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 3
     
  Condensed Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019 3
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited) 4
  Condensed Consolidated Statements of Comprehensive Gain/Loss (unaudited) 5
  Condensed Consolidated Statements of Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2020 and 2019 (unaudited) 6
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (unaudited) 7
  Notes to Condensed Consolidated Financial Statements (unaudited) 8
     
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
     
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 21
     
Item 4.   Controls and Procedures 21
     
PART II - Other Information
     
Item 1. Legal Proceedings 22
     
Item 1A.   Risk Factors 22
     
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 22
     
Item 3.   Defaults upon Senior Securities 22
     
Item 4.   Mine Safety Disclosures 22
     
Item 5.   Other Information 23
     
Item 6.   Exhibits 23
     
Signatures 24

 

 

 

  2  

 

 

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.

 

 

 

 

  3  

 

 

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.

 

 

 

 

  4  

 

 

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.

 

 

 

 

 

 

 

 

 

 

  5  

 

 

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.

 

 

 

 

  6  

 

 

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.

 

 

 

 

 

  7  

 

 

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.

 

 

 

 

  8  

 

 

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.

 

 

 

 

  9  

 

 

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.

 

 

 

 

  10  

 

 

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.

 

 

 

 

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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.

 

 

 

 

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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.

 

 

 

 

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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.

 

 

 

 

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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.

 

 

 

 

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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.

 

 

 

 

  16  

 

 

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.

 

 

 

 

 

 

 

 

 

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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.

 

 

 

 

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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.

 

 

 

 

  19  

 

 

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.

 

 

 

 

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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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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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.

 

 

 

 

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Item 5. Other Information

 

Not Applicable.

 

Item 6: Exhibits

 

The following exhibits are filed as part of this report:

 

Exhibit

Number

Title of Document
   
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS XBRL Instance Document
   
101.SCH XBRL Schema Document
   
101.CAL XBRL Calculation Linkbase Document
   
101.DEF XBRL Definition Linkbase Document
   
101.LAB XBRL Label Linkbase Document
   
101.PRE XBRL Presentation Linkbase Document

__________________________

 

 

 

 

 

 

 

 

 

 

 

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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)

  

 

 

 

 

 

 

 

 

 

 

 

 

 

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