DarkPulse, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures We have established disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and, as such, is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, Dennis O’Leary, who serves as our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Mr. O’Leary, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of December 31, 2022. Based on his evaluation, Mr. O’Leary concluded that, due to material weaknesses in our internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of December 31, 2022. In light of the material weakness in internal control over financial reporting, we completed substantive procedures, including validating the completeness and accuracy of the underlying data used for accounting prior to filing this Form 10-K. These additional procedures have allowed us to conclude that, notwithstanding the material weakness in our internal control over financial reporting, the consolidated financial statements included in this Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America. Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal controls over financial reporting for the Company. Due to limited resources, management conducted an evaluation of internal controls based on criteria established in 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“ COSO ”). The results of this evaluation determined that our internal control over financial reporting was ineffective as of December 31, 2022, due to material weaknesses. A material weakness in internal control over financial reporting is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting. 46 Management’s assessment identified the following material weaknesses in internal control over financial reporting: · The small size of our company limits our ability to achieve the desired level of separation of duties to achieve effective internal controls over financial reporting. We do not have a separate CEO and CFO, to review and oversee our financial policies and procedures, which does achieve a degree of separation. However, until such time as we are able to hire a controller, we do not believe we meet the full requirement for separation. · We do not have an audit committee. · We have not achieved the desired level of documentation of our internal controls and procedures. This documentation will be strengthened through utilizing a third-party consulting firm to assist management with its internal control documentation and further help to limit the possibility of any lapse in controls occurring. · We have not achieved the desired level of corporate governance to ensure that our accounting for all of our contractual and other agreements is in accordance with all of the relevant terms and conditions. As a result of the material weaknesses in internal control over financial reporting described above, our management has concluded that, as of December 31, 2022, our internal control over financial reporting was not effective based on the criteria in Internal Control - Integrated Framework issued by the COSO. We will continue to follow the standards for the Public Company Accounting Oversight Board (United States) for internal control over financial reporting to include procedures that: · Pertain to the maintenance of records in reasonable detail accurately that fairly reflect the transactions and dispositions of our assets; · Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and · Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Despite the material weaknesses in financial reporting noted above, we believe that our financial statements included in this report fairly present our financial position, results of operations and cash flows as of and for the years presented in all material respects. Changes in Internal Controls There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have taken limited steps to meet our Sarbanes-Oxley (SOX) Section 404 compliance requirements and implement procedures to assure financial reports are prepared in accordance with generally accepted accounting principles (GAAP) and therefore fairly represent the results and condition of the Company. We are not materially compliant with the Section 404 requirements due to economic constraints. 47 ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable to the Company. 48 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 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 60 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 Jason Keith 49 Chief Executive 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. 49 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, CEO, Optilan . Mr. Keith has served as the CEO of Optilan since July 2022. He oversees all commercial, procurement and tendering activities across the Optilan Group and is responsible for the delivery, development and maintenance of these services in compliance with Group policies, procedures and legislation. This is whilst simultaneously ensuring the safe, efficient and economic execution in support of Optilan’s operational requirements. Mr. Keith has 28 years’ experience predominantly within the energy industry, working for major multi-national and international contracting companies across the globe. This includes his previous position at Wood plc, as well as Petrofac, Subsea 7 and BP. Throughout his professional tenure, Mr. Keith has held several commercial positions at both project and corporate levels, with the last 15 years spent in Senior Executive Leadership roles. He has extensive skills in commercial and contract management; this has encompassed valuable multi-cultural experiences, having lived, worked and managed teams across the globe. Mr. Keith holds a Masters in Oil & Gas Law (LLM) and a Postgraduate in Management, both of which he graduated with distinction from the Robert Gordon University in the United Kingdom. He also holds a Diploma in Finance and a master’s certificate in Lean Six Sigma (Black Belt) attained through the Villanova University. Legal Proceedings 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. 50 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. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Exchange Act requires the Company’s directors, executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the Commission reports regarding initial ownership and changes in ownership. Directors, executive officers, and greater than 10% stockholders are required by the Commission to furnish the Company with copies of all Section 16(a) forms they file. We are not aware of any common stock transactions during the year ended December 31, 2022 for which either Forms 3, 4, or 5 were required to be filed. Code of Ethics We have not adopted a formal, written code of ethics due to a small number of members of management. We plan to adopt a Code of Ethics during the fiscal year ending December 31, 2023. ITEM 11. 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, 2022 and 2021. Name and Principal Position Year Ended Dec 31, Salary All Other Compensation Total Dennis O’Leary 2022 $ 285,000 $ – $ 285,000 Chairman/CEO and Director 2021 $ 60,000 $ 60,000 $ 60,000 Bill Bayliss 2022 $ 250,000 $ 19,000 $ 269,000 CEO, Optilan (2) 2021 $ 343,918 $ 68,782 $ 412,700 Jason Keith 2022 $ 186,000 $ 62,700 $ 248,700 CEO, Optilan (2) 2021 $ 212,350 $ 14,813 $ 227,163 (1) On June 24, 2022, Mr. O’Leary was awarded 100 shares of Series A Preferred Stock. Since the shares have no voluntary conversion feature, they are deemed to have no monetary value. (2) In April 2022, Mr. Bayliss was removed as CEO and Mr. Keith was appointed as CEO in May 2022. 51 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 $ – $ – Carl Eckel, Director $ 240,000 $ 240,000 Equity Awards As of December 31, 2022, there were no outstanding equity awards. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Principal Shareholders 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 7,312,175,610 (7,312,087,375 common plus 88,235 preferred) shares as of June 22, 2023. 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 June 22, 2023. 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. 52 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE For transactions with our executive officers, please see the disclosure under “ Item 11. 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. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees . Consists of fees billed for professional services rendered for the audits of our financial statements, reviews of our interim financial statements included in quarterly reports, services performed in connection with filings with the SEC, and related other services that were provided by Boyle CPA (“ Boyle ”), our previous independent registered public accounting firm, and Urish Popeck & Co., LLC (“ Urish ”), our current independent registered public accounting firm, in connection with statutory and regulatory filings or engagements. The following is a summary of the fees incurred by the Company to Boyle and Urish for professional services rendered for the years ended December 31, 2022 and 2021, respectively. Service 2022 2021 Audit Fees $ 286,641 $ 179,750 Audit-Related Fees – – Total $ 286,641 $ 179,750 Tax Fees . Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions. There were no tax fees incurred by the Company for the years ended December 31, 2022 and 2021. Board of Directors Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors The Board of Directors may pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services as allowed by law or regulation. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specifically approved amount. The independent auditors and management are required to periodically evaluate the extent of services provided by the independent auditors in accordance with this pre-approval and the fees incurred to date. The Board of Directors may also pre-approve particular services on a case-by-case basis. The Board of Directors pre-approved 100% of the Company’s 2022 and 2021 audit fees, audit-related fees and all other fees. 53 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Exhibits The following exhibits are included as part of this Form 10-K: Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed Herewith 2.1 Form of Agreement and Plan of Merger by and between Klever Marketing, Inc., DarkPulse Technologies Inc. and DPTH Acquisition Corporation dated April 27, 2018 8-K 000-18730 2.1 5/1/18 2.2 Form of Amendment No. 1 to Agreement and Plan of Merger by and between Klever Marketing, Inc., DarkPulse Technologies Inc. and DPTH Acquisition Corporation dated June 29, 2018 8-K/A 000-18730 2.1 7/13/18 2.3 Form of Amendment No. 2 to Agreement and Plan of Merger by and between Klever Marketing, Inc., DarkPulse Technologies Inc. and DPTH Acquisition Corporation dated August 17, 2018, effective as of July 18, 2018 8-K 000-18730 2.1 8/21/18 2.4# Business Combination Agreement, by, between, and among DarkPulse, Inc., Global System Dynamics, Inc., and Zilla Acquisition Corp. 8-K 000-18730 2.1 12/15/22 3.1 Restated Certificate of Incorporation of Klever Marketing, Inc. a Delaware corporation 10-KSB 000-18730 3.01 6/20/97 3.2 Certificate of Amendment to Certificate of Incorporation 8-K 000-18730 3.1 7/24/18 3.3 Certificate of Amendment to Certificate of Incorporation filed February 5, 2019 10-K 000-18730 3.05 4/15/21 3.4 Certificate of Amendment to Certificate of Incorporation filed February 20, 2020 10-K 000-18730 3.06 4/15/21 3.5 Bylaws 10-KSB 000-18730 3.02 6/20/97 3.6 Amended Bylaws 10-KSB 000-18730 3.03 3/29/01 3.7 Certificate of Designation for Series A Preferred Stock dated June 22, 2022 8-K 000-18730 3.1 6/23/22 3.8 Certificate of Amendment for Series A Preferred Stock filed December 2, 2022 8-K 000-18730 3.1 12/8/22 3.9 Certificate of Correction for Certificate of Amendment For Series A Preferred Stock filed December 8, 2022 8-K 000-18730 3.2 12/8/22 3.10 Certificate of Designation of Series D Preferred Stock 8-K 000-18730 3.2 7/24/18 3.11 Certificate of Amendment for Series D Preferred Stock filed December 23, 2021 8-K 000-18730 3.01 12/27/21 3.12 Certificate of Amendment for Series D Preferred Stock filed December 2, 2022 8-K 000-18730 3.3 12/8/22 4.1 & 10.1 Convertible Promissory Note dated July 14, 2018 10-Q 000-18730 99.1 8/15/18 4.2 & 10.2 Convertible Promissory Note dated July 14, 2018 10-Q 000-18730 99.2 8/15/18 4.3 & 10.3 Convertible Promissory Note dated July 14, 2018 10-Q 000-18730 99.3 8/15/18 4.4 & 10.4 Convertible Promissory Note dated July 14, 2018 10-Q 000-18730 99.4 8/15/18 4.5 & 10.5 Convertible Promissory Note dated July 17, 2018, effective July 18, 2018 10-Q 000-18730 99.5 8/15/18 4.6 & 10.6 Convertible Promissory Note dated July 24, 2018, and effective July 27, 2018 10-Q 000-18730 99.6 8/15/18 4.7 & 10.7 Convertible Promissory Note dated August 20, 2018, effective August 24, 2018 8-K 000-18730 10.1 8/27/18 4.8 & 10.8 Convertible Promissory Note issued to EMA dated September 25, 2018, effective September 28, 2018 8-K 000-18730 10.1 10/5/18 4.9 & 10.9 Convertible Promissory Note issued to Auctus dated September 25, 2018, effective September 27, 2018 8-K 000-18730 10.2 10/5/18 54 4.10 & 10.10 Convertible Promissory Note issued to FirstFire dated September 24, 2018, and effective October 9, 2018 8-K 000-18730 10.1 10/15/18 4.11 & 10.11 8% Convertible Redeemable Note issued to GS Capital Partners, LLC dated January 10, 2019 8-K 000-18730 4.1 1/15/19 4.12 & 10.12 Form of Convertible Promissory Note issued to Crown Bridge Partners, LLC dated February 5, 2019 8-K 000-18730 4.1 2/14/19 4.13 & 10.13 Convertible Promissory Note issued to Geneva Roth Remark Holdings, Inc. dated September 2, 2020 10-K 000-18730 4.13 4/15/21 4.14 & 10.14 Convertible Promissory Note Issued as of April 26, 2021 to FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC 10-Q 000-18730 4.1 8/16/21 4.15 & 10.15 6% Redeemable Note dated July 14, 2021 issued to GS Capital Partners, LLC in the principal amount of $2,000,000 10-Q 000-18730 4.1 11/15/21 10.16 Securities Purchase Agreement dated July 14, 2021 with GS Capital Partners, LLC 10-Q 000-18730 10.1 11/15/21 10.17 Securities Purchase Agreement by and between DarkPulse, Inc. and GS Capital Partners, LLC dated January 10, 2019 8-K 000-18730 10.1 1/15/19 10.18 Form of Securities Purchase Agreement between DarkPulse, Inc. and Crown Bridge Partners, LLC dated February 5, 2019 8-K 000-18730 10.1 2/14/19 10.19 Securities Purchase Agreement with Geneva Roth Remark Holdings, Inc. dated September 2, 2020 10-K 000-18730 10.03 4/15/21 10.20 Consulting Agreement effective December 23, 2020 with Faisal Farooqui 10-K 000-18730 10.04 4/15/21 10.21 Assignment Agreement with the University of New Brunswick, Canada 10-K 000-18730 10.05 4/15/21 10.22 Convertible Debenture (Secured) Issued April 24, 2017 10-K 000-18730 10.06 4/15/21 10.23 Finder’s Fee Agreement dated January 8, 2021 with J.H. Darbie & Co., Inc. 10-Q 000-18730 10.1 5/17/21 10.24 Securities Purchase Agreement dated as of April 26, 2021 with FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC 10-Q 000-18730 10.1 8/16/21 10.25 Registration Rights Agreement dated April 26, 2021 to FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC 10-Q 000-18730 10.2 8/16/21 10.26 Heads of Terms with Remote Intelligence LLC and Unleash Live, Inc. dated May 10, 2021 10-Q 000-18730 10.3 8/16/21 10.27 Consulting Agreement with Dr. Joseph Catalino Jr. dated May 17, 2021 10-Q 000-18730 10.4 8/16/21 10.28 Settlement and Mutual Release Agreement with Auctus Fund, LLC dated June 3, 2021 10-Q 000-18730 10.5 8/16/21 10.29 Letter of Intent with Remote Intelligence, Limited Liability Company dated June 8, 2021 10-Q 000-18730 10.6 8/16/21 10.30 Letter of Intent with Wildlife Specialists, LLC dated June 8, 2021 10-Q 000-18730 10.7 8/16/21 10.31 Teaming Agreement with Crae-Con Construction Inc. dated June 22, 2021 10-Q 000-18730 10.8 8/16/21 10.32 Teaming Agreement with SurSafe LLC dated June 24, 2021 10-Q 000-18730 10.9 8/16/21 10.33 Letter of Intent with TerraData Unmanned, PLLC dated June 25, 2021 10-Q 000-18730 10.10 8/16/21 10.34 Consulting Agreement dated effective July 22, 2021 with Rick Gibson 10-Q 000-18730 10.2 11/15/21 10.35 Engagement Agreement and Terms and Conditions dated August 3, 2021 with Energy & Industrial Advisory Partners, LLC 10-Q 000-18730 10.3 11/15/21 10.36 Letter of Intent dated June 8, 2021 with Remote Intelligence, Limited Liability Company 10-Q 000-18730 10.4 11/15/21 55 10.37 Letter of Intent dated June 8, 2021 with Wildlife Specialists, LLC 10-Q 000-18730 10.5 11/15/21 10.38 Share Purchase Agreement dated August 9, 2021 with Optilan Guernsey Limited and Optilan Holdco 2 Limited 10-Q 000-18730 10.6 11/15/21 10.39 Subscription Agreement August 9, 2021 with Optilan HoldCo 3 Limited 10-Q 000-18730 10.7 11/15/21 10.40 Letter of Intent dated effective August 18, 2021 with TJM Electronics West, Inc. 10-Q 000-18730 10.8 11/15/21 10.41 Membership Interest Purchase Agreement dated August 30, 2021 with Remote Intelligence, Limited Liability Company 10-Q 000-18730 10.9 11/15/21 10.42 Membership Purchase Agreement dated August 24, 2022 with Remote Intelligence, Limited Liability Company 10-Q 000-18730 10.2 11/4/22 10.42 Membership Interest Purchase Agreement dated August 30, 2021 with Wildlife Specialists, LLC 10-Q 000-18730 10.10 11/15/21 10.44 Membership Purchase Agreement dated August 24, 2022 with Wildlife Specialists, LLC 10-Q 000-18730 10.3 11/4/22 10.43 Letter of Intent dated June 25, 2021 with TerraData Unmanned, PLLC 10-Q 000-18730 10.11 11/15/21 10.44 Amendment No. 1 to Letter of Intent with TerraData Unmanned, PLLC dated effective August 24, 2021 10-Q 000-18730 10.12 11/15/21 10.45 Amendment No. 2 to Letter of Intent with TerraData Unmanned, PLLC dated effective September 3, 2021 10-Q 000-18730 10.13 11/15/21 10.46 Amendment to Letter of Intent with TJM Electronics West, Inc. dated effective August 31, 2021 10-Q 000-18730 10.14 11/15/21 10.47 Stock Purchase Agreement dated September 8, 2021 with TJM Electronics West, Inc. 10-Q 000-18730 10.15 11/15/21 10.48 Research Agreement dated September 21, 2021 with the Arizona Board of Regents 10-Q 000-18730 10.16 11/15/21 10.49 Membership Purchase Agreement with TerraData Unmanned, PLLC dated effective October 1, 2021 S-1 333-261453 10.48 12/1/21 10.50 Teaming Agreement with CADG Engineering Pte Ltd dated effective October 5, 2021 S-1 333-261453 10.49 12/1/21 10.51 Equity Financing Agreement with GHS Investments LLC dated November 9, 2021 S-1 333-261453 10.50 12/1/21 10.52 Registration Rights Agreement with GHS Investments LLC dated November 9, 2021 S-1 333-261453 10.51 12/1/21 10.53 Investor Relations Agreement dated December 15, 2021 with RedChip Companies, Inc. 10-K 000-18730 10.53 4/15/22 10.54 Equity Financing Agreement with GHS Investments LLC dated May 27, 2022 S-1 333-265401 10.54 6/3/22 10.55 Registration Rights Agreement with GHS Investments LLC dated May 27, 2022 S-1 333-265401 10.55 6/3/22 10.56 Amendment No. 1 to the Equity Financing Agreement with GHS Investments LLC dated June 1, 2022 S-1 333-265401 10.56 6/3/22 10.57 Distributorship Agreement dated effective June 13, 2022 with Multi Net Egypt for Trading 8-K 000-18730 99.2 6/13/22 10.58* Employment Agreement dated effective April 1, 2022 with Dennis O’Leary 10.2 000-18730 10.2 8/10/22 10.59 Joint Cooperation Contract dated July 5, 2022 with Salman International Company 8-K 000-18730 99.2 7/6/22 10.60 Exclusive Commercial Agency Agreement dated July 27, 2022 with Gulf Automation Services & Oilfield Supplies Company [Gasos] LLC 10-Q 000-18730 10.1 11/4/22 56 10.61 Consulting Agreement dated June 1, 2022 with Dr Ehab M. Eldemeri 10-Q 000-18730 10.1 8/10/22 10.62 Joint Venture Agreement dated September 9, 2022 8-K 000-18730 99.1 9/12/22 10.63 Purchase Agreement dated October 12, 2022 with Gladstone Sponsor, LLC and Gladstone Acquisition Corp. X 10.64 Assignment, Assumption, Release and Waiver of the Letter Agreement dated October 12, 2022 with Gladstone Sponsor, LLC and Gladstone Acquisition Corp. X 10.65 Joinder to the Registration Rights Agreement dated October 12, 2022 with Gladstone Acquisition Corp . X 16.1 Letter from Boyle CPA Dated January 28, 2022 Regarding Change in Certifying Accountant 8-K 000-18730 16.1 1/28/22 16.2 Letter from Urish Popeck & Co., LLC Dated January 4, 2023 Regarding Change in Certifying Accountant 8-K 000-18730 16.1 1/4/23 21.1 List of Subsidiaries 10-K 000-18730 21.1 4/15/21   31.1 Certification of Chief Executive Officer and Chief Financial Officer X 32.1 Certification of Chief Executive Officer and Principal Financial Officer X 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted in Inline XBRL, and included in exhibit 101). ____________ * Indicates management contract or compensatory plan or arrangement. # Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601. The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request. ITEM 16. FORM 10-K SUMMARY None. 57 SIGNATURES Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DARKPULSE, INC. Dated: June 23, 2023 By: /s/ Dennis M. O’Leary Dennis M. O’Leary Chairman, Chief Executive Officer and President, and Chief Financial Officer (Principal Executive Officer, Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on this 22nd day of June, 2023. Signature Title /s/ Dennis M. O’Leary Dennis M. O’Leary Chairman, Chief Executive Officer, President, Chief Financial Officer, Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer June 23, 2023 /s/ Dr. Anthony Brown Director June 23, 2023 Dr. Anthony Brown /s/ Craig Atkin Director June 23, 2023 Craig Atkin 58 DARKPULSE, INC. Index to Financial Statements 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-1 - F-2 Report of Independent Registered Public Accounting Firm (Urish Popeck & Co., LLC, PCAOB ID 1013) 2021 F-3 - F-4 Consolidated Balance Sheets F-6 Consolidated Statements of Operations F-7 Consolidated Statements of Comprehensive Loss F-8 Consolidated Statements of Stockholders’ (Deficit) Equity F-9 Consolidated Statements of Cash Flows F-10 Notes to the Consolidated Financial Statements F-11 59 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of DarkPulse, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of DarkPulse, Inc. (the “Company”) as of December 31, 2022, and the related consolidated statements of operations, comprehensive loss, stockholders’ (deficit) equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has incurred significant operating losses and negative cash flows. The Company also has an accumulated deficit of approximately $46.6 million at December 31, 2022. The Company is dependent on obtaining additional working capital funding from the sale of equity and/or debt securities to execute its plans and continue operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which it relates. Revenue Recognition As discussed in Note 2 to the financial statements, the Company recognizes revenue from the sale of services, which consist primarily of advanced technology solutions for integrated communications and security systems. At contract inception, the Company assesses the goods and services promised in the contract with customers and identifies a performance obligation for each, in accordance with ASC 606, Revenue from Contracts with Customers. To determine the performance obligation, the Company considers all products and services promised in the contract. Revenue is recognized over time using the input measure as it most accurately represents the value of goods and services transferred to the customer. F- 1 The primary procedures we performed to address this critical audit matter included: · We reviewed the underlying agreements and contracts and assessed the terms to determine if the performance obligation was met and for the correct amount. · We recalculated the mathematical accuracy of the revenue. · We tested the contract costs to ensure they are being properly recorded. · We assessed the adequacy of any loss provisions by reviewing the Company’s estimated costs to complete contracts and to ensure it is sufficient. · We recalculated the margins on contracts to ensure they are consistent over the entire term of the contract and its related performance obligation. Impairment Analysis As discussed in Note 8 to the financial statements, management performed their annual impairment analysis during the year ended December 31, 2022. As disclosed by management, the determination of fair value using the income approach requires the use of significant estimates and assumptions, including forecasted revenue growth rates and discount rates. The determination of fair value using the market multiples approach requires the use of revenue multiples, as applicable, based on operating data from guideline publicly traded companies. If the fair value of the reporting unit is less than its carrying value, a non-cash impairment charge is recorded in an amount equal to that difference with the loss not to exceed the total amount of goodwill allocated to the reporting unit. Additionally, intangible assets subject to amortization were also reviewed for impairment. An impairment on the intangible assets shall be recognized only if the carrying amount is not recoverable and exceeds its fair value. The carrying amount of an intangible asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposal of the asset. An impairment loss shall be measured as the amount by which the carrying amount of an intangible asset exceeds its fair value. As a result of the annual impairment assessment, the Company concluded that there was impairment to the intangible assets and goodwill in the aggregate of approximately $12.2 million. The principal considerations for our determination that performing procedures relating to the impairment analyses is a critical audit matter are the significant judgment by management when developing the fair value measurements of the reporting unit, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management's significant assumptions related to forecasted revenue growth rates, discount rates, and revenue multiples, as applicable. In addition, the audit effort involved the use of professionals with specialized skill and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (1) testing management’s process for developing the fair value estimates of the reporting units, (2) evaluating the allocation of assets and liabilities to the reporting units, (3) evaluating the appropriateness of the income and market approaches, (4) testing the completeness and accuracy of the underlying data used in the income and market multiple approaches, and (5) evaluating the significant assumptions used by management related to forecasted revenue growth rates, discount rates, and revenue multiples, as applicable. Evaluating management’s assumptions related to forecasted revenue growth rates involved evaluating whether the assumptions used by management were reasonable considering (1) the current and past performance of the reporting unit, (2) the actions necessary to achieve future forecasts, (3) the consistency with external market data, and (4) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the income approach and the discount rates, as well as the selection and calculation of revenue multiples, as applicable. The primary procedures we performed to address this critical audit matter included: · We evaluated and recomputed the methodology used in connection with the Company’s impairment analysis, including review of the appropriate accounting literature, valuation model, significant assumptions used, and the completeness and accuracy of the underlying data used; · With the assistance of our valuation specialists, we assessed the significant assumptions used by management relating to forecasted revenue growth rates, discount rates, and revenue multiples as applicable.; · We assessed the appropriate interpretation and application used by management of the FASB’s Accounting Standards Codification for the impairment analysis including topics ASC 350 - Intangibles – Goodwill and Other , ASC 360 - Property, Plant, and Equipment , and ASC 820 – Fair Value Measurements and Disclosures; · We evaluated the reasonableness of the Company’s projections of future cash flows by comparing the assumptions used in the projections to actual results and other information deemed necessary as well as tested the mathematical accuracy of the calculations; · We evaluated the adequacy of the Company’s disclosures in the financial statements related to the impairment. /s/ Mazars USA LLP We have served as the Company’s auditor since 2023. Fort Washington, PA June 23, 2023 F- 2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors Of DarkPulse, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of DarkPulse, Inc. and its subsidiaries (the “Company”) as of December 31, 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ deficit, and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021 , in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt about the Company’s Ability to Continue as a Going Concern – See also Critical Audit Matters Section Below The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency at December 31, 2021. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate) to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F- 3 Accounting for Embedded Derivative Liabilities Related to Convertible Debentures As described in Note 6 to the financial statements, the Company had convertible debentures that required accounting considerations and significant estimates. The Company determined that variable conversion features issued in connection with certain convertible debentures required derivative liability classification. These variable conversion features were initially measured at fair value and subsequently have been remeasured to fair value at each reporting period. The Company determined the fair value of the embedded derivatives using the Black-Scholes-Merton option pricing model. The value of the embedded derivative liabilities related to the convertible debentures was $533,753 at December 31, 2021. We identified the accounting considerations and related valuations, including the related fair value determinations of the embedded derivative liabilities of such as a critical audit matter. Our audit procedures related to the Company’s accounting considerations and significant estimate included the following, among others: · We reviewed the accounting considerations made by the Company in determining the nature of the various features; · We evaluated of the potential derivatives and potential bifurcation in the instruments; · We evaluated the determination of the fair value of the various debt and equity instruments and the conversion features that include valuation models and assumptions utilized by management against current accounting guidance. · We tested the mathematical accuracy of management’s calculations related to the estimate. Auditing these elements is especially challenging and requires auditor judgement due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed. Going Concern Uncertainty – See also Going Concern Uncertainty explanatory paragraph above As described further in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations and does not have an established source of revenues sufficient to cover its operating costs. The ability of the Company to continue as a going concern is dependent on executing its business plan and ultimately to attain profitable operations. Accordingly, the Company has determined that these factors raise substantial doubt as to the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. Management intends to continue to fund its business by way of public or private offerings of the Company’s stock or through loans from private investors, in order satisfy the Company’s obligations as they come due for at least one year from the financial statement issuance date. However, the Company has not concluded that these plans alleviate the substantial doubt related to its ability to continue as a going concern. We determined the Company’s ability to continue as a going concern is a critical audit matter due to the estimation and uncertainty regarding the Company’s available capital and the risk of bias in management’s judgments and assumptions in their determination. Our audit procedures related to the Company’s assertion on its ability to continue as a going concern included the following, among others: · We performed testing procedures such as analytical procedures to identify conditions and events that indicate that there could be substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. · We reviewed and evaluated management's plans for dealing with adverse effects of these conditions and events. · We inquired of Company management and reviewed company records to assess whether there are additional factors that contribute to the uncertainties disclosed. · We assessed whether the Company’s determination that there is substantial doubt about its ability to continue as a going concern was adequately disclosed. F- 4 Revenue Recognition The Company recognizes revenue upon transfer of control of promised services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those services. Significant judgment is exercised by the Company in determining revenue recognition for customer agreements, and include the pattern of delivery (i.e., timing of when revenue is recognized) for each distinct performance obligation. The related audit effort in evaluating management’s judgments in determining revenue recognition for customer agreements required a high degree of auditor judgment. Our principal audit procedures related to the Company’s revenue recognition for customer agreements included the following: · We gained an understanding of internal controls related to revenue recognition. · We evaluated management’s significant accounting policies for reasonableness. · We selected a sample of revenues recognized and performed the following procedures: o Obtained and read contract source documents for each selection and other documents that were part of the agreement, if applicable. o Assessed the terms in the customer agreement and evaluated the appropriateness of management’s application of their accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions. o We tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements. Business Combinations – Valuation of Intangible Assets As described in note 4 of the Consolidated Financial Statements, the Company completed the acquisitions of 100% of Optilan Guernsey Limited and Optilan Holdco 2 Limited (Optilan) and TJM Electronics West for $694,527 and $450,000, respectively and 60% of Wildlife Specialists LLC, Remote Intelligence, LLC and TerraData Unmanned, PLLC for $1,478,000 and $1,478,000, and $600,000 respectively (collectively referred to as the “Acquisitions”) and accounted for as business combinations. The acquired intangible assets included Optilan Holdco 3, Limited tradename for valued at $4,033,638. The Company recorded the acquired intangible assets at fair value on the date of acquisition considering a discounted cash flow methodology. The methods used to estimate the fair value of acquired intangible assets involve assumptions. The assumptions applied by management in estimating the fair value of acquired intangible assets included income projections and discount rates. The principal considerations for our determination that performing procedures relating to the valuation of intangible assets in the Acquisitions is a critical audit matter are (1) there was a degree in significant auditor judgement and subjectivity in applying procedures to the fair value of the intangible assets acquired due to the judgment by management when developing estimates and (2) audit effort was required relating to the estimates, projections, discount rates, and weighted average cost of capital utilized by the Company. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the conclusions. Our principal audit procedures to evaluate the valuation of intangible assets included the following: · We read the purchase agreements used in the underlying acquisitions and utilized by the Company to allocate the purchase price. · We obtained the valuation reports prepared by management’s third-party expert. · Utilized professionals with specialized skill and knowledge to evaluate the reasonableness of the methodology, assumptions, including the discount rate and weighted average cost of capital, as compared to their experience and publicly available market data. · Considered the reasonableness of the overall allocation of the total purchase price. /s/ Urish Popeck & Co., LLC We have served as the Company's auditor since 2021. Pittsburgh, PA April 15, 2022 F- 5 DARKPULSE, INC. Consolidated Balance Sheets December 31, 2022 2021 ASSETS CURRENT ASSETS: Cash $ 2,060,332 $ 3,658,846 Accounts receivable, net 2,952,293 4,528,249 Inventory 23,825 11,948 Contract assets 1,439,844 485,825 Due from related party 318,025 – Prepaid expenses and other current assets 180,530 181,000 TOTAL CURRENT ASSETS 6,974,849 8,865,869 NON-CURRENT ASSETS: Property and equipment, net 1,933,871 1,787,824 Operating lease right-of-use assets 2,724,226 2,620,993 Patents, net 267,875 342,962 Notes receivable, related party 1,049,248 – Investment in related party (see Note 17) 1,500,000 – Joint venture 46,724 – Intangible assets, net 390,330 3,886,588 Goodwill 6,462,153 17,088,501 Other assets, net 689,869 843,644 TOTAL NON-CURRENT ASSETS 15,064,297 26,570,512 TOTAL ASSETS $ 22,039,145 $ 35,436,380 LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 10,736,373 $ 7,761,241 Contract liabilities 2,215,212 6,019,371 Loss provision for contracts in progress 945,928 – Convertible notes, net 378,263 378,263 Notes payable, current 2,000,000 2,000,000 Derivative liability 306,467 533,753 Loan payable, current 472,700 594,562 Loan payable, related party 361,747 185,247 Secured debenture, current 136,353 – Operating lease liabilities - current 512,373 364,105 Other current liabilities 472,217 1,896,218 TOTAL CURRENT LIABILITIES 18,537,633 19,732,759 NON-CURRENT LIABILITIES: Secured debenture 954,474 1,172,364 Loan payable 328,508 358,153 Operating lease liabilities - non-current 2,547,524 2,474,530 Other liabilities - non-current – 132,931 TOTAL NON-CURRENT LIABILITIES 3,830,506 4,137,978 TOTAL LIABILITIES 22,368,139 23,870,738 Commitments and contingencies – – STOCKHOLDERS’ (DEFICIT) EQUITY: Series A Super Voting preferred stock, par value $ 0.01 ; 100 shares designated, 100 and 0 shares issued and outstanding at December 31, 2022 and 2021, respectively 1 – Convertible preferred stock - Series D, par value $ 0.01 , 100,000 shares designated, 88,235 shares issued and outstanding as of both December 31, 2022 and 2021 883 883 Common stock, par value $ 0.0001 , 20,000,000,000 shares authorized, 6,427,495,360 and 5,197,921,885 shares issued as of December 31, 2022 and 2021, respectively, 6,427,395,360 and 5,197,821,885 shares outstanding as of December 31, 2022 and 2021, respectively 642,740 519,782 Treasury stock at cost, 100,000 shares at December 31, 2022 and 2021 ( 1,000 ) ( 1,000 ) Additional paid-in capital 44,602,052 20,248,703 Non-controlling interests 2,119,566 2,358,227 Accumulated other comprehensive loss ( 1,137,902 ) ( 284,463 ) Accumulated deficit ( 46,555,334 ) ( 11,276,490 ) TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY ( 328,994 ) 11,565,642 TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY $ 22,039,145 $ 35,436,380 See accompanying notes to consolidated financial statements. F- 6 DARKPULSE, INC. Consolidated Statements of Operations Years Ended December 31, 2022 2021 REVENUES $ 9,100,255 $ 7,783,340 COST OF REVENUES 14,543,529 6,685,210 GROSS PROFIT (LOSS) ( 5,443,274 ) 1,098,130 OPERATING (INCOME) EXPENSES: Selling, general and administrative 4,966,702 3,918,967 Salaries, wages and payroll taxes 7,457,491 2,653,683 Professional fees 3,718,171 2,930,245 Depreciation and amortization 1,568,405 258,306 Impairment expense 12,222,598 – Gain on forgiveness of payables ( 312,685 ) – Debt transaction expenses – 184,950 TOTAL OPERATING EXPENSES 29,620,682 9,946,150 OPERATING LOSS ( 35,063,956 ) ( 8,848,020 ) OTHER INCOME (EXPENSE): Interest expense ( 621,132 ) ( 130,359 ) Change in fair market of derivative liabilities 227,286 687,124 Gain on forgiveness of liabilities – 3,488,860 Loss on equity investment ( 56,781 ) – Loss on convertible notes – ( 35,525 ) Foreign currency exchange rate variance ( 2,922 ) 11,600 TOTAL OTHER (EXPENSE) INCOME ( 453,549 ) 4,021,700 NET LOSS $ ( 35,517,505 ) $ ( 4,826,320 ) Net loss attributable to noncontrolling interests 238,661 133,702 Net loss attributable to Darkpulse, Inc. $ ( 35,278,844 ) $ ( 4,692,618 ) Net loss per share - basic and diluted $ ( 0.01 ) $ ( 0.00 ) Weighted average common shares outstanding - basic and diluted 5,713,495,965 4,775,929,690 See accompanying notes to consolidated financial statements. F- 7 DARKPULSE, INC. Consolidated Statements of Comprehensive Loss Years Ended December 31, 2022 2021 NET LOSS $ ( 35,517,505 ) $ ( 4,826,320 ) OTHER COMPREHENSIVE (LOSS) INCOME Foreign currency translation ( 853,439 ) 26,539 COMPREHENSIVE LOSS $ ( 36,370,944 ) $ ( 4,799,781 ) See accompanying notes to consolidated financial statements. F- 8 DARKPULSE, INC. Consolidated Statement of Stockholders’ (Deficit) Equity Preferred stock Additional Non- Accumulated other Total stockholders’ Series A Series D Common stock Treasury stock paid-in Controlling comprehensive Accumulated (deficit) Shares Amount Shares Amount Shares Amount Shares Amount capital Interests loss deficit equity B alance, December 31, 2020 – – 88,235 $ 883 4,088,762,151 $ 408,876 100,000 $ ( 1,000 ) $ 1,805,813 $ ( 12,439 ) $ 315,832 $ ( 6,450,170 ) $ ( 3,932,205 ) Conversion of convertible notes – – – – 908,659,678 90,866 – – 1,610,853 – – – 1,701,719 Common stock issued for cash – – – – 179,974,598 17,997 – – 14,575,330 – – – 14,593,327 Common stock issued for acquisitions – – – – 15,000,000 1,500 – – 1,654,500 2,370,666 – – 4,026,666 Stock based compensation – – – – 5,425,453 543 – – 602,207 – ( 600,295 ) – 602,750 Foreign currency adjustment – – – – – – – – – – – – ( 600,295 ) Net loss – – – – – – – – – – – ( 4,826,320 ) ( 4,826,320 ) Balance, December 31, 2021 – – 88,235 883 5,197,821,885 519,782 100,000 ( 1,000 ) 20,248,703 2,358,227 ( 284,463 ) ( 11,276,490 ) 11,565,642 Common stock issued for cash – – – – 1,259,746,466 125,975 – – 24,150,333 – – – 24,276,308 Common shares returned and cancelled – – – – ( 33,898,377 ) ( 3,390 ) – – 3,390 – – – – Issuance of common stock to settle accounts payable – – – – 3,725,386 373 – – 199,627 – – – 200,000 Issuance of preferred shares 100 1 – – – – – – ( 1 ) – – – – Foreign currency adjustment – – – – – – – – – – ( 853,439 ) – ( 853,439 ) Net loss – – – – – – – – – ( 238,661 ) – ( 35,278,844 ) ( 35,517,505 ) Balance, December 31, 2022 100 $ 1 88,235 $ 883 6,427,395,360 $ 642,740 100,000 $ ( 1,000 ) $ 44,602,052 $ 2,119,566 $ ( 1,137,902 ) $ ( 46,555,334 ) $ ( 328,994 ) See accompanying notes to consolidated financial statements. F- 9 DARKPULSE, INC. Consolidated Statements of Cash Flows Year Ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 35,517,505 ) $ ( 4,826,320 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,568,405 258,306 Gain on forgiveness of payables and liabilities ( 312,685 ) – Gain on forgiveness of liabilities – ( 3,488,860 ) Change in fair market of derivative liabilities ( 227,286 ) ( 687,124 ) Impairment of goodwill and intangible assets 12,222,598 – Loss on equity investment 56,781 – Loan acquisition costs – ( 480,450 ) Stock based compensation – 602,750 Amortization of debt discount – 515,975 Changes in operating assets and liabilities: Accounts receivable 1,459,978 771,432 Inventory ( 11,877 ) ( 11,948 ) Contract assets ( 835,161 ) ( 485,825 ) Prepaid expenses and other assets 154,245 ( 181,000 ) Accounts payable and accrued expenses 3,498,906 ( 2,041,131 ) Contract liabilities ( 2,609,891 ) ( 1,288,315 ) Loss provision for contracts in progress 784,469 – Operating lease liabilities, net ( 412,587 ) 1,104,884 Other liabilities ( 1,556,932 ) ( 1,125,843 ) Net cash used in operating activities ( 21,738,542 ) ( 11,363,470 ) Cash flows from investing activities: Purchases of property and equipment ( 2,074,627 ) ( 754,961 ) Investment in related party ( 1,500,000 ) – Investment in joint venture ( 103,505 ) – Issuance of note receivable, related party ( 1,049,248 ) – Advances to related party ( 318,025 ) Business acquisitions, net of cash received – ( 583,319 ) Capitalized patents – ( 191,420 ) Deposits – ( 159,453 ) Net cash used in investing activities ( 5,045,405 ) ( 1,689,153 ) Cash flows from financing activities: Proceeds from sale of common stock, net of fees 24,276,308 14,593,327 Proceeds from convertible debentures – 1,102,700 Repayments of convertible debentures – ( 384,600 ) Proceeds from notes payable – 2,000,000 Net Repayments of loan payable ( 110,507 ) – Net cash provided by financing activities 24,165,801 17,311,427 Net change in cash and cash equivalents ( 2,618,146 ) 4,258,804 Effect of exchange rate on cash 1,019,632 ( 600,295 ) Cash at beginning of year 3,658,846 337 Cash at end of year $ 2,060,332 $ 3,658,846 Supplemental disclosure of cash flow information: Cash paid for income taxes $ – $ – Cash paid for interest $ 369,063 $ – Non-cash financing and investing activities: Issuance of common stock per TerraData Acquisition $ 200,000 $ – Issuance of common stock for convertible notes payable and interest $ – $ 181,560 Issuance of common stock for Wildlife Specialists and Remote Intelligence $ – $ 1,654,500 Non-controlling interest for Wildlife Specialists and Remote Intelligence $ – $ 2,370,666 See accompanying notes to consolidated financial statements. F- 10 DARKPULSE, INC. Notes to the Consolidated Financial Statements For the Years ended December 31, 2022 and 2021 NOTE 1 – BASIS OF FINANCIAL STATEMENT PRESENTATION Organization and Description of Business DarkPulse, Inc. (“DPI” or “Company”) is a technology-security company incorporated in 1989 as Klever Marketing, Inc. (“Klever”). Its’ wholly-owned subsidiary, DarkPulse Technologies Inc. (“DPTI”), originally started as a technology spinout from the University of New Brunswick, Fredericton, Canada. The Company’s security and monitoring systems will initially be delivered in applications for border security, pipelines, the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision. The Company’s patented BOTDA dark-pulse sensor technology allows for the monitoring of highly dynamic environments due to its greater resolution and accuracy. The Company’s subsidiaries consist of Optilan HoldCo 3 Limited, a company headquartered in Coventry, United Kingdom (“Optilan”) whose focus is in telecommunications, energy, rail, critical network infrastructure, pipeline integrity systems, renewables and security; Remote Intelligence, LLC, a company headquartered in Pennsylvania who provides unmanned aerial drone and unmanned ground crawler (UGC) services to a variety of clients from industrial mapping and ecosystem services, to search and rescue, to pipeline security; Wildlife Specialists, LLC, a company headquartered in Pennsylvania who provides clients with comprehensive wildlife and environmental assessment, planning, and monitoring services; TerraData Unmanned, PLLC, a company headquartered in Florida who custom manufactures NDAA compliant drones and unmanned ground crawlers to meet the needs of its customers; and TJM Electronics West, Inc., a company headquartered in Arizona who is a U.S. manufacturer and tester of advanced electronics, cables and sub-assemblies specializing in advanced package and complex CCA and hardware. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements are as follows: Basis of Presentation and Principles of Consolidation The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The consolidated financial statements of the Company include the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Our consolidated financial statements as of December 31, 2022 and 2021 include the accounts of DarkPulse Inc. and its subsidiaries: DarkPulse Technologies Inc. (“DPTI”), a New Brunswick, Canada corporation, a wholly owned subsidiary, incorporated December 16, 2010. DPTI owns 100% of DarkPulse Technology Holdings Inc., a New York corporation, incorporated July 6, 2017. On August 9, 2021, the Company entered into a Share Purchase Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”), pursuant to which the Company 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 of August 9, 2021, the Company owns all of the equity interests of Optilan. Refer to Note 4 for the assets acquired and liabilities assumed of Optilan. On August 30, 2021, the Company closed two separate Membership Interest Purchase Agreements 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 the Company agreed to pay to the majority shareholder of each of RI and WS an aggregate of 15,000,000 shares of the Company’s Common Stock and $ 1,000,000 in exchange for 60 % ownership of each of RI and WS. F- 11 On September 8, 2021, the Company entered into and closed the Stock Purchase Agreement 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 . Effective October 1, 2021 the Company entered into and closed the Membership Purchase Agreement with TerraData Unmanned, PLLC, a Florida limited liability company (“ TerraData ”), and Justin Dee, the sole shareholder of TerraData, pursuant to which the Company agreed to purchase 60 % of the equity interests in TerraData in exchange for 3,725,386 shares of the Company’s Common Stock and $ 400,000 . The Company evaluates its relationships with other entities to identify whether they are variable interest entities (“VIE”) as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation (“ASC 810”), and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that entity is consolidated. 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. Reclassifications Certain amounts in the Company’s prior year consolidated financial statements have been reclassified to conform to their current year presentation. The reclassifications are primarily due to contract related assets and liabilities. In addition, certain other assets of $560,760 were reclassified from current to long-term and certain liabilities of $185,247 were reclassified from long-term to current. As a result of these reclassifications, our working capital deficit increased by $746,006 as compared to amounts previously reported. There were no changes to previously reported total assets, total liabilities, or equity. There were no changes to previously reported operating or net loss and no changes to previously reported cash flows from operating, investing, or financing activities. Cash The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with high credit quality financial institutions. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. To reduce its risk associated with the failure of such a financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits. As of December 31, 2022, there was $ 640,614 of cash held at the US entities in excess of federally insured limits. Accounts Receivable Accounts receivable and contract assets include amounts billed to customers under the terms and provisions of the contracts. Most billings are determined based on contractual terms. As is common practice in the industry, the Company classifies all accounts receivable and contract assets, including retainage, as current assets. The contracting cycle for certain long-term contracts may extend beyond one year, and accordingly, collection of retainage on those contracts may extend beyond one year. Contract assets include amounts billed to customers under retention provisions in construction contracts. Such provisions are standard in the Company’s industry and usually allow for a portion of progress billings on the contract price, typically 5-10%, to be withheld by the customer until after the Company has completed work on the project. Billings for such retention balances at each balance sheet date are finalized and collected after project completion. Generally, unbilled amounts will be billed and collected within one year. The Company determined that there are no material amounts due past one year and no material amounts billed but not expected to be collected within one year. Each month, the Company reviews its receivables on a customer-by-customer basis and evaluates whether an allowance for doubtful accounts is necessary based on any known or perceived collection issues. Any balances that are eventually deemed uncollectible are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2022 and 2021, the Company determined that the allowance for doubtful accounts was $ 3,320,983 and $ 3,365,293 , respectively. Accounts receivable includes retainage amounts for the portion of the contract price earned by us for work performed but held for payment by the customer as a form of security until we reach certain construction milestones or complete the project. As of December 31, 2022 and 2021, retainage receivable was $824,777 and $497,773, respectively. F- 12 Foreign Currency Translation The Company’s reporting currency is US Dollars. The accounts of one of the Company’s subsidiaries is maintained using the appropriate local currency, British Pound (“GBP”) as the functional currency, as well as the Turkish lira, Emiraes Dirham, Azerbajani Manat and Indian Rupee. The accounts of one of the Company’s subsidiaries is maintained using the appropriate local currency, Canadian Dollar (“CAD”) as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet date, shareholders' equity is translated at historical rates and revenue and expense accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the statements of operations as foreign currency exchange variance. The relevant translation rates are as follows: for the year ended December 31, 2022 a closing rate at 1.20582 US$: GBP, average rate at 1.23710 US$:GBP, and closing rate of 1.375103 US$:CAD. The relevant translation rates are as follows: for the year ended December 31, 2021 a closing rate at 1.353583 US$: GBP, average rate at 1.375671 US$:GBP and for the Optilan acquisition closing rate at 1.38138 US$: GBP. 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. During the year ended December 31, 2022, 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 underperformance of the Company’s subsidiaries as compared to the Company’s initial projections at the time of each respective acquisition. Specifically, in 2022 the Company determined that certain revenue targets would not be achieved and anticipated costs to complete projects were higher than forecasted. As such, the Company compared the fair value of the reporting unit to the carrying amounts and recorded an impairment loss of $12,222,598 pertaining to impairment and goodwill in the consolidated statements of operations. The Company recorded impairment of the indefinite-lived intangible asset of $2,703,456, and impairment of goodwill of $9,519,143. The Company has one reporting unit which was evaluated in the impairment test noted above. Refer to Notes 4 and 8. 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. F- 13 Property and Equipment Property and equipment are carried at historical cost less accumulated depreciation. Depreciation is based on the estimated service lives of the depreciable assets and is calculated using the straight-line method. Expenditures that increase the value or productive capacity of assets are capitalized. Fully depreciated assets are retained in the property and equipment, and accumulated depreciation accounts until they are removed from service. When property and equipment are retired, sold or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Repairs and maintenance are expensed as incurred. The estimated useful lives of property and equipment are generally as follows: Schedule of estimated useful lives Years Office furniture and fixtures 4 Plant and equipment 4-8 Leasehold Improvements 10 Motor vehicles 3 Revenue Recognition The Company’s revenues are generated primarily from the sale of our services, which consist primarily of advanced technology solutions for integrated communications and security systems, as well as habitat management. The Company’s sales of products are primarily generated from our TJM subsidiaries. Sales of products and services are separate from one another. At contract inception, we assess the goods and services promised in the contract with customers and identify a performance obligation for each. To determine the performance obligation, we consider all products and services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not subject to significant judgment. We measure revenue as the amount of consideration expected to be received in exchange for transferring goods and services. We recognize service revenues as the performance obligations are met, which is generally as milestones are satisfied over time. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met. The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. The Company considers each individual sale of service contract to be its own performance obligation. Services in the contract are highly interdependent and interrelated, and the successful completion of each milestone is necessary for the overall success of the contract. Therefore, each milestone is not separately identifiable from other promises in the contract, and not distinct and ultimately not individual performance obligations. The Company records revenue over time using the input measure as it is the most faithful depiction of an entity’s performance because it directly measures the value of the goods and services transferred to the customer. The Company utilizes the Right to Invoice for these contracts, as the pricing structure is based on various milestones that are specified in the contract. These milestones include Construction Phase Plan, Start of the construction phase, installation phase, site surveys, fiber splicing, recoveries, and closeouts. There are specified payments associated with these milestones in the contract, and the value allocated is commensurate with work done. In the event that there are advances such as upfront retainers and not based on the value, those are recorded as contract liabilities. F- 14 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. Cost of Revenues Cost of revenues consists primarily of materials and overhead costs incurred internally and amounts incurred to contract manufacturers to produce our products, airtime and other implementation costs incurred to install our products and train customer personnel, and customer service and third-party original equipment manufacturer costs to provide continuing support to our customers. Cost of revenues also includes direct labor attributable to revenue service arrangements. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company has not experienced any losses related to its cash and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. As of December 31, 2022, one customer accounted for 38 % of gross accounts receivable. Leases T he Company accounts for its leases under ASC 842, Leases . Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred. In calculating the right of use asset and lease liability, the Company has elected to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term. F- 15 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. Fair Value of Financial Instruments The Company measures its financial assets and liabilities in accordance with the requirements of FASB ASC 820, Fair Value Measurements and Disclosures. As defined in FASB ASC 820, the fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 established a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement) as follows: Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. The Company’s derivative liability is a Level 3 liability measured at fair value on a recurring basis. See Note 11. F- 16 Equity Investments The Company uses the equity method to account for investments in which it has the ability to exercise significant influence over the investee’s operating and financial policies, or in which its holds a partnership or limited liability company interest in an entity with specific ownership accounts, unless it has virtually no influence over the investee’s operating and financial policies. The Company follows the guidance in ASC 323-10-30-2, Joint Ventures, which prescribes the use of the equity method for investments in joint ventures where the Company has significant influence. Equity method investments are recorded at cost and are adjusted to recognize (1) the Company’s share, based on percentage ownership or other contractual basis, of the investee’s net income or loss after the date of investment, (2) amortization of the recorded investment that exceeds the Company’s share of the book value of the investee’s net assets, (3) additional contributions made and dividends received, and (4) impairments resulting from other-than-temporary declines in fair value. Gain (loss) on equity investment includes realized gains or losses upon the sale of the investment and are included as other income (expense) in the consolidated statements of operations and comprehensive (loss). Per ASC 323-10-30-2, Joint Ventures are accounted for using the equity method, in which the Company initially records its investment at cost, including transaction costs. Under the equity method, an investment in common stock and in-substance common stock is presented on the balance sheet of an investor as a single amount. However, any difference between the cost of the investment and the underlying equity in net assets of an investee — commonly referred to as a basis difference — should be accounted for as if the investee were a consolidated subsidiary. Income Taxes The Company accounts for income taxes pursuant to the provision of ASC 740-10, (“ASC 740-10”) which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits. The Company has adopted ASC 740-10-25, Definition of Settlement which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed. The Company's U.S. subsidiaries were incorporated in 2017, and tax returns have not yet been filed. The Company does not anticipate a tax liability for the years 2022 and 2021, however may be subject to certain penalties. The Company has filed tax returns in Canada for the year ended December 31, 2018, and they are still subject to audit. F- 17 Non-controlling Interests Non-controlling interests are classified as a separate component of equity in the Company's consolidated balance sheets and statements of changes in stockholders’ equity. Net income (loss) and comprehensive income (loss) attributable to non-controlling interests are reflected separately from consolidated net income (loss) and comprehensive income (loss) in the consolidated statements of comprehensive income (loss) and statements of changes in stockholders’ equity. Any change in ownership of a subsidiary while the controlling financial interest is retained is accounted for as an equity transaction between the controlling and non-controlling interests. In addition, when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary will be initially measured at fair value and the difference between the carrying value and fair value of the retained interest will be recorded as a gain or loss. The Company has non-controlling interests via its subsidiaries TerraData, Remote Intelligence and Wildlife Specialists. During the years ended December 31, 2022 and 2021, the Company recorded a loss of $ 238,661 and $ 133,702 , respectively, attributable to non-controlling interests. Comprehensive Loss Comprehensive loss includes net loss well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. During the years ended December 31, 2022 and 2021, the Company’s only element of other comprehensive loss was foreign currency translation. Stock-based Compensation Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Pursuant to ASC Topic 718, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date. Further, ASC Topic 718, provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, such as the repricing of share options, which would revalue those options and the accounting for the cancellation of an equity award whether a replacement award or other valuable consideration is issued in conjunction with the cancellation. If not, the cancellation is viewed as a replacement and not a modification, with a repurchase price of $ 0 . Loss Per Common Share The Company accounts for earnings per share pursuant to ASC 260, Earnings per Share , which requires disclosure on the financial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year. In periods where the Company has a net loss, all dilutive securities are excluded. Potentially dilutive items outstanding as of December 31, 2022 and 2021 are as follows: Schedule of antidilutive shares Years Ended December 31, 2022 2021 Convertible notes 65,827,695 1,589,257,888 Series D preferred stock 176,470 – 66,004,165 1,589,257,888 F- 18 Recently Issued 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. Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations. NOTE 3 – LIQUIDITY AND GOING CONCERN The Company generated net losses of $ 35,517,505 and $ 4,826,320 during the years ended December 31, 2022 and 2021, respectively, and net cash used in operating activities of $ 21,738,542 and $ 11,363,470 , 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. The Company will require additional funding during the next twelve months to finance the growth of its current operations and achieve its strategic objectives. These factors, as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as to the Company’s ability to continue as a going concern. The Company is seeking to raise additional capital principally through private placement offerings and is targeting strategic partners in an effort to finalize the development of its products and begin generating revenues. The ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements or expansion of its operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations for twelve months from the issuance date of these consolidated financial statements. However, management cannot make any assurances that such financing will be secured. F- 19 NOTE 4 – BUSINESS ACQUISITIONS Optilan Holdco 3 Limited On August 9, 2021, the Company entered into a Share Purchase Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”), pursuant to which the Company 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 shown below, this purchase price consideration is nominal and it was considered $0 for accounting purposes. As of August 9, 2021, the Company owns all of the equity interests of Optilan. The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities for the fair value of the assets and liabilities recognized at the date of acquisition: Schedule of fair value of assets and liabilities in acquisition (Amounts in US$’s) Amounts Recognized as of Acquisition Date Measurement Period Adjustments Fair Value Cash $ 736,177 $ (6,000 ) $ 730,177 Accounts receivable 4,619,381 – 4,619,381 Inventory 2,040,887 – 2,040,887 Property & equipment 1,393,274 – 1,393,274 Right-of-use assets 1,385,825 (694,527 ) 691,298 Unbilled revenue 540,321 779,483 1,319,804 Intangible assets: Trade name – 4,033,638 4,033,638 Goodwill 12,181,350 (1,830,489 ) 10,350,861 Total assets 22,891,215 2,288,105 25,179,320 Accounts payable 11,622,018 (174,846 ) 11,447,172 Contract deposits 3,168,493 – 3,168,493 Contract liabilities, current 4,139,193 – 4,139,193 Lease liabilities, current 141,730 – 141,730 Other current liabilities 2,496,725 3,157,478 5,654,203 Lease liabilities, noncurrent 628,529 – 628,529 Total purchase consideration $ 694,527 $ (694,527 ) $ – F- 20 Wildlife Specialists, LLC and Remote Intelligence, LLC On August 30, 2021, the Company 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 the Company agreed to pay to the majority shareholder of each of RI and WS an aggregate of 15,000,000 shares of the Company’s common stock (at the fair value of $0.07 per share), $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. The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities for the fair value of the assets and liabilities recognized at the date of acquisition: Schedule of Condensed Consolidated Balance Sheet Consideration Cash $ 500,000 Common stock 978,000 Purchase price $ 1,478,000 The allocation of the total purchase price to the tangible and intangible assets acquired and liabilities assumed by DarkPulse based on the estimated fair values as of August 29, 2021 was as follows: Schedule of fair value of assets and liabilities in acquisition (Amounts in US$’s) Amounts Recognized as of Acquisition Date Measurement Period Adjustments Fair Value Cash $ 33,910 $ (6,098 ) $ 27,812 Accounts receivable 161,866 170,486 332,352 Other current assets 600 20,947 21,547 Property & equipment 99,490 (77,945 ) 21,545 Goodwill 1,191,085 1,597,593 2,788,678 Total assets 1,486,951 1,704,983 3,191,934 Assumed liabilities 393,651 334,950 728,601 Non-controlling interest – 985,333 985,333 Total Consideration for 60% of equity interests $ 1,478,000 $ – $ 1,478,000 TJM Electronics West, Inc. On September 8, 2021, the Company entered into and closed the Stock Purchase Agreement 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 . TJM is now a wholly-owned subsidiary of the Company. F- 21 The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities for the fair value of the assets and liabilities recognized at the date of acquisition: Schedule of fair value of assets and liabilities in acquisition Fair Value Accounts receivable $ 3,400 Property & equipment 91,051 Goodwill 355,549 Total assets 450,000 Total Consideration $ 450,000 TerraData Unmanned, PLLC Effective October 1, 2021 the Company 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 the Company agreed to purchase 60 % of the equity interests in TerraData in exchange for 3,725,386 shares of the Company’s Common Stock (at the fair value of $0.05 per share) $ 400,000 , subject to adjustments as defined in the TerraData MPA, to be paid within 12 weeks of closing. TerraData is now a subsidiary of the Company. The shares were issued to Justin Dee during 2022. The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities for the fair value of the assets and liabilities recognized at the date of acquisition: Schedule of Condensed Consolidated Balance Sheet Consideration Cash $ 400,000 Common stock 200,000 Purchase price $ 600,000 The allocation of the total purchase price to the tangible and intangible assets acquired and liabilities assumed by the Company based on the fair values as of October 1, 2021 was as follows: Schedule of fair value of assets and liabilities in acquisition (Amounts in US$'s) Fair Value Cash $ 8,691 Goodwill 992,049 Total assets 1,000,740 Assumed liabilities 740 Non-controlling interest 400,000 Total Consideration for 60% of equity interests $ 600,000 F- 22 Unaudited Supplemental Pro Forma Data Unaudited pro forma results of operations for the year ended December 31, 2021 as though the Company acquired Optilan, Wildlife Specialists, Remote Intelligence, TJM Electronic West and TerraData Unmanned (the “Acquired Companies”) on the first day of each fiscal year are set forth below. Proforma results of operations Year Ended December 31, 2021 Pro forma revenues $ 23,329,213 Pro forma operating income $ 11,477,923 Pro forma net income $ 11,264,238 Pro forma net income attributable to DarkPulse $ 11,912,054 Pro forma net income per share $ 0.002 Weighted average common shares outstanding 4,790,929,690 NOTE 5 – REVENUE The following table is a summary of the Company’s timing of revenue recognition for the years ended December 31, 2022 and 2021: Schedule of timing of revenue recognition Years Ended December 31, 2022 2021 Services and products transferred at a point in time $ 3,843,274 $ 535,407 Services and products transferred over time 5,256,979 7,247,933 Total revenue $ 9,100,255 $ 7,783,340 The Company disaggregates revenue by source and geographic destination to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenue by source consisted of the following for the years ended December 31, 2022 and 2021: Schedule of revenue by source consisted Years Ended December 31, 2022 2021 Products $ 560,406 1,533,378 Services 8,539,849 6,249,962 Total revenue $ 9,100,255 $ 7,783,340 Revenue by geographic destination consisted of the following for the for the years ended December 31, 2022 and 2021: Schedule of revenue by geographic destination Years Ended December 31, 2022 2021 North America $ 1,585,568 $ 535,407 United Kingdom 5,894,060 7,247,933 Rest of world 1,620,627 – Total revenue $ 9,100,255 $ 7,783,340 F- 23 Contracts Contract revenue is recognized over time using the cost-to-cost measure of progress for fixed price contracts. The cost-to-cost measure of progress best depicts the continuous transfer of control of goods or services to the customer. The contractual terms provide that the customer compensates the Company for services rendered. Contract costs include all direct materials, labor and subcontracted costs, as well as indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and the costs of capital equipment. The cost estimation and review process for recognizing revenue over time under the cost-to- cost method is based on the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts and profit recognition. Changes in these factors could result in revisions to revenue and costs of revenue in the period in which the revisions are determined on a prospective basis, which could materially affect the Company’s consolidated results of operations for that period. Provisions for losses on uncompleted contracts are recorded in the period in which such losses are determined. Performance Obligations A performance obligation is a contractual promise to transfer a distinct good or service to the customer and is the unit of account under Accounting Standards Codification (“ASC”) Topic 606. The transaction price of a contract is allocated to distinct performance obligations and recognized as revenue when or as the performance obligations are satisfied. The Company’s contracts often require significant integrated services and, even when delivering multiple distinct services, are generally accounted for as a single performance obligation. Contract amendments and change orders are generally not distinct from the existing contract due to the significant integrated service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. The majority of the Company’s performance obligations are completed within one year. When more than one contract is entered into with a customer on or close to the same date, the Company evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as more than one performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances of the various contracts, which could change the amount of revenue and profit recognition in a given period depending upon the outcome of the evaluation. As of December 31, 2022, the Company had backlog of approximately $ 7,079,000 . During the year ended December 31, 2022, there was approximately $ 4,200,000 in revenue recognized pertaining to backlog as of December 31, 2021. Contract Assets and Liabilities The Company bill its customers based on contractual terms, including, milestone billings based on the completion of certain phases of the work. Sometimes, billing occurs after revenue recognition, resulting in unbilled revenue, which is accounted for as a contract asset. Sometimes the Company receives advances payments from our customers before revenue is recognized, resulting in deferred revenue, which is accounted for as a contract liability. Contract assets in the consolidated balance sheets represents costs and estimated earnings in excess of billings, which arise when revenue has been recorded but the amount has not been billed. Contract assets consist of the following : Schedule of excess of billings December 31, 2022 2021 Costs and estimated earnings in excess of billings on uncompleted contracts $ 1,439,844 $ 485,825 Total contract assets $ 1,439,844 $ 485,825 Contract liabilities consist of the following: December 31, 2022 2021 Billings in excess of costs and estimated earnings on uncompleted contracts $ 2,215,212 $ 6,019,371 Total contract liabilities $ 2,215,212 $ 6,019,371 F- 24 The following table is a summary of the Company’s activity of contract liabilities related to contracts with customers. Schedule of contract liabilities related to contracts with customers Total Balance at December 31, 2020 $ – Additions through advance billings to or payments from vendors – Additions through business acquisition 4,139,193 Revenue recognized from current period advance billings to or payments from vendors 1,880,178 Balance at December 31, 2021 6,019,371 Additions through advance billings to or payments from vendors 3,710,528 Revenue recognized from current period advance billings to or payments from vendors ( 7,514,687 ) Balance at December 31, 2022 $ 2,215,212 Variable Consideration Transaction pricing for the Company’s contracts may include variable consideration, such as unapproved change orders, claims, incentives and liquidated damages. Management estimates variable consideration for a performance obligation utilizing estimation methods that best predict the amount of consideration to which the Company will be entitled. Variable consideration is included in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Management’s estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based on past practices with the customer, specific discussions, correspondence or preliminary negotiations with the customer, legal evaluations and all other relevant information that is reasonably available. The effect of a change in variable consideration on the transaction price of a performance obligation is typically recognized as an adjustment to revenue on a cumulative catch-up basis. To the extent unapproved change orders, claims and liquidated damages reflected in transaction price are not resolved in the Company’s favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue. NOTE 6 – ACCOUNTS RECEIVABLE Accounts receivable consisted of the following: Schedule of accounts receivable December 31, 2022 2021 Accounts receivable $ 6,273,276 $ 7,893,542 Less: Allowance for doubtful accounts ( 3,320,983 ) ( 3,365,293 ) Accounts receivable, net $ 2,952,293 $ 4,528,249 NOTE 7 – PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following: Schedule of property, plant and equipment December 31, 2022 2021 Property and equipment $ 3,942,421 $ 1,867,794 Leasehold improvements 46,934 42,396 Property and equipment at cost 3,989,355 1,910,190 Less - accumulated depreciation ( 2,055,484 ) ( 122,366 ) Property and equipment, net $ 1,933,871 $ 1,787,824 Depreciation expense was $ 1,331,972 and $ 78,465 for the years ended December 31, 2022 and 2021, respectively. F- 25 NOTE 8 - GOODWILL AND INTANGIBLE ASSETS Goodwill The following is a summary of activity of goodwill for the years ended December 31, 2022 and 2021: Schedule of changes in carrying amount of goodwill Goodwill Balances at December 31, 2020 $ – Business combinations 17,296,810 Foreign exchange translation ( 208,309 ) Balances at December 31, 2021 17,088,501 Impairment (see Note 2) ( 9,519,143 ) Foreign exchange translation ( 1,107,205 ) Balances at December 31, 2022 $ 6,462,153 Intangible Assets, Net In connection with the Optilan acquisition, the Company recognized an intangible asset, a trade name, of $ 4,033,638 . The trade name has a useful life of 25 years . During the Company’s impairment analysis at December 31, 2022 (see Note 2), the Company recorded impairment of the trade name of $ 2,703,456 . The following is a summary of intangible assets, net: Schedule of intangible assets December 31, 2022 2021 Trade name per business combination $ 4,033,638 $ 4,033,638 Impairment ( 2,703,456 ) – Less: accumulated amortization ( 161,346 ) – Foreign exchange translation ( 778,506 ) ( 147,050 ) Intangible assets, net $ 390,330 $ 3,886,588 Amortization expense was $ 161,346 and $ 0 for the years ended December 31, 2022 and 2021, respectively. F- 26 Future amortization expense as of December 31, 2022 is as follows: Schedule of future amortization expense Optilian acquisition Years Ended December 31, 2023 $ 53,207 2024 53,207 2025 53,207 2026 53,207 2027 53,207 Thereafter 124,295 Total future amortization expense $ 390,330 Patents - Intrusion Detection Intellectual Property The Company relies on patent laws and restrictions on disclosure to protect its intellectual property rights. As of December 31, 2022 and 2021, the Company held three U.S. and foreign patents on its intrusion detection technology, which expire in calendar years 2025 through 2034 (depending on the payment of maintenance fees). F- 27 The DPTI issued patents cover a System and Method for Brillouin Analysis, a System and Method for Resolution Enhancement of a Distributed Sensor, and a Flexible Fiber Optic Deformation System Sensor and Method. Maintenance of intellectual property rights and the protection thereof is important to our business. Any patents that may be issued may not sufficiently protect the Company's intellectual property and third parties may challenge any issued patents. Other parties may independently develop similar or competing technology or design around any patents that may be issued to the Company. The Company cannot be certain that the steps it has taken will prevent the misappropriation of its intellectual property, particularly in foreign countries where the laws may not protect proprietary rights as fully as in the United States. Further, the Company may be required to enforce its intellectual property or other proprietary rights through litigation, which, regardless of success, could result in substantial costs and diversion of management's attention. Additionally, there may be existing patents of which the Company is unaware that could be pertinent to its business, and it is not possible to know whether there are patent applications pending that the Company's products might infringe upon, since these applications are often not publicly available until a patent is issued or published. For the years ended December 31, 2022 and 2021, the Company had patent amortization costs on its intrusion detection technology totaling $ 75,087 and $ 51,028 , respectively. Patents costs are being amortized over the remaining life of each patent, which is from 7 to 16 years . The following is a summary of the DPTI patents as of December 31, 2022 and 2021: Schedule of patents December 31, 2022 2021 Patents $ 904,269 $ 904,269 Less: accumulated amortization ( 636,394 ) ( 561,307 ) Patents, net $ 267,875 $ 342,962 Future expected amortization of patents is as follows: Schedule of future amortization of intangible assets DPTI As of December 31, 2023 $ 51,028 2024 51,028 2025 51,028 2026 51,028 2027 51,028 Thereafter 12,735 Total patents $ 267,875 NOTE 9 – JOINT VENTURE On September 9, 2022, the Company entered into a Joint Venture Agreement with Neural Signals Inc, (“NSI”), for the purpose of developing, marketing and selling products and services based on the patents issued to NSI. The parties established the Joint Venture, Neural Logistics Inc., under a separate entity to conduct business. The Company has 50 % ownership in NSI. The Company determined that the investment was accounted for as an equity investment under ASC 323-10-30-2. During the year ended December 31, 2022, the Company contributed $ 103,505 to the joint venture and recorded a loss on the equity investment of $ 51,753 . F- 28 NOTE 10 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consists of the following: Schedule of accounts payable and accrued expenses December 31, 2022 2021 Accounts payable $ 7,135,404 $ 7,292,975 Accrued liabilities 2,058,725 634,326 Total accounts payable and accrued expenses $ 9,194,129 $ 7,761,241 NOTE 11 – DEBT Convertible Notes The Company uses the Black-Scholes Model to calculate the derivative value of its convertible debt. The valuation result generated by this pricing model is necessarily driven by the value of the underlying common stock incorporated into the model. The values of the common stock used were based on the price at the date of issue of the debt security as of December 31, 2022 and 2021. In 2022, management determined the expected volatility of 140.30%, a risk-free rate of interest of 4.73%, and contractual lives of the debt of three months. In 2021, management determined the expected volatility between 475.55-624.25%, a risk-free rate of interest between 0.10-0.13%, and contractual lives of the debt varying from zero months to eight months. Management made the determination to use an expected life rather than contractual life for the calculations for the matured debt as of December 31, 2022 and 2021. The table below details the Company's outstanding convertible notes and related derivative liability: Schedule of convertible debt Face Derivative Liability Amount 12/31/2022 12/31/2021 Carebourn $ 90,228 $ 71,410 $ 128,370 Carebourn 162,150 128,331 230,692 More Capital 72,488 57,369 103,130 EMA 53,397 49,357 71,561 $ 378,263 $ 306,467 $ 533,753 During the years ended December 31, 2022 and 2021, change in fair value of the derivative liability was $ 227,286 and $ 687,124 , respectively. The following is a summary of the change in derivative liability: Change in derivative liabilities Derivative Liability Balances at December 31, 2020 $ 1,220,877 Change in fair value (687,124 ) Balances at December 31, 2021 533,753 Change in fair value (227,286 ) Balances at December 31, 2022 $ 306,467 On April 26, 2021, the Company entered a Securities Purchase Agreement and Registration Rights with FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, a Delaware limited liability company (the “ FirstFire ”), pursuant to which the Company 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 the Company’s 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. F- 29 On December 31, 2021, the Company commenced an action against FirstFire Global Opportunities Fund, LLC, and Eli Fireman (“Fireman”) in the United States District Court for the Southern District of New York. The complaint alleges that FirstFire is an unregistered dealer acting in violation of Section 15(a) of the Securities Exchange Act of 1934 (the “Act”), and that the Company is entitled to rescissionary relief from certain convertible promissory notes and securities purchase agreements entered into by the Company and FirstFire pursuant to Section 29(b) of the Act. The complaint also asserts claims against Fireman for control person liability under Section 20(a) of the Act, unjust enrichment of FirstFire, and constructive trust against FirstFire. On May 19, 2021, the Company entered into a Stipulation of Settlement with four note holders pursuant to which the Company agreed to pay $ 173,000 to the note holders. On June 3, 2021, the Company entered into a Settlement and Mutual Release Agreement with Auctus Fund, LLC. Pursuant to the Agreement, the Auctus agreed to convert the Promissory Note issued on September 25, 2018 by the Company to the Lender in the principal amount of $ 100,000 (the “ Auctus Note ”) into 12,500,000 shares of the Company’s Common stock (the “ Auctus Shares ”) as consideration for full and complete satisfaction of and settlement of the Auctus Note, which also terminates all obligations owing under both the Auctus Note and the corresponding Securities Purchase Agreement dated September 25, 2018 between the Company and Auctus. Auctus also agreed to limit the resales of the Auctus Shares in the public market to no more than 2,500,000 shares per calendar week until all of the Auctus Shares have been sold. As of both December 31, 2022 and 2021 respectively, there was $ 378,263 of convertible debt outstanding. As of December 31, 2022 and 2021 respectively, there was derivative liability of $ 306,467 and $ 533,753 related to convertible debt securities. As of December 31, 2022, all outstanding convertible debt is default. Notes Payable On July 14, 2021, the Company entered a Securities Purchase Agreement (the “ GS SPA ”) with GS Capital Partners, LLC pursuant to which the Company issued to the Lender a 6% Redeemable Note in the principal amount of $ 2,000,000 (the “ GS Note ”). The purchase price of the GS Note is $ 1,980,000 . The GS Note matures on July 14, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the GS Note at 6 % per annum until the GS Note becomes due and payable. The GS Note is subject to various “Events of Default,” which are disclosed in the GS Note. Upon the occurrence of an “Event of Default,” the interest rate on the GS Note will be 18%. The GS Note is not convertible into shares of the Company’s Common Stock and is not dilutive to existing or future shareholders and the Company used a portion of the proceeds of the GS Note to retire convertible debt. As of December 31, 2022 and 2021, $2,000,000 remains outstanding. As of December 31, 2022, the GS note is in default. Loans Payable The Company’s RI and WS subsidiaries have various loans including Small Business Association (“SBA”) Economic Injury Disaster Loan (“EIDL’) loans, lines of credit and other advances. The loans bear interest with varying rates up to 9.25% per annum. The following is a summary of the loans payable at December 31, 2022 and 2021: Schedule of loans payable December 31, 2022 2021 RI - line of credit $ 99,971 $ 83,030 RI - Short-term loans 43,899 70,196 WS - line of credit 200,000 175,331 WS - Short-term loans 128,830 266,005 Loans payable, current $ 472,700 $ 594,562 RI - SBA EIDL $ 102,597 $ 102,597 RI - long-term loans 86,041 104,443 WS - SBA EIDL 26,307 26,307 WS - long-term loans 113,563 124,806 Loans payable, non-current $ 328,508 $ 358,153 F- 30 The CARES Act extended COVID relief funding for qualified small businesses under the EIDL assistance program. In 2020, RI and WS were approved by the SBA and received proceeds of $103,100 and $26,700, respectively. The EIDL loans mature in thirty years from the effective date of the loan and has a fixed interest rate of 3.75% per annum . In August 2020, WS entered into a line of credit for $100,000, which was amended and extended to a principal amount of $200,000 in 2021. The loan is due on demand and bears interest at the prime rate index and 1.00% As of December 31, 2022 and 2021, the outstanding balance was $200,000 and $175,331, respectively. In March 2019, RI entered into a line of credit for $45,000, which was amended and extended to a principal amount of $100,000 in 2021. The loan is due on demand and bears interest at the prime rate index and 1.00% As of December 31, 2022 and 2021, the outstanding balance was $99,971 and $83,030, respectively. Future minimum required payments over the next 5 years and thereafter are as follows: Future minimum required payments Years Ended December 31, 2023 $ 472,700 2024 17,630 2025 35,980 2026 15,492 2027 37,427 Thereafter 221,979 Total future minimum payments $ 801,208 NOTE 12 – SECURED DEBENTURE DPTI issued a convertible Debenture to the University (see Note 1) in exchange for the Patents assigned to the Company, in the amount of Canadian $1,500,000, or US $1,491,923 on December 16, 2010, the date of the Debenture. On April 24, 2017 DPTI issued a replacement secured term Debenture in the same CAD 1,500,000 amount as the original Debenture. The interest rate is the Bank of Canada Prime overnight rate plus 1% per annum. The Debenture had an initial required payment of CAD 42,000 (US$33,385) due on April 24, 2018 for reimbursement to the University of its research and development costs, and this has been paid. Interest-only maintenance payments are due annually starting after April 24, 2018. Payment of the principal begins on the earlier of (a) three years following two consecutive quarters of positive earnings before interest, taxes, depreciation and amortization, (b) six years from April 24, 2017, or (c) in the event DPTI fails to raise defined capital amounts or secure defined contract amounts by April 24 in the years 2018, 2019, and 2020. The Company has raised funds in excess of the amount required for 2020, 2019 and 2018. Beginning in 2023, The principal repayment amounts will be due quarterly over a six year period in the amount of Canadian Dollars 62,500. Based on the exchange rate between the Canadian Dollar and the U.S. Dollar on December 31, 2018, the quarterly principal repayment amounts will be US$48,447. The Debenture is secured by the Patents assigned by the University to DPTI by an Assignment Agreement on December 16, 2010. DPTI has pledged the Patents, and granted a lien on them pursuant to an Escrow Agreement dated April 24, 2017, between DPTI and the University. The Debenture was initially recorded at the $1,491,923 equivalent US Dollar amount of Canadian 1,500,000 as of December 16, 2010, the date of the original Debenture. The liability is being adjusted quarterly based on the current exchange value of the Canadian dollar to the US dollar at the end of each quarter. The adjustment is recorded as unrealized gain or loss in the change of the value of the two currencies during the quarter. The Debenture also includes a provision requiring DPTI to pay the University a 2% royalty on sales of any and all products or services which incorporate the Patents for a period of five years from April 24, 2018. To date, no royalties have been paid. For the years ended December 31, 2022 and 2021, the Company recorded interest expense of $ 36,307 and $ 52,538 , respectively. As of December 31, 2022, the outstanding balance of the debenture liability totaled $ 1,090,827 . Future minimum required payments over the next 5 years and thereafter are as follows: Future minimum required payments Period ending December 31, 2023 $ 136,353 2024 181,805 2025 181,805 2026 181,805 2027 181,805 Thereafter 227,254 Total debt $ 1,090,827 F- 31 NOTE 13 – LEASES The following was included in our balance sheet as of December 31, 2022 and 2021: Schedule of operating leases December 31, Operating leases 2022 2021 Assets ROU operating lease assets $ 2,724,226 $ 2,620,993 Liabilities Current portion of operating lease $ 512,373 $ 364,105 Operating lease, net of current portion 2,547,524 2,474,530 Total operating lease liabilities $ 3,059,897 $ 2,838,635 The weighted average remaining lease term and weighted average discount rate at December 31, 2022 and 2021 were as follows: Schedule of weighted average remaining lease term and weighted average discount rate December 31, Operating leases 2022 2021 Weighted average remaining lease term (years) 7.25 8.25 Weighted average discount rate 6.00 % 6.00 % Operating Leases On January 12, 2021, the Company’s newly acquired subsidiary entered into an operating lease agreement to rent office space in Mumbai, India. This three-year agreement commenced January 12, 2021 with an annual rent of approximately $ 50,000 . On May 27, 2021, the Company’s newly acquired subsidiary entered into an operating lease agreement to rent office space in Warwick, United Kingdom. This ten-year agreement commenced May 27, 2021 with an annual rent of approximately $ 85,000 with the first six months rent free. On August 31, 2021, the Company’s newly acquired subsidiary entered into an operating lease agreement to rent office space in Tempe, Arizona. This five-year agreement commenced August 31, 2021 with an annual rent of approximately $ 192,000 . On October 20, 2021, the Company’s newly acquired subsidiary entered into an operating lease agreement to rent office space in Warwick, United Kingdom. This ten-year agreement commenced October 20, 2021 with an annual rent of approximately $ 200,000 with the first six months rent free. On March 9, 2022, the Company entered into an operating lease agreement to rent office space in Houston, Texas. This ten-year agreement commenced March 9. 2022 with an annual rent of approximately $ 81,000 with the first twelve months rent free. The following table reconciles future minimum operating lease payments to the discounted lease liability as of December 31, 2022: Schedule of future minimum operating lease payments 2023 $ 512,373 2024 370,936 2025 406,025 2026 347,329 2027 and later 2,185,545 Total lease payments 3,822,208 Less imputed interest ( 762,311 ) Total lease obligations 3,059,897 Less current lease obligations ( 512,373 ) Long-term lease obligations $ 2,547,524 F- 32 NOTE 14 – STOCKHOLDERS’ EQUITY (DEFICIT) Preferred Stock In accordance with the Company’s bylaws, the Company has authorized a total of 2,000,000 shares of preferred stock, par value $ 0.01 per share, for all classes. As of December 31, 2022 and 2021 respectively, there were 88,335 and 88,235 total preferred shares issued and outstanding for all classes. On December 23, 2021, pursuant to the approval of the Board of Directors and a majority vote of the holders of Series D Preferred Stock, the Company amended the Certificate of Designation for the Series D Preferred Stock so that each share of Series D Stock is convertible, at the sole and exclusive election of the holder, into two shares of Common Stock of the Company. On June 22, 2022, the Board of Directors of the Company approved the filing of an amendment to the Company’s Certificate of Incorporation (the “Certificate of Incorporation”), in the form of a Certificate of Designation that authorized for issuance of up to 100 shares of a new series of Preferred Stock, par value $ 0.01 per share, of the Company designated “Series A Super Voting Preferred Stock” and established the rights, preferences and limitations thereof. The Board authorized the Series A Preferred Stock pursuant to the authority given to the Board under the Certificate of Incorporation, which authorizes the issuance of up to 2,000,000 shares of Preferred Stock, par value $ 0.01 per share, and authorizes the Board, by resolution, to establish any or all of the unissued shares of Preferred Stock, not then allocated to any series into one or more series and to fix and determine the designation of each such shares, the number of shares which shall constitute such series and certain preferences, limitations and relative rights of the shares of each series so established. The holders of the Series A Preferred Stock shall be entitled to vote, on a pro-rata basis, on all matters subject to a vote or written consent of the holders of the Company’s Common Stock, and on all such matters, the shares of Series A Preferred Stock shall be entitled to that number of votes equal to the number of votes that all issued and outstanding shares of Common Stock and all other securities of the Company are entitled to, as of any such date of determination, on a fully diluted basis, plus one million (1,000,000) votes, it being the intention that the holders of the Series A Preferred Stock shall have effective voting control of the Company, on a fully diluted basis. Unless approved by a majority vote of the holders of Common Stock, the Series A Super Voting Preferred Stock will terminate five years after the issuance date, which is June 24, 2027. During the year ended December 31, 2022, the Company issued 100 shares of Series A preferred stock to the Chief Executive Officer for no consideration pursuant to above. Pursuant to this, the CEO has the right to a majority of the voting power of the Company. Common Stock In accordance with the Company’s bylaws, the Company has authorized a total of 20,000,000,000 shares of common stock, par value $ 0.0001 per share. As of December 31, 2022 and 2021, there were 6,427,495,360 and 5,197,921,885 common shares issued, respectively. As of December 31, 2022 and 2021, there were 6,427,395,360 and 5,197,821,885 common shares outstanding, respectively. 2021 Transactions On January 14, 2021, the Company issued an aggregate of 100,000,000 shares of common stock upon the conversion of convertible debt, as issued on September 24, 2018, in the amount of $ 28,000 . On January 25, 2021, the Company issued an aggregate of 150,000,000 shares of common stock upon the conversion of convertible debt, as issued on September 24, 2018, in the amount of $ 42,000 . F- 33 On February 1, 2021, the Company issued an aggregate of 30,999,995 shares of common stock upon the conversion of convertible debt, as issued on February 12, 2019, in the amount of $ 8,116 . On February 11, 2021, the Company issued an aggregate of 100,000,000 shares of common stock upon the conversion of convertible debt, as issued on September 24, 2018, in the amount of $ 56,000 . On February 18, 2021, the Company issued an aggregate of 220,000,000 shares of common stock upon the conversion of convertible debt, as issued on September 24, 2018, in the amount of $ 75,436 for principal and $ 39,638 for interest. On April 15, 2021, the Company issued an aggregate of 8,065,040 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $ 47,850 and interest of $ 2,153 .25. On April 30, 2021, the Company issued 60,000,000 shares of common stock as compensation for loan acquisition costs associated with the note issued on the same date for the amount of $ 825,000 . On June 4, 2021, the Company issued an aggregate of 12,500,000 shares of common stock upon the conversion of convertible debt, as issued on September 25, 2018, in the amount of $ 76,656 .83 and interest of $ 260 .61. On July 12, 2021, the Company issued an aggregate of 1,784,146 shares of common stock upon the conversion of convertible debt, as issued on January 12, 2021, in the amount of $ 42,350 . On July 14, 2021, the Company issued an aggregate of 45,037,115 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $ 93,864 and interest of $ 26,246 . On July 19, 2021, the Company issued an aggregate of 2,898,382 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $ 10,497 and interest of $ 6,748 . On August 25, 2021, the Company issued 31,799,260 shares of common stock for $ 3,000,000 . On August 31, 2021, the Company issued 27,297,995 shares of common stock for $ 3,000,000 . On September 22, 2021, the Company issued 25,630,272 shares of common stock for $ 2,000,000 . On September 30, 2021, the Company issued 15,000,000 shares of common stock pursuant to two separate Membership Interest Purchase Agreements with Remote Intelligence, and Wildlife Specialists, LLC. On September 30, 2021, the Company issued 3,194,081 shares of common stock as compensation valued at $ 250,000 for loan acquisition costs associated with proceeds raised. On October 1, 2021, the Company issued 37,187,289 shares of common stock for $ 3,000,000 . On October 15, 2021, the Company issued 14,282,304 shares of common stock for $ 1,055,000 . On October 22, 2021, the Company issued 1,596,594 shares of common stock as compensation valued at $ 250,000 for loan acquisition costs associated with proceeds raised. F- 34 On October 25, 2021, the Company issued 634,778 shares of common stock as compensation valued at $ 250,000 for loan acquisition costs associated with proceeds raised. On November 17, 2021, the Company issued an aggregate of 177,375,000 shares of common stock upon the conversion of convertible debt, as issued on April 30, 2021, in the amount of $ 825,000 and interest of $ 61,875 . On December 21, 2021, the Company issued an aggregate of 43,777,478 shares of common stock for $ 2,538,327 . 2022 Transactions On May 27, 2022 we entered an Equity Financing Agreement (the “ 2022 EFA ”) and Registration Rights Agreement (the “ RRA ”) with GHS, pursuant to which GHS agreed to purchase up to $70,000,000 in shares of our Common Stock, from time to time over the course of 24 months after effectiveness of a registration statement on Form S-1 (the “ Registration Statement ”) of the underlying shares of Common Stock. 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 EDFA during 2022: Schedule of equity financing agreement Date of Put Number of Shares Sold Total Proceeds, Net of Discounts Effective Price per Share Net Proceeds 1/12/2022 23,372,430 1,150,000 $ 0.054124 $ 1,033,975 1/21/2022 33,454,988 1,150,000 $ 0.037812 1,033,975 2/7/2022 16,040,411 500,000 $ 0.034288 448,975 2/23/2022 75,798,921 2,500,000 $ 0.032982 2,500,000 3/14/2022 16,579,569 500,000 $ 0.030158 500,000 3/14/2022 5,617,347 400,000 $ 0.071208 400,000 3/23/2022 29,257,395 1,500,000 $ 0.056396 1,348,975 4/11/2022 23,746,816 1,000,000 $ 0.042111 898,975 5/3/2022 29,522,276 1,000,000 $ 0.033873 898,975 5/13/2022 26,100,979 556,750 $ 0.021331 500,050 5/23/2022 25,025,540 556,750 $ 0.022247 500,050 6/1/2022 25,901,921 556,750 $ 0.021495 500,050 6/16/2022 23,799,766 402,086 $ 0.016895 360,852 6/24/2022 38,391,106 643,539 $ 0.016763 578,160 7/1/2022 33,525,465 556,750 $ 0.016607 500,050 7/11/2022 32,756,532 556,750 $ 0.016997 500,050 7/20/2022 29,386,519 556,750 $ 0.018946 553,765 7/28/2022 35,884,040 556,750 $ 0.015515 500,050 8/10/2022 44,505,857 680,109 $ 0.015281 611,073 8/18/2022 54,574,909 948,863 $ 0.017386 852,952 8/25/2022 105,255,759 2,264,961 $ 0.021519 2,128,038 9/2/2022 140,073,757 3,000,000 $ 0.021417 2,788,975 9/14/2022 79,092,686 1,757,466 $ 0.022220 1,633,418 9/30/2022 30,538,303 500,000 $ 0.016373 463,975 10/14/2022 35,628,020 500,000 $ 0.014034 463,975 11/7/2022 22,022,709 326,235 $ 0.014814 302,375 11/18/2022 39,699,793 325,000 $ 0.008186 301,225 12/2/2022 42,148,416 325,000 $ 0.007711 301,225 12/20/2022 78,705,534 540,000 $ 0.006861 501,175 12/30/2022 63,338,702 400,000 $ 0.006315 370,975 1,259,746,466 26,210,509 $ 24,276,308 F- 35 In April 2022, the Company issued 3,725,386 shares of common stock pursuant to a settlement of $ 200,000 in accounts payable. On August 30, 2022, the Company received 33,898,377 shares of common stock for cancellation from a previous note holder. The shares were cancelled by the Company. At December 31, 2022 and 2021, the Company had 13,602,044,965 and 1,589,257,888 , respectively, in common shares reserved for issuance. Stock Options As of December 31, 2022 and 2021, the Company had no outstanding stock options. NOTE 15 – INCOME TAXES The domestic and foreign components of loss before (benefit) provision for income taxes were as follows: Schedule of income components 2022 2021 Domestic: $ ( 13,141,019 ) $ ( 4,285,237 ) Foreign: ( 22,376,486 ) ( 541,083 ) Total income (loss) before income taxes $ ( 35,517,505 ) $ ( 4,826,320 ) The provision for income taxes for the years ended December 31, 2022 and 2021 differs from the amount which would be expected as a result of applying the statutory tax rates to the losses before income taxes due primarily to the valuation allowance to fully reserve net deferred tax assets. The following table summarizes the significant differences between statutory rates for the years ended December 31, 2022 and 2021: Statutory tax rate 2022 2021 Statutory tax rate: U.S. 21.00 % 21.00 % State taxes 1.36 % 2.19 % Foreign rate differential 1.26 % 0.46 % Goodwill impairment - 7.33 % 0.00 % NOLs carryforward adjustment 3.61 % 0.00 % Other - 0.22 % - 1.81 % Change in valuation allowance: - 19.67% - 21.84 % – % – % The Company’s deferred tax assets and liabilities as of December 31, 2022 and 2021 are as follows: Deferred Tax assets and liabilities 2022 2021 Deferred Tax (Liabilities): Net operating losses $ 9,033,067 $ 2,356,871 Intangible assets (441,543 ) ( 170,119 ) Right of use asset 84,256 ( 319,752 ) Stock based compensation 424,681 498,571 Property and equipment 248,362 – Other 8,227 – Less: Valuation allowance (9,357,049 ) ( 2,365,571 ) Deferred tax assets (liabilities) $ – $ – F- 36 The Company has approximately $ 20,718,222 of federal and state net operating loss carryforwards as of December 31, 2022. Of the $20.7 million of NOL’s, $4.8 million will begin to expire in 2023 while $15.9 will not expire but will be limited to 80% utilization. The company also has net operating losses in the UK of $5,045,611 which will not expire and $636,852 of net operating loss carryforwards in Canada which will begin to expire in 2038. The Company records a tax valuation allowance when it is more likely than not that it will not be able to recover the value of its deferred tax assets. For the years ended December 31, 2022 and 2021, the Company calculated its estimated annualized effective tax rate at 0 % and 0 %, respectively, for both the United States, Canada and the UK. The Company had no income tax expense on its losses for the years ended December 31, 2022 and 2021, respectively. The change in valuation allowance for the years ended December 31, 2022 and 2021 is an increase of $ 6,991,478 and $ 1,013,674 , respectively. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest accrued on uncertain tax positions as well as interest received from favorable tax settlements within interest expense. The Company recognizes penalties accrued on unrecognized tax benefits within selling, general and administrative expenses. As of December 31, 2022 and 2021, the Company had no uncertain tax positions. The Company does not anticipate any significant changes to the total amounts of unrecognized tax benefits in the next twelve months. The Company files income tax returns in New Brunswick, Canada, and the U.S. federal, New York, and Delaware and the UK jurisdictions. Tax years 2012 to current remain open to examination by Canadian authorities; the tax year 2020 remains open to examination by U.S. authorities. NOTE 16 – COMMITMENTS AND CONTINGENCIES Potential Royalty Payments The Company, in consideration of the terms of the debenture to the University of New Brunswick, shall pay to the University a two percent royalty on sales of any and all products or services, which incorporate the Company's patents for a period of five years from April 24, 2018. Bonded Contracts As of December 31, 2022, the Company’s Optilan subsidiary had five bonded contracts for a total guaranteed value of approximately $984,000. Legal Matters DarkPulse, Inc. v. Twitter, Inc. As disclosed in greater detail in the Company’s Form 10-Q, filed October 24, 2022, the Company is actively investigating potential claims against the @MIKEWOOD and @BullMeechum3 Twitter accounts. There are no material updates to this matter. Carebourn Capital, L.P. v. DarkPulse, Inc. As disclosed in greater detail in the Company’s Form 10-Q, filed October 24, 2022, 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 April 21, 2023, the Minnesota state court granted the Company’s motion for partial summary judgment on its affirmative defenses. Specifically, the Court found that Carebourn is an unregistered dealer, acting in violation of Section 15(a) of the Securities Exchange Act of 1934 and, thus, the contracts between the Company and Carebourn are now void pursuant to Section 29(b) of the Exchange Act. The Company is actively litigating its counterclaims asserted under the Minnesota Uniform Securities Act. F- 37 More Capital, LLC v. DarkPulse, Inc. et al As disclosed in greater detail in the Company’s Form 10-Q, filed October 24, 2022, the Company remains in active litigation with More Capital, LLC (“More”) in Minnesota state court. There are no material updates to this litigation. The Company remains committed to actively litigating its affirmative defenses and claims for relief under the Securities Exchange Act of 1934 and Minnesota Uniform Securities Act. Carebourn Capital et al v. Standard Registrar and Transfer et al On May 20, 2022, Carebourn Capital, L.P. (“Carebourn”) and More Capital, LLC (“More,” and together with Carebourn, the “Noteholder Plaintiffs”) commenced an action against (i) Standard Registrar and Transfer Co., Inc. (“Standard”), (ii) Amy Merrill (“Merrill”) (Standard and Merrill, together, the “TA Defendants”), (iii) DarkPulse, Inc., (iv) Dennis O’Leary (“O’Leary”), (v) Thomas Seifert (“Seifert”), (vi) Carl Eckel (“Eckel”), (vii) Anthony Brown (“Brown”), and (viii) Faisal Farooqui (“Farooqui”) (DarkPulse, O’Leary, Seifert, Eckel, Brown, and Farooqui, collectively, the “DPLS Defendants ”) in the United States District Court for the District of Utah. The Noteholder Plaintiffs’ complaint alleges the DPLS Defendants violated the Racketeer Influenced and Corrupt Organizations (RICO) Act, are liable for attorneys’ fees pursuant to the Company’s breach of securities contracts between the Company and, separately, Carebourn and More, and engaged in civil conspiracy, fraudulent concealment, tortious interference with economic relations and conversion against the Noteholder Plaintiffs. Thereafter, the TA Defendants and DPLS Defendants separately moved to dismiss the Noteholder Plaintiffs’ complaint. On February 10, 2023, the Court denied both motions without prejudice and stayed the action pending the conclusion of enforcement action commenced by the U.S. Securities and Exchange Commission against Carebourn and its principal, Chip Rice, in the U.S. District Court for the District of Minnesota. The Company contends that the Noteholder Plaintiffs’ lawsuit is duplicative of the first-filed lawsuits commenced by the Noteholder Plaintiffs’ in Minnesota state court. The Company intends to vigorously defend itself against the Noteholder Plaintiffs’ lawsuit. Goodman et al. v. DarkPulse, Inc. As disclosed in greater detail in the Company’s Form 10-Q, filed October 24, 2022, on September 10, 2021, Stephen Goodman, Mark Banash, and David Singer (“Former Officers”) commenced suit against the Company in Arizona Superior Court, Maricopa County. As of the date hereof, the Company and Former Officers have entered into a mutual settlement. Thus, the Former Officers’ lawsuit against the Company has been dismissed with prejudice. Any expenses or amounts awed have been recorded as of December 31, 2022 and are properly disclosed. DarkPulse, Inc. v. FirstFire Global Opportunities Fund, LLC, and Eli Fireman As disclosed in greater detail in the Company’s Form 10-Q, filed October 24, 2022, the Company remains in active litigation with FirstFire Global Opportunities Fund, LLC (“FirstFire”), and Eli Fireman (“Fireman”) (FirstFire and Fireman together, the “FirstFire Parties”). The following discloses the material updates for this matter. On January 17, 2023, the Court granted the FirstFire Parties’ motion to dismiss the Company’s complaint. Also on January 17, 2023, the Company appealed the trial court’s decision to the United States Court of Appeals for the Second Circuit. Briefing is currently taking place 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 (RICO) Act. F- 38 DarkPulse, Inc. v. EMA Financial, LLC et al As disclosed in greater detail in the Company’s Form 10-Q, filed October 24, 2022, the Company remains in active litigation with EMA Financial, LLC (“EMA”), EMA Group, Inc. (“EMA Group”), and Felicia Preston (“Preston”) (EMA, EMA Group, and Preston together, the “EMA Parties”). The following discloses the material updates for this matter. On March 1, 2023, the Court granted the EMA Parties’ motion to dismiss the Company’s claims asserted under the Securities Exchange Act of 1934, but denied dismissal of the Company’s claim asserted under the Racketeer Influenced and Corrupt Organizations (RICO) Act. On or about May 15, 2023, the Company and the EMA Parties reached an understanding of settlement, which was subsequently memorialized. The action was subsequently dismissed on or about June 14, 2023. DarkPulse, Inc. v. Brunson Chandler & Jones, PLLC et al On July 8, 2022, the Company commenced litigation against Brunson Chandler & Jones, PLLC (“Brunson Firm”), and Lance B. Brunson (“Brunson,” and together with the Brunson Firm, the “Brunson Parties”) through the filing of a complaint in the United States District Court for the District of Utah. The Company is alleging that the Brunson Parties have committed professional negligence and breach of contract. On March 2, 2023, the Brunson Parties filed an answer, affirmative defenses, and counterclaims to the Company’s complaint, wherein the Brunson Firm alleged claims for (i) breach of contract against the Company, (ii) breach of contract against the Company’s subsidiary, DarkPulse Technologies, Inc., and (iii) quantum meruit. On June 5, 2023, the Company filed its answer and affirmative defenses to the Brunson Firm’s counterclaims. The Company remains committed to litigating its claims and affirmative defenses against the Brunson Parties. DarkPulse, Inc., et al v. Crown Bridge Partners, LLC, et al On September 23, 2022, the Company commenced an action along with two other plaintiffs (“Crown Bridge Plaintiffs”) against Crown Bridge Partners, LLC, Soheil Ahdoot, and Sepas Ahdoot (“Crown Bridge Defendants”) in the United States District Court for the Southern District of New York alleging violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act. On January 13, 2023, the Crown Bridge Defendants filed a motion to dismiss. As of May 16, 2023, the Crown Bridge Defendants’ motion to dismiss was fully submitted to the court. As of the date hereof, no decision has been made on the motion. The Company remains committed to actively litigating its RICO claims against the Crown Bridge Defendants. Benner et al v. DarkPulse, Inc. et al On March 29, 2023, J. Merlin Benner, Phillip J. Benner, Benjamin P. Benner, Jonas M. Benner, and Angelica M. Benner (collectively, the “Benner Parties”) commenced an action in the United States District Court for the Southern District of Texas against the Company and its Chief Executive Officer, Dennis O’Leary, individually, alleging (i) the Company is in breach of contracts between the Company and the Benner Parties as it concerns Remote Intelligence, LLC and Wildlife Specialists, LLC, (ii) violation of Texas Uniform Fraudulent Transfer Act by the Company, and (iii) defamation by Mr. O’Leary. Pursuant to a stipulation entered into by the parties to this matter, the Company and Mr. O’Leary are scheduled to file their answer to the Benner Parties’ complaint on or before June 30, 2023. F- 39 GS Capital Partners, LLC v. DarkPulse, Inc. On June 2, 2023, GS Capital Partners, LLC (“GS Capital”) commenced an action in the Supreme Court for New York County against the Company through the filing of motion for summary judgment in lieu of a complaint. The motion claims that the Company is in breach of a convertible promissory note, dated July 14, 2021, and accompanying securities purchase agreement, dated the same. The motion claims that GS Capital is entitled to an award of $2,407,671, plus prejudgment interest and attorney’s fees, costs and disbursements. The Company is currently looking to retain legal counsel to represent it in this matter, and intends to vigorously defend itself against GS Capital. The Company intends to vigorously defendant against the lawsuit. From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business, financial condition and operating results. NOTE 17 – RELATED PARTY TRANSACTIONS The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include a) affiliates of the Company; b) Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement. During the year ended December 31, 2022, certain executives of the Company received $ 270,000 in Directors fees from Optilan for being members of Optilan’s Board of Directors with an additional $ 90,000 accrued but unpaid. During the years ended December 31, 2022 and 2021, the Company’s Chief Executive Officer advanced personal funds in the amount of $ 0 and $ 593 and for Company expenses. F- 40 Remote Intelligence and Wildlife Specialists Loan Payables RI has a loan payable with the former majority shareholder, who is a shareholder in the Company after the acquisition of 60% of RI’s membership interests. The loan is unsecured, non-interest bearing and due on demand. As of December 31, 2022 and 2021, the outstanding balance was $ 226,247 and $ 185,247 , respectively. WS has a loan payable with the former majority shareholder, who is a shareholder in the Company after the acquisition of 60% of WS’s membership interests. The loan is unsecured, non-interest bearing and due on demand. As of December 31, 2022 and 2021, the outstanding balance was $ 135,500 and $ 0 , respectively. SPAC Transaction On October 12, 2022, the Company entered into and closed the Purchase Agreement (the “Agreement”) pursuant to which the Company purchased 2,623,120 shares of Class B Common Stock (the “Class B Common Stock”) and 4,298,496 Private Placement Warrants, each of which is exercisable to purchase one share of Class A Common Stock (the “Warrants,” together, with the Class B Common Stock, the "Securities") of Gladstone Acquisition Corp., a Delaware corporation (NASDAQ: GLEE) (the “SPAC”), from Gladstone Sponsor, LLC (‘Original Sponsor”) for $ 1,500,000 (the “Purchase Price”). The SPAC subsequently changed its name to Global Systems Dynamics, Inc. (“GSD”). In addition to the payment of the Purchase Price, the Company also assumed the following obligations: (i) responsibility for all of SPAC’s public company reporting obligations, (ii) the right to provide an extension payment and extend the deadline of the SPAC to complete an initial business combination from 15 months from August 9, 2021 to 18 months for an additional $1,150,000, and (iii) all other obligations and liabilities of the Original Sponsor related to the SPAC. The principal balance of this note shall be payable by GSD on the earlier to occur of: (i) the date on which GSD consummates its initial business combination (the “Business Combination”) and (ii) the date that the winding up of GSD is effective. The note does not bear interest. As of December 31, 2022, the outstanding note receivable was $ 1,049,248 and $ 100,752 was classified as other assets on the consolidated balance sheet. Pursuant to the Agreement, the Company replaced the SPAC’s current directors and officers with directors and officers the Company selected in its sole discretion. Following the closing of the Agreement, the SPAC changed its name to Global System Dynamics, Inc. In addition to the Agreement, the Company also entered into the Assignment, Assumption, Release and Waiver of the Letter Agreement pursuant to which the Original Sponsor and each of the parties to the Letter Agreement (defined below) agreed that all rights, interests and obligations of the Original Sponsor under the Letter Agreement (as defined below) were hereby assigned to the Company and that the Original Sponsor will have no further rights, interests or obligations under the Letter Agreement as of the Closing Date. On December 14, 2022 the Company, the SPAC, and Zilla Acquisition Corp. (“Merger Sub”) entered into an Business Combination Agreement which is referred to as the “Merger Agreement,” pursuant to which they agreed to combine their respective businesses. Pursuant to the terms of the Merger Agreement, Zilla Acquisition Corp., a wholly-owned subsidiary of GSD, will merge with and into DarkPulse, which transaction is referred to as the “Business Combination” or the “Merger” with DarkPulse surviving the Business Combination as a wholly-owned subsidiary of GSD. Following the Business Combination, DarkPulse and GSD will operate as a consolidated company, which is referred to as the Combined Company, under the name “Global System Dynamics, Inc.,” and the combined entity will trade under the symbol “DARK.” The Company determined that the SPAC has the subordinated equity to carry out its primary economic activities, and the power to control the activities that most directly impact the performance of the SPAC is shares by all equity holders as a group. Furthermore, the SPAC is designed to benefit the public shareholders over the Class B sponsor shareholder, DarkPulse. Because the Company is not the primary beneficiary of the SPAC, consolidation is precluded until the merger is consummated. As such, the Company’s $1,500,000 investment in GSD was accounted for as cost at December 31, 2022. As of December 31, 2022, the Company has $318,025 owed from GSD and included as due from related party on the consolidated balance sheet. These advances were made to pay for certain expenses on behalf of the SPAC, as well as $30,000 in accrued management fees. The advances are unsecured, non-interest bearing and due on demand. F- 41 NOTE 18 – SUBSEQUENT EVENTS Through June 23, 2023, the Company has issued 587,692,015 shares of common stock for net proceeds of $2,276,080. In January 2023, the Company issued 297,000,000 shares of common stock pursuant to a settlement of a former litigation matter. On February 7, 2023, March 9, 2023, April 7, 2023 and May 5, 2023, GSD issued a non-convertible promissory note in the aggregate principal amount of $335,788 ($83,947 per month) to the Company, in connection with the extension of the termination date for the GSD’s initial business combination from February 9, 2023 to the issuance date of these consolidated financial statements. Pursuant to the promissory note, the Company has agreed to loan to GSD $251,841 to deposit into GSDs trust account. The promissory note bears no interest and is repayable in full upon the earlier of (i) the date on which GSD consummates its Initial Business Combination, and (ii) the date that the winding up of GSD is effective. From January 1, 2023 through June 23, 2023, the Company has provided non-interest-bearing advances to GSD in the principal amount of $769,436. On May 16, 2023, the Company entered into a 50/50 Partner Agreement with Jupiter Metal Pvt. Ltd. (“ Jupiter ,” together, with the Company, the “ Partners ”) pursuant to which the Company and Jupiter formed a partnership pursuant to the provisions of The Indian Partnership Act 1932 (the “ Act ”). The name of the partnership is “OM DarkPulse Infratech” (the “ Partnership ”) and its purpose is to jointly work on infrastructure projects in India. The Partnership will commence on the effective date and will continue for 12 months, unless earlier dissolved and terminated pursuant to the Act or any other provisions in the agreement. The Partnership will also be automatically extended for additional 12-month terms unless terminated upon written notice by either of the Partners upon 90 days prior written notice prior to termination of the Partnership pursuant to the terms in the agreement. No contributions have been made to date. F- 42