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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the quarterly period ended September 30, 2023

 

Or

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the transition period from _______________________to___________________________

 

Commission File Number: 000-18730

 

DarkPulse, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 87-0472109
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
815 Walker Street, Suite 1155, Houston, TX 77002
(Address of principal executive offices) (Zip Code)

 

(800) 436-1436

(Registrant’s 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
Not applicable   Not applicable   Not applicable

 

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 (§232.405 of this chapter) 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 the 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

The number of shares outstanding of the registrant’s common stock, $0.0001 par value per share, outstanding as of November 15, 2023 was 7,728,834,177.

 

 

 

   

 

 

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION 3
   
Item 1. Financial Statements 3
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 40
   
Item 4. Controls and Procedures 40
   
PART II—OTHER INFORMATION 41
   
Item 1. Legal Proceedings 41
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 43
   
Item 6. Exhibits 43
   
SIGNATURES 44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 2 

 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

 

DarkPulse, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

         
   September 30,   December 31, 
   2023   2022 
    Unaudited    Audited 
ASSETS          
CURRENT ASSETS:          
Cash and cash equivalents  $64,892   $2,060,332 
Accounts receivable, net   96,287    2,952,293 
Inventory   32,077    23,825 
Contract assets       1,439,844 
Due from related party   948,362    318,025 
Prepaid expenses and other current assets   154,414    180,530 
TOTAL CURRENT ASSETS   1,296,033    6,974,849 
           
NON-CURRENT ASSETS:          
Property and equipment, net   875,173    1,933,871 
Operating lease right-of-use assets   1,020,585    2,724,226 
Patents, net   229,604    267,875 
Notes receivable, related party   1,612,565    1,049,248 
Investment in related party   1,500,000    1,500,000 
Joint venture       46,724 
Intangible assets, net       390,330 
Goodwill       6,462,153 
Other assets, net   161,678    689,869 
TOTAL NON-CURRENT ASSETS   5,399,605    15,064,296 
TOTAL ASSETS  $6,695,638   $22,039,145 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
CURRENT LIABILITIES:          
Accounts payable and accrued expenses  $15,627,980   $10,736,373 
Contract liabilities       2,215,212 
Loss provision for contracts in progress       945,928 
Convertible notes, net   334,491    378,263 
Notes payable, current   2,000,000    2,000,000 
Derivative liability   597,318    306,467 
Loan payable, current   468,067    472,700 
Loan payable, related party   361,747    361,747 
Secured debenture, current   137,406    136,353 
Operating lease liabilities - current   213,821    512,373 
Other current liabilities   82,568    472,217 
TOTAL CURRENT LIABILITIES   19,823,398    18,537,633 
           
NON-CURRENT LIABILITIES:          
Secured debenture   961,844    954,474 
Loan payable   306,011    328,508 
Operating lease liabilities - non-current   907,124    2,547,524 
TOTAL NON-CURRENT LIABILITIES   2,174,979    3,830,506 
TOTAL LIABILITIES   21,998,376    22,368,139 
           
Commitments and contingencies        
           
STOCKHOLDERS' DEFICIT:          
Series A Super Voting preferred stock - par value $0.01; 100 shares designated, 100 shares issued and outstanding at both September 30, 2023 and December 31, 2022   1    1 
Convertible preferred stock - Series D, par value $0.01, 100,000 shares designated, 88,235 shares issued and outstanding as of both September 30, 2023 and December 31, 2022   883    883 
Common stock, par value $0.0001, 20,000,000,000 shares authorized, 7,639,945,289 and 6,427,395,360 shares issued as of September 30, 2023 and December 31, 2022, respectively   763,996    642,740 
Treasury stock at cost, 100,000 shares at September 30, 2023 and December 31, 2022   (1,000)   (1,000)
Additional paid-in capital   49,538,461    44,602,052 
Non-controlling interests   1,297,589    2,119,566 
Accumulated other comprehensive income (loss)   (1,253,370)   (1,137,902)
Accumulated deficit   (65,649,298)   (46,555,334)
TOTAL STOCKHOLDERS' DEFICIT   (15,302,738)   (328,994)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT  $6,695,638   $22,039,145 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

 

 3 

 

 

DarkPulse, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

 

                 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
REVENUES  $82,071   $1,431,104   $2,032,673   $7,884,480 
COST OF REVENUES   3,005    5,804,875    2,414,645    12,119,352 
GROSS PROFIT (LOSS)   79,066    (4,373,771)   (381,972)   (4,234,872)
                     
OPERATING EXPENSES:                    
Selling, general and administrative   286,895    1,498,717    1,800,266    3,579,326 
Salaries, wages and payroll taxes   253,623    1,760,531    2,379,731    5,108,775 
Bad debt expense   11,506        2,433,963     
Professional fees   (40,235)   1,471,264    3,166,153    4,489,966 
Depreciation and amortization   44,502    597,970    496,485    833,989 
Impairment expense           6,925,137     
TOTAL OPERATING EXPENSES   556,290    5,328,482    17,201,734    14,012,056 
                     
OPERATING LOSS   (477,224)   (9,702,253)   (17,583,706)   (18,246,928)
                     
OTHER INCOME (EXPENSE):                    
Interest expense   (123,711)   168,846    (280,774)   (349,758)
Loss on deconsolidation           (1,642,795)    
Change in fair market of derivative liabilities   (337,112)   70,289    (320,778)   237,445 
Loss on equity investment   (20,764)       (159,849)    
Gain on the forgiveness of debt       231,377    106,794    267,127 
Restructuring costs               (501,431)
Foreign currency exchange rate variance   (39,765)   426,073    (34,833)   218,039 
TOTAL OTHER INCOME (EXPENSE)   (521,352)   896,585    (2,332,234)   (128,578)
                     
Net loss   (998,576)   (8,805,668)   (19,915,940)   (18,375,506)
Net loss attributable to non-controlling interests   11,284    (92,571)   821,977    255,835 
Net loss attributable to DarkPulse, Inc.  $(987,293)  $(8,898,239)  $(19,093,964)  $(18,119,671)
                     
Net loss per share - basic and diluted  $(0.00)  $0.00   $(0.00)  $0.00 
                     
Weighted average common shares outstanding - basic and diluted   7,564,609,819    5,840,449,453    7,282,672,517    5,539,124,247 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

 

 4 

 

 

DarkPulse, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

UNAUDITED

 

 

                 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
NET LOSS  $(998,576)  $(8,805,668)  $(19,915,940)  $(18,375,506)
                     
OTHER COMPREHENSIVE INCOME (LOSS)                    
Foreign currency translation   742,383    (2,694,033)   (115,468)   (2,913,602)
COMPREHENSIVE LOSS  $(256,193)  $(11,499,701)  $(20,031,408)  $(21,289,108)

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 5 

 

 

DarkPulse, Inc.

CONDSENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED September 30, 2023 AND 2022

UNAUDITED

 

 

                         
   Preferred stock     
    Series A    Series D    Common stock 
    Shares    Amount    Shares    Amount    Shares    Amount 
Balance at December 31, 2021      $    88,235   $883    5,197,821,885   $519,782 
Conversion of convertible notes                        
Common stock issued for cash                   200,121,061    20,012 
Foreign currency adjustment                        
Net loss                        
Balance at March 31, 2022 (unaudited)      $    88,235   $883    5,397,942,951   $539,794 
Common stock issued for cash                   192,448,404    19,250 
Common stock issued for TerraData acquisition                   3,725,386    373 
Stock based compensation   100                     
Foreign currency adjustment                        
Net loss                        
Balance at June 30, 2022 (unaudited)   100   $    88,235   $883    5,594,116,746   $559,417 
Common stock issued for cash                   551,695,450    55,169 
Stock based compensation                        
Foreign currency adjustment                        
Net loss                        
Balance at September 30, 2022 (unaudited)   100   $    88,235   $883    6,145,812,186   $614,586 
                               
                               
Balance at December 31, 2022   100   $1    88,235   $883    6,427,395,360   $642,740 
Common stock issued for cash, net of fees                   531,671,500    53,167 
Issuance of common stock for legal settlement                   297,000,000    29,700 
Foreign currency adjustment                        
Net loss                        
Balance at March 31, 2023 (unaudited)   100   $1    88,235   $883    7,256,066,860   $725,607 
Common stock issued for cash                   203,842,371    20,384 
Foreign currency adjustment                        
Net loss                        
Balance at June 30, 2023 (unaudited)   100   $1    88,235   $883    7,459,909,231   $745,992 
Common stock issued for cash, net of fees                   180,036,058    18,004 
Foreign currency adjustment                        
Net loss                        
Balance at September 30, 2023 (unaudited)   100   $1    88,235   $883    7,639,945,289   $763,996 

 

 

 6 

 

 

 

                             
   Treasury stock   Additional paid-in   Non-controlling   Accumulated other comprehensive   Accumulated  

Total

stockholders’ deficit

 
   Shares   Amount   capital   interests   loss   deficit   (equity) 
Balance at December 31, 2021   100,000   $(1,000)  $20,248,703   $2,358,227   $(284,463)  $(11,276,490)  $11,565,642 
Conversion of convertible notes                            
Common stock issued for cash           7,679,988                7,700,000 
Foreign currency adjustment                   (219,569)       (219,569)
Net loss                       (5,384,270)   (5,384,270)
Balance at March 31, 2022 (unaudited)   100,000   $(1,000)  $27,928,691   $2,358,227   $(504,032)  $(16,660,760)  $13,661,803 
Common stock issued for cash           4,696,625                4,715,875 
Common stock issued for TerraData acquisition           199,627                200,000 
Stock based compensation           (1)                
Foreign currency adjustment                   (737,874)       (737,874)
Net loss                       (4,185,572)   (4,185,572)
Balance at June 30, 2022 (unaudited)   100,000   $(1,000)  $32,824,942   $2,358,227   $(1,241,906)  $(20,846,332)  $13,654,232 
Common stock issued for cash           11,323,231                11,378,400 
Stock based compensation                            
Foreign currency adjustment                   (1,956,159)       (1,956,159)
Net loss                       (8,805,668)   (8,805,668)
Balance at September 30, 2022 (unaudited)   100,000   $(1,000)  $44,148,174   $2,358,227   $(3,198,065)  $(29,652,000)  $14,270,805 
                                    
                                    
                              
Balance at December 31, 2022   100,000   $(1,000)  $44,602,052   $2,119,566   $(1,137,902)  $(46,555,334)  $(328,994)
Common stock issued for cash, net of fees           2,034,634                2,087,801 
Issuance of common stock for legal settlement           1,960,200                1,989,900 
Foreign currency adjustment                   (462,345)       (462,345)
Net loss               (779,696)       (14,019,568)   (14,799,264)
Balance at March 31, 2023 (unaudited)   100,000   $(1,000)  $48,596,886   $1,339,870   $(1,600,247)  $(60,574,902)  $(11,512,902)
Common stock issued for cash           517,465                537,849 
Foreign currency adjustment                   (395,506)       (395,506)
Net loss               (30,997)       (4,087,103)   (4,118,100)
Balance at June 30, 2023 (unaudited)   100,000   $(1,000)  $49,114,351   $1,308,873   $(1,995,755)  $(64,662,005)  $(15,488,659)
Common stock issued for cash, net of fees           424,110                442,114 
Foreign currency adjustment                   742,383        742,383 
Net loss               (11,284)       (987,293)   (998,576)
Balance at September 30, 2023 (unaudited)   100,000   $(1,000)  $49,538,461   $1,297,589   $(1,253,370)  $(65,649,298)  $(15,302,738)

 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

 

 7 

 

 

DarkPulse, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

 

         
   Nine Months Ended 
   September 30, 
   2023   2022 
Cash flows from operating activities:          
Net loss  $(19,915,940)  $(18,375,506)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   513,860    833,990 
Loss on equity investment   159,849     
Issuance of common stock for legal settlement   1,989,900     
Impairment of goodwill and intangible assets   6,925,137     
Bad debt expense   2,433,876     
Loss on deconsolidation   1,642,795     
Operating lease expense   31,087    (33,683)
Gain on forgiveness of debt   (53,397)   (267,127)
Change in fair market of derivative liabilities   (320,778)   (237,445)
Restructuring costs       501,431 
Changes in operating assets and liabilities:          
Accounts receivable   70,870    692,746 
Inventory   (8,252)   604,406  
Contract assets   (73,048)   178,748  
Prepaid expenses and other assets   30,116    (730,370)
Contract liabilities   323,471    833,876 
Loss provision for contracts in progress   15,968    (895,405)
Accounts payable and accrued expenses   2,272,852    (2,949,406)
Operating lease liabilities, net   (30,372)   86,511 
Other current liabilities   (74,090)   300,533 
Net cash used in operating activities   (4,066,096)   (19,456,701)
Cash flows from investing activities:          
Purchases of property and equipment   (102,350)   (529,330)
Investment in joint venture   (113,124)    
Issuance of note receivable, related party   (563,317)    
Advances to related party   (630,337)    
Deposits       (64,980)
Net cash used in investing activities   (1,409,128)   (594,310)
Cash flows from financing activities:          
Proceeds from sale of common stock, net of fees   3,067,764    23,794,275 
Proceeds from convertible notes   50,000     
Net repayments of loan payable   (27,047)    
Net cash provided by financing activities   3,090,717    23,794,275 
Net change in cash   (2,384,507)   3,743,264 
Effect of exchange rate on cash   389,067    (1,434,126)
Cash at beginning of period   2,060,332    3,658,846 
Cash at end of period  $64,892   $5,967,984 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest  $47,948   $ 
Cash paid for income taxes  $   $ 
           
Non-cash financing and investing activities:          
Stock issued for acquisition of TerraData  $   $200,000 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

 

 8 

 

 

DarkPulse, Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

 

 

NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Description of Business

 

DarkPulse, Inc. (“DPI” or “Company”) is a technology-security company incorporated in 1989 as Klever Marketing, Inc. (“Klever”). Its’ wholly-owned subsidiary, DarkPulse Technologies Inc. (“DPTI”), originally started as a technology spinout from the University of New Brunswick, Fredericton, Canada. The Company’s security and monitoring systems will initially be delivered in applications for border security, pipelines, the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision. The Company’s patented BOTDA dark-pulse sensor technology allows for the monitoring of highly dynamic environments due to its greater resolution and accuracy.

 

The Company’s subsidiaries consisted of Optilan HoldCo 3 Limited, a company headquartered in Coventry, United Kingdom (“Optilan”) whose focus is in telecommunications, energy, rail, critical network infrastructure, pipeline integrity systems, renewables and security; Remote Intelligence, LLC, a company headquartered in Pennsylvania who provides unmanned aerial drone and unmanned ground crawler (UGC) services to a variety of clients from industrial mapping and ecosystem services, to search and rescue, to pipeline security; Wildlife Specialists, LLC, a company headquartered in Pennsylvania who provides clients with comprehensive wildlife and environmental assessment, planning, and monitoring services; TerraData Unmanned, PLLC, a company headquartered in Florida who custom manufactures NDAA compliant drones and unmanned ground crawlers to meet the needs of its customers; and TJM Electronics West, Inc., a company headquartered in Arizona who is a U.S. manufacturer and tester of advanced electronics, cables and sub-assemblies specializing in advanced package and complex CCA and hardware.

 

Liquidation/winding up of Optilan (UK) Limited

 

On May 3, 2023, Eversheds Sutherland (International) LLP, a creditor of Optilan (UK) Limited, filed a petition to wind up (“Winding up Petition”) Optilan (UK) Limited, a wholly owned subsidiary of the Company’s Subsidiary, Optilan HoldCo 3 Limited, and the matter was due to be heard in the Portsmouth Combined Court Centre on June 28, 2023.

 

On June 28, 2023, the High Court of Justice in the United Kingdom issued a winding-up order for the liquidation and winding up of the affairs of Optilan (UK) Limited (“Optilan Liquidation”). In conjunction with the order, the court appointed the Official Receiver’s Office (“OR”) to take the appointment as liquidator of Optilan (UK) Limited and take control of Optilan (UK) Limited’s assets.

 

At the same time the court appointed the OR to take the appointment as liquidator of Optilan (UK) Limited. The OR has taken control of Optilan (UK) Limited’s assets. To date the ORs Office has initiated contact with Optilan but we still wait to receive details of the individual who will be taking the role of OR.

 

On July 3, 2023, Optilan (UK) Limited received a letter from The Insolvency Service, an executive agency sponsored by the Department for Business and Trade located in the U.K. Pursuant to the letter of The Insolvency Services, the Company was required to provide information relating to Optilan (UK) Limited to the Official Receiver’s Office (a government body of Plymouth, the United Kingdom) and attend an interview with staff of the Official Receiver’s Office to review the prospect of recovering the assets of Optilan (UK) Limited for the benefit of creditors. The interview occurred July 18, 2023.

 

 

 

 9 

 

 

The Company is an Unsecured creditor of Optilan (UK) Limited and is at risk of losing any repayment of obligations due from Optilan (UK) Limited because there are several intercompany relationships between the Company and Optilan (UK) Limited, the financial impact of any future claims and liabilities may not be known for several months. The Company has approximately $19.4 million intercompany payables due from Optilan (UK), which will increase the Company liabilities for any obligations not repaid. At the time of this filing the Company is still evaluating the full effects of the winding-up order for liquidation and the material adverse effects it will have on the Company’s continued operations and ability to meet future obligations.

 

On August 9, 2023, Evelyn Partners was appointed Joint Liquidator.

 

Quarter Ended March 31 Accounting Analysis

 

The Company performed an analysis of the trade receivables related to Optilan (UK) Limited and determined that an additional $2,422,457 may not be collectible pursuant to the Optilan Liquidation. As of March 31, 2023, the Company recorded a bad debt provision for this amount.

 

As a result of the Optilan Liquidation, management determined that certain events and circumstances occurred that indicated that the carrying amount of the Company’s reporting unit may not be recoverable as of March 31, 2023. The qualitative assessment was primarily due to the customer contracts held by Optilan (UK) Limited at March 31, 2023 and the associated revenue projections by the UK subsidiary that is subject to the potential winding up. As such, the Company compared the fair value of the reporting unit to the carrying amounts and recorded an impairment loss of $6,925,137 pertaining to impairment and goodwill in the consolidated statements of operations. The Company recorded impairment of the indefinite-lived intangible asset of $356,260, and impairment of goodwill of $6,568,877. The Company has one reporting unit which was evaluated in the impairment test noted above. As a result of the impairment, the Company had a carrying value of $0 pertaining to goodwill and intangible assets as of September 30, 2023.

 

Quarter Ended September 30 Accounting Analysis

 

Optilan (UK) Limited became subject to the control of a government and was appointed an administrator. In this situation, when the parent ceases to have a financial interest in a subsidiary and does not retain an investment in that subsidiary, the parent should deconsolidate the subsidiary and recognize a gain or loss on deconsolidation in accordance with ASC 810-10-40-5.

 

In addition, ASC 810-10-40-3A states when a parent deconsolidates a subsidiary or derecognizes a group of assets, the parent no longer controls the subsidiary's assets and liabilities or the group of assets. The parent therefore shall derecognize the assets, liabilities, and equity components related to that subsidiary or group of assets. The equity components will include any noncontrolling interest as well as amounts previously recognized in accumulated other comprehensive income. If the subsidiary or group of assets being deconsolidated or derecognized is a foreign entity (or represents the complete or substantially complete liquidation of the foreign entity in which it resides), then the amount of accumulated other comprehensive income that is reclassified and included in the calculation of gain or loss shall include any foreign currency translation adjustment related to that foreign entity.

 

Upon the liquidation, on June 28, 2023, the Company derecognized Optilan UK’s assets and liabilities and recorded a loss on consolidation of $1,642,795, which was recognized in other income (expenses) in the consolidated statements of operations.

 

Included in the loss on consolidation of $1,642,795 are the gains on intercompany receivables and payables and currency translation adjustment $12,721,532 and $1,545,008 respectively, offset by the net loss of $12,623,745 which is the impairment of investments and intercompany receivables no longer expected to be collected.

 

In addition, the allowance of $2,422,457 was recorded against receivables that have been deemed uncollectible.

 

 

 

 10 

 

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles of the United States of America (“U.S. GAAP”) and the rules and regulations of the U.S Securities and Exchange Commission for Interim Financial Information. The condensed consolidated financial statements of the Company include the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of September 30, 2023, and the results of operations for nine months and cash flows for the nine months ended September 30, 2023 and 2022 have been included.

 

The Company evaluates its relationships with other entities to identify whether they are variable interest entities (“VIE”) as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”), and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that entity is consolidated.

 

Unaudited Interim Financial Information

 

The accompanying unaudited condensed consolidated balance sheet as of September 30,2023, the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022 and of cash flows for the nine months ended September 30, 2023 and 2022 have been prepared by the Company, pursuant to the rules and regulations of the SEC for the interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the consolidated results for the interim periods presented and of the consolidated financial condition as of the date of the interim consolidated balance sheet. The results of operations are not necessarily indicative of the results expected for the year ending December 31, 2023.

 

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022 included in the Company’s Annual Form 10-K filed with SEC on June 23, 2023.

 

Use of Estimates

 

The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, assumptions used to calculate derivative liabilities, revenue recognition and impairment of long-lived assets. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

 

Cash

 

The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with high credit quality financial institutions. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. To reduce its risk associated with the failure of such a financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.

 

 

 

 11 

 

 

Accounts Receivable

 

Accounts receivable and contract assets include amounts billed to customers under the terms and provisions of the contracts. Most billings are determined based on contractual terms. As is common practice in the industry, the Company classifies all accounts receivable and contract assets, including retainage, as current assets. The contracting cycle for certain long-term contracts may extend beyond one year, and accordingly, collection of retainage on those contracts may extend beyond one year. Contract assets include amounts billed to customers under retention provisions in construction contracts. Such provisions are standard in the Company’s industry and usually allow for a portion of progress billings on the contract price, typically 5-10%, to be withheld by the customer until after the Company has completed work on the project. Billings for such retention balances at each balance sheet date are finalized and collected after project completion. Generally, unbilled amounts will be billed and collected within one year. The Company determined that there are no material amounts due past one year and no material amounts billed but not expected to be collected within one year. Also, the Company adopted ASU 2016-13 in January 2023 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures for the period ended September 30, 2023.

 

Each month, the Company reviews its receivables on a customer-by-customer basis and evaluates whether an allowance for doubtful accounts is necessary based on any known or perceived collection issues. Any balances that are eventually deemed uncollectible are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of both September 30, 2023 and December 31, 2022, the Company determined that the allowance for doubtful accounts was $0 and $3,320,983, respectively. The allowance pertaining to Optilan UK was derecognized upon the Optilan Liquidation.

 

Accounts receivable includes retainage amounts for the portion of the contract price earned by us for work performed but held for payment by the customer as a form of security until we reach certain construction milestones or complete the project. As of September 30, 2023 and December 31, 2022, retainage receivable was $0 and $824,777, respectively. The retainage pertaining to Optilan UK was derecognized upon the Optilan Liquidation.

 

Foreign Currency Translation

 

The Company’s reporting currency is U.S. Dollars. The accounts of one of the Company’s subsidiaries is maintained using the appropriate local currency, British Pound (“GBP”) as the functional currency, as well as the Turkish lira, Emirates Dirham, Azerbajani Manat and Indian Rupee. The accounts of one of the Company’s subsidiaries are maintained using the appropriate local currency, Canadian Dollar (“CAD”) as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders' equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations as foreign currency exchange variance.

 

The relevant translation rates are as follows: for the nine months ended September 30, 2023 closing rate at 1.2197, average rate at 1.2384 US$: GBP, and closing rate at 1.3586 US$:CAD.

 

The relevant translation rates are as follows: for the nine months ended September 30, 2022 closing rate at 1.113030 US$:GBP, average rate at 1.259161 US$:GBP, and closing rate at 1.3751 US$:CAD.

 

Long-Lived Assets and Goodwill

 

The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10-35, Property, Plant and Equipment, Impairment or Disposal of Long-lived Assets. This accounting standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

 

 

 

 12 

 

 

Indefinite-lived intangible assets established in connection with business combinations consist of the tradename. The impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

 

The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other. Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. This guidance simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. The quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. It is our practice, at a minimum, to perform a qualitative or quantitative goodwill impairment test in the fourth quarter every year. The Company has one reporting unit it evaluates during its impairment test.

 

As a result of the Optilan Liquidation as described in Note 1, management determined that certain events and circumstances occurred that indicated that the carrying amount of the Company’s reporting unit may not be recoverable. The qualitative assessment was primarily due to the customer contracts held by Optilan (UK) Limited and the associated revenue projections by the UK subsidiary that is subject to the potential winding up. As such, the Company compared the fair value of the reporting unit to the carrying amounts and recorded an impairment loss of $6,925,137 pertaining to impairment and goodwill in the consolidated statements of operations. The Company recorded impairment of the indefinite-lived intangible asset of $356,260, and impairment of goodwill of $6,568,877. The Company has one reporting unit which was evaluated in the impairment test noted above. As a result of the impairment, the Company had a carrying value of $0 pertaining to goodwill and intangible assets as of September 30, 2023.

  

Property and Equipment

 

Property and equipment are carried at historical cost less accumulated depreciation. Depreciation is based on the estimated service lives of the depreciable assets and is calculated using the straight-line method. Expenditures that increase the value or productive capacity of assets are capitalized. Fully depreciated assets are retained in the property and equipment, and accumulated depreciation accounts until they are removed from service. When property and equipment are retired, sold or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Repairs and maintenance are expensed as incurred.

 

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

     
    Years
Office furniture and fixtures   4
Plant and equipment   4-8
Leasehold Improvements   10
Motor vehicles   3

  

Revenue Recognition

 

The Company’s revenues are generated primarily from the sale of our services, which consist primarily of advanced technology solutions for integrated communications and security systems, as well as habitat management. The Company’s sales of products are primarily generated from our TJM subsidiaries. Sales of products and services are separate from one another. 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 recognize service revenues as the performance obligations are met, which is generally as milestones are satisfied over time. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met.

 

 

 

 13 

 

 

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

The Company considers each individual sale of service contract to be its own performance obligation. Services in the contract are highly interdependent and interrelated, and the successful completion of each milestone is necessary for the overall success of the contract. Therefore, each milestone is not separately identifiable from other promises in the contract, and not distinct and ultimately not individual performance obligations.

 

The Company records revenue over time using the input measure as it is the most faithful depiction of an entity’s performance because it directly measures the value of the goods and services transferred to the customer. The Company utilizes the Right to Invoice for these contracts, as the pricing structure is based on various milestones that are specified in the contract. These milestones include Construction Phase Plan, Start of the construction phase, installation phase, site surveys, fiber splicing, recoveries, and closeouts. There are specified payments associated with these milestones in the contract, and the value allocated is commensurate with work done. In the event that there are advances such as upfront retainers and not based on the value, those are recorded as contract liabilities.

  

Cost of Revenues

 

Cost of revenues consists primarily of materials and overhead costs incurred internally and amounts incurred to contract manufacturers to produce our products, airtime and other implementation costs incurred to install our products and train customer personnel, and customer service and third-party original equipment manufacturer costs to provide continuing support to our customers. Cost of revenues also includes direct labor attributable to revenue service arrangements.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company has not experienced any losses related to its cash and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

 

Leases

 

The Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.

 

In calculating the right of use asset and lease liability, the Company has elected to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term.

 

 

 

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Fair Value of Financial Instruments

 

The Company measures its financial assets and liabilities in accordance with the requirements of FASB ASC 820, Fair Value Measurements and Disclosures. As defined in FASB ASC 820, the fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 established a fair value hierarchy that prioritizes the inputs used to measure fair value. 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) as follows:

 

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

 

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

 

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

The Company’s derivative liability is a Level 3 liability measured at fair value on a recurring basis. See Note 10.

 

Non-controlling Interests

 

Non-controlling interests are classified as a separate component of equity in the Company's consolidated balance sheets and statements of changes in stockholders’ equity. Net income (loss) and comprehensive income (loss) attributable to non-controlling interests are reflected separately from consolidated net income (loss) and comprehensive income (loss) in the consolidated statements of comprehensive income (loss) and statements of changes in stockholders’ equity. Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests. In addition, when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary will be initially measured at fair value and the difference between the carrying value and fair value of the retained interest will be recorded as a gain or loss. The Company has non-controlling interests via its subsidiaries TerraData, Remote Intelligence and Wildlife Specialists.

 

During the nine months ended September 30, 2023 and 2022, the Company recorded a loss of $821,977 and $255,835, respectively, attributable to non-controlling interests.

 

 

 

 15 

 

 

Comprehensive Loss

 

Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. During the nine months ended September 30, 2023 and 2022, the Company’s only element of other comprehensive loss was foreign currency translation.

 

Loss Per Common Share

 

The Company accounts for earnings per share pursuant to ASC 260, Earnings per Share, which requires disclosure on the financial statements of "basic" and “diluted” earnings (loss) per share. Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year. In periods where the Company has a net loss, all dilutive securities are excluded. Potentially dilutive items outstanding as of September 30, 2023 and 2022 are as follows:

          
   September 30, 
   2023   2022 
Convertible notes   302,912,039    87,775,272 
Series D preferred stock   176,470    176,470 
    303,088,509    87,951,742 

 

Recent Accounting Pronouncements

 

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which amends and clarifies several provisions of Topic 326. In May 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, which amends Topic 326 to allow the fair value option to be elected for certain financial instruments upon adoption. ASU 2019-10 extended the effective date of ASU 2016-13 until December 15, 2022. The Company adopted this new guidance, including the subsequent updates to Topic 326, on January 1, 2023 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

 

On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. The Company adopted this new guidance on January 1, 2023 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable.

 

 

 

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NOTE 3 – LIQUIDITY AND GOING CONCERN

 

The Company generated net losses of $19,915,940 and $18,375,506 during the nine months ended September 30, 2023 and 2022, respectively, and net cash used in operating activities of $4,066,096 and $19,456,701, respectively. As of September 30, 2023, the Company’s current liabilities exceeded its current assets by $18,527,365 and has an accumulated deficit of $65,649,298. As of September 30, 2023, the Company had $64,892 of cash. Lastly, the Optilan Liquidation no longer raises serious concerns about the viability of the Optilan (UK) Limited entity. Optilan (UK) Limited and its subsidiaries are not controlled by DarkPulse, Inc.

 

The Company will require additional funding during the next twelve months to finance the growth of its current operations and achieve its strategic objectives. These factors, as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as to the Company’s ability to continue as a going concern. The Company is seeking to raise additional capital principally through private placement offerings and is targeting strategic partners in an effort to finalize the development of its products and begin generating revenues. The ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements or expansion of its operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations for twelve months from the issuance date of these consolidated financial statements. However, management cannot make any assurances that such financing will be secured.

 

NOTE 4 – REVENUE

  

The following table is a summary of the Company’s timing of revenue recognition for the three and nine months ended September 30, 2023 and 2022:

                    
   Three Months Ended   Nine Months Ended  
   September 30,   September 30,  
   2023   2022   2023   2022 
Services and products transferred at a point in time  $32,168   $463,295   $796,716   $2,552,462 
Services and products transferred over time   49,903    967,809    1,235,957    5,332,018 
Total revenue  $82,071   $1,431,104   $2,032,673   $7,884,480 

 

The Company disaggregates revenue by source and geographic destination to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

 

Revenue by source consisted of the following for the three and nine months ended September 30, 2023 and 2022:

                    
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
Products  $71,886   $136,534   $329,400   $1,246,610 
Services   10,185    1,294,570    1,703,273    6,637,870 
Total revenue  $82,071   $1,431,104   $2,032,673   $7,884,480 

 

 

 

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Revenue by geographic destination consisted of the following for the three and nine months ended September 30, 2023 and 2022:

                    
   Three Months Ended   Nine Months Ended  
   September 30,   September 30,  
   2023   2022   2023   2022 
North America  $74,586   $590,028   $449,238   $1,124,462 
United Kingdom   7,485        1,397,152     
Rest of world       841,076    186,283    6,760,018 
Total revenue  $82,071   $1,431,104   $2,032,673   $7,884,480 

 

Contracts

 

Contract revenue is recognized over time using the cost-to-cost measure of progress for fixed price contracts. The cost-to-cost measure of progress best depicts the continuous transfer of control of goods or services to the customer. The contractual terms provide that the customer compensates the Company for services rendered.

 

Contract costs include all direct materials, labor and subcontracted costs, as well as indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and the costs of capital equipment. The cost estimation and review process for recognizing revenue over time under the cost-to-cost method is based on the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and profit recognition. Changes in these factors could result in revisions to revenue and costs of revenue in the period in which the revisions are determined on a prospective basis, which could materially affect the Company’s consolidated results of operations for that period. Provisions for losses on uncompleted contracts are recorded in the period in which such losses are determined.

 

Performance Obligations

 

A performance obligation is a contractual promise to transfer a distinct good or service to the customer and is the unit of account under Accounting Standards Codification (“ASC”) Topic 606. The transaction price of a contract is allocated to distinct performance obligations and recognized as revenue when or as the performance obligations are satisfied. The Company’s contracts often require significant integrated services and, even when delivering multiple distinct services, are generally accounted for as a single performance obligation. Contract amendments and change orders are generally not distinct from the existing contract due to the significant integrated service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. The majority of the Company’s performance obligations are completed within one year.

 

When more than one contract is entered into with a customer on or close to the same date, the Company evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as more than one performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances of the various contracts, which could change the amount of revenue and profit recognition in a given period depending upon the outcome of the evaluation.

 

Contract Assets and Liabilities

 

The Company bill its customers based on contractual terms, including, milestone billings based on the completion of certain phases of the work. Sometimes, billing occurs after revenue recognition, resulting in unbilled revenue, which is accounted for as a contract asset. Sometimes the Company receives advances payments from our customers before revenue is recognized, resulting in deferred revenue, which is accounted for as a contract liability.

 

Contract assets in the consolidated balance sheets represents costs and estimated earnings in excess of billings, which arise when revenue has been recorded but the amount has not been billed. As of September 30, 2023, contract assets were $0 upon derecognized pursuant to the Optilan Liquidation.

 

Contract liabilities on September 30, 2023 are $0 upon the deconsolidation related to the Optilan liquidation.

 

 

 

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Variable Consideration

 

Transaction pricing for the Company’s contracts may include variable consideration, such as unapproved change orders, claims, incentives and liquidated damages. Management estimates variable consideration for a performance obligation utilizing estimation methods that best predict the amount of consideration to which the Company will be entitled. Variable consideration is included in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Management’s estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based on past practices with the customer, specific discussions, correspondence or preliminary negotiations with the customer, legal evaluations and all other relevant information that is reasonably available. The effect of a change in variable consideration on the transaction price of a performance obligation is typically recognized as an adjustment to revenue on a cumulative catch-up basis. To the extent unapproved change orders, claims and liquidated damages reflected in transaction price are not resolved in the Company’s favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue.

 

NOTE 5 – ACCOUNTS RECEIVABLE

 

Accounts receivable consisted of the following as of September 30, 2023 and December 31, 2022:

         
   September 30,   December 31, 
   2023   2022 
Accounts receivable  $96,287   $6,273,276 
Less: Allowance for doubtful accounts       (3,320,983)
Accounts receivable, net  $96,287   $2,952,293 

 

NOTE 6 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following as of September 30, 2023 and December 31, 2022:

         
   September 30,   December 31, 
   2023   2022 
Property and equipment  $1,300,521   $3,942,421 
Leasehold improvements   46,934    46,934 
Property and equipment at cost   1,347,455    3,989,355 
Less - accumulated depreciation   (472,282)   (2,055,484)
Property and equipment, net  $875,173   $1,933,871 

 

NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill

 

The following is a summary of activity of goodwill for the nine months ended September 30, 2023:

     
   Goodwill 
Balances at December 31, 2022  $6,462,153 
Impairment of goodwill pertaining to Optilan   (6,568,877)
Foreign exchange translation   106,724 
Balances at September 30, 2023  $ 

 

 

 

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Intangible Assets, Net

 

On January 1, 2023, the Company revised the estimated useful life of the trade name intangible asset from 25 years to 10 years. Amortization expense for the nine months ended September 30, 2023 and 2022 was $34,225 and $38,271, respectively.

 

During the three months ended March 31, 2023, the Company recorded impairment of the trade name of $356,260. At September 30, 2023 and December 31, 2022, the carrying value of the intangible assets was $0 and $390,330, respectively.

 

Patents - Intrusion Detection Intellectual Property

 

The following is a summary of the DPTI patents:

         
   September 30,   December 31, 
   2023   2022 
Patents  $904,269   $904,269 
Less: accumulated amortization   (674,665)   (636,394)
Patents, net  $229,604   $267,875 

 

For the nine months ended September 30, 2023 and 2022, the Company amortized $38,271 and $38,271, respectively.

 

NOTE 8 – JOINT VENTURE

 

On September 9, 2022, the Company entered into a Joint Venture Agreement with Neural Signals Inc, (“NSI”), for the purpose of developing, marketing and selling products and services based on the patents issued to NSI. The parties established the Joint Venture, Neural Logistics Inc., under a separate entity to conduct business. The Company has 50% ownership in NSI. The Company determined that the investment was accounted for as an equity investment under ASC 323-10-30-2.

 

During the nine months ended September 30, 2023, the Company contributed $113,124 to the joint venture and recorded a loss on the equity investment of $159,849.

 

NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following as of September 30, 2023 and December 31, 2022:

         
   September 30,   December 31, 
   2023   2022 
Accounts payable  $14,108,937   $8,677,648 
Accrued liabilities   1,519,043    2,058,725 
Total accounts payable and accrued expenses  $15,627,980   $10,736,373 

 

 

 

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NOTE 10 – DEBT

 

Convertible Notes

 

As of September 30, 2023 and December 31, 2022, there was $334,491 and $378,263 of convertible debt outstanding.

 

As of September 30, 2023 and December 31, 2022 there was a derivative liability of $597,318 and $306,467. The Company uses the Black-Scholes Model to calculate the derivative value of its convertible debt. The valuation result generated by this pricing model is necessarily driven by the value of the underlying common stock incorporated into the model. The values of the common stock used were based on the price at the date of issue of the debt security as of September 30, 2023. Management determined the expected volatility of 130.58% to 170.54%, a risk-free rate of interest of 5.46% to 5.53%, and contractual lives of the debt of three months (with exception for the August 2023 notes, which has contractual lives of the debt of one year).

 

On August 7, 2023, the Company entered into a convertible note for a principal of $57,750. The note bears interest at a rate of 10% per annum and matures after one year. Following 180 days from the note, the noteholder may convert at a discount of 39%. The Company has reserved a sufficient number of shares of common stock for issuance upon full conversion of the note in accordance with the terms.

 

On September 29, 2023, the Company entered into a convertible note for a principal of $57,750, which was funded on October 4, 2023. The note bears interest at a rate of 10% per annum and matures after one year. Following 180 days from the note, the noteholder may convert at a discount of 39%. The Company has reserved a sufficient number of shares of common stock for issuance upon full conversion of the note in accordance with the terms (see Note 16).

 

As of September 30, 2023, all outstanding convertible debt is in default with exception for the August and September 2023 notes.

 

The following is a summary of convertible notes:

 

Schedule of convertible notes  September 30, 2023   December 31, 2022 
Principal outstanding  $382,616   $378,263 
Less: unamortized debt discount   (48,125)    
Convertible notes, net  $334,491   $378,263 

 

During the nine months ended September 30, 2023 and 2022, $9,625 and $0 of the debt discount was amortized.

  

Notes Payable

 

On July 14, 2021, the Company entered a Securities Purchase Agreement (the “GS SPA”) with GS Capital Partners, LLC pursuant to which the Company issued to the Lender a 6% Redeemable Note in the principal amount of $2,000,000 (the “GS Note”). The purchase price of the GS Note is $1,980,000. The GS Note matures on July 14, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the GS Note at 6% per annum until the GS Note becomes due and payable. The GS Note is subject to various “Events of Default,” which are disclosed in the GS Note. Upon the occurrence of an “Event of Default,” the interest rate on the GS Note will be 18%. The GS Note is not convertible into shares of the Company’s Common Stock and is not dilutive to existing or future shareholders and the Company used a portion of the proceeds of the GS Note to retire convertible debt. As of September 30, 2023 and December 31, 2022, $2,000,000 remains outstanding. As of September 30, 2023, the GS Note is in default.

 

Loans Payable

 

The Company’s RI and WS subsidiaries have various loans including Small Business Association (“SBA”) Economic Injury Disaster Loan (“EIDL”) loans, lines of credit and other advances. The loans bear interest with varying rates up to 9.25% per annum. The following is a summary of the loans payable at September 30, 2023 and December 31, 2022:

        
   September 30,   December 31, 
   2023   2022 
RI - line of credit  $99,971   $99,971 
RI - Short-term loans   41,279    43,899 
WS - line of credit   200,000    200,000 
WS- Short-term loans   126,817    128,830 
Loan payable, current  $468,067   $472,700 
           
RI - SBA EIDL  $102,597   $102,597 
RI - long-term loans   84,661    86,041 
WS - SBA EIDL   26,307    26,307 
WS - long-term loans   92,446    113,564 
Loan payable, non-current  $306,011   $328,508 

 

 

 

 21 

 

 

NOTE 11 – SECURED DEBENTURE

 

DPTI issued a convertible Debenture to the University (see Note 1) in exchange for the Patents assigned to the Company, in the amount of Canadian $1,500,000, or US$1,491,923 on December 16, 2010, the date of the Debenture. On April 24, 2017 DPTI issued a replacement secured term Debenture in the same CAD 1,500,000 amount as the original Debenture. The interest rate is the Bank of Canada Prime overnight rate plus 1% per annum. The Debenture had an initial required payment of CAD 42,000 (US$33,385) due on April 24, 2018 for reimbursement to the University of its research and development costs, and this has been paid. Interest-only maintenance payments are due annually starting after April 24, 2018. Payment of the principal begins on the earlier of (a) three years following two consecutive quarters of positive earnings before interest, taxes, depreciation and amortization, (b) six years from April 24, 2017, or (c) in the event DPTI fails to raise defined capital amounts or secure defined contract amounts by April 24 in the years 2018, 2019, and 2020. The Company has raised funds in excess of the amount required for 2020, 2019 and 2018. Beginning in 2023, The principal repayment amounts will be due quarterly over a six year period in the amount of Canadian Dollars 62,500. Based on the exchange rate between the Canadian Dollar and the U.S. Dollar on December 31, 2018, the quarterly principal repayment amounts will be US$48,447. The Debenture is secured by the Patents assigned by the University to DPTI by an Assignment Agreement on December 16, 2010. DPTI has pledged the Patents, and granted a lien on them pursuant to an Escrow Agreement dated April 24, 2017, between DPTI and the University.

 

The Debenture was initially recorded at the $1,491,923 equivalent U.S. Dollar amount of Canadian 1,500,000 as of December 16, 2010, the date of the original Debenture. The liability is being adjusted quarterly based on the current exchange value of the Canadian dollar to the U.S. dollar at the end of each quarter. The adjustment is recorded as unrealized gain or loss in the change of the value of the two currencies during the quarter. The Debenture also includes a provision requiring DPTI to pay the University a 2% royalty on sales of any and all products or services which incorporate the Patents for a period of five years from April 24, 2018. To date, no royalties have been paid. The payments are current at the present time.

 

For the nine months ended September 30, 2023, and 2022, the Company recorded interest expense of $19,401 and $36,307, respectively.

 

As of September 30, 2023 and December 31, 2022, the debenture liability totaled $1,099,250 and $1,090,827, respectively.

 

NOTE 12 – LEASES

 

The following was included in our balance sheet as of September 30, 2023 and December 31, 2022:

        
   September 30,   December 31, 
Operating leases  2023   2022 
         
Assets          
ROU operating lease assets  $1,020,585   $2,724,226 
           
Liabilities          
Current portion of operating lease   213,821    512,373 
Operating lease, net of current portion   907,124    2,547,524 
Total operating lease liabilities  $1,120,945   $3,059,897 

 

The weighted average remaining lease term and weighted average discount rate at September 30, 2023 and December 31, 2022 were as follows:

        
   September 30,   December 31, 
Operating leases  2023   2022 
Weighted average remaining lease term (years)   7.75    8.25 
Weighted average discount rate   6.00%    6.00% 

 

 

 

 22 

 

 

Operating Leases

 

On January 12, 2021, the Company’s newly acquired subsidiary entered into an operating lease agreement to rent office space in Mumbai, India. This three-year agreement commenced January 12, 2021 with an annual rent of approximately $50,000.

 

On May 27, 2021, the Company’s newly acquired subsidiary entered into an operating lease agreement to rent office space in Warwick, United Kingdom. This ten-year agreement commenced May 27, 2021 with an annual rent of approximately $85,000 with the first six months rent free.

 

On August 31, 2021, the Company’s newly acquired subsidiary entered into an operating lease agreement to rent office space in Tempe, Arizona. This five-year agreement commenced August 31, 2021 with an annual rent of approximately $192,000.

 

On October 20, 2021, the Company’s newly acquired subsidiary entered into an operating lease agreement to rent office space in Warwick, United Kingdom. This ten-year agreement commenced October 20, 2021 with an annual rent of approximately $200,000 with the first six months rent free.

 

On March 9, 2022, the Company entered into an operating lease agreement to rent office space in Houston, Texas. This ten-year agreement commenced March 9. 2022 with an annual rent of approximately $81,000 with the first twelve months rent free.

 

On June 28, 2023, the Company recognized a gain on deconsolidation of $1,775,869 related to Optilan (UK) and its subsidiaries leases.

 

NOTE 13 - STOCKHOLDERS' EQUITY (DEFICIT)

 

Preferred Stock

 

In accordance with the Company’s Certificate of Incorporation, the Company has authorized a total of 2,000,000 shares of preferred stock, par value $0.01 per share, for all classes. As of September 30, 2023 and December 31, 2022, there were 88,335 and 88,335 total preferred shares issued and outstanding for all classes, respectively.

 

Common Stock

  

In accordance with the Company’s Certificate of Incorporation, the Company has authorized a total of 20,000,000,000 shares of common stock, par value $0.0001 per share. As of September 30, 2023 and December 31, 2022, there were 7,639,945,289 and 6,427,395,360 common shares issued, respectively. As of September 30, 2023 and December 31, 2022, there were 7,639,845,289 and 6,427,295,360 common shares outstanding, respectively.

 

2023 Transactions

 

On May 27, 2022, we entered an Equity Financing Agreement (the “2022 EFA”) and Registration Rights Agreement (the “RRA”) with GHS, pursuant to which GHS agreed to purchase up to $70,000,000 in shares of our Common Stock, from time to time over the course of 24 months after effectiveness of a registration statement on Form S-1 (the “Registration Statement”) of the underlying shares of Common Stock.

 

On April 28, 2023 the Company entered into an Equity Financing Agreement with GHS, to which GHS agreed to Purchase $30,000,000 in shares of our Common Stock over the course of 12 months at 92% of the current market price.

 

On June 13, 2023 the Company entered into an Amendment to the 2023 Equity Financing Agreement with GHS, to which GHS agreed to Purchase $30,000,000 in shares of our Common Stock over the course of 12 months at 92% of the current market price.

 

On July 10,2023 the Company entered into a Second Amendment to the 2023 Equity Financing Agreement with GHS, to which GHS agreed to purchase up to $30,000,000 in shares of our Common Stock over the course of 12 months at 92% of the current market price.

 

On September 5, 2023, we entered into a Stock Purchase Agreement with an investor for the purchase of 100,000,000 shares of Common Stock for a total consideration of $100,000.

 

The RRA provides that we shall (i) use our best efforts to file with the SEC a Registration Statement within 45 days of the date of the GHS Registration Rights Agreement; and (ii) have the Registration Statement declared effective by the SEC within 30 days after the date the GHS Registration Statement is filed with the SEC, but in no event more than 90 days after the GHS Registration Statement is filed.

 

 

 

 23 

 

 

The below table of puts from 1/12/2023 through 4/11/2023 were made by the Company under the 2022 EFA during 2023. The put from 4/28/2023 was made under the EFA dated 4/28/2023. The puts from 6/26/2023 and 7/3/2023 were made by the Company under the Amended EFA dated June 13, 2023. The 7/10/2023 put was made by the Company under the Second Amended EFA dated July 10, 2023.

               
Date of Put  Number of Common Shares Issued  Total Proceeds, Net of Discounts  Effective Price per Share  Net Proceeds 
1/12/2023  64,130,435  $400,000  $0.006237  $370,975 
1/17/2023  11,441,647   100,000  $0.008740   100,000 
1/24/2023  77,733,861   400,000  $0.005146   370,975 
2/3/2023  61,173,706   300,000  $0.004904   277,975 
2/17/2023  75,447,571   300,000  $0.003976   277,975 
3/1/2023  83,113,044   324,000  $0.003898   300,295 
3/16/2023  93,165,852   254,232  $0.002729   235,410 
3/30/2023  65,465,384   166,903  $0.002549   154,195 
4/11/2023  67,462,162   203,553  $0.003017   188,280 
4/28/2023  91,796,875   235,000  $0.002560   208,550 
6/26/2023  44,583,334   214,000  $0.004800   141,020 
7/3/2023  51,442,308   274,058  $0.004200   257,020 
7/10/2023  28,593,750   91,500  $0.003200   85,094 
9/5/2023  100,000,000   100,000  $0.001000   100,000 
   915,549,929  $3,363,246     $3,067,764 

 

In January 2023, the Company entered into a settlement of a dispute between certain stockholders in which the Company decided, during the period ended June 30, 2023, to issue shares to settle the dispute. In January 2023, the Company issued 297,000,000 shares of common stock to the individuals. The fair value of $1,989,900, or $0.0067 per share, was included in professional fees in the consolidated statements of operations in the nine months ended September 30, 2023. As part of this transaction $280,536 of accrued liabilities have been reversed.

 

NOTE 14 - COMMITMENTS & CONTINGENCIES

  

Potential Royalty Payments

 

The Company, in consideration of the terms of the debenture to the University of New Brunswick, shall pay to the University a two percent royalty on sales of any and all products or services, which incorporate the Company's patents for a period of five years from April 24, 2018.

 

Legal Matters

  

DarkPulse, Inc. v. Twitter, Inc.

 

As disclosed in greater detail in the Company’s Form 10-Q, filed September 22, 2023, the Company is actively investigating potential claims against the @MIKEWOOD and @BullMeechum3 Twitter accounts. There are no material updates to this matter.

 

 

 

 24 

 

 

Carebourn Capital, L.P. v. DarkPulse, Inc.

 

As disclosed in greater detail in the Company’s Form 10-Q, filed September 22, 2023, the Company remains in active litigation with Carebourn Capital, L.P. (“Carebourn”) in Minnesota state court. The following discloses the material updates for this matter.

 

On August 22, 2023, the Minnesota state held oral arguments on the Company’s motion for summary judgment on its counterclaims, which seek an award of damages in the amount of $124,012.91 (excluding pre- and post-judgment interest), attorneys’ fees in the amount of $267,951.33, and costs in the amount of $50,785.50.

 

The Company is currently awaiting a decision on its motion for summary judgment.

 

More Capital, LLC v. DarkPulse, Inc. et al

 

As disclosed in greater detail in the Company’s Form 10-Q, filed September 22, 2023, the Company remains in active litigation with More Capital, LLC (“More”) in Minnesota state court. The following discloses the material updates for this matter.

 

On August 22, 2023, the Minnesota state held oral arguments on the Company’s motion for summary judgment on its motion for summary judgment on its affirmative defenses and counterclaims, the latter of which seek an award of damages in the amount of $300,809.39 (excluding pre- and post-judgment interest), attorneys’ fees in the amount of $111,019.00, and costs in the amount of $195.75.

 

The Company is currently awaiting a decision on its motion for summary judgment.

 

Carebourn Capital et al v. Standard Registrar and Transfer et al

 

As disclosed in greater detail in the Company’s Form 10-Q, filed September 22, 2023, the Company remains in active litigation with Carebourn Capital, L.P. (“Carebourn”) and More Capital, LLC (“More,” and together with Carebourn, the “Noteholders”) in the United States District Court for the District of Utah. The following discloses the material updates for this matter.

 

On September 27, 2023, the U.S. Securities and Exchange Commission (“SEC”) prevailed on its motion for summary judgment against Carebourn that sought declaratory judgment that Carebourn is an unregistered dealer acting in violation of Section 15(a) of the Securities Exchange Act of 1934.

 

 

 

 25 

 

 

On November 1, 2023, the Noteholders filed a motion to dismiss this litigation with prejudice (the “Dismissal Motion”).

 

On November 2, 2023, the Company filed a cross-motion to the Dismissal Motion, wherein the Company did not oppose the Noteholders’ request for dismissal with prejudice and cross-moved for sanctions against the Noteholders and their attorneys of record. The Noteholders’ opposition thereto is due on or before November 16, 2023.

 

The Company maintains that the Noteholder’s lawsuit is duplicative of the first-filed lawsuits commenced by the Noteholder’s in Minnesota state court. The Company intends to vigorously defend itself against the Noteholder’s Utah lawsuit.

 

Goodman et al. v. DarkPulse, Inc.

 

As disclosed in greater detail in the Company’s Form 10-Q, filed September 22, 2023, the Company settled a dispute with Stephen Goodman, Mark Banash, and David Singer. Accordingly, there are no material updates for this matter.

 

DarkPulse, Inc. v. FirstFire Global Opportunities Fund, LLC, and Eli Fireman

 

As disclosed in greater detail in the Company’s Form 10-Q, filed September 22, 2023, the Company remains in active litigation with FirstFire Global Opportunities Fund, LLC (“FirstFire”), and Eli Fireman (“Fireman”) (FirstFire and Fireman together, the “FirstFire Parties”). The following discloses the material updates for this matter.

 

On September 12, 2023, the United States Court of Appeals for the Second Circuit (“Second Circuit”) calendared oral arguments for the appeal—which challenges United States District Court for the Southern District of New York’s granting the FirstFire Parties’ motion to dismiss—for the week of December 11, 2023.

 

On October 12, 2023, the Second Circuit scheduled oral arguments for the appeal on December 13, 2023.

 

The Company remains committed to actively litigating its claims for relief under the Securities Exchange Act of 1934 and Racketeer Influenced and Corrupt Organizations Act.

 

DarkPulse, Inc. v. EMA Financial, LLC et al

 

As disclosed in greater detail in the Company’s Form 10-Q, filed September 22, 2023, the Company settled a dispute with EMA Financial, LLC (“EMA”), EMA Group, Inc. (“EMA Group”), and Felicia Preston (“Preston”) (EMA, EMA Group, and Preston together, the “EMA Parties”). Accordingly, there are no material updates for this matter.

 

DarkPulse, Inc. v. Brunson Chandler & Jones, PLLC et al

 

As disclosed in greater detail in the Company’s Form 10-Q, filed September 22, 2023, the Company remains in active litigation with Brunson Chandler & Jones, PLLC (“Brunson Firm”), and Lance B. Brunson (“Brunson,” and together with the Brunson Firm, the “Brunson Parties”).

 

The Company remains committed to litigating its claims and affirmative defenses against the Brunson Parties.

 

 

 

 26 

 

 

DarkPulse, Inc., et al v. Crown Bridge Partners, LLC, et al

 

As disclosed in greater detail in the Company’s Form 10-Q, filed September 22, 2023, the Company—alongside two other plaintiffs, Social Life Network, Inc. and Redhawk Holdings Corp. —remains in active litigation with Crown Bridge Partners, LLC, Soheil Ahdoot, and Sepas Ahdoot (“Crown Bridge Defendants”). The following discloses the material updates for this matter.

 

On September 29, 2023, the United States District Court for the Southern District of New York granted the Crown Bridge Defendants’ motion to dismiss.

 

On October 24, 2023, the Company, alongside Social Life Network, Inc. and RedHawk Holdings Corp., appealed the district court’s decision to the United States Court of Appeals for the Second Circuit. Briefing has not yet been scheduled for this appeal.

 

The Company remains committed to actively litigating its Racketeer Influenced and Corrupt Organizations Act claims against the Crown Bridge Defendants.

 

Benner et al v. DarkPulse, Inc. et al

 

As disclosed in greater detail in the Company’s Form 10-Q, filed September 22, 2023, the Company and its CEO, Dennis O’Leary (together with the Company, the “DPLS Defendants”), remain in active litigation with J. Merlin Benner, Phillip J. Benner, Benjamin P. Benner, Jonas M. Benner, and Angelica M. Benner (collectively, the “Benner Parties”) in the United States District Court for the Southern District of Texas. The following discloses the material updates for this matter.

 

On June 30, 2023, the DPLS Defendants filed their answer to the Benner Parties’ complaint, wherein they interposed numerous affirmative defenses. The parties have since began conducting discovery in this matter.

 

The Company remains committed to actively litigating its affirmative defenses to the Benner Parties’ claims.

 

GS Capital Partners, LLC v. DarkPulse, Inc.

 

As disclosed in greater detail in the Company’s Form 10-Q, filed September 22, 2023, the Company was sued by GS Capital Partners, LLC (“GS Capital”) in the Supreme Court for New York County. The following discloses the material updates for this matter.

 

 

 

 27 

 

 

 

On or about September 27, 2023, the Company and GS Capital confidentially settled the dispute. On or about October 3, 2023, the parties filed a stipulation with the court to vacate the judgment entered against the Company and in favor of GS Capital, vacate the motion filed by the Company, and discontinue the action.

 

On or about October 9, 2023, the court vacated the judgment. The parties are currently waiting for the court to dismiss the action.

 

From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business, financial condition and operating results.

 

NOTE 15 – RELATED PARTY TRANSACTIONS

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include a) affiliates of the Company; b) Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

During the nine months ended September 30, 2023 and 2022, certain executives of the Company received $120,000 and $0, respectively, in Directors fees from Optilan for being members of Optilan’s Board of Directors.

 

Remote Intelligence and Wildlife Specialists Loan Payables

 

RI has a loan payable with the former majority shareholder, who is a shareholder in the Company after the acquisition of 60% of RI’s membership interests. The loan is unsecured, non-interest bearing and due on demand. As of both September 30, 2023 and December 31, 2022, the outstanding balance was $226,247.

 

WS has a loan payable with the former majority shareholder, who is a shareholder in the Company after the acquisition of 60% of WS’s membership interests. The loan is unsecured, non-interest bearing and due on demand. As of both September 30, 2023 and December 31, 2022, the outstanding balance was $135,500.

 

 

 

 28 

 

 

SPAC Transaction

 

On October 12, 2022, the Company entered into and closed the Purchase Agreement (the “Agreement”) pursuant to which the Company purchased 2,623,120 shares of Class B Common Stock (the “Class B Common Stock”) and 4,298,496 Private Placement Warrants, each of which is exercisable to purchase one share of Class A Common Stock (the “Warrants,” together, with the Class B Common Stock, the “Securities”) of Gladstone Acquisition Corp., a Delaware corporation (NASDAQ: GLEE) (the “SPAC”), from Gladstone Sponsor, LLC (“Original Sponsor”) for $1,500,000 (the “Purchase Price”). The SPAC subsequently changed its name to Global Systems Dynamics, Inc. (“GSD”).

 

As of September 30, 2023 and December 31, 2022, the Company’s $1,500,000 investment in GSD was accounted for as cost.

 

In addition to the payment of the Purchase Price, the Company also assumed the following obligations: (i) responsibility for all of SPAC’s public company reporting obligations, (ii) the right to provide an extension payment and extend the deadline of the SPAC to complete an initial business combination from 15 months from August 9, 2021 to 18 months for an additional $1,150,000, and (iii) all other obligations and liabilities of the Original Sponsor related to the SPAC.  The principal balance of this note shall be payable by GSD on the earlier to occur of: (i) the date on which GSD consummates its initial business combination (the “Business Combination”) and (ii) the date that the winding up of GSD is effective. The note does not bear interest. On February 7, 2023 and March 9, 2023, GSD issued a non-convertible promissory note in the aggregate principal amount of $167,894 ($83,947 per month) to the Company in connection with the extension of the termination date for the GSD’s initial business combination. As of September 30, 2023 and December 31, 2022, the outstanding note receivable was $1,612,565 and $1,049,248, respectively.

 

As of September 30, 2023 and December 31, 2022, the Company has $948,362 and $318,025, respectively, owed from GSD and included as due from related party on the consolidated balance sheet. These advances were made to pay for certain expenses on behalf of the SPAC, as well as $120,000 in accrued management fees. The advances are unsecured, non-interest bearing and due on demand.

 

NOTE 16 – SUBSEQUENT EVENTS

 

Subsequent to period end, the Company issued 88,888,888 shares to a third party in exchange for cash in accordance with its equity agreement.

 

On September 29, 2023, the Company entered into a convertible note for a principal of $57,750, which was funded on October 4, 2023. The note bears interest at a rate of 10% per annum and matures after one year. Following 180 days from the note, the noteholder may convert at a discount of 39%. The Company has reserved a sufficient number of shares of common stock for issuance upon full conversion of the note in accordance with the terms.

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 29 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements

 

Critical Accounting Policies

 

The following discussions are based upon our consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States.

 

Use of Estimates

 

The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these financial statements include, but are not limited to, assumptions used to calculate derivative liabilities, revenue recognition and impairment of long-lived assets. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

 

Long-Lived Assets and Goodwill

 

The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10-35, Property, Plant and Equipment, Impairment or Disposal of Long-lived Assets. This accounting standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

 

Indefinite-lived intangible assets established in connection with business combinations consist of the tradename. The impairment test for identifiable indefinite-lived intangible assets consists of a comparison of the estimated fair value of the intangible asset with its carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

 

 

 

 30 

 

 

The Company accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other. Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. This guidance simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. The quantitative impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value, but not to exceed the carrying amount of goodwill. It is our practice, at a minimum, to perform a qualitative or quantitative goodwill impairment test in the fourth quarter every year. The Company has one reporting unit it evaluates during its impairment test.

 

In determining the fair value of the reporting unit, management estimated the price that would be received to sell the reporting unit as a whole in an orderly transaction between market participants at the measurement date. This includes reviewing market comparables such as revenue multipliers and assigning certain assets and liabilities to the reporting units, such as the respective working capital deficits of each entity and debt obligations that would need to be assumed by a market participant buyer in an orderly transaction. The Company calculated the carrying amounts of the reporting unit by utilizing the entities’ assets and liabilities at December 31, 2022, including the carrying value of the identifiable intangible assets and goodwill assigned to the respective reporting unit.

 

The Company recorded impairment expense of intangibles and goodwill of $12,222,598 upon its annual impairment test during the year ended December 31, 2022. Refer to Note 1 for impairment records in 2023 upon the Optilan UK Liquidation.

 

Revenue Recognition

 

The Company’s revenues are generated primarily from the sale of our services, which consist primarily of advanced technology solutions for integrated communications and security systems, as well as habitat management. The Company’s sales of products are primarily generated from our TJM subsidiaries. Sales of products and services are separate from one another. 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 recognize service revenues as the performance obligations are met, which is generally as milestones are satisfied over time. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met.

 

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

The Company considers each individual sale of service contract to be its own performance obligation. Services in the contract are highly interdependent and interrelated, and the successful completion of each milestone is necessary for the overall success of the contract. Therefore, each milestone is not separately identifiable from other promises in the contract, and not distinct and ultimately not individual performance obligations.

 

 

 

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The Company records revenue over time using the output measure as it is the most faithful depiction of an entity’s performance because it directly measures the value of the goods and services transferred to the customer. The Company utilizes the Right to Invoice for these contracts, as the pricing structure is based on various milestones that are specified in the contract. These milestones include Construction Phase Plan, Start of the construction phase, installation phase, site surveys, fiber splicing, recoveries, and closeouts. There are specified payments associated with these milestones in the contract, and the value allocated is commensurate with work done. In the event that there are advances such as upfront retainers and not based on the value, those are recorded as contract liabilities.

 

In accordance with ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient, which is to (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was no impact as a result of adopting this ASU on the financial statements and related disclosures. Based on the terms and conditions of the product arrangements, the Company believes that its products and services can be accounted for separately as its products and services have value to the Company’s customers on a stand-alone basis. When a transaction involves more than one product or service, revenue is allocated to each deliverable based on its relative fair value; otherwise, revenue is recognized as products are delivered or as services are provided over the term of the customer contract.

 

Business Overview

 

DarkPulse, Inc., a Delaware corporation (the “Company” or “DarkPulse”), is a technology focused on the manufacture, sale, installation, and monitoring of laser sensing systems based on its patented BOTDA dark-pulse sensor technology. The Company develops, markets, and distributes a full suite of engineering, monitoring, installation and security management solutions for critical infrastructure/key resources to both industries and governments. Coupled with our patented BOTDA technology, DarkPulse provides its customers a comprehensive data stream of critical metrics for assessing the health and security of their infrastructure. Our systems provide rapid, precise analysis and responsive activities predetermined by the end-user customer. The Company’s activities since inception have consisted of developing various solutions, obtaining patents and trademarks related to its technology, raising capital, acquisition of companies deemed to expand global operations and/or capabilities, creating key partnerships to expand our suite of products and services. Our activities have evolved to a sales-focused mission since the successful completion of our BOTDA system.

 

Headquartered in Houston, DarkPulse is a globally-based technology company with presence through its subsidiaries in the United Kingdom, India, Dubai, Abu Dhabi, Turkey, Azerbaijan, United States and Canada. In addition to the Company’s BOTDA systems, through a series of strategic acquisitions the Company offers the manufacture, sale, installation, and monitoring of laser sensing systems, oil and gas pipeline leak detection, physical security services, telecommunications and satellite communications services, artificial intelligence-based camera systems, railway monitoring services, drone and rover systems, and Big Data as a Service (“BDaaS”). The Company is focused on expanding services through acquisitions and partnerships to address global infrastructure and critical environmental resource challenges.

 

DarkPulse offers a full suite of engineering and environmental solutions that provide safety and security infrastructure projects. The sensing and monitoring capabilities offered by DarkPulse operate in the air, land, sea. Our patented technology provides rapid, precise analysis to protect and safeguard oil and gas pipelines above or below ground, physical security countermeasures, mining operations, and other critical infrastructure/key resources subject to vulnerability or risk. Our patented dark-pulse based BOTDA distributed fiber sensing system is best in class. The Company is able to monitor areas in around critical infrastructure buried or above ground including pipelines 100km or more in length and/ or localized pipes as small as eight CM DIA, detecting internal anomalies before catastrophic failure. We are developing an intelligent rock bolt to prevent causalities and fatalities in mining operations and include a real time sensor system that can detect the location and movement of personnel and equipment throughout a mining operation. We monitor airflow, air quality, temperature, seismic events, etc. Our sensors cover extended areas, protecting an area from intrusion by detecting events at any location along the sensing cable. Working safely every day is our first core value and employees at DarkPulse and our subsidiary companies are recognized experts in their fields, providing comprehensive services for all our clients' needs.

 

 

 

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Our Subsidiaries

 

Our subsidiaries consist of DarkPulse UK Ltd,, a company headquartered in, United Kingdom whose focus is in engineering, telecommunications, energy, rail, critical network infrastructure, pipeline integrity systems, renewables and security; Remote Intelligence, Limited Liability Company, a company headquartered in Pennsylvania who provides unmanned aerial drone and unmanned ground crawler (UGC) services to a variety of clients from industrial mapping and ecosystem services, to search and rescue, to pipeline security; Wildlife Specialists, Limited Liability Company, a company headquartered in Pennsylvania who provides clients with comprehensive wildlife and environmental assessment, planning, and monitoring services; TerraData Unmanned, PLLC, a company headquartered in Florida who custom manufactures NDAA compliant drones and unmanned ground crawlers to meet the needs of its customers; and DarkPulse Electronics Manufacturing Inc., a company headquartered in Arizona who is a U.S. manufacturer of advanced electronics, cables and sub-assemblies specializing in advanced package and complex CCA and hardware.

 

Change in Ownership in Previously Consolidated Subsidiary Results in Deconsolidation in the Current Period

 

On June 28, 2023, the county court at Portsmouth, England made a winding up order raised by a (non-related party) creditor against the Company's subsidiary Optilan (UK) Limited. The subsidiary on that date ceased conducting further business and the director’s powers terminated. The consolidation of subsidiaries owned by Optilan (UK) Limited was no longer under its control as defined by ASC 810 (Consolidation). This compulsory liquidation resulted in a combined “Loss on Deconsolidation” of Optilan (UK) Limited and its subsidiaries in the amount of $1,642,795.

 

The subsidiaries of Optilan (UK) Limited are solvent and continue to operate. The Company will retain no measurable residual value nor direct or indirect investment in Optilan, its subsidiaries or its assets. The Company will have no continuing involvement with Optilan (UK) Limited, including its subsidiaries, and will not be owned or controlled by any related party of the Company.

 

Recent Events

 

Liquidation/winding up of Optilan (UK) Limited

 

On May 3, 2023, Eversheds Sutherland (International) LLP, a creditor of Optilan (UK) Limited, filed a petition to wind up (the “Winding up Petition”) Optilan (UK) Limited, a wholly owned subsidiary of the Company’s Subsidiary, Optilan HoldCo 3 Limited, and the matter was due to be heard in the Portsmouth Combined Court Centre on June 28, 2023.

 

On June 28, 2023, the High Court of Justice in the United Kingdom issued a winding-up order for the liquidation and winding up of the affairs of Optilan (UK) Limited (the “Optilan Liquidation”). In conjunction with the order, the court appointed the Offical Receiver’s Office (the “OR”) to take the appointment as liquidator of Optilan (UK) Limited and take control of Optilan (UK) Limited’s assets.

 

At the same time the court appointed the OR to take the appointment as liquidator of Optilan (UK) Limited. The OR has taken control of Optilan (UK) Limited’s assets. To date the ORs Office has initiated contact with Optilan but we still wait to receive details of the individual who will be taking the role of OR.

 

On July 3, 2023, Optilan (UK) Limited received a letter from The Insolvency Service, an executive agency sponsored by the Department for Business and Trade located in the U.K. Pursuant to the letter of The Insolvency Services, the Company was required to provide information relating to Optilan (UK) Limited to the Official Receiver’s Office (a government body of Plymouth, the United Kingdom) and attend an interview with staff of the Official Receiver’s Office to review the prospect of recovering the assets of Optilan (UK) Limited for the benefit of creditors. The interview is scheduled for July 18, 2023.

 

 

 

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The Company is an Unsecured creditor of Optilan (UK) Limited and is at risk of losing any repayment of obligations due from Optilan (UK) Limited because there are several intercompany relationships between the Company and Optilan (UK) Limited, the financial impact of any future claims and liabilities may not be known for several months. The Company has approximately $19.4 million intercompany payables due from Optilan (UK), which will increase the Company liabilities for any obligations not repaid. The Company expects the remaining assets held by Optilan (UK) Limited to be fully impaired and reported as discontinued operations during the second quarter of 2023 as a result of the winding-up order for liquidation. At the time of this filing the Company is still evaluating the full effects of the winding-up order for liquidation and the material adverse effects it will have on the Company’s continued operations and ability to meet future obligations.

 

On August 9, 2023, Evelyn Partners was appointed Joint Liquidator.

 

Quarter Ended March 31 Accounting Analysis

 

The Company performed an analysis of the trade receivables related to Optilan (UK) Limited and determined that an additional $2,422,457 may not be collectible pursuant to the Optilan Liquidation. The Company recorded a bad debt provision for this amount.

 

As a result of the Optilan Liquidation, management determined that certain events and circumstances occurred that indicated that the carrying amount of the Company’s reporting unit may not be recoverable as of March 31, 2023. The qualitative assessment was primarily due to the customer contracts held by Optilan (UK) Limited at March 31, 2023 and the associated revenue projections by the UK subsidiary that is subject to the potential winding up. As such, the Company compared the fair value of the reporting unit to the carrying amounts and recorded an impairment loss of $6,925,137 pertaining to impairment and goodwill in the consolidated statements of operations. The Company recorded impairment of the indefinite-lived intangible asset of $356,260, and impairment of goodwill of $6,568,877. The Company has one reporting unit which was evaluated in the impairment test noted above. As a result of the impairment, the Company had a carrying value of $0 pertaining to goodwill and intangible assets as of June 30, 2023.

 

Quarter Ended September 30 Accounting Analysis

 

Optilan (UK) Limited became subject to the control of a government and was appointed an administrator. In this situation, when the parent ceases to have a financial interest in a subsidiary and does not retain an investment in that subsidiary, the parent should deconsolidate the subsidiary and recognize a gain or loss on deconsolidation in accordance with ASC 810-10-40-5.

 

In addition, ASC 810-10-40-3A states when a parent deconsolidates a subsidiary or derecognizes a group of assets, the parent no longer controls the subsidiary's assets and liabilities or the group of assets. The parent therefore shall derecognize the assets, liabilities, and equity components related to that subsidiary or group of assets. The equity components will include any noncontrolling interest as well as amounts previously recognized in accumulated other comprehensive income. If the subsidiary or group of assets being deconsolidated or derecognized is a foreign entity (or represents the complete or substantially complete liquidation of the foreign entity in which it resides), then the amount of accumulated other comprehensive income that is reclassified and included in the calculation of gain or loss shall include any foreign currency translation adjustment related to that foreign entity.

 

Upon the liquidation, on June 28, 2023, the Company derecognized Optilan UK’s assets and liabilities and recorded a loss on consolidation of $1,624,795, which was recognized in other income (expenses) in the consolidated statements of operations.

 

 

 

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Included in the loss on consolidation of $1,642,795 are the gains on intercompany receivables and payables and currency translation adjustment $12,721,532 and $1,545,008 respectively, offset by the net loss on impairment of investments of $12,623.

 

In addition, the allowance of $2,422,457 was recorded against receivables that have been deemed uncollectible.

 

Financings

 

On May 27, 2022 we entered an Equity Financing Agreement (the “2022 EFA”) and Registration Rights Agreement (the “RRA”) with GHS, pursuant to which GHS agreed to purchase up to $70,000,000 in shares of our Common Stock, from time to time over the course of 24 months after effectiveness of a registration statement on Form S-1 of the underlying shares of Common Stock.

   

The RRA provides that we shall (i) use our best efforts to file with the SEC a registration statement within 45 days of the date of the GHS Registration Rights Agreement; and (ii) have the registration statement declared effective by the SEC within 30 days after the date the GHS registration statement is filed with the SEC, but in no event more than 90 days after the registration statement is filed.

 

Below is a table of all puts made by the Company under the 2022 EFA during 2023:

 

Date of Put  Number of Common Shares Issued  Total Proceeds, Net of Discounts  Effective Price per Share  Net Proceeds 
1/12/2023  64,130,435  $400,000  $0.006237  $370,975 
1/24/2023  77,733,861   400,000  $0.005146   370,975 
2/3/2023  61,173,706   300,000  $0.004904   277,975 
2/17/2023  75,447,571   300,000  $0.003976   277,975 
3/1/2023  83,113,044   324,000  $0.003898   300,295 
3/16/2023  93,165,852   254,232  $0.002729   235,410 
3/30/2023  65,465,384   166,903  $0.002549   154,195 
4/11/2023  67,462,162   203,554  $0.003017   188,279 
   587,692,015  $2,348,689     $2,176,079 

 

On January 17, 2023, we entered into a Stock Purchase Agreement with an investor for the purchase of 11,441,647 shares of Common Stock in exchange for $100,000.

 

On April 28, 2023 we entered an Equity Financing Agreement, which was superseded by the Amended Equity Financing Agreement dated June 13, 2023, which was then superseded by the Second Amended Equity Financing Agreement dated July 10, 2023 (the “2023 EFA”) and Registration Rights Agreement (the “2023 RRA”) with GHS, pursuant to which GHS agreed to purchase up to $30,000,000 in shares of our Common Stock, from time to time over the course of 12 months after effectiveness of a registration statement on Form S-1 of the underlying shares of Common Stock.

 

The 2023 RRA provides that we shall (i) use our best efforts to file with the SEC a registration statement within 15 days of the date of the GHS Registration Rights Agreement; and (ii) have the registration statement declared effective by the SEC within 30 days after the date the GHS registration statement is filed with the SEC, but in no event more than 90 days after the registration statement is filed.

 

 

 

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Below is a table of all puts made by the Company under the 2023 EFA during 2023:

 

Date of Put  Number of Common Shares Issued  Total Proceeds, Net of Discounts  Effective Price per Share  Net Proceeds 
4/28/2023  91,796,875   235,000  $0.002560   208,550 
6/26/2023  44,583,334   214,000  $0.004800   141,020 
7/3/2023  51,442,308   274,058  $0.004200   257,020 
7/10/2023  28,593,750   91,500  $0.003200   85,094 
9/5/2023  100,000,000   100,000  $0.001000   100,000 
   316,416,267  $914,558     $791,684