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Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No
☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o
No ☒
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 past 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 o No ☒
Indicate by check mark whether the registrant
has submitted electronically, every Interactive Data File pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files).
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)
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 has filed a report on
and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☐
Indicate by check mark whether the registrant
is a shell company, as defined in Rule 12b-2 of the Exchange Act. Yes o No ☒
The aggregate market value of the voting and
non-voting stock held by non-affiliates of the registrant as of the last business day of the registrants most recently completed second
fiscal quarter, based on the price at which the common equity was last sold on the OTC Markets on June 30, 2021 was approximately $413,587,367.
For purposes of this computation only, all officers, directors and 10% or greater stockholders of the registrant are deemed to be “affiliates.”
The number of shares of the registrant’s
common stock, $0.0001 par value per share, outstanding as of April 11, 2022, was 5,379,471,416.
Although we believe that the expectations reflected
in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause
actual results to differ materially from such forward-looking statements. These factors include among others:
This list is not exhaustive of the factors that
may affect our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements
are described further under the sections titled “Business”, “Risk Factors”, and “Management’s Discussion
and Analysis.” Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, believed, estimated or expected. We caution readers not to place undue reliance
on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated
events.
We qualify all the forward-looking statements
contained in this Form 10-K by the foregoing cautionary statements.
PART I
As used in this Form 10-K, the terms “we,”
“us,” “our,” and the “Company” refer to DarkPulse, Inc., a Delaware corporation, and its subsidiaries.
Corporate Overview
Organization
DarkPulse, Inc. (“DarkPulse”
or the "Company") is a technology-security company incorporated in 1989 as Klever Marketing, Inc ("Klever").
One of our principal wholly-owned subsidiaries, DarkPulse Technologies Inc. ("DPTI"), originally started as a technology
spinout from the University of New Brunswick, Fredericton, Canada. DPI is comprised of multiple security platforms: Patented BOTDA Fiber
Optic sensor systems and Satellite Communications services.
In December 2010, DPTI entered into an Assignment
Agreement with the University of New Brunswick, Canada (the “University”), pursuant to which the University sold,
transferred, and assigned to us certain patents related to the University’s BOTDA dark-pulse technology (the "Patents")
in exchange for the issuance of a debenture to the University in the amount of C$1,500,000 (Canadian dollars). In April 2017, DPTI
issued a replacement debenture to the University in the amount of US$1,491,923 (the “Debenture”). The Patents
and the Debenture were initially recorded in our accounts at $1,491,923, based upon the exchange rate between the U.S. dollar and the
Canadian dollar on December 16, 2010, the date of the original debenture. In addition to the repayment of principal and interest, the
Debenture requires DPTI to pay the University a 2% royalty on sales of any and all products or services which incorporate the Patents
for a period of five years commencing on April 24, 2018, as well as to reimburse the University for its patent-related costs.
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 DPTI 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, we filed a Certificate of Amendment
to our Certificate of Incorporation with the State of Delaware, changing the name of the Company to “DarkPulse, Inc.” We
filed a corporate action notification with the Financial Industry Regulatory Authority (“FINRA”), and our ticker symbol
was changed to “DPLS.”
Our security and monitoring systems will be delivered
in applications for critical infrastructure/ key resources such as but not limited to 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. Our patented BOTDA dark-pulse sensor technology allows
for the monitoring of highly dynamic environments due to its greater resolution and accuracy.
Our Operating Units
Optilan
Founded in 1990, Optilan is a leading independent
security and communications systems integrator worldwide. Providing specialist technologies and techniques Optilan helps to protect businesses
and organizations from external threats. Telecommunications, Energy, Rail, Critical Network Infrastructure, Pipeline Integrity Systems,
Renewables and Security. Headquartered in Warwick, United Kingdom with a 30-year pedigree, at Optilan our customers trust us to keep
the integrity of their assets safe and secure, by managing the life cycle delivery risk of our solutions. By fostering a collaborative
design approach to complex problems, we provide innovative solutions, custom fit to even the most demanding of sites and scale of projects.
Importantly, our commitment to our safety culture remains unaverred, to ensure that everyone goes home safely every day. We orchestrate
business resilience with a suite of end-to-end solutions, combined with connectivity and professional service at a global level. Today's
business environment is more dynamic than ever, with continuous change and disruption accepted as the new normal. We complement our tailored,
integrated expertise with a curated ecosystem of leading manufacturers, to achieve both high quality and enduring results. We are proud
to foster a unique culture full of talented individuals. Our sector focus ensures that our account teams are fully accredited in their
operational areas. We are committed to creating individually tailored solutions, using collaborative techniques and programming tools
to deliver the networks of the future. Optilan has provided integrated solutions for leading Oil and Gas, Industrial and Energy companies
around the world. As an industry leader in deploying communication networks with exceptional reliability, our reputation for delivering
the highest quality products remains unsurpassed. This spans mobile, broadband, security systems and customer premise works. Our professionals
have the skill to adopt and embed our expertise into existing platforms, processes, and cultures, delivering exceptional value for our
clients. Beyond our operational scope, we strive to consider the impact of our global footprint and mitigate associated environmental
and sustainability risks. These factors combined set Optilan apart and establish why customers continue to trust and invest in our services.
Remote Intelligence
Remote Intelligence provides Unmanned Aerial Drone
and UGC (unmanned ground crawler) Services to a variety of clients; from Industrial Mapping and Ecosystem Services, to Search and Rescue,
to Pipeline Security, we provide sales and consulting services for all markets. Remote Intelligence started in 2013 with a simple vision;
to use the new and developing field of unmanned aerial vehicles to produce higher quality, safer and more effective products for a variety
of markets. We strive to Equip, Educate and Advance the use of the most advanced Unmanned Aerial Systems and Unmanned Ground Crawlers
in the United States and around the world for commercial, government and domestic use. Our top priorities as we do that are to find safe
and ethical ways to use this new and exciting field of technology to make life better. Providing holistic intelligence consultation and
solutions including full-service Methane Detection and Monitoring. Quick, comprehensive site mapping and aerial inspection services. We
specialize in fully integrated, geo-rectified, 3D modeled mapping and AI for industrial applications, specializing in the energy and environmental
industries, with AI and live streaming capabilities anywhere in the world. Also providing aerial survey, video inspection services, emergency
support services, wildlife and habitat surveys, and comprehensive system design, training, and sales for both the commercial and private
sectors. Integrating the latest tech solutions like artificial intelligence. Globally connected with a base of operation in Wellsboro
Pennsylvania.
TerraData Unmanned
Comprised of a team with more than 30 years cumulative
experience in the unmanned industry, TerraData custom manufactures NDAA compliant drones and unmanned ground crawlers to meet the needs
of its customers. TerraData has successfully delivered a custom drone platform per a customer’s specifications which exceeds current
industry offering by more than 30 minutes. The team has manufactured, and successfully flight tested a Quad Copter drone with 1.5KG payload
capabilities that delivers more than 60 minutes of continuous flight. This cutting-edge design is a combination of proprietary software
and hardware. The custom platform offers NDAA compliant autopilot, communications links, TSO Certified GPS unit and ground control station.
Future designs include integrating RTK for mapping, methane detectors, and true terrain following capabilities. There are also improvements
scheduled that are intended to further extend the endurance and provide over 4KG of payload capacity, not including batteries. TerraData
has also announced the research, development and successful testing of an autonomous crawler soon to be released to the market with Methane
and Multi Gas Detection capabilities. Working seamlessly with its partners at DarkPulse and its subsidiary companies, TerraData can custom
design, build and operate a system to meet our customers' needs 24 hours a day 365 days a year around the block or around the globe.
Wildlife Specialists
Wildlife Specialists, LLC was founded in 2007
to provide clients with comprehensive wildlife and environmental assessment, planning, and monitoring services. We currently maintain
two regional offices located in north central and southeastern Pennsylvania and are available to provide services to clients nationwide
and around the globe. Our staff are well-established professionals who have a wide range of experience in wildlife management, research,
and monitoring at the local and statewide levels throughout the United States. In addition, we have specific expertise in providing the
full range of sensitive species and habitat assessments necessary for your development projects. Wildlife Specialists’ mission is
to provide consulting services that use the latest technology to produce the highest quality results compatible with our clients’
management goals and the appropriate protocols developed by state and federal wildlife management agencies. Wildlife Specialists is fully
insured to industry standards and committed to the safety of our staff, our clients, and the public. We have maintained safety certification
through ISNetWorld and other 3rd party certifiers. We are also officially PennDOT, GSA, Small Business and HUBZone Certified.
TJM West Electronics
TJM West Electronics is an ISO9001 and AS9100
certified electronics and electro-mechanical assembly operation. We operate out of a high tech, 20,000 Sq ft facility in Tempe, Arizona.
Our assembly team is trained to IPC 610 and J-STD-001 standards, Class 2 and 3. We have been in business since 1999. Our latest website
was developed to be a customer interface for rapid costing, build scheduling, open order status, and complete manufacturing history data
records. Registered users can enter build and fabrication parameters for quantities of 2-20 units. Our calculator provides itemized labor,
PCB fabrication cost and delivery. Registered users can also access factory floor for the updated status and delivery date of open orders,
a review of configuration, quotes and full quality history database.
As a U.S. manufacturer and test of advanced electronics,
cables and sub-assemblies. we specialize in advanced package and complex CCA and hardware. Certified to space and flight AS9100D, TJM
has over 20 years supplying ultra-high reliability, and fully documented electronic Hardware. Per AS9100D, TJM maintains all material
certifications, process and measurement reports electronically as part of a complete quality history record. Manufacturing PCB Design
services on the most popular platforms including Cadence, Altium, and Mentor. Design output data integrates seamlessly to our automated
manufacturing line. Test Development ICT to functional and burn-in. We develop a test plan and hardware system to deliver your 100% verified
product. Low Cost, High Reliability Manufacturing is the net result of quality planning, optimizing automation technology, operational
efficiency, and communication. High value, low-cost domestic solution to replace offshore manufacturing. Protect your IP and keep direct
line-of sight of manufacturing with products made in the USA. TJM West Is your one stop shop.
Acquisitions
On August 9, 2021, we entered into a Share Purchase
Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited, pursuant to which we purchased from the sellers all of the issued
and outstanding equity interests of Optilan HoldCo 3 Limited, a private company incorporated in England and Wales (“Optilan”)
for £1.00 and also a commitment to enter into a subscription agreement. Optilan is now a wholly-owned subsidiary of the Company.
On August 9, 2021, we entered into a Subscription
Agreement with Optilan, pursuant to which we agreed to purchase an aggregate of 4,000,000 Ordinary Shares of Optilan for an aggregate
purchase price of £4,000,000.
On August 30, 2021, we closed two separate Membership
Interest Purchase Agreements with Remote Intelligence, Limited Liability Company, a Pennsylvania limited liability company (“RI”)
and Wildlife Specialists, LLC, a Pennsylvania limited liability company (“WS”) pursuant to which we agreed to pay
to the majority shareholder of each of RI and WS an aggregate of 15,000,000 shares of our Common Stock, $500,000 to be paid on the closing
date, and an additional $500,000 to be paid 12 weeks from closing date in exchange for 60% ownership of each of RI and WS. RI and WS
are now subsidiaries of the Company.
On September 8, 2021,
we entered into and closed the Stock Purchase Agreement with TJM Electronics West, Inc., an Arizona corporation (“TJM”),
and TJM’s shareholders, pursuant to which we agreed to purchase all of the equity interests in TJM in exchange for $450,000, subject
to adjustments as defined in the Stock Purchase Agreement. TJM is now a wholly-owned subsidiary of the Company.
Effective October 1,
2021, we entered into and closed the Membership Purchase Agreement with TerraData Unmanned, PLLC, a Florida limited liability company
(“TerraData”), and Justin Dee, the sole shareholder of TerraData, pursuant to which we agreed to purchase 60% of the
equity interests in TerraData in exchange for 3,725,386 shares of our Common Stock and $400,000, subject to adjustments as defined in
the Membership Purchase Agreement, to be paid within 12 weeks of closing. TerraData is now a subsidiary of the Company.
Our Business
We offer a full suite of engineering, installation
and security management solutions to industries and governments. Coupled with our patented Brillouin
optical time domain analyzer (“BOTDA”) dark-pulse technology (the “DarkPulse Technology”),
we provide our customers a comprehensive data stream of critical metrics for assessing the health and security of their infrastructure.
Our comprehensive system provides for rapid, precise analysis and responsive activities predetermined by the end-user customer. These
responses include the use of “smart” AI platformed cameras, facial recognition technologies and multiple drone platforms.
Our User Interface (UI) is cloud based which offers end-users access to their systems on any device located anywhere in the world. Additional
programming of the UI is being completed within a game engine that will also offer access via Virtual Reality headsets, allowing end-users
to virtually inspection their assets.
Historically, distributed sensor systems have
been too costly, slow and limited in their capabilities to attain widespread use. In addition, Brillouin-based sensors have been plagued
with temperature and strain cross-sensitivity, i.e. the inability to distinguish between temperature and strain change along the same
fiber. The loss of spatial resolution with an increase in fiber length has also limited the use of distributed sensor systems. Due to
these shortcomings, existing technologies are unable to succeed within today’s dynamic environments, and needs for more advanced
sensor technologies have remained unsatisfied.
By contrast to existing technologies, the DarkPulse
Technology is a distributed-fiber sensing system, based on dark-pulse Brillouin scattering, which reports in real-time on conditions
such as temperature, stress, strain corrosion and structural health monitoring of Critical Infrastructure/Key Resources including Bridges,
Buildings, Roadways pipelines and mining installations.
DarkPulse Technology’s differentiators
from and advantages over existing technologies:
|
· |
Real-time Reporting: Higher data acquisition speeds allowing
for structural monitoring of dynamic systems |
|
· |
Cost to Customer: Significantly lower acquisition and operating costs |
|
· |
Precision: A greater magnitude of precision and spatial resolution
than other systems currently available |
|
· |
Applications: Wider range of capabilities than other systems currently
available |
|
· |
Power consumption: Lower power consumption than existing systems allowing
for off-grid installations |
|
· |
Integration: Capable of integrating with existing systems |
|
· |
Central station monitoring/cloud based GUI |
We believe that these key advantages should allow
us not only to enter existing markets, but more importantly, to open new market opportunities with new applications. We intend to leverage
new applications to target clients that have been unable to make use of distributed fiber optic technology to date.
Revenue Generation
We intend to generate revenue from the following
sources:
|
· |
Hardware equipment sales, warranties, service contracts and licensing
to large enterprises and governments; |
|
· |
Recurring subscription fees paid by enterprise/government users for
access to our 24/7 monitoring services of their critical infrastructure; |
|
· |
Recurring subscription fees paid by enterprise/government users for
access to our applications by enterprises/governments; |
|
· |
Recurring subscription fees paid by enterprise users for access to
data stored in the cloud that may be integrated into large, third-party providers such as Oracle, Google Cloud; and Microsoft; among
others; and |
|
· |
Recurring subscription fees paid by enterprise/government users who
subscribe to bundled service offerings. |
Our Market
Current uses of fiber optic distributed sensor
technology have been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and
its poor precision. Our DarkPulse Technology allows for the monitoring of highly dynamic environments due to its magnitude of increased
resolution and greater accuracy. The resulting high speed, real-time monitoring capabilities of our DarkPulse Technology should satisfy
a broad range of existing and emerging requirements. Use of the DarkPulse Technology by our customers should result in lower production
costs with increased sensing capabilities that can integrate with existing technology and be upgraded cost effectively.
Due to the characteristics of the fiber used
in fiber optic sensing, the uses of our DarkPulse Technology are wide ranging. Optical fiber is hard-wearing, which allows it to be used
in environments where other technologies fail (for example, at temperatures ranging from -40°C to 300°C and 1000psi). Additionally,
DarkPulse Technology’s sensors allow for live sensing due to the speed at which the analysis takes place.
Our management team is continually identifying
markets in which our DarkPulse Technology may be readily applied. Once these markets (as described below) have been addressed, our DarkPulse
Technology may be adapted and applied to new markets.
Structural Monitoring
|
· |
Buildings and Skyscrapers |
|
· |
Bridges, Tunnels and Dams |
|
· |
Roads and Railway tracks |
Temperature Sensing
|
· |
Fire Alarm and Environment control |
|
· |
Low cost and maintenance |
|
· |
Long life span |
|
· |
Ability to withstand harsh working environment |
Security & Defense
|
· |
National Border Protection |
|
· |
Protection of Military and other sensitive installations |
Consulting Services:
|
· |
Consulting (as stand-alone or presales) |
|
· |
Post sales deployment and Support |
|
· |
Managed services (monitoring, etc.) |
Additional Potential Markets:
|
· |
Monitoring of composite structures in aircraft |
|
· |
Dynamic stress monitoring of runways |
|
· |
Dynamic ship hull stress monitoring, especially with a view to double-hull
oil tankers |
|
· |
Smart grid and power conservation applications based on cooling and/or
heat proximity – for instance, computer rooms, cell towers for heat soak |
|
· |
Monitor low temperatures as part of control systems |
|
· |
Monitoring of temperatures in extreme refrigeration environments |
|
· |
Avalanche early warning systems |
|
· |
Sea defense monitoring |
Marketing
We utilize our DarkPulse Technology as the foundation
of our ongoing marketing initiatives. Most notably, the greater magnitude of increased capabilities DarkPulse Technology versus existing
bright-pulsing technologies. Existing bright-pulse Brillouin-based sensors have historically been plagued with temperature and strain
cross-sensitivity, i.e. the inability to distinguish between temperature and strain change along the same fiber. The loss of spatial resolution
with an increase in fiber length is also a limiting factor for the use of distributed sensor systems. Because of these shortcomings, existing
bright-pulse Brillouin-based technologies are unable to succeed within today’s dynamic environments, which coincides with our DarkPulse
Technology’s increased capabilities over bright-pulse systems. Our marketing initiatives include daily, broad-based social media
engagement, management of our website, email campaigns, national television commercials, magazine ads, and other ongoing initiatives designed
to increase awareness of our products and services and drive conversion and adoption rates.
Competition
The overall optical sensing market is projected
to reach USD $3.47 billion by 2023 from USD $1.13 billion in 2016, at a CAGR of 15.47% between 2017 and 2023.1
We are active in the optical sensing market, including Oil & Gas pipeline health monitoring, National Border Security
applications, and the mining industry. We believe that fiber sensing applications which incorporate our DarkPulse Technology may provide
significant competitive advantages over structural health monitoring applications offered by the long-term leaders in the field, such
as Schlumberger, Hewlett-Packard, and Yokogawa, which collectively account for a significant portion of industry sales. These companies,
as well as others, have numerous differences in feature sets and functionality, but all share certain basic attributes: a bright-pulse
technology as the core of their systems architecture. An architecture designed using bright-pulsing technology has limited sensing capabilities
and resolutions of one meter allowing for mostly long-term quasi-static deployments.
_________________
1
Optical Sensing Market by Industry (Aerospace & Defense, Utilities, Oil & Gas, Medical, Construction, and Consumer
Electronics), Application, Method, and Geography - Global Forecast to 2023
(https://www.marketsandmarkets.com/Market-Reports/optical-sensing-market-197592599.html?gclid=EAIaIQobChMIzrfanf7P4QIVA0GGCh3jlw7rEAAYASAAEgI9bvD_BwE)
However, we utilize our DarkPulse Technology
allowing for multiple applications into those markets unavailable to companies using bright-pulse technology. While many of the companies
using bright-pulse technology have attempted to incorporate various sensing techniques into a legacy technology, none have been able
to offer the order of magnitude resolutions offered by our DarkPulse Technology. This magnitude in resolution coupled with the DarkPulse
Technology’s increased data collection speeds allows our DarkPulse Technology to be installed into areas of the market that our
competitors cannot. Our future financial condition and operating results depend on our ability to provide a high-quality solution as
well as increased distribution of the solutions in each of the markets in which we compete or intend to compete within.
The markets for our products and services are
highly competitive and we are confronted by aggressive competition. These markets are characterized by frequent product introductions
and rapid technological advances. Our financial condition and operating results can be adversely affected by these and other industry-wide
downward pressures on gross margins. Principal competitive factors important to us include price, product features, relative price and
performance, product quality and reliability, marketing and distribution capability, service and support and corporate reputation.
Intellectual Property
Our policy is to protect our technology by, among
other things, patents, trade secret protection and copyrights. We have taken security measures to protect our trade secrets and proprietary
know-how, to the greatest extent possible. Our means of protecting our proprietary rights may not prove to be adequate and our competitors
may independently develop technology or products that are similar to ours or that compete with ours. Trade secret, patent and copyright
laws afford only certain protections for our technology and products. The laws of many countries do not protect our proprietary rights
to as great an extent as do the laws of the United States. Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to obtain and use information that we regard as proprietary. Third parties may also design around our proprietary rights,
which may render our protected technology and products less valuable, if the design around is favorably received in the marketplace.
In addition, any of our products or technology
covered by patents or other intellectual property rights, could cause us to be subject to various legal actions. Litigation may be necessary
to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights
of others, or to defend against claims of infringement, invalidity, misappropriation, or other claims.
Through DPTI’s April 2017 Intellectual
Property agreement with the University, DPTI was sold, transferred, and assigned U.S. Patent Nos. 7,245,790, 8,643,829, and 9,534,965,
each of which are related to our BOTDA dark-pulse technology. In addition, Canadian Patent No. 2,502,275 was also assigned.
Suppliers
We currently rely on a full-time, dedicated,
external team of experienced professionals for the coding and maintenance of our products. We believe we have mitigated the associated
risks of managing an external team of software and engineering development professionals by incorporating internal management and oversight,
as well as appropriate systems, protocols, controls, and procedures and ensuring that we have access to additional qualified professionals
to provide like or complementary services.
Government Regulation
Government regulation is not of significant concern
for our business nor is government regulation expected to become an impediment to the business in the near- or mid-term as management
is currently unaware of any planned or anticipated government regulation that would have a material impact on our business. Our management
believes it currently possesses all requisite authority to conduct our business as described in this Form 10-K.
Employees
As of April 11, 2022, we had 167 full-time employee and no
part-time employees.
Readers should carefully consider the risks and
uncertainties described below.
Our failure to successfully address the risks
and uncertainties described below 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 commercialization
of new technology, our business is inherently risky. Our common shares are considered speculative during the development of our
business operations. Prospective investors should consider carefully the risk factors set out below.
Risks Related to Our Business
Business interruptions, including any interruptions
resulting from COVID-19, could significantly disrupt our operations and could have a material adverse impact on us if the situation continues.
The ongoing coronavirus outbreak which began
in China at the beginning of 2020 has impacted various businesses throughout the world, including travel restrictions and the extended
shutdown of certain businesses in impacted geographic regions. If the coronavirus outbreak situation should worsen, we may experience
disruptions to our business including, but not limited to equipment, to our workforce, or to our business relationships with other third
parties.
The extent to which the coronavirus impacts our
operations or those of our third-party partners will depend on future developments, which are highly uncertain and cannot be predicted
with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus and
the actions to contain the coronavirus or treat its impact, among others. Any such disruptions or losses we incur could have a material
adverse effect on our financial results and our ability to conduct business as expected.
Escalating global tensions, including the
conflict between Russia and Ukraine, could negatively impact us.
The ongoing conflict between Russia and Ukraine
could lead to disruption, instability and volatility in global markets and industries that could negatively impact our operations. The
U.S. government and other governments in jurisdictions in which we operate have imposed severe sanctions and export controls against
Russia and Russian interests and threatened additional sanctions and controls. The impact of these measures, as well as potential responses
to them by Russia, is currently unknown and they could adversely affect our business, partners or customers.
If we default on the Convertible Debenture, the secured holder
could take possession of our assets, including our patents and other intellectual property.
The Convertible Debenture (Secured) issued April
24, 2017, is secured by our assets, which includes our patents and other intellectual property. In the event that we default on the obligations
in the Debenture, the secured holder could take possession of our assets, including our patents and other intellectual property. If this
were to occur, investors would likely lose all of their investment.
We need to continue as a going concern if our business is to
succeed.
Our independent registered public accounting firm
reports on our audited financial statements for the years ended December 31, 2021 and 2020, indicate that there are a number of factors
that raise substantial risks about our ability to continue as a going concern. Such factors identified in the report are our accumulated
deficit since inception, our failure to attain profitable operations, the excess of liabilities over assets, and our dependence upon obtaining
adequate additional financing to pay our liabilities. If we are not able to continue as a going concern, investors could lose their investments.
We have made and
expect to continue to make acquisitions that could disrupt our operations and harm our operating results.
Our growth depends upon
market growth, our ability to enhance our existing products, and our ability to introduce new products on a timely basis. We intend to
continue to address the need to develop new products and enhance existing products through acquisitions of other companies, product lines,
technologies, and personnel. Acquisitions involve numerous risks, including the following:
| · | Difficulties
in integrating the operations, systems, technologies, products, and personnel of the acquired
companies, particularly companies with large and widespread operations and/or complex products; |
| · | Diversion
of management’s attention from normal daily operations of the business and the challenges
of managing larger and more widespread operations resulting from acquisitions; |
| · | Potential
difficulties in completing projects associated with in-process research and development intangibles; |
| · | Difficulties
in entering markets in which we have no or limited direct prior experience and where competitors
in such markets have stronger market positions; |
| · | Initial
dependence on unfamiliar supply chains; |
| · | Insufficient
revenue to offset increased expenses associated with acquisitions; and |
| · | The
potential loss of key employees, customers, distributors, vendors and other business partners
of the companies we acquire following and continuing after announcement of acquisition plans. |
Acquisitions may also
cause us to:
| · | Issue
common stock that would dilute our current shareholders’ percentage ownership; |
| · | Use
a substantial portion of our cash resources or incur debt; |
| · | Significantly
increase our interest expense, leverage and debt service requirements if we incur additional
debt to pay for an acquisition; |
| · | Record
goodwill and nonamortizable intangible assets that are subject to impairment testing on a
regular basis and potential periodic impairment charges; |
| · | Incur
amortization expenses related to certain intangible assets; |
| · | Incur
tax expenses related to the effect of acquisitions on our intercompany research
and development cost sharing arrangement and legal structure; |
| · | Incur
large and immediate write-offs and restructuring and other related expenses; and |
| · | Become
subject to intellectual property or other litigation. |
Mergers and acquisitions
are inherently risky and subject to many factors outside of our control, and no assurance can be given that our previous or future acquisitions
will be successful and will not materially adversely affect our business, operating results, or financial condition. Failure to manage
and successfully integrate acquisitions could materially harm our business and operating results. Prior acquisitions could result in
a wide range of outcomes, from successful introduction of new products and technologies to a failure to do so. Even when an acquired
company has already developed and marketed products, there can be no assurance that product enhancements will be made in a timely fashion
or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products.
From time to time, we
have made acquisitions that resulted in charges in an individual quarter. These charges may occur in any particular quarter, resulting
in variability in our quarterly earnings. In addition, our effective tax rate for future periods is uncertain and could be impacted by
mergers and acquisitions. Risks related to new product development also apply to acquisitions.
Because of the unique difficulties and
uncertainties inherent in technology development, we face a risk of business failure.
Potential investors should be aware of the difficulties
normally encountered by companies developing new technology and the high rate of failure of such enterprises. The likelihood of success
must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the development
of new technology with limited personnel and financial means. These potential problems include, but are not limited to, unanticipated
technical problems that extend the time and cost of product development, or unanticipated problems with the operation of our technology
or that with which we are licensing that also extend the time and cost of product development.
If we do not obtain additional financing
or sufficient revenues, our business will fail.
Our current operating funds are less than necessary
to fulfill our operating costs and we will need to obtain additional financing in order to continue our business operations. Although
we are generating revenues, we are not generating net income.
We will require additional financing to execute
our business plan through raising additional capital and/or generating greater revenues.
Obtaining additional financing is subject to a
number of factors, including acceptance of our DarkPulse Technology and current financial condition as well as general market conditions.
These factors affect the timing, amount, terms
or conditions of additional financing unavailable to us. If additional financing is not arranged, we will face the risk of going out of
business. Our management is currently engaged in actively pursuing multiple financing options in order to obtain the capital necessary
to execute our business plan.
The most likely source of future funds presently
available to us is through the additional sales of equity or through convertible debt instruments. Any sales of share capital or conversion
of convertible debt will most likely result in dilution to existing shareholders.
There is no history upon which to base any assumption as to the likelihood
we will prove successful, and we can provide investors with no assurance that we will generate any operating revenues or achieve profitable
operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
Successful technical development of our
products does not guarantee successful commercialization.
We may successfully complete the technical development
for one or all of our product development programs, but still fail to develop a commercially successful product for a number of reasons,
including among others the following:
| · | Ineffective
distribution and marketing; |
| · | Lack
of sufficient cooperation from our partners; and |
| · | Demonstrations
of the products not aligning with or meeting customer needs. |
Our success in the market for the products we
develop will depend largely on our ability to prove our products’ capabilities. Upon demonstration, our products and/or technology
may not have the capabilities they were designed to have or that we believed they would have. Furthermore, even if we do successfully
demonstrate our products’ capabilities, potential customers may be more comfortable doing business with a larger, more established,
more proven company than us. Moreover, competing products may prevent us from gaining wide market acceptance of our products. Significant
revenue from new product investments may not be achieved for a number of years, if at all.
If we fail to protect our intellectual property rights, we could
lose our ability to compete in the marketplace.
Our intellectual property and proprietary rights
are important to our ability to remain competitive and for the success of our products and our business. We rely on a combination of
patent, trademark and trade secret laws as well as confidentiality agreements and procedures, non-compete agreements and other contractual
provisions to protect our intellectual property, other proprietary rights and our brand. We have confidentiality agreements in place
with our consultants, customers and certain business suppliers and plan to require future employees to enter into confidentiality and
non-compete agreements. We have little protection when we must rely on trade secrets and nondisclosure agreements. Our intellectual property
rights may be challenged, invalidated or circumvented by third parties. We may not be able to prevent the unauthorized disclosure or
use of our technical knowledge or other trade secrets by employees or competitors. Furthermore, our competitors may independently develop
technologies and products that are substantially equivalent or superior to our technologies and/or products, which could result in decreased
revenues. Moreover, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of
the U.S. Litigation may be necessary to enforce our intellectual property rights which could result in substantial costs to us and substantial
diversion of management attention. If we do not adequately protect our intellectual property, our competitors could use it to enhance
their products. Our inability to adequately protect our intellectual property rights could adversely affect our business and financial
condition, and the value of our brand and other intangible assets.
Other companies may claim that we infringe
their intellectual property, which could materially increase our costs and harm our ability to generate future revenue and profit.
We do not believe that we infringe the proprietary
rights of any third party, but claims of infringement are becoming increasingly common and third parties may assert infringement claims
against us. It may be difficult or impossible to identify, prior to receipt of notice from a third party, the trade secrets, patent position
or other intellectual property rights of a third party, either in the United States or in foreign jurisdictions. Any such assertion may
result in litigation or may require us to obtain a license for the intellectual property rights of third parties. If we are required
to obtain licenses to use any third-party technology, we would have to pay royalties, which may significantly reduce any profit on our
products. In addition, any such litigation could be expensive and disruptive to our ability to generate revenue or enter into new market
opportunities. If any of our products were found to infringe other parties’ proprietary rights and we are unable to come to terms
regarding a license with such parties, we may be forced to modify our products to make them non-infringing or to cease production of
such products altogether.
The nature of our business involves significant
risks and uncertainties that may not be covered by insurance or indemnity.
We develop and sell products where insurance
or indemnification may not be available, including:
| · | Designing
and developing products using advanced technologies in intelligence and homeland
security applications that are intended to operate in high demand, high risk situations;
and |
| · | Designing
and developing products to collect, distribute and analyze various types of information. |
Certain products may raise questions with respect to issues of privacy rights, civil liberties, intellectual
property, trespass, conversion and similar concepts, which may raise new legal issues. Indemnification to cover potential claims or liabilities
resulting from a failure of technologies developed or deployed may be available in certain circumstances but not in others. We are not
able to maintain insurance to protect against all operational risks and uncertainties. Substantial claims resulting from an accident,
failure of our product, or liability arising from our products in excess of any indemnity or insurance coverage (or for which indemnity
or insurance is not available or was not obtained) could harm our financial condition, cash flows, and operating results. Any accident,
even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult
for us to compete effectively.
We are heavily reliant on Dennis O’Leary,
our Chairman and Chief Executive Officer, and the departure or loss of Dennis O’Leary could disrupt our business.
We depend heavily on the continued efforts of
Dennis O’Leary, Chairman, Chief Executive Officer and director. Mr. O’Leary is essential to our strategic vision and day-to-day
operations and would be difficult to replace. We currently do not have an employment agreement with Mr. O’Leary, thus we cannot
be certain that he will desire to continue with us for the necessary time it will to complete the product development and initial sales
channel development. The departure or loss of Mr. O’Leary, or the inability to hire and retain a qualified replacement, could negatively
impact our ability to manage our business.
If we are unable to recruit and retain
key management, technical and sales personnel, our business would be negatively affected.
For our business to be successful, we need to
attract and retain highly qualified technical, management and sales personnel. The failure to recruit additional key personnel when needed
with specific qualifications and on acceptable terms or to retain good relationships with our partners might impede our ability to continue
to develop, commercialize and sell our products. To the extent the demand for skilled personnel exceeds supply, we could experience higher
labor, recruiting and training costs in order to attract and retain such employees. We face competition for qualified personnel from
other companies with significantly more resources available to them and thus may not be able to attract the level of personnel needed
for our business to succeed.
Material weaknesses in our internal control
over financial reporting may, until remedied, cause errors in our financial statements or cause our filings with the SEC to not be timely.
We believe that material weaknesses exist
in our internal control over financial reporting as of December 31, 2021, including those related to (i) our internal audit functions
and (ii) a lack of segregation of duties within accounting functions. If our internal control over financial reporting or disclosure
controls and procedures are not effective, there may be errors in our financial statements that could require a restatement or our filings
may not be timely made with the Securities and Exchange Commission (the “SEC”). We intend to implement additional
corporate governance and control measures to strengthen our control environment as we are able, but we may not achieve our desired objectives.
Moreover, no control environment, no matter how well designed and operated, can prevent or detect all errors or fraud. We may identify
material weaknesses and control deficiencies in our internal control over financial reporting in the future that may require remediation
and could lead investors losing confidence in our reported financial information, which could lead to a decline in our stock price.
Risks Related to Our Organization and Our Common
Stock
You may experience dilution of your ownership
interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible
into or exercisable for our common or preferred stock.
We are authorized to issue an aggregate of 20,000,000,000
shares of common stock and 2,000,000 shares of “blank check” preferred stock. In the future, we may issue our authorized
but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We may issue
additional shares of our common stock or other securities that are convertible into or exercisable for our common stock in connection
with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business
purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of
the common stock. We will need to raise additional capital in the near future to meet our working capital needs, and there can be no
assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction
with these capital raising efforts, including at a price (or exercise or conversion prices) below the price an investor paid for stock.
Because the SEC imposes additional sales
practice requirements on brokers who deal in our shares that are penny stocks, some brokers may be unwilling to trade them. This means
that investors may have difficulty reselling their shares and may cause the price of the shares to decline.
Our shares qualify as penny stocks and are covered
by Section 15(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which imposes additional
sales practice requirements on broker/dealers who sell our securities in this offering or in the aftermarket. In particular, prior to
selling a penny stock, broker/dealers must give the prospective customer a risk disclosure document that: contains a description of the
nature and level of risk in the market for penny stocks in both public offerings and secondary trading; contains a description of the
broker/dealers’ duties to the customer and of the rights and remedies available to the customer with respect to violations of such
duties or other requirements of Federal securities laws; contains a brief, clear, narrative description of a dealer market, including
“bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask prices; contains
the toll free telephone number for inquiries on disciplinary actions established pursuant to section 15(A)(i); defines significant terms
used in the disclosure document or in the conduct of trading in penny stocks; and contains such other information, and is in such form
(including language, type size, and format), as the SEC requires by rule or regulation. Further, for sales of our securities, the broker/dealer
must make a special suitability determination and receive from you a written agreement before making a sale to you. Because of the imposition
of the foregoing additional sales practices, it is possible that brokers will not want to make a market in our shares. This could prevent
reselling of shares and may cause the price of the shares to decline.
We do not expect to declare or pay any
dividends.
We have not declared or paid any dividends on
our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.
Volatility of Stock Price.
Our common shares are currently publicly traded
on the OTC Markets under the symbol “DPLS.” In the future, the trading price of our common shares may be subject to wide
fluctuations. Trading prices of the common shares may fluctuate in response to a number of factors, many of which will be beyond our
control. In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. Market
and industry factors may adversely affect the market price of the common shares, regardless of our operating performance. Readers should
carefully consider the risks and uncertainties described below before deciding whether to invest in shares of our common stock.
Our failure to successfully address the risks
and uncertainties described below 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. Prospective investors should consider carefully the risk factors set out herein. The market price of our common stock
has fluctuated significantly.
Being a public company is expensive and administratively burdensome.
As a public reporting company, we are subject
to the information and reporting requirements of the Securities Act, the Exchange Act and other federal securities laws, rules and regulations
related thereto, including compliance with the Sarbanes-Oxley Act. Complying with these laws and regulations requires the time and attention
of our Board of Directors and management team, and increases our expenses. We estimate we will incur approximately $200,000 to $300,000
annually in connection with being a public company.
Among other things, we are required to:
| · | Maintain
and evaluate a system of internal controls over financial reporting in compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations
of the SEC and the Public Company Accounting Oversight Board; |
| · | Prepare
and distribute periodic reports in compliance with our obligations under federal securities
laws; |
| · | Institute
a more comprehensive compliance function, including with respect to corporate governance;
and |
| · | Involve,
to a greater degree, our outside legal counsel and accountants in the above activities. |
The costs of preparing and filing annual and
quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders are expensive and
much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire additional
financial reporting, internal controls and other finance personnel, and will involve a material increase in regulatory, legal and accounting
expenses and the attention of management. There can be no assurance that we will be able to comply with the applicable regulations in
a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability
insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.
If we fail to establish and maintain an
effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability
to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our
common stock.
Effective internal control is necessary for us
to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not
be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation
with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial
condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if historical un-discovered
failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.
Public company compliance may make it more
difficult to attract and retain officers and directors.
The Sarbanes-Oxley Act and new rules subsequently
implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these
new rules and regulations to increase our compliance costs in 2022 and beyond and to make certain activities more time consuming and
costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain
director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons
to serve on our Board of Directors or as executive officers.
You could lose all of your investment.
An investment in our securities is speculative
and involves a high degree of risk. Potential investors should be aware that the value of an investment in the Company may go down as
well as up. In addition, there can be no certainty that the market value of an investment in the Company will fully reflect its underlying
value. You could lose your entire investment.
The ability of our Board of Directors to
issue additional stock may prevent or make more difficult certain transactions, including a sale or merger of the Company.
Our Board of Directors is authorized to issue
up to 2,000,000 shares of preferred stock with powers, rights and preferences designated by it. Shares of voting or convertible preferred
stock could be issued, or rights to purchase such shares could be issued, to create voting impediments or to frustrate persons seeking
to effect a takeover or otherwise gain control of the Company. The ability of the Board of Directors to issue such additional shares
of preferred stock, with rights and preferences it deems advisable, could discourage an attempt by a party to acquire control of the
Company by tender offer or other means. Such issuances could therefore deprive stockholders of benefits that could result from
such an attempt, such as the realization of a premium over the market price for their shares in a tender offer or the temporary increase
in market price that such an attempt could cause. Moreover, the issuance of such additional shares of preferred stock to persons
friendly to the Board of Directors could make it more difficult to remove incumbent officers and directors from office even if such change
were to be favorable to stockholders generally.
Our stock may be traded infrequently and
in low volumes, so you may be unable to sell your shares at or near the quoted bid prices if you need to sell your shares.
Until our common stock is listed on a national
securities exchange such as the New York Stock Exchange or the Nasdaq, we expect our common stock to remain eligible for quotation on
the OTC Markets, or on another over-the-counter quotation system. In those venues, however, the shares of our common stock may trade
infrequently and in low volumes, meaning that the number of persons interested in purchasing our common shares at or near bid prices
at any given time may be relatively small or non-existent. An investor may find it difficult to obtain accurate quotations as to the
market value of our common stock or to sell his or her shares at or near bid prices or at all. In addition, if we fail to meet the criteria
set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other
than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling
our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise
capital.
There currently is no active public market
for our common stock and there can be no assurance that an active public market will ever develop. Failure to develop or maintain a trading
market could negatively affect the value of our common stock and make it difficult or impossible for you to sell your shares.
There is currently no active public market for
shares of our common stock and one may never develop. Our common stock is quoted on the OTC Markets. The OTC Markets is a thinly traded
market and lacks the liquidity of certain other public markets with which some investors may have more experience. We may not ever be
able to satisfy the listing requirements for our common stock to be listed on a national securities exchange, which is often a more widely-traded
and liquid market. Some, but not all, of the factors which may delay or prevent the listing of our common stock on a more widely-traded
and liquid market include the following: our stockholders’ equity may be insufficient; the market value of our outstanding securities
may be too low; our net income from operations may be too low; our common stock may not be sufficiently widely held; we may not be able
to secure market makers for our common stock; and we may fail to meet the rules and requirements mandated by the several exchanges and
markets to have our common stock listed. Should we fail to satisfy the initial listing standards of the national exchanges, or our common
stock is otherwise rejected for listing, and remains listed on the OTC Markets or is suspended from the OTC Markets, the trading price
of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject
to increased volatility, making it difficult or impossible to sell shares of our common stock.
Our common stock is subject to the “penny
stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and
may reduce the value of an investment in the stock.
Rule 15g-9 under the Exchange Act establishes
the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less
than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions
in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity
and quantity of the penny stock to be purchased.
In order to approve a person’s account
for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of
the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person
has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior
to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight
form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or
dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing
to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to
dispose of our common stock and cause a decline in the market value of our common stock.
Disclosure also has to be made about the risks
of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or
dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor
in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in penny stocks.
Our stock price may be volatile.
The market price of our common stock is likely
to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including
the following:
| · | The continued effects of the COVID-19 pandemic and its variants; |
| · | The impact of conflict between the Russian Federation and Ukraine on our operations; |
| · | Geo-political events, such as the crisis in Ukraine, government responses to such events and the related impact on
the economy both nationally and internationally; |
|
· | Changes
in our industry; |
| · | Competitive
pricing pressures; |
| · | Our
ability to obtain working capital financing; |
| · | Additions
or departures of key personnel; |
| · | Sales
of our common stock; |
| · | Our
ability to execute our business plan; |
| · | Operating
results that fall below expectations; |
| · | Loss
of any strategic relationship; |
| · | Regulatory
developments; and |
| · | Economic
and other external factors. |
In addition, the securities markets have from
time-to-time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies.
These market fluctuations may also materially and adversely affect the market price of our common stock.
Offers or availability for sale of a substantial
number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts
of our common stock in the public market, including upon the expiration of any statutory holding period under Rule 144, or issued upon
the conversion of preferred stock or exercise of warrants, it could create a circumstance commonly referred to as an "overhang"
and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have
occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related
securities in the future at a time and price that we deem reasonable or appropriate.
Offers or availability for sale of a substantial
number of shares of our common stock may cause the price of our common stock to decline.
If our stockholders sell substantial amounts
of our common stock in the public market, including upon the expiration of any statutory holding period under Rule 144, or issued upon
the conversion of preferred stock or exercise of warrants, it could create a circumstance commonly referred to as an "overhang"
and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have
occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related
securities in the future at a time and price that we deem reasonable or appropriate.
| ITEM 1B. | UNRESOLVED
STAFF COMMENTS |
None.
On February 12, 2021, we entered into a Commercial
Lease Agreement with the lessor for the lease of 2640 West Medtronic Way, Tempe, Arizona 85281. The term of the lease is for 12 months
and the monthly rent is $2,000 per month for a total of $24,000.
On January 31, 2022, we executed a lease for our national headquarters
to be located at 815 Walker Street, Suite 1155, Houston, Texas 77002. We will occupy approximately 4,224 sq. ft., in the Mellie Esperson
Building. The lease term is for 10 years commencing March 1, 2022.
DarkPulse, Inc. v. Twitter, Inc.
On January 24, 2022, the Company filed a petition
in the Supreme Court of the State of New York County of New York to compel a disclosure from Twitter, Inc. The petition sought to compel
Twitter, Inc. to disclose the owner and operator of the “Investor News” Twitter account (@newsfilterio) so the Company could
commence an action for damages arising from false, misleading, and untrue statements made by the Investor News.
On February 23, 2022, the Court ordered Twitter
to release information concerning the owner and operator of the Investor News account to the Company. The
Company will continue to pursue and expose the identities of those individuals or groups and shall take any and all legal action to pursue
the violators.
Carebourn Capital, L.P. v. DarkPulse, Inc.
As disclosed in greater detail in the Company’s
Form 10-Q, filed November 15, 2021, the Company remains in active litigation with Carebourn Capital, L.P. (“Carebourn”).
The remainder of this disclosure will address all material updates since the aforementioned Form 10-Q.
On November 1, 2021, the Company filed a motion
to compel Carebourn to produce certain documents and supplement its responses to certain interrogatories.
On September 27, 2021, Carebourn filed a declaratory
judgment and a motion for declaratory judgment, dismissal of the Company’s claims, and summary judgment (the “Dispositive
Motion”).
On February 15, 2022, the Court rendered its decision
on the aforesaid motions, denying the Dispositive Motion in its entirety and granting in part, and denying in part, the Company’s
motion to compel. Pursuant to the Court’s ruling in the Company’s favor on its motion to compel, the Court has awarded the
Company attorneys’ costs and fees in connection with the successful portions of its motion to compel.
On January 19, 2022, the Company filed a motion
for enforcement of a protective order. It is the Company’s position that Carebourn has violated a protective order that was entered
into by the parties and seeks to protect confidential information exchanged during the litigation. The Court has not yet rendered a decision
on this motion.
On March 24, 2022, Carebourn filed a Motion to
Compel against DarkPulse, alleging that DarkPulse failed to fulfill its discovery obligations by not producing a privilege log. DarkPulse
contends that Carebourn’s motion is meritless and premature.
The Company remains committed to actively litigating
its claims for relief under the Exchange Act.
More Capital, LLC v. DarkPulse, Inc. et al
As disclosed in greater detail in the Company’s
Form 10-Q, filed November 15, 2021, the Company remains in active litigation with More Capital, LLC (“More”). The remainder
of this disclosure will address all material updates since the aforementioned Form 10-Q.
On October 27, 2021, the Company served its initial
discovery requests, consisting of interrogatories, requests for admission, and requests for production, on More.
On November 24, 2021, More served its responses
to the Company’s initial discovery requests. After reviewing More’s responses, it is the Company’s position that More’s
responses are false, misleading, untrue, and/or evasive.
On February 28, 2022, the Company filed its motion
to compel More to produce certain documents and supplement or otherwise modify its responses to certain interrogatories and requests for
admission. DarkPulse’s motion will be heard on April 14, 2022.
On March 9, 2022, More filed a motion for summary
judgment against the Company. The Company’s opposition was filed on or before March 23, 2022, and More’s motion will be heard
on April 6, 2022.
The Company remains committed to actively litigating
its claims for relief under the Exchange Act.
Goodman et al. v. DarkPulse, Inc.
As disclosed in greater detail in the Company’s
Form 10-Q, filed November 15, 2021, the Company remains in active litigation with Stephen Goodman (“Goodman”), Mark
Banash (“Banash”), and David Singer (“Singer”) (Goodman, Banash, and Singer together, the “Series
D Plaintiffs”). The remainder of this disclosure will address all material updates since the aforementioned Form 10-Q.
On August 20, 2021, the Company and the Series
D Plaintiffs entered into a stipulation, pursuant to which the Company withdrew its motion to dismiss and the Company was provided with
an extended period of time to respond to the complaint.
On September 8, 2021, the Company filed its Answer
and Counterclaims, wherein the Company alleges counterclaims arising from various breaches of fiduciary duties by the Series D Plaintiffs
while they were employed as officers of the Company.
On December 9, 2021, the parties participated
in private mediation. No understanding of settlement was reached at the conclusion thereof.
The Company remains committed to actively litigating
its claims and defenses against the Series D Plaintiffs.
DarkPulse, Inc. v. FirstFire Global Opportunities
Fund, LLC, and Eli Fireman (SDNY)
On December 31, 2021, the Company commenced an
action against FirstFire Global Opportunities Fund, LLC (“FirstFire”), and Eli Fireman (“Fireman”)
(FirstFire and Fireman together, the “FirstFire Parties”) in the United States District Court for the Southern District
of New York. The complaint alleges that FirstFire is an unregistered dealer acting in violation of Section 15(a) of the Exchange Act of
1934 and that the Company is entitled to rescissionary relief from certain convertible promissory notes and securities purchase agreements
entered into by the Company and FirstFire pursuant to Section 29(b) of the Exchange Act. The complaint also asserts claims against Fireman
for control person liability under Section 20(a) of the Exchange Act, unjust enrichment of FirstFire, and constructive trust against FirstFire.
On January 14, 2022, the Company moved for entry
of a temporary restraining order and award of a preliminary injunction against FirstFire to enjoin them from selling or attempting to
sell, transfer, or otherwise dispose of the 177,275,000 common shares the Company believed were in FirstFire’s possession pursuant
to the conversion of a certain note.
On January 14, 2022, the Court denied the Company’s
order to show cause seeking a temporary restraining order.
Following expedited briefing by the parties, on
January 21, 2022, the Court denied the Company’s motion for preliminary injunction.
On March 14, 2022, the FirstFire Parties filed
their letter request for a motion to dismiss the Company’s complaint. The Company responded to the FirstFire Parties’ letter
on March 17, 2022. As of the filing date, the Court has not yet issued a decision on the FirstFire Parties letter request to file its
motion to dismiss.
FirstFire Global Opportunities Fund, LLC v.
DarkPulse, Inc. (Del. Chancery Court)
On December 13, 2021, FirstFire commenced an action
against the Company in the Court of Chancery of the State of Delaware. The complaint seeks declaratory judgment of the issuance of 177,375,000
shares of Company common stock pursuant to a certain convertible promissory note.
On January 4, 2022, the Company filed a motion
to dismiss FirstFire’s complaint.
On February 11, 2022, the Company filed its opening
memorandum of law in support of its motion to dismiss. The Company’s memorandum argues that the issuance of the certain convertible
promissory note to FirstFire was made under is void ab initio as it violates New York’s criminal usury laws, and that FirstFire
improperly amended the governing law provision of the void convertible note to evade being declared void ab initio and, instead,
continue to enforce the unlawful transaction.
On March 14, 2022, FirstFire filed a notice of
voluntary dismissal of its complaint.
As of December 31, 2021, DarkPulse views the aforesaid
FirstFire Delaware Chancery matter as fully disclosed.
DarkPulse, Inc. v. EMA Financial, LLC et al
On January 4, 2022, the Company commenced an action
against EMA Financial, LLC (“EMA”), EMA Group, Inc. (“EMA Group”), and Felicia Preston (“Preston”)
(EMA, EMA Group, and Preston together, the “EMA Parties”) in the United States District Court for the Southern District
of New York. The complaint alleges that EMA is an unregistered dealer acting in violation of Section 15(a) of the Exchange Act and that
the Company is entitled to rescissionary relief from certain convertible promissory notes and securities purchase agreements entered into
by the Company and EMA pursuant to Section 29(b) of the Exchange Act. The complaint also asserts claims against Preston for control person
liability under Section 20(a) of the Exchange Act, unjust enrichment of EMA, EMA Group, and Preston, and constructive trust against the
EMA Parties.
On March 28, 2022, the Company filed its first
amended complaint against the EMA Parties. The amended complaint alleges the same causes of action asserted in the initial complaint—(1)
that EMA is an unregistered dealer acting in violation of Section 15(a) of the Exchange Act and, pursuant to Section 29(b) of the Exchange
Act, the Company is entitled to rescissionary relief from certain convertible promissory notes and securities purchase agreements entered
into by the Company and EMA, (2) that Preston is liable pursuant to Section 20(a) of the Exchange Act, and (3) unjust enrichment—along
with two claims: that the EMA Parties, first, violated and, second conspired to violate the Racketeer Influenced and Corrupt Organizations
(RICO) Act for engaging in the collection of an unlawful debt.
The Company remains committed to actively litigating
its claims for relief under the Exchange Act.
In addition to the foregoing Legal Proceedings,
the Company is also actively investigating potential legal claims, including but not limited to stock fraud, market manipulation, and/or
defamation, against certain Twitter accounts, websites, and social media channels. The investigation is ongoing and should potential claims
be identified, the Company will evaluate commencing formal litigation proceedings.
From time to time, the Company may become involved
in litigation relating to claims arising out of its operations in the normal course of business. To the best of the Company’s knowledge,
no governmental authority is contemplating any proceeding to which the Company is a party or to which any of the Company’s properties
are subject, which would reasonably be likely to have a material adverse effect on the Company’s business, financial condition and
operating results.
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 4. | MINE SAFETY
DISCLOSURES |
Not applicable.
PART II
| ITEM 5. | MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES |
Our common stock is traded on the OTC Markets
under the trading symbol “DPLS.” The Company has 20,000,000,000 authorized common shares.
The following table sets forth the high and low
bid of the Company’s Common Stock for each quarter within the past two completed fiscal years and the current year. The information
below was provided by the OTC Markets.
2022: |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
0.089 |
|
|
$ |
0.0252 |
|
|
|
|
|
|
|
|
|
|
2021: | |
High | | |
Low | |
First Quarter | |
$ | 0.0510 | | |
$ | 0.0007 | |
Second Quarter | |
$ | 0.0969 | | |
$ | 0.0106 | |
Third Quarter | |
$ | 0.2020 | | |
$ | 0.0653 | |
Fourth Quarter | |
$ | 0.1400 | | |
$ | 0.0511 | |
2020: | |
High | | |
Low | |
First Quarter | |
$ | 0.0002 | | |
$ | 0.0001 | |
Second Quarter | |
$ | 0.0002 | | |
$ | 0.0001 | |
Third Quarter | |
$ | 0.0006 | | |
$ | 0.0001 | |
Fourth Quarter | |
$ | 0.0011 | | |
$ | 0.0001 | |
The number of shareholders of record of the Company's
common stock as of April 11, 2022 was approximately 920. An additional number of stockholders are
beneficial holders of our Common Stock in “street name” through banks, brokers and other financial institutions that are the
record holders.
We have not paid any cash dividends to date and
we do not anticipate paying cash dividends in the foreseeable future. It is the present intention of management to utilize any available
funds for the development of our business.
Recent Sales of Unregistered Securities.
Equity Finance Agreement with GHS
On November 9, 2021,
we entered an Equity Financing Agreement with GHS, pursuant to which GHS agreed to purchase up to $30,000,000 in shares of our Common
Stock, from time to time over the Contract Period after effectiveness of the Registration Statement of the underlying shares of Common
Stock.
Pursuant to the Equity Financing Agreement, on
December 21, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 43,777,478 shares of Common
Stock for total proceeds to us, net of discounts, of $2,548,326, at an effective price of $0.0696 per share (the “First EFA
Closing”). We received approximately $2,296,469 in net proceeds from the First EFA Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Second Closing for working capital and for general corporate
purposes.
The shares issued in reliance upon the exemption
from securities registration afforded by Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D under the Securities Act,
based in part on the representations of the investor. There were $239,832.68 in sales commissions paid to J.H. Darbie & Co., LLC
pursuant to this transaction.
Equity Compensation Plan Information
As of December 31, 2021, there were no securities
authorized for issuance under equity compensation plans.
Use of Proceeds
S-3 Registration
Statement
On August 18, 2021,
our Registration Statement on Form S-3 (File No. 333-257826) was declared effective by the SEC and the offering was commenced upon effectiveness
and is still ongoing as all of the $25,000,000 of offered shares have not been sold and the offering has not been terminated.
During the quarter ended
December 31, 2021, we sold a total of 51,469,593 shares of Common Stock for gross proceeds of $4,055,000. We paid $58,025 in fees
to J.H. Darbie & Co., Inc. and received net proceeds of $3,996,975. The net proceeds were used to fund our recent acquisitions, to
fund the CALTRANS project, and for general working capital.
Issuer Purchases of Equity Securities
None.
| ITEM 6. | SELECTED
FINANCIAL DATA |
Not required for smaller reporting companies.
| ITEM 7. | MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Management’s Discussion and Analysis
of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future
performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to
known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements.
Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited
to, those discussed in the “Risk Factors” section. We undertake no obligation to publicly update or revise any forward-looking
statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon
forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements
Critical Accounting Policies
The following discussions are based upon our
financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in
the United States.
The preparation of these financial statements
requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the
financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and
circumstances. Actual amounts and results could differ from these estimates made by management.
Business Overview
DarkPulse, Inc., a Delaware corporation (the “Company”),
is a technology company focused on the manufacture, sale, installation, and monitoring of laser sensing systems based on its patented
BOTDA dark-pulse sensor technology. The Company develops, markets, and distributes a full suite of engineering, monitoring, installation
and security management solutions for critical infrastructure/key resources to both industries and governments. Coupled with our patented
BOTDA dark-pulse technology (the “DarkPulse Technology”), DarkPulse provides its customers a comprehensive data stream
of critical metrics for assessing the health and security of their infrastructure. Our systems provide rapid, precise analysis and responsive
activities predetermined by the end-user customer. The Company’s activities since inception have consisted of developing various
solutions, obtaining patents and trademarks related to its technology, raising capital, acquisition of companies deemed to expand global
operations and/or capabilities, creating key partnerships to expand our suite of products and services. Our activities have evolved to
a sales-focused mission since the successful completion of our BOTDA system in December 2020.
Headquartered in New York, DarkPulse is a globally
based technology company with presence in United Kingdom, India, Dubai, Russian Federation, Turkey, Azerbaijan, Iraq, Libya, Egypt, United
States and Canada. In addition to the Company’s BOTDA systems, through a series of strategic acquisitions the Company offers the
manufacture, sale, installation, and monitoring of laser sensing systems, O & G pipeline leak detection, physical security services,
telecommunications and satellite communications services, drone and rover systems, and BDaaS. The Company is focused on expanding services
through acquisitions and partnerships to address global infrastructure and critical environmental resource challenges. DarkPulse offers
a full suite of engineering and environmental solutions that provide safety and security infrastructure projects. The sensing and monitoring
capabilities offered by DarkPulse and our subsidiary companies operate in the Air, Land, Sea. Our patented technology provides rapid,
precise analysis to protect and safeguard oil and gas pipelines above or below ground, physical security countermeasures, mining operations,
and other critical infrastructure / key resources subject to vulnerability or risk. Our patented Brillouin scattering distributed fiber
sensing system is best in class. The Company is able to monitor areas in around critical infrastructure buried or above ground including
pipelines 100km or more in length and/ or localized pipes as small as 8 CM DIA, detecting internal anomalies before catastrophic failure.
We are developing an Intelligent Rock Bolt, to prevent causalities and fatalities in mining operations and include a real time sensor
system that can detect the location & movement of personnel & equipment throughout a mining operation. We monitor airflow, air
quality, temperature, seismic events, etc. Our sensors cover extended areas, protecting an area from intrusion by detecting events at
any location along the sensing cable. Working safely every day is our first core value and employees at DarkPulse and our subsidiary companies
are recognized experts in their fields, providing comprehensive services for all our clients' needs.
Our Operating Units
Our operating units consist of, Optilan, a company
headquartered in Coventry, United Kingdom whose focus is in telecommunications, energy, rail, critical network infrastructure, pipeline
integrity systems, renewables and security; Remote Intelligence, a company headquartered in Pennsylvania who provides unmanned aerial
drone and UGC (unmanned ground crawler) services to a variety of clients from industrial mapping and ecosystem services, to search and
rescue, to pipeline security; Wildlife Specialists, a company headquartered in Pennsylvania who provides clients with comprehensive wildlife
and environmental assessment, planning, and monitoring services; TerraData Unmanned, a company headquartered in Florida who custom manufactures
NDAA compliant drones and unmanned ground crawlers to meet the needs of its customers; and TJM West Electronics, a company headquartered
in Arizona who is a U.S. manufacturer and test of advanced electronics, cables and sub-assemblies specializing in advanced package and
complex CCA and hardware.
Recent Events
Acquisitions
On August 9, 2021, we entered into a Share Purchase
Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”), pursuant to which we purchased
from the Sellers all of the issued and outstanding equity interests of Optilan HoldCo 3 Limited, a private company incorporated in England
and Wales (“Optilan”) for £1.00 and also a commitment to enter into the Subscription (as defined below). Optilan
is now a wholly-owned subsidiary of the Company.
On August 9, 2021, we entered into a Subscription
Agreement with Optilan (the “Subscription”), pursuant to which we agreed to purchase an aggregate of 4,000,000 Ordinary
Shares of Optilan for an aggregate purchase price of £4,000,000.
On August 30, 2021, we closed two separate Membership
Interest Purchase Agreements (the “MPAs”) with Remote Intelligence, Limited Liability Company, a Pennsylvania limited
liability company (“RI”) and Wildlife Specialists, LLC, a Pennsylvania limited liability company (“WS”)
pursuant to which we agreed to pay to the majority shareholder of each of RI and WS an aggregate of 15,000,000 shares of our Common Stock,
$500,000 to be paid on the closing date, and an additional $500,000 to be paid 12 weeks from closing date in exchange for 60% ownership
of each of RI and WS. RI and WS are now subsidiaries of the Company.
On September 8, 2021,
we entered into and closed the Stock Purchase Agreement (the “TJM SPA”) with TJM Electronics West, Inc., an Arizona
corporation (“TJM”), and TJM’s shareholders, pursuant to which we agreed to purchase all of the equity interests
in TJM in exchange for $450,000, subject to adjustments as defined in the TJM SPA. TJM is now a wholly-owned subsidiary of the Company.
Effective October 1,
2021, we entered into and closed the Membership Purchase Agreement (the “TerraData MPA”) with TerraData Unmanned,
PLLC, a Florida limited liability company (“TerraData”), and Justin Dee, the sole shareholder of TerraData, pursuant
to which we agreed to purchase 60% of the equity interests in TerraData in exchange for 3,725,386 shares of our Common Stock and $400,000,
subject to adjustments as defined in the TerraData MPA, to be paid within 12 weeks of closing. TerraData is now a subsidiary of the Company.
Financings
On January 4, 2021, we 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 $42,350 with a $3,850 original issue discount and $3,500 in transactional expenses due to Geneva
and its counsel. The note bears interest at 8% per annum and may be converted into common shares of our Common Stock at a conversion price
equal to 70% of the lowest trading price of our common stock during the 20 prior trading days. We received $35,000 net cash. On July 12,
2021, Geneva converted $42,350 of principal and $1,540 into 1,784,146 shares of common stock.
On February 3, 2021, we entered into a securities
purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $94,200 with a $15,700
original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum
and may be converted into common shares of our Common Stock at a conversion price equal to 81% of the lowest two trading prices of our
Common Stock during the 10 prior trading days. We received $75,000 net cash.
On July 14, 2021, the note was paid in full, including
all accrued and unpaid interest.
On February 18, 2021, we entered into a securities
purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $76,200 with a $12,700
original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum
and may be converted into common shares of our Common Stock at a conversion price equal to 81% of the lowest two trading prices of our
Common Stock during the 10 prior trading days. We received $60,000 net cash.
On July 14, 2021, the note was paid in full, including
all accrued and unpaid interest.
On April 5, 2021, we entered into a securities
purchase agreement with Geneva Roth issuing to Geneva a convertible promissory note in the aggregate principal amount of $64,200 with
a $10,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5%
per annum and may be converted into common shares of our Common Stock at a conversion price equal to 81% of the lowest two trading prices
of our Common Stock during the 10 prior trading days. We received $50,000 net cash. On July 14, 2021, the note was paid in full, including
all accrued and unpaid interest.
On April 26, 2021, we entered a Securities Purchase
Agreement and Registration Rights Agreement with FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, a Delaware limited liability company (the “FirstFire”),
pursuant to which we issued to FirstFire a Convertible Promissory Note in the principal amount of $825,000 (the “FirstFire Note”).
The purchase price of the FirstFire Note is $750,000. The FirstFire Note matures on January 26, 2022 upon which time all accrued and unpaid
interest will be due and payable. Interest accrues on the FirstFire Note at 10% per annum guaranteed until the FirstFire Note becomes
due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The FirstFire Note is convertible at any time
after 180 days from issuance, upon the election of the FirstFire, into shares of our Common Stock at $0.015 per share. The FirstFire Note
is subject to various “Events of Default,” which are disclosed in the FirstFire Note. Upon the occurrence of an “Event
of Default,” the conversion price would become $0.005. On November 17, 2021, FirstFire converted $825,000 of principal and $61,875
of interest into 177,375,000 shares of common stock.
See “Legal Proceedings” for additional
information regarding the FirstFire Note.
On July 14, 2021, we entered a Securities Purchase
Agreement with GS Capital Partners, LLC (the “GS”), pursuant to which we issued to GS a 6% Redeemable Note in the
principal amount of $2,000,000 (the “GS Note”). The purchase price of the GS Note is $1,980,000. The GS Note matures
on July 14, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the GS Note at 6% per annum
until the GS Note becomes due and payable. The GS Note is subject to various “Events of Default,” which are disclosed in
the GS Note. Upon the occurrence of an “Event of Default,” the interest rate on the GS Note will be 18%. The GS Note is not
convertible into shares of our Common Stock and is not dilutive to existing or future shareholders and we plan on using a portion of
the proceeds of the GS Note to retire existing convertible debt.
On August 19, 2021, we entered into the Purchase
Agreement with GHS, for the offering of up to $45,000,000 worth of Common Stock. Pursuant to the Purchase Agreement, on August 19, 2021,
we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from the Company, 31,799,260 shares of Common Stock for
total proceeds to the Company, net of discounts, of $3,300,000, at an effective price of $0.1038 per share (the “First Closing”).
We received approximately $2,790,000 in net proceeds from the First Closing after deducting the fees and other estimated offering expenses
payable by us. We used the net proceeds from the First Closing for working capital and for general corporate purposes. The shares were
issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement
on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18,
2021.
Pursuant to the Purchase Agreement, on August
31, 2021, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 27,297,995 shares of Common
Stock for total proceeds to us, net of discounts, of $3,300,000, at an effective price of $0.120888 per share (the “Second
Closing”). We received approximately $2,885,000 in net proceeds from the Second Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Second Closing for working capital and for general corporate
purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective
registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective
on August 18, 2021.
Pursuant to the Purchase Agreement, on September
22, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 25,630,272 shares of Common Stock for
total proceeds to us, net of discounts, of $2,000,000, at an effective price of $0.085836 per share (the “Third Closing”).
We received approximately $1,915,000 in net proceeds from the Third Closing after deducting the fees and other estimated offering expenses
payable by us. We used the net proceeds from the Third Closing for working capital and for general corporate purposes. The shares were
issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement
on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18,
2021.
Pursuant to the Purchase Agreement, on October
1, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 37,187,289 shares of Common Stock for
total proceeds to us, net of discounts, of $3,000,000, at an effective price of $0.08874 per share (the “Fourth Closing”).
We received approximately $2,850,000 in net proceeds from the Fourth Closing after deducting the fees and other estimated offering expenses
payable by us. We used the net proceeds from the Fourth Closing for working capital and for general corporate purposes. The shares were
issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement
on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18,
2021.
Pursuant to the Purchase Agreement, on October
14, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 14,282,304 shares of Common Stock for
total proceeds to us, net of discounts, of $1,055,000, at an effective price of $0.08125 per share (the “Fifth Closing”).
We received approximately $1,002,250 in net proceeds from the Fifth Closing after deducting the fees and other estimated offering expenses
payable by us. We used the net proceeds from the Fifth Closing for working capital and for general corporate purposes. The shares were
issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement
on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18,
2021.
On November 9, 2021,
we entered an Equity Financing Agreement (the “Equity Financing Agreement”) and Registration Rights Agreement (the
“GHS Registration Rights Agreement”) with GHS, pursuant to which GHS agreed to purchase up to $30,000,000 in shares
of our Common Stock, from time to time over the course of 24 months (the “Contract Period”) after effectiveness of
a registration statement on Form S-1 (the “Registration Statement”) of the underlying shares of Common Stock.
The GHS Registration
Rights Agreement provides that we shall (i) use our best efforts to file with the SEC a Registration Statement within 45 days of the
date of the GHS Registration Rights Agreement; and (ii) have the Registration Statement declared effective by the SEC within 30 days
after the date the GHS Registration Statement is filed with the SEC, but in no event more than 90 days after the GHS Registration Statement
is filed.
Pursuant to the Equity Financing Agreement, on
December 21, 2021, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 43,777,478 shares
of Common Stock for total proceeds to us, net of discounts, of $2,548,326, at an effective price of $0.0696 per share (the “First
EFA Closing”). We received approximately $2,296,469 in net proceeds from the First EFA Closing after deducting the fees and
other estimated offering expenses payable by us. We used the net proceeds from the First EFA Closing for working capital and for general
corporate purposes.
Pursuant to the Equity Financing Agreement, on
January 12, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 23,372,430 shares of
Common Stock for total proceeds to us, net of discounts, of $1,150,000, at an effective price of $0.054124 per share (the “Second
EFA Closing”). We received approximately $1,033,975 in net proceeds from the Second EFA Closing after deducting the fees and
other estimated offering expenses payable by us. We used the net proceeds from the Second EFA Closing for working capital and for general
corporate purposes.
Pursuant to the Equity Financing Agreement, on
January 21, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 33,454,988 shares of
Common Stock for total proceeds to us, net of discounts, of $1,150,000, at an effective price of $0.037812 per share (the “Third
EFA Closing”). We received approximately $1,033,975 in net proceeds from the Third EFA Closing after deducting the fees and
other estimated offering expenses payable by us. We used the net proceeds from the Third EFA Closing for working capital and for general
corporate purposes.
Pursuant to the Equity Financing Agreement, on
February 7, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 16,040,411 shares of
Common Stock for total proceeds to us, net of discounts, of $500,000, at an effective price of $0.0342884 per share (the “Fourth
EFA Closing”). We received approximately $448,975 in net proceeds from the Fourth EFA Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Fourth EFA Closing for working capital and for general corporate
purposes.
On February 21, 2022, we sold 75,798,921 shares
of our Common Stock at $0.032982 per share for total consideration of $2,500,000.
On March 3, 2022, we sold 16,579,569 shares of
our Common Stock at $0.0301576 per share for total consideration of $500,000.
On March 14, 2022, we sold 5,617,347 shares of
our Common Stock at $0.071208 per share for total consideration of $400,000.
Pursuant to the Equity Financing Agreement, on
March 23, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 29,257,395 shares of Common
Stock for total proceeds to us, net of discounts, of $1,500,000, at an effective price of $0.056396 per share (the “Fifth EFA
Closing”). We received approximately $1,348,975 in net proceeds from the Fifth EFA Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Fifth EFA Closing for working capital and for general corporate
purposes.
Pursuant to the Equity Financing Agreement, on
April 11, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 23,746,816 shares of Common
Stock for total proceeds to us, net of discounts, of $1,000,000, at an effective price of $0.04211091 per share (the “Sixth EFA
Closing”). We received approximately $898,975 in net proceeds from the Sixth EFA Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Sixth EFA Closing for working capital and for general corporate
purposes.
Partnerships
We have entered into a consulting agreement with
the Bachner Group to assist in the successful transformation from an R&D focused company to a sales-focused company, and assist us
with federal contract opportunities.
Other Events
On August 3, 2021, we entered into an Engagement
Agreement and Terms and Conditions (the “EIAP Agreement”) with Energy & Industrial Advisory Partners, LLC (“EIAP”).
Pursuant to the EIAP Agreement, we have engaged EIAP to serve as an advisor to us in the proposed transaction for agreed target company
or any of its subsidiaries and/or the whole or any part of its or their business or assets (the “Transaction”). EIAP
will receive a monthly retainer of $10,000 per month payable upon receipt of an invoice. EIAP will also receive a consulting bonus fee
of $350,000 payable upon completion of the Transaction. In the event of successful completion of the Transaction as a result of EIAP’s
involvement, EIAP agrees to deduct the total retainer fee from the consulting bonus fee. The EIAP Agreement may be terminated, with or
without cause, by either party upon ten days’ written prior notice thereof to the other party. If (a) during the term of the EIAP
Agreement, or (b) within two years following the date of the EIAP Agreement’s termination by us (provided that such two-year period
shall be extended by the same period of time that we take to settle in full all fees, expenses and/or outlays due or to become due to
EIAP as at the date of the EIAP Agreement’s termination), we complete a transaction with the target company or a similar transaction
to the Transaction, then we will pay the consulting bonus fee at the completion of the transaction.
Going Concern Uncertainty
As shown in the accompanying financial statements,
the Company generated net losses of $4,826,320 and $275,842 during the years ended December 31, 2021 and 2020, respectively. As of December
31, 2021, the Company’s current liabilities exceeded its current assets by $10,120,885. As of December 31, 2021, the Company had
$3,658,846 of cash.
We will require additional funding to finance
the growth of our operations and achieve our strategic objectives. These factors, as relative to capital raising activities, create doubt
as to our ability to continue as a going concern. We are seeking to raise additional capital and are targeting strategic partners in
an effort to accelerate the sales and marketing of our products and begin generating revenues. Our ability to continue as a going concern
is dependent upon the success of future capital offerings or alternative financing arrangements, expansion of our operations and generating
sales. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as
a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its
operations; however, management cannot make any assurances that such financing will be secured.
Results of Operations
For the Years Ended December 31, 2021 and
2020
Revenues
For the year ended December 31, 2021, total revenues
were $7,783,340 compared to $0 for the same period in 2020, an increase of $7,783,340. This increase primarily consisted of revenues of
$7,247,932 from the acquisition of Optilan in August 2021, $277,747 from the acquisition of Wildlife Specialists in August 2021 and $174,266
from the acquisition of TJM Electronics in September 2021 as well as $13,078 from DarkPulse.
Cost of Goods Sold and Gross Profit
For the year ended December 31, 2021, cost of
goods sold were $6,685,210 compared to $0 for the same period in 2020, an increase of $6,685,210.
Gross profit for the year ended December 31, 2021
was $1,098,130 with a gross profit margin of 14.11% compared to $0 for the same period in 2020 with no gross profit margin.
Operating Expenses
Selling, general and administrative expenses for
year ended December 31, 2021 increased by $3,769,708, or 2,526%, to $3,918,967 from $149,259 for the year ended December 31, 2020. The
increase primarily consisted of an increase to the operations from our various acquisitions.
Payroll related expenses for year ended December
31, 2021, increased by $2,653,496 to $2,653,683 from $187 for the year ended December 31, 2020. The increase primarily consisted of an
increase to the numbers of employees inherited from our various acquisitions.
Professional fees for the year ended December
31, 2021, increased by $2,879,830 to $2,930,245 from $50,415 for the year ended December 31, 2020. This increase primarily consisted of
increased legal expenditures associated with the increase in litigation as well as fees associated with the various capital raises in
2021.
Depreciation and amortization for year ended
December 31, 2021, increased by $207,278 to $258,306 from $51,028 for the year ended December 31, 2020. This increase is primarily due
to the increase in depreciable assets we acquired from new acquisitions.
Other Income (Expense)
For the year ended December 31, 2021, we had other
income $4,021,700 compared to other expense of $17,103 for the same period in 2020, an increase in income of $4,038,803. This increase
in other income increase primarily consisted of changes of $3,421,633 of gain related to the extinguishment of debt, $653,501 increase
in the fair value of the Company’s derivative instruments, $11,600 of gain on foreign currency exchange rate variance, a decrease
in interest expense of $4,706 due to increased borrowings offset by $31,636 loss on convertible notes.
Net Income (Loss)
As a result of the above, we reported a net loss
of $4,826,320 for the year ended December 31, 2021 compared to a net loss of $275,842 for the year ended December 31, 2020.
Liquidity and Capital Resources
December 31, 2021 Compared to December 31,
2020
We require working capital to fund the continued
development and commercialization of our proprietary fiber optic sensing devices, and for operating expenses. During the year ended December
31, 2021, we had $17,696,027 in new cash proceeds compared to year ended December 31, 2020, when we had $0 in new cash proceeds.
As of December 31, 2021, we had cash of $3,658,846,
compared to $337 as of December 31, 2020. We currently do not have sufficient cash to fund our operations for the next 12 months and we
will require working capital to complete development, testing and marketing of our products and to pay for ongoing operating expenses.
We anticipate adding consultants for technology development and the corresponding operations of the Company, but this will not occur prior
to obtaining additional capital. Management is currently in the process of looking for additional investors. Currently, loans from banks
or other lending sources for lines of credit or similar short-term borrowings are not available to us. We have been able to raise working
capital to fund operations through the issuances of convertible notes or obtained through the issuance of the Company’s restricted
common stock. As of December 31, 2021, our current liabilities exceeded our current assets by $10,120,885.
Cash Flows from Operating Activities
During the year ended December 31, 2021, net cash
used by operating activities was $11,715,101, resulting from our net loss of $4,826,320 and an increase in expenses related to our convertible
notes payables, including amortization of debt discount of $515,975 and loan acquisition costs of $480,450, increase in stock-based compensation
of $1,346,808, increase in inventory of $1,175,869 and operating lease liabilities of $2,451,692. These increases were offset by a decrease
in derivative liability of $687,124, increase in accounts payable and accrued expenses of $2,041,588 and an increase from the gain on
the extinguishment of debt of $3,488,860, increase in accounts receivable of $771,432, unbilled revenue of $822,031 and increase in contract
liability of $922,631.
By comparison, during the year ended December
31, 2020, net cash used by operating activities was $8,192, resulting from our net loss of $275,842 partially offset by non-cash expenses
totaling $14,445 and increases in accounts payable and accrued liabilities of $269,589.
Cash Flows from Investing Activities
During the year ended December 31, 2021, we had
net cash used in investing activities of $1,689,153. During the year ended December 31, 2020, net cash used by investing activities was
$4,969, of capitalized patents costs of $4,969.
Cash Flows from Financing Activities
During the year ended December 31, 2021, net cash
provided by financing activities was $17,311,427, comprised of proceeds from the sale of common stock from offering of $14,593,327, the
issuance of convertible debt in the amount of $1,102,700, the issuance of notes payable of $2,000,000 offset by payments on convertible
debt of $384,600. During the year ended December 31, 2020, net cash used by financing activities was $4,096, comprised of proceeds from
issuance of convertible notes payable of $40,000, offset by repayments of related party notes payable of $44,096.
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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Recent Accounting Pronouncements
We have provided a discussion of recent accounting
pronouncements in Note 1 to the Condensed Financial Statements.
| ITEM 7A. | QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 8. | FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements of the Company are included
beginning on page F-1 immediately following the signature page to this Form 10-K.
| ITEM 9. | CHANGES IN
AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| ITEM 9A. | CONTROLS
AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures
that are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC and, as such, is accumulated and communicated to our Chief Executive Officer and Chief Financial
Officer, Dennis O’Leary, who serves as our principal executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure. Mr. O’Leary, evaluated the effectiveness of our disclosure controls and procedures,
as defined in Rule 13a-15(e) of the Exchange Act, as of December 31, 2021. Based on his evaluation, Mr. O’Leary concluded that,
due to a material weakness in our internal control over financial reporting as described below, our disclosure controls and procedures
were not effective as of December 31, 2021. In light of the material weakness in internal control over financial reporting, we completed
substantive procedures, including validating the completeness and accuracy of the underlying data used for accounting prior to filing
this Form 10-K.
These additional procedures have allowed us to
conclude that, notwithstanding the material weakness in our internal control over financial reporting, the consolidated financial statements
included in this Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows for
the periods presented in conformity with accounting principles generally accepted in the United States of America.
Internal Control Over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal controls over financial reporting for the Company. Due to limited resources, management conducted an
evaluation of internal controls based on criteria established in 2013 Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”). The results of this evaluation determined that our
internal control over financial reporting was ineffective as of December 31, 2021, due to material weaknesses. A material weakness in
internal control over financial reporting is defined as a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal
control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible
for oversight of our financial reporting.
Management’s assessment identified the
following material weaknesses in internal control over financial reporting:
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· |
The small size of our company limits our ability to achieve the desired level of separation of duties to achieve effective internal controls over financial reporting. We do not have a separate CEO and CFO, to review and oversee our financial policies and procedures, which does achieve a degree of separation. However, until such time as we are able to hire a controller, we do not believe we meet the full requirement for separation. |
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We do not have an audit committee. |
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We have not achieved the desired level of documentation of our internal controls and procedures. This documentation will be strengthened through utilizing a third-party consulting firm to assist management with its internal control documentation and further help to limit the possibility of any lapse in controls occurring. |
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We have not achieved the desired level of corporate governance to ensure that our accounting for all of our contractual and other agreements is in accordance with all of the relevant terms and conditions. |
As a result of the material weaknesses in internal
control over financial reporting described above, our management has concluded that, as of December 31, 2021, our internal control over
financial reporting was not effective based on the criteria in Internal Control - Integrated Framework issued by the COSO.
We will continue to follow the standards for the
Public Company Accounting Oversight Board (United States) for internal control over financial reporting to include procedures that:
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Pertain to the maintenance of records in reasonable detail
accurately that fairly reflect the transactions and dispositions of our assets; |
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Provide reasonable assurance that transactions are recorded as necessary
to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and |
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Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
Despite the material weaknesses in financial
reporting noted above, we believe that our financial statements included in this report fairly present our financial position, results
of operations and cash flows as of and for the years presented in all material respects.
Changes in Internal Controls
There were no changes in our internal control
over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
We have taken limited steps to meet our Sarbanes-Oxley
(SOX) Section 404 compliance requirements and implement procedures to assure financial reports are prepared in accordance with generally
accepted accounting principles (GAAP) and therefore fairly represent the results and condition of the Company. We are not materially
compliant with the Section 404 requirements due to economic constraints.
| ITEM 9B. | OTHER INFORMATION |
None.
See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
Notes to the Consolidated
Financial Statements
For the Years ended December 31, 2021 and 2020
NOTE 1 – BASIS OF FINANCIAL STATEMENT
PRESENTATION
Organization and Description of Business
DarkPulse, Inc. (“DPI” or “Company”)
is a technology-security company incorporated in 1989 as Klever Marketing, Inc. (“Klever”). Its’ wholly-owned subsidiary,
DarkPulse Technologies Inc. (“DPTI”), originally started as a technology spinout from the University of New Brunswick, Fredericton,
Canada. The Company’s security and monitoring systems will initially be delivered in applications for border security, pipelines,
the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have been limited to quasi-static,
long-term structural health monitoring due to the time required to obtain the data and its poor precision. The Company’s patented
BOTDA dark-pulse sensor technology allows for the monitoring of highly dynamic environments due to its greater resolution and accuracy.
On April 27, 2018, Klever entered into an Agreement
and Plan of Merger (the “Merger Agreement” or the “Merger”) involving Klever as the surviving parent corporation
and acquiring a privately held New Brunswick corporation known as DarkPulse Technologies Inc. as its wholly owned subsidiary. On July
18, 2018, the parties closed the Merger Agreement, as amended on July 7, 2018, and the name of the Company was subsequently changed to
DarkPulse, Inc. With the change of control of the Company, the Merger is being be accounted for as a recapitalization in a manner similar
to a reverse acquisition.
On July 20, 2018, the Company filed a Certificate
of Amendment to its Certificate of Incorporation with the State of Delaware, changing the name of the Company to DarkPulse, Inc. The
Company filed a corporate action notification with the Financial Industry Regulatory Authority (FINRA), and the Company's ticker symbol
was changed to DPLS.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies
consistently applied in the preparation of the accompanying financial statements are as follows:
Basis of Presentation and Principles of
Consolidation
The Company’s consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The consolidated
financial statements of the Company include the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions
have been eliminated in consolidation.
Our consolidated financial statements as of December
31, 2021 and 2020 include the accounts of DarkPulse Inc. and its subsidiaries:
DarkPulse Technologies Inc. (“DPTI”),
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 three 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, DPTI’s CEO incorporated another corporation named DarkPulse Technologies International Inc., ("DPTIDel")
in the State of 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.
On August 9, 2021, the Company entered into a
Share Purchase Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”), pursuant to which the
Company purchased from the Sellers all of the issued and outstanding equity interests of Optilan HoldCo 3 Limited, a private company
incorporated in England and Wales (“Optilan”) for £1.00 and also a commitment to enter into the Subscription (as defined
below). As of August 9, 2021, the Company owns all of the equity interests of Optilan.
On August 30, 2021, the Company closed two
separate Membership Interest Purchase Agreements with Remote Intelligence, Limited Liability Company, a Pennsylvania limited
liability company (“RI”) and Wildlife Specialists, LLC, a Pennsylvania limited liability company
(“WS”) pursuant to which the Company agreed to pay to the majority shareholder of each of RI and WS an aggregate
of 15,000,000
shares of the Company’s Common Stock and $1,000,000
in exchange for 60%
ownership of each of RI and WS.
On September 8, 2021, the Company entered into
and closed the Stock Purchase Agreement with TJM Electronics West, Inc., an Arizona corporation (“TJM”), and
TJM’s shareholders, pursuant to which we agreed to purchase all of the equity interests in TJM in exchange for $450,000.
Effective October 1, 2021 the Company entered
into and closed the Membership Purchase Agreement with TerraData Unmanned, PLLC, a Florida limited liability company (“TerraData”),
and Justin Dee, the sole shareholder of TerraData, pursuant to which the Company agreed to purchase 60%
of the equity interests in TerraData in exchange for 3,725,386
shares of the Company’s Common Stock and $400,000.
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 high
credit quality financial institutions. The Company’s account at this institution is insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $250,000.
To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of
the financial institution in which it holds deposits.
Foreign Currency Translation
The Company’s reporting currency is US
Dollars. The accounts of one of the Company’s subsidiaries is maintained using the appropriate local currency, British Pound (“GBP”)
as the functional currency. The accounts of one of the Company’s subsidiaries is maintained using the appropriate local currency,
Canadian Dollar (“CAD”) as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance
sheet date, shareholders' equity is translated at historical rates and revenue and expense accounts are translated at the average exchange
rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity,
captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the statements of operations.
The relevant translation rates are as
follows: for the year ended December 31, 2021 closing rate at 1.353583
US$: GBP, average rate at 1.375671
US$:GBP and for the Optilan acquisition closing rate at 1.38138 US$: GBP.
The relevant translation rates are as follows:
for the year ended December 31, 2021 closing rate at 1.2794 US$: CAD, average rate at 1.2534 US$:CAD and for the year ended December
31, 2020 closing rate at 1.2754 US$: CAD, average rate at 1.3388 US$:CAD.
Long-Lived Assets and Goodwill
The Company accounts for long-lived assets in
accordance with the provisions of ASC 360-10-35, Property, Plant and Equipment, Impairment or Disposal of Long-lived Assets. This accounting
standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value
of the asset.
The Company accounts for goodwill and intangible
assets in accordance with ASC 350, Intangibles – Goodwill and Other. Goodwill represents the excess of the purchase price of an
entity over the estimated fair value of the assets acquired and liabilities assumed. ASC 350 requires that goodwill and other intangibles
with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value
of an asset has decreased below its carrying value. During the fourth quarter of 2020, the Company adopted ASU No. 2017-04, Intangibles
– Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance simplifies the accounting for goodwill
impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment
will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of
goodwill. The adoption of this standard had no material impact on the Consolidated Financial Statements. During fiscal 2021 and 2020,
the Company recorded no impairments.
Intangible Assets - Intrusion Detection Intellectual
Property
The Company relies on patent laws and restrictions
on disclosure to protect its intellectual property rights. As of December 31, 2021, 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).
The DPTI issued patents cover a System and Method
for Brillouin Analysis, a System and Method for Resolution Enhancement of a Distributed Sensor, and a Flexible Fiber Optic Deformation
System Sensor and Method. Maintenance of intellectual property rights and the protection thereof is important to our business. Any patents
that may be issued may not sufficiently protect the Company's intellectual property and third parties may challenge any issued patents.
Other parties may independently develop similar or competing technology or design around any patents that may be issued to the Company.
The Company cannot be certain that the steps it has taken will prevent the misappropriation of its intellectual property, particularly
in foreign countries where the laws may not protect proprietary rights as fully as in the United States. Further, the Company may be
required to enforce its intellectual property or other proprietary rights through litigation, which, regardless of success, could result
in substantial costs and diversion of management's attention. Additionally, there may be existing patents of which the Company is unaware
that could be pertinent to its business, and it is not possible to know whether there are patent applications pending that the Company's
products might infringe upon, since these applications are often not publicly available until a patent is issued or published.
For the year ended December 31, 2021, the Company
had patent amortization costs on its intrusion detection technology totaling $51,028. Patents costs are being amortized over the remaining
life of each patent, which is from 7 to 16 years.
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.
The following is a summary
of activity related to the DPTI patents for the year ended December 31, 2021:
Intangible Assets | |
| | |
Balance at January 1, 2021 | |
$ | 393,990 | |
Additions | |
| – | |
Amortization | |
| (51,028 | ) |
Balance at December 31, 2021 | |
$ | 342,962 | |
The following is a summary of the DPTI patents
as of December 31, 2021:
| |
2021 | |
Historical cost | |
$ | 904,269 | |
Accumulated amortization | |
| (561,307 | ) |
Carrying Value | |
$ | 342,962 | |
Future expected amortization of intangible
assets is as follows:
Future expected amortization of intangible assets | |
| | |
Year Ending December 31, | |
| |
2022 | |
$ | 51,028 | |
2023 | |
| 51,028 | |
2024 | |
| 51,028 | |
2025 | |
| 51,028 | |
2026 | |
| 51,028 | |
Thereafter | |
| 87,822 | |
Total | |
$ | 342,962 | |
Property and Equipment
Property and equipment are carried at historical
cost less accumulated depreciation. Depreciation is based on the estimated service lives of the depreciable assets and is calculated
using the straight-line method. Expenditures that increase the value or productive capacity of assets are capitalized. Fully depreciated
assets are retained in the property and equipment, and accumulated depreciation accounts until they are removed from service. When property
and equipment are retired, sold or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are
removed from the accounts and any gain or loss is included in operations. Repairs and maintenance are expensed as incurred.
The estimated useful lives of property and equipment
are generally as follows:
Schedule of estimated useful lives | |
| | |
| |
Years | |
Office furniture and fixtures | |
| 4 | |
Plant and equipment | |
| 4-8 | |
Leasehold Improvements | |
| 10 | |
Motor Vehicles | |
| 3 | |
Revenue Recognition
The Company’s revenues are generated primarily
from the sale of our products, which consist primarily of advanced technology solutions for integrated communications and security systems.
At contract inception, we assess the goods and services promised in the contract with customers and identify a performance obligation
for each. To determine the performance obligation, we consider all products and services promised in the contract regardless of whether
they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not
subject to significant judgment. We measure revenue as the amount of consideration expected to be received in exchange for transferring
goods and services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria
have been met.
The Company recognizes revenue when its customer
obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for
those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606,
we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract;
(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize
revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will
collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception,
once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and
determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue
in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation
is satisfied.
In accordance with ASU No. 2016-12, Revenue
from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient, which is to (1) clarify the objective
of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers
for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is
contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that
occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining
the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that
a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under
legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic
606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments
of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was
no impact as a result of adopting this ASU on the financial statements and related disclosures. Based on the terms and conditions of
the product arrangements, the Company believes that its products and services can be accounted for separately as its products and services
have value to the Company’s customers on a stand-alone basis. When a transaction involves more than one product or service, revenue
is allocated to each deliverable based on its relative fair value; otherwise, revenue is recognized as products are delivered or as services
are provided over the term of the customer contract.
Contract liabilities is shown separately in the
unaudited consolidated balance sheets as current liabilities. At December 31, 2021 and December 31, 2020, we had contract liabilities
of $3,216,562 and $0, respectively.
Cost of Product Sales and Services
Cost of sales consists primarily of materials,
airtime and overhead costs incurred internally and amounts incurred to contract manufacturers to produce our products, airtime and other
implementation costs incurred to install our products and train customer personnel, and customer service and third-party original equipment
manufacturer costs to provide continuing support to our customers. There are certain costs which are deferred and recorded as prepaids,
until such revenue is recognized. Refer to revenue recognition above as to what constitutes deferred revenue.
Concentration of Credit Risk
The Company has no significant concentrations
of credit risk.
Related Parties
The Company accounts for related party transactions
in accordance with ASC 850 (“Related Party Disclosures”). A party is considered to be related to the Company if the party
directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company.
Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of
the Company and its management and 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. A party which can significantly influence the management or operating policies of the transacting parties
or if it has 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 is also a related party.
Leases
Effective January 1, 2019, the Company accounts
for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating
or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated
by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing
rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the
lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line
rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset
results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
In calculating the right of use asset and lease
liability, the Company has elected to combine lease and non-lease components. The Company excludes short-term leases having initial terms
of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over
the lease term.
Derivative Financial Instruments
The Company evaluates the embedded conversion
feature within its convertible debt instruments under ASC 815-15 and ASC 815-40 to determine if the conversion feature meets the definition
of a liability and, if so, whether to bifurcate the conversion feature and account for it as a separate derivative liability. 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 lattice model, in accordance with ASC 815-15 “Derivative and Hedging” 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 net-cash settlement of the derivative instrument
could be required within 12 months after the balance sheet date.
Beneficial Conversion Features
The Company evaluates the conversion feature
for whether it was beneficial as described in ASC 470-30. The intrinsic value of a beneficial conversion feature inherent to a convertible
note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon
conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance
to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term,
the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is
measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in
the financing transaction, if any, to the fair value of the shares of common stock at the commitment date to be received upon conversion.
Fair Value of Financial Instruments
The Company measures
its financial assets and liabilities in accordance with the requirements of FASB ASC 820, “Fair Value Measurements and Disclosures”.
As defined in FASB ASC 820, the fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar
entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about
risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or
generally unobservable. The Company classifies fair value balances based on the observability of those inputs. FASB ASC 820 established
a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs
(level 3 measurement) as follows:
Level 1 – Quoted prices are available in
active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset
or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists
of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 2 – Pricing inputs are other than
quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes
those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard
models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current
market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these
assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are
supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include
non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
Level 3 – Pricing inputs include significant
inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that
result in management’s best estimate of fair value.
Income Taxes
The Company accounts for income taxes pursuant
to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”) which requires, among other things,
an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes
it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of ASC 740-10
related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions
taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of
a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes,
if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more likely than
not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount
measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with
any associated interest and penalties that would be payable to the taxing authorities upon examination.
The Company believes its tax positions are all
more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The Company has adopted ASC 740-10-25, “Definition
of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the
purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion
and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity
would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based
solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax
returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
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 years 2021 and 2020. The Company
has filed tax returns in Canada for the year ended December 31, 2018, and they are still subject to audit.
Stock-based Compensation
Stock-based compensation is accounted for based
on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of
the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director
is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement
of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC Topic 718, for share-based payments
to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized
over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain.
The Company initially records compensation expense based on the fair value of the award at the reporting date. Further, ASC Topic 718,
provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification
accounting in Topic 718, such as the repricing of share options, which would revalue those options and the accounting for the cancellation
of an equity award whether a replacement award or other valuable consideration is issued in conjunction with the cancellation. If not,
the cancellation is viewed as a replacement and not a modification, with a repurchase price of $0.
Income (Loss) Per Common Share
The Company accounts for earnings per share pursuant
to ASC 260, Earnings per Share, which requires disclosure on the financial statements of "basic" and "diluted" earnings
(loss) per share. Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common
shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average
number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year.
In periods where the Company has a net loss, all dilutive securities are excluded.
Schedule of antidilutive shares | |
| | | |
| | |
| |
| December
31, 2021 | | |
| December
31, 2020 | |
Convertible preferred stock | |
| – | | |
| – | |
Stock Options | |
| – | | |
| – | |
Stock Warrants | |
| – | | |
| – | |
Recently Issued Accounting Pronouncements
In October 2016, the FASB issued ASU 2016-16,
“Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception
that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until
the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019,
including interim periods within those fiscal years. Early adoption of the update is permitted. The adoption of ASU 2016-16 did not have
a material impact on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04
Intangibles-Goodwill and Other (“ASC 350”): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”).
ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the
implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing
date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in
determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under ASU 2017-04, an entity
should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.
An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;
however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity
should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill
impairment loss, if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests for fiscal years beginning
after December 15, 2019. The adoption of ASU 2017-04 did not have a material impact on the consolidated financial statements.
In July 2021, the FASB issued ASU No. 2021-05,
Lessors—Certain Leases with Variable Lease Payments (Topic 842), Which requires a lessor to classify a lease with variable
lease payments that do not depend on an index or rate (hereafter referred to as “variable payments”) as an operating lease
on the commencement date of the lease if specified criteria are met. ASU 2021-05 is effective for the fiscal year beginning after December
15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material impact on the Company’s
condensed consolidated financial statements upon the adoption of this ASU.
In November 2021, the FASB issued ASU No. 2021-08,
Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, issued
by the Financial Accounting Standards Board. This ASU requires entities to recognize and measure contract assets and contract liabilities
acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The update will
generally result in the recognition of contract assets and contract liabilities at amounts consistent with those recorded by the acquiree
immediately before the acquisition date rather than at fair value. The Company expects that there would be no material impact on the
Company’s condensed consolidated financial statements upon the adoption of this ASU.
Although there are several other new accounting
pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe
any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.
NOTE 3 – GOING CONCERN
As shown in the accompanying financial statements,
the Company generated net losses of $4,826,320 and $275,842 during the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, the Company’s
current liabilities exceeded its current assets by $10,120,885. As of December 31, 2021, the Company had $3,658,846 of cash.
The Company will require additional funding during
the next twelve months to finance the growth of its current 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
or 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 through calendar year 2022. However, management cannot make any assurances that such financing
will be secured.
NOTE 4 – BUSINESS ACQUISITIONS
Optilan Holdco 3 Limited
On August 9, 2021, the Company entered into a
Share Purchase Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”), pursuant to which the
Company purchased from the Sellers all of the issued and outstanding equity interests of Optilan HoldCo 3 Limited, a private company
incorporated in England and Wales (“Optilan”) for £1.00 and also a commitment to enter into the Subscription (as defined
below). As of August 9, 2021, the Company owns all of the equity interests of Optilan.
The Company has accounted for the purchase using
the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the
underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the
estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed
liabilities for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at December 31, 2021:
Schedule of fair value of assets and liabilities in acquisition |
|
|
|
|
|
|
|
| |
| | |
(Amounts in US$’s) |
|
|
Amounts Recognized as of Acquisition Date |
|
|
|
Measurement Period Adjustments (1) |
| |
Fair Value | |
Cash |
|
$ |
736,177 |
|
|
$ |
(6,000 |
) | |
$ | 730,177 | |
Accounts receivable |
|
|
4,619,381 |
|
|
|
– |
| |
| 4,619,381 | |
Inventory |
|
|
2,040,887 |
|
|
|
– |
| |
| 2,040,887 | |
Property & equipment |
|
|
1,393,274 |
|
|
|
– |
| |
| 1,393,274 | |
Right-of-use assets |
|
|
1,385,825 |
|
|
|
(694,527 |
) | |
| 691,298 | |
Unbilled revenue |
|
|
540,321 |
|
|
|
779,483 |
| |
| 1,319,804 | |
Intangible assets: |
|
|
|
|
|
|
|
| |
| | |
Trade name |
|
|
– |
|
|
|
4,033,638 |
| |
| 4,033,638 | |
Goodwill |
|
|
12,181,350 |
|
|
|
(1,830,489 |
) | |
| 10,350,861 | |
Total assets |
|
|
22,891,215 |
|
|
|
2,288,105 |
| |
| 25,179,320 | |
Accounts payable |
|
|
11,622,018 |
|
|
|
(174,846 |
) | |
| 11,447,172 | |
Contract deposits |
|
|
3,168,493 |
|
|
|
– |
| |
| 3,168,493 | |
Contract liabilities, current |
|
|
4,139,193 |
|
|
|
– |
| |
| 4,139,193 | |
Lease liabilities, current |
|
|
141,730 |
|
|
|
– |
| |
| 141,730 | |
Other current liabilities |
|
|
2,496,725 |
|
|
|
3,157,478 |
| |
| 5,654,203 | |
Lease liabilities, noncurrent |
|
|
628,529 |
|
|
|
– |
| |
| 628,529 | |
Total purchase consideration |
|
$ |
694,527 |
|
|
$ |
(694,527 |
) | |
$ | – | |
Wildlife Specialists, LLC and Remote Intelligence,
LLC
On August 30, 2021, the Company closed two separate
Membership Interest Purchase Agreements (the “MPAs”) with Remote Intelligence, Limited Liability Company, a Pennsylvania
limited liability company (“RI”) and Wildlife Specialists, LLC, a Pennsylvania limited liability company (“WS”)
pursuant to which the Company agreed to pay to the majority shareholder of each of RI and WS an aggregate of 15,000,000
shares of the Company’s Common Stock, $500,000 to be paid on the closing date, and an additional $500,000 to be paid 12
weeks from closing date in exchange for 60%
ownership of each of RI and WS. RI and WS are now subsidiaries of the Company.
The Company has accounted for the purchase using
the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the
underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the
estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed
liabilities for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at December 31, 2021:
Schedule of Condensed Consolidated Balance Sheet | |
| | |
WILDLIFE SPECIALISTS | |
| |
| |
Consideration | |
Cash | |
$ | 500,000 | |
Common stock | |
| 978,000 | |
Purchase price | |
$ | 1,478,000 | |
The allocation of the total purchase price to
the tangible and intangible assets acquired and liabilities assumed by DarkPulse based on the estimated fair values as of August 29,
2021 was as follows:
Schedule of fair value of assets and liabilities in acquisition |
|
|
|
|
|
|
|
| |
| | |
WILDLIFE SPECIALISTS |
|
|
Amounts |
|
|
|
Measurement |
| |
| |
(Amounts in US$’s) |
|
|
Recognized as
of Acquisition
Date |
|
|
|
Period
Adjustments
(1) |
| |
Fair Value | |
Cash |
|
$ |
33,910 |
|
|
$ |
(6,098 |
) | |
$ | 27,812 | |
Accounts receivable |
|
|
161,866 |
|
|
|
170,486 |
| |
| 332,352 | |
Other current assets |
|
|
600 |
|
|
|
20,947 |
| |
| 21,547 | |
Property & equipment |
|
|
99,490 |
|
|
|
(77,945 |
) | |
| 21,545 | |
Goodwill |
|
|
1,191,085 |
|
|
|
1,597,593 |
| |
| 2,788,678 | |
Total assets |
|
|
1,486,951 |
|
|
|
1,704,983 |
| |
| 3,191,934 | |
Assumed liabilities |
|
|
393,651 |
|
|
|
334,950 |
| |
| 728,601 | |
Non-controlling interest |
|
|
– |
|
|
|
985,333 |
| |
| 985,333 | |
Total Consideration for 60% of equity interests |
|
$ |
1,478,000 |
|
|
$ |
– |
| |
$ | 1,478,000 | |
Schedule of Condensed Consolidated Balance Sheet | |
| | |
REMOTE INTELLIGENCE | |
| |
| |
Consideration | |
Cash | |
$ | 500,000 | |
Common stock | |
| 978,000 | |
Purchase price | |
$ | 1,478,000 | |
The allocation of the total purchase price to
the tangible and intangible assets acquired and liabilities assumed by the Company based on the estimated fair values as of August 29,
2021 was as follows:
Schedule of fair value of assets and liabilities in acquisition |
|
|
|
|
|
|
|
| |
| | |
REMOTE INTELLIGENCE |
|
|
Amounts |
|
|
|
|
| |
| |
(Amounts in US$’s) |
|
|
Recognized
as of
Acquisition
Date |
|
|
|
Measurement
Period
Adjustments
(1) |
| |
Fair Value | |
Cash |
|
$ |
6,158 |
|
|
$ |
(5,800 |
) | |
$ | 358 | |
Accounts receivable |
|
|
24,036 |
|
|
|
16,024 |
| |
| 40,060 | |
Property & equipment |
|
|
111,636 |
|
|
|
76,710 |
| |
| 188,346 | |
Goodwill |
|
|
1,729,800 |
|
|
|
1,080,103 |
| |
| 2,809,903 | |
Total assets |
|
|
1,871,630 |
|
|
|
1,167,037 |
| |
| 3,038,667 | |
Assumed liabilities |
|
|
393,630 |
|
|
|
181,704 |
| |
| 575,334 | |
Non-controlling interest |
|
|
– |
|
|
|
985,333 |
| |
| 985,333 | |
Total Consideration for 60% of equity interests |
|
$ |
1,478,000 |
|
|
$ |
– |
| |
$ | 1,478,000 | |
TJM Electronics West, Inc.
On September 8,
2021, the Company entered into and closed the Stock Purchase Agreement with TJM Electronics West, Inc., an Arizona corporation
(“TJM”), and TJM’s shareholders, pursuant to which we agreed to purchase all of the equity interests in TJM
in exchange for $450,000.
TJM is now a wholly-owned subsidiary of the Company.
The Company has accounted for the purchase using
the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the
underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the
estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed
liabilities for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at December 31, 2021:
Schedule of fair value of assets and liabilities in acquisition | |
| | |
| |
Fair Value | |
Accounts receivable | |
$ | 3,400 | |
Property & equipment | |
| 91,051 | |
Goodwill | |
| 355,549 | |
Total assets | |
| 450,000 | |
Total Consideration | |
$ | 450,000 | |
TerraData Unmanned, PLLC.
Effective October 1, 2021 the Company entered
into and closed the Membership Purchase Agreement (the “TerraData MPA”) with TerraData Unmanned, PLLC, a Florida limited
liability company (“TerraData”), and Justin Dee, the sole shareholder of TerraData, pursuant to which the Company
agreed to purchase 60%
of the equity interests in TerraData in exchange for 3,725,386
shares of the Company’s Common Stock and $400,000,
subject to adjustments as defined in the TerraData MPA, to be paid within 12 weeks of closing. TerraData is now a subsidiary of the Company.
The Company has accounted for the purchase using
the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the
underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the
estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed
liabilities for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at December 31, 2021:
Schedule of Condensed Consolidated Balance Sheet | |
| | |
| |
| | |
| |
Consideration | |
Cash | |
$ | 400,000 | |
Common stock | |
| 200,000 | |
Purchase price | |
$ | 600,000 | |
The allocation of the total purchase price to
the tangible and intangible assets acquired and liabilities assumed by the Company based on the estimated fair values as of October 1,
2021 was as follows:
Schedule of fair value of assets and liabilities in acquisition | |
| | |
(Amounts in US$'s) | |
Fair Value | |
Cash | |
$ | 8,691 | |
Goodwill | |
| 992,049 | |
Total assets | |
| 1,000,740 | |
Assumed liabilities | |
| 740 | |
Non-controlling interest | |
| 400,000 | |
Total Consideration for 60% of equity interests | |
$ | 600,000 | |
Unaudited Supplemental Pro Forma Data
Unaudited pro forma results of operations for
the nine months ended December 31, 2021 and 2020 as though the Company acquired Optilan, Wildlife Specialists, Remote Intelligence, TJM
Electronic West and TerraData Unmanned (the “Acquired Companies”) on the first day of each fiscal year are set forth below.
Proforma
results of operations
| |
| | |
| |
| |
Year Ended December 31, | |
| |
2021 | | |
2020 | |
Pro forma revenues | |
$ | 23,329,213 | | |
$ | 45,344,847 | |
Pro forma operating income (loss) | |
$ | 11,477,923 | | |
$ | (16,627,266 | ) |
Pro forma net income (loss) | |
$ | 11,264,238 | | |
$ | (11,308,866 | ) |
Pro forma net income (loss) attributable to DarkPulse | |
$ | 11,912,054 | | |
$ | (11,367,321 | ) |
NOTE 5 – REVENUE
The following table is a summary of the Company’s
timing of revenue recognition for the years ended December 31, 2021 and 2020:
Schedule of timing of revenue recognition | |
| | | |
| | |
| |
Years Ended | |
| |
December 31, | |
| |
2021 | | |
2020 | |
Timing of revenue recognition: | |
| | |
| |
Services and products transferred at a point in time | |
$ | 7,783,340 | | |
$ | – | |
Services and products transferred over time | |
| – | | |
| – | |
Total revenue | |
$ | 7,783,340 | | |
$ | – | |
The Company disaggregates revenue by source and
geographic destination to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
Revenue by source consisted of the following
for the years ended December 31, 2021 and 2020:
Schedule of revenue by source consisted | |
| | | |
| | |
| |
Years Ended | |
| |
December 31, | |
| |
2021 | | |
2020 | |
Revenue by products and services: | |
| | | |
| | |
Products | |
$ | 1,533,378 | | |
$ | – | |
Services | |
| 6,249,962 | | |
| – | |
Total revenue | |
$ | 7,783,340 | | |
$ | – | |
Revenue by geographic destination consisted of
the following for the for the years ended December 31, 2021 and 2020:
Schedule of revenue by geographic destination | |
| | | |
| | |
| |
Years Ended | |
| |
December 31, | |
| |
2021 | | |
2020 | |
Revenue by geography: | |
| | | |
| | |
North America | |
$ | 535,407 | | |
$ | – | |
International | |
| 7,247,933 | | |
| – | |
Total revenue | |
$ | 7,783,340 | | |
$ | – | |
Contract Balances
The Company records contract assets when it has
a right to consideration and records accounts receivable when it has an unconditional right to consideration. Contract liabilities consist
of cash payments received (or unconditional rights to receive cash) in advance of fulfilling performance obligations. As of December
31, 2021, the Company did not have a contract assets balance.
The following table is a summary of the Company’s
opening and closing balances of contract liabilities related to contracts with customers.
Schedule of contract liabilities related to contracts with customers | |
| | |
| |
Total | |
Balance at December 31, 2020 | |
$ | – | |
Additions through advance billings to or payments from vendors | |
| – | |
Additions through business acquisition | |
| 4,139,193 | |
Revenue recognized from current period advance billings to or payments from vendors | |
| – | |
Revenue recognized from amounts acquired through business acquisition | |
| (922,631 | ) |
Balance at December 31, 2021 | |
$ | 3,216,562 | |
NOTE 6 – 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 December 31, 2021. Management determined the expected volatility between 475.55-624.25%, a risk free
rate of interest between 0.10-0.13%, and contractual lives of the debt varying from zero months to eight months. Management made the
determination to use an expected life rather than contractual life for the calculations for the matured debt as of December 31, 2021.
The expected life is equal to the contractual life extended by one year which vary from two to seven months. The table below details
the Company's outstanding convertible notes, with totals for the face amount, amortization of discount, initial loss, change in the fair
market value, and the derivative liability.
Schedule of convertible debt | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
Face | | |
Debt | | |
Initial | | |
Change | | |
Derivative Balance | |
| |
Amount | | |
Discount | | |
Loss | | |
in FMV | | |
12/31/2021 | |
| |
$ | 90,228 | | |
$ | – | | |
$ | 58,959 | | |
$ | 19,840 | | |
$ | 128,370 | |
| |
| 162,150 | | |
| – | | |
| 74,429 | | |
| 35,654 | | |
| 230,692 | |
| |
| 72,488 | | |
| – | | |
| 11,381 | | |
| 15,938 | | |
| 103,130 | |
| |
| 53,397 | | |
| – | | |
| 7,850 | | |
| (16,767 | ) | |
| 71,561 | |
Subtotal | |
| 378,263 | | |
| – | | |
| 152,619 | | |
| 54,665 | | |
| 533,753 | |
Transaction expense | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| |
$ | 378,263 | | |
$ | – | | |
$ | 152,619 | | |
$ | 54,665 | | |
$ | 533,753 | |
Financings
On October 7, 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 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. On April 16, 2021, Geneva converted $47,850 of principal and $2,153 into 8,065,040 shares of common stock.
On January 4, 2021, the Company entered into
a securities purchase agreement with Geneva issuing to Geneva a convertible promissory
note in the aggregate principal amount of $42,350 with a $3,850 original issue discount and $3,500 in transactional expenses due to Geneva
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 $35,000
net cash. On July 12, 2021, Geneva converted $42,350 of principal and $1,540 into 1,784,146 shares of common stock.
On February 3, 2021, the Company entered into
a securities purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $94,200
with a $15,700
original issue discount and $3,500
in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5%
per annum and may be converted into common shares of the Company's common stock at a conversion price equal to 81% of the lowest two
trading prices of the Company's common stock during the 10 prior trading days. The Company received $75,000
net cash. On July 14, 2021, the Company repaid $94,200 of principal.
On February 18, 2021, the Company entered
into a securities purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount
of $76,200
with a $12,700
original issue discount and $3,500
in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5%
per annum and may be converted into common shares of the Company's common stock at a conversion price equal to 81% of the lowest two
trading prices of the Company's common stock during the 10 prior trading days. The Company received $60,000
net cash. On July 14, 2021, the Company repaid $76,200 of principal.
On April 5, 2021, the Company entered into a
securities purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of
$64,200
with a $10,700
original issue discount and $3,500
in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5%
per annum and may be converted into common shares of the Company's common stock at a conversion price equal to 81% of the lowest two
trading prices of the Company's common stock during the 10 prior trading days. The Company received $50,000
net cash. On July 14, 2021, the Company repaid $64,200 of principal.
On April 26, 2021, the Company entered a
Securities Purchase Agreement and Registration Rights with FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, a Delaware limited liability
company (the “FirstFire”), pursuant to which the Company issued to FirstFire a Convertible Promissory Note in the
principal amount of $825,000 (the
“FirstFire Note”). The purchase price of the FirstFire Note is $750,000.
The FirstFire Note matures on January
26, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the FirstFire Note at 10%
per annum guaranteed until the FirstFire Note becomes due and payable, whether at maturity or upon acceleration or by prepayment or
otherwise. The FirstFire Note is convertible at any time after 180 days from issuance, upon the election of the FirstFire, into
shares of the Company’s Common Stock at $0.015 per
share. The FirstFire Note is subject to various “Events of Default,” which are disclosed in the FirstFire Note. Upon the
occurrence of an “Event of Default,” the conversion price would become $0.005. On November 17, 2021, FirstFire converted $825,000 of principal and $61,875 of interest into 177,375,000 shares
of common stock.
On December 31, 2021, the Company commenced an
action against FirstFire Global Opportunities Fund, LLC, and Eli Fireman (“Fireman”) in the United States District Court for
the Southern District of New York. The complaint alleges that FirstFire is an unregistered dealer acting in violation of Section 15(a)
of the Securities Exchange Act of 1934 (the “Act”), and that the Company is entitled to rescissionary relief from certain
convertible promissory notes and securities purchase agreements entered into by the Company and FirstFire pursuant to Section 29(b) of
the Act. The complaint also asserts claims against Fireman for control person liability under Section 20(a) of the Act, unjust enrichment
of FirstFire, and constructive trust against FirstFire.
On May 19, 2021, the Company entered into a Stipulation
of Settlement with four note holders pursuant to which the Company agreed to pay $173,000 to the note holders.
On June 3, 2021, the Company entered into a
Settlement and Mutual Release Agreement with Auctus Fund, LLC. Pursuant to the Agreement, the Auctus agreed to convert the
Promissory Note issued on September 25, 2018 by the Company to the Lender in the principal amount of $100,000 (the
“Auctus Note”) into 12,500,000 shares of the Company’s Common stock (the “Auctus
Shares”) as consideration for full and complete satisfaction of and settlement of the Auctus Note, which also terminates
all obligations owing under both the Auctus Note and the corresponding Securities Purchase Agreement dated September 25, 2018
between the Company and Auctus. Auctus also agreed to limit the resales of the Auctus Shares in the public market to no more than 2,500,000 shares
per calendar week until all of the Auctus Shares have been sold.
On July 14, 2021, the Company entered a
Securities Purchase Agreement (the “GS SPA”) with GS Capital Partners, LLC pursuant to which the Company issued
to the Lender a 6% Redeemable Note in the principal amount of $2,000,000 (the
“GS Note”). The purchase price of the GS Note is $1,980,000.
The GS Note matures on July 14,
2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the GS Note at 6%
per annum until the GS Note becomes due and payable. The GS Note is subject to various “Events of Default,” which are
disclosed in the GS Note. Upon the occurrence of an “Event of Default,” the interest rate on the GS Note will be 18%.
The GS Note is not convertible into shares of the Company’s Common Stock and is not dilutive to existing or future
shareholders and the Company used a portion of the proceeds of the GS Note to retire convertible debt. As of December 31, 2021,
$2,000,000 remains outstanding.
As of December 31, 2021 and 2020
respectively, there was $378,263
and $931,158 of convertible
debt outstanding, net of debt discount of $0,
and $35,525.
As of December 31, 2021 and 2020 respectively, there was derivative liability of $533,753
and $1,220,880 related to
convertible debt securities.
NOTE 7 - 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 for 2020,
2019 and 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 December 31, 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 years ended December 31, 2021 and 2020, were $20,941 and $20,941 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 2% royalty on sales of any and all products or services which incorporate the Patents for a period of five years from April
24, 2018.
For the years ended December 31, 2021 and 2020, the Company recorded
interest expense of $52,538 and $52,538, respectively.
As of December 31, 2021, the debenture liability totaled $1,172,364,
all of which was long term.
Future minimum required payments over the
next 5 years and thereafter are as follows:
Future minimum required payments | |
| | |
Period ending December 31, | |
| |
2022 | |
$ | – | |
2023 | |
| – | |
2024 | |
| – | |
2025 | |
| – | |
2026 and after | |
| 1,172,364 | |
Total | |
$ | 1,172,364 | |
NOTE 8 – LEASES
The Company adopted ASC 842
“Leases” using the modified retrospective approach, electing the practical expedient that allows the Company not to
restate its comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under
ASC 842 are not presented for periods before the date of adoption.
The following was included in our balance sheet
as of December 31, 2021 and 2020:
Schedule of operating leases | |
| | | |
| | |
| |
December 31, | |
Operating leases | |
2021 | | |
2020 | |
| |
| | |
| |
Assets | |
| | | |
| | |
ROU operating lease assets | |
$ | 2,038,106 | | |
$ | – | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Current portion of operating lease | |
$ | 747,422 | | |
$ | – | |
Operating lease, net of current portion | |
$ | 2,474,530 | | |
$ | – | |
Total operating lease liabilities | |
$ | 3,221,952 | | |
$ | – | |
The weighted average remaining lease term and
weighted average discount rate at December 31, 2021 were as follows:
Schedule of weighted average remaining lease term and weighted average discount rate | |
| | |
Weighted average remaining lease term (years) | |
December
31, 2021 | |
Operating leases | |
| 8.25 | |
Weighted average discount rate | |
| | |
Operating leases | |
| 6.00% | |
Operating Leases
On January 12, 2021, the Company’s newly
acquired subsidiary entered into an operating lease agreement to rent office space in Mumbai, India. This three-year agreement commenced
January 12, 2021 with an annual rent of approximately $50,000.
On May 27, 2021, the Company’s newly acquired
subsidiary entered into an operating lease agreement to rent office space in Warwick, United Kingdom. This ten-year agreement commenced
May 27, 2021 with an annual rent of approximately $85,000 with the first six months rent free.
On August 31, 2021, the Company’s newly
acquired subsidiary entered into an operating lease agreement to rent office space in Tempe, Arizona. This five-year agreement commenced
August 31, 2021 with an annual rent of approximately $192,000.
On October 20, 2021, the Company’s newly
acquired subsidiary entered into an operating lease agreement to rent office space in Warwick, United Kingdom. This ten-year agreement
commenced October 20, 2021 with an annual rent of approximately $200,000 with the first six months rent free.
The following table reconciles future minimum
operating lease payments to the discounted lease liability as of December 31, 2021:
Schedule of future minimum operating lease payments | |
| | |
2022 | |
$ | 405,924 | |
2023 | |
| 498,401 | |
2024 | |
| 463,402 | |
2025 | |
| 472,343 | |
2026 and later | |
| 1,751,345 | |
Total lease payments | |
| 3,591,415 | |
Less imputed interest | |
| (369,463 | ) |
Total lease obligations | |
| 3,221,952 | |
Less current lease obligations | |
| (747,422 | ) |
Long-term lease obligations | |
$ | 2,474,530 | |
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December 31:
Schedule of accounts payable and accrued liabilities | |
| | | |
| | |
| |
2021 | | |
2020 | |
Accounts payable | |
$ | 7,227,129 | | |
$ | 519,899 | |
Accrued liabilities | |
| 617,142 | | |
| 569,970 | |
| |
$ | 7,844,271 | | |
$ | 1,089,869 | |
NOTE 10 – INCOME TAXES
The domestic and foreign components of loss before
(benefit) provision for income taxes were as follows:
Schedule
of income components
| |
2021 | | |
2020 | |
Domestic: | |
$ | (4,285,237 | ) | |
$ | (169,282 | ) |
Foreign: | |
| (541,083 | ) | |
| (106,560 | ) |
Total income (loss) before income taxes | |
$ | (4,826,320 | ) | |
$ | (275,842 | ) |
The provision (benefit) for income taxes for
the years ended December 31, 2021 and 2020 differs from the amount which would be expected as a result of applying the statutory tax
rates to the losses before income taxes due primarily to the valuation allowance to fully reserve net deferred tax assets.
The following table summarizes the significant
differences between statutory rates for the years ended December 31, 2021 and 2020:
Statutory tax rate | |
| | | |
| | |
| |
2021 | | |
2020 | |
Statutory tax rate: | |
| | | |
| | |
U.S. | |
| 21.00% | | |
| 21.00% | |
State taxes | |
| 2.19% | | |
| 3.63% | |
Foreign rate differential | |
| 0.46% | | |
| 0.00% | |
Other | |
| (1.81)% | | |
| 0.00% | |
Change in valuation allowance: | |
| (21.84)% | | |
| (24.63)% | |
| |
| –% | | |
| –% | |
The Company’s deferred tax assets and liabilities as of December
31, 2021 and 2020 are as follows:
Deferred Tax assets and liabilities | |
| | | |
| | |
| |
2021 | | |
2020 | |
Deferred Tax (Liabilities): | |
| | | |
| | |
Net operating losses | |
$ | 2,356,871 | | |
$ | 1,351,897 | |
Intangible assets | |
| (170,119 | ) | |
| – | |
Right of use asset | |
| (319,752 | ) | |
| – | |
Stock based compensation | |
| 498,571 | | |
| – | |
Less: Valuation allowance | |
| (2,365,571 | ) | |
| (1,351,897 | ) |
Deferred tax assets (liabilities) | |
$ | – | | |
$ | – | |
The Company has approximately $7,448,199
of federal and state net operating loss carryforwards as of December 31, 2021, which will not expire but will be limited to 80%
utilization. The company also has net operating losses in the United Kingdom of $1,414,454
which will not expire and $636,852
of net operating loss carryforwards in Canada which will begin to expire in 2038.
The Company records a tax valuation
allowance when it is more likely than not that it will not be able to recover the value of its deferred tax assets. For the years
ended December 31, 2021 and 2020, the Company calculated its estimated annualized effective tax rate at 0%
and 0%,
respectively, for both the United States, Canada and the United Kingdom. The Company had no
income tax expense on its losses for the years ended December 31, 2021 and 2020, respectively.
The Company recognizes 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% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company
recognizes interest accrued on uncertain tax positions as well as interest received from favorable tax settlements within interest expense.
The Company recognizes penalties accrued on unrecognized tax benefits within selling, general and administrative expenses. As of December
31, 2021 and 2020, the Company had no uncertain tax positions.
The Company does not anticipate any
significant changes to the total amounts of unrecognized tax benefits in the next twelve months. The Company files income tax
returns in New Brunswick, Canada, and the U.S. federal, New York, and Delaware jurisdictions and the United Kingdom jurisdictions. Tax years 2011
to current remain open to examination by Canadian authorities; the tax year 2018 remains open to examination by U.S.
authorities.
NOTE 11 – 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 December
31, 2021 and 2020 respectively, there were 88,235 and 88,235 total preferred shares issued and outstanding for all classes.
On December 23, 2021, pursuant to the approval of the Board of Directors
and a majority vote of the holders of Series D Preferred Stock, the Company amended the Certificate of Designation for the Series D Preferred
Stock so that each share of Series D Stock is convertible, at the sole and exclusive election of the holder, into two shares of Common
Stock of the Company.
NOTE 12 – COMMON STOCK
In accordance with the Company’s bylaws,
the Company has authorized a total of 20,000,000,000 shares of common stock, par value $0.0001 per share. As of December 31, 2021 and
2020, there were 5,197,821,885 and 4,088,762,156 common shares issued and outstanding.
On February 18, 2020, the majority stockholders
holding a majority of the issued and outstanding voting shares of the Company amended the Company’s Certificate of Incorporation
to amend the par value of the Company’s common stock from $0.01 to $0.0001.
On January 14, 2021, the Company issued an aggregate
of 100,000,000 shares of common stock upon the conversion of convertible debt, as issued on September 24, 2018, in the amount of $28,000.
On January 25, 2021, the Company issued an aggregate
of 150,000,000 shares of common stock upon the conversion of convertible debt, as issued on September 24, 2018, in the amount of $42,000.
On February 1, 2021, the Company issued an aggregate
of 30,999,995 shares of common stock upon the conversion of convertible debt, as issued on February 12, 2019, in the amount of $8,116.
On February 11, 2021, the Company issued an aggregate
of 100,000,000 shares of common stock upon the conversion of convertible debt, as issued on September 24, 2018, in the amount of $56,000.
On February 18, 2021, the Company issued an aggregate
of 220,000,000 shares of common stock upon the conversion of convertible debt, as issued on September 24, 2018, in the amount of $75,436
for principal and $39,638 for interest.
On April 15, 2021, the Company issued an aggregate
of 8,065,040 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $47,850 and
interest of $2,153.25.
On April 30, 2021, the Company issued 60,000,000
shares of common stock as compensation for loan acquisition costs associated with the note issued on the same date for the amount of
$825,000.
On June 4, 2021, the Company issued an aggregate
of 12,500,000 shares of common stock upon the conversion of convertible debt, as issued on September 25, 2018, in the amount of $76,656.83
and interest of $260.61.
On July 12, 2021, the Company issued an aggregate
of 1,784,146 shares of common stock upon the conversion of convertible debt, as issued on January 12, 2021, in the amount of $42,350.
On July 14, 2021, the Company issued an aggregate
of 45,037,115 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $93,864
and interest of $26,246.
On July 19, 2021, the Company issued an aggregate
of 2,898,382 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $10,497 and
interest of $6,748.
On August 25, 2021, the Company issued 31,799,260
shares of common stock for $3,000,000.
On August 31, 2021, the Company issued 27,297,995
shares of common stock for $3,000,000.
On September 22, 2021, the Company issued 25,630,272
shares of common stock for $2,000,000.
On September 30, 2021, the Company issued 15,000,000
shares of common stock pursuant to two separate Membership Interest Purchase Agreements with Remote Intelligence, and Wildlife Specialists,
LLC.
On September 30, 2021, the Company issued 3,194,081
shares of common stock as compensation valued at $250,000
for loan acquisition costs associated with proceeds raised.
On October 1, 2021, the Company issued 37,187,289
shares of common stock for $3,000,000.
On October 15, 2021, the Company issued 14,282,304
shares of common stock for $1,055,000.
On October 22, 2021, the Company issued 1,596,594
shares of common stock as compensation valued at $250,000
for loan acquisition costs associated with proceeds raised.
On October 25, 2021, the Company issued 634,778
shares of common stock as compensation valued at $250,000
for loan acquisition costs associated with proceeds raised.
On November 17, 2021, the Company issued an aggregate
of 177,375,000 shares of common stock upon the conversion of convertible debt, as issued on April 30, 2021, in the amount of $825,000
and interest of $61,875.
On December 21, 2021, the Company issued an aggregate
of 43,777,478 shares of common stock for $2,538,327.
At December 31, 2021, the Company had 1,589,257,888
in common shares reserved for issuance for convertible debt securities.
NOTE 13 – STOCK OPTIONS
As of December 31, 2021 and 2020, the Company
had no outstanding stock options.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Potential Royalty Payments
The Company, in consideration of the terms of
the debenture to the University of New Brunswick, shall pay to the University a two percent royalty on sales of any and all products
or services, which incorporate the Company's patents for a period of five years from April 24, 2018.
Legal Matters
DarkPulse, Inc. v. Twitter, Inc.
On January 24, 2022, the Company filed a petition
in the Supreme Court of the State of New York County of New York to compel a disclosure from Twitter, Inc. The petition sought to compel
Twitter, Inc. to disclose the owner and operator of the “Investor News” Twitter account (@newsfilterio) so the Company could
commence an action for damages arising from false, misleading, and untrue statements made by the Investor News.
On February 23, 2022, the Court ordered Twitter
to release information concerning the owner and operator of the Investor News account to the Company. The
Company will continue to pursue and expose the identities of those individuals or groups and shall take any and all legal action to pursue
the violators.
Carebourn Capital, L.P. v. DarkPulse, Inc.
As disclosed in greater detail in the Company’s
Form 10-Q, filed November 15, 2021, the Company remains in active litigation with Carebourn Capital, L.P. (“Carebourn”).
The remainder of this disclosure will address all material updates since the aforementioned Form 10-Q.
On November 1, 2021, the Company filed a motion
to compel Carebourn to produce certain documents and supplement its responses to certain interrogatories.
On September 27, 2021, Carebourn filed a declaratory
judgment and a motion for declaratory judgment, dismissal of the Company’s claims, and summary judgment (“Dispositive Motion”).
On February 15, 2022, the Court rendered its
decision on the aforesaid motions, denying the Dispositive Motion in its entirety and granting in part, and denying in part, the Company’s
motion to compel. Pursuant to the Court’s ruling in the Company’s favor on its motion to compel, the Court has awarded the
Company attorneys’ costs and fees in connection with the successful portions of its motion to compel.
On January 19, 2022, the Company filed a motion
for enforcement of a protective order. It is the Company’s position that Carebourn has violated a protective order that was entered
into by the parties and seeks to protect confidential information exchanged during the litigation. The Court has not yet rendered a decision
on this motion.
On March 24, 2022, Carebourn filed a Motion to
Compel against DarkPulse, alleging that DarkPulse failed to fulfill its discovery obligations by not producing a privilege log. DarkPulse
contends that Carebourn’s motion is meritless and premature.
The Company remains committed to actively litigating
its claims for relief under the Securities Exchange Act of 1934.
More Capital, LLC v. DarkPulse, Inc. et al
As disclosed in greater detail in the Company’s
Form 10-Q, filed November 15, 2021, the Company remains in active litigation with More Capital, LLC (“More”). The remainder
of this disclosure will address all material updates since the aforementioned Form 10-Q.
On October 27, 2021, the Company served its initial
discovery requests, consisting of interrogatories, requests for admission, and requests for production, on More.
On November 24, 2021, More served its responses
to the Company’s initial discovery requests. After reviewing More’s responses, it is the Company’s position that More’s
responses are false, misleading, untrue, and/or evasive.
On February 28, 2022, the Company filed its motion
to compel More to produce certain documents and supplement or otherwise modify its responses to certain interrogatories and requests
for admission. DarkPulse’s motion will be heard on April 14, 2022.
On March 9, 2022, More filed a motion for summary
judgment against the Company. The Company’s opposition is being filed on or before March 23, 2022, and More’s motion will
be heard on April 6, 2022.
The Company remains committed to actively litigating
its claims for relief under the Securities Exchange Act of 1934.
Goodman et al. v. DarkPulse, Inc.
As disclosed in greater detail in the Company’s
Form 10-Q, filed November 15, 2021, the Company remains in active litigation with Stephen Goodman (“Goodman”), Mark Banash
(“Banash”), and David Singer (“Singer”) (Goodman, Banash, and Singer together, the “Series D Plaintiffs”).
The remainder of this disclosure will address all material updates since the aforementioned Form 10-Q.
On August 20, 2021, the Company and the Series
D Plaintiffs entered into a stipulation, pursuant to which the Company withdrew its motion to dismiss and the Company was provided with
an extended period of time to respond to the complaint.
On September 8, 2021, the Company filed its Answer
and Counterclaims, wherein the Company alleges counterclaims arising from various breaches of fiduciary duties by the Series D Plaintiffs
while they were employed as officers of the Company.
On December 9, 2021, the parties participated
in private mediation. No understanding of settlement was reached at the conclusion thereof.
The Company remains committed to actively litigating
its claims and defenses against the Series D Plaintiffs.
DarkPulse, Inc. v. FirstFire Global Opportunities
Fund, LLC, and Eli Fireman (SDNY)
On December 31, 2021, the Company commenced an
action against FirstFire Global Opportunities Fund, LLC (“FirstFire”), and Eli Fireman (“Fireman”) (FirstFire
and Fireman together, the “FirstFire Parties”) in the United States District Court for the Southern District of New York.
The complaint alleges that FirstFire is an unregistered dealer acting in violation of Section 15(a) of the Securities Exchange Act of
1934 (the “Act”), and that the Company is entitled to rescissionary relief from certain convertible promissory notes and
securities purchase agreements entered into by the Company and FirstFire pursuant to Section 29(b) of the Act. The complaint also asserts
claims against Fireman for control person liability under Section 20(a) of the Act, unjust enrichment of FirstFire, and constructive
trust against FirstFire.
On January 14, 2022, the Company moved for entry
of a temporary restraining order and award of a preliminary injunction against FirstFire to enjoin them from selling or attempting to
sell, transfer, or otherwise dispose of the 177,275,000 common shares the Company believed were in FirstFire’s possession pursuant
to a certain note.
On January 14, 2022, the Court denied the Company’s
order to show cause seeking a temporary restraining order.
Following expedited briefing by the parties,
on January 21, 2022, the Court denied the Company’s motion for preliminary injunction.
On March 14, 2022, the FirstFire Parties filed
their letter request for a motion to dismiss the Company’s complaint. The Company responded to the FirstFire Parties’ letter
on March 17, 2022. As of the filing date, the Court has not yet issued a decision on the FirstFire Parties letter request to file its
motion to dismiss.
FirstFire Global Opportunities Fund, LLC v.
DarkPulse, Inc. (Del. Chancery Court)
On December 13, 2021, FirstFire Global Opportunities
Fund, LLC (“FirstFire”) commenced an action against the Company in the Court of Chancery of the State of Delaware. The complaint
seeks declaratory judgment of the issuance of 177,375,000 shares of Company common stock pursuant to a certain convertible promissory
note.
On January 4, 2022, the Company filed a motion
to dismiss FirstFire’s complaint.
On February 11, 2022, the Company filed its opening
memorandum of law in support of its motion to dismiss. The Company’s memorandum argues that FirstFire the certain convertible promissory
note that the issuance was made under is void ab initio as it violates New York’s criminal usury laws, and that FirstFire improperly
amended the governing law provision of the void convertible note to evade being declared void ab initio and, instead, continue to enforce
the unlawful transaction.
On March 14, 2022, FirstFire filed a notice of
voluntary dismissal of its complaint.
As of December 31, 2021, DarkPulse views the
aforesaid FirstFire Delaware Chancery matter as fully closed.
DarkPulse, Inc. v. EMA Financial, LLC et al
On January 4, 2022, the Company commenced an
action against EMA Financial, LLC (“EMA”), EMA Group, Inc. (“EMA Group”), and Felicia Preston (“Preston”)
(EMA, EMA Group, and Preston together, the “EMA Parties”) in the United States District Court for the Southern District of
New York. The complaint alleges that EMA is an unregistered dealer acting in violation of Section 15(a) of the Securities Exchange Act
of 1934 (the “Act”), and that the Company is entitled to rescissionary relief from certain convertible promissory notes and
securities purchase agreements entered into by the Company and EMA pursuant to Section 29(b) of the Act. The complaint also asserts claims
against Preston for control person liability under Section 20(a) of the Act, unjust enrichment of EMA, EMA Group, and Preston, and constructive
trust against the EMA Parties.
On March 28, 2022, the Company filed its first
amended complaint against the EMA Parties. The amended complaint alleges the same causes of action asserted in the initial complaint—(1)
that EMA is an unregistered dealer acting in violation of Section 15(a) of the Act and, pursuant to Section 29(b) of the Act, the Company
is entitled to rescissionary relief from certain convertible promissory notes and securities purchase agreements entered into by the
Company and EMA, (2) that Preston is liable pursuant to Section 20(a) of the Act, and (3) unjust enrichment—along with two claims:
that the EMA Parties, first, violated and, second conspired to violate the Racketeer Influenced and Corrupt Organizations (RICO) Act
for engaging in the collection of an unlawful debt.
The Company remains committed to actively litigating
its claims for relief under the Securities Exchange Act of 1934.
From time to time, we may become involved in
litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending
legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which
we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our
business, financial condition and operating results.
COVID-19
On March 11, 2020, the World Health Organization
announced that infections of the novel Coronavirus (COVID-19) had become pandemic, and on March 13, the U.S. President announced a National
Emergency relating to the disease. There is a possibility of continued widespread infection in the United States and abroad, with the
potential for catastrophic impact. National, state and local authorities have required or recommended social distancing and imposed or
are considering quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures,
while intended to protect human life, are expected to have serious adverse impacts on domestic and foreign economies of uncertain severity
and duration. Some economists are predicting the United States will soon enter a recession. The sweeping nature of the coronavirus pandemic
makes it extremely difficult to predict how the Company’s business and operations will be affected in the longer run, but we expect
that it may materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts
our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may
emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Moreover,
the coronavirus outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our
business and results of operations could be adversely affected to the extent that this coronavirus or any other epidemic harms the global
economy generally and/or the markets in which we operate specifically. Any of the foregoing factors, or other cascading effects of the
coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our revenues and damage
the Company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts
cannot be predicted.
NOTE 15 – 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 years ended December 31, 2021 and
2020, the Company’s Chief Executive Officer advanced personal funds in the amount of $593 and $68,254 for Company expenses.
NOTE 16 – SUBSEQUENT EVENTS
On January 12, 2022, the Company issued 23,372,430
shares of common stock for $1,150,000.
On January 21, 2022, the Company issued 33,454,988
shares of common stock for $1,150,000.
On February 7, 2022, the Company issued 16,040,411
shares of common stock for $500,000.
On March 7, 2022, the Company issued 75,798,921
shares of common stock for $2,500,000.
On March 23, 2022, the Company issued 29,257,395
shares of common stock for $1,500,000.
On April 11, 2022, the Company issued 23,746,816
shares of common stock for $1,000,000.