What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-19 compared with 2024-07-15 · 180 added, 149 removed, 393 unchanged (46% of the section changed)

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial

Condition and Results of Operations

This Management’s Discussion and Analysis

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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.

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

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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

(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.

(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.

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.

Derivative Financial Instruments

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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.

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.

Business Overview

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successful completion of our BOTDA system.

Headquartered in Houston, Texas, DarkPulse is

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

United States and Canada.

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

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

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

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

The Company is focused on expanding services through acquisitions

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

Headquartered in Houston, Texas, DarkPulse is a globally-based

technology company with presence through its subsidiaries in the, United States and Canada.

In addition to the Company’s BOTDA systems,

through a series of strategic acquisitions the Company offers the manufacture, sale, installation, and monitoring of laser sensing systems,

oil and gas pipeline leak detection, physical security services, telecommunications and satellite communications services, artificial

intelligence-based camera systems, railway monitoring services, drone and rover systems, and Big Data as a Service (“ BDaaS ”).

The Company is focused on expanding services through acquisitions and partnerships to address global infrastructure and critical environmental

resource challenges.

DarkPulse offers a full suite of engineering and

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

Change in Ownership in Previously Consolidated Subsidiary Results

in Deconsolidation in the Current Period

Change in Ownership in Previously Consolidated Subsidiary

Results in Deconsolidation in the Current Period

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

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bank account information and amounts along with any contracts held by Optilan (UK) Limited to begin the liquidation process.

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

On August 9, 2023, Evelyn Partners was appointed

Joint Liquidator.

There are no new claims against Optilan (UK) Limited

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liabilities for any obligations not repaid.

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

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

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.

Three-Months Ended March 31, 2024 Accounting

The remaining assets held by Optilan (UK) Limited were fully impaired in 2023 as a result

of the winding-up order for liquidation.

Six-Months Ended June 30, 2024 Accounting Ana ly sis

The Company performed an analysis of the trade

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The Company recorded a bad debt provision for this amount.

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 $ 2,037,670 pertaining to impairment and goodwill in

the consolidated statements of operations.

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

of goodwill of $ 1,681,410.

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 $ 2,037,670 pertaining to impairment and

goodwill in the consolidated statements of operations.

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

and impairment of goodwill of $ 1,681,410.

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 March 31, 2024.

As a result of the impairment, the Company had a carrying value of $0 pertaining to goodwill and intangible assets as of June 30, 2024.

Optilan (UK) Limited became subject to the control

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related to that foreign entity.

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

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

income (expenses) in the consolidated statements of operations.

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

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

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

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

against receivables that have been deemed uncollectible.

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

UK’s assets and liabilities and recorded a loss on consolidation of $1,624,795, which was recognized in other income (expenses)

in the consolidated statements of operations.

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

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

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

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

that have been deemed uncollectible.

On May 27, 2022 we entered an Equity Financing

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

Below is a table of all puts made by the Company

under the 2022 EFA during 2023:

Number of Common Shares Issued

Total Proceeds, Net of Discounts

Effective Price per Share

Below is a table of all puts made by the Company under the 2022 EFA

Number of Common

Shares Issued

Total Proceeds, Net of

Effective Price

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

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

Below is a table of all puts made by the Company

under the EFA during 2023:

Number of Common Shares Issued

Total Proceeds, Net of Discounts

Effective Price per Share

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

Number of Common

Shares Issued

Total Proceeds, Net of

Effective Price

Prior to the sales being made, GHS agreed to purchase

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Going Concern Uncertainty

As shown in the accompanying financial statements,

we generated net losses of $536,398 and $14,799,264 for the three-months ended March 31, 2024 and 2023, respectively, and net cash used

in operating activities of $91,687 and $2,323,783, respectively.

As of March 31, 2024, the Company’s current liabilities exceeded

its current assets by $18,532,908 and has an accumulated deficit of $67,909,611.

As of March 31, 2024, the Company had $990 of cash.

the Optilan Liquidation no longer raises serious concerns about the viability of the Optilan (UK) Limited entities.

Optilan (UK) Limited

and its subsidiaries have been deconsolidated and are no longer under the control of DarkPulse, Inc.

As shown in the accompanying financial

statements, we generated net losses of $2,953,106 and $18,917,363 for the six-months ended June 30, 2024 and 2023, respectively, and

net cash used in operating activities of $423,243 and $2,483,389, respectively.

As of June 30, 2024, the Company’s current

liabilities exceeded its current assets by $19,044,331 and has an accumulated deficit of $70,319,873.

As of June 30, 2024, the

Company had $953 of cash.

Lastly, the Optilan Liquidation no longer raises serious concerns about the viability of the Optilan (UK)

Limited entities.

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

DarkPulse, Inc.

We will require additional funding to finance

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Results of Operations

For the Three-months Ended March 31, 2024 and

Since 2021, we have recognized revenue derived

from the acquisitions of our subsidiaries consummated during the three months ended March 31, 2024 through present.

The Company’s revenues are generated primarily

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that will be recognized during future reporting periods.

For the three-months ended March 31, 2024, total

revenues were $10,850 compared to $1,537,833 for the three-months ended March 31, 2023, a decrease of $1,526,983.

For the three-months ended June 30, 2024, total

revenues were $14,318 compared to $412,769 for the three-months ended June 30, 2023, a decrease of $398,451.

The decrease was primarily

due to no revenus achieved by Wildlife, Optilan and TJM Electronics West, Inc given capital and resources restraints.

The breakdown of

revenues by entity for the three-months ended March 31, 2024 and 2023 is as follows:

Three Months Ended

Cost of Revenues and Gross Margin

For the three-months ended March 31, 2024, cost

of revenues was $199 compared to $1,226,792 for the three-months ended March 31, 2023, a decrease of $1,226,593.

The decrease was attributable

to lower revenues from Wildlife, Optilan and TJM Electronics West, Inc.

due to no revenues achieved by Wildlife, Optilan and TJM Electronics West, Inc given capital and resources restraints.

For the six-months ended June 30, 2024, total

revenues were $25,168 compared to $1,950,602 for the six-months ended June 30, 2023, a decrease of $1,925,434.

The decrease was primarily

due to no revenues from Optilan as a result of the de-consolidation and TJM Electronics West, Inc given capital and resources restraints.

of Revenues and Gross Margin

For the three-months ended June 30, 2024, cost

of revenues was $671 compared to $1,184,848 for the three-months ended June 30, 2023, a decrease of $1,184,177.

The decrease was mainly

attributable to lower cost of revenues from Optilan and TJM Electronics West, Inc.

For the six-months ended June 30, 2024, cost of

revenues was $870 compared to $2,411,640 for the six-months ended June 30, 2023, a decrease of $2,411,640.

The decrease was mainly attributable

to lower cost of revenues from Optilan and TJM Electronics West, Inc.

Gross (loss) profit for the three-months ended

March 31, 2024 was $10,651 with a gross (loss) profit of 98% compared to $311,041 for the three-months ended March 31, 2023 with a 20%

June 30, 2024 was $13,647 with a gross (loss) profit of 95% compared to ($772,079) for the three- months ended June 30, 2023 with a (187%)

gross margin.

Gross (loss) profit for the six-months ended June

30, 2024 was $24,298 with a gross (loss) profit of 97% compared to ($461,038) for the six- months ended June 30, 2023 with a (24%) gross

Operating Expenses

Selling, general and administrative expenses for

three-months ended March 31, 2024 decreased by $856,722 to $157,111 from $1,013,833 for the three-months ended March 31, 2023.

three-months ended June 30, 2024 decreased by $329,222 to $170,315 from $499,537 for the three-months ended June 30, 2023.

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

Selling, general and administrative expenses for

six-months ended June 30, 2024 decreased by $1,185,944 to $327,426 from $1,513,370 for the six-months ended June 30, 2023.

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

Salaries, wages and payroll taxes for three-months

ended March 31, 2024 decreased to $211,877 from $1,547,208 for the three-months ended March 31, 2023.

The decrease primarily consisted

of reduced headcount at each subsidiary.

ended June 30, 2024 decreased to $185,000 from $578,900 for the three-months ended June 30, 2023.

The decrease primarily consisted of

reduced headcount at each subsidiary.

Furthermore, the Company reduced accrued payroll which it was determined was no longer payable.

Professional fees for the three-months ended March

31, 2024 decreased to $157,371 from $2,950,698 for the three-months ended March 31, 2023 due to decrease in revenue.

Salaries, wages and payroll taxes for six-months

ended June 30, 2024 decreased to $396,877 from $2.126,108 for the six-months ended June 30, 2023.

The decrease primarily consisted of

reduced headcount at each subsidiary.

Furthermore, the Company reduced accrued payroll which it was determined was no longer payable.

Professional fees for the three-months ended June

30, 2024 decreased to $23,260 from $255,690 for the three-months ended June 30, 2023 due to decrease in revenue.

Professional fees for the six-months ended June

30, 2024 decreased to $108,631 from $3,206,388 for the six-months ended June 30, 2023 due to reduced legal and auditor fees.

Depreciation and amortization for three-months

ended March 31, 2024 decreased to $19,288 from $231,234 for the three-months ended March 31, 2023.

ended June 30, 2024 decreased to $44,585 from $220,749 for the three-months ended June 30, 2023.

This decrease is primarily due to the

sale of some subsidiary property, plant and equipment.

During the three-months ended March 31, 2024 and

Optilan deconsolidation and sale of some subsidiary property, plant and equipment.

Depreciation and amortization for six-months ended

June 30, 2024 decreased to $63,873 from $451,983 for the six-months ended June 30, 2023.

This decrease is primarily due to the Optilan

deconsolidation and sale of some subsidiary property, plant and equipment.

Bad Debt expense for the three-months ended June

20, 2024 increased $2,337 from $57,480 for the six-months ended June 30, 2023.

Bad Debt expense for the six-months ended June

20, 2024 decreased $2,362,640 from $2,422,457 for the six-months ended June 30, 2023.

This was the result of the Optilan deconsolidation.

During the three-months ended June 30, 2024 and

2023, the Company recorded $0 and $115,971, respectively, in impairment on the Company’s goodwill and intangible assets

During the six-months ended June 30, 2024 and

2023, the Company recorded $0 and $6,925,137, respectively, in impairment on the Company’s goodwill and intangible assets

Other Income (Expense)

For the three-months ended March 31, 2024, we

had other expense of ($1,402) compared to other expense of ($193,190) during three months ended March 31, 2023.

The decrease is due to

decrease in interest expense.

For the three-months ended June 30, 2024, we had

other expense of ($1,947,377) compared to other expense of ($1,617,692) during three months ended June 30, 2023.

The increase is due to

an increase in interest expense.

For the six-months ended June 30, 2024, we had

other expense of ($1,948,779) compared to other expense of ($1,810,882) during six months ended June 30, 2023.

The increase is due to

an increase in interest expense.

Net Loss from Continuing Operations

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

of continuing operations of $536,398 and $14,799,264 for the three-months ended March 31, 2024 and 2023, respectively.

of continuing operations of $2,416,706 and $4,118,097 for the three-months ended June 30, 2024 and 2023, respectively.

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

of continuing operations of $2,953,104 and $18,917,361 for the six-months ended June 30, 2024 and 2023, respectively.

Liquidity and Capital Resources

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

During the three-months

ended March 31, 2024, we had $40,580 in cash proceeds from our equity financings compared to $2,087,801 in 2023.

As of March 31, 2024, we had cash of $990 compared

to $11,912 as of March 31, 2023.

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

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

During the three-months ended June 30, 2024, we

had $222,004 in cash proceeds from our equity financings compared to $537,849 in 2023.

During the six-months ended June 30, 2024, we

had $262,585 in cash proceeds from our equity financings compared to $2,625,650 in 2023.

As of June 30, 2024, we had cash of $953 compared

to $11,912 as of December 31, 2023.

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

require working capital to complete development, testing and marketing of our products and to pay for ongoing operating expenses.

We anticipate

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

As of March 31,

As of June 30,

2024, our current liabilities exceeded our current assets by $19,044,331.

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Cash Flows from Operating Activities

During the three-months ended March 31, 2024,

net cash used in operating activities was $91,687 resulting from our net loss of $536,398, partially offset by non-cash charges of $ 30,795

primarily driven by our bad debt expense and issuance of common stock for legal settlement.

In 2023, we had cash used in operating activities

of $2,323,783 resulting from our net loss of $14,799,264, partially offset by non-cash charges of $11,491,421 primarily driven by impairment

charges, bad debt expense and the issuance of common stock for a legal settlement.

During the six-months ended June 30, 2024, net

cash used in operating activities was $ 313,725 resulting from our net loss of $2,953,104 partially offset by non-cash charges of $1,707,137

primarily driven by our loss on equity investment resulting from the “SPAC” termination.

In 2023, we had cash used in operating

activities of $2,483,389 resulting from our net loss of $18,917,364, partially offset by non-cash charges of $13,479,314 primarily driven

by impairment charges, bad debt expense and the issuance of common stock for a legal settlement.

Cash Flows from Investing Activities

During the three-months ended March 31, 2024,

we had net cash used in investing activities of $ 59,817.

During the three-months ended March 31, 2023,

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

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

During the six-months ended June 30, 2024, we had net cash used in

investing activities of $(59,817).

During the six-months ended June 30, 2023, we

had net cash used in investing activities of $1,154,848, including $419,737 in notes and $519,637 in advances to GSD, as well as our joint

venture investment of $113,124 and purchase of property and equipment of $102,350.

Cash Flows from Financing Activities

During the three-months ended March 31, 2024,

net cash provided by financing activities was $ 140,580 which was primarily comprised of proceeds from the issuance of common stock of

During the three months ended March 31, 2023,

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

less net repayments of loans of $26,039.

During the six-months ended June 30, 2024, net

cash provided by financing activities was $362,582 of which $362,585 was comprised of proceeds from the issuance of common stock.

During the six-months ended June 30, 2023, net

cash provided by financing activities was $2,598,603 which was primarily comprised of proceeds from the sale of common stock of $2,625,650,

less repayments of loans $27,047.

Factors That May Affect Future Results

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financial statements and related disclosures.

Quantitative and Qualitative Disclosures

About Market Risk

As a smaller reporting company, the Company has

elected not to provide the disclosure required by this item.

Quantitative and Qualitative Disclosures About Market

As a smaller reporting company, the Company has elected not to provide

the disclosure required by this item.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis