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Table of Contents

As filed with the Securities and Exchange Commission on February 9, 2024

 

Registration No. 333-276114

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

PRE-EFFECTIVE AMENDMENT

NO. 1 TO THE

 

FORM S-1/A

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

DARKPULSE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   7372   87-0472109

(State or Other Jurisdiction

of Incorporation)

 

(Primary Standard

Classification Code)

 

(IRS Employer

Identification No.)

 

815 Walker Street

Suite 1155

Houston, TX 77002

(800) 436-1436

(Address, including zip code, and telephone number, including area code of registrant’s principal executive offices)

 

The Corporation Trust Company

Corporation Trust Center

1209 Orange St.

Wilmington, DE 19801

(302) 658-7581

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Brian Higley, Esq.

Business Legal Advisors, LLC

14888 Auburn Sky Drive

Draper, UT 84020

(801) 634-1984

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

 

Approximate date of commencement of proposed sale to the public: As soon as practicable and from time to time after this Registration Statement is declared effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

 

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. (Check one):

 

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.

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(A) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(A), may determine.

 

 

   

 

 

EXPLANATORY NOTE

 

On December 18, 2023, DarkPulse, Inc., a Delaware corporation (the “Company”), filed a registration statement with the Securities and Exchange Commission (the “SEC”) on Form S-1 (File No. 333-276114) (the “Registration Statement”), covering the resales of up to 3,500,000,000 shares of the Company’s common stock, par value $0.0001 (the “Common Stock”).

 

This Pre-Effective Amendment No. 1 is being filed in order to include additional information about the Company’s business and also to provide general updates since the filing of the Registration Statement.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED FEBRUARY 9, 2023

 

Text

Description automatically generated with medium confidence

 

3,500,000,000 Shares of Common Stock

 

This prospectus relates to the offer and resale of up to 3,500,000,000 shares of our common stock, par value $0.0001 per share (the “Shares”), that may be purchased by GHS Investments LLC, a Nevada limited liability company (“GHS”), pursuant to the Second Amended Equity Financing Agreement dated July 10, 2023, as amended, between the Company and GHS (the “EFA”). GHS is also referred to herein as the “Selling Security Holder.”

 

We will not receive any of the proceeds from the sales of the Shares by the Selling Security Holder.

 

The Selling Security Holder identified in this prospectus may offer the shares of Common Stock from time to time through public or private transactions at prevailing market prices or at privately negotiated prices. The Selling Security Holder can offer all, some or none of its shares of Common Stock, thus we have no way of determining the number of shares of Common Stock it will hold after this offering. See “Plan of Distribution.

 

The Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act with respect to the shares which may be sold pursuant to the EFA.

 

Our Common Stock is currently quoted on the OTC Markets under the symbol “DPLS.” On February 7, 2024, the last reported sale price of our Common Stock on the OTC Markets was $0.0012.

 

Investing in our Common Stock involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page 6 of this prospectus, and under similar headings in any amendments or supplements to this prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is February 9, 2024

 

 

   

 

 

TABLE OF CONTENTS

 

ABOUT THIS PROSPECTUS 1
PROSPECTUS SUMMARY 2
THE OFFERING 5
RISK FACTORS 6
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 29
PRIVATE PLACEMENT 29
USE OF PROCEEDS 30
SELLING SECURITY HOLDER 30
MARKET PRICE OF COMMON STOCK AND OTHER STOCKHOLDER MATTERS 31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 33
BUSINESS 46
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 57
EXECUTIVE COMPENSATION 59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 60
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 61
DESCRIPTION OF SECURITIES 61
PLAN OF DISTRIBUTION 64
SHARES ELIGIBLE FOR FUTURE SALE 66
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS 66
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 66
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF SECURITIES ACT LIABILITIES 68
LEGAL MATTERS 68
EXPERTS 68
WHERE YOU CAN FIND MORE INFORMATION 68
INDEX TO FINANCIAL STATEMENTS F-1

 

 

 i 

 

 

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that which is contained in this prospectus. This prospectus may be used only where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of securities.

 

ABOUT THIS PROSPECTUS

 

The registration statement of which this prospectus forms a part that we have filed with the U.S. Securities and Exchange Commission (the “SEC”) and includes exhibits that provide more detail of the matters discussed in this prospectus. You should read this prospectus and the related exhibits filed with the SEC, together with the additional information described under the heading “Where You Can Find More Information” before making your investment decision.

 

You should rely only on the information provided in this prospectus or in any prospectus supplement or any free writing prospectuses or amendments thereto. Neither we, nor the Selling Security Holder, have authorized anyone else to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information in this prospectus is accurate only as of the date hereof. Our business, financial condition, results of operations and prospects may have changed since that date.

 

Neither we, nor the Selling Security Holder, are offering to sell or seeking offers to purchase these securities in any jurisdiction where the offer or sale is not permitted. Neither we, nor the Selling Security Holder, have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities as to distribution of the prospectus outside of the United States.

 

Information contained in, and that can be accessed through, our web site, www.darkpulse.com, does not constitute part of this prospectus.

 

This prospectus includes market and industry data that has been obtained from third party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management’s knowledge of such industries has been developed through its experience and participation in these industries. While our management believes the third-party sources referred to in this prospectus are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this prospectus or ascertained the underlying economic assumptions relied upon by such sources. Internally prepared and third-party market forecasts in particular are estimates only and may be inaccurate, especially over long periods of time. In addition, the underwriters have not independently verified any of the industry data prepared by management or ascertained the underlying estimates and assumptions relied upon by management. Furthermore, references in this prospectus to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey or article. The information in any such publication, report, survey or article is not incorporated by reference in this prospectus.

 

 

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PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus; it does not contain all the information you should consider before investing in our Common Stock. You should read the entire prospectus before making an investment decision. Throughout this prospectus, the terms the “Company”, “DarkPulse”, “we,” “us,” “our,” and “our company” refer to DarkPulse, Inc., a Delaware corporation.

 

Company Overview

 

DarkPulse, Inc., a Delaware corporation (the “Company” or “DarkPulse”), is a technology and research and development company 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 in December 2020.

 

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 and our subsidiary companies 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 brillouin scattering 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.

 

Our Business

 

We offer a full suite of engineering, installation and security management solutions to industries and governments. Coupled with our patented BOTDA technology, we provide our customers a comprehensive data stream of critical metrics for assessing the health and security of their infrastructure. Our comprehensive system provides for rapid, precise analysis and responsive activities predetermined by the end-user customer. These responses include the use of “smart” AI platformed cameras, facial recognition technologies and multiple drone platforms. Our User Interface (UI) is cloud based which offers end-users access to their systems on any device located anywhere in the world. Additional programming of the UI is being completed within a game engine that will also offer access via Virtual Reality headsets, allowing end-users to virtually inspection their assets.

 

Historically, distributed sensor systems have been too costly, slow and limited in their capabilities to attain widespread use. In addition, Brillouin-based sensors have been plagued with temperature and strain cross-sensitivity, i.e. the inability to distinguish between temperature and strain change along the same fiber. The loss of spatial resolution with an increase in fiber length has also limited the use of distributed sensor systems. Due to these shortcomings, existing technologies are unable to succeed within today’s dynamic environments, and needs for more advanced sensor technologies have remained unsatisfied.

 

By contrast to existing technologies, our BOTDA technology is a distributed-fiber sensing system, based on dark-pulse Brillouin scattering, which reports in real-time on conditions such as temperature, stress, strain corrosion and structural health monitoring of Critical Infrastructure/Key Resources including Bridges, Buildings, Roadways pipelines and mining installations.

 

 

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Our BOTDA technology’s differentiators from and advantages over existing technologies:

 

  · Real-time Reporting: Higher data acquisition speeds allowing for structural monitoring of dynamic systems;
     
  · Cost to Customer: Significantly lower acquisition and operating costs;
     
  · Precision: A greater magnitude of precision and spatial resolution than other systems currently available;
     
  · Applications: Wider range of capabilities than other systems currently available;
     
  · Power Consumption: Lower power consumption than existing systems allowing for off-grid installations;
     
  · Integration: Capable of integrating with existing systems; and
     
  · Central station monitoring/cloud based GUI.

 

We believe that these key advantages should allow us not only to enter existing markets, but more importantly, to open new market opportunities with new applications. We intend to leverage new applications to target clients that have been unable to make use of distributed fiber optic technology to date.

 

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 was scheduled for July 18, 2023.

 

On July 18, 2023, the interview was held between the Official Receiver’s Office (“OR”) and the CEO at time of dissolution. The OR office requested a list of assets, bank account information and amounts along with any contracts held by Optilan (UK) Limited to begin the liquidation process.

 

 

 

 

 

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

 

There are no new claims against Optilan (UK) Limited and Evelyn Partners continue to liquidate the company’s assets.

 

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.

 

Current Operations 

 

As a result of the liquidation of Optilan Liquidation, our current operations now include: DarkPulse, Inc., based in Houston, TX; Terradata Unmanned PLLC, based in Florida; and DarkPulse Manufacturing Inc., based in Arizona. Our engineering group is based in Mumbai, India and operates as our subsidiary, Optilan India Pvt Ltd. We also operate via our subsidiary, Optilan Communications and Security Systems Ltd., based in in Ankara, Turkey. Remote Intelligence, LLC, Wildlife Specialists, LLC, and TJM Electronics West, Inc. are no longer in operation.

 

We have recently completed development activities of our Gen. 3 dark-pulse BOTDA system and are pending a Purchase Order issuance to our contract manufacturer Sanmina Corp (NASDAQ: SANM) for full manufacturing of our patented BOTDA sensor system hardware. To date, we have yet to sell our patented BOTDA dark-pulse sensor system and we have builitwo units for testing the system in the field. We are now able to sell our patented technology and related services.

 

Our agreement with the University of New Brunswick requires a royalty of 2% beginning April 24, 2018; however, no royalties have been paid to the University of New Brunswick as sales of the patented technology have not yet begun.

 

Available Information

 

All reports of the Company filed with the SEC are available free of charge through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

 

Where You Can Find Us

 

Our executive offices are located at 815 Walker Street, Suite 1155, Houston, TX 77002, and our telephone number is (800) 436-1436. Our website address is www.darkpulse.com. Information contained on our website does not form part of this prospectus and is intended for informational purposes only.

 

 

 

 

 

 

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THE OFFERING

 

Common Stock outstanding before the offering   7,935,614,052 shares of Common Stock.
     
Common Stock to be outstanding after giving effect to the issuance of 3,500,000,000 shares of Common Stock under the EFA   11,435,614,052 shares of Common Stock.
     
Use of Proceeds   We will not receive any of the proceeds from any sale of the shares of Common Stock by the Selling Security Holder. We will receive proceeds from the purchase of the Common Stock under the EFA from the Selling Security Holder. See “Use of Proceeds.
     
Risk Factors   The Common Stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 6.
     
Trading Symbol   The Company’s Common Stock is quoted on the OTC Markets under the symbol “DPLS.”

 

The number of shares of Common Stock outstanding is based on an aggregate of 7,935,614,052 shares outstanding as of February 9, 2024 and excludes 3,500,000,000 shares of Common Stock issuable upon purchase of the Shares under the EFA.

 

Equity Financing Agreement Summary

 

On July 10, 2023, we entered into the EFA 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 (the “Contract Period”) after effectiveness of a registration statement on Form S-1 of the underlying shares of Common Stock. On January 30, 2024, we and GHS entered into the Amendment No. 1 to the EFA pursuant to which the Contract Period was amended to 24 months.

 

The EFA grants us the right, from time to time at our sole discretion (subject to certain conditions) during the Contract Period, to direct GHS to purchase shares of Common Stock on any business day (a “Put”), provided that at least five Trading Days (as defined in the EFA) have passed since the most recent Put. The purchase price of the shares of Common Stock contained in a Put shall be 92% of the Market Price with “Market Price” defined as the lowest VWAP of the Common Stock during the the five consecutive Trading Days (as defined in the EFA) preceding the relevant Put Notice Date (as defined in the EFA) (the “Pricing Period”). In addition, we are required to issue to GHS shares in the amount of 115% of each Put. No Put will be made in an amount less than $10,000 or greater than $1,000,000. As a result, we may not have access to the full $30,000,000 amount available under the EFA. For example, if we made a Put in the amount of $100,000 and the Market Price was $0.001, the purchase price would be $0.00092 and 125,000,000 shares would be issued to GHS ($100,000 / $0.00092 X 115%). Due to the fact that 115% of shares are required to be issued to GHS with each Put, the effective discount is 20%.

 

The Market Price as of February 6, 2024 was $0.0011. At that price we would be able to sell shares to GHS under the EFA at the discounted price of $0.001012. In addition, we are required to issue to GHS shares in the amount of 115% of each Put. At that discounted price, 3,500,000,000 shares would only represent $3,080,000, which is below the full amount of the EFA. In addition, any single drawdown must be at least $10,000 and cannot exceed $1,000,000 and any single drawdown may not exceed 100% of the average daily trading dollar volume of our Common Stock during the ten trading days preceding the Put.

 

Based on the Market Price as of February 6, 2024, we would have to issue 34,090,909,090  shares in order to use the full $30,000,000 under the EFA.

 

For a more detailed description of the Shares and the EFA, see “Private Placement”.

 

 

 

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RISK FACTORS

 

Readers of this Prospectus should carefully consider the risks and uncertainties described below.

 

Our failure to successfully address the risks and uncertainties described below would have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock may decline and investors may lose all or part of their investment. We cannot assure you that we will successfully address these risks or other unknown risks that may affect our business.

 

As an enterprise engaged in the commercialization of new technology, our business is inherently risky. Our common shares are considered speculative during the development of our business operations. Prospective investors should consider carefully the risk factors set out below.

 

Summary Risk Factors

  

The following summarizes certain principal factors that make an investment in our Company speculative or risky, all of which are more fully described in the “Risk Factors” section herein. This summary should be read in conjunction with the “Risk Factors” section and should not be relied upon as an exhaustive summary of the material risks facing the Company.

 

  · If we default on the Secured Debenture, the secured holder could take possession of our assets, including our patents and other intellectual property. 

 

  · Several of the convertible notes issued by us are in litigation with uncertain outcomes.

 

  · Our stockholders have limited voting power compared to the holder of our Series A Preferred Stock.

 

  · We have a limited operating history in an evolving and highly volatile industry, which makes it difficult to evaluate future prospects and may increase the risk that we will not be successful.

 

  · We face intense and increasing competition and, if we do not compete effectively, our competitive positioning and our operating results will be harmed.

 

  · Our operating results may fluctuate due to market forces out of our control that impact demand for our products and services.

 

  · Cyberattacks and security breaches of our systems, or those impacting customers or third parties, could adversely impact our brand and reputation and our business, operating results and financial condition.

 

  · Any significant disruption in our technology could adversely impact our brand and reputation and our business, operating results, and financial condition.

 

  · Certain large customers provide a significant share of our revenue and the termination of such agreements or reduction in business with such customers could harm our business. If we were to lose or were unable to renew these and other client contracts at favorable terms, our results of operations and financial condition may be adversely affected.

 

  · There is no assurance that we will achieve profitability or that our revenue and business models will be successful.

 

  · We will require additional capital to support business growth, and this capital might not be available or may require stockholder approval to obtain.

 

  · You may experience dilution of your ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.

 

  · The future development and growth of our technology and product offerings are subject to a variety of factors that are difficult to predict and evaluate and may be in the hands of third parties to a substantial extent. If our product offerings do not grow as expected, our business, operating results, and financial condition could be adversely affected.

 

  · Our intellectual property rights are valuable, and any inability to protect them could adversely impact our business, operating results, and financial condition.

 

 

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Risks Related to Our Business

 

Our former wholly-owned subsidiary, Optilan (UK) Limited, is in liquidation. As an unsecured creditor, we are at risk of losing significant repayment obligations due from 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 was scheduled for July 18, 2023.

 

On July 18, 2023, the interview was held between the OR and the CEO at time of dissolution. The OR office requested a list of assets, bank account information and amounts along with any contracts held by Optilan (UK) Limited to begin the liquidation process.

 

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

 

There are no new claims as of February 9, 2024 against Optilan (UK) Limited and  Evelyn Partners continue to liquidate the company’s assets.

 

We are an unsecured creditor of Optilan (UK) Limited and are 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. We have approximately $19.4 million intercompany payables due from Optilan (UK), which will increase our liabilities for any obligations not repaid. We expect the remaining assets held by Optilan (UK) Limited to be fully impaired and reported as Loss on Deconsolidation during the second quarter of 2023 as a result of the winding-up order for liquidation. We are still evaluating the full effects of the winding-up order for liquidation and the material adverse effects it will have on our continued operations and ability to meet future obligations. In the event we lose the repayment obligations of Optilan (UK) Limited, our financial condition could be materially adversely effected.

 

We may be adversely affected by natural disasters, pandemics, and other catastrophic events, and by man-made problems such as war or terrorism, that could disrupt our business operations, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

 

Natural disasters or other catastrophic events may also cause damage or disruption to our operations, international commerce, and the global economy, and could have an adverse effect on our business, operating results, and financial condition. Our business operations are subject to interruption by natural disasters, fire, power shortages, and other events beyond our control.

 

In addition, our global operations expose us to risks associated with public health crises, such as pandemics and epidemics, which could harm our business and cause its operating results to suffer. For example, the ongoing effects of the COVID-19 pandemic and/or the precautionary measures that we have adopted have resulted, and could continue to result, in difficulties or changes to our customer support, or create operational or other challenges, any of which could adversely impact our business and operating results.

 

 

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Further, war, acts of terrorism, labor activism and other geopolitical unrest could cause disruptions in our business or the businesses of its partners or the economy as a whole. In the event of a natural disaster, including a major earthquake, blizzard, or hurricane, or a catastrophic event such as a fire, power loss, or telecommunications failure, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in development of our products and services, lengthy interruptions in service, breaches of data security, and loss of critical data, all of which could have an adverse effect on our future operating results.

 

Escalating global tensions, including the conflict between Russia and Ukraine, could negatively impact us.

 

The ongoing conflict between Russia and Ukraine could led to disruption, instability and volatility in global markets and industries that could negatively impact our operations. The U.S. government and other governments in jurisdictions in which we operate have imposed severe sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls. The impact of these measures, as well as potential responses to them by Russia, is currently unknown and they could adversely affect our business, partners or customers.

 

If we default on the Secured Debenture, the secured holder could take possession of our assets, including our patents and other intellectual property.

 

The Secured Debenture issued April 24, 2017, is secured by our assets, which includes our patents and other intellectual property. In the event that we default on the obligations in the Debenture, the secured holder could take possession of our assets, including our patents and other intellectual property. If this were to occur, investors would likely lose all of their investment.

 

Several of the convertible notes issued by us are in litigation with uncertain outcomes.

 

We have issued several convertible notes which are currently the subject of litigation (See “Legal Proceedings”). The outcomes of each of these matters is uncertain and we may be required to both expend large sums of resources on both defending against and pursuing our causes of action in each of these proceedings. In addition, there is no certainty that any outcome will be in favor of us and we may be required to pay settlements or judgments the amounts of which may be material to us. In the event that we do not achieve favorable outcomes to each of the outstanding legal proceedings with convertible note holders, it could have a material adverse effect on us and our operations may fail.

 

Our future growth depends significantly on our marketing efforts, and if our marketing efforts are not successful, our business and results of operations will be harmed.

 

We have dedicated some, and intend to significantly increase, resources to marketing efforts. Our ability to attract and retain customers depends in large part on the success of these marketing efforts and the success of the marketing channels we use to promote our products and services. Our marketing channels include, but are not limited to, social media, traditional media such as the press, online affiliations, search engine optimization, search engine marketing, and offline partnerships.

 

While our goal remains to increase the strength, recognition and trust in our brand by increasing our customer base and expanding our products and services, if any of our current marketing channels becomes less effective, if we are unable to continue to use any of these channels, if the cost of using these channels was to significantly increase or if we are not successful in generating new channels, we may not be able to attract new customers in a cost-effective manner or increase the use of our products and services. If we are unable to recover our marketing costs through increases in the size, value or other product selection and utilization, it could have a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects.

 

Our stockholders have limited voting power compared to the holder of our Series A Preferred Stock.

 

Our CEO, Dennis O’Leary, is the sole holder of our Series A Preferred Stock, will control a majority of the voting power of our Company. For so long as Mr. O’Leary holds all of the shares of Series A Preferred Stock, he is expected to hold a majority of our outstanding voting power and he will control the outcome of matters submitted to a stockholder vote, including the appointment of all directors of the Company.

 

 

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Our management controls all corporate activities and can approve all transactions, including mergers, without the approval of other stockholders.

 

Our CEO, Dennis O’Leary, owns 100 shares of our Series A Preferred Stock that gives him the right to a majority of the voting power of the Company. Therefore, our management effectively controls all corporate activities and can approve transactions, including possible mergers, issuance of shares and compensation levels, without the approval of other stockholders. The decisions of our management may not be consistent with or in the best interests of other stockholders.

 

This capital structure may have anti-takeover effects preventing a change in control transaction that the minority owners of our Common Stock might consider in their best interest.

 

The ability of our management to control our business may limit or eliminate minority stockholders’ ability to influence corporate affairs.

 

Our CEO, Dennis O’Leary, owns 100 shares of Series A Preferred Stock that gives him the right to a majority of the voting power of our Company. Because of this beneficial stock ownership, Mr. O’Leary is in a position to continue to elect our entire board of directors, decide all matters requiring stockholder approval, including potential mergers or business changes, and determine our policies. The interests of our management may differ from the interests of our minority stockholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of officers and directors and other business decisions. Our minority stockholders have no way of overriding decisions made by our management. This level of control may also have an adverse impact on the market value of our shares because our management may institute or undertake transactions, policies or programs that may result in losses, may not take any steps to increase our visibility in the financial community and/or may sell sufficient numbers of shares to significantly decrease our price per share.

 

We have made and expect to continue to make acquisitions that could disrupt our operations and harm our operating results.

 

Our growth depends upon market growth, our ability to enhance our existing products, and our ability to introduce new products on a timely basis. We intend to continue to address the need to develop new products and enhance existing products through acquisitions of other companies, product lines, technologies, and personnel. Acquisitions involve numerous risks, including the following:

 

  · Difficulties in integrating the operations, systems, technologies, products, and personnel of the acquired companies, particularly companies with large and widespread operations and/or complex products;
     
  · Diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions;
     
  · Potential difficulties in completing projects associated with in-process research and development intangibles;
     
  · Difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;
     
  · Initial dependence on unfamiliar supply chains;
     
  · Insufficient revenue to offset increased expenses associated with acquisitions; and
     
  · The potential loss of key employees, customers, distributors, vendors and other business partners of the companies we acquire following and continuing after announcement of acquisition plans.

 

 

 

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Acquisitions may also cause us to:

 

  · Issue common stock that would dilute our current shareholders’ percentage ownership;
     
  · Use a substantial portion of our cash resources or incur debt;
     
  · Significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition;
     
  · Assume liabilities;
     
  · Record goodwill and nonamortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges;
     
  · Incur amortization expenses related to certain intangible assets;
     
  · Incur tax expenses related to the effect of acquisitions on our intercompany research and development cost sharing arrangement and legal structure;
     
  · Incur large and immediate write-offs and restructuring and other related expenses; and
     
  · Become subject to intellectual property or other litigation.

  

Mergers and acquisitions are inherently risky and subject to many factors outside of our control, and no assurance can be given that our previous or future acquisitions will be successful and will not materially adversely affect our business, operating results, or financial condition. Failure to manage and successfully integrate acquisitions could materially harm our business and operating results. Prior acquisitions could result in a wide range of outcomes, from successful introduction of new products and technologies to a failure to do so. Even when an acquired company has already developed and marketed products, there can be no assurance that product enhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products.

 

From time to time, we have made acquisitions that resulted in charges in an individual quarter. These charges may occur in any particular quarter, resulting in variability in our quarterly earnings. In addition, our effective tax rate for future periods is uncertain and could be impacted by mergers and acquisitions. Risks related to new product development also apply to acquisitions.

 

Acquisitions, joint ventures or other strategic transactions create certain risks and may adversely affect our business, financial condition or results of operations.

 

Acquisitions, partnerships and joint ventures are part of our growth strategy. We evaluate and expect in the future to evaluate potential strategic acquisitions of, and partnerships or joint ventures with, complementary businesses, services or technologies. We may not be successful in identifying acquisition, partnership and joint venture targets. In addition, we may not be able to successfully finance or integrate any businesses, services or technologies that we acquire or with which we form a partnership or joint venture.

 

We may not be able to identify suitable acquisition candidates or complete acquisitions in the future, which could adversely affect our future growth; or businesses that we acquire may not perform as well as expected or may be more difficult or expensive to integrate and manage than expected, which could adversely affect our business and results of operations. In addition, the process of integrating these acquisitions may disrupt our business and divert our resources.

 

 

 

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In addition, acquisitions outside our current operating jurisdictions often involve additional or increased risks including, for example:

 

  · managing geographically separated organizations, systems and facilities;
     
  · integrating personnel with diverse business backgrounds and organizational cultures;
     
  · complying with foreign regulatory requirements;
     
  · fluctuations in exchange rates;
     
  · enforcement and protection of intellectual property in some foreign countries;
     
  · difficulty entering new foreign markets due to, among other things, customer acceptance and business knowledge of these new markets; and
     
  · general economic and political conditions.

 

These risks may arise for a number of reasons: we may not be able to find suitable businesses to acquire at affordable valuations or on other acceptable terms; we may face competition for acquisitions from other potential acquirers; we may need to borrow money or sell equity or debt securities to the public to finance acquisitions and the terms of these financings may be adverse to us; changes in accounting, tax, securities or other regulations could increase the difficulty or cost for us to complete acquisitions; we may incur unforeseen obligations or liabilities in connection with acquisitions; we may need to devote unanticipated financial and management resources to an acquired business; we may not realize expected operating efficiencies or product integration benefits from an acquisition; we could enter markets where we have minimal prior experience; and we may experience decreases in earnings as a result of non-cash impairment charges.

 

We cannot ensure that any acquisition, partnership or joint venture we make will not have a material adverse effect on our business, financial condition and results of operations.

 

Because of the unique difficulties and uncertainties inherent in technology development, we face a risk of business failure.

 

Potential investors should be aware of the difficulties normally encountered by companies developing new technology and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the development of new technology with limited personnel and financial means. These potential problems include, but are not limited to, unanticipated technical problems that extend the time and cost of product development, or unanticipated problems with the operation of our technology or that with which we are licensing that also extend the time and cost of product development.

 

Successful technical development of our products does not guarantee successful commercialization.

 

We may successfully complete the technical development for one or all of our product development programs, but still fail to develop a commercially successful product for a number of reasons, including among others the following:

 

  · Competing products;
     
  · Ineffective distribution and marketing;
     
  · Lack of sufficient cooperation from our partners; and
     
  · Demonstrations of the products not aligning with or meeting customer needs.

 

 

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Our success in the market for the products we develop will depend largely on our ability to prove our products’ capabilities. Upon demonstration, our products and/or technology may not have the capabilities they were designed to have or that we believed they would have. Furthermore, even if we do successfully demonstrate our products’ capabilities, potential customers may be more comfortable doing business with a larger, more established, more proven company than us. Moreover, competing products may prevent us from gaining wide market acceptance of our products. Significant revenue from new product investments may not be achieved for a number of years, if at all.

 

If we do not effectively manage our growth and the associated demands on our operational, risk management, sales and marketing, technology, compliance and finance and accounting resources, our business may be adversely impacted.

 

To effectively manage and capitalize on our growth, we must continue to expand our information technology and financial, operating, and administrative systems and controls, and continue to manage headcount, capital, and processes efficiently. Our continued growth could strain our existing resources, and we could experience ongoing operating difficulties in managing our business as we expand across numerous jurisdictions, including difficulties in hiring, training, and managing an employee base. Failure to scale and preserve our company culture with growth could harm our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives. If we do not adapt to meet these evolving challenges, or if our management team does not effectively scale with our growth, we may experience erosion to our brand, the quality of our products and services may suffer, and our company culture may be harmed. Moreover, the failure of our systems and processes could undermine our ability to provide accurate, timely, and reliable reports on our financial and operating results, including the financial statements provided herein, and could impact the effectiveness of our internal controls over financial reporting. In addition, our systems and processes may not prevent or detect all errors, omissions, or fraud, though we have experienced no such material errors, omissions or fraud in the past. For example, our employees may fail to identify transaction errors or fraudulent information provided by our customers. Any of the foregoing operational failures could lead to noncompliance with laws, loss of operating licenses or other authorizations, or loss of relationships that could substantially impair or even suspend company operations.

 

We intend to continue to develop our technology. Successful implementation of this strategy may require significant expenditure before any substantial associated revenue is generated and we cannot guarantee that these increased investments will result in corresponding and offsetting revenue growth. Our growth may not be sustainable and depends on our ability to retain existing customers, attract new customers, expand product offerings, and increase processed volumes and revenue from both new and existing customers.

 

A customer’s use of our services may decrease for a variety of reasons, including the customer’s level of satisfaction with our products and services, the expansion of business to offer new products and services, the effectiveness of our support services, the pricing of our products and services, the pricing, range and quality of competing products or services, the effects of global economic conditions, regulatory limitations, trust, or perception and interest in our products and services. Furthermore, the complexity and costs associated with switching to a competitor may not be significant enough to prevent a customer from switching service providers, especially for larger customers.

 

Any failure by us to retain existing customers, attract new customers, and increase revenue from both new and existing customers could materially and adversely affect our business, financial condition, results of operations and prospects. These efforts may require substantial financial expenditures, commitments of resources, developments of our processes, and other investments and innovations.

 

We face intense and increasing competition and, if we do not compete effectively, our competitive positioning and our operating results will be harmed.

 

We operate in a rapidly changing and highly competitive industry, and our results of operations and future prospects depend on, among other things:

 

  · the growth of our customer base;
     
  · our ability to acquire customers at a lower cost, and
     
  · our ability to increase our overall value to each of our customers while they use our products and services.

 

 

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Despite the barriers to enter the markets we serve, we expect our competition to continue to increase. In addition to established enterprises, we may also face competition from early-stage companies attempting to capitalize on the same, or similar, opportunities as we are. Some of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, and a larger customer base than we do. This allows them, among others, to potentially offer more competitive pricing or other terms or features, a broader range of products, or a more specialized set of specific products or services, as well as respond more quickly than we can to new or emerging technologies and changes in customer preferences.

 

Our existing or future competitors may develop products or services that are similar to our products and services or that achieve greater market acceptance than our products and services. This could attract new customers away from our services and reduce our market share in the future. Additionally, when new competitors seek to enter our markets, or when existing market participants seek to increase their market share, these competitors sometimes undercut, or otherwise exert pressure on, the pricing terms prevalent in that market, which could adversely affect our market share and/or ability to capitalize on new market opportunities.

 

Cyberattacks and security breaches of our systems, or those impacting our customers or third parties, could adversely impact our brand and reputation and our business, operating results and financial condition.

 

Our business involves the collection, storage, processing and transmission of confidential information, customer, employee, service provider and other personal data, as well as information required to access customer assets. Any actual or perceived security breach of our or our third-party partners may:

 

  · harm our reputation and brand;
     
  · result in our systems or services being unavailable and interrupt our operations;
     
  · result in improper disclosure of data and violations of applicable privacy and other laws;
     
  · result in significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory and financial exposure;
     
  · cause us to incur significant remediation costs;
     
  · lead to theft or irretrievable loss of our or our customers’ assets;
     
  · reduce customer confidence in, or decreased use of, our products and services;
     
  · divert the attention of management from the operation of our business;
     
  · result in significant compensation or contractual penalties from us to our customers or third parties as a result of losses to them or claims by them; and
     
  · adversely affect our business and operating results.

 

Further, any actual or perceived breach or cybersecurity attack directed at other similar institutions, whether or not we are directly impacted, could lead to a general loss of customer confidence in the use of our technology, which could negatively impact us including the market perception of the effectiveness of our security measures and technology infrastructure.

 

 

 

 

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An increasing number of organizations, including large businesses, technology companies and financial institutions, as well as government institutions, have disclosed breaches of their information security systems, some of which have involved sophisticated and highly targeted attacks, including on their websites, mobile applications, and infrastructure. Attacks upon systems across a variety of industries are increasing in their frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded, and organized groups and individuals, including state actors. The techniques used to obtain unauthorized, improper, or illegal access to systems and information (including customers’ personal data and digital assets), disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. These attacks may occur on our systems or those of its third-party service providers or partners. Certain types of cyberattacks could harm us even if our systems are left undisturbed. For example, attacks may be designed to deceive employees and service providers into releasing control of our systems to a hacker, while others may aim to introduce computer viruses or malware into our systems with a view to stealing confidential or proprietary data. Additionally, certain threats are designed to remain dormant or undetectable until launched against a target and we may not be able to implement adequate preventative measures.

 

Although we do not have a past history of material security breaches or cyberattacks, and do not believe we are a target of such breaches or attacks, we have developed systems and processes designed to protect the data we manage, prevent data loss and other security breaches, and effectively respond to known and potential risks. We expect to continue to expend significant resources to bolster these protections, but there can be no assurance that these security measures will provide absolute security or prevent breaches or attacks. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. Certain threat actors may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. As a result, our costs and the resources it devotes to protecting against these advanced threats and their consequences may increase over time.

 

Although we maintain insurance coverage that we believe is adequate for our business, it may be insufficient to protect us against all losses and costs stemming from security breaches, cyberattacks, and other types of unlawful activity, or any resulting disruptions from such events. Outages and disruptions of our systems, including any caused by cyberattacks, may harm our reputation and our business, operating results, and financial condition.

 

We may incur significant liability as a result of ongoing disputes.

 

We are a party to multiple legal disputes the resolutions of which may adversely affect our business and results of operations.

 

We may be subject to various other legal proceedings, arbitrations, and regulatory investigation matters as further described in “Legal Proceedings”. If any of these matters are resolved unfavorably to us, our business and results of operations may be adversely affected.

 

We have a limited operating history in an evolving and highly volatile industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

 

Because we have a limited history operating our business at our current scale and scope, it is difficult to evaluate our current business and future prospects, including our ability to plan for and model future growth. For example, recently launched services require substantial resources and there is no guarantee that such expenditures will result in profit or growth of our business. The rapidly evolving nature of the market in which we operate, substantial uncertainty concerning how these markets may develop, and other economic factors beyond our control, reduces our ability to accurately forecast quarterly or annual revenue. Failure to manage our current and future growth effectively could have an adverse effect on our business, operating results, and financial condition.

 

Adverse economic conditions may adversely affect our business.

 

Our performance is subject to general economic conditions, and their impact on the industries in which we operate, as well as our customers. The United States and other key European and other international economies have experienced cyclical downturns from time to time in which economic activity declined resulting in lower consumption rates, restricted credit, reduced profitability, weaknesses in financial markets, bankruptcies, and overall uncertainty with respect to the economy. The impact of general economic conditions on our business is highly uncertain and dependent on a variety of factors, including market activity, global economic trends, and other events beyond our control. Geopolitical developments, such as trade wars and foreign exchange limitations can also increase the severity and levels of unpredictability globally and increase the volatility of global financial markets. To the extent that conditions in the general economic markets materially deteriorate, our ability to attract and retain customers may suffer.

 

 

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The nature of our business involves significant risks and uncertainties that may not be covered by insurance or indemnity.

 

We develop and sell products where insurance or indemnification may not be available, including:

 

  · Designing and developing products using advanced technologies in intelligence and homeland security applications that are intended to operate in high demand, high risk situations; and
     
  · Designing and developing products to collect, distribute and analyze various types of information.

 

Certain products may raise questions with respect to issues of privacy rights, civil liberties, intellectual property, trespass, conversion and similar concepts, which may raise new legal issues. Indemnification to cover potential claims or liabilities resulting from a failure of technologies developed or deployed may be available in certain circumstances but not in others. We are not able to maintain insurance to protect against all operational risks and uncertainties. Substantial claims resulting from an accident, failure of our product, or liability arising from our products in excess of any indemnity or insurance coverage (or for which indemnity or insurance is not available or was not obtained) could harm our financial condition, cash flows, and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively.

 

Material weaknesses in our internal control over financial reporting may, until remedied, cause errors in our financial statements or cause our filings with the SEC to not be timely.

 

We believe that material weaknesses exist in our internal control over financial reporting as of December 31, 2022, including those related to (i) our internal audit functions and (ii) a lack of segregation of duties within accounting functions. If our internal control over financial reporting or disclosure controls and procedures are not effective, there may be errors in our financial statements that could require a restatement or our filings may not be timely made with the Securities and Exchange Commission (the “SEC”). We intend to implement additional corporate governance and control measures to strengthen our control environment as we are able, but we may not achieve our desired objectives. Moreover, no control environment, no matter how well designed and operated, can prevent or detect all errors or fraud. We may identify material weaknesses and control deficiencies in our internal control over financial reporting in the future that may require remediation and could lead investors losing confidence in our reported financial information, which could lead to a decline in our stock price.

 

Being a public company is expensive and administratively burdensome.

 

As a public reporting company, we are subject to the information and reporting requirements of the Securities Act, the Exchange Act and other federal securities laws, rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act. Complying with these laws and regulations requires the time and attention of our Board of Directors and management team, and increases our expenses.

 

Among other things, we are required to:

 

  · Maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
     
  · Prepare and distribute periodic reports in compliance with our obligations under federal securities laws;
     
  · Institute a more comprehensive compliance function, including with respect to corporate governance; and
     
  · Involve, to a greater degree, our outside legal counsel and accountants in the above activities.

 

 

 

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The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders are expensive and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire additional financial reporting, internal controls and other finance personnel, and will involve a material increase in regulatory, legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.

  

If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.

 

Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.

  

Public company compliance may make it more difficult to attract and retain officers and directors.

 

The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs in 2023 and beyond and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers.

 

Delaware law and our Certificate of Incorporation and Bylaws will contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.

 

Our Certificate of Incorporation and bylaws contains provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board and therefore depress the trading price of our Common Stock. In addition, as a Delaware corporation, we will generally be subject to provisions of Delaware law, including the DGCL. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members of our board or taking other corporate actions, including effecting changes in management.

 

Such provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our board or management.

 

Any provision of our Certificate of Incorporation or bylaws or Delaware law that has the effect of delaying or preventing a change in control could limit the opportunity for stockholders to receive a premium for their shares of our stock and could also affect the price that some investors are willing to pay for our Common Stock.

 

Risks Related to Our Financial Condition

 

If we do not obtain additional financing or sufficient revenues, our business will fail.

 

Our current operating funds are less than necessary to fulfill our operating costs and we will need to obtain additional financing in order to continue our business operations. Although we are generating revenues, we are not generating net income.

 

We will require additional financing to execute our business plan through raising additional capital and/or generating greater revenues.

 

 

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Obtaining additional financing is subject to a number of factors, including acceptance of our BOTDA technology and current financial condition as well as general market conditions.

 

These factors affect the timing, amount, terms or conditions of additional financing unavailable to us. If additional financing is not arranged, we will face the risk of going out of business. Our management is currently engaged in actively pursuing multiple financing options in order to obtain the capital necessary to execute our business plan.

 

The most likely source of future funds presently available to us is through the additional sales of equity or through convertible debt instruments. Any sales of share capital or conversion of convertible debt will most likely result in dilution to existing shareholders.

 

There is no history upon which to base any assumption as to the likelihood we will prove successful, and we can provide investors with no assurance that we will generate any operating revenues or achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.

 

We might require additional capital to support business growth, and this capital might not be available or may require stockholder approval to obtain.

 

We have funded our operations since inception primarily through equity financings, convertible notes, and revenue generated by our products and services. We intend to continue to make investments in our business to respond to business challenges, including developing new products and services, enhancing our operating infrastructure, expanding our international operations, and acquiring complementary businesses and technologies, all of which may require us to secure additional funds.

 

Additional financing may not be available on terms favorable to us, if at all. If we incur additional debt, the debt holders may have rights senior to holders of our common stock to make claims on our assets, and the terms of any debt could restrict our operations.

 

Our only existing commitment for financing is pursuant to Equity Financing Agreement with GHS Investments LLC but our ability to make puts is subject to certain conditions which may limit our ability to make puts or the amount of each put. In the event we are unable to make puts or obtain other commitments for financing, our business will fail.

 

On July 10, 2023, we entered the Second Amended Equity Financing Agreement 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. On January 30, 2024, we and GHS entered into the Amendment No. 1 to the EFA pursuant to which the Contract Period was amended to 24 months.

 

The EFA grants us the right, from time to time at our sole discretion (subject to certain conditions) during the Contract Period (as defined in the EFA), to direct GHS to purchase shares of Common Stock on any business day (a “Put”), provided that at least five Trading Days (as defined in the EFA) have passed since the most recent Put. No Put will be made in an amount less than $10,000 or greater than $1,000,000. In no event is the Company entitled to make a Put or is GHS entitled to purchase that number of shares of Common Stock of the Company, which when added to the sum of the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the Securities Exchange Act 1934, as amended (the “Exchange Act”)), by GHS, would exceed 4.99% of the number of shares of Common Stock outstanding on such date, as determined in accordance with Rule 13d-1(j) of the Exchange Act. The purpose of the limitation is to prevent GHS from controlling the Company so that is it not an “affiliate,” as defined in Rule 405 promulgated under the Securities Act of 1933, as amended. The beneficial ownership limitation does not prevent GHS from selling some or all of the shares it acquires and then acquiring additional shares so that it is able to sell shares in excess of the 4.99% beneficial ownership limitation while never holding more than 4.99% of our outstanding shares. From August 2021 until February 9, 2024, GHS has purchased and sold 2,272,007,223 and 2,055,590,956 shares of our Commo  n Stock, respectively.

 

Due to these limitations, we may be unable to make Puts sufficient to finance our business operations. In the event we are unable to make Puts or obtain other commitments for financing, our business will fail.

 

We need to continue as a going concern if our business is to succeed.

 

Our independent registered public accounting firm reports (from two separate independent registered public accounting firms) on our audited financial statements for the years ended December 31, 2022 and 2021, each indicate that there are a number of factors that raise substantial risks about our ability to continue as a going concern. Such factors identified in the report are our accumulated deficit since inception, our failure to attain profitable operations, the excess of liabilities over assets, and our dependence upon obtaining adequate additional financing to pay our liabilities. If we are not able to continue as a going concern, investors could lose their investments.

 

 

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There is no assurance that we will achieve or maintain profitability or that our revenue and business models will be successful.

 

Our ability to achieve and maintain profitability is based on numerous factors, many of which are beyond our control. We may not be able to generate sufficient revenue to maintain profitability in the short or long-term. Our revenue growth may slow, or our revenue may decline for a number of other reasons, including reduced demand for our offerings, increased competition, a decrease in the growth or size of the industries in which we operate, in the usage our technologies generally, or any failure to capitalize on growth opportunities.

 

We are continually refining our revenue and business model and have shifted our focus to the development and commercialization of our products and services. There is no assurance that these efforts will be successful or that we will generate revenues commensurate with our efforts and expectations or become or stay profitable. We may be forced to make significant changes to our revenue and business model to compete with our competitors’ offerings, and even if such changes are undertaken, there is no guarantee that they will be successful or profitable. Additionally, we will need to hire, train, and integrate qualified personnel to meet and further such changes to our business objectives at potentially significant additional expense. Failure to successfully implement revenue and business models or manage related expenses could cause us to be unprofitable and have an adverse effect on pour business, operating results and financial condition.

 

We may be affected by fluctuations in currency exchange rates

 

We are potentially exposed to adverse as well as beneficial movements in currency exchange rates. An increase in the value of the dollar could increase the real cost to our customers of our products in those markets outside the U.S. where we sell in dollars, and a weakened dollar could increase the cost of local operating expenses from sources outside the United States, and overseas capital expenditures. We also conduct certain investing and financing activities in local currencies. Therefore, changes in exchange rates could harm our financial condition and results of operations.

 

We may experience fluctuations in our quarterly operating results.

 

We could experience significant fluctuations in our quarterly operating results due to a number of factors, many of which are beyond our control. You should not rely on period-to-period comparisons of our operating results as an indication of our future performance. Factors that may cause fluctuations in our quarterly operating results include, but are not limited to, the following:

 

  · a change in the volume of our customers use of our products and services and generally;
     
  · planned and unplanned increases in marketing, sales and other operating expenses that we may incur to grow and expand our customer base and operations, and to remain competitive;
     
  · the success, or lack of success, in new marketing approaches we have recently undertaken or plan to undertake, which have not been previously or fully tested;
     
  · the continued market acceptance of our products and services in a highly competitive environment;
     
  · system disruptions, outages and other performance problems or interruptions on our products and technology, or breaches of data or system security, including ransomware or other major cyber-attacks, which, if extended or severe, may harm our credibility and reputation in the market;
     
  · our failure to provide adequate customer service;
     
  · our ability to successfully, and in a timely manner, continue development, improvement and feature-enhancement of our products and services, including our intellectual property, data analytics, proprietary technology and customer support functions;
     
  · the timing and success of new product and service introductions, and new product and service features or enhancements, by us and our subsidiaries, or our competitors, or other changes in the competitive landscape of the markets in which we operate;
     
  · the success of our expansion into new markets, products and services, or ones in which we are in the early stages;
     
  · changes in the adoption and use of our technologies and the public perception of them;

 

 

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  · changes in the legislative or regulatory environment, scope or focus of regulatory investigations and inquiries, or interpretations of regulatory requirements, or outright prohibition of certain activities;
     
  · disputes with our customers, adverse litigation and regulatory judgments, enforcement actions, settlements or other related costs and the reputational impact and public perception of such occurrences, including in emerging industries, or emerging components of industries;
     
  · the timing and amount of non-cash expenses, such as stock-based compensation and asset impairment;
     
  · changes in accounting standards, policies, guidance, interpretations or principles; and
     
  · general economic conditions in either domestic or international markets, including the impact of the ongoing COVID-19 pandemic.

 

Our operating results may fall below the expectations of market analysts and investors in some future periods, which could cause the market price of our Common Stock to decline substantially.

 

Changes in U.S. and foreign tax laws, as well as the application of such laws, could adversely impact our financial position and operating results.

 

We are subject to complex income and non-income tax laws and regulations in the United States and a variety of foreign jurisdictions. Both the United States and foreign jurisdictions may revise corporate income tax and other non-income tax laws which could impact the amount of tax due in such jurisdiction.

 

Our determination of our corporate income tax liability is subject to review and may be challenged by applicable U.S. and foreign tax authorities. Any adverse outcome of such challenge could harm our operating results and financial condition. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment and, in the ordinary course of business, there are many transactions and calculations where the ultimate tax determination is complex and uncertain. Moreover, as a multinational business, we have subsidiaries that engage in many intercompany transactions in a variety of tax jurisdictions where the ultimate tax determination is complex and uncertain. Our existing corporate structure and intercompany arrangements have been implemented in a manner we believe is in compliance with current prevailing tax laws. Furthermore, as we operate in multiple taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views with respect to, among other things, the characterization and source of income or other tax items, the manner in which the arm’s-length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property. The taxing authorities of the jurisdictions in which we operate may challenge our tax treatment of certain items or the methodologies we use for valuing developed technology or intercompany arrangements, which could impact our worldwide effective tax rate and harm our financial position and operating results.

 

We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property, and goods and services taxes in the United States and various foreign jurisdictions. A change in the tax law could impact tax positions which could result in an increased exposure related to such tax liabilities. Such changes could have an adverse effect on our operating results and financial condition.

 

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” (as defined under Sections 382 and 383 of the Code and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs and certain other tax attributes to offset post-change taxable income or taxes.

 

We have not performed a study to determine whether its NOLs are currently subject to Section 382 limitations. We may also experience a future ownership change under Section 382 of the Code that could affect our ability to utilize its NOLs to offset our income.

 

 

 

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If our estimates or judgment relating to our critical accounting policies prove to be incorrect, our operating results could be adversely affected.

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant estimates and judgments involve the identification of performance obligations in revenue recognition, evaluation of tax positions, inter-company transactions, and the valuation of stock-based awards and the fiat reserves we hold, among others. Our operating results may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of analysts and investors, resulting in a decline in the trading price of our Common Stock.

 

Business metrics and other estimates are subject to inherent challenges in measurement, and our business, operating results, and financial condition could be adversely affected by real or perceived inaccuracies in those metrics.

 

We regularly review business metrics and other measures to evaluate growth trends, measure our performance, and makes strategic decisions. These metrics are calculated using internal company data and have not been validated by an independent third party. While these numbers are based on what we currently believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in such measurements. If we fail to maintain an effective analytics platform, our calculations may be inaccurate, and we may not be able to identify those inaccuracies.

 

We are subject to changes in financial reporting standards or policies, including as a result of choices made by us, which could materially adversely affect our reported results of operations and financial condition and may have a corresponding material adverse impact on capital ratios.

 

Our consolidated financial statements are prepared in accordance with GAAP, which are periodically revised or expanded. Accordingly, from time to time we are required to adopt new or revised accounting standards issued by recognized bodies. It is possible that future accounting standards and financial reporting standards or policies, including as a result of choices made by us, which we are required to adopt, could change the current accounting treatment that applies to our consolidated financial statements and that such changes could have a material adverse effect on our reported results of operations and financial condition, and may have a corresponding material adverse effect on capital ratios.

 

Risks Related to Our Employees and Other Service Providers

 

We are heavily reliant on Dennis O’Leary, our Chairman and Chief Executive Officer, and the departure or loss of Dennis O’Leary could disrupt our business. 

 

We depend heavily on the continued efforts of Dennis O’Leary, Chairman, Chief Executive Officer and director. Mr. O’Leary is essential to our strategic vision and day-to-day operations and would be difficult to replace. Although we have an employment agreement with Mr. O’Leary, we cannot be certain that he will desire to continue with us for the necessary time it will to complete the product development and initial sales channel development. The departure or loss of Mr. O’Leary, or the inability to hire and retain a qualified replacement, could negatively impact our ability to manage our business.

 

 

 

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If we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.

 

For our business to be successful, we need to attract and retain highly qualified technical, management and sales personnel. The failure to recruit additional key personnel when needed with specific qualifications and on acceptable terms or to retain good relationships with our partners might impede our ability to continue to develop, commercialize and sell our products. To the extent the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting and training costs in order to attract and retain such employees. We face competition for qualified personnel from other companies with significantly more resources available to them and thus may not be able to attract the level of personnel needed for our business to succeed.

 

In the event of employee or service provider misconduct or error, our business may be adversely impacted.

 

Employee or service provider misconduct or error could subject us to legal liability, financial losses, and regulatory sanctions, and could seriously harm our reputation and negatively affect our business. Such misconduct could include engaging in improper or unauthorized transactions or activities, misappropriation of customer funds, and misappropriation of information, failing to supervise other employees or service providers, or improperly using confidential information.

 

Employee or service provider errors could expose us to the risk of material losses even if the errors are detected. Although we have implemented processes and procedures and provide trainings to our employees and service providers to reduce the likelihood of misconduct and error, these efforts may not be successful. Moreover, the risk of employee or service provider error or misconduct may be even greater for novel products and services.

 

This can lead to high risk of confusion among employees and service providers, particularly in a fast growth company like ours, with respect to compliance obligations particularly including confidentiality, data access, and conflicts. It is not always possible to deter misconduct and the precautions we take to prevent and detect this activity may not be effective in all cases. If we were found not to have met our regulatory oversight and compliance and other obligations, we could be subject to regulatory sanctions, financial penalties and restrictions on our activities for failure to properly identify, monitor and respond to potentially problematic activity, which could seriously damage our reputation. Our employees, contractors, and agents could also commit errors that subject us to financial claims for negligence, as well as regulatory actions, or result in financial liability. Further, allegations by regulatory or criminal authorities of improper transactions could affect our brand and reputation.

 

Risks Related to Our Common Stock

 

You may experience dilution of your ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.

 

We are authorized to issue an aggregate of 20,000,000,000 shares of common stock and 2,000,000 shares of “blank check” preferred stock. In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We may issue additional shares of our common stock or other securities that are convertible into or exercisable for our common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of the common stock. We will need to raise additional capital in the near future to meet our working capital needs, and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts, including at a price (or exercise or conversion prices) below the price an investor paid for stock.

 

 

 

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Because the SEC imposes additional sales practice requirements on brokers who deal in our shares that are penny stocks, some brokers may be unwilling to trade them. This means that investors may have difficulty reselling their shares and may cause the price of the shares to decline.

 

Our shares qualify as penny stocks and are covered by Section 15(g) of the Exchange Act which imposes additional sales practice requirements on broker/dealers who sell our securities in this offering or in the aftermarket. In particular, prior to selling a penny stock, broker/dealers must give the prospective customer a risk disclosure document that: contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; contains a description of the broker/dealers’ duties to the customer and of the rights and remedies available to the customer with respect to violations of such duties or other requirements of Federal securities laws; contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask prices; contains the toll free telephone number for inquiries on disciplinary actions established pursuant to section 15(A)(i); defines significant terms used in the disclosure document or in the conduct of trading in penny stocks; and contains such other information, and is in such form (including language, type size, and format), as the SEC requires by rule or regulation. Further, for sales of our securities, the broker/dealer must make a special suitability determination and receive from you a written agreement before making a sale to you. Because of the imposition of the foregoing additional sales practices, it is possible that brokers will not want to make a market in our shares. This could prevent reselling of shares and may cause the price of the shares to decline.

 

We do not expect to declare or pay any dividends.

 

We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.

  

Volatility of Stock Price.

 

Our common shares are currently quoted on the OTC Markets under the symbol “DPLS.” In the future, the trading price of our common shares may be subject to wide fluctuations. Trading prices of the common shares may fluctuate in response to a number of factors, many of which will be beyond our control. In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. Market and industry factors may adversely affect the market price of the common shares, regardless of our operating performance. Readers should carefully consider the risks and uncertainties described below before deciding whether to invest in shares of our common stock.

 

Our failure to successfully address the risks and uncertainties described below would have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock may decline and investors may lose all or part of their investment. We cannot assure you that we will successfully address these risks or other unknown risks that may affect our business.

 

As an enterprise engaged in the development of new technology, our business is inherently risky. Our common shares are considered speculative during the development of our new business operations. Prospective investors should consider carefully the risk factors set out herein. The market price of our common stock has fluctuated significantly.

 

Being a public company is expensive and administratively burdensome.

 

As a public reporting company, we are subject to the information and reporting requirements of the Securities Act, the Exchange Act and other federal securities laws, rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act. Complying with these laws and regulations requires the time and attention of our Board of Directors and management team, and increases our expenses.

 

Among other things, we are required to:

 

  · Maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

 

  · Prepare and distribute periodic reports in compliance with our obligations under federal securities laws;

 

  · Institute a more comprehensive compliance function, including with respect to corporate governance; and

 

  · Involve, to a greater degree, our outside legal counsel and accountants in the above activities.

 

 

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The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders are expensive and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire additional financial reporting, internal controls and other finance personnel, and will involve a material increase in regulatory, legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.

 

If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.

 

Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.

 

Public company compliance may make it more difficult to attract and retain officers and directors.

 

The Sarbanes-Oxley Act and rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these rules and regulations to increase our compliance costs in 2023 and beyond and to make certain activities more time consuming and costly. As a public company, we also expect that these rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers.

 

You could lose all of your investment.

 

An investment in our securities is speculative and involves a high degree of risk. Potential investors should be aware that the value of an investment in the Company may go down as well as up. In addition, there can be no certainty that the market value of an investment in the Company will fully reflect its underlying value. You could lose your entire investment.

 

The ability of our Board of Directors to issue additional stock may prevent or make more difficult certain transactions, including a sale or merger of the Company.

 

Our Board of Directors is authorized to issue up to 2,000,000 shares of preferred stock with powers, rights and preferences designated by it. Shares of voting or convertible preferred stock could be issued, or rights to purchase such shares could be issued, to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control of the Company.  The ability of the Board of Directors to issue such additional shares of preferred stock, with rights and preferences it deems advisable, could discourage an attempt by a party to acquire control of the Company by tender offer or other means. Such issuances could therefore deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market price for their shares in a tender offer or the temporary increase in market price that such an attempt could cause. Moreover, the issuance of such additional shares of preferred stock to persons friendly to the Board of Directors could make it more difficult to remove incumbent officers and directors from office even if such change were to be favorable to stockholders generally.

 

 

 

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Our stock may be traded infrequently and in low volumes, so you may be unable to sell your shares at or near the quoted bid prices if you need to sell your shares.

 

Until our common stock is listed on a national securities exchange such as the New York Stock Exchange or the Nasdaq, we expect our common stock to remain eligible for quotation on the OTC Markets, or on another over-the-counter quotation system. In those venues, however, the shares of our common stock may trade infrequently and in low volumes, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. An investor may find it difficult to obtain accurate quotations as to the market value of our common stock or to sell his or her shares at or near bid prices or at all. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise capital.

 

There currently is no active public market for our common stock and there can be no assurance that an active public market will ever develop. Failure to develop or maintain a trading market could negatively affect the value of our common stock and make it difficult or impossible for you to sell your shares.

 

There is currently no active public market for shares of our common stock and one may never develop. Our common stock is quoted on the OTC Markets. The OTC Markets is a thinly traded market and lacks the liquidity of certain other public markets with which some investors may have more experience. We may not ever be able to satisfy the listing requirements for our common stock to be listed on a national securities exchange, which is often a more widely-traded and liquid market. Some, but not all, of the factors which may delay or prevent the listing of our common stock on a more widely-traded and liquid market include the following: our stockholders’ equity may be insufficient; the market value of our outstanding securities may be too low; our net income from operations may be too low; our common stock may not be sufficiently widely held; we may not be able to secure market makers for our common stock; and we may fail to meet the rules and requirements mandated by the several exchanges and markets to have our common stock listed. Should we fail to satisfy the initial listing standards of the national exchanges, or our common stock is otherwise rejected for listing, and remains listed on the OTC Markets or is suspended from the OTC Markets, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility, making it difficult or impossible to sell shares of our common stock.

 

Our common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.

 

Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

 

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Our stock price may be volatile.

 

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

  · The impact of conflict between the Russian Federation and Ukraine on our operations;

 

  · Geo-political events, such as the crisis in Ukraine, government responses to such events and the related impact on the economy both nationally and internationally;

 

  · Changes in our industry;

 

  · Competitive pricing pressures;

 

  · Our ability to obtain working capital financing;

 

  · Additions or departures of key personnel;

 

  · Sales of our common stock;

 

  · Our ability to execute our business plan;

 

  · Operating results that fall below expectations;

 

  · Loss of any strategic relationship;

 

  · Regulatory developments; and

 

  · Economic and other external factors.

 

In addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

 

If our stockholders sell substantial amounts of our common stock in the public market, including upon the expiration of any statutory holding period under Rule 144, or issued upon the conversion of preferred stock or exercise of warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

  

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

 

If our stockholders sell substantial amounts of our common stock in the public market, including upon the expiration of any statutory holding period under Rule 144, or issued upon the conversion of preferred stock or exercise of warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

 

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Risks Related to Government Regulation

 

Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations.

 

Federal, state and international regulatory agencies frequently adopt changes to their regulations or change the way existing regulations are applied. Regulatory or legislative changes to laws applicable to the industries in which we operate, if enacted or adopted, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products and services and to continue offering our current products and services, and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have a material adverse effect on its business, financial condition and results of operations.

 

The regulatory environment to which we are subject gives rise to various licensing requirements, legal and financial compliance costs and management time, and non-compliance could result in monetary and reputational damages, all of which could have a material adverse effect on our business, financial position and results of operations.

 

There can be no assurance that we will be able to maintain our existing, or obtain additional, required regulatory licenses, certifications and regulatory approvals in the countries where we provide services or want to expand to. Furthermore, where we have obtained such regulatory licenses, certifications and regulatory approvals, there are costs and potential product changes involved in maintaining such regulatory licenses, certifications, and approvals, and we could be subject to fines or other enforcement action if we are found to violate disclosure, reporting, anti-money laundering, capitalization, corporate governance or other requirements of such licenses. These factors could impose substantial additional costs and involve considerable delay to the development or provision of our products or services, or could require significant and costly operational changes or prevent us from providing any products or services in a given market.

 

If we are unable to commit sufficient resources to regulatory compliance, this could lead to delays and errors and may force us to choose between prioritizing compliance matters over administrative support for business activities, or may ultimately force us to cease offering certain products or services globally or in certain jurisdictions. Any delays or errors in implementing regulatory compliance could lead to substantial monetary damages and fines, public reprimands, a material adverse effect on our reputation, regulatory measures in the form of cease and desists orders, increased regulatory compliance requirements or other potential regulatory restrictions on our business, enforced suspension of operations and in extreme cases, withdrawal of regulatory licenses or authorizations to operate particular businesses, or criminal prosecution in certain circumstances.

 

We are and may continue to be subject to litigation, including individual and class action lawsuits, as well as regulatory audits, disputes, inquiries, investigations and enforcement actions by regulators and governmental authorities.

 

We have been and may from time to time become subject to material claims, arbitrations, individual and class action lawsuits, government and regulatory investigations, inquiries, actions or requests and other proceedings alleging violations of laws, rules, and regulations, both foreign and domestic, involving competition and antitrust law, intellectual property, privacy, data protection, information security, anti-money laundering, counter terrorist financing, sanctions, anti-corruption, accessibility claims, securities, tax, labor and employment, payment network rules, commercial disputes, services, and other matters.

 

The laws, rules and regulations affecting our business are subject to ongoing interpretation by the courts and governmental and supervisory authorities, and the resulting uncertainty in the scope and application of these laws, rules and regulations increases the risk that we will be subject to private claims, governmental and regulatory actions alleging violations of those laws, rules, and regulations.

 

The scope, determination, and impact of claims, lawsuits, government and regulatory investigations, enforcement actions, disputes, and proceedings to which we are subject cannot be predicted with certainty, and may result in:

 

  · substantial payments to satisfy judgments, fines, or penalties;
     
  · substantial outside counsel legal fees and costs;
     
  · additional compliance and licensure requirements;
     
  · loss or non-renewal of existing licenses or authorizations, or prohibition from or delays in obtaining additional licenses or authorizations, required for our business;

 

 

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  · loss of productivity and high demands on employee time;
     
  · civil or criminal sanctions or consent decrees;
     
  · termination of certain employees, including members of our management team;
     
  · barring of certain employees from participating in our business in whole or in part;
     
  · orders that restrict our business or prevent us from offering certain products or services;
     
  · changes to our business model and practices;
     
  · delays to planned transactions, product launches or improvements; and
     
  · damage to our brand and reputation.

 

Any such matters can have an adverse impact, which may be material, on our business, operating results, or financial condition because of legal costs, diversion of management resources, reputational damage, and other factors.

 

Risks Related to Our Intellectual Property

 

Our intellectual property rights are valuable, and any inability to protect them could adversely impact our business, operating results, and financial condition.

 

Our business depends in large part on our proprietary technology and our brand. We rely on, and expect to continue to rely on, a combination of trademark, trade dress, domain name, copyright, and trade secret and laws, as well as confidentiality and license agreements with our employees, contractors, consultants, and third parties with whom we have relationships, to establish and protect our brand and other intellectual property rights.

 

Our efforts to protect our intellectual property rights may not be sufficient or effective. Our proprietary technology and trade secrets could be lost through misappropriation or breach of our confidentiality and license agreements, and any of our intellectual property rights may be challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. There can be no assurance that our intellectual property rights will be sufficient to protect against others offering products, services, or technologies that are substantially similar to ours and that compete with our business.

 

As we grow, we will seek to obtain and protect our intellectual property rights in an increasing number of countries, a process that can be expensive and may not always be successful. For example, the U.S. Patent and Trademark Office and various foreign governmental intellectual property agencies require compliance with a number of procedural requirements to complete the trademark application process and to maintain issued trademarks, and noncompliance or non-payment could result in abandonment or lapse of a trademark or trademark application, resulting in partial or complete loss of trademark rights in a relevant jurisdiction. Further, intellectual property protection may not be available to us in every country in which our products and services are available. We may also agree to license our intellectual property to third parties as part of various agreements. Those licenses may diminish our ability, though, to counter-assert our intellectual property rights against certain parties that may bring claims against us.

 

In the future we may be sued by third parties for alleged infringement of their proprietary rights.

 

In recent years, there has been considerable patent, copyright, trademark, domain name, trade secret and other intellectual property development activity, as well as litigation, based on allegations of infringement or other violations of intellectual property, including by large financial institutions. Furthermore, individuals and groups can purchase patents and other intellectual property assets for the purpose of making claims of infringement to extract settlements from companies like ours. We use of third-party intellectual property rights also may be subject to claims of infringement or misappropriation.

 

 

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We cannot guarantee that our internally developed or acquired/licensed technologies and content do not or will not infringe the intellectual property rights of others. From time to time, our competitors or other third parties may claim that we are infringing upon or misappropriating their intellectual property rights, and we may be found to be infringing upon such rights. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our products or services or using certain technologies, force us to implement expensive work-arounds, or impose other unfavorable terms. Our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources. Further, during the course of any litigation, we may make announcements regarding the results of hearings and motions, and other interim developments. If securities analysts and investors regard these announcements as negative, the market price of our Common Stock may decline. Even if intellectual property claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and require significant expenditures. Any of the foregoing could prevent us from competing effectively and could have an adverse effect on our business, operating results, and financial condition.

 

Risks Related to the Offering

 

Our existing stockholders may experience significant dilution from the sale of our common stock pursuant to the GHS Equity Financing Agreement and our share price could decline.

 

Since August 2021, we have entered into several equity financing agreements (and similar securities purchase agreements) with GHS pursuant to which we sold to GHS an aggregate of 2,272,007,223 shares of our Common Stock at purchase prices of a range of $0.0696 to $0.0008576 per share. The effective discount has been 20%.

 

The sale of our common stock to GHS in accordance with the EFA may have a dilutive impact on our shareholders. As a result, the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise Puts, the more shares of our common stock we will have to issue to GHS in order to exercise a Put under the EFA. If our stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raised through the offering. On August 15, 2021, our share price closed at $0.112 and closed at $0.0012 on February 7, 2024.

 

The perceived risk of dilution may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.

 

The issuance of shares pursuant to the EFA may have a significant dilutive effect.

 

Depending on the number of shares we issue pursuant to the EFA, it could have a significant dilutive effect upon our existing shareholders. Although the number of shares that we may issue pursuant to the EFA will vary based on our stock price (the higher our stock price, the less shares we have to issue), there may be a potential dilutive effect to our shareholders, based on different potential future stock prices, if the full amount of the EFA is realized. Dilution is based upon common stock put to GHS and the stock price discounted to GHS’s purchase price.

 

GHS will pay less than the then-prevailing market price of our common stock which could cause the price of our common stock to decline.

 

Our common stock to be issued under the EFA will be purchased at an 8% discount, or 92% of the lowest volume weighted average price (“VWAP”) for the Company’s common stock during the five consecutive trading days immediately preceding each Put.

 

GHS has a financial incentive to sell our shares immediately upon receiving them to realize the profit between the discounted price and the market price. If GHS sells our shares, the price of our common stock may decrease. If our stock price decreases, GHS may have further incentive to sell such shares. Accordingly, the discounted sales price in the EFA may cause the price of our common stock to decline.

 

We may not have access to the full amount under the financing agreement.

 

The lowest VWAP of our Common Stock for the five consecutive trading days ended February 6, 2024 was $0.0011. At that price we would be able to sell shares to GHS under the EFA at the discounted price of $0.001012. In addition, we are required to issue to GHS shares in the amount of 115% of each Put. At that discounted price, 3,500,000,000 shares would only represent $3,080,000, which is below the full amount of the EFA.

 

In addition, any single drawdown must be at least $10,000 and cannot  exceed $1,000,000 and any single drawdown may not exceed 100% of the average daily trading dollar volume of our Common Stock during the ten trading days preceding the Put.

 

 

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There could be unidentified risks involved with an investment in our securities.

 

The foregoing risk factors are not a complete list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that are not presently foreseen by us. Prospective investors must not construe this the information provided herein as constituting investment, legal, tax or other professional advice. Before making any decision to invest in our securities, you should read this entire Prospectus and consult with your own investment, legal, tax and other professional advisors. An investment in our securities is suitable only for investors who can assume the financial risks of an investment in us for an indefinite period of time and who can afford to lose their entire investment. We make no representations or warranties of any kind with respect to the likelihood of the success or the business of our Company, the value of our securities, any financial returns that may be generated or any tax benefits or consequences that may result from an investment in us.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains various “forward-looking statements.” You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “would,” “could,” “should,” “seeks,” “approximately,” “intends,” “plans,” “projects,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. These statements may be impacted by a number of risks and uncertainties.

 

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our securities. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section entitled “Risk Factors.

 

PRIVATE PLACEMENT

 

Equity Financing Agreement

 

On July 10, 2023, we entered into the EFA and Registration Rights Agreement (the “Registration Rights Agreement”) 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 (the “Contract Period”) after effectiveness of a registration statement on Form S-1 (the “Registration Statement”) of the underlying shares of Common Stock. On January 30, 2024, we and GHS entered into the Amendment No. 1 to the EFA pursuant to which the Contract Period was amended to 24 months.

 

The EFA grants us the right, from time to time at our sole discretion (subject to certain conditions) during the Contract Period, to direct GHS to purchase shares of Common Stock on any business day (a “Put”), provided that at least five Trading Days (as defined in the EFA) have passed since the most recent Put. The purchase price of the shares of Common Stock contained in a Put shall be 92% of the Market Price with “Market Price” defined as the lowest VWAP of the Common Stock during the Pricing Period (as defined in the EFA). In addition, we are required to issue to GHS shares in the amount of 115% of each Put. Due to the fact that 115% of shares are required to be issued to GHS with each Put, the effective discount is 20%. No Put will be made in an amount less than $10,000 or greater than $1,000,000.

 

In no event are we entitled to make a Put or is GHS entitled to purchase that number of shares of Common Stock of the Company, which when added to the sum of the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the Exchange Act), by GHS, would exceed 4.99% of the number of shares of Common Stock outstanding on such date, as determined in accordance with Rule 13d-1(j) of the Exchange Act.

 

The EFA will terminate upon any of the following events: when GHS has purchased an aggregate of $30,000,000 in the Common Stock of the Company pursuant to the EFA; on the date that is 24 months from the date of the EFA; or by mutual written consent of the parties. Actual sales of shares of Common Stock to GHS under the EFA will depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by us as to the appropriate sources of funding for the Company and its operations. The net proceeds under the EFA to us will depend on the frequency and prices at which we sell shares of our stock to GHS.

 

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

 

We will use the proceeds from the Puts for global expansion and also potential acquisitions deemed beneficial to our operational capabilities.

 

See “Plan of Distribution” elsewhere in this prospectus for more information.

 

 

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USE OF PROCEEDS

 

The Selling Security Holder will receive all the proceeds from the sales of the Shares under this prospectus. We will not receive any proceeds from these sales. To the extent we receive proceeds from the Puts to the Selling Security Holder, we will use those proceeds for global expansion and also potential acquisitions deemed beneficial to our operational capabilities. We have agreed to bear the certain expenses relating to the registration of the shares of Common Stock being registered herein for Selling Security Holder.

 

See “Plan of Distribution” elsewhere in this prospectus for more information.

 

SELLING SECURITY HOLDER

 

This prospectus covers the offering of up to 3,500,000,000 shares of Common Stock being offered by the Selling Security Holder, which includes shares of Common Stock acquirable upon the issuance of a Put to the Selling Security Holder, as described herein. We are registering the Shares in order to permit the Selling Security Holder to offer their shares of Common Stock for resale from time to time.

 

The table below lists the Selling Security Holder and other information regarding the “beneficial ownership” of the shares of Common Stock by the Selling Security Holder. In accordance with Rule 13d-3 of the Exchange Act, “beneficial ownership” includes any shares of Common Stock as to which the Selling Security Holder has sole or shared voting power or investment power and any shares of Common Stock the Selling Security Holder has the right to acquire within 60 days.

 

The Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act with respect to the shares which may be sold pursuant to the EFA.

 

The second column indicates the number of shares of Common Stock beneficially owned by the Selling Security Holder, based on its ownership as of February 9, 2024. The second column also assumes purchase of all shares of stock to be acquired under the maximum amount of securities to be sold by the Company to the Selling Security Holder, without regard to any limitations on purchase described in this prospectus or in the EFA.

 

The third column lists the shares of Common Stock being offered by this prospectus by the Selling Security Holder. Such aggregate amount of Common Stock does not take into account any applicable limitations on purchase of the securities under the EFA.

 

This prospectus covers the resale of (i) all of the shares of Common Stock issued and issuable upon the Company issuing a Put, and (ii) any securities issued or then issuable upon any full anti-dilution protection, stock split, dividend or other distribution, recapitalization or similar event with respect to the common shares.

 

Because the issuance price of the common shares may be adjusted, the number of shares of Common Stock that will actually be issued upon issuance of the common shares may be more or less than the number of shares of Common Stock being offered by this prospectus. The Selling Security Holder can offer all, some or none of its shares of Common Stock, thus we have no way of determining the number of shares of Common Stock it will hold after this offering. Therefore, the fourth and fifth columns assume that the Selling Security Holder will sell all shares of Common Stock covered by this prospectus. See “Plan of Distribution.

 

The Selling Security Holder identified below has confirmed to us that it is not a broker-dealer or an affiliate of a broker-dealer within the meaning of United States federal securities laws.

 

   

Number of

Shares of

Common Stock

Owned Prior to

Offering(1)

   

Maximum

Number of

Shares of

Common Stock

to be Sold

Pursuant to this

Prospectus

   

Number of

Shares of

Common Stock

Owned After

Offering

   

Percentage

Beneficially

Owned After

Offering

 
GHS Investments, LLC (1)     216,416,267       3,500,000,000 (2)            
TOTAL     216,416,267       3,500,000,000              

__________

(1) GHS Investments, LLC is a limited liability company organized under the laws of Nevada. Mark Grober has dispositive power over the shares owned by GHS.
(2) 3,500,000,000 shares to be issued pursuant to the EFA.

 

 

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Material Relationships with Selling Security Holder

 

The Selling Security Holder has not at any time during the past three years acted as one of our employees, officers or directors or had a material relationship with us except (i) with respect to transactions described above in “Private Placement,” (ii) the Purchase Agreement dated August 19, 2021 with GHS, (iii) the Equity Financing Agreement dated November 9, 2021 with GHS, and (iv) the EFA.

 

MARKET PRICE OF COMMON STOCK AND OTHER STOCKHOLDER MATTERS

 

Our Common Stock is currently quoted on the OTC Markets, which is sponsored by OTC Markets Group, Inc. The OTC Markets is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks,” as well as volume information. Our shares are quoted on the OTC Markets under the symbol “DPLS.”

 

The table below sets forth for the periods indicated the quarterly high and low bid prices as reported by OTC Markets. Limited trading volume has occurred during these periods. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.

 

2023   High     Low  
First Quarter   $ 0.0108     $ 0.0032  
Second Quarter   $ 0.0120     $ 0.0030  
Third Quarter   $ 0.0054     $ 0.0014  
Fourth Quarter   $ 0.0022     $ 0.0008  

  

2022   High     Low  
First Quarter   $ 0.0890     $ 0.0252  
Second Quarter   $ 0.0589     $ 0.0190  
Third Quarter   $ 0.0455     $ 0.0189  
Fourth Quarter   $ 0.0230     $ 0.0078  

 

Our common stock is considered to be penny stock under rules promulgated by the SEC. Under these rules, broker-dealers participating in transactions in these securities must first deliver a risk disclosure document which describes risks associated with these stocks, broker-dealers’ duties, customers’ rights and remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect of designation as a penny stock is to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.

 

The high and low bid price for shares of our Common Stock on February 7, 2024, was $0.0013 and $0.001, respectively, based upon bids that represent prices quoted by broker-dealers on the OTC Markets.

 

Approximate Number of Equity Security Holders

 

As of February 9, 2024, there were approximately 951 stockholders of record. Because shares of our Common Stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record.

 

 

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Dividends

 

We have not declared or paid a cash dividend to our stockholders since we were organized and does not intend to pay dividends in the foreseeable future. Our board of directors presently intends to retain any earnings to finance our operations and does not expect to authorize cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend upon our earnings, capital requirements and other factors.

 

Section 15(g) of the Securities Exchange Act of 1934

 

Our shares are covered by section 15(g) of the Exchange Act that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser's written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.

 

Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one-page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as bid and offer quotes, a dealers spread and broker/dealer compensation; the broker/dealer compensation, the broker/dealers’ duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers’ rights and remedies in cases of fraud in penny stock transactions; and, the FINRA’s toll free telephone number and the central number of the North American Securities Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.

 

Penny Stock

 

Our stock is considered a penny stock. The SEC has adopted rules that regulate broker-dealer practices in transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

 

These disclosure requirements may have the effect of reducing the trading activity for our Common Stock. Therefore, stockholders may have difficulty selling our securities.

 

Rule 10B-18 Transactions

 

During the year ended December 31, 2023, there were no repurchases of our common stock by the Company.

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

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. 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.

 

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.

 

 

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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.

 

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.

 

 

 

 

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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.

 

Derivative Financial Instruments

 

The Company evaluates the embedded conversion feature within its convertible debt instruments under ASC 815-15 and ASC 815-40 to determine if the conversion feature meets the definition of a liability and, if so, whether to bifurcate the conversion feature and account for it as a separate derivative liability. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a lattice model, in accordance with ASC 815-15, Derivative and Hedging, to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument could be required within 12 months after the balance sheet date.

 

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.

 

 

 

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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.

 

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 was scheduled for July 18, 2023.

 

 

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On July 18, 2023, the interview was held between the Official Receiver’s Office (“OR”) and the CEO at time of dissolution. The OR office requested a list of assets, bank account information and amounts along with any contracts held by Optilan (UK) Limited to begin the liquidation process.

 

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

 

There are no new claims against Optilan (UK) Limited and Evelyn Partners continue to liquidate the company’s assets.

 

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.

 

Quarter Ended March 31, 2023 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, 2023 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.

 

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.

 

 

 37 

 

 

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, as amended (the “EFA”), and Registration Rights Agreement (the “Registration Rights Agreement”) 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 24 months after effectiveness of a registration statement on Form S-1 of the underlying shares of Common Stock.

 

The Registration Rights Agreement 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 Registration Rights Agreement; and (ii) have the registration statement declared effective by the SEC within 30 days after the date the 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 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  
    216,416,267   $ 914,558       $ 791,684  

 

Prior to the sales being made, GHS agreed to purchase the shares without an effective registration statement in place, and, as such, the shares were restricted.

 

 

 

 38 

 

 

Going Concern Uncertainty

 

As shown in the accompanying financial statements, we 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 entities. Optilan (UK) Limited and its subsidiaries have been deconsolidated and are no longer under the control of DarkPulse, Inc.

 

We will require additional funding to finance the growth of our operations and achieve our strategic objectives. These factors, as relative to capital raising activities, create substantial doubt as to our ability to continue as a going concern. We are seeking to raise additional capital and are targeting strategic partners in an effort to accelerate the sales and marketing of our products and begin generating revenues. Our ability to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements, expansion of our operations and generating sales. The accompanying financial statements do not include any adjustments that might be necessary should we 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; however, management cannot make any assurances that such financing will be secured.

 

Foreign Currency Risk

 

In general, the Company is a net receiver of currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, will negatively affect the Company’s net sales and gross margins as expressed in U.S. dollars. There is a risk that the Company will have to adjust local currency product pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates.

 

Results of Operations

 

For the Three- and Nine-Months Ended September 30, 2023 and 2022

 

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.

 

The Company’s future revenues will be derived from the following, among other things.

 

  · promote adoption if our patented technology through agency and distribution agreements;
     
  · cross-selling existing customer with products from other subsidiaries;
     
  · provide a wide array of diverse services, including enhanced or additional services that may become available in the future due to, among other things, advances in technology or improvements in our infrastructure;
     
  · pursue acquisitions of additional assets, in each case if available at attractive prices; and
     
  · market our products and services to new customers.

 

While 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, the Company also maintains multiple contracts for future material revenues, including part of framework contracts that will be recognized during future reporting periods.

 

For the three and nine months ended September 30, 2023, total revenues were $82,071 and $2,032,673 compared to $1,431,104 and $7,884,480 for the three and nine months ended September 30, 2022. The decreases were primarily due to the Optilan (UK) liquidation and lower revenues achieved by Wildlife and Remote given capital and resources restraints. 

 

 

 39 

 

 

Cost of Revenues and Gross Margin

 

For the three and nine months ended September 30, 2023, cost of revenues was $3,005 and $2,414,645 compared to $5,804,875 and $12,119,352 for the nine months ended September 30, 2022. The decrease was attributable to the Optilan (UK) Limited liquidation and lower revenues from Remote Intelligence and Wildlife Specialists.

 

Gross profit (loss) for the nine months ended September 30, 2023 was ($381,972) compared to ($4,234,872) for the nine months ended September 30, 2022. During 2022, it was realized that certain fixed price quoted contracts, with design and execution issues, prolonged the completion of the projects. This resulted in significant excess costs related to labor, subcontractor, and material costs. The Company has adequately reserved for these costs through completion of the projects in the third quarter of 2023. Unfortunately, there was very little foresight into the magnitude of the loss. The Company believes that this is not a recurring issue with Optilan and/or its business model. The Company has undertaken internal procedures during its bid process to assure that such practices will not occur in the future.

 

Operating Expenses

 

Selling, general and administrative expenses for three and nine months ended September 30, 2023 decreased by $1,211,822 and $1,779,060, respectively. The decrease primarily consisted of decrease in advertising costs, insurance and information technology expenses.

 

Salaries, wages and payroll taxes for three and nine months ended September 30, 2023 decreased by $1,506,908 and $2,729,044, respectively. The decrease primarily consisted of reduced headcount at each subsidiary. Furthermore, the Company reduced accrued payroll which it was determined was no longer payable.

 

As of September 30, 2023, the Company recorded a bad debt provision of $2,433,963, primarily pertaining to the Optilan UK Liquidation.

 

Professional fees for the three months ended September 30, 2023 decreased by $1,511,499 for the three months ended September 30, 2022 and Professional fees for the nine months ended September 30, 2023 decreased by $1,323,813 for the nine months ended September 30, 2022, as Optilan operations ceased.

 

During the three and nine months ended September 30, 2023, the Company recorded a gain on forgiveness of debt of $0 and $106,794.

 

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.

 

Depreciation and amortization for three months ended September 30, 2023 and 2022 was $44,502 and $597,970, respectively.

 

Other Income (Expense)

 

For the three months ended September 30, 2023, we had other expenses of $(521,352) compared to other income of $896,585 for the three months ended September 30, 2022. The increase in other expenses was primarily due to interest expense and foreign currency exchange rate variance in 2023.

 

For the nine months ended September 30, 2023, we had other expenses of $(2,332,234) compared to other expenses of $(128,578) for the nine months ended September 30, 2022. The increase in other expenses was primarily due to loss on deconsolidation in 2023.

 

 

 40 

 

 

Net Loss

 

As a result of the above, we reported a net loss of $998,576 and $8,805,668 for the three months ended September 30, 2023 and 2022, respectively.

 

As a result of the above, we reported a net loss of $19,915,940 and $18,375,506 for the nine months ended September 30, 2023 and 2022, respectively.

 

For the Years Ended December 31, 2022 and 2021

 

Revenues

  

Since 2021, we have recognized revenue derived from the acquisitions of our subsidiaries consummated during the periods ended September 30, 2021 through present.

 

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.

 

The Company’s future revenues will be derived from the following, among other things.

 

  · promote adoption if our patented technology through agency and distribution agreements;
     
  · cross-selling existing customer with products from other subsidiaries;
     
  · provide a wide array of diverse services, including enhanced or additional services that may become available in the future due to, among other things, advances in technology or improvements in our infrastructure;
     
  · pursue acquisitions of additional assets, in each case if available at attractive prices; and
     
  · market our products and services to new customers.

 

While 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, the Company also maintains multiple contracts for future material revenues, including part of framework contracts that will be recognized during future reporting periods.

 

For the year ended December 31, 2022, total revenues were $9,100,255 compared to $7,783,340 for the year ended December 31, 2021, an increase of $1,316,915. The increase was primarily due to a full year of revenue generated from the Company’s subsidiaries acquired in 2021. The breakdown of revenues by entity for the years ended December 31, 2022 and 2021 is as follows:

 

   Years Ended
December 31,
 
   2022   2021 
Optilan  $7,514,687   $7,232,210 
Wildlife   842,811    306,548 
TJM   560,406    174,266 
Remote Intelligence   140,490    24,816 
TerraData   41,861    45,500 
   $9,100,255   $7,783,340 

 

 

 41 

 

 

Cost of Revenues and Gross Margin

 

For the year ended December 31, 2022, cost of revenues was $14,543,529 compared to $6,685,210 for the year ended December 31, 2021, an increase of $7,858,319. The increase was primarily due to a full year of cost of revenue incurred from the Company’s subsidiaries acquired in 2021. The Optilan cost of revenue in 2022 of $13,069,792 increased $6,699,322 over 2021. During 2022, it was realized that certain Fixed Price quoted contracts, with design and execution issues, prolonged the completion of the projects. These delays resulted in significant excess costs of approximately $6,061,790. These costs were related to labor, subcontractor, and material costs, along with Covid-19 and current inflation rates. The remaining $637,532 increase is related to warranty and other work associated with different projects. The company has adequately reserved for these costs through completion of the projects in the third quarter of 2023. Unfortunately, there was very little foresight into the magnitude of the loss. The Company believes that this is not a recurring issue with Optilan and/or its business model. The Company has undertaken internal procedures during its bid process to assure that such practices will not occur in the future.

 

Gross (loss) profit for the year ended December 31, 2022 was ($5,443,275) with a gross loss of (60)% compared to $1,098,130 for the year ended December 31, 2021 with a 14% gross margin.

 

Operating Expenses

 

Selling, general and administrative expenses for year ended December 31, 2022 increased by $1,047,735, or 27%, to $4,966,702 from $3,918,967 for the year ended December 31, 2021. The increase primarily consisted of an increase to the operations from our various acquisitions, including higher travel, advertising costs, insurance and information technology expenses.

 

Salaries, wages and payroll taxes for year ended December 31, 2022 increased to $7,457,491 from $2,653,683 for the year ended December 31, 2021. The increase primarily consisted of an increase in the numbers of employees inherited from our various acquisitions, and a full year of personnel costs from these entities. Salaries, wages and payroll taxes was primarily driven by $4,601,840 incurred at the Optilan subsidiary.

 

Professional fees for the year ended December 31, 2022, increased to $3,718,171 from $2,930,245 for the year ended December 31, 2021. This increase primarily consisted of legal expenditures incurred by DarkPulse for corporate matters, including the Company’s SPAC transaction, as well as a full year of professional fees incurred by Optilan.

 

Depreciation and amortization for year ended December 31, 2022, increased to $1,568,405 from $258,306 for the year ended December 31, 2021. This increase is primarily due to the increase in the depreciable assets we acquired from new acquisitions, primarily Optilan’s property and equipment as well as amortization of its intangible asset.

 

During the year ended December 31, 2022, the Company recorded a gain on forgiveness of payables of $312,685.

 

During the year ended December 31, 2022, the Company recorded $12,222,598 in impairment on the Company’s goodwill and intangible assets.

 

Other Income (Expense)

 

For the year ended December 31, 2022, we had other expense of ($453,549) compared to other income of $4,021,700 for the year ended December 31, 2021. The decrease in other income was primarily due to higher interest expense in 2022, a gain on forgiveness of liabilities of $3,488,860 in 2021, as well as a lower gain on the change in fair value of derivative liabilities.

 

Net Loss

 

As a result of the above, we reported a net loss of $35,517,505 and $4,826,320 for the years ended December 31, 2022 and 2021, respectively.

 

 

 42 

 

 

Liquidity and Capital Resources

 

September 30, 2023 Compared to September 30, 2022

 

We require working capital to fund the continued development and commercialization of our proprietary fiber optic sensing devices, and for operating expenses. During the nine months ended September 30, 2023, we had $3,090,717 in cash proceeds from our equity financings compared to $23,794,275 in 2022.

 

As of September 30, 2023, we had cash of $64,892 compared to $2,060,332 as of December 31, 2022. We currently do not have sufficient cash to fund our operations for the next 12 months and we will require working capital to complete development, testing and marketing of our products and to pay for ongoing operating expenses. We anticipate adding consultants for technology development and the corresponding operations of the Company, but this will not occur prior to obtaining additional capital. Management is currently in the process of looking for additional investors. Currently, loans from banks or other lending sources for lines of credit or similar short-term borrowings are not available to us. We have been able to raise working capital to fund operations through the issuances of convertible notes or obtained through the issuance of our restricted common stock. As of September 30, 2023, our current liabilities exceeded our current assets by $18,527,365.

 

The Company’s current outstanding debt is $5,990,110, of which the amount pending litigation, and $869,225 of which is currently in default. The 12 month future cash required is $2,718,828.

 

We have recently completed development activities of our Gen. 3 dark-pulse BOTDA system and are pending a Purchase Order issuance to our contract manufacturer Sanmina Corp (NASDAQ: SANM) for full manufacturing of our patented BOTDA sensor system hardware. To date, we have yet to sell our patented BOTDA dark-pulse sensor system and we have built two units for testing the system in the field. We are now able to sell our patented technology and related services.

 

The Company has limited resources and will require working capital to continue operations.

 

Several of our significant operating subsidiaries have borrowed funds from DarkPulse. The terms of the instruments governing the indebtedness of these borrowers or borrowing groups may restrict our ability to access their accumulated cash. In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax, legal and other considerations.

 

Our executive officers and our Board of Directors review our sources and potential uses of cash in connection with our annual budgeting process and whenever circumstances warrant. Generally speaking, our principal funding source is cash from financing activities, and our principal cash requirements include loans to our operating subsidiaries, operating expenses, and capital expenditures,

 

December 31, 2022 Compared to December 31, 2021

 

We require working capital to fund the continued development and commercialization of our proprietary fiber optic sensing devices, and for operating expenses. During the year ended December 31, 2022, we had $24,276,308 in cash proceeds from our equity financings compared to $14,593,327 in 2021.

 

As of December 31, 2022, we had cash of $2,060,332 compared to $3,658,846 as of December 31, 2021. We currently do not have sufficient cash to fund our operations for the next 12 months and we will require working capital to complete development, testing and marketing of our products and to pay for ongoing operating expenses. We anticipate adding consultants for technology development and the corresponding operations of the Company, but this will not occur prior to obtaining additional capital. Management is currently in the process of looking for additional investors. Currently, loans from banks or other lending sources for lines of credit or similar short-term borrowings are not available to us. We have been able to raise working capital to fund operations through the issuances of convertible notes or obtained through the issuance of our restricted common stock. As of December 31, 2022, our current liabilities exceeded our current assets by $11,562,784.

 

Several of our significant operating subsidiaries have borrowed funds from DarkPulse. The terms of the instruments governing the indebtedness of these borrowers or borrowing groups may restrict our ability to access their accumulated cash. In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax, legal and other considerations.

 

Our executive officers and our Board of Directors review our sources and potential uses of cash in connection with our annual budgeting process and whenever circumstances warrant. Generally speaking, our principal funding source is cash from financing activities, and our principal cash requirements include loans to our operating subsidiaries, operating expenses, and capital expenditures,

 

 

 43 

 

 

Cash Flows from Operating Activities

 

September 30, 2023 Compared to September 30, 2022

 

During the nine months ended September 30, 2023, net cash used by operating activities was $4,066,096 resulting from our net loss of $19,915,940 partially offset by non-cash charges of $13,322,329 primarily driven by impairment charges, bad debt expense and the issuance of common stock for a legal settlement. In 2023, we had cash received by our operating assets and liabilities of $2,527,515 primarily driven by decreases in accounts receivable and contract assets and increases in accounts payable.

 

During the nine months ended September 30, 2022, net cash used by operating activities was $19,456,701, resulting from our net loss of $18,375,506, partially offset by non-cash charges of $797,166. In 2022, we had cash used in our operating assets and liabilities of $1,878,361 primarily due to increases in accounts receivable and contract assets partially offset by increases in accounts payable and contract liabilities. 

 

December 31, 2022 Compared to December 31, 2021

 

During the year ended December 31, 2022, net cash used by operating activities was $21,738,542 resulting from our net loss of $35,517,505, partially offset by non-cash charges of $13,307,813 primarily driven by our goodwill impairment. In 2022, we had cash provided by our operating assets and liabilities of $471,149 primarily driven by decreases in accounts receivable and increases in accounts payable partially offset by decreases in other liabilities.

 

During the year ended December 31, 2021, net cash used by operating activities was $11,363,470, resulting from our net loss of $4,826,320, non-cash gains of $3,279,403 and cash used in our operating assets and liabilities of $3,257,746.

 

Cash Flows from Investing Activities

 

September 30, 2023 Compared to September 30, 2022

 

During the nine months ended September 30, 2023, we had net cash used in investing activities of $1,409,128, including $563,317 in notes and $630,337 in advances to related party, as well as our joint venture investment of $113,124 and purchase of property and equipment of $102,350.

 

During the nine months ended September 30, 2022, we had net cash used in investing activities of $594,310 due to $64,980 in deposits and purchase of property and equipment of $529,330.

 

December 31, 2022 Compared to December 31, 2021

 

During the year ended December 31, 2022, we had net cash used in investing activities of $5,045,405, including the issuance of our note receivable and investment with the SPAC totaling $2,549,248, joint venture investment of $103,505 and purchase of property and equipment of $2,074,627.

 

During the year ended December 31, 2021, we had net cash used in investing activities of $1,689,153, primarily due from the purchase of property and equipment and net cash used in business acquisitions.

 

Cash Flows from Financing Activities

 

September 30, 2023 Compared to September 30, 2022

 

During the nine months ended September 30, 2023, net cash provided by financing activities was $3,090,717 which was primarily comprised of proceeds from the sale of common stock of $3,067,764 and proceeds from the issuance of convertible notes $50,000, less net repayments of loans of $27,047.

 

During the nine months ended September 30, 2022, net cash provided by financing activities was $23,794,275, comprised of proceeds from the sale of common stock from offering of $23,794,275.

 

 

 44 

 

 

December 31, 2022 Compared to December 31, 2021

 

During the year ended December 31, 2022, net cash provided by financing activities was $24,165,801 which was primarily comprised of proceeds from the sale of common stock of $24,276,308, net of costs of $1,934,200, less net repayments of loans of $110,507.

 

During the year ended December 31, 2021, net cash provided by financing activities was $17,311,427, comprised of proceeds from the sale of common stock from offering of $14,593,327, the issuance of convertible debt in the amount of $1,102,700, the issuance of notes payable of $2,000,000 offset by payments on convertible debt of $384,600.

 

Factors That May Affect Future Results

 

Management’s Discussion and Analysis contains information based on management’s beliefs and forward-looking statements that involve a number of risks, uncertainties, and assumptions. There can be no assurance that actual results will not differ materially from the forward-looking statements as a result of various factors, including but not limited to, our ability to obtain the equity funding or borrowings necessary to market and launch our products, our ability to successfully serially produce and market our products; our success establishing and maintaining collaborative licensing and supplier arrangements; the acceptance of our products by customers; our continued ability to pay operating costs; our ability to meet demand for our products; the amount and nature of competition from our competitors; the effects of technological changes on products and product demand; and our ability to successfully adapt to market forces and technological demands of our customers.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.

 

Recent Accounting Pronouncements

 

In November 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, issued by the Financial Accounting Standards Board. This ASU requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in the recognition of contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition  date rather than at fair value. The Company expects that there would be no material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.

 

In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for convertible debt with a cash conversion feature and convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that is within the scope of ASU 2020-06. ASU 2020-06 is applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company adopted ASU 2020-06 on January 1, 2022 and the adoption of this ASU did not have a material impact on the Company’s consolidated financial statements and related disclosures.

 

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.

 

 

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BUSINESS

 

Organization

 

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 consist of 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; 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; Optilan India PVT (India); and Optilan Communications & Security Systems Ltd (Turkey).

 

Our Operating Units

 

TerraData Unmanned

 

Comprised of a team with more than 30 years cumulative experience in the unmanned industry, TerraData Unmanned (“TerraData”) custom manufactures National Defense Authorization Act (“NDAA”) compliant drones and unmanned ground crawlers to meet the needs of its customers. TerraData has successfully delivered a custom drone platform per a customer’s specifications which exceeds current industry offering by more than 30 minutes. The team has manufactured, and successfully flight tested a Quad Copter drone with 1.5KG payload capabilities that delivers more than 60 minutes of continuous flight. This cutting-edge design is a combination of proprietary software and hardware. The custom platform offers NDAA compliant autopilot, communications links, Technical Standard Orders (“TSO”) certified GPS unit and ground control station. Future designs include integrating Real-Time Kinematic (“RTK”) for mapping, methane detectors, and true terrain following capabilities. There are also improvements scheduled that are intended to further extend the endurance and provide over 4KG of payload capacity, not including batteries. TerraData has also announced the research, development and successful testing of an autonomous crawler soon to be released to the market with methane and multi gas detection capabilities. Working seamlessly with its partners at DarkPulse and its subsidiary companies, TerraData can custom design, build and operate a system to meet our customers' needs 24 hours a day 365 days a year around the globe.

 

Optilan India Pvt Ltd

 

Optilan India Pvt Ltd is a major engineering group that designed multiple installations across the globe including security, rail, oil and gas, telecoms and, most importantly, distributed fiber optic sensor systems (DFOSS).

 

Optilan Communications & Security Systems Ltd

 

Optilan Communications & Securitiy Systems (Turkey) who has played a key role in projects such as the Trans-Anatolian Natural Gas Pipeline (TANAP) installation as well as maintenance services for one of the world’s largest pipelines and its operator. The Turkish-based company is also responsible for multiple contracts across the Middle East including Libya and Iraq

 

 

 

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Acquisitions

 

On August 9, 2021, we entered into a Share Purchase Agreement with Optilan Guernsey Limited and Optilan Holdco 2  Limited, pursuant to which we purchased from the sellers all of the issued and outstanding equity interests of Optilan HoldCo 3 Limited, a private company incorporated in England and Wales (“Optilan”), for £1.00. In connection with the acquisition, the Company acquired $14,828,459 in assets and assumed liabilities totaling $25,179,320. As a result of the transaction, Optilan became a wholly-owned subsidiary of the Company. See Note 4 – BUSINESS ACQUISITIONS to the audited financial statements for the years ended December 31, 2022 and 2021 on page F-20 herein.

 

On August 30, 2021, we closed two separate Membership Interest Purchase Agreements with RI and WS pursuant  to which we agreed to pay to the majority stockholder of each of RI and WS an aggregate of 15,000,000 shares of our Common Stock, $500,000 to be paid on the closing date, and an additional $500,000 to be paid 12 weeks from closing date in exchange for 60% ownership of each of RI and WS. As a result of the transactions, RI and WS each became subsidiaries of the Company with the respective non-controlling interests recoded on the consolidated balance sheets.

 

On September 8, 2021, we entered into and closed the Stock Purchase Agreement with TJM and TJM’s stockholders, pursuant to which we agreed to purchase all of the equity interests in TJM in exchange for $450,000, subject to adjustments as defined in the Stock Purchase Agreement. As a result of the transaction, TJM became a wholly-owned subsidiary of the Company.

 

Effective October 1, 2021, we entered into and closed the Membership Purchase Agreement with TerraData and Justin Dee, the sole stockholder of TerraData, pursuant to which we agreed to purchase 60% of the equity interests in TerraData in exchange for 3,725,386 shares of our Common Stock and $400,000, subject to adjustments as defined in the Membership Purchase Agreement, to be paid within 12 weeks of closing. As a result of the transaction, TerraData became a subsidiary of the Company.

 

On December 1, 2023, we entered into and closed the Sale Agreement with Optilan (UK) Limited (in liquidation) incorporated and registered in England and Wales with company number 02715788, and Colin Hardman, Christopher Allen and Gregory Andrew Palfrey, as joint liquidators of the Optilan all of Evelyn Partners LLP. Under the Agreement, we purchased from Optilan for $65,000 all right, title, and interest in the following: (1) shares in Optilan India PVT (India), (2) shares in Optilan Communications & Security Systems Ltd (Turkey), and (3) the “Applicable Intellectual Property Rights,” as defined in the agreement.

 

 

 

 

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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 was scheduled for July 18, 2023.

 

On July 18, 2023, the interview was held between the Official Receiver’s Office (“OR”) and the CEO at time of dissolution. The OR office requested a list of assets, bank account information and amounts along with any contracts held by Optilan (UK) Limited to begin the liquidation process.

 

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

 

There are no new claims  against Optilan (UK) Limited as of February 9, 2024 and Evelyn Partners continue to liquidate the company’s assets.

 

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 Loss on Deconsolidation 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.

 

Global System Dynamics, Inc.

 

On December 14, 2022, we entered into a Business Combination Agreement (the “BCA”) by, between, and among our company, Global System Dynamics, Inc., a Delaware corporation (“GSD”), and Zilla Acquisition Corp, a Delaware corporation and wholly owned subsidiary of GSD (the “Merger Sub”). Pursuant to the terms of the BCA, a business combination between us and GSD will be effected through the merger of Merger Sub with and into DarkPulse, with DarkPulse surviving the merger as a wholly owned subsidiary of GSD (the “Merger”). Our board of directors has (i) approved and declared advisable the BCA, the Merger and the other transactions contemplated thereby and (ii) resolved to recommend approval of the BCA and related transactions by our stockholders. The total consideration to be paid at closing (the “Merger Consideration”) by GSD to DarkPulse security holders will be valued at $116,518,357.65. The Merger Consideration will be payable in shares of GSD Common Stock, valued at $10.00 per share.

 

On August 8, 2023, we entered into Amendment No. 1 to the BCA pursuant to which the “Termination Date,” as defined in the BCA was amended from “August 9, 2023” to “February 9, 2024.” No other changes were made to the BCA.

 

The transactions contemplated by the BCA, and the other transactions contemplated by the other transaction documents contemplated by the BCA (collectively, the “Proposed Business Combination”) will constitute a “Business Combination.” The Business Combination and the transactions contemplated thereby were unanimously approved by the board of directors of the Company on December 14, 2022.

 

 

 

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The Business Combination

 

The BCA provides, among other things, that Merger Sub will merge with and into DarkPulse, with DarkPulse as the surviving company in the merger and, after giving effect to such merger, DarkPulse shall be a wholly-owned subsidiary of GSD. GSD will continue to be named “Global System Dynamics, Inc.” and the combined entity will trade under the symbol “DARK.”

 

In accordance with the terms and subject to the conditions of the BCA, at the Effective Time, among other things: (i) each GSD Class A Share and each GSD Class B Share that is issued and outstanding immediately prior to the Merger will become one share of common stock, par value $0.0001 per share, of GSD; (ii) by virtue of the Merger and without any action on the part of any Party or any other Person, each share of DarkPulse Common Stock (other than shares of DarkPulse Common Stock cancelled and extinguished pursuant to Section 2.1(a)(viii) of the BCA) issued and outstanding as of immediately prior to the Effective Time shall be automatically canceled and extinguished and converted into the right to receive that number of GSD Class A Shares equal to the Merger Consideration; provided, however, that any DarkPulse shares that are Restricted Shares shall be converted into restricted GSD Class A Shares, subject to the same vesting, transfer and other restrictions as the applicable Restricted Shares; (iii) by virtue of the Merger and without any action on the part of any Party or any other Person, each share of capital stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be automatically cancelled and extinguished and converted into one share of common stock, par value $0.0001, of DarkPulse; (vi) Dennis O’Leary, Joseph Catalino, George Pappas, Geoff Mullins, Wayne Bale and John Bartrum shall become the directors of GSD, Dennis O’Leary shall become the Chief Executive Officer of GSD and of the surviving company, and J. Richard Iler shall become the Chief Financial Officer of GSD, each to hold office in accordance with the governing documents of GSD until such director’s or officer’s successor is duly elected or appointed and qualified, or until the earlier of their death, resignation or removal; (v) by virtue of the Merger and without any action on the part of any Party or any other Person, each DarkPulse share held immediately prior to the Effective Time by DarkPulse as treasury stock shall be automatically canceled and extinguished, and no consideration shall be paid with respect thereto.

 

The Business Combination is expected to close in the first calendar quarter of 2024 but in no event later than February 9, 2024 (unless extended), following the receipt of the required approval by the stockholders of DarkPulse and GSD, approval by the Nasdaq Stock Market (“Nasdaq”) of GSD’s initial listing application filed in connection with the Business Combination, and the fulfillment of other customary closing conditions.

 

Representations and Warranties; Covenants

 

The parties to the BCA have agreed to customary representations and warranties for transactions of this type. In addition, the parties to the BCA agreed to be bound by certain customary covenants for transactions of this type, including, among others, covenants with respect to the conduct of the Company and its subsidiaries during the period between execution of the BCA and the Closing. Each of the parties to the BCA has agreed to use its reasonable best efforts to cause all actions and things necessary to consummate and expeditiously implement the Business Combination.

 

Conditions to Each Party’s Obligations

 

Under the BCA, the obligations of the parties to consummate the Merger are subject to the satisfaction or waiver of certain customary closing conditions of the respective parties, including, without limitation: (i) the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations promulgated thereunder relating to the Business Combination having expired or been terminated and any other required regulatory approvals applicable to the transactions contemplated by the BCA having been obtained and remaining in full force and effect; (ii) all the DarkPulse Preferred Stock being converted to DarkPulse Common Stock prior to the Effective Time; (iii) no order or law issued by any court of competent jurisdiction or other governmental entity or other legal restraint or prohibition preventing the consummation of the transactions contemplated by the Business Combination being in effect; (iv) the registration statement on Form S-4 containing the joint proxy statement/prospectus filed by DarkPulse and GSD relating to the BCA and the Merger (the “Registration Statement”) becoming effective in accordance with the provisions of the Securities Act of 1933, as amended (the “Securities Act”), no stop order being issued by the SEC and remaining in effect with respect to the Registration Statement, and no proceeding seeking such a stop order being threatened or initiated by the SEC and remaining pending; (v) GSD’s initial listing application with Nasdaq in connection with the Business Combination having been approved; (vi) GSD’s Board consisting of the number of directors, and comprising the individuals, determined pursuant to the BCA; (vii) the approval and adoption of the BCA and the transactions contemplated thereby by the requisite vote of the DarkPulse’s stockholders; (viii) the approval and adoption of the BCA and the transactions contemplated thereby by the requisite vote of GSD’s stockholders; (ix) after giving effect to the transactions contemplated (including the PIPE Financing), GSD has at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act of 1934, as amended (the “Exchange Act”)) immediately after the Effective Time; (x) the absence of a DarkPulse Material Adverse Effect since the date of the BCA that is continuing, and (xi) the absence of a GSD Material Adverse Effect since the date of the BCA that is continuing.

 

 

 

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Termination

 

The BCA may be terminated under certain customary and limited circumstances at any time prior to the Closing, including, without limitation, (i) by the mutual written consent of GSD and DarkPulse; (ii) by GSD, subject to certain exceptions, if any of the representations or warranties made by DarkPulse are not true and correct or if DarkPulse fails to perform any of its covenants or agreements under the BCA (including an obligation to consummate the Closing) such that certain conditions to the obligations of GSD could not be satisfied and the breach (or breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (A) 30 days after written notice thereof, and (B) February 9, 2024 (the “Termination Date”); (iii) by DarkPulse, subject to certain exceptions, if any of the representations or warranties made by us are not true and correct or if GSD fails to perform any of GSD’s covenants or agreements under the BCA (including an obligation to consummate the Closing) such that the condition to the obligations of DarkPulse could not be satisfied and the breach (or breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (A) 30 days after written notice thereof, and (B) the Termination Date iv) by either GSD or DarkPulse, if the Closing does not occur on or prior to the Termination Date, unless the breach of any covenants or obligations under the BCA by the party seeking to terminate proximately caused the failure to consummate the transactions contemplated by the BCA; (v) by either GSD or DarkPulse, if (A) any governmental entity shall have issued an order or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by the BCA and such order or other action shall have become final and non-appealable; or (B) if the required DarkPulse or GSD stockholder consent is not obtained; (vi) by GSD, if (A) DarkPulse does not deliver, or cause to be delivered to GSD a Transaction Support Agreement duly executed by certain DarkPulse stockholders or (B) the DarkPulse stockholders meeting has been held, has concluded, DarkPulse stockholders have duly voted, and DarkPulse stockholder approval was not obtained; (vii) by GSD should DarkPulse not deposit into the Trust Account in a timely manner the funds necessary to extend the period for us to complete an initial business combination for an additional period of six months from August 9, 2023, in accordance with, and as required pursuant to, the BCA; and (x) by GSD should: (A) Nasdaq not approve the initial listing application for the combined company with Nasdaq in connection with the Business Combination; (B) the combined company not have satisfied all applicable initial listing requirements of Nasdaq; or (C) the common stock of the combined company not have been approved for listing on Nasdaq prior to the Closing Date.

 

In the event of the termination of this BCA, the BCA will become void (and there will be no Liability or obligation on the part of the Parties and their respective Non-Party Affiliates) with the exception of Section 5.3(a), this Section 7.2, Article VIII and Article I (to the extent related to the termination), each of which will survive such termination and remain valid and binding obligations of the Parties.

 

The Stockholder Transaction Support Agreement

 

Concurrently with, or with respect to a certain stockholder holding all of the shares of Series A Preferred Stock of DarkPulse, within a specified time after the signing of the BCA, the “DarkPulse Stockholder” (collectively, the “Supporting Company Stockholder”) shall duly execute and deliver to GSD a transaction support agreement pursuant to which, among other things, such Supporting DarkPulse Stockholder will agree to, support and vote in favor of the BCA, the Ancillary Documents which DarkPulse is or will be a party and the transactions contemplated thereby (including the Merger).

 

Trust Funds and Public Shares

 

As of January 23, 2024, GSD had approximately $5,233,823 left in trust and 477,066 public shares outstanding.

 

Termination of the BCA

 

On January 23, 2024, the BCA was terminated by mutual consent of the parties thereto. Although, as the Sponsor of GSD, the Company still owns all of the issued and outstanding shares of Class B Common Stock of GSD, all legal rights the Company had under the BCA have been terminated.

 

 

 

 

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Our Business

 

We offer a full suite of engineering, installation and security management solutions to industries and governments. Coupled with our patented BOTDA technology, we provide our customers a comprehensive data stream of critical metrics for assessing the health and security of their infrastructure. Our comprehensive system provides for rapid, precise analysis and responsive activities predetermined by the end-user customer. These responses include the use of “smart” AI platformed cameras, facial recognition technologies and multiple drone platforms. Our User Interface (UI) is cloud based which offers end-users access to their systems on any device located anywhere in the world. Additional programming of the UI is being completed within a game engine that will also offer access via Virtual Reality headsets, allowing end-users to virtually inspection their assets.

 

Historically, distributed sensor systems have been too costly, slow and limited in their capabilities to attain widespread use. In addition, Brillouin-based sensors have been plagued with temperature and strain cross-sensitivity, i.e. the inability to distinguish between temperature and strain change along the same fiber. The loss of spatial resolution with an increase in fiber length has also limited the use of distributed sensor systems. Due to these shortcomings, existing technologies are unable to succeed within today’s dynamic environments, and needs for more advanced sensor technologies have remained unsatisfied.

 

By contrast to existing technologies, our BOTDA technology is a distributed-fiber sensing system, based on dark-pulse Brillouin scattering, which reports in real-time on conditions such as temperature, stress, strain corrosion and structural health monitoring of Critical Infrastructure/Key Resources including Bridges, Buildings, Roadways pipelines and mining installations.

 

Our BOTDA technology’s differentiators from and advantages over existing technologies:

 

  · Real-time Reporting: Higher data acquisition speeds allowing for structural monitoring of dynamic systems;
     
  · Cost to Customer: Significantly lower acquisition and operating costs;
     
  · Precision: A greater magnitude of precision and spatial resolution than other systems currently available;
     
  · Applications: Wider range of capabilities than other systems currently available;
     
  · Power Consumption: Lower power consumption than existing systems allowing for off-grid installations;
     
  · Integration: Capable of integrating with existing systems; and
     
  · Central station monitoring/cloud based GUI.

 

We believe that these key advantages should allow us not only to enter existing markets, but more importantly, to open new market opportunities with new applications. We intend to leverage new applications to target clients that have been unable to make use of distributed fiber optic technology to date.

 

Revenue

 

The Company’s revenues are generated primarily from the sales 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.

 

 

 

 

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Our Market

 

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. Our BOTDA technology allows for the monitoring of highly dynamic environments due to its magnitude of increased resolution and greater accuracy. The resulting high speed, real-time monitoring capabilities of our BOTDA technology should satisfy a broad range of existing and emerging requirements. Use of our BOTDA technology by our customers should result in lower production costs with increased sensing capabilities that can integrate with existing technology and be upgraded cost effectively.

 

Due to the characteristics of the fiber used in fiber optic sensing, the uses of our BOTDA technology are wide ranging. Optical fiber is hard-wearing, which allows it to be used in environments where other technologies fail (for example, at temperatures ranging from -40°C to 300°C and 1000psi). Additionally, our BOTDA sensors allow for live sensing due to the speed at which the analysis takes place.

  

Our management team is continually identifying markets in which our BOTDA technology may be readily applied. Once these markets (as described below) have been addressed, our technology may be adapted and applied to new markets.

 

Structural Monitoring

 

  · Buildings and Skyscrapers;
     
  · Bridges, Tunnels and Dams; and
     
  · Roads and Railway tracks.

 

Temperature Sensing

 

  · Fire Alarm and Environment control;
     
  · Low cost and maintenance;
     
  · Long life span; and
     
  · Ability to withstand harsh working environment.

 

Security & Defense

 

  · National Border Protection; and
     
  · Protection of Military and other sensitive installations.

 

Consulting Services:

 

  · Consulting (as stand-alone or presales);
     
  · Post sales deployment and Support; and
     
  · Managed services (monitoring, etc.).

 

 

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Additional Potential Markets:

 

  · Monitoring of composite structures in aircraft;
     
  · Dynamic stress monitoring of runways;
     
  · Dynamic ship hull stress monitoring, especially with a view to double-hull oil tankers;
     
  · Smart grid and power conservation applications based on cooling and/or heat proximity – for instance, computer rooms, cell towers for heat soak;
     
  · Monitor low temperatures as part of control systems;
     
  · Monitoring of temperatures in extreme refrigeration environments;
     
  · Avalanche early warning systems; and
     
  · Sea defense monitoring.

 

Marketing

 

We utilize our BOTDA technology as the foundation of our ongoing marketing initiatives. Most notably, the greater magnitude of increased capabilities of our BOTDA technology versus existing bright-pulsing technologies. Existing bright-pulse Brillouin-based sensors have historically been plagued with temperature and strain cross-sensitivity, i.e. the inability to distinguish between temperature and strain change along the same fiber. The loss of spatial resolution with an increase in fiber length is also a limiting factor for the use of distributed sensor systems. Because of these shortcomings, existing bright-pulse Brillouin-based technologies are unable to succeed within today’s dynamic environments, which coincides with our BOTDA technology’s increased capabilities over bright-pulse systems. Our marketing initiatives include daily, broad-based social media engagement, management of our website, email campaigns, national television commercials, magazine ads, and other ongoing initiatives designed to increase awareness of our products and services and drive conversion and adoption rates.

 

Competition

 

The overall optical sensing market is projected to reach USD $3.47 billion by 2023 from USD $1.13 billion in 2016, at a CAGR of 15.47% between 2017 and 2023.1 We are active in the optical sensing market, including Oil & Gas pipeline health monitoring, Infrastructure, National Border Security applications, and the mining industry. We believe that fiber sensing applications which incorporate our BOTDA technology may provide significant competitive advantages over structural health monitoring applications offered by the long-term leaders in the field, such as Schlumberger, Hewlett-Packard, and Yokogawa, which collectively account for a significant portion of industry sales. These companies, as well as others, have numerous differences in feature sets and functionality, but all share certain basic attributes: a bright-pulse technology as the core of their systems architecture. An architecture designed using bright-pulsing technology has limited sensing capabilities and resolutions of one meter allowing for mostly long-term quasi-static deployments.

 

However, we utilize our BOTDA technology allowing for multiple applications into those markets unavailable to companies using bright-pulse technology. While many of the companies using bright-pulse technology have attempted to incorporate various sensing techniques into a legacy technology, none have been able to offer the order of magnitude resolutions offered by our patented dark-pulse based BOTDA technology. This magnitude in resolution coupled with our BOTDA technology’s increased data collection speeds allows our technology to be installed into areas of the market that our competitors cannot. Our future financial condition and operating results depend on our ability to provide a high-quality solution as well as increased distribution of the solutions in each of the markets in which we compete or intend to compete within.

 

The markets for our products and services are highly competitive and we are confronted by aggressive competition. These markets are characterized by frequent product introductions and rapid technological advances. Our financial condition and operating results can be adversely affected by these and other industry-wide downward pressures on gross margins. Principal competitive factors important to us include price, product features, relative price and performance, product quality and reliability, marketing and distribution capability, service and support and corporate reputation.

 

 

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1 https://www.marketsandmarkets.com/Market-Reports/optical-sensing-market-197592599.html

 

 

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Intellectual Property

 

Our policy is to protect our technology by, among other things, patents, trade secret protection and copyrights. We have taken security measures to protect our trade secrets and proprietary know-how, to the greatest extent possible. Our means of protecting our proprietary rights may not prove to be adequate and our competitors may independently develop technology or products that are similar to ours or that compete with ours. Trade secret, patent and copyright laws afford only certain protections for our technology and products. The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to obtain and use information that we regard as proprietary. Third parties may also design around our proprietary rights, which may render our protected technology and products less valuable, if the design around is favorably received in the marketplace.

 

In addition, any of our products or technology covered by patents or other intellectual property rights, could cause us to be subject to various legal actions. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement, invalidity, misappropriation, or other claims.

 

Through DPTI’s April 2017 Intellectual Property agreement with the University, DPTI was sold, transferred, and assigned U.S. Patent Nos. 7,245,790, 8,643,829, and 9,534,965, each of which are related to our BOTDA dark-pulse technology. In addition, Canadian Patent No. 2,502,275 was also assigned.

 

Suppliers

 

We currently rely on a full-time, dedicated, external team of experienced professionals for the coding and maintenance of our products. We believe we have mitigated the associated risks of managing an external team of software and engineering development professionals by incorporating internal management and oversight, as well as appropriate systems, protocols, controls, and procedures and ensuring that we have access to additional qualified professionals to provide like or complementary services.

 

Government Regulation

 

Government regulation is not of significant concern for our business nor is government regulation expected to become an impediment to the business in the near- or mid-term as management is currently unaware of any planned or anticipated government regulation that would have a material impact on our business. Our management believes it currently possesses all requisite authority to conduct our business as described in this Prospectus.

 

Employees

 

As of February 9, 2024, we had 21 full-time employees and no part-time employees.

 

Legal Proceedings

 

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

 

As disclosed in greater detail in the Company’s Form 10-Q, filed November 15, 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 November 17, 2023, the Minnesota State Court ruled in the Company’s favor on its counterclaims against Carebourn and awarded damages for Carebourn’s violation of Minn. Stat. § 80A.76(d) in the amount of $124,012.91, attorney’s fees in the amount of $239,923.33 and costs in the amount of $23,757.24 (or a total award in the amount of $387,693.48).

 

On December 26, 2023, the Minnesota State Court entered final judgment in the Company’s favor for $387,693.48. Carebourn can appeal the judgment at any time on or before February 26, 2024. The Company intends to enforce and collect the full amount of the judgment, as the collecting the judgment would be a material benefit to the Company.

 

 

 

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

 

As disclosed in greater detail in the Company’s Form 10-Q, filed November 15, 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 December 11, 2023, the Minnesota State Court ruled in the Company’s favor on its (a) affirmative defense set forth under Sections 15(a) and 29(b) of the Securities Exchange Act of 1934 and (b) counterclaims set forth under the Minnesota Securities Act against Carebourn. Pursuant to the Minnesota State Court’s decision, the securities contacts—consisting of a securities purchase agreement and convertible promissory note—have been declared null, void and unenforceable, and the Company has been awarded damages for Carebourn’s violation of Minn. Stat. § 80A.76(d) in the amount of $300,809.39, attorney’s fees in the amount of $111,029.00 and costs in the amount of $210.25 (or a total award in the amount of $412,048.64).

 

On December 27, 2023, the Minnesota State Court entered a corrected final judgment in the Company’s favor for $412,048.64. More can appeal the judgment at any time on or before February 26, 2024. The Company intends to enforce and collect the full amount of the judgment, as the collecting the judgment would be a material benefit to the Company.

 

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

 

As disclosed in greater detail in the Company’s Form 10-Q, filed November 15, 2023, the Company remains in active litigation with FirstFire Global Opportunities Fund, LLC and Eli Fireman (together, the “FirstFire Parties”). The following discloses the material updates for this matter.

 

Oral arguments for the Company’s appeal were held before the United States Court of Appeals for the Second Circuit (“Second Circuit”) on December 13, 2023. As of the date hereof, the Second Circuit has not issued its decision on the Company’s appeal.

 

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 because the Company maintains that it suffered millions of dollars in damages as a result of the FirstFire Parties’ unlawful acts and, thus, an award of equitable relief and/or monetary damages in the Company’s would be a material benefit.

 

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

 

As disclosed in greater detail in the Company’s Form 10-Q, filed November 15, 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 (collectively, the “Crown Bridge Defendants”). The following discloses the material updates for this matter.

 

On December 6, 2023, the United States Court of Appeals for the Second Circuit placed the appeal against the Crown Bridge Defendants on the court’s expedited calendar and, thus, the Company’s opening appeal memorandum of law is due on or before January 10, 2024.

 

The Company remains committed to actively litigating its Racketeer Influenced and Corrupt Organizations Act claims against the Crown Bridge Defendants because the Company maintains that it suffered millions of dollars in damages as a result of the Crown Bridge Defendants’ violations and, thus, an award of monetary damages in the Company’s would be a material benefit.

 

 

 

 

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Benner et al v. DarkPulse, Inc. et al

 

As disclosed in greater detail in the Company’s Form 10-Q, filed November 15, 2023, the Company and its CEO, Dennis O’Leary (together, 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 November 28, 2023, legal counsel for the Benner Parties filed a Motion to Withdraw as Counsel of Record (“Withdrawal Motion”). The Withdrawal Motion claims that the Benner Parties have failed to pay their attorney’s fees timely and, therefore, their counsel should be permitted to withdraw from the litigation.

 

On January 12, 2023, the court granted the Withdrawal Motion and, as of the date hereof, the Benner Parties are continuing to litigate the case without legal counsel.

 

The Company remains committed to vigorously defending itself against the Benner Parties’ claim ,which seek to hold the Company liable for the debt allegedly assumed under the member interest purchase agreements concerning the Benner Parties’ equity interests in Remote Intelligence, LLC and Wildlife Specialists, LLC, and such damages—if awarded in the Benner Parties’ favor—would be materially adverse to the Company.

 

Management has deemed the foregoing Legal Proceedings material and other than ordinary routine litigation incidental to DarkPulse’s business due to the fact that each involves primarily a claim for damages, exclusive of interest and costs, exceeds 10% of the current assets of DarkPulse and its subsidiaries on a consolidated basis.

 

In addition to the foregoing Legal Proceedings, we are also actively investigating potential legal claims, including but not limited to stock fraud, market manipulation, and/or defamation, against certain Twitter accounts, websites, and social media channels. The investigation is ongoing and should potential claims be identified, we will evaluate commencing formal litigation proceedings.

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

 

Executive Officers and Directors

 

The following table sets forth the name, age, and position of each executive officer and director of the Company:

 

Director's Name   Age   Position
Dennis O’Leary   61   Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Secretary & Treasurer
         
Dr. Anthony Brown   49   Director
         
Craig Atkin   40   Director and Chief Commercial Officer of Optilan

 

Dennis M. O’Leary, Chairman, CEO, President, CFO. Mr. O’Leary was appointed as the DarkPulse’s Chief Executive Officer, President, Chief Financial Officer and Chairman of the Board in April 2018. Mr. O’Leary is a serial entrepreneur with significant international experience having founded Sulu Electric Power and Light Corp (Philippines), a firm with expertise in utility scale power generation and solar energy. In 2010, Mr. O’Leary co-founded DarkPulse Technologies Inc., a wholly-owned subsidiary of DarkPulse, which is developing specialized devices that monitor activities along national borders and provide structural health and safety monitoring of oil and gas pipelines. He holds extensive start-up experience including multiple exit strategies. Mr. O’Leary is an Ambassador for the Province of New Brunswick, Canada, and a Research Member of the NATO Science and Technology Organization. He served as a member of the Board at Arizona State University’s School of Engineering, Global Resolve as Chair of the Impact Committee. His previous employment includes the NYPD where he worked as a member of the Manhattan North Tactical Narcotics Team, which prosecuted establishments involved in the illegal distribution of narcotics. He was a member of a joint taskforce working with the DEA and USINS in the execution of warrants related to narcotics trafficking. While at the NYPD, he was assigned to the Department of Justice as a member of the FBI’s investigative team with internal designation C14. He is a licensed private pilot with turbine experience. Mr. O’Leary was appointed as a Director due to his extensive experience in the industries in which DarkPulse operates. Mr. O’Leary is not, and has not been during the past five years, the director of any other public companies.

 

Dr. Anthony Brown, Director. Dr. Brown has served as a Director of DarkPulse since April 2019. He is a physicist and scientist with extensive experience in the development of Brillouin scattering-based distributed fiber optic sensing. In 2010, Dr. Brown co-founded DarkPulse Technologies, Inc., a wholly-owned subsidiary of DarkPulse. Dr. Brown has more than 25 years of research and lecturing experience gained at the University of New Brunswick (“UNB”), focusing primarily on the development of Brillouin scattering-based distributed fiber optic sensor technology. From 2001 to 2012, Dr. Brown served as an assistant professor and research associate at UNB. During Dr. Brown’s tenure at UNB, he was instrumental in developing numerous patents in the field of fiber optic sensing. From 2012 to 2015, Dr. Brown served as an Adjunct Professor at UNB. From 2013 through the present, Dr. Brown has served as a data scientist for Xplornet Communications, Inc. From 2018 through the present, Dr. Brown has served as a consultant for DarkPulse. Dr. Brown received a Bachelor of Science degree in Physics from UNB in 1995, and a PhD in Physics from UNB in 2001. Dr. Brown was appointed as a Director due to his extensive experience in the development of Brillouin scattering-based distributed fiber optic sensing. Dr. Brown is not, and has not been during the past five years, the director of any other public companies.

 

Craig Atkin, Director. Mr. Atkin has served as a Director of DarkPulse since June 2023. He is also the Chief Commercial Officer of Optilan. Mr. Atkin has an engineering background with a first class honours degree in Electrical/Electronic Engineering and a Master’s Degree in Project Management. With over 20 years’ experience across energy, security, communications and technology sectors in both operational and leadership roles. His previous role was the management of two power stations within the UK for a multinational energy company. Mr. Atkin has also worked in conventional, renewable and offshore wind environments. He is experienced working and leading international teams and large scale projects. Mr. Atkin is commercially-experienced across contract setup and negotiation, M&A and operational works. Mr. Atkin was appointed as a Director due to his experience with Optilan. Mr. Atkin is not, and has not been during the past five years, the director of any other public companies.

 

Jason Keith, Former CEO, Optilan – On July 4, 2023, Optilan (UK) received an official letter that all employees’ contracts were terminated as of June 28, 2023. At that time Mr. Keith’s tenure as CEO of Optilan expired.

 

 

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Legal Proceedings

 

Besides the disclosure below, during the past ten years there have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any of our directors or executive officers, and none of these persons has been involved in any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity, any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws or regulations, or any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization. 

 

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 was scheduled for July 18, 2023.

 

On July 18, 2023, the interview was held between the Official Receiver’s Office (“OR”) and the CEO at time of dissolution. The OR office requested a list of assets, bank account information and amounts along with any contracts held by Optilan (UK) Limited to begin the liquidation process.

 

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

 

There are no new  claims against Optilan UK Ltd as of February 9, 2024 and Evelyn partners continue to liquidate the company’s assets.

 

We are an unsecured creditor of Optilan (UK) Limited and are 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. We have approximately $19.4 million intercompany payables due from Optilan (UK), which will increase our liabilities for any obligations not repaid. We expect the remaining assets held by Optilan (UK) Limited to be fully impaired and reported as Loss on Deconsolidation during the second quarter of 2023 as a result of the winding-up order for liquidation. We are still evaluating the full effects of the winding-up order for liquidation and the material adverse effects it will have on our continued operations and ability to meet future obligations.

 

Family Relationships

 

There are no family relationships between any of our directors and executive officers.

 

Audit Committee

 

We currently do not have a functioning Audit Committee. Our management is currently reviewing our SEC filings and relying on outside experts to assist with this process.

 

 

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EXECUTIVE COMPENSATION

 

Summary Compensation for Named Executive Officers

 

The following table shows the executive compensation paid to our named executive officers for the years ended December 31, 2023 and 2022.

 

Name and Principal Position  

Year Ended

Dec 31,

    Salary     Total  
Dennis O’Leary   2023     $ 165,000 (1)    $ 137,500  
Chairman/CEO and Director   2022     $ 270,000     $ 270,000  

 

  (1) All of this amount was accrued and unpaid.

 

O’Leary Employment Agreement

 

On June 22, 2022, our Board of Directors, with Dennis O’Leary abstaining, approved the Employment Agreement dated effective April 1, 2022 with Mr. O’Leary, our Chief Executive Officer. The term of the agreement is three years from the April 1, 2022, subject to termination. The agreement may be terminated upon the death or disability of Mr. O’Leary or for “Cause,” as defined in the agreement. Pursuant to the agreement, Mr. O’Leary is entitled to an annual salary of $300,000, which may accrue and be paid once we have available funds. Any accrued and unpaid base salary may also be converted subject to mutual agreement of the Company and Mr. O’Leary. Also, pursuant to the agreement, Mr. O’Leary was issued 100 shares of Series A Super Voting Preferred Stock.

 

Summary Compensation for Directors

 

The following table shows the executive compensation paid to our directors (excluding named executive officers) for the year ended December 31, 2022.

 

Name and Principal Position   Salary     Total  
Dr. Anthony Brown, Director   $     $  
Craig Atkin, Director   $     $  
Carl Eckel, Director   $ 10,000  (1)   $ 10,000  

 

  (1) All of this amount was accrued and unpaid.

 

Equity Awards

 

As of December 31, 2022, there were no outstanding equity awards.

 

 

 

 

 

 

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The table below sets forth information as to our directors, named executive officers, and executive officers and each person owning of record or was known by the Company to own beneficially shares of stock greater than 5% of the 7,935,702,287 (7,935,614,052 common plus 88,235 preferred) shares as of February 9, 2024. The table includes preferred stock that is convertible into common stock and information as to the ownership of the Company's Stock by each of its directors, named executive officers, and executive officers and by the directors and executive officers as a group. There were no stock options outstanding as of February 9, 2024. Except as otherwise indicated, all shares are owned directly, and the persons named in the table have sole voting and investment power with respect to shares shown as beneficially owned by them. The address for each of our directors, named executive officers, and executive officers is 815 Walker Street, Suite 1155, Houston, Texas 77002.

  

Name and Position

Shares of

Common Stock

Owned

Shares of

Series D

Preferred Stock

Owned(1)

Amount and Nature of

Beneficial

Ownership(2)

Percentage of

Beneficial

Ownership

Dennis O’Leary, CEO and Director 67,647 135,294 *
Dr. Anthony Brown, Director 5,882 11,764 *
Craig Atkin, Director
Bill Bayliss, CEO, Optilan
Total named executive officers, executive officers, and directors (four persons) 73,529 147,058 *

 

*Less than 1%

 

  (1) Each share of Series D Preferred Stock is convertible, at the option of the holder, into two shares of our Common Stock.
     
  (2) Under Rule 13d-3 of the Exchange Act, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the number of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the above table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on the date of this prospectus.

 

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Certain Relationships and Related Transactions

 

Except as disclosed below, for transactions with our executive officers and directors, please see the disclosure under “EXECUTIVE COMPENSATION” above.

 

Director Independence

 

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “independent directors.”

  

We currently have not established any committees of the Board of Directors. Our Board of Directors may designate from among its members an executive committee and one or more other committees in the future. We do not have a nominating committee or a nominating committee charter. Further, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, other than as described above, no security holders have made any such recommendations. The entire Board of Directors performs all functions that would otherwise be performed by committees. Given the present size of our board it is not practical for us to have committees. If we are able to grow our business and increase our operations, we intend to expand the size of our board and allocate responsibilities accordingly.

 

DESCRIPTION OF SECURITIES

 

We have authorized capital stock consisting of the following. The total number of shares of capital stock which the Company has the authority to issue is: 20,002,000,000. These shares shall be divided into two classes with 20,000,000,000 shares designated as common stock at $0.0001 par value (the “Common Stock”) and 2,000,000 shares designated as preferred stock at $0.01 par value (the “Preferred Stock”).The Preferred Stock of the Company is issuable by authority of the Board of Director(s) of the Company in one or more classes or one or more series within any class and such classes or series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as our Board of Directors may determine, from time to time. We have 7,935,614,052 common shares and 88,235 preferred shares outstanding as of the date of this prospectus.

 

Common Stock

 

Our Certificate of Incorporation authorize us to issue 20,000,000,000 shares of common stock, par value $0.0001 per share. The holders of outstanding common shares are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. There is no cumulative voting of the election of directors then standing for election. The common shares are not entitled to pre-emptive rights and are not subject to conversion or redemption. Upon liquidation, dissolution or winding up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common shares after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. Each outstanding common share is duly and validly issued, fully paid and non-assessable.

 

Preferred Stock

 

Our Certificate of Incorporation authorize us to issue 2,000,000 shares of preferred stock, par value $0.01 per share. Our Board of Directors has the authority to issue additional shares of preferred stock in one or more series, and fix for each series, the designation of and number of shares to be included in each such series. Our Board of Directors is also authorized to set the powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions of the shares of each such series.

 

Unless our Board of Directors provides otherwise, the shares of all series of preferred stock will rank on parity with respect to the payment of dividends and to the distribution of assets upon liquidation. Any issuance by us of shares of our preferred stock may have the effect of delaying, deferring or preventing a change of our control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock.

 

 

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On July 12, 2018, we filed a Certificate of Designation with the State of Delaware amending the designation of its previously designated “Class D Voting Preferred Stock,” designating 100,000 shares of the Company’s preferred stock as “Series D Preferred Stock.” As of July 18, 2018, all shares of the Company’s Class A Voting Preferred Stock, Class B Voting Preferred Stock, and Class C Voting Preferred Stock had been returned to the Company and cancelled. There are presently 88,235 shares of Series D Preferred Stock outstanding.

 

On December 23, 2021, we amended the Certificate of Designation for the Series D Preferred Stock. Pursuant to the amendment, Section 4 was changed to the following:

 

  4. Conversion. Each share of Series D Stock shall be convertible, at the sole and exclusive election of the holder of such share of Series D Preferred Stock, into two (2) shares of Common Stock of the Corporation.

 

Each share of Series D Preferred Stock entitles the holder to 6,000 votes on all matters submitted to a vote of our stockholders and is convertible at the election of the holder into two shares of Common Stock.

 

Stock Options

 

We currently have no outstanding stock options.

  

Dividend Policy

 

We have never declared a cash dividend on our common stock and our Board of Directors does not anticipate that we will pay cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, restrictions contained in our agreements and other factors which our Board of Directors deems relevant.

 

Transfer Agent

 

We have appointed Standard Registrar and Transfer Company, 440 East 400 South, Suite 200, Salt Lake City, UT 84111, to act as transfer agent for the common stock.

 

Anti-Takeover Effects of Delaware Law, Our Certificate of Incorporation and Bylaws

 

Certain provisions of our charter documents and Delaware law could have an anti-takeover effect and could delay, discourage or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might otherwise result in a premium being paid over the market price of our common stock.

 

Charter and Bylaws

 

Our Certificate of Incorporation and Bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors, including, among other things:

 

  · no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

  · the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

 

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  · the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

  · the requirement that a special meeting of stockholders may be called only by a majority vote of our board of directors or by stockholders holding shares of our common stock representing in the aggregate a majority of votes then outstanding, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

 

    the ability of our board of directors, by majority vote, to amend our bylaws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquirer to amend our by-laws to facilitate a hostile acquisition.

 

Delaware Anti-Takeover Statute

 

Under Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or (i) our board of directors approves the transaction prior to the stockholder acquiring the 15% ownership position, (ii) upon consummation of the transaction that resulted in the stockholder acquiring the 15% ownership position, the stockholder owns at least 85% of the outstanding voting stock (excluding shares owned by directors or officers and shares owned by certain employee stock plans) or (iii) the transaction is approved by the board of directors and by the stockholders at an annual or special meeting by a vote of 66 2/3% of the outstanding voting stock (excluding shares held or controlled by the interested stockholder). In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any such entity or person.

 

A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or by-laws approved by its stockholders. We have opted out of Section 203.

 

Authorized but Unissued Shares

 

Our authorized but unissued shares of Common Stock and Preferred Stock will be available for future issuance without stockholder approval, except as may be required under the listing rules of any stock exchange on which our Common Stock is then listed. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of Common Stock and Preferred Stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

 

Limitations on Liability and Indemnification of Officers and Directors

 

Under our Certificate of Incorporation, our directors have no personal liability to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except (i) for any breach of the duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL as it may from time to time be amended or any successor provision thereto, or (iv) for any transaction from which a director derives an improper personal benefit.

 

 

 

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PLAN OF DISTRIBUTION

 

The common stock offered by this prospectus is being offering by the Selling Security Holder. The common stock may be sold or distributed from time to time by the Selling Share Holder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market price prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices , or at fixed prices, which may be changed .. The Selling Security Holder may use any one or more of the following methods when selling securities:

 

  · ordinary brokers’ transactions;

 

  · transactions involving cross or block trades;

 

  · through brokers, dealers, or underwriters may act solely as agents;

 

  · “at the market” into an existing market for the common stock;

 

  · in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents;

 

  · in privately negotiated transactions; or

 

  · any combination of the foregoing.

 

In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the state’s registration or qualification requirement is available and complied with.

 

The Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act with respect to the shares which may be sold pursuant to the EFA.

 

GHS has informed us that it intends to use a broker-dealer to effectuate all sales, if any, of the common stock that it may purchase from us pursuant to the EFA. Such sales will be made at prices and at terms then prevailing or at prices related to the then current market price. Each such broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities Act. GHS has informed us that each such broker-dealer will receive commissions from GHS that will not exceed customary brokerage commissions.

 

Brokers, dealers, underwriters or agents participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions from the Selling Security Holder and/or purchasers of the common stock for whom the broker-dealers may act as agent. The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions. Neither we nor GHS can presently estimate the amount of compensation that any agent will receive.

 

We know of no existing arrangements between GHS or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares offered by this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters or dealers and any compensation from the Selling Security Holder, and any other required information.

 

We will pay the expenses incident to the registration, offering, and sale of the shares to GHS. We have agreed to indemnify GHS and certain other persons against certain liabilities in connection with the offering of shares of common stock offered hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. GHS has agreed to indemnify us against liabilities under the Securities Act that may arise from certain written information furnished to us by GHS specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.

 

 

 64 

 

 

GHS has represented to us that at no time prior to the EFA has GHS or its agents, representatives or affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of our common stock or any hedging transaction , which establishes a net short position with respect to our common stock. GHS agreed that during the term of the EFA, it, its agents, representatives or affiliates will not enter into or effect, directly or indirectly, any of the foregoing transactions.

 

We have advised GHS that it is required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the selling stockholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered by this prospectus.

 

This offering will terminate on the date that all shares offered by this prospectus have been sold by GHS or July 10, 2024, whichever occurs sooner.

 

Our common stock is quoted on the OTC Markets under the symbol “DPLS.”

 

The Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act with respect to the shares which may be sold pursuant to the EFA.

 

The Selling Security Holder and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The Selling Security Holder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

 

Because the Selling Security Holder is deemed to be an “underwriter” within the meaning of the Securities Act with respect to the shares which may be sold pursuant to the EFA, it will be subject to the prospectus delivery requirements of the Securities Act, including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Security Holder has advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Security Holder.

 

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Security Holder without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information requirement under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Security Holder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the Common Stock by the Selling Security Holder or any other person. We will make copies of this prospectus available to the Selling Security Holder and have informed the Selling Security Holder of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

 

 

 65 

 

 

SHARES ELIGIBLE FOR FUTURE SALE

 

The sale of a substantial number of shares of our Common Stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our Common Stock. In addition, any such sale or perception could make it more difficult for us to sell equity, or equity related, securities in the future at a time and price that we deem appropriate. If and when this Registration Statement becomes effective, we might elect to adopt a stock option plan and file a Registration Statement under the Securities Act registering the shares of Common Stock reserved for issuance thereunder. Following the effectiveness of any such Registration Statement, the shares of Common Stock issued under such plan, other than shares held by affiliates, if any, would be immediately eligible for resale in the public market without restriction.

 

The sale of shares of our Common Stock which are not registered under the Securities Act, known as “restricted” shares, typically are effected under Rule 144. As of February 9, 2024, we had outstanding an aggregate of 7,935,614,052 shares of Common Stock of which approximately 357,417,621 shares are restricted Common Stock. All our shares of Common Stock might be sold under Rule 144 after having been held for six months. No prediction can be made as to the effect, if any, that future sales of “restricted” shares of our Common Stock, or the availability of such shares for future sale, will have on the market price of our Common Stock or our ability to raise capital through an offering of our equity securities.

 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

As of December 31, 2023, the Company had no securities authorized for issuance under equity compensation plans either approved or not approved by the Company’s shareholders.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

 

Dismissal/Resignation of Principal Independent Accountants

 

Boyle CPA

 

On January 24, 2022, we informed Boyle CPA, the Company’s independent registered public accounting firm (“Boyle”), of our decision (approved by the Board of Directors) to dismiss Boyle as our independent registered public accounting firm effective as of January 24, 2022. Boyle was not dismissed for any cause.

 

None of the reports of Boyle on our financial statements for the year ended December 31, 2020 contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, other than all such reports contained statements indicating there is substantial doubt about our ability to continue as a going concern.

 

There were no disagreements between the Company and Boyle, for the fiscal year ended December 31, 2020 and any subsequent interim period through January 24, 2022 (date of dismissal) on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Boyle, would have caused them to make reference to the subject matter of the disagreement in connection with its report.

 

Urish Popeck & Co., LLC

 

On December 28, 2022, Urish Popeck & Co., LLC (“Urish”), informed the Company, that it would be terminating its engagement with the Company as of December 28, 2022.

 

None of the reports of Urish, on the Company's financial statements for the past year or subsequent interim period contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except that Urish’s report dated April 15, 2022 included an emphasis of matter for going concern.

 

 

 66 

 

 

There were no disagreements between the Company and Urish, for the most recent fiscal year ended December 31, 2021 and any subsequent interim period through the Effective Date on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Urish, would have caused them to make reference to the subject matter of the disagreement in connection with its report. Further, Urish has not advised the Company that:

 

  1) information has come to the attention of Urish which made it unwilling to rely upon management's representations, or made it unwilling to be associated with the financial statements prepared by management; or

 

  2) the scope of the audit should be expanded significantly, or information has come to the attention of Urish that they have concluded will, or if further investigated, might materially impact the fairness or reliability of a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal year ended December 31, 2021.

 

Mazars USA LLP

 

On July 28, 2023, we dismissed Mazars USA LLP (“Mazars”) as the Company’s independent registered public accounting firm. The dismissal was approved by the Company’s board of directors.

 

None of the reports of Mazars, on the Company's financial statements for the past year contained an adverse opinion or disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope or accounting principles, except that Mazars’ report dated June 23, 2023 included an emphasis of matter for substantial doubt about the Company’s ability to continue as a going concern.

 

There were no disagreements between the Company and Mazars, for the most recent fiscal year ended December 31, 2022 and any subsequent interim period through the Effective Date on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of Mazars, would have caused them to make reference to the subject matter of the disagreement in connection with its report. Further, Mazars has not advised the Company that:

 

  1) information has come to the attention of Mazars which made it unwilling to rely upon management's representations, or made it unwilling to be associated with the financial statements prepared by management; or

 

  2) the scope of the audit should be expanded significantly, or information has come to the attention of Mazars that they have concluded will, or if further investigated, might materially impact the fairness or reliability of a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal year ended December 31, 2022.

 

Engagement of New Principal Independent Accountant

 

Urish Popeck & Co., LLC

 

On January 24, 2022, we engaged Urish as our independent registered public accounting firm for the year ended December 31, 2021.

 

During our two most recent fiscal years, and any subsequent interim period prior to engaging Urish, neither we nor anyone on our behalf consulted Urish regarding either: (i) the application of accounting principles to a specified transaction regarding the Company, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements; or (ii) any matter regarding the Company that was either the subject of a disagreement or a reportable event.

 

Mazars USA LLP

 

On February 6, 2023, we engaged Mazars to serve as the Company’s independent registered public accounting firm for the year ended December 31, 2022. During the past two fiscal years ended December 31, 2022 and 2021, and from December 31, 2022 to February 6, 2023, the Company did not consult with Mazars regarding the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on the Company’s financial statements. The decision to engage Mazars was approved by the Company’s board of directors on February 6, 2023.

 

 

 67 

 

 

Fruci & Associates II, PLLC

 

On July 31, 2023, the Company engaged Fruci & Associates II, PLLC (“Fruci”) to serve as the Company’s independent registered public accounting firm for the year ending December 31, 2023. During the past two fiscal years ended December 31, 2022 and 2021, and from December 31, 2022 to July 31, 2023, the Company did not consult with Fruci regarding the application of accounting principles to a specific completed or contemplated transaction, or the type of audit opinion that might be rendered on the Company’s financial statements. The decision to engage Fruci was approved by the Company’s board of directors on July 31, 2023.

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF SECURITIES ACT LIABILITIES

 

We have entered into indemnification agreements with each of our directors, executive officers and other key employees. The indemnification agreements will require us to indemnify our directors to the fullest extent permitted by Delaware law. We have agreed to indemnify each of our directors and certain officers against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

LEGAL MATTERS

 

The legality of the issuance of the shares of Common Stock offered by this Prospectus will be passed upon for us by Business Legal Advisors, LLC of Draper, Utah.

 

EXPERTS

 

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the Common Stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

 

The financial statements of DarkPulse, Inc. as of December 31, 2021, which include an explanatory paragraph relating to our ability to continue as a going concern, included in this Prospectus have been audited by Urish Popeck & Co., LLC, an independent auditor, as stated in their report appearing herein. Such financial statements have been so included in reliance upon the reports of such firm given its authority as experts in accounting and auditing.

 

The financial statements of DarkPulse, Inc. as of December 31, 2022, which include an explanatory paragraph relating to our ability to continue as a going concern, included in this Prospectus have been audited by Mazars, an independent auditor, as stated in their report appearing herein. Such financial statements have been so included in reliance upon the reports of such firm given its authority as experts in accounting and auditing.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed a registration statement on Form S-1 under the Securities Act (SEC File No. 333-276114) relating to the shares of common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of DarkPulse, Inc., filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the SEC.

 

Upon the effective date of the registration statement of which this prospectus is a part, we will be required to file reports and other documents with the SEC. We do not presently intend to voluntarily furnish you with a copy of our Prospectus. You may read and copy any materials we file with the SEC at the public reference room of the SEC at 100 F Street, NE., Washington, DC 20549, between the hours of 10:00 a.m. and 3:00 p.m., except federal holidays and official closings, at the Public Reference Room. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to you on the Internet website for the SEC at http://www.sec.gov.

 

 

 68 

 

 

INDEX TO FINANCIAL STATEMENTS

 

As of September 30, 2023 and 2022

and for the Three- and Nine-Months Ended September 30, 2023 and 2022

(Unaudited)

 

Consolidated Balance Sheets F-2
   
Consolidated Statements of Operations F-3
   
Consolidated Statements of Comprehensive Loss F-4
   
Consolidated Statements of Stockholders’ Deficit F-5
   
Consolidated Statements of Cash Flows F-7
   
Notes to the Financial Statements F-8

 

As of December 31, 2022 and 2021

and for the Years Ended December 31, 2022 and 2021

 

Report of Independent Registered Public Accounting Firm (Mazars USA LLP, Fort Washington, PA., (PCAOB ID 339) 2022 F-29 - F-30
   

Report of Independent Registered Public Accounting Firm (Urish Popeck & Co., LLC, PCAOB ID 1013) 2021

F-31 - F-33
   
Consolidated Balance Sheets F-34
   
Consolidated Statements of Operations F-35
   
Consolidated Statements of Comprehensive Loss F-36
   
Consolidated Statements of Stockholders’ (Deficit) Equity F-37
   
Consolidated Statements of Cash Flows F-38
   
Notes to the Consolidated Financial Statements F-39

 

 

 

 F-1 

 

 

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

 

 

 

 F-2 

 

 

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

 

 

 

 F-3 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 F-4 

 

 

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