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Item 7. Management’s Discussion and Analysis

2023-06-23 compared with 2022-04-15 · 385 added, 339 removed, 97 unchanged (88% of the section changed)

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

This Management’s Discussion and Analysis

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The following discussions are based upon our

financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in

the United States.

The preparation of these financial statements

requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and

expenses, and related disclosures of contingencies.

We continually evaluate the accounting policies and estimates used to prepare the

financial statements.

We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and

circumstances.

Actual amounts and results could differ from these estimates made by management.

consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles

generally accepted in the United States.

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

Long-Lived Assets and Goodwill

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.

accounts for goodwill and intangible assets in accordance with ASC 350, Intangibles – Goodwill and Other .

Goodwill represents

the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed.

ASC 350 requires

that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances

indicate that the fair value of an asset has decreased below its carrying value.

This guidance simplifies the accounting for goodwill

impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.

The quantitative

impairment test calculates any goodwill impairment as the difference between the carrying amount of a reporting unit and its fair value,

but not to exceed the carrying amount of goodwill.

It is our practice, at a minimum, to perform a qualitative or quantitative goodwill

impairment test in the fourth quarter every year.

The Company has one reporting unit it evaluates during its impairment test.

In determining

the fair value of the reporting unit, management estimated the price that would be received to sell the reporting unit as a whole in

an orderly transaction between market participants at the measurement date.

This includes reviewing market comparables such as revenue

multipliers and assigning certain assets and liabilities to the reporting units, such as the respective working capital deficits of each

entity and debt obligations that would need to be assumed by a market participant buyer in an orderly transaction.

The Company calculated

the carrying amounts of the reporting unit by utilizing the entities’ assets and liabilities at December 31, 2022, including the

carrying value of the identifiable intangible assets and goodwill assigned to the respective reporting unit.

The Company’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.

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

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.

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

records revenue over time using the output measure as it is the most faithful depiction of an entity’s performance because it directly

measures the value of the goods and services transferred to the customer.

The Company utilizes the Right to Invoice for these contracts,

as the pricing structure is based on various milestones that are specified in the contract.

These milestones include Construction Phase

Plan, Start of the construction phase, installation phase, site surveys, fiber splicing, recoveries, and closeouts.

There are specified

payments associated with these milestones in the contract, and the value allocated is commensurate with work done.

In the event that

there are advances such as upfront retainers and not based on the value, those are recorded as contract liabilities.

In accordance

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

(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.

Financial Instruments

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

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 ”

is a technology 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 dark-pulse technology (the “ DarkPulse Technology ”), DarkPulse provides its customers a comprehensive data stream

of critical metrics for assessing the health and security of their infrastructure.

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

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a sales-focused mission since the successful completion of our BOTDA system in December 2020.

Headquartered in New York, DarkPulse is a globally

based technology company with presence in United Kingdom, India, Dubai, Russian Federation, Turkey, Azerbaijan, Iraq, Libya, Egypt, 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, O & G pipeline leak detection, physical security services,

telecommunications and satellite communications services, drone and rover systems, and 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 8 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 & movement of personnel & 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 Operating Units

Our operating units consist of, Optilan, a company

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

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.

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.

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, Optilan, a company

headquartered in Coventry, United Kingdom whose focus is in telecommunications, energy, rail, critical network infrastructure, pipeline

integrity systems, renewables and security;

Remote Intelligence, a company headquartered in Pennsylvania who provides unmanned aerial

drone and UGC (unmanned ground crawler) services to a variety of clients from industrial mapping and ecosystem services, to search and

rescue, to pipeline security;

Wildlife Specialists, a company headquartered in Pennsylvania who provides clients with comprehensive wildlife

and environmental assessment, planning, and monitoring services;

TerraData Unmanned, a company headquartered in Florida who custom manufactures

NDAA compliant drones and unmanned ground crawlers to meet the needs of its customers;

and TJM West Electronics, a company headquartered

in Arizona who is a U.S.

manufacturer and test of advanced electronics, cables and sub-assemblies specializing in advanced package and

complex CCA and hardware.

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 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.

Recent Events

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Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “ Sellers ”), 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 and also a commitment to enter into the Subscription (as defined below).

is now a wholly-owned subsidiary of the Company.

On August 9, 2021, we entered into a Subscription

Agreement with Optilan (the “ Subscription ”), pursuant to which we agreed to purchase an aggregate of 4,000,000 Ordinary

Shares of Optilan for an aggregate purchase price of £4,000,000.

from the Sellers all of the issued and outstanding equity interests of Optilan for £1.00.

Optilan is now a wholly-owned subsidiary

of the Company.

On August 30, 2021, we closed two separate Membership

Interest Purchase Agreements (the “ MPAs ”) with Remote Intelligence, Limited Liability Company, a Pennsylvania limited

liability company (“ RI ”) and Wildlife Specialists, LLC, a Pennsylvania limited liability company (“ WS ”)

pursuant to which we agreed to pay to the majority shareholder 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.

RI and WS are now subsidiaries of the Company.

Interest Purchase Agreements (the “ MPAs ”) with RI and WS pursuant to which we agreed to pay to the majority shareholder

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.

RI and WS are now subsidiaries of

On September 8, 2021,

we entered into and closed the Stock Purchase Agreement (the “ TJM SPA ”) with TJM Electronics West, Inc., an Arizona

corporation (“ TJM ”), and TJM’s shareholders, 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 TJM SPA.

we entered into and closed the Stock Purchase Agreement (the “ TJM SPA ”) with TJM and TJM’s shareholders, 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 TJM

TJM is now a wholly-owned subsidiary of the Company.

Effective October 1,

2021, we entered into and closed the Membership Purchase Agreement (the “ TerraData MPA ”) with TerraData Unmanned,

PLLC, a Florida limited liability company (“ TerraData ”), and Justin Dee, the sole shareholder 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 TerraData MPA, to be paid within 12 weeks of closing.

2021, we entered into and closed the Membership Purchase Agreement (the “ TerraData MPA ”) with TerraData and Justin

Dee, the sole shareholder 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 TerraData MPA, to be paid within 12 weeks

TerraData is now a subsidiary of the Company.

On January 4, 2021, we entered into a securities

purchase agreement with Geneva Roth Remark Holdings, Inc.

(“ Geneva ”) issuing to Geneva a convertible promissory note

in the aggregate principal amount of $42,350 with a $3,850 original issue discount and $3,500 in transactional expenses due to Geneva

and its counsel.

The note bears interest at 8% per annum and may be converted into common shares of our Common Stock at a conversion price

equal to 70% of the lowest trading price of our common stock during the 20 prior trading days.

We received $35,000 net cash.

2021, Geneva converted $42,350 of principal and $1,540 into 1,784,146 shares of common stock.

On February 3, 2021, we entered into a securities

purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $94,200 with a $15,700

original issue discount and $3,500 in transactional expenses due to Geneva and its counsel.

The note bears interest at 4.5% per annum

and may be converted into common shares of our Common Stock at a conversion price equal to 81% of the lowest two trading prices of our

Common Stock during the 10 prior trading days.

We received $75,000 net cash.

On July 14, 2021, the note was paid in full, including

all accrued and unpaid interest.

On February 18, 2021, we entered into a securities

purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $76,200 with a $12,700

original issue discount and $3,500 in transactional expenses due to Geneva and its counsel.

The note bears interest at 4.5% per annum

and may be converted into common shares of our Common Stock at a conversion price equal to 81% of the lowest two trading prices of our

Common Stock during the 10 prior trading days.

We received $60,000 net cash.

On July 14, 2021, the note was paid in full, including

all accrued and unpaid interest.

On April 5, 2021, we entered into a securities

purchase agreement with Geneva Roth issuing to Geneva a convertible promissory note in the aggregate principal amount of $64,200 with

a $10,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel.

The note bears interest at 4.5%

per annum and may be converted into common shares of our Common Stock at a conversion price equal to 81% of the lowest two trading prices

of our Common Stock during the 10 prior trading days.

We received $50,000 net cash.

On July 14, 2021, the note was paid in full, including

all accrued and unpaid interest.

On April 26, 2021, we entered a Securities Purchase

Agreement and Registration Rights Agreement with FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, a Delaware limited liability company (the “ FirstFire ”),

pursuant to which we issued to FirstFire a Convertible Promissory Note in the principal amount of $825,000 (the “ FirstFire Note ”).

The purchase price of the FirstFire Note is $750,000.

The FirstFire Note matures on January 26, 2022 upon which time all accrued and unpaid

interest will be due and payable.

Interest accrues on the FirstFire Note at 10% per annum guaranteed until the FirstFire Note becomes

due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.

The FirstFire Note is convertible at any time

after 180 days from issuance, upon the election of the FirstFire, into shares of our Common Stock at $0.015 per share.

The FirstFire Note

is subject to various “Events of Default,” which are disclosed in the FirstFire Note.

Upon the occurrence of an “Event

of Default,” the conversion price would become $0.005.

On November 17, 2021, FirstFire converted $825,000 of principal and $61,875

of interest into 177,375,000 shares of common stock.

See “Legal Proceedings” for additional

information regarding the FirstFire Note.

On July 14, 2021, we entered a Securities Purchase

Agreement with GS Capital Partners, LLC (the “ GS ”), pursuant to which we issued to GS a 6% Redeemable Note in the

principal amount of $2,000,000 (the “ GS Note ”).

The purchase price of the GS Note is $1,980,000.

The GS Note matures

on July 14, 2022 upon which time all accrued and unpaid interest will be due and payable.

Interest accrues on the GS Note at 6% per annum

until the GS Note becomes due and payable.

The GS Note is subject to various “Events of Default,” which are disclosed in

Upon the occurrence of an “Event of Default,” the interest rate on the GS Note will be 18%.

The GS Note is not

convertible into shares of our Common Stock and is not dilutive to existing or future shareholders and we plan on using a portion of

the proceeds of the GS Note to retire existing convertible debt.

On August 19, 2021, we entered into the Purchase

Agreement with GHS, for the offering of up to $45,000,000 worth of Common Stock.

Pursuant to the Purchase Agreement, on August 19, 2021,

we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from the Company, 31,799,260 shares of Common Stock for

total proceeds to the Company, net of discounts, of $3,300,000, at an effective price of $0.1038 per share (the “ First Closing ”).

We received approximately $2,790,000 in net proceeds from the First Closing after deducting the fees and other estimated offering expenses

payable by us.

We used the net proceeds from the First Closing for working capital and for general corporate purposes.

The shares were

issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement

on Form S-3 (File No.

333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18,

Pursuant to the Purchase Agreement, on August

31, 2021, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 27,297,995 shares of Common

Stock for total proceeds to us, net of discounts, of $3,300,000, at an effective price of $0.120888 per share (the “ Second

We received approximately $2,885,000 in net proceeds from the Second Closing after deducting the fees and other

estimated offering expenses payable by us.

We used the net proceeds from the Second Closing for working capital and for general corporate

The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective

registration statement on Form S-3 (File No.

333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective

on August 18, 2021.

Pursuant to the Purchase Agreement, on September

22, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 25,630,272 shares of Common Stock for

total proceeds to us, net of discounts, of $2,000,000, at an effective price of $0.085836 per share (the “ Third Closing ”).

We received approximately $1,915,000 in net proceeds from the Third Closing after deducting the fees and other estimated offering expenses

payable by us.

We used the net proceeds from the Third Closing for working capital and for general corporate purposes.

The shares were

issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement

on Form S-3 (File No.

333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18,

Pursuant to the Purchase Agreement, on October

1, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 37,187,289 shares of Common Stock for

total proceeds to us, net of discounts, of $3,000,000, at an effective price of $0.08874 per share (the “ Fourth Closing ”).

We received approximately $2,850,000 in net proceeds from the Fourth Closing after deducting the fees and other estimated offering expenses

payable by us.

We used the net proceeds from the Fourth Closing for working capital and for general corporate purposes.

The shares were

issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement

on Form S-3 (File No.

333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18,

Pursuant to the Purchase Agreement, on October

14, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 14,282,304 shares of Common Stock for

total proceeds to us, net of discounts, of $1,055,000, at an effective price of $0.08125 per share (the “ Fifth Closing ”).

We received approximately $1,002,250 in net proceeds from the Fifth Closing after deducting the fees and other estimated offering expenses

payable by us.

We used the net proceeds from the Fifth Closing for working capital and for general corporate purposes.

The shares were

issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement

on Form S-3 (File No.

333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18,

On November 9, 2021,

we entered an Equity Financing Agreement (the “ Equity Financing Agreement ”) and Registration Rights Agreement (the

“ GHS 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 (the “ Contract Period ”) after effectiveness of

a registration statement on Form S-1 (the “ Registration Statement ”) of the underlying shares of Common Stock.

The GHS Registration

Rights Agreement provides that we shall (i) use our best efforts to file with the SEC a Registration Statement within 45 days of the

date of the GHS Registration Rights Agreement;

and (ii) have the Registration Statement declared effective by the SEC within 30 days

after the date the GHS Registration Statement is filed with the SEC, but in no event more than 90 days after the GHS Registration Statement

Pursuant to the Equity Financing Agreement, on

December 21, 2021, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 43,777,478 shares

of Common Stock for total proceeds to us, net of discounts, of $2,548,326, at an effective price of $0.0696 per share (the “ First

EFA Closing ”).

We received approximately $2,296,469 in net proceeds from the First EFA Closing after deducting the fees and

other estimated offering expenses payable by us.

We used the net proceeds from the First EFA Closing for working capital and for general

corporate purposes.

Pursuant to the Equity Financing Agreement, on

January 12, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 23,372,430 shares of

Common Stock for total proceeds to us, net of discounts, of $1,150,000, at an effective price of $0.054124 per share (the “ Second

EFA Closing ”).

We received approximately $1,033,975 in net proceeds from the Second EFA Closing after deducting the fees and

other estimated offering expenses payable by us.

We used the net proceeds from the Second EFA Closing for working capital and for general

corporate purposes.

Pursuant to the Equity Financing Agreement, on

January 21, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 33,454,988 shares of

Common Stock for total proceeds to us, net of discounts, of $1,150,000, at an effective price of $0.037812 per share (the “ Third

EFA Closing ”).

We received approximately $1,033,975 in net proceeds from the Third EFA Closing after deducting the fees and

other estimated offering expenses payable by us.

We used the net proceeds from the Third EFA Closing for working capital and for general

corporate purposes.

Pursuant to the Equity Financing Agreement, on

February 7, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 16,040,411 shares of

Common Stock for total proceeds to us, net of discounts, of $500,000, at an effective price of $0.0342884 per share (the “ Fourth

EFA Closing ”).

We received approximately $448,975 in net proceeds from the Fourth EFA Closing after deducting the fees and other

estimated offering expenses payable by us.

We used the net proceeds from the Fourth EFA Closing for working capital and for general corporate

On February 21, 2022, we sold 75,798,921 shares

of our Common Stock at $0.032982 per share for total consideration of $2,500,000.

On March 3, 2022, we sold 16,579,569 shares of

our Common Stock at $0.0301576 per share for total consideration of $500,000.

On March 14, 2022, we sold 5,617,347 shares of

our Common Stock at $0.071208 per share for total consideration of $400,000.

Pursuant to the Equity Financing Agreement, on

March 23, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 29,257,395 shares of Common

Stock for total proceeds to us, net of discounts, of $1,500,000, at an effective price of $0.056396 per share (the “ Fifth EFA

We received approximately $1,348,975 in net proceeds from the Fifth EFA Closing after deducting the fees and other

estimated offering expenses payable by us.

We used the net proceeds from the Fifth EFA Closing for working capital and for general corporate

Pursuant to the Equity Financing Agreement, on

April 11, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 23,746,816 shares of Common

Stock for total proceeds to us, net of discounts, of $1,000,000, at an effective price of $0.04211091 per share (the “ Sixth EFA

We received approximately $898,975 in net proceeds from the Sixth EFA Closing after deducting the fees and other

estimated offering expenses payable by us.

We used the net proceeds from the Sixth EFA Closing for working capital and for general corporate

We have entered into a consulting agreement with

the Bachner Group to assist in the successful transformation from an R&D focused company to a sales-focused company, and assist us

with federal contract opportunities.

The shares were issued in 2022.

On November 9, 2021, we entered an Equity Financing

Agreement (the “ Equity Financing Agreement ”) and Registration Rights Agreement (the “ GHS 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 (the “ Contract Period ”) after effectiveness of a registration statement on Form S-1

(the “ Registration Statement ”) of the underlying shares of Common Stock.

The GHS Registration Rights Agreement 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

and (ii) have the Registration Statement declared effective by the SEC within 30 days after the date the GHS Registration Statement

is filed with the SEC, but in no event more than 90 days after the GHS Registration Statement is filed.

On May 27, 2022, we entered the 2022 EFA and Registration

Rights Agreement (the “ RRA ”) with GHS, pursuant to which GHS agreed to purchase up to $70,000,000 in shares of our

Common Stock, from time to time over the course of 24 months after effectiveness of a registration statement on Form S-1 (the “ Registration

Statement ”) of the underlying shares of Common Stock.

The RRA provides that we shall (i) use our best efforts

to file with the SEC a Registration Statement within 45 days of the date of the GHS Registration Rights Agreement;

and (ii) have the Registration

Statement declared effective by the SEC within 30 days after the date the GHS Registration Statement is filed with the SEC, but in no

event more than 90 days after the GHS Registration Statement is filed.

Below is a table of all puts made by the Company under

the Equity Financing Agreement and 2022 EFA during 2022:

Number of Shares Sold

Total Proceeds,

Net of Discounts

Effective Price per Share

1,259,746,466

We have entered into a consulting agreement with the

Bachner Group to assist in the successful transformation from an R&D focused company to a sales-focused company and assist us with

federal contract opportunities.

On August 3, 2021, we entered into an Engagement

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to the Transaction, then we will pay the consulting bonus fee at the completion of the transaction.

To date, the Transaction has not yet

Going Concern Uncertainty

As shown in the accompanying financial statements,

the Company generated net losses of $4,826,320 and $275,842 during the years ended December 31, 2021 and 2020, respectively.

As of December

31, 2021, the Company’s current liabilities exceeded its current assets by $10,120,885.

As of December 31, 2021, the Company had

$3,658,846 of cash.

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 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

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

the Company generated net losses of $35,517,505 and $4,826,320 during the years ended December

31, 2022 and 2021, respectively.

As of December 31, 2022, the Company’s current liabilities exceeded its current assets by $11,562,784

and an accumulated deficit of $46,555,334.

As of December 31, 2022, the Company had $2,060,332 of cash.

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.

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.

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 Years Ended December 31, 2021 and

For the year ended December 31, 2021, total revenues

were $7,783,340 compared to $0 for the same period in 2020, an increase of $7,783,340.

This increase primarily consisted of revenues of

$7,247,932 from the acquisition of Optilan in August 2021, $277,747 from the acquisition of Wildlife Specialists in August 2021 and $174,266

from the acquisition of TJM Electronics in September 2021 as well as $13,078 from DarkPulse.

Cost of Goods Sold and Gross Profit

For the year ended December 31, 2021, cost of

goods sold were $6,685,210 compared to $0 for the same period in 2020, an increase of $6,685,210.

Gross profit for the year ended December 31, 2021

was $1,098,130 with a gross profit margin of 14.11% compared to $0 for the same period in 2020 with no gross profit margin.

Operating Expenses

Since 2021, we have recognized revenue derived

from the acquisitions of our subsidiaries consummated during the periods ended September 30, 2021 through present.

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;

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:

Remote Intelligence

Cost of Revenues and Gross Margin

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

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.

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.

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.

increase primarily consisted of an increase to the operations from our various acquisitions.

Payroll related expenses for year ended December

31, 2021, increased by $2,653,496 to $2,653,683 from $187 for the year ended December 31, 2020.

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 to the numbers of employees inherited from our various acquisitions.

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, 2021, increased by $2,879,830 to $2,930,245 from $50,415 for the year ended December 31, 2020.

This increase primarily consisted of

increased legal expenditures associated with the increase in litigation as well as fees associated with the various capital raises in

Depreciation and amortization for year ended

December 31, 2021, increased by $207,278 to $258,306 from $51,028 for the year ended December 31, 2020.

This increase is primarily due

to the increase in depreciable assets we acquired from new acquisitions.

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, 2021, we had other

income $4,021,700 compared to other expense of $17,103 for the same period in 2020, an increase in income of $4,038,803.

This increase

in other income increase primarily consisted of changes of $3,421,633 of gain related to the extinguishment of debt, $653,501 increase

in the fair value of the Company’s derivative instruments, $11,600 of gain on foreign currency exchange rate variance, a decrease

in interest expense of $4,706 due to increased borrowings offset by $31,636 loss on convertible notes.

Net Income (Loss)

As a result of the above, we reported a net loss

of $4,826,320 for the year ended December 31, 2021 compared to a net loss of $275,842 for the year ended December 31, 2020.

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.

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.

Liquidity and Capital Resources

December 31, 2021 Compared to December 31,

We require working capital to fund the continued

1 unchanged sentence

During the year ended December

31, 2021, we had $17,696,027 in new cash proceeds compared to year ended December 31, 2020, when we had $0 in new cash proceeds.

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.

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 the Company’s restricted

common stock.

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

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.

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,

Cash Flows From Operating Activities

During the year ended December 31, 2022, net cash

used by operating activities was $11,715,101, resulting from our net loss of $4,826,320 and an increase in expenses related to our convertible

notes payables, including amortization of debt discount of $515,975 and loan acquisition costs of $480,450, increase in stock-based compensation

of $1,346,808, increase in inventory of $1,175,869 and operating lease liabilities of $2,451,692.

These increases were offset by a decrease

in derivative liability of $687,124, increase in accounts payable and accrued expenses of $2,041,588 and an increase from the gain on

the extinguishment of debt of $3,488,860, increase in accounts receivable of $771,432, unbilled revenue of $822,031 and increase in contract

liability of $922,631.

By comparison, during the year ended December

31, 2020, net cash used by operating activities was $8,192, resulting from our net loss of $275,842 partially offset by non-cash expenses

totaling $14,445 and increases in accounts payable and accrued liabilities of $269,589.

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

During the year ended December 31, 2022, we had

net cash used in investing activities of $1,689,153.

During the year ended December 31, 2020, net cash used by investing activities was

$4,969, of capitalized patents costs of $4,969.

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

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

1 unchanged sentence

debt of $384,600.

During the year ended December 31, 2020, net cash used by financing activities was $4,096, comprised of proceeds from

issuance of convertible notes payable of $40,000, offset by repayments of related party notes payable of $44,096.

Factors That May Affect Future Results

11 unchanged sentences

the amount and nature of competition from our competitors;

the effects of technological changes on products

and product demand;

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.

4 unchanged sentences

Recent Accounting Pronouncements

We have provided a discussion of recent accounting

pronouncements in Note 1 to the Condensed Financial Statements.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements of the Company are included

beginning on page F-1 immediately following the signature page to this Form 10-K.

AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis