What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-09-22 compared with 2023-07-18 · 268 added, 211 removed, 245 unchanged (66% of the section changed)

Discussion and Analysis of Financial Condition and Results of Operations

This Management’s

Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements.

Historical results

may not indicate future performance.

This Management’s Discussion and Analysis

of Financial Condition and Results of Operations contain certain forward-looking statements.

Historical results may not indicate future

Our forward-looking statements reflect our current views about future events;

are based on assumptions

and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated

by these statements.

Factors that may cause differences between actual results and those contemplated by forward-looking statements include,

but are not limited to, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended

December 31, 2022.

We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that

might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements.

we cannot guarantee future results, events, levels of activity, performance, or achievements

are based on assumptions and are subject to

known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements.

Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited

to, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022.

We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any

facts, events, or circumstances after the date hereof that may bear upon forward-looking statements.

Furthermore, we cannot guarantee

future results, events, levels of activity, performance, or achievements

Critical Accounting Policies

52 unchanged sentences

recorded impairment expense of intangibles and goodwill of $12,222,598 upon its annual impairment test during the year ended December

In the three months ended March 31, 2023, the Company evaluated changes in circumstances as a result of the Optilan Liquidation

which indicated that the carrying amount of Optilan’s long-lived assets may not be recoverable.

As such, the Company recorded impairment

expense of intangibles of $356,260 and goodwill of $6,452,906.

Refer to Note 1 for impairment records in 2023 upon the Optilan UK Liquidation.

The Company’s

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DarkPulse, Inc., a Delaware corporation (the “ Company ”

or “ DarkPulse ”), is a technology and research and development company focused on the manufacture, sale, installation,

and monitoring of laser sensing systems based on its patented BOTDA dark-pulse sensor technology.

The Company develops, markets, and distributes

a full suite of engineering, monitoring, installation and security management solutions for critical infrastructure/key resources to both

industries and governments.

Coupled with our patented BOTDA technology, DarkPulse provides its customers a comprehensive data stream of

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

Our systems provide rapid, precise analysis and responsive

activities predetermined by the end-user customer.

The Company’s activities since inception have consisted of developing various

solutions, obtaining patents and trademarks related to its technology, raising capital, acquisition of companies deemed to expand global

operations and/or capabilities, creating key partnerships to expand our suite of products and services.

Our activities have evolved to

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

or “ DarkPulse ”), is a technology focused on the manufacture, sale, installation, and monitoring of laser sensing systems

based on its patented BOTDA dark-pulse sensor technology.

The Company develops, markets, and distributes a full suite of engineering,

monitoring, installation and security management solutions for critical infrastructure/key resources to both industries and governments.

Coupled with our patented BOTDA technology, DarkPulse provides its customers a comprehensive data stream of critical metrics for assessing

the health and security of their infrastructure.

Our systems provide rapid, precise analysis and responsive activities predetermined by

the end-user customer.

The Company’s activities since inception have consisted of developing various solutions, obtaining patents

and trademarks related to its technology, raising capital, acquisition of companies deemed to expand global operations and/or capabilities,

creating key partnerships to expand our suite of products and services.

Our activities have evolved to a sales-focused mission since the

successful completion of our BOTDA system.

Headquartered in Houston, DarkPulse is a globally-based

technology company with presence through its subsidiaries in the United Kingdom, India, Dubai, Abu Dhabi, Turkey, Azerbaijan, United

States and Canada.

In addition to the Company’s BOTDA systems, through a series of strategic acquisitions the Company offers the

manufacture, sale, installation, and monitoring of laser sensing systems, oil and gas pipeline leak detection, physical security services,

telecommunications and satellite communications services, artificial intelligence-based camera systems, railway monitoring services,

drone and rover systems, and Big Data as a Service (“ BDaaS ”).

The Company is focused on expanding services through

acquisitions and partnerships to address global infrastructure and critical environmental resource challenges.

DarkPulse offers a full suite of engineering and

environmental solutions that provide safety and security infrastructure projects.

The sensing and monitoring capabilities offered by DarkPulse

and our subsidiary companies operate in the air, land, sea.

Our patented technology provides rapid, precise analysis to protect and safeguard

oil and gas pipelines above or below ground, physical security countermeasures, mining operations, and other critical infrastructure/key

resources subject to vulnerability or risk.

Our patented brillouin scattering distributed fiber sensing system is best in class.

is able to monitor areas in around critical infrastructure buried or above ground including pipelines 100km or more in length and/ or

localized pipes as small as eight CM DIA, detecting internal anomalies before catastrophic failure.

We are developing an intelligent rock

bolt to prevent causalities and fatalities in mining operations and include a real time sensor system that can detect the location and

movement of personnel and equipment throughout a mining operation.

We monitor airflow, air quality, temperature, seismic events, etc.

Our sensors cover extended areas, protecting an area from intrusion by detecting events at any location along the sensing cable.

safely every day is our first core value and employees at DarkPulse and our subsidiary companies are recognized experts in their fields,

providing comprehensive services for all our clients' needs.

technology company with presence through its subsidiaries in the United Kingdom, India, Dubai, Abu Dhabi, Turkey, Azerbaijan, United States

In addition to the Company’s BOTDA systems, through a series of strategic acquisitions the Company offers the manufacture,

sale, installation, and monitoring of laser sensing systems, oil and gas pipeline leak detection, physical security services, telecommunications

and satellite communications services, artificial intelligence-based camera systems, railway monitoring services, drone and rover systems,

and Big Data as a Service (“ BDaaS ”).

The Company is focused on expanding services through acquisitions and partnerships

to address global infrastructure and critical environmental resource challenges.

offers a full suite of engineering and environmental solutions that provide safety and security infrastructure projects.

The sensing and

monitoring capabilities offered by DarkPulse operate in the air, land, sea.

Our patented technology provides rapid, precise analysis to

protect and safeguard oil and gas pipelines above or below ground, physical security countermeasures, mining operations, and other critical

infrastructure/key resources subject to vulnerability or risk.

Our patented dark-pulse based BOTDA distributed

fiber sensing system is best in class.

The Company is able to monitor areas in around critical infrastructure buried or above ground including

pipelines 100km or more in length and/ or localized pipes as small as eight CM DIA, detecting internal anomalies before catastrophic failure.

We are developing an intelligent rock bolt to prevent causalities and fatalities in mining operations and include a real time sensor system

that can detect the location and movement of personnel and equipment throughout a mining operation.

We monitor airflow, air quality, temperature,

seismic events, etc.

Our sensors cover extended areas, protecting an area from intrusion by detecting events at any location along the

sensing cable.

Working safely every day is our first core value and employees at DarkPulse and our subsidiary companies are recognized

experts in their fields, providing comprehensive services for all our clients' needs.

Our Subsidiaries

Our subsidiaries consist of, Optilan, a company

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

integrity systems, renewables and security;

Remote Intelligence, Limited Liability Company, a company headquartered in Pennsylvania who

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

services, to search and rescue, to pipeline security;

Wildlife Specialists, Limited Liability Company, a company headquartered in Pennsylvania

who provides clients with comprehensive wildlife and environmental assessment, planning, and monitoring services;

TerraData Unmanned,

PLLC, a company headquartered in Florida who custom manufactures NDAA compliant drones and unmanned ground crawlers to meet the needs

of its customers;

and TJM Electronics West, Inc., a company headquartered in Arizona who is a U.S.

manufacturer and tester of advanced

electronics, cables and sub-assemblies specializing in advanced package and complex CCA and hardware.

Our subsidiaries consist of DarkPulse UK Ltd,, a company headquartered

in, United Kingdom whose focus is in engineering, telecommunications, energy, rail, critical network infrastructure, pipeline integrity

systems, renewables and security;

Remote Intelligence, Limited Liability Company, a company headquartered in Pennsylvania who provides

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

to search and rescue, to pipeline security;

Wildlife Specialists, Limited Liability Company, a company headquartered in Pennsylvania who

provides clients with comprehensive wildlife and environmental assessment, planning, and monitoring services;

TerraData Unmanned, PLLC,

a company headquartered in Florida who custom manufactures NDAA compliant drones and unmanned ground crawlers to meet the needs of its

and DarkPulse Electronics Manufacturing Inc., a company headquartered in Arizona who is a U.S.

manufacturer of advanced electronics,

cables and sub-assemblies specializing in advanced package and complex CCA and hardware.

Change in Ownership in Previously Consolidated Subsidiary Results

in Deconsolidation in the Current Period

On June 28, 2023, the county court at Portsmouth,

England made a winding up order raised by a (non-related party) creditor against the Company's subsidiary Optilan (UK) Limited.

The subsidiary

on that date ceased conducting further business and the director’s powers terminated.

The consolidation of subsidiaries owned by

Optilan (UK) Limited was no longer under its control as defined by ASC 810 (Consolidation).

This compulsory liquidation resulted in a

combined “Loss on Deconsolidation” of Optilan (UK) Limited and its subsidiaries in the amount of $1,624,795.

The subsidiaries of Optilan (UK) Limited are solvent

and continue to operate.

The Company will retain no measurable residual value nor direct or indirect investment in Optilan, its subsidiaries

or its assets.

The Company will have no continuing involvement with Optilan (UK) Limited, including its subsidiaries, and will not be

owned or controlled by any related party of the Company

Recent Events

1 unchanged sentence

up of Optilan (UK) Limited

2023, Eversheds Sutherland (International) LLP, a creditor of Optilan (UK) Limited, filed a petition to wind up (“Winding up Petition”)

Optilan (UK) Limited, a wholly owned subsidiary of the Company’s Subsidiary, Optilan HoldCo 3 Limited, and the matter was due to

be heard in the Portsmouth Combined Court Centre on June 28, 2023.

28, 2023, the High Court of Justice in the United Kingdom issued a winding-up order for the liquidation and winding up of the affairs

of Optilan (UK) Limited (“Optilan Liquidation”).

In conjunction with the order, the court appointed the Offical Receiver’s

Office (“OR”) to take the appointment as liquidator of Optilan (UK) Limited and take control of Optilan (UK) Limited’s

3, 2023, Optilan (UK) Limited received a letter from The Insolvency Service, an executive agency sponsored by the Department for Business

and Trade located in the U.K.

Pursuant to the letter of The Insolvency Services, the Company was required to provide information relating

to Optilan (UK) Limited to the Official Receiver’s Office (a government body of Plymouth, the United Kingdom) and attend an interview

with staff of the Official Receiver’s Office to review the prospect of recovering the assets of Optilan (UK) Limited for the benefit

of creditors.

The interview is scheduled for July 18, 2023.

confirming a plan of reorganization, arrangement or liquidation has been entered as of this filing.

The Company is an Unsecured creditor

of Optilan (UK) Limited and is at risk of losing any repayment of obligations due from Optilan (UK) Limited because there are several

intercompany relationships between the Company and Optilan (UK) Limited, the financial impact of any future claims and liabilities may

not be known for several months.

The Company has approximately $19.4 million intercompany payables due from Optilan (UK), which will increase

the Company liabilities for any obligations not repaid.

The Company expects the remaining assets held by Optilan (UK) Limited to be fully

impaired and reported as discontinued operations during the second quarter of 2023 as a result of the winding-up order for liquidation.

At the time of this filing the Company is still evaluating the full effects of the winding-up order for liquidation and the material adverse

effects it will have on the Company’s continued operations and ability to meet future obligations.

evaluated the events and circumstances of Optilan (UK) Limited liquidation and determined that conditions existed as of March 31, 2023

to indicate that the carrying value of the Company’s goodwill and intangible assets may not be recoverable.

Refer to Notes 2 and

7 for further detail on the impairment analysis.

On May 3, 2023, Eversheds Sutherland (International)

LLP, a creditor of Optilan (UK) Limited, filed a petition to wind up (the “ Winding up Petition ”) Optilan (UK) Limited,

a wholly owned subsidiary of the Company’s Subsidiary, Optilan HoldCo 3 Limited, and the matter was due to be heard in the Portsmouth

Combined Court Centre on June 28, 2023.

On June 28, 2023, the High Court of Justice in

the United Kingdom issued a winding-up order for the liquidation and winding up of the affairs of Optilan (UK) Limited (the “ Optilan

Liquidation ”).

In conjunction with the order, the court appointed the Offical Receiver’s Office (the “ OR ”)

to take the appointment as liquidator of Optilan (UK) Limited and take control of Optilan (UK) Limited’s assets.

At the same time the court appointed the OR to

take the appointment as liquidator of Optilan (UK) Limited.

The OR has taken control of Optilan (UK) Limited’s assets.

ORs Office has initiated contact with Optilan but we still wait to receive details of the individual who will be taking the role of OR.

On July 3, 2023, Optilan (UK) Limited received

a letter from The Insolvency Service, an executive agency sponsored by the Department for Business and Trade located in the U.K.

to the letter of The Insolvency Services, the Company was required to provide information relating to Optilan (UK) Limited to the Official

Receiver’s Office (a government body of Plymouth, the United Kingdom) and attend an interview with staff of the Official Receiver’s

Office to review the prospect of recovering the assets of Optilan (UK) Limited for the benefit of creditors.

The interview is scheduled

for July 18, 2023.

The Company is an Unsecured creditor of Optilan

(UK) Limited and is at risk of losing any repayment of obligations due from Optilan (UK) Limited because there are several intercompany

relationships between the Company and Optilan (UK) Limited, the financial impact of any future claims and liabilities may not be known

for several months.

The Company has approximately $19.4 million intercompany payables due from Optilan (UK), which will increase the Company

liabilities for any obligations not repaid.

The Company expects the remaining assets held by Optilan (UK) Limited to be fully impaired

during the second or third quarter of 2023 as a result of the winding-up order for liquidation.

Lasty, the Company performed an analysis of the

trade receivables related to Optilan (UK) Limited and determined that an additional $2,364,977 may not be collectible pursuant to the

Optilan Liquidation.

As of March 31, 2023, the Company recorded a bad debt provision for this amount.

(UK) Limited has the following assets as of March 31, 2023, including in the accompanying unaudited condensed consolidated balance sheet

are as follows:

Accounts receivable, net

Contract assets

Property and equipment, net

Operating lease right-of-use assets

and reported as discontinued operations during the second quarter of 2023 as a result of the winding-up order for liquidation.

time of this filing the Company is still evaluating the full effects of the winding-up order for liquidation and the material adverse

effects it will have on the Company’s continued operations and ability to meet future obligations.

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

Quarter Ended March 31 Accounting Analysis

The Company performed an analysis of the trade

receivables related to Optilan (UK) Limited and determined that an additional $2,422,457 may not be collectible pursuant to the Optilan

The Company recorded a bad debt provision for this amount.

As a result of the Optilan Liquidation, management

determined that certain events and circumstances occurred that indicated that the carrying amount of the Company’s reporting unit

may not be recoverable as of March 31, 2023.

The qualitative assessment was primarily due to the customer contracts held by Optilan (UK)

Limited at March 31, 2023 and the associated revenue projections by the UK subsidiary that is subject to the potential winding up.

such, the Company compared the fair value of the reporting unit to the carrying amounts and recorded an impairment loss of $6,925,137

pertaining to impairment and goodwill in the consolidated statements of operations.

The Company recorded impairment of the indefinite-lived

intangible asset of $356,260, and impairment of goodwill of $6,568,877.

The Company has one reporting unit which was evaluated in the

impairment test noted above.

As a result of the impairment, the Company had a carrying value of $0 pertaining to goodwill and intangible

assets as of June 30, 2023.

Quarter Ended June 30 Accounting Analysis

Optilan (UK) Limited became subject to the control

of a government and was appointed an administrator.

In this situation, when the parent ceases to have a financial interest in a subsidiary

and does not retain an investment in that subsidiary, the parent should deconsolidate the subsidiary and recognize a gain or loss on deconsolidation

in accordance with ASC 810-10-40-5.

In addition, ASC 810-10-40-3A states when a parent

deconsolidates a subsidiary or derecognizes a group of assets, the parent no longer controls the subsidiary's assets and liabilities or

the group of assets.

The parent therefore shall derecognize the assets, liabilities, and equity components related to that subsidiary

or group of assets.

The equity components will include any noncontrolling interest as well as amounts previously recognized in accumulated

other comprehensive income.

If the subsidiary or group of assets being deconsolidated or derecognized is a foreign entity (or represents

the complete or substantially complete liquidation of the foreign entity in which it resides), then the amount of accumulated other comprehensive

income that is reclassified and included in the calculation of gain or loss shall include any foreign currency translation adjustment

related to that foreign entity.

Upon the liquidation, on June 28, 2023, the Company

derecognized Optilan UK’s assets and liabilities and recorded a loss on consolidation of $1,624,795, which was recognized in other

income (expenses) in the consolidated statements of operations.

Included in the loss on consolidation of $1,642,795

are the gains on intercompany receivables and payables and currency translation adjustment $12,721,532 and $1,545,008 respectively, offset

by the net loss on impairment of investments of $12,623.

In addition, the allowance of $2,422,457 was recorded

against receivables that have been deemed uncollectible.

2022 we entered an Equity Financing Agreement (the “ 2022 EFA ”) and Registration Rights Agreement (the “ RRA ”)

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statement is filed with the SEC, but in no event more than 90 days after the registration statement is filed.

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

Below is a table of all puts made by the Company

under the 2022 EFA during 2023:

Number of Common Shares Issued

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Effective Price per Share

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

for $100,000.

entered into a consulting agreement with the Bachner Group to assist in the successful transformation from an R&D focused company

to a sales-focused company and assist us with federal contract opportunities.

On January 17, 2023, we entered into a Stock Purchase

Agreement with an investor for the purchase of 11,441,647 shares of Common Stock in exchange for $100,000.

On April 28, 2023 we entered an Equity Financing

Agreement, which was superseded by the Amended Equity Financing Agreement dated June 13, 2023, which was then superseded by the Second

Amended Equity Financing Agreement dated July 10, 2023 (the “ 2023 EFA ”) and Registration Rights Agreement (the “ 2023

RRA ”) with GHS, pursuant to which GHS agreed to purchase up to $30,000,000 in shares of our Common Stock, from time to time

over the course of 12 months after effectiveness of a registration statement on Form S-1 of the underlying shares of Common Stock.

The 2023 RRA provides that we shall (i) use our

best efforts to file with the SEC a registration statement within 15 days of the date of the GHS Registration Rights Agreement;

have the registration statement declared effective by the SEC within 30 days after the date the GHS registration statement is filed with

the SEC, but in no event more than 90 days after the registration statement is filed.

Below is a table of all puts made by the Company

under the 2022 EFA during 2023:

Number of Common Shares Issued

Total Proceeds, Net of Discounts

Effective Price per Share

We have entered into a consulting agreement with

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

with federal contract opportunities.

Concern Uncertainty

in the accompanying financial statements, we generated net losses of $14,799,264 and $5,384,270 during the three months ended March 31,

As shown in the accompanying

financial statements, we generated net losses of $18,917,360 and $9,569,843 during the six months ended June 30, 2023

and 2022, respectively, and net cash used in operating activities of $2,483,389 and $12,565,057, respectively.

As of March 31, 2023,

our current liabilities exceeded its current assets by $ 15,955,423 and has an accumulated deficit of $60,574,902.

As of March 31, 2023,

we had $545,970 of cash.

Lastly, the Optilan Liquidation raises serious concerns about the viability of the Optilan (UK) Limited entity

and related operations of the Optilan subsidiaries.

30, 2023, the Company’s current liabilities exceeded its current assets by $18,582,414 and has an accumulated deficit of $64,662,001.

As of June 30, 2023, the Company had $48,573 of cash.

Lastly, the Optilan Liquidation no longer raises serious concerns about the viability

of the Optilan (UK) Limited entities.

Optilan (UK) Limited and its subsidiaries have been deconsolidated and are no longer under the control

of DarkPulse, Inc.

will require additional funding to finance the growth of our operations and achieve our strategic objectives.

32 unchanged sentences

revenues, including part of framework contracts that will be recognized during future reporting periods.

three months ended March 31, 2023, total revenues were $1,537,833 compared to $2,018,333 for the three months ended March 31, 2022, a

decrease of $480,500.

The decrease was primarily due to lower revenues achieved by Wildlife and Optilan due to decreased operations given

capital and resources restraints.

The breakdown of revenues by entity for the three months ended March 31, 2023 and 2022 is as follows:

Three Months Ended

Remote Intelligence

the three and six months ended June 30, 2023, total revenues were $ 412,769 and $1,950,602 compared

to $ 4,435,043 and $6,435,376 for the three and six months ended June 30, 202.

The decreases

were primarily due to the Opitlan (UK) liquidation and lower revenues achieved by Wildlife and Remote given capital and resources restraints.

Cost of Revenues and Gross Margin

For the three months ended March 31, 2023, cost of

revenues was $1,226,792 compared to $2,348,567 for the three months ended March 31, 2022, a decrease of $1,121,775.

Gross profit (loss) for the three months ended

March 31, 2023 was $311,041 with a gross margin of 20.2% compared to $(330,234) for the three months

ended March 31, 2022 with a (16.4)% gross margin.

During 2022, it was realized that certain fixed price quoted contracts, with design

and execution issues, prolonged the completion of the projects.

This resulted in significant excess costs related to labor, subcontractor,

and material costs.

The Company has adequately reserved for these costs through completion of the projects in the third quarter of 2023.

Unfortunately, there was very little foresight into the magnitude of the loss.

The Company believes that this is not a recurring issue

with Optilan and/or its business model.

The Company has undertaken internal procedures during its bid process to assure that such practices

will not occur in the future.

In 2023, gross profit increased due to more normalized costs related to revenue as Optilan performed new,

profitable projects.

Approximately $240,000 of the gross profit was due to the fiber business which generates higher gross profits than

other projects.

For the three and six months ended June 30, 2023,

cost of revenues was $1,184,848 and $2,411,640 compared to $3,965,910 and $6,314,477 for the six months ended June 30, 2022.

was attributable to the Optilan (UK) Limited liquidation and lower revenues from Remote Intelligence and Wildlife Specilaists.

Gross profit (loss) for the six months ended June

30, 2023 was ($461,038) compared to $138,889 for the six months ended June 30, 2022.

it was realized that certain fixed price quoted contracts, with design and execution issues, prolonged the completion of the projects.

This resulted in significant excess costs related to labor, subcontractor, and material costs.

The Company has adequately reserved for

these costs through completion of the projects in the third quarter of 2023.

Unfortunately, there was very little foresight into the magnitude

The Company believes that this is not a recurring issue with Optilan and/or its business model.

The Company has undertaken

internal procedures during its bid process to assure that such practices will not occur in the future.

Operating Expenses

Selling, general and administrative expenses for

three months ended March 31, 2023 increased by $35,625 to $1,013,833 from $978,208 for the three months ended March 31, 2022.

primarily consisted of increase in advertising costs, insurance and information technology expenses.

Salaries, wages and payroll taxes for three months

ended March 31, 2023 decreased to $1,547,208 from $1,972,067 for the three months ended March 31, 2022.

three and six months ended June 30, 2023 decreased by $486,896 and $567,243, respectively.

The decrease primarily consisted of decrease

in advertising costs, insurance and information technology expenses.

Salaries, wages and payroll

taxes for three and six months ended June 30, 2023 decreased by $797,276 and $1,222,136, respectively.

The decrease primarily consisted

of reduced headcount at each subsidiary.

The Company performed an analysis of the trade

receivables related to Optilan (UK) Limited and determined that an additional $2,364,977 may not be collectible pursuant to the Optilan

As of March 31, 2023, the Company recorded a bad debt provision for this amount.

Professional fees for the three months ended March

31, 2023 increased to $2,950,698 from $1,538,103 for the three months ended March 31, 2022.

This increase primarily consisted of $1,989,900

in non-cash expenses due to the issuance of common stock per the settlement of an litigation matter, partially offset by lower legal fees

incurred in 2023.

During the three months ended March 31, 2022,

the Company recorded a gain on forgiveness of payables of $35,750.

As a result of the Optilan Liquidation

as described in Note 1, management determined that certain events and circumstances occurred that indicated that the carrying amount of

the Company’s reporting unit may not be recoverable as of March 31, 2023.

The qualitative assessment was primarily due to the customer

contracts held by Optilan (UK) Limited at March 31, 2023 and the associated revenue projections by the UK subsidiary that is subject to

the potential winding up.

As such, the Company compared the fair value of the reporting unit to the carrying amounts and recorded an impairment

loss of $6,809,166 pertaining to impairment and goodwill in the consolidated statements of operations.

The Company recorded impairment

of the indefinite-lived intangible asset of $356,260, and impairment of goodwill of $6,452,906.

Depreciation and amortization for three months

ended March 31, 2023 and 2022 was $231,234 and $228,614, respectively.

As of June 30, 2023,

the Company recorded a bad debt provision of $2,422,457 pertaining to the Optilan UK Liquidation.

Professional fees for the three months ended June

30, 2023 decreased by $1,224,909 for the three months ended June 30, 2022 as Optilan operations ceased.

Professional fees increased by

$187,686 for the six months ended June 30, 2023 due to the issuance of common stock per the settlement of a litigation matter.

During the three months

ended June 30, 2023, the Company recorded a gain on forgiveness of debt of $106,794.

As a result of the Optilan Liquidation as described

in Note 1, management determined that certain events and circumstances occurred that indicated that the carrying amount of the Company’s

reporting unit may not be recoverable.

The qualitative assessment was primarily due to the customer contracts held by Optilan (UK) Limited

and the associated revenue projections by the UK subsidiary that is subject to the potential winding up.

As such, the Company compared

the fair value of the reporting unit to the carrying amounts and recorded an impairment loss of $6,925,137 pertaining to impairment and

goodwill in the consolidated statements of operations.

The Company recorded impairment of the indefinite-lived intangible asset of $356,260,

and impairment of goodwill of $6,568,877.

The Company has one reporting unit which was evaluated in the impairment test noted above.

a result of the impairment, the Company had a carrying value of $0 pertaining to goodwill and intangible assets as of June 30, 2023.

Depreciation and amortization

for three months ended June 30, 2023 and 2022 was $220,749 and $7,405, respectively.

Other Income (Expense)

For the three months ended March 31, 2023, we

had other expenses of ($193,189) compared to other expenses of ($372,794) for the three months ended March 31, 2022.

For the three months ended June 30, 2023, we had

other expenses of $(1,617,692) compared to other expenses of $(688,121) for the three months ended June 30, 2022.

The increase in other

expenses was primarily due to loss on deconsolidation in 2023.

For the six months ended June 30, 2023, we had

other expenses of $(1,810,882) compared to other expenses of $(1,025,164) for the six months ended June 30, 2022.

The decrease in other

expenses was primarily due to lower interest expense in 2023.

of the above, we reported a net loss of $14,799,264 and $5,384,270 for the three months ended March 31, 2023 and 2022, respectively.

expenses was primarily due to loss on deconsolidation in 2023.

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

of $4,118,096 and $4,185,572 for the three months ended June 30, 2023 and 2022, respectively.

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

of $18,917,360 and $9,569,843 for the six months ended June 30, 2023 and 2022, respectively.

Liquidity and Capital Resources

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development and commercialization of our proprietary fiber optic sensing devices, and for operating expenses.

During the three months

ended March 31, 2023, we had $2,087,801 in cash proceeds from our equity financings compared to $7,700,000 in 2022.

31, 2023, we had cash of $545,970 compared to $2,060,332 as of December 31, 2022.

We currently do not have sufficient cash to fund our

operations for the next 12 months and we will require working capital to complete development, testing and marketing of our products and

to pay for ongoing operating expenses.

We anticipate adding consultants for technology development and the corresponding operations of

the Company, but this will not occur prior to obtaining additional capital.

Management is currently in the process of looking for additional

Currently, loans from banks or other lending sources for lines of credit or similar short-term borrowings are not available

We have been able to raise working capital to fund operations through the issuances of convertible notes or obtained through the

issuance of our restricted common stock.

As of March 31, 2023, our current liabilities exceeded our current assets by $15,955,423.

the Optilan Liquidation raises serious concerns about the viability of the Optilan (UK) Limited entity and related operations of the Optilan

subsidiaries.

During the six months ended

June 30, 2023, we had $2,625,650 in cash proceeds from our equity financings compared to $12,415,875 in 2022.

of June 30, 2023, we had cash of $ 48,573 compared to $2,060,332 as of December 31, 2022.

We currently do not have sufficient cash to fund our operations for the next 12 months and we will require working capital to complete

development, testing and marketing of our products and to pay for ongoing operating expenses.

We anticipate adding consultants for technology

development and the corresponding operations of the Company, but this will not occur prior to obtaining additional capital.

is currently in the process of looking for additional investors.

Currently, loans from banks or other lending sources for lines of credit

or similar short-term borrowings are not available to us.

We have been able to raise working capital to fund operations through the issuances

of convertible notes or obtained through the issuance of our restricted common stock.

As of June 30, 2023, our current liabilities exceeded

our current assets by $ 18,582,412 .

Several of our significant operating subsidiaries

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Cash Flows From Operating Activities

three months ended March 31, 2023, net cash used by operating activities was $2,323,783 resulting from our net loss of $14,799,264 partially

offset by non-cash charges of $11,491,421 primarily driven by impairment charges, bad debt expense and the issuance of common stock for

a legal settlement.

In 2023, we had cash provided by our operating assets and liabilities of $984,059 primarily driven by increases in

accounts payable and contract liabilities.

During the three months

ended March 31, 2022, net cash used by operating activities was $6,288,501, resulting from our net loss of $5,384,270, partially offset

During the six months ended June 30, 2023, net

cash used by operating activities was $2,483,389 resulting from our net loss of $18,917,360 partially offset by non-cash charges

of $13,479,314 primarily driven by impairment charges, bad debt expense and the issuance of common stock for a legal settlement.

we had cash received by our operating assets and liabilities of $2,954,660 primarily driven by decreases in accounts receivable and contract

assets and increases in accounts payable.

During the six months

ended June 30, 2022, net cash used by operating activities was $12,565,057, resulting from our net loss of $9,569,843, partially offset

by non-cash gains of $319,410.

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in accounts receivable and contract assets partially offset by increases in accounts payable and contract liabilities.

Cash Flows From Investing Activities

During the three months ended March 31, 2023,

we had net cash used in investing activities of $817,749, including $167,894 in notes and $449,110 in advances to GSD, as well as our

joint venture investment of $98,125 and purchase of property and equipment of $102,350.

During the three months ended March 31, 2022,

we had net cash used in investing activities of $64,980 due to deposits.

Cash Flows From Investing

During the six months

ended June 30, 2023, we had net cash used in investing activities of $1,154,848, including $419,737 in notes and $519,637 in advances

to related party, as well as our joint venture investment of $113,124 and purchase of property and equipment of $102,350.

During the three months

ended June 30, 2022, we had net cash used in investing activities of $503,409 due to $64,980 in deposits and purchase of property and

equipment of $438,429.

Cash Flows From Financing Activities

During the three months ended March 31, 2023,

net cash provided by financing activities was $2,061,762 which was primarily comprised of proceeds from the sale of common stock of $2,087,801,

less net repayments of loans of $26,039.

During the three months ended March 31, 2022,

net cash provided by financing activities was $7,700,000, comprised of proceeds from the sale of common stock from offering of $7,700,000.

During the six months

ended June 30, 2023, net cash provided by financing activities was $2,598,603 which was primarily comprised of proceeds from the sale

of common stock of $2,625,650, less net repayments of loans of $27,047.

During the six months ended June 30, 2022, net

cash provided by financing activities was $12,415,875, comprised of proceeds from the sale of common stock from offering of $12,415,875.

Factors That May Affect Future Results

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis