DarkPulse, Inc. 10-K

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. Current Operations As a result of the liquidation of Optilan UK Ltd, our current operations now include: DarkPulse, Inc., based in New York; Terradata Unmanned PLLC, based in Florida; Optilan India Pvt Ltd based in Navi-Mumbai and Optilan Communications & Security Systems Ltd, based in Ankara Turkey. Optilan India Pvt Ltd, operating in India, provides project engineering & design, system provisioning and contract bid services for the Company globally. Optilan Communications & Security Systems Ltd, provides project engineering & design, system provisioning and contract bid services for the Company throughout Europe. DarkPulse Manufacturing Inc., based in Arizona (formerly TJM Electronics West, Inc.), is no longer providing products or services as a result of the Company’s relationship with Sanmina Corporation who is handling both the design and manufacturing of the Company’s patented hardware. 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. We have recently completed development activities of our Gen. 3 dark-pulse BOTDA system and are pending a Purchase Order issuance to our contract manufacturer Sanmina Corp (NASDAQ: SANM) for full manufacturing of our patented BOTDA sensor system hardware. Sanmina has completed two of the Company’s system hardware units which are being utilized for product demonstrations for Border Security opportunities and Pipeline Leak Detection opportunities both inside and outside of the United States. Our business model, as it relates to hardware sales, is “Just in Time” 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. As mentioned, our manufacturing partner has built two units for demonstration of the system to potential customers. We are now able to sell our patented technology and related services. We currently have no commitments to buy our units. Our agreement with the University of New Brunswick requires a royalty of 2% beginning April 24, 2018; however, no royalties have been paid to the University of New Brunswick as the period for royalties has expired prior to any sales of the patented technology. The Company has no further requirement to pay royalties. 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. 1 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.” Our Operating Units Our material subsidiaries consist of the following: · 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. · Optilan India Pvt Ltd is operating in India providing project engineering and design, system provisioning and contract bid services for the Company globally. · Optilan Communications & Security Systems Ltd, (Turkey) is providing project engineering & design, system provisioning and contract bid services for the Company throughout Europe. 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. 2 Optilan Communications & Security Systems Ltd, (Turkey) Optilan Communications & Security Systems Ltd (Turkey) operates as a telecommunications systems integrator company. The company provides a supply of equipment and cable installation services. Optilan offers services in market areas including oil and gas, rail, law enforcement, telecoms, and other power utilities. The company also offers training, safety, and management systems for the Company throughout Europe. Optilan India Pvt Ltd Is a leading independent security and communications systems integrator worldwide. It has thirty years of expertise in areas from planning and design to site commissioning and post-installation support. Optilan provides integrated telecoms, telecoms and transport services and support with pipeline integrity systems as well as critical infrastructure. Optilan understands the day-to-day challenges posed to its customers in the ever-changing world of communications and security. Optilan supports and works together with customers in delivering mission critical, efficient, innovative and UKAS accredited solutions to meet project requirements. Optilan is providing project engineering and design, system provisioning and contract bid services for the Company globally. Recent Acquisitions On or about May 20, 2024, we became aware of an ambiguity in the signed Sale Agreement to purchase Optitlan India Pvt Ltd, Optilan Communications & Security Systems Ltd (Turkey) and certain intellectual properties belonging to Optilan UK Ltd (in liquidation). During negotiations Eveyln (the liquidator) suggested a broader language scope related to the intellectual property portion of the agreement. Upon additional discussions with Evelyn, an ambiguity was discussed related to software that was built by employees of Optilan UK Ltd. The Company had always intended to include the software as part of the asset purchase; however, Evelyn understood the agreement to exclude this important piece of intellectual property. After discussions related to the Company’s expenses related to the creation of the software and its crucial role in the completion of the user interface, both groups agreed the software would be part of the original Sales Agreement. No supplemental agreements were signed. On September 11, 2024, we entered into and closed the Sale Agreement with Optilan (UK) Limited (in liquidation) incorporated and registered in England and Wales with company number 02715788 (“ Optilan ” or the “ Seller ”), and Colin Hardman, Christopher Allen and Gregory Andrew Palfrey, as joint liquidators of the Seller all of Evelyn Partners LLP (the “ Joint Liquidators ”). Under the agreement, we purchased from the Seller for $65,000 all right, title, and interest in the following: (1) shares in Otilan India PVT (India), (2) shares in Optilan Communications & Security Systems Ltd (Turkey), and (3) the “Applicable Intellectual Property Rights,” as defined in the agreement and below. The following are excluded from the purchase: (1) any Excluded Intellectual Property Rights, as defined in the agreement; (2) any cash in hand or at the bank; (3) any real property owned, leased or used by the Seller; (4) all policies of insurance and assurance and any actual or potential claim under such policies or similar contracts or in damages against any third party; (5) the benefit of any actual or potential claim, or right to make a claim, against any person including the proceeds of any litigation; (6) any other shares or other securities owned by the Seller; (7) any stock-in-trade, work-in-progress or raw materials owned by the Seller; and (8) any plant and machinery, including but not limited to any motor vehicles owned or used by the Seller. “Applicable Intellectual Property Rights” are defined in Schedule 2 of the agreement as: (1) The software the Buyer assisted in creating for: (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 main interest for the Company’s acquisition of “certain assets” of Optilan UK Ltd include past performance linked to both Optilan India Pvt Ltd and Optilan Communications & Security Solutions Ltd to wit large scale Oil & Gas pipeline monitoring systems but equally important the design, engineering of fiber optic sensing systems along with extensive engineering capabilities across multiple industry segments globally. 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. 3 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 the date hereof and Evelyn Partners continues 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. 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 (the “ Merger ”). Our board of directors has (i) approved and declared advisable the BCA, the Merger and the other transactions contemplated thereby and (ii) resolved to recommend approval of the BCA and related transactions by our stockholders. The total consideration to be paid at closing (the “ Merger Consideration ”) by GSD to DarkPulse security holders will be valued at $116,518,357.65. The Merger Consideration will be payable in shares of GSD Common Stock, valued at $10.00 per share. 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. The transactions contemplated by the BCA, and the other transactions contemplated by the other transaction documents contemplated by the BCA (collectively, the “ Proposed Business Combination ”) will constitute a “Business Combination.” The Business Combination and the transactions contemplated thereby were unanimously approved by the board of directors of the Company on December 14, 2022. The Business Combination The BCA provides, among other things, that Merger Sub will merge with and into DarkPulse, with DarkPulse as the surviving company in the merger and, after giving effect to such merger, DarkPulse shall be a wholly owned subsidiary of GSD. GSD will continue to be named “Global System Dynamics, Inc.” and the combined entity will trade under the symbol “DARK.” 4 In accordance with the terms and subject to the conditions of the BCA, at the Effective Time, among other things: (i) each GSD Class A Share and each GSD Class B Share that is issued and outstanding immediately prior to the Merger will become one share of common stock, par value $0.0001 per share, of GSD; (ii) by virtue of the Merger and without any action on the part of any Party or any other Person, each share of DarkPulse Common Stock (other than shares of DarkPulse Common Stock cancelled and extinguished pursuant to Section 2.1(a)(viii) of the BCA) issued and outstanding as of immediately prior to the Effective Time shall be automatically canceled and extinguished and converted into the right to receive that number of GSD Class A Shares equal to the Merger Consideration; provided, however, that any DarkPulse shares that are Restricted Shares shall be converted into restricted GSD Class A Shares, subject to the same vesting, transfer and other restrictions as the applicable Restricted Shares; (iii) by virtue of the Merger and without any action on the part of any Party or any other Person, each share of capital stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be automatically cancelled and extinguished and converted into one share of common stock, par value $0.0001, of DarkPulse; (vi) Dennis O’Leary, Joseph Catalino, George Pappas, Geoff Mullins, Wayne Bale and John Bartrum shall become the directors of GSD, Dennis O’Leary shall become the Chief Executive Officer of GSD and of the surviving company, and J. Richard Iler shall become the Chief Financial Officer of GSD, each to hold office in accordance with the governing documents of GSD until such director’s or officer’s successor is duly elected or appointed and qualified, or until the earlier of their death, resignation or removal; (v) by virtue of the Merger and without any action on the part of any Party or any other Person, each DarkPulse share held immediately prior to the Effective Time by DarkPulse as treasury stock shall be automatically canceled and extinguished, and no consideration shall be paid with respect thereto. Representations and Warranties; Covenants The parties to the BCA have agreed to customary representations and warranties for transactions of this type. In addition, the parties to the BCA agreed to be bound by certain customary covenants for transactions of this type, including, among others, covenants with respect to the conduct of the Company and its subsidiaries during the period between execution of the BCA and the Closing. Each of the parties to the BCA has agreed to use its reasonable best efforts to cause all actions and things necessary to consummate and expeditiously implement the Business Combination. Conditions to Each Party’s Obligations Under the BCA, the obligations of the parties to consummate the Merger are subject to the satisfaction or waiver of certain customary closing conditions of the respective parties, including, without limitation: (i) the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations promulgated thereunder relating to the Business Combination having expired or been terminated and any other required regulatory approvals applicable to the transactions contemplated by the BCA having been obtained and remaining in full force and effect; (ii) all the DarkPulse Preferred Stock being converted to DarkPulse Common Stock prior to the Effective Time; (iii) no order or law issued by any court of competent jurisdiction or other governmental entity or other legal restraint or prohibition preventing the consummation of the transactions contemplated by the Business Combination being in effect; (iv) the registration statement on Form S-4 containing the joint proxy statement/prospectus filed by DarkPulse and GSD relating to the BCA and the Merger (the “ Registration Statement ”) becoming effective in accordance with the provisions of the Securities Act of 1933, as amended (the “ Securities Act ”), no stop order being issued by the SEC and remaining in effect with respect to the Registration Statement, and no proceeding seeking such a stop order being threatened or initiated by the SEC and remaining pending; (v) GSD’s initial listing application with Nasdaq in connection with the Business Combination having been approved; (vi) GSD’s Board consisting of the number of directors, and comprising the individuals, determined pursuant to the BCA; (vii) the approval and adoption of the BCA and the transactions contemplated thereby by the requisite vote of the DarkPulse’s stockholders; (viii) the approval and adoption of the BCA and the transactions contemplated thereby by the requisite vote of GSD’s stockholders; (ix) after giving effect to the transactions contemplated (including the PIPE Financing), GSD has at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act of 1934, as amended (the “ Exchange Act ”)) immediately after the Effective Time; (x) the absence of a DarkPulse Material Adverse Effect since the date of the BCA that is continuing, and (xi) the absence of a GSD Material Adverse Effect since the date of the BCA that is continuing. 5 Termination The BCA may be terminated under certain customary and limited circumstances at any time prior to the Closing, including, without limitation, (i) by the mutual written consent of GSD and DarkPulse; (ii) by GSD, subject to certain exceptions, if any of the representations or warranties made by DarkPulse are not true and correct or if DarkPulse fails to perform any of its covenants or agreements under the BCA (including an obligation to consummate the Closing) such that certain conditions to the obligations of GSD could not be satisfied and the breach (or breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (A) 30 days after written notice thereof, and (B) February 9, 2024 (the “ Termination Date ”); (iii) by DarkPulse, subject to certain exceptions, if any of the representations or warranties made by us are not true and correct or if GSD fails to perform any of GSD’s covenants or agreements under the BCA (including an obligation to consummate the Closing) such that the condition to the obligations of DarkPulse could not be satisfied and the breach (or breaches) of such representations or warranties or failure (or failures) to perform such covenants or agreements is (or are) not cured or cannot be cured within the earlier of (A) 30 days after written notice thereof, and (B) the Termination Date iv) by either GSD or DarkPulse, if the Closing does not occur on or prior to the Termination Date, unless the breach of any covenants or obligations under the BCA by the party seeking to terminate proximately caused the failure to consummate the transactions contemplated by the BCA; (v) by either GSD or DarkPulse, if (A) any governmental entity shall have issued an order or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by the BCA and such order or other action shall have become final and non-appealable; or (B) if the required DarkPulse or GSD stockholder consent is not obtained; (vi) by GSD, if (A) DarkPulse does not deliver, or cause to be delivered to GSD a Transaction Support Agreement duly executed by certain DarkPulse stockholders or (B) the DarkPulse stockholders meeting has been held, has concluded, DarkPulse stockholders have duly voted, and DarkPulse stockholder approval was not obtained; (vii) by GSD should DarkPulse not deposit into the Trust Account in a timely manner the funds necessary to extend the period for us to complete an initial business combination for an additional period of six months from August 9, 2023, in accordance with, and as required pursuant to, the BCA; and (x) by GSD should: (A) Nasdaq not approve the initial listing application for the combined company with Nasdaq in connection with the Business Combination; (B) the combined company not have satisfied all applicable initial listing requirements of Nasdaq; or (C) the common stock of the combined company not have been approved for listing on Nasdaq prior to the Closing Date. In the event of the termination of this BCA, the BCA will become void (and there will be no Liability or obligation on the part of the Parties and their respective Non-Party Affiliates) with the exception of Section 5.3(a) , this Section 7.2 , Article VIII and Article I (to the extent related to the termination), each of which will survive such termination and remain valid and binding obligations of the Parties. The Stockholder Transaction Support Agreement Concurrently with, or with respect to a certain stockholder holding all of the shares of Series A Preferred Stock of DarkPulse, within a specified time after the signing of the BCA, the “DarkPulse Stockholder” (collectively, the “ Supporting Company Stockholder ”) shall duly execute and deliver to GSD a transaction support agreement pursuant to which, among other things, such Supporting DarkPulse Stockholder will agree to, support and vote in favor of the BCA, the Ancillary Documents which DarkPulse is or will be a party and the transactions contemplated thereby (including the Merger). Trust Funds and Public Shares As of January 23, 2024, GSD had approximately $5,233,823 left in trust and 477,066 public shares outstanding. Termination of 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. GSD had until February 9, 2024 to consummate a business combination. Due the fact that GSD did not consummate a business combination by February 9, 2024, there will be a mandatory liquidation and subsequent dissolution. For more information about the GSD liquidation, please see “ Due to the failure of GSD to consummate a business combination with DarkPulse by February 9, 2024, GSD will be forced to liquidate, which may make the shares of GSD owned by DarkPulse worthless and DarkPulse may be unable to recoup any expenses spent on acquiring securities of GSD and loans to GSD. ” in the section titled “Risk Factors.” 6 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. Revenue Our 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. 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. 7 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. Consulting Services: · Consulting (as stand-alone or presales); · Post sales deployment and Support; and · Managed services (monitoring, etc.). 8 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. Competition 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. 9 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 (Canadian Patent No. 2,502,275 and active until May 19, 2025), 8,643,829 (active until September 7, 2030), and 9,534,965 (active until April 26, 2031), each of which are related to our BOTDA dark-pulse technology. 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 April 14, 2025, we had 13 full-time employees and no part-time employees.