NOTE 7 – STOCKHOLDERS’ EQUITY

Preferred Stock

Series A Preferred Stock

On June 7, 2022, the Company’s board of directors approved an Amendment to its Articles of Incorporation, to designate 3,000,000 shares of the Series A Preferred, par value $0.0001. The Certificate of Designation became effective in the state of Delaware on January 20, 2023. Each share of Series A Preferred had an initial stated value of $10.00 per share. On August 28, 2023, the Company amended its Series A Preferred Certificate of Designation, to amend the Series A Stated Value to $2.50 per share.

Each share of Series A Preferred was convertible into the number of common shares equal to the Series A Stated Value ($2.50) divided by the Fair Market Value of the common stock. The Fair Market Value is equal to the average of the closing price for the Company’s common stock on a National Market Exchange, for the 20 trading days prior to conversion or in the case of an initial public offering the initial listing price, subject to price protection. Series A Preferred has voting rights equal to the number of common shares into which it may convert. The conversion rights of Preferred Series A were contingent upon the Company’s completion of the initial public offering and/or listing on a National Market Exchange. The holders of the Series A Preferred shall be entitled to a dividend that is payable to the holders of the Company’s common stock as well as certain liquidation rights.

The Series A Preferred were evaluated to determine whether temporary or permanent equity classification on the consolidated balance sheet was appropriate. As per the terms of the Series A Preferred Certificate of Designation, Series A Preferred is not redeemable for cash. As such, the Series A Preferred is classified as permanent equity. The Company concluded that the conversion rights under the Series A Preferred were clearly and closely related to the equity host instrument. Accordingly, the conversion rights feature on the Series A Preferred were not considered an embedded derivative that required bifurcation.

Series B Preferred Stock

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

Each share of Series B Preferred was convertible into the number of common shares equal to the Series B Stated Value ($2.00) divided by the Fair Market Value of the common stock. The Fair Market Value is equal to the average of the closing price for the Company’s common stock on a National Market Exchange, for the 20 trading days prior to conversion or in the case of an initial public offering the initial listing price, subject to price protection. Series B Preferred has voting rights equal to the number of common shares into which it may convert. The conversion rights of Preferred Series B were contingent upon the Company’s completion of the initial public offering and/or listing on a National Market Exchange. The holders of the Series B Preferred shall be entitled to a dividend that is payable to the holders of the Company’s common stock as well as certain liquidation rights.

Series C Preferred Stock

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

On July 22, 2025, the Company issued 427,778 common shares pursuant to the conversion of 875 shares of Preferred Series C at 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 C at 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 March 31, 2026, all Series C preferred Stock had been converted into common shares, resulting in no outstanding balance.

SAFE PRO GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

(unaudited)

Common stock issued for compensation and services

2026

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. During the three months ended March 31, 2026, stock based professional fees in the amount of $16,800 are recorded to Professional fees, on the Company’s unaudited condensed consolidated statement of operations.

On January 22, 2026, the Company issued 25,000 shares of its common stock to a consultant for services rendered pursuant to the 2022 Equity Incentive Plan, and in accordance with the consultant’s Independent Advisory Agreement dated September 9, 2025. The shares were granted at a fair market value of $6.10 per share, based on the closing price on the grant date. Stock based professional fees in the amount of $152,500 are recorded to Professional fees, on the Company’s unaudited condensed consolidated statement of operations.

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

On 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. Stock based professional fees in the amount of $8,400 are recorded to Professional fees, on the Company’s unaudited condensed consolidated statement of operations.

2025

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

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

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

On March 11, 2025, the Company issued 25,000 restricted stock awards, 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 is recorded to Professional fees, on the Company’s unaudited condensed consolidated statement of operations.

On March 20, 2025, the Company issued 12,500 restricted stock awards, 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 is recorded to Professional fees, on the Company’s unaudited condensed consolidated statement of operations.

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.

During the three months ended March 31, 2026, the Company repurchased an aggregate of 140,815 shares of its common stock under its Treasury Stock Repurchase Program for total consideration of $731,079 paid in cash. All shares repurchased were recorded as treasury stock and are reflected as a reduction of stockholders’ equity in the accompanying consolidated balance sheet.

SAFE PRO GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

(unaudited)

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 $64,615, which has been recorded as contributed capital as presented on the condensed consolidated statement of stockholders’ equity. See Note 10.

Representative warrants

The Company’s initial public offering was on August 29, 2024. In connection with the initial public offering, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Dawson James Securities, Inc. Pursuant to the Underwriting Agreement, the Company issued a common stock purchase warrant to the Underwriter for the purchase of 51,000 shares of common stock at an exercise price of $6.25, subject to adjustments (the “Warrant”). The 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 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 Warrant and the number of shares underlying the Warrant) resulting from corporate events (which would include dividends, reorganization, mergers and similar events). The Warrant and the common stock underlying the Warrant were registered as a part of the Registration Statement.

Warrants

A summary of the status of the Company’s total outstanding warrants and changes during the three months ended March 31, 2026 and 2025 are as follows:

 SCHEDULE OF OUTSTANDING WARRANTS AND CHANGES

For the three months ending March 31, 2026 and 2025, the Company recorded $0 and $794, respectively, for stock-based compensation expense related to warrants. As of March 31, 2026, the stock-based compensation for the warrants was fully amortized.

The Company did not grant any warrants during the three months ended March 31, 2026. The warrants granted during the three months ended March 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

SAFE PRO GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

(unaudited)

Options

A summary of the Company’s stock option activity during the three months ended March 31, 2026 and 2025 is as follows:

 SCHEDULE OF STOCK OPTION ACTIVITY

For the three months ending March 31, 2026 and 2025, the Company recorded $1,047,821 and $232,918, respectively, for stock-based compensation expense related to stock options. As of March 31, 2026, unamortized stock-based compensation for stock options was $1,533,450 to be recognized through September 30, 2026.

The options granted during the three months ended March 31, 2026 and 2025 were valued using the Black-Scholes option pricing model using the following weighted average assumptions:

 SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS OF OPTIONS

2022 Equity Incentive Plan

On July 1, 2022, the Company’s Board of Directors authorized and adopted the 2022 Equity Incentive Plan (the “2022 Plan”) and reserved 5,000,000 shares of common stock for issuance thereunder. The 2022 Plan’s purpose is to encourage ownership in the Company by employees, officers, directors and consultants whose long-term service the Company considers essential to its continued progress and, thereby, encourage recipients to act in the stockholders’ interest and share in the Company’s success. The 2022 Plan provides for the issuance of incentive stock options, non-statutory stock options, restricted stock, restricted stock units (“RSUs”), and other stock-based awards. During the year ended December 31, 2025 and 2024, 2,192,500 and 1,082,500 of the Company’s common shares issued for services, as described above, were issued pursuant to the 2022 Plan, respectively. During the three months ended March 31, 2026, 45,000 of the Company’s common shares and options issued for services and compensation, as described above, were issued pursuant to the 2022 Plan. As of March 31, 2026, the Company had 2,500 shares available for issuance under the 2022 Plan.

2025 Equity Incentive Plan

In April 2025, the Compensation Committee of the Board of Directors approved the 2025 Stock Plan, pending stockholders’ approval, which was subsequently received on June 26, 2025. The 2025 Plan is a stock-based compensation plan that provides discretionary grants of stock options, stock awards, stock unit awards and stock appreciation rights to key employees, non-employee directors and consultants. The share reserve is subject to an annual automatic increase of up to 5% of the Company’s outstanding common stock through January 1, 2035, unless otherwise determined by the Board. The plan includes provisions related to award limits, changes in control, and restrictions on repricing. During the year ended December 31, 2025, 720,000 of the Company’s common shares issued for services were issued pursuant to the 2025 plan. During the three months ended March 31, 2026, 225,000 of the Company’s options issued for services, as described above, were issued pursuant to the 2025 plan. As of March 31, 2026, the Company had 5,099,964 shares available for issuance under the 2025 Plan.

SAFE PRO GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

(unaudited)