Item 1. Business
ITEM 1. BUSINESS
As used in this Form 10-K, the terms “we,”
“us,” “our,” and the “Company” refer to DarkPulse, Inc., a Delaware corporation, and its subsidiaries.
Organization
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.
University of New Brunswick
In December 2010, DPTI entered into an Assignment
Agreement with the University, pursuant to which the University sold, transferred, and assigned to us Patents in exchange for the issuance
of a debenture to the University in the amount of C$1,500,000 (Canadian dollars). In April 2017, DPTI issued the Debenture. The
Patents and the Debenture were initially recorded in our accounts at $1,491,923, based upon the exchange rate between the U.S. dollar
and the Canadian dollar on December 16, 2010, the date of the original debenture. In addition to the repayment of principal and interest,
the Debenture requires 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 commencing on April 24, 2018, as well as to reimburse the University for its patent-related costs.
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 a 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.”
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Our Operating Units
The Company’s subsidiaries consist of Remote
Intelligence, LLC, a company headquartered in Pennsylvania who provides unmanned aerial drone and unmanned ground crawler (UGC) services
to a variety of clients from industrial mapping and ecosystem services, to search and rescue, to pipeline security; Wildlife Specialists,
LLC, a company headquartered in Pennsylvania who provides clients with comprehensive wildlife and environmental assessment, planning,
and monitoring services; TerraData Unmanned, PLLC, a company headquartered in Florida who custom manufactures NDAA compliant drones and
unmanned ground crawlers to meet the needs of its customers; and TJM Electronics West, Inc., a company headquartered in Arizona who is
a U.S. manufacturer and tester of advanced electronics, cables and sub-assemblies specializing in advanced package and complex CCA and
hardware.
TerraData Unmanned
Comprised of a team with more than 30 years cumulative
experience in the unmanned industry, TerraData Unmanned (“ TerraData ”) custom manufactures National Defense Authorization
Act (“ NDAA ”) compliant drones and unmanned ground crawlers to meet the needs of its customers. TerraData has successfully
delivered a custom drone platform per a customer’s specifications which exceeds current industry offering by more than 30 minutes.
The team has manufactured, and successfully flight tested a Quad Copter drone with 1.5KG payload capabilities that delivers more than
60 minutes of continuous flight. This cutting-edge design is a combination of proprietary software and hardware. The custom platform
offers NDAA compliant autopilot, communications links, Technical Standard Orders (“ TSO ”) certified GPS unit and ground
control station. Future designs include integrating Real-Time Kinematic (“ RTK ”) for mapping, methane detectors, and
true terrain following capabilities. There are also improvements scheduled that are intended to further extend the endurance and provide
over 4KG of payload capacity, not including batteries. TerraData has also announced the research, development and successful testing
of an autonomous crawler soon to be released to the market with methane and multi gas detection capabilities. Working seamlessly with
its partners at DarkPulse and its subsidiary companies, TerraData can custom design, build and operate a system to meet our customers'
needs 24 hours a day 365 days a year around the globe.
Acquisitions
On August 9, 2021, we entered into a Share Purchase
Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited, pursuant to which we purchased from the sellers all of the
issued and outstanding equity interests of Optilan HoldCo 3 Limited, a private company incorporated in England and Wales (“ Optilan ”),
for £1.00. In connection with the acquisition, the Company acquired $14,828,459 in assets and assumed liabilities totaling $25,179,320.
As a result of the transaction, Optilan became a wholly-owned subsidiary of the Company .
On August 30, 2021, we closed two separate Membership
Interest Purchase Agreements with RI and WS pursuant to which we agreed to pay to the majority stockholder of each of RI and WS
an aggregate of 15,000,000 shares of our Common Stock, $500,000 to be paid on the closing date, and an additional $500,000 to be paid
12 weeks from closing date in exchange for 60% ownership of each of RI and WS. As a result of the transactions, RI and WS each became
subsidiaries of the Company with the respective non-controlling interests recoded on the consolidated balance sheets.
On September 8, 2021, we entered into and closed
the Stock Purchase Agreement with TJM and TJM’s stockholders, pursuant to which we agreed to purchase all of the equity interests
in TJM in exchange for $450,000, subject to adjustments as defined in the Stock Purchase Agreement. As a result of the transaction, TJM
became a wholly-owned subsidiary of the Company.
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Effective October 1, 2021, we entered into and
closed the Membership Purchase Agreement with TerraData and Justin Dee, the sole stockholder of TerraData, pursuant to which we agreed
to purchase 60% of the equity interests in TerraData in exchange for 3,725,386 shares of our Common Stock and $400,000, subject to adjustments
as defined in the Membership Purchase Agreement, to be paid within 12 weeks of closing. As a result of the transaction, TerraData became
a subsidiary of the Company.
On December 1, 2023, we entered into the Sale
Agreement with Optilan (UK) Limited (in liquidation) incorporated and registered in England and Wales with company number 02715788, and
Colin Hardman, Christopher Allen and Gregory Andrew Palfrey, as joint liquidators of the Optilan all of Evelyn Partners LLP. Under thea,
we intended to purchase from Optilan for $65,000 all right, title, and interest in the following: (1) shares in Optilan India PVT (India),
(2) shares in Optilan Communications & Security Systems Ltd (Turkey), and (3) the “Applicable Intellectual Property Rights,”
as defined in the agreement. The closing of this agreement never occurred and Optilan India PVT (India) and Optilan Communications &
Security Systems Ltd (Turkey) were never acquired by us.
Liquidation/winding up of Optilan (UK) Limited
On May 3, 2023, Eversheds Sutherland (International)
LLP, a creditor of Optilan (UK) Limited, filed a petition to wind up (“Winding up Petition”) Optilan (UK) Limited, a wholly
owned subsidiary of the Company’s Subsidiary, Optilan HoldCo 3 Limited, and the matter was due to be heard in the Portsmouth Combined
Court Centre on June 28, 2023.
On June 28, 2023, the High Court of Justice in
the United Kingdom issued a winding-up order for the liquidation and winding up of the affairs of Optilan (UK) Limited (“Optilan
Liquidation”). In conjunction with the order, the court appointed the Official Receiver’s Office (“OR”) to take
the appointment as liquidator of Optilan (UK) Limited and take control of Optilan (UK) Limited’s assets.
At the same time the court appointed the OR to
take the appointment as liquidator of Optilan (UK) Limited. The OR has taken control of Optilan (UK) Limited’s assets. To date the
ORs Office has initiated contact with Optilan but we still wait to receive details of the individual who will be taking the role of OR.
On July 3, 2023, Optilan (UK) Limited received
a letter from The Insolvency Service, an executive agency sponsored by the Department for Business and Trade located in the U.K. Pursuant
to the letter of The Insolvency Services, the Company was required to provide information relating to Optilan (UK) Limited to the Official
Receiver’s Office (a government body of Plymouth, the United Kingdom) and attend an interview with staff of the Official Receiver’s
Office to review the prospect of recovering the assets of Optilan (UK) Limited for the benefit of creditors. The interview was scheduled
for July 18, 2023.
On July 18, 2023, the interview was held between
the Official Receiver’s Office (“OR”) and the CEO at time of dissolution. The OR office requested a list of assets,
bank account information and amounts along with any contracts held by Optilan (UK) Limited to begin the liquidation process.
On August 9, 2023, Evelyn Partners was appointed Joint Liquidator.
There are no new claims against Optilan (UK) Limited
as of July 15, 2024 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 Company expects the remaining assets held by Optilan (UK) Limited to be fully impaired
and reported as Loss on Deconsolidation during the second quarter of 2023 as a result of the winding-up order for liquidation. 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.
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Global System Dynamics, Inc.
On December 14, 2022, we entered into a Business
Combination Agreement (the “ BCA ”) by, between, and among our company, Global System Dynamics, Inc., a Delaware corporation
(“ GSD ”), and Zilla Acquisition Corp, a Delaware corporation and wholly owned subsidiary of GSD (the “ Merger
Sub ”). Pursuant to the terms of the BCA, a business combination between us and GSD will be effected through the merger of Merger
Sub with and into DarkPulse, with DarkPulse surviving the merger as a wholly owned subsidiary of GSD).
On August 8, 2023, we entered into Amendment No.
1 to the BCA pursuant to which the “Termination Date,” as defined in the BCA was amended from “August 9, 2023”
to “February 9, 2024.” No other changes were made to the BCA.
On January 23, 2024,
the BCA was terminated by mutual consent of the parties thereto. Although, as the Sponsor of GSD, the Company still owns all of the issued
and outstanding shares of Class B Common Stock of GSD, all legal rights the Company had under the BCA have been terminated.
Our Business
We offer a full suite of engineering, installation
and security management solutions to industries and governments. Coupled with our patented BOTDA technology, we provide our customers
a comprehensive data stream of critical metrics for assessing the health and security of their infrastructure. Our comprehensive system
provides for rapid, precise analysis and responsive activities predetermined by the end-user customer. These responses include the
use of “smart” AI platformed cameras, facial recognition technologies and multiple drone platforms. Our User Interface (UI)
is cloud based which offers end-users access to their systems on any device located anywhere in the world. Additional programming of the
UI is being completed within a game engine that will also offer access via Virtual Reality headsets, allowing end-users to virtually inspection
their assets.
Historically, distributed sensor systems have
been too costly, slow and limited in their capabilities to attain widespread use. In addition, Brillouin-based sensors have been plagued
with temperature and strain cross-sensitivity, i.e. the inability to distinguish between temperature and strain change along the same
fiber. The loss of spatial resolution with an increase in fiber length has also limited the use of distributed sensor systems. Due to
these shortcomings, existing technologies are unable to succeed within today’s dynamic environments, and needs for more advanced
sensor technologies have remained unsatisfied.
By contrast to existing technologies, our BOTDA
technology is a distributed-fiber sensing system, based on dark-pulse Brillouin scattering, which reports in real-time on conditions
such as temperature, stress, strain corrosion and structural health monitoring of Critical Infrastructure/Key Resources including Bridges,
Buildings, Roadways pipelines and mining installations.
Our BOTDA technology’s differentiators from
and advantages over existing technologies:
·
Real-time Reporting: Higher data acquisition speeds allowing for structural monitoring of dynamic systems;
·
Cost to Customer: Significantly lower acquisition and operating costs;
·
Precision: A greater magnitude of precision and spatial resolution than other systems currently available;
·
Applications: Wider range of capabilities than other systems currently available;
·
Power Consumption: Lower power consumption than existing systems allowing for off-grid installations;
·
Integration: Capable of integrating with existing systems; and
·
Central station monitoring/cloud based GUI.
We believe that these key advantages should allow
us not only to enter existing markets, but more importantly, to open new market opportunities with new applications. We intend to leverage
new applications to target clients that have been unable to make use of distributed fiber optic technology to date.
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Revenue
The Company’s revenues are generated primarily
from the sales 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.
Our Market
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. Our BOTDA technology allows for the monitoring of highly dynamic environments due to its magnitude of increased resolution
and greater accuracy. The resulting high speed, real-time monitoring capabilities of our BOTDA technology should satisfy a broad range
of existing and emerging requirements. Use of our BOTDA technology by our customers should result in lower production costs with increased
sensing capabilities that can integrate with existing technology and be upgraded cost effectively.
Due to the characteristics of the fiber used in
fiber optic sensing, the uses of our BOTDA technology are wide ranging. Optical fiber is hard-wearing, which allows it to be used in environments
where other technologies fail (for example, at temperatures ranging from -40°C to 300°C and 1000psi). Additionally, our BOTDA
sensors allow for live sensing due to the speed at which the analysis takes place.
Our management team is continually identifying
markets in which our BOTDA technology may be readily applied. Once these markets (as described below) have been addressed, our technology
may be adapted and applied to new markets.
Structural Monitoring
·
Buildings and Skyscrapers;
·
Bridges, Tunnels and Dams; and
·
Roads and Railway tracks.
Temperature Sensing
·
Fire Alarm and Environment control;
·
Low cost and maintenance;
·
Long life span; and
·
Ability to withstand harsh working environment.
Security & Defense
·
National Border Protection; and
·
Protection of Military and other sensitive installations.
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Consulting Services:
·
Consulting (as stand-alone or presales);
·
Post sales deployment and Support; and
·
Managed services (monitoring, etc.).
Additional Potential Markets:
·
Monitoring of composite structures in aircraft;
·
Dynamic stress monitoring of runways;
·
Dynamic ship hull stress monitoring, especially with a view to double-hull oil tankers;
·
Smart grid and power conservation applications based on cooling and/or heat proximity – for instance, computer rooms, cell towers for heat soak;
·
Monitor low temperatures as part of control systems;
·
Monitoring of temperatures in extreme refrigeration environments;
·
Avalanche early warning systems; and
·
Sea defense monitoring.
Marketing
We utilize our BOTDA technology as the foundation
of our ongoing marketing initiatives. Most notably, the greater magnitude of increased capabilities of our BOTDA technology versus existing
bright-pulsing technologies. Existing bright-pulse Brillouin-based sensors have historically been plagued with temperature and strain
cross-sensitivity, i.e. the inability to distinguish between temperature and strain change along the same fiber. The loss of spatial resolution
with an increase in fiber length is also a limiting factor for the use of distributed sensor systems. Because of these shortcomings, existing
bright-pulse Brillouin-based technologies are unable to succeed within today’s dynamic environments, which coincides with our BOTDA
technology’s increased capabilities over bright-pulse systems. Our marketing initiatives include daily, broad-based social media
engagement, management of our website, email campaigns, national television commercials, magazine ads, and other ongoing initiatives designed
to increase awareness of our products and services and drive conversion and adoption rates.
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Competition
The overall optical sensing market is projected
to reach USD $3.47 billion by 2023 from USD $1.13 billion in 2016, at a CAGR of 15.47% between 2017 and 2023. [1] We are active
in the optical sensing market, including Oil & Gas pipeline health monitoring, Infrastructure, National Border Security applications,
and the mining industry. We believe that fiber sensing applications which incorporate our BOTDA technology may provide significant competitive
advantages over structural health monitoring applications offered by the long-term leaders in the field, such as Schlumberger, Hewlett-Packard,
and Yokogawa, which collectively account for a significant portion of industry sales. These companies, as well as others, have numerous
differences in feature sets and functionality, but all share certain basic attributes: a bright-pulse technology as the core of their
systems architecture. An architecture designed using bright-pulsing technology has limited sensing capabilities and resolutions of one
meter allowing for mostly long-term quasi-static deployments.
However, we utilize our BOTDA technology allowing
for multiple applications into those markets unavailable to companies using bright-pulse technology. While many of the companies using
bright-pulse technology have attempted to incorporate various sensing techniques into a legacy technology, none have been able to offer
the order of magnitude resolutions offered by our patented dark-pulse based BOTDA technology. This magnitude in resolution coupled with
our BOTDA technology’s increased data collection speeds allows our technology to be installed into areas of the market that our
competitors cannot. Our future financial condition and operating results depend on our ability to provide a high-quality solution as well
as increased distribution of the solutions in each of the markets in which we compete or intend to compete within.
The markets for our products and services are
highly competitive and we are confronted by aggressive competition. These markets are characterized by frequent product introductions
and rapid technological advances. Our financial condition and operating results can be adversely affected by these and other industry-wide
downward pressures on gross margins. Principal competitive factors important to us include price, product features, relative price and
performance, product quality and reliability, marketing and distribution capability, service and support and corporate reputation.
Intellectual Property
Our policy is to protect our technology by, among
other things, patents, trade secret protection and copyrights. We have taken security measures to protect our trade secrets and proprietary
know-how, to the greatest extent possible. Our means of protecting our proprietary rights may not prove to be adequate and our competitors
may independently develop technology or products that are similar to ours or that compete with ours. Trade secret, patent and copyright
laws afford only certain protections for our technology and products. The laws of many countries do not protect our proprietary rights
to as great an extent as do the laws of the United States. Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to obtain and use information that we regard as proprietary. Third parties may also design around our proprietary rights,
which may render our protected technology and products less valuable, if the design around is favorably received in the marketplace.
In addition, any of our products or technology
covered by patents or other intellectual property rights, could cause us to be subject to various legal actions. Litigation may be necessary
to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights
of others, or to defend against claims of infringement, invalidity, misappropriation, or other claims.
Through DPTI’s April 2017 Intellectual Property
agreement with the University, DPTI was sold, transferred, and assigned U.S. Patent Nos. 7,245,790, 8,643,829, and 9,534,965, each of
which are related to our BOTDA dark-pulse technology. In addition, Canadian Patent No. 2,502,275 was also assigned.
__________
[1]
https://www.marketsandmarkets.com/Market-Reports/optical-sensing-market-197592599.html
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Suppliers
We currently rely on a full-time, dedicated, external
team of experienced professionals for the coding and maintenance of our products. We believe we have mitigated the associated risks of
managing an external team of software and engineering development professionals by incorporating internal management and oversight, as
well as appropriate systems, protocols, controls, and procedures and ensuring that we have access to additional qualified professionals
to provide like or complementary services.
Government Regulation
Government regulation is not of significant concern
for our business nor is government regulation expected to become an impediment to the business in the near- or mid-term as management
is currently unaware of any planned or anticipated government regulation that would have a material impact on our business. Our management
believes it currently possesses all requisite authority to conduct our business as described in this report.
Employees
As of July 15, 2024, we had three full-time
employees and no part-time employees.