The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to Condensed Financial Statements
(Unaudited)
NOTE 1 – BASIS OF FINANCIAL STATEMENT
PRESENTATION
DarkPulse,
Inc. ("DPI" or "Company") is a technology-security company incorporated in 1989 as Klever Marketing, Inc ("Klever").
Its principal subsidiary, DarkPulse Technologies Inc. ("DPTI"), originally started as a technology spinout from the University
of New Brunswick, Fredericton, Canada. DPI is comprised of two security platforms: Fiber and
Ultra-High
Sensitivity Sensors ("UHSS").
On April 27, 2018,
Klever entered into an Agreement and Plan of Merger (the “Merger Agreement” or the “Merger”) involving
Klever as the surviving parent corporation and acquiring a privately held New Brunswick corporation known as DarkPulse Technologies
Inc. as its wholly owned subsidiary. On July 18, 2018, the parties closed the Merger Agreement, as amended on July 7, 2018, and
the name of the Company was subsequently changed to DarkPulse, Inc. With the change of control of the Company, the Merger is being
be accounted for as a recapitalization in a manner similar to a reverse acquisition.
On July 20, 2018,
the Company filed a Certificate of Amendment to its Certificate of Incorporation with the State of Delaware, changing the name
of the Company to DarkPulse, Inc. The Company filed a corporate action notification with the Financial Industry Regulatory Authority
(FINRA), and the Company's ticker symbol with the over-the-counter markets has been was changed to DPLS.
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.
DarkPulse patented sensor technologies enable the monitoring of highly dynamic environments due to its more than 200 times greater
resolution and eight times greater accuracy
.
In December 2010
DPTI entered into an Assignment Agreement with the University of New Brunswick, Canada (“the University”), wherein
the University sold, transferred, and assigned certain patents (the "patents") to DPTI in exchange for the issuance
of a Debenture to the University in the amount of C$1,500,000 (Canadian dollars). In April 2017 DPTI entered into an Intellectual
Property agreement with the University in exchange for the issuance of a replacement Debenture to the University in the amount
of US$1,491,923 (C$1,500,000 Canadian dollars). The patents and the Debenture were initially recorded in the Company’s accounts
at $1,491,923, based upon the exchange rate between the US dollar and the Canadian dollar on December 16, 2010, the date of the
original Debenture. In addition to repayment of principal and interest, the Debenture requires DPTI to pay the University a two
percent royalty on sales of any and all products or services which incorporate the patents for a period of five years commencing
April 24, 2018, as well as to reimburse the University for its patent related costs.
On September 5, 2017,
DarkPulse Technology Holdings Inc. (“Holdings”), a subsidiary of the Company, entered into a Strategic Alliance Agreement
with Bravatek Solutions Inc., (“Bravatek”) a Colorado corporation, for the purpose of promoting the Company’s products,
and pursuant to which the Company will cross-promote Bravatek’s products and services, and Bravatek will be paid sales commissions
for clients introduced to the Company by Bravatek. The Chief Executive Officer of Bravatek is also the Co-Chief Executive Officer
of the Company, and therefore Bravatek is a related party to the Company.
On February 8, 2018
the Company formed DarkPulse BVTK, LLC, a Virginia Limited Liability Company (“DPBVTK”), The Company, through DPTI,
has a 60% equity interest in the entity, and Bravatek has a 40% interest. The purpose of this joint venture is to develop, market,
and sell products and services based on the Company's patented BOTDA dark-pulse technology ("Licensed Technology").
Both the CEO of the Company and the CEO of Bravatek manage the day to day operations of the joint venture. DPBVTK is considered
a variable interest entity, of which Bravatek is considered the primary beneficiary. The Company's interest in DPBVTK is accounted
for using the equity method of accounting. The Company has granted DPBVTK a revocable royalty-free non-exclusive license to use
the Licensed Technology in the North America, Asia, and European government, military and critical infrastructure/key resources
market segments. The initial cash contribution to DPBVTK from Bravatek was $10,000, and the initial cash contribution to DPBVTK
from the Company was $100. As of September 30, 2018, Bravatek has contributed cash totaling $87,000 to DPBVTK.
On April 27, 2018,
DPTI issued 782 shares of common stock to five individuals and two entities, and reserved approximately 118 shares of common stock
for an employee stock compensation plan. The 782 shares have been independently valued at $1,602,570. At the closing of the Merger
described above, the 782 common shares of DPTI were exchanged for 78,231 shares of the Company's Series D preferred stock.
On May 10, 2018, Holdings
and DPBVTK executed a six month option agreement and paid the fee of $5,000 to the Battelle Memorial Institute ("Battelle"),
pursuant to which the Company acquired an option to negotiate a license conveying the following rights: (1) an exclusive royalty
bearing license to make, have made, use and sell Battelle Licensed Products in Chemical Warfare Agent detection, and (2) a non-exclusive
royalty bearing license to make, have made, use and sell Battelle Licensed Products in explosive detection and illicit drug detection.
The Licensed Products utilize new ultra high sensitivity sensors ("UHSS") for detecting drugs, explosives, and chemical
warfare agents. Battelle operates the Pacific Northwest National Laboratory (PNNL) under contract from the US Department of Energy
(DOE). The portfolio of patents covered by the agreement provide the Company with the opportunity to improve trace detection needed
by governments and private sector organizations throughout the world. The option term may be extended by mutual agreement of Battelle
and Holdings.
On May 11, 2018, Holdings
and DPBVTK entered into an Assignment Agreement whereby Holdings assigned to DPBVTK the exclusive rights obtained under its option
agreement with Battelle for DPBVTK to solicit research and development contracts with the United States government and its agencies
for future inventions and products developed based upon the exclusive rights. The $5,000 option fee is being treated as an investment
in DPBVTK, included in other assets on the accompanying condensed consolidated balance sheet, and the Company's portion of losses
of the joint venture will be applied against this investment.
The Company’s
activities are subject to significant risks and uncertainties, including failing to secure additional funding needed to finalize
development of the Company’s technology and to commercialize its product in a profitable manner.
The accompanying
unaudited, condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted in
accordance with such rules and regulations. The information furnished in the interim condensed financial statements includes
normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair
presentation of such financial statements. Although management believes the disclosures and information presented are
adequate to make the information not misleading, it is suggested that these interim condensed financial statements be read in
conjunction with the Company's audited financial statements and notes thereto included in its December 31, 2017 financial
statements reported on Form 8-K. Operating results for the three months and nine months ended September 30, 2018 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2018.
NOTE 2 – SIGNIFICANT ACCOUNTING
POLICIES
The Company’s
significant accounting policies are described in the notes to the Company’s audited financial statements included in its
December 31, 2017 financial statements on Form 8-K.
Going Concern Uncertainty
As shown in the accompanying
financial statements, during the 9 months ended September 30, 2018, the Company did not generate any revenues and reported a net
loss of $2,446,614. As of September 30, 2018, the Company’s current liabilities exceeded its current assets by $1,198,454.
As of September 30, 2018, the Company had $159,288 of cash.
The Company will
require additional funding during the next six 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.
Basis of Presentation
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”).
Principles of Consolidation
The Company has equity interests in the
following entities, whose operations are consolidated into these financial statements:
DarkPulse Technologies
Inc., a New Brunswick, Canada corporation, a wholly owned subsidiary, incorporated December 16, 2010.
DPTI owns 100% of
DarkPulse Technology Holdings Inc, a New York corporation, incorporated July 6, 2017.
DPTI indirectly owns
37.572% of DarkPulse Technologies International Inc, (“DPTINY”) a New York corporation, incorporated on September 7,
2017. On or about September 18, 2017 DPTI entered into a shareholder agreement with 3 investors, whereby DPTI would own 50.2% of
DPTINY and the investors would own 49.8%. On or about October 3, 2017, another investor entered into an agreement with DPTINY to
fund it $37,500 for a 0.5% equity interest in DPTINY. On December 26. 2017 the DPTI CEO incorporated another corporation named
DarkPulse Technologies International Inc, ("DPTIDel") in Delaware. On or about April 16, 2018 seven investors and DPTI
entered into a new agreement whereby it was agreed that the investors would own 62.428% of DPTIDel, and the September 18, 2017
agreement with respect to DPTINY was considered null and void. Accordingly, the funding of $37,500 to DPTINY in October 2017 has
been converted to an equity interest in DPTIDel as of April 2018. As of April 16, 2018, DPTI owns approximately 37.572% of the
shares of common stock of DPTIDel and 100% of the issued shares of Series A Preferred Stock of DPTIDel, pursuant to which the Company
controls both DPTIDel and DPTINY.
The Company does not
own any interest in DarkPulse East LLC, (“DPE”) an entity organized on December 8, 2017, in Russia, by two of the shareholders
of DPTIDel, to act as a sales organization to promote the Company's products within Russia. Each of the two shareholders own 50%
interest in DPE. During November and December 2017 DPTINY funded DarkPulse East LLC a total of $20,650 to establish and launch
the Company's business in Russia. The Company is considered to be the primary beneficiary of DPE based on implicit obligations
to fund it, and accordingly, the operations of DPE are consolidated into these financial statements. As of September 30, 2018,
assets of the DPE were $0, and the liabilities to third parties were $0. The Company is not liable for obligations of DPE, and
creditors of DPE do not have recourse to the general credit of the Company.
On February 8,
2018, DPTI formed DarkPulse BVTK, LLC, a Virginia Limited Liability Company, The Company has a 60% equity interest in the entity,
and Bravatek Solutions, Inc ("Bravatek") has a 40% interest. The purpose of this joint venture is to develop, market,
and sell products and services based on the Company's patented BOTDA dark-pulse technology. Both the CEO of the Company and the
CEO of Bravatek manage the day to day operations of the joint venture. The operations of DPBVTK are not consolidated into these
financial statements.
Use of Estimates
The preparation of
financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Such estimates and
assumptions impact both assets and liabilities, including but not limited to: the valuation of intangible assets, estimates of
tax assets, and the probability and potential magnitude of contingent liabilities.
Making estimates requires
management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating
its estimate could change in the near term. Accordingly, actual results could differ significantly from estimates.
Cash and Cash Equivalents
Cash and cash equivalents
are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly
liquid investments with an original maturity of three months or less. The Company had no cash equivalents.
Risks
related to cash
The
Company maintains cash in bank and deposit accounts, which at times may exceed federally insured limits. The Company has not experienced
any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash and cash equivalents.
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.
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, 2018, the Company
held 3 U.S. and foreign patents on its intrusion detection technology, which expire in calendar years 2025 through 2034 (depending
on the payment of maintenance fees).
The DPTI issued patents
cover a System and Method for Brillouin Analysis, a System and Method for Resolution Enhancement of a Distributed Sensor, and a
Flexible Fiber Optic Deformation System Sensor and Method. Maintenance of intellectual property rights and the protection thereof
is important to our business. Any patents that may be issued may not sufficiently protect the Company's intellectual property and
third parties may challenge any issued patents. Other parties may independently develop similar or competing technology or design
around any patents that may be issued to the Company. The Company cannot be certain that the steps it has taken will prevent the
misappropriation of its intellectual property, particularly in foreign countries where the laws may not protect proprietary rights
as fully as in the United States. Further, the Company may be required to enforce its intellectual property or other proprietary
rights through litigation, which, regardless of success, could result in substantial costs and diversion of management's attention.
Additionally, there may be existing patents of which the Company is unaware that could be pertinent to its business, and it is
not possible to know whether there are patent applications pending that the Company's products might infringe upon, since these
applications are often not publicly available until a patent is issued or published.
During the nine months
ended September 30, 2018, the Company had patent amortization costs totaling $38,271 on the DPTI technology and $5,459 on its software
patents. For the nine months ended September 30, 2017, the Company had patent amortization costs on its intrusion detection technology
totaling $38,271.
During the three months ended September 30, 2018, the Company had patent amortization costs totaling $38,271
on the DPTI technology and $5,459 on its software patents. For the three months ended September 30, 2017, the Company had patent
amortization costs on its intrusion detection technology totaling $12,757 and $0 on its software patents. Patents costs are being
amortized over the remaining life of each patent, which is from 7 to 16 years,
The following is a
summary of the DPTI patents as of September 30, 2018 and December 31, 2017:
|
|
September 30, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Historical cost
|
|
$
|
931,502
|
|
|
$
|
895,155
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
(395,466
|
)
|
|
|
(357,195
|
)
|
|
|
|
|
|
|
|
|
|
Carrying Value
|
|
$
|
536,036
|
|
|
$
|
537,960
|
|
Future
expected amortization of intangible assets is as follows:
Year Ending September 30,
|
|
|
|
2018
|
|
$
|
12,757
|
|
2019
|
|
|
51,028
|
|
2020
|
|
|
51,028
|
|
2021
|
|
|
51,028
|
|
2022
|
|
|
51,028
|
|
Thereafter
|
|
|
282,820
|
|
|
|
$
|
499,689
|
|
Intangible Assets
- Capitalized software, trademarks, and other patents
Capitalized software
development costs, and other patents and trademarks, were acquired in the reverse merger with Klever and are stated at cost, net
of prior impairment charges.
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Capitalized software development costs
|
|
$
|
262,243
|
|
|
$
|
262,243
|
|
Patents and trademarks
|
|
|
168,564
|
|
|
|
168,564
|
|
Accumulated amortization of patents and trademarks
|
|
|
(131,667
|
)
|
|
|
(114,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
299,140
|
|
|
$
|
316,710
|
|
The Company capitalizes
software development costs incurred from the time technological feasibility has been obtained until the product is generally released
to customers. Amortization of capitalized software development costs begins when the products are available to customers and is
computed using the straight-line method over the remaining estimated economic life of the product. The Company achieved technological
feasibility with regard to its mobile phone technology during the fourth quarter of 2010. No software development costs were incurred
and capitalized during the nine months ended September 30, 2018 and 2017, and no amortization expense for software development
costs was recorded for the three and nine months ended September 30, 2018 and 2017.
The costs of patents
and trademarks related to the Company's software are amortized on a straight-line basis over 5 years from the date the patent or
trademark is issued. Amortization expense for patents and trademarks related to the Company's software was $5,459 and $8,429 for
the three months ended September 30, 2018 and 2017, respectively, and $17,570 and $24,471 for the nine months ended September 30,
2018 and 2017, respectively.
Intangible assets are tested for impairment
on an annual basis or when the facts and circumstances suggest that the carrying amount of the assets may not be recovered.
Foreign Currency
Exchange Rate Policy
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 30, 2017, and September 30, 2018 was $0.795343, and $0.775151
respectively. The average rate for the three months ended September 30, 2017 and 2018 were $0.797222 and $0.766029 respectively.
The average rate for the nine months ended September 30, 2017 and 2018 were $0.768782 and $0.776048 respectively.
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.
The Company's U.S.
subsidiaries were incorporated in 2017, and tax returns have not yet been filed. The Company does not anticipate a tax liability
for the year 2018. The Company has filed tax returns in Canada for the years ending December 31, 2016, 2015, 2014, and 2013, and
they are still subject to audit.
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 arms length.
Recent Accounting
Pronouncements
There were no
new accounting pronouncements issued or proposed by the Financial Accounting Standards Board during the nine months ended September
30, 2018, 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 months
and nine months ended September 30, 2017, there were no stock options nor convertible preferred stock outstanding. For the three
months and nine months ended September 30, 2018, 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 127,324,092 common shares reserved for the potential
conversion of the Company's convertible debt.
NOTE 3 - DEBENTURE
DPTI issued a convertible
Debenture to the University (see Note 1) in exchange for the Patents assigned to the Company, in the amount of Canadian $1,500,000,
or US $1,491,923 on December 16, 2010, the date of the Debenture. On April 24, 2017 DPTI issued a replacement secured term Debenture
in the same C$1,500,000 amount as the original Debenture. The interest rate is the Bank of Canada Prime overnight rate plus 1%
per annum. The Debenture had an initial required payment of Canadian $42,000 (US$33,385) due on April 24, 2018 for reimbursement
to the University of its research and development costs, and this has been paid. Interest-only maintenance payments are due annually
starting after April 24, 2018. Payment of the principal begins on the earlier of (a) three years following two consecutive quarters
of positive earnings before interest, taxes, depreciation and amortization, (b) six years from April 24, 2017, or (c) in the event
DPTI fails to raise defined capital amounts or secure defined contract amounts by April 24 in the years 2018, 2019, and 2020.
The Company has raised funds in excess of the amount required by April 24, 2018. The principal repayment amounts will be due quarterly
over a six year period in the amount of Canadian Dollars $62,500. Based on the exchange rate between the Canadian Dollar and the
U.S. Dollar on September 30, 2018, the quarterly principal repayment amounts will be US$48,447. The Debenture is secured by the
Patents assigned by the University to DPTI by an Assignment Agreement on December 16, 2010. DPTI has pledged the Patents, and
granted a lien on them pursuant to an Escrow Agreement dated April 24, 2017, between DPTI and the University.
The Debenture was
initially recorded at the $1,491,923 equivalent US Dollar amount of Canadian $1,500,000 as of December 16, 2010, the date of the
original Debenture. The liability is being adjusted quarterly based on the current exchange value of the Canadian dollar to the
US dollar at the end of each quarter. The adjustment is recorded as unrealized gain or loss in the change of the value of the
two currencies during the quarter. The amounts recorded as an unrealized gain (loss) for the nine months ended September 30, 2018,
and September 30, 2017, were $29,359 and ($41,958) 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 nine months
ended September 30, 2018, and 2017, the Company recorded interest expense of $166,990 and $19,734, respectively. For the three
months ended September 30, 2018, and 2017 the Company recorded interest expense of $139,961 and $12,235, respectively.
As of September 30,
2018 the debenture liability totaled $1,163,655, all of which was long term.
Future
minimum required payments over the next 5 years and thereafter are as follows:
Period ending September 30,
|
|
|
|
2019
|
|
$
|
0
|
|
2020
|
|
|
0
|
|
2021
|
|
|
0
|
|
2022
|
|
|
0
|
|
2023 and after
|
|
$
|
1,163,655
|
|
Total
|
|
$
|
1,163,655
|
|
NOTE 4 - STOCKHOLDERS'
DEFICIT
Common stock
On April 27,
2018, DPTI issued 782 shares of common stock to five individuals and two entities, and reserved approximately 118 shares of common
stock for an employee stock compensation plan. The 782 shares have been independently valued at $1,602,570. At the closing of
the Merger described above, the 782 common shares of DPTI were exchanged for 78,231 shares of the Company's Series D preferred
stock.
The total outstanding 882 common shares of DPTI were exchanged for 88,235 shares
of the Company's Series D Preferred stock on July 18, 2018, as per the Merger described above. Each preferred share is currently
convertible into approximately 5,760 shares of common stock. As of September 30, 2018, there were 89,680,567 shares of common
stock and 88,235 shares of preferred stock issued and outstanding.
NOTE 5 – REVERSE ACQUISITION
Effective April 27,
2018, the Company, formerly known as Klever Marketing, Inc. ("Klever"), entered into a Merger Agreement with DarkPulse
Technologies Inc., pursuant to which the DarkPulse Technologies Inc. shareholders agreed to contribute 100% of the outstanding
securities of DarkPulse Technologies Inc. in exchange for an aggregate of 88,235 shares of our Series D Preferred Stock. Following
the closing, DarkPulse Technologies Inc. became a wholly owned subsidiary and the DarkPulse Technologies Inc. shareholders became
DarkPulse, Inc. stockholders and control the Company through the ownership of the outstanding preferred stock.
The transaction was accounted for as a
reverse acquisition using the acquisition method of accounting in accordance with FASB ASC Topic 805. DarkPulse Technologies Inc.
is the acquirer solely for financial accounting purposes. The following table summarizes the purchase accounting for the fair value
of the assets acquired and liabilities assumed at the date of the reverse acquisition.
Capitalized software
|
|
$
|
262,243
|
|
Patents and trademarks, net
|
|
|
42,356
|
|
Total assets acquired
|
|
|
304,599
|
|
Total liabilities assumed, due to former management
|
|
|
150,000
|
|
Total assets less liabilities assumed
|
|
|
154,599
|
|
Net assets attributed to non-controlling interests (Klever shareholders)
|
|
|
23,190
|
|
Net assets acquired
|
|
|
131,409
|
|
Consideration (1)
|
|
|
131,409
|
|
(1) The fair value of the consideration effectively transferred,
$131,409, was measured based on the net asset value of the Klever Marketing, Inc. assets immediately before the transaction.
The merger agreement
was modified on June 29, 2018. The Company secured financing for the closing of the Merger, and it closed on July 18, 2018. On
July 20, 2018, Klever's name was changed to DarkPulse Inc., ("DPI") and on September 4, 2018, DarkPulse. Inc.'s stock
symbol was changed to DPLS. On August 17, 2018, the Merger Agreement was amended effective July 18, 2018, to effect the merger
by share exchange instead of by subsidiary merger. On July 18, 2018, the 882 outstanding common shares of DarkPulse Technologies
Inc. were exchanged for 88,235 shares of Klever Marketing Inc. Series D Preferred Stock. The Company is now a wholly owned subsidiary
of DPI, a publicly traded company incorporated in Delaware. Terms of the Merger Agreement were that all outstanding liabilities
of Klever would be settled in full prior to the merger, with the single exception for two year notes to be issued to the prior
management of Klever in the total amount of $150,000 at zero percent interest. Additionally, all outstanding shares of preferred
stock would be retired and cancelled, and in May of 2018 approximately 28,358,000 shares of common stock would be issued to the
former management, who were also the shareholders of the preferred shares to be cancelled. At the closing of the merger, the Klever
common stockholders owned approximately 15% of the ownership of the merged entity, and the DarkPulse Technologies Inc. shareholders
owned approximately 85% of the entity. The intellectual property assets of Klever remained in the merged entity. Cash assets in
the Klever bank account were used to settle the prior outstanding liabilities, and were not for the benefit of the newly merged
entity.
The tables below represent
the pro forma financial statements for the year ended December 31, 2017, and the three and nine months ending September 30, 2018,
assuming the reverse acquisition had occurred on January 1, 2017, pursuant to ASC Subtopic 805-10-50. The historical financial
information has been derived from the financial statements of DarkPulse Technologies Inc., as filed on November 19, 2018, in the
Company’s Form 8K-A and the audited financial statements of Klever. The financial information has been adjusted to give
pro forma effect to events that are directly attributable to the reverse merger, are factually supportable and, in the case of
the pro forma statements of operations, have a recurring impact. The pro forma adjustments are based upon available information
and assumptions that the Company believes are reasonable.
This pro forma information does not purport
to represent what the actual results of our operations would have been had the reverse acquisition occurred on January 1, 2017.
Pro Forma Consolidated Balance Sheet
as of December 31, 2017
|
|
DarkPulse Technologies Inc.
|
|
|
Klever Marketing, Inc.
|
|
|
Adjustments
|
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
18,675
|
|
|
$
|
2,498
|
|
|
$
|
(2,498
|
)
|
|
$
|
18,675
|
|
Total current assets
|
|
|
18,675
|
|
|
|
2,498
|
|
|
|
(2,498
|
)
|
|
|
18,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets:
|
|
|
7,275
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,275
|
|
Patents, net
|
|
|
537,960
|
|
|
|
316,710
|
|
|
|
–
|
|
|
|
854,670
|
|
Total other assets
|
|
|
545,235
|
|
|
|
316,710
|
|
|
|
–
|
|
|
|
861,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
563,910
|
|
|
$
|
319,208
|
|
|
$
|
(2,498
|
)
|
|
$
|
880,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
43,594
|
|
|
$
|
710,997
|
|
|
$
|
(710,997
|
)
|
|
$
|
43,594
|
|
Short term debt
|
|
|
33,385
|
|
|
|
|
|
|
|
|
|
|
|
33.385
|
|
Preferred stock dividends
|
|
|
–
|
|
|
|
2,546
|
|
|
|
(2,546
|
)
|
|
|
–
|
|
Related party payable
|
|
|
–
|
|
|
|
38,000
|
|
|
|
(38,000
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
76,979
|
|
|
|
751,543
|
|
|
|
(751,543
|
)
|
|
|
76,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term liabilities
|
|
|
1,193,015
|
|
|
|
|
|
|
|
150,000
|
|
|
|
1,343,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,269,994
|
|
|
|
751,543
|
|
|
|
(601,543
|
)
|
|
|
1,419,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
–
|
|
|
|
5,094
|
|
|
|
(5,094
|
)
|
|
|
–
|
|
Common stock
|
|
|
–
|
|
|
|
613,226
|
|
|
|
283,580
|
|
|
|
896,806
|
|
Additional paid in capital
|
|
|
–
|
|
|
|
18,389,162
|
|
|
|
19,438,817
|
|
|
|
1,049,655
|
|
Non-controlling interest in Variable Interest Entity and subsidiary
|
|
|
25,808
|
|
|
|
–
|
|
|
|
–
|
|
|
|
25,808
|
|
Treasury stock
|
|
|
–
|
|
|
|
(1,000
|
)
|
|
|
–
|
|
|
|
(1,000
|
)
|
Accumulated other comprehensive income
|
|
|
298,908
|
|
|
|
–
|
|
|
|
–
|
|
|
|
298,908
|
|
Accumulated deficit
|
|
|
(1,030,800
|
)
|
|
|
(19,438,817
|
)
|
|
|
(19,438,817
|
)
|
|
|
(1,030,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit
|
|
|
(706,084
|
)
|
|
|
(432,335
|
)
|
|
|
599,045
|
|
|
|
(539,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
563,910
|
|
|
$
|
319,208
|
|
|
$
|
(2,498
|
)
|
|
$
|
880,620
|
|
Proforma
Consolidated Income Statement for the three and nine months ended September 30, 2018
|
|
For the three months ended September 30, 2018
|
|
|
|
DarkPulse
|
|
|
Klever
|
|
|
|
|
|
|
|
|
|
Technologies, Inc.
|
|
|
Marketing Inc.
|
|
|
Adjustments
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
281,996
|
|
|
|
48,242
|
|
|
|
–
|
|
|
|
330,238
|
|
Research and development
|
|
|
–
|
|
|
|
228
|
|
|
|
–
|
|
|
|
228
|
|
Amortization/Impairment expense
|
|
|
18,216
|
|
|
|
–
|
|
|
|
–
|
|
|
|
18,216
|
|
Marketing
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Total operating expenses
|
|
|
300,212
|
|
|
|
48,470
|
|
|
|
–
|
|
|
|
348,682
|
|
Loss from operations
|
|
|
(300,212
|
)
|
|
|
(48,470
|
)
|
|
|
–
|
|
|
|
(348,682
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Interest expense
|
|
|
(139,961
|
)
|
|
|
(1,069
|
)
|
|
|
–
|
|
|
|
(141,030
|
)
|
Loss on convertible notes
|
|
|
(916,977
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(916,977
|
)
|
Gain on change in fair market values of derivative securities
|
|
|
689,949
|
|
|
|
–
|
|
|
|
–
|
|
|
|
689,949
|
|
Loss on merger
|
|
|
(110,685
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(110,685
|
)
|
Total other income (expense)
|
|
|
(477,674
|
)
|
|
|
(1,069
|
)
|
|
|
–
|
|
|
|
(478,743
|
)
|
Loss before income taxes
|
|
|
(777,886
|
)
|
|
|
(49,539
|
)
|
|
|
–
|
|
|
|
(827,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Income tax benefit (provision)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
Net loss attributable to non-controlling interests in variable interest entity and
subsidiary
|
|
|
100
|
|
|
|
–
|
|
|
|
–
|
|
|
|
100
|
|
Net loss attributable to Company shareholders
|
|
$
|
(777,786
|
)
|
|
$
|
(49,539
|
)
|
|
$
|
–
|
|
|
$
|
(827,325
|
)
|
|
|
For the nine months ended September 30, 2018
|
|
|
|
DarkPulse
|
|
|
Klever
|
|
|
|
|
|
|
|
|
|
Technologies, Inc.
|
|
|
Marketing Inc.
|
|
|
Adjustments
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,909,547
|
|
|
|
48,242
|
|
|
|
–
|
|
|
|
1,957,789
|
|
Research and development
|
|
|
–
|
|
|
|
228
|
|
|
|
–
|
|
|
|
228
|
|
Amortization/Impairment expense
|
|
|
43,730
|
|
|
|
–
|
|
|
|
–
|
|
|
|
43,730
|
|
Depreciation
|
|
|
1,806
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,806
|
|
Total operating expenses
|
|
|
1,955,089
|
|
|
|
48,470
|
|
|
|
–
|
|
|
|
2,003,553
|
|
Loss from operations
|
|
|
(1,955,089
|
)
|
|
|
(48,470
|
)
|
|
|
–
|
|
|
|
(2,003,553
|
)
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Interest expense
|
|
|
(164,990
|
)
|
|
|
(1,069
|
)
|
|
|
–
|
|
|
|
(166,059
|
)
|
Loss on convertible notes
|
|
|
(916,977
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(916,977
|
)
|
Gain on change in fair market values of derivative
securities
|
|
|
689,949
|
|
|
|
–
|
|
|
|
–
|
|
|
|
689,949
|
|
Loss on merger
|
|
|
(110,685
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(110,685
|
)
|
Total other income (expense)
|
|
|
(502,703
|
)
|
|
|
(1,069
|
)
|
|
|
–
|
|
|
|
(503,772
|
)
|
Loss before income taxes
|
|
|
(2,457,786
|
)
|
|
|
(49,539
|
)
|
|
|
–
|
|
|
|
(2,507,325
|
)
|
Income tax benefit (provision)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Net loss attributable to non-controlling interests in variable interest entity and
subsidiary
|
|
|
11,172
|
|
|
|
–
|
|
|
|
–
|
|
|
|
11,172
|
|
Net loss attributable to Company shareholders
|
|
$
|
(2,446,614
|
)
|
|
$
|
(49,539
|
)
|
|
$
|
–
|
|
|
$
|
(2,496,153
|
)
|
NOTE 6 - COMMITMENTS
& CONTINGENCIES
Potential Royalty
Payments
The Company, in consideration
of the terms of the debenture to the University of New Brunswick, shall pay to the University a two percent royalty on sales of
any and all products or services which incorporate the Company's patents for a period of five years from April 24, 2018.
Potential Commission
Payments
The Company, in consideration
of the Strategic Alliance Agreement with Bravatek, for the purpose of promoting the Company’s products, will pay Bravatek
sales commissions for clients introduced to the Company by Bravatek.
Legal Matters
On
October 2, 2018, the Company received a demand for payment from Bravatek Solutions, Inc. for payment in the amount of $35,750
for software services.
The Company is not a party to any significant pending legal proceedings, and no other such
proceedings are known to be contemplated. No director, officer or affiliate of the Company, and no owner of record or beneficial
owner of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security holder is
a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.
NOTE 7 – RELATED PARTY TRANSACTIONS
The
Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure
of related party transactions. Pursuant to Section 850-10-20 the related parties include a) affiliates of the Company; b)
Entities for which investments in their equity securities would be required, absent the election of the fair value option under
the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts
for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management;
d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party
controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its own separate interests; and g) Other parties that can significantly influence
the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests. The financial statements shall include disclosures of material related party transactions,
other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However,
disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required
in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions,
including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements
are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial
statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects
of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related
parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
During the nine months
ended September 30, 2018, two of the officers and directors of the Company advanced personal funds in the amount of $10,689 for
Company expenses, and $10,689 was repaid to them prior to September 30, 2018.
The Co-CEO of
the Company is also the CEO of Bravatek, and in May 2018 the Company received $42,000 for an order from DPBVTK, a joint venture
partner related party for a demonstration unit, to be used in their 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, 2018.
NOTE 8 – 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 and September 30, 2018. Management determined the
expected volatility at 259%, a risk free rate of interest of 2.48%, 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
|
|
|
Amortization
|
|
|
Initial
|
|
|
Q3 change
|
|
|
Derivative Balance
|
|
|
|
Amount
|
|
|
of Discount
|
|
|
Loss
|
|
|
in FMV
|
|
|
9/30/2018
|
|
|
|
$
|
189,750
|
|
|
$
|
38,990
|
|
|
$
|
423,572
|
|
|
$
|
(376,313
|
)
|
|
$
|
237,009
|
|
|
|
|
201,000
|
|
|
|
37,447
|
|
|
|
406,460
|
|
|
|
(357,702
|
)
|
|
|
249,758
|
|
|
|
|
97,000
|
|
|
|
21,614
|
|
|
|
41,635
|
|
|
|
(48,396
|
)
|
|
|
90,239
|
|
|
|
|
100,000
|
|
|
|
2,198
|
|
|
|
27,073
|
|
|
|
(17,410
|
)
|
|
|
109,663
|
|
|
|
|
100,000
|
|
|
|
1,916
|
|
|
|
35,471
|
|
|
|
(27,004
|
)
|
|
|
108,467
|
|
|
|
|
29,250
|
|
|
|
2,726
|
|
|
|
(2,470
|
)
|
|
|
(3,302
|
)
|
|
|
23,478
|
|
|
|
|
49,726
|
|
|
|
4,694
|
|
|
|
(3,609
|
)
|
|
|
(5,957
|
)
|
|
|
40,160
|
|
|
|
|
41,774
|
|
|
|
3,943
|
|
|
|
(3,032
|
)
|
|
|
(4,940
|
)
|
|
|
33,802
|
|
|
|
|
29,250
|
|
|
|
2,150
|
|
|
|
(8,123
|
)
|
|
|
(3,459
|
)
|
|
|
17,668
|
|
Subtotal
|
|
|
820,516
|
|
|
|
115,678
|
|
|
|
916,977
|
|
|
|
689,949
|
|
|
|
910,244
|
|
Transaction expense
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
51,250
|
|
|
|
–
|
|
|
|
$
|
820,516
|
|
|
$
|
115,678
|
|
|
$
|
916,977
|
|
|
$
|
741,199
|
|
|
$
|
910,244
|
|
On July 17, 2018, The
Company entered into a securities purchase agreement with Carebourn Capital L.P., (“Carebourn”) issuing to Carebourn
a convertible promissory note in the aggregate principal amount of $189,750 with a $24,750 original issue discount and $15,000
in transactional expenses due to Carebourn. The note bears interest at 12% per annum and may be converted into common shares of
DPI's common stock at a conversion price equal to 60% of the average of the three lowest trading prices of the DPI's common stock
during the 20 prior trading days.
On July 27, 2018, The
Company entered into a securities purchase agreement with Carebourn, issuing to Carebourn a convertible promissory note in the
aggregate principal amount of $276,000 with a $36,000 original issue discount and $15,000 in transactional expenses due to Carebourn.
The note bears interest at 12% per annum and may be converted into common shares of the Company's common stock at a conversion
price equal to 60% of the average of the three lowest trading prices of the Company's common stock during the 20 prior trading
days. As of the date the consolidated financial statements were available for issuance, DPI received $150,000 net cash, and $75,000
is due to be received.
On August 20, 2018,
the Company entered into a securities purchase agreement with More Capital LLC, ("More") issuing to More a convertible
promissory note in the aggregate principal amount of $152,000 with a $20,000 original issue discount and $7,000 in transactional
expenses due to More. The note bears interest at 12% per annum and may be converted into common shares of the Company's common
stock at a conversion price equal to 60% of the average of the three lowest trading prices of the Company's common stock during
the 20 prior trading days. As of the date the consolidated financial statements were available for issuance, DPI received $70,000
net cash, and $55,000 is due to be received.
On September 24, 2018,
the Company entered into a securities purchase agreement with Auctus Fund, LLC, (“Auctus”) issuing to Auctus a convertible
promissory note in the aggregate principal amount of $100,000 with $10,250 in transactional expenses due to Auctus and its counsel.
The note bears interest at 8% 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 $89,750
net cash on September 27, 2018.
On September 25, 2018,
the Company entered into a securities purchase agreement with EMA Financial, LLC, (“EMA”) issuing to EMA a convertible
promissory note in the aggregate principal amount of $100,000 with a 6% original issue discount and $4,000 in transactional expenses
due to EMA. The note bears interest at 8% per annum and may be converted into common shares of the Company's common stock at a
conversion price equal to the lower of current market price, $0.25, or 70% of the lowest trading price of the Company's common
stock during the 20 prior trading days. The Company received $90,000 net cash on September 28, 2018.
As of September 30,
2018 and 2017 respectively, there was $124,862 and $0 of convertible debt outstanding, net of debt discount of $912,382, and $0,
As of September 30, 2018 and 2017 respectively, there was derivative liability of $910,244 and $0 related to convertible debt securities.
NOTE 9 – 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, 2018 and December 31, 2017 respectively, there were 88,235 and 0 total preferred shares issued
and outstanding for all classes.
On July 12, 2018,
the Company filed a Certificate of Designation with the State of Delaware amending the designation of its previously designated
“Class D Voting Preferred Stock,” designating 100,000 shares of the Company’s preferred stock as “Series
D Preferred Stock.” Each share of Series D Preferred Stock entitles the holder to 6,000 votes on all matters submitted to
a vote of the Company’s stockholders and is convertible at the election of the holder into a number of shares of common
stock equal to the number of outstanding shares of common stock of the Company multiplied by 5 ⅔, divided by the number
of outstanding shares of Series D Preferred Stock. All of these shares are owned by the Company's management, with control ownership
held by the Company's CEO.
NOTE 10 – COMMON STOCK
In accordance with
the Company’s bylaws, the Company has authorized a total of 250,000,000 shares of common stock, par value $0.01 per share.
As of September 30, 2018 and December 31, 2017 respectively, there were 89,680,567 and 100 common shares issued and outstanding.
During the nine
months ended September 30, 2018, the Company issued 28,358,000 shares of common stock
as
settlement of deferred compensation and notes payable to former officers and directors of the Company in the total amount of $558,745.74,
and in recognition of the upcoming cancellation of the PSF, Inc. preferred shares.
NOTE 11 – STOCK OPTIONS
The Company’s
shareholders 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 nine months
ended September 30, 2018, the Company did not issue any stock options and had no stock options outstanding at September 30, 2018.
NOTE 12 – 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
September 24, 2018, the Company entered into a securities purchase agreement with FirstFire Global Opportunities Fund LLC,
(“FirstFire”) issuing to FirstFire a convertible promissory note in the aggregate principal amount of $247,500, with
a $22,500 original issue discount and $5,000 in transactional expenses due to FirstFire's counsel. The note bears interest at
8% per annum and may be converted into common shares of the Company's common stock at a conversion price equal to the lower of
$0.25, or 70% of the lowest trading price of the Company's common stock during the 20 prior trading days. The Company received
$220,000 net cash on October 9, 2018.
On
October 2, 2018, the Company received a demand for payment from Bravatek Solutions, Inc. for payment in the amount of $35,750
for software services.