Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| o |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020
| x |
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission File No. 000-18730
DARKPULSE, INC.
(Exact name of registrant as specified in its charter)
|
DELAWARE |
|
87-0472109 |
(State
or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
|
1345 Ave of the Americas, 2nd Floor
New York, NY
|
|
10105 |
| (Address of principal executive
offices) |
|
(Zip
Code) |
Registrant’s telephone number, including area code: (800)
436-1436
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes x No
¨
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company”, and “emerging growth company” in Rule
12b-2 of the Exchange Act. (Check one)
| |
Large accelerated filer o |
Accelerated filer o |
| |
Non-accelerated filer o |
Smaller reporting company x |
| |
Emerging growth company o |
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes o No x
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each
class |
|
Trading Symbol(s) |
|
Name of each exchange on which
registered |
| None |
|
N/A |
|
N/A |
As of November 10, 2020, there were 4,088,762,156 shares of the
Registrant’s common stock, $0.01 par value per share, issued.
DARKPULSE, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 2020
PART I - FINANCIAL
INFORMATION
Item 1. Financial
Statements
DARKPULSE, INC.
Condensed Consolidated Balance
Sheets
Unaudited
| |
|
September 30, |
|
|
December 31, |
|
| |
|
2020 |
|
|
2019 |
|
| ASSETS |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
519 |
|
|
$ |
1,210 |
|
|
Prepaid expenses |
|
|
746 |
|
|
|
746 |
|
| TOTAL
CURRENT ASSETS |
|
|
1,265 |
|
|
|
1,956 |
|
| |
|
|
|
|
|
|
|
|
| Other assets, net |
|
|
121,464 |
|
|
|
116,495 |
|
| Patents, net |
|
|
406,747 |
|
|
|
445,018 |
|
|
TOTAL ASSETS |
|
$ |
529,476 |
|
|
$ |
563,469 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
$ |
498,887 |
|
|
$ |
323,948 |
|
|
Convertible notes, net of discount $0 and $39,414 respectively |
|
|
944,306 |
|
|
|
1,033,249 |
|
|
Derivative liability |
|
|
1,320,184 |
|
|
|
1,275,500 |
|
| Accrued
liabilities |
|
|
588,693 |
|
|
|
497,078 |
|
| Contract
liability, related party |
|
|
42,000 |
|
|
|
42,000 |
|
|
Related party notes payable |
|
|
44,096 |
|
|
|
44,096 |
|
| TOTAL
CURRENT LIABILITIES |
|
|
3,438,166 |
|
|
|
3,215,871 |
|
| |
|
|
|
|
|
|
|
|
| Secured
debenture |
|
|
1,141,494 |
|
|
|
1,155,150 |
|
|
TOTAL LIABILITIES |
|
|
4,579,660 |
|
|
|
4,371,021 |
|
| |
|
|
|
|
|
|
|
|
| Commitments and contingencies |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
| Common
stock (par value $0.01), 20,000,000,000 shares authorized,
3,394,817,156 and 1,392,042,112 shares issued and outstanding
respectively |
|
|
33,948,172 |
|
|
|
13,920,421 |
|
| Treasury stock,
100,000 shares |
|
|
(1,000 |
) |
|
|
(1,000 |
) |
|
Convertible preferred stock, Series D (par value $0.01) 100,000
shares authorized, 88,235 shares issued and outstanding
respectively |
|
|
883 |
|
|
|
883 |
|
| Paid in
capital in excess of par value |
|
|
(31,773,340 |
) |
|
|
(11,877,864 |
) |
|
Non-controlling interest in a variable interest entity and
subsidiary |
|
|
(12,439 |
) |
|
|
(12,439 |
) |
|
Accumulated other comprehensive income |
|
|
350,429 |
|
|
|
336,775 |
|
|
Accumulated deficit |
|
|
(6,562,889 |
) |
|
|
(6,174,328 |
) |
|
TOTAL STOCKHOLDERS' DEFICIT |
|
|
(4,050,184 |
) |
|
|
(3,807,552 |
) |
| |
|
|
|
|
|
|
|
|
| TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
$ |
529,476 |
|
|
$ |
563,469 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
DARKPULSE, INC.
Condensed Consolidated Statements
of Operations
(Unaudited)
| |
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| REVENUES |
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
34,782 |
|
|
|
40,453 |
|
|
|
120,866 |
|
|
|
144,965 |
|
| Payroll
and compensation |
|
|
– |
|
|
|
– |
|
|
|
187 |
|
|
|
168,945 |
|
| Legal
expenses |
|
|
– |
|
|
|
48,868 |
|
|
|
48,297 |
|
|
|
96,962 |
|
|
Amortization of patents |
|
|
12,757 |
|
|
|
12,757 |
|
|
|
38,271 |
|
|
|
38,271 |
|
|
Debt transaction expenses |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
24,900 |
|
| TOTAL OPERATING
EXPENSES |
|
|
47,539 |
|
|
|
102,078 |
|
|
|
207,621 |
|
|
|
474,043 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OPERATING LOSS |
|
|
(47,539 |
) |
|
|
(102,078 |
) |
|
|
(207,621 |
) |
|
|
(474,043 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest
expense |
|
|
(37,318 |
) |
|
|
(50,649 |
) |
|
|
(97,842 |
) |
|
|
(399,895 |
) |
| Loss on
convertible notes |
|
|
(1,313 |
) |
|
|
(47,266 |
) |
|
|
(39,414 |
) |
|
|
(351,662 |
) |
| Gain on
the forgiveness of debt |
|
|
– |
|
|
|
– |
|
|
|
1,000 |
|
|
|
– |
|
|
Gain(loss) on change in fair market values of derivative
liabilities |
|
|
(87,852 |
) |
|
|
221,879 |
|
|
|
(44,684 |
) |
|
|
566,127 |
|
| TOTAL OTHER
INCOME (EXPENSE) |
|
|
(126,483 |
) |
|
|
123,964 |
|
|
|
(180,940 |
) |
|
|
(185,430 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| NET INCOME (LOSS) |
|
|
(174,022 |
) |
|
|
21,886 |
|
|
|
(388,561 |
) |
|
|
(659,473 |
) |
|
Net loss attributable to noncontrolling interests in variable
interest entity and subsidiary |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Net loss attributable to Company stockholders |
|
$ |
(174,022 |
) |
|
$ |
21,886 |
|
|
$ |
(388,561 |
) |
|
$ |
(659,473 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| GAIN (LOSS) PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
$ |
(0.00 |
) |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| WEIGHTED AVERAGE SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
|
2,355,108,904 |
|
|
|
518,604,087 |
|
|
|
1,754,933,152 |
|
|
|
252,457,517 |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
DARKPULSE, INC.
Condensed Consolidated
Statements of Comprehensive Gain/Loss
(Unaudited)
| |
|
FOR
THE |
|
|
FOR
THE |
|
| |
|
THREE
MONTHS ENDED
SEPTEMBER 30, |
|
|
NINE
MONTHS ENDED
SEPTEMBER 30, |
|
| |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| NET INCOME (LOSS) |
|
$ |
(174,022 |
) |
|
$ |
21,886 |
|
|
$ |
(388,561 |
) |
|
$ |
(659,473 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| OTHER COMPREHENSIVE GAIN (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain (Loss) on Foreign Exchange |
|
|
(39,945 |
) |
|
|
12,671 |
|
|
|
13,656 |
|
|
|
(30,722 |
) |
| COMPREHENSIVE
GAIN (LOSS) |
|
$ |
(213,967 |
) |
|
$ |
34,557 |
|
|
$ |
(374,905 |
) |
|
$ |
(690,195 |
) |
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
DARKPULSE, INC.
Consolidated Statement of
Stockholders' Deficit
For the Periods Ended September 30, 2020 and 2019
| |
|
Preferred Stock |
|
|
Common Stock |
|
|
Treasury |
|
|
Paid in
Capital in
Excess of
Par |
|
|
Non-Controlling Interest
in |
|
|
Accumulated Other
Comprehensive |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
| |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Stock |
|
|
Value |
|
|
Subsidiary |
|
|
Income |
|
|
Deficit |
|
|
Deficit |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019 |
|
|
88,235 |
|
|
$ |
883 |
|
|
|
1,392,042,112 |
|
|
$ |
13,920,421 |
|
|
$ |
(1,000 |
) |
|
$ |
(11,877,864 |
) |
|
$ |
(12,439 |
) |
|
$ |
336,775 |
|
|
$ |
(6,174,328 |
) |
|
$ |
(3,807,552 |
) |
|
Conversion of convertible
notes |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
Foreign currency
adjustment |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
92,646 |
|
|
|
– |
|
|
|
92,646 |
|
|
Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(74,298 |
) |
|
|
(74,298 |
) |
|
Balance, March 31, 2020 |
|
|
88,235 |
|
|
$ |
883 |
|
|
|
1,392,042,112 |
|
|
$ |
13,920,421 |
|
|
$ |
(1,000 |
) |
|
$ |
(11,877,864 |
) |
|
$ |
(12,439 |
) |
|
$ |
429,421 |
|
|
$ |
(6,248,626 |
) |
|
$ |
(3,789,204 |
) |
|
Conversion of convertible
notes |
|
|
– |
|
|
|
– |
|
|
|
217,142,858 |
|
|
|
2,171,429 |
|
|
|
– |
|
|
|
(2,156,228 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
15,201 |
|
|
Foreign currency
adjustment |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(39,047 |
) |
|
|
– |
|
|
|
(39,047 |
) |
|
Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(140,241 |
) |
|
|
(140,241 |
) |
|
Balance, June 30, 2020 |
|
|
88,235 |
|
|
$ |
883 |
|
|
|
1,609,184,970 |
|
|
$ |
16,091,850 |
|
|
$ |
(1,000 |
) |
|
$ |
(14,034,092 |
) |
|
$ |
(12,439 |
) |
|
$ |
390,374 |
|
|
$ |
(6,388,867 |
) |
|
$ |
(3,953,291 |
) |
|
Conversion of convertible
notes |
|
|
– |
|
|
|
– |
|
|
|
1,785,632,186 |
|
|
|
17,856,322 |
|
|
|
– |
|
|
|
(17,739,248 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
117,074 |
|
|
Foreign currency
adjustment |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(39,945 |
) |
|
|
– |
|
|
|
(39,945 |
) |
|
Net gain |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(174,022 |
) |
|
|
(174,022 |
) |
|
Balance, September 30,
2020 |
|
|
88,235 |
|
|
$ |
883 |
|
|
|
3,394,817,156 |
|
|
$ |
33,948,172 |
|
|
$ |
(1,000 |
) |
|
$ |
(31,773,340 |
) |
|
$ |
(12,439 |
) |
|
$ |
350,429 |
|
|
$ |
(6,562,889 |
) |
|
$ |
(4,050,184 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, December 31, 2018 |
|
|
88,235 |
|
|
$ |
883 |
|
|
|
89,680,467 |
|
|
$ |
896,806 |
|
|
$ |
(1,000 |
) |
|
$ |
859,481 |
|
|
$ |
(12,439 |
) |
|
$ |
389,680 |
|
|
$ |
(4,348,859 |
) |
|
$ |
(2,215,448 |
) |
|
Conversion of convertible
notes |
|
|
– |
|
|
|
– |
|
|
|
12,488,347 |
|
|
|
124,883 |
|
|
|
– |
|
|
|
(45,837 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
79,046 |
|
|
Foreign currency
adjustment |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(22,050 |
) |
|
|
– |
|
|
|
(22,050 |
) |
|
Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(806,568 |
) |
|
|
(806,568 |
) |
|
Balance, March 31, 2019 |
|
|
88,235 |
|
|
$ |
883 |
|
|
|
102,168,914 |
|
|
$ |
1,021,689 |
|
|
$ |
(1,000 |
) |
|
$ |
813,644 |
|
|
$ |
(12,439 |
) |
|
$ |
367,630 |
|
|
$ |
(5,155,427 |
) |
|
$ |
(2,965,020 |
) |
|
Conversion of convertible
notes |
|
|
– |
|
|
|
– |
|
|
|
137,005,692 |
|
|
|
1,370,057 |
|
|
|
– |
|
|
|
(1,284,135 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
85,922 |
|
|
Foreign currency
adjustment |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(21,343 |
) |
|
|
– |
|
|
|
(21,343 |
|
|
Net gain |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
125,210 |
|
|
|
125,210 |
|
|
Balance, June 30, 2019 |
|
|
88,235 |
|
|
$ |
883 |
|
|
|
239,174,606 |
|
|
$ |
2,391,746 |
|
|
$ |
(1,000 |
) |
|
$ |
(471,491 |
) |
|
$ |
(12,439 |
) |
|
$ |
346,287 |
|
|
$ |
(5,030,217 |
) |
|
$ |
(2,775,231 |
) |
|
Conversion of convertible
notes |
|
|
– |
|
|
|
– |
|
|
|
137,005,692 |
|
|
|
1,370,057 |
|
|
|
– |
|
|
|
(1,284,135 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
85,922 |
|
|
Foreign currency
adjustment |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
12,671 |
|
|
|
– |
|
|
|
12,671 |
|
|
Net gain |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
21,886 |
|
|
|
21,886 |
|
|
Balance, September 30,
2019 |
|
|
88,235 |
|
|
$ |
883 |
|
|
|
239,174,606 |
|
|
$ |
2,391,746 |
|
|
$ |
(1,000 |
) |
|
$ |
(471,491 |
) |
|
$ |
(12,439 |
) |
|
$ |
358,958 |
|
|
$ |
(5,008,332 |
) |
|
$ |
(2,642,069 |
) |
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
DARKPULSE, INC.
Condensed Consolidated Statement
of Cash Flows
(Unaudited)
| |
|
FOR
THE |
|
| |
|
NINE
MONTHS ENDED
SEPTEMBER 30, |
|
| |
|
2020 |
|
|
2019 |
|
| CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net Gain/(Loss) |
|
$ |
(388,561 |
) |
|
$ |
(659,473 |
) |
| Adjustments to
reconcile net loss to net cash used by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
38,271 |
|
|
|
38,271 |
|
| Loan
acquisition costs |
|
|
– |
|
|
|
24,900 |
|
| Gain on
reduction of loan default penalty |
|
|
(9,900 |
) |
|
|
– |
|
| Interest
on notes payable |
|
|
– |
|
|
|
27,446 |
|
| Debt
discount |
|
|
|
|
|
|
(205,000 |
) |
|
Amortization of debt discount |
|
|
39,414 |
|
|
|
568,985 |
|
|
Derivative liability |
|
|
44,684 |
|
|
|
(312,622 |
) |
| Changes in
operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Accounts
payable |
|
|
174,935 |
|
|
|
205,025 |
|
|
Accrued liabilities |
|
|
105,435 |
|
|
|
110,340 |
|
|
Net cash used by operating activities |
|
|
4,278 |
|
|
|
(202,128 |
) |
| |
|
|
|
|
|
|
|
|
| CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Investment in patents |
|
|
(4,969 |
) |
|
|
(54,930 |
) |
|
Net Cash Used by Investing Activities |
|
|
(4,969 |
) |
|
|
(54,930 |
) |
| |
|
|
|
|
|
|
|
|
| CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Proceeds from convertible notes
payable |
|
|
– |
|
|
|
180,100 |
|
| Payments on
convertible notes |
|
|
– |
|
|
|
(24,650 |
) |
| Net Cash Provided
by Financing Activities |
|
|
– |
|
|
|
155,450 |
|
| |
|
|
|
|
|
|
|
|
| NET INCREASE (DECREASE) IN CASH |
|
|
(691 |
) |
|
|
(70,886 |
) |
| CASH, beginning of period |
|
|
1,210 |
|
|
|
72,294 |
|
| CASH, end of period |
|
$ |
519 |
|
|
$ |
1,408 |
|
| |
|
|
|
|
|
|
|
|
| Noncash investing and financing
activities for the quarter ending September 30: |
|
|
|
|
|
|
|
|
| Stock issued
for convertible notes payable and accrued interest |
|
$ |
132,276 |
|
|
$ |
232,535 |
|
| |
|
|
|
|
|
|
|
|
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION: |
|
|
|
|
|
|
|
|
|
Interest paid in cash |
|
$ |
– |
|
|
$ |
– |
|
|
Taxes paid in cash |
|
$ |
– |
|
|
$ |
– |
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
DARKPULSE, INC.
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, 2019 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, 2019, which are contained in Form 10-K
as filed with the Securities and Exchange Commission on June 8,
2020. The consolidated balance sheet as of December 31, 2019 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 September 30, 2020, and the results of
operations for three and nine months and cash flows for the nine
months ended September 30, 2020 have been included. The results of
operations for the three and nine months ended September 30, 2020
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"). The Company’s wholly-owned
subsidiary, DarkPulse Technologies Inc. ("DPTI"), originally
started as a technology spinout from the University of New
Brunswick (the “University”) located in 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 was 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 nine
months ended September 30, 2020, the Company did not generate any
revenues and reported a net loss of $214,539. As of September 30,
2020, the Company’s current liabilities exceeded its current assets
by $3,436,901. As of September 30, 2020, the Company had $519 of
cash.
The Company will require additional funding during the next nine
months to finance the growth of its operations and achieve its
strategic objectives. These factors, as well as the uncertain
conditions that the Company faces relative to capital raising
activities, create substantial doubt as to the Company’s ability to
continue as a going concern. The Company is seeking to raise
additional capital principally through private placement offerings
and is targeting strategic partners in an effort to finalize the
development of its products and begin generating revenues. The
ability of the Company to continue as a going concern is dependent
upon the success of future capital offerings or alternative
financing arrangements and expansion of its operations. The
accompanying financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as
a going concern. Management is actively pursuing additional sources
of financing sufficient to generate enough cash flow to fund its
operations. 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
institution. The Company’s account at this institution is insured
by the Federal Deposit Insurance Corporation (“FDIC”) up to
$250,000. To reduce its risk associated with the failure of
such financial institution, the Company evaluates at least annually
the rating of the financial institution in which it holds
deposits.
Intangible Assets
The Company reviews intangibles held and used for possible
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In
evaluating the fair value and future benefits of its intangible
assets, management performs an analysis of the anticipated
undiscounted future net cash flow of the individual assets over the
remaining amortization period. The Company recognizes an impairment
loss if the carrying value of the asset exceeds the expected future
cash flows.
Foreign Currency Translation
The company translates monetary assets and liabilities (any item
paid for or settled in foreign currency) into the United States
Dollar at exchange rates prevailing on the balance sheet date.
Non-monetary assets and liabilities are translated at the
historical rate in effect when the transaction occurred. Revenues
and expenses are translated at the spot rate on the date the
transaction occurred. Exchange gains and losses from the
translation of monetary items are included in unrealized gain/loss
on Foreign Exchange as Other Comprehensive Loss.
The following table discloses the dates and exchange rates used for
converting Canadian Dollar amounts to U.S. Dollar amounts disclosed
in the balance sheet and the statement of operations.
The spot exchange rate between the Canadian Dollar and the U.S.
Dollar on, December 31, 2019 closing rate at 1.2988 US$: CAD,
average rate at 1.3234 US$: CAD and for the three months ended
September 30, 2020 closing rate at 1.3141 US$: CAD, average rate at
1.3340 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 September 30, 2020, 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 nine months ended September 30, 2020, there were
no stock options nor convertible preferred stock outstanding. For
the three and nine months ended September 30, 2020, 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 2,138,539,986 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 (the “Patents”) assigned to the Company, in the
amount of CAD$1,500,000, or USD$1,491,923 on December 16, 2010, the
date of the convertible debenture. On April 24, 2017 DPTI issued a
replacement secured term convertible debenture (the “Debenture”) in
the same CAD$1,500,000 amount as the original convertible
debenture. The interest rate is the Bank of Canada Prime overnight
rate plus 1% per annum. The Debenture had an initial required
payment of CAD $42,000 (USD$33,385) due on April 24, 2018 for
reimbursement to the University for 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 principal repayment amounts will be due
quarterly over a six year period in the amount of CAD$62,500. Based
on the exchange rate between the Canadian Dollar and the U.S.
Dollar on September 30, 2020, the quarterly principal repayment
amounts will be USD$44,271. On May 1, 2020, the Company received an
extension for this payment until July 23, 2020. Additionally on
July 16, 2020, the Company received a further four month extension
until November 2020. 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 USD$1,491,923 equivalent to
CAD$1,500,000 as of December 16, 2010, the date of the original
convertible 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 gain (loss) for the three months ended September 30,
2020 and 2019, were ($39,945) and 12,671 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 (5) years from April 24, 2018.
For the three months ended September 30, 2020, and 2019, the
Company recorded interest expense of $12,255 and $12,745,
respectively.
As of September 30, 2020, the Debenture liability totaled
$1,141,494, all of which was long term.
Future minimum required payments over the next five years and
thereafter are as follows:
| Period ending September 30, |
|
|
|
| 2021 |
|
$ |
– |
|
| 2022 |
|
|
– |
|
| 2023 |
|
|
– |
|
| 2024 |
|
|
– |
|
| 2025
and after |
|
|
1,062,503 |
|
| Total |
|
$ |
1,062,503 |
|
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 September 30, 2020. Management
determined the expected volatility between 489.35-582.90%, a risk
free rate of interest between 0.12-0.13%, 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.
| |
|
Face |
|
|
Debt |
|
|
Initial |
|
|
Q3
change |
|
|
Derivative Balance |
|
| |
|
Amount |
|
|
Discount |
|
|
Loss |
|
|
in FMV |
|
|
9/30/2020 |
|
| |
|
$ |
90,228 |
|
|
$ |
– |
|
|
$ |
58,959 |
|
|
$ |
65,666 |
|
|
$ |
147,000 |
|
| |
|
|
162,150 |
|
|
|
– |
|
|
|
74,429 |
|
|
|
106,304 |
|
|
|
264,566 |
|
| |
|
|
72,488 |
|
|
|
– |
|
|
|
11,381 |
|
|
|
(5,738 |
) |
|
|
109,166 |
|
| |
|
|
201,436 |
|
|
|
– |
|
|
|
– |
|
|
|
(13,300 |
) |
|
|
279,035 |
|
| |
|
|
76,657 |
|
|
|
– |
|
|
|
8,904 |
|
|
|
(1,310 |
) |
|
|
106,219 |
|
| |
|
|
60,115 |
|
|
|
– |
|
|
|
5,651 |
|
|
|
(10,556 |
) |
|
|
106,405 |
|
| |
|
|
53,864 |
|
|
|
– |
|
|
|
28,566 |
|
|
|
(6,472 |
) |
|
|
64,690 |
|
| |
|
|
25,468 |
|
|
|
– |
|
|
|
16,558 |
|
|
|
(3,060 |
) |
|
|
30,587 |
|
| |
|
|
29,250 |
|
|
|
– |
|
|
|
– |
|
|
|
17,148 |
|
|
|
28,965 |
|
| |
|
|
49,726 |
|
|
|
– |
|
|
|
– |
|
|
|
29,152 |
|
|
|
49,241 |
|
| |
|
|
41,774 |
|
|
|
– |
|
|
|
– |
|
|
|
24,490 |
|
|
|
41,367 |
|
| |
|
|
29,250 |
|
|
|
– |
|
|
|
– |
|
|
|
17,148 |
|
|
|
28,965 |
|
| |
|
|
40,000 |
|
|
|
– |
|
|
|
10,605 |
|
|
|
(4,932 |
) |
|
|
47,835 |
|
| |
|
|
11,900 |
|
|
|
– |
|
|
|
17,676 |
|
|
|
(126,690 |
) |
|
|
16,143 |
|
| Subtotal |
|
|
944,306 |
|
|
|
– |
|
|
|
232,729 |
|
|
|
(87,850 |
) |
|
|
1,320,184 |
|
| Transaction
expense |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
| |
|
$ |
944,306 |
|
|
$ |
– |
|
|
$ |
232,729 |
|
|
$ |
(87,850 |
) |
|
$ |
1,320,184 |
|
During the three months ended September 30, 2020, a total of
$103,257 in principal and $10,754 interest was converted into
1,785,632,186 shares of the Company’s common stock.
As of September 30, 2020 and 2019 respectively, there was $944,306
and $928,702 of convertible debt outstanding, net of debt discount
of $0, and $93,138, As of September 30, 2020 and 2019 respectively,
there was derivative liability of $1,320,184 and $341,209 related
to convertible debt securities. The Company recorded interest
expense related to the outstanding convertible debt of $21,366 and
$22,059 for the three months ended September 30, 2020 and 2019
respectively.
NOTE 4 - STOCKHOLDERS' DEFICIT
As of September 30, 2020,
there were 3,394,817,156 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, 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
On March 27, 2019, Thomas A. Cellucci, et al. v. DarkPulse, Inc. et
al. (the “Complaint”) was filed in the United States District Court
for the Southern District of New York by certain of the Company’s
former executive officers, one also being a former director, and a
non-employee shareholder (collectively, the “Plaintiffs”), against
the Company, its sole officer and director, and others, claiming
that the Plaintiffs brought the action to protect their individual
rights as minority shareholders, as improperly-ousted officers
(other than the non-employee shareholder), and as an
improperly-ousted director, seeking equitable relief, damages,
recovery of unpaid salaries and other relief. It is the Company's
position that the Complaint represents a frivolous harassment
lawsuit. The Company has filed a motion to dismiss all claims made
in the Complaint and intends to otherwise defend itself vigorously
in this matter. The Company is also considering filing
counterclaims against the Plaintiffs in the action.
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 September 30, 2020,
the Company held three U.S. and foreign patents on its intrusion
detection technology, which expire in calendar years 2025 through
2034 (depending on the payment of maintenance fees).
For the three months ended September 30, 2020 and 2019, the Company
amortized $12,757, respectively. Future amortization of intangible
assets is as follows:
| 2020 |
|
$ |
12,757 |
|
| 2021 |
|
|
51,028 |
|
| 2022 |
|
|
51,028 |
|
| 2023 |
|
|
51,028 |
|
| 2024 |
|
|
51,028 |
|
| Thereafter |
|
|
189,878 |
|
| |
|
$ |
406,747 |
|
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.
In May 2018, the JV Entity received $42,000 for an order from
Bravetek and the JV Entity then placed a corresponding order with
the Company. The Company’s former executive office is also the CEO
of Bravatek. The proceeds were to be used for marketing efforts to
generate sales of our intrusion detection product. The order has
been recorded as a prepaid sale and is a current liability as of
September 30, 2020.
NOTE 8 – PREFERRED STOCK
In accordance with the Company’s bylaws, 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 September 30, 2020 and December 31,
2019, there were 88,235 total preferred shares issued and
outstanding for all classes.
During the three months ended September 30, 2020, 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 $0.01
per share. As of September 30, 2020 and December 31, 2019, there
were 3,394,817,156 and 1,392,042,112 common shares issued and
outstanding, respectively.
During the three months ended September 30, 2020, the Company
issued the following shares of common stock:
On July 9, 2020, the Company issued an aggregate of 80,000,000
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $5,600.
On July 16, 2020, the Company issued an aggregate of 82,857,143
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $5,800.
On July 28, 2020, the Company issued an aggregate of 82,857,143
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $5,800.
On August 3, 2020, the Company issued an aggregate of 91,428,571
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $6,400.
On August 6, 2020, the Company issued an aggregate of 91,428,571
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $6,400.
On August 10, 2020, the Company issued an aggregate of 91,428,571
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $6,400.
On August 13, 2020, the Company issued an aggregate of 91,428,571
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $6,400.
On August 18, 2020, the Company issued an aggregate of 110,000,000
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $7,700.
On August 20, 2020, the Company issued an aggregate of 115,714,286
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $8,100.
On August 31, 2020, the Company issued an aggregate of 115,714,286
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $8,100.
On September 1, 2020, the Company issued an aggregate of
115,714,286 shares of common stock upon the conversion of
convertible debt, as issued on May 3, 2019, in the amount of
$8,100.
On September 1, 2020, the Company issued an aggregate of
119,157,924 shares of common stock upon the conversion of interest
of convertible debt, as issued on July 17, 2018, in the amount of
$6,315.
On September 1, 2020, the Company issued an aggregate of 85,000,000
shares of common stock upon the conversion of convertible debt, as
issued on September 24, 2018, in the amount of $7,000.
On September 2, 2020, the Company issued an aggregate of
123,474,262 shares of common stock upon the conversion of interest
of convertible debt, as issued on September 24, 2018, in the amount
of $4,439.
On September 3, 2020, the Company issued an aggregate of
115,714,286 shares of common stock upon the conversion of
convertible debt, as issued on May 3, 2019, in the amount of
$8,100.
On September 11, 2020, the Company issued an aggregate of
115,714,286 shares of common stock upon the conversion of
convertible debt, as issued on May 3, 2019, in the amount of
$8,100.
On September 30, 2020, the Company issued an aggregate of
158,000,000 shares of common stock upon the conversion of
convertible debt, as issued on September 25, 2018, in the amount of
$5,257.
NOTE 10 – STOCK OPTIONS
The Company’s shareholders previously approved, by a majority vote,
the adoption of the 1998 Stock Incentive Plan (the “Plan”). As
amended on August 11, 2003, the Plan reserves 20,000,000 shares of
common stock for issuance upon the exercise of options which may be
granted from time-to-time to officers, directors, certain employees
and consultants of the Company or its subsidiaries by the Board of
Directors. The Plan permits the award of both qualified and
non-qualified incentive stock options.
During the three months ended September 30, 2020, the Company did
not issue any stock options and had no stock options outstanding at
September 30, 2020.
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 October 7, 2020, the Company issued an aggregate of 161,428,571
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $11,800.
On October 7, 2020, the Company issued an aggregate of 169,000,000
shares of common stock upon the conversion of convertible debt, as
issued on February 12, 2019, in the amount of $6,855.
On October 7, 2020, the Company issued an aggregate of 143,519,000
shares of common stock upon the conversion of convertible debt, as
issued on September 25, 2018, in the amount of $4,677.
On October 12, 2020, the Company issued an aggregate of 142,374,429
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $600 in principal and
$9,366 in interest.
On October 22, 2020, the Company issued an aggregate of 77,623,000
shares of common stock upon the conversion of convertible debt, as
issued on September 25, 2018, in the amount of $2,041.
On September 2, 2020, 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 $47,850 (the “Financing”) with a
$4,350 original issue discount and $3,500 in transactional expenses
due to Geneva and its counsel. The note bears interest at 9% per
annum and may be converted into common shares of the Company's
common stock at a conversion price equal to 70% of the lowest
trading price of the Company's common stock during the 20 prior
trading days. The Company received $40,000 net cash in the
Financing which closed on October 7, 2020.
On September 2, 2020, 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 $47,850 (the “Financing”) with a
$4,350 original issue discount and $3,500 in transactional expenses
due to Geneva and its counsel. The note bears interest at 9% per
annum and may be converted into common shares of the Company's
common stock at a conversion price equal to 70% of the lowest
trading price of the Company's common stock during the 20 prior
trading days. The Company received $40,000 net cash in the
Financing which closed on October 7, 2020.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Background
DarkPulse, Inc. ("DPI" or the
"Company") is a technology-security company incorporated in 1989 as
Klever Marketing, Inc. ("Klever"). The Company’s 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 was 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 nine
months ended September 30, 2020, the Company did not generate any
revenues and reported a net loss of $214,539. As of September 30,
2020, the Company’s current liabilities exceeded its current assets
by $3,436,901. As of September 30, 2020, the Company had $519 of
cash.
The Company will require additional funding during the next nine
months to finance the growth of its operations and achieve its
strategic objectives. These factors, as well as the uncertain
conditions that the Company faces relative to capital raising
activities, create substantial doubt as to the Company’s ability to
continue as a going concern. The Company is seeking to raise
additional capital principally through private placement offerings
and is targeting strategic partners in an effort to finalize the
development of its products and begin generating revenues. The
ability of the Company to continue as a going concern is dependent
upon the success of future capital offerings or alternative
financing arrangements and expansion of its operations. The
accompanying financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as
a going concern. Management is actively pursuing additional sources
of financing sufficient to generate enough cash flow to fund its
operations. However, management cannot make any assurances that
such financing will be secured.
Results of Operations
Revenues
To date, the Company has not generated any operating revenues.
Operating Expenses
General and administrative expenses for three months ended
September 30, 2020, decreased by $5,671 to $34,782 from $40,453 for
the three months ended September 30, 2019. General and
administrative expenses for nine months ended September 30, 2020,
decreased by $24,099 to $120,866 from $144,965 for the nine months
ended September 30, 2019.
Legal expenses for three months ended September 30, 2020, decreased
by $48,868 to $0 from $48,868 for the three months ended September
30, 2019. Legal expenses for nine months ended September 30, 2020,
decreased by $48,665 to $96,962 from $48,297 for the nine months
ended September 30, 2019.
Payroll and compensation expenses for nine months ended September
30, 2020, decreased by $168,758 to $187 from $168,945 for the nine
months ended September 30, 2019. The decrease is related to a
significant reduction in payroll related expenses in 2019 because
it terminated four employees during March 2019.
Amortization of Patents expense for three and nine months ended
September 30, 2020, remained the same at $12,757 and $25,514,
respectively compared to the three and nine months ended September
30, 2019.
Other Income (Expense)
Interest expense was $37,318 and $50,649 for the three months ended
September 30, 2020 and 2019, respectively. This $13,331 decrease is
primarily related to the decrease in non-cash expenses related to
notes payable issued in 2019.
Interest expense was $97,842 and $399,895 for the nine months ended
September 30, 2020 and 2019, respectively. This $302,053 decrease
is primarily related to the decrease in non-cash expenses related
to notes payable issued in 2019.
Loss on convertible notes expense was $1,313 for the three months
ended September 30, 2020. The loss on the change in fair market
value of derivative liabilities was $87,853 for the three months
ended September 30, 2020.
Loss on convertible notes expense was $39,414 for the nine months
ended September 30, 2020. The loss on the change in fair market
value of derivative liabilities was $44,684 for the nine months
ended September 30, 2020.
Provision for Income Taxes
The provision for income taxes was $0 and $0 for the three and nine
months ended September 30, 2020 and 2019, respectively.
Net Income (Loss)
As a result of the above, we reported a net loss of $174,023 for
the three months ended September 30, 2020 compared to $21,886 for
the three months ended September 30, 2019.
Additionally, as a result of the above, we reported a net loss of
$388,561 for the nine months ended September 30, 2020 compared to a
loss of $659,473 for the nine months ended September 30, 2019.
Liquidity and Capital Resources
The Company requires working capital to fund the further
development and commercialization of its proprietary fiber optic
sensing devices, and for operating expenses.
As of September 30, 2020, we had cash of $519, compared to $1,408
as of December 31, 2019. As of September 30, 2020, our current
liabilities exceeded our current assets by $2,508,467.
Cash Flows From Operating Activities
During the nine months ended September 30, 2020, net cash provided
by operating activities was $4,278, resulting from our net loss of
$388,561and an increase in expenses related to our convertible
notes payables, including amortization of debt discount of $39,414,
increase in derivative liability of $44,684, increase in accounts
payable of $174,938 and accrued liabilities of $105,435.
During the nine months ended September 30, 2019, net cash used by
operating activities was $202,128, resulting from our net loss of
$659,473 and an increase in expenses related to our convertible
notes payables, including amortization of debt discount of
$568,985, debt discount of $205,000, increases in accounts payable
of $205,025 and accrued liabilities of $110,340.
Cash Flows From Investing Activities
During the nine months ended September 30, 2020, Company had net
cash used in investing activities of $4,969. During the nine months
ended September 30, 2019, the Company used $54,930 in investing
activities with both periods relating to our patents and
trademarks.
Cash Flows From Financing Activities
During the nine months ended September 30, 2020, Company had no net
cash provided by or used in financing activities. During the nine
months ended September 30, 2019, net cash provided by financing
activities was $155,450, comprised of proceeds from the issuance of
convertible debt in the amount of $180,100, offset by payments on
convertible debt of $24,650.
Factors That May Affect Future Results
Management’s Discussion and Analysis contains information based on
management’s beliefs and forward-looking statements that involve a
number of risks, uncertainties, and assumptions. There can be no
assurance that actual results will not differ materially from the
forward-looking statements as a result of various factors,
including but not limited to, our ability to obtain the equity
funding or borrowings necessary to market and launch our products,
our ability to successfully serially produce and market our
products; our success establishing and maintaining collaborative
licensing and supplier arrangements; the acceptance of our products
by customers; our continued ability to pay operating costs; our
ability to meet demand for our products; the amount and nature of
competition from our competitors; the effects of technological
changes on products and product demand; and our ability to
successfully adapt to market forces and technological demands of
our customers.
Recent Accounting Pronouncements
The Company has provided a discussion of recent accounting
pronouncements in Note 1 to the Condensed Financial Statements.
Item 3. Quantitative and
Qualitative Disclosures About Market Risk
Not Applicable: The Company is a “smaller reporting company.”
Item 4. Controls and
Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to
help ensure that information required to be disclosed in our
filings under the Exchange Act is recorded, processed, summarized
and reported within the periods specified in the rules and forms of
the SEC. This information is accumulated and communicated to our
Chief Executive Officer and Chief Financial Officer to allow timely
decisions regarding required disclosure. Our Chief Executive
Officer and Chief Financial Officer evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of
the period covered by this report. Based on that evaluation and the
requirements of the Exchange Act, our Chief Executive Officer
concluded that, as of September 30, 2020, our disclosure controls
and procedures continue to be ineffective. The small size of our
Company does not provide for the desired segregation of duty
control functions, and we do not have the required level of
documentation of our monitoring and control procedures. Currently,
our financial constraints prevent us from fully implementing the
internal controls prescribed by the Sarbanes-Oxley Act.
Changes in Internal Control Over Financial Reporting
Management and directors will continue to monitor and evaluate the
effectiveness of the Company's internal controls and procedures and
the Company's internal controls over financial reporting on an
ongoing basis and are committed to taking further action and
implementing additional enhancements or improvements, as necessary
and as funds allow. The Company will continue to use outside
accounting consultants to assist with the Company’s financial
reporting. Otherwise, there have been no changes in our internal
control over financial reporting that has materially affected, or
is reasonably likely to materially affect, our internal control
over financial reporting during the quarter ended September 30,
2020.
PART II – OTHER
INFORMATION
Item 1. Legal
Proceedings
On March 27, 2019, Thomas A. Cellucci, et al. v. DarkPulse, Inc. et
al. (the “Complaint”) was filed in the United States District Court
for the Southern District of New York by certain of the Company’s
former executive officers, one also being a former director, and a
non-employee shareholder (collectively, the “Plaintiffs”), against
the Company, its sole officer and director, and others, claiming
that the Plaintiffs brought the action to protect their individual
rights as minority shareholders, as improperly-ousted officers
(other than the non-employee shareholder), and as an
improperly-ousted director, seeking equitable relief, damages,
recovery of unpaid salaries and other relief. It is the Company's
position that the Complaint represents a frivolous harassment
lawsuit, and the Company has filed a motion to dismiss all claims
made in the Complaint and intends to otherwise defend itself
vigorously in this matter. The Company is also considering filing
counterclaims against the Plaintiffs in the action.
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.
Item 1A. Risk Factors
Readers should carefully consider the risks and uncertainties
described in ITEM 1A in our Annual Report on Form 10-K for the year
ended December 31, 2019, filed with the SEC before deciding whether
to invest in shares of our common stock. See also risks discussed
above under the section on “Factors That May Affect Future Results”
and “Internal Controls”.
Our failure to successfully address the risks and uncertainties
described in our 2019 Form 10-K would have a material adverse
effect on our business, financial condition and/or results of
operations, and the trading price of our common stock may decline
and investors may lose all or part of their investment. We cannot
assure you that we will successfully address these risks or other
unknown risks that may affect our business.
As an enterprise engaged in the development of new technology, our
business is inherently risky. Our common shares are considered
speculative during the development of our new business
operations.
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds
During the three months ended September 30, 2020, we had no
unregistered sales of equity securities.
Item 3. Defaults upon Senior
Securities
Not Applicable.
Item 4. Mine Safety
Disclosures
Not Applicable.
Item 5. Other
Information
Not Applicable.
Item 6: Exhibits
The following exhibits are filed as part of this report:
__________________________
SIGNATURES
In accordance with the requirements of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
| |
DARKPULSE, INC. |
| |
|
| |
|
| Dated: November 16, 2020 |
By
/s/ Dennis M. O’Leary |
| |
Dennis M. O’Leary |
| |
Chief
Executive Officer and Chief Financial Officer |
| |
(Principal Executive, Financial and Accounting
Officer) |
DarkPulse (PK) (USOTC:DPLS)
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