DarkPulse, Inc 10-Q/A for FY2024 Q3
DarkPulse, Inc. (DPLS)
About this 10-Q/A
DarkPulse, Inc filed this 10-Q/A on December 12, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $30.67K
- down 62.6% from $82.07K a year earlier
- Net loss
- $590.9K
- compared with a net loss of $987.29K a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Amendment No. 1
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the quarterly period
ended |
Or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from _______________________to___________________________ |
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered |
| Not applicable | Not applicable | Not applicable |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares outstanding of the registrant’s common stock, $0.0001 par value per share, outstanding as of November 19, 2024 was .
Explanatory Note
DarkPulse, Inc., a Delaware corporation (the “Company”), is filing this Amendment (the “Amendment”) to the Quarterly Report on Form 10-Q for the period ended September 30, 2024, originally filed with the Securities and Exchange Commission (the “SEC”) on November 19, 2024 (the “Original Filing”), to amend our disclosures found in Part 1, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 3 of the financial statements.
In accordance with the applicable SEC rules, this Amendment includes new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended, from our Principal Executive Officer and Principal Financial and Accounting Officer.
Except as described above, this Form 10-Q/A does not amend, update or change any other items or disclosures contained in the Original Filing, and accordingly, this Form 10-Q/A does not reflect or purport to reflect any information or events occurring after the original filing date of the Original Filing or modify or update those disclosures affected by subsequent events. Accordingly, this Form 10-Q/A should be read in conjunction with the Original Filing and the Company’s other filings with the SEC.
TABLE OF CONTENTS
| 3 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
DARKPULSE, INC.
Consolidated Balance Sheets
| September 30 | December 31 | |||||||
| 2024 | 2023 | |||||||
| Unaudited | Audited | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Due from related party | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Patents, net | ||||||||
| Goodwill | ||||||||
| Investment in related party | ||||||||
| Other assets, net | ||||||||
| Intangible assets, net | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Convertible notes, net | ||||||||
| Notes payable, current | ||||||||
| Derivative liability | ||||||||
| Loan payable, current | ||||||||
| Loan payable, related party | ||||||||
| Secured debenture, current | ||||||||
| Operating lease liabilities - current | ||||||||
| Other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Secured debenture | ||||||||
| Loan payable | ||||||||
| Operating lease liabilities - non-current | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS' DEFICIT: | ||||||||
| Series A Super Voting preferred stock - par value $; shares designated, shares issued and outstanding at both September 30, 2024 and December 31, 2023 | ||||||||
| Convertible preferred stock - Series D, par value $, shares designated, shares issued and outstanding as of both September 30, 2024 and December 31, 2023 | ||||||||
| Common stock, par value $, shares authorized, and shares issued as of September 30, 2024 and December 31, 2023, respectively. | ||||||||
| Treasury stock at cost, shares at September 30, 2024 and December 31, 2023 | ( | ) | ( | ) | ||||
| Additional paid-in capital | ||||||||
| Common Stock to be issued | ||||||||
| Non-controlling interests | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS' DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | $ | ||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
| 4 |
DARKPULSE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| Unaudited | Audited | Unaudited | Audited | |||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REVENUES | $ | $ | $ | $ | ||||||||||||
| COST OF REVENUES | ||||||||||||||||
| GROSS PROFIT (LOSS) | ( | ) | ||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Salaries, wages and payroll taxes | ||||||||||||||||
| Professional fees | ( | ) | ||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Bad debt expense | ||||||||||||||||
| Impairment expense | ( | ) | ||||||||||||||
| Gain on forgiveness of payables | ||||||||||||||||
| TOTAL OPERATING EXPENSES | ||||||||||||||||
| OPERATING LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss on deconsolidation | ( | ) | ||||||||||||||
| Change in fair market of derivative liabilities | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on equity investment | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on the forgiveness of debt | ||||||||||||||||
| Exceptional Costs gain | ( | ) | ( | ) | ||||||||||||
| Foreign currency exchange rate variance | ( | ) | ( | ) | ||||||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| – | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to non-controlling interests | ( | ) | ||||||||||||||
| Net loss attributable to Darkpulse, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | |||||||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| Unaudited | Unaudited | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| NET LOSS | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
| Foreign currency translation | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| COMPREHENSIVE LOSS | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
See the accompanying notes to the unaudited condensed consolidated financial statements
| 5 |
DARKPULSE, INC.
Consolidated Statement of Stockholders' Deficit
For the Nine Months Ended September 30, 2024 and 2023
Unaudited
| Preferred Stock | Common stock | |||||||||||||||||||||||||||||||
| Series A | Series D | Common stock | to be issued | |||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Common stock issued for cash, net of fees | – | – | – | |||||||||||||||||||||||||||||
| Issuance of common stock for legal settlement | – | – | – | |||||||||||||||||||||||||||||
| Common Stock to be issued | – | – | – | – | ||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | ||||||||||||||||||||||||||||
| Net loss | – | – | – | – | ||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Common stock issued for cash, net of fees | – | – | – | |||||||||||||||||||||||||||||
| Issuance of common stock for legal settlement | – | – | – | – | ||||||||||||||||||||||||||||
| Common Stock to be issued | – | – | – | – | ||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | ||||||||||||||||||||||||||||
| Net loss | – | – | – | – | ||||||||||||||||||||||||||||
| Balance at June 30, 2023 (audited) | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Common stock issued for cash, net of fees | – | – | – | |||||||||||||||||||||||||||||
| Issuance of common stock for legal settlement | – | – | – | – | ||||||||||||||||||||||||||||
| Common Stock to be issued | – | – | – | – | ||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | ||||||||||||||||||||||||||||
| Net loss | – | – | – | – | ||||||||||||||||||||||||||||
| Balance at September 30, 2023 (audited) | $ | $ | ||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Common stock issued for cash, net of fees | – | – | – | |||||||||||||||||||||||||||||
| Issuance of common stock for legal settlement | – | – | – | – | ||||||||||||||||||||||||||||
| Common Stock to be issued | – | – | – | – | ||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | ||||||||||||||||||||||||||||
| Net loss | – | – | – | – | ||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Common stock issued for cash, net of fees | – | – | – | |||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt | – | – | – | |||||||||||||||||||||||||||||
| Common Stock to be issued | – | – | – | |||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | ||||||||||||||||||||||||||||
| Net loss | – | – | – | – | ||||||||||||||||||||||||||||
| Balance at June 30, 2024 (unaudited) | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Common stock issued for cash, net of fees | – | – | – | |||||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt | – | – | – | – | ||||||||||||||||||||||||||||
| Common Stock to be issued | – | – | – | – | ( | ) | ||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | ||||||||||||||||||||||||||||
| Common stock to be issued for cash | – | – | – | |||||||||||||||||||||||||||||
| Net loss | – | – | – | – | ||||||||||||||||||||||||||||
| Balance at September 30, 2024 (unaudited) | $ | $ | $ | $ | ||||||||||||||||||||||||||||
(continued)
| 6 |
| Treasury stock | Additional paid-in | Non- controlling | Accumulated other comprehensive | Accumulated | Total stockholders’ deficit |
|||||||||||||||||||||||
| Shares | Amount | capital | interests | loss | deficit | (equity) | ||||||||||||||||||||||
| Balance at December 31, 2022 | $ | ( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||
| Common stock issued for cash, net of fees | – | |||||||||||||||||||||||||||
| Issuance of common stock for legal settlement | – | |||||||||||||||||||||||||||
| Common Stock to be issued | – | |||||||||||||||||||||||||||
| Foreign currency adjustment | – | ( |
) | ( |
) | |||||||||||||||||||||||
| Net loss | – | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Balance at March 31, 2023 | $ | ( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||
| Common stock issued for cash, net of fees | – | |||||||||||||||||||||||||||
| Issuance of common stock for legal settlement | – | |||||||||||||||||||||||||||
| Common Stock to be issued | – | |||||||||||||||||||||||||||
| Foreign currency adjustment | – | ( |
) | ( |
) | |||||||||||||||||||||||
| Net loss | – | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Balance at June 30, 2023 (audited) | $ | ( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||
| Common stock issued for cash, net of fees | – | |||||||||||||||||||||||||||
| Issuance of common stock for legal settlement | – | |||||||||||||||||||||||||||
| Common Stock to be issued | – | |||||||||||||||||||||||||||
| Foreign currency adjustment | – | |||||||||||||||||||||||||||
| Net loss | – | ( |
( |
( |
) | |||||||||||||||||||||||
| Balance at September 30, 2023 (audited) | $ | ( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||
| Balance at December 31, 2023 | $ | ( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||
| Common stock issued for cash, net of fees | – | |||||||||||||||||||||||||||
| Issuance of common stock for legal settlement | – | |||||||||||||||||||||||||||
| Foreign currency adjustment | – | |||||||||||||||||||||||||||
| Net loss | – | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Balance at March 31, 2024 | $ | ( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||
| Common stock issued for cash | – | |||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt | – | |||||||||||||||||||||||||||
| Foreign currency adjustment | – | |||||||||||||||||||||||||||
| Net loss | – | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Balance at June 30, 2024 | $ | ( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||
| Common stock issued for cash, net of fees | – | |||||||||||||||||||||||||||
| Issuance of common stock for conversion of convertible debt | – | |||||||||||||||||||||||||||
| Common Stock to be issued | – | |||||||||||||||||||||||||||
| Foreign currency adjustment | – | ( |
) | ( |
) | |||||||||||||||||||||||
| Common stock issued for cash | – | |||||||||||||||||||||||||||
| Net loss | – | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance at September 30, 2024 (unaudited) | $ | ( |
) | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
| 7 |
DARKPULSE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS UNAUDITED
Nine Months Ended September 30,
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on forgiveness of payables and liabilities | ( | ) | ||||||
| Change in fair market of derivative liabilities | ( | ) | ||||||
| Loss on equity investment | ||||||||
| Issuance of common stock for legal settlement | ||||||||
| Amortization of debt discount | ||||||||
| Impairment of goodwill and intangible assets | ||||||||
| Bad debt expense | ||||||||
| Loss on deconsolidation | ||||||||
| Operating lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Contract assets | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| Contract liabilities | ||||||||
| Loss provision for contracts in progress | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Operating lease liabilities, net | ( | ) | ( | ) | ||||
| Other current liabilities | ( | ) | ( | ) | ||||
| Other assets | ||||||||
| Other liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Investment in related party | ||||||||
| Investment in joint venture | ( | ) | ||||||
| Issuance of note receivable, related party | ( | ) | ( | ) | ||||
| Advances to related party | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Issuance of common stock, net of fees | ||||||||
| Proceeds from convertible notes | ||||||||
| Net repayments of loan payable | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ( | ) | ||||||
| Effect of exchange rate on cash | ( | ) | ||||||
| Cash at beginning of year | ||||||||
| Cash at end of year | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-cash financing and investing activities: | ||||||||
| Conversion of convertible debt | $ | |||||||
See the accompanying notes to the unaudited condensed consolidated financial statements
| 8 |
DARKPULSE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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, a company headquartered in, United Kingdom whose focus is in engineering, telecommunications, energy, rail, critical network infrastructure, pipeline integrity systems, renewables and security; Optilan India, PVT located in Kilpauk, Chennai India and Optilan Communication & Security Systems, Ltd located in Ankara, Turkey provid project engineering & design, system provisioning and contract bid services globally and throughout Europe; Remote Intelligence, Limited Liability Company, a company headquartered in Pennsylvania who provides unmanned aerial drone and unmanned ground crawler (UGC) services to a variety of clients from industrial mapping and ecosystem services, to search and rescue, to pipeline security; Wildlife Specialists, Limited Liability Company, a company headquartered in Pennsylvania who provides clients with comprehensive wildlife and environmental assessment, planning, and monitoring services; TerraData Unmanned, PLLC, a company headquartered in Florida who custom manufactures NDAA compliant drones and unmanned ground crawlers to meet the needs of its customers; DarkPulse Electronics Manufacturing Inc., a company headquartered in Arizona who is a U.S. manufacturer of advanced electronics, cables and sub-assemblies specializing in advanced package and complex CCA and hardware.
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 that time DarkPulse, Inc. no longer has any involvement in the operations of Optilan (UK) Ltd.
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.
| 9 |
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles of the United States of America (“U.S. GAAP”) and the rules and regulations of the U.S Securities and Exchange Commission for Interim Financial Information. The condensed consolidated financial statements of the Company include the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of September 30, 2024, and the results of operations for three and nine months and cash flows for the nine months ended September 30, 2024 and 2023 have been included.
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.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated balance sheet as of September 30, 2024, the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023 and of cash flows for the nine months ended September 20, 2024 and 2023 have been prepared by the Company, pursuant to the rules and regulations of the SEC for the interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements have been prepared on a basis consistent with the audited consolidated financial statements and in the opinion of management, reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the consolidated results for the interim periods presented and of the consolidated financial condition as of the date of the interim consolidated balance sheet. The results of operations are not necessarily indicative of the results expected for the year ending December 31, 2024.
The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2023 included in the Company’s Annual Form 10-K filed with SEC on July 15, 2024.
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.
| 10 |
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 condensed 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 both September 30, 2024 and December 31, 2023, the Company
determined that the allowance for doubtful accounts was $
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 September 30, 2024 and December 31, 2023, retainage receivable
was $
Foreign Currency Translation
The Company’s reporting currency is U.S. 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 are 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.
*Optilian has been deconsolidated, and as a result, no translation rates were applied for the nine-months ended September 30, 2024.
The relevant translation rates are as follows:
for the nine months ended September 30, 2024 closing rate at
| 11 |
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.
As a result of the Optilan Liquidation as described
in Note 1, management determined that certain events and circumstances occurred that indicated that the carrying amount of the Company’s
reporting unit may not be recoverable. The qualitative assessment was primarily due to the customer contracts held by Optilan (UK) Limited
and the associated revenue projections by the UK subsidiary that is subject to the potential winding up. As such, the Company compared
the fair value of the reporting unit to the carrying amounts and recorded an impairment loss of $
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.
The estimated useful lives of property and equipment are generally as follows:
| Schedule of estimated useful lives of property and equipment | ||
| Years | ||
| Office furniture and fixtures | ||
| Plant and equipment | ||
| Leasehold Improvements | ||
| Motor vehicles |
| 12 |
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.
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.
| 13 |
Liquidation of Optilan (UK) Limited
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 that time DarkPulse, Inc no longer had any involvement in the operations of Optilan (UK) Ltd.
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.
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.
| 14 |
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 11.
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.
| 15 |
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 2022 and 2021, 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 nine months ended September 30, 2024
and 2023, the Company recorded a loss of $
| 16 |
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. During the nine months ended September 30, 2024 and 2023 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 $
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 September 30, 2024 and December 31, 2023 are as follows:
| Schedule of anti dilutive securities | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| Convertible notes | ||||||||
| Series D preferred stock | ||||||||
| 17 |
Recent 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 condensed 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 condensed 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.
| 18 |
NOTE 3 – LIQUIDITY AND GOING CONCERN
The Company generated net losses of $
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.
NOTE 4 – BUSINESS ACQUISITIONS
Optilan India PV,TLtd and Optilan Communication & Security Systems, Ltd.
On September 11, 2024, the Company closed a sale
agreement with COLIN HARDMAN, CHRISTOPHER ALLEN AND GREGORY ANDREW PALFREY as Joint Liquidators, Optilan (UK) Limited incorporated and
registered in England and Wales acting by the Joint Liquidators (Seller), purchasing the right, title and interest of shares in Optilan
India, PVT located in Kilpauk, Chennai India and Optilan Communication & Security Systems, Ltd located in Ankara, Turkey along with
the applicable intellectual property rights including the following software; (a) the accounting systems ; (b) customer resource management;
and (c) the user interface for sensor systems. (2) The “Optilan.com” domain name and continued use of the “@optilan.com”
email accounts. The Company agreed to pay $
The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities for the fair value of the assets and liabilities recognized at the date of acquisition:
| Schedule of acquired assets and assumed liabilities | ||||
| Consideration | ||||
| Property, Plant & Equipment | $ | |||
| Shares | ||||
| Purchase price | $ | |||
| 19 |
The allocation of the total purchase price to the tangible and intangible assets acquired and liabilities assumed by DarkPulse based on the estimated fair values as of September 11, 2024 was as follows:
| Schedule of fair value assets acquired and liabilities | ||||||||||||
| (Amounts in US$’s) | Amounts Recognized as of Acquisition Date | Measurement Period Adjustments | Fair Value | |||||||||
| Cash | $ | $ | $ | |||||||||
| Accounts receivable | ||||||||||||
| Other current assets | ||||||||||||
| Property & equipment | ||||||||||||
| Goodwill | ||||||||||||
| Total assets | ||||||||||||
| Assumed liabilities | ||||||||||||
| Non-controlling interest | ||||||||||||
| Total Consideration for 100% of equity interests | $ | $ | $ | |||||||||
NOTE 5 – REVENUE
The following table is a summary of the Company’s timing of revenue recognition for the three and nine months ended September 30, 2024 and 2023:
| Schedule of timing of revenue recognition | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Services and products transferred at a point in time | $ | $ | $ | $ | ||||||||||||
| Services and products transferred over time | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
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 three and nine months ended September 30, 2024 and 2023:
| Schedule of revenue by source | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Services | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
Revenue by geographic destination consisted of the following for the three and nine months ended September 30, 2024 and 2023:
| Schedule of revenue by geographic destination | ||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| United Kingdom | ||||||||||||||||
| Rest of world | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
| 20 |
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.
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.
Contract liabilities on September 30, 2024 are $
| 21 |
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.
NOTE 6 – ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of September 30, 2024 and December 31, 2023:
| Schedule of accounts receivable | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: Allowance for doubtful accounts | ( | ) | ||||||
| Accounts receivable, net | $ | $ | ||||||
The Company performed an analysis of the trade
receivables related to Wildlife Specialists and determined that $
NOTE 7 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of September 30, 2024 and December 31, 2023:
| Schedule of property and equipment | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| Property and equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Property and equipment at cost | ||||||||
| Less - accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
| 22 |
NOTE 8 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following is a summary of activity of goodwill for the three months ended September 30, 2024:
| Schedule of goodwill activity | ||||
| Goodwill | ||||
| Balances at December 31, 2023 | $ | |||
| Goodwill pertaining to new Acquisitions | ||||
| Balances at September 30, 2024 | $ | |||
Patents - Intrusion Detection Intellectual Property
The Company relies on patent laws and restrictions on disclosure to protect its intellectual property rights. As of September 30, 2024 and 2023, 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 nine months ended September 30, 2024 and
2023, the Company had patent amortization costs on its intrusion detection technology totaling $
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.
| 23 |
The following is a summary of the DPTI patents:
| Schedule of patents | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| Patents | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Patents, net | $ | $ | ||||||
For the nine months ended September 30, 2024 and 2023, the Company amortized $ 38,271 and $ 38,271, respectively.
Future expected amortization of patents is as follows:
| Schedule of future expected amortization of patents | ||||
| As of December 31, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total patents | $ | |||
NOTE 9 – 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
During the nine months ended September 30, 2024,
the Company contributed $
NOTE 10 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following as of September 30, 2024 and December 31, 2023:
| Schedule of accounts payable and accrued expenses | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
| 24 |
NOTE 11 – 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 September 30, 2024 and December 31, 2023. In 2024 management determined the expected volatility of
On August 7, 2023, the Company entered into a
convertible note for a principal of $
On September 29, 2023, the Company entered into
a convertible note for a principal of $
On December 4, 2023, the Company entered into
a convertible note for a principal of $
As of both September 30, 2024 and December 31,
2023, there was $
The summary of convertible notes is as follows:
| Schedule of convertible notes | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| Principal Outstanding | $ | $ | ||||||
| Less: unamortized debt discount | ( | ) | ||||||
| Convertible notes, net | $ | $ | ||||||
Notes Payable
July 24, 2024, we and GS Capital Partners,
LLC entered into a Settlement Agreement pursuant to which the Company entered into a confession of judgment in favor of GS Capital
in the amount of $
| 25 |
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 September 30, 2024 and December 31, 2023:
| Schedule of loans payable | ||||||||
September 30, 2024 | December 31, 2023 | |||||||
| RI - line of credit | $ | $ | ||||||
| RI - Short-term loans | ||||||||
| WS - line of credit | ||||||||
| WS- Short-term loans | ||||||||
| Optilan Communication & Security Ltd – Short Term Loan | ||||||||
| Loan payable, current | $ | $ | ||||||
| RI - SBA EIDL | $ | $ | ||||||
| RI - long-term loans | ||||||||
| WS - SBA EIDL | ||||||||
| WS - long-term loans | ||||||||
| Loan payable, non-current | $ | $ | ||||||
NOTE 12 – 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 U.S. 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 U.S. 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.
| 26 |
On February 1, 2024, our board of directors approved entering into the Amendment No. 01 to Convertible Debenture (Secured) Term Debenture with the University pursuant to which, effective January 17, 2024, section (c) of the recitals of the Convertible Debenture (Secured) Term Debenture effective April 24, 2017 was amended to the following:
“(c) the date that is seven (7) years from the Issue Date; or”
Section 3.1 of the Debenture is amended to the following:
3.1 Payback on the Principal Sum will commence over a four (4) year period upon the earlier of the following (each a “Payback Period”): (a) three (3) years following the Payor achieving positive earnings before interest, taxes, depreciation and amortization for two (2) consecutive quarters; or (b) the date that is seven (7) years from the Issue Date.
Section 3.2 of the Debenture is amended to the following:
“3.2 The Payor shall be required to pay the Payee, in quarterly installments over a four (4) year period commencing from the start of the Payback Period, the following:
(a) Ninety-Three Thousand Seven Hundred and Fifty Canadian Dollars ($93,750.00 CDN); and
(b) interest accrued on the Principal Sum on a declining balance; and
(c) all costs associated with protecting the Technology.”
For the nine months ended September 30, 2024,
and 2023, the Company recorded interest expense of $
NOTE 13 – LEASES
The following was included in our balance sheet as of September 30, 2024 and December 31, 2023:
| Schedule of operating lease | ||||||||
| Operating leases | September 30, 2024 | December 31, 2023 | ||||||
| Assets | ||||||||
| ROU operating lease assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current portion of operating lease | ||||||||
| Operating lease, net of current portion | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The weighted average remaining lease term and weighted average discount rate at September 30, 2024 and December 31, 2023 were as follows:
| Schedule of weighted average remaining lease term and discount rate | ||||||||
| Operating leases | September 30, 2024 |
December 31, 2023 |
||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
| 27 |
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 $
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 $
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 $
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 $
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 $
On June 28, 2023, the Company recognized a gain on deconsolidation of $1,642,146 related to Optilan (UK) and its subsidiaries leases.
NOTE 14 – STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
In accordance with the Company’s bylaws, the Company has authorized a total of shares of preferred stock, par value $ per share, for all classes. As of September 30, 2024 and December 31, 2023, there were and total preferred shares issued and outstanding for all classes, respectively.
Common Stock
In accordance with the Company’s bylaws, the Company has authorized a total of shares of common stock, par value $ per share. As of September 30, 2024 and December 31, 2023, there were and common shares issued, respectively.
2022 Transactions
On May 27, 2022 we entered an Equity Financing Agreement (the “2022 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.
| 28 |
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 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 July 10, 2023, the Company entered into a Second Amendment to the 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.
2024 Transactions
On August 14, 2024, the Company entered into a
Third Amendment to the Equity Financing Agreement with GHS, to which GHS agreed to purchase up to $
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.
Below is a table of all puts made by the Company under the 2022 EFA during 2024:
| Schedule of equity financing agreement | ||||||||||||||
| Date of Put | Number of Common Shares Issued |
Total Proceeds, Net of Discounts |
Effective Price per Share |
Net Proceeds | ||||||||||
| 1/8/2024 | $ | $ |
$ | |||||||||||
| 2/29/2024 | $ |
|||||||||||||
| 8/19/2024 | $ |
|||||||||||||
| $ | $ | |||||||||||||
* Issued shares pursuant to an individual stock purchase agreement with an unrelated investor (not under 2022 EFA)
In
January 2023, the Company entered into a settlement of a dispute between certain stockholders in which the Company decided, during the
period ended September 30, 2023, to issue shares to settle the dispute. In January 2023, the Company issued shares of common
stock to the individuals. The fair value of $
Stock Options
As of September 30, 2024 and December 31, 2023, the Company had outstanding stock options.
| 29 |
NOTE 15 – COMMITMENTS & CONTINGENCIES
Potential Royalty Payments
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. The Company has no further
requirement to pay royalties.
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 November 5, 2024, the final judgment has not been satisfied by Carebourn. 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.
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.
| 30 |
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 November 5, 2024, the final judgment has not been satisfied by More. DarkPulse intends to continue to exercise all legal rights and remedies available to it to collect the amounts awarded should More fail to voluntarily pay the same.
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.
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.
| 31 |
On September 10, 2024, the Court entered an order granting in part the Company’s motion for sanctions against the Noteholders and their counsel of record. As of the date hereof, the Company has submitted declarations detailing its costs and expenses, including attorney’s fees, incurred from this action, which the Noteholders and their counsel of record challenged. The Court has not yet rendered its decision on the monetary sanctions that will be imposed against the Noteholders and their counsel of record.
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.
On September 9, 2024, the FirstFire Defendants filed their opening memorandum of law in support of their motion to dismiss. Shortly thereafter, the Company opposed the FirstFire Defendants’ motion and the FirstFire Defendants filed their reply in further support.
As of the date hereof, the Court has not scheduled oral arguments on the FirstFire Defendants’ motion to dismiss or rendered its decision thereon. The Company remains committed to actively litigating its claims for relief against the FirstFire Defendants.
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.
On August 19, 2024, the Second Circuit issued its decision and found that the District Court erred when granting the Crown Bridge Defendants’ motion to dismiss. As a result, the Second Circuit vacated the District Court’s decision and remanded the case back to the District Court for further proceedings consistent with its decision.
On September 30, 2024, the District Court entered a scheduling order, setting forth deadlines for discovery and dispositive motion practice.
The Company remains committed to actively litigating its claims for relief against the Crown Bridge Defendants.
| 32 |
GS Capital Partners, LLC v. DarkPulse, Inc.
On July 24, 2024 The Company resolved certain disputes with one of its lenders, GS Capital Partners LLC (“GS”), on terms mutually agreeable to both Darkpulse and GS. Specifically, DarkPulse and GS compromised over $2,600,000 of debt owed to GS in return for issuing shares to GS, as provided by the settlement agreement between the parties. This settlement is expected to be approved by the District Court for Clark County, Nevada,on or about August 15, 2024, and such approval will also resolve the collaborative proceeding initiated in such court to obtain approval of the settlement under Section 3(A)(10) of the Securities Act. Importantly, through this settlement, DarkPulse was able to negotiate a strict leak-out clause concerning the shares issued to GS, which DarkPulse believes will allow it to maintain its going concern value without the distraction of expensive and protracted litigation.
TJM West, Inc v Thomas J McCarthy Family Limited Partnership
On or about July 25,2023 TJM West filed an action in Maricopa court against its landlord for illegal lockout from the company’s facilities.
On or about August 18,2023 TJM West’s motion for Temporary Restraining Order was granted.
September 27, 2023 TJM West counsel motion to withdraw was accepted.
On or about October 6, 2923. TJM West hired new counsel to assist with a short deadline to file answers to landlords motion.
On or about November 6,2023 TJM West and its counsel mutually agreed to a withdrawal.
On or about November 6,2023 TJM West engaged new counsel.
On or about May 8,2024 TJM West dropped its motion for Temporary Restraining Order.
On or about May 24,2024 TJM West counsel filed motion to continue discovery.
On or about May 24,2024 TJM West’s counsel left the firm handling the litigation it was determined in the best interest of the company to terminate its relationship with the law firm. As of today the company is interviewing new counsel and evaluating its claims against landlord to determine if it’s financially responsible to incur additional fees related to exercising TJM’s right against the landlord for terminating the lease.
On or about June 28, 2024, the Company discussed with possible new counsel the feasibility of recovering its damages utilizing the courts. At that time, it appeared the cost of recovery would exceed the recoverable amount should the Company be successful in its litigation. TJM West is awaiting updates from the court in Maricopa County as to the status of the case.
The facilities in question had served as TJM West’s manufacturing facility and is located at 2640 W Medtronic Way Tempe, AZ 85281. Currently, we do not have access to the facility nor have we signed a new lease signed with the landlord.
In addition to the foregoing Legal Proceedings, we are also actively investigating potential legal claims, including but not limited to stock fraud, market manipulation, and/or defamation, against certain Twitter accounts, websites, and social media channels. The investigation is ongoing and should potential claims be identified, we will evaluate commencing formal litigation proceedings.
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business, financial condition and operating results.
| 33 |
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 nine months ended September 30, 2024
and 2023, certain executives of the Company received $
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 September 30, 2024 and December 31, 2023, the outstanding balance was $
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 September 30, 2024 and December 31, 2023, the outstanding balance was $
SPAC Transaction
On October 12, 2022, the Company entered into
and closed the Purchase Agreement (the “Agreement”) pursuant to which the Company purchased shares of Class B Common
Stock (the “Class B Common Stock”) and 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 $
| 34 |
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 $
As of September 30, 2024 and December 31, 2023,
the Company has $
NOTE 17 – SUBSEQUENT EVENTS
None.
| 35 |
Item 2. 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 of our Annual Report on Form 10-K for the year ended December 31, 2023. 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.
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, 2023, including the carrying value of the identifiable intangible assets and goodwill assigned to the respective reporting unit.
Refer to Note 1 for impairment records in 2023 upon the Optilan UK Liquidation.
| 36 |
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 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.
| 37 |
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.
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 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 environmental solutions that provide safety and security infrastructure projects. The sensing and monitoring capabilities offered by DarkPulse operate in the air, land, sea. Our patented technology provides rapid, precise analysis to protect and safeguard oil and gas pipelines above or below ground, physical security countermeasures, mining operations, and other critical infrastructure/key resources subject to vulnerability or risk. Our patented dark-pulse based BOTDA distributed fiber sensing system is best in class. The Company is able to monitor areas in around critical infrastructure buried or above ground including pipelines 100km or more in length and/ or localized pipes as small as eight CM DIA, detecting internal anomalies before catastrophic failure. We are developing an intelligent rock bolt to prevent causalities and fatalities in mining operations and include a real time sensor system that can detect the location and movement of personnel and equipment throughout a mining operation. We monitor airflow, air quality, temperature, seismic events, etc. Our sensors cover extended areas, protecting an area from intrusion by detecting events at any location along the sensing cable. Working safely every day is our first core value and employees at DarkPulse and our subsidiary companies are recognized experts in their fields, providing comprehensive services for all our clients' needs.
| 38 |
Our Subsidiaries
Our subsidiaries consist of DarkPulse UK Ltd,, a company headquartered in, United Kingdom whose focus is in engineering, telecommunications, energy, rail, critical network infrastructure, pipeline integrity systems, renewables and security; Optilan India, PVT located in Kilpauk, Chennai India and Optilan Communication & Security Systems, Ltd located in Ankara, Turkey provide project engineering & design, system provisioning and contract bid services globally and throughout Europe; Remote Intelligence, Limited Liability Company, a company headquartered in Pennsylvania who provides unmanned aerial drone and unmanned ground crawler (UGC) services to a variety of clients from industrial mapping and ecosystem services, to search and rescue, to pipeline security; Wildlife Specialists, Limited Liability Company, a company headquartered in Pennsylvania who provides clients with comprehensive wildlife and environmental assessment, planning, and monitoring services; TerraData Unmanned, PLLC, a company headquartered in Florida who custom manufactures NDAA compliant drones and unmanned ground crawlers to meet the needs of its customers; DarkPulse Electronics Manufacturing Inc., a company headquartered in Arizona who is a U.S. manufacturer of advanced electronics, cables and sub-assemblies specializing in advanced package and complex CCA and hardware.
Change in Ownership in Previously Consolidated Subsidiary Results in Deconsolidation in the Current Period
On June 28, 2023, the county court at Portsmouth, England made a winding up order raised by a (non-related party) creditor against the Company's subsidiary Optilan (UK) Limited. The subsidiary on that date ceased conducting further business and the director’s powers terminated. The consolidation of subsidiaries owned by Optilan (UK) Limited was no longer under its control as defined by ASC 810 (Consolidation). This compulsory liquidation resulted in a combined “Loss on Deconsolidation” of Optilan (UK) Limited and its subsidiaries in the amount of $1,642,795.
The subsidiaries of Optilan (UK) Limited are solvent and continue to operate. The Company will retain no measurable residual value nor direct or indirect investment in Optilan, its subsidiaries or its assets. The Company will have no continuing involvement with Optilan (UK) Limited, including its subsidiaries, and will not be owned or controlled by any related party of the Company.
Recent Events
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 (the “Winding up Petition”) Optilan (UK) Limited, a wholly owned subsidiary of the Company’s Subsidiary, Optilan HoldCo 3 Limited, and the matter was due to be heard in the Portsmouth Combined Court Centre on June 28, 2023.
On June 28, 2023, the High Court of Justice in the United Kingdom issued a winding-up order for the liquidation and winding up of the affairs of Optilan (UK) Limited (the “Optilan Liquidation”). In conjunction with the order, the court appointed the Offical Receiver’s Office (the “OR”) to take the appointment as liquidator of Optilan (UK) Limited and take control of Optilan (UK) Limited’s assets.
At the same time the court appointed the OR to take the appointment as liquidator of Optilan (UK) Limited. The OR has taken control of Optilan (UK) Limited’s assets. 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.
| 39 |
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.
On August 9, 2023, Evelyn Partners was appointed Joint Liquidator.
There are no new claims against Optilan (UK) Limited and Evelyn Partners continue to liquidate the company’s assets.
The Company is an Unsecured creditor of Optilan (UK) Limited and is at risk of losing any repayment of obligations due from Optilan (UK) Limited because there are several intercompany relationships between the Company and Optilan (UK) Limited, the financial impact of any future claims and liabilities may not be known for several months. The Company has approximately $19.4 million intercompany payables due from Optilan (UK), which will increase the Company liabilities for any obligations not repaid. The remaining assets held by Optilan (UK) Limited were fully impaired in 2023 as a result of the winding-up order for liquidation.
Nine-Months Ended September 30, 2024 Accounting Analysis
The Company performed an analysis of the trade receivables related to Optilan (UK) Limited and determined that an additional $2,422,457 may not be collectible pursuant to Optilan Liquidation. 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. 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 September 30, 2024.
Optilan (UK) Limited became subject to the control of a government and was appointed an administrator. In this situation, when the parent ceases to have a financial interest in a subsidiary and does not retain an investment in that subsidiary, the parent should deconsolidate the subsidiary and recognize a gain or loss on deconsolidation in accordance with ASC 810-10-40-5.
In addition, ASC 810-10-40-3A states when a parent deconsolidates a subsidiary or derecognizes a group of assets, the parent no longer controls the subsidiary's assets and liabilities or the group of assets. The parent therefore shall derecognize the assets, liabilities, and equity components related to that subsidiary or group of assets. The equity components will include any noncontrolling interest as well as amounts previously recognized in accumulated other comprehensive income. If the subsidiary or group of assets being deconsolidated or derecognized is a foreign entity (or represents the complete or substantially complete liquidation of the foreign entity in which it resides), then the amount of accumulated other comprehensive income that is reclassified and included in the calculation of gain or loss shall include any foreign currency translation adjustment related to that foreign entity.
Upon the liquidation, on June 28, 2023, the Company derecognized Optilan UK’s assets and liabilities and recorded a loss on consolidation of $1,624,795, which was recognized in other income (expenses) in the consolidated statements of operations.
Included in the loss on consolidation of $1,642,795 are the gains on intercompany receivables and payables and currency translation adjustment $12,721,532 and $1,545,008 respectively, offset by the net loss on impairment of investments of $12,623.
In addition, the allowance of $2,422,457 was recorded against receivables that have been deemed uncollectible.
| 40 |
Financings
On May 27, 2022, we entered an Equity Financing Agreement (the “2022 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 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 registration statement is filed.
Below is a table of all puts made by the Company under the 2022 EFA during 2023:
| 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 | |||||||||
| 1/24/2023 | 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 | |||||||||||
| 587,692,015 | $ | 2,348,689 | $ | 2,176,079 | ||||||||||||
On January 17, 2023, we entered into a Stock Purchase Agreement with an investor for the purchase of 11,441,647 shares of Common Stock in exchange for $100,000.
On April 28, 2023 we entered an Equity Financing Agreement, which was superseded by the Amended Equity Financing Agreement dated June 13, 2023, which was then superseded by the Second Amended Equity Financing Agreement dated July 10, 2023, which was then superseded by the Thrid 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.
| 41 |
Below is a table of all puts made by the Company under the EFA during 2023:
| Date of Put | Number of Common Shares Issued | Total Proceeds, Net of Discounts | Effective Price per Share | Net Proceeds | ||||||||||||
| 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 | |||||||||||
| 11/14/2023 | 18,997,442 | 25,180 | $ | 0.001325 | 22,392 | |||||||||||
| 11/22/2023 | 29,685,620 | 34,717 | $ | 0.001169 | 31,262 | |||||||||||
| 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 | |||||||||||
| 471,033,145 | $ | 1,088,356 | $ | 941,191 | ||||||||||||
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.
Going Concern Uncertainty
As shown in the accompanying financial statements, we generated net losses of $3,540,148 and $ 19,915,940 for the nine-months ended September 30, 2024 and 2023, respectively, and net cash provided (used) in operating activities of $29,782 $4,066,096, respectively. As of September 30, 2024, the Company’s current liabilities exceeded its current assets by $20,535,287 and has an accumulated deficit of $70,910,772. As of September 30, 2024, the Company had $165,186 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 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.
| 42 |
Results of Operations
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. |
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 three-months ended September 30, 2024, total revenues were $30,671 compared to $82,071 for the three-months ended September 30, 2023, a decrease of $ 51,400. The decrease was primarily due to no revenues achieved by Wildlife, Optilan and TJM Electronics West, Inc given capital and resources restraints.
For the nine-months ended September 30, 2024, total revenues were $ 55,839 compared to $2,032,673 for the nine-months ended September 30, 2023, a decrease of $1,976,834. 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.
Cost of Revenues and Gross Margin
For the three-months ended September 30, 2024, cost of revenues was $ 0 compared to $3,005 for the three-months ended September 30, 2023, a decrease of $ 3,005. The decrease was mainly attributable to lower cost of revenues from Optilan and TJM Electronics West, Inc.
For the nine-months ended September 30, 2024, cost of revenues was $870 compared to $2,414,645 for the nine-months ended September 30, 2023, a decrease of $2,413,775. The decrease was mainly attributable to lower cost of revenues from TJM Electronics West, Inc and Optilan deconsolidation.
Gross (loss) profit for the three-months ended September 30, 2024 was $30,671 with a gross (loss) profit of 100% compared to 79,066 for the three- months ended September 30, 2023 with a 96% gross margin.
Gross (loss) profit for the nine-months ended September 30, 2024 was $54,969 with a gross (loss) profit of 98% compared to ($381,972) for the nine- months ended September 30, 2023 with a (19%) gross margin.
| 43 |
Operating Expenses
Selling, general and administrative expenses for three-months ended September 30, 2024 decreased by $256,294 to $146,575 from $402,869 for the three-months ended September 30, 2023. The decrease primarily consisted of decrease in consultant costs, legal insurance and information technology expenses.
Selling, general and administrative expenses for nine-months ended September 30, 2024 decreased by $ 1,326,365 to $474,001 from $1,800,266 for the nine-months ended September 30, 2023. The decrease primarily consisted of decrease in consultant costs, legal, insurance and information technology expenses.
Salaries, wages and payroll taxes for three-months ended September 30, 2024 decreased to $185,000 from $253,622 for the three-months ended September 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.
Salaries, wages and payroll taxes for nine-months ended September 30, 2024 decreased to $581,877 from $2,379,730 for the nine-months ended September 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 September 30, 2024 increased to $226,026 from ($40,235) for the three-months ended September 30, 2023.
Professional fees for the nine-months ended September 30, 2024 decreased to $406,654 from $3,166,153 for the nine-months ended September 30, 2023 due to reduced legal and auditor fees.
Depreciation and amortization for three-months ended September 30, 2024 decreased to $31,837 from $44,502 for the three-months ended September 30, 2023. This decrease is primarily due to the Optilan deconsolidation and sale of some subsidiary property, plant and equipment.
Depreciation and amortization for nine-months ended September 30, 2024 decreased to $95,709 from $496,485 for the nine-months ended September 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 September 20, 2024 decreased $11,506 from $11,506 for the three-months ended September 30, 2023.
Bad Debt expense for the nine-months ended September 20, 2024 decreased $2,374,146 from $2,433,963 for the nine-months ended September 30, 2023. This was the result of the Optilan deconsolidation.
During the three-months ended September 30, 2024 and 2023, the Company recorded $0 and $115,971, respectively, in impairment on the Company’s goodwill and intangible assets
During the nine-months ended September 30, 2024 and 2023, the Company recorded $0 and $6,925,137, respectively, in impairment on the Company’s goodwill and intangible assets
| 44 |
Other Income (Expense)
For the three-months ended September 30, 2024, we had other expense of 28,280 compared to other expense of ($521,353 ) during three months ended September 30, 2023. The decrease is due to FMV of derivatives.
For the nine-months ended September 30, 2024, we had other expense of ($1,977,059 ) compared to other expense of ($2,332,234 ) during nine months ended September 30, 2023, mainly attributable the termination of the SPAC.
Net Loss from Continuing Operations
As a result of the above, we reported a net loss of continuing operations of $587,043 and $998,581 for the three-months ended September 30, 2024 and 2023, respectively.
As a result of the above, we reported a net loss of continuing operations of $3,540,148 and $19,915,940 for the nine-months ended September 30, 2024 and 2023, 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 three-months ended September 30, 2024, we had $474,205 in cash proceeds from our equity financings compared to $334,115 in 2023.
During the nine-months ended September 30, 2024, we had $ 696,205 in cash proceeds from our equity financings compared to $3,090,717 in 2023.
As of September 30, 2024, we had cash of $165,579 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 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 September 30, 2024, our current liabilities exceeded our current assets by $20,535,288.
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,
| 45 |
Cash Flows from Operating Activities
During the nine-months ended September 30, 2024, net cash used in operating activities netwas $29,782 resulting from our net loss of $3,540,148 partially offset by non-cash charges of $1,808,120 primarily driven by our loss on equity investment resulting from the “SPAC” termination. In 2023, we had cash used in operating activities of $4,066,096 resulting from our net loss of $19,915,940, partially offset by non-cash charges of $13,322,329 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 nine-months ended September 30, 2024, we had net cash used in investing activities of $ 120,248.
During the nine-months ended September 30, 2023, we had net cash used in investing activities of $1,409,128, including $563,317 in notes and $630,337 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 nine-months ended September 30, 2024, net cash provided by financing activities was $1,623,081 of which $1,043,131 was comprised of proceeds from the issuance of common stock.
During the nine-months ended September 30, 2023, net cash provided by financing activities was $3,090,717 which was comprised of proceeds from convertible notes of $50,000 and the sale of common stock of $3,067,764, less repayments of loans $27,047.
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.
| 46 |
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 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 condensed 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.
| 47 |
Item 3. 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.
Item 4. Controls and Procedures
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 Securities and Exchange Commission and, as such, is accumulated and communicated to our Chief Executive 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 September 30, 2024. Based on his evaluation, Mr. O’Leary concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2024.
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2024 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.
| 48 |
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
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 November 5, 2024, the final judgment has not been satisfied by Carebourn. 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.
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.
| 49 |
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 November 5, 2024, the final judgment has not been satisfied by More. DarkPulse intends to continue to exercise all legal rights and remedies available to it to collect the amounts awarded should More fail to voluntarily pay the same.
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.
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.
| 50 |
On September 10, 2024, the Court entered an order granting in part the Company’s motion for sanctions against the Noteholders and their counsel of record. As of the date hereof, the Company has submitted declarations detailing its costs and expenses, including attorney’s fees, incurred from this action, which the Noteholders and their counsel of record challenged. The Court has not yet rendered its decision on the monetary sanctions that will be imposed against the Noteholders and their counsel of record.
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.
On September 9, 2024, the FirstFire Defendants filed their opening memorandum of law in support of their motion to dismiss. Shortly thereafter, the Company opposed the FirstFire Defendants’ motion and the FirstFire Defendants filed their reply in further support.
As of the date hereof, the Court has not scheduled oral arguments on the FirstFire Defendants’ motion to dismiss or rendered its decision thereon. The Company remains committed to actively litigating its claims for relief against the FirstFire Defendants.
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.
On August 19, 2024, the Second Circuit issued its decision and found that the District Court erred when granting the Crown Bridge Defendants’ motion to dismiss. As a result, the Second Circuit vacated the District Court’s decision and remanded the case back to the District Court for further proceedings consistent with its decision.
On September 30, 2024, the District Court entered a scheduling order, setting forth deadlines for discovery and dispositive motion practice.
The Company remains committed to actively litigating its claims for relief against the Crown Bridge Defendants.
| 51 |
GS Capital Partners, LLC v. DarkPulse, Inc.
On July 24, 2024 The Company resolved certain disputes with one of its lenders, GS Capital Partners LLC (“GS”), on terms mutually agreeable to both Darkpulse and GS. Specifically, DarkPulse and GS compromised over $2,600,000 of debt owed to GS in return for issuing shares to GS, as provided by the settlement agreement between the parties. This settlement is expected to be approved by the District Court for Clark County, Nevada,on or about August 15, 2024, and such approval will also resolve the collaborative proceeding initiated in such court to obtain approval of the settlement under Section 3(A)(10) of the Securities Act. Importantly, through this settlement, DarkPulse was able to negotiate a strict leak-out clause concerning the shares issued to GS, which DarkPulse believes will allow it to maintain its going concern value without the distraction of expensive and protracted litigation.
TJM West, Inc v Thomas J McCarthy Family Limited Partnership
On or about July 25,2023 TJM West filed an action in Maricopa court against its landlord for illegal lockout from the company’s facilities.
On or about August 18,2023 TJM West’s motion for Temporary Restraining Order was granted.
September 27, 2023 TJM West counsel motion to withdraw was accepted.
On or about October 6, 2923. TJM West hired new counsel to assist with a short deadline to file answers to landlords motion.
On or about November 6,2023 TJM West and its counsel mutually agreed to a withdrawal.
On or about November 6,2023 TJM West engaged new counsel.
On or about May 8,2024 TJM West dropped its motion for Temporary Restraining Order.
On or about May 24,2024 TJM West counsel filed motion to continue discovery.
On or about May 24,2024 TJM West’s counsel left the firm handling the litigation it was determined in the best interest of the company to terminate its relationship with the law firm. As of today the company is interviewing new counsel and evaluating its claims against landlord to determine if it’s financially responsible to incur additional fees related to exercising TJM’s right against the landlord for terminating the lease.
On or about June 28, 2024, the Company discussed with possible new counsel the feasibility of recovering its damages utilizing the courts. At that time, it appeared the cost of recovery would exceed the recoverable amount should the Company be successful in its litigation. TJM West is awaiting updates from the court in Maricopa County as to the status of the case.
The facilities in question had served as TJM West’s manufacturing facility and is located at 2640 W Medtronic Way Tempe, AZ 85281. Currently, we do not have access to the facility nor have we signed a new lease signed with the landlord.
In addition to the foregoing Legal Proceedings, we are also actively investigating potential legal claims, including but not limited to stock fraud, market manipulation, and/or defamation, against certain Twitter accounts, websites, and social media channels. The investigation is ongoing and should potential claims be identified, we will evaluate commencing formal litigation proceedings.
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business, financial condition and operating results.
| 52 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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.
On July 15, 2024 the Company entered into a Stock Purchase Agreement with an investor for the purchase of 88,888,888 shares of Common Stock for a total consideration of $40,000.
On July 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 August 15, 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 August 19, 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.
| 53 |
On August 19, 2024 the Company entered into a Stock Purchase Agreement with an investor for the purchase of 13,333,333 shares of Common Stock for a total consideration of $10,000.
On August 27, 2024 the Company entered into a Stock Purchase Agreement with an investor for the purchase of 48,000,000 shares of Common Stock for a total consideration of $36,000.
On September 12, 2024 the Company entered into a Stock Purchase Agreement with an investor for the purchase of 88,888,888 shares of Common Stock for a total consideration of $40,000.
On September 19, 2024 the Company 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 $40,000.
The shares above were issued in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D under the Securities Act, based in part on the representations of the investor. No commissions were paid in connection with the sales of securities above.
Item 5. Other Information
During the quarter ended September 30, 2024, no
director or officer of the Company
Item 6. Exhibits
| SEC Ref. No. | Title of Document |
| 31.1* | Rule 13a-14(a) Certification by Principal Executive and Financial Officer |
| 32.1** | Section 1350 Certification of Principal Executive and Financial Officer |
| 101.INS* | XBRL Instance Document |
| 101.SCH* | XBRL Taxonomy Extension Schema Document |
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
| 104* | Cover Page Interactive Data File (formatted in Inline XBRL, and included in exhibit 101). |
*Filed with this Report.
**Furnished with this Report.
| 54 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DarkPulse, Inc. | ||
| Date: December 12, 2024 | By: | /s/ Dennis O’Leary |
| Dennis O’Leary, Chairman, Chief Executive Officer, President, | ||
| Chief Financial Officer | ||
| (Principal Executive Officer and Principal Financial Officer) | ||
| 55 |
Exhibit 31.1
CERTIFICATIONS
I, Dennis O’Leary, certify that:
| 1. | I have reviewed this Form 10-Q/A quarterly report of DarkPulse, Inc. for the quarter ended September 30, 2024; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: December 12, 2024
/s/ Dennis O’Leary
Dennis O’Leary, Chief Executive Officer
(Principal Executive Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of DarkPulse, Inc. (the “Company”) on Form 10-Q/A for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission (the “Report”), the undersigned principal executive and principal financial officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: December 12, 2024
/s/ Dennis O’Leary
Dennis O’Leary, Chief Executive Officer
(Principal Executive Officer and Principal
Financial and Accounting Officer)