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.
300,000,000 Shares of Common Stock
DARKPULSE, INC.
PROSPECTUS
May 3, 2022