The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
Notes to Condensed Financial Statements
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated
interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim
financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the
United States for complete financial statements. The information furnished reflects all adjustments, consisting only of normal recurring
items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The consolidated financial
statements as of December 31, 2020 have been audited by an independent registered public accounting firm. The accounting policies and
procedures employed in the preparation of these condensed consolidated financial statements have been derived from the audited financial
statements of the Company for the year ended December 31, 2020, which are contained in Form 10-K as filed with the Securities and Exchange
Commission on April 15, 2021. The consolidated balance sheet as of December 31, 2020 was derived from those financial statements.
Basis of Presentation and Principles of
Consolidation
The consolidated financial statements and accompanying
notes are prepared in accordance with generally accepted accounting principles of the United States of America (“U.S. GAAP”)
and the rules and regulations of the U.S Securities and Exchange Commission for Interim Financial Information. The condensed consolidated
financial statements of the Company include the Company and its wholly owned subsidiaries. All intercompany transactions and balances
have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial
position as of June 30, 2021, and the results of operations for three and six months and cash flows for the six months ended June 30,
2021 have been included. The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of
the results to be expected for the full year.
Description of Business
DarkPulse,
Inc. ("DPI" or "Company") is a technology-security company incorporated in 1989 as Klever Marketing, Inc. ("Klever").
Its’ wholly-owned subsidiary, DarkPulse Technologies Inc. ("DPTI"), originally started as a technology spinout from the
University of New Brunswick, Fredericton, Canada. The Company’s security and monitoring systems will initially be delivered in applications
for border security, pipelines, the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have
been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision.
The Company’s patented BOTDA dark-pulse sensor technology allows for the monitoring of highly dynamic environments due to
its greater resolution and accuracy.
On April 27, 2018, Klever entered into an Agreement
and Plan of Merger (the “Merger Agreement” or the “Merger”) involving Klever as the surviving parent corporation
and acquiring a privately held New Brunswick corporation known as DarkPulse Technologies Inc. as its wholly owned subsidiary. On July
18, 2018, the parties closed the Merger Agreement, as amended on July 7, 2018, and the name of the Company was subsequently changed to
DarkPulse, Inc. With the change of control of the Company, the Merger is being be accounted for as a recapitalization in a manner similar
to a reverse acquisition.
On July 20, 2018, the Company filed a Certificate
of Amendment to its Certificate of Incorporation with the State of Delaware, changing the name of the Company to DarkPulse, Inc. The Company
filed a corporate action notification with the Financial Industry Regulatory Authority (FINRA), and the Company's ticker symbol was changed
to DPLS.
Going Concern Uncertainty
As shown in the accompanying financial statements,
during the six months ended June 30, 2021, the Company did not generate any revenues and reported a net loss of $237,481. As of June 30,
2021, the Company’s current liabilities exceeded its current assets by $2,915,206. As of June 30, 2021, the Company had $148,562
of cash.
The Company will require additional funding to
finance the growth of our operations and achieve our strategic objectives. These factors, as relative to capital raising activities, create
doubt as to our ability to continue as a going concern. We are seeking to raise additional capital and are targeting strategic partners
in an effort to accelerate the sales and marketing of our products and begin generating revenues. Our ability to continue as a going concern
is dependent upon the success of future capital offerings or alternative financing arrangements, expansion of our operations and generating
sales. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as
a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations
however, management cannot make any assurances that such financing will be secured.
Use of Estimates
In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of
the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from
those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based
compensation, derivative liabilities, preferred deemed dividend and common stock issued for services.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with a high credit quality financial
institutions. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”)
up to $250,000. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually
the rating of the financial institution in which it holds deposits.
Intangible Assets
The Company reviews intangibles held and used
for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted
future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the
carrying value of the asset exceeds the expected future cash flows.
Foreign Currency Translation
The company translates monetary assets and liabilities
(any item paid for or settled in foreign currency) into the United States Dollar at exchange rates prevailing on the balance sheet date.
Non-monetary assets and liabilities are translated at the historical rate in effect when the transaction occurred. Revenues and expenses
are translated at the spot rate on the date the transaction occurred. Exchange gains and losses from the translation of monetary items
are included in unrealized gain/loss on Foreign Exchange as Other Comprehensive Loss.
The following table discloses the dates and exchange rates used for
converting Canadian Dollar amounts to U.S. Dollar amounts disclosed in the balance sheet and the statement of operations.
The spot exchange rate between the Canadian Dollar
and the U.S. Dollar on, December 31, 2020 closing rate at 1.2754 US$: CAD, average rate at 1.3388 US$: CAD and for the three months ended
June 30, 2021 closing rate at 1.2395 US$: CAD, average rate at 1.2249 US$.
Income Taxes
The Company accounts for income taxes in accordance
with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method,
deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax
basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes
to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions
in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating
results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities
may be required. Valuation allowances are recorded related to deferred tax assets based on the "more likely than not" criteria
of ASC 740.
ASC 740-10 requires that the Company recognize
the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain
the position following an audit. For tax positions meeting the "more-likely-than-not" threshold, the amount recognized in the
financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with
the relevant tax authority.
Accounting for Derivatives
The Company evaluates all of its financial instruments
to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments
that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments,
the Company uses a probability weighted average series Binomial lattice formula pricing models to value the derivative instruments at
inception and on subsequent valuation dates.
The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative
instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the
derivative instrument could be required within 12 months of the balance sheet date.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial
assets and liabilities, such as cash, prepaid expenses, and accruals approximate their fair values because of the short maturity of these
instruments. The Company believes the carrying value of its secured debenture payable approximates fair value because the terms were negotiated
at arm’s length.
Recent Accounting Pronouncements
There were no new accounting pronouncements issued
or proposed by the Financial Accounting Standards Board during the three months ended June 30, 2021, and through the date of filing of
this report that the Company believes has had or will have a material impact on its financial position or results of operations, including
the recognition of revenue, cash flow, the merger that was consummated on July 18, 2018. The Company has no lease obligations.
Income (Loss) Per Common Share
Basic net income (loss) per share of common stock
is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income
(loss) per share of common stock is computed by dividing net income (loss) by the sum of the weighted average number of common shares
outstanding and the dilutive potential common share equivalents outstanding. Potential dilutive common share equivalents consist of shares
issuable upon exercise of outstanding convertible preferred stock and stock options.
For the three and six months ended June 30, 2021,
there were no stock options outstanding. For the three and six months ended June 30, 2021, common stock equivalents related to convertible
preferred stock and convertible debt have not been included in the calculation of diluted loss per common share because they are anti-dilutive.
Therefore, basic loss per common share is the same as diluted loss per common share. There are 1,970,029,676 common shares reserved for
the potential conversion of the Company's convertible debt.
NOTE 2 - DEBENTURE
DPTI issued a convertible Debenture to the University
in exchange for the Patents assigned to the Company, in the amount of Canadian $1,500,000, or US $1,491,923 on December 16, 2010, the
date of the Debenture. On April 24, 2017 DPTI issued a replacement secured term Debenture in the same C$1,500,000 amount as the original
Debenture. The interest rate is the Bank of Canada Prime overnight rate plus 1% per annum. The Debenture had an initial required payment
of Canadian $42,000 (US$33,385) due on April 24, 2018 for reimbursement to the University of its research and development costs, and this
has been paid. Interest-only maintenance payments are due annually starting after April 24, 2018. Payment of the principal begins on the
earlier of (a) three years following two consecutive quarters of positive earnings before interest, taxes, depreciation and amortization,
(b) six years from April 24, 2017, or (c) in the event DPTI fails to raise defined capital amounts or secure defined contract amounts
by April 24 in the years 2018, 2019, and 2020. The Company has raised funds in excess of the amount required by April 24, 2018. The principal
repayment amounts will be due quarterly over a six-year period in the amount of Canadian Dollars $62,500. Based on the exchange rate between
the Canadian Dollar and the U.S. Dollar on June 30, 2021, the quarterly principal repayment amounts will be US$49,750. The Debenture is
secured by the Patents assigned by the University to DPTI by an Assignment Agreement on December 16, 2010. DPTI has pledged the Patents,
and granted a lien on them pursuant to an Escrow Agreement dated April 24, 2017, between DPTI and the University.
The Debenture was initially recorded at the
$1,491,923 equivalent US Dollar amount of Canadian $1,500,000 as of December 16, 2010, the date of the original Debenture. The
liability is being adjusted quarterly based on the current exchange value of the Canadian dollar to the US dollar at the end of each
quarter. The adjustment is recorded as unrealized gain or loss in the change of the value of the two currencies during the quarter.
The amounts recorded as an unrealized loss for the three months ended June 30, 2021 and 2020, were $16,154
and $39,046
39,046 respectively. These amounts are included in Accumulated Other Comprehensive Loss in the Equity section of the consolidated
balance sheet, and as Unrealized Loss on Foreign Exchange on the consolidated statement of comprehensive loss. The Debenture also
includes a provision requiring DPTI to pay the University a two percent (2%) royalty on sales of any and all products or services
which incorporate the Patents for a period of five years from April 24, 2018.
For the three months ended June 30, 2021, and
2020, the Company recorded interest expense of $13,463 and $12,255, respectively.
As of June 30, 2021 the debenture liability totaled
$1,210,155, all of which was long term.
Future minimum required payments over the
next 5 years and thereafter are as follows:
Future minimum required payments
|
|
|
|
|
Period ending June 30,
|
|
|
|
2022
|
|
$
|
–
|
|
2023
|
|
|
–
|
|
2024
|
|
|
–
|
|
2025
|
|
|
–
|
|
2026 and after
|
|
|
1,210,155
|
|
Total
|
|
$
|
1,210,155
|
|
NOTE 3 – CONVERTIBLE DEBT SECURITIES
The Company uses the Black-Scholes Model to calculate
the derivative value of its convertible debt. The valuation result generated by this pricing model is necessarily driven by the value
of the underlying common stock incorporated into the model. The values of the common stock used were based on the price at the date of
issue of the debt security as of June 30, 2021. Management determined the expected volatility of 425.68%,
a risk-free rate of interest of 0.07%,
and contractual lives of the debt varying from six months to two years. The table below details the Company's nine outstanding convertible
notes, with totals for the face amount, amortization of discount, initial loss, change in the fair market value, and the derivative liability.
Schedule of convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face
|
|
|
Debt
|
|
|
Initial
|
|
|
Change
|
|
|
Derivative
Balance
|
|
|
|
Amount
|
|
|
Discount
|
|
|
Loss
|
|
|
in FMV
|
|
|
6/30/2021
|
|
|
|
$
|
90,228
|
|
|
$
|
–
|
|
|
$
|
58,959
|
|
|
$
|
(51,635
|
)
|
|
$
|
78,488
|
|
|
|
|
162,150
|
|
|
|
–
|
|
|
|
74,429
|
|
|
|
(84,378
|
)
|
|
|
152,222
|
|
|
|
|
72,488
|
|
|
|
–
|
|
|
|
11,381
|
|
|
|
(6,399
|
)
|
|
|
112,674
|
|
|
|
|
53,397
|
|
|
|
–
|
|
|
|
5,651
|
|
|
|
13,592
|
|
|
|
94,616
|
|
|
|
|
53,864
|
|
|
|
–
|
|
|
|
28,566
|
|
|
|
(5,860
|
)
|
|
|
69,333
|
|
|
|
|
18,613
|
|
|
|
–
|
|
|
|
16,558
|
|
|
|
(1,142
|
)
|
|
|
13,512
|
|
|
|
|
40,000
|
|
|
|
–
|
|
|
|
10,605
|
|
|
|
(4,416
|
)
|
|
|
51,397
|
|
|
|
|
42,350
|
|
|
|
22,302
|
|
|
|
7,350
|
|
|
|
(4,887
|
)
|
|
|
54,120
|
|
|
|
|
94,200
|
|
|
|
57,316
|
|
|
|
19,200
|
|
|
|
(8,263
|
)
|
|
|
105,683
|
|
|
|
|
76,200
|
|
|
|
58,036
|
|
|
|
16,200
|
|
|
|
(5,915
|
)
|
|
|
86,548
|
|
|
|
|
64,200
|
|
|
|
49,073
|
|
|
|
14,200
|
|
|
|
74,788
|
|
|
|
74,788
|
|
|
|
|
825,000
|
|
|
|
779,194
|
|
|
|
203,500
|
|
|
|
–
|
|
|
|
–
|
|
Subtotal
|
|
|
1,584,574
|
|
|
|
965,921
|
|
|
|
466,599
|
|
|
|
(235,737
|
)
|
|
|
893,381
|
|
Transaction expense
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
$
|
1,584,574
|
|
|
$
|
965,921
|
|
|
$
|
466,599
|
|
|
$
|
(235,737
|
)
|
|
$
|
893,381
|
|
On April 5, 2021, the Company entered into
a securities purchase agreement with Geneva Roth Remark Holdings, Inc. (“Geneva”) issuing to Geneva a convertible promissory
note in the aggregate principal amount of $64,200 with a $10,700 original issue discount and $3,500 in transactional expenses due to Geneva
and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of the Company's common stock at a
conversion price equal to 81% of the lowest two trading prices of the Company's common stock during the 10 prior trading days. The Company
received $50,000 net cash.
On April 26, 2021, the Company entered a
Securities Purchase Agreement (the “SPA”) and Registration Rights Agreement (the “Registration Rights
Agreement”) with FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, a Delaware limited liability company (the
“FirstFire”), pursuant to which we issued to FirstFire a Convertible Promissory Note in the principal amount of
$825,000
(the “FirstFire Note”). The SPA closed on April 30, 2021. The purchase price of the FirstFire Note is $750,000.
The FirstFire Note matures on January
26, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the FirstFire Note at 10%
per annum guaranteed until the FirstFire Note becomes due and payable, whether at maturity or upon acceleration or by prepayment or
otherwise. The FirstFire Note is convertible at any time after 180 days from issuance, upon the election of the FirstFire, into
shares of our Common Stock at $0.015
per share. The FirstFire Note is subject to various “Events of Default,” which are disclosed in the FirstFire Note. Upon
the occurrence of an “Event of Default,” the conversion price will become $0.005.
In the event of a DTC “chill” on our shares, an additional discount of 10% will apply to the conversion price while the
“chill” is in effect. Upon the issuance of the FirstFire Note, we have initially agreed to reserve 550,000,000
shares of Common Stock. In addition, on April 30, 2021, the Company issued 60,000,000
shares of common stock valued at $1,122,000
as compensation for loan acquisition costs, which will be amortized over the life of the note. For the three months ended June 30,
2021, the Company expensed $249,333
to interest expense.
The Registration Rights Agreement provides that
the Company shall (i) use its best efforts to file with the Securities and Exchange Commission (the “Commission”)
an S-1 Registration Statement within 90 days of the date of the Registration Rights Agreement to register the shares into which the FirstFire
Note is convertible; and (ii) have the Registration Statement declared effective by the Commission within 180 days after the date the
Registration Statement is filed with the Commission.
On May 19, 2021, the Company entered into a Stipulation
of Settlement with four note holders pursuant to which the Company agreed to pay $173,000 to the note holders.
On June 3, 2021, the Company entered into a
Settlement and Mutual Release Agreement with Auctus Fund, LLC (the “Lender”). Pursuant to the Agreement, the Lender
agreed to convert the Promissory Note issued on September 25, 2018 by the Company to the Lender in the principal amount of $100,000
(the “Auctus Note”) into 12,500,000
shares of the Company’s Common stock (the “Shares”) as consideration for full and complete satisfaction of and
settlement of the Auctus Note, which also terminates all obligations owing under both the Auctus Note and the corresponding
Securities Purchase Agreement dated September 25, 2018 between the Company and the Lender. The Lender also agreed to limit the
resales of the Shares in the public market to no more than 2,500,000
shares per calendar week until all of the Shares have been sold.
As of June 30, 2021 and 2020 respectively, there
was 1,584,574 and $1,072,663 of convertible debt outstanding, net of debt discount of $965,921, and $1,313, As of June 30, 2021 and 2020
respectively, there was derivative liability of $893,381 and $1,232,344 related to convertible debt securities.
NOTE 4 - STOCKHOLDERS' DEFICIT
As of June
30, 2021, there were 4,770,327,191 shares of common stock and 88,235 shares of preferred
stock issued and outstanding.
NOTE 5 - COMMITMENTS & CONTINGENCIES
Potential Royalty Payments
The Company, in consideration of the terms of
the debenture to the University of New Brunswick, shall pay to the University a two percent royalty on sales of any and all products or
services which incorporate the Company's patents for a period of five years from April 24, 2018.
Legal Matters
Carebourn Capital, L.P.
On January 29, 2021, Carebourn Capital, L.P. (“Carebourn”)
commenced suit against the Company in the 4th Judicial District (Hennepin County District Court) (Minnesota), alleging the Company breached
the terms and conditions of two convertible promissory notes and accompanying securities purchase agreements Carebourn and the Company
entered into on July 17, 2018 and July 24, 2018, respectively.
Also on January 29, 2021, Carebourn moved for
a temporary injunction to enjoin the Company from transferring any shares of its common stock to any third parties. Following submission
of briefing by both parties and oral arguments on Carebourn’s motion, on March 17, 2021, the Court denied Carebourn’s motion
for a temporary injunction.
On April 14, 2021, Carebourn filed an amended
complaint and asserted new claims. On May 13, 2021, the Company filed a motion to dismiss Carebourn’s amended complaint, arguing
that Carebourn is conducting itself as an unregistered dealer, in violation of Section 15(a) of the Securities and Exchange Act of 1934
(the “Act”), and, pursuant to Section 29(b) of the Act, the Company is entitled to have all contracts arising under
the unlawful securities transaction declared void ab initio and seek rescissionary damages for any unlawful securities transactions effected
by Carebourn.
As of the date hereof, a ruling has not been issued
on the foregoing motions to dismiss filed by the Company and other defendants. Furthermore, as of the date hereof, the Company and Carebourn
are conducting discovery. The Company intends to defend itself against the allegations asserted in Carebourn’s amended complaint
and interpose the defenses provided under the Act, including but not limited to asserting that Carebourn is an unregistered dealer acting
in violation of Section 15(a) and, pursuant to Section 29(b), the Company interposing its right to rescind the unlawful securities contracts
in their entirety and, furthermore, seek rescissionary damages for any unlawful securities transactions effected by Carebourn. The Company
contends that its arguments are brought in good faith, particularly in light of recent SEC enforcement actions and the SEC’s ongoing
investigation against Carebourn, among other parties, for violations of federal securities laws, including violations of Section 15(a)
of the Act. See U.S. Securities and Exchange Commission v. Carebourn Capital, LP et al, Case No. 1:20-cv-07162 (N.D. Ill.).
Former Darkpulse Officers
On June 10, 2021, Stephen Goodman, Mark Banash,
and David Singer (the “Former Officers”), all former officers and employees of the Company, commenced suit against
the Company in Arizona Superior Court, Maricopa County. The complaint alleges the Company breached the rights of the Former Officers in
connection with Series D preferred stock issued to the Former Officers. The Company intends to defend itself against the allegations asserted
in the Former Officers’ complaint. if the case progresses the Company will
file countersuits against all plaintiffs.
More Capital, LLC
On June 29, 2021, More Capital, LLC (“More”)
commenced suit against the Company, et al., in the 4th Judicial District (Hennepin County District Court) (Minnesota), alleging the Company
breached the terms and conditions of a convertible promissory note and accompanying securities purchase agreement More and the Company
entered into on August 20, 2018.
On July 20, 2018, the Company filed a motion to
dismiss More’s complaint, arguing that the claims asserted against the Company fail to state a claim upon which relief can be granted.
The Company intends to defend itself against the
allegations asserted in More’s complaint and interpose the defenses provided under the Act, including but not limited to asserting
that More is an unregistered dealer acting in violation of Section 15(a) of the Act and, pursuant to Section 29(b) of the Act, the Company
interposing its right to rescind the unlawful securities contracts in their entirety and, furthermore, seek rescissionary damages for
any unlawful securities transactions effected by More. The Company contends that its arguments are brought in good faith, particularly
in light of recent SEC enforcement actions and the SEC’s ongoing investigation against More, among other parties, for violations
of federal securities laws, including violations of Section 15(a) of the Act. See U.S. Securities and Exchange Commission v. Carebourn
Capital, LP et al, Case No. 1:20-cv-07162 (N.D. Ill.).
From time to time, we may become involved in litigation
relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending legal
proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are
a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business,
financial condition and operating results.
COVID-19
On March 11, 2020, the World Health Organization
announced that infections of the novel Coronavirus (COVID-19) had become pandemic, and on March 13, the U.S. President announced a National
Emergency relating to the disease. There is a possibility of continued widespread infection in the United States and abroad, with the
potential for catastrophic impact. National, state and local authorities have required or recommended social distancing and imposed or
are considering quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures,
while intended to protect human life, are expected to have serious adverse impacts on domestic and foreign economies of uncertain severity
and duration. Some economists are predicting the United States will soon enter a recession. The sweeping nature of the coronavirus pandemic
makes it extremely difficult to predict how the Company’s business and operations will be affected in the longer run, but we expect
that it may materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts
our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may
emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Moreover,
the coronavirus outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our
business and results of operations could be adversely affected to the extent that this coronavirus or any other epidemic harms the global
economy generally and/or the markets in which we operate specifically. Any of the foregoing factors, or other cascading effects of the
coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our revenues and damage
the Company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts
cannot be predicted.
NOTE 6 – INTANGIBLE ASSETS
Intangible Assets - Intrusion Detection Intellectual
Property
The Company relies on patent laws and restrictions
on disclosure to protect its intellectual property rights. As of June 30, 2021, the Company held 3 U.S. and foreign patents on its intrusion
detection technology, which expire in calendar years 2025 through 2034 (depending on the payment of maintenance fees).
The DPTI issued patents cover a System and Method
for Brillouin Analysis, a System and Method for Resolution Enhancement of a Distributed Sensor, and a Flexible Fiber Optic Deformation
System Sensor and Method. Maintenance of intellectual property rights and the protection thereof is important to our business. Any patents
that may be issued may not sufficiently protect the Company's intellectual property and third parties may challenge any issued patents.
Other parties may independently develop similar or competing technology or design around any patents that may be issued to the Company.
The Company cannot be certain that the steps it has taken will prevent the misappropriation of its intellectual property, particularly
in foreign countries where the laws may not protect proprietary rights as fully as in the United States. Further, the Company may be required
to enforce its intellectual property or other proprietary rights through litigation, which, regardless of success, could result in substantial
costs and diversion of management's attention. Additionally, there may be existing patents of which the Company is unaware that could
be pertinent to its business, and it is not possible to know whether there are patent applications pending that the Company's products
might infringe upon, since these applications are often not publicly available until a patent is issued or published.
For the three months
ended June 30, 2021 and 2020, the Company amortized $12,757
and $12,757, respectively.
Future amortization of intangible assets is as follows:
Schedule of Intangible Assets
|
|
|
|
|
2021
|
|
$
|
25,514
|
|
2022
|
|
|
51,028
|
|
2023
|
|
|
51,028
|
|
2024
|
|
|
51,028
|
|
2025
|
|
|
51,028
|
|
Thereafter
|
|
|
138,850
|
|
Total
|
|
$
|
368,476
|
|
NOTE 7 – RELATED PARTY TRANSACTIONS
The Company follows
subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party
transactions. Pursuant to Section 850-10-20 the related parties include a) affiliates of the Company; b) Entities for which investments
in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of
Section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as
pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e)
management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the
management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing
its own separate interests; and g) Other parties that can significantly influence the management or operating policies of the transacting
parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing its own separate interests. The financial statements
shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other
similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated
or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s)
involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each
of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects
of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements
are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts
due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of
settlement.
During the three months ended June 30, 2021 and
2020, the Company’s Chief Executive Officer advanced personal funds in the amount of $0 and $33,820 for Company expenses. As of
June 30, 2021, the Company’s Chief Executive Officer is owed a total of $98,930 for advanced personal funds.
NOTE 8 – PREFERRED STOCK
In accordance with the Company’s Certificate of Incorporation,
the Company has authorized a total of 2,000,000 shares of preferred stock, par value $0.01 per share, for all classes. As of June 30,
2021, and December 31, 2020, there were 88,235 total preferred shares issued and outstanding for all classes.
During the three months ended June 30, 2021, the
Company issued no shares of preferred stock.
NOTE 9 – COMMON STOCK
In accordance with the Company’s bylaws,
the Company has authorized a total of 20,000,000,000 shares of common stock, par value $0.0001 per share. As of June 30, 2021 and December
31, 2020, there were 4,770,327,191 and 4,088,762,156 common shares issued and outstanding.
During the three months ended June 30, 2021, the
Company issued the following shares of common stock:
On April 15, 2021, the Company issued an aggregate
of 8,065,040 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $47,850 and
interest of $2,153.25.
On April 30, 2021, the Company issued 60,000,000
shares of common stock as compensation for loan acquisition costs associated with the note issued on the same date for the amount of $825,000.
On June 4, 2021, the Company issued an aggregate
of 12,500,000 shares of common stock upon the conversion of convertible debt, as issued on September 25, 2018, in the amount of $76,656.83
and interest of $260.61.
NOTE 10 – STOCK OPTIONS
During the three months ended June 30, 2021, the
Company did not issue any stock options and had no stock options outstanding at June 30, 2021.
NOTE 11 – SUBSEQUENT EVENTS
The Company evaluated events occurring after the
date of the accompanying unaudited condensed consolidated balance sheets through the date the financial statements were issued and has
identified the following subsequent events that it believes require disclosure:
On July 12, 2021, the Company issued an aggregate
of 1,784,146 shares of common stock upon the conversion of convertible debt, as issued on January 12, 2021, in the amount of $42,350.
On July 14, 2021, the Company issued an aggregate
of 45,037,115 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $93,864 and
interest of $26,246.
On July 14, 2021, the Company entered a Securities
Purchase Agreement (the “GS SPA”) with GS Capital Partners, LLC (the “Lender”), pursuant to which the
Company issued to the Lender a 6% Redeemable Note in the principal amount of $2,000,000 (the “Note”). The purchase price
of the Note is $1,980,000. The Note matures on July 14, 2022 upon which time all accrued and unpaid interest will be due and payable.
Interest accrues on the Note at 6% per annum until the Note becomes due and payable. The Note is subject to various “Events of
Default,” which are disclosed in the Note. Upon the occurrence of an “Event of Default,” the interest rate on the Note
will be 18%. The Note is not convertible into shares of the Company’s Common Stock and is not dilutive to existing or future shareholders
and the Company plans on using a portion of the proceeds of the Note to retire existing convertible debt.
On July 19, 2021, the Company issued an aggregate of 2,898,382 shares of common stock upon the conversion of
convertible debt, as issued on October 7, 2020, in the amount of $10,497 and interest of $6,748.
On August 3, 2021, the Company entered into
an Engagement Agreement and Terms and Conditions (the “Agreement”) with Energy & Industrial Advisory Partners, LLC ( “EIAP”).
Pursuant to the Agreement, the Company has engaged EIAP to serve as an advisor to the Company in the proposed transaction for agreed target
company or any of its subsidiaries and/or the whole or any part of its or their business or assets (the “Transaction”). EIAP
will receive a monthly retainer of $10,000 per month payable upon receipt of an invoice. EIAP will also receive a consulting bonus fee
of $350,000 payable upon completion of the Transaction. In the event of successful completion of the Transaction as a result of EIAP’s
involvement, EIAP agrees to deduct the total retainer fee from the consulting bonus fee. The Agreement may be terminated, with or without
cause, by either party upon ten days’ written prior notice thereof to the other party. If (a) during the term of the Agreement,
or (b) within two years following the date of the Agreement’s termination by the Company (provided that such two-year period shall
be extended by the same period of time that the Company takes to settle in full all fees, expenses and/or outlays due or to become due
to EIAP as at the date of the Agreement’s termination), the Company completes a transaction with the target company or a similar
transaction to the Transaction, then the Company shall pay the consulting bonus fee at the completion of the transaction.
On August 9, 2021, the Company entered into a
Share Purchase Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”), pursuant to which the
Company 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 and also a commitment to enter into the Subscription (as defined below).
As of August 9, 2021, the Company owns all of the equity interests of Optilan.
On August 9, 2021, the Company entered into a
Subscription Agreement (the “Subscription”) with Optilan, pursuant to which the Company agreed to purchase an aggregate of
4,000,000 Ordinary Shares of Optilan (the “Shares”) for an aggregate purchase price of £4,000,000.