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, 2023. Based on his evaluation, Mr. O’Leary concluded that, due to a material weakness in our internal control over financial reporting as described below, our disclosure controls and procedures were not effective as of December 31, 2023. 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. 49 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, 2023, 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. 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, 2023, 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. 50 Changes in Internal Controls There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2023 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. ITEM 9B. OTHER INFORMATION During the quarter ended December 31, 2023, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable to the Company. 51 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 61 Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Secretary & Treasurer Dr. Anthony Brown 50 Director Craig Atkin 41 Director and Chief Commercial Officer of Optilan Dennis M. O’Leary, Chairman, CEO, President, CFO . Mr. O’Leary was appointed as the DarkPulse’s Chief Executive Officer, President, Chief Financial Officer and Chairman of the Board in April 2018. Mr. O’Leary is a serial entrepreneur with significant international experience having founded Sulu Electric Power and Light Corp (Philippines), a firm with expertise in utility scale power generation and solar energy. In 2010, Mr. O’Leary co-founded DarkPulse Technologies Inc., a wholly-owned subsidiary of DarkPulse, which is developing specialized devices that monitor activities along national borders and provide structural health and safety monitoring of oil and gas pipelines. He holds extensive start-up experience including multiple exit strategies. Mr. O’Leary is an Ambassador for the Province of New Brunswick, Canada, and a Research Member of the NATO Science and Technology Organization. He served as a member of the Board at Arizona State University’s School of Engineering, Global Resolve as Chair of the Impact Committee. His previous employment includes the NYPD where he worked as a member of the Manhattan North Tactical Narcotics Team, which prosecuted establishments involved in the illegal distribution of narcotics. He was a member of a joint taskforce working with the DEA and USINS in the execution of warrants related to narcotics trafficking. While at the NYPD, he was assigned to the Department of Justice as a member of the FBI’s investigative team with internal designation C14. He is a licensed private pilot with turbine experience. Mr. O’Leary was appointed as a Director due to his extensive experience in the industries in which DarkPulse operates. Mr. O’Leary is not, and has not been during the past five years, the director of any other public companies. Dr. Anthony Brown, Director . Dr. Brown has served as a Director of DarkPulse since April 2019. He is a physicist and scientist with extensive experience in the development of Brillouin scattering-based distributed fiber optic sensing. In 2010, Dr. Brown co-founded DarkPulse Technologies, Inc., a wholly-owned subsidiary of DarkPulse. Dr. Brown has more than 25 years of research and lecturing experience gained at the University of New Brunswick (“ UNB ”), focusing primarily on the development of Brillouin scattering-based distributed fiber optic sensor technology. From 2001 to 2012, Dr. Brown served as an assistant professor and research associate at UNB. During Dr. Brown’s tenure at UNB, he was instrumental in developing numerous patents in the field of fiber optic sensing. From 2012 to 2015, Dr. Brown served as an Adjunct Professor at UNB. From 2013 through the present, Dr. Brown has served as a data scientist for Xplornet Communications, Inc. From 2018 through the present, Dr. Brown has served as a consultant for DarkPulse. Dr. Brown received a Bachelor of Science degree in Physics from UNB in 1995, and a PhD in Physics from UNB in 2001. Dr. Brown was appointed as a Director due to his extensive experience in the development of Brillouin scattering-based distributed fiber optic sensing. Dr. Brown is not, and has not been during the past five years, the director of any other public companies. 52 Craig Atkin, Director . Mr. Atkin has served as a Director of DarkPulse since June 2023. He is also the Chief Commercial Officer of Optilan. Mr. Atkin has an engineering background with a first class honours degree in Electrical/Electronic Engineering and a Master’s Degree in Project Management. With over 20 years’ experience across energy, security, communications and technology sectors in both operational and leadership roles. His previous role was the management of two power stations within the UK for a multinational energy company. Mr. Atkin has also worked in conventional, renewable and offshore wind environments. He is experienced working and leading international teams and large scale projects. Mr. Atkin is commercially-experienced across contract setup and negotiation, M&A and operational works. Mr. Atkin was appointed as a Director due to his experience with Optilan. Mr. Atkin is not, and has not been during the past five years, the director of any other public companies. Jason Keith, Former CEO, Optilan – On July 4, 2023, Optilan (UK) received an official letter that all employees’ contracts were terminated as of June 28, 2023. At that time Mr. Keith’s tenure as CEO of Optilan expired. Legal Proceedings Besides the disclosure below, during the past ten years there have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any of our directors or executive officers, and none of these persons has been involved in any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity, any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws or regulations, or any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization. Liquidation/winding up of Optilan (UK) Limited On May 3, 2023, Eversheds Sutherland (International) LLP, a creditor of Optilan (UK) Limited, filed a petition to wind up (“ Winding up Petition ”) Optilan (UK) Limited, a wholly owned subsidiary of the Company’s Subsidiary, Optilan HoldCo 3 Limited, and the matter was due to be heard in the Portsmouth Combined Court Centre on June 28, 2023. On June 28, 2023, the High Court of Justice in the United Kingdom issued a winding-up order for the liquidation and winding up of the affairs of Optilan (UK) Limited (“ Optilan Liquidation ”). In conjunction with the order, the court appointed the Official Receiver’s Office (“OR”) to take the appointment as liquidator of Optilan (UK) Limited and take control of Optilan (UK) Limited’s assets. At the same time the court appointed the OR to take the appointment as liquidator of Optilan (UK) Limited. The OR has taken control of Optilan (UK) Limited’s assets. To date the ORs Office has initiated contact with Optilan but we still wait to receive details of the individual who will be taking the role of OR. On July 3, 2023, Optilan (UK) Limited received a letter from The Insolvency Service, an executive agency sponsored by the Department for Business and Trade located in the U.K. Pursuant to the letter of The Insolvency Services, the Company was required to provide information relating to Optilan (UK) Limited to the Official Receiver’s Office (a government body of Plymouth, the United Kingdom) and attend an interview with staff of the Official Receiver’s Office to review the prospect of recovering the assets of Optilan (UK) Limited for the benefit of creditors. The interview was scheduled for July 18, 2023. On July 18, 2023, the interview was held between the Official Receiver’s Office (“ OR ”) and the CEO at time of dissolution. The OR office requested a list of assets, bank account information and amounts along with any contracts held by Optilan (UK) Limited to begin the liquidation process. 53 On August 9, 2023, Evelyn Partners was appointed Joint Liquidator. There are no new claims against Optilan UK Ltd as of April 16, 2024 and Evelyn partners continue to liquidate the company’s assets. We are an unsecured creditor of Optilan (UK) Limited and are at risk of losing any repayment of obligations due from Optilan (UK) Limited because there are several intercompany relationships between the Company and Optilan (UK) Limited, the financial impact of any future claims and liabilities may not be known for several months. We have approximately $19.4 million intercompany payables due from Optilan (UK), which will increase our liabilities for any obligations not repaid. We expect the remaining assets held by Optilan (UK) Limited to be fully impaired and reported as Loss on Deconsolidation during the second quarter of 2023 as a result of the winding-up order for liquidation. We are still evaluating the full effects of the winding-up order for liquidation and the material adverse effects it will have on our continued operations and ability to meet future obligations. Family Relationships There are no family relationships between any of our directors and executive officers. Audit Committee We currently do not have a functioning Audit Committee. Our management is currently reviewing our SEC filings and relying on outside experts to assist with this process. 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, 2023 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, 2024. 54 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, 2023 and 2022. Name and Principal Position Year Ended Dec 31, Salary Total Dennis O’Leary 2023 $ 165,000 (1) $ 137,500 Chairman/CEO and Director 2022 $ 270,000 $ 270,000 (1) All of this amount was accrued and unpaid. O’Leary Employment Agreement On June 22, 2022, our Board of Directors, with Dennis O’Leary abstaining, approved the Employment Agreement dated effective April 1, 2022 with Mr. O’Leary, our Chief Executive Officer. The term of the agreement is three years from the April 1, 2022, subject to termination. The agreement may be terminated upon the death or disability of Mr. O’Leary or for “Cause,” as defined in the agreement. Pursuant to the agreement, Mr. O’Leary is entitled to an annual salary of $300,000, which may accrue and be paid once we have available funds. Any accrued and unpaid base salary may also be converted subject to mutual agreement of the Company and Mr. O’Leary. Also, pursuant to the agreement, Mr. O’Leary was issued 100 shares of Series A Super Voting Preferred Stock. Summary Compensation for Directors The following table shows the executive compensation paid to our directors (excluding named executive officers) for the year ended December 31, 2023. Name and Principal Position Salary Total Dr. Anthony Brown, Director $ – $ – Craig Atkin, Director $ – $ – Carl Eckel, Director $ 10,000 (1) $ 10,000 (1) All of this amount was accrued and unpaid. Equity Awards As of December 31, 2023, there were no outstanding equity awards. 55 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 8,152,368,952 (8,152,280,717 common plus 88,235 preferred) shares as of April 16, 2024. The table includes preferred stock that is convertible into common stock and information as to the ownership of the Company's Stock by each of its directors, named executive officers, and executive officers and by the directors and executive officers as a group. There were no stock options outstanding as of April 16, 2024. Except as otherwise indicated, all shares are owned directly, and the persons named in the table have sole voting and investment power with respect to shares shown as beneficially owned by them. The address for each of our directors, named executive officers, and executive officers is 815 Walker Street, Suite 1155, Houston, Texas 77002. Name and Position Shares of Common Stock Owned Shares of Series D Preferred Stock Owned (1) Amount and Nature of Beneficial Ownership (2) Percentage of Beneficial Ownership Dennis O’Leary, CEO and Director – 67,647 135,294 * Dr. Anthony Brown, Director – 5,882 11,764 * Craig Atkin, Director – – – – Bill Bayliss, CEO, Optilan – – – – Total named executive officers, executive officers, and directors (four persons) – 73,529 147,058 * *Less than 1% (1) Each share of Series D Preferred Stock is convertible, at the option of the holder, into two shares of our Common Stock. (2) Under Rule 13d-3 of the Exchange Act, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the number of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the above table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on the date of this report. 56 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 ”) and Mazars USA LLP (“ Mazars ”) , our previous independent registered public accounting firms, and Fruci & Associates II, PLLC (“ Fruci ”) , 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 Urish, Mazars, and Fruci for professional services rendered for the years ended December 31, 2023 and 2022, respectively. Service 2023 2022 Audit Fees $ 519,183 $ 286,641 Audit-Related Fees – – Total $ 591,183 $ 286,641 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, 2023 and 2022. 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 2023 and 2022 audit fees, audit-related fees and all other fees. 57 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 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 58 10.1 Assignment Agreement with the University of New Brunswick, Canada 10-K 000-18730 10.05 4/15/21 10.2 Convertible Debenture (Secured) Issued April 24, 2017 10-K 000-18730 10.06 4/15/21 10.3 Amendment No. 01 to Convertible Debenture (Secured) Term Debenture dated January 17, 2024 with the University of New Brunswick, Canada X 10.4 Finder’s Fee Agreement dated January 8, 2021 with J.H. Darbie & Co., Inc. 10-Q 000-18730 10.1 5/17/21 10.5 Securities Purchase Agreement dated as of April 26, 2021 with FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC 10-Q 000-18730 10.1 8/16/21 10.6 Registration Rights Agreement dated April 26, 2021 to FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC 10-Q 000-18730 10.2 8/16/21 10.7 Membership Interest Purchase Agreement dated August 30, 2021 with Remote Intelligence, Limited Liability Company 10-Q 000-18730 10.9 11/15/21 10.8 Membership Purchase Agreement dated August 24, 2022 with Remote Intelligence, Limited Liability Company 10-Q 000-18730 10.2 11/4/22 10.9 Membership Interest Purchase Agreement dated August 30, 2021 with Wildlife Specialists, LLC 10-Q 000-18730 10.10 11/15/21 10.10 Membership Purchase Agreement dated August 24, 2022 with Wildlife Specialists, LLC 10-Q 000-18730 10.3 11/4/22 10.11 Stock Purchase Agreement dated September 8, 2021 with TJM Electronics West, Inc. 10-Q 000-18730 10.15 11/15/21 10.12 Membership Purchase Agreement with TerraData Unmanned, PLLC dated effective October 1, 2021 S-1 333-261453 10.48 12/1/21 10.13* Employment Agreement dated effective April 1, 2022 with Dennis O’Leary 10.2 000-18730 10.2 8/10/22 10.14 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 10.14 Purchase Agreement dated October 12, 2022 with Gladstone Sponsor, LLC and Gladstone Acquisition Corp. 10-K 000-18730 10.63 6/23/23 10.16 Assignment, Assumption, Release and Waiver of the Letter Agreement dated October 12, 2022 with Gladstone Sponsor, LLC and Gladstone Acquisition Corp. 10-K 000-18730 10.64 6/23/23 10.17 Joinder to the Registration Rights Agreement dated October 12, 2022 with Gladstone Acquisition Corp . 10-K 000-18730 10.65 6/23/23 10.18 Sale Agreement dated December 1, 2023 S-1 333-276144 10.66 12/18/23 10.19 Equity Financing Agreement dated April 28, 2023 with GHS Investments, LLC S-1/A 333-276144 10.19 2/9/24 10.20 Amended Equity Financing Agreement dated June 13, 2023 with GHS Investments, LLC S-1/A 333-276144 10.20 2/9/24 10.21 Second Amended Equity Financing Agreement dated July 10, 2023 with GHS Investments, LLC S-1/A 333-276144 10.21 2/9/24 10.22 Amendment No. 1 to Second Amended Equity Financing Agreement dated January 30, 2024 with GHS Investments, LLC S-1/A 333-276144 10.22 2/9/24 59 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 S-1/A 333-276114 21.1 12/18/23 23.1 Consent of Boladale Lawal & Co., independent registered public accounting firm X 23.2 Consent of Mazars USA LLP, independent registered public accounting firm X 23.3 Consent of Attorney S-1/A 333-276114 23.3 2/9/24 31.1 Rule 13a-14(a) Certification by Principal Executive Officer X 31.2 Rule 13a-14(a) Certification by Principal Financial and Accounting Officer X 32.1 Section 1350 Certification of Principal Executive Officer and Principal Financial and Accounting 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. ITEM 16. FORM 10-K SUMMARY None. 60 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: July 15, 2024 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 15th day of July 2024. 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 July 15, 2024 /s/ Dr. Anthony Brown Director July 15, 2024 Dr. Anthony Brown /s/ Craig Atkin Director July 15, 2024 Craig Atkin 61 DARKPULSE, INC. Index to Financial Statements As of December 31, 2023 and 2022 and for the Years Ended December 31, 2023 and 2022 Report of Independent Registered Public Accounting Firm (Boladale Lawal & Co., Lagos, Nigeria, PCAOB ID 6993 ) 2023 F-2 – F-3 Report of Independent Registered Public Accounting Firm ( Mazars USA LLP, Fort Washington, PA., PCAOB ID 339 ) 2022 F-4 – F-5 Audited Consolidated Balance Sheets F-6 Audited Consolidated Statements of Operations F-7 Audited Consolidated Statements of Comprehensive Loss F-8 Audited Consolidated Statements of Stockholders’ Deficit F-9 Audited Consolidated Statements of Cash Flows F-10 Notes to the Audited Consolidated Financial Statement F-11 F- 1 Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of DARKPULSE, INC. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Darkpulse, Inc (the ‘Company’) as of December 31, 2023, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity/ (deficit) and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3, the Company suffered an accumulated deficit of $(67,376,221), net loss of $(21,273,043) and a negative working capital of $(18,126,281). 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. These 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits 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 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 audits 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 audits 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 audits provide a reasonable basis for our opinion. F- 2 Critical Audit Matters Critical audit matters 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) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. 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, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. 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 up to the date of liquidation required a high degree of auditor judgment The procedures performed to address the matter included. · We gained an understanding of internal controls related to revenue recognition. · We evaluated management’s significant accounting policies for reasonableness · We Obtained and reviewed revenue contract agreements for each sample selected · We check the reasonableness of 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. · We tested the mathematical accuracy of management’s calculations of revenue and the associated timing of revenue recognized in the financial statements. Going Concern Uncertainty – See also Going Concern Uncertainty explanatory paragraph above: As described in Note 3 to the consolidated financial statements, the Company has significant operating losses and a working capital deficiency. Furthermore, the company lost majority of its revenue as a result of the discontinuation of the subsidiary (Optilan UK). The ability of the Company to continue as a going concern 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. The procedures performed to address the matter included. · We inquired of executive officers, and key members of management, of the Company regarding factors that would have an impact on the Company’s ability to continue as a going concern, · We evaluated management’s plan for addressing the adverse effects of the conditions identified, including assessing the reasonableness of forecasted information and underlying assumptions by comparing to actual results of prior periods and actual results achieved to date, and utilizing our knowledge of the entity, its business and management in considering liquidity needs and the Company’s ability to generate sufficient cash flow, · We assessed the possibility of raising additional debt or credit, · We evaluated the completeness and accuracy of disclosures in the consolidated financial statements. Impairment: During the year 2023, the company recognised an impairment loss of $6,948,349 on the balance of Goodwill and other intangible assets recognized on acquisition of Optilan the UK subsidiary company. Management determined that certain events and circumstances occurred that resulted into the liquidation of the subsidiary company (Optilan Uk) as a result, the carrying amount of the Company’s reporting is not recoverable and full impairment was recognised. Also, during the year, company recognized bad debt expenses of $5,248,218 as a result of impairment on trade and other receivables from which a material amount of $2,422,457 is the effect of doubt on the recoverability of the account receivables from Optilan (UK) customers due to the liquidation. We considered the computation of the impairment charged on Goodwill and other intangible assets and bad debt written off on account receivables as a critical audit matter because it required an estimation and significant judgement by management. The procedures performed to address the matter included. · We reviewed the company impairment assessment memo · We reviewed the primary events and circumstances that resulted into the liquidation of the subsidiary. · We circularized the independent legal advisor and other related parties · We inquired from the management about the possibility of contingent liabilities on the disputed contract. · We reviewed the bad debt schedule and board approval on bad debt written off. · We evaluated the adequacy of the Company’s disclosures in the financial statements related to the impairment. BOLADALE LAWAL & CO. (Chartered Accountants) (PCAOB ID 6993) Lagos, Nigeria We have served as the Company’s auditor since 2024. July 15, 2024 F- 3 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. F- 4 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. 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. F- 5 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- 6 DARKPULSE, INC. Consolidated Balance Sheets December 31 2023 2022 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 11,912 $ 2,060,332 Accounts receivable, net 868,948 2,952,293 Inventory – 23,825 Due from related party – 318,025 Prepaid expenses and other current assets 76,185 180,530 Contract assets – 1,439,844 TOTAL CURRENT ASSETS 957,045 6,974,849 NON-CURRENT ASSETS: Property and equipment, net 743,282 $ 1,933,871 Operating lease right-of-use assets 496,685 2,724,226 Patents, net 253,663 267,875 Notes receivable, related party – 1,049,248 Investment in related party 1,500,000 1,500,000 Joint venture – 46,724 Goodwill – 6,462,153 Other assets, net 161,677 689,869 Intangible assets, net – 390,330 TOTAL NON-CURRENT ASSETS 3,155,307 15,064,296 TOTAL ASSETS $ 4,112,352 $ 22,039,145 LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable and accrued expenses $ 15,663,272 $ 10,736,373 Contract liabilities – 2,215,212 Loss provision for contracts in progress – 945,928 Convertible notes, net 120,925 378,263 Notes payable, current 1,923,868 2,000,000 Derivative liability 108,958 306,467 Loan payable, current 570,487 472,700 Loan payable, related party 361,747 361,747 Secured debenture, current 183,208 136,353 Operating lease liabilities - current 80,400 512,373 Other current liabilities 70,461 472,217 TOTAL CURRENT LIABILITIES 19,083,326 18,537,633 NON-CURRENT LIABILITIES: Secured debenture 916,042 954,474 Loan payable 291,968 328,508 Operating lease liabilities - non-current 496,335 2,547,524 TOTAL NON-CURRENT LIABILITIES 1,704,345 3,830,506 TOTAL LIABILITIES 20,787,671 22,368,139 Commitments and contingencies – – STOCKHOLDERS' DEFICIT: Series A Super Voting preferred stock - par value $ 0.01 ; 100 shares designated, 100 shares issued and outstanding at both December 31, 2023 and December 31, 2022 1 1 Convertible preferred stock - Series D, par value $ 0.01 , 100,000 shares designated, 88,235 shares issued and outstanding as of both December 31, 2023 and December 31, 2022 883 883 Common stock, par value $ 0.0001 , 20,000,000,000 shares authorized, 8,100,117,720 and 6,427,395,360 shares issued as of December 31, 2023 and December 31, 2022, respectively, 798,346 642,740 Treasury stock at cost, 100,000 shares at December 31, 2023 and December 31, 2022 ( 1,000 ) ( 1,000 ) Additional paid-in capital 49,733,618 44,602,052 Common Stock to be issued 205,000 – Non-controlling interests 1,217,410 2,119,566 Accumulated other comprehensive income (loss) ( 1,253,356 ) ( 1,137,902 ) Accumulated deficit ( 67,376,221 ) ( 46,555,334 ) TOTAL STOCKHOLDERS' DEFICIT ( 16,675,319 ) ( 328,994 ) TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 4,112,352 $ 22,039,145 See notes to consolidated financial statements. F- 7 DARKPULSE, INC. Consolidated Statement of Operations Years Ended December 31, 2023 2022 REVENUES $ 2,020,971 $ 9,100,255 COST OF REVENUES 2,446,756 14,543,529 GROSS PROFIT (LOSS) ( 425,785 ) ( 5,443,274 ) OPERATING EXPENSES: Selling, general and administrative 2,033,861 4,966,702 Salaries, wages and payroll taxes 2,630,225 7,457,491 Professional fees 3,109,717 3,718,171 Depreciation and amortization 523,147 1,568,405 Bad debt expense 5,248,218 – Impairment expense 6,948,350 12,222,598 Gain on forgiveness of payables – ( 312,685 ) TOTAL OPERATING EXPENSES 20,493,518 29,620,682 OPERATING LOSS ( 20,919,303 ) ( 35,063,956 ) OTHER INCOME (EXPENSE): Interest expense ( 642,506 ) ( 621,132 ) Loss on deconsolidation ( 1,642,146 ) – Change in fair market of derivative liabilities 167,582 227,286 Loss on equity investment ( 159,849 ) ( 56,781 ) Gain on the forgiveness of debt 1,484,799 – Foreign currency exchange rate variance ( 11,620 ) ( 2,922 ) TOTAL OTHER INCOME (EXPENSE) ( 803,740 ) ( 453,549 ) Net loss ( 21,723,043 ) ( 35,517,505 ) Net loss attributable to non-controlling interests 902,156 238,661 Net loss attributable to Darkpulse, Inc. $ ( 20,820,887 ) $ ( 35,278,844 ) Net loss per share - basic and diluted $ ( 0.00 ) $ ( 0.01 ) Weighted average common shares outstanding - basic and diluted 7,411,100,872 5,713,495,965 See notes to consolidated financial statements. F- 8 DARKPULSE, INC. Consolidated Statements of Comprehensive Loss Years Ended December 31, 2023 2022 NET LOSS $ ( 21,723,043 ) $ ( 35,517,505 ) OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation ( 115,454 ) ( 853,439 ) COMPREHENSIVE LOSS $ ( 21,838,497 ) $ ( 36,370,944 ) See notes to consolidated financial statements. F- 9 DARKPULSE, INC. Consolidated Statement of Stockholders’ Deficit For the Years Ended December 31, 2023 and 2022 Preferred stock Common stock Additional Non- Accumulated other Total stockholders’ Series A Series D Common stock to be issued Treasury stock paid-in Controlling comprehensive Accumulated (deficit) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount capital Interests loss deficit equity Balance at 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 Conversion of convertible notes – – – – – – – – – – – – – – – Issuance of preferred shares 100 1 – – – – – – – – ( 1 ) – – – – 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 – – – – Common stock issue for TerraData acquisition – – – – 3,725,386 373 – – – – 199,627 – – – 200,000 Foreign currency adjustment – – – – – – – – – – – – ( 853,439 ) – ( 853,433 ) Net loss – – – – – – – – – – – ( 238,661 ) – ( 35,278,844 ) ( 35,517,505 ) Balance at 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 ) Common stock issued for cash, net of fees – – – – 1,375,722,360 137,573 – – – – 3,364,699 – – – 3,502,272 Issuance of common stock for legal settlement – – – – 297,000,000 29,700 – – – – 1,960,200 – – – 1,989,900 Common Stock to be issued – – – – – ( 11,667 ) – 205,000 ( 193,333 ) ( 115,454 ) Foreign currency adjustment – – – – – – – – – – – – ( 115,454 ) ( 115,454 ) Net loss – – – – – – – – – – – ( 902,156 ) – ( 20,820,887 ) ( 21,723,043 ) Balance at December 31, 2023 100 $ 1 88,235 $ 883 8,100,117,720 $ 798,346 – $ 205,000 100,000 $ ( 1,000 ) $ 49,733,618 $ 1,217,410 $ ( 1,253,356 ) $ ( 67,376,221 ) $ ( 16,675,319 ) See notes to consolidated financial statements. F- 10 DARKPULSE, INC. Consolidated Statement of Cash Flows Year Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 21,723,043 ) $ ( 35,517,505 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 523,147 1,568,405 Gain on forgiveness of payables and liabilities – ( 312,685 ) Change in fair market of derivative liabilities ( 167,582 ) ( 227,286 ) Impairment of goodwill and intangible assets 6,948,350 12,222,598 Loss on equity investment 159,849 56,781 Issuance of common stock for legal settlement 1,989,900 – Bad debt expense 5,248,218 – Loss on deconsolidation 1,642,146 – Operating lease expense 657,848 – Gain on forgiveness of debt ( 1,484,799 ) – Changes in operating assets and liabilities: Accounts receivable ( 1,762,213 ) 1,498,978 Inventory 23,825 ( 11,877 ) Contract assets 1,494,163 ( 835,161 ) Prepaid expenses and other assets 108,345 154,245 Contract liabilities ( 2,348,773 ) 3,498,906 Loss provision for contracts in progress ( 974,031 ) 784,469 Accounts payable and accrued expenses 4,802,434 ( 2,609,891 ) Operating lease liabilities, net ( 2,463,942 ) ( 412,587 ) Other current liabilities ( 401,756 ) – Other assets 2,074,700 – Other liabilities – ( 1,556,932 ) Net cash used in operating activities ( 5,653,214 ) ( 21,738,542 ) Cash flows from investing activities: Purchases of property and equipment ( 102,350 ) ( 2,074,627 ) Investment in related party – ( 1,500,000 ) Investment in joint venture ( 113,125 ) ( 103,505 ) Issuance of note receivable, related party – ( 1,049,248 ) Advances to related party – ( 318,025 ) Net cash used in investing activities ( 215,475 ) ( 5,045,405 ) Cash flows from financing activities: Proceeds from sale of common stock, net of fees 3,502,272 24,276,308 Proceeds from convertible notes 145,000 – Net repayments of loan payable ( 14,885 ) ( 110,507 ) Net cash provided by financing activities 3,632,387 24,165,801 Net change in cash ( 2,236,303 ) ( 2,618,146 ) Effect of exchange rate on cash 187,883 1,019,632 Cash at beginning of year 2,060,332 3,658,846 Cash at end of year $ 11,912 $ 2,060,332 Supplemental disclosure of cash flow information: Cash paid for interest $ 47,948 $ – Cash paid for income taxes $ – $ – Non-cash financing and investing activities: Stock issued for acquisition of TerraData $ – $ 200,000 See notes to consolidated financial statements. F- 11 DARKPULSE, INC. Notes to the Consolidated Financial Statements For the Years ended December 31, 2023 and 2022 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 DarkPulse UK, Ltd which concentrates on the sale and engineering of distributed fiber optic sensors; Optilan HoldCo 3 Limited, a company headquartered in Coventry, United Kingdom (“Optilan”) whose has ceased its business operations; 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 DarkPulse Manufacturing formerly 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. Liquidation/winding up of Optilan (UK) Limited On May 3, 2023, Eversheds Sutherland (International) LLP, a creditor of Optilan (UK) Limited, filed a petition to wind up (“Winding up Petition”) Optilan (UK) Limited, a wholly owned subsidiary of the Company’s Subsidiary, Optilan HoldCo 3 Limited, and the matter was due to be heard in the Portsmouth Combined Court Centre on June 28, 2023. On June 28, 2023, the High Court of Justice in the United Kingdom issued a winding-up order for the liquidation and winding up of the affairs of Optilan (UK) Limited (“Optilan Liquidation”). In conjunction with the order, the court appointed the Official Receiver’s Office (“OR”) to take the appointment as liquidator of Optilan (UK) Limited and take control of Optilan (UK) Limited’s assets. At the same time the court appointed the OR to take the appointment as liquidator of Optilan (UK) Limited. The OR has taken control of Optilan (UK) Limited’s assets. To date the ORs Office has initiated contact with Optilan but we still wait to receive details of the individual who will be taking the role of OR. On July 3, 2023, Optilan (UK) Limited received a letter from The Insolvency Service, an executive agency sponsored by the Department for Business and Trade located in the U.K. Pursuant to the letter of The Insolvency Services, the Company was required to provide information relating to Optilan (UK) Limited to the Official Receiver’s Office (a government body of Plymouth, the United Kingdom) and attend an interview with staff of the Official Receiver’s Office to review the prospect of recovering the assets of Optilan (UK) Limited for the benefit of creditors. The interview occurred 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. 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. On August 9, 2023, Evelyn Partners was appointed Joint Liquidator. F- 12 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. In 2023, Optilan was deemed insolvent by the entered liquidation. See Note 1. 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. 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. F- 13 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. 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. Also, the Company adopted ASU 2016-13 in January 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures for the year ended December 31, 2023. 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, 2023 and 2022, the Company determined that the allowance for doubtful accounts was $ 0 and $ 3,320,983 , respectively. The allowance pertaining to Optilan UK was derecognized upon the Optilan Liquidation. 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, 2023 and 2022, retainage receivable was $ 0 and $ 824,777 , respectively. The retainage pertaining to Optilan UK was derecognized upon the Optilan Liquidation. 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. F- 14 The relevant translation rates are as follows: for the year ended December 31, 2023 a closing rate at 1.2197 US$: GBP, average rate at 1.2384 US$:GBP, and closing rate of 1.27 US$:CAD. The relevant translation rates are as follows: for the year ended December 31, 2022 a closing rate at 1.20582 US$: GBP, average rate at 1.23710 US$:GBP and for the Optilan acquisition closing rate at 1.375103 US$: CAD. 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 Note 7. During the year ended December 31, 2023, as a result of 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 $ 6,948,349 pertaining to impairment and goodwill and intangible assets in the consolidated statements of operations. 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 December 31, 2023. 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. F- 15 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- 16 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. As of December 31, 2023, one customer accounted for 39 % of gross accounts receivable. Leases The 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. 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. F- 17 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 10. 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. F- 18 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 2023 and 2022, 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. 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, 2023 and 2022, the Company recorded a loss of $ 902,156 and $ 238,661 respectively, attributable to non-controlling interests. F- 19 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, 2023 and 2022, 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, 2023 and 2022 are as follows: Schedule of anti dilutive shares Years Ended 2023 2022 Convertible notes 210,081,967 65,827,695 Series D preferred stock 176,470 176,470 210,258,437 66,004,165 F- 20 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 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. On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. The Company adopted this new guidance on January 1, 2023 and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures. Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable NOTE 3 – LIQUIDITY AND GOING CONCERN The Company generated net losses of $ 21,723,043 and $ 35,517,505 during the years ended December 31, 2023 and 2022, respectively, and net cash used in operating activities of $ 5,653,214 and $ 21,738,542 , respectively. As of December 31, 2023, the Company’s current liabilities exceeded its current assets by $ 18,126,281 and an accumulated deficit of $ 67,376,221 . As of December 31, 2023, the Company had $ 11,912 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- 21 NOTE 4 – REVENUE The following table is a summary of the Company’s timing of revenue recognition for the years ended December 31, 2023 and 2022: Schedule of timing of revenue Years Ended 2023 2022 Services and products transferred at a point in time $ 788,179 $ 3,843,276 Services and products transferred over time 1,232,792 5,256,979 Total revenue $ 2,020,971 $ 9,100,255 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, 2023 and 2022: Schedule of revenue by source Years Ended 2023 2022 Products $ 329,400 560,407 Services 1,691,571 8,539,849 Total revenue $ 2,020,971 $ 9,100,255 Revenue by geographic destination consisted of the following for the for the years ended December 31, 2023 and 2022: Schedule of revenue by geographic destination Years Ended 2023 2022 North America $ 437,536 $ 1,585,568 United Kingdom 1,583,435 5,894,060 Rest of world – 1,620,627 Total revenue $ 2,020,971 $ 9,100,255 F- 22 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. F- 23 Contract assets consist of the following: Schedule of contract assets and liabilities December 31, 2023 2022 Costs and estimated earnings in excess of billings on uncompleted contracts $ – $ 1,439,844 Total contract assets $ – $ 1,439,844 Contract liabilities consist of the following: December 31, 2023 2022 Billings in excess of costs and estimated earnings on uncompleted contracts $ – $ 2,215,212 Total contract liabilities $ – $ 2,215,212 Contract assets and liabilities on December 31, 2023 are $ 0 upon the deconsolidation related to the Optilan liquidation. The following table is a summary of the Company’s activity of contract liabilities related to contracts with customers. Rollforward of contract liabilities Total 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 Deconsolidation ( 2,215,212 ) Balance at December 31, 2023 $ – 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. F- 24 NOTE 5 – ACCOUNTS RECEIVABLE Accounts receivable consisted of the following: Schedule of accounts receivable December 31, 2023 2022 Accounts receivable $ 868,948 $ 6,273,276 Less: Allowance for doubtful accounts – ( 3,320,983 ) Accounts receivable, net $ 868,948 $ 2,952,293 NOTE 6 – PROPERTY AND EQUIPMENT, NET Property and equipment, net consisted of the following: Schedule of property and equipment, net December 31, 2023 2022 Property and equipment $ 1,092,870 $ 3,942,421 Leasehold improvements 46,934 46,934 Property and equipment at cost 1,139,804 3,989,355 Less - accumulated depreciation ( 396,522 ) ( 2,055,484 ) Property and equipment, net $ 743,282 $ 1,933,871 Depreciation expenses was $ 508,935 and $ 1,331,972 for the years ended December 31, 2023 and 2022, respectively. F- 25 NOTE 7 - GOODWILL AND INTANGIBLE ASSETS Goodwill The following is a summary of activity of goodwill for the years ended December 31, 2023 and 2022: Schedule of changes in carrying amount of goodwill Goodwill Balances at December 31, 2021 17,088,501 Impairment ( 9,519,143 ) Foreign exchange translation ( 1,107,205 ) Balances at December 31, 2022 $ 6,462,153 Impairment of goodwill ( 6,948,349 ) Foreign currency translation 306,196 Balances at December 31, 2023 $ – 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: Summary of intangible assets December 31, 2023 2022 Trade name per business combination $ 4,033,638 $ 4,033,638 Impairment ( 3,059,716 ) ( 2,703,456 ) Less: accumulated amortization ( 195,416 ) ( 161,346 ) Foreign exchange translation ( 778,506 ) ( 778,506 ) Intangible assets, net $ – $ 390,330 Amortization expense was $ 34,070 and $ 161,346 for the years ended December 31, 2023 and 2022, respectively. F- 26 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, 2023 and 2022, 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). 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, 2023 and 2022, the Company had patent amortization costs on its intrusion detection technology totaling $ 14,212 and $ 75,087 , respectively. Patents costs are being amortized over the remaining life of each patent, which is from 7 to 16 years. 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. The following is a summary of the DPTI patents as of December 31, 2023 and 2022: Schedule of patents December 31, 2023 2022 Patents $ 904,269 $ 904,269 Less: accumulated amortization ( 650,606 ) ( 636,394 ) Patents, net $ 253,663 $ 267,875 F- 27 Future expected amortization of patents is as follows: Schedule of future amortization of intangible assets As of December 31, 2024 51,028 2025 51,028 2026 51,028 2027 51,028 Thereafter 49,551 Total patents $ 253,663 NOTE 8 – 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, 2023, the Company contributed $ 113,124 to the joint venture and recorded a loss on the equity investment of $ 159,849 . 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 . NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consists of the following as of December 31, 2023 and December 31, 2022: Schedule of accounts payable and accrued expenses December 31, 2023 2022 Accounts payable $ 13,721,561 $ 8,677,648 Accrued liabilities 1,941,711 2,058,725 Total accounts payable and accrued expenses $ 15,663,272 $ 10,736,373 F- 28 NOTE 10 – 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, 2023 and 2022. In 2023 management determined the expected volatility of 106.90%, a risk-free rate of interest of 5.48%, and contractual lives of the debt of three months. 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. Management made the determination to use an expected life rather than contractual life for the calculations for the matured debt as of December 31, 2023 and 2022. On August 7, 2023, the Company entered into a convertible note for a principal of $ 57,750 . The note bears interest at a rate of 10 % per annum and matures after one year. Following 180 days from the note, the noteholder may convert at a discount of 39 %. The Company has reserved a sufficient number of shares of common stock for issuance upon full conversion of the note in accordance with the terms. On September 29, 2023, the Company entered into a convertible note for a principal of $ 57,750 , which was funded on October 4, 2023. The note bears interest at a rate of 10 % per annum and matures after one year. Following 180 days from the note, the noteholder may convert at a discount of 39 %. The Company has reserved a sufficient number of shares of common stock for issuance upon full conversion of the note in accordance with the terms (see Note 15). On December 4, 2023, the Company entered into a convertible note for a principal of $ 51,150 , which was funded on December 7, 2023. The note bears interest at a rate of 10 % per annum and matures after one year. Following 180 days from the note, the noteholder may convert at a discount of 39 %. The Company has reserved a sufficient number of shares of common stock for issuance upon full conversion of the note in accordance with the terms. As of December 31, 2023 and, 2022, there was $ 166,650 and $ 378,263 of convertible debt principal outstanding. During the year ended December 31, 2023 and 2022, $ 12,025 and $ 0 of the debt discount was amortized. The summary of convertible notes are: Schedule of convertible notes 2023 2022 Principal Outstanding $ 166,650 $ 378,263 Less: unamortized debt discount ( 45,725 ) – Convertible notes, net $ 120,925 $ 378,263 The table below details the Company's outstanding convertible notes and related derivative liability: Outstanding convertible notes and derivative liability Face Amount Derivative Liability 12/31/2023 12/31/2022 12/31/2023 12/31/2022 1800 Diagonal Lending $ 166,650 $ – $ 108,958 $ – Carebourn – 90,228 – 71,410 Carebourn – 162,150 – 128,331 More Capital – 72,488 – 57,369 EMA – 53,397 – 49,357 $ 166,650 $ 378,263 $ 108,958 $ 306,467 F- 29 During the years ended December 31, 2023 and 2022, change in fair value of the derivative liability was $167,582 and $227,286, respectively. The following is a summary of the derivative liability: Schedule of derivative liability Derivative Liability Balances at December 31, 2021 $ 533,753 Change in fair value ( 227,286 ) Balances at December 31, 2022 306,467 Loss on issuance of debt 17,928 Issuance of convertible note - 1800 Diagonal Lending 58,939 Change in fair value ( 167,582 ) EMA settlement ( 106,794 ) Balances at December 31, 2023 $ 108,958 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, 2023 and 2022, $ 1,923,868 and $ 2,000,000 remains outstanding. As of December 31, 2023, 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, 2023 and 2022: Schedule of loans payable December 31, 2023 2022 RI - line of credit $ 153,358 $ 99,971 RI - Short-term loans 46,544 43,899 WS - line of credit 218,616 200,000 WS - Short-term loans 151,970 128,830 Loans payable, current $ 570,487 $ 472,700 RI - SBA EIDL $ 102,597 $ 102,597 RI - long-term loans 65,533 86,041 WS - SBA EIDL 26,307 26,307 WS - long-term loans 97,532 113,564 Loans payable, non-current $ 291,968 $ 328,508 F- 30 NOTE 11 – 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, 2023 and 2022, the Company recorded interest expense of $ 66,813 and $ 36,307 , respectively. As of December 31, 2023, and December 31, 2022, the outstanding balance of the debenture liability totaled $ 1,099,250 and $ 1,090,827 , respectively. Future minimum required payments over the next five years and thereafter are as follows: Schedule of future minimum required payments Period ending December 31, 2023 $ 183,208 2024 183,208 2025 183,208 2026 183,208 2027 183,208 Thereafter 183,208 Total $ 1,099,250 F- 31 NOTE 12 – LEASES The following was included in our balance sheet as of December 31, 2023 and 2022: Schedule of operating leases December 31, Operating leases 2023 2022 Assets ROU operating lease assets $ 496,685 $ 2,724,226 Liabilities Current portion of operating lease $ 80,400 $ 512,373 Operating lease, net of current portion 496,335 2,547,524 Total operating lease liabilities $ 576,735 $ 3,059,897 The weighted average remaining lease term and weighted average discount rate at December 31, 2023 and 2022 were as follows: Schedule of weighted average remaining lease term and weighted average discount rate December 31, Operating leases 2023 2022 Weighted average remaining lease term (years) 7.75 7.25 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. On June 28, 2023, the Company recognized a gain on deconsolidation of $1,642,146 related to Optilan (UK) and its subsidiaries leases. F- 32 The following table reconciles future minimum operating lease payments to the discounted lease liability as of December 31, 2023: Schedule of future minimum operating lease payments Years Ended December 31, 2024 82,597 2025 84,726 2026 86,853 2027 and later 393,495 Total lease payments 736,650 Less imputed interest ( 159,915 ) Total lease obligations 576,735 Less current lease obligations ( 80,400 ) Long-term lease obligations $ 496,335 NOTE 13 – 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, 2023 and 2022 respectively, there were 88,335 and 88,335 total preferred shares issued and outstanding for all classes. 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, 2023 and 2022, there were 8,100,117,720 and 6,427,395,360 common shares issued, respectively. As of December 31, 2023 and 2022, there were 8,100,117,720 and 6,427,395,360 common shares outstanding, respectively. 2022 Transactions On May 27, 2022 we entered an Equity Financing Agreement (the “ 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. 2023 Transactions On April 28, 2023 the Company entered into an Equity Financing Agreement with GHS, to which GHS agreed to Purchase $30,000,000 in shares of our Common Stock over the course of 12 months at 92% of the current market price. On June 13, 2023 the Company entered into an Amendment to the 2023 Equity Financing Agreement with GHS, to which GHS agreed to Purchase $30,000,000 in shares of our Common Stock over the course of 12 months at 92% of the current market price. F- 33 On July 10,2023 the Company entered into a Second Amendment to the 2023 Equity Financing Agreement with GHS, to which GHS agreed to purchase up to $30,000,000 in shares of our Common Stock over the course of 12 months at 92% of the current market price. On September 5, 2023, we entered into a Stock Purchase Agreement with an investor for the purchase of 100,000,000 shares of Common Stock for a total consideration of $100,000. 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. The below table of puts from 1/12/2023 through 4/11/2023 were made by the Company under the 2022 EFA during 2023. The put from 4/28/2023 was made under the EFA dated 4/28/2023. The puts from 6/26/2023 and 7/3/2023 were made by the Company under the Amended EFA dated June 13, 2023. The 7/10/2023 put was made by the Company under the Second Amended EFA dated July 10, 2023. Schedule of equity financing agreement Date of Put Number of Common Shares Issued Total Proceeds, Net of Discounts Effective Price per Share Net Proceeds 1/12/2023 64,130,435 $ 400,000 $ 0.006237 $ 370,975 1/17/2023* 11,441,647 100,000 $ 0.008740 100,000 1/24/2023 77,733,861 400,000 $ 0.005146 370,975 2/3/2023 61,173,706 300,000 $ 0.004904 277,975 2/17/2023 75,447,571 300,000 $ 0.003976 277,975 3/1/2023 83,113,044 324,000 $ 0.003898 300,295 3/16/2023 93,165,852 254,232 $ 0.002729 235,410 3/30/2023 65,465,384 166,903 $ 0.002549 154,195 4/11/2023 67,462,162 203,554 $ 0.003017 188,279 4/28/2023 91,796,875 235,000 $ 0.002560 208,550 6/26/2023 44,583,334 214,000 $ 0.004800 141,020 7/3/2023 51,442,308 274,058 $ 0.004200 257,020 7/10/2023 28,593,750 91,500 $ 0.003200 85,094 9/5/2023* 100,000,000 100,000 $ 0.001000 100,000 11/7/2023* 55,555,555 50,000 $ 0.000900 50,000 11/8/2023* 33,333,333 30,000 $ 0.000900 30,000 11/14/2023 18,997,442 25,180 $ 0.001325 22,392 11/22/2023 29,685,620 34,717 $ 0.001169 31,262 11/29/2023* 55,555,555 50,000 $ 0.000900 50,000 11/30/2023* 27,777,777 25,000 $ 0.000900 25,000 12/1/2023* 33,333,333 30,000 $ 0.000900 30,000 12/1/2023 51,275,586 47,973 $ 0.000936 43,590 12/11/2023 87,136,216 108,019 $ 0.001240 99,433 12/27/2023 67,522,014 57,909 $ 0.000858 52,830 1,375,722,360 $ 3,822,044 $ 3,502,272 F- 34 In January 2023, the Company entered into a settlement of a dispute between certain stockholders in which the Company decided, during the period ended June 30, 2023, to issue shares to settle the dispute. In January 2023, the Company issued 297,000,000 shares of common stock to the individuals. The fair value of $ 1,989,900 , or $ 0.0067 per share, was included in professional fees in the consolidated statements of operations for the year ended December 31, 2023. As part of this transaction $280,536 of accrued liabilities have been reversed. Stock Options As of December 31, 2023 and 2022, the Company had no outstanding stock options. NOTE 14 – INCOME TAXES The domestic and foreign components of loss before (benefit) provision for income taxes were as follows: Schedule of provision for income taxes 2023 2022 Domestic: $ ( 11,676,768 ) $ ( 13,141,019 ) Foreign: ( 7,133,368 ) ( 22,376,486 ) Total income (loss) before income taxes $ ( 18,810,136 ) $ ( 35,517,505 ) The provision for income taxes for the years ended December 31, 2023 and 2022 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, 2023 and 2022: Schedule of statutory rate 2023 2022 Statutory tax rate: U.S. 21.00 % 21.00 % State taxes 1.36 % 1.36 % Foreign rate differential 1.26 % 1.26 % Goodwill impairment - 7.33 % - 7.33 % NOLs carryforward adjustment 3.61 % 3.61 % Other - 0.22 % - 0.22 % Change in valuation allowance: - 19.67 % - 19.67 % – % – % F- 35 The Company’s deferred tax assets and liabilities as of December 31, 2023 and 2022 are as follows: Schedule of deferred tax assets and liabilities 2023 2022 Deferred Tax (Liabilities): Net operating losses $ 8,964,470 $ 9,033,067 Intangible assets ( 736,905 ) ( 441,543 ) Right of use asset 84,170 84,256 Stock based compensation 424,681 424,681 Property and equipment 497,037 248,362 Other 11,077 8,227 Less: Valuation allowance ( 9,244,530 ) ( 9,357,049 ) Deferred tax assets (liabilities) $ – $ – The Company has approximately $ 26,485,942 of federal and state net operating loss carryforwards as of December 31, 2023. Of the $26.4 million of NOL's, $ 4.8 million will begin to expire in 2023 while $ 15.9 million will not expire but will be limited to 80% utilization. The company also has net operating losses in the UK of $ 22,085,338 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, 2023 and 2022, 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, 2023 and 2022, 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, 2023 and 2022, 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. F- 36 NOTE 15 – 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. Legal Matters Carebourn Capital, L.P. v. DarkPulse, Inc. On or about January 29, 2021, Carebourn Capital, L.P. (“ Carebourn ”) commenced an action against the Company in Minnesota State Court. Carebourn alleged that the Company was in breach of certain securities purchase agreements and convertible promissory notes sold to Carebourn on or about July 17, 2018 and July 24, 2018. On or about August 31, 2021, the Company answered Carebourn’s complaint and interposed affirmative defenses, including that Carebourn was an unregistered “dealer,” as such term is defined in the Securities Exchange Act of 1934 (“ Exchange Act ”) and, therefore, all contracts between the parties arising from or related to the securities purchase agreements and convertible promissory notes sold to Carebourn on or about July 17, 2018 and July 24, 2018 were void pursuant to the Exchange Act. The Company also asserted counterclaims against Carebourn under the Minnesota Securities Act. On or about April 21, 2023, the State Court ruled in the Company’s favor on its motion for partial summary judgment on its Exchange Act defense, holding that (i) Carebourn is a “dealer” under the Exchange Act in violation of the mandatory registration requirement imposed thereby, and (ii) all contracts between the parties are void. On or about November 17, 2023, the State Court ruled in the Company’s favor on its motion for summary judgment on its Minnesota Securities Act counterclaims against Carebourn and awarded damages for Carebourn’s violation of Minn. Stat. § 80A.76(d) in the amount of $124,012.91, attorney’s fees in the amount of $239,923.33 and costs in the amount of $23,757.24 (or a total award in the amount of $387,693.48). On or about March 23, 2024, Carebourn appealed the final judgment entered by the State Court against Carebourn and in favor of the Company. On or about March 25, 2024, the Minnesota Appellate Court entered an Order, noting that Minn. R. Civ. App. P. 104.01 provides that appeals must be taken within 60 days of the date of the final judgment and, therefore, it appears that Carebourn failed to timely take its appeal. The Appellate Court requested the parties submit informal briefing in response to two questions: (a) Did the time to appeal the December 27, 2024 amended judgment expire on February 26, 2024; and (b) If the answer to (a) is yes, must this appeal be dismissed as untimely. On or about April 4, 2024, DarkPulse filed its informal briefing in response with the Appellate Court. The Company is currently awaiting a decision from the Appellate Court. As of the date hereof, Carebourn has refused to voluntarily satisfy the final judgment. Accordingly, the Company intends to exercise all legal rights and remedies available to it to collect the amounts awarded. DarkPulse intends to continue to exercise all legal rights and remedies available to it to collect the amounts awarded should Carebourn fail to voluntarily pay the same. F- 37 More Capital, LLC v. DarkPulse, Inc. et al On or about June 29, 2021, More Capital, LLC (“ More ”) commenced an action against the Company in Minnesota State Court. More alleged that the Company was in breach of a certain securities purchase agreement and convertible promissory note sold to More on or about August 20, 2018. On or about September 3, 2021, the Company answered More’s complaint and interposed affirmative defenses, including that More was an unregistered “dealer,” as such term is defined in the Exchange Act and, therefore, all contracts between the parties arising from or related to the securities purchase agreement and convertible promissory note sold to More on or about August 20, 2018 were void pursuant to the Exchange Act. The Company also asserted counterclaims against More under the Minnesota Securities Act. On or about December 11, 2023, the Minnesota State Court ruled in the Company’s favor on its motion for summary judgment on its (a) Exchange Act defense, holding that (1) More is a “dealer” under the Exchange Act in violation of the mandatory registration requirement imposed thereby, and (ii) all contracts between the parties are void, and (b) Minnesota Securities Act counterclaims against More and awarded damages for More’s violation of Minn. Stat. § 80A.76(d) in the amount of $300,809.39, attorney’s fees in the amount of $110,029.00 and costs in the amount of $210.25 (or a total award in the amount of $412,048.64). On or about March 23, 2024, More appealed the final judgment entered by the State Court against More and in favor of the Company. On or about March 25, 2024, the Minnesota Appellate Court entered an Order, noting that Minn. R. Civ. App. P. 104.01 provides that appeals must be taken within 60 days of the date of the final judgment and, therefore, it appears that More failed to timely take its appeal. The Appellate Court requested the parties submit informal briefing in response to two questions: (a) Did the time to appeal the December 27, 2024 amended judgment expire on February 26, 2024; and (b) If the answer to (a) is yes, must this appeal be dismissed as untimely. On or about April 4, 2024, DarkPulse filed its informal briefing in response with the Appellate Court. The Company is currently awaiting a decision from the Appellate Court. As of April 1, 2024, the final judgment had not yet been satisfied by More, nor had a judgment been entered that stayed enforcement of that judgment. Accordingly, the Company took actions to enforce and collect the judgment including, inter alia , serving garnishment summons on More’s banks. As of the date hereof, More has refused to voluntarily satisfy the final judgement. Accordingly, the Company intends to exercise all legal rights and remedies available to it to collect the amounts awarded. Carebourn Capital et al v. Standard Registrar and Transfer et al On or about May 20, 2022, Carebourn and More (together with Carebourn, the “ Noteholders ”) commenced an action against the Company, certain members of the Company’s executive team and board of directors and Standard Registrar and Transfer Company, Inc., the Company’s transfer agent, in the United States District Court for the District of Utah. The Noteholders’ complaint alleged various causes of action arising from certain securities purchase agreements and convertible promissory notes the Company sold to the Noteholders. On or about November 23, 2022, the Company and the members of the Company’s executive team and board of directors named in this action moved to dismiss the Noteholders’ complaint. On or about February 21, 2023, the Court granted the Company’s motion to dismiss in part and stayed the action pending resolution of the motion for summary judgment brought by the U.S. Securities and Exchange Commission against Carebourn in the United States District Court for the District of Minnesota. F- 38 On or about November 1, 2023, the Noteholders moved to dismiss the action. On or about November 2, 2023, the Company moved for sanctions against the Noteholders and their counsel of record. On or about December 4, 2023, the Court entered an order granting dismissal of the Noteholders’ claims with prejudice. The Court acknowledged that notwithstanding its dismissal of the Noteholders’ claims, the Court continues to retain jurisdiction over the Noteholders because of DarkPulse’s pending motion for sanctions against the Noteholders and their attorneys. On May 22, 2024, the Court scheduled oral arguments on the Company’s sanction motion on July 2, 2024. DarkPulse, Inc. v. FirstFire Global Opportunities Fund, LLC, and Eli Fireman On or about December 31, 2021, the Company commenced an action against FirstFire Global Opportunities Fund, LLC (“ FirstFire ”) and its control person, Eli Fireman (“ Fireman ,” and together with FirstFire, the “ FirstFire Defendants ”), in the United States District Court for the Southern District of New York. On or about May 5, 2022, the Company amended its complaint against the FirstFire Defendants. The amended complaint alleges that the FirstFire Defendants were liable to the Company for rescission of certain convertible promissory notes and transitions effected thereunder and damages pursuant to the Racketeer Influenced and Corrupt Organizations Act (“ RICO ”). On or about January 17, 2023, the Court granted the FirstFire Defendants’ motion to dismiss the Company’s operative pleading. Later on the same day, the Company appealed the Court’s decision to the United States Court of Appeals for the Second Circuit (“ Second Circuit ”). Oral arguments were held before the Second Circuit on the Company’s appeal on December 11, 2023. On March 28, 2024, the Second Circuit issued its decision and found that the District Court (a) properly found that the Delaware forum-selection clause was enforceable but, thereafter, (b) improperly made a ruling on the merits of the Company’s claims for relief. As a result, the Second Circuit affirmed the District Court’s decision in part, vacated in part and remanded the case back to the District Court for transferring to the United States District Court for the District of Delaware. As of the date hereof, this action has not yet transferred to the Delaware Court. The Company remains committed to actively litigating its claims for relief under RICO. DarkPulse, Inc., et al v. Crown Bridge Partners, LLC, et al On or about September 23, 2022, the Company, Social Life Network, Inc. and Redhawk Holdings Corp. commenced an action against Crown Bridge Partners, LLC (“ Crown Bridge ”) and its control persons, Soheil Ahdoot and Sepas Ahdoot (collectively, the “ Crown Bridge Defendants ”) in the United States District Court for the Southern District of New York. The complaint alleges that the Crown Bridge Defendants are liable to each of the plaintiffs for damages pursuant to RICO. On or about September 29, 2023, the Court granted the Crown Bridge Defendants’ motion to dismiss the plaintiffs’ complaint. On October 23, 2023, the plaintiffs appealed the Court’s decision to the Second Circuit. As of the date hereof, the appeal is fully briefed. The Company remains committed to actively litigating its claims for relief under RICO. F- 39 NOTE 16 – 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, 2023 and 2022, certain executives of the Company received $ 120,000 and $ 270,000 , respectively, in Directors fees from Optilan for being members of Optilan’s Board of Directors. 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 both year ended 2023 and 2022, the outstanding balance was $ 226,247 . 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 both year ended 2023 and 2022, the outstanding balance was $ 135,500 . 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”). As of December 31, 2023 and December 31, 2022, the Company’s $ 1,500,000 investment in GSD was accounted for as cost. 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. On February 7, 2023 and March 9, 2023, GSD issued a non-convertible promissory note in the aggregate principal amount of $ 167,894 ($83,947 per month) to the Company in connection with the extension of the termination date for the GSD’s initial business combination. F- 40 As of December 31, 2023 and December 31, 2022, the outstanding note receivable was $ 0 and $ 1,049,248 , respectively. On January 24,2024 the SPAC was terminated and the outstanding note receivable was determined to be uncollectible, therefore, written off as bad debt as of December 31, 2023. As of December 31, 2023 and 2022, the Company has $ 0 and $ 318,025 , respectively, 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 $120,000 in accrued management fees. The advances are unsecured, non-interest bearing and due on demand. On January 24,2024 the SPAC was terminated and the outstanding due from related party was determined to be uncollectible, therefore, written off as bad debt as of December 31, 2023. NOTE 17 – SUBSEQUENT EVENTS On January 8, 2024 the Company issued 52,162,997 shares to a third party in exchange for cash in accordance with its equity agreement. On January 23, 2024, the BCA was terminated by mutual consent of the parties thereto. Although, as the Sponsor of GSD, the Company still owns all of the issued and outstanding shares of Class B Common Stock of GSD, all legal rights the Company had under the BCA have been terminated. On February 12, 2024, February 13, 2024 and February 14, 2024 the Company executed a convertible note from a third party, into 36,363,636, 32,786,885 and 42,117,347 shares respectively, in accordance with its Securities Purchase Agreement. On February 28, 2024, we entered into a Stock Purchase Agreement with an investor for the purchase of 178,571,428 shares of Common Stock for a total consideration of $100,000. On March 28, 2024 the Company issued 27,777,777 shares to a third party of in accordance with the Securities Purchase Agreement Dated November 30, 2023. On April 9, 2024 the court dismissed both Carebourn and Moore’s appeal that concluded the original judgment case in which DarkPulse won its counterclaims. The Company is now actively enforcing the judgments. On May 2, 2024, we entered into a Stock Purchase Agreement with an investor for the purchase of 104,166,667 shares of Common Stock for a total consideration of $50,000. On May 20, 2024 the company entered into a Stock Purchase Agreements with investors for the purchase of 288,888,889 shares of Common Stock for a total consideration of $130,000. On May 23, 2024 the company entered into a Stock Purchase Agreement with an investor for the purchase of 22,222,222 shares of Common Stock for a total consideration of $10,000. On June 9, 2024 the company entered into a Stock Purchase Agreement with an investor for the purchase of 48,888,888 shares of Common Stock for a total consideration of $22,000. On June 18, 2024 the company entered into a Stock Purchase Agreement with an investor for the purchase of 22,222,222 shares of Common Stock for a total consideration of $10,000. On July 1, 2024 the company entered into a Stock Purchase Agreement with an investor for the purchase of 111,111,111 shares of Common Stock for a total consideration of $50,000. On July 9, 2024 the company entered into a Stock Purchase Agreement with an investor for the purchase of 111,111,111 shares of Common Stock for a total consideration of $50,000. On July 12, 2024 the company entered into a Stock Purchase Agreement with an investor for the purchase of 33,333,333 shares of Common Stock for a total consideration of $15,000. F- 41