What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-04-14 compared with 2024-07-15 · 193 added, 139 removed, 392 unchanged (46% of the section changed)

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assets and goodwill assigned to the respective reporting unit.

Refer to Note 1 for impairment records in 2023

upon the Optilan UK Liquidation.

Revenue Recognition

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successful completion of our BOTDA system.

Headquartered in Houston, DarkPulse is a globally-based

technology company with presence through its subsidiaries in the United Kingdom, India, Dubai, Abu Dhabi, Turkey, Azerbaijan, United States

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

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

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

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

The Company is focused on expanding services through acquisitions and partnerships

to address global infrastructure and critical environmental resource challenges.

Headquartered in New York, DarkPulse is a globally-based

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

In addition to the Company’s BOTDA systems,

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

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

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

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

resource challenges.

DarkPulse offers a full suite of engineering and

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Our Subsidiaries

Our subsidiaries consist of DarkPulse UK Ltd,,

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;

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.

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.

TerraData Unmanned, PLLC, a company headquartered in Florida who custom manufactures NDAA compliant drones

and unmanned ground crawlers to meet the needs of its customers;

Current Operations

As a result of the liquidation of Optilan, our

current operations now include:

DarkPulse, Inc., based in New York City, New York;

Terradata Unmanned PLLC, based in Florida;

Pvt Ltd Navi-Mumbai and Optilan Communications & Security Systems Ltd, based in Ankara Turkey.

Remote Intelligence, LLC and Wildlife

Specialists, LLC are no longer providing services as a result of redundant service offerings that are now being offered by TerraData Unmanned.

DarkPulse Manufacturing Inc.

(formerly TJM Electronics West, Inc.) is no longer providing products or services as a result of those products

and services now being contracted through Sanmina Corp.

We have recently completed development activities

3 dark-pulse BOTDA system and are pending a Purchase Order issuance to our contract manufacturer Sanmina Corp (NASDAQ:

for full manufacturing of our patented BOTDA sensor system hardware.

Once we have obtained funding, we will be submitting a Purchase Order

to Sanmina Corp.

We are currently in discussions with a lender who may fund the Purchase Order.

We also may rely on proceeds of this offering

to fund the Purchase Order.

Depending on the level of funding we receive, we estimate the initial Purchase Order will be for 10 to 30

We base our claims related to the technologies capabilities from both experimental data obtained during the creation of the patent

as well as real world POC deployments beginning in 2009 with most recent deployment in 2021.

There are also papers submitted and published

via IEEE and available online.

The system components include:

Patented hardware containing various electronic components and lasers.

software utilized to collect analog data and convert that data to digital data.

A user interface utilizing proprietary software as well

as Unity game engine for the VR capability component of the User Interface.

Deployment of the system begins with engineering design based

on Scope requirements and installation environment.

Fiber optic cable is then installed into the medium to be monitored.

The system is

then provisioned remotely by optical engineers.

Our business model, as it relates to hardware

sales, is “Just in Time” and maintaining a very low inventory.

Projects require several weeks of installation, design, and

engineering followed by the installation of fiber optic cables.

The average time required to build hardware units is less than the time

needed for the engineering and fiber installation process.

To date, we have yet to sell our patented BOTDA dark-pulse sensor system and

we have built two units for demonstration of the system to potential customers.

We are now able to sell our patented technology and related

We currently have no commitments to buy our units.

Our agreement with the University of New Brunswick

requires a royalty of 2% beginning April 24, 2018;

however, no royalties have been paid to the University of New Brunswick as the period

for royalties has expired prior to any sales of the patented technology.

The Company has no further requirement to pay royalties.

Change in Ownership in Previously Consolidated Subsidiary Results

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

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

On August 9, 2023, Evelyn Partners was appointed

Joint Liquidator.

There are no new claims against Optilan (UK) Limited

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

time of this filing the Company is still evaluating the full effects of the winding-up order for liquidation and the material adverse

effects it will have on the Company’s continued operations and ability to meet future obligations.

Year Ended December 31, 2023 Accounting Analysis

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.

Twelve-Months Ended December 31, 2024 Accounting Analysis

The Company performed an analysis of the trade

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The Company recorded a bad debt provision for this amount.

As a result of Optilan Liquidation as described in Note 1, management

determined that certain events and circumstances occurred that indicated that the carrying amount of the Company’s reporting unit

may not be recoverable.

The qualitative assessment was primarily due to the customer contracts held by Optilan (UK) Limited and the associated

revenue projections by the UK subsidiary that is subject to the potential winding up.

As such, the Company compared the fair value of

the reporting unit to the carrying amounts and recorded an impairment loss of $ 2,037,670 pertaining to impairment and goodwill in

the consolidated statements of operations.

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

of goodwill of $ 1,681,410.

The Company has one reporting unit which was evaluated in the impairment test noted above.

As a result of

the impairment, the Company had a carrying value of $0 pertaining to goodwill and intangible assets as of December 31, 2023.

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

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

Optilan (UK) Limited became subject to the control

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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.

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.

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

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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.

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

recorded against receivables that have been deemed uncollectible.

On May 27, 2022, we entered an Equity Financing

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

Below is a table of all puts made by the Company

under the 2022 EFA during 2023:

Number of Common Shares Issued

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

Number of Common

Shares Issued

Total Proceeds, Net of Discounts

Effective Price per Share

Effective Price

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

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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, 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 24 months after effectiveness of a registration statement on Form S-1 of the underlying

shares of Common Stock.

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

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under the EFA during 2023:

Number of Common Shares Issued

Number of Common

Shares Issued

Total Proceeds, Net of Discounts

Effective Price per Share

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.

Effective Price

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

Number of Common

Shares Issued

Total Proceeds, Net of

Effective Price

*Prior to the sales being made, GHS agreed to

purchase 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 $21,723,043 and $35,517,505 during the years ended December 31, 2023 and 2022, respectively, and net cash used

in operating activities of $(5,653,215) and $(21,738,542), respectively.

As of December 31, 2023, the Company’s current liabilities

exceeded its current assets by $18,126,281 and has an accumulated deficit of $67,376,221.

As of December 31, 2023, the Company had $11,912

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

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

As shown in the accompanying consolidated financial

statements, we generated net losses of $ 3,893,859 and $21,723,043 during the years ended December 31, 2024 and 2023, respectively, and

net cash used in operating activities of $(1,514,351) and $(5,653,215), respectively.

As of December 31, 2024, the Company’s current

liabilities exceeded its current assets by $17,160,706 and has an accumulated deficit of $71,259,677 .

As of December 31, 2024, the Company

had $86,531 of cash.

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

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

We will require additional funding to finance

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Foreign Currency Risk

In general, the Company is a net receiver of

currencies other than the U.S.

In general, the Company is a net receiver of currencies

other than the U.S.

Accordingly, changes in exchange rates, and in particular a strengthening of the U.S.

will negatively affect the Company’s net sales and gross margins as expressed in U.S.

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.

dollar, will negatively

affect the Company’s net sales and gross margins as expressed in U.S.

There is a risk that the Company will have to adjust

local currency product pricing due to competitive pressures when there has been significant volatility in foreign currency exchange rates.

Results of Operations

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that will be recognized during future reporting periods.

For the year ended December 31, 2023, total

revenues were $2,020,971 compared to $9,100,255 for the year ended December 31, 2022, a decrease of $7,079,284.

was primarily due to lower revenues achieved by Optilan, Wildlife, Remote and TJM Electronics West, Inc given capital and resources

For the year ended December 31, 2024, total revenues

were $126,836 compared to $2,020,971 for the year ended December 31, 2023, a decrease of $1,894,135.

The decrease was primarily due to

the Optilan liquidation and no revenue being generated by Wildlife, Remote and TJM Electronics West, Inc given capital and resources restraints.

The breakdown of revenues by entity for the years ended December 31, 2024 and 2023 is as follows:

Remote Intelligence

Optilan India

Cost of Revenues and Gross Margin

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The decrease was attributable

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

to the Optilan liquidation and no revenues being generated from Remote Intelligence, Wildlife Specialists, and TJM Electronics West, Inc.

Gross (loss) profit for the year ended December

31, 2023 was $(425,785) with a gross profit of (21)% compared to $(5,443,274) for the year ended December 31, 2022 with a (60)% gross

31, 2024 was $124,570 with a gross profit of 98% compared to $(425,785) for the year ended December 31, 2023 with a (21)% gross margin.

Operating Expenses

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ended December 31, 2024 decreased by $1,562,273, or 77%, to $471,588 from $2,033,8612 for the year ended December 31, 2023.

primarily consisted of decreases in advertising costs, insurance and information technology expenses of operations that have been shuttered.

Salaries, wages and payroll taxes for year ended December

31, 2023 decreased by $4,827,266, or 65%, to $2,630,225 from $7,457,491 for the year ended December 31, 2022.

The decrease primarily consisted

of reduced headcount at each subsidiary.

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

primarily consisted of decreases in contractors, insurance and information technology expenses of operations that have been shuttered.

Salaries, wages and payroll taxes for year ended

December 31, 2024 decreased by $1,805,595, or 69%, to $824,630 from $2,630,225 for the year ended December 31, 2023.

The decrease primarily

consisted of reduced headcount at each subsidiary.

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

Professional fees for the year ended December

2023 decreased by $608,454, or 16%, to $3,109,717 from $3,718,171 for the year ended December 31, 2022 due to decreased audit and legal

fees in 2023.

31, 2024 decreased by $2,592,916, or 83%, to $516,756 from $3,109,717 for the year ended December 31, 2023 due to decreased audit and

legal fees in 2023.

Depreciation and amortization for year ended December

31, 2024 decreased by $394,658, or 75%, to $128,489 from $523,147 for the year ended December 31, 2023.

This decrease is primarily

due to the sale of some subsidiary property, plant and equipment.

During the year ended December 31, 2023 and 2022,

This decrease is primarily due

to the Optilan liquidation and sale of some subsidiary property, plant and equipment.

During the years ended December 31, 2024 and 2023,

the Company recorded $0 and $6,948,350, respectively, in impairment on the Company’s goodwill and intangible assets.

During the year ended December 31, 2023 and 2022,

During the years ended December 31, 2024 and 2023,

the Company recorded $59,817 and $5,248,218, respectively, in bad debt expense.

year ended December 31, 2022, the Company recorded a gain on forgiveness of payables of ($312,685).

Other Income (Expense)

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expense of ($2,017,149) compared to other expense of ($803,740) in 2023.

The increase is due to the loss on deconsolidation of ($1,642,146)

partially offset by a $1,484,799 gain on forgiveness of debt.

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

of $21,723,043 and $35,517,505 for the years ended December 31, 2023 and 2022, respectively.

The increase is due to loss on equity investment of $1,500,000,

offset by the loss on deconsolidation of ($1,642,146) and a $1,484,799 gain on forgiveness of debt.

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

$3,893,859 and $21,723,043 for the years ended December 31, 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.

We require working capital to fund the continued development

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

During the year ended December 31, 2024,

we had $1,055,196 in cash proceeds from our equity financings compared to $3,297,272 in 2023.

As of December 31, 2023, we had cash of $11,912

compared to $2,060,332 as of December 31, 2022.

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.

As of December 31, 2024, we had cash of $86,531compared

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 December 31, 2023, our current liabilities exceeded our current assets by $18,126,281.

Currently, loans from banks or other lending

sources for lines of credit or similar short-term borrowings are not available to us.

We have been able to raise working capital to fund

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

As of December

31, 2024, our current liabilities exceeded our current assets by $17,160,706.

Several of our significant operating subsidiaries

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used in operating activities was $1,514,351 resulting from our net loss of $3,893,859, partially offset by non-cash charges of $1,634,681

primarily driven by our bad debt expense and goodwill impairment.

In 2022, we had cash used in operating activities of $21,738,542 resulting

from our net loss of $35,517,505, partially offset by non-cash charges of $13,307,813, including our goodwill impairment.

primarily driven by our loss on equity investment offset by Impairment of goodwill and issuance of common stock for legal settlement.

During the year ended December 31, 2023, net cash used in operating activities was $5,653,214 resulting from our net loss of $21,723,043,

partially offset by non-cash charges of $15,517,077 primarily driven by our bad debt expense and goodwill impairment.

Cash Flows from Investing Activities

During the year ended December 31, 2024, we had

net cash used in investing activities of $215,475, including a joint venture investment of $113,125, and purchase of property and equipment

net cash used in investing activities of $92,979, including writeoff of related party receivables of $59,817, and purchase of property

and equipment of $33,162.

During the year ended December 31, 2023, we had

net cash used in investing activities of $5,045,405, including the issuance of our note receivable and investment with the SPAC totaling

$2,549,248, joint venture investment of $103,505 and purchase of property and equipment of $2,074,627.

net cash used in investing activities of $215,475, including a joint venture investment of $113,125, and purchase of property and equipment

Cash Flows from Financing Activities

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provided by financing activities was $3,632,387 which was primarily comprised of proceeds from the sale of common stock of $3,502,272

net of costs of $1,934,200, less net repayments of loans of $110,507.

and proceeds from convertible notes of $145,000 less net repayments of loans of $14,885.

Factors That May Affect Future Results

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Recent Accounting Pronouncements

In November 2021, the FASB issued ASU No.

Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , issued

by the Financial Accounting Standards Board.

This ASU requires entities to recognize and measure contract assets and contract liabilities

acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606).

The update will

generally result in the recognition of contract assets and contract liabilities at amounts consistent with those recorded by the acquiree

immediately before the acquisition date rather than at fair value.

The Company expects that there would be no material impact on the Company’s

consolidated financial statements upon the adoption of this ASU.

In August 2020, the FASB issued ASU 2020-06, which

simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for convertible

debt with a cash conversion feature and convertible instruments with a beneficial conversion feature.

As a result, entities will not separately

present in equity an embedded conversion feature in such debt and will account for a convertible debt instrument wholly as debt, unless

certain other conditions are met.

The elimination of these models will reduce reported interest expense and increase reported net income

for entities that have issued a convertible instrument that is within the scope of ASU 2020-06.

ASU 2020-06 is applicable for fiscal years

beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020.

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.

In November 2024 the FASB issued ASU 2024-03 Income Statement —

Reporting Comprehensive Income (Subtopic 2220-40) which intends to improve the disclosures about a public business entity’s expenses

and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee

compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and

research and development).

In November 2024 the FASB issued ASU 2024-04 Debt with Conversion and

Other Options (Subtopic 470-20):

Induced Conversions of Convertible Debt Instruments to improve and clarify the requirements for determining

whether certain settlements of convertible debt instruments should be accounted for as an induced conversion.

In March 2024 the FASB issued ASU 2024-01, Compensation – Stock

Compensation Topic (718) contains amendments by adding an illustrative example to demonstrate how an entity should apply the scope guidance

in paragraph 718- 10-15-3 to determine whether profits interest and similar awards improve the understandability of paragraph 718-10-15-3

apply to all entities that enter into share-based payment transactions.

In March 2024 the FASB issued ASU 2024-02 Codification Improvements

which contains amendments to the Codification that remove references to various FASB Concepts Statements.

The Board has a standing project

on its agenda to address suggestions received from stakeholders on the Accounting Standards Codification and other incremental improvements

to generally accepted accounting principles (GAAP).

This effort facilitates Codification updates for technical corrections such as conforming

amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements.

The resulting

amendments are referred to as Codification improvements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements of the Company are included

beginning on page F-1 immediately following the signature page to this Form 10-K.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis