DarkPulse, Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the “Risk Factors” section. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements Critical Accounting Policies The following discussions are based upon our consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States. 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. 35 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. In determining the fair value of the reporting unit, management estimated the price that would be received to sell the reporting unit as a whole in an orderly transaction between market participants at the measurement date. This includes reviewing market comparables such as revenue multipliers and assigning certain assets and liabilities to the reporting units, such as the respective working capital deficits of each entity and debt obligations that would need to be assumed by a market participant buyer in an orderly transaction. The Company calculated the carrying amounts of the reporting unit by utilizing the entities’ assets and liabilities at December 31, 2025, including the carrying value of the identifiable intangible assets and goodwill assigned to the respective reporting unit. 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 were primarily generated from our TJM subsidiaries are now generated from the Company’s subsidiary Optilan India Pvt Ltd. 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. 36 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 output 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. 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. 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. 37 Business Overview DarkPulse, Inc., a Delaware corporation (the “ Company ” or “ DarkPulse ”), is a technology focused on the manufacture, sale, installation, and monitoring of laser sensing systems based on its patented BOTDA dark-pulse sensor technology. The Company develops, markets, and distributes a full suite of engineering, monitoring, installation and security management solutions for critical infrastructure/key resources to both industries and governments. Coupled with our patented BOTDA technology, DarkPulse provides its customers a comprehensive data stream of critical metrics for assessing the health and security of their infrastructure. Our systems provide rapid, precise analysis and responsive activities predetermined by the end-user customer. The Company’s activities since inception have consisted of developing various solutions, obtaining patents and trademarks related to its technology, raising capital, acquisition of companies deemed to expand global operations and/or capabilities, creating key partnerships to expand our suite of products and services. Our activities have evolved to a sales-focused mission since the successful completion of our BOTDA system. Headquartered in Arizona, DarkPulse is a globally-based technology company with presence through its subsidiaries in the United States, Canada, India and Turkey and UAE.. In addition to the Company’s BOTDA systems, through a series of strategic acquisitions the Company offers the manufacture, sale, installation, and monitoring of laser sensing systems, oil and gas pipeline leak detection, physical security services, telecommunications and satellite communications services, artificial intelligence-based camera systems, railway monitoring services, drone and rover systems, and Big Data as a Service (“ BDaaS ”). The Company is focused on expanding services through acquisitions and partnerships to address global infrastructure and critical environmental resource challenges. DarkPulse offers a full suite of engineering and environmental solutions that provide safety and security infrastructure projects. The sensing and monitoring capabilities offered by DarkPulse operate in the air, land,and sea. We believe our patented technology provides rapid, precise analysis to protect and safeguard oil and gas pipelines above or below ground, physical security countermeasures, mining operations, and other critical infrastructure/key resources subject to vulnerability or risk. Our patented dark-pulse based BOTDA distributed fiber sensing system is best in class. We are able to monitor areas in around critical infrastructure buried or above ground including pipelines 100km or more in length and/ or localized pipes as small as eight cm diameter, DIA, detecting internal anomalies before catastrophic failure. We are developing an intelligent rock bolt to prevent causalities and fatalities in mining operations and include a real time sensor system that can detect the location and movement of personnel and equipment throughout a mining operation. We monitor airflow, air quality, temperature, seismic events, etc. Our sensors cover extended areas, protecting an area from intrusion by detecting events at any location along the sensing cable. Working safely every day is our first core value and employees at DarkPulse and our subsidiary companies are recognized experts in their fields, providing comprehensive services for all our clients' needs. Our Subsidiaries Our subsidiaries consist of: DarkPulse UK Ltd,, a company headquartered in, United Kingdom, DarkPulse Technologies FZCO located in UAE whose focus is in engineering, telecommunications, energy, rail, critical network infrastructure, pipeline integrity systems, renewables and security; Optilan India, PVT Ltd. located in Kilpauk, Chennai India and Optilan Communication & Security Systems, Ltd located in Ankara, Turkey which provides project engineering & design, system provisioning and contract bid services globally and throughout Europe. 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. Current Operations Our current operations now include: DarkPulse, Inc., based in Scottsdale, Arizona; DarkPulse Technologies FZCO, Dubai UAE;Terradata Unmanned PLLC, based in Florida; Optilan India Pvt Ltd based in Navi-Mumbai and Optilan Communications & Security Systems Ltd, based in Ankara Turkey. Remote Intelligence, LLC and Wildlife Specialists, LLC are no longer providing services as a result of redundant service offerings that are now being offered by TerraData Unmanned. DarkPulse Electronics Manufacturing Inc. (formerly TJM Electronics West, Inc.) is no longer providing products or services as a result of those products and services now being contracted through Sanmina Corp (NASDAQ:SANM). 38 We have recently completed development activities of our Gen. 3 dark-pulse BOTDA system and are pending a Purchase Order issuance to our contract manufacturer Sanmina Corp for full manufacturing of our patented BOTDA sensor system hardware. We currently expect to submit a Purchase Order to Sanmina Corp during Q2 2026, subject to the availability of sufficient working capital, completion of final engineering specifications, and other conditions. The Company previously anticipated submitting this Purchase Order in an earlier period; however, the timeline has been extended as a result of ongoing working capital constraints and engineering specification requirements. There can be no assurance that we will submit such Purchase Order on the anticipated timeline, or at all. This expectation constitutes a forward-looking statement subject to the cautionary factors described herein. The Company's ability to submit a Purchase Order to Sanmina Corp is directly dependent on its ability to secure additional working capital. As of December 31, 2025, the Company had $62,786 in cash and current liabilities exceeded current assets by $19,637,276. See " Liquidity and Capital Resources " and " Note 3 – Liquidity and Going Concern " for additional discussion of the Company's liquidity position. We base our claims related to the technologies capabilities from both experimental data obtained during the creation of the patent as well as real world POC deployments beginning in 2009 with most recent deployment in 2021. There are also papers submitted and published via IEEE and available online. The system components include patented hardware containing various electronic components and lasers, proprietary software utilized to collect analog data and convert that data to digital data, and a user interface utilizing proprietary software as well as Unity game engine for the VR capability component of the User Interface. Deployment of the system begins with engineering design based on Scope requirements and installation environment. Fiber optic cable is then installed into the medium to be monitored. The system is then provisioned remotely by optical engineers. Our business model, as it relates to hardware sales, is “Just in Time” and maintaining a very low inventory. Projects require several weeks of installation, design, and engineering followed by the installation of fiber optic cables. The average time required to build hardware units is less than the time needed for the engineering and fiber installation process. To date, we have yet to sell our patented BOTDA dark-pulse sensor system and we have built two units for demonstration of the system to potential customers. We are now able to sell our patented technology and related services. We currently have no commitments to buy our units. Our agreement with the University of New Brunswick requires a royalty of 2% beginning April 24, 2018; however, no royalties have been paid to the University of New Brunswick as the period for royalties has expired prior to any sales of the patented technology. We have no further requirement to pay royalties. On April 28, 2023 we entered an Equity Financing Agreement, which was superseded by the Amended Equity Financing Agreement dated June 13, 2023, which was then superseded by the Second Amended Equity Financing Agreement dated July 10, 2023, which was then superseded by the Third Amended Equity Financing Agreement dated August 14, 2024 as amended (the “ EFA ”), and Registration Rights Agreement (the “ Registration Rights Agreement ”) with GHS, pursuant to which GHS agreed to purchase up to $30,000,000 in shares of our Common Stock, from time to time over the course of 12 months after effectiveness of a registration statement on Form S-1 of the underlying shares of Common Stock. The Registration Rights Agreement provides that we shall (i) use our best efforts to file with the SEC a registration statement within 15 days of the date of the Registration Rights Agreement; and (ii) have the registration statement declared effective by the SEC within 30 days after the date the registration statement is filed with the SEC, but in no event more than 90 days after the registration statement is filed. Below is a table of all puts made by the Company under the EFA during 2024: Date of Put Number of Common Shares Issued Total Proceeds, Net of Discounts Effective Price per Share Net Proceeds 1/8/2024* 52,162,997 $ 44,736 $ 0.000858 $ 40,580 2/29/2024* 178,571,428 100,000 $ 0.000560 100,000 8/19/2024* 55,555,556 40,000 $ 0.0007200 36,175 286,289,981 $ 184,376 $ 176,755 *Prior to the sales being made, GHS agreed to purchase the shares without an effective registration statement in place, and, as such, the shares were restricted. 39 Below is a table of all puts made by the Company under the EFA during the year ended December 31, 2025: Date of Put Number of Common Shares Issued Total Proceeds, Net of Discounts ($) Effective Price per Share ($) Net Proceeds ($) 1/6/2025 183,202 23,450 0.000640 20,783 1/14/2025 256,077 32,778 0.000640 29,458 1/24/2025 395,308 50,619 0.000640 46,050 1/30/2025 695,043 55,603 0.000400 50,686 2/7/2025 622,323 49,786 0.000399 45,276 2/18/2025 657,228 42,063 0.000320 38,093 2/28/2025 710,373 34,098 0.000240 30,686 3/10/2025 663,499 31,848 0.000240 25,594 3/18/2025 1,122,820 53,895 0.000240 40,098 3/28/2025 1,019,222 65,230 0.000240 59,364 4/4/2025 653,076 41,797 0.000320 37,846 4/14/2025 895,072 42,963 0.000240 38,931 4/23/2025 906,671 58,027 0.000320 52,940 5/1/2025 1,126,922 46,844 0.000249 42,540 5/9/2025 941,402 43,273 0.000190 39,219 5/21/2025 949,987 30,400 0.000160 27,247 5/30/2025 1,127,583 36,083 0.000160 32,532 6/10/2025 1,130,457 54,262 0.000240 49,439 6/20/2025 917,188 44,025 0.000236 36,912 7/2/2025 1,157,985 37,055 0.000160 30,744 7/21/2025 1,368,561 43,793 0.000160 37,732 8/22/2025 426,994 13,664 0.000160 11,067 9/4/2025 537,621 17,204 0.000160 14,200 9/12/2025 428,311 13,706 0.000160 9,939 9/23/2025 552,036 17,665 0.000149 13,106 10/1/2025 572,888 18,333 0.000160 13,640 10/10/2025 576,942 18,462 0.000160 13,744 10/28/2025 959,040 17,570 0.018320 15,213 11/11/2025 952,716 12,576 0.013200 10,648 11/28/2025 1,053,329 10,449 0.009920 8,624 12/9/2025 1,677,132 50,582 0.030160 45,909 12/18/2025 1,246,067 24,822 0.019920 22,006 Total 26,498,067 1,132,925 993,542 40 Going Concern Uncertainty As shown in the accompanying consolidated financial statements, we generated net losses of $2,925,582 and $3,893,859 during the years ended December 31, 2025 and 2024, respectively, and net cash used in operating activities of $(66,483) and $(1,514,351), respectively. As of December 31, 2025, the Company’s current liabilities exceeded its current assets by $19,721,196 and has an accumulated deficit of $74,226,493. As of December 31, 2025, the Company had $62,786 of cash. We will require additional funding to finance the growth of our operations and achieve our strategic objectives. These factors, as relative to capital raising activities, create substantial doubt as to our ability to continue as a going concern. We are seeking to raise additional capital and are targeting strategic partners in an effort to accelerate the sales and marketing of our products and begin generating revenues. Our ability to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements, expansion of our operations and generating sales. The accompanying financial statements do not include any adjustments that might be necessary should we 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; however, management cannot make any assurances that such financing will be secured. Foreign Currency Risk In general, the Company is a net receiver of currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, will negatively affect the Company’s net sales and gross margins as expressed in U.S. dollars. There is a risk that the Company will have to adjust local currency product pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates. Results of Operations For the Years Ended December 31, 2025 and 2024 Revenues 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. The Company’s future revenues will be derived from the following, among other things. · promote adoption if our patented technology through agency and distribution agreements; · cross-selling existing customer with products from other subsidiaries; · provide a wide array of diverse services, including enhanced or additional services that may become available in the future due to, among other things, advances in technology or improvements in our infrastructure; · pursue acquisitions of additional assets, in each case if available at attractive prices; and · market our products and services to new customers. 41 While 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, the Company also maintains multiple contracts for future material revenues, including part of framework contracts that will be recognized during future reporting periods. For the year ended December 31, 2025, total revenues were $308,492 compared to $126,836 for the year ended December 31, 2024, an increase of $181,656. The increase was primarily due revenues generated from Optilan India and TerraData Unmanned PLC. The breakdown of revenues by entity for the years ended December 31, 2025 and 2024 is as follows: Years Ended 2025 2024 Optilan $ 0 $ 0 Wildlife 0 0 TJM 0 0 Remote Intelligence 0 0 TerraData 41,003 66,968 DarkPulse 0 0 Optilan India 267,489 59,868 $ 308,492 $ 126,836 Cost of Revenues and Gross Margin For the year ended December 31, 2025, cost of revenues was $98,901 compared to $2,266 for the year ended December 31, 2024, an increase of $96,635. The increase was attributable to Optilan India revenues. Gross (loss) profit for the year ended December 31, 2025 was $209,591 with a gross profit of 68% compared to $124,570 for the year ended December 31, 2024 with a 98% gross margin. Operating Expenses Selling, general and administrative expenses for year ended December 31, 2025 increased by $408,132, or 87%, to $879,720 from $471,588 for the year ended December 31, 2024. The increase primarily consisted of increases in research and development and consultant fees. Salaries, wages and payroll taxes for year ended December 31, 2025 increased by $73,289, or 9%, to $897,919 from $824,630 for the year ended December 31, 2024. The increase primarily consisted of a full year of payroll for Optilan India. Professional fees for the year ended December 31, 2025 decreased by $275,056, or 53%, to $241,700 from $516,756 for the year ended December 31, 2024 due to decreased legal and professional fees in 2025. Depreciation and amortization for year ended December 31, 2025 decreased by $43,291, or 34%, to $85,198 from $128,489 for the year ended December 31, 2024. This decrease is primarily due to the sale of some subsidiary property, plant and equipment. During the years ended December 31, 2025 and 2024, the Company recorded $23,965 and $0, respectively, in impairment on the Company’s goodwill and intangible assets. During the years ended December 31, 2025 and 2024, the Company recorded $741,380 and $59,817, respectively, in bad debt expense. During the years ended December 31, 2025 and 2024, the Company recorded a gain on partial extinguishment of debt of ($222,092) and $0 respectively. 42 Other Income (Expense) For the year ended December 31, 2025, we had other expense of ($481,829) compared to other expense of ($2,017,149) in 2024. The decrease is primarily due to loss on equity investment of $1,500,000, lower interest expense of $492,302 , offset by the increased expense in the change in fair market value of derivatives ($347,303) and loss on disposal of assets of ($110,573). Net Loss As a result of the above, we reported a net loss of $2,925,582 and $3,893,859 for the years ended December 31, 2025 and 2024, respectively. Liquidity and Capital Resources We require working capital to fund the continued development and commercialization of our proprietary fiber optic sensing devices, and for operating expenses. During the year ended December 31, 2025, we had $1,174,296 in cash proceeds from our equity financings compared to $3,946,075 in 2024. As of December 31, 2025, we had cash of $62,786 compared to $86,531 as of December 31, 2024. We currently do not have sufficient cash to fund our operations for the next 12 months and we will require working capital to complete development, testing and marketing of our products and to pay for ongoing operating expenses. We anticipate adding consultants for technology development and the corresponding operations of the Company, but this will not occur prior to obtaining additional capital. Management is currently in the process of looking for additional investors. Currently, loans from banks or other lending sources for lines of credit or similar short-term borrowings are not available to us. We have been able to raise working capital to fund operations through the issuances of convertible notes or obtained through the issuance of our restricted common stock. As of December 31, 2025, our current liabilities exceeded our current assets by $19,721,196. Several of our significant operating subsidiaries have borrowed funds from DarkPulse. The terms of the instruments governing the indebtedness of these borrowers or borrowing groups may restrict our ability to access their accumulated cash. In addition, our ability to access the liquidity of these and other subsidiaries may be limited by tax, legal and other considerations. Our executive officers and our Board of Directors review our sources and potential uses of cash in connection with our annual budgeting process and whenever circumstances warrant. Generally speaking, our principal funding source is cash from financing activities, and our principal cash requirements include loans to our operating subsidiaries, operating expenses, and capital expenditures. Cash Flows from Operating Activities During the year ended December 31, 2025, net cash used in operating activities was $66,483 resulting from our net loss of $2,925,582, partially offset by non-cash charges of $995,716 primarily driven by change in fair market of derivatives, bad debt expense, gain on partial extinguishment of debt, gain on forgiveness of debt and loss on disposal of asset. During the year ended December 31, 2024, net cash used in operating activities was $1,514,351 resulting from our net loss of $3,893,859, partially offset by non-cash charges of $1,634,681 primarily driven by our loss on equity investment offset by Impairment of goodwill and issuance of common stock for legal settlement. Cash Flows from Investing Activities During the year ended December 31, 2025, we had net cash used in investing activities of $0. During the year ended December 31, 2024, we had net cash used in investing activities of $92,979, including write-off of related party receivables of $59,817, and purchase of property and equipment of $33,162. 43 Cash Flows from Financing Activities During the year ended December 31, 2025, net cash provided by financing activities was $946,741 which was primarily comprised of proceeds from the sale of common stock of $1,174,296 and proceeds from convertible notes of $160,000 less net repayments of loans of $387,555. During the year ended December 31, 2024, net cash provided by financing activities was $2,079,643 which was primarily comprised of proceeds from the sale of common stock of $3,946,075 and proceeds from convertible notes of $0 less net repayments of loans of $1,866,432. Factors That May Affect Future Results Management’s Discussion and Analysis contains information based on management’s beliefs and forward-looking statements that involve a number of risks, uncertainties, and assumptions. There can be no assurance that actual results will not differ materially from the forward-looking statements as a result of various factors, including but not limited to, our ability to obtain the equity funding or borrowings necessary to market and launch our products, our ability to successfully serially produce and market our products; our success establishing and maintaining collaborative licensing and supplier arrangements; the acceptance of our products by customers; our continued ability to pay operating costs; our ability to meet demand for our products; the amount and nature of competition from our competitors; the effects of technological changes on products and product demand; and our ability to successfully adapt to market forces and technological demands of our customers. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources. Recent Accounting Pronouncements In November 2024 the FASB issued ASU 2024-03 Income Statement — Reporting Comprehensive Income (Subtopic 2220-40) which intends to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and research and development). In November 2024 the FASB issued ASU 2024-04 Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments to improve and clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. In March 2024 the FASB issued ASU 2024-01, Compensation – Stock Compensation Topic (718) contains amendments by adding an illustrative example to demonstrate how an entity should apply the scope guidance in paragraph 718- 10-15-3 to determine whether profits interest and similar awards improve the understandability of paragraph 718-10-15-3 apply to all entities that enter into share-based payment transactions. In March 2024 the FASB issued ASU 2024-02 Codification Improvements which contains amendments to the Codification that remove references to various FASB Concepts Statements. The Board has a standing project on its agenda to address suggestions received from stakeholders on the Accounting Standards Codification and other incremental improvements to generally accepted accounting principles (GAAP). This effort facilitates Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements. The resulting amendments are referred to as Codification improvements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable. 44 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements of the Company are included beginning on page F-1 immediately following the signature page to this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.