Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x |
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the fiscal year ended December 31, 2019
|
o |
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-18730
DarkPulse, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
|
87-0472109 |
(State of other jurisdiction of incorporation or
organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
225 West 34th Street
9th Floor
New York, NY
|
|
10022 |
(Address of Principal Executive
Offices) |
|
(Zip Code) |
(800) 436-1436
(Registrant’s Telephone Number, including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes
o No x
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o No
x
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted
electronically, every Interactive Data File pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files).
Yes x
No o
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein and will not
be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company”, and “emerging growth company” in Rule
12b-2 of the Exchange Act. (Check one)
Large
accelerated filer |
o |
Accelerated
filer |
o |
Non-accelerated filer |
o
(Do not check if a smaller reporting
company) |
Smaller reporting
company |
þ |
Emerging growth
company |
o |
|
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company,
as defined in Rule 12b-2 of the Exchange Act. Yes
o No x
The aggregate market value of the voting and non-voting stock held
by non-affiliates of the registrant as of the last business day of
the registrants most recently completed second fiscal quarter,
based on the price at which the common equity was last sold on the
OTCQB on June 28, 2019 was approximately $119,587. For purposes of
this computation only, all officers, directors and 10% or greater
stockholders of the registrant are deemed to be affiliates.
The number of shares of the registrant’s common stock, $0.01 par
value per share, outstanding as of May 29, 2020, was
1,533,470,684.
Transitional Small Business Disclosure Format (Check one):
Yes o
No x
Check whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
TABLE OF CONTENTS
Explanatory Note
DarkPulse, Inc. (“DPI”, “DarkPulse” or the “Company”) disclosed in
its Form 8-K filed on March 30, 2020 that it would be relying on
the March 4, 2020 Securities and Exchange Commission Order under
Section 36 of the Securities Exchange Act of 1934 Granting
Exemptions from Specified Provisions of the Exchange Act and
Certain Rules Thereunder, the Partnership (as superseded by the
order dated March 25, 2020) delayed the filing of this Annual
Report on Form 10-K, originally due Monday, March 30, 2020.
The primary reasons for the delay were due to the circumstances
related to COVID-19. COVID-19-related shelter-in-place orders and
office closures severely affected transportation and limited access
to the facilities of the Company and staff. This resulted in
disruptions to the Company’s staff which delayed our ability to
complete our audit and the Company’s ability to prepare the Report.
The Company was unable, without unreasonable effort or expense, to
file its Annual Report on Form 10-K for the year ended December 31,
2019 (the “Annual Report”) by the May 29, 2020 extended deadline
(which is 60 days from the Report’s original filing deadline of
March 30, 2020).
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K for DarkPulse, Inc. and the
exhibits attached hereto contain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward looking statements concern the Company’s
anticipated results and developments in the Company’s operations in
future periods, planned development of the Company’s technology,
plans related to its business and other matters that may occur in
the future. These statements relate to analyses and other
information that are based on forecasts of future results,
estimates of amounts not yet determinable and assumptions of
management. Such forward-looking statements include, among others,
those statements including the words “expects”, “anticipates”,
“intends”, “believes” and similar language. Our actual results may
differ significantly from those projected in the forward-looking
statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in the
section “Risk Factors.” We undertake no obligation to publicly
release any revisions to the forward-looking statements or reflect
events or circumstances after the date of this report.
Although we believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions,
there are a number of risks and uncertainties that could cause
actual results to differ materially from such forward-looking
statements. These factors include among others:
|
· |
Our ability to raise sufficient capital to fund
the development of our technology and continue to fund operating
expenses; |
|
· |
Our ability to get our technology to work in
accordance with our technical specifications; |
|
· |
Our ability to attract customers to our products
once they are developed; |
|
· |
Our ability to generate sales of our products
once they are developed; |
|
· |
Our ability to attract and retain the necessary
personnel with the expertise needed to ensure that we can operate
the Company effectively; |
|
· |
Actions or inactions of third-party contractors
and vendors; |
|
· |
Our ability to successfully patent and protect
our intellectual property; |
|
· |
The potential that our competitors will get their
products to market ahead of us; |
|
· |
General economic conditions. |
This list is not exhaustive of the factors that may affect our
forward-looking statements. Some of the important risks and
uncertainties that could affect forward-looking statements are
described further under the sections titled “Description of the
Business”, “Risk Factors and Uncertainties”, and “Management’s
Discussion and Analysis”. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those
anticipated, believed, estimated or expected. We caution readers
not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. We disclaim any obligation
subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.
We qualify all the forward-looking statements contained in this
annual report on Form 10-K by the foregoing cautionary
statements.
PART I
ITEM 1. BUSINESS
As used in this Annual Report, the terms “we,” “us,” “our,” and the
“Company” refer to DarkPulse Inc, Inc., a Delaware corporation.
Corporate Overview
Organization
DarkPulse, Inc. ("DPI", “DarkPulse” or the "Company") is a
technology-security company incorporated in 1989 as Klever
Marketing, Inc ("Klever"). Its principal wholly-owned subsidiary,
DarkPulse Technologies Inc. ("DPTI"), originally started as a
technology spinout from the University of New Brunswick,
Fredericton, Canada. DPI is comprised of two security platforms:
Fiber and Ultra-High Sensitivity Sensors ("UHSS").
On April 27, 2018, Klever entered into an Agreement and Plan of
Merger (the “Merger Agreement” or the “Merger”) involving Klever as
the surviving parent corporation and acquiring DPTI as its
wholly-owned subsidiary. On July 18, 2018, the parties closed the
Merger Agreement, as amended on July 7, 2018, and the name of the
Company was subsequently changed to DarkPulse, Inc. With the change
of control of the Company, the Merger was accounted for as a
recapitalization in a manner similar to a reverse acquisition.
On July 20, 2018, 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.
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.
In December 2010 DPTI entered into an Assignment Agreement with the
University of New Brunswick, Canada (“the University”), pursuant to
which the University sold, transferred, and assigned to the Company
certain patents related to the University’s BOTDA dark-pulse
technology (the "Patents") in exchange for the issuance of a
debenture to the University in the amount of C$1,500,000 (Canadian
dollars). In April 2017, DPTI entered into an Intellectual Property
agreement with the University in exchange for the issuance of a
replacement debenture to the University in the amount of
US$1,491,923 (the “Debenture”). The Patents and the Debenture were
initially recorded in the Company’s accounts at $1,491,923, based
upon the exchange rate between the US dollar and the Canadian
dollar on December 16, 2010, the date of the original debenture. In
addition to the repayment of principal and interest, the Debenture
requires DPTI to pay the University a two percent royalty on sales
of any and all products or services which incorporate the Patents
for a period of five years commencing on April 24, 2018, as well as
to reimburse the University for its patent-related costs.
Our Business
The Company offers a full suite of engineering, installation and
security management solutions to industries and governments.
Coupled with our patented BOTDA dark-pulse technology (the
“DarkPulse Technology”), DarkPulse provides its customers a
comprehensive data stream of critical metrics for assessing the
health and security of their infrastructure. Our comprehensive
system provides for rapid, precise analysis and responsive
activities predetermined by the end-user customer.
Historically, distributed sensor systems have been too costly, slow
and limited in their capabilities to attain widespread use. In
addition, Brillouin-based sensors have been plagued with
temperature and strain cross-sensitivity, i.e. the inability to
distinguish between temperature and strain change along the same
fiber. The loss of spatial resolution with an increase in fiber
length has also limited the use of distributed sensor systems. Due
to these shortcomings, existing technologies are unable to succeed
within today’s dynamic environments, and needs for more advanced
sensor technologies have remained unsatisfied.
By contrast to existing technologies, the DarkPulse Technology is a
distributed-fiber sensing system, based on dark-pulse
Brillouin scattering, which reports in real-time on
conditions such as temperature, stress, strain and load, initially
for pipeline and mining installations.
DarkPulse Technology’s differentiators from and advantages over
existing technologies:
|
· |
Real-time Reporting: Higher data acquisition
speeds allowing for structural monitoring of dynamic
systems |
|
· |
Cost
to Customer: Significantly lower acquisition and operating
costs |
|
· |
Precision: A greater magnitude of precision and
spatial resolution than other systems currently
available |
|
· |
Applications: Wider range of capabilities than
other systems currently available |
|
· |
Power
consumption: Lower power consumption than existing systems allowing
for off-grid installations |
|
· |
Integration: Capable of integrating with existing
systems |
|
· |
Central station monitoring |
We believe that these key advantages should allow the Company not
only to enter existing markets, but more importantly, to open new
market opportunities with new applications. The Company intends to
leverage new applications to target clients that have been unable
to make use of distributed fiber optic technology to date.
Revenue Generation
We intend to generate revenue from the following sources:
|
· |
Hardware equipment sales, warranties, service
contracts and licensing to large enterprises and
governments. |
|
· |
Recurring subscription fees paid by
enterprise/government users for access to our 24/7 monitoring
services of their critical infrastructure; |
|
· |
Recurring subscription fees paid by
enterprise/government users for access to our applications by
enterprises/governments; |
|
· |
Recurring subscription fees paid by enterprise
users for access to data stored in the cloud that may be integrated
into large, third-party providers such as Oracle, Google Cloud; and
Microsoft; among others; |
|
· |
Recurring subscription fees paid by
enterprise/government users who subscribe to bundled service
offerings. |
Our Market
Current uses of fiber optic distributed sensor technology have been
limited to quasi-static, long-term structural health monitoring due
to the time required to obtain the data and its poor precision. Our
DarkPulse Technology allows for the monitoring of highly dynamic
environments due to its magnitude of increased resolution and
greater accuracy. The resulting high speed, real-time monitoring
capabilities of our DarkPulse Technology should satisfy a broad
range of existing and emerging requirements. Use of the DarkPulse
Technology by our customers should result in lower production costs
with increased sensing capabilities that can integrate with
existing technology and be upgraded cost effectively.
Due to the characteristics of the fiber used in fiber optic
sensing, the uses of our DarkPulse Technology are wide ranging.
Optical fiber is hard-wearing, which allows it to be used in
environments where other technologies fail (for example, at
temperatures ranging from -40°C to 300°C and 1000psi). Additionally
DarkPulse Technology’s sensors allow for live sensing due to the
speed at which the analysis takes place.
The Company’s management team is continually identifying markets in
which our DarkPulse Technology may be readily applied. Once these
markets (as described below) have been addressed, our DarkPulse
Technology may be adapted and applied to new markets.
Structural Monitoring
|
· |
Buildings and Skyscrapers |
|
· |
Bridges, Tunnels and Dams |
|
· |
Roads
and Railway tracks |
Temperature Sensing
|
· |
Fire
Alarm and Environment control |
|
· |
Low
cost and maintenance |
|
· |
Long
life span |
|
· |
Ability to withstand harsh working
environment |
Security & Defense
|
· |
National Border Protection |
|
· |
Protection of Military and other sensitive
installations |
Consulting Services:
|
· |
Consulting (as stand-alone or
presales) |
|
· |
Post
sales deployment and Support |
|
· |
Managed services (monitoring, etc.) |
Additional Potential Markets:
|
· |
Monitoring of composite structures in
aircraft |
|
· |
Dynamic stress monitoring of runways |
|
· |
Dynamic ship hull stress monitoring, especially
with a view to double-hull oil tankers |
|
· |
Smart
grid and power conservation applications based on cooling and/or
heat proximity – for instance, computer rooms, cell towers for heat
soak |
|
· |
Monitor low temperatures as part of control
systems |
|
· |
Monitoring of temperatures in extreme
refrigeration environments |
|
· |
Avalanche early warning systems |
|
· |
Sea
defense monitoring |
Marketing
We utilize our DarkPulse Technology as the foundation of our
ongoing marketing initiatives. Most notably, the greater magnitude
of increased capabilities DarkPulse Technology versus existing
bright-pulsing technologies. Existing bright-pulse Brillouin-based
sensors have historically been plagued with temperature and strain
cross-sensitivity, i.e. the inability to distinguish between
temperature and strain change along the same fiber. The loss of
spatial resolution with an increase in fiber length is also a
limiting factor for the use of distributed sensor systems. Because
of these shortcomings, existing bright-pulse Brillouin-based
technologies are unable to succeed within today’s dynamic
environments, which coincides with our DarkPulse Technology’s
increased capabilities over bright-pulse systems. Our marketing
initiatives include daily, broad-based social media engagement;
management of our website; email campaigns, and other ongoing
initiatives designed to increase awareness of our products and
services and drive conversion and adoption rates.
Competition
The overall optical sensing market is projected to reach USD $3.47
billion by 2023 from USD $1.13 billion in 2016, at a CAGR of 15.47%
between 2017 and 2023 [1]. The Company is active in the
optical sensing market, including Oil & Gas pipeline health
monitoring, National Border Security applications, and the mining
industry. We believe that fiber sensing applications which
incorporate our DarkPulse Technology may provide significant
competitive advantages over structural health monitoring
applications offered by the long-term leaders in the field, such as
Schlumberger, Hewlett-Packard, and Yokogawa, which collectively
account for a significant portion of industry sales. These
companies, as well as others, have numerous differences in feature
sets and functionality, but all share certain basic attributes: a
bright-pulse technology as the core of their systems architecture.
An architecture designed using bright-pulsing technology has
limited sensing capabilities and resolutions of one meter allowing
for mostly long-term quasi-static deployments.
[1] Optical Sensing Market
by Industry (Aerospace & Defense, Utilities, Oil & Gas,
Medical, Construction, and Consumer Electronics), Application,
Method, and Geography - Global Forecast to 2023
(https://www.marketsandmarkets.com/Market-Reports/optical-sensing-market-197592599.html?gclid=EAIaIQobChMIzrfanf7P4QIVA0GGCh3jlw7rEAAYASAAEgI9bvD_BwE)
However, the Company utilizes its DarkPulse Technology allowing for
multiple applications into those markets unavailable to companies
using bright-pulse technology. While many of the companies using
bright-pulse technology have attempted to incorporate various
sensing techniques into a legacy technology, none have been able to
offer the order of magnitude resolutions offered by our DarkPulse
Technology. This magnitude in resolution coupled with the DarkPulse
Technology’s increased data collection speeds allows our DarkPulse
Technology to be installed into areas of the market that our
competitors cannot. The Company’s future financial condition and
operating results depend on its ability to provide a high-quality
solution as well as increased distribution of the solutions in each
of the markets in which it competes or intends to compete
within.
The markets for the Company’s
products and services are highly competitive and the Company is
confronted by aggressive competition. These markets are
characterized by frequent product introductions and rapid
technological advances. The Company’s financial condition and
operating results can be adversely affected by these and other
industry-wide downward pressures on gross margins. Principal
competitive factors important to the Company include price, product
features, relative price and performance, product quality and
reliability, marketing and distribution capability, service and
support and corporate reputation.
Intellectual Property
Our policy is to protect our technology by, among other things,
patents, trade secret protection and copyrights. We have taken
security measures to protect our trade secrets and proprietary
know-how, to the greatest extent possible. Our means of protecting
our proprietary rights may not prove to be adequate and our
competitors may independently develop technology or products that
are similar to ours or that compete with ours. Trade secret, patent
and copyright laws afford only certain protections for our
technology and products. The laws of many countries do not protect
our proprietary rights to as great an extent as do the laws of the
United States. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to obtain and use
information that we regard as proprietary. Third parties may also
design around our proprietary rights, which may render our
protected technology and products less valuable, if the design
around is favorably received in the marketplace.
In addition, any of our products or technology covered by patents
or other intellectual property rights, could cause us to be subject
to various legal actions. Litigation may be necessary to enforce
our intellectual property rights, to protect our trade secrets, to
determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement, invalidity,
misappropriation, or other claims.
Research and Development
We incurred $0 and $91,301 of research and development expenses
during the fiscal years ended December 31, 2019 and 2018
respectively. These funds were primarily used for development of
our Erebos BOTDA hardware.
Suppliers
We currently rely on a full-time, dedicated, external team of
experienced professionals for the coding and maintenance of our
products. We believe we have mitigated the associated risks of
managing an external team of software and engineering development
professionals by incorporating internal management and oversight,
as well as appropriate systems, protocols, controls, and procedures
and ensuring that we have access to additional qualified
professionals to provide like or complementary services.
Government Regulation
Government regulation is not of significant concern for our
business nor is government regulation expected to become an
impediment to the business in the near- or mid-term as management
is currently unaware of any planned or anticipated government
regulation that would have a material impact on our business. Our
management believes it currently possesses all requisite authority
to conduct our business as described in this Annual Report.
ITEM 1A. RISK
FACTORS
Readers should carefully consider the risks and uncertainties
described below.
Our failure to successfully address the risks and uncertainties
described below would have a material adverse effect on our
business, financial condition and/or results of operations, and the
trading price of our common stock may decline and investors may
lose all or part of their investment. We cannot assure you that we
will successfully address these risks or other unknown risks that
may affect our business.
As an enterprise engaged in the development of new technology, our
business is inherently risky. Our common shares are
considered speculative during the development of our new business
operations. Prospective investors should consider carefully the
risk factors set out below.
Business interruptions, including any interruptions resulting
from COVID-19, could significantly disrupt our operations and could
have a material adverse impact on us if the situation
continues.
Business interruptions, including any interruptions resulting from
COVID-19, could significantly disrupt our operations and could have
a material adverse impact on the Company if the situation
continues.
Further, all employees, including our specialized technical staff,
are working from home or in a virtual environment. The Company
always maintains the ability for team members to work virtual and
we will continue to stay virtual, until the State and or the
Federal government indicate the environment is safe to return to
work.
The ongoing coronavirus outbreak which began in China at the
beginning of 2020 has impacted various businesses throughout the
world, including travel restrictions and the extended shutdown of
certain businesses in impacted geographic regions. If the
coronavirus outbreak situation should worsen, we may experience
disruptions to our business including, but not limited to
equipment, to our workforce, or to our business relationships with
other third parties.
The extent to which the coronavirus impacts our operations or those
of our third-party partners will depend on future developments,
which are highly uncertain and cannot be predicted with confidence,
including the duration of the outbreak, new information that may
emerge concerning the severity of the coronavirus and the actions
to contain the coronavirus or treat its impact, among others. Any
such disruptions or losses we incur could have a material adverse
effect on our financial results and our ability to conduct business
as expected.
We need to continue as a going concern if our business is to
succeed.
Our independent registered public accounting firm reports on our
audited financial statements for the years ended December 31, 2019
and 2018, indicate that there are a number of factors that raise
substantial risks about our ability to continue as a going concern.
Such factors identified in the report are our accumulated deficit
since inception, no sales recorded to date, our failure to attain
profitable operations, the excess of liabilities over assets, and
our dependence upon obtaining adequate additional financing to pay
our liabilities. If we are not able to continue as a going concern,
investors could lose their investments.
Because of the unique difficulties and uncertainties inherent
in technology development, we face a risk of business
failure.
Potential investors should be aware of the difficulties normally
encountered by companies developing new technology and the high
rate of failure of such enterprises. The likelihood of success must
be considered in light of the problems, expenses, difficulties,
complications and delays encountered in connection with the
development of new technology with limited personnel and financial
means. These potential problems include, but are not limited to,
unanticipated technical problems that extend the time and cost of
product development, or unanticipated problems with the operation
of our technology or that with which we are licensing that also
extend the time and cost of product development.
If we do not obtain additional financing or sufficient
revenues, our business will fail.
Our current operating funds are less than necessary to complete the
full development and marketing of our DarkPulse Technology-based
systems, and we will need to obtain additional financing in order
to complete our business plan. We currently have minimal
operations and we are not currently generating revenue or net
income.
Our business plan calls for significant expenses in connection with
developing our DarkPulse Technology-based systems and paying our
current obligations. The Company currently does not have sufficient
funds to pay its obligations. As a result, the Company will require
additional financing to execute its business plan through raising
additional capital and/or beginning to generate revenue.
We do not currently have any firm arrangements for financing, and
we can provide no assurance to investors that we will be able to
find such additional financing if required. Obtaining additional
financing is subject to a number of factors, including investor
acceptance of our DarkPulse Technology and current financial
condition as well as general market conditions. These factors
affect the timing, amount, terms or conditions of additional
financing unavailable to us. And if additional financing is not
arranged, the company faces the risk of going out of business. The
Company’s management is currently engaged in actively pursuing
multiple financing options in order to obtain the capital necessary
to execute the Company’s business plan.
The most likely source of future funds presently available to us is
through the additional sale of private equity capital or
through a convertible debt instrument. Any sale of share capital or
conversion of convertible debt will most likely result in dilution
to existing shareholders.
There is no history upon which to base any assumption as to the
likelihood we will prove successful, and we can provide investors
with no assurance that we will generate any operating revenues or
achieve profitable operations. If we are unsuccessful in addressing
these risks, our business will most likely fail.
Because the SEC imposes additional sales practice
requirements on brokers who deal in our shares that are penny
stocks, some brokers may be unwilling to trade them. This means
that investors may have difficulty reselling their shares and may
cause the price of the shares to decline.
Our shares qualify as penny stocks and are covered by Section 15(g)
of the Securities Exchange Act of 1934, which imposes additional
sales practice requirements on broker/dealers who sell our
securities in this offering or in the aftermarket. In particular,
prior to selling a penny stock, broker/dealers must give the
prospective customer a risk disclosure document that: contains a
description of the nature and level of risk in the market for penny
stocks in both public offerings and secondary trading; contains a
description of the broker/dealers’ duties to the customer and of
the rights and remedies available to the customer with respect to
violations of such duties or other requirements of Federal
securities laws; contains a brief, clear, narrative description of
a dealer market, including “bid” and “ask” prices for penny stocks
and the significance of the spread between the bid and ask prices;
contains the toll free telephone number for inquiries on
disciplinary actions established pursuant to section 15(A)(i);
defines significant terms used in the disclosure document or in the
conduct of trading in penny stocks; and contains such other
information, and is in such form (including language, type size,
and format), as the SEC requires by rule or regulation. Further,
for sales of our securities, the broker/dealer must make a special
suitability determination and receive from you a written agreement
before making a sale to you. Because of the imposition of the
foregoing additional sales practices, it is possible that brokers
will not want to make a market in our shares. This could prevent
reselling of shares and may cause the price of the shares to
decline.
Technology companies face intense competition. We will have
to compete with our competitors for financing and for qualified
managerial and technical employees.
The technology industry is intensely competitive in all of its
phases. Competition includes large established technology companies
with substantial capabilities and with greater financial and
technical resources than we have. As a result of this competition,
we may be unable to become a leader in our industry and attract and
retain qualified managerial and technical employees. If we are
unable to successfully compete for financing or for qualified
employees, our technology development and commercialization efforts
may be slowed down or suspended.
Product development is a long, expensive and uncertain
process.
The development of DarkPulse Technology-based systems is a costly,
complex and time-consuming process, and the investment in product
development often involves a long wait until a return, if any, is
achieved on such investment. We continue to make significant
investments in research and development relating to our DarkPulse
Technology-based systems and our other businesses. Investments in
new technology and processes are inherently speculative. We have
experienced numerous setbacks and delays in our research and
development efforts and may encounter further obstacles in the
course of the development of additional technologies and products.
We may not be able to overcome these obstacles or may have to
expend significant additional funds and time. Technical obstacles
and challenges we encounter in our research and development process
may result in delays in or abandonment of product
commercialization, may substantially increase the costs of
development, and may negatively affect our results of
operations.
Successful technical development of our products does not
guarantee successful commercialization.
We may successfully complete the technical development for one or
all of our product development programs, but still fail to develop
a commercially successful product for a number of reasons,
including among others the following:
|
· |
failure to obtain the required regulatory
approvals for their use; |
|
· |
prohibitive production costs; |
|
· |
lack
of innovation of the product; |
|
· |
ineffective distribution and
marketing; |
|
· |
lack
of sufficient cooperation from our partners; and |
|
· |
demonstrations of the products not aligning with
or meeting customer needs. |
Our success in the market for the products we develop will depend
largely on our ability to prove our products’ capabilities. Upon
demonstration, our products and/or technology may not have the
capabilities they were designed to have or that we believed they
would have. Furthermore, even if we do successfully demonstrate our
products’ capabilities, potential customers may be more comfortable
doing business with a larger, more established, more proven company
than us. Moreover, competing products may prevent us from gaining
wide market acceptance of our products. Significant revenue from
new product investments may not be achieved for a number of years,
if at all.
If we fail to protect our intellectual property rights, we
could lose our ability to compete in the marketplace.
Our intellectual property and proprietary rights are important to
our ability to remain competitive and for the success of our
products and our business. We rely on a combination of patent,
trademark and trade secret laws as well as confidentiality
agreements and procedures, non-compete agreements and other
contractual provisions to protect our intellectual property, other
proprietary rights and our brand. We have confidentiality
agreements in place with our consultants, customers and certain
business suppliers and plan to require future employees to enter
into confidentiality and non-compete agreements. We have little
protection when we must rely on trade secrets and nondisclosure
agreements. Our intellectual property rights may be challenged,
invalidated or circumvented by third parties. We may not be able to
prevent the unauthorized disclosure or use of our technical
knowledge or other trade secrets by employees or competitors.
Furthermore, our competitors may independently develop technologies
and products that are substantially equivalent or superior to our
technologies and/or products, which could result in decreased
revenues. Moreover, the laws of foreign countries may not protect
our intellectual property rights to the same extent as the laws of
the U.S. Litigation may be necessary to enforce our intellectual
property rights which could result in substantial costs to us and
substantial diversion of management attention. If we do not
adequately protect our intellectual property, our competitors could
use it to enhance their products. Our inability to adequately
protect our intellectual property rights could adversely affect our
business and financial condition, and the value of our brand and
other intangible assets.
Other companies may claim that we infringe their intellectual
property, which could materially increase our costs and harm our
ability to generate future revenue and profit.
We do not believe that we infringe the proprietary rights of any
third party, but claims of infringement are becoming increasingly
common and third parties may assert infringement claims against us.
It may be difficult or impossible to identify, prior to receipt of
notice from a third party, the trade secrets, patent position or
other intellectual property rights of a third party, either in the
United States or in foreign jurisdictions. Any such assertion may
result in litigation or may require us to obtain a license for the
intellectual property rights of third parties. If we are required
to obtain licenses to use any third party technology, we would have
to pay royalties, which may significantly reduce any profit on our
products. In addition, any such litigation could be expensive and
disruptive to our ability to generate revenue or enter into new
market opportunities. If any of our products were found to infringe
other parties’ proprietary rights and we are unable to come to
terms regarding a license with such parties, we may be forced to
modify our products to make them non-infringing or to cease
production of such products altogether.
The nature of our business involves significant risks and
uncertainties that may not be covered by insurance or
indemnity.
We develop and sell products where insurance or indemnification may
not be available, including:
|
· |
designing and developing products using advanced
and unproven technologies in intelligence and homeland security
applications that are intended to operate in high demand, high risk
situations; and |
|
· |
designing and developing products to collect,
distribute and analyze various types of information. |
Failure of certain of our products could result in loss of life or
property damage. Certain products may raise questions with respect
to issues of privacy rights, civil liberties, intellectual
property, trespass, conversion and similar concepts, which may
raise new legal issues. Indemnification to cover potential claims
or liabilities resulting from a failure of technologies developed
or deployed may be available in certain circumstances but not in
others. We are not able to maintain insurance to protect against
all operational risks and uncertainties. Substantial claims
resulting from an accident, failure of our product, or liability
arising from our products in excess of any indemnity or insurance
coverage (or for which indemnity or insurance is not available or
was not obtained) could harm our financial condition, cash flows,
and operating results. Any accident, even if fully covered or
insured, could negatively affect our reputation among our customers
and the public, and make it more difficult for us to compete
effectively.
We are heavily reliant on Dennis O’Leary, our Chairman and
Chief Executive Officer, and the departure or loss of Dennis
O’Leary could disrupt our business.
The Company depends heavily on the continued efforts of Dennis
O’Leary, Chairman, Chief Executive Officer and a director. Mr.
O’Leary is essential to the Company’s strategic vision and
day-to-day operations and would be difficult to replace. We
currently do not have an employment agreement with Mr. O’Leary,
thus we cannot be certain that he will desire to continue with us
for the necessary time it will to complete the product development
and initial sales channel development. The departure or loss of Mr.
O’Leary, or the inability to hire and retain a qualified
replacement, could negatively impact the Company’s ability to
manage its business.
If we are unable to recruit and retain key management,
technical and sales personnel, our business would be negatively
affected.
For our business to be successful, we need to attract and retain
highly qualified technical, management and sales personnel. The
failure to recruit additional key personnel when needed with
specific qualifications and on acceptable terms or to retain good
relationships with our partners might impede our ability to
continue to develop, commercialize and sell our products. To the
extent the demand for skilled personnel exceeds supply, we could
experience higher labor, recruiting and training costs in order to
attract and retain such employees. We face competition for
qualified personnel from other companies with significantly more
resources available to them and thus may not be able to attract the
level of personnel needed for our business to succeed.
The control deficiencies in our internal control over
financial reporting may until remedied cause errors in our
financial statements or cause our filings with the SEC to not be
timely.
The Company believes that control deficiencies exist in our
internal control over financial reporting as of December 31, 2019,
including those related to (i) our internal audit functions and
(ii) a lack of segregation of duties within accounting
functions. If our internal control over financial reporting
or disclosure controls and procedures are not effective, there may
be errors in our financial statements that could require a
restatement or our filings may not be timely made with the SEC. We
intend to implement additional corporate governance and control
measures to strengthen our control environment as we are able, but
we may not achieve our desired objectives. Moreover, no control
environment, no matter how well designed and operated, can prevent
or detect all errors or fraud. We may identify material weaknesses
and control deficiencies in our internal control over financial
reporting in the future that may require remediation and could lead
investors losing confidence in our reported financial information,
which could lead to a decline in our stock price.
Risks Related to Our Organization and Our Common Stock
Certain shareholders will be able to exert significant
influence over us to the detriment of minority
stockholders.
Our largest shareholder beneficially owns approximately 81.29% of
our outstanding common stock as of May 29, 2020, as calculated
according to voting power. These stockholders, if they act
together, will be able to exert significant influence on our
management and affairs and all matters requiring stockholder
approval, including significant corporate transactions. This
concentration of ownership may have the effect of delaying or
preventing our change in control and might affect the market price
of our common stock.
You may experience dilution of your ownership interests
because of the future issuance of additional shares of our common
or preferred stock or other securities that are convertible into or
exercisable for our common or preferred stock.
On July 1, 2019, the majority stockholders holding a majority of
the issued and outstanding voting shares of the Company approved an
amendment to the Company’s Certificate of Incorporation, to
increase the number of authorized shares of Common Stock from
3,000,000,000 to 20,000,000. We are authorized to issue an
aggregate of 20,000,000,000 shares of common stock and 2,000,000
shares of “blank check” preferred stock. In the future, we may
issue our authorized but previously unissued equity securities,
resulting in the dilution of the ownership interests of our present
stockholders. We may issue additional shares of our common stock or
other securities that are convertible into or exercisable for our
common stock in connection with hiring or retaining employees,
future acquisitions, future sales of our securities for capital
raising purposes, or for other business purposes. The future
issuance of any such additional shares of our common stock may
create downward pressure on the trading price of the common stock.
We will need to raise additional capital in the near future to meet
our working capital needs, and there can be no assurance that we
will not be required to issue additional shares, warrants or other
convertible securities in the future in conjunction with these
capital raising efforts, including at a price (or exercise or
conversion prices) below the price an investor paid for stock.
We do not expect to declare or pay any dividends.
We have not declared or paid any dividends on our common stock
since our inception, and we do not anticipate paying any such
dividends for the foreseeable future.
Volatility of Stock Price.
Our common shares are currently publicly traded on the OTC Markets
under the symbol DPLS. In the future, the trading price of our
common shares may be subject to wide fluctuations. Trading prices
of the common shares may fluctuate in response to a number of
factors, many of which will be beyond our control. In addition, the
stock market in general, and the market for sensor technology
companies in particular, has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to
the operating performance of such companies. Market and industry
factors may adversely affect the market price of the common shares,
regardless of our operating performance. Readers should carefully
consider the risks and uncertainties described below before
deciding whether to invest in shares of our common stock.
Our failure to successfully address the risks and uncertainties
described below would have a material adverse effect on our
business, financial condition and/or results of operations, and the
trading price of our common stock may decline and investors may
lose all or part of their investment. We cannot assure you that we
will successfully address these risks or other unknown risks that
may affect our business.
As an enterprise engaged in the development of new technology, our
business is inherently risky. Our common shares are considered
speculative during the development of our new business
operations. Prospective investors should consider carefully
the risk factors set out below. As reported herein in “Item 5.
Market For Common Equity and Related Stockholder
Matters”, the market price of our common stock has
fluctuated significantly.
Being a public company is expensive and administratively
burdensome.
As a public reporting company, we are subject to the information
and reporting requirements of the Securities Act of 1933, as
amended (the “Securities Act”), the Securities Exchange Act of
1934, as amended (the “Exchange Act”) and other federal securities
laws, rules and regulations related thereto, including compliance
with the Sarbanes-Oxley Act. Complying with these laws and
regulations requires the time and attention of our Board of
Directors and management team, and increases our expenses. We
estimate the Company will incur approximately $200,000 to $300,000
annually in connection with being a public company.
Among other things, we are required to:
|
· |
maintain and evaluate a system of internal
controls over financial reporting in compliance with the
requirements of Section 404 of the Sarbanes-Oxley Act and the
related rules and regulations of the SEC and the Public Company
Accounting Oversight Board; |
|
· |
prepare and distribute periodic reports in
compliance with our obligations under federal securities
laws; |
|
· |
institute a more comprehensive compliance
function, including with respect to corporate governance;
and |
|
· |
involve, to a greater degree, our outside legal
counsel and accountants in the above activities. |
The costs of preparing and filing annual and quarterly reports,
proxy statements and other information with the SEC and furnishing
audited reports to stockholders are expensive and much greater than
that of a privately-held company, and compliance with these rules
and regulations may require us to hire additional financial
reporting, internal controls and other finance personnel, and will
involve a material increase in regulatory, legal and accounting
expenses and the attention of management. There can be no assurance
that we will be able to comply with the applicable regulations in a
timely manner, if at all. In addition, being a public company makes
it more expensive for us to obtain director and officer liability
insurance. In the future, we may be required to accept reduced
coverage or incur substantially higher costs to obtain this
coverage.
If we fail to establish and maintain an effective system of
internal control, we may not be able to report our financial
results accurately or to prevent fraud. Any inability to report and
file our financial results accurately and timely could harm our
reputation and adversely impact the trading price of our common
stock.
Effective internal control is necessary for us to provide reliable
financial reports and prevent fraud. If we cannot provide reliable
financial reports or prevent fraud, we may not be able to manage
our business as effectively as we would if an effective control
environment existed, and our business and reputation with investors
may be harmed. As a result, our small size and any current internal
control deficiencies may adversely affect our financial condition,
results of operation and access to capital. We have not performed
an in-depth analysis to determine if historical un-discovered
failures of internal controls exist, and may in the future discover
areas of our internal control that need improvement.
Public company compliance may make it more difficult to
attract and retain officers and directors.
The Sarbanes-Oxley Act and new rules subsequently implemented by
the SEC have required changes in corporate governance practices of
public companies. As a public company, we expect these new rules
and regulations to increase our compliance costs in 2019 and beyond
and to make certain activities more time consuming and costly. As a
public company, we also expect that these new rules and regulations
may make it more difficult and expensive for us to obtain director
and officer liability insurance in the future and we may be
required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage.
As a result, it may be more difficult for us to attract and retain
qualified persons to serve on our Board of Directors or as
executive officers.
You could lose all of your investment.
An investment in our securities is speculative and involves a high
degree of risk. Potential investors should be aware that the value
of an investment in the Company may go down as well as up. In
addition, there can be no certainty that the market value of an
investment in the Company will fully reflect its underlying value.
You could lose your entire investment.
The ability of our Board of Directors to issue additional
stock may prevent or make more difficult certain transactions,
including a sale or merger of the Company.
Our Board of Directors is authorized to issue up to 2,000,000
shares of preferred stock with powers, rights and preferences
designated by it. See “Preferred Stock” in the section of
this Current Report titled “Description of Securities.” Shares of
voting or convertible preferred stock could be issued, or rights to
purchase such shares could be issued, to create voting impediments
or to frustrate persons seeking to effect a takeover or otherwise
gain control of the Company. The ability of the Board of
Directors to issue such additional shares of preferred stock, with
rights and preferences it deems advisable, could discourage an
attempt by a party to acquire control of the Company by tender
offer or other means. Such issuances could therefore deprive
stockholders of benefits that could result from such an attempt,
such as the realization of a premium over the market price for
their shares in a tender offer or the temporary increase in market
price that such an attempt could cause. Moreover, the
issuance of such additional shares of preferred stock to persons
friendly to the Board of Directors could make it more difficult to
remove incumbent officers and directors from office even if such
change were to be favorable to stockholders generally.
Our stock may be traded infrequently and in low volumes, so
you may be unable to sell your shares at or near the quoted bid
prices if you need to sell your shares.
Until our common stock is listed on a national securities exchange
such as the New York Stock Exchange or the Nasdaq Stock Market, we
expect our common stock to remain eligible for quotation on the OTC
Markets, or on another over-the-counter quotation system. In those
venues, however, the shares of our common stock may trade
infrequently and in low volumes, meaning that the number of persons
interested in purchasing our common shares at or near bid prices at
any given time may be relatively small or non-existent. An investor
may find it difficult to obtain accurate quotations as to the
market value of our common stock or to sell his or her shares at or
near bid prices or at all. In addition, if we fail to meet the
criteria set forth in SEC regulations, various requirements would
be imposed by law on broker-dealers who sell our securities to
persons other than established customers and accredited investors.
Consequently, such regulations may deter broker-dealers from
recommending or selling our common stock, which may further affect
the liquidity of our common stock. This would also make it more
difficult for us to raise capital.
There currently is no active public market for our common
stock and there can be no assurance that an active public market
will ever develop. Failure to develop or maintain a trading market
could negatively affect the value of our common stock and make it
difficult or impossible for you to sell your shares.
There is currently no active public market for shares of our common
stock and one may never develop. Our common stock is quoted on the
OTC Markets. The OTC Markets is a thinly traded market and lacks
the liquidity of certain other public markets with which some
investors may have more experience. We may not ever be able to
satisfy the listing requirements for our common stock to be listed
on a national securities exchange, which is often a more
widely-traded and liquid market. Some, but not all, of the factors
which may delay or prevent the listing of our common stock on a
more widely-traded and liquid market include the following: our
stockholders’ equity may be insufficient; the market value of our
outstanding securities may be too low; our net income from
operations may be too low; our common stock may not be sufficiently
widely held; we may not be able to secure market makers for our
common stock; and we may fail to meet the rules and requirements
mandated by the several exchanges and markets to have our common
stock listed. Should we fail to satisfy the initial listing
standards of the national exchanges, or our common stock is
otherwise rejected for listing, and remains listed on the OTC
Markets or is suspended from the OTC Markets, the trading price of
our common stock could suffer and the trading market for our common
stock may be less liquid and our common stock price may be subject
to increased volatility, making it difficult or impossible to sell
shares of our common stock.
Our common stock is subject to the “penny stock” rules of the
SEC and the trading market in the securities is limited, which
makes transactions in the stock cumbersome and may reduce the value
of an investment in the stock.
Rule 15g-9 under the Exchange Act establishes the definition of a
“penny stock,” for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny
stock, unless exempt, the rules require: (a) that a broker or
dealer approve a person’s account for transactions in penny stocks;
and (b) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny
stocks, the broker or dealer must: (a) obtain financial information
and investment experience objectives of the person and (b) make a
reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge
and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in
a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form: (a) sets forth
the basis on which the broker or dealer made the suitability
determination; and (b) confirms that the broker or dealer received
a signed, written agreement from the investor prior to the
transaction. Generally, brokers may be less willing to
execute transactions in securities subject to the “penny stock”
rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
common stock.
Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading and
about the commissions payable to both the broker or dealer and the
registered representative, current quotations for the securities
and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for
the penny stock held in the account and information on the limited
market in penny stocks.
Our stock price may be volatile.
The market price of our common stock is likely to be highly
volatile and could fluctuate widely in price in response to various
factors, many of which are beyond our control, including the
following:
|
· |
changes in our industry; |
|
· |
competitive pricing pressures; |
|
· |
our
ability to obtain working capital financing; |
|
· |
additions or departures of key
personnel; |
|
· |
sales
of our common stock; |
|
· |
our
ability to execute our business plan; |
|
· |
operating results that fall below
expectations; |
|
· |
loss
of any strategic relationship; |
|
· |
regulatory developments; and |
|
· |
economic and other external factors. |
In addition, the securities markets have from time to time
experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies.
These market fluctuations may also materially and adversely affect
the market price of our common stock.
Offers or availability for sale of a substantial number of
shares of our common stock may cause the price of our common stock
to decline.
If our stockholders sell substantial amounts of our common stock in
the public market, including upon the expiration of any statutory
holding period under Rule 144, or issued upon the conversion of
preferred stock or exercise of warrants, it could create a
circumstance commonly referred to as an "overhang" and in
anticipation of which the market price of our common stock could
fall. The existence of an overhang, whether or not sales have
occurred or are occurring, also could make more difficult our
ability to raise additional financing through the sale of equity or
equity-related securities in the future at a time and price that we
deem reasonable or appropriate.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
None.
ITEM 2.
PROPERTIES
None.
ITEM 3. LEGAL
PROCEEDINGS
On March 27, 2019, Thomas A. Cellucci, et al. v. DarkPulse, Inc. et
al. (the “Complaint”) was filed in the United States District Court
for the Southern District of New York by certain of the Company’s
former executive officers, one also being a former director, and a
non-employee shareholder (collectively, the “Plaintiffs”), against
the Company, its sole officer and director, and others, claiming
that the Plaintiffs brought the action to protect their individual
rights as minority shareholders, as improperly-ousted officers
(other than the non-employee shareholder), and as an
improperly-ousted director, seeking equitable relief, damages,
recovery of unpaid salaries and other relief. It is the Company's
position that the Complaint represents a frivolous harassment
lawsuit, and the Company intends to file a motion to dismiss all
claims made in the Complaint and intends to otherwise defend itself
vigorously in this matter. The Company is also exploring filing
counterclaims against the Plaintiffs in the action.
From time to time, we may become involved in litigation relating to
claims arising out of our operations in the normal course of
business. We are not currently involved in any pending legal
proceeding or litigation and, to the best of our knowledge, no
governmental authority is contemplating any proceeding to which we
are a party or to which any of our properties is subject, which
would reasonably be likely to have a material adverse effect on our
business, financial condition and operating results.
ITEM 4. MINE SAFETY
DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the OTC Markets under the trading
symbol DPLS. The Company has 3 billion authorized common
shares.
The following table sets forth the high and low bid of the
Company’s Common Stock for each quarter within the past two years.
The information below was provided from http://www.nasdaq.com/ and
reflects the highest and lowest closing prices during each
quarter.
2019: |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
0.0500 |
|
|
$ |
0.0035 |
|
Second Quarter |
|
$ |
0.0062 |
|
|
$ |
0.0005 |
|
Third Quarter |
|
$ |
0.0008 |
|
|
$ |
0.0001 |
|
Fourth Quarter |
|
$ |
0.0003 |
|
|
$ |
0.0001 |
|
2018: |
|
High |
|
|
Low |
|
First Quarter |
|
$ |
0.0520 |
|
|
$ |
0.0040 |
|
Second Quarter |
|
$ |
0.1720 |
|
|
$ |
0.0300 |
|
Third Quarter |
|
$ |
0.2400 |
|
|
$ |
0.0700 |
|
Fourth Quarter |
|
$ |
0.0900 |
|
|
$ |
0.0190 |
|
The number of shareholders of record of the Company's common stock
as of May 29, 2020 was approximately 936.
The Company has not paid any cash dividends to date and does not
anticipate paying cash dividends in the foreseeable future. It is
the present intention of management to utilize any available funds
for the development of the Company's business.
Recent Sales of Unregistered Securities.
On July 17, 2018, the Company entered into a securities purchase
agreement with Carebourn Capital L.P., issuing a convertible
promissory note in the aggregate principal amount of $189,750. The
note may be converted into the Company's common stock at a
conversion price equal to 60% of the average of the three lowest
trading prices of the Company's common stock during the 20 prior
trading days.
On July 27, 2018, The Company entered into a securities purchase
agreement with Carebourn, issuing a convertible promissory note in
the aggregate principal amount of $201,000. The note may be
converted into the Company's common stock at a conversion price
equal to 60% of the average of the three lowest trading prices of
the Company's common stock during the 20 prior trading days.
On August 20, 2018, the Company entered into a securities purchase
agreement with More Capital LLC, issuing a convertible promissory
note in the aggregate principal amount of $97,000. The note may be
converted into common shares of the Company's common stock at a
conversion price equal to 60% of the average of the three lowest
trading prices of the Company's common stock during the 20 prior
trading days.
On September 24, 2018, the Company entered into a securities
purchase agreement with Auctus Fund, LLC, issuing a convertible
promissory note in the aggregate principal amount of $100,000. The
note 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. Due to an outstanding balance of the convertible promissory
note at maturity, the interest rate has increased to 24% from
8%.
On September 25, 2018, the Company entered into a securities
purchase agreement with EMA Financial, LLC, issuing a convertible
promissory note in the aggregate principal amount of $100,000. The
note may be converted into common shares of the Company's common
stock at a conversion price equal to the lower of current market
price, $0.25, or 70% of the lowest trading price of the Company's
common stock during the 20 prior trading days. Due to an
outstanding balance of the convertible promissory note at maturity,
the conversion price is now 55%, down from 70%, and the interest
rate has increased to 24% from 8%.
On September 24, 2018, the
Company entered into a securities purchase agreement with FirstFire
Global Opportunities Fund LLC, issuing a convertible promissory
note in the aggregate principal amount of $247,500. The note may be
converted into common shares of the Company's common stock at a
conversion price equal to the lower of $0.25, or 70% of the lowest
trading price of the Company's common stock during the 20 prior
trading days.
On January 10, 2019, the Company entered into a Securities Purchase
Agreement with GS Capital Partners, LLC, issuing a convertible
redeemable note in the principal amount of $65,000. The note may be converted into common
shares of the Company's common stock at a conversion price equal to
the lower of $0.25, or 70% of the lowest trading price of the
Company's common stock during the 20 prior trading days.
On February 12, 2019, the Company entered into a securities
purchase agreement with Crown Bridge Partners, LLC, issuing a
convertible promissory note in the aggregate principal amount of up
to $35,000. The note may be converted into common shares of the
Company's common stock at a conversion price equal 70% of the
lowest trading price of the Company's common stock during the 20
prior trading days.
On April 23, 2019, the Company entered into a securities purchase
agreement with GS Capital Partners, LLC, ("GS Capital") issuing to
GS Capital a convertible promissory note in the aggregate principal
amount of $40,000 with a $2,000 original issue discount and $2,000
in transactional expenses due to GS Capital 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 average of the three lowest trading prices of
the Company's common stock during the 20 prior trading days. As of
the date the consolidated financial statements were available for
issuance, DPI received $36,000 net cash.
On May 3, 2019, 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 $64,000 with a $6,000 original issue discount and $2,800
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 $55,200 net
cash.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section 16(a) of the Exchange Act requires the Company’s directors,
executive officers, and persons who own more than 10% of a
registered class of the Company’s equity securities, to file with
the Commission reports regarding initial ownership and changes in
ownership. Directors, executive officers, and greater than 10%
stockholders are required by the Commission to furnish the Company
with copies of all Section 16(a) forms they file.
The Company is not aware of any common stock transactions during
the year ended December 31, 2019 for which either Forms 4 or Forms
5 were required to be filed.
Equity Compensation Plan Information
The following table shows information with respect to each equity
compensation plan under which our common stock is authorized for
issuance through December 31, 2019.
EQUITY COMPENSATION PLAN INFORMATION
Plan
category |
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
|
|
|
Weighted average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities
remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a)
|
|
|
|
|
(a) |
|
|
|
(b) |
|
|
|
(c) |
|
Equity
compensation plans approved by security holders |
|
|
– |
|
|
|
– |
|
|
|
20,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
– |
|
|
|
– |
|
|
|
20,000,000 |
|
Issuer Purchases of Equity Securities
None.
ITEM 6. SELECTED
FINANCIAL DATA
Not required for smaller reporting companies.
ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Background
DarkPulse, Inc. (the “Company”) is a technology-security company
created to develop, market and distribute a full suite of
engineering, installation and security management solutions to
industries and governments and has not commenced its planned
principal operations. Coupled with our patented BOTDA dark-pulse
technology (the “DarkPulse Technology”), DarkPulse provides its
customers a comprehensive data stream of critical metrics for
assessing the health and security of their infrastructure. Our
comprehensive system provides for rapid, precise analysis and
responsive activities predetermined by the end- user customer. The
Company’s activities since inception have consisted principally of
developing various solutions which the Company is currently
testing, obtaining patents and trademarks related to its
technology, and raising capital. The Company’s activities are
subject to significant risks and uncertainties including failing to
secure additional funding needed to finalize development of the
Company’s technology and to commercialize its product in a
profitable manner.
Going Concern Uncertainty
As shown in the accompanying financial statements, the Company
generated net losses of $1,825,469 and $3,318,059 during the years
ended December 31, 2019 and 2018, respectively. The Company did not
generate any revenue from product sales during the years ended
December 31, 2019 and 2018. As of December 31, 2019, the Company’s
current liabilities exceeded its current assets by $3,213,915. As
of December 31, 2019, the Company had $1,210 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 and expansion of its operations. The
accompanying financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as
a going concern. Management is actively pursuing additional sources
of financing sufficient to generate enough cash flow to fund its
operations through calendar year 2020. However, management cannot
make any assurances that such financing will be secured.
Results of Operations
Revenues
To date, the Company has not generated any operating revenues.
Operating Expenses
Operating expenses for the year ended December 31, 2019 decreased
by $1,992,389 or 78.5% to $546,236 from $2,538,625 for the year
ended December 31, 2018. The primary reason for the overall
decrease in general and administrative expense in the current year
is a decrease in payroll and compensation, including stock based
compensation.
General and administrative expenses for the year ended December 31,
2019 decreased by $36,573 or 16.7% to $183,083 from $219,656 for
the year ended December 31, 2018. The primary reason for the
overall decrease in general and administrative expense in the
current year is a decrease in professional fees.
Payroll and compensation expenses for the year ended December 31,
2019 decreased to $168,945 from $2,056,144 or 91.8% for the year
ended December 31, 2018. The primary reason for the overall
decrease in payroll and compensation expense in the current year is
a decrease in employees and a reduction in stock based
compensation.
Research and development expenses for the year ended December 31,
2019 decreased by $91,301 to $0 for the year ended December 31,
2018. The primary reason for the overall decrease in research and
development in the current year is a decrease in development of a
new application using our patented technology.
Legal expenses for the year ended December 31, 2019 increased
$118,281 from $0 for the year ended December 31, 2018. The increase
is related to ongoing litigation as described in more detail in
Note 12 of the attached financial statements.
Debt transaction expenses for the year ended December 31, 2019
decreased $85,785 or 77.5% from $110,685 to $24,900. The primary
reason for the decrease is related to the decrease in convertible
notes entered into during 2019.
Other Income (Expense)
Total other expenses totaled $1,279,233 and $779,434 for the years
ended December 31, 2019 and 2018, respectively. The $499,799
increase is primarily attributed to the increase recognized due to
changes in the fair value of derivative instruments, exchange rate
variances and interest expense.
Management completed an impairment analysis of the Company’s
capitalized software development costs as of December 31, 2018 as
required by generally accepted accounting principles. As a result,
the Company recorded an impairment expense of $294,788 for the year
ended December 31, 2018. No impairment expense was recorded for the
year ended December 31, 2019.
Net Loss
As a result, net loss for the year ended December 31, 2019
decreased by $1,492,590 to $1,825,469 from $3,318,059 for the year
ended December 31, 2018.
Comprehensive (Loss) Gain
The Company recorded a gain for foreign currency translation
adjustments for the year ended December 31, 2019 of $71,084 and a
loss of $90,772 for the year ended December 31, 2018. The
fluctuations of the increase/decrease is primarily attributed to
the increase recognized due to exchange rate variances.
Comprehensive loss was $1,754,385 as compared to $3,227,287 for the
years ended December 31, 2019 and 2018, respectively.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support
its current and future operations, satisfy its obligations, and
otherwise operate on an ongoing basis. At December 31, 2019, we had
a cash balance of $1,210. Our working capital deficit is
approximately $2,229,896 at December 31, 2019.
As of December 31, 2019, we had cash of $1,210, compared to $72,294
as of December 31, 2018. The Company currently does not have
sufficient cash to fund its operations for the next 12 months and
will require working capital to complete development, testing and
marketing of its products and to pay for ongoing operating
expenses. The Company anticipates adding consultants for technology
development and the corresponding operations of the Company, but
this will not occur prior to obtaining additional capital.
Management is currently in the process of looking for additional
investors. Currently, loans from banks or other lending sources for
lines of credit or similar short-term borrowings are not available
to the Company. The Company has been able to raise working capital
to fund operations through the issuances of convertible notes or
obtained through the issuance of the Company’s restricted common
stock.
As of December 31, 2019, our current liabilities of $3,215,872
exceeded our current assets of $1,956 by $3,213,916.
Cash Flows From Operating Activities
During the year ended December 31, 2019, net cash used by operating
activities was $171,604, resulting from our net loss of $1,825,469
partially offset by non-cash expenses totaling $259,824 and
increases in accounts payable of $264,788 and a decrease in accrued
liabilities of $145,234.
By comparison, during the year ended December 31, 2018, net cash
used by operating activities was $890,841, resulting from our net
loss of $3,318,059, partially offset by non-cash expenses of
$2,016,230 and increases in accounts payable of $49,160 and accrued
liabilities of $309,925.
Cash Flows From Investing Activities
During the year ended December 31, 2019, net cash used by investing
activities was $54,930, comprised primarily of capitalized patents
costs of $101,652. During the year ended December 31, 2018, net
cash used by investing activities was $0.
Cash Flows From Financing Activities
During the year ended December 31, 2019, net cash provided by
financing activities was $155,450, comprised of proceeds from
issuance of convertible notes payable of $180,100, partially offset
by repayments of convertible notes payable of $24,650. During the
year ended December 31, 2018, net cash provided by financing
activities was $1,056,762, comprised of proceeds from issuance of
convertible notes payable of $1,088,250 and proceeds from related
party notes payable of $44,096, partially offset by repayments of
convertible notes payable of $42,200 and notes payable of
$33,384.
Factors That May Affect Future Results - Management’s
Discussion and Analysis contains information based on management’s
beliefs and forward-looking statements that involve a number of
risks, uncertainties, and assumptions. There can be no assurance
that actual results will not differ materially from the
forward-looking statements as a result of various factors,
including but not limited to the following:
|
· |
The Company may not obtain the equity funding or
short-term borrowings necessary to market and launch its mobile
applications. |
|
· |
The product development and launch may take
longer to implement than planned or may not be
successful. |
ITEM 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company are included beginning on
page F-1 immediately following the signature page to this
report.
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer
are responsible for establishing and maintaining disclosure
controls and procedures for the Company, and have concluded that
our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) were not effective
as of the end of the period covered by this report, based on their
evaluation of these controls and procedures required by paragraph
(b) of Rules 13a-15(f) and 15d-15(f), due to certain material
weaknesses in our internal control over financial reporting as
discussed below.
Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and
maintaining adequate internal controls over financial reporting for
the Company. Due to limited resources, Management conducted an
evaluation of internal controls based on criteria established in
2013 Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). The results of this evaluation determined that our
internal control over financial reporting was ineffective as of
December 31, 2019, due to material weaknesses. A material weakness
in internal control over financial reporting is defined as a
deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company's annual or
interim financial statements will not be prevented or detected on a
timely basis. A significant deficiency is a deficiency, or a
combination of deficiencies, in internal control over financial
reporting that is less severe than a material weakness, yet
important enough to merit attention by those responsible for
oversight of our financial reporting.
Management’s assessment identified the following material
weaknesses in internal control over financial reporting:
|
· |
The small size of our Company limits our ability
to achieve the desired level of separation of duties to achieve
effective internal controls over financial reporting. We do not
have a separate CEO and CFO, to review and oversee the financial
policies and procedures of the Company, which does achieve a degree
of separation. However, until such time as the Company is able to
hire a Controller, we do not believe we meet the full requirement
for separation. |
|
|
|
|
· |
We do
not have a functional audit committee. |
|
|
|
|
· |
We
have not achieved the desired level of documentation of our
internal controls and procedures. When the Company obtains
sufficient funding, this documentation will be strengthened through
utilizing a third party consulting firm to assist management with
its internal control documentation and further help to limit the
possibility of any lapse in controls occurring. |
|
|
|
|
· |
We
have not achieved the desired level of corporate governance to
ensure that our accounting for all of our contractual and other
agreements is in accordance with all of the relevant terms and
conditions. Because of our limited capital resources, we sometimes
formalize our agreements with certain contractors after the work is
performed when additional resources become available to pay for the
services. |
As a result of the material weaknesses in internal control over
financial reporting described above, the Company’s management has
concluded that, as of December 31, 2019, the Company's internal
control over financial reporting was not effective based on the
criteria in Internal Control - Integrated Framework issued by the
COSO.
The Company’s lack of current financial resources makes it
impossible for the Company to hire the appropriate personnel needed
to overcome these weaknesses and ensure that appropriate controls
and separation of responsibilities of a larger organization exist.
We also will continue to follow the standards for the Public
Company Accounting Oversight Board (United States) for internal
control over financial reporting to include procedures that:
|
· |
Pertain to the maintenance of records in
reasonable detail accurately that fairly reflect the transactions
and dispositions of the Company's assets; |
|
|
|
|
· |
Provide reasonable assurance that transactions
are recorded as necessary to permit preparation of the financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures are being made only
in accordance with authorizations of management and the Board of
Directors; and |
|
|
|
|
· |
Provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the Company's assets that could have a material
effect on the financial statements. |
Despite the material weaknesses in financial reporting noted above,
we believe that our financial statements included in this report
fairly present our financial position, results of operations and
cash flows as of and for the years presented in all material
respects.
Changes in Internal Controls
There were no changes in our internal control over financial
reporting that occurred during the fiscal quarter covered by this
report that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
The Company has taken limited steps to meet its Sarbanes-Oxley
(SOX) Section 404 compliance requirements and implement
procedures to assure financial reports are prepared in accordance
with generally accepted accounting principles (GAAP) and therefore
fairly represent the results and condition of the Company. We are
not materially compliant with the Section 404 requirements due to
economic constraints.
ITEM 9B. OTHER
INFORMATION
None.
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Executive Officers and Directors
The following table sets forth the name, age, and position of each
executive officer and director of the Company:
Director's Name |
Age |
Position |
Dennis O’Leary |
58 |
Chairman of the Board, Chief
Executive Officer, President, Chief Financial Officer, Secretary
& Treasurer |
|
|
|
Dr. Anthony Brown |
47 |
Director |
|
|
|
Carl Eckel |
61 |
Director |
Dennis M. O’Leary, Chairman, CEO, President, CFO. Mr.
O’Leary is the Company’s Chief Executive Officer, President, Chief
Financial Officer and Chairman of the Board. Mr. O’Leary founded
DarkPulse Technologies Inc., a wholly-owned subsidiary of the
Company, in 2010. Mr. O’Leary is a serial entrepreneur with
significant international experience having founded Sulu Electric
Power and Light Corp (Philippines), a firm with expertise in
utility scale power generation and solar energy. He is the
co-founder and Chairman of DarkPulse Technologies Inc., a firm
developing specialized devices that monitor activities along
national borders and provide structural health and safety
monitoring of oil and gas pipelines. He holds extensive start-up
experience including multiple exit strategies. Mr. O’Leary is an
Ambassador for the Province of New Brunswick, Canada, and a
Research Member of the NATO Science and Technology Organization. He
served as a member of the Board at Arizona State University’s
School of Engineering, Global Resolve as Chair of the Impact
Committee. His previous employment includes the NYPD where he
worked as a member of the Manhattan North Tactical Narcotics Team,
which prosecuted establishments involved in the illegal
distribution of narcotics. He was a member of a joint taskforce
working with the DEA and USINS in the execution of warrants related
to narcotics trafficking. While at the NYPD, he was assigned to the
Department of Justice as a member of the FBI’s investigative team
with internal designation C14. He is a licensed private pilot with
turbine experience. Mr. O’Leary is not, and has not been during the
past 5 years, the director of any other public companies.
Dr. Anthony Brown, Director. Dr. Brown is a physicist and
scientist with extensive experience in the development of Brillouin
scattering-based distributed fiber optic sensing. In 2010, Dr.
Brown co-founded DarkPulse Technologies, Inc., a wholly-owned
subsidiary of the Company. Dr. Brown has more than 25 years of
research and lecturing experience gained at the University of New
Brunswick (“UNB”), focusing primarily on the development of
Brillouin scattering-based distributed fiber optic sensor
technology. From 2001 to 2012, Dr. Brown served as an assistant
professor and research associate at UNB. During Dr. Brown’s tenure
at UNB, he was instrumental in developing numerous patents in the
field of fiber optic sensing. From 2012 to 2015, Dr. Brown served
as an Adjunct Professor at UNB. From 2013 through the present, Dr.
Brown has served as a data scientist for Xplornet Communications,
Inc. From 2018 through the present, Dr. Brown has served as a
consultant for the Company. Dr. Brown received a Bachelor of
Science degree in Physics from UNB in 1995, and a PhD in Physics
from UNB in 2001. We believe that Dr. Brown should serve as a
member of our Board of Directors due to his extensive experience in
the development of Brillouin scattering-based distributed fiber
optic sensing.
Carl Eckel, Director. Mr. Eckel is a U.S. military veteran
with over 35 years of defense communications system development and
support experience. Mr. Eckel’s career began in the field of
telecommunications operations and continued to evolve with the
rapid advancements in telecommunications technologies. While
serving in the United States Air Force from 1977 to 1985, Mr. Eckel
was responsible for managing leased communications accounting,
planning, user requirement changes, and system upgrades and
replacements for critical Air Force Satellite Control Network
(“AFSCN”) Programs at Onizuka AFS, until his honorable discharge in
1985. As a private civilian, from 1985 to 1992, Mr. Eckel served as
a Database Systems Administrator and Site Integrator for Ford
Aerospace / Loral where he was responsible for into customer
communications requirements analysis and development of training
for operations and maintenance of the classified and unclassified
systems supporting all Space Shuttle and satellite activities. In
1993 recognizing the government’s need for quality affordable
training for operations and maintenance of complex software and
hardware communications systems, Mr. Eckel started a successful
training development and delivery business that provided training
to Washington D.C. area clients such as the Pentagon 7th CG, the
White House Communications Agency. and PACAF based in Hawaii. Mr.
Eckel worked for Allied Signal/Honeywell in 1995-96 as a Group
Field Engineer maintaining critical Control Center and Remote
Tracking Communications Equipment around the world, and then
rejoining communications systems support with Lockheed from 1997 to
1998. From 1999 to 2000, Mr. Eckel resumed support on the
government side of the AFSCN serving initially in Network Security
and Systems Integration. From 2000 to 2001, Mr. Eckel served as a
Deputy Maintenance Manager for ITT where he was responsible for
maintenance of AFSCN mission control communications systems. From
2001 to 2013, Mr. Eckel served as a Site Manager, Program Manager,
and Program Director for IITC / Nortel / PEC / Avaya Government
Solutions where he held a team leadership role transitioning back
into program management. With this transition Mr. Eckel was a part
of establishing and delivering contract performance that netted
99-100% contract satisfaction award fees. Mr. Eckel advanced to
program director level managing contract team activities, including
subcontractors, at multiple locations supporting programs for the
Air Force, Army, and NOAA/NWS. In early 2014, Mr. Eckel
transitioned into the Oil and Gas Industry as a safety professional
in support of pipeline integrity work, station work, and mainline
projects for clients including Enbridge, Hess, Tesoro, MarkWest,
TransCanada, Kinder Morgan, and Shell. From 2014 through the
present, Mr. Eckel has served as a Safety Manager for Minnesota
Limited, LLC where he is responsible for safety compliance,
including field safety inspections, incident and accident
investigation, and reporting. Mr. Eckel received a diploma in
Communications Systems from the USAF Technical School in Shepherd
AFB, TX. Mr. Eckel holds numerous certifications, including OSHA
500 – Authorized OSHA 10 and 30 hour trainer, OSHA 510 HAZWOPER,
CPR/AED/First aid, DOT – CSA & HAZMAT Driver Training. We
believe that Mr. Eckel should serve as a member of our Board of
Directors due to his extensive management experience within the
government and the private sectors in such areas and industries
where the Company’s technology systems may be advantageously
utilized.
Changes to Executive Officers and Directors
On February 7, 2019, the stockholder holding a majority of the
voting rights (the “Majority Stockholder”) of the Company executed
a stockholder consent in accordance with Delaware General
Corporation Law and the Company’s Bylaws to remove Thomas A.
Cellucci as a director of the Company. As a result of the foregoing
action by the Majority Stockholder, Thomas A. Cellucci was removed
as a director of the Company on February 7, 2019.
On March 1, 2019, the Board of Directors of the Company terminated
Thomas A. Cellucci as an Executive Officer of the Company, and
appointed Dennis M. O’Leary as Chief Executive Officer and
Secretary of the Company.
On March 8, 2019, the Company terminated Stephen Goodman as Chief
Financial Officer of the Company, and appointed Dennis M. O’Leary
as Chief Financial Officer of the Company. The decisions to dismiss
Stephen Goodman as Chief Financial Officer of the Company and
appoint Dennis O’Leary as Chief Financial Officer of the Company
were approved and ratified by the Company’s Board of Directors.
On March 18, 2019, the Company terminated Mark A. Banash as Chief
Technology Officer of the Company. The decision to dismiss Mark
Banash as Chief Technology Officer of the Company was approved and
ratified by the Company’s Board of Directors.
On March 19, 2019, the Company terminated David Singer as Chief
Marketing Officer of the Company. The decision to dismiss David
Singer as Chief Marketing Officer of the Company was approved and
ratified by the Company’s Board of Directors.
On April 17, 2019, the Board of Directors of the Company appointed
Dr. Anthony Brown as a director of the Company to fill a vacancy in
accordance with the Delaware General Corporation Law (the “DGCL”)
and the Company’s Bylaws. In addition, on April 19, 2019, the Board
of Directors of the Company appointed Carl Eckel as a director of
the Company to fill a vacancy in accordance with the DGCL and the
Company’s Bylaws.
Audit Committee
As of December 31, 2019, the Company did not have a functioning
Audit and Compliance Committee. The Company’s management is
currently reviewing the Company’s SEC filings and relying on
outside experts to assist with this process.
Audit Committee Financial Expert
The Company's board of directors needs to have an “audit committee
financial expert,” within the meaning of such phrase under
applicable regulations of the Securities and Exchange Commission,
serving on its audit committee. The individual needs to be capable
of (i) understanding generally accepted accounting principles
("GAAP") and financial statements, (ii) assessing the general
application of GAAP principles in connection with our accounting
for estimates, accruals and reserves, (iii) analyzing and
evaluating our financial statements, (iv) understanding our
internal controls and procedures for financial reporting; and (v)
understanding audit committee functions, all of which are
attributes of an audit committee financial expert and meet the
experience requirements specified in the SEC's definition of “audit
committee financial expert.” Further, like many small companies, it
is difficult for the Company to attract and retain board members
who qualify as “audit committee financial experts,” and competition
for these individuals is significant.
ITEM 11. EXECUTIVE
COMPENSATION
Summary Compensation
The following table shows the executive compensation paid to our
executive officers and directors for the years ended December 31,
2019 and 2018.
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
(d) |
|
|
(e) |
|
|
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
Principal Position |
|
Year
Ended
Dec 31, |
|
|
Salary (1) |
|
|
Bonus |
|
|
Option Awards (2) |
|
|
All Other
Compensation |
|
|
Total |
|
Dennis
O’Leary |
|
|
2019 |
|
|
$ |
18,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
18,000 |
|
Chairman/CEO and
Director |
|
|
2018 |
|
|
$ |
126,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
126,000 |
|
Dr. Anthony Brown |
|
|
2019 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Director |
|
|
2018 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Carl Eckel |
|
|
2019 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Director |
|
|
2018 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
___________________________
(1) The Company accrued $18,000 and $63,000 for
compensation for Mr. O’Leary during the years ended December 31,
2019 and 2018, respectively, of which $0 has been paid,
respectively.
(2) The amounts in column (e) reflect the aggregate
grant date fair value with respect to stock options granted during
the respective years in accordance with ASC Topic 718. No stock
options were awarded or vested in 2019 and 2018.
Aggregate Option/SAR Exercises in the Last Fiscal Year and Year
End Option/SAR Values
During the year ended December 31, 2019, the Company did not grant
any stock options or SARs to the chief executive officer, chief
financial officer and directors of the Company.
During the year ended December 31, 2019, no stock options were
exercised by the chief executive officer, chief financial officer
and directors of the Company.
The following table sets forth information with respect to
outstanding stock options granted to our chief executive officer,
chief financial officer and directors of the Company at December
31, 2019.
Outstanding Equity Awards at Fiscal Year-End
Name |
|
Number of Securities Underlying Unexercised
Options Exercisable |
|
|
Number of Securities Underlying Unexercised
Options Unexercisable |
|
|
Equity Incentive Plan Awards: Number of
Securities Underlying Unexercised Unearned Options |
|
|
Option Exercise Price |
|
|
Option Expiration Date |
|
Dennis
O’Leary |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
$ |
– |
|
|
|
– |
|
Dr. Anthony Brown |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Carl Eckel |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
Executive Compensation and Benefits
The Company provides no health insurance to any full or part-time
employees.
The Company has adopted a stock incentive plan for its employees,
executive officers, directors, and consultants.
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Principal Shareholders
The table below sets forth information as to our Directors and
Executive Officers and each person owning of record or was known by
the Company to own beneficially shares of stock greater than 5% of
the 1,392,131,347 (1,392,042,112 common plus 88,235 preferred)
votes as of December 31, 2019. The table includes preferred stock
that is convertible into common stock and information as to the
ownership of the Company's Stock by each of its directors and
executive officers and by the directors and executive officers as a
group. There were no stock options outstanding as of December 31,
2019. Except as otherwise indicated, all shares are owned directly,
and the persons named in the table have sole voting and investment
power with respect to shares shown as beneficially owned by
them.
Name and
Address |
|
Nature of |
|
|
Shares |
|
|
Percent of |
|
of Beneficial Owners |
|
Ownership |
|
|
Owned |
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|
Directors, Executive Officers
and >5% Stock Owners |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis O’Leary (through Fantastic
Northamerica, LLC) |
|
|
Direct |
|
|
|
– |
|
|
|
– |
|
350
5th Avenue |
|
|
Preferred |
|
|
|
6,047,664,520 |
|
|
|
81.29% |
|
59th Floor |
|
|
Total |
|
|
|
6,047,664,520 |
|
|
|
81.29% |
|
New York, NY 10118 |
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Anthony Brown |
|
|
Direct |
|
|
|
– |
|
|
|
– |
|
350 5th
Avenue |
|
|
Preferred |
|
|
|
525,852,776 |
|
|
|
27.42% |
|
59th Floor |
|
|
Total |
|
|
|
525,852,776 |
|
|
|
27.42% |
|
New York, NY 10118 |
|
|
|
|
|
|
|
|
|
|
|
|
Carl Eckel |
|
|
Direct |
|
|
|
– |
|
|
|
– |
|
350 5th
Avenue |
|
|
Preferred |
|
|
|
– |
|
|
|
– |
|
59th Floor |
|
|
Total |
|
|
|
– |
|
|
|
– |
|
New York, NY 10118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
6,573,517,295 |
|
|
|
82.52% |
|
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Related Party Notes Payable
During the year ended December 31, 2018, two of the Company’s
previous officers and directors of the Company advanced personal
funds in the amount of $10,689 for Company expenses, and $10,689
was repaid to them prior to December 31, 2018.
In May 2018, the JV Entity received $42,000 for an order from
Bravetek and the JV Entity then placed a corresponding order with
the Company. The Company’s former executive officer is also the CEO
of Bravatek. The proceeds were to be used for marketing efforts to
generate sales of our intrusion detection product. The order has
been recorded as a prepaid sale and is a current liability as of
December 31, 2018.
Accrued Compensation
Dennis M. O’Leary, the Company’s CEO, accrued $18,000 and $63,000
for compensation for the CEO during the years ended December 31,
2019 and 2018, of which $0 and $0 were paid, respectively.
Director Independence
A Director is considered independent if the Board affirmatively
determines that the director (or an immediate family member) does
not have any direct or indirect material relationship with us or
our affiliates or any member of our senior management or his or her
affiliates. The term “affiliate” means any corporation or other
entity that controls, is controlled by, or under common control
with us, evidenced by the power to elect a majority of the Board of
Directors or comparable governing body of such entity. The term
“immediate family member” means spouse, parents, children,
siblings, mothers- and fathers-in-law, sons- and daughters-in law,
brothers- and sisters-in-laws and anyone (other than domestic
employees) sharing the director’s home.
In accordance with these guidelines, the Board has determined that
current Board member Jerry P. Wright is an independent
director.
ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Audit Fees. Consists of fees billed for professional
services rendered for the audits of our financial statements,
reviews of our interim financial statements included in quarterly
reports, services performed in connection with filings with the
Securities & Exchange Commission, and related other services
that were provided by Boyle CPA (“Boyle”) in connection with
statutory and regulatory filings or engagements.
The following is a summary of the fees incurred by the Company to
Boyle for professional services rendered for the years ended
December 31, 2019 and 2018, respectively.
Service |
|
2019 |
|
|
2018 |
|
Audit Fees |
|
$ |
8,000 |
|
|
$ |
8,000 |
|
Audit-Related
Fees |
|
|
– |
|
|
|
– |
|
Total |
|
$ |
8,000 |
|
|
$ |
8,000 |
|
Tax Fees. Consists of fees billed for professional services
for tax compliance, tax advice and tax planning. These services
include assistance regarding federal, state and local tax
compliance and consultation in connection with various
transactions. There were no tax fees incurred by the Company for
the years ended December 31, 2019 and 2018.
Board of Directors Pre-Approval of Audit and Permissible
Non-Audit Services of Independent Auditors
The Board of Directors may pre-approve all audit and non-audit
services provided by the independent auditors. These services may
include audit services, audit-related services, tax services and
other services as allowed by law or regulation. Pre-approval is
generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and
is generally subject to a specifically approved amount. The
independent auditors and management are required to periodically
evaluate the extent of services provided by the independent
auditors in accordance with this pre-approval and the fees incurred
to date. The Board of Directors may also pre-approve particular
services on a case-by-case basis.
The Board of Directors pre-approved 100% of the Company’s 2018 and
2017 audit fees, audit-related fees and all other fees.
ITEM 15. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
3. Exhibits
The following exhibits are included as part of this report:
Exhibit
Number
|
Title of
Document |
|
|
2.1 |
Form of Agreement and Plan of Merger by and between Klever
Marketing, Inc., DarkPulse Technologies Inc. and DPTH Acquisition
Corporation dated April 27, 2018 (incorporated by reference to
Exhibit 2.1 to Form 8K filed May 1, 2018) |
|
|
2.2 |
Form of Amendment No. 1 to Agreement and Plan of Merger by and
between Klever Marketing, Inc., DarkPulse Technologies Inc. and
DPTH Acquisition Corporation dated June 29, 2018 (incorporated
by reference to Exhibit 2.1 to Form 8K/A filed July 13, 2018) |
|
|
2.3 |
Form of Amendment No. 2 to Agreement and Plan of Merger by and
between Klever Marketing, Inc., DarkPulse Technologies Inc. and
DPTH Acquisition Corporation dated August 17, 2018, effective as of
July 18, 2018 (incorporated by reference to Exhibit 2.1 to Form
8K filed August 21, 2018) |
|
|
3.01
|
Restated Certificate of Incorporation
of Klever Marketing, Inc. a Delaware corporation (incorporated
by reference to Annual Report on Form 10-KSB filed June 20,
1997)
|
|
|
3.02 |
Certificate of Designation of Rights,
Privileges and Preferences: Rights of A Class Voting Preferred
Stock, Series 1, of Klever Marketing, Inc., dated February 7,
2000 (incorporated by reference to Annual Report on Form 10-KSB
filed June 20, 1997) |
|
|
3.03 |
Amended Bylaws (incorporated by
reference to Annual Report on Form 10-KSB filed March 29,
2001) |
|
|
3.04 |
Certificate of Amendment to Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to Form 8K filed July 24,
2018) |
|
|
3.05
|
Certificate of Designation of Series D Preferred Stock
(incorporated by reference to Exhibit 3.2 to Form 8K filed July 24,
2018)
|
|
|
4.01 |
Amended Certificate of Designation of
Rights, Privileges and Preferences: Rights of A Class of Voting
Preferred Stock, Series 1, of Klever Marketing, Inc., Dated
February 7, 2000 (incorporated by reference to Quarterly Report on
Form 10-QSB filed May 15, 2001) |
|
|
4.02 |
Certificate of Designation of Rights,
Privileges and Preferences of Class B Voting Preferred Stock, of
Klever Marketing, Inc., dated September 24, 2000
(incorporated by reference to
Quarterly Report on Form 10-QSB filed May 15, 2001) |
4.03 |
Certificate of Designation of Rights,
Privileges and Preferences of Class C Voting Preferred Stock, of
Klever Marketing, Inc., dated January 2, 2001
(incorporated by reference to
Quarterly Report on Form 10-QSB filed May 15, 2001) |
|
|
4.04 |
Certificate of Designation of Rights,
Privileges and Preferences of Class D Voting Preferred Stock, of
Klever Marketing, Inc., dated June 14, 2002 (incorporated by reference to Quarterly Report on
Form 10-QSB filed August 19, 2002) |
|
|
4.05 |
Amendment to the Certificates of Designation of Rights, Privileges
and Preferences of Class A, B, and C Voting Preferred Stock, of
Klever Marketing, Inc., dated June 12, 2002 (incorporated by
reference to Quarterly Report on Form 10-QSB filed August 19,
2002) |
|
|
4.06 |
Convertible Promissory Note dated July 14, 2018 (incorporated
by reference to Exhibit 99.1 to Form 10Q filed August 15,
2018) |
|
|
4.07 |
Convertible Promissory Note dated July 14, 2018 (incorporated
by reference to Exhibit 99.2 to Form 10Q filed August 15,
2018) |
|
|
4.08 |
Convertible Promissory Note dated July 14, 2018 (incorporated
by reference to Exhibit 99.3 to Form 10Q filed August 15,
2018) |
|
|
4.09 |
Convertible Promissory Note dated July 14, 2018 (incorporated
by reference to Exhibit 99.4 to Form 10Q filed August 15,
2018) |
|
|
4.10 |
Convertible Promissory Note dated July 17, 2018, effective July 18,
2018 (incorporated by reference to Exhibit 99.5 to Form 10Q
filed August 15, 2018) |
|
|
4.11 |
Convertible Promissory Note dated July 24, 2018, and effective July
27, 2018 (incorporated by reference to Exhibit 99.6 to Form 10Q
filed August 15, 2018) |
|
|
4.12 |
Convertible Promissory Note dated August 20, 2018, effective August
24, 2018 (incorporated by reference to Exhibit 10.1 to Form 8K
filed August 27, 2018) |
|
|
4.13 |
Convertible Promissory Note issued to EMA dated September 25, 2018,
effective September 28, 2018 (incorporated by reference to
Exhibit 10.1 to Form 8K filed October 5, 2018) |
|
|
4.14 |
Convertible Promissory Note issued to Auctus dated September 25,
2018, effective September 27, 2018 (incorporated by reference
to Exhibit 10.2 to Form 8K filed October 5, 2018) |
|
|
4.15 |
Convertible Promissory Note issued to FirstFire dated September 24,
2018, and effective October 9, 2018 (incorporated by reference
to Exhibit 10.1 to Form 8K filed October 15, 2018) |
|
|
4.16 |
8% Convertible Redeemable Note issued to GS Capital Partners, LLC
dated January 10, 2019 (incorporated by reference to Exhibit
4.1 to Form 8K filed January 15, 2019) |
|
|
4.17
|
Form of Convertible Promissory Note issued to Crown Bridge
Partners, LLC dated February 5, 2019 (incorporated by reference
to Exhibit 4.1 to Form 8K filed February 14, 2019)
|
|
|
10.01 |
Stock Incentive Plan, effective June
1, 1998 (incorporated by reference to Annual Report on Form
10-KSB filed June 20, 1997) |
10.02 |
Asset purchase agreement dated August
27, 2004 (incorporated by
reference to Quarterly Report on Form 10-QSB filed November 19,
2004) |
|
|
10.03 |
Software Development Works Agreement
between Klever Marketing, Inc. and Qualzoom Inc. dated August 15,
2010 (incorporated by
reference to Quarterly Report on Form 8K filed November 19,
2010) |
|
|
10.04 |
Software Development Agreement between Klever Marketing, Inc. and
Briabe Media Inc. September 22, 2010 (incorporated by reference
to Quarterly Report on Form 8K filed November 19, 2010) |
|
|
10.05 |
License Agreement by and between Battelle Memorial Institute and
Darkpulse Technology Holdings Inc. dated December 28, 2018
(incorporated by reference to Exhibit 10.1 to Form 8K filed January
3, 2019) |
|
|
10.06 |
Securities Purchase Agreement by and between DarkPulse, Inc. and GS
Capital Partners, LLC dated January 10, 2019 (incorporated by
reference to Exhibit 10.1 to Form 8K filed January 15, 2019) |
|
|
10.07 |
Form of Securities Purchase Agreement between DarkPulse, Inc. and
Crown Bridge Partners, LLC dated February 5, 2019 (incorporated
by reference to Exhibit 10.1 to Form 8K filed February 14,
2019) |
|
|
16.1 |
Letter from Haynie & Company (incorporated by reference to
Exhibit 16.1 to Form 8K filed March 11, 2019) |
|
|
23.1 |
Consent of D. Brooks and Associates (incorporated by reference
to Exhibit 10.2 to Form 8K/A filed November 19, 2018) |
|
|
99.1 |
Audited consolidated financial statements of DarkPulse Technologies
Inc. as of and for the years ended December 31, 2017 and 2016,
including the Independent Auditor’s Report thereon, and the notes
related thereto (incorporated by reference to Exhibit 10.2 to
Form 8K/A filed November 19, 2018) |
|
|
99.2
|
Unaudited interim condensed consolidated financial statements of
DarkPulse Technologies Inc. as of June 30, 2018, and for the six
months ended June 30, 2018 and 2017 and the notes related
thereto (incorporated by reference to Exhibit 10.2 to Form 8K/A
filed November 19, 2018)
|
|
|
31.1 |
Certification of President, Chief Executive
Officer, Chief Financial Officer, Chairman of the Board of
Directors Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the
Exchange Act. |
|
|
31.1 |
Certification of President, Chief Executive
Officer, Chief Financial Officer, Chairman of the Board of
Directors Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
|
101.INS |
XBRL Instance
Document |
101.SCH |
XBRL Schema Document |
101.CAL |
XBRL Calculation Linkbase
Document |
101.DEF |
XBRL Definition Linkbase
Document |
101.LAB |
XBRL Label Linkbase
Document |
101.PRE |
XBRL Presentation Linkbase
Document |
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
DARKPULSE,
INC. |
|
|
|
|
|
Dated: June 8,
2020 |
By: |
/s/ Dennis M. O’Leary |
|
|
|
Dennis M. O’Leary |
|
|
|
Chairman, Chief Executive Officer and President
Chief Financial Officer
Principal Executive Officer
Principal Financial Officer
Principal Accounting Officer
|
|
|
|
|
|
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities
indicated on this 8th day of June 2020.
Signature |
|
Title |
|
|
|
|
|
|
|
/s/ Dennis M. O’Leary
Dennis M. O’Leary
|
|
Chairman, Chief Executive Officer
and President Chief Financial Officer, Principal Executive Officer,
Principal Financial Officer and Principal Accounting
Officer |
|
|
DARKPULSE, INC.
Index to Financial Statements
As of December 31, 2019 and 2018
and for the Years Ended December 31, 2019 and 2018
Boyle CPA, LLC
Certified Public Accountants & Consultants
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and
Board of Directors of DarkPulse, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
DarkPulse, Inc. (the “Company”) as of December 31, 2019 and 2018,
the related consolidated statements of operations, comprehensive
loss, stockholders’ deficit, and cash flows for each of the two
years in the period ended December 31, 2019, and the related notes
(collectively referred to as the “financial statements”). In our
opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of
December 31, 2019 and 2018, and the results of its operations and
its cash flows for each of the two years in the period ended
December 31, 2019, in conformity with accounting principles
generally accepted in the United States of America.
Basis of Opinion
These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of
material misstatement, whether due to fraud or error. The Company
is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our
audits we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express
no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Substantial Doubt About
the Company’s Ability to Continue as a Going Concern
As discussed in Note 3 to the consolidated financial statements,
the Company’s net losses, lack of revenues, and working capital
deficiency raise substantial doubt about its ability to continue as
a going concern for one year from the issuance of these financial
statements. Management’s plans are also described in Note 3. The
financial statements do not include adjustments that might result
from the outcome of this uncertainty.
/s/ Boyle CPA, LLC
We have served as the Company’s auditor since 2019
Bayville, NJ
June 8, 2020
361 Hopedale Drive SE |
P (732) 822-4427 |
Bayville, NJ 08721 |
F (732) 510-0665 |
DARKPULSE, INC.
Consolidated Balance
Sheets
|
|
December 31, |
|
|
|
2019 |
|
|
2018 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
1,210 |
|
|
$ |
72,294 |
|
Prepaid
expenses |
|
|
746 |
|
|
|
746 |
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT
ASSETS |
|
|
1,956 |
|
|
|
73,040 |
|
|
|
|
|
|
|
|
|
|
Other assets, net |
|
|
116,495 |
|
|
|
70,679 |
|
Patents, net |
|
|
445,018 |
|
|
|
486,932 |
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS |
|
$ |
563,469 |
|
|
$ |
630,651 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
323,948 |
|
|
$ |
59,160 |
|
Convertible notes,
net of discount $39,414 and $440,800 respectively |
|
|
1,033,249 |
|
|
|
601,250 |
|
Derivative
liability |
|
|
1,275,500 |
|
|
|
653,831 |
|
Accrued
liabilities |
|
|
497,078 |
|
|
|
343,519 |
|
Contract
liability, related party |
|
|
42,000 |
|
|
|
42,000 |
|
Related party
notes payable |
|
|
44,096 |
|
|
|
44,096 |
|
Note
payable |
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES |
|
|
3,215,871 |
|
|
|
1,743,856 |
|
|
|
|
|
|
|
|
|
|
Secured
debenture |
|
|
1,155,150 |
|
|
|
1,102,243 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES |
|
|
4,371,021 |
|
|
|
2,846,099 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT: |
|
|
|
|
|
|
|
|
Convertible preferred stock - Class D (par value $0.01; 100,000
shares authorized; 88,235 issued and outstanding at December 31,
2019 and, 2018, respectively) |
|
|
883 |
|
|
|
883 |
|
Common
stock (par value $0.01), 20,000,000,000 shares authorized,
1,392,042,112 and 89,680,567 shares issued and outstanding at
December 31, 2019 and, 2018, respectively |
|
|
13,920,421 |
|
|
|
896,806 |
|
Treasury
stock, 100,000 shares at December 31, 2019 and December 31,
2018 |
|
|
(1,000 |
) |
|
|
(1,000 |
) |
Paid-in
capital in excess of par value |
|
|
(11,877,864 |
) |
|
|
859,481 |
|
Non-controlling interest in variable interest entity and
subsidiary |
|
|
(12,439 |
) |
|
|
(12,439 |
) |
Accumulated other comprehensive income |
|
|
336,775 |
|
|
|
389,680 |
|
Accumulated deficit |
|
|
(6,174,328 |
) |
|
|
(4,348,859 |
) |
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ DEFICIT |
|
|
(3,807,552 |
) |
|
|
(2,215,448 |
) |
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
|
$ |
563,469 |
|
|
$ |
630,651 |
|
See accompanying notes to consolidated financial statements.
DARKPULSE, INC.
Consolidated Statements of
Operations
|
|
For
the Year Ended |
|
|
|
December 31, |
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
REVENUES |
|
$ |
– |
|
|
$ |
– |
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
General and administrative |
|
|
183,083 |
|
|
|
219,656 |
|
Payroll and
compensation |
|
|
168,945 |
|
|
|
2,056,144 |
|
Legal |
|
|
118,280 |
|
|
|
– |
|
Research and
development |
|
|
– |
|
|
|
91,301 |
|
Debt transaction
expenses |
|
|
24,900 |
|
|
|
110,685 |
|
Amortization of
patents |
|
|
51,028 |
|
|
|
60,839 |
|
TOTAL
OPERATING EXPENSES |
|
|
546,236 |
|
|
|
2,538,625 |
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS |
|
|
(546,236 |
) |
|
|
(2,538,625 |
) |
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
Interest
expense |
|
|
(505,683 |
) |
|
|
(531,796 |
) |
Gain (Loss) on
convertible notes |
|
|
(405,386 |
) |
|
|
206,474 |
|
Gain (Loss) on
change in fair market value of derivative liabilities |
|
|
(368,164 |
) |
|
|
(159,324 |
) |
Loss on
merger |
|
|
– |
|
|
|
(294,788 |
) |
|
|
|
|
|
|
|
|
|
TOTAL
OTHER EXPENSE |
|
|
(1,279,233 |
) |
|
|
(779,434 |
) |
|
|
|
|
|
|
|
|
|
NET LOSS |
|
|
(1,825,469 |
) |
|
|
(3,318,059 |
) |
Net loss
attributable to non-controlling interests in variable interest
entity and subsidiary |
|
|
– |
|
|
|
– |
|
Net loss
attributable to Company stockholders |
|
$ |
(1,825,469 |
) |
|
$ |
(3,318,059 |
) |
LOSS PER SHARE |
|
|
|
|
|
|
|
|
Basic
and Diluted |
|
$ |
(0.00 |
) |
|
$ |
(0.04 |
) |
WEIGHTED AVERAGE SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
Basic
and Diluted |
|
|
487,850,346 |
|
|
|
89,680,567 |
|
See accompanying notes to consolidated financial statements.
DARKPULSE, INC.
Consolidated Statements of
Comprehensive Loss
|
|
For
the Year Ended |
|
|
|
December 31, |
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
NET LOSS |
|
|
(1,825,469 |
) |
|
|
(3,318,059 |
) |
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE LOSS |
|
|
|
|
|
|
|
|
Unrecognized Gain (Loss) on Foreign Exchange |
|
|
71,084 |
|
|
|
90,772 |
|
COMPREHENSIVE
LOSS |
|
$ |
(1,754,385 |
) |
|
$ |
(3,227,287 |
) |
See accompanying notes to consolidated financial statements.
DARKPULSE, INC.
Consolidated Statement of
Stockholders' Deficit
For the Years Ended December 31, 2019 and 2018
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Treasury |
|
|
Paid in
Capital in
Excess
of Par |
|
|
Non-
Controlling Interest in |
|
|
Accumulated Other
Comprehensive |
|
|
Accumulated |
|
|
Total Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Stock |
|
|
Value |
|
|
Subsidiary |
|
|
Income |
|
|
Deficit |
|
|
Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017 |
|
|
– |
|
|
$ |
– |
|
|
|
100 |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
– |
|
|
$ |
25,808 |
|
|
$ |
298,908 |
|
|
|
(1,030,800 |
) |
|
$ |
(706,084 |
) |
Recapitalization of the Company |
|
|
88,235 |
|
|
|
883 |
|
|
|
89,680,467 |
|
|
|
896,806 |
|
|
|
(1,000 |
) |
|
|
859,481 |
|
|
|
(38,247 |
) |
|
|
– |
|
|
|
(1,630,461 |
) |
|
|
87,462 |
|
Foreign currency adjustment |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
90,772 |
|
|
|
– |
|
|
|
90,772 |
|
Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1,687,598 |
) |
|
|
(1,687,598 |
) |
Balance, December 31, 2018 |
|
|
88,235 |
|
|
$ |
883 |
|
|
|
89,680,567 |
|
|
$ |
896,806 |
|
|
$ |
(1,000 |
) |
|
$ |
859,481 |
|
|
$ |
(12,439 |
) |
|
$ |
389,680 |
|
|
|
(4,348,859 |
) |
|
$ |
(2,215,448 |
) |
Conversion of convertible notes |
|
|
– |
|
|
|
– |
|
|
|
1,302,361,545 |
|
|
|
13,023,615 |
|
|
|
– |
|
|
|
(12,737,345 |
) |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
286,270 |
|
Foreign currency adjustment |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(52,905 |
) |
|
|
– |
|
|
|
(52,905 |
) |
Net loss |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
(1,825,469 |
) |
|
|
(1,825,469 |
) |
Balance, December 31, 2019 |
|
|
88,235 |
|
|
$ |
883 |
|
|
|
1,392,042,112 |
|
|
$ |
13,920,421 |
|
|
$ |
(1,000 |
) |
|
$ |
(11,877,864 |
) |
|
$ |
(12,439 |
) |
|
$ |
336,775 |
|
|
|
(6,174,328 |
) |
|
$ |
(3,807,552 |
) |
See accompanying notes to consolidated financial statements.
DARKPULSE, INC.
Consolidated Statements of
Cash Flows
|
|
For the Year Ended
December 31,
|
|
|
|
2019 |
|
|
2018 |
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(1,825,469 |
) |
|
$ |
(3,318,059 |
) |
Adjustments to reconcile net loss to
net cash used by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
51,028 |
|
|
|
51,028 |
|
Loan acquisition
costs |
|
|
24,900 |
|
|
|
153,601 |
|
Stock based
compensation |
|
|
141,860 |
|
|
|
1,602,570 |
|
Debt discount |
|
|
(205,000 |
) |
|
|
(865,730 |
) |
Amortization of
debt discount |
|
|
609,386 |
|
|
|
420,930 |
|
Derivative
liability |
|
|
621,670 |
|
|
|
653,831 |
|
Changes in operating assets and
liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
264,788 |
|
|
|
49,160 |
|
Contract
liability |
|
|
– |
|
|
|
42,000 |
|
Cash held by
officer of VIE |
|
|
– |
|
|
|
10,650 |
|
Prepaid
expenses |
|
|
– |
|
|
|
(746 |
) |
Accrued
liabilities |
|
|
145,233 |
|
|
|
309,924 |
|
Net
cash used by operating activities |
|
|
(171,604 |
) |
|
|
(890,841 |
) |
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Capitalized
patents |
|
|
(54,930 |
) |
|
|
(63,405 |
) |
Non-controlling interest |
|
|
– |
|
|
|
(38,247 |
) |
Net
cash used by investing activities |
|
|
(54,930 |
) |
|
|
(101,652 |
) |
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from
convertible debentures |
|
|
180,100 |
|
|
|
1,088,250 |
|
Repayments of
convertible debentures |
|
|
(24,650 |
) |
|
|
(42,200 |
) |
Proceeds from
related party notes payable |
|
|
– |
|
|
|
44,096 |
|
Repayments of notes payable |
|
|
– |
|
|
|
(33,384 |
) |
Net
cash provided by financing activities |
|
|
155,450 |
|
|
|
1,056,762 |
|
NET INCREASE (DECREASE) IN CASH |
|
|
(71,084 |
) |
|
|
64,269 |
|
CASH, beginning
of year |
|
|
72,294 |
|
|
|
8,025 |
|
CASH, end of
year |
|
$ |
1,210 |
|
|
$ |
72,294 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid during
the year ended December 31: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
– |
|
|
$ |
– |
|
Income taxes |
|
$ |
– |
|
|
$ |
– |
|
See accompanying notes to consolidated financial statements.
DARKPULSE, INC.
Notes to the Consolidated
Financial Statements
For the Years ended December 31, 2019 and 2018
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, 2019 and
2018 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 3 investors, whereby DPTI would
own 50.2% of DPTINY and the investors would own 49.8%. On or about
October 3, 2017, another investor entered into an agreement with
DPTINY to fund it $37,500 for a 0.5% equity interest in DPTINY. On
December 26, 2017, 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.
The Company does not own any interest in DarkPulse East LLC,
("DPE") an entity organized on December 8, 2017 in Russia, by two
of the shareholders of DPTIDel, to act as a sales organization to
promote the Company's products within Russia. Each of the two
shareholders own 50% interest in DPE. During November and December
2017 DPTINY funded DarkPulse East LLC a total of $20,650 to
establish and launch the Company's business in Russia. The Company
is considered to be the primary beneficiary of DPE based on
implicit obligations to fund it, and accordingly, the operations of
DPE are consolidated into these financial statements. As of
December 31, 2018, DPE had no assets or liabilities. The Company is
not liable for obligations of DPE, and creditors of DPE do not have
recourse to the general credit of the Company.
On February 8, 2018, DPTI formed DarkPulse BVTK, LLC, a Virginia
Limited Liability Company (“JV Entity”). The Company, through its
wholly-owned subsidiary DPTI, holds a 60% equity interest in the JV
Entity, and Bravatek Solutions, Inc ("Bravatek") has a 40%
interest. The primary business purpose of the JV Entity was to
develop, market, and sell products and services based on the
Company's patented BOTDA dark-pulse technology. Both the CEO of the
Company and the CEO of Bravatek were to manage the day to day
operations of the JV Entity. The operations of JV Entity are not
consolidated into these financial statements.
On March 26, 2019, DPTI informed the JV Entity and Bravatek that,
effective immediately, DPTI was revoking from the JV Entity the
revocable Licensed Technology exclusively owned by DPTI and the
Company.
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
$250,000. To reduce its risk associated with the failure of
such financial institution, the Company evaluates at least annually
the rating of the financial institution in which it holds
deposits.
Foreign Currency Translation
The Company’s reporting currency is US Dollars. The accounts of one
of the Company’s subsidiaries is maintained using the appropriate
local currency, Canadian Dollar (“CAD”) as the functional currency.
All assets and liabilities are translated into U.S. Dollars at
balance sheet date, shareholders' equity is translated at
historical rates and revenue and expense accounts are translated at
the average exchange rate for the year or the reporting period. The
translation adjustments are reported as a separate component of
stockholders’ equity, captioned as accumulated other comprehensive
(loss) gain. Transaction gains and losses arising from exchange
rate fluctuations on transactions denominated in a currency other
than the functional currency are included in the statements of
operations.
The relevant translation rates are as follows: for the year ended
December 31, 2019 closing rate at 1.2988 US$: CAD, average rate at
1.3234 US$:CAD and for the year ended December 31, 2018 closing
rate at 1.3642 US$: CAD, average rate at 1.2958 US$.
Intangible assets
Intangible assets consist of capitalized software development costs
and patents and trademarks.
The Company reviews intangibles held and used for possible
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In
evaluating the fair value and future benefits of its intangible
assets, management performs an analysis of the anticipated
undiscounted future net cash flow of the individual assets over the
remaining amortization period. The Company recognizes an impairment
loss if the carrying value of the asset exceeds the expected future
cash flows.
Intangible Assets - Intrusion Detection Intellectual
Property
The Company relies on patent laws and restrictions on disclosure to
protect its intellectual property rights. As of December 31, 2019,
the Company held 3 U.S. and foreign patents on its intrusion
detection technology, which expire in calendar years 2025 through
2034 (depending on the payment of maintenance fees).
The DPTI issued patents cover a System and Method for Brillouin
Analysis, a System and Method for Resolution Enhancement of a
Distributed Sensor, and a Flexible Fiber Optic Deformation System
Sensor and Method. Maintenance of intellectual property rights and
the protection thereof is important to our business. Any patents
that may be issued may not sufficiently protect the Company's
intellectual property and third parties may challenge any issued
patents. Other parties may independently develop similar or
competing technology or design around any patents that may be
issued to the Company. The Company cannot be certain that the steps
it has taken will prevent the misappropriation of its intellectual
property, particularly in foreign countries where the laws may not
protect proprietary rights as fully as in the United States.
Further, the Company may be required to enforce its intellectual
property or other proprietary rights through litigation, which,
regardless of success, could result in substantial costs and
diversion of management's attention. Additionally, there may be
existing patents of which the Company is unaware that could be
pertinent to its business, and it is not possible to know whether
there are patent applications pending that the Company's products
might infringe upon, since these applications are often not
publicly available until a patent is issued or published.
For the year ended December 31, 2019, 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, 2019:
Balance at January 1, 2019 |
|
$ |
486,932 |
|
Additions |
|
|
9,114 |
|
Amortization |
|
|
(51,028 |
) |
Balance at December 31, 2019 |
|
$ |
445,018 |
|
The following is a summary of the DPTI patents as of December 31,
2019:
|
|
2019 |
|
Historical cost |
|
$ |
904,269 |
|
Accumulated
amortization |
|
|
(459,251 |
) |
Carrying
Value |
|
$ |
445,018 |
|
Future expected amortization of intangible assets is as
follows:
Year Ending December 31, |
|
|
|
2020 |
|
$ |
51,028 |
|
2021 |
|
|
51,028 |
|
2022 |
|
|
51,028 |
|
2023 |
|
|
51,028 |
|
2024 |
|
|
51,028 |
|
Thereafter |
|
|
189,878 |
|
|
|
$ |
445,018 |
|
Intangible Assets - Capitalized software, trademarks, and other
patents
The Company capitalizes software development costs incurred from
the time technological feasibility has been obtained until the
product is generally released to customers. Amortization of
capitalized software development costs begins when the products are
available to customers and is computed using the straight-line
method over the remaining estimated economic life of the product.
The Company achieved technological feasibility with regard to its
mobile phone technology during the fourth quarter of 2010. No
software development costs were incurred and capitalized during the
years ended December 31, 2019 and 2018, and no amortization expense
for software development costs was recorded for the years ended
December 31, 2019 and 2018.
The costs of patents and trademarks related to the Company's
software are amortized on a straight-line basis over 5 years from
the date the patent or trademark is issued. Amortization expense
for patents and trademarks related to the Company's software was $0
and $9,811 for the years ended December 31, 2019 and 2018,
respectively.
Intangible assets are tested for impairment on an annual basis or
when the facts and circumstances suggest that the carrying amount
of the assets may not be recovered.
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. In December 2018,
the Company determined that the products associated with the
capitalized software and corresponding trademarks and patents were
not in the Company’s immediate future due to the fact that future
cash raised would be used for the further development of its
intrusion detection technology. As such the Company determined it
was appropriate to impair these assets and recorded an impairment
charge of $294,238 for the year ended December 31, 2018.
Property and Equipment
Property and equipment are capitalized and depreciated over their
estimated economic useful lives. Upon sale or other disposition of
property and equipment, the cost and related accumulated
depreciation or amortization are removed from the accounts and any
gain or loss is included in the determination of income or loss.
The Company had no assets as of December 31, 2019 and 2018.
Revenue Recognition
The Company currently has no revenues from its operations. We
anticipate that revenues from product sales, net of estimated
returns and allowances, will be recognized when evidence of an
arrangement is in place, related prices are fixed and determinable,
contractual obligations have been satisfied, title and risk of loss
have been transferred to the customer and collection of the
resulting receivable is reasonably assured.
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.
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 2019 and 2018. The Company has filed
tax returns in Canada for the years ending December 31, 2018, 2017,
2016, 2015, 2014, and 2013, and they are still subject to
audit.
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.
|
|
|
December 31, 2019 |
|
|
|
December 31, 2018 |
|
Convertible preferred
stock |
|
|
– |
|
|
|
– |
|
Stock Options |
|
|
– |
|
|
|
– |
|
Stock
Warrants |
|
|
– |
|
|
|
– |
|
Total |
|
|
– |
|
|
|
– |
|
Recently Issued Accounting Pronouncements
On February 25, 2016, the FASB issued Accounting Standards Update
No. 2016-02, Leases (Topic 842). The new guidance establishes the
principles to report transparent and economically neutral
information about the assets and liabilities that arise from
leases. The updated standard was effective for us in the first
quarter of 2019. Adoption of this standard did not have a material
impact on the Company’s financial statements as the Company does
not have any leases.
In August 2018, the FASB issued Accounting Standards Update No.
2018-15 (“ASU 2018-15”), Intangibles — Goodwill and
Other — Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing
Arrangement That Is a Service Contract. The standard is
intended to clarify the accounting for implementation costs of a
hosting arrangement that is a service contract. For the Company,
the amendments in ASU 2018-15 are effective for annual periods
beginning January 1, 2021. The Company is evaluating the impact
this new guidance may have on its Consolidated Financial
Statements.
In December 2019, the FASB issued Accounting Standards Update No.
2019-12 (“ASU 2019-12”), Income Taxes (Topic 740): Simplifying
the Accounting for Income Taxes. The standard is intended to
simplify the accounting for income taxes by removing certain
exceptions to the general principles in Topic 740, as well as
improve consistent application of and simplify GAAP for other areas
of Topic 740 by clarifying and amending existing guidance. For the
Company, the amendments in ASU 2019-12 are effective for annual
periods beginning January 1, 2022. The Company is evaluating the
impact this new accounting guidance may have on its Consolidated
Financial Statements.
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 $1,825,469 and $3,318,059 during the years
ended December 31, 2019 and 2018, respectively. The Company did not
generate any revenue from product sales during the years ended
December 31, 2019 and 2018. As of December 31, 2019, the Company’s
current liabilities exceeded its current assets by $3,213,915. As
of December 31, 2019, the Company had $1,210 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 and expansion of its operations. The
accompanying financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as
a going concern. Management is actively pursuing additional sources
of financing sufficient to generate enough cash flow to fund its
operations through calendar year 2020. However, management cannot
make any assurances that such financing will be secured.
NOTE 4 – REVERSE ACQUISITION
Effective April 27, 2018, the Company, formerly known as Klever
Marketing, Inc. ("Klever"), entered into a Merger Agreement with
DarkPulse Technologies Inc., pursuant to which the DarkPulse
Technologies Inc. shareholders agreed to contribute 100% of the
outstanding securities of DarkPulse Technologies Inc. in exchange
for an aggregate of 88,235 shares of our Series D Preferred Stock.
Following the closing, DarkPulse Technologies Inc. became a wholly
owned subsidiary and the DarkPulse Technologies Inc. shareholders
became our stockholders and control our Company through the
ownership of the outstanding preferred stock.
The transaction was accounted for as a reverse acquisition using
the acquisition method of accounting in accordance with FASB ASC
Topic 805. DarkPulse Technologies Inc. is the acquirer solely for
financial accounting purposes. The following table summarizes the
purchase accounting for the fair value of the assets acquired and
liabilities assumed at the date of the reverse acquisition.
Capitalized
software |
|
$ |
262,243 |
|
Patents and trademarks, net |
|
|
42,356 |
|
Total assets acquired |
|
|
304,599 |
|
Due to former management |
|
|
150,000 |
|
Total liabilities assumed |
|
|
150,000 |
|
Total assets less liabilities
assumed |
|
|
154,599 |
|
|
|
|
|
|
|
|
|
|
|
Net assets attributed to
non-controlling interests (Klever shareholders) |
|
|
23,190 |
|
Net assets acquired |
|
|
131,409 |
|
Consideration [1] |
|
|
131,409 |
|
[1] The fair value of the
consideration effectively transferred, $131,409, was measured based
on the net asset value of the Klever Marketing, Inc. assets
immediately before the transaction.
The merger agreement was modified on June 29, 2018. The Company
secured financing for the closing of the Merger, and it closed on
July 18, 2018. On July 20, 2018, Klever's name was changed to
DarkPulse Inc., ("DPI") and on September 4, 2018, DarkPulse. Inc.'s
stock symbol was changed to DPLS. On August 17, 2018, the Merger
Agreement was amended effective July 18, 2018, to effect the merger
by share exchange instead of by subsidiary merger. On July 18,
2018, the 882 outstanding common shares of DarkPulse Technologies
Inc. were exchanged for 88,235 shares of Klever Marketing Inc.
Series D Preferred Stock. The Company is now a wholly owned
subsidiary of DPI, a publicly traded company incorporated in
Delaware. Terms of the Merger Agreement were that all outstanding
liabilities of Klever would be settled in full prior to the merger,
with the single exception for two year notes to be issued to the
prior management of Klever in the total amount of $150,000 at zero
percent interest. Additionally, all outstanding shares of preferred
stock would be retired and cancelled, and approximately 28,358,000
shares of common stock would be issued to the former management,
who were also the shareholders of the preferred shares to be
cancelled. At the closing of the merger, the Klever common
stockholders owned approximately 15% of the ownership of the merged
entity, and the DarkPulse Technologies Inc. shareholders owned
approximately 85% of the entity. The intellectual property assets
of Klever remained in the merged entity. Cash assets in the Klever
bank account were used to settle the prior outstanding liabilities,
and were not for the benefit of the newly merged entity.
NOTE 5 – 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, 2019. Management
determined the expected volatility between 402.91-545.47%, a risk
free rate of interest between 1.58-1.59%, and contractual lives of
the debt varying from zero months to seven 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,
2019. 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.
|
|
Face |
|
|
Debt |
|
|
Initial |
|
|
Change |
|
|
Derivative
Balance |
|
|
|
Amount |
|
|
Discount |
|
|
Loss |
|
|
in FMV |
|
|
12/31/2019 |
|
|
|
$ |
90,228 |
|
|
$ |
– |
|
|
$ |
58,959 |
|
|
$ |
(10,369 |
) |
|
$ |
134,662 |
|
|
|
|
162,150 |
|
|
|
– |
|
|
|
74,429 |
|
|
|
101,920 |
|
|
|
243,386 |
|
|
|
|
72,488 |
|
|
|
– |
|
|
|
11,381 |
|
|
|
1,286 |
|
|
|
79,663 |
|
|
|
|
208,436 |
|
|
|
– |
|
|
|
– |
|
|
|
134,777 |
|
|
|
257,815 |
|
|
|
|
76,657 |
|
|
|
– |
|
|
|
8,904 |
|
|
|
19,762 |
|
|
|
94,925 |
|
|
|
|
65,372 |
|
|
|
– |
|
|
|
5,651 |
|
|
|
27,560 |
|
|
|
104,959 |
|
|
|
|
53,864 |
|
|
|
4,040 |
|
|
|
28,566 |
|
|
|
32,262 |
|
|
|
32,262 |
|
|
|
|
25,468 |
|
|
|
2,175 |
|
|
|
16,558 |
|
|
|
15,254 |
|
|
|
15,254 |
|
|
|
|
29,250 |
|
|
|
1,220 |
|
|
|
– |
|
|
|
25,157 |
|
|
|
27,920 |
|
|
|
|
49,726 |
|
|
|
2,418 |
|
|
|
– |
|
|
|
43,210 |
|
|
|
47,465 |
|
|
|
|
41,774 |
|
|
|
2,032 |
|
|
|
– |
|
|
|
36,300 |
|
|
|
39,875 |
|
|
|
|
29,250 |
|
|
|
1,423 |
|
|
|
– |
|
|
|
25,157 |
|
|
|
27,920 |
|
|
|
|
40,000 |
|
|
|
9,945 |
|
|
|
10,605 |
|
|
|
22,954 |
|
|
|
22,954 |
|
|
|
|
128,000 |
|
|
|
16,161 |
|
|
|
17,676 |
|
|
|
146,440 |
|
|
|
146,440 |
|
Subtotal |
|
|
1,072,663 |
|
|
|
39,414 |
|
|
|
232,729 |
|
|
|
(621,670 |
) |
|
|
1,275,500 |
|
Transaction expense |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
$ |
1,072,663 |
|
|
$ |
39,414 |
|
|
$ |
232,729 |
|
|
$ |
(621,670 |
) |
|
$ |
1,275,500 |
|
On July 17, 2018, The Company entered into a securities purchase
agreement with Carebourn Capital L.P., (“Carebourn”) issuing to
Carebourn a convertible promissory note in the aggregate principal
amount of $189,750 with a $24,750 original issue discount and
$15,000 in transactional expenses due to Carebourn. The note bears
interest at 12% per annum and may be converted into common shares
of DPI's common stock at a conversion price equal to 60% of the
average of the three lowest trading prices of the DPI's common
stock during the 20 prior trading days. For the years ended
December 31, 2019 and 2018, the Company made repayments totaling
$32,090 and $42,200. For the year ended December 31, 2019,
Carebourn converted $53,932 in principal of its' convertible note
into 7,688,347 shares of common stock.
On July 27, 2018, The Company entered into a securities purchase
agreement with Carebourn, issuing to Carebourn a convertible
promissory note in the aggregate principal amount of $276,000 with
a $36,000 original issue discount and $15,000 in transactional
expenses due to Carebourn. The note bears interest at 12% per annum
and may be converted into common shares of the Company's common
stock at a conversion price equal to 60% of the average of the
three lowest trading prices of the Company's common stock during
the 20 prior trading days. As of December 31, 2019, the Company
received $150,000 net cash, and $75,000 is not expected to be
received. For the years ended December 31, 2019 and 2018, the
Company made repayments totaling $10,150 and $0.
On August 20, 2018, the Company entered into a securities purchase
agreement with More Capital LLC, ("More") issuing to More a
convertible promissory note in the aggregate principal amount of
$152,000 with a $20,000 original issue discount and $7,000 in
transactional expenses due to More. The note bears interest at 12%
per annum and may be converted into common shares of the Company's
common stock at a conversion price equal to 60% of the average of
the three lowest trading prices of the Company's common stock
during the 20 prior trading days. As of December 31, 2019, the
Company received $70,000 net cash, and $55,000 is not expected to
be received. For the years ended December 31, 2019 and 2018, More
converted $24,512 and $0 in principal of its' convertible note into
20,880,639 and 0 shares of common stock.
On September 24, 2018, the Company entered into a securities
purchase agreement with Auctus Fund, LLC, (“Auctus”) issuing to
Auctus a convertible promissory note in the aggregate principal
amount of $100,000 with $10,250 in transactional expenses due to
Auctus and its counsel. The note bears interest at 8% per annum and
may be converted into common shares of the Company's common stock
at a conversion price equal to 70% of the lowest trading price of
the Company's common stock during the 20 prior trading days. As of
November 30, 2018, the Company has been in breach of the note and
default interest as of that date at the rate of 24% due to the
failure to maintain the required amount of reserve shares. The
Company received $89,750 net cash on September 27, 2018. For the
years ended December 31, 2019 and 2018, Auctus converted $23,343
and $0 in principal of its' convertible note into 377,325,592, and
0 shares of common stock. On May 18, 2020, the Company received a
default notice from Auctus demanding full payment of the note and
damages of $155,729. The Company has notified Auctus that a full
review of their conversions is underway due to some inconsistencies
in previous conversion prices thus conversion amounts.
On September 25, 2018, the Company entered into a securities
purchase agreement with EMA Financial, LLC, (“EMA”) issuing to EMA
a convertible promissory note in the aggregate principal amount of
$100,000 with a 6% original issue discount and $4,000 in
transactional expenses due to EMA. The note originally bore
interest at 8% per annum and was converted into common shares of
the Company's common stock at a conversion price equal to the lower
of current market price, $0.25, or 70% of the lowest trading price
of the Company's common stock during the 20 prior trading days. Due
to an outstanding balance of the convertible promissory note at
maturity, the conversion price is now 55%, down from 70%, and the
interest rate has increased to 24% from 8%. The Company received
$90,000 net cash on September 28, 2018. For the years ended
December 31, 2019 and 2018, EMA converted $37,628 and $0 in
principal of its' convertible note into 188,100,000 and 0 shares of
common stock.
On September 24, 2018, the
Company entered into a securities purchase agreement with
FirstFire Global Opportunities Fund LLC, (“FirstFire”) issuing to
FirstFire a convertible promissory note in the aggregate principal
amount of $247,500, with a $22,500 original issue discount and
$5,000 in transactional expenses due to FirstFire's counsel. The
note bears interest at 8% per annum and may be converted into
common shares of the Company's common stock at a conversion price
equal to the lower of $0.25, or 70% of the lowest trading price of
the Company's common stock during the 20 prior trading days. The
Company received $220,000 net cash on October 9, 2018. For
the years ended December 31, 2019 and 2018, EMA converted $37,628
and $0 in principal of its' convertible note into 188,100,000 and 0
shares of common stock.
On January 10, 2019, the Company entered into a Securities Purchase
Agreement with GS Capital Partners, LLC, (“GS Capital”) issuing a
convertible redeemable note in the principal amount of $65,000.
The note may be converted
into common shares of the Company's common stock at a conversion
price equal to the lower of $0.25, or 70% of the lowest trading
price of the Company's common stock during the 20 prior trading
days. For the year ended December 31, 2019, GS Capital
converted $11,136 in principal of its' convertible note into
79,605,027 shares of common stock.
On February 12, 2019, the Company entered into a securities
purchase agreement with Crown Bridge Partners, LLC, (“Crown”) issuing a convertible
promissory note in the aggregate principal amount of up to $35,000.
The note may be converted into common shares of the Company's
common stock at a conversion price equal 70% of the lowest trading
price of the Company's common stock during the 20 prior trading
days. For the year ended December 31, 2019, Crown converted $9,532
in principal of its' convertible note into 259,259,259 shares of
common stock.
On April 23, 2019, the Company entered into a securities purchase
agreement with GS Capital Partners, LLC, ("GS Capital") issuing to
GS Capital a convertible promissory note in the aggregate principal
amount of $40,000 with a $2,000 original issue discount and $2,000
in transactional expenses due to GS Capital 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 average of the three lowest trading prices of
the Company's common stock during the 20 prior trading days. As of
the date the consolidated financial statements were available for
issuance, DPI received $36,000 net cash. For the year ended
December 31, 2019, GS Capital has not converted principal into
common stock.
On May 3, 2019, 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 $64,000 with a $6,000 original issue discount and $2,800
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 $55,200 net
cash. For the year ended December 31, 2019, Geneva has not
converted principal into common stock. The Company was notified on
October 15, 2019 that the note was in default and subject to a 200%
penalty. The additional $64,000 was recorded as interest expense as
of December 31, 2019.
As of December 31, 2019 and 2018 respectively, there was $1,040,663
and $601,250 of convertible debt outstanding, net of debt discount
of $93,138, and $440,800, As of December 31, 2019 and 2018
respectively, there was derivative liability of $323,481 and
$653,831 related to convertible debt securities.
NOTE 6 - DEBENTURE
DPTI issued a convertible Debenture to the University (see Note 1)
in exchange for the Patents assigned to the Company, in the amount
of Canadian $1,500,000, or US $1,491,923 on December 16, 2010, the
date of the Debenture. On April 24, 2017 DPTI issued a replacement
secured term Debenture in the same C$1,500,000 amount as the
original Debenture. The interest rate is the Bank of Canada Prime
overnight rate plus 1% per annum. The Debenture had an initial
required payment of Canadian $42,000 (US$33,385) due on April 24,
2018 for reimbursement to the University of its research and
development costs, and this has been paid. Interest-only
maintenance payments are due annually starting after April 24,
2018. Payment of the principal begins on the earlier of (a) three
years following two consecutive quarters of positive earnings
before interest, taxes, depreciation and amortization, (b) six
years from April 24, 2017, or (c) in the event DPTI fails to raise
defined capital amounts or secure defined contract amounts by April
24 in the years 2018, 2019, and 2020. The Company has raised funds
in excess of the amount required by April 24, 2018. The principal
repayment amounts will be due quarterly over a six year period in
the amount of Canadian Dollars $62,500. Based on the exchange rate
between the Canadian Dollar and the U.S. Dollar on 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, 2019,
and 2018, were $71,084 and $90,772 respectively. These
amounts are included in Accumulated Other Comprehensive Loss in the
Equity section of the consolidated balance sheet, and as Unrealized
Loss on Foreign Exchange on the consolidated statement of
comprehensive loss. The Debenture also includes a provision
requiring DPTI to pay the University a two percent (2%) royalty on
sales of any and all products or services which incorporate the
Patents for a period of five (5) years from April 24, 2018.
For the years ended December 31, 2019, and 2018, the Company
recorded interest expense of $52,538 and $76,275,
respectively.
As of December 31, 2019 the debenture liability totaled $1,155,150,
all of which was long term.
Future minimum required payments over the next 5 years and
thereafter are as follows:
Period ending December
31, |
|
|
|
|
2020 |
|
|
$ |
0 |
|
2021 |
|
|
|
0 |
|
2022 |
|
|
|
0 |
|
2023 |
|
|
|
0 |
|
2024 and after |
|
|
|
1,155,150 |
|
Total |
|
|
$ |
1,155,150 |
|
NOTE 7 – ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December 31:
|
|
2019 |
|
|
2018 |
|
Accrued payroll |
|
$ |
293,434 |
|
|
$ |
202,112 |
|
Taxes |
|
|
1,996 |
|
|
|
1,996 |
|
Accrued
interest |
|
|
201,648 |
|
|
|
139,411 |
|
|
|
$ |
497,078 |
|
|
$ |
343,519 |
|
NOTE 8 – INCOME TAXES
The provision (benefit) for income taxes for the years ended
December 31, 2019 and 2018 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, 2019 and 2018:
|
|
2019 |
|
|
2018 |
|
Statutory tax rate: |
|
|
|
|
|
|
|
|
U.S. |
|
|
21.00% |
|
|
|
21.00% |
|
State taxes |
|
|
3.63% |
|
|
|
3.63% |
|
Change in
valuation allowance: |
|
|
(24.63)% |
|
|
|
(24.63)% |
|
|
|
|
–% |
|
|
|
–% |
|
The Company’s deferred tax assets and liabilities as of December
31, 2019 and 2018 are as follows:
|
|
2019 |
|
|
2018 |
|
Deferred Tax (Liabilities): |
|
|
|
|
|
|
|
|
Net operating losses |
|
$ |
1,283,957 |
|
|
$ |
834,344 |
|
Intangible assets |
|
|
(208 |
) |
|
|
(208 |
) |
Less: Valuation
allowance |
|
|
(1,283,749 |
) |
|
|
(834,136 |
) |
|
|
$ |
– |
|
|
$ |
– |
|
The Company has approximately $1,284,000 non-capital income tax
losses as of December 31, 2019, which will begin to expire in the
year 2038.
The Company calculates its income tax expense by estimating the
annual effective tax rate and applying that rate to the
year-to-date ordinary income (loss) at the end of the period. 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, 2019 and
2018, the Company calculated its estimated annualized effective tax
rate at 0% and 0%, respectively, for both the United States and
Canada. The Company had no income tax expense on its losses for the
years ended December 31, 2019 and 2018, 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, 2019 and 2018, 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.
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 9 – PREFERRED STOCK
In accordance with the Company’s bylaws, the Company has authorized
a total of 2,000,000 shares of preferred stock, par value $0.01 per
share, for all classes. As of December 31, 2019 and 2018
respectively, there were 88,235 and 88,235 total preferred shares
issued and outstanding for all classes.
On July 12, 2018, the Company filed a Certificate of Designation
with the State of Delaware amending the designation of its
previously designated “Class D Voting Preferred Stock,” designating
100,000 shares of the Company’s preferred stock as “Series D
Preferred Stock.” Each share of Series D Preferred Stock entitles
the holder to 6,000 votes on all matters submitted to a vote of the
Company’s stockholders and is convertible at the election of the
holder into a number of shares of common stock equal to the number
of outstanding shares of common stock of the Company multiplied by
5 ⅔, divided by the number of outstanding shares of Series D
Preferred Stock. All of these shares are owned by the Company's
management, with control ownership held by the Company's CEO.
NOTE 10 – COMMON STOCK
On July 1, 2019, the majority stockholders holding a majority of
the issued and outstanding voting shares of the Company amended the
Company’s Certificate of Incorporation to increase the number of
authorized shares of Common Stock from 3,000,000,000 to
20,000,000,000.
In accordance with the Company’s bylaws, the Company has authorized
a total of 20,000,000,000 shares of common stock, par value $0.01
per share. As of December 31, 2019 and 2018, there were
1,392,042,112 and 89,680,567 common shares issued and
outstanding.
During the year ended December 31, 2019, the Company issued
1,302,361,545 shares of common stock as settlement of notes payable and
accrued interest in the total amount of $184,737 and $54,534
respectively.
During the year ended December 31, 2018, the Company issued
28,358,000 shares of common stock as settlement of deferred compensation
and notes payable to former officers and directors of the Company
in the total amount of $558,745.74, and in recognition of the
upcoming cancellation of the PSF, Inc. preferred shares.
At December 31, 2019, the Company had 1,589,257,888 in common
shares reserved for issuance for convertible debt securities.
On February 5, 2019, the majority stockholders holding a majority
of the issued and outstanding voting shares of the Company amended
the Company’s Certificate of Incorporation to increase the number
of authorized shares of Common Stock from 250,000,000 to
3,000,000,000.
NOTE 11 – STOCK OPTIONS
The shareholders approved, by a majority vote, the adoption of the
1998 Stock Incentive Plan (the “Plan”). As amended on August 11,
2003, the Plan reserves 20,000,000 shares of common stock for
issuance upon the exercise of options which may be granted from
time-to-time to officers, directors, certain employees and
consultants of the Company or its subsidiaries by the Board of
Directors. The Plan permits the award of both qualified and
non-qualified incentive stock options.
As of December 31, 2019 and 2018, the Company had no outstanding
stock options.
NOTE 12 – 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.
Potential Commission Payments
The Company, in consideration of the Strategic Alliance Agreement
with Bravatek, for the purpose of promoting the Company’s products,
will pay Bravatek sales commissions for clients introduced to the
Company by Bravatek. This agreement expired on September 5,
2019.
License agreement with Battelle Memorial Institute
On December 27, 2018, the Company signed a license agreement with
Battelle Memorial Institute ("Battelle"). The license agreement
allows the Company to utilize patents of Battelle for payments
totaling $30,000. The Company also must pay a royalty of 6% of
gross sales and 25% of sublicensing revenue. The minimal royalties
under the agreement are as follows:
2019 |
|
$ |
10,000 |
|
2020 |
|
|
30,000 |
|
2021 |
|
|
50,000 |
|
2022 and thereafter |
|
|
80,000 |
|
|
|
$ |
170,000 |
|
Legal Matters
On October 2, 2018, the
Company received a demand for payment from Bravatek Solutions, Inc.
for payment in the amount of $35,750 for software
services. The Company is not a party to any significant
pending legal proceedings, and no other such proceedings are known
to be contemplated. No director, officer or affiliate of the
Company, and no owner of record or beneficial owner of more than
5.0% of the securities of the Company, or any associate of any such
director, officer or security holder is a party adverse to the
Company or has a material interest adverse to the Company in
reference to pending litigation.
On March 27, 2019, Thomas A. Cellucci, et al. v. DarkPulse, Inc. et
al. (the “Complaint”) was filed in the United States District Court
for the Southern District of New York by certain of the Company’s
former executive officers, one also being a former director, and a
non-employee shareholder (collectively, the “Plaintiffs”), against
the Company, its sole officer and director, and others, claiming
that the Plaintiffs brought the action to protect their individual
rights as minority shareholders, as improperly-ousted officers
(other than the non-employee shareholder), and as an
improperly-ousted director, seeking equitable relief, damages,
recovery of unpaid salaries and other relief. It is the Company's
position that the Complaint represents a frivolous harassment
lawsuit, and the Company intends to file a motion to dismiss all
claims made in the Complaint and intends to otherwise defend itself
vigorously in this matter. The Company is also exploring filing
counterclaims against the Plaintiffs in the action.
From time to time, we may become involved in litigation relating to
claims arising out of our operations in the normal course of
business. We are not currently involved in any pending legal
proceeding or litigation and, to the best of our knowledge, no
governmental authority is contemplating any proceeding to which we
are a party or to which any of our properties is subject, which
would reasonably be likely to have a material adverse effect on our
business, financial condition and operating results.
COVID-19
On March 11, 2020, the World Health Organization announced that
infections of the novel Coronavirus (COVID-19) had become pandemic,
and on March 13, the U.S. President announced a National Emergency
relating to the disease. There is a possibility of continued
widespread infection in the United States and abroad, with the
potential for catastrophic impact. National, state and local
authorities have required or recommended social distancing and
imposed or are considering quarantine and isolation measures on
large portions of the population, including mandatory business
closures. These measures, while intended to protect human life, are
expected to have serious adverse impacts on domestic and foreign
economies of uncertain severity and duration. Some economists are
predicting the United States will soon enter a recession. The
sweeping nature of the coronavirus pandemic makes it extremely
difficult to predict how the Company’s business and operations will
be affected in the longer run, but we expect that it may materially
affect our business, financial condition and results of operations.
The extent to which the coronavirus impacts our results will depend
on future developments, which are highly uncertain and cannot be
predicted, including new information which may emerge concerning
the severity of the coronavirus and the actions to contain the
coronavirus or treat its impact, among others. Moreover, the
coronavirus outbreak has begun to have indeterminable adverse
effects on general commercial activity and the world economy, and
our business and results of operations could be adversely affected
to the extent that this coronavirus or any other epidemic harms the
global economy generally and/or the markets in which we operate
specifically. Any of the foregoing factors, or other cascading
effects of the coronavirus pandemic that are not currently
foreseeable, could materially increase our costs, negatively impact
our revenues and damage the Company’s results of operations and its
liquidity position, possibly to a significant degree. The duration
of any such impacts cannot be predicted.
NOTE 13– 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 year ended December 31, 2018, two of the Company’s
previous officers and directors of the Company advanced personal
funds in the amount of $10,689 for Company expenses, and $10,689
was repaid to them prior to December 31, 2018.
In May 2018, the JV Entity received $42,000 for an order from
Bravetek and the JV Entity then placed a corresponding order with
the Company. The Company’s former executive office is also the CEO
of Bravatek. The proceeds were to be used for marketing efforts to
generate sales of our intrusion detection product. The order has
been recorded as a prepaid sale and is a current liability as of
December 31, 2019.
NOTE 14 – SUBSEQUENT EVENTS
On April 29, 2020, the Company issued an aggregate of 68,571,429
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $4,800.
On May 4, 2020, the Company issued an aggregate of 72,857,143
shares of common stock upon the conversion of convertible debt, as
issued on May 3, 2019, in the amount of $5,100.
On March 11, 2020, the World Health Organization declared a
pandemic related to the rapidly spreading coronavirus (COVID-19)
outbreak, which has led to a global health emergency. The extent of
the public-health impact of the outbreak is currently unknown and
rapidly evolving, and the related health crisis could adversely
affect the global economy, resulting in an economic downturn. Any
disruption of the Company’s facilities or those of our suppliers
could likely adversely impact the Company’s operations. Currently,
there is significant uncertainty relating to the potential effect
of the novel coronavirus on our business.