See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated
interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim
financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the
United States for complete financial statements. The information furnished reflects all adjustments, consisting only of normal recurring
items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The consolidated financial
statements as of December 31, 2021 have been audited by an independent registered public accounting firm. The accounting policies and
procedures employed in the preparation of these condensed consolidated financial statements have been derived from the audited financial
statements of the Company for the year ended December 31, 2021, which are contained in Form 10-K as filed with the Securities and Exchange
Commission on April 15, 2022. The consolidated balance sheet as of December 31, 2021 was derived from those financial statements.
Basis of Presentation and Principles of
Consolidation
The consolidated financial statements and accompanying
notes are prepared in accordance with generally accepted accounting principles of the United States of America (“U.S. GAAP”)
and the rules and regulations of the U.S Securities and Exchange Commission for Interim Financial Information. The condensed consolidated
financial statements of the Company include the Company and its wholly owned subsidiaries. All intercompany transactions and balances
have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial
position as of June 30, 2022, and the results of operations for three and six months and cash flows for the six months ended June 30,
2022 have been included. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of
the results to be expected for the full year.
Description of Business
DarkPulse, Inc. (“DPI” or “Company”)
is a technology 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 infrastructure monitoring systems have been installed into the Honcut Bridge in Marysville, California
creating the first intelligent bridge. Additional applications of this technology will include border security, pipelines, the oil and
gas industry, aviation & aerospace 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.
The Company’s operating units consist of,
Optilan HoldCo 3 Limited, a company headquartered in Coventry, United Kingdom (“Optilan”) whose focus is in telecommunications,
energy, rail, critical network infrastructure, pipeline integrity systems, renewables and security; Remote Intelligence, Limited Liability
Company, a company headquartered in Pennsylvania who provides unmanned aerial drone and unmanned ground crawler (UGC) services to a variety
of clients from industrial mapping and ecosystem services, to search and rescue, to pipeline security; Wildlife Specialists, Limited Liability
Company, a company headquartered in Pennsylvania who provides clients with comprehensive wildlife and environmental assessment, planning,
and monitoring services; TerraData Unmanned, PLLC, a company headquartered in Florida who custom manufactures NDAA compliant drones and
unmanned ground crawlers to meet the needs of its customers; and TJM Electronics West, Inc., a company headquartered in Arizona who is
a U.S. manufacturer and tester of advanced electronics, cables and sub-assemblies specializing in advanced package and complex CCA and
hardware.
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.
Reclassifications
Certain amounts in the Company’s prior period consolidated financial
statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results
of operations of prior periods.
Going Concern Uncertainty
As shown in the accompanying financial statements,
during the six months ended June 30, 2022, the Company reported a net loss of $9,569,843. As of June 30, 2022, the Company’s current
liabilities exceeded its current assets by $8,585,281. As of June 30, 2022, the Company had $2,512,668 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 generate 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.
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 periods ended June 30, 2022 closing rate at 1.216007 USD:GBP, average rate at 1.299973 USD:GBP and for the year ended December
31, 2021 closing rate at 1.353583 USD: GBP, average rate at 1.375671 USD:GBP.
The relevant translation rates are as follows:
for the periods ended June 30, 2022 closing rate at 1.2872 CAD:USD, average rate at 1.2788 CAD:USD and for the year ended December 31,
2021 closing rate at 1.2794 CAD:USD, average rate at 1.2534 CAD:USD.
Long-Lived Assets and Goodwill
In accordance with ASC 350-30-65, “Intangibles
- Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances
indicate that the carrying value may not be recoverable.
Factors the Company considers to be important
which could trigger an impairment review include the following:
| |
· |
Significant underperformance relative to expected historical or projected future operating results; |
| |
· |
Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and |
| |
· |
Significant negative industry or economic trends. |
When the Company determines that the carrying
value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying
value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures
any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with
the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment
exists and in projecting cash flows.
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 June 30, 2022 and December 31, 2021, we had contract liabilities of $4,480,912
and $3,216,562, 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.
Restructuring Costs
The Company accounts for settlement of
employment contracts and one-time salary expenses, such as severance, as restructuring costs when incurred due to
specific restructuring event. For the quarter ended June 30, 2022, the Company recognized $501,431 related to the
settlement of employment contracts and severance due to employment changes in our subsidiary, Optilan.
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 carrying amounts of the Company's financial
assets and liabilities, such as cash, prepaid expenses, and accruals approximate their fair values because of the short maturity of these
instruments. The Company believes the carrying value of its secured debenture payable approximates fair value because the terms were negotiated
at arm’s length.
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.
For the six months ended June 30, 2022, there
were no stock options outstanding. For the six months ended June 30, 2022, common stock equivalents related to convertible preferred stock
and convertible debt have not been included in the calculation of diluted loss per common share because they are anti-dilutive. Therefore,
basic loss per common share is the same as diluted loss per common share. There are 28,316,441 common shares reserved for the potential
conversion of the Company's convertible debt.
Recently Issued Accounting Pronouncements
The Company has reviewed the accounting pronouncements
issued during the six months ended June 30, 2022 and concluded they were either not applicable or not expected to have a material
impact on the Company’s condensed consolidated financial statements.
NOTE 2 – REVENUE
The following table is a summary of the Company’s
timing of revenue recognition for the three and six months ended June 30, 2022 and 2021:
| Schedule of timing of revenue recognition | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended | | |
Six Months Ended | |
| | |
June 30, | | |
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Timing of revenue recognition: | |
| | |
| | |
| | |
| |
| Services and products transferred at a point in time | |
$ | 4,435,043 | | |
$ | – | | |
$ | 6,453,376 | | |
$ | – | |
| Services and products transferred over time | |
| – | | |
| – | | |
| – | | |
| – | |
| Total revenue | |
$ | 4,435,043 | | |
$ | – | | |
$ | 6,453,376 | | |
$ | – | |
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 three and six months ended June 30, 2022 and 2021:
| Schedule of revenue by source consisted | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended | | |
Six Months Ended | |
| | |
June 30, | | |
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Revenue by products and services: | |
| | | |
| | | |
| | | |
| | |
| Products | |
$ | 712,449 | | |
$ | – | | |
$ | 1,110,076 | | |
$ | – | |
| Services | |
| 3,722,594 | | |
| – | | |
| 5,343,300 | | |
| – | |
| Total revenue | |
$ | 4,435,043 | | |
$ | – | | |
$ | 6,453,376 | | |
$ | – | |
Revenue by geographic destination consisted of
the following for the three and six months ended June 30, 2022 and 2021:
| Schedule of revenue by geographic destination | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended | | |
Six Months Ended | |
| | |
June 30, | | |
June 30, | |
| | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
| Revenue by geography: | |
| | | |
| | | |
| | | |
| | |
| North America | |
$ | 373,062 | | |
$ | – | | |
$ | 534,434 | | |
$ | – | |
| International | |
| 4,061,981 | | |
| – | | |
| 5,918,942 | | |
| – | |
| Total revenue | |
$ | 4,435,043 | | |
$ | – | | |
$ | 6,453,376 | | |
$ | – | |
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 June 30, 2022,
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, 2021 | |
$ | 3,216,562 | |
| Additions through advance billings to or payments from vendors | |
| 3,782,297 | |
| Revenue recognized from current period advance billings to or payments from vendors | |
| (2,517,947 | ) |
| Balance at June 30, 2022 | |
$ | 4,480,912 | |
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following
as of June 30, 2022 and December 31, 2021:
| Schedule of accounts receivable | |
| | |
| |
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Accounts receivable | |
$ | 3,673,186 | | |
$ | 4,223,990 | |
| Less: Allowance for doubtful accounts | |
| – | | |
| – | |
| Total accounts receivable | |
$ | 3,673,186 | | |
$ | 4,223,990 | |
NOTE 4 – INVENTORY
Inventory consisted of the following as of June
30, 2022 and December 31, 2021:
| Schedule of inventory | |
| | |
| |
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Raw materials | |
$ | 139,217 | | |
$ | 416,180 | |
| Work in progress | |
| 1,484,127 | | |
| 436,891 | |
| Finished goods | |
| 47,635 | | |
| 11,948 | |
| Total inventory | |
| 1,670,979 | | |
| 865,019 | |
| Reserve | |
| – | | |
| – | |
| Total inventory, net | |
$ | 1,670,979 | | |
$ | 865,019 | |
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following
as of June 30, 2022 and December 31, 2021:
| Schedule of property, plant and equipment | |
| | |
| |
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Property and equipment | |
$ | 2,449,490 | | |
$ | 1,867,794 | |
| Leasehold improvements | |
| 46,934 | | |
| 42,396 | |
| | |
| 2,496,424 | | |
| 1,910,190 | |
| Less - accumulated depreciation | |
| (292,789 | ) | |
| (122,366 | ) |
| | |
$ | 2,203,635 | | |
$ | 1,787,824 | |
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED
EXPENSES
Accounts payable and accrued expenses consisted
of the following as of June 30, 2022 and December 31, 2021:
| Schedule of accounts payable and accrued liabilities | |
| | |
| |
| | |
June 30, | | |
December 31, | |
| | |
2022 | | |
2021 | |
| Accounts payable | |
$ | 3,399,145 | | |
$ | 7,209,945 | |
| Accrued liabilities | |
| 709,439 | | |
| 634,326 | |
| Total accounts payable and accrued expenses | |
$ | 4,108,584 | | |
$ | 7,844,271 | |
NOTE 7 – LEASES
We adopted ASC 842 “Leases” using
the modified retrospective approach, electing the practical expedient that allows us not to restate our 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 June 30, 2022:
| Schedule of operating leases | |
| |
| Operating leases | |
June 30, 2022 | |
| | |
| |
| Assets | |
| | |
| ROU operating lease assets | |
$ | 2,836,128 | |
| | |
| | |
| Liabilities | |
| | |
| Current portion of operating lease | |
$ | 1,963,054 | |
| Operating lease, net of current portion | |
$ | 1,190,866 | |
| Total operating lease liabilities | |
$ | 3,153,920 | |
The weighted average remaining lease term and
weighted average discount rate at June 30, 2022 were as follows:
| Schedule of weighted average remaining lease term and weighted average discount rate | |
| |
| Weighted average remaining lease term (years) | |
June 30, 2022 | |
| Operating leases | |
| 7.78 | |
| Weighted average discount rate | |
| | |
| Operating leases | |
| 6.00% | |
Operating Leases
On March 9, 2022, the Company entered into an
operating lease agreement to rent office space in Houston, Texas. This ten-year agreement commenced March 9. 2022 with an annual rent
of approximately $81,000 with the first twelve months rent free.
The following table reconciles future minimum
operating lease payments to the discounted lease liability as of June 30, 2022:
| Schedule of future minimum operating lease payments | |
| |
| 2022 | |
| 254,917 | |
| 2023 | |
| 532,341 | |
| 2024 | |
| 518,059 | |
| 2025 | |
| 528,043 | |
| 2026 and later | |
| 2,163,300 | |
| Total lease payments | |
| 3,996,660 | |
| Less imputed interest | |
| (842,740 | ) |
| Total lease obligations | |
| 3,153,920 | |
| Less current obligations | |
| (1,963,054 | ) |
| Long-term lease obligations | |
$ | 1,190,866 | |
NOTE 8 – GOODWILL AND OTHER INTANGIBLE
ASSETS
Goodwill
The following table sets forth the changes in
the carrying amount of goodwill for the six months ended June 30, 2022:
| Schedule of changes in carrying amount of goodwill | |
| |
| | |
Total | |
| Balance at December 31, 2021 | |
$ | 17,088,501 | |
| Exchange rate variation | |
| (1,030,873 | ) |
| Balance at June 30, 2022 | |
$ | 16,057,628 | |
Intangible Assets - Intrusion Detection Intellectual
Property
The Company relies on patent laws and restrictions
on disclosure to protect its intellectual property rights. As of June 30, 2022, 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 six months ended June 30, 2022 and 2021,
the Company amortized $25,514 and $25,514, respectively. Future amortization of intangible assets is as follows:
| Schedule of future amortization of intangible assets | |
| |
| 2022 | |
$ | 25,514 | |
| 2023 | |
| 51,028 | |
| 2024 | |
| 51,028 | |
| 2025 | |
| 51,028 | |
| 2026 | |
| 51,028 | |
| Thereafter | |
| 87,822 | |
| Total | |
$ | 317,448 | |
NOTE 9 – DEBT AGREEMENTS
Secured Debenture
DPTI issued a convertible Debenture to the University
in exchange for the Patents assigned to the Company, in the amount of Canadian $1,500,000, or US $1,491,923 on December 16, 2010, the
date of the Debenture. On April 24, 2017 DPTI issued a replacement secured term Debenture in the same C$1,500,000 amount as the original
Debenture. The interest rate is the Bank of Canada Prime overnight rate plus 1% per annum. The Debenture had an initial required payment
of Canadian $42,000 (US$33,385) due on April 24, 2018 for reimbursement to the University of its research and development costs, and this
has been paid. Interest-only maintenance payments are due annually starting after April 24, 2018. Payment of the principal begins on the
earlier of (a) three years following two consecutive quarters of positive earnings before interest, taxes, depreciation and amortization,
(b) six years from April 24, 2017, or (c) in the event DPTI fails to raise defined capital amounts or secure defined contract amounts
by April 24 in the years 2018, 2019, and 2020. The Company has raised funds in excess of the amount required by April 24, 2018. The principal
repayment amounts will be due yearly 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 June 30, 2022, the quarterly principal repayment amounts will be US$49,750. 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 loss for the three months ended June 30, 2022 and 2021, were $29,297 and $17,909 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 six months ended June 30, 2022, and 2021,
the Company recorded interest expense of $24,854 and $26,746, respectively.
As of June 30, 2022 the debenture liability totaled
$1,165,365, all of which was long term.
Future minimum required payments over the next 5 years and thereafter
are as follows:
| Schedule of future minimum debt payments |
|
|
|
|
| Period ending June 30, |
|
|
|
|
| 2023 |
|
$ |
– |
|
| 2024 |
|
|
– |
|
| 2025 |
|
|
– |
|
| 2026 |
|
|
– |
|
| 2027 and after |
|
|
1,165,365 |
|
| Total |
|
$ |
1,165,365 |
|
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 June 30, 2022. Management determined the expected volatility of 155.72%, a risk-free rate of interest
of 2.8%, and contractual lives of the debt of six months. The table below details the Company's four 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 debt | |
| | |
| | |
| | |
| | |
| |
| | |
Face | | |
Debt | | |
Initial | | |
Change | | |
Derivative
Balance | |
| | |
Amount | | |
Discount | | |
Loss | | |
in FMV | | |
6/30/2022 | |
| | |
$ | 90,228 | | |
$ | – | | |
$ | 58,959 | | |
$ | (13,320 | ) | |
$ | 85,792 | |
| | |
| 162,150 | | |
| – | | |
| 74,429 | | |
| (23,938 | ) | |
| 154,178 | |
| | |
| 72,488 | | |
| – | | |
| 11,381 | | |
| (10,701 | ) | |
| 68,924 | |
| | |
| 53,397 | | |
| – | | |
| 7,850 | | |
| 5,910 | | |
| 57,703 | |
| Subtotal | |
| 378,263 | | |
| – | | |
| 152,619 | | |
| (42,049 | ) | |
| 366,597 | |
| Transaction expense | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | |
| | |
$ | 378,263 | | |
$ | – | | |
$ | 152,619 | | |
$ | (42,049 | ) | |
$ | 366,597 | |
As of June 30, 2022 and December 31, 2021 respectively,
there was $378,263 and of convertible debt outstanding, net of debt
discount of $0. As of June 30, 2022 and December
31, 2021 respectively, there was a derivative liability of $366,597
and $533,753 related to convertible debt securities.
NOTE 10 - STOCKHOLDERS' EQUITY
As of June 30, 2022, there were 5,594,156,736
shares of common stock and 88,335 shares of preferred stock issued and outstanding.
Preferred Stock
In accordance with the Company’s Certificate
of Incorporation, 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 June 30, 2022, and December 31, 2021, there were 88,335 and 88,235, respectively total preferred shares issued and outstanding
for all classes.
On June 22, 2022, the Board of Directors of the
Company approved the filing of an amendment to the Company’s Certificate of Incorporation (the “Certificate of Incorporation”),
in the form of a Certificate of Designation that authorized for issuance of up to 100 shares of a new series of Preferred Stock, par value
$0.01 per share, of the Company designated “Series A Super Voting Preferred Stock” and established the rights, preferences
and limitations thereof. The Board authorized the Series A Preferred Stock pursuant to the authority given to the Board under the Certificate
of Incorporation, which authorizes the issuance of up to 2,000,000 shares of Preferred Stock, par value $0.01 per share, and authorizes
the Board, by resolution, to establish any or all of the unissued shares of Preferred Stock, not then allocated to any series into one
or more series and to fix and determine the designation of each such shares, the number of shares which shall constitute such series and
certain preferences, limitations and relative rights of the shares of each series so established.
The holders of the Series A Preferred Stock shall
be entitled to vote, on a pro-rata basis, on all matters subject to a vote or written consent of the holders of the Company’s Common
Stock, and on all such matters, the shares of Series A Preferred Stock shall be entitled to that number of votes equal to the number of
votes that all issued and outstanding shares of Common Stock and all other securities of the Company are entitled to, as of any such date
of determination, on a fully diluted basis, plus one million (1,000,000) votes, it being the intention that the holders of the
Series A Preferred Stock shall have effective voting control of the Company, on a fully diluted basis.
Unless approved by a majority vote of the holders of Common Stock, the Series A Super Voting Preferred Stock
will terminate five years after the issuance date, which is June 24, 2027.
During the three months ended June 30, 2022, the
Company issued 100 shares of Series A preferred stock.
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 June 30, 2022 and December
31, 2021, there were 5,594,156,736 and 5,197,821,885 common shares issued and outstanding.
During the three months ended June 30, 2022, the
Company issued the following shares of common stock:
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 3, 2022, the Company issued 16,579,569
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 14, 2022, the Company issued 5,617,347
shares of common stock for $400,000.
On March 23, 2022, the Company issued 29,257,395
shares of common stock for $1,500,000.
On April 1, 2022, the Company issued 3,725,386
shares of common stock valued at $200,000 for the completion of the acquisition of TerraData.
On April 8, 2022, the Company issued 23,746,816
shares of common stock for $1,000,000.
On May 3, 2022, the Company issued 29,522,276
shares of common stock for $1,000,000.
On May 13, 2022, the Company issued 26,100,979
shares of common stock for $556,750.
On May 23, 2022, the Company issued 25,025,540
shares of common stock for $556,750.
On June 1, 2022, the Company issued 25,901,921
shares of common stock for $556,750.
On June 16, 2022, the Company issued 23,799,766
shares of common stock for $402,086.
On June 24, 2022, the Company issued 38,391,106
shares of common stock for $643,539.
Stock Options
During the three months ended June 30, 2022, the
Company did not issue any stock options and had no stock options outstanding at June 30, 2022.
Public Offerings
On November 9, 2021, we entered an Equity Financing
Agreement (the “Equity Financing Agreement”) and Registration Rights Agreement (the “GHS Registration Rights
Agreement”) with GHS, pursuant to which GHS agreed to purchase up to $30,000,000 in shares of our Common Stock, from time to
time over the course of 24 months (the “Contract Period”) after effectiveness of a registration statement on Form S-1
(the “Registration Statement”) of the underlying shares of Common Stock.
The GHS Registration Rights Agreement provides
that we shall (i) use our best efforts to file with the SEC a Registration Statement within 45 days of the date of the GHS Registration
Rights Agreement; and (ii) have the Registration Statement declared effective by the SEC within 30 days after the date the GHS Registration
Statement is filed with the SEC, but in no event more than 90 days after the GHS Registration Statement is filed.
Pursuant to the Equity Financing Agreement, on
January 12, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 23,372,430 shares of
Common Stock for total proceeds to us, net of discounts, of $1,150,000, at an effective price of $0.054124 per share (the “Second
EFA Closing”). We received approximately $1,033,975 in net proceeds from the Second EFA Closing after deducting the fees and
other estimated offering expenses payable by us. We used the net proceeds from the Second EFA Closing for working capital and for general
corporate purposes.
Pursuant to the Equity Financing Agreement, on
January 21, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 33,454,988 shares of
Common Stock for total proceeds to us, net of discounts, of $1,150,000, at an effective price of $0.037812 per share (the “Third
EFA Closing”). We received approximately $1,033,975 in net proceeds from the Third EFA Closing after deducting the fees and
other estimated offering expenses payable by us. We used the net proceeds from the Third EFA Closing for working capital and for general
corporate purposes.
Pursuant to the Equity Financing Agreement, on
February 7, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 16,040,411 shares of
Common Stock for total proceeds to us, net of discounts, of $500,000, at an effective price of $0.0342884 per share (the “Fourth
EFA Closing”). We received approximately $448,975 in net proceeds from the Fourth EFA Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Fourth EFA Closing for working capital and for general corporate
purposes.
On February 21, 2022, we sold 75,798,921 shares
of our Common Stock at $0.032982 per share for total consideration of $2,500,000.
On March 3, 2022, we sold 16,579,569 shares of
our Common Stock at $0.0301576 per share for total consideration of $500,000.
On March 14, 2022, we sold 5,617,347 shares of
our Common Stock at $0.071208 per share for total consideration of $400,000.
Pursuant to the Equity Financing Agreement, on
March 23, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 29,257,395 shares of Common
Stock for total proceeds to us, net of discounts, of $1,500,000, at an effective price of $0.056396 per share (the “Fifth EFA
Closing”). We received approximately $1,348,975 in net proceeds from the Fifth EFA Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Fifth EFA Closing for working capital and for general corporate
purposes.
Pursuant to the Equity Financing Agreement, on
April 11, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 23,746,816 shares of Common
Stock for total proceeds to us, net of discounts, of $1,000,000, at an effective price of $0.04211091 per share (the “Sixth EFA
Closing”). We received approximately $898,975 in net proceeds from the Sixth EFA Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Sixth EFA Closing for working capital and for general corporate
purposes.
Pursuant to the Equity Financing Agreement, on
May 3, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 29,522,276 shares of Common
Stock for total proceeds to us, net of discounts, of $1,000,000, at an effective price of $0.03387273 per share (the “Seventh
EFA Closing”). We received approximately $898,975 in net proceeds from the Seventh EFA Closing after deducting the fees and
other estimated offering expenses payable by us. We used the net proceeds from the Seventh EFA Closing for working capital and for general
corporate purposes.
Pursuant to the Equity Financing Agreement, on
May 13, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 26,100,979 shares of Common
Stock for total proceeds to us, net of discounts, of $556,750, at an effective price of $0.0213306 per share (the “Eighth EFA
Closing”). We received approximately $500,050 in net proceeds from the Eighth EFA Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Eighth EFA Closing for working capital and for general corporate
purposes.
Pursuant to the Equity Financing Agreement, on
May 23, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 25,025,540 shares of Common
Stock for total proceeds to us, net of discounts, of $556,750, at an effective price of $0.0222473 per share (the “Ninth EFA
Closing”). We received approximately $500,050 in net proceeds from the Ninth EFA Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Ninth EFA Closing for working capital and for general corporate
purposes.
Pursuant to the Equity Financing Agreement, on
June 1, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 25,901,921 shares of Common
Stock for total proceeds to us, net of discounts, of $556,750, at an effective price of $0.02149454 per share (the “Tenth EFA
Closing”). We received approximately $500,050 in net proceeds from the Tenth EFA Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Tenth EFA Closing for working capital and for general corporate
purposes.
Pursuant to the Equity Financing Agreement, on
June 16, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 23,799,766 shares of Common
Stock for total proceeds to us, net of discounts, of $402,086, at an effective price of $0.018584 per share (the “Eleventh EFA
Closing”). We received approximately $360,852 in net proceeds from the Eleventh EFA Closing after deducting the fees and other
estimated offering expenses payable by us. We used the net proceeds from the Eleventh EFA Closing for working capital and for general
corporate purposes.
On May 27, 2022, we entered an Equity Financing
Agreement (the “EFA”) and Registration Rights Agreement (the “RRA”) with GHS, pursuant to which
GHS agreed to purchase up to $70,000,000 in shares of our Common Stock, from time to time over the course of 24 months after effectiveness
of a registration statement on Form S-1 (the “Registration Statement”) of the underlying shares of Common Stock.
The RRA provides that we shall (i) use our best
efforts to file with the SEC a Registration Statement within 45 days of the date of the GHS Registration Rights Agreement; and (ii) have
the Registration Statement declared effective by the SEC within 30 days after the date the GHS Registration Statement is filed with the
SEC, but in no event more than 90 days after the GHS Registration Statement is filed.
Pursuant to the EFA, on June 24, 2022, we and
GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 38,391,106 shares of Common Stock for total proceeds
to us, net of discounts, of $643,539, at an effective price of $0.01978 per share (the “1st EFA Closing”).
We received approximately $578,160 in net proceeds from the 1st EFA Closing after deducting the fees and other estimated offering
expenses payable by us. We used the net proceeds from the 1st EFA Closing for working capital and for general corporate purposes.
NOTE 11 – 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.
On June 22, 2022, the Board of Directors of the
Company, with Dennis O’Leary abstaining, approved the Employment Agreement dated effective April 1, 2022 (the “Effective
Date”) with Mr. O’Leary, the Company’s Chief Executive Officer (the “Agreement”). The term of the Agreement
is three years from the Effective Date, subject to termination. The Agreement may be terminated upon the death or disability of Mr. O’Leary
or for “Cause,” as defined in the Agreement. Pursuant to the Agreement, Mr. O’Leary is entitled to an annual salary
of $300,000, which may accrue and be paid once the Company has available funds. Any accrued and unpaid base salary may also be converted
subject to mutual agreement of the Company and Mr. O’Leary. Also, pursuant to the Agreement, upon the filing of the Certificate
of Designation with the Delaware Secretary of State, Mr. O’Leary is to be issued 100 shares of Series A Super Voting Preferred Stock
of the Company.
During the six months ended June 30, 2022 and
2021, the Company’s Chief Executive Officer advanced personal funds in the amount of $0 and $329 for Company expenses. As of June
30, 2022, the Company’s Chief Executive Officer is owed a total of $0 for advanced personal funds.
During the six months ended June 30, 2022
and 2021, certain executives of the Company received $180,000
in Directors fees from Optilan for being members of Optilan’s Board of Directors.
NOTE 12 - COMMITMENTS & CONTINGENCIES
Potential Royalty Payments
The Company, in consideration of the terms of
the debenture to the University of New Brunswick, shall pay to the University a two percent royalty on sales of any and all products or
services which incorporate the Company's patents for a period of five years from April 24, 2018.
Legal Matters
Carebourn Capital, L.P. v. DarkPulse, Inc.
As disclosed in greater detail in the Company’s
Form 10-Q, filed May 16, 2022, the Company remains in active litigation with Carebourn Capital, L.P. (“Carebourn”). Thus,
the remainder of this communication will address all material updates since the aforementioned Form 10-Q.
On July 11, 2022, the Court denied Carebourn’s
motion to compel DPLS to produce a privilege log.
On July 15, 2022, the Court denied Carebourn’s
motion to disqualify or, in the alternative, seek limited discovery of DPLS’ legal counsel, consisting of the Taft Stettinius &
Hollister LLP and The Basile Law Firm P.C.
On July 27, 2022, Carebourn paid $18,858.18 for
attorneys’ fees awarded pursuant to the Court’s April 14, 2022 decision on the Company’s motion to compel Carebourn.
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 May 16, 2022, the Company remains in active litigation with More Capital, LLC (“More”). Thus, the remainder
of this communication will address all material updates since the aforementioned Form 10-Q.
On July 11, 2022, the Court denied More’s
motion for summary judgment against the Company and granted DarkPulse’s motion to compel More. The Court directed More to produce
all responsive documents to certain requests for production served by DarkPulse within seven days thereof.
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 May 16, 2022, 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”). Thus, the remainder
of this communication will address all material updates since the aforementioned Form 10-Q.
As of the date hereof, there are no material updates
to this litigation.
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)
As disclosed in greater detail in the Company’s
Form 10-Q, filed May 16, 2022, the Company remains in active litigation with FirstFire Global Opportunities Fund, LLC (“FirstFire”),
and Eli Fireman (“Fireman”) (FirstFire and Fireman together, the “FirstFire Parties”). Thus, the remainder of
this communication will address all material updates since the aforementioned Form 10-Q.
On May 26, 2022, the FirstFire Parties filed their
motion to dismiss the Company’s first amended complaint, filed on May 5, 2022, and opening memorandum of law in support thereof.
On June 16, 2022, the Company filed its memorandum
of law in opposition to the FirstFire Parties’ motion to dismiss, and on June 30, 2022, the FirstFire Parties filed their memorandum
of law in reply and further support of their motion to dismiss.
As of the date hereof, the FirstFire Parties’
motion to dismiss is fully submitted to the Court. On May 26, 2022, the FirstFire Parties requested oral arguments on their motion to
dismiss. As of the date hereof, oral arguments have not been scheduled and, further, no decision has been rendered on the FirstFire Parties’
motion to dismiss.
The Company remains committed to actively litigating
its claims for relief under the Securities Exchange Act of 1934.
DarkPulse, Inc. v. EMA Financial, LLC et al
As disclosed in greater detail in the Company’s
Form 10-Q, filed May 16, 2022, the Company remains in active litigation with EMA Financial, LLC (“EMA”), EMA Group, Inc. (“EMA
Group”), and Felicia Preston (“Preston”) (EMA, EMA Group, and Preston together, the “EMA Parties”). Thus,
the remainder of this communication will address all material updates since the aforementioned Form 10-Q.
On June 22, 2022, the EMA Parties filed their
motion to dismiss the Company’s first amended complaint, filed on March 28, 2022, and opening memorandum of law in support thereof.
On July 13, 2022, the Company filed its memorandum
of law in opposition to the EMA Parties’ motion to dismiss, and on July 22, 2022, the EMA Parties filed their memorandum of law
in reply and further support of their motion to dismiss.
As of the date hereof, no decision has been on
the EMA Parties’ motion to dismiss.
The Company remains committed to actively litigating
its claims for relief under the Securities Exchange Act of 1934 and the Racketeer Influenced and Corrupt Organizations Act.
Carebourn Capital et al v. Standard Registrar
and Transfer et al
On May 20, 2022, Carebourn Capital, L.P. (“Carebourn”)
and More Capital, LLC (“More”) (Carebourn and More, together, the “MN Noteholders”) commenced an action in the
United States District Court for the District of Utah against (i) Standard Registrar and Transfer Co., Inc. (“Standard”),
(ii) Amy Merrill (“Merrill”) (Standard and Merrill, together, the “TA Defendants”), (iii) DarkPulse, Inc., (iv)
Dennis O’Leary (“O’Leary”), (v) Thomas Seifert (“Seifert”), (vi) Carl Eckel (“Eckel”),
(vii) Anthony Brown (“Brown”), and (viii) Faisal Farooqui (“Farooqui”) (DarkPulse, O’Leary, Seifert, Eckel,
Brown, and Farooqui, collectively, the “DPLS Defendants”).
The MN Noteholders’ complaint alleges, among
other things, that the TA Defendants and DPLS Defendants conspired together and acted in unison to preclude the MN Noteholders’
from receiving the benefits of the convertible note transactions between Carebourn, More, and DarkPulse.
On July 5, 2022, the TA Defendants filed their
motion to dismiss the MN Noteholders’ complaint. Pursuant to the local rules of the U.S. Dist. Court for the District of Utah, the
MN Noteholders must reply to the TA Defendants’ motion to dismiss on or before August 2, 2022.
As of the date hereof, the DPLS Defendants have
not been served and, thus, no deadline exists by which the DPLS Defendants must answer or otherwise respond to the MN Noteholders’
complaint.
The Company intends to vigorously defend itself
against the MN Noteholders’ lawsuit.
DarkPulse, Inc. v. Brunson Chandler Jones et
al
On July 8, 2022, the Company commenced an action
against the law firm of Brunson Chandler & Jones, PLLC and Lance B. Brunson (“Chandler Defendants”) in the United States
District Court for the District of Utah.
The Company’s claims, consisting of professional
negligence/malpractice and breach of contract, arise from the legal services and relationship between DarkPulse and the Chandler Defendants
and in connection with the merger between DarkPulse, DarkPulse Technologies Inc., and Klever Marketing, Inc.
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.
Bayliss Settlement Agreement
The CEO, William Bayliss, of the Company’s
subsidiary, Optilan, was terminated effective April 30, 2022. Optilan entered into a settlement agreement with Mr. Bayliss in which he
received £125,000 in lieu of the six months’ salary provided for in Mr. Bayliss’s employment agreement.
O’Leary Employment Agreement
On June 22, 2022, the Board of Directors of the
“Company, with Dennis O’Leary abstaining, approved the Employment Agreement dated effective April 1, 2022 (the “Effective
Date”) with Mr. O’Leary, the Company’s Chief Executive Officer (the “Agreement”). The term of the Agreement
is three years from the Effective Date, subject to termination. The Agreement may be terminated upon the death or disability of Mr. O’Leary
or for “Cause,” as defined in the Agreement. Pursuant to the Agreement, Mr. O’Leary is entitled to an annual salary
of $300,000, which may accrue and be paid once the Company has available funds. Any accrued and unpaid base salary may also be converted
subject to mutual agreement of the Company and Mr. O’Leary. Also, pursuant to the Agreement, upon the filing of the Certificate
of Designation with the Delaware Secretary of State, Mr. O’Leary is to be issued 100 shares of Series A Super Voting Preferred Stock
of the Company.
NOTE 13 – SUBSEQUENT EVENTS
Pursuant to the EFA, on July 1, 2022, the Company
and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from the Company, 33,525,465 shares of Common Stock
for total proceeds to the Company, net of discounts, of $556,750, at an effective price of $0.019596 per share (the “2nd
EFA Closing”). The Company received approximately $500,050 in net proceeds from the 2nd EFA Closing after deducting
the fees and other estimated offering expenses payable by the Company. The Company used the net proceeds from the 2nd EFA Closing
for working capital and for general corporate purposes.
On July 5, 2022, the Company entered into a Joint
Cooperation Contract with Salman International Company, headquartered at 98 Banks Division Al-Waha District, Nasr City, Egypt (the “Salman”).
The purpose of the agreement is for the parties to cooperate jointly, where the Company sells its products through Salman, which is an
authorized distributor of Siemens products.
Pursuant to the agreement, Salman agrees to appoint
the Company as the sole integration provider for MoonLand Resort, located in Hurghada, Egypt, at reasonable market prices. The Company
and Salman agree to jointly market the Company’s and Seimens’ products. Subject to the early termination provisions in the
agreement, the term of the agreement is for five years; provided that the agreement is implemented within three months from the date of
execution.
Pursuant to the EFA, on July 11, 2022, the Company
and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from the Company, 32,756,532 shares of Common Stock
for total proceeds to the Company, net of discounts, of $556,750, at an effective price of $0.01699661 per share (the “3rd
EFA Closing”). The Company received approximately $550,050 in net proceeds from the 3rd EFA Closing after deducting
the fees and other estimated offering expenses payable by the Company. The Company used the net proceeds from the 3rd EFA Closing
for working capital and for general corporate purposes.
On July 13, 2022, the Company issued a press release
which announced it has signed an LOI for the acquisition of Om Optel Industries Pvt. Ltd.,
a fiber optic cable and HDPE pipe manufacturer based in India.
Pursuant to the EFA, on July 20, 2022, the Company
and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from the Company, 29,386,519 shares of Common Stock
for total proceeds to the Company, net of discounts, of $556,750, at an effective price of $0.01894558 per share (the “4th
EFA Closing”). The Company received approximately $550,050 in net proceeds from the 4th EFA Closing after deducting
the fees and other estimated offering expenses payable by the Company. The Company used the net proceeds from the 4th EFA Closing
for working capital and for general corporate purposes.
Pursuant to the EFA, on July 28, 2022, the Company
and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from the Company, 35,884,040 shares of Common Stock
for total proceeds to the Company, net of discounts, of $556,750, at an effective price of $0.018308 per share (the “5th
EFA Closing”). The Company received approximately $500,050 in net proceeds from the 5th EFA Closing after
deducting the fees and other estimated offering expenses payable by the Company. the Company used the net proceeds from the 5th
EFA Closing for working capital and for general corporate purposes.