of $2.25 per share.

On September 11, 2025, the Company issued 14,667 common shares pursuant to the conversion of 30 shares of Preferred Series Cat a conversion ratio of $2.25 per share.

As of December 31, 2025,all Series C preferred Stock had been converted into common shares, resulting in no outstanding balance.

Common Stock

Common Stock Issued for Compensation and Services

On February 27, 2025, the Company issued 100,000 common shares, pursuant to its 2022 Equity Plan, at a fair market value of $3.90, representing the market close on date of issuance. The award was issued to an individual for services. Stock-based professional fees in the amount of $390,000 are recorded to Professional fees, on the Company’s consolidated statement of operations.

On February 28, 2025, the Company issued 400,000 common shares, pursuant to its 2022 Equity Plan, at a fair market value of $3.88, representing the market close on date of issuance. The award was issued to Mr. Erdberg, the Company’s CEO, as pursuant to his contractual agreement with the Company. Stock-based compensation in the amount of $1,552,500 is recorded and is represented in Salary, wages and payroll taxes on the Company’s consolidated statement of operations.

Also on February 28, 2025, the Company issued 100,000 common shares, pursuant to its 2022 Equity Plan, at a fair market value of $3.88, representing the market close on date of issuance. The award was issued to an individual for services. Stock-based professional fees in the amount of $380,000 are recorded to Professional fees, on the Company’s consolidated statement of operations.

On March 11, 2025, the Company issued 25,000 common shares, pursuant to its 2022 Equity Plan, at a fair market value of $3.06, representing the market close on date of issuance. The award was issued to an individual for services. Stock-based professional fees in the amount of $76,500 are recorded to Professional fees, on the Company’s consolidated statement of operations.

On March 20, 2025, the Company issued 12,500 common shares, outside of its 2022 Equity Plan, at a fair market value of $2.93, representing the market close on date of issuance. The award was issued to individuals for services. Stock-based professional fees in the amount of $36,625 are recorded to Professional fees, on the Company’s consolidated statement of operations.

On June 13, 2025, the Company issued 37,500 common shares, pursuant to 2022 Equity Plan, at a fair market value of $3.01, representing the market close on date of issuance. The award was issued to an individual for services. Stock-based professional fees in the amount of $112,875 are recorded as professional fees, on the Company’s consolidated statement of operations.

Also on June 13, 2025, the Company issued 165,000 restricted shares at a fair market value of $3.01, representing the market close on date of issuance. Stock-based professional fees in the amount of $496,650 are recorded to Professional fees, on the Company’s consolidated statement of operations. The foregoing securities were issued pursuant to Section 4(a)(2) of the Securities Act. The awards were issued to individuals for services relating to certain equity transactions and have not been registered pursuant to the Securities Act of 1933.

On July 22, 2025, the Company issued 265,000 common shares, pursuant to its 2022 Equity Plan, at a fair market value of $3.85, representing the market close on date of issuance. The awards were issued to individuals in connection with services performed or pursuant to contractual employment agreements. Stock-based compensation fees totaling $1,020,250 are recorded, including $442,750 to Professional fees and $577,500 to Salary, wages and payroll taxes on the Company’s consolidated statement of operations.

Also on July 22, 2025, the Company issued 30,000 restricted shares at a fair market value of $3.85, representing the market close on date of issuance. Stock based professional fees in the amount of $115,500 are recorded to Professional fees, on the Company’s consolidated statement of operations. The foregoing securities were issued pursuant to Section 4(a)(2) of the Securities Act. The award was issued to an individual for services performed and has not been registered pursuant to the Securities Act of 1933.

On August 4, 2025, the Company granted 30,000 common shares, pursuant to its 2022 Equity Plan, at a fair market value of $3.36, representing the market close on date of issuance. The award was granted to an individual in connection with services performed. The shares vest in equal monthly installments of 2,500 shares over a 12-month period beginning September 1, 2025, subject to continued service. During the year ended December 31, 2025, the Company recognized stock-based compensation expense related to four monthly vesting installments, representing 10,000 vested shares, resulting in $33,600 of stock-based compensation expense. As of December 31, 2025, the Company issued 7,500 shares with the remaining vested shares issued in 2026. Stock-based professional fees in the amount of $33,600 are recorded to professional fees on the Company’s consolidated statement of operations.

On August 22, 2025, the Company issued 187,500 common shares, pursuant to its 2022 Equity Plan, at a fair market value of $5.69, representing the market close on date of issuance. The awards were issued to individuals in connection with services performed or pursuant to contractual employment agreements. Stock based professional fees in the amount of $1,066,875 are recorded to professional fees, on the Company’s consolidated statement of operations.

On October 17, 2025, the Company issued 50,000 shares of its common stock pursuant to its 2022 Equity Incentive Plan. The shares were granted at a fair market value of $3.90 per share, based on the closing price on the grant date. This issuance was made in accordance with a contractual employment agreement dated February 27, 2025, which provided for the issuance of 50,000 shares effective six months from the agreement date. The Company recognized stock-based compensation expense totaling $195,000, which was recorded as Professional Fees in the consolidated statement of operations.

Also on October 17, 2025, the Company issued 25,000 shares of its common stock pursuant to its 2022 Equity Incentive Plan. The shares were granted at a fair market value of $3.06 per share, based on the closing price on the grant date. This issuance was made in accordance with a contractual employment agreement dated March 11, 2025, which provided for the issuance of 25,000 shares effective six months from the agreement date. The Company recognized stock-based compensation expense totaling $76,500, which was recorded as Professional Fees in the consolidated statement of operations.

On October 31, 2025, the Compensation Committee approved the accelerated vesting and issuance of 25,000 shares of common stock under the 2022 Equity Incentive Plan. In accordance with ASC 718, the fair value of the award was measured at $6.30 per share, the closing price on the acceleration date, as this constituted a modification of the original grant. As a result, the stock-based compensation of $157,500 was recorded as Professional Fees on the Company’s consolidated statement of operations.

On December 1, 2025, the Company issued 18,500 restricted shares at a fair market value of $4.74 representing the market close on date of issuance. Stock based professional fees in the amount of $87,688 are recorded to professional fees, on the Company’s consolidated statement of operations. The foregoing securities were issued pursuant to Section 4(a)(2) of the Securities Act. The award was issued to an individual for services performed and has not been registered pursuant to the Securities Act of 1933.

Also on December 1, 2025, the Compensation Committee approved the vesting and issuance of 20,000 shares of common stock to a consultant pursuant to its 2022 Equity Incentive Plan. The shares were granted at a fair market value of $4.74 per share representing market close on the date of issuance. The Company recognized stock-based compensation expense totaling $94,800, which was recorded as Professional Fees in the consolidated statement of operations.

During the year ended December 31, 2024, the Company issued 789,199 shares of common stock, in the aggregate, for services rendered. The Company valued these shares at $2,852,648, in the aggregate, which was recorded as general and administrative expense in the Company’s consolidated statement of operations.

Common stock issued for cash

On October 21, 2025, the Company closed on a private placement of 2,000,000 shares of common stock at a purchase price of $7.00 per share, resulting in aggregate proceeds of $14,000,000. The Company incurred direct equity issuance costs of $1,055,000, which were recorded as a reduction to additional paid-in capital. After giving effect to these costs, the Company received net proceeds of $12,945,000.

On August 29, 2024, the Company consummated its initial public offering (“IPO”),1,020,000 shares of common stock were offered at $5.00 per share, pursuant to the Company’s registration statement on Form S-1, as amended (the “Registration Statement”). The Company received net proceeds of $4,179,500 in connection with the IPO.

Common stock and warrants issued for cash

On August 21, 2025, the Company completed a private placement of 2,000,000 Units for aggregate gross proceeds of $8,000,000, or $4.00 per Unit. Each Unit consisted of one share of common stock and one common stock purchase warrant. Each warrant entitles the holder to acquire one share of common stock at an exercise price of $6.00 per share, exercisable immediately and expiring three years from the date of issuance. The Company incurred direct equity issuance costs of $1,232,500, which were recorded as a reduction to additional paid-in capital.

During the year ended December 31, 2024, the Company completed a private placement of 152,813 Units for proceeds of $489,002, in the aggregate, or $3.20 per Unit. Each Unit consisted of one share of common stock and one common stock purchase warrant. Of the 152,813 warrants issued,51,249 warrants have an exercise price of $1.00 and 101,564 warrants have an exercise price of $3.20. The warrants are exercisable forthree years from the date of issuance.

Treasury Stock

During the year ended December 31, 2025, the Company repurchased an aggregate of 162,454 shares of its common stock under its Treasury Stock Repurchase Program for total consideration of $676,034. Of the total consideration, $613,409 was paid in cash during the year ended December 31, 2025 and $62,625 was recorded in accounts payable as of December 31, 2025. All shares repurchased were recorded as treasury stock and are reflected as a reduction of stockholders’ equity in the accompanying consolidated balance sheet.

Contributed Capital

On March 31, 2025, Mr. Borkar, President of Safe-Pro USA and an employee, which is his spouse, agreed to forgive aggregate accrued salary of $113,077, which has been recorded as contributed capital as presented on the consolidated statement of shareholders equity.

Warrants

A summary of the status of the Company’s total outstanding warrants and changes during the years ending December 31, 2025 and 2024 are as follows:

During the year ended December 31, 2025, the Company issued 515,678 shares of common stock upon the exercise of 515,678 warrants, in the aggregate, for gross proceeds of $1,511,570 to the Company.

During the year ended December 31, 2024, the Company issued 775,237 common stock upon the exercise of 775,237 warrants, in the aggregate, for gross proceeds of $878,708.

For the years ended December 31, 2025 and 2024, the Company recorded $15,447 and $0, respectively, for stock-based compensation expense related to 12,500 warrants as issued for services. As of December 31, 2025, the stock-based compensation for the warrants was fully amortized.

The above warrants granted during the year ended December 31, 2025 were valued using the Black-Scholes option pricing model using the following weighted average assumptions:

Representative warrants

On August 29, 2024, in connection with the IPO, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Dawson James Securities, Inc. (the “Underwriter”), Pursuant to the Underwriting Agreement, the Company 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 “Underwriter Warrant”). The Underwriter Warrant is 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. The Underwriter Warrant provides for registration rights (including piggyback rights) and customary anti-dilution provisions (for share dividends and splits and recapitalizations) and anti-dilution protection (adjustment in the price of the Underwriter Warrant and the number of shares underlying the Underwriter Warrant) resulting from corporate events (which would include dividends, reorganization, mergers and similar events). The Underwriter Warrant and the common stock underlying the Underwriter Warrant were registered as a part of the IPO Registration Statement.

Warrants issued for Convertible Preferred Series C Stock

On May 8, 2025, the Company entered into convertible Series C Preferred agreements with investors pursuant to which the Company issued and sold to the Investors for an aggregate price of $1,050,000 to (i)1,050 Series C Preferred shares, stated value $1,100 which are convertible into 513,335 shares of the Company’s common stock at a conversion rate of $2.25 per share and (ii) warrants to purchase 513,335 shares of common stock at an initial exercise price of $2.93 per share, subject to adjustment.

Warrants issued for convertible debt

During the year ended December 31, 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 $275,001 and (ii) warrants to purchase up to 85,938 shares of the Company’s common stock at an initial exercise price of $1.00, subject to adjustment.

Warrants issued in connection with private placement

During the year ended December 31, 2025, the Company completed a private placement of 2,000,000 Units for aggregate gross proceeds of $8,000,000 or $4.00 per Unit. Each Unit consisted of one share of common stock and one common stock purchase warrant. Each warrant entitles the holder to acquire one share of common stock at an exercise price of $6.00 per share, exercisable immediately and expiring three years from the date of issuance.

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.

Options

A summary of the Company’s stock option activity is as follows:

For the years ended December 31, 2025 and 2024, the Company recorded $1,040,467 and $241,336, respectively, for stock-based compensation expense related to stock options. As of December 31, 2025, unamortized stock-based compensation for stock options was $1,300,536 to be recognized through March 31, 2030.

The options granted during the years ended December 31, 2025 and 2024 were valued using the Black-Scholes option pricing model using the following weighted average assumptions:

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 5,000,000 shares of common stock for issuance thereunder. 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 years ended December 31, 2025 and 2024,2,192,500 and 1,082,500 of the Company’s common shares were issued for services pursuant to the 2022 Plan, respectively. As of December 31, 2025 and 2024, the Company had 27,500 and 2,522,500, respectively, shares available for issuance under the 2022 Plan.

NOTE 10 –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 December 31, 2025, 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.

Employment 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 successiveone-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 $225,000 and participation in retirement and welfare benefits. At the discretion of the Board of Directors, a portion of the Base Salary may be accrued and at the election of the Employee be paid in common stock of the Company. The Agreement provides for a performance bonus based upon certain customer contracts of 15% in 2022;10% in 2023; and 5% in 2024 of the Contribution Margin provided by such contracts during the term of the Agreement. “Contribution Margin” shall mean net revenue from sales (gross revenue net of refunds or charge backs), less expenses related to the provision of services or equipment under the contract. Additionally, Mr. Erdberg shall be entitled to receive an annual cash bonus of an amount equal to up to 100% of his then-current Base Salary if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors. In the event of termination “without cause” or resignation with ‘good reason” (as defined within the Agreement), Mr. Erdberg shall receive one year base salary.

In 2025, Mr, Erdberg’s employment agreement is with Safe Group Inc.

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 successiveone-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 $225,000 and participation in retirement and welfare benefits. At the discretion of the Board of Directors, a portion of the Base Salary may be accrued and at the election of the Employee be paid in common stock of the Company. The Agreement provides for a performance bonus based upon certain customer contracts of 15% in 2022;20% in 2022;15% in 2023; and 10% in 2024 of the Contribution Margin provided by such contracts during the term of this Agreement. “Contribution Margin” shall mean net revenue from sales (gross revenue net of refunds or charge backs), less expenses related to the provision of services or equipment under the contract. Additionally, Mr. Todd shall be entitled to receive an annual cash bonus in an amount equal to up to 100% of his then-current Base Salary if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors. In the event of termination “without cause” or resignation with ‘good reason” (as defined within the Agreement), Mr. Todd shall receive one year base salary.

Pravin Borkar – Chief Technology 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 ofone-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 $1,500 per month for medical premiums, upon the date the Parent becomes effective on a national market system exchange. At the discretion of the Board of Directors, a portion of base salary may be accrued and at election of Mr. Borkar be paid in common stock of the Parent. Mr. Borkar shall be entitled to receive an annual cash bonus in an amount equal to up to 100% of his then-current Base Salary if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors. On August 26, 2023, pursuant to the Fourth Amendment to the Exchange Agreement, related to the acquisition of Safe-Pro USA, the Company agreed to pay Mr. Borkar, $120,000 annual base salary, retroactive to January 1, 2023, until such time that the Company is listed on a National Market Exchange, which shall be deemed to have occurred upon the closing of this offering. Additionally, on August 26, 2023, in connection with the fourth amendment to the Exchange Agreement, the Company agreed that after the Company has listed its common shares for trading on a national market system exchange (the “Listing”), the Company shall award the former members of Safe-Pro USA a number of shares of the Company’s common stock equal to $2,500,000 (the “Listing Shares”), valued at the opening price on the date of the Listing. The Listing Shares will vest upon the Company achieving $5,000,000 in revenue through the sale of Safe-Pro USA manufactured products calculated on a trailing twelve-month basis calculated from the date of this amendment forward. Upon the Company achieving $5,000,000 in revenue through the sale of Safe-Pro USA manufactured products, calculated from the date of this amendment forward, the former Safe-Pro USA members will be entitled to a one-time payment in an amount equal to 10% of the net profits generated therefrom. The Company considered the Listing Shares to be compensatory in nature (See Note 3). The Listing Shares shall be accounted for pursuant to ASC 718 – Stock-based compensation. Pursuant to ASC 718, the value of the Listing Shares shall be recognized upon a successful IPO and when the attainment the performance condition of $5,000,000 in revenues is probable.

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 $225,000 upon the date the Company becomes effective on a national market system exchange. Ms. Borkar shall be entitled to receive an annual cash bonus in an amount equal to up to 100% of his then-current Base Salary if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board of Directors.

Theresa Carlise – Chief Financial Officer – Safe Pro Group Inc.

On June 22, 2023, the Company entered into aone-year Employment Agreement, (“Agreement”) that extends for an additional one-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) $5,000 per month from the Execution Date and for a period of six months (the “Initial Payment Period”), which shall accrue monthly and be payable upon listing on Nasdaq or other National Market System exchange or at such time after the effective date hereof that the Company has raised at least $750,000, whichever is earlier, (ii) $10,000 per month beginning in the seventh month after the Execution Date (the “Second Payment Period”), payable on the Company’s regular payment schedule. (iii) $15,000 per month beginning the day after the Company is listed for trading on Nasdaq or other National Market System exchange. In addition to the Base Salary of $15,000, the Employee shall additional be entitled to a car allowance of $600 per month and payment of 100% of her health insurance premium through the Company’s plan or if the Company doesn’t have a plan, then up to $1,500 per month of the actual premium paid for private health insurance. on 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. Upon execution of this agreement Ms. Carlise received 30,000 fully vested restricted shares of the Company.

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) $10,000 per month from the Execution Date and for a period of six months (the “Initial Payment Period”), which shall accrue monthly and be payable upon listing on Nasdaq or other National Market System exchange, whichever is earlier $10,000 per month beginning the earlier of January 22, 2024 or at such time after the effective date hereof that the Company has raised at least $750,000 (the “Second Payment Period”), be payable semi-monthly less applicable taxes on the Company’s regular payroll processing schedule.”

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, which shall be deemed to have occurred upon the closing of this offering, were to be accrued from the effective date of June 22, 2023 forward, to include $600 monthly auto allowance and insurance premiums of $1,500 month, (ii) four weeks of PTO, of which unused portion will accrue into the following year, (iii) annual minimum increases to Base Salary between 10-20%, to be determined by the Compensation Committee and (iii) adjustment to the language in Other Tax Matters, Section 409A.

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 $360,000 (“Base Salary”). Thereafter, the Compensation Committee of the Board (the “Committee”) shall consider increases in Base Salary for subsequent years in connection with performance and a review of compensation provided at peer companies, which companies shall be subject to review on a continuing basis (the “Peer Group”), taking into account Company and individual performance objectives; provided, however, that Base Salary shall be increased as of each anniversary of the Effective Date by a minimum of the greater of five percent or the annual increase in the Federal Consumer Price Index. Executive’s Base Salary shall not be decreased (including after any increases pursuant to this Section 3(a)) without Executive’s written consent. Notwithstanding the foregoing, the Base Salary shall be accrued on the books of the Company until such time that the Board determines that the Company has sufficient capital to begin paying the Base Salary monthly in cash. At such time any accrued and unpaid Base Salary shall be paid over a six-month period, or at the election of the Executive in shares of the Company’s common stock at the then current market price. Additionally, upon the commencement of cash payments of the Base Salary to the Executive, the Executive’s employment agreement with Airborne Response, shall be terminated by the mutual agreement of the Executive and Airborne Response, with any accrued and unpaid salary to be paid to Executive at that time.

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 $1,000 per month. If the Company does not provide health insurance or the Executive is covered under a different policy, the Company shall reimburse Executive up to $3,500 per month for health insurance coverage, which may be accrued at the option of the Board and which may be paid in shares of the Company’s common stock at the option of the Employee.

Long-term incentive award. During the Term, the Executive shall have anannual 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 plan and the award agreement.

Annual Target Cash Bonus Opportunity. During the Term, Mr. Erdberg shall have anannual 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.

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 450,000 shares of common stock.

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 $500,000, 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 $1,000,000.

Agreement with directors

On January 9, 2024, 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 $48,000 payable in equal monthly installments commencing upon listing on a national exchange. Additionally, the Company granted each director 50,000 common shares of the Company.

Product liability insurance

The Company’s subsidiary, Safe-Pro USA, carries a product liability policy that covers up to $2,000,000 of claims retroactive to June 26, 2020.

Contingent amounts due to related parties

As discussed in Note 12 – Related Party Transactions, the Company agreed to assume liability to the former members of Safe-Pro USA of $1,622,540 as of the Safe-Pro USA acquisition date. The amount due to the former members Safe-Pro USA was originally agreed to be $2,193,901, which was reduced to $1,622,540 to account for certain revenues not recognized since the performance obligation was not completed and other holdbacks. On April 11, 2024, pursuant to the Fifth Amendment to Exchange Agreement, should the Company collect the 20% performance obligation in the future the former members would be reimbursed this difference up to $571,361. In addition, pursuant to Amendment No. 5, all further payments due under this contingent obligation of $571,361, net of 10% commissions payable and certain other expenses are to be paid from the proceeds of contracts and performance bonds, offset by certain costs associated with the contracts, from the customer the Bangladesh Ministry of Defense. On March 19, 2025 and July 25, 2025, the Company received $37,615 and $56,325, respectively, in regard to this contingent obligation net of commissions payable. As of December 31, 2025, the remaining balance of$433,406 is only payable from proceeds related to contracts with the Bangladesh Ministry of Defense customer.

NOTE 11 –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. To date, the Company has not experienced any losses on its invested cash. As of December 31, 2025 and 2024, the Company recorded no cash in bank in excess of FDIC insured levels. In August 2024, the Company 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, earn a return, and enjoy flexibility. This reduces the Company’s risk as it relates to uninsured FDIC amounts in excess of $250,000.

Geographic concentrations of sales

During the year ended December 31, 2025,88.9% of total sales were to customers in the United States,10.3% of total sales were to a customer in Canada and 0.8% of total sales were to a customer in Europe.

During the year ended December 31, 2024,80.7% of total sales were to customers in the United Sates,19.2% of sales were to a customer in Canada, and 0.1% of sales were to customers in Europe.

Customer concentration

For the year ended December 31, 2025, 4 customers accounted for approximately 67.6% of total sales (Classic Custom 23.0%, Florida Power & Light 22.9%, JD Advanced Forensics 11.4% and Mriya Aid 10.3%, respectively). For the year ended, December 31, 2024, three customers accounted for approximately 87.6% of total sales (Florida Power & Light 49.1%, Classic Custom 19.3%, and Mriya Aid 19.2%, respectively).

On December 31, 2025, 3 customers accounted for 97.7% of the total accounts receivable (Florida Power & Light 61.0%, JD Advanced Forensics 22.4%, and Motorola Solution 14.2%). On December 31, 2024, one customer accounted for 89.5% of the total accounts receivable balance (Florida Power & Light).

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. Sales of Airborne Response are primarily seasonal based on weather conditions or patterns.

Supplier concentration

During the year ended December 31, 2025, the Company purchased approximately 68.0% of inventory from four suppliers, Avient Protective Materials, Lincoln Fabrics, Skydio, Inc., and Hisco/Precision Converting. During the year ended December 31, 2024, the Company purchased 35.7% of inventory from two suppliers, Minelab Electronics and Southeast Drone Technologies.

The loss of these suppliers may have a material adverse effect on our results of operations and financial condition. However, we believe that, if necessary, alternative vendors could supply similar products in adequate quantities to avoid material disruptions to operations.

NOTE 12 –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 $1,622,540. The Safe-Pro USA preacquisition members advanced funds to Safe-Pro USA for working capital purposes prior to the acquisition and during the 2025, 2024, 2023 and 2022 periods. Additionally, during 2025, 2024, 2023 and 2022, a company owned by the preacquisition members paid certain expenses and wages on behalf of the Company and was reimbursed for these expenses. These advances are non-interest bearing and are payable on demand but only from proceeds received from contracts the Bangladesh Ministry of Defense customer.

During the year ended December 31, 2025, the Company primarily advanced funds received from the Bangladesh receivables of $96,940 and made payments of $43,050. During year ended December 31, 2024, the Company repaid $20,654 of these advances and assumed liabilities. On December 31, 2025 and 2024, amounts due to the former member amounted to $433,406 and $382,516, respectively, which is included in due to related parties on the accompanying consolidated balance sheets. See Note 10 –Contingent amounts due to related parties.

On March 31, 2025, Mr. Borkar waived accrued salary in aggregate of $56,538, as due under his Employment Agreement and subsequent 4th Amendment to the Share Exchange Agreement. For the year ended December 31, 2025, approximately $56,538 was waived and was recorded as contributed capital. As of December 31, 2025 and 2024, the accrued wages balance for Mr. Borkar was $3,956 and $39,105.

On March 31, 2025, a spouse of Mr. Borkar waived the accrued salary in aggregate of $56,538, as due under her Employment Agreement and subsequent 4th Amendment to the Share Exchange Agreement. For the year ended December 31, 2025, approximately $56,538 was waived and was recorded as contributed capital. For the year ended December 31, 2025, the accrued wages balance for the spouse of Mr. Borkar was $3,956.

For the years ended December 31, 2025 and 2024, the Company recorded gross wages of $120,000 and $159,107, respectively, for the spouse of Mr. Borkar.

Related party purchases

During the years ended December 31, 2025 and 2024, the Company purchased inventory and services from a company owned by the spouse of Mr. Borkar in the amount of $9,287 and $18,765, respectively, which is included in cost of sales on the accompanying consolidated statements of operations.

NOTE 13 –OPERATING LEASE RIGHT-OF-USE (“ROU”) ASSETS AND OPERATING LEASE LIABILITIES

On July 13, 2022, and effective August 1, 2022, the Company entered into a 36-month lease agreement for the lease of office space under a non-cancellable operating lease through July 31, 2025. During the term of lease, the Company shall pay base rent of $2,704 from August 1, 2022 to July 1, 2023, with escalation of the base rent of 4% per year thereafter on the anniversary date of the lease. The Company is to pay the base rental rate plus common area assessments and sales tax for the lease payments.

On June 20, 2025, the Company renewed the above operating lease through July 31, 2026. During the term of lease, the Company shall pay base rent of $2,935 from August 1, 2025 to July 31, 2026, with option for an additional 12 months to July 31, 2027, at a base rent of $3,053. The Company is to pay the base rental rate plus common area assessments and sales tax for the lease payments. In connection with this lease, on August 1, 2022, the Company incurred right of use assets and lease liabilities of $92,509. On June 20, 2025 the Company incurred an additional right of use asset and lease liabilities of $33,084 for the renewal period.

In July 2021, Safe-Pro USA entered into a 62-month lease agreement for the lease of office, manufacturing and warehouse space under a non-cancellable operating lease through September 30, 2026. During the term of lease, the Company shall pay base rent of $3,043 from August 1, 2021 to September 30, 2022, with escalation of the base rent of 4% per year thereafter on the anniversary date of the lease. The Company is to pay the base rental rate plus common area assessments and sales tax for the lease payments. Common area assessments and sales tax for the lease payments are expensed monthly as incurred. In connection with the Company’s acquisition of Safe-Pro USA, on June 7, 2022, the Company acquired the right of use assets and assumed lease liabilities of $156,963 and $154,265, respectively.

In April 2024, Airborne Response entered into a 39-month lease agreement for the lease of a vehicle under a non-cancellable operating lease through July 2027. During the term of lease, the Company shall pay monthly payments of $296 from April 2024 to July 2027. In connection with the signing of the vehicle lease, the Company’s recorded a right of use assets and lease liabilities of $19,583 and $9,539, respectively.

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 new leases for property and equipment, the Company analyzed the new leases and determined it is required to record a lease liability and the right of use asset on its consolidated balance sheets, at fair value.

During the year ended December 31, 2025 and 2024, in connection with its property operating leases, the Company recorded rent expense of $97,550 and $91,513, respectively, which is included in general and administrative expenses on the accompanying consolidated statements of operations.

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 3.75%,6.0% and 7.5%, which was based on the Safe-Pro USA’s, the Company’s and Airborne Response estimated average incremental borrowing rate, respectively.

On December 31, 2025 and 2024, right-of-use asset (“ROU”) is summarized as follows:

On December 31, 2025 and 2024, operating lease liabilities related to the ROU assets are summarized as follows:

On December 31, 2025, future minimum base lease payments due under non-cancelable operating leases are as follows:

NOTE 14 –SEGMENT REPORTING

During the year ended December 31, 2025 and 2024, the Company operated in three reportable business segments which consisted of (1) the business of Safe-Pro USA, (2) the business of Airborne Response, and (3) the business of Safe Pro AI. The Company’s reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations and locations.

Information with respect to these reportable business segments for the years ending December 31, 2025 and 2024 was as follows:

NOTE 15 –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 deferred tax assets on December 31, 2025 and 2024 consist only of net operating loss carryforwards. The net deferred tax asset has been fully offset by a valuation allowance because of the uncertainty of the attainment of future taxable income.

The items accounting for the difference between income taxes at the effective Federal statutory rate of 21%, and the Company’s effective tax rate for the years ended December 31, 2025 and 2024 were as follows:

The following is a summary of the components of deferred tax assets and liabilities as of December 31, 2025 and 2024:

The net operating loss carryforward was approximately $19,240,000 on December 31, 2025. The Company provided a valuation allowance equal to the net deferred income tax asset as of December 31, 2025 and 2024 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. During the year ended December 31, 2025, the valuation allowance increased by $3,652,000. Additionally, the future utilization of the net operating loss carryforward to offset future taxable income is subject to an annual limitation as a result of ownership changes that may occur in the future. All estimated loss carry forwards may be carried forward indefinitely subject to annual usage limitations.

The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2023, 2024, and 2025 Corporate Income Tax Return is subject to Internal Revenue Service examination.

NOTE 16 –SUBSEQUENT EVENTS

On January 6, 2026, the Company’s Board of Directors approved additional cash compensation of $30,000 for each of the chairs of the Audit Committee, Compensation Committee, and Governance and Nominating Committee, in recognition of the additional responsibilities associated with these roles.

On January 13, 2026, the Company issued 7,500 shares of common stock to an individual service provider as installments of a 30,000-share award granted under the 2022 Equity Incentive Plan. The shares were valued at $3.36 per share, based on the market close on the grant date. The award vests in equal monthly installments of 2,500 shares over a twelve-month period beginning September 1, 2025, subject to continued service. Of the 7,500 shares issued in January 2026,2,500 shares related to amounts earned during 2025, with the remaining shares related to amounts earned during 2026. As of December 31, 2025, the Company recognized $8,400 of stock-based compensation expense related to the vested portion attributable to 2025, which was recorded within professional fees in the consolidated statement of operations. Upon issuance of the shares in January 2026, the Company reclassified the par value of the shares from additional paid-in capital to common stock to reflect the shares outstanding.

On January 22, 2026, the Company issued 25,000 shares of its common stock to a consultant for services rendered pursuant to the 2022 Equity Incentive Plan, and in accordance with the consultant’s Independent Advisory Agreement dated September 9, 2025. The shares were granted at a fair market value of $6.10 per share, based on the closing price on the grant date.

Also on January 22, 2026, the Company issued 20,000 shares of its common stock to a consultant for services rendered pursuant to the 2022 Equity Incentive Plan, and in accordance with the consultant’s Advisory Board Agreement dated March 27, 2023. The shares were granted at a fair market value of $4.74 per share representing market close on the date of issuance. The award became fully vested on December 1, 2025, as approved by the Compensation Committee. Accordingly, the Company recognized $94,800 of stock-based compensation expense, recorded within Professional Fees in the consolidated statement of operations for the year ended December 31, 2025. Upon issuance of the shares in January 2026, the Company reclassified the par value of the shares from additional paid-in capital to common stock to reflect the shares outstanding.

On February 20, 2026, Safe Pro AI entered into a purchase agreement (the “Purchase Agreement”) with a government contractor (the “Customer”), pursuant to which Safe Pro AI will supply an AI-powered video and imagery analysis system providing threat detection capabilities. The total purchase price under the Purchase Agreement is $1,000,000. The Customer may elect to add additional services in support of the devices under the Purchase Agreement. Payments under the Purchase Agreement are contingent upon the Customer’s receipt of payment from its government customer, which may affect the timing of the Company’s cash receipts. The Purchase Agreement has a period of performance of 180 days from the effective date.

On March 3, 2026, the Company issued 5,000 shares of common stock to an individual service provider as installments of a 30,000-share award granted under the 2022 Equity Incentive Plan. The shares were valued at $3.36 per share, based on the market close on the grant date. The award vests in equal monthly installments of 2,500 shares over a twelve-month period beginning September 1, 2025, subject to continued service.

On March 6, 2026, the Company completed certain equity transactions, including the return and cancellation of 47,942 shares previously issued under the 2022 Equity Plan and the return of 19,242 shares in connection with share withholding for tax obligations related to an equity award.

On March 23, 2026, the Compensation Committee of the Board of Directors, approved a grant of 225,000 options to purchase the Company’s common stock at an exercise price of $4.52, which is the market close on the day the Compensation Committee approved the award, to three contractors per their advisory agreements and in recognition of their service. The options have various vesting schedules and a five-year term.