DarkPulse, Inc. 10-Q

Item 1. Legal Proceedings See Note 14 to the unaudited consolidated condensed financial statements. 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. On June 30, 2023, the Company and Mr. O'Leary filed their Answer to the Benner Parties' Complaint. The Company intends to vigorously defend itself against the Benner Parties’ lawsuit. Optilan (UK) Limited – Compulsory Liquidation On June 28, 2023, an order was made by the English courts to place Optilan (UK) Limited (“ Optilan UK ”) into compulsory liquidation. Compulsory liquidation is a formal, legal insolvency procedure that results in a company being forcibly liquidated by the courts. The process was initiated by the presentation of a winding petition served on Optilan UK by an unpaid creditor. Optilan UK was unable to settle the creditor payment ahead of the wining up hearing in court and consequently, the court made an order for the company to be wound up/liquidated. At the point the order was made, Optilan UK ceased operating, and the directors’ powers ceased. All employment contracts terminated as did other contractual relationships with clients and customers whose contracts allowed for termination following the company’s entry into liquidation. We understand the other companies in the Optilan group remain solvent and continue to operate. At the same time, the court appointed the Official Receiver's Office (the “ OR ”) to take the appointment as liquidator of Optilan UK. An official receiver is a licensed insolvency practitioner who has been appointed by the courts to ensure the company is wound down as per the compulsory order. The OR has taken control of the Optilan UK’s assets. The primary objective of the OR, who is also an officer of the court, is to repay as much as possible to the creditors. The OR will undertake an initial interview with the directors to identify urgent matters, and thereafter undertake a full interview with the directors to further their investigation work. The OR will also conduct a separate interview as regards the directors’ conduct and report this back to the Insolvency Service. Creditors can also nominate their own choice of liquidator to replace the OR. The OR will consider nominations from creditors and ordinarily the largest unsecured creditor will be able to appoint their own choice of liquidator. The liquidator acts in the interests of all creditors. It is the intention for DarkPulse (as largest unsecured creditor of Optilan UK) to try and replace the liquidator for one of its choice. The liquidator's fees are generally paid out of the company's assets. The liquidator must make payment to creditors in a particular order as set out below: · Secured creditors with a fixed charge; · Liquidator fees; · Preferential creditors (employees); · Secondary preferential creditors (HMRC); · Secured creditors with a floating charge; and · Unsecured creditors (which includes DarkPulse debts). Unsecured creditors rank equally. 38 The main result of compulsory liquidation is the complete dissolution of the business of Optilan UK. However, assets of Optilan UK can be purchased at fair market value. DarkPulse has expressed a desire to acquire certain assets of Optilan UK from the liquidator. If DarkPulse does not purchase the assets of Optilan UK, the liquidator will go out to competitors and may try to find a buyer. If they cannot find one, any contracts will be disclaimed (cannot be performed), and tangible assets will be disposed of at auction to get the best price. Most liquidations take around 6 to 12 months to conclude. This period usually affords the liquidator sufficient time to dispose of the company’s assets, agree creditor claims and make a distribution to creditors (if there are any funds available), conclude the company’s tax affairs and fill the necessary closure paperwork. During the process, the subsidiaries can continue to operate, and DarkPulse can support those operations as well as attempt to sign new contracts with the current customers of Optilan UK. 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.