Filed 2026-03-31 · Period ending 2025-12-31 · 60,081 words · SEC EDGAR
← SPAI Profile · SPAI JSON API
# Safe Pro Group Inc. (SPAI) — 10-K **Filed:** 2026-03-31 **Period ending:** 2025-12-31 **Accession:** 0001493152-26-014181 **Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/2011208/000149315226014181/) **Origin leaf:** 57f1ff484d04718b14011a805af957ff53f699f523f70b5b3bb32cf177bb266d **Words:** 60,081 --- **** **** **UNITED STATES** **SECURITIES AND EXCHANGE COMMISSION** **Washington, D.C. 20549** **FORM 10-K** | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | For the fiscal year ended December 31, 2025 OR | | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | For the transition period from ______________to _______________. Commission File Number 001-42261 **SAFE PRO GROUP INC.** (Exact name of registrant as specified in its charter) | Delaware | | 87-4227079 | | | (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | | | | | | | | 18305 Biscayne Blvd. Suite 222 Aventura, Florida | | 33160 | | | (Address of principal executive offices) | | (Zip Code) | | **(786) 409-4030** (Registrants telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: | Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered | | | Common Stock, par value $0.0001 | | SPAI | | The Nasdaq Stock Market Inc. | | Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act. | Large accelerated filer | Accelerated filer | | | Non-accelerated filer | Smaller reporting company | | | | Emerging growth company | | If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b). Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No The registrant was not a public company as of the last business day of its most recently completed second fiscal quarter and, therefore, cannot calculate the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such date. As of March 31, 2026, the registrant had outstanding 20,889,586 shares of common stock. Documents Incorporated by Reference: Portions of this registrants definitive proxy statement for its 2026 Annual Meeting of Stockholders to be filed with the SEC no later than 120 days after the end of the registrants fiscal year are incorporated herein by reference in Part III of this Annual Report on Form 10-K. | | | **TABLE OF CONTENTS** | | | Page | | | PART I | | 1 | | | Item 1 | Business | 1 | | | Item 1A | Risk Factors | 11 | | | Item 1B | Unresolved Staff Comments | 29 | | | Item 1C | Cybersecurity | 29 | | | Item 2 | Properties | 30 | | | Item 3 | Legal Proceedings | 30 | | | Item 4 | Mine Safety Disclosures | 30 | | | | | | | | PART II | | 30 | | | Item 5 | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 30 | | | Item 6 | Reserved | 31 | | | Item 7 | Managements Discussion and Analysis of Financial Condition and Results of Operations | 31 | | | Item 7A | Quantitative and Qualitative Disclosures About Market Risk | 40 | | | Item 8 | Financial Statements and Supplementary Data | 40 | | | Item 9 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 40 | | | Item 9A | Controls and Procedures | 41 | | | Item 9B | Other Information | 42 | | | Item 9C | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 42 | | | | | | | | PART III | | 42 | | | Item 10 | Directors, Executive Officers and Corporate Governance | 42 | | | Item 11 | Executive Compensation | 42 | | | Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 42 | | | Item 13 | Certain Relationships and Related Transactions, and Director Independence | 42 | | | Item 14 | Principal Accounting Fees and Services | 42 | | | | | | | | PART IV | | 43 | | | Item 15 | Exhibits, Financial Statement Schedules | 43 | | | Item 16 | Form 10-K Summary | 44 | | | | | | | | SIGNATURES | 45 | | | | | References in this Form 10-K to we, us, its, our or the Company are to Safe Pro Group Inc., as appropriate to the context. **** **CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS** This Form 10-K includes forward-looking statements. These statements involve risks known to us, significant uncertainties, and other factors which may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by those forward-looking statements. Some of the statements used in this report constitute forward-looking statements that represent our beliefs, projections and predictions about future events. Forward-looking statements are all statements other than statements of historical fact, including statements that refer to plans, intentions, objectives, goals, targets, strategies, hopes, beliefs, projections, prospects, expectations or other characterizations of future events or performance, and assumptions underlying the foregoing. The words may, could, should, would, will, project, intend, continue, believe, anticipate, estimate, forecast, expect, plan, potential, opportunity, scheduled, goal, target, and future, variations of such words, and other comparable terminology and similar expressions and references to future periods are often, but not always, used to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements about the following: | | | our prospects, including our future business, revenues, expenses, net income, earnings per share, gross margins, profitability, cash flows, cash position, liquidity, financial condition and results of operations, backlog of orders and revenue, our targeted growth rate, our goals for future revenues and earnings, and our expectations about realizing the revenues in our backlog and in our sales pipeline; | | | | | | | | | | the effects on our business, financial condition, and results of operations of current and future economic, business, market and regulatory conditions, including the current economic and market conditions and their effects on our customers and their capital spending and ability to finance purchases of our products, services, technologies and systems; | | | | | | | | | | the effects of fluctuations in sales on our business, revenues, expenses, net income, earnings per share, margins, profitability, cash flows, capital expenditures, liquidity, financial condition, and results of operations; | | | | | | | | | | our products, services, technologies, and systems, including their quality and performance in absolute terms and as compared to competitive alternatives, their benefits to our customers and their ability to meet our customers requirements, and our ability to successfully develop and market new products, services, technologies and systems; | | | | | | | | | | our markets, including our market position and our market share; | | | | | | | | | | our ability to successfully develop, operate, grow and diversify our operations and businesses; | | | | | | | | | | our business plans, strategies, goals and objectives, and our ability to successfully achieve them; | | | | | | | | | | the sufficiency of our capital resources, including our cash and cash equivalents, funds generated from operations, availability of borrowings under our credit and financing arrangements and other capital resources, to meet our future working capital, capital expenditure, lease and debt service and business growth needs; | | | | | | | | | | the value of our assets and businesses, including the revenues, profits and cash flows they are capable of delivering in the future; | | | | | | | | | | the effects on our business operations, financial results, and prospects of business acquisitions, combinations, sales, alliances, ventures and other similar business transactions and relationships; | | | | | | | | | | industry trends and customer preferences and the demand for our products, services, technologies and systems; and | | | | | | | | | | the nature and intensity of our competition, and our ability to successfully compete in our markets. | | These statements are necessarily subjective, are based upon our current plans, intentions, objectives, goals, strategies, beliefs, projections and expectations, and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based, or the success of our business. Furthermore, industry forecasts are likely to be inaccurate, especially over long periods of time. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and managements belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that may cause actual results, our performance or achievements, or industry results to differ materially from those contemplated by such forward-looking statements include, without limitation, those discussed under the caption Risk Factors. **** | | | **** **PART I** | ITEM 1. | BUSINESS | | **** **Overview** **** Safe Pro Group Inc. was incorporated as a Delaware corporation in December 2021. Safe Pro Group was created to provide innovative security and protection products and has strategically acquired and assembled three active business units focused on protecting those who protect us all. Our strategic emphasis is on the development of a software-based ecosystem for analyzing drone imagery and data utilizing proprietary artificial intelligence (AI), machine learning, deep learning, and applied computer vision software for hyper scalable processing, analysis, and reporting. Our core capabilities include artificial intelligence/machine learning, mission critical drone services and manufacturing of high performance ballistic protective products. Safe Pro is led by a team of executives and subject matter experts drawn from the government and commercial sectors dedicated to assembling unique safety and security technologies for governments, enterprises, and NGOs enabling them to respond to evolving threats. **Our Products** We provide the following categories of product offerings and solutions to our customers: **Artificial Intelligence (AI) and Machine Learning (ML) Software Technology and Photogrammetry Analysis Tools.** Through our Safe Pro AI unit, we are developing technology geared towards the next generation of applications designed for the digital battlefield, specifically developing solutions for AI-driven defense modernization. We have developed an ecosystem of advanced AI-powered small object detection and data analysis and reporting software tools for hyper-scalable, cloud-based (leveraging the hyperscale of Amazon Web Services or AWS) or local (edge) real-time processing of drone imagery to extract actionable geospatial intelligence. Our machine learning, deep learning, and applied computer vision software technologies layer AI detection into advanced photogrammetry/mapping applications, specifically, the collection, processing, and analysis of aerial imagery captured by nearly any drone platform, both military and commercial-off-the-shelf (COTS). Safe Pro AIs AI-powered analysis engine and software tools (collectively referred to as Safe Pro Object Threat Detection or SPOTD) technology enable the rapid detection and identification of small objects present in drone-based images and video feeds and utilize that data and imagery to securely generate detailed, high resolution 2D/3D orthomosaic maps and real-time visual indications highlighting objects of interest. Delivered to end users as a detailed report or integrated seamlessly with military communication systems, ground vehicles, and C6ISR (Command, Control, Communications, Computers, Cyber, Combat Systems, and Intelligence, Surveillance, and Reconnaissance) frameworks, our AI data analysis tools, utilizing our robust proprietary datasets, can support humanitarian, government/military, enterprise, NGO and first responder markets by providing situational awareness and delivering actionable intelligence. Currently, our patented software blends AI, machine learning and computer vision capabilities that enable rapid, automated cloud-based or local/edge-based processing of drone imagery for small object detection of threats such as landmines, unexploded ordnance (UXO), and other remnants of war at scale. This current cloud system is called SpotlightAITM and as of March 2026, powered by AWS, has processed over 2.4 million drone images and detected over 45,000 real-world explosive threats in Ukraine. Our software ecosystem supports a wide array of applications and use cases where the ability to rapidly analyze drone-based imagery at scale can significantly improve geospatial situational awareness, operational effectiveness and safety such as: | | | Integrating with military mobile devices, vehicle displays, and tactical networks used by soldiers to provide access to real-time threat alerts, providing unmatched precision in navigating hazardous environments; | | | | | | | | | | Route planning supporting autonomous/unmanned ground vehicle (UGV) operations utilizing orthomosaics, vegetation height maps, terrain slope maps and digital surface maps and 3D terrain modeling; | | | | | | | | | | Allowing security and first responder personnel to detect items of interest including contraband or weapons at an incident location; | | | | | | | | | | Providing enhanced border security through integrating with mobile devices, vehicle displays, and tactical networks used by border agents to provide access to real-time threat alerts, providing unmatched precision in navigating hazardous environments; | | | | | | | | | | Detecting items of interest in applications where hazardous items and contraband can be detected on critical infrastructure such as roads or bridges which can indicate potentially hazardous conditions; and | | | | | | | | | | Analyzing agricultural vegetation for growth or signs of crop damage, as well as collecting data to generate topographical maps | | | 1 | | **Bullet and Blast Resistant Personal Protection Equipment.** **** Through our subsidiary, Safe-Pro USA LLC, we are a specialist in the manufacturer of ultra-premium bullet and blast resistant protection equipment utilized by domestic and international customers in the military, law enforcement, and humanitarian/peacekeeping markets. We offer a full array of bullet and blast resistant personal protection equipment including complete Explosive Ordnance Disposal (EOD) Systems, demining aprons and bomb blankets, body armor & ballistic plates to government, security, law enforcement and first responders, as well as armor systems for ground vehicles and aircrafts, including helicopters. We have more than 30 years of combined experience in the U.S. defense industry with a proven expertise and strength in the design, engineering, and manufacturing of advanced armor composites. All bullet and blast resistant protection equipment are designed, engineered, and manufactured in the United States and meet or exceed the United States Government and NATO standards including the latest U.S. National Institute of Justice (NIJ) and STANAG standards. **Aerial Managed Services and Mission-Critical Uncrewed Solutions.** **** Through our subsidiary, Airborne Response Corp., we provide a wide range of contracted aerial platform-based technology services predominantly using small Uncrewed Aircraft Systems (UAS) commonly referred to as drones. This includes Drone as a First Responder (DFR), critical infrastructure inspection, storm and emergency response and other customized aerial remote sensing, sometimes combined with machine learning and artificial intelligence (AI) processing, to provide comprehensive data-driven insights and detailed reporting to allow our customers to improve decision making surrounding their core operations. Services offered include: | | | Drone as a First Responder (DFR) solutions providing autonomous drone operations in support of public safety, emergency management, security, critical infrastructure, and other rapid incident response and assessment needs. | | | | | | | | | | Critical infrastructure inspection (ex: telecommunications networks and power grids) utilizing visual and/or IR thermal sensors. | | | | | | | | | | Data capture, analytics and processing powered by machine learning and artificial intelligence (AI) to provide customers with comprehensive data-driven insights and reporting. | | | | | | | | | | Aerial mapping of ground-based infrastructure and other targeted assets. | | | | | | | | | | UAS-related training and consultation services. | | | | | | | | | | Other customized and/or specialized services upon request by key customers. | | | | | | | | | | Drone-based, aerial services are provided to customers across multiple industries including critical infrastructure, enterprises such as insurance, public utilities, and telecommunication network operators, state and local/municipal governments and agencies, and first responders including police, fire, and other public safety organizations. | | **** **Our Operating Units** **** Through a series of acquisitions, we and our operating subsidiaries have expanded our service offerings and geographic reach over the past two years. Due to our acquisitions, we are comprised of three principal operating units, each of which was acquired because they possess emerging technologies that can be leveraged together to create innovative new approaches to the development and sale of security and protective solutions for customers. On December 23, 2025, we formed SPAI Ventures LLC, a wholly owned subsidiary of Safe Pro Group, that was established to pursue both strategic collaborations and investments with Ukrainian and other international tech developers. Through SPAI Ventures, Safe Pro Group Inc. will evaluate opportunities in which to invest or to commercialize technologies that it believes could complement the capabilities of its portfolio of AI and ballistic protective solutions. SPAI Ventures has not made any investments or entered into any agreements, and is currently not an actively operating unit of the Company. | 2 | | **Safe-Pro USA LLC** **** On June 7, 2022, we completed the acquisition of Safe-Pro USA LLC (Safe-Pro USA). Safe-Pro USA was formed in Florida in November of 2008 and develops an array of unique products marketed to, government, law enforcement and international humanitarian aid organizations seeking high performance personal protective gear. As a manufacturer of bullet and blast resistant personal protection equipment, Safe-Pro USA LLC can rapidly prototype and customize solutions designed to meet mission requirements and budgets for a full array of personal protection equipment (PPE) including complete Explosive Ordnance Disposal (EOD) systems, demining aprons and bomb blankets to lightweight and body armor and ballistic plates. Safe-Pro USA LLC currently serves multiple domestic and international customers including a U.S. Government Contractor operating in support of the US Department of State landmine and explosive ordnance remediation initiatives in the Indo-Asia Pacific region, Humanitarian Aid organizations and multiple U.S. government and law enforcement end-users. **Airborne Response Corp.** **** On August 29, 2022, we acquired the operations of Airborne Response LLC, a Florida limited liability company originally formed in August 2016. Airborne Response LLC changed its name to Airborne Response Corp. (Airborne Response) and converted from a limited liability company to a corporation. Airborne Response currently serves an existing base of enterprise customers, including Florida Power & Light (FPL), Citizens Property Insurance Corporation, and Motorola Solutions under long-term contracts and was actively engaged in supporting state and local agency response, relief, and recovery efforts in the aftermath of Category 4 Hurricane Ian in October 2022. In November 2023, Airborne Response was awarded its first Drone as a First Responder (DFR) services contract by a city police department in South Florida under which, it provides operational support for law enforcement, public safety, and other first responders, assisting them to utilize advanced, U.S.-friendly (Blue-UAS) drone technologies for both Blue Sky normal business operations as well as Gray Sky rapid incident management and disaster response operations. During 2025, Airborne Response was awarded two aerial drone services contracts by two power utility customers serving millions of central Florida residents. We currently maintain a fleet of eleven drones through Airborne Response Corp. In the aftermath of natural disasters when our clients require additional support, we bring on outside contractors that have obtained a Remote Pilot Certificate from the Federal Aviation Administration (FAA). These outside contractors supply their own drones to complete fieldwork that is then reviewed by the Airborne Response team. Further, we provide a system for imagery data from third-party drones operated by outside contractors to be uploaded and analyzed leveraging artificial intelligence and machine learning. **Safe Pro AI LLC** **** On March 9, 2023, we acquired the assets and intellectual property of Demining Development LLC, a New York limited liability company formed on February 22, 2021. On August 30, 2023, the Company changed its name to Safe Pro AI LLC (Safe Pro AI). Safe Pro AI is a developer of patented artificial intelligence (AI), machine learning (ML) and computer vision systems technologies for the rapid processing and analysis of drone-based imagery. Safe Pro AIs capabilities enable the rapid, automated processing of aerial imagery (collectively referred to as Safe Pro Object Threat Detection or SPOTD) making it an ideal solution for several photogrammetry applications including demining, military, law enforcement and security as well as critical infrastructure inspection and agriculture. Powered by the Amazon Web Services (AWS) Cloud, Safe Pro AIs technology is initially being applied to the identification, classification, and clearance of landmines. The SPOTD technology is also integrated into a real-time, locally processed Windows-based personal computer application called ONSIGHT which enables real-time visual indications and alerts of threats. ONSIGHT is also being incorporated into a turnkey, standalone hardware/software solution called NODE (Navigation, Observation & Detection Engine) which provides local /edge computing and processing of drone-based imagery to create maps without requiring connectivity to the internet. Built with an extensive proprietary landmine and unexploded ordnance (UXO) dataset, Safe Pro AI and its SPOTD technology can rapidly detect and identify threats present in drone imagery, plot detections on maps, and relay precise GPS location and actionable reporting information to decision makers and ground personnel. This capability greatly increases situational awareness for soldiers and helps address the scale and improve the efficacy of remediation efforts versus existing human and dog-based identification methods. Through the combination of AI, ML, and drone technologies, Safe Pro AIs new solutions directly address the limitations of current mine/UXO threat detection and clearance methodologies which can be slow, expensive, and dangerous. | 3 | | The Company intends to utilize its AI, ML and computer vision analysis and reporting technology to create and analyze large datasets for a number of uses outside of demining where it can uniquely be utilized to rapidly analyze imagery collected from drones to provide actionable intelligence on the area of interest through the creation of detailed, high resolution orthomosaic maps and real-time visual threat indications. The Company is currently building on over three years of real-world experience in Ukraine, expanding SPOTD into a broad array of military and defense markets where its integration into existing tactical hardware platforms (e.g., the US Armys Tactical Assault Kit or TAK system) can be used in force protection applications. For example, the Companys SPOTD technology can integrate seamlessly with military communication systems, ground vehicles, and C6ISR (Command, Control, Communications, Computers, Cyber, Combat systems, Intelligence, Surveillance, and Reconnaissance) frameworks enabling soldiers to access real-time threat alerts on mobile devices, vehicle displays, and tactical networks, providing unmatched precision in navigating hazardous environments. Additionally, its comprehensive mapping capabilities enable route planning featuring 3D terrain modeling in support of safe autonomous, unmanned ground vehicle (UGV) operations. **Our Growth Strategy** Safe Pro Group was created to invest in safety and security businesses and technologies that can be layered together to dramatically improve effectiveness of operations and provide actionable intelligence. Through this layered approach to the development and integration of advanced technologies in artificial intelligence, personal protective gear, and drone-based remote sensing technologies and services, Safe Pro Group can provide government/military/defense, NGOs and enterprises with innovative solutions designed to respond to emerging threats. Today, Safe Pro Group is targeting multiple markets where its AI, personal protective gear, and aerial/drone-based services can synergistically support customers in government/military/defense, commercial, law enforcement and humanitarian aid sectors. *Highlighted Market Opportunities* **Artificial Intelligence and Dataset Development** The Company intends to utilize Safe Pro AIs technology, which enables the capture and rapid processing of large amounts of visual imagery to create new high-fidelity maps and data outputs utilizing AI and proprietary datasets for customers to analyze their existing data. These AI datasets and related software tools and reporting capabilities would help enterprise and government customers quickly assess the situation in agriculture fields, around critical infrastructure, sensitive facilities or any location of interest (ex: borders, ports, runways, etc.). Safe Pro AIs product is specialized application of artificial intelligence in the large AI image analysis and recognition market, specifically focused on applying machine learning to the processing of drone-based imagery for object identification. **Landmine Detection and Remediation** The threat of anti-personnel landmines and/or unexploded ordnance is present in approximately 60 countries across Africa, the Middle East, South America, Southeast Asia, and throughout mainland China and Russia (source: Statista). The current methodology for the detection and remediation of landmines and UXO requires the use of specially trained personnel using handheld detectors and dogs which can be slow, expensive, and dangerous. *The Ukraine Crisis:* In Ukraine, The World Bank, *The Ukraine Rapid Damage and Needs Assessment*, February 2025, estimates that more than 138,500 km2 or nearly 53,000 square miles, will require a non-technical survey to determine the level of contamination with land mines and unexploded ordnance. The non-technical survey is the first step in analyzing an area for contamination. *The Safe Pro Solution:* To address this scale and scope of the demining challenge in both conflict and non-conflict zones, we utilize AI, ML and computer vision capabilities and drones to enable the rapid, automated processing of aerial and ground-based imagery to detect threats including landmines and UXO. Safe Pro AIs software, called SpotlightAITM provides an efficient and scalable solution to detect, map, and categorize different types of landmines, UXO, and sub-munitions and other ERW (Explosive Remnants of War) on the surface, greatly enhancing the speed and accuracy with which a non-technical survey can be produced. This visual dataset can be uploaded to the Cloud or processed locally on a portable Windows-based personal computer, to provide ground personnel with detailed, actionable intelligence about the location and type of hazard present, dramatically improving the efficiency, speed, and safety of any operation. As of March 2026, SpotlightAITM, powered by AWS, has processed over 2.4 million drone images and detected over 45,000 real-world explosive threats in Ukraine. Additionally, ground personnel can be equipped with an array of advanced personal ballistic protective equipment, thereby providing customers with a complete solution for the remediation of landmines and other hazardous remnants of war. Once an area is cleared, an additional survey can be done to evaluate the clearance efforts. We have been providing Safe Pro AIs technology to customers on a limited trial basis. As of March 2026, SpotlightAI has analyzed more than 2,470,927 drone images from Ukraine, identifying more than 45,689 landmines and unexploded remnants of war across 12,111 hectares (29,914 acres) of Ukrainian territory. During 2025, the Company entered multiple Memoranda of Understanding (MOUs) with government, commercial and university entities in Ukraine including its National Mine Action Center of Excellence, the countrys leading grain export and agricultural organization NIBULON Ltd., and the Igor Sikorsky Kyiv Polytechnic Institute, Ukraines largest technical university. Through these relationships, the Company will conduct research and collaborate on the development of new technologies, education and training programs incorporating cutting-edge AI technology for applications including demining, environmental safety, agricultural and rare earth geology projects as well as infrastructure reconstruction. | 4 | | **Force Protection for the Military** Operations by ground personnel (i.e., soldiers) are inherently dangerous. Troop movement, on foot or by vehicle, exposes soldiers and assets to the risk of a wide array of explosive threats including landmines, anti-personnel mines and improvised explosive devices (IEDs). Currently, we believe there are no well-adapted real-time systems fielded to alert personnel to the presence of potentially deadly small threats. *The Safe Pro Solution:* To address this gap in force protection and safety, we are utilizing our AI, ML and computer vision capabilities with drones to enable the real-time, automated processing of aerial imagery to detect and identify possible threats and use that information to provide enhanced force protection through better situational awareness. Utilizing our Safe Pro Object Threat Detection or SPOTD technology, we are seeking to provide potentially lifesaving know before you go information on discrete threats which may be present in the area of operations. The Companys SPOTD technology can integrate seamlessly with military communication systems, ground vehicles, and C6ISR (Command, Control, Communications, Computers, Cyber, Combat systems, Intelligence, Surveillance, and Reconnaissance) frameworks. Acting like a back-up camera in modern automobiles, with SPOTD, soldiers can gain access to real-time threat alerts on mobile devices, vehicle displays, and tactical networks, providing unmatched precision in navigating hazardous environments. The capability is immediately synergistic with the increased utilization of technologies such as the Tactical Assault Kit (TAK) for restricted US Army/military users or Team Awareness Kit (TAK) for non-restricted government users, which facilitate real-time coordination between team members including the sharing of video feeds and/or mapping applications. Additionally, in response to end-user demand for a solution that could enable the rapid collection and processing of drone-based imagery to identify emerging surface-level threats on the modern battlefield, creating 2D and 3D interactive, high-resolution maps locally at the tactical edge without requiring internet connectivity, the Company recently introduced and demonstrated its newly created SPOTD NODE (Navigation, Observation & Detection Engine). Based upon preliminary feedback received by potential end users, the Company believes there is demand for this unique solution within the U.S. armed forces and with international governments. To address this opportunity, the Company intends to leverage industry relationships to access current and future contracting opportunities. As such, through Memoranda of Understanding (MOUs) with Ondas Holdings Inc. (Ondas), Unusual Machines Inc. (Unusual Machines), and Red Cat Holdings, Inc. (Red Cat), leaders in the U.S. drone industry, signed in August and September 2025, the Company intends to collaborate on the development and integration of the Companys patented AI-powered drone imagery analysis and computer vision technologies into their respective hardware and software offerings. Finally, during 2025, the Company conducted a series of presentations and demonstrations with U.S. Government and military potential end users and has been invited to participate in several U.S. Army exercises in 2026 where its technology solutions will be showcased as a potential tool for supporting force protection and mission planning operations. **Aerial Managed Services** **** The adoption of drone-based remote sensing technology has been rapid, enabled by its ability to quickly capture and relay high-resolution visual information and data quickly and accurately. Beyond the use of drones in military applications, technology has increasingly been utilized in applications including by government and commercial enterprise markets. These commercial markets include a wide array of sectors including agriculture, real estate, insurance, and the inspection of critical infrastructure such as telecommunications towers, rail and roadways, bridges, and power and utility grids In response to greater use of drones in security, law enforcement and public safety applications, the Companys Airborne Response is developing Drone as a First Responder (DFR), a new service that can provide autonomous drone operations in support of public safety agencies, critical infrastructure providers, security firms, and other mission-critical sectors that will garner substantial value from the gathering of information and/or carriage of cargo via advanced uncrewed aerial platforms. Once fully deployed, this advanced network will offer rapid incident response and assessment, capturing, and relaying real-time video and other relevant information to first responders for use in efficiently allocating resources and developing a response plan. We are currently under contract with a city police department in South Florida and are completing operational training ahead of expected system deployment and routine operations. **Personal Protective Gear** **** In July 2023, Safe-Pro Group was awarded a Multiple Award Schedule (MAS) contract by the U.S. General Services Administration (GSA) for its Safe-Pro USA ballistic protection products. This contract will allow Federal, State and Local government customers and agencies to easily purchase its Explosive Ordnance Disposal (EOD) and Personal Protective Equipment (PPE) products through the GSA Schedule for their safety and security needs. The Government contract was awarded with an initial five (5) year term with three (3) extensions for five (5) years each for a maximum of twenty (20) years. The PPE market includes an array of product types including hard and soft products including plates and vests, each offering different levels of protection, primarily level IIA, level II, level IIIA, level III, level IV as determined by government and industry standards. Currently, the GSA has made one purchase of EOD and PPE. In October 2023, Safe-Pro USA was certified as a HUBZone small business concern by the U.S. Small Business Administration. The Historically Underutilized Business Zone (HUBZone) programs purpose is to provide Federal contracting assistance for qualified small business concerns located in historically underutilized business zones, in an effort to increase employment opportunities, investment, and economic development. The HUBZone program includes unique access to certain federal government contracts, set-aside opportunities, and priority consideration in competitive procurements for certified companies in compliance with the Federal Acquisition Regulation (FAR). In late 2024 and through 2025, Safe-Pro USA has been designing and producing a series of new ultra-light and ultra-thin high-performance body armor plate products designed in compliance with the latest National Institute of Justice (NIJ) publication,*Ballistic Resistance of Body Armor*, NIJ Standard 0101.07, which specifies minimum performance requirements and test methods for the ballistic resistance of body armor used by U.S. law enforcement that is intended to protect the torso against handgun and rifle ammunition. It is a revision of National Institute of Justice (NIJ) Standard 0101.06,*Ballistic Resistance of Body Armor*, published in 2008. As of January 2026, Safe-Pro USA has multiple high performance, ultra-lightweight and ultra-thin hard armor plates undergoing certification testing by the NIJ for compliance with NIJ 0101.07 ballistic standard with certifications expected throughout 2026. | 5 | | With respect to each of the above referenced product areas our market penetration is minimal. However, we believe that in each product area we are able to differentiate our services from our competitors such that we will be able to increase our market penetration. **Our Customers** We manufacture and sell our products and services globally to commercial/enterprise, government, military, and humanitarian aid organizations. **Airborne Response (Aerial Services):**Our Airborne Response business provides uncrewed aerial systems (UAS) services to electric utilities, insurance carriers, technology companies, public safety organizations as well as state and municipal governments and agencies. Our customers include Florida Power & Light, Citizens Insurance and Motorola Solutions, and various State and municipal governments and agencies. We support customers under both multi-year contracts as well as individual purchase orders. Under our contracts with Florida Power & Light (FPL), the principal electric utility in Florida, we, through our operating subsidiary, Airborne, provide UAS services related to the inspection of power poles and lines. The first contract is for the provision of UAS teams to inspect power lines and poles after a storm. This contract has a term beginning on March 25, 2024, and goes through December 30, 2026. Under this contract, FPL will call upon Airborne to respond and provide UAS teams after a storm. Airborne will be paid for having a team on standby, for one half day of work, or a full day of work. They are not obliged to call upon Airborne Response and there is no assurance that we will derive any income from this agreement. Under a previous version of this agreement, we were called upon and provided services to FPL in the aftermath of storms. We also have contracts with FPL to provide UAS teams to inspect power lines and poles with respect to regular maintenance. Under this contract we receive a fee per pole inspected or per mile of power line inspected. The fee can vary depending upon the level of service selected. We have 4 such contracts with FPL covering 4 regions of Florida in FPLs coverage areas. Pursuant to these contracts FPL is not obligated to call upon us and there is no assurance that we will derive any income from this agreement. The terms of these agreements are from August 25, 2023, through August 24, 2026 with a right to renew until August 24, 2028. Additionally, in 2025, Airborne Response was awarded two aerial drone services contracts by two power utility customers serving millions of central Florida residents. **Safe-Pro USA (Ballistic Protection):** Our customers include a U.S. Government Contractor operating in support of the US Department of State landmine and explosive ordnance remediation initiatives in the Indo-Asia Pacific region, as well government, military, law enforcement and public safety organizations. **Safe Pro AI (AI Software and Image Analysis):** Our Safe Pro AI business provides AI-enabled drone imagery analysis software designed to support the identification and location of unexploded ordnance (UXO) and other threats. We believe that the scale and scope of the conflict in Ukraine has created a significant near-term opportunity for several of our products and services, in particularly, our AI-powered, drone-based solution for the identification and locating of UXO and personal protective equipment (PPE) such as our Explosive Ordnance Disposal and Blast and Fragmentation protective suits. We believe our AI-powered capabilities and experience in the design and manufacture of PPE have positioned our company to compete effectively for a number of projects currently being proposed by various governmental organizations involved with land reclamation, remediation and reconstruction efforts in Ukraine including units of that countrys government as well as international humanitarian aid organizations such as the United Nations Development Programme, the HALO Trust and Norwegian Peoples Aid, among others. Our personnel have spent extensive time supporting these efforts through on-site deployments, contractor support, and collaborative engagements related to the evaluation and deployment of our SpotlightAI technology, as well as the assessment of related protective equipment. | 6 | | We believe our diversified potential customer base provides us with an opportunity to leverage our skills, experience and varied product lines across markets and reduces our exposure to a single end market. Additionally, we believe the diversity of our potential customer base is an important strength of our company. **Supplier Concentration** During the year ended December 31, 2025, we purchased 68.0% of our inventory from four suppliers, Avient Protective Materials, Lincoln Fabrics, Skydio, Inc., and Hisco/Precision Converting. During the year ended December 31, 2024, we purchased 35.7% of our 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. **Our Competition** As a combined, single organization, we compete in several industry segments including AI analysis, aerial managed services and body armor/personal protective equipment. Additionally, through our Safe Pro AI operation, we compete in the rapidly emerging AI-driven analytics market. Each of these industries are characterized by rapidly advancing technologies and material science, intense competition, and a strong emphasis on proprietary products. While we believe that our technology, knowledge and proven expertise in conducting drone-based operations and in the fabrication of protective gear utilizing advanced materials including composites and ceramics, provide competitive advantages, we face potential competition from many different sources. These sources include both domestic and international manufacturers of body armor and protective gear (such as Armor Express, MIRA Safety, RTS Tactical, Spartan Armor Systems), providers of drone services (such as Phoenix Drone Services LLC, Cyberhawk, Sky-Futures, DroneDeploy, Terra Drone Corporation, AgEagle Aerial Systems Inc., Aerodyne Group, Aerial Drone Services Inc., Sharper Shape Inc., Arch Aerial LLC, Australian UAV Pty Ltd., Drone Services Canada Inc., Dronegenuity, and FlyGuys.) and a large number of software technology development organizations. Many of our competitors may have significantly greater financial resources, and expertise in research and development, manufacturing, government contracting, obtaining regulatory approvals, and marketing than we do. These competitors may also compete with us in recruiting and retaining qualified software programmers, material engineers and fabricators and management personnel, as well as in acquiring technologies complementary to or necessary for our services. Smaller or early-stage companies may also prove to be significant competitors, particularly in regard to software development and software analytics through collaborative arrangements with large and established companies. | 7 | | The key competitive factors affecting the success of our products vary by sector: | | | In body armor and protective gear, efficacy, safety, convenience, and price are principal selection criterion. Product pricing can be a major competitive consideration in certain international markets where customers may consider lower-cost/lower performance foreign-manufactured product options instead of high-quality/higher-performance Made in America products. As such, we may not be able to compete solely on pricing and our ability to compete in this market will be dependent on customers prioritizing what we believe are higher quality and higher performance products. | | | | | | | | | | In aerial managed services, proximity to infrastructure or location and flight crew availability are major competitive factors. We are currently focused solely on providing these services in Florida and, as such, we may only compete in this market and not expand into new markets in the near future. | | | | | | | | | | In AI development, software development expertise and system design can have a significant impact on customer selection. Additionally, expertise in dataset collection and processing capabilities is critical. Our ability to compete in this market is dependent on our software continuing to stay current with new technologies and developments, which will require continued research and development in this area. As a smaller company, we may be unable to compete with larger and better financed entities in this market. | | **Research and Development** Research and Development expenses consist of costs associated with personnel and contractor fees associated with the design and development of our products, product certification, travel, recruiting and information technology. We generally recognize research and development expenses as incurred. Development costs incurred prior to establishment of technological feasibility are expensed as incurred. We expect our research and development costs to continue to increase as we develop new products and modify existing products to meet the changes within our markets. We continue to make significant investments in research and development relating to our technologies and products. Investments in new technology and processes are inherently speculative. Technical obstacles and challenges we encounter in our research and development process may result in delays in, or our abandonment of, product commercialization, substantially increase the costs of development and negatively affect our results of operations. Research and Development expenses were $394,207 and $90,372 for the years ending December 31, 2025 and 2024, respectively, an increase of $303,835 or 336.2%. The increase is primarily attributable to expanded development efforts and the engagement of external contractors to support enhancements to the artificial intelligence business. **Intellectual Property** Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we currently rely on a combination of trade secrets, including know-how, employee and third-party non-disclosure agreements, and other contractual rights to establish and protect our proprietary rights in our technology. We maintain a program designed to identify technology that is appropriate for patent and trade secret protection, and we file patent applications in the United States and, when appropriate, certain other countries for inventions that we consider significant. On November 19, 2024, we were granted our first patent from the United States Patent and Trademark Office (USPTO), for our technology that identifies, locates and maps explosives. The newly issued patent, US Patent No. 12,146,729 includes all 21 claims made in the Companys original patent application entitled, Systems and Methods for Detecting and Identifying Explosives. These claims cover autonomous detection, identification, and labeling of explosives in orthomosaic images using AI processing of drone imagery. The patent expires in 2043. In December 2024, the Company filed a provisional patent application titled, Object Detection Precision Enhancement Methods, Tools and Systems which seeks intellectual property (IP) protection for the Companys technology which utilizes drones and artificial intelligence and proprietary algorithms to reduce the false positive rate when identifying objects such as small explosives, landmines and unexploded ordnances. The Company filed a formal patent application on this system in December 2025. We may acquire patents through acquisitions or direct prosecution efforts and engage in licensing transactions to secure the right to use third parties patents. Although our business is not materially dependent upon any one patent, our patent rights and the products made and sold under our patents, taken as a whole, are a significant element of our business. | 8 | | We also possess other intellectual property, including trademarks, know-how, trade secrets, design rights and copyrights. We control access to and use of our software, technology and other proprietary information through internal and external controls, including contractual protection with employees, contractors, customers and partners. Our software is protected by U.S. and international copyright, patent and trade secret laws. Despite our efforts to protect our software, technology and other proprietary information, unauthorized parties may still copy or otherwise obtain and use our software, technology and other proprietary information. In addition, we have expanded our international operations, and effective patent, copyright, trademark and trade secret protection may not be available or may be limited in foreign countries. Companies in the industry in which we operate frequently are sued or receive informal claims of patent infringement or infringement of other intellectual property rights. We may receive such claims from companies, including from competitors and customers, some of which have substantially more resources and have been developing relevant technology similar to ours. As and if we become more successful, we believe that competitors will be more likely to try to develop products that are similar to ours and that may infringe on our proprietary rights. It may also be more likely that competitors or other third parties will claim that our products infringe their proprietary rights. Successful claims of infringement by a third party, if any, could result in significant penalties or injunctions that could prevent us from selling some of our products in certain markets, resulting in settlements or judgments that require payment of significant royalties or damages or require us to spend time and money developing non-infringing products. We cannot assure you that we do not currently infringe, or that we will not in the future infringe upon any third-party patents or other proprietary rights but will not and have never done so intentionally. **Regulation** Each of our operating subsidiaries is subject to different types of government regulation. We are not subject to any specific environmental regulation and do not incur any costs associated with compliance with any environmental regulation. **Safe-Pro USA LLC** Safe-Pro USA sells body armor and related protective personnel equipment. Exporting body armor from the United States involves compliance with various regulations governed by multiple federal agencies. These regulations are designed to control the distribution of military and dual-use items to ensure national security and foreign policy interests. The primary regulatory frameworks include the International Traffic in Arms Regulations (ITAR) the Export Administration Regulations (EAR) of the U.S. Department of Commerce, and trade sanctions regulations administered by the Office of Foreign Assets Controls of the U.S. Treasury Department. | | 1. | International Traffic in Arms Regulations (ITAR) | | ITAR is administered by the U.S. Department of State, Directorate of Defense Trade Controls (DDTC) and applies to defense articles and services listed on the U.S. Munitions List (USML). Level IV body armor is classified as defense articles. They are listed under Category X (Protective Personnel Equipment) of the USML. Exporting ITAR-controlled items requires a license from the DDTC. Currently, we do not export Level IV body armor. Our protective equipment is exported for the use of non-governmental organizations in humanitarian demining efforts. While we are not currently subject to these export regulations, we are registered with DDTC. | | 2. | Export Administration Regulations (EAR) | | EAR is administered by U.S. Department of Commerce, Bureau of Industry and Security (BIS) and regulates dual-use items (commercial items with potential military applications) listed on the Commerce Control List (CCL). Body armor intended for civilian use or law enforcement are classified as dual-use items. NIJ (National Institute of Justice) level III body armor formerly on the USML is now under ECCN 1A613 and is exempt from export licensing. The license requirements are dependent upon an items technical characteristics, the destination, the end-use, and the end-user, and other activities of the end-user. Some exports may qualify for exceptions under specific conditions (e.g., shipments to certain friendly countries or under specific value thresholds). | 9 | | | | 3. | Office of Foreign Assets Control (OFAC) Regulations | | OFAC is administered by the U.S. Department of the Treasury and regulates economic, and trade sanctions based on U.S. foreign policy and national security goals. OFAC limits or prohibits the export of certain items to countries, people and organizations. We do not export to Sanctioned Countries or Specially Designated Nationals for which a license would be required. *Additional Restrictions and Obligations* ** U.S. regulators may also impose new restrictions on previously non-controlled emerging or foundational items and technologies for which exports to countries such as China are deemed to present undesirable national security risks. Even without such legislative or regulatory action, we would be prohibited from exporting our products to any foreign recipient if we have knowledge that a violation of U.S. export regulations has occurred, is about to occur or is intended to occur in connection with the item. We maintain compliance with these various regulations by employing consultants with specific knowledge of ITAR and EAR compliance. **Safe Pro AI LLC** There is currently no state or federal regulation regarding the development of artificial intelligence or machine learning tools. Safe Pro AI does not collect personally identifiable information and is not subject to laws and regulations governing such information, such as the California Consumer Privacy Act. Safe Pro AIs primary product, SpotlightAI, is accessed through the web on a subscription basis. The subscription does not give a subscriber access to the code, only the right to the output of processed information. The code is executed on servers located in the United States and is not exported. **Regulations Relating to Drone Services** The UAS-based services we offer to customers within the United States are limited by federal laws and rulemaking, including the commercial drone regulations (Part 107) adopted by the U.S. Federal Aviation Administration (the FAA) at the end of August 2016. Our ability to develop and provide new services for use in the United States will be limited by federal law and regulations, which can be slow and subject to delays based on political turnover and disruptions in federal funding, among other reasons. The Part 107 rules limit the altitude, available airspace and weight of a drone and also requires the certification of remote pilots that can operate a drone for commercial purposes in the United States. We, or our customers, may seek waivers from the Part 107 rules for expanded operations; however, the processing of waivers is lengthy and uncertain. Political limits on the ability to issue new regulations could slow the growth of this market. We are also subject to various domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and similar anti-bribery and anti-kickback laws and regulations in other places where we do business. These laws and regulations generally prohibit companies and their intermediaries from offering or making improper payments to governmental, political and certain international organization officials for the purpose of obtaining, retaining or directing business. Our exposure for violating these laws and regulations increases as our international presence expands and as we increase sales and operations in foreign jurisdictions. In addition, we are subject to, or are expected to facilitate our customers compliance with, environmental, health and safety laws and regulations in each of the jurisdictions in which we operate or sell our products. These laws and regulations govern, among other things, the handling and disposal of hazardous substances and wastes, employee health and safety and the use of hazardous materials in, and the recycling of, our products. | 10 | | **Environmental Matters** Our operations are subject to a variety of federal, state and local laws and regulations relating to environmental protection, including those governing the discharge, treatment, storage, transportation, remediation and disposal of hazardous materials and wastes; the restoration of damage to the environment; and health and safety matters. We believe that our operations are in material compliance with these laws and regulations. We incur expenses in complying with environmental requirements and could incur higher costs in the future as a result of more stringent requirements that may be enacted. Some environmental laws, such as the U.S. federal Superfund law and similar state laws, can impose liability, without regard to fault, for the entire cost of the cleanup of contaminated sites on current or former site owners and operators or parties who sent waste to such sites. Based on currently available information, we do not believe that environmental matters will have a material adverse effect on our business, operating results or financial condition; however, we could incur substantial additional costs in the future as a result of any additional obligations imposed or conditions identified at these or other sites in the future. **Employees** As of December 31, 2025, we employed fifteen full-time employees , and twenty-nine independent contractors. We have never had a work stoppage, and none of our employees are represented by a labor organization or under any collective bargaining arrangements. We consider our employee relations to be good. Certain employees are subject to contractual agreements that specify requirements regarding confidentiality and restrictions on working for competitors, as well as other standard matters. Certain of our employees are licensed to fly our drones. Currently, two employees of our subsidiary, Airborne Response Corp., are licensed drone operators with FAA Part 107 Remote Pilot Certificates. Employees of our remaining subsidiaries, Safe Pro AI LLC and Safe-Pro USA LLC, are not required to be licensed pilots, as neither subsidiary operates drones. **Properties** We do not own any real property. We currently rent our executive office space in Aventura, Florida, which also houses employees of our Airborne Response business unit. We also lease a 7,000 square foot facility located in Hialeah, Florida that is used for the manufacturing operations of our Safe-Pro USA business unit. We believe that our facilities are sufficient to meet our current needs and that suitable space will be available as and when needed. | ITEM 1A. | RISK FACTORS | | **** *An investment in our securities involves a high degree of risk. The risks described below include all the material risks to investors in this report that are known to our company. You should carefully consider such risks before participating in this report. Our business, financial condition and results of operations could be materially harmed by these risks. As a result, the trading price of our common stock could decline, and you might lose all or part of your investment. When determining whether to buy our common stock, you should also refer to the other information in this Annual Report on Form 10-K, including our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.* **Risks Related to Our Business and Industry** **We lack an established operating history on which to evaluate our consolidated business and determine if we will be able to execute our business plan, and we can give no assurance that our operations will result in profits.** While Safe-Pro USA LLC has conducted business operations since 2008, Airborne Response Corp. has conducted business operations since 2016, and Safe Pro AI LLC has conducted business since 2021, they were later combined under Safe Pro Group on June 7, 2022, August 29, 2022, and March 9, 2023, respectively. We have a limited operating history as a consolidated company upon which you may evaluate our business and prospects. Our business operations are subject to numerous risks, uncertainties, expenses, and difficulties associated with early-stage enterprises. You should consider an investment in our company in light of these risks, uncertainties, expenses, and difficulties. Such risks include: | | | the absence of an operating history in our current business and at our current scale; | | | 11 | | | | | our ability to raise capital to develop our business and fund our operations; | | | | | | | | | | expected continual losses for the foreseeable future; | | | | | | | | | | our ability to anticipate and adapt to developing markets; | | | | | | | | | | acceptance by customers; | | | | | | | | | | limited marketing experience; | | | | | | | | | | competition from competitors with substantially greater financial resources and assets; | | | | | | | | | | the ability to identify, attract and retain qualified personnel; and | | | | | | | | | | reliance on key personnel. | | Because we are subject to these risks, and the other risks discussed below, you may have a difficult time evaluating our business and your investment in our company. **We incurred net losses in the years ended December 31, 2025, and 2024, we cannot assure you as to when, or if we will become profitable and generate positive cash flows.** We have incurred significant net losses since our inception. For the years ended December 31, 2025, and 2024, we have incurred net losses of $14,322,779 and $7,428,461, respectively. As of December 31, 2025, we had an accumulated deficit of $28,573,530. If our revenue grows more slowly than is currently anticipated, or if operating expenses are higher than expected, we may be unable to consistently achieve profitability, our financial condition will suffer, and the value of our common stock could decline. Even if we are successful in increasing our sales, we may incur losses in the foreseeable future as we continue to develop and market our products and services. If sales revenue from any of our current products or any additional products that we develop in the future is insufficient, or if our product development is delayed, we may be unable to achieve profitability and, in the event, we are unable to secure financing for prolonged periods of time, we may need to temporarily cease operations and, possibly, shut them down altogether. Furthermore, even if we can achieve profitability, we may be unable to sustain or increase such profitability on a quarterly or annual basis, which would adversely impact on our financial condition and significantly reduce the value of our common stock. **We may need to raise additional capital to grow our business and satisfy our anticipated future liquidity needs, and we may not be able to raise it on terms acceptable to us, or at all.** Growing and operating our business will require significant cash outlays, liquidity reserves and capital expenditures and commitments to respond to business challenges, including developing or enhancing new or existing products. As of December 31, 2025, we had cash on hand of $16,793,088. If cash on hand is not sufficient to meet our cash and liquidity needs, we may need to seek additional capital, potentially through debt or equity financing. To the extent that we raise additional capital through the sale of additional equity or convertible securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, would result in increased fixed payment obligations and a portion of our operating cash flows, if any, being dedicated to the payment of principal and interest on such indebtedness. In addition, debt financing may involve agreements that include restrictive covenants that impose operating restrictions, such as restrictions on the incurrence of additional debt, the making of certain capital expenditures or the declaration of dividends. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our products. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or considering specific strategic considerations. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail, delay or discontinue one or more of our research or product candidate development programs or the commercialization of any product candidate or be unable to expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, operating results and prospects and cause the price of the common stock to decline. | 12 | | **If we are unable to obtain additional funding when needed, our business operations will be harmed, and if we do obtain additional financing, our then-existing shareholders may suffer substantial dilution.** As we take steps in the commercialization and marketing of our products and technologies or respond to potential opportunities and/or adverse events, our working capital needs may change. We anticipate that if our cash and cash equivalents are insufficient to satisfy our liquidity requirements, we will require additional funding to sustain our ongoing operations and to continue our research and development activities. We do not have any contracts or commitments for additional funding, and there can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all, if needed. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to conduct business operations. If we are unable to obtain additional financing to finance a revised growth plan, we will likely be required to curtail such plans or cease our business operations. Any additional equity financing may involve substantial dilution to our then existing shareholders. **Raising capital in the future could cause dilution to our existing shareholders and may restrict our operations or require us to relinquish rights.** In the future, we may seek additional capital through a combination of private and public equity offerings, debt financing and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration or strategic alliance arrangements with third parties, we may have to relinquish valuable rights to our future revenue streams or product candidates on terms that are not favorable to us. **Rapid technological change in our market and/or changes in customer requirements could cause our products to become obsolete or require us to redesign our products, which would have a material adverse effect on our business, operating results and financial condition.** The market for our products is characterized by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles, changing customer demands and evolving industry standards, any of which can render existing products obsolete. We believe that our future success will depend in large part on our ability to develop new and effective products in a timely manner and on a cost-effective basis. As a result of the complexities inherent in our products, major new products and product enhancements can require long development and testing periods, which may result in significant delays in the general availability of new releases or significant problems in the implementation of new releases. In addition, if we or our competitors announce or introduce new products our current or future customers may defer or cancel purchases of our products, which could materially adversely affect our business, operating results and financial condition. Our failure to develop successfully, on a timely and cost-effective basis, new products or new product enhancements that respond to technological change, evolving industry standards or customer requirements, would have a material adverse effect on our business, operating results and financial condition. | 13 | | **Product development is a long, expensive and uncertain process, and our failure to develop marketable products in our various markets could adversely affect our business, prospects and financial condition.** The development of our technologies and products, particularly for our AI based UXO detection software, is a costly, complex and time-consuming process, and the investment in product development often involves a long wait until a return, if any, is achieved on such an investment. We continue to make significant investments in research and development relating to our technologies and products. Investments in new technology and processes are inherently speculative. Technical obstacles and challenges we encounter in our research and development process may result in delays in, or our abandonment of, product commercialization, substantially increase the costs of development and negatively affect our results of operations. **We compete with companies that have significantly more resources for their research and development efforts than we have or have received government contracts for the development of new products.** A number of our competitors have received considerable funding from the government or government-related sources to develop various technologies or products. Most of these organizations and many of our other competitors have greater financial, technical, manufacturing, marketing and sales resources and capabilities than we do. In addition, with respect to products we are developing for certain markets, we anticipate increasing competition because of industry consolidation, which has enabled companies to enhance their competitive position and ability to compete against us. These organizations also compete with us to: | | | attract parties for acquisitions, joint ventures or other collaborations; | | | | | | | | | | license proprietary technology that is competitive with the technology we are developing; | | | | | | | | | | attract funding; and, | | | | | | | | | | attract and hire talented and other qualified personnel. | | Our competitors may succeed in developing and commercializing products earlier than we do. Our competitors may also develop products or technologies that are superior to those we are developing and render our technology candidates or technologies obsolete or non-competitive. If we cannot successfully compete with new or existing products and technologies, our marketing and sales will suffer, and our financial condition would be adversely affected. **Successful technical development of our products does not guarantee successful commercialization.** Even if we successfully complete the technical development for one or all of our product development programs, we may still fail to develop a commercially successful product for a number of reasons, including, among others, the following: | | | failure to obtain the required regulatory approvals for their use; | | | | | | | | | | prohibitive production costs; | | | | | | | | | | competing products; | | | | | | | | | | lack of innovation of the product; | | | 14 | | | | | continuing technological changes in the market rendering the product obsolete; | | | | | | | | | | failure to scale up our operations sufficiently to satisfy demand for our products; | | | | | | | | | | ineffective distribution and marketing; | | | | | | | | | | lack of sufficient cooperation from our partners; and | | | | | | | | | | demonstrations of the products not aligning with or meeting customer needs. | | Although we have sold our Safe-Pro USA and Airborne Response products and services, our success in the market for the products we develop will depend largely on our ability to prove our products capabilities. Upon demonstration, our products may not have the capabilities they were designed to have or that we believed they would have. Furthermore, even if we do successfully demonstrate our products capabilities, potential customers may be more comfortable doing business with a larger, more established, more proven company than ours. Moreover, competing products may prevent us from gaining wide market acceptance of our products. We may not achieve significant revenue from new product investments for a number of years, if at all. **Product quality problems, defects, errors or vulnerabilities in our products could harm our reputation and adversely affect our business, financial condition, results of operations and prospects.** We may experience quality control problems in our manufacturing operations. We produce complex products that incorporate advanced materials and technologies and that we believe to be state-of-the-art for our industry. Despite our testing prior to their release, our products may contain undetected defects or errors, including design, manufacturing or quality issues, especially when first introduced or when new versions are released. Product defects or errors in the future could affect the performance of our products and could delay the development or release of new products or new versions of products. In addition, undetected quality problems may prompt unexpected product returns and adversely affect warranty costs. Allegations of unsatisfactory performance could cause us to lose revenue or market share, damage our reputation in the market and with customers, and increase our warranty costs and related returns, which could negatively impact our gross margins, cause us to incur substantial costs in redesigning the products, cause us to lose significant customers, subject us to liability for damages or divert our resources from other tasks, any one of which could materially adversely affect our business, financial condition, results of operations and prospects. In terms of potential product liability lawsuits, we maintain a commercial general liability policy for all products produced by its Safe-Pro USA subsidiary. **If we lose our rights to use software we currently license from third parties, we could be forced to seek alternative technology, which could increase our operating expenses and could adversely affect our ability to compete.** We license certain software for our products from a third party, generally on a non-exclusive basis. While currently, the license costs has not been material, we expect this to change. As revenue increases the costs of the licenses to support the revenue will increase as well. The termination of any of these licenses, or the failure of the licensors to adequately maintain or update their software, could delay our ability to ship our products while we seek to implement alternative technology offered by other sources and could require significant unplanned investments on our part if we are forced to develop alternative technology internally. In addition, alternative technology may not be available to us on commercially reasonable terms from other sources. In the future, it may be necessary or desirable to obtain other third-party technology licenses relating to one or more of our products or relating to current or future technologies to enhance our product offerings. There is a risk that we will not be able to obtain licensing rights to the needed technology on commercially reasonable terms, or at all. **We are dependent upon our distributors in certain jurisdictions to provide localized support and other local services which assist us in avoiding certain costs and investments.** We currently sell a number of our body armor products in certain markets through distributors, allowing us to avoid certain costs relating to operating in those markets, including but not limited to local support costs, costs of maintaining a local legal entity, administration costs and logistics. If we choose or are required to sell direct in these markets (due to customer preference, termination of a distributor relationship or other reasons), the cost advantages described will no longer be available to us, which could result in an increase in our operating costs. | 15 | | **If critical components or raw materials used to manufacture our products become scarce or unavailable, then we may incur delays in manufacturing and delivery of our products, which could damage our business.** **** We rely on a limited number of suppliers for the raw materials and hardware components necessary to manufacture our products. We do not have any long-term agreements with any of our suppliers that oblige them to continue to sell their materials or products to us. Our reliance on these suppliers involves significant risks and uncertainties as to whether our suppliers will provide an adequate supply of the required raw materials, component parts, and products. Lead-times for limited-source materials and components can be as long as six months, vary significantly and depend on factors such as the specific supplier, contract terms and demand for a component at a given time. During the COVID-19 pandemic, shortages in allocations of components and materials resulted in delays in receiving materials. Shortages and delays in obtaining components and materials in the future could impede our ability to meet customer orders. In addition, as the demand for these components and other products increases, it is likely that the price of these components and materials will increase. If we are unable to obtain the raw materials or components used in our products, we may not be able to deliver our products on a timely or cost-effective basis, which could cause our customers to terminate their contracts with us, increase our costs and materially harm our business, results of operations, and financial condition. Furthermore, if our suppliers are unable or unwilling to supply the raw materials or components we require, we will be forced to locate alternative suppliers and possibly redesign our products to accommodate materials or components from alternative suppliers. This would likely cause significant delays in manufacturing and shipping our products to customers and could materially harm our business. Our dependence and exposure on component suppliers are heightened when we introduce new products. New products frequently include materials components that we do not use in other product lines. When we introduce new products, we must secure reliable sources of supply for those products at volumes that will be dictated by end-customer demand. Demand is often difficult to predict until the new product is better established. Constraints in our supply chain can slow the progress of new product rollouts, adversely affecting our business, results of operations and financial condition. However, should we experience delays in getting the raw materials required for the production of our products, we believe we will be able to source additional suppliers that have the ability to supply the materials needed. We believe the use of these alternative suppliers can mitigate the risk of disruption if we are unable to obtain materials from our primary suppliers, but we will not be able to eliminate all delays if we are required to source new suppliers without notice. **Our potential customers for our Safe-Pro USA products are likely to include U.S. Government or Government-related entities that are subject to appropriations by Congress. Reduced funding for defense procurement and research and development programs would likely adversely impact on our ability to generate revenues.** We anticipate that a significant portion of our revenue to be derived from our ballistic protection products and a substantial percentage of our revenue to be derived from those product sales, at least in the near term, will come from U.S. Government and Government-related entities, including the U.S. Department of Defense and other departments and agencies. Government programs in which we may seek to participate must compete with other programs for consideration during Congress budget and appropriations hearings, and may be affected by changes not only in political power and appointments but also general economic conditions and other factors beyond our control. A government closure based on a failure of Congress to agree on federal appropriations or the uncertainty surrounding a continuing resolution may result in termination or delay of federal funding opportunities we are pursuing. Reductions, extensions, or terminations in a program in which we are seeking to participate, or overall defense or other spending could adversely affect our ability to generate revenues and realize any profits. We cannot predict whether potential changes in security, defense, communications, and intelligence priorities will afford opportunities for our business in terms of research and development or product contracts, but any reduction in government spending on such programs could negatively impact our ability to generate revenues. In addition, our ability to participate in U.S. Government programs may be affected by the adoption of new laws or regulations relating to government contracting or changes in existing laws or regulations, changes in political or public support for security and defense programs, and uncertainties associated with the current global threat environment and other geo-political matters. | 16 | | **Opportunities for expanded uses of our drone-based services in the United States are limited by federal and state laws and rulemaking.** The UAS-based services we offer to customers within the United States are limited by federal laws and rulemaking, including the commercial drone regulations (Part 107) adopted by the U.S. Federal Aviation Administration (the FAA) at the end of August 2016. Our ability to develop and provide new services for use in the United States will be limited by federal law and regulations, which can be slow and subject to delays based on political turnover and disruptions in federal funding, among other reasons. The Part 107 rules limit the altitude, available airspace and weight of a drone and also requires the certification of remote pilots that can operate a drone for commercial purposes in the United States. We, or our customers, may seek waivers from the Part 107 rules for expanded operations; however, the processing of waivers is lengthy and uncertain. Political limits on the ability to issue new regulations could slow the growth of this market. **Rapidly evolving technological advances in aviation, aerospace, automation, and/or remote sensing may reduce demand for some of our service offerings.** As technology improves, the capabilities surrounding the tools we use may render some of our service offerings obsolete. The regulatory and technological environment may evolve to the point where demand for remote pilots services are detrimentally impacted, resulting in a reduction in demand for our aerial-based services. **One of our key customers may bolster its in-house aerial drone capabilities, thereby reducing dependency on our services.** During the years ended December 31, 2025 and 2024, UAS services provided to Florida Power & Light (FPL) represented approximately 22.9% and 49.0%, respectively, of our overall revenue. Our contract with FPL allows them to call upon us to provide UAS services under defined criteria at a defined price. While FPL maintains their own UAS fleet, it is currently not large enough to cover their entire Florida service area, particularly in times of natural disasters. Therefore, they call upon Airborne Response to provide services from time to time. However, should FPL decide to expand their in-house UAS fleets and flight teams, they would have a diminished need for our services, thereby reducing our revenue. **Some of our products may be subject to government regulations pertaining to exportation, which may limit the markets in which we can sell some of our products.** International sales of certain of our products, including our ballistic protection equipment and AI products, may be subject to U.S. laws, regulations and policies like the International Traffic in Arms Regulations (ITAR) and other export laws and regulations and may be subject to first obtaining licenses, clearances or authorizations from various regulatory entities. If we are not allowed to export our products or the clearance process is burdensome, our ability to generate revenue would be adversely affected. The failure to comply with any of these regulations could adversely affect our ability to conduct our business and generate revenues, as well as increase our operating costs. Members of management are registered with the Defense Trade Controls Compliance (DTCC) program with the United States Department of State and maintain relations with additional subject matter experts on the topic of ITAR and international export controls. Currently, our sales do not require us to be registered with the DTCC, but sales of future products may require such registration. If in the future we are required to have personnel registered with the DTCC for new business opportunities, and if we lose such personnel, we will be unable to pursue such new business. **Economic conditions in the U.S. and worldwide could adversely affect our revenues.** Our revenues and operating results depend on the overall demand for our products and services. If the U.S. and worldwide economies weaken, either alone or in tandem with other factors beyond our control (including war, political unrest, pandemic, shifts in market demand for our services, actions by competitors or other causes), we may not be able to maintain or expand the growth of our revenue. | 17 | | **Sales to customers outside the United States or with international operations expose us to risks inherent in international sales.** During the years ended December 31, 2025 and 2024, approximately 17.0% and 19.3%, respectively, of our revenues were derived from sales outside of the United States. While our near-term focus is on the North American market, a key element of our growth strategy is to expand our worldwide customer base and our international operations, initially through agreements with third-party resellers, distributors and other parties that can market and sell our products in foreign jurisdictions. Supporting our distributors operating in international markets may require significant resources and management attention and may subject us to regulatory, economic and political risks that are different from those in the United States. While our Safe-Pro USA subsidiary has operating experience in some international markets, we cannot assure you that our expansion efforts into other international markets will be successful. Our experience in the United States and other international markets in which we already have a presence may not be relevant to our ability to expand in other international markets. Our international expansion efforts may not be successful in creating further demand for our products outside of the United States or in effectively selling our products in the international markets we enter. In addition, we face risks in doing business internationally that could adversely affect our business, including: | | | the need and expense to localize and adapt our products for specific countries, including translation into foreign languages, and ensuring that our products enable our customers to comply with local telecommunications industry laws and regulations, some of which are frequently changing; | | | | | | | | | | data privacy laws which require that customer data be stored and processed in a designated territory; | | | | | | | | | | difficulties in staffing and managing foreign operations, including employee laws and regulations; | | | | | | | | | | different pricing environments, longer sales cycles and longer accounts receivable payment cycles, and collections issues; | | | | | | | | | | new and different sources of competition; | | | | | | | | | | weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights outside of the United States; | | | | | | | | | | laws and business practices favoring local competitors; | | | | | | | | | | compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, privacy and data protection, and anti-bribery laws and regulations; | | | | | | | | | | increased financial accounting and reporting burdens and complexities; | | | | | | | | | | restrictions on the transfer of funds; | | | | | | | | | | our ability to repatriate funds from abroad without adverse tax consequences; | | | | | | | | | | adverse tax consequences, including the potential for required withholding taxes; | | | | | | | | | | fluctuations in the exchange rates of foreign currency in which our foreign revenues or expenses may be denominated; | | | | | | | | | | changes in trade relations and trade policy, including the status of trade relations between the United States and China, and the implementation of or changes to trade sanctions, tariffs, and embargoes; | | | | | | | | | | public health crises, such as epidemics and pandemics, including COVID-19; and | | | | | | | | | | unstable regional and economic political conditions in the markets in which we operate. | | | 18 | | Any of the foregoing factors could have a material adverse effect on our business, results of operations, and financial condition. Some of our customers also have international operations and are subject to the risks described above. Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if our customers are not able to successfully manage these risks, which could adversely affect our business. **Geopolitical and macroeconomic events and conditions could adversely affect our business, operating results, financial condition and cash flows.** Our business is sensitive to geopolitical and security issues, including foreign policy actions taken by governments such as tariffs, sanctions, embargoes, export and import controls and other trade restrictions, which can affect the demand for our products and services, the ability to sell our products and services, and disrupt our supply chain, all of which could adversely affect our business. Global conflicts, including Russias invasion of Ukraine, have significantly elevated global geopolitical tensions and security concerns. In addition, the U.S. Government and other nations have implemented broad economic sanctions and export controls targeting Russia, which, combined with the Ukraine conflict, has indirectly disrupted the global supply chain and increased pressures on certain resources. The Ukraine conflict also has increased the threat of malicious cyber activity from nation states and other actors. Heightened levels of inflation and the potential worsening of macro-economic conditions, including slower growth or recession, changes to fiscal and monetary policy, tighter credit, higher interest rates and currency fluctuations, present a risk for us, our suppliers and the stability of the broader defense industrial base. If we are unable to successfully mitigate the impact of inflation, our profits, margins and cash flows, particularly for existing fixed-price contracts, may be adversely affected. Although we believe defense spending is more resilient to adverse macro-economic conditions than many other industrial sectors, our suppliers and other partners, many of which are more exposed to commercial markets or have fewer resources, may be adversely impacted to a more significant degree than we are by an economic downturn, which could affect their performance and adversely impact on our operations. In addition, macroeconomic conditions could cause budgetary pressures for our government customers resulting in reductions or delays in spending, which could adversely impact our business. **We intend to pursue strategic transactions in the future, which could be difficult to implement, disrupt our business or change our business profile significantly.** We intend to continue to pursue potential strategic transactions, which could involve acquisitions of businesses or assets, joint ventures or investments in businesses, products or technologies that expand, complement or otherwise relate to our current or future business. We also intend to consider, from time to time, opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. However, we may be unable to find suitable acquisition candidates or other suitable partners or products or may be unable to complete acquisitions or strategic transactions on favorable terms, if at all. For example, while the historical financial and operating performance or an acquisition or joint venture partner are among the criteria we evaluate in determining which acquisition or joint venture targets to pursue, there can be no assurance that any business or assets we acquire or contract with will continue to perform in accordance with past practices or will achieve financial or operating results that are consistent with or exceed past results. Any such failure could adversely affect our business, financial condition or results of operations. In addition, any completed acquisition or other transaction may not result in the intended benefits for other reasons and any completed acquisition or other transaction will create or involve a number of other risks such as, among others: | | | the need to integrate and manage the businesses and products acquired with our own business and products; | | | | | | | | | | additional demands on our resources, systems, procedures and controls; | | | | | | | | | | disruption of our ongoing business; and | | | | | | | | | | diversion of managements attention from other business concerns. | | | 19 | | Moreover, these transactions could involve: | | | substantial investment of funds or financings by issuance of debt or equity securities that could result in dilution to our stockholders, impacting our ability to service our debt within scheduled repayment terms or include covenants or other restrictions that would impede our ability to manage our operations; | | | | | | | | | | substantial investment with respect to technology transfers and operational integration; and, | | | | | | | | | | the acquisition or disposition of product lines or businesses. | | Also, such activities could result in one-time charges and expenses and have the potential to either dilute the interests of existing stockholders or result in the issuance of or assumption of debt. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources of our company. Any such activity may not be successful in generating revenue, income or other returns to us, and the resources committed to such activities will not be available to us for other purposes. Moreover, if we are unable to access capital markets on acceptable terms or at all, we may not be able to consummate acquisitions or may have to do so on the basis of a less than optimal capital structure. Our inability to (i) take advantage of growth opportunities for our business or for our products or (ii) address risks associated with acquisitions or investments in businesses may negatively affect our operating results. Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment or charges to earnings associated with any acquisition or investment activity may materially reduce our earnings. These future acquisitions or joint ventures may not result in their anticipated benefits, and we may not be able to properly integrate acquired products, technologies or businesses with our existing products and operations or combine personnel and cultures. Failure to do so could deprive us of the intended benefits of those acquisitions. **If we fail to protect our intellectual property rights, we could lose our ability to compete in the marketplace.** Our intellectual property and proprietary rights are important to our ability to remain competitive and for the success of our products and our business. Patent protection can be limited, and not all intellectual property is or can be patented. We rely on a combination of patent, trademark, copyright, and trade secret laws as well as confidentiality agreements and procedures, non-competition agreements and other contractual provisions to protect our intellectual property, other proprietary rights and our brand. We have little protection when we must rely on trade secrets and nondisclosure agreements. Our intellectual property rights may be challenged, invalidated or circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by employees or competitors. Furthermore, our competitors may independently develop technologies and products that are substantially equivalent or superior to our technologies and/or products, which could result in decreased revenues for us. Moreover, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S. Litigation may be necessary to enforce our intellectual property rights, which could result in substantial costs to us and substantial diversion of managements attention. If we do not adequately protect our intellectual property, our competitors could use it to enhance their products. Our inability to adequately protect our intellectual property rights could adversely affect our business and financial condition and the value of our brand and other intangible assets. **If we fail to protect our intellectual property rights, our ability to pursue the development of our technologies and products would be negatively affected.** Our success will depend in part on our ability to obtain patents and maintain adequate protection of our intellectual property and technologies. Some foreign countries lack rules and methods for defending intellectual property rights and do not protect proprietary rights to the same extent as the United States. We have filed an international patent application, and many companies have had difficulty protecting their proprietary rights in foreign countries. We may not be able to prevent misappropriation of our proprietary rights. | 20 | | The patent process is subject to numerous risks and uncertainties and there can be no assurance that we will be successful in protecting our technologies by obtaining and enforcing patents. These risks and uncertainties include the following: | | | there can be no guarantee that any patents will issue from pending patent applications or future patent applications, if any, and there can be no guarantee that any issued patents will adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are complex and often uncertain and are subject to change that can affect validity of patents issued under previous legal standards, particularly with respect to the law of subject matter eligibility; | | | | | | | | | | patents that may be issued or licensed may be challenged, invalidated, declared unenforceable, or circumvented, or otherwise may not provide any competitive advantage; | | | | | | | | | | our competitors, many of which have substantially greater resources than us and many of which have made significant investments in competing technologies, may seek, or may already have obtained, patents that will limit, interfere with, or eliminate our ability to make, use, and license our technologies either in the United States or in international markets; | | | | | | | | | | there may be significant pressure on the United States government and other international governmental bodies to limit the scope of patent protection both inside and outside the United States for technologies that prove successful as a matter of public policy regarding security concerns; | | | | | | | | | | countries other than the United States may have less restrictive patent laws than those upheld by United States courts, allowing foreign competitors the ability to exploit these laws to create, develop, and market competing products. | | Moreover, any patents issued to us may not provide us with meaningful protection, or others may challenge, circumvent, or narrow our patents. Third parties may also independently develop technologies similar to ours or design around any patents on our technologies. In addition, the United States Patent and Trademark Office and patent offices in other jurisdictions have often required that patent applications concerning software inventions be limited or narrowed substantially and often reject or restrict patent applications that are found to be directed to merely abstract ideas, thereby potentially limiting the scope of protection against competitive challenges. Thus, even if we or our licensors are able to obtain patents, the patents may be substantially narrower than anticipated. Our success depends on our pending patent applications, patents that may be licensed exclusively to us, and other patents to which we may obtain assignment or licenses. We may not be aware, however, of all patents, published applications, or published literature that may affect our business by blocking our ability to commercialize our products, preventing the patentability of products or services by us or our licensors, or covering the same or similar technologies that may invalidate our patent applications, limit the scope of our future patent claims or adversely affect our ability to market our products and services. In addition to our pending and issued patent applications, we rely on a combination of trade secrets, confidentiality, nondisclosure and other contractual provisions, and security measures to protect our confidential and proprietary information. These measures may not adequately protect our trade secrets or other proprietary information. If they do not adequately protect our rights, third parties could use our technology, and we could lose any competitive advantage we may have. In addition, others may independently develop similar proprietary information or techniques or otherwise gain access to our trade secrets, which could impair any competitive advantage we may have. Patent protection and other intellectual property protection are crucial to the success of our business and prospects, and there is a substantial risk that such protection will prove inadequate. | 21 | | **Other companies may claim that we infringe their intellectual property, which could materially increase our costs and harm our ability to generate future revenue and profit.** We do not believe our product technologies infringe the proprietary rights of any third party, but claims of infringement are becoming increasingly common, and third parties may assert infringement claims against us. It may be difficult or impossible to identify, prior to receipt of notice from a third party, the trade secrets, patents or other intellectual property rights of a third party, either in the United States or in foreign jurisdictions. Any such assertion may result in litigation or may require us to obtain a license for or otherwise restrict our use of the intellectual property rights of third parties. If we are required to obtain licenses to use any third-party technology, we would have to pay royalties, which may significantly reduce any profit on our products. In addition, any such litigation could be expensive and disruptive to our ability to generate revenue or enter into new market opportunities. If any of our products are found to infringe other parties proprietary rights and we are unable to come to terms regarding a license with such parties, we may be forced to modify our products to make them non-infringing or to cease production of such products altogether. **Security breaches, including cybersecurity incidents and other disruptions could compromise our information, expose us to liability and harm our reputation and business.** In the ordinary course of our business we collect and store sensitive data, including intellectual property, personal information, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees in our data centers and on our networks. The secure maintenance and transmission of this information is critical to our operations and business strategy. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission, and storage of confidential information. Computer hackers may attempt to penetrate our computer systems and, if successful, misappropriate personal or confidential business information. In addition, an associate, contractor, or other third-party with whom we do business may attempt to circumvent our security measures in order to obtain such information and may purposefully or inadvertently cause a breach involving such information. Despite the security measures we have in place and any additional measures we may implement in the future to safeguard our systems and to mitigate potential security risks, our facilities and systems, and those of our third-party service providers, could be vulnerable to security breaches. Any such compromise of our data security and access, public disclosure, or loss of personal or confidential business information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruption of our operations, damage to our reputation, loss of our customers willingness to transact business with us, and subject us to additional costs and liabilities which could materially adversely affect our business. **We do not carry insurance against all potential risks and losses, and our insurance might be inadequate to cover all of our losses or liabilities or may not be available on commercially reasonable terms.** We have limited, and potentially insufficient, insurance coverage for expenses and losses that may arise in connection with the quality of our products, property damage, work-related accidents and occupational illnesses, natural disasters, and environmental contamination. In addition, we have no insurance coverage for loss of profits or other losses caused by the death or incapacitation of our senior management. As a result, losses or liabilities arising from these or other such events could increase our costs and could have a material adverse effect on our business, financial condition, results of operations and prospects. We intend to reevaluate the purchase of insurance, policy limits and terms annually or when circumstances warrant from time to time. Future insurance coverage for our industry could increase in cost and may include higher deductibles or retentions than we could obtain now. In addition, some forms of insurance may become unavailable in the future or unavailable on terms that we believe are economically acceptable. No assurance can be given that we will be able to maintain insurance in the future at rates that we consider reasonable, and we may elect to continue to maintain minimal or no insurance coverage. We may not be able to secure additional insurance or bonding that might be required by new governmental regulations. This may cause us to restrict our operations in certain jurisdictions, which might severely impact on our financial position. The occurrence of a significant event, not fully insured against, could have a material adverse effect on our financial condition and results of operations. | 22 | | **The nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnity.** We develop and sell products where insurance or indemnification may not be available, including: | | | designing and developing products using advanced and unproven technologies and drones in intelligence and homeland security applications that are intended to operate in high demand, high risk situations; and, | | | | | | | | | | designing and developing products to collect, distribute and analyze various types of information. | | Failure of certain of our products could result in loss of life or property damage. Certain products may raise questions with respect to issues of civil liberties, intellectual property, trespass, conversion, and similar concepts, which may raise new legal issues. Indemnification to cover potential claims or liabilities resulting from a failure of technologies developed or deployed may be available in certain circumstances, but not in others. We are not able to maintain insurance to protect against all operational risks and uncertainties. Substantial claims resulting from an accident, failure of our product, or liability arising from our products in excess of any indemnity or insurance coverage (or for which indemnity or insurance is not available or was not obtained) could harm our financial condition, cash flows, and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively. AI and ML technologies and services are highly competitive, rapidly evolving, and require significant investment, including development and operational costs. Other companies may develop AI and/or ML products and technologies similar or superior to our technologies, or more cost-effective to deploy. Other companies may also have or obtain patents or other proprietary rights that would prevent or interfere with our ability to make, use, or sell our own AI and ML products and services. In addition, governments have passed laws and are likely to pass additional laws regulating AI and ML software technologies and associated intellectual property. Laws and regulations focused on the development, use, protection, and provision of AI and ML technologies and other digital products and services could result in regulatory actions or compliance costs. **If a successful product liability claim was made against us, our business could be seriously harmed.** Our agreements with our customers typically, although not always, contain provisions designed to limit our exposure to potential product liability claims. Despite this, it is possible that these limitations of liability provisions may not be effective as a result of existing or future laws or unfavorable judicial decisions. We have not experienced a material product liability claim to date; however, the sales and support of our products may entail the risk of those claims, which are likely to be substantial in light of the use of our products in critical applications. A successful product liability claim could result in significant monetary liability for us and could seriously harm our business. **If we are unable to recruit and retain key management, technical and sales personnel, our business will be negatively affected.** For our business to be successful, we need to attract and retain highly qualified technical, management and sales personnel. The failure to recruit additional key personnel when needed with specific qualifications and on acceptable terms or to retain good relationships with our partners might impede our ability to continue to develop, commercialize and sell our products. To the extent the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting and training costs in order to attract and retain such employees. The loss of any members of our management team may also delay or impair the achievement of our business objectives and result in business disruptions due to the time needed for their replacements to be recruited and become familiar with our business. We face competition for qualified personnel from other companies with significantly more resources available to them and thus may not be able to attract the level of personnel needed for our business to succeed. **If we are required to reclassify independent contractors as employees, we may incur additional costs and taxes which could adversely affect our business, financial condition, results of operations and prospects.** We engage a significant number of independent contractors in our operations, particularly in our research and development efforts, for whom we do not pay or withhold any federal, state or provincial employment tax. There are a number of different tests used in determining whether an individual is an employee, or an independent contractor and such tests generally take into account multiple factors. There can be no assurance that legislative, judicial, or regulatory (including tax) authorities will not introduce proposals or assert interpretations of existing rules and regulations that would change, or at least challenge, the classification of our independent contractors. Although we believe we have properly classified our independent contractors, the U.S. Internal Revenue Service or other U.S. federal or state authorities or similar authorities of a foreign government may determine that we have misclassified our independent contractors for employment tax or other purposes and, as a result, seek additional taxes from us or attempt to impose fines and penalties. If we are required to pay employer taxes or pay federal withholding with respect to prior periods with respect to or on behalf of our independent contractors, our operating costs will increase, which could adversely impact our business, financial condition, results of operations and prospects. | 23 | | **The control deficiencies in our internal control over financial reporting may, until remedied, cause errors in our financial statements or cause our filings with the SEC to not be timely.** At the end of the period December 31, 2025, our certifying officers concluded that the Companys disclosure controls and procedures were not effective. We believe our disclosure controls and procedures were not effective due to a lack of; segregation of duties within accounting functions and formalized accounting procedures. Should we not remedy our internal control over financial reporting or disclosure controls and procedures, there may be errors in our financial statements that could require a restatement, or our filings may not be timely made with the SEC. We continue to implement additional policies and procedures to remedy our effectiveness and continue to upgrade our accounting software, as well as, seeking additional staff. We have engaged third parties to assist in the documentation of our corporate policies and to further address our personnel needs. We expect to have remedied the effectiveness of our controls and procedures during the second quarter of 2026. Moreover, no control environment, no matter how well designed and operated, can prevent or detect all errors or fraud. We may identify material weaknesses and control deficiencies in our internal control over financial reporting in the future that may require remediation and could lead investors to lose confidence in our reported financial information, which could lead to a decline in our stock price. **Risks Relating to our Common Stock** **A sustained, active trading market for our common stock may not be maintained, which may limit investors ability to sell shares at all or at an acceptable price.** As we are in our early stage of development, an investment in our Company will likely require a long-term commitment, with no certainty of return. We cannot predict whether an active market for our shares of common stock will ever develop or be sustained in the future. In the absence of an active trading market: | | | investors may have difficulty buying and selling or obtaining market quotations; | | | | | | | | | | market visibility for our common stock may be limited; and, | | | | | | | | | | a lack of visibility for our common stock may have a depressive effect on the market price for our common stock. | | The lack of an active market impairs your ability to sell your shares of common stock at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares of common stock. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares of common stock and may impair our ability to acquire additional assets by using our shares of common stock as consideration. **Our stock price may be volatile, which could result in substantial losses to investors and litigation.** In addition to changes to market prices based on our results of operations and the factors discussed elsewhere in this Risk Factors section, the market price of and trading volume for our common stock may change for a variety of other reasons, not necessarily related to our actual operating performance. The capital markets have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In addition, the average daily trading volume of the securities of small companies can be very low, which may contribute to future volatility. Factors that could cause the market price of our common stock to fluctuate significantly include: | | | the results of operating and financial performance and prospects of other companies in our industry; | | | 24 | | | | | strategic actions by us or our competitors, such as acquisitions or restructurings; | | | | | | | | | | announcements of innovations, increased service capabilities, new or terminated customers or new, amended or terminated contracts by our competitors; | | | | | | | | | | the publics reaction to our press releases, other public announcements, and filings with the SEC; | | | | | | | | | | lack of securities analyst coverage or speculation in the press or investment community about us or market opportunities in the defense industry; | | | | | | | | | | changes in government policies in the United States and, as our international business increases, in other foreign countries; | | | | | | | | | | changes in earnings estimates or recommendations by securities or research analysts who track our common stock or failure of our actual results of operations to meet those expectations; | | | | | | | | | | market and industry perception of our success, or lack thereof, in pursuing our growth strategy; | | | | | | | | | | changes in accounting standards, policies, guidance, interpretations or principles; | | | | | | | | | | any lawsuit involving us, our services or our products; | | | | | | | | | | arrival and departure of key personnel; | | | | | | | | | | sales of common stock by us, our investors or members of our management team; and, | | | | | | | | | | changes in general market, economic and political conditions in the United States and global economies or financial markets, including those resulting from natural or man-made disasters. | | Any of these factors, as well as broader market and industry factors, may result in large and sudden changes in the trading volume of our common stock and could seriously harm the market price of our common stock, regardless of our operating performance. This may prevent you from being able to sell your shares at or above the price you paid for your shares of our common stock, if at all. In addition, following periods of volatility in the market price of a companys securities, stockholders often institute securities class action litigation against that company. Our involvement in any class action suit or other legal proceedings could divert our senior managements attention and could adversely affect our business, financial condition, results of operations and prospects. **We have never declared or paid cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future.** We currently intend to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay cash dividends will be dependent upon our financial condition, operating results, capital requirements, applicable contractual restrictions and other such factors as our board of directors may deem relevant. **There is an increased potential risk for new public companies similar to ours of rapid and substantial price volatility which may add to the risk of investing in our company.** There have been recent instances of extreme stock price run-ups followed by rapid price declines and stock price volatility seemingly unrelated to company performance following a number of recent initial public offerings, particularly among companies with relatively smaller public floats. Additionally, our common stock may be subject to rapid and substantial price volatility, including any stock-run up, which may be unrelated to our actual or expected operating performance and financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our shares of common stock. As a result, you may suffer a loss on your investment. | 25 | | **We may need to raise additional capital in the future. Additional capital may not be available to us on reasonable terms, if at all, when or as we require. If we issue additional shares of our common stock or other securities that may be convertible into, or exercisable or exchangeable for, our common stock, our existing stockholders will experience further dilution and could trigger anti-dilution provisions in outstanding warrants.** We may need to raise additional capital in the future. Future financing may involve the issuance of debt, equity and/or securities convertible into or exercisable or exchangeable for our equity securities. These financings may not be available to us on reasonable terms or at all when and as we require funding. If we are able to consummate such financings, the trading price of our common stock could be adversely affected and/or the terms of such financings may adversely affect the interests of our existing stockholders. Any failure to obtain additional working capital when required would have a material adverse effect on our business and financial condition and may result in a decline in our stock price. Any issuances of our common stock, preferred stock, or securities such as warrants or notes that are convertible into, exercisable or exchangeable for, our capital stock, would have a dilutive effect on the voting and economic interest of our existing stockholders. **Our officers and directors are entitled to indemnification from us for liabilities under our certificate of incorporation, which could be costly to us and may discourage the exercise of stockholder rights.** Our certificate of incorporation provide that we possess and may exercise all powers of indemnification of our officers, directors, employees, agents and other persons and our bylaws also require us to indemnify our officers and directors as permitted under the provisions of the Delaware General Corporation Law (DGCL). We also have contractual indemnification obligations under our agreements with our directors and officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors, officers, and employees for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our stockholders against our directors, officers, and employees even though such actions, if successful, might otherwise benefit our company and stockholders. During 2025, the Company obtained D&O liability insurance with a term of one year, which was renewed until August of 2026. **Our bylaws and Delaware law may discourage, delay or prevent a change of control of our company or changes in our management, which could have the result of depressing the trading price of our common stock.** Certain anti-takeover provisions of Delaware law could have the effect of delaying or preventing a third party from acquiring us, even if the acquisition arguably could benefit our stockholders. Section 203 of the DGCL is a company anti-takeover statute. Section 203 prohibits a stockholder from engaging in a business combination with a company for three years after the stockholder acquires 15% or more of the companys voting equity. If a companys board pre-approves such a business combination, however, the Section 203 anti-takeover protections do not apply. Various provisions of our bylaws may delay, defer or prevent a tender offer or takeover attempt of us that a stockholder might consider in his or her best interest. Our bylaws may be adopted, amended or repealed by the affirmative vote of the holders of at least a majority of our outstanding shares of capital stock entitled to vote for the election of directors, and except as provided by Delaware law, our board of directors shall have the power to adopt, amend or repeal the bylaws by a vote of not less than a majority of our directors. The interests of these stockholders and directors may not be consistent with your interests, and they may make changes to the bylaws that are not in line with your concerns. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. | 26 | | **If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our common stock, the market price of our common stock will likely decline.** The trading market for our common stock will rely in part on the research and reports that equity research analysts, over whom we have no control, publish about us and our business. We may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of our company, the market price for our common stock could decline. In the event we obtain securities or industry analyst coverage, the market price of our common stock could decline if one or more equity analysts downgrade our common stock or if those analysts issue unfavorable commentary, even if it is inaccurate, or cease publishing reports about us or our business. **Our certificate of incorporation and bylaws provides that the state and federal courts located in the State of Delaware will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.** Our certificate of incorporation and bylaws provides that the state and federal courts located in the State of Delaware will be the exclusive forum for the following types of actions or proceedings: | | any derivative action or proceeding brought on our behalf; | | | | | | | | any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or to our stockholders; | | | | | | | | an action asserting a claim arising pursuant to any provision of the DGCL; or | | | | | | | | any action asserting a claim governed by the internal affairs doctrine. | | Notwithstanding the foregoing, the exclusive forum provisions will not apply to suits brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended, the Securities Act of 1933, as amended. or any claim for which the federal courts have exclusive or concurrent jurisdiction. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our certificate of incorporation and bylaws. This may require significant additional costs associated with resolving such an action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions. These exclusive forum provisions may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were to find either exclusive forum provision in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could harm our business. **Our certificate of incorporation allows our board of directors to create a new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.** Our board of directors has the authority to fix and determine the relative rights and preferences of our preferred stock. Currently our board of directors has the authority to designate and issue up to 10,000,000 shares of our blank check preferred stock without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders. | 27 | | **Our failure to meet the continued listing requirements of the Nasdaq could result in de-listing of our common stock.** If we fail to satisfy the continued listing requirements of the Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, the Nasdaq may take steps to de-list our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a de-listing, we would take actions to try to restore our compliance with the Nasdaq marketplace rules, but our common stock may not be listed again, and such actions may not stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with the Nasdaq marketplace rules. **If we are a controlled company under the rules of Nasdaq, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public stockholders.** Under Nasdaqs rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements, including, without limitation, (i) the requirement that a majority of the Board of Directors consist of independent directors, (ii) the requirement that the compensation of our officers be determined or recommended to our Board of Directors by a compensation committee that is comprised solely of independent directors, and (iii) the requirement that director nominees be selected or recommended to the Board of Directors by a majority of independent directors or a nominating committee comprised solely of independent directors. **As an emerging growth company under the Jumpstart Our Business Startups Act, or JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.** As an emerging growth company under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of: | | | the last day of the fiscal year during which we have total annual gross revenues of $1.235 billion or more; | | | | | | | | | | the last day of the fiscal year following the fifth anniversary of our IPO; | | | | | | | | | | the date on which we have, during the previous 3-year period, issued more than $1 billion in non-convertible debt; or | | | | | | | | | | the date on which we are deemed a large accelerated filer as defined under the federal securities laws. | | For so long as we remain an emerging growth company, we will not be required to: have an auditor report on our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditors report providing additional information about the audit and the financial statements (auditor discussion and analysis); submit certain executive compensation matters to shareholders advisory votes pursuant to the say on frequency and say on pay provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the say on golden parachute provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; | 28 | | include detailed compensation discussion and analysis in our filings under the Securities Exchange Act of 1934, as amended, and instead may provide a reduced level of disclosure concerning executive compensation; may present only two years of audited financial statements and only two years of related Managements Discussion and Analysis of Financial Condition and Results of Operations, or MD and, are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under 107 of the JOBS Act. We intend to take advantage of all of these reduced reporting requirements and exemptions. Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a smaller reporting company under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding managements assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or CEO pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure. We cannot predict if investors will find our securities less attractive due to our reliance on these exemptions. If investors were to find our common stock less attractive as a result of our election, we may have difficulty raising proceeds. | ITEM 1B. | UNRESOLVED STAFF COMMENTS | | **** Not applicable. | ITEM 1C. | CYBERSECURITY | | **** There have been an increasing number of cyberattacks on companies around the world, which have caused operational failures, compromised sensitive corporate or customer data, and/or resulted in significant financial damages. These attacks have occurred over the internet, through malware, viruses or attachments to e-mails, or through inside actors with access to systems within an organization. *Risk Management and Strategy* We utilize third party applications and resources to support our information technology (IT) needs. All of the applications we use are Software as a Service (SaaS) offerings. As our applications are developed and managed by third parties, we are dependent on these providers for many functions including disaster recovery during a disaster or cyber incident. Our goal is to utilize the most secure and trusted providers for our IT needs. Our business continuity plans are evaluated against evolving security and service level standards, which includes evaluating those cybersecurity threats associated with our use of key third party service providers. Our cybersecurity management strategy consists of utilizing a combination of preventative controls and detective controls. For instance, suspicious emails are quarantined by our email service provider and must be reviewed before they are downloaded to an individual computer. Our process and cybersecurity posture will continue to be refined. To operate our business, we rely upon certain third-party service providers to perform a variety of functions, such as outsourced professional services, SaaS platforms, managed services, cloud-based infrastructure, corporate productivity services, and other functions. To date, there have been no risks identified from cybersecurity threats or previous cybersecurity incidents that have materially affected or are reasonably likely to materially affect the Company. However, despite all of the above aforementioned efforts, a cyberattack, if it occurred, could cause system operational problems, disrupt service to clinical trial sites, compromise important data or systems or result in an unintended release of confidential information. See Item 1A. Risk Factors for additional discussion of cybersecurity risks impacting our Company. | 29 | | *Governance* The Audit Committee is responsible for oversight of cybersecurity risk. Our Chief Executive Officer is the member of management responsible for managing and assessing our cybersecurity practices. Our Chief Executive Officer has over 25 years experience as a C-Level technology executive for private and public companies. The plan for the future is that our Chief Executive Officer will report to the Audit Committee on cybersecurity on a quarterly basis. Should any cybersecurity threat or incident be detected, our senior management team would timely report such threat or incident to the Audit Committee and provide regular communications and updates throughout the incident and any subsequent investigation, so that the impact, materiality, and reporting requirements of such incident are appropriately identified and assessed for further necessary or appropriate action to be taken. We believe we are appropriately staffed (as supported by our outsourced IT provider) to support a healthy cybersecurity posture given our size and scope. | ITEM 2. | PROPERTIES | | **** **Properties** We do not own any real property. We currently rent our executive office space located in Aventura, Florida, which serves as the operational base for the parent and for two of our subsidiaries, Airborne Response and Safe Pro AI. We also lease a 7,000 square foot facility located, in Hialeah, Florida, which is used for the manufacturing operations of our Safe-Pro USA business unit. We believe our facilities are sufficient to meet our current needs and that suitable space will be available as and when needed. | ITEM 3. | LEGAL PROCEEDINGS | | **** From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Neither our company nor any of our subsidiaries is currently a party to any legal proceeding that, individually or in the aggregate, is material to our company as a whole. | ITEM 4. | MINE SAFETY DISCLOSURES | | Not applicable. **PART II** | ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES | | **Market Information** Our common stock has traded on the NASDAQ under the symbol SPAI since August 29, 2024. **Holders** As of March 31, 2026, there were 60 holders of record for our shares common stock. **Dividends** We have not paid any cash dividends on our common stock to date and do not intend to pay cash dividends. Any future disposition of dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, operating and financial condition, capital requirements, and other factors. Our board of directors is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. | 30 | | **Recent Sales of Unregistered Securities** All information related to equity securities sold by us during the period covered by this report that were not registered under the Securities Act have been included in our Form 10-Q filings or in a Form 8-K filing. **Purchases of Equity Securities by the Issuer and Affiliated Purchasers** 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. The following table sets forth information regarding purchases made by or on behalf of the Company or any affiliated purchaser of shares of the Companys common stock during the fourth quarter of the fiscal year ended December 31, 2025: | Issuer Purchases of Equity Securities | | | Period | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | | | October 1-31, 2025 | | | - | | | | - | | | | - | | | | - | | | | November 1-30, 2025 | | | - | | | | - | | | | - | | | | - | | | | December 1-31, 2025 | | | 162,454 | | | $ | 4.16 | | | | 162,454 | | | $ | 2,323,966 | | | | Total | | | 162,454 | | | $ | 4.16 | | | | 162,454 | | | $ | 2,323,966 | | | | ITEM 6. | [Reserved] | | | ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | | *The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled Risk Factors included elsewhere in this Annual Report on Form 10-K.* **Business Overview** We were incorporated in the State of Delaware on December 15, 2021. Safe Pro Group Inc. is the parent company of Airborne Response Corp. and Safe-Pro USA LLC, which were both incorporated in Florida, in 2016 and 2008, respectively. On March 9, 2023, Safe Pro Group Inc. acquired Demining Development LLC, a privately held developer of Artificial Intelligence (AI) and Machine Learning (ML) software technology for processing of drone-based imagery and data. On August 30, 2023, Demining Development LLC filed an amended and restated Articles of Organization to change its name to Safe Pro AI LLC. On December 23, 2025, we formed SPAI Ventures LLC. Currently, SPAI Ventures is a non-active wholly owned subsidiary, that was established to pursue both strategic collaborations and investments with Ukrainian and other international tech developers. Through SPAI Ventures, Safe Pro Group, will evaluate opportunities in which to invest or to commercialize technologies that it believes could complement the capabilities of its portfolio of AI and ballistic protective solutions. SPAI Ventures has not made any investments or entered into any agreements. We are a company focused on innovative security and protection solutions, specifically, advanced artificial intelligence / machine learning (AI/ML) software technology for the creation of robust datasets sourced from the analysis of aerial imagery, bullet and blast resistant personal protection equipment and providing mission-critical aerial managed services. Through a layered approach to the development and integration of advanced technologies in artificial intelligence, drone-based remote sensing technologies and services, and personal protective gear, Safe Pro Group seeks to provide government, NGOs and enterprises with innovative solutions designed to respond to evolving threats. Currently, the Companys revenue is primarily generated by its subsidiaries Airborne Response and Safe-Pro USA. We expect to begin realizing revenue from Safe Pro AI for its Safe Pro Object Threat Detection (SPOTD) technology ecosystem - SpotlightAI, OnSight and SPOTD NODE (Navigation, Observation & Detection Engine)- as a result of multiple completed demonstrations and evaluations in Ukraine, the Philippines and the United States during 2025, as well as planned demonstrations including events hosted by the U.S. Army in early 2026. Furthermore, the Company expects to generate revenue through a number of strategic relationships formed during August and September of 2025 with select drone industry vendors introduced through its most recent investors such as Ondas Holdings Inc. and Unusual Machines Inc. Further, the Company expects to generate revenue from Safe Pro AI through the delivery of AI-powered edge processing systems under a $1.0 million U.S. Government subcontract entered in February 2026, marking the Companys first material government program revenue associated with its AI technology portfolio. **** **Principle of Consolidation** Our consolidated financial statements included in this Annual Report on Form 10-K include our accounts and those of our active operating subsidiaries: Airborne Response Corp., Safe-Pro USA LLC, and Safe Pro AI LLC from their respective dates of acquisition. Not included in this Annual Report on Form 10-K, SPAI Ventures LLC, which is currently a non-operating subsidiary of the company. **Segment Information** The Company uses the management approach in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Companys chief operating decision maker for making operating decisions and assessing performance as the source for determining the Companys reportable segments. The Companys 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 year ended December 31, 2025 and 2024, the Company operated in three active 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 Companys reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations and locations. | 31 | | **Significant Components of Our Results of Operations** **Revenues.**Our revenues are generated primarily from the sale of our products and services, which consist primarily of personal protective gear (PPE) and ballistic protective equipment including Explosive Ordnance Disposal (EOD) and blast and fragmentation resistant vests and body armor, as well as aerial managed services (drones) for the inspection of customers critical infrastructure including radio towers and power grids. At contract inception, we assess the goods and services promised in the contract with customers and identify a performance obligation for each. To determine the performance obligation, we consider all products and services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not subject to significant judgment. We measure revenue as the amount of consideration expected to be received in exchange for transferring goods and services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met. **Cost of Goods Sold and Gross Profit.**Gross profit has been and will continue to be affected by various factors, including changes in our supply chain and the evolving product mix. The margin profile of our current products and future products will vary depending on operating performance, features, materials, manufacturer and supply chain. Gross margin will vary as a function of changes in pricing due to competitive pressure, our third-party manufacturing, labor costs for services and depreciation for our drone related fixed assets and, our production costs, which includes depreciation related costs for manufacturing equipment, costs of shipping and logistics, provision for excess and obsolete inventory and other factors. We expect our gross margins will fluctuate from period to period depending on the interplay of these various factors. **Operating Expenses.**We classify our operating expenses as salary, wages and payroll taxes, research and development, professional fees, selling, general, administrative, non-production and services related depreciation and amortization. Additionally, we separate depreciation and amortization expense into its own category. **Salary, Wages and Payroll Taxes.**Salaries are representative of officer and stock-based compensation and administrative personnel costs. The salary and wages associated payroll tax is reflected here as well. **Research and Development**expenses consist of costs associated with personnel and contractor fees associated with the design and development of our products, product certification, travel, recruiting and information technology. Development costs incurred prior to establishment of technological feasibility were expensed as incurred. Software development costs related to design enhancement of the product are capitalized. We expect our research and development costs to continue to increase as we develop new products and modify existing products to meet the changes within our markets. **Professional Fees** primarily represent certain costs for legal, audit, accounting, public company expense, investor relations, consulting fees and share-based compensation for services. **Selling, General and Administrative**expenses consist of expenses associated with our training programs, trade shows, marketing programs, promotional materials, demonstration equipment, national and local regulatory approvals of our products, travel, entertainment, recruiting, operating supplies such as, computer equipment, drones, EOD testing supplies; and facilities and other supporting overhead costs. For the year ending December 31, 2026, we expect selling, general and administrative expenses to increase, as we ramp up our sales and marketing expansion efforts to correspond with our increased production efforts, relating to our personal protective gear, the availability of additional AI-powered image processing solutions and new drone-based services such as Drone as a Responder (DFR). **Depreciation and Amortization**expense consists of depreciation related to computer and related office equipment, as well as amortization related to finite-lived intangibles. **Interest Expense**is comprised of interest expense associated with our secured notes payable and convertible notes. The amortization of debt discounts is also recorded as part of interest expense. | 32 | | **Provision for Income Taxes.**Current and deferred income tax expense or benefit in any given period will depend upon a number of events and circumstances, one of which is the income tax net income or loss from operations for the period which is usually different from the U.S. GAAP net income or loss, for the period due to differences in tax laws and timing differences. Management assesses our deferred tax assets in each reporting period, and if it is determined that it is not more likely than not to be realized, we will record a change in our valuation allowance in that period. **Results of Operations** **Comparison of the Years Ended December 31, 2025 and 2024** The following table provides certain selected financial information for the periods presented: | Consolidated Statement of Operations Data: | | | | | | | | | | | | | | | | | Years Ended | | | | | | | | | | | | December 31, | | | December 31, | | | | | | | | | | | | 2025 | | | 2024 | | | Change | | | % | | | | REVENUES: | | | | | | | | | | | | | | | | | | | Product Sales | | $ | 361,266 | | | $ | 1,029,502 | | | $ | (668,236 | ) | | | (64.9 | )% | | | Services | | | 245,415 | | | | 1,139,676 | | | | (894,261 | ) | | | (78.5 | )% | | | | | | | | | | | | | | | | | | | | | | Total Revenues | | | 606,681 | | | | 2,169,178 | | | | (1,562,497 | ) | | | (72.0 | )% | | | | | | | | | | | | | | | | | | | | | | COST OF REVENUES: | | | | | | | | | | | | | | | | | | | Product sales | | | 201,235 | | | | 675,632 | | | | (474,397 | ) | | | (70.2 | )% | | | Services | | | 126,741 | | | | 519,023 | | | | (392,282 | ) | | | (75.6 | )% | | | Depreciation Expense | | | 76,527 | | | | 68,377 | | | | 8,150 | | | | 11.9 | % | | | | | | | | | | | | | | | | | | | | | | Total Cost of Revenues | | | 404,503 | | | | 1,263,032 | | | | (858,529 | ) | | | (68.0 | )% | | | | | | | | | | | | | | | | | | | | | | Gross profit (loss) | | | 202,178 | | | | 906,146 | | | | (703,968 | ) | | | (77.7 | )% | | | | | | | | | | | | | | | | | | | | | | Operating expenses: | | | | | | | | | | | | | | | | | | | Salary, wages and payroll taxes | | | 2,712,929 | | | | 2,263,223 | | | | 449,705 | | | | 19.9 | % | | | Stock-based compensation wages | | | 2,826,396 | | | | 2,015,178 | | | | 811,218 | | | | 40.3 | % | | | Total salary, wages, payroll taxes | | | 5,539,325 | | | | 4,278,401 | | | | 1,260,924 | | | | 29.5 | % | | | | | | | | | | | | | | | | | | | | | | Research and development | | | 394,207 | | | | 90,372 | | | | 303,835 | | | | 336.2 | % | | | | | | | | | | | | | | | | | | | | | | Professional fees: | | | | | | | | | | | | | | | | | | | Professional fees - other | | | 1,466,739 | | | | 1,083,091 | | | | 383,648 | | | | 35.4 | % | | | Stock based compensation professional fees | | | 4,080,709 | | | | 1,078,806 | | | | 3,001,903 | | | | 278.3 | % | | | Total Professional fees | | | 5,547,448 | | | | 2,161,897 | | | | 3,385,551 | | | | 156.6 | % | | | | | | | | | | | | | | | | | | | | | | Selling, general and administrative expenses | | | 2,131,056 | | | | 1,254,772 | | | | 876,284 | | | | 69.8 | % | | | Depreciation and amortization | | | 304,803 | | | | 272,705 | | | | 32,098 | | | | 11.8 | % | | | Impairment of goodwill | | | 684,867 | | | | - | | | | 684,867 | | | | 100.0 | % | | | Impairment of other intangibles | | | 146,001 | | | | - | | | | 146,001 | | | | 100.0 | % | | | | | | | | | | | | | | | | | | | | | | Total operating expenses | | | 14,747,707 | | | | 8,058,147 | | | | 6,689,560 | | | | 83.0 | % | | | | | | | | | | | | | | | | | | | | | | Loss from operations | | | (14,545,529 | ) | | | (7,152,001 | ) | | | (7,393,528 | ) | | | 103.4 | % | | | | | | | | | | | | | | | | | | | | | | Other income (expense) | | | | | | | | | | | | | | | | | | | Other income | | | 57,107 | | | | - | | | | 57,107 | | | | 100.0 | % | | | Interest income | | | 178,476 | | | | 30,056 | | | | 148,420 | | | | 493.8 | % | | | Interest expense | | | (12,833 | ) | | | (306,516 | ) | | | 293,683 | | | | (95.8 | )% | | | Total Other income (expense), net | | | 222,750 | | | | (276,460 | ) | | | 499,210 | | | | 180.6 | % | | | | | | | | | | | | | | | | | | | | | | Net loss | | $ | (14,322,779 | ) | | $ | (7,428,461 | ) | | $ | 6,894,318 | | | | 92.8 | % | | | | | | | | | | | | | | | | | | | | | | Net loss per common share basic and diluted | | $ | (0.85 | ) | | $ | (0.70 | ) | | $ | (0.15 | ) | | | 21.0 | % | | | | | | | | | | | | | | | | | | | | | | Weighted average number of shares of common stock outstanding basic & diluted | | | 16,906,724 | | | | 10,613,270 | | | | | | | | | | | | 33 | | | Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | Years Ended | | | | | | | | | | | | December 31, | | | December 31, | | | | | | | | | | | | 2025 | | | 2024 | | | Change | | | % | | | | Cash | | $ | 16,793,088 | | | $ | 1,970,719 | | | $ | 14,822,369 | | | | 752.1 | % | | | Property and equipment, net | | | 283,087 | | | | 314,881 | | | | (31,794 | ) | | | (10.1 | )% | | | Working capital | | | 16,677,602 | | | | 1,856,203 | | | | 14,821,399 | | | | 798.5 | % | | | Total assets | | | 19,114,804 | | | | 4,949,943 | | | | 14,164,861 | | | | 286.2 | % | | | Total liabilities | | | 1,397,791 | | | | 1,075,518 | | | | 322,273 | | | | 30.0 | % | | | Accumulated deficit | | | (28,573,530 | ) | | | (14,250,751 | ) | | | (14,322,779 | ) | | | 100.5 | % | | | Total stockholders equity | | $ | 17,717,013 | | | $ | 3,874,425 | | | $ | 13,842,588 | | | | 357.3 | % | | *Net Revenue.*For the years ended December 31, 2025 and 2024, revenues were $606,681 and $2,169,178, a decrease of $1,562,497 or 72.0%. Comparable sales for Airborne Response decreased $1,089,363, or 85.0%, from $1,280,863 to $191,500. Comparable sales for Safe-Pro USA decreased $532,498, or 61.0%, from $873,274 to $340,776. Comparable sales for Safe Pro AI increased $59,364, or 394.7%, from $15,041 to $74,405. A substantial portion of revenue for Airborne Response, is with one customer, Florida Power & Light, (FPL). If there is positive weather patterns, the electrical power grid remains in stable condition requiring less maintenance and repair work, which results in fewer work orders for Airborne Response. For the years ended December 31, 2025 and 2024, the decrease in revenue for Airborne Response was primarily attributable to the lack of disruptions to the FPL electrical power grid, as a result of positive weather patterns, which included no active hurricanes. Airborne Response is currently in the process of completing a training program for a new revenue stream, providing nested flight services with FPL/NextEra. For the years ended December 31, 2025 and 2024, Safe-Pro USAs decrease in revenue is attributable to the effects of U.S. Tariffs on Chinese products. The Company imports Security Guards uniforms from China. As a result of the high tariffs on goods imported from China, our business model is being reevaluated and recalibrated at this time, with the consequence that business is at its lowest level. Safe-Pro USA is in the process of sourcing additional customers along with obtaining government certifications to become a supplier for the U.S. government. We expect to begin realizing additional revenue from Safe Pro AI for its Safe Pro Object Threat Detection (SPOTD) technology ecosystem - Spotlight AI, SpotlightAI OnSight and SPOTD NODE (Navigation, Observation & Detection Engine)- as a result of multiple completed demonstrations and evaluations in Ukraine, the Philippines and the United States during 2026, as well as planned demonstrations including events hosted by the U.S. Army in early 2026. As the Company begins to bring on SaaS and subscription customers related to its AI offerings, it is expected that revenue growth will have a more predictable trajectory and decrease the volatility from one-time contracts. *Cost of Sales.*During the years ended December 31, 2025 and 2024, the cost of revenues decreased to $404,503 compared to $1,263,032. For the years ended December 31, 2025 and 2024, gross profit margins were 33.3% and 41.8% respectively. The decrease in margin was attributable to a shift in product and service mix toward lower gross profit margin products and services. *Operating Expenses.*Total operating expenses for the year ended December 31, 2025 were $14,747,707, an increase of $6,689,560 or 83.0%, from total operating expenses for the year ended December 31, 2024 of $8,058,147. Factors resulting in the increase are described more fully below. Salaries, wages and payroll taxes were $2,712,929 and $2,263,223 for the years ended December 31, 2025 and 2024, respectively, an increase of $449,705 or 19.9%. The increases were primarily attributable to additional compensation expense related to employment agreements and incentive bonuses associated with current-year equity issuances, partially offset by a reduction in officer wages incurred pursuant to the terms of employment agreements with the Chief Executive Officer. Stock based compensation for wages were $2,826,396 and $2,015,178, for the years ended December 31, 2025 and 2024, respectively, an increase of $811,218, or 40.3%. The increase was due to certain contingencies in officers employment contracts and options granted for the year ended December 31, 2025. | 34 | | Research and Development expenses were $394,207 and $90,372 for the years ended December 31, 2025 and 2024, respectively, an increase of $303,835 or 336.2%. The increase is primarily attributable to expanded development efforts and the engagement of external contractors to support enhancements to the artificial intelligence business. Professional fees were $1,466,739 and $1,083,091 for the years ended December 31, 2025 and 2024, respectively, an increase of $383,648 or 35.4%. The increases for the year ended December 31, 2025 as compared to 2024, were attributable to additional public company expenses including legal and investor relations fees, and additional director fees, related to the prior year, consisting of four months of fees versus a full year in 2025. Stock based compensation for services were $4,080,709 and $1,078,806, an increase of $3,001,903 or 278.3%. The increase is primarily attributable to restricted stock awards granted for the year ended December 31, 2025, as compared to restricted stock awards granted and vested in 2024, and non-cash expenses for share-based professional fees recognized pursuant to contractual agreements. Selling, general and administrative expenses were $2,131,056 and $1,254,772 for the years ended December 31, 2025 and 2024, respectively, an increase of $876,284 or 69.8%. The increase is primarily attributable to increases in D&O insurance premiums, contractor fees and travel fees. Depreciation and amortization expenses were $304,803 and $272,705 for the years ended December 31, 2025 and 2024, respectively, an increase of $32,098, or 11.8%. The increase is attributable to amortization related to assets put into service in the prior year. Impairments of goodwill and other intangibles were $684,867 and $146,001, respectively, for the year ended December 31, 2025. There were no such impairments in the year ended December 31, 2024. The impairments resulted from an interim impairment assessment performed during the third quarter of 2025. We expect our expenses in each of these areas to continue to increase during fiscal 2026 and beyond as we expand our operations and begin generating additional revenues for our current business. However, we are unable at this time to estimate the amount of the expected increases. *Total Other (Income) Expense.* For the years ended December 31, 2025 and 2024, total other income (expense) was $222,750 and $(276,460), respectively, resulting in an increase of $499,210 or 180.6%. The increase was primarily driven by higher interest income resulting from increased cash balances associated with the private placements in 2025 and lower interest expense compared to the prior year. *Net Income (Loss)*. We recorded a net loss of $14,322,779 for the year ended December 31, 2025 as compared to a net loss of $7,428,461, for the year ended December 31, 2024. The increase is a result of the factors as described above. **Liquidity and Capital Resources** Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At December 31, 2025, we had a cash balance of $16,793,088 and working capital of $16,677,602. Our current assets at December 31, 2025 increased by $15,178,317, or 551.9%, to $17,928,446 from $2,750,129 at December 31, 2024. The increase included an increase in cash of $14,822,369, inventory of $272,963, and prepaid expenses and other current assets of $106,643. These are partially offset by decreases in accounts receivable of $23,658. The increase in cash is primarily a result of the proceeds from the private placements and warrant exercises in 2025. Our current liabilities at December 31, 2025 increased to $1,250,844 from $893,926 or an increase of $356,918, or 39.9% from December 31, 2024. The increase is comprised of increases in accounts payable of $341,494, accrued expenses of $180,668, due to related parties of $15,739, partially offset by decreases in current portion of lease liabilities of $7,955, accrued compensation of $108,157 and contract liabilities of $64,871. Accounts payable and accrued expenses increased primarily due to higher year-end obligations related to contractor fees, professional fees including those related to the treasury stock repurchases, and insurance accruals. | 35 | | **Operating Activities** Net cash flows used in operating activities for the year ended December 31, 2025 amounted to $6,216,366 and were primarily attributable to our net loss of $14,322,779 offset by depreciation and amortization expense of $381,330, impairment of goodwill of $684,867, impairment of other intangibles of $146,001, and stock-based compensation and professional fees of $6,907,105. Changes in operating assets and liabilities were reflected by increases in accounts receivable of $23,658, accounts payable of $278,869, accrued expenses of $180,668 and lease liability of $11; offset by decreases in, accrued compensation of $51,619, inventory of $272,963, prepaid and other current assets of $106,643, and contract liabilities of $64,871. Net cash flows used in operating activities for the year ended December 31, 2024 amounted to $4,095,434 and were primarily attributable to our net loss of $7,428,461 and lease costs of $9,144, offset by depreciation and amortization expense of $341,083, stock-based compensation and professional fees of $2,852,648, the relative fair value of options granted of $241,336, and amortization of debt discount of $208,006. Changes in operating assets and liabilities were reflected by increases in accounts receivable of $39,643, inventory of $17,098, and accrued expenses of $7,134; offset by decreases in prepaid and other current assets of $265,611, accounts payable of $49,269, accrued compensation of $48,995, and contract liabilities of $902. **Investing Activities** Net cash flows used in investing activities were $241,353 and $436,389 for the years ended December 31, 2025 and 2024, respectively. For the year ended December 31, 2025, we purchased property and equipment for $48,808 and made investments in intangible technologies of $192,545. For the year ended December 31, 2024, we purchased property and equipment for $63,801 and made investments in intangible technologies of $372,588. **Financing Activities** Net cash flows provided by financing activities were $21,280,088 and $5,799,174 for the years ended December 31, 2025 and 2024, respectively. During the year ended December 31, 2025, we had proceeds from the sale of our common stock in private placement offerings of $12,945,000, proceeds from the sales of common stock and warrants in private placement offerings of $6,767,500, proceeds from the exercise of warrants of $1,511,570, proceeds from sale of Preferred Series C shares and warrants of $1,050,000, proceeds from exercise of options of $12,750, and proceeds from related party advances of $141,866 and partially offset by payments for employee tax withholdings on net share settlement of $465,601, related party repayments of $69,588, and purchases of treasury stock in connection with our Stock Repurchase Program of $613,409. During the year ended December 31, 2024, we had proceeds from the sale of our common stock offering of $4,179,500, proceeds from the exercise of warrants of $878,708, proceeds from the sale of common stock and warrants of $489,002, proceeds from the sale of convertible notes payable of $275,002, proceeds from the sale of notes payable of $236,500, offset by repayments of notes payable of $236,500, and repayment of due to related party of $23,038. **Off-Balance Sheet Arrangements** We do not have any off-balance sheet arrangements that have had or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. **Recently Issued Accounting Pronouncements** | 36 | | 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, *DebtDebt 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. **Critical Accounting Policies and Estimates** The following is not intended to be a comprehensive list of our accounting policies or estimates. Our significant accounting policies are more fully described in Note 2 *Summary of Significant Accounting Policies* in the Notes. In preparing our financial statements and accounting for the underlying transactions and balances, we apply our accounting policies and estimates as disclosed in the Notes. We consider the policies and estimates discussed below as critical to an understanding of our consolidated financial statements because their application places the most significant demands on our judgment, with financial reporting results dependent on estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Specific risks for these critical accounting estimates are described in the following paragraphs. Preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. Besides estimates that meet the critical accounting estimate criteria, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenue and expenses as well as disclosures of contingent assets and liabilities. Estimates are based on experience and other information available prior to the issuance of the financial statements. Materially different results can occur as circumstances change and additional information becomes known, including for estimates that we do not deem critical. **Accounts receivable and other receivables** The Company adopted ASC 326 Financial Instruments Credit Losses on January 1, 2023. The Company recognizes an allowance for losses on accounts receivable and other receivables in an amount equal to the estimated probable losses net of recoveries under the current expected credit loss method. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts or other accounts considered at risk or uncollectible. The bad debt expense associated with the allowance for doubtful accounts related to accounts receivable and other receivables is recognized in selling, general and administrative expenses. | 37 | | **Revenue recognition** In accordance with ASU Topic 606 - *Revenue from Contracts with Customers*, the Company recognizes revenue in accordance with that core principle by applying the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. The Company offers a warranty on its manufactured products. The Company considered the need to make an accrual for warranty expenses that may be incurred. Historically, the Company has incurred no warranty expense and accordingly, the Company believes that no warranty expense accrual is deemed necessary. **Safe-Pro USA** Safe-Pro USA 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 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. | 38 | | **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 primarily sell subscriptions and licenses 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 defense, demining, in law enforcement and border security. In the case of NODE, the combined solution includes specialized, commercially available hardware integrated with Safe Pro AIs proprietary software. Safe Pro AIs, SaaS offerings are sold under a license or 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 Companys performance obligation. These usage-based revenues are constrained to the amount the Company expects to be entitled to and receive in exchange for providing access to its platform. If professional services are deemed to be distinct, revenue is recognized as services are performed. The Company does not view the signing of the contract or the provision of initial setup services as discrete earnings events that are distinct. **Goodwill and intangible assets** The Companys business acquisitions typically result in the recording of goodwill and other intangible assets, which affect the amount of amortization expense and possibly impairment write-downs that the Company may incur in future periods. Intangible assets are carried at cost less accumulated amortization for finite-lived assets, computed using the straight-line method over the estimated useful life, less any impairment charges. Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business acquisitions. Goodwill is not subject to amortization but is subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill by reporting unit at least annually, or when indicators of impairment are present, to determine if goodwill may be impaired. To test goodwill impairment, the Company may first assess qualitative factors to determine whether it is more likely than *not* that the fair value of goodwill is less than its carrying value. The Company would not be required to quantitatively determine the fair value of goodwill unless it determines, based on the qualitative assessment there are indicators of impairment. Under the quantitative test of goodwill, the Company compares the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value exceeds the fair value, then the goodwill is impaired by the excess amount. The Company performs its annual testing for goodwill during the fourth quarter of each fiscal year or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit. Intangibles assets, net consists of contractual employment agreements, customer relationships and acquired capitalized internal-use software. All intangible assets determined to have finite lives are amortized over their estimated useful lives. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to future cash flows. The Company periodically evaluates both finite and indefinite lived intangible assets for impairment upon occurrence of events or changes in circumstances that indicate the carrying amount of intangible assets may not be recoverable. | 39 | | **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 assets estimated fair value and its book value. **Stock-based compensation** Stock-based compensation is accounted for based on the requirements of ASC 718 *Compensation Stock Compensation*, which requires recognition in the consolidated financial statements of the cost of employee, director, and non-employee services received in exchange for an award of equity instruments over the period the employee, director, or non-employee is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee, director, and non-employee services received in exchange for an award based on the grant-date fair value of the award. The Company has elected to recognize forfeitures as they occur as permitted under the FASBs Accounting Standards Update (ASU) 2016-09 *Improvements to Employee Share-Based Payment*. **Business acquisitions** The Company accounts for business acquisitions using the acquisition method of accounting where the assets acquired, and liabilities assumed are recognized based on their respective estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair value of certain acquired assets and liabilities is subjective in nature and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses, and cash flows, weighted average cost of capital, discount rates, and estimates of terminal values. Business acquisitions are included in the Companys 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. | ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | | As a smaller reporting company, we are not required to provide the information required by this item. | ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | | The consolidated financial statements required to be filed pursuant to this Item 8 are found on pages F-1 through F-39. | ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | | None. | 40 | | | ITEM 9A. | CONTROLS AND PROCEDURES | | Management, with the participation of our Chief Executive Officer, who is our principal executive officer, and Chief Financial Officer, who is our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2025. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act), as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that we file or submit under the Exchange Act is accumulated and communicated to the companys management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2025, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were ineffective due to the material weakness in internal control over financial reporting discussed below. *Managements Report on Internal Control Over Financial Reporting* Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: | | | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; | | | | | | | | | | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and | | | | | | | | | | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuers assets that could have a material effect on the financial statements. | | Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2025. In making this assessment, management used the criteria set forth in Internal ControlIntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2025, management identified a material weaknesses related to lack of; segregation of duties and complete set of formalized accounting procedures. Specifically, due to limited resources and headcount, we did not have multiple people in the accounting function for a full segregation of duties, resulting in reliance on outside consultants for external reporting. Due to the relatively small initial size of the Company, we do not have a complete set of procedures and controls for operations to adhere to. We are implementing additional policies and procedures to remedy our effectiveness and have continued to actively upgrade our accounting software, seeking additional staff and incorporating a general set of policies and controls. We have engaged third parties to assist in the documentation of our corporate policies and to further address our personnel needs. We expect to have remedied the effectiveness of our controls and procedures during the second quarter of 2026. These material weaknesses creates a reasonable possibility that a material misstatement of the Companys annual or interim financial statements would not be prevented or detected on a timely basis. | 41 | | Based on this assessment, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2025, based on the criteria in Internal Control Integrated Framework (2013). *Plan for Remediation of Material Weakness* We are in the process of; (i) engaging a third party to conduct a full assessment of our controls and procedures and (ii) adding an accounting professional to facilitate segregation of duties. *Changes in Internal Control over Financial Reporting* Except as disclosed above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. | ITEM 9B. | OTHER INFORMATION | | *Director and Officer Trading Arrangements* None of our directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the fourth quarter of the year ended December 31, 2025. | ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. | | Not applicable. **PART III** | ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | | The information required by Part III; Item 10 is incorporated herein by reference to our definitive proxy statement relating to the 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. Our Board of Directors has adopted a written Code of Business Conduct and Ethics applicable to all officers, directors and employees, which is available on our website (www.safeprogroup.com) under Investors within the Corporate Governance section. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of this Code and by posting such information on the website address and location specified above. | ITEM 11. | EXECUTIVE COMPENSATION | | **** The information required by Part III; Item 11 is incorporated herein by reference to our definitive proxy statement relating to the 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. **** | ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | | **** The information required by Part III; Item 12 is incorporated herein by reference to our definitive proxy statement relating to the 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. | ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | | The information required by Part III; Item 13 is incorporated herein by reference to our definitive proxy statement relating to the 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. | ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES | | The information required by Part III; Item 14 is incorporated herein by reference to our definitive proxy statement relating to the 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K. Our independent registered public accounting firm is RBSM, LLP (PCAOB Firm ID No. 587) located in Las Vegas, Nevada. | 42 | | **PART IV** | ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | | **(a) List of Documents filed as part of this Report** **(1) Consolidated Financial Statements** The financial statements and related notes, together with the report of independent auditors appear starting at page F-1, following the Exhibit List as required by Part IIItem 8Financial Statements and Supplementary Data of this Form 10-K. **(2) Financial Statement Schedules.** Schedules are omitted because they are either not required, not applicable, or the information is otherwise included. **(3) Exhibits** The Company has filed with this report or incorporated by reference herein certain exhibits as specified below pursuant to Rule 12b-32 under the Exchange Act. | Exhibit No. | | Exhibit Description | | | 3.1 | | Certificate of Incorporation of Safe Pro Group, Inc. (incorporated by reference to Exhibit 3.1 of the Form S-1 file no 333-280599) | | | 3.2 | | Amended and Restated Bylaws of Safe Pro Group Inc. (incorporated by reference to Exhibit 3.2 of the Form S-1 file no 333-280599) | | | 3.3 | | Certificate of Amendment of Certificate of Incorporation of Safe Pro Group, Inc. (incorporated by reference to Exhibit 3.3 of the Form S-1 file no 333-280599) | | | 3.4 | | Certificate of Designations of Rights and Preferences of the Series C Preferred Stock (incorporated by reference to Exhibit 3.1 of the Form 8-K filed May 9, 2025) | | | 4.1 | | Form of Representative Warrant. (incorporated by reference to Exhibit 4.1 of the Form S-1 file no 333-280599) | | | 4.2 | | Description of Registrants Securities | | | 4.3 | | Form of Warrant issued in May 2025 offering (incorporated by reference to Exhibit 4.1 of the Form 8-K filed May 9, 2025) | | | 4.4 | | Form of Warrant issued in August 2025 offering (incorporated by reference to Exhibit 4.1 of the Form 8-K filed August 22, 2025) | | | 10.1+ | | Safe Pro Group Inc. 2022 Equity Plan (incorporated by reference to Exhibit 10.1 of the Form S-1 file no 333-280599) | | | 10.2+ | | Employment Agreement between Airborne Response Corp. and Daniyel Erdberg, dated March 21, 2022 (incorporated by reference to Exhibit 10.2 of the Form S-1 file no 333-280599) | | | 10.3+ | | Employment Agreement between Airborne Response Corp. and Christopher Todd, dated March 21, 2022 (incorporated by reference to Exhibit 10.3 of the Form S-1 file no 333-280599) | | | 10.4+ | | Employment Agreement between Safe-Pro USA LLC and Pravin Borkar, dated June 7, 2022 (incorporated by reference to Exhibit 10.4 of the Form S-1 file no 333-280599) | | | 10.5+ | | Employment Agreement between Safe Pro Group Inc. and Theresa Carlise, dated June 22, 2023 (incorporated by reference to Exhibit 10.5 of the Form S-1 file no 333-280599) | | | 10.6+ | | Employment Agreement between Safe Pro Group Inc. and Daniyel Erdberg dated November 1, 2023 (incorporated by reference to Exhibit 10.6 of the Form S-1 file no 333-280599) | | | 10.7+ | | Amendment No. 1 to Employment Agreement between Safe Pro Group Inc. and Theresa Carlise, dated November 1, 2023 (incorporated by reference to Exhibit 10.7 of the Form S-1 file no 333-280599) | | | 10.8+ | | Amendment No. 2 to Employment Agreement between Safe Pro Group Inc. and Theresa Carlise, dated March 27, 2024 (incorporated by reference to Exhibit 10.8 of the Form S-1 file no 333-280599) | | | 10.9+ | | Amended and Restated Employment Agreement between Safe Pro Group Inc. and Theresa Carlise, dated April 12, 2024 (incorporated by reference to Exhibit 10.9 of the Form S-1 file no 333-280599) | | | 10.10 | | Share Exchange Agreement between Safe Pro Group Inc. and Safe-Pro USA, LLC dated June 7, 2022 (incorporated by reference to Exhibit 10.10 of the Form S-1 file no 333-280599) | | | 10.11 | | First Amendment to Exchange Agreement between Safe Pro Group Inc. and Safe-Pro USA, LLC dated October 27, 2022 (incorporated by reference to Exhibit 10.11 of the Form S-1 file no 333-280599) | | | 10.12 | | Second Amendment to Exchange Agreement between Safe Pro Group Inc. and Safe-Pro USA, LLC dated May 12, 2023 (incorporated by reference to Exhibit 10.12 of the Form S-1 file no 333-280599) | | | 10.13 | | Third Amendment to Exchange Agreement between Safe Pro Group Inc. and Safe-Pro USA, LLC dated August 15, 2023 (incorporated by reference to Exhibit 10.13 of the Form S-1 file no 333-280599) | | | 43 | | | 10.14 | | Fourth Amendment to Exchange Agreement between Safe Pro Group Inc. and Safe-Pro USA, LLC dated August 26, 2023 (incorporated by reference to Exhibit 10.14 of the Form S-1 file no 333-280599) | | | 10.15 | | Fifth Amendment to Exchange Agreement between Safe Pro Group Inc. and Safe-Pro USA, LLC dated April 11, 2024 (incorporated by reference to Exhibit 10.15 of the Form S-1 file no 333-280599) | | | 10.16 | | Acquisition Agreement between Safe Pro Group Inc. and Airborne Response Corp. dated September 14, 2022 (incorporated by reference to Exhibit 10.16 of the Form S-1 file no 333-280599) | | | 10.17 | | Amendment to Acquisition Agreement between Safe Pro Group Inc. and Airborne Response Corp. dated September 14, 2022 (incorporated by reference to Exhibit 10.17 of the Form S-1 file no 333-280599) | | | 10.18 | | Shares Exchange Agreement between Safe Pro Group Inc. and Demining Development, LLC dated March 9, 2023 (incorporated by reference to Exhibit 10.18 of the Form S-1 file no 333-280599) | | | 10.19** | | Purchase Contract No. 4600026817 between Airborne Response LLC and Florida Power & Light dated August 23, 2023 (incorporated by reference to Exhibit 10.19 of the Form S-1 file no 333-280599) | | | 10.20 | | Purchase Contract No. 4600026818 between Airborne Response LLC and Florida Power & Light dated August 23, 2023 (incorporated by reference to Exhibit 10.20 of the Form S-1 file no 333-280599) | | | 10.21 | | Purchase Contract No. 4600026819 between Airborne Response LLC and Florida Power & Light dated August 23, 2023 (incorporated by reference to Exhibit 10.21 of the Form S-1 file no 333-280599) | | | 10.22 | | Purchase Contract No. 4600026830 between Airborne Response LLC and Florida Power & Light dated August 23, 2023 (incorporated by reference to Exhibit 10.22 of the Form S-1 file no 333-280599) | | | 10.23 | | Purchase Contract No. 4600027407 between Airborne Response LLC and Florida Power & Light dated March 25, 2024 (incorporated by reference to Exhibit 10.23 of the Form S-1 file no 333-280599) | | | 10.24 | | Safe Pro Group Inc. 2025 Stock Plan (incorporated by reference to Annex A to the Companys definitive proxy statement filed with the U.S. Securities and Exchange Commission on April 30, 2025) | | | 19.1 | | Insider Trading Policy (incorporated by reference to Exhibit 19.1 of the Form 10-K filed March 31, 2025) | | | 21.1* | | Certificate of Articles of Organization of SPAI Ventures LLC, as filed December 23, 2025, a wholly owned subsidiary of Safe Pro Group Inc. | | | 23.1* | | Consent of RBSM | | | 31.1* | | Certification of Principal Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended | | | 31.2* | | Certification of Principal Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended | | | 32.1* | | Certification of Principal Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | 32.2* | | Certification of Principal Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | 97.1 | | Recoupment Policy (incorporated by reference to Exhibit 97.1 of the Form 10-K filed March 31, 2025) | | | | | | | | 101.INS | | Inline XBRL Instance Document | | | 101.SCH | | Inline XBRL Taxonomy Schema Document | | | 101.CAL | | Inline XBRL Taxonomy Calculation Document | | | 101.DEF | | Inline XBRL Taxonomy Linkbase Document | | | 101.LAB | | Inline XBRL Taxonomy Label Linkbase Document | | | 101.PRE | | Inline XBRL Taxonomy Presentation Linkbase Document | | | 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) | | | * | Filed herewith. | | | + | Management contract or compensatory plan, contract or arrangement. | | | ITEM 16. | FORM 10-K SUMMARY | | None. | 44 | | **SIGNATURES** Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | SAFE PRO GROUP, INC. | | | | | | | | Date: March 31, 2026 | By: | /s/ Daniyel Erdberg | | | | Name: | Daniyel Erdberg | | | | Title: | Chairman of the Board and Chief Executive | | | | | (Principal Executive Officer) | | | | | | | | Date: March 31, 2026 | By: | /s/ Theresa Carlise | | | | Name: | Theresa Carlise | | | | Title: | Chief Financial Officer | | | | | (Principal Financial and Accounting Officer) | | Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | Signature | | Title | | Date | | | | | | | | | | /s/ Daniyel Erdberg | | Director and Chief Executive Officer (Principal Executive Officer) | | March 31, 2026 | | | Daniyel Erdberg | | | | | | | | | | | | | | /s/ Theresa Carlise | | Chief Financial Officer (Principal Financial and Accounting Officer) | | March 31, 2026 | | | Theresa Carlise | | | | | | | | | | | | | | /s/ Pravin Borkar | | Chief Technical Officer and Director | | March 31, 2026 | | | Pravin Borkar | | | | | | | | | | | | | | /s/ Arthur T. Dean | | Director | | March 31, 2026 | | | Arthur T. Dean | | | | | | | | | | | | | | /s/ John E. Miller | | Director | | March 31, 2026 | | | John E. Miller | | | | | | | | | | | | | | /s/ Lee Van Arsdale | | Director | | March 31, 2026 | | | Lee Van Arsdale | | | | | | **** | 45 | | **** **SAFE PRO GROUP INC. AND SUBSIDIARIES** **INDEX TO** **CONSOLIDATED** **FINANCIAL STATEMENTS** **CONTENTS** | | | Page | | | Consolidated Financial Statements December 31, 2025 and 2024 | | | | | Report of Independent Registered Public Accounting Firm (PCAOB ID No. 587), RBSM LLP, Las Vegas, Nevada | | F-2 | | | Consolidated Balance Sheets as of December 31, 2025 and 2024 | | F-3 | | | Consolidated Statements of Operations for the years ended December 31, 2025 and 2024 | | F-4 | | | Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2025 and 2024 | | F-5 | | | Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 | | F-7 | | | Notes to the Consolidated Financial Statements | | F-8 | | | F-1 | | **** | | | Nevada Office: 770 East Warm Springs Road Suite 225 Las Vegas, Nevada 89119 702.413.6000 www.rbsmllp.com | | **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** To the Board of Directors and Stockholders of Safe Pro Group Inc. **Opinion on the Financial Statements** **** We have audited the accompanying consolidated balance sheets of Safe Pro Group Inc. and Subsidiaries (the Company) as of December 31, 2025 and 2024, and the related consolidated statements of operations, changes in shareholders equity, and cash flows for each of the years in the two-year period ended December 31, 2025, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. **Basis for Opinion** **** These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. | /s/ RBSM LLP | | | | | | | | We have served as the Companys auditor since 2024. | | | | | | | | Las Vegas, Nevada | | | | | | | | March 31, 2026 | | | | | | | | PCAOB ID Number 587 | | | New York, NY Washington DC Mumbai & Pune, India San Francisco, CA Houston, TX Boca Raton, FL Las Vegas, NV Beijing, China Athens, Greece Member: ANTEA International with affiliated offices worldwide | F-2 | | **** **SAFE PRO GROUP, INC. AND SUBSIDIARIES** **CONSOLIDATED BALANCE SHEETS** | | | 2025 | | | 2024 | | | | | | December 31, | | | | | | 2025 | | | 2024 | | | | ASSETS | | | | | | | | | | | CURRENT ASSETS: | | | | | | | | | | | Cash | | $ | 16,793,088 | | | $ | 1,970,719 | | | | Accounts receivable and other receivables, net | | | 100,028 | | | | 123,686 | | | | Inventory | | | 615,024 | | | | 342,061 | | | | Prepaid expenses and other current assets | | | 420,306 | | | | 313,663 | | | | | | | | | | | | | | | Total current assets | | | 17,928,446 | | | | 2,750,129 | | | | | | | | | | | | | | | OTHER ASSETS: | | | | | | | | | | | Property and equipment, net | | | 283,087 | | | | 314,881 | | | | Right of use assets, net | | | 59,010 | | | | 101,621 | | | | Intangible assets, net | | | 834,461 | | | | 1,088,645 | | | | Goodwill | | | - | | | | 684,867 | | | | Security deposits | | | 9,800 | | | | 9,800 | | | | | | | | | | | | | | | Total other assets | | | 1,186,358 | | | | 2,199,814 | | | | | | | | | | | | | | | TOTAL ASSETS | | $ | 19,114,804 | | | $ | 4,949,943 | | | | | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS EQUITY | | | | | | | | | | | | | | | | | | | | | | CURRENT LIABILITIES: | | | | | | | | | | | Accounts payable | | $ | 461,306 | | | $ | 119,812 | | | | Accrued expenses | | | 270,932 | | | | 90,264 | | | | Accrued compensation | | | 7,187 | | | | 115,344 | | | | Due to related parties | | | 437,362 | | | | 421,623 | | | | Contract liabilities | | | 18,897 | | | | 83,768 | | | | Lease liabilities, current portion | | | 55,160 | | | | 63,115 | | | | | | | | | | | | | | | Total current liabilities | | | 1,250,844 | | | | 893,926 | | | | | | | | | | | | | | | LONG-TERM LIABILITIES | | | | | | | | | | | Note payable | | | 146,000 | | | | 146,000 | | | | Lease liabilities, net of current portion | | | 947 | | | | 35,592 | | | | | | | | | | | | | | | Total long-term liabilities | | | 146,947 | | | | 181,592 | | | | | | | | | | | | | | | Total liabilities | | | 1,397,791 | | | | 1,075,518 | | | | | | | | | | | | | | | SHAREHOLDERS EQUITY | | | | | | | | | | | Preferred stock: $0.0001 par value, 10,000,000 shares authorized; | | | | | | | | | | | Series A preferred stock; 3,000,000 shares designated, 0 shares issued and outstanding at December 31, 2025 and 2024, respectively | | | - | | | | - | | | | Series B preferred stock; 3,275,000 shares designated, 0 shares issued and outstanding at December 31, 2025 and 2024, respectively | | | - | | | | - | | | | Series C preferred stock;2,000shares designated, and0shares issued and outstanding at December 30, 2025 and 2024, respectively | | | - | | | | - | | | | Preferred stock, value | | | - | | | | - | | | | Common stock; $0.0001 par value, 200,000,000 shares authorized, 20,899,270 shares issued and 20,736,816 outstanding at December 31, 2025, and 14,534,685 shares issued and outstanding at December 31, 2024. | | | 2,090 | | | | 1,453 | | | | Treasury Stock; at cost, 162,454 and 0 shares of common stock at December 31, 2025 and 2024, respectively | | | (676,034 | ) | | | - | | | | Additional paid-in capital | | | 46,964,487 | | | | 18,123,723 | | | | Accumulated deficit | | | (28,573,530 | ) | | | (14,250,751 | ) | | | | | | | | | | | | | | Total shareholders equity | | | 17,717,013 | | | | 3,874,425 | | | | | | | | | | | | | | | Total liabilities and shareholders equity | | $ | 19,114,804 | | | $ | 4,949,943 | | | See accompanying notes to the consolidated financial statements. **** | F-3 | | **** **SAFE PRO GROUP, INC. AND SUBSIDIARIES** **CONSOLIDATED STATEMENTS OF OPERATIONS** | | | 2025 | | | 2024 | | | | | | For the Years Ended December 31, | | | | | | 2025 | | | 2024 | | | | | | | | | | | | | REVENUES: | | | | | | | | | | | Product sales | | $ | 361,266 | | | $ | 1,029,502 | | | | Services | | | 245,415 | | | | 1,139,676 | | | | | | | | | | | | | | | Total revenues | | | 606,681 | | | | 2,169,178 | | | | | | | | | | | | | | | COST OF REVENUES: | | | | | | | | | | | Product sales | | | 201,235 | | | | 675,632 | | | | Services | | | 126,741 | | | | 519,023 | | | | Depreciation expense | | | 76,527 | | | | 68,377 | | | | | | | | | | | | | | | Total cost of revenues | | | 404,503 | | | | 1,263,032 | | | | | | | | | | | | | | | GROSS PROFIT | | | 202,178 | | | | 906,146 | | | | | | | | | | | | | | | OPERATING EXPENSES: | | | | | | | | | | | Salary, wages and payroll taxes | | | 5,539,325 | | | | 4,278,401 | | | | Research and development | | | 394,207 | | | | 90,372 | | | | Professional fees | | | 5,547,448 | | | | 2,161,897 | | | | Selling, general and administrative expenses | | | 2,131,056 | | | | 1,254,772 | | | | Depreciation and amortization | | | 304,803 | | | | 272,705 | | | | Impairment of goodwill | | | 684,867 | | | | - | | | | Impairment of other intangibles | | | 146,001 | | | | - | | | | | | | | | | | | | | | Total operating expenses | | | 14,747,707 | | | | 8,058,147 | | | | | | | | | | | | | | | LOSS FROM OPERATIONS | | | (14,545,529 | ) | | | (7,152,001 | ) | | | | | | | | | | | | | | OTHER INCOME (EXPENSES): | | | | | | | | | | | Other income | | | 57,107 | | | | - | | | | Interest income | | | 178,476 | | | | 30,056 | | | | Interest expense | | | (12,833 | ) | | | (306,516 | ) | | | Total other income (expenses), net | | | 222,750 | | | | (276,460 | ) | | | | | | | | | | | | | | NET LOSS | | $ | (14,322,779 | ) | | $ | (7,428,461 | ) | | | | | | | | | | | | | | NET LOSS PER COMMON SHARE: | | | | | | | | | | | Basic and diluted | | $ | (0.85 | ) | | $ | (0.70 | ) | | | | | | | | | | | | | | WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | | | | | | | Basic and diluted | | | 16,906,724 | | | | 10,613,270 | | | See accompanying notes to the consolidated financial statements. | F-4 | | **SAFE PRO GROUP, INC. AND SUBSIDIARIES** **CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY** **** **For the Year Ended December 31, 2024** | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | Capital | | | Stock | | | Deficit | | | Equity | | | | | | Series A | | | Series B | | | Series C | | | | | | Additional | | | | | | | | | Total | | | | | | Preferred Stock | | | Preferred Stock | | | Preferred Stock | | | Common Stock | | | Paid-in | | | Treasury | | | Accumulated | | | Shareholders | | | | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | Capital | | | Stock | | | Deficit | | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2023 | | | 3,000,000 | | | $ | 300 | | | | 3,275,000 | | | $ | 328 | | | | - | | | $ | - | | | | 8,734,770 | | | $ | 873 | | | $ | 8,597,147 | | | $ | - | | | $ | (6,822,290 | ) | | $ | 1,776,358 | | | | Common shares issued for compensation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 789,199 | | | | 79 | | | | 2,852,569 | | | | - | | | | - | | | | 2,852,648 | | | | Common shares and warrant units issued for cash | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 152,813 | | | | 15 | | | | 488,987 | | | | - | | | | - | | | | 489,002 | | | | Common shares issued for cash | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,020,000 | | | | 102 | | | | 4,179,398 | | | | - | | | | - | | | | 4,179,500 | | | | Common shares issued upon exercise of warrants | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 775,237 | | | | 78 | | | | 878,630 | | | | - | | | | - | | | | 878,708 | | | | Common shares issued upon the conversion of series A preferred stock | | | (3,000,000 | ) | | | (300 | ) | | | - | | | | - | | | | - | | | | - | | | | 1,500,000 | | | | 150 | | | | 150 | | | | - | | | | - | | | | - | | | | Common shares issued upon the conversion of series B preferred stock | | | - | | | | - | | | | (3,275,000 | ) | | | (328 | ) | | | - | | | | - | | | | 1,310,000 | | | | 131 | | | | 197 | | | | - | | | | - | | | | - | | | | Relative fair value of warrants issued with convertible debt | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 76,802 | | | | - | | | | - | | | | 76,802 | | | | Relative fair value of options granted | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 241,336 | | | | - | | | | - | | | | 241,336 | | | | Common shares issued upon the conversion of convertible debt | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 252,666 | | | | 25 | | | | 808,507 | | | | - | | | | - | | | | 808,532 | | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (7,428,461 | ) | | | (7,428,461 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2024 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 14,534,685 | | | $ | 1,453 | | | $ | 18,123,723 | | | $ | - | | | $ | (14,250,751 | ) | | $ | 3,874,425 | | | | F-5 | | **** **SAFE PRO GROUP, INC. AND SUBSIDIARIES** **CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY** **** **For the Year Ended December 31, 2025** | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | Capital | | | Stock | | | Deficit | | | Equity | | | | | | Series A | | | Series B | | | Series C | | | | | | Additional | | | | | | | | | Total | | | | | | Preferred Stock | | | Preferred Stock | | | Preferred Stock | | | Common Stock | | | Paid-in | | | Treasury | | | Accumulated | | | Shareholders | | | | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | # of Shares | | | Amount | | | Capital | | | Stock | | | Deficit | | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2024 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 14,534,685 | | | $ | 1,453 | | | $ | 18,123,723 | | | $ | - | | | $ | (14,250,751 | ) | | $ | 3,874,425 | | | | Balance | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 14,534,685 | | | $ | 1,453 | | | $ | 18,123,723 | | | $ | - | | | $ | (14,250,751 | ) | | $ | 3,874,425 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock based compensation | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,448,500 | | | | 145 | | | | 6,906,960 | | | | - | | | | - | | | | 6,907,105 | | | | Issuance of Preferred Series C for warrants and cash | | | - | | | | - | | | | - | | | | - | | | | 1,050 | | | | - | | | | - | | | | - | | | | 1,050,000 | | | | - | | | | - | | | | 1,050,000 | | | | Issuance of Common Shares for preferred Series C | | | - | | | | - | | | | - | | | | - | | | | (1,050 | ) | | | - | | | | 513,334 | | | | 51 | | | | (51 | ) | | | - | | | | - | | | | - | | | | Issuance of common stock for exercise of warrants | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 515,678 | | | | 52 | | | | 1,511,518 | | | | - | | | | - | | | | 1,511,570 | | | | Issuance of common stock and warrants for cash | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,000,000 | | | | 200 | | | | 6,767,300 | | | | - | | | | - | | | | 6,767,500 | | | | Issuance of common stock for cash | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,000,000 | | | | 200 | | | | 12,944,800 | | | | - | | | | - | | | | 12,945,000 | | | | Contributed capital | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 113,077 | | | | - | | | | - | | | | 113,077 | | | | Issuance of common for exercise of options | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 7,073 | | | | 1 | | | | 12,749 | | | | - | | | | - | | | | 12,750 | | | | Net share settlement for employee tax withholdings | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (120,000 | ) | | | (12 | ) | | | (465,589 | ) | | | | | | | | | | | (465,601 | ) | | | Purchase of treasury stock | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (162,454 | ) | | | - | | | | - | | | | (676,034 | ) | | | - | | | | (676,034 | ) | | | Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (14,322,779 | ) | | | (14,322,779 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance, December 31, 2025 | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 20,736,816 | | | $ | 2,090 | | | $ | 46,964,487 | | | $ | (676,034 | ) | | $ | (28,573,530 | ) | | $ | 17,717,013 | | | | Balance | | | - | | | $ | - | | | | - | | | $ | - | | | | - | | | $ | - | | | | 20,736,816 | | | $ | 2,090 | | | $ | 46,964,487 | | | $ | (676,034 | ) | | $ | (28,573,530 | ) | | $ | 17,717,013 | | | See accompanying notes to the consolidated financial statements. | F-6 | | **SAFE PRO GROUP, INC. AND SUBSIDIARIES** **CONSOLIDATED STATEMENTS OF CASH FLOWS** | | | 2025 | | | 2024 | | | | | | For the Years Ended December 31, | | | | | | 2025 | | | 2024 | | | | | | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | | | | Net loss | | $ | (14,322,779 | ) | | $ | (7,428,461 | ) | | | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | Depreciation and amortization expense | | | 381,330 | | | | 341,083 | | | | Stock-based compensation and professional fees | | | 6,907,105 | | | | 2,852,648 | | | | Amortization of debt discount | | | - | | | | 208,006 | | | | Impairment of goodwill | | | 684,867 | | | | - | | | | Impairment of other intangibles | | | 146,001 | | | | - | | | | Relative fair value of options granted | | | - | | | | 241,336 | | | | Lease costs | | | - | | | | (9,144 | ) | | | Change in operating assets and liabilities: | | | | | | | | | | | Accounts receivable | | | 23,658 | | | | 39,643 | | | | Inventory | | | (272,963 | ) | | | 17,098 | | | | Prepaid expenses and other assets | | | (106,643 | ) | | | (265,611 | ) | | | Accounts payable | | | 278,869 | | | | (49,269 | ) | | | Accrued expenses | | | 180,668 | | | | 7,134 | | | | Contract liabilities | | | (64,871 | ) | | | (902 | ) | | | Lease liabilities | | | 11 | | | | - | | | | Accrued compensation | | | (51,619 | ) | | | (48,995 | ) | | | | | | | | | | | | | | NET USED IN OPERATING ACTIVITIES | | | (6,216,366 | ) | | | (4,095,434 | ) | | | | | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | Purchase of property and equipment | | | (48,808 | ) | | | (63,801 | ) | | | Investment in intangible technologies (software development) | | | (192,545 | ) | | | (372,588 | ) | | | | | | | | | | | | | | NET CASH USED IN INVESTING ACTIVITIES | | | (241,353 | ) | | | (436,389 | ) | | | | | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | Proceeds from sale of common stock and warrants | | | 6,767,500 | | | | 489,002 | | | | Proceeds from convertible notes payable | | | - | | | | 275,002 | | | | Proceeds from sale of common stock in offering | | | 12,945,000 | | | | 4,179,500 | | | | Proceeds from issuance of Series C Preferred Stock and warrants | | | 1,050,000 | | | | - | | | | Purchase of treasury stock in connection with Stock Repurchase Program | | | (613,409 | ) | | | - | | | | Proceeds from warrant exercise | | | 1,511,570 | | | | 878,708 | | | | Proceeds from option exercise | | | 12,750 | | | | - | | | | Payments for employee tax withholdings on net share settlement | | | (465,601 | ) | | | - | | | | Proceeds from related party advances | | | 141,866 | | | | - | | | | Proceeds from notes payable | | | - | | | | 236,500 | | | | Payments on notes payable | | | - | | | | (236,500 | ) | | | Repayment of due to related party | | | (69,588 | ) | | | (23,038 | ) | | | | | | | | | | | | | | NET CASH PROVIDED BY FINANCING ACTIVITIES | | | 21,280,088 | | | | 5,799,174 | | | | | | | | | | | | | | | NET INCREASE IN CASH | | | 14,822,369 | | | | 1,267,351 | | | | | | | | | | | | | | | CASH, beginning of year | | | 1,970,719 | | | | 703,368 | | | | | | | | | | | | | | | CASH, end of year | | $ | 16,793,088 | | | $ | 1,970,719 | | | | | | | | | | | | | | | SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | | | | | | | | | | | Cash paid for: | | | | | | | | | | | Interest | | $ | 8,559 | | | $ | 93,314 | | | | Income taxes | | $ | - | | | $ | - | | | | | | | | | | | | | | | SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | | | | | Issuance of common stock in exchange for Series C Preferred Stock | | $ | 51 | | | $ | - | | | | Contributed Services | | $ | 113,077 | | | $ | - | | | | Purchase of treasury stock in connection with Stock Repurchase Program included in Accounts Payable | | $ | 62,625 | | | $ | - | | | | Increase in debt discount and additional paid-in capital | | $ | - | | | $ | 76,802 | | | | Increase in common stock and additional paid-in capital issued for conversion of debt | | $ | - | | | $ | 808,532 | | | See accompanying notes to the consolidated financial statements. | F-7 | | **** **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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 USAs 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 Companys 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 Companys 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 Companys 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. | F-8 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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** We have 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 Companys 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 Companys common stock, and (ii) 3 three-year warrants to purchase up to 2,000,000 shares of the Companys 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) 3 three-year warrants to purchase the number of shares of Companys 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 holders 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 Companys 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. | F-9 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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 1Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date. Level 2Inputs 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 3Inputs are unobservable inputs which reflect the reporting entitys 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 Companys 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 $250,000to 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 hadnocash in bank in excess of FDIC insured levels. | F-10 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** The Companys 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 Companys 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 Companys domestic and international customers, possibly resulting in delays in customer payments. Any of the foregoing could harm the Companys business and it cannot anticipate all the ways in which the current economic climate and financial market conditions could adversely impact the Companys 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 Companys 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 has no 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. | F-11 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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 5 five to ten 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: SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT | | | Years | | | Manufacturing equipment | | 7 - 10 | | | Drones and related equipment | | 5 | | | Furniture, fixtures and office equipment | | 5 | | | Software library | | 3 | | **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 Companys business acquisitions typically result in the recording of goodwill and other intangible assets, which affect the amount of amortization expense and possibly impairment write-downs that the Company may incur in future periods. Intangible assets are carried at cost less accumulated amortization for finite-lived assets, computed using the straight-line method over the estimated useful life, less any impairment charges. Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired in business acquisitions. Goodwill is not subject to amortization but is subject to impairment tests at least annually. The Company reviews the carrying amounts of goodwill by reporting unit at least annually, or when indicators of impairment are present, to determine if goodwill may be impaired. To test goodwill impairment, the Company may first assess qualitative factors to determine whether it is more likely than *not* that the fair value of goodwill is less than its carrying value. The Company would not be required to quantitatively determine the fair value of goodwill unless it determines, based on the qualitative assessment there are indicators of impairment. Under the quantitative test of goodwill, the Company compares the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value exceeds the fair value, then the goodwill is impaired by the excess amount. The Company performs its annual testing for goodwill during the fourth quarter of each fiscal year or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit. | F-12 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **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 assets 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. | F-13 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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 Companys 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 Companys 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. | F-14 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **Product warranties** The Companys subsidiary, Safe-Pro USA, provides product warranties on its equipment or components of equipment sold from one to five years. For Safe-Pro USAs 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 Companys 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 had no 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 FASBs Accounting Standards Update (ASU) 2016-09 *Improvements to Employee Share-Based Payment*. | F-15 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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 Companys net losses and consisted of the following: SCHEDULE OF ANTI-DILUTIVE IMPACT ON NET LOSSES | | | 2025 | | | 2024 | | | | | | December 31, | | | | | | 2025 | | | 2024 | | | | Stock warrants | | | 2,135,688 | | | | 125,531 | | | | Stock options | | | 2,263,752 | | | | 322,500 | | | | Total | | | 4,399,440 | | | | 448,031 | | | 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 Companys chief operating decision maker for making operating decisions and assessing performance as the source for determining the Companys reportable segments. The Companys 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 Companys 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. | F-16 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** 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, *DebtDebt 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. | F-17 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **NOTE 3 ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES** **Accounts receivable** On December 31, 2025 and 2024, accounts receivable consisted of the following: SCHEDULE OF ACCOUNTS RECEIVABLE | | | 2025 | | | 2024 | | | | | | December 31, | | | | | | 2025 | | | 2024 | | | | Accounts receivable | | $ | 100,028 | | | $ | 123,686 | | | | Less: allowance for doubtful accounts | | | - | | | | - | | | | Accounts receivable, net | | $ | 100,028 | | | $ | 123,686 | | | For the years ended December 31, 2025 and 2024, the Company did not 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: SCHEDULE OF OTHER RECEIVABLES | | | 2025 | | | 2024 | | | | | | December 31, | | | | | | 2025 | | | 2024 | | | | | | | | | | | | | Other receivables | | $ | 142,526 | | | $ | 142,526 | | | | Less: allowance for doubtful other receivables | | | (142,526 | ) | | | (142,526 | ) | | | Other receivables, net | | $ | - | | | $ | - | | | 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 suppliers 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. | F-18 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **NOTE 4 INVENTORY** On December 31, 2025 and 2024, inventories consisted of the following: SCHEDULE OF INVENTORIES | | | 2025 | | | 2024 | | | | | | December 31, | | | | | | 2025 | | | 2024 | | | | Raw materials | | $ | 290,873 | | | $ | 259,658 | | | | Work in process | | | 305,971 | | | | 60,229 | | | | Finished goods | | | 18,180 | | | | 22,174 | | | | Less reserve for obsolete inventory | | | - | | | | - | | | | Total | | $ | 615,024 | | | $ | 342,061 | | | **NOTE 5 PROPERTY AND EQUIPMENT** On December 31, 2025 and 2024, property and equipment consisted of the following: SCHEDULE OF PROPERTY AND EQUIPMENT | | | 2025 | | | 2024 | | | | | | December 31, | | | | | | 2025 | | | 2024 | | | | Manufacturing equipment | | $ | 340,009 | | | $ | 340,009 | | | | Drones and related equipment | | | 152,310 | | | | 115,423 | | | | Software library | | | 10,000 | | | | 10,000 | | | | Furniture, fixtures and office equipment | | | 19,250 | | | | 7,329 | | | | Property and equipment, gross | | | 521,569 | | | | 472,761 | | | | Less accumulated depreciation | | | (238,482 | ) | | | (157,880 | ) | | | | | | | | | | | | | | Total | | $ | 283,087 | | | $ | 314,881 | | | For the year ended December 31, 2025 and 2024, depreciation expense amounted to $80,602 and $69,848, respectively. | F-19 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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 Companys 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: SCHEDULE OF INTANGIBLE ASSETS SUBJECT TO AMORTIZATION | | | December 31, 2025 | | | | | Amortization period (years) | | Gross Amount | | | Accumulated Amortization | | | Net finite intangible assets | | | | Customer relationships | | 5 | | $ | 388,000 | | | $ | (388,000 | ) | | $ | - | | | | Contractual employment agreements | | 3 | | | 310,000 | | | | (310,000 | ) | | | - | | | | Acquired capitalized internal-use software development costs | | 3 | | | 1,110,758 | | | | (276,297 | ) | | | 834,461 | | | | Amortization of intangible assets | | | | $ | 1,808,758 | | | $ | (974,297 | ) | | $ | 834,461 | | | As of December 31, 2024, intangible assets subject to amortization consisted of the following: | | | December 31, 2024 | | | | | Amortization period (years) | | Gross Amount | | | Accumulated Amortization | | | Net finite intangible assets | | | | Customer relationships | | 5 | | $ | 388,000 | | | $ | (183,819 | ) | | $ | 204,181 | | | | Contractual employment agreements | | 3 | | | 310,000 | | | | (271,337 | ) | | | 38,663 | | | | Acquired capitalized internal-use software development costs | | 3 | | | 918,213 | | | | (72,412 | ) | | | 845,801 | | | | Amortization of intangible assets | | | | $ | 1,616,213 | | | $ | (527,568 | ) | | $ | 1,088,645 | | | 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 were no impairment charges during the year ended December 31, 2024. | F-20 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** Amortization of intangible assets with finite lives attributable to future periods is as follows: SCHEDULE OF AMORTIZATION OF INTANGIBLE ASSETS | Year ending December 31: | | Amount | | | | 2026 | | $ | 222,920 | | | | 2027 | | | 222,920 | | | | 2028 | | | 222,920 | | | | 2029 | | | 165,701 | | | | 2030 and after | | | - | | | | Total | | $ | 834,461 | | | **Goodwill** On December 31, 2025 and 2024, goodwill consisted of the following: SCHEDULE OF GOODWILL | | | 2025 | | | 2024 | | | | | | December 31, | | | | | | 2025 | | | 2024 | | | | Safe-Pro USA | | $ | - | | | $ | 518,255 | | | | Airborne Response | | | - | | | | 166,612 | | | | Total goodwill | | $ | - | | | $ | 684,867 | | | 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 $146,000from 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 of3.75% per annum. The SBA Loan is secured by a continuing security interest in and to any and all Safe Pro USAs 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 $2,158and $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 is due on the earlier of August 31, 2024 or 5 business days after the Companys IPO. The Notes were repaid on August 30, 2024. On December 31, 2025 and 2024, note payable consisted of the following: SCHEDULE OF NOTES PAYABLE | | | 2025 | | | 2024 | | | | | | December 31, | | | | | | 2025 | | | 2024 | | | | | | | | | | | | | Notes payable | | $ | 146,000 | | | $ | 146,000 | | | | Less: current portion of notes payable | | | - | | | | - | | | | Notes payable long-term | | $ | 146,000 | | | $ | 146,000 | | | The following schedule provides minimum future note payable principal payments required during future periods: SCHEDULE OF MINIMUM FUTURE NOTE PAYABLE PRINCIPAL PAYMENTS | Year ending December 31: | | Amount | | | | 2026 | | $ | 2,535 | | | | 2027 | | | 3,219 | | | | 2028 | | | 3,342 | | | | 2029 | | | 3,469 | | | | 2030 | | | 3,602 | | | | Thereafter | | | 129,833 | | | | Total note payable | | $ | 146,000 | | | | F-21 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **NOTE 8 CONVERTIBLE NOTES PAYABLE** On December 27, 2023, the Company received net proceeds of $475,000in 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 of15% per annum and a default interest rate of18% per annum. The convertible debt agreement provided warrants to purchase up to148,438shares of the Companys 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 Companys common stock at the conversion price of $3.20per share, subject to price protection and4.9% 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 $132,658to 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 of2.91%, expected dividend yield of0%, expected option term ofthree years, and expected volatility of70.0% based on the calculated volatility of comparable companies. During March 2024, the Company received net proceeds of $275,002in 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 of15% per annum and a default interest rate of18% per annum. The convertible debt agreement provided warrants to purchase up to85,938shares of the Companys 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 Companys common stock at the conversion price of $3.20per share, subject to price protection and4.9% 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 of2.91%, expected dividend yield of0%, expected option term ofthree years, and expected volatility of70.0% 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 $750,002and accrued interest payable of $58,530, were converted into252,666common 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 was no amortization of debt discount during the year ended December 31, 2025 as the notes converted in 2024. | F-22 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **NOTE 9 STOCKHOLDERS EQUITY** **Preferred Stock** **Series A Preferred Stock** On June 7, 2022, the Companys board of directors approved an Amendment to its Articles of Incorporation, to designate3,000,000shares 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 $10.00per share. On August 28, 2023, the Company amended its Series A Preferred Certificate of Designation, to amend the Series A Stated Value to $2.50per 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 Companys 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 Companys 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 Companys 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 Companys initial public offering, the Series A Preferred shares were converted into1,500,000shares of common stock. **Series B Preferred Stock** On August 29, 2022, the Companys 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 $2.00per 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 Companys 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 Companys 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 Companys 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 Companys initial public offering, the Series B Preferred shares were converted into 1,310,000 shares of common stock. | F-23 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **** **Series C Preferred Stock** On May 7, 2025, the Companys 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 Companys 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** **** **2025** 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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. | F-24 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** 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 Companys 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 Companys 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 $3.90per 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 of25,000shares of common stock under the 2022 Equity Incentive Plan. In accordance with ASC 718, the fair value of the award was measured at $6.30per 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 $157,500was recorded as Professional Fees on the Companys 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 Companys 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 $4.74per 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. **2024** 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 Companys consolidated statement of operations. **** **Common stock issued for cash** **2025** **** 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. **** **2024** 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 Companys 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. | F-25 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **Common stock and warrants issued for cash** **2025** **** On August 21, 2025, the Company completed a private placement of2,000,000Units for aggregate gross proceeds of $8,000,000, or $4.00per 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 $6.00per share, exercisable immediately and expiringthree yearsfrom 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. **2024** 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 for three 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 Companys total outstanding warrants and changes during the years ending December 31, 2025 and 2024 are as follows: SCHEDULE OF OUTSTANDING WARRANTS AND CHANGES | | | Number of Warrants | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (Years) | | | Aggregate Intrinsic Value (1) | | | | Balance Outstanding on December 31, 2023 | | | 611,017 | | | $ | 1.00 | | | | 2.5 | | | $ | 574,356 | | | | Issued | | | 289,751 | | | | 2.70 | | | | 3.0 | | | | - | | | | Exercised | | | (775,237 | ) | | | 1.13 | | | | | | | | - | | | | Balance Outstanding on December 31, 2024 | | | 125,531 | | | $ | 4.09 | | | | 3.3 | | | | 90,952 | | | | Issued | | | 2,525,835 | | | | 5.37 | | | | 2.6 | | | | - | | | | Exercised | | | (515,678 | ) | | | - | | | | - | | | | - | | | | Balance Outstanding on December 31, 2025 | | | 2,135,688 | | | $ | 5.88 | | | | 2.6 | | | | 114,424 | | | | Exercisable, December 31, 2025 | | | 2,135,688 | | | $ | 5.88 | | | | 2.6 | | | $ | 114,424 | | | | (1) | The aggregate intrinsic value on December 31, 2025 and 2024, was calculated based on the Nasdaqs market close on December 31, 2025 and 2024, respectively and the exercise price of the underlying the warrants. | | 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 775,237common stock upon the exercise of 775,237warrants, 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: SCHEDULE OF BLACK-SCHOLES OPTION PRICING MODEL TO WARRANTS GRANTED ASSUMPTION | | | December 31, 2025 | | | | Expected term, in years | | | 5 | | | | Expected volatility | | | 54.41 | % | | | Risk-free interest rate | | | 4.01 | % | | | Dividend yield | | | - | | | | F-26 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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 of51,000shares 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 $1,050,000to (i)1,050Series C Preferred shares, stated value $1,100which are convertible into513,335shares of the Companys common stock at a conversion rate of $2.25per share and (ii) warrants to purchase513,335shares of common stock at an initial exercise price of $2.93per 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 Companys 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 of2,000,000 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 Companys stock option activity is as follows: SCHEDULE OF STOCK OPTION ACTIVITY | | | Shares Underlying Options | | | Weighted Average Exercise Price | | | Weighted Average Contractual Life (Years) | | | Intrinsic Value | | | | Outstanding at December 31, 2023 | | | - | | | $ | - | | | | - | | | | - | | | | Granted | | | 322,500 | | | | 3.40 | | | | 5.0 | | | | - | | | | Forfeited | | | - | | | | - | | | | - | | | | - | | | | Exercised | | | - | | | | - | | | | - | | | | - | | | | Outstanding at December 31, 2024 | | | 322,500 | | | | 3.40 | | | | 4.97 | | | | 138,675 | | | | Granted | | | 1,950,000 | | | | 5.10 | | | | 4.77 | | | | - | | | | Forfeited | | | - | | | | - | | | | - | | | | - | | | | Exercised | | | (7,073 | ) | | | 3.40 | | | | - | | | | - | | | | Outstanding at December 31, 2025 | | | 2,265,427 | | | $ | 4.86 | | | | 4.66 | | | $ | 528,725 | | | | | | | | | | | | | | | | | | | | | | | Exercisable at December 31, 2025 | | | 1,472,500 | | | $ | 4.11 | | | | 4.63 | | | $ | 249,725 | | | 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: SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS OF OPTIONS | | | December 31, 2025 | | | December 31, 2024 | | | | Expected term, in years | | | 3.28 | | | | 4.06 | | | | Expected volatility | | | 46.94 | % | | | 50.45 | % | | | Risk-free interest rate | | | 3.63 | % | | | 4.39 | % | | | Dividend yield | | | - | | | | - | | | **2022 Equity Incentive Plan** On July 1, 2022, the Companys 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 Companys 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. | F-27 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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 Companys wholly owned subsidiary, Airborne Response Corp. (Airborne), entered into a three-year Employment Agreement, (Agreement) with Daniyel Erdberg, that extends for successive 1one-year renewal terms unless either party gives 30-days advance notice of non-renewal. Under the Agreement Mr. Erdberg will serve as Airbornes 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, Erdbergs 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 successive 1one-year renewal terms unless either party gives 30-days advance notice of non-renewal. Under the Agreement Mr. Todd will serve as Airbornes 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. | F-28 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** Pravin Borkar Chief Technology Officer Safe Pro Group Inc and President Safe-Pro USA LLC On June 7, 2022, the Companys wholly owned subsidiary, Safe-Pro USA LLC. (SPUSA), entered into a three-year Employment Agreement, (Agreement) with Pravin Borkar, that extends for five additional terms of 1one-year each, unless either party gives 30-days advance notice of non-renewal. Under the Agreement Mr. Borkar will serve as SPUSAs 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 Companys 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 Companys 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 USAs 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 a 1one-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 Companys 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 Companys plan or if the Company doesnt 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 Companys 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 Companys 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. | F-29 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** *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. Executives Base Salary shall not be decreased (including after any increases pursuant to this Section 3(a)) without Executives 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 Companys common stock at the then current market price. Additionally, upon the commencement of cash payments of the Base Salary to the Executive, the Executives 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 Companys common stock at the option of the Employee. *Long-term incentive award.*During the Term, the Executive shall have an *annual target long-term incentive award* opportunity of 300% of one years Base Salary. The Committee will award the Executives 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 an *annual target cash bonus opportunity* of 100% of one years Base Salary with a minimum guaranteed annual cash bonus of 25% of one years Base Salary. The Committee shall award the Executives 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. | F-30 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** *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. SCHEDULE OF MARKET CAP MILESTONE PERFORMANCE AWARD | Adjusted EBITDA Milestones | | | Bonus Awards Shares | | | Market Cap Milestones | | | Bonus Awards Shares | | | | | | | | | | | | | | | | | $ | 500,000 | | | | 100,000 | | | $ | 30,000,000 | | | | 200,000 | | | | $ | 1,000,000 | | | | 200,000 | | | $ | 40,000,000 | | | | 200,000 | | | | $ | 2,000,000 | | | | 225,000 | | | $ | 60,000,000 | | | | 200,000 | | | | $ | 4,000,000 | | | | 237,500 | | | $ | 80,000,000 | | | | 200,000 | | | | $ | 5,000,000 | | | | 237,500 | | | | | | | | | | | ** *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 Companys 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 Companys subsidiary, Safe-Pro USA, carries a product liability policy that covers up to $2,000,000 of claims retroactive to June 26, 2020. | F-31 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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 $37,615and $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 Companys 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 Companys 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 and0.8% 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. | F-32 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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 Aid10.3%, 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 Companys 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 $20,654of 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. | F-33 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** 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 $56,538was 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 servicesfrom 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 throughJuly 31, 2026. During the term of lease, the Company shall pay base rent of $2,935from 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 $33,084for 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 Companys 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 Companys 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 USAs, the Companys and Airborne Response estimated average incremental borrowing rate, respectively. | F-34 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** On December 31, 2025 and 2024, right-of-use asset (ROU) is summarized as follows: SCHEDULE OF RIGHT OF USE ASSET | | | December 31, 2025 | | | December 31, 2024 | | | | Office lease right of use assets | | $ | 310,598 | | | $ | 277,514 | | | | Auto lease right of use asset | | | 19,583 | | | | 19,583 | | | | Less: accumulated amortization | | | (271,171 | ) | | | (195,476 | ) | | | Balance of ROU assets | | $ | 59,010 | | | $ | 101,621 | | | On December 31, 2025 and 2024, operating lease liabilities related to the ROU assets are summarized as follows: SCHEDULE OF OPERATING LEASE LIABILITY TO ROU ASSET | | | December 31, 2025 | | | December 31, 2024 | | | | Lease liabilities related to office lease right of use assets | | $ | 51,610 | | | $ | 91,113 | | | | Lease liabilities related to auto lease right of use asset | | | 4,497 | | | | 7,595 | | | | Less: current portion of lease liabilities | | | (55,160 | ) | | | (63,115 | ) | | | Lease liabilities long-term | | $ | 947 | | | $ | 35,592 | | | | Other information: | | December 31, 2025 | | | December 31, 2024 | | | | | | | | | | | | | Weighted average remaining lease term operating leases | | | .75 years | | | | 1.57 years | | | | Weighted average discount rate operating leases | | | 4.60 | % | | | 4.60 | % | | On December 31, 2025, future minimum base lease payments due under non-cancelable operating leases are as follows: SCHEDULE OF LEASE PAYMENTS DUE UNDER NON-CANCELABLE OPERATING LEASES | Year ending December 31, | | Amount | | | | 2026 | | $ | 56,963 | | | | 2027 | | | 947 | | | | 2028 | | | - | | | | Total minimum non-cancellable operating lease payments | | | 57,910 | | | | Less: discount to fair value | | | (1,803 | ) | | | Total lease liabilities on December 31, 2025 | | $ | 56,107 | | | **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 Companys reportable segments are strategic business units that offer different products. They are managed separately based on the fundamental differences in their operations and locations. one Information with respect to these reportable business segments for the years ending December 31, 2025 and 2024 was as follows: SCHEDULE OF BUSINESSSEGMENT REPORTING | | | 2025 | | | 2024 | | | | | | For the Years Ended December 31, | | | | | | 2025 | | | 2024 | | | | Revenues: | | | | | | | | | | | Safe-Pro USA | | $ | 340,776 | | | $ | 873,274 | | | | Airborne Response | | | 191,500 | | | | 1,280,863 | | | | Safe Pro AI | | | 74,405 | | | | 15,041 | | | | Revenues | | | 606,681 | | | | 2,169,178 | | | | Depreciation and amortization: | | | | | | | | | | | Safe-Pro USA | | | 77,547 | | | | 109,702 | | | | Airborne Response | | | 89,341 | | | | 155,359 | | | | Safe Pro AI | | | 212,630 | | | | 74,550 | | | | Other (a) | | | 1,812 | | | | 1,472 | | | | Depreciation and amortization | | | 381,330 | | | | 341,083 | | | | Interest expense: | | | | | | | | | | | Safe-Pro USA | | | 6,020 | | | | 6,717 | | | | Airborne Response | | | 1,133 | | | | 983 | | | | Safe Pro AI | | | - | | | | - | | | | Other (a) | | | 5,680 | | | | 298,816 | | | | Interest expense | | | 12,833 | | | | 306,516 | | | | | | | | | | | | | | | Net (loss) income: | | | | | | | | | | | Safe-Pro USA | | | (916,414 | ) | | | (366,564 | ) | | | Airborne Response | | | (722,966 | ) | | | (182,966 | ) | | | Safe Pro AI | | | (1,618,707 | ) | | | (375,332 | ) | | | Other (a) | | | (11,064,692 | ) | | | (6,503,599 | ) | | | Net (loss) income | | $ | (14,322,779 | ) | | $ | (7,428,461 | ) | | | (a) | The Company does not allocate any general and administrative or financing expenses of its holding company activities to its reportable segments, because these activities are managed at the corporate level. | | | | | December 31, 2025 | | | December 31, 2024 | | | | Identifiable long-lived tangible assets, net by segment: | | | | | | | | | | | Safe-Pro USA | | $ | 168,991 | | | $ | 217,134 | | | | Airborne Response | | | 68,118 | | | | 71,444 | | | | Safe Pro AI | | | 38,818 | | | | 22,143 | | | | Other (a) | | | 7,160 | | | | 4,160 | | | | Long lived tangible assets | | $ | 283,087 | | | $ | 314,881 | | | | F-35 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **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 Companys effective tax rate for the years ended December 31, 2025 and 2024 were as follows: SCHEDULE OF EFFECTIVE OF INCOME TAXES | | | Amount | | | % | | | Amount | | | % | | | | | | Year Ended December 31, 2025 | | | Year Ended December 31, 2024 | | | | | | Amount | | | % | | | Amount | | | % | | | | U.S. Federal statutory rate | | $ | (3,007,784 | ) | | | 21.0 | % | | $ | (1,559,977 | ) | | | 21.0 | % | | | State and local income tax, net of federal income tax effect | | | | | | | | | | | | | | | | | | | Florida income tax | | | (605,629 | ) | | | 4.23 | % | | | (321,976 | ) | | | 4.33 | % | | | Return to provision adjustments | | | (4,454 | ) | | | 0.03 | % | | | (171,736 | ) | | | 2.31 | % | | | Rate change | | | - | | | | 0.00 | % | | | (28,155 | ) | | | 0.38 | % | | | Nontaxable or nondeductible items | | | | | | | | | | | | | | | | | | | Non-deductible meals | | | 4,435 | | | | (0.03 | )% | | | 3,821 | | | | (0.05 | )% | | | Stock-based compensation | | | (16,685 | ) | | | 0.12 | % | | | - | | | | 0.00 | % | | | Return to provision adjustments | | | (21,525 | ) | | | 0.15 | % | | | (727,235 | ) | | | 9.79 | % | | | Change in valuation allowance | | | 3,651,642 | | | | (25.50 | )% | | | 2,805,258 | | | | (37.76 | )% | | | Total provision for income tax | | $ | - | | | | 0.00 | % | | $ | - | | | | 0.00 | % | | The following is a summary of the components of deferred tax assets and liabilities as of December31, 2025 and 2024: SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES | | | December 31, 2025 | | | December 31, 2024 | | | | Deferred Tax Asset: | | | | | | | | | | | Net operating loss carryforward | | $ | 4,866,339 | | | $ | 1,651,702 | | | | Depreciation | | | (10,931 | ) | | | 506 | | | | Amortization | | | 183,556 | | | | 54,689 | | | | Goodwill | | | 133,000 | | | | - | | | | Stock based compensation | | | 1,971,569 | | | | 1,700,823 | | | | Capitalized research and development | | | - | | | | 86,906 | | | | ROU liabilities | | | 14,220 | | | | 25,017 | | | | Accrued expenses | | | 40,530 | | | | 38,108 | | | | Other | | | 12,223 | | | | 11,912 | | | | Total deferred tax assets | | | 7,210,506 | | | | 3,569,663 | | | | Deferred tax liabilities: | | | | | | | | | | | ROU assets | | | (14,956 | ) | | | (25,756 | ) | | | Total deferred tax liabilities | | | (14,956 | ) | | | (25,756 | | | | Less: Valuation allowance | | | (7,195,550 | ) | | | (3,543,907 | ) | | | | | | | | | | | | | | Net deferred tax asset | | $ | - | | | $ | - | | | 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 Companys 2023, 2024, and 2025 Corporate Income Tax Return is subject to Internal Revenue Service examination. | F-36 | | **SAFE PRO GROUP INC. AND SUBSIDIARIES** **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS** **FOR THE YEARS ENDED DECEMBER 31, 2025 AND 2024** **NOTE 16 SUBSEQUENT EVENTS** **** On January 6, 2026, the Companys 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 consultants Independent Advisory Agreement dated September 9, 2025. The shares were granted at a fair market value of $6.10per 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 consultants Advisory Board Agreement dated March 27, 2023. The shares were granted at a fair market value of $4.74per 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 Customers receipt of payment from its government customer, which may affect the timing of the Companys 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 Companys 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. | F-37 | |