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Table of Contents

 

As filed with the Securities and Exchange Commission on December 1, 2021

 

Registration No. 333-______

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

DARKPULSE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   7372   87-0472109

(State or Other Jurisdiction

of Incorporation)

 

(Primary Standard

Classification Code)

 

(IRS Employer

Identification No.)

 

1345 Ave of the Americas, 2nd Floor

New York, NY 10105

(800) 436-1436

(Address, including zip code, and telephone number, including area code of registrant’s principal executive offices)

 

The Corporation Trust Company

Corporation Trust Center

1209 Orange St.

Wilmington, DE 19801

(302) 658-7581

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Brian Higley, Esq.

Business Legal Advisors, LLC

14888 Auburn Sky Drive

Draper, UT 84020

(801) 634-1984

 

Approximate date of commencement of proposed sale to the public:

As soon as practicable after the effective date of this Registration Statement.

 

Approximate date of commencement of proposed sale to the public: As soon as practicable and from time to time after this Registration Statement is declared effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☒

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

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. ☐

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class of Securities to be Registered  

Amount

Registered

(1)(2)

   

Proposed

Maximum

Offering

Price Per

Share (3)

   

Proposed

Maximum

Aggregate

Offering

Price

   

Amount of

Registration

Fee

 
Common Stock, $0.0001 par value per share, issuable upon purchase of Shares (as defined below)     300,000,000     $ 0.08915     $ 26,745,000     $ 2,479.26  
                                 
Total     300,000,000     $ 0.08915     $ 26,745,000     $ 2,479.26  

__________

(1) All shares registered pursuant to this registration statement are to be offered by the Selling Security Holder (as defined below). Pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”), this registration statement also covers such indeterminate number of additional shares of the registrant’s Common Stock, $0.0001 par value per share, issued to prevent dilution resulting from stock splits, stock dividends or similar events.
   
(2) Represents shares of the registrant’s Common Stock issuable pursuant to the EFA (as defined below). Such shares will be issued to the Selling Security Holder named in this registration statement upon purchase.
   
(3) Estimated solely for purposes of calculating the amount of the registration fee in accordance with Rule 457(c) under the Securities Act based on the average of the high and low sales prices of the registrant’s Common Stock on the OTC Markets on November 26, 2021, which date is within five business days of the filing of this registration statement.

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(A) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(A), may determine.

 

 

 

     

 

 

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED DECEMBER 1, 2021

 

DARKPULSE INC DPLS

300,000,000 Shares of Common Stock

 

This prospectus relates to the offer and resale of up to: 300,000,000 shares of our common stock, par value $0.0001 per share (the “Shares”), that may be purchased by GHS Investments LLC, a Nevada limited liability company (“GHS”), pursuant to the Equity Financing Agreement dated November 9, 2021 between the Company and GHS (the “EFA”). GHS is also referred to herein as the “Selling Security Holder.”

 

We will not receive any of the proceeds from the sales of the Shares by the Selling Security Holder.

 

The Selling Security Holder identified in this prospectus may offer the shares of Common Stock from time to time through public or private transactions at prevailing market prices or at privately negotiated prices. The Selling Security Holder can offer all, some or none of its shares of Common Stock, thus we have no way of determining the number of shares of Common Stock it will hold after this offering. See “Plan of Distribution.”

 

The Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act. 

 

Our Common Stock is currently quoted on the OTC Markets under the symbol “DPLS.” On November 26, 2021, the last reported sale price of our Common Stock on the OTC Markets was $0.0891.

 

Investing in our Common Stock involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors” beginning on page 5 of this prospectus, and under similar headings in any amendments or supplements to this prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is December 1, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     

 

 

TABLE OF CONTENTS

 

 

ABOUT THIS PROSPECTUS 1
PROSPECTUS SUMMARY 1
THE OFFERING 4
RISK FACTORS 5
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 16
PRIVATE PLACEMENT 17
USE OF PROCEEDS 18
SELLING SECURITY HOLDER 19
MARKET PRICE OF COMMON STOCK AND OTHER STOCKHOLDER MATTERS 20
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 22
BUSINESS 32
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 42
EXECUTIVE COMPENSATION 44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 45
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 46
DESCRIPTION OF SECURITIES 47
PLAN OF DISTRIBUTION 50
SHARES ELIGIBLE FOR FUTURE SALE 52
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS 52
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 52
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF SECURITIES ACT LIABILITIES 53
LEGAL MATTERS 53
EXPERTS 53
WHERE YOU CAN FIND MORE INFORMATION 53
INDEX TO FINANCIAL STATEMENTS F-1

 

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that which is contained in this prospectus. This prospectus may be used only where it is legal to sell these securities. The information in this prospectus may only be accurate on the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of securities.

 

 

 

 

 

 

 

  i  

 

 

ABOUT THIS PROSPECTUS

 

The registration statement of which this prospectus forms a part that we have filed with the U.S. Securities and Exchange Commission (the “SEC”) and includes exhibits that provide more detail of the matters discussed in this prospectus. You should read this prospectus and the related exhibits filed with the SEC, together with the additional information described under the heading “Where You Can Find More Information” before making your investment decision.

 

You should rely only on the information provided in this prospectus or in any prospectus supplement or any free writing prospectuses or amendments thereto. Neither we, nor the Selling Security Holder, have authorized anyone else to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information in this prospectus is accurate only as of the date hereof. Our business, financial condition, results of operations and prospects may have changed since that date.

 

Neither we, nor the Selling Security Holder, are offering to sell or seeking offers to purchase these securities in any jurisdiction where the offer or sale is not permitted. Neither we, nor the Selling Security Holder, have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities as to distribution of the prospectus outside of the United States.

 

Information contained in, and that can be accessed through, our web site, www.darkpulse.com, does not constitute part of this prospectus.

 

This prospectus includes market and industry data that has been obtained from third party sources, including industry publications, as well as industry data prepared by our management on the basis of its knowledge of and experience in the industries in which we operate (including our management’s estimates and assumptions relating to such industries based on that knowledge). Management’s knowledge of such industries has been developed through its experience and participation in these industries. While our management believes the third-party sources referred to in this prospectus are reliable, neither we nor our management have independently verified any of the data from such sources referred to in this prospectus or ascertained the underlying economic assumptions relied upon by such sources. Internally prepared and third-party market forecasts in particular are estimates only and may be inaccurate, especially over long periods of time. In addition, the underwriters have not independently verified any of the industry data prepared by management or ascertained the underlying estimates and assumptions relied upon by management. Furthermore, references in this prospectus to any publications, reports, surveys or articles prepared by third parties should not be construed as depicting the complete findings of the entire publication, report, survey or article. The information in any such publication, report, survey or article is not incorporated by reference in this prospectus.

 

PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus; it does not contain all the information you should consider before investing in our Common Stock. You should read the entire prospectus before making an investment decision. Throughout this prospectus, the terms the “Company”, “DarkPulse”, “we,” “us,” “our,” and “our company” refer to DarkPulse, Inc., a Delaware corporation.

 

Company Overview

 

DarkPulse 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").

 

 

 

  1  

 

 

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 be delivered in applications for critical infrastructure/ key resources such as but not limited to border security, pipelines, the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision. 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 issued a replacement debenture to the University in the amount of US$1,491,923 (the “Debenture”).  The Patents and the Debenture were initially recorded in the Company’s accounts at $1,491,923, based upon the exchange rate between the U.S. dollar and the Canadian dollar on December 16, 2010, the date of the original debenture. In addition to the repayment of principal and interest, the Debenture requires DPTI to pay the University a 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.

 

The Company has recently completed several acquisitions.

 

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 corrosion and structural health monitoring of Critical Infrastructure/Key Resources including Bridges, Buildings, Roadways pipelines and mining installations.

 

 

 

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DarkPulse Technology’s differentiators from and advantages over existing technologies:

 

  · Real-time Reporting: Higher data acquisition speeds allowing for structural monitoring of dynamic systems
     
  · Cost to Customer: Significantly lower acquisition and operating costs
     
  · Precision: A greater magnitude of precision and spatial resolution than other systems currently available
     
  · Applications: Wider range of capabilities than other systems currently available
     
  · Power consumption: Lower power consumption than existing systems allowing for off-grid installations
     
  · Integration: Capable of integrating with existing systems
     
  · Central station monitoring/cloud-based GUI

 

We believe that these key advantages should allow 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.

  

Available Information

 

All reports of the Company filed with the SEC are available free of charge through the SEC’s website at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

 

Where You Can Find Us

 

The Company’s executive offices are located at 1345 Ave of the Americas, 2nd Floor, New York, NY 10105, and our telephone number is (800) 436-1436. Our website address is www.darkpulse.com. Information contained on our website does not form part of this prospectus and is intended for informational purposes only.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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THE OFFERING

 

Common Stock outstanding before the offering   5,154,044,407 shares of Common Stock.
     
Common Stock to be outstanding after giving effect to the issuance of 300,000,000 shares of Common Stock   5,454,044,407 shares of Common Stock.
     
Use of Proceeds   We will not receive any of the proceeds from any sale of the shares of Common Stock by the Selling Security Holder. We will receive proceeds from the purchase of the Common Stock under the EFA from the Selling Security Holder. See “Use of Proceeds.”
     
Risk Factors   The Common Stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 5.
     
Trading Symbol   The Company’s Common Stock is quoted on the OTC Markets quotation service platform under the symbol “DPLS.”

 

The number of shares of Common Stock outstanding is based on an aggregate of 5,154,044,407 shares outstanding as of November 22, 2021 and excludes the shares of Common Stock issuable upon purchase of the Shares under the EFA.

 

For a more detailed description of the Shares and the EFA, see “Private Placement”.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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RISK FACTORS

 

Readers of this Prospectus 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.

 

Risks Related to Our Business

 

Business interruptions, including any interruptions resulting from COVID-19, could significantly disrupt our operations and could have a material adverse impact on us if the situation continues.

 

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 applicable 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.

  

If we default on the Convertible Debenture, the secured holder could take possession of our assets, including our patents and other intellectual property.

 

The Convertible Debenture (Secured) issued April 24, 2017, is secured by our assets, which includes our patents and other intellectual property. In the event that we default on the obligations in the Debenture, the secured holder could take possession of our assets, including our patents and other intellectual property. If this were to occur, investors would likely lose all of their investment.

 

We need to continue as a going concern if our business is to succeed.

 

Our independent registered public accounting firm reports on our audited financial statements for the years ended December 31, 2020 and 2019, 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.

 

 

 

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We have made and expect to continue to make acquisitions that could disrupt our operations and harm our operating results.

 

Our growth depends upon market growth, our ability to enhance our existing products, and our ability to introduce new products on a timely basis. We intend to continue to address the need to develop new products and enhance existing products through acquisitions of other companies, product lines, technologies, and personnel. Acquisitions involve numerous risks, including the following:

 

    Difficulties in integrating the operations, systems, technologies, products, and personnel of the acquired companies, particularly companies with large and widespread operations and/or complex products;

 

    Diversion of management’s attention from normal daily operations of the business and the challenges of managing larger and more widespread operations resulting from acquisitions;

 

    Potential difficulties in completing projects associated with in-process research and development intangibles;

 

    Difficulties in entering markets in which we have no or limited direct prior experience and where competitors in such markets have stronger market positions;

 

    Initial dependence on unfamiliar supply chains or relatively small supply partners;

 

    Insufficient revenue to offset increased expenses associated with acquisitions; and

 

    The potential loss of key employees, customers, distributors, vendors and other business partners of the companies we acquire following and continuing after announcement of acquisition plans.

 

Acquisitions may also cause us to:

 

    Issue common stock that would dilute our current shareholders’ percentage ownership;

 

    Use a substantial portion of our cash resources or incur debt;

 

    Significantly increase our interest expense, leverage and debt service requirements if we incur additional debt to pay for an acquisition;

 

    Assume liabilities;

 

    Record goodwill and nonamortizable intangible assets that are subject to impairment testing on a regular basis and potential periodic impairment charges;

 

    Incur amortization expenses related to certain intangible assets;

 

    Incur tax expenses related to the effect of acquisitions on our intercompany research and development cost sharing arrangement and legal structure;

 

    Incur large and immediate write-offs and restructuring and other related expenses; and

 

    Become subject to intellectual property or other litigation.

 

 

 

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Mergers and acquisitions are inherently risky and subject to many factors outside of our control, and no assurance can be given that our previous or future acquisitions will be successful and will not materially adversely affect our business, operating results, or financial condition. Failure to manage and successfully integrate acquisitions could materially harm our business and operating results. Prior acquisitions could result in a wide range of outcomes, from successful introduction of new products and technologies to a failure to do so. Even when an acquired company has already developed and marketed products, there can be no assurance that product enhancements will be made in a timely fashion or that pre-acquisition due diligence will have identified all possible issues that might arise with respect to such products.

 

From time to time, we have made acquisitions that resulted in charges in an individual quarter. These charges may occur in any particular quarter, resulting in variability in our quarterly earnings. In addition, our effective tax rate for future periods is uncertain and could be impacted by mergers and acquisitions. Risks related to new product development also apply to acquisitions.

 

Because of the unique difficulties and uncertainties inherent in technology development, we face a risk of business failure.

 

Potential investors should be aware of the difficulties normally encountered by companies developing new technology and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the development of new technology with limited personnel and financial means. These potential problems include, but are not limited to, unanticipated technical problems that extend the time and cost of product development, or unanticipated problems with the operation of our technology or that with which we are licensing that also extend the time and cost of product development.

 

If we do not obtain additional financing or sufficient revenues, our business will fail.

 

Our current operating funds are less than necessary to 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. We will require additional financing to execute its business plan through raising additional capital and/or beginning to generate revenue.

 

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. If additional financing is not arranged, we will face the risk of going out of business. Our management is currently engaged in actively pursuing multiple financing options in order to obtain the capital necessary to execute our business plan.

 

The most likely source of future funds presently available to us is through the additional 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. 

 

 

 

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Product development is a long, expensive and uncertain process.

 

The development of our 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.

 

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:

 

· competing products;

 

· 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.

 

 

 

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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. 

 

We depend heavily on the continued efforts of Dennis O’Leary, Chairman, Chief Executive Officer and director. Mr. O’Leary is essential to our strategic vision and day-to-day operations and would be difficult to replace. We currently do not have an employment agreement with Mr. O’Leary, thus we cannot be certain that he will desire to continue with us for the necessary time it will to complete the product development and initial sales channel development. The departure or loss of Mr. O’Leary, or the inability to hire and retain a qualified replacement, could negatively impact our ability to manage our business.

 

If we are unable to recruit and retain key management, technical and sales personnel, our business would be negatively affected.

 

For our business to be successful, we need to attract and retain highly qualified technical, management and sales personnel. The failure to recruit additional key personnel when needed with specific qualifications and on acceptable terms or to retain good relationships with our partners might impede our ability to continue to develop, commercialize and sell our products. To the extent the demand for skilled personnel exceeds supply, we could experience higher labor, recruiting and training costs in order to attract and retain such employees. We face competition for qualified personnel from other companies with significantly more resources available to them and thus may not be able to attract the level of personnel needed for our business to succeed.

 

 

 

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Material weaknesses in our internal control over financial reporting may, until remedied, cause errors in our financial statements or cause our filings with the SEC to not be timely.

 

We believe that material weaknesses exist in our internal control over financial reporting as of December 31, 2020, 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

 

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 our Certificate of Incorporation, to increase the number of authorized shares of Common Stock from 3,000,000,000 to 20,000,000,000. 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.

  

Because the SEC imposes additional sales practice requirements on brokers who deal in our shares that are penny stocks, some brokers may be unwilling to trade them. This means that investors may have difficulty reselling their shares and may cause the price of the shares to decline.

 

Our shares qualify as penny stocks and are covered by Section 15(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which imposes additional sales practice requirements on broker/dealers who sell our securities in this offering or in the aftermarket. In particular, prior to selling a penny stock, broker/dealers must give the prospective customer a risk disclosure document that: contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; contains a description of the broker/dealers’ duties to the customer and of the rights and remedies available to the customer with respect to violations of such duties or other requirements of Federal securities laws; contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask prices; contains the toll free telephone number for inquiries on disciplinary actions established pursuant to section 15(A)(i); defines significant terms used in the disclosure document or in the conduct of trading in penny stocks; and contains such other information, and is in such form (including language, type size, and format), as the SEC requires by rule or regulation. Further, for sales of our securities, the broker/dealer must make a special suitability determination and receive from you a written agreement before making a sale to you. Because of the imposition of the foregoing additional sales practices, it is possible that brokers will not want to make a market in our shares. This could prevent reselling of shares and may cause the price of the shares to decline.

 

We do not expect to declare or pay any dividends.

 

We have not declared or paid any dividends on our common stock since our inception, and we do not anticipate paying any such dividends for the foreseeable future.

 

 

 

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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 herein. The market price of our common stock has fluctuated significantly.

 

Being a public company is expensive and administratively burdensome.

 

As a public reporting company, we are subject to the information and reporting requirements of the Securities Act, the Exchange Act and other federal securities laws, rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act. Complying with these laws and regulations requires the time and attention of our Board of Directors and management team, and increases our expenses. We estimate we will incur approximately $200,000 to $300,000 annually in connection with being a public company.

 

Among other things, we are required to:

 

· maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

 

· prepare and distribute periodic reports in compliance with our obligations under federal securities laws;

 

· institute a more comprehensive compliance function, including with respect to corporate governance; and

 

· involve, to a greater degree, our outside legal counsel and accountants in the above activities.

 

The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders are expensive and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire additional financial reporting, internal controls and other finance personnel, and will involve a material increase in regulatory, legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.

 

 

 

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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 2021 and beyond and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our Board of Directors or as executive officers.

  

You could lose all of your investment.

 

An investment in our securities is speculative and involves a high degree of risk. Potential investors should be aware that the value of an investment in the Company may go down as well as up. In addition, there can be no certainty that the market value of an investment in the Company will fully reflect its underlying value. You could lose your entire investment.

 

The ability of our Board of Directors to issue additional stock may prevent or make more difficult certain transactions, including a sale or merger of the Company.

 

Our Board of Directors is authorized to issue up to 2,000,000 shares of preferred stock with powers, rights and preferences designated by it. Shares of voting or convertible preferred stock could be issued, or rights to purchase such shares could be issued, to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control of the Company.  The ability of the Board of Directors to issue such additional shares of preferred stock, with rights and preferences it deems advisable, could discourage an attempt by a party to acquire control of the Company by tender offer or other means.  Such issuances could therefore deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market price for their shares in a tender offer or the temporary increase in market price that such an attempt could cause.  Moreover, the issuance of such additional shares of preferred stock to persons friendly to the Board of Directors could make it more difficult to remove incumbent officers and directors from office even if such change were to be favorable to stockholders generally.

 

Our stock may be traded infrequently and in low volumes, so you may be unable to sell your shares at or near the quoted bid prices if you need to sell your shares.

 

Until our common stock is listed on a national securities exchange such as the New York Stock Exchange or the Nasdaq, we expect our common stock to remain eligible for quotation on the OTC Markets, or on another over-the-counter quotation system. In those venues, however, the shares of our common stock may trade infrequently and in low volumes, meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. An investor may find it difficult to obtain accurate quotations as to the market value of our common stock or to sell his or her shares at or near bid prices or at all. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise capital.

 

 

 

  12  

 

 

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.

 

 

 

  13  

 

 

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.

 

 

 

  14  

 

 

Risks Related to the Offering

 

Our existing stockholders may experience significant dilution from the sale of our common stock pursuant to the GHS Equity Financing Agreement.

 

The sale of our common stock to GHS in accordance with the EFA may have a dilutive impact on our shareholders. As a result, the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise Puts, the more shares of our common stock we will have to issue to GHS in order to exercise a Put under the EFA. If our stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raised through the offering.

 

The perceived risk of dilution may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to progressive price declines in our common stock.

 

The issuance of shares pursuant to the EFA may have a significant dilutive effect.

 

Depending on the number of shares we issue pursuant to the EFA, it could have a significant dilutive effect upon our existing shareholders. Although the number of shares that we may issue pursuant to the EFA will vary based on our stock price (the higher our stock price, the less shares we have to issue), there may be a potential dilutive effect to our shareholders, based on different potential future stock prices, if the full amount of the EFA is realized. Dilution is based upon common stock put to GHS and the stock price discounted to GHS’s purchase price.

 

GHS will pay less than the then-prevailing market price of our common stock which could cause the price of our common stock to decline.

 

Our common stock to be issued under the EFA will be purchased at an 8% discount, or 92% of the volume-weighted average price for the Company’s common stock during the ten consecutive trading days immediately preceding each Put.

 

GHS has a financial incentive to sell our shares immediately upon receiving them to realize the profit between the discounted price and the market price. If GHS sells our shares, the price of our common stock may decrease. If our stock price decreases, GHS may have further incentive to sell such shares. Accordingly, the discounted sales price in the EFA may cause the price of our common stock to decline.

 

We may not have access to the full amount under the financing agreement.

 

The lowest volume-weighted average price for the ten days ended November 22, 2021 was $0.08931. At that price we would be able to sell shares to GHS under the EFA at the discounted price of $0.0875238. At that discounted price, the 300,000,000 shares would only represent $26,257,140, which is below the full amount of the EFA. In addition, any single drawdown must be at least $10,000 and cannot exceed $3,000,000 and any single drawdown may not exceed 200% of the average daily trading dollar volume of our Common Stock during the ten trading days preceding the put.

 

There could be unidentified risks involved with an investment in our securities.

 

The foregoing risk factors are not a complete list or explanation of the risks involved with an investment in the securities. Additional risks will likely be experienced that are not presently foreseen by us. Prospective investors must not construe this the information provided herein as constituting investment, legal, tax or other professional advice. Before making any decision to invest in our securities, you should read this entire Prospectus and consult with your own investment, legal, tax and other professional advisors. An investment in our securities is suitable only for investors who can assume the financial risks of an investment in us for an indefinite period of time and who can afford to lose their entire investment. We make no representations or warranties of any kind with respect to the likelihood of the success or the business of our Company, the value of our securities, any financial returns that may be generated or any tax benefits or consequences that may result from an investment in us.

 

 

 

  15  

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains various “forward-looking statements.” You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “would,” “could,” “should,” “seeks,” “approximately,” “intends,” “plans,” “projects,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. These statements may be impacted by a number of risks and uncertainties.

 

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance taking into account all information currently available to us. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to our securities. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section entitled “Risk Factors.”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  16  

 

 

PRIVATE PLACEMENT

 

Equity Financing Agreement

 

On November 9, 2021, we entered an EFA and Registration Rights Agreement (the “Registration Rights Agreement”) with GHS, pursuant to which GHS agreed to purchase up to $30,000,000 in shares of our Common Stock, from time to time over the course of 24 months (the “Contract Period”) after effectiveness of a registration statement on Form S-1 (the “Registration Statement”) of the underlying shares of Common Stock.

 

The EFA grants us the right, from time to time at our sole discretion (subject to certain conditions) during the Contract Period, to direct GHS to purchase shares of Common Stock on any business day (a “Put”), provided that at least ten Trading Days (as defined in the EFA) have passed since the most recent Put. The purchase price of the shares of Common Stock contained in a Put shall be 92% of the Market Price with “Market Price” defined as the lowest volume weighted average price (VWAP) price of the Common Stock during the Pricing Period (as defined in the EFA). No Put will be made in an amount less than $10,000 or greater than $3,000,000. In no event are we entitled to make a Put or is GHS entitled to purchase that number of shares of Common Stock of the Company, which when added to the sum of the number of shares of Common Stock beneficially owned (as such term is defined under Section 13(d) and Rule 13d-3 of the Exchange Act), by GHS, would exceed 4.99% of the number of shares of Common Stock outstanding on such date, as determined in accordance with Rule 13d-1(j) of the Exchange Act.

 

The EFA will terminate upon any of the following events: when GHS has purchased an aggregate of $30,000,000 in the Common Stock of the Company pursuant to the EFA; on the date that is 24 months from the date of the EFA; or by mutual written consent of the parties. Actual sales of shares of Common Stock to GHS under the EFA will depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of the Common Stock and determinations by us as to the appropriate sources of funding for the Company and its operations. The net proceeds under the EFA to us will depend on the frequency and prices at which we sell shares of our stock to GHS.

 

The Registration Rights Agreement provides that we shall (i) use our best efforts to file with the SEC the Registration Statement within 45 days of the date of the Registration Rights Agreement; and (ii) have the Registration Statement declared effective by the SEC within 30 days after the date the Registration Statement is filed with the SSEC, but in no event more than 90 days after the Registration Statement is filed.

 

We to use the proceeds from the Puts for operational expenses and also potential acquisitions deemed beneficial to the operational capabilities of the Company.

 

See “Plan of Distribution” elsewhere in this prospectus for more information.

 

 

 

  17  

 

 

USE OF PROCEEDS

 

The Selling Security Holder will receive all the proceeds from the sales of the Shares under this prospectus. We will not receive any proceeds from these sales. To the extent we receive proceeds from the Puts to the Selling Security Holder, we will use those proceeds for operations and acquisitions. We have agreed to bear the certain expenses relating to the registration of the shares of Common Stock being registered herein for Selling Security Holder.

 

See “Plan of Distribution” elsewhere in this prospectus for more information.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  18  

 

 

SELLING SECURITY HOLDER

 

This prospectus covers the offering of up to 300,000,000 shares of Common Stock being offered by the Selling Security Holder, which includes shares of Common Stock acquirable upon the issuance of a Put to the Selling Security Holder, as described herein. We are registering the Shares in order to permit the Selling Security Holder to offer their shares of Common Stock for resale from time to time.

 

The table below lists the Selling Security Holder and other information regarding the “beneficial ownership” of the shares of Common Stock by the Selling Security Holder. In accordance with Rule 13d-3 of the Exchange Act, “beneficial ownership” includes any shares of Common Stock as to which the Selling Security Holder has sole or shared voting power or investment power and any shares of Common Stock the Selling Security Holder has the right to acquire within 60 days.

 

The Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.

 

The second column indicates the number of shares of Common Stock beneficially owned by the Selling Security Holder, based on its ownership as of November 22, 2021. The second column also assumes purchase of all shares of stock to be acquired under the maximum amount of securities to be sold by the Company to the Selling Security Holder, without regard to any limitations on purchase described in this prospectus or in the EFA.

 

The third column lists the shares of Common Stock being offered by this prospectus by the Selling Security Holder. Such aggregate amount of Common Stock does not take into account any applicable limitations on purchase of the securities under the EFA.

 

This prospectus covers the resale of (i) all of the shares of Common Stock issued and issuable upon the Company issuing a Put, and (ii) any securities issued or then issuable upon any full anti-dilution protection, stock split, dividend or other distribution, recapitalization or similar event with respect to the common shares.

 

Because the issuance price of the common shares may be adjusted, the number of shares of Common Stock that will actually be issued upon issuance of the common shares may be more or less than the number of shares of Common Stock being offered by this prospectus. The Selling Security Holder can offer all, some or none of its shares of Common Stock, thus we have no way of determining the number of shares of Common Stock it will hold after this offering. Therefore, the fourth and fifth columns assume that the Selling Security Holder will sell all shares of Common Stock covered by this prospectus. See “Plan of Distribution.”

 

The Selling Security Holder identified below has confirmed to us that it is not a broker-dealer or an affiliate of a broker-dealer within the meaning of United States federal securities laws.

 

   

Number of

Shares of

Common Stock

Owned Prior to

Offering(1)

   

Maximum

Number of

Shares of

Common Stock

to be Sold

Pursuant to this

Prospectus

   

Number of

Shares of

Common Stock

Owned After

Offering

   

Percentage

Beneficially

Owned After

Offering

 
GHS Investments, LLC (1)     0       300,000,000 (2)            
TOTAL     0       300,000,000              

__________

(1) GHS Investments, LLC is a limited liability company organized under the laws of Nevada. Mark Grober has dispositive power over the shares owned by GHS.
(2) 300,000,000 shares to be issued pursuant to the EFA.

 

Material Relationships with Selling Security Holder

 

The Selling Security Holder has not at any time during the past three years acted as one of our employees, officers or directors or had a material relationship with us except (i) with respect to transactions described above in “Private Placement,” and (ii) the Purchase Agreement dated August 19, 2021 with GHS.

 

 

 

  19  

 

 

MARKET PRICE OF COMMON STOCK AND OTHER STOCKHOLDER MATTERS

 

Our Common Stock is currently quoted on the OTC Markets, which is sponsored by OTC Markets Group, Inc. The OTC Markets is a network of security dealers who buy and sell stock. The dealers are connected by a computer network that provides information on current “bids” and “asks,” as well as volume information. Our shares are quoted on the OTC Markets under the symbol “DPLS.”

 

The table below sets forth for the periods indicated the quarterly high and low bid prices as reported by OTC Markets. Limited trading volume has occurred during these periods. These quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.

 

2021:   High     Low  
First Quarter   $ 0.0510     $ 0.0007  
Second Quarter   $ 0.0969     $ 0.0106  
Third Quarter   $ 0.2020     $ 0.0653  

 

2020:   High     Low  
First Quarter   $ 0.0002     $ 0.0001  
Second Quarter   $ 0.0002     $ 0.0001  
Third Quarter   $ 0.0006     $ 0.0001  
Fourth Quarter   $ 0.0011     $ 0.0001  

 

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  

 

The Company’s common stock is considered to be penny stock under rules promulgated by the SEC. Under these rules, broker-dealers participating in transactions in these securities must first deliver a risk disclosure document which describes risks associated with these stocks, broker-dealers’ duties, customers’ rights and remedies, market and other information, and make suitability determinations approving the customers for these stock transactions based on financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing, provide monthly account statements to customers, and obtain specific written consent of each customer. With these restrictions, the likely effect of designation as a penny stock is to decrease the willingness of broker-dealers to make a market for the stock, to decrease the liquidity of the stock and increase the transaction cost of sales and purchases of these stocks compared to other securities.

 

The high and low bid price for shares of our Common Stock on November 26, 2021, was $0.092 and $0.0863, respectively, based upon bids that represent prices quoted by broker-dealers on the OTC Markets.

 

Approximate Number of Equity Security Holders

 

As of November 22, 2021, there were approximately 939 stockholders of record. Because shares of our Common Stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record.

 

 

 

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Dividends

 

We have not declared or paid a cash dividend to our stockholders since we were organized and does not intend to pay dividends in the foreseeable future. Our board of directors presently intends to retain any earnings to finance our operations and does not expect to authorize cash dividends in the foreseeable future. Any payment of cash dividends in the future will depend upon our earnings, capital requirements and other factors.

 

Section 15(g) of the Securities Exchange Act of 1934

 

Our shares are covered by section 15(g) of the Exchange Act that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser's written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.

 

Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one-page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as bid and offer quotes, a dealers spread and broker/dealer compensation; the broker/dealer compensation, the broker/dealers’ duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers’ rights and remedies in cases of fraud in penny stock transactions; and, the FINRA’s toll free telephone number and the central number of the North American Securities Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.

 

Penny Stock

 

Our stock is considered a penny stock. The SEC has adopted rules that regulate broker-dealer practices in transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) 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 price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

 

These disclosure requirements may have the effect of reducing the trading activity for our Common Stock. Therefore, stockholders may have difficulty selling our securities.

 

Rule 10B-18 Transactions

 

During the year ended December 31, 2020, there were no repurchases of our common stock by the Company.

 

 

 

  21  

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the “Risk Factors” section. We undertake no obligation to publicly update or revise any forward-looking statements, including any changes that might result from any facts, events, or circumstances after the date hereof that may bear upon forward-looking statements. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements

 

Critical Accounting Policies

 

The following discussions are based upon our financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States.

 

The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. We continually evaluate the accounting policies and estimates used to prepare the financial statements. We base our estimates on historical experiences and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management.

 

Business Overview

 

DarkPulse, Inc., a Delaware corporation (the “Company”), is a technology-security company focused on the manufacture, sale, installation, and monitoring of laser sensing systems based on its patented BOTDA dark-pulse sensor technology. The Company develops, markets, and distributes a full suite of engineering, monitoring, installation and security management solutions for critical infrastructure/key resources to both industries and governments. Coupled with our patented BOTDA dark-pulse technology (the “DarkPulse Technology”), DarkPulse provides its customers a comprehensive data stream of critical metrics for assessing the health and security of their infrastructure. Our systems provide rapid, precise analysis and responsive activities predetermined by the end-user customer. The Company’s activities since inception have consisted of developing various solutions, obtaining patents and trademarks related to its technology, raising capital, acquisition of companies deemed to expand global operations and/or capabilities, creating key partnerships to expand our suite of products and services. Our activities have evolved to a sales-focused mission since the successful completion of our BOTDA system in December 2020.

 

Headquartered in New York, DarkPulse is a globally based technology company with presence in United Kingdom, India, Dubai, Russian Federation, Turkey, Azerbaijan, Iraq, Libya, United States and Canada. In addition to the Company’s BOTDA systems, through a series of strategic acquisitions the Company offers the manufacture, sale, installation, and monitoring of laser sensing systems, O & G pipeline leak detection, physical security services, telecommunications and satellite communications services, drone and rover systems. The Company is focused on expanding services through acquisitions and partnerships to address global infrastructure and critical environmental resource challenges. DarkPulse offers a full suite of engineering and environmental solutions that provide safety and security infrastructure projects. The sensing and monitoring capabilities offered by DarkPulse and our subsidiary companies operate in the Air, Land, Sea. Our patented technology provides rapid, precise analysis to protect and safeguard oil and gas pipelines above or below ground, physical security countermeasures, mining operations, and other critical infrastructure / key resources subject to vulnerability or risk. Our patented Brillouin scattering distributed fiber sensing system is best in class. The Company is able to monitor areas in around critical infrastructure buried or above ground including pipelines 100km or more in length and/ or localized pipes as small as 8 CM DIA, detecting internal anomalies before catastrophic failure. We are developing an Intelligent Rock Bolt, to prevent causalities and fatalities in mining operations and include a real time sensor system that can detect the location & movement of personnel & equipment throughout a mining operation. We monitor airflow, air quality, temperature, seismic events, etc. Our sensors cover extended areas, protecting an area from intrusion by detecting events at any location along the sensing cable. Working safely every day is our first core value and employees at DarkPulse and our subsidiary companies are recognized experts in their fields, providing comprehensive services for all our clients' needs.

 

 

 

  22  

 

 

Our Operating Units

 

Optilan

 

Telecommunications, Energy, Rail, Critical Network Infrastructure, Pipeline Integrity Systems, Renewables and Security. Headquartered in Coventry, United Kingdom with a 30-year pedigree, at Optilan our customers trust us to keep the integrity of their assets safe and secure, by managing the life cycle delivery risk of our solutions. By fostering a collaborative design approach to complex problems, we provide innovative solutions, custom fit to even the most demanding of sites and scale of projects. Importantly, our commitment to our safety culture remains unaverred, to ensure that everyone goes home safely every day. We orchestrate business resilience with a suite of end-to-end solutions, combined with connectivity and professional service at a global level. Today's business environment is more dynamic than ever, with continuous change and disruption accepted as the new normal. We complement our tailored, integrated expertise with a curated ecosystem of leading manufacturers, to achieve both high quality and enduring results. We are proud to foster a unique culture full of talented individuals. Our sector focus ensures that our account teams are fully accredited in their operational areas. We are committed to creating individually tailored solutions, using collaborative techniques and programming tools to deliver the networks of the future. Optilan has provided integrated solutions for leading Oil and Gas, Industrial and Energy companies around the world. As an industry leader in deploying communication networks with exceptional reliability, our reputation for delivering the highest quality products remains unsurpassed. This spans mobile, broadband, security systems and customer premise works. Our professionals have the skill to adopt and embed our expertise into existing platforms, processes, and cultures, delivering exceptional value for our clients. Beyond our operational scope, we strive to consider the impact of our global footprint and mitigate associated environmental and sustainability risks. These factors combined set Optilan apart and establish why customers continue to trust and invest in our services.

 

Remote Intelligence

 

Remote Intelligence provides Unmanned Aerial Drone and UGC (unmanned ground crawler) Services to a variety of clients; from Industrial Mapping and Ecosystem Services, to Search and Rescue, to Pipeline Security, we provide sales and consulting services for all markets. Remote Intelligence started in 2013 with a simple vision; to use the new and developing field of unmanned aerial vehicles to produce higher quality, safer and more effective products for a variety of markets. We strive to Equip, Educate and Advance the use of the most advanced Unmanned Aerial Systems and Unmanned Ground Crawlers in the United States and around the world for commercial, government and domestic use. Our top priorities as we do that are to find safe and ethical ways to use this new and exciting field of technology to make life better. Providing holistic intelligence consultation and solutions including full-service Methane Detection and Monitoring. Quick, comprehensive site mapping and aerial inspection services. We specialize in fully integrated, geo-rectified, 3D modeled mapping and AI for industrial applications, specializing in the energy and environmental industries, with AI and live streaming capabilities anywhere in the world. Also providing aerial survey, video inspection services, emergency support services, wildlife and habitat surveys, and comprehensive system design, training, and sales for both the commercial and private sectors. Integrating the latest tech solutions like artificial intelligence. Globally connected with a base of operation in Wellsboro Pennsylvania.

 

TerraData Unmanned

 

Comprised of a team with more than 30 years cumulative experience in the unmanned industry, TerraData is well equipped to provide solutions that meet your unique requirements. We custom manufacture NDAA compliant drones and unmanned ground crawlers to meet the needs of our customers. Aerial based data collection is a powerful new tool for your industry, and TerraData is prepared to be your partner. TerraData Unmanned, has successfully delivered a custom drone platform per a customer’s specifications which exceeds current industry offering by more than 30 minutes. The team has manufactured, and successfully flight tested a Quad Copter drone with 1.5KG payload capabilities that delivers more than 60 minutes of continuous flight. This cutting-edge design is a combination of proprietary software and hardware. The custom platform offers NDAA compliant autopilot, communications links, TSO Certified GPS unit and ground control station. Future designs include integrating RTK for mapping, methane detectors, and true terrain following capabilities. There are also improvements scheduled that are intended to further extend the endurance and provide over 4KG of payload capacity, not including batteries. TerraData has also announced the research, development and successful testing of an autonomous crawler soon to be released to the market with Methane and Multi Gas Detection capabilities. Working seamlessly with our partners at DarkPulse and our subsidiary companies. We can custom design, build and operate a system to meet our customers' needs 24 hours a day 365 days a year around the block or around the globe.

 

 

 

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Wildlife Specialists

 

Wildlife Specialists, LLC was founded in 2007 to provide clients with comprehensive wildlife and environmental assessment, planning, and monitoring services. We currently maintain two regional offices located in north central and southeastern Pennsylvania and are available to provide services to clients nationwide and around the globe. Our staff are well-established professionals who have a wide range of experience in wildlife management, research, and monitoring at the local and statewide levels throughout the United States. In addition, we have specific expertise in providing the full range of sensitive species and habitat assessments necessary for your development projects. Wildlife Specialists’ mission is to provide consulting services that use the latest technology to produce the highest quality results compatible with our clients’ management goals and the appropriate protocols developed by state and federal wildlife management agencies. Wildlife Specialists is fully insured to industry standards and committed to the safety of our staff, our clients, and the public. We have maintained safety certification through ISNetWorld and other 3rd party certifiers. We are also officially PennDOT, GSA, Small Business and HUBZone Certified.

 

TJM West Electronics

 

TJM West Electronics is an ISO9001 and AS9100 certified electronics and electro-mechanical assembly operation. We operate out of a high tech, 20,000 Sq ft facility in Tempe, Arizona. Our assembly team is trained to IPC 610 and J-STD-001 standards, Class 2 and 3. We have been in business since 1999. Our latest website was developed to be a customer interface for rapid costing, build scheduling, open order status, and complete manufacturing history data records. Registered users can enter build and fabrication parameters for quantities of 2-20 units. Our calculator provides itemized labor, PCB fabrication cost and delivery. Registered users can also access factory floor for the updated status and delivery date of open orders, a review of configuration, quotes and full quality history database.

 

As a U.S. manufacturer and test of advanced electronics, cables and sub-assemblies. we specialize in advanced package and complex CCA and hardware. Certified to space and flight AS9100D, TJM has over 20 years supplying ultra-high reliability, and fully documented electronic Hardware. Per AS9100D, TJM maintains all material certifications, process and measurement reports electronically as part of a complete quality history record. Manufacturing PCB Design services on the most popular platforms including Cadence, Altium, and Mentor. Design output data integrates seamlessly to our automated manufacturing line. Test Development ICT to functional and burn-in. We develop a test plan and hardware system to deliver your 100% verified product. Low Cost, High Reliability Manufacturing is the net result of quality planning, optimizing automation technology, operational efficiency, and communication. High value, low-cost domestic solution to replace offshore manufacturing. Protect your IP and keep direct line-of sight of manufacturing with products made in the USA. TJM West Is your one stop shop.

 

Recent Events

 

Acquisitions

 

On August 9, 2021, we entered into a Share Purchase Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”), pursuant to which we purchased from the Sellers all of the issued and outstanding equity interests of Optilan HoldCo 3 Limited, a private company incorporated in England and Wales (“Optilan”) for £1.00 and also a commitment to enter into the Subscription (as defined below). Optilan is now a wholly-owned subsidiary of the Company.

 

On August 9, 2021, we entered into a Subscription Agreement with Optilan (the “Subscription”), pursuant to which we agreed to purchase an aggregate of 4,000,000 Ordinary Shares of Optilan for an aggregate purchase price of £4,000,000.

 

On August 30, 2021, we closed two separate Membership Interest Purchase Agreements (the “MPAs”) with Remote Intelligence, Limited Liability Company, a Pennsylvania limited liability company (“RI”) and Wildlife Specialists, LLC, a Pennsylvania limited liability company (“WS”) pursuant to which we agreed to pay to the majority shareholder of each of RI and WS an aggregate of 15,000,000 shares of our Common Stock, $500,000 to be paid on the closing date, and an additional $500,000 to be paid 12 weeks from closing date in exchange for 60% ownership of each of RI and WS. RI and WS are now subsidiaries of the Company.

 

 

 

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On September 8, 2021, we entered into and closed the Stock Purchase Agreement (the “TJM SPA”) with TJM Electronics West, Inc., an Arizona corporation (“TJM”), and TJM’s shareholders, pursuant to which we agreed to purchase all of the equity interests in TJM in exchange for $450,000, subject to adjustments as defined in the TJM SPA. TJM is now a wholly-owned subsidiary of the Company.

 

Effective October 1, 2021, we entered into and closed the Membership Purchase Agreement (the “TerraData MPA”) with TerraData Unmanned, PLLC, a Florida limited liability company (“TerraData”), and Justin Dee, the sole shareholder of TerraData, pursuant to which we agreed to purchase 60% of the equity interests in TerraData in exchange for 3,725,386 shares of our Common Stock and $400,000, subject to adjustments as defined in the TerraData MPA, to be paid within 12 weeks of closing. TerraData is now a subsidiary of the Company.

 

Financings

 

On January 4, 2021, we entered into a securities purchase agreement with Geneva Roth Remark Holdings, Inc. (“Geneva”) issuing to Geneva a convertible promissory note in the aggregate principal amount of $42,350 with a $3,850 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 8% per annum and may be converted into common shares of our Common Stock at a conversion price equal to 70% of the lowest trading price of our common stock during the 20 prior trading days. We received $35,000 net cash.

 

On February 3, 2021, we entered into a securities purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $94,200 with a $15,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of our Common Stock at a conversion price equal to 81% of the lowest two trading prices of our Common Stock during the 10 prior trading days. We received $75,000 net cash.

 

On February 18, 2021, we entered into a securities purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $76,200 with a $12,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of our Common Stock at a conversion price equal to 81% of the lowest two trading prices of our Common Stock during the 10 prior trading days. We received $60,000 net cash.

 

On April 5, 2021, we entered into a securities purchase agreement with Geneva Roth issuing to Geneva a convertible promissory note in the aggregate principal amount of $64,200 with a $10,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of our Common Stock at a conversion price equal to 81% of the lowest two trading prices of our Common Stock during the 10 prior trading days. We received $50,000 net cash.

 

On April 26, 2021, we entered a Securities Purchase Agreement (the “FirstFire SPA”) and Registration Rights Agreement (the “Registration Rights Agreement”) with FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, a Delaware limited liability company (the “FirstFire”), pursuant to which we issued to FirstFire a Convertible Promissory Note in the principal amount of $825,000 (the “FirstFire Note”). The purchase price of the FirstFire Note is $750,000. The FirstFire Note matures on January 26, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the FirstFire Note at 10% per annum guaranteed until the FirstFire Note becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The FirstFire Note is convertible at any time after 180 days from issuance, upon the election of the FirstFire, into shares of our Common Stock at $0.015 per share. The FirstFire Note is subject to various “Events of Default,” which are disclosed in the FirstFire Note. Upon the occurrence of an “Event of Default,” the conversion price will become $0.005. In the event of a DTC “chill” on our shares, an additional discount of 10% will apply to the conversion price while the “chill” is in effect. Upon the issuance of the FirstFire Note, we have initially agreed to reserve 550,000,000 shares of Common Stock.

 

The Registration Rights Agreement provides that we shall (i) use our best efforts to file with the Commission an S-1 Registration Statement within 90 days of the date of the Registration Rights Agreement to register the shares into which the FirstFire Note is convertible; and (ii) have the Registration Statement declared effective by the SEC within 180 days after the date the Registration Statement is filed with the SEC.

 

 

 

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On July 14, 2021, we entered a Securities Purchase Agreement with GS Capital Partners, LLC (the “GS”), pursuant to which we issued to GS a 6% Redeemable Note in the principal amount of $2,000,000 (the “GS Note”). The purchase price of the GS Note is $1,980,000. The GS Note matures on July 14, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the GS Note at 6% per annum until the GS Note becomes due and payable. The GS Note is subject to various “Events of Default,” which are disclosed in the GS Note. Upon the occurrence of an “Event of Default,” the interest rate on the GS Note will be 18%. The GS Note is not convertible into shares of our Common Stock and is not dilutive to existing or future shareholders and we plan on using a portion of the proceeds of the GS Note to retire existing convertible debt.

 

On August 19, 2021, we entered into the Purchase Agreement with GHS, for the offering of up to $45,000,000 worth of Common Stock. Pursuant to the Purchase Agreement, on August 19, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from the Company, 31,799,260 shares of Common Stock for total proceeds to the Company, net of discounts, of $3,300,000, at an effective price of $0.1038 per share (the “First Closing”). We received approximately $2,790,000 in net proceeds from the First Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the First Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021.

 

Pursuant to the Purchase Agreement, on August 31, 2021, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 27,297,995 shares of Common Stock for total proceeds to us, net of discounts, of $3,300,000, at an effective price of $0.120888 per share (the “Second Closing”). We received approximately $2,885,000 in net proceeds from the Second Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Second Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021.

 

Pursuant to the Purchase Agreement, on September 22, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 25,630,272 shares of Common Stock for total proceeds to us, net of discounts, of $2,000,000, at an effective price of $ $0.085836 per share (the “Third Closing”). We received approximately $1,915,000 in net proceeds from the Third Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Third Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021.

 

Pursuant to the Purchase Agreement, on October 1, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 37,187,289 shares of Common Stock for total proceeds to us, net of discounts, of $3,000,000, at an effective price of $0.08874 per share (the “Fourth Closing”). We received approximately $2,850,000 in net proceeds from the Fourth Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Fourth Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021.

 

Pursuant to the Purchase Agreement, on October 14, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 14,282,304 shares of Common Stock for total proceeds to us, net of discounts, of $1,055,000, at an effective price of $0.08125 per share (the “Fifth Closing”). We received approximately $1,002,250 in net proceeds from the Fifth Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Fifth Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021. 

 

Partnerships

 

We have entered into a consulting agreement with the Bachner Group to assist in the successful transformation from an R&D focused company to a sales-focused company, and assist us with federal contract opportunities.

 

 

 

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Other Events

 

On August 3, 2021, we entered into an Engagement Agreement and Terms and Conditions (the “EIAP Agreement”) with Energy & Industrial Advisory Partners, LLC (“EIAP”). Pursuant to the EIAP Agreement, we have engaged EIAP to serve as an advisor to us in the proposed transaction for agreed target company or any of its subsidiaries and/or the whole or any part of its or their business or assets (the “Transaction”). EIAP will receive a monthly retainer of $10,000 per month payable upon receipt of an invoice. EIAP will also receive a consulting bonus fee of $350,000 payable upon completion of the Transaction. In the event of successful completion of the Transaction as a result of EIAP’s involvement, EIAP agrees to deduct the total retainer fee from the consulting bonus fee. The EIAP Agreement may be terminated, with or without cause, by either party upon ten days’ written prior notice thereof to the other party. If (a) during the term of the EIAP Agreement, or (b) within two years following the date of the EIAP Agreement’s termination by us (provided that such two-year period shall be extended by the same period of time that we take to settle in full all fees, expenses and/or outlays due or to become due to EIAP as at the date of the EIAP Agreement’s termination), we complete a transaction with the target company or a similar transaction to the Transaction, then we will pay the consulting bonus fee at the completion of the transaction.

 

Going Concern Uncertainty

 

As shown in the accompanying financial statements, during the nine months ended September 30, 2021, the Company reported a net loss of $1,924,311. As of September 30, 2021, the Company’s current liabilities exceeded its current assets by $12,139,502. As of September 30, 2021, the Company had $2,564,492 of cash.

 

We will require additional funding to finance the growth of our operations and achieve our strategic objectives. These factors, as relative to capital raising activities, create doubt as to our ability to continue as a going concern. We are seeking to raise additional capital and are targeting strategic partners in an effort to accelerate the sales and marketing of our products and begin generating revenues. Our ability to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements, expansion of our operations and generating sales. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations; however, management cannot make any assurances that such financing will be secured.

 

Results of Operations

 

For the Three and Nine Months Ended September 30, 2021 and 2020

 

Revenues

 

For the three months ended September 30, 2021, total revenues were $3,500,970 compared to $0 for the same period in 2020, an increase of $3,500,970. This increase primarily consisted of revenues of $3,380,633 from the acquisition of Optilan in August 2021and $97,283 from the acquisition of Wildlife Specialists in August 2021.

 

For the nine months ended September 30, 2021, total revenues were $3,500,970 compared to $0 for the same period in 2020, an increase of $3,500,970. This increase primarily consisted of revenues of $3,380,633 from the acquisition of Optilan in August 2021and $97,283 from the acquisition of Wildlife Specialists in August 2021.

 

Cost of Goods Sold and Gross Profit

 

For the three months ended September 30, 2021, cost of goods sold were $2,767,229 compared to $0 for the same period in 2020, an increase of $2,767,229.

 

Gross profit for the three months ended September 30, 2021 was $733,731 with a gross profit margin of 21% compared to $0 for the same period in 2020 with no gross profit margin.

 

For the nine months ended September 30, 2021, cost of goods sold were $2,767,229 compared to $0 for the same period in 2020, an increase of $2,767,229.

 

Gross profit for the nine months ended September 30, 2021 was $733,731 with a gross profit margin of 21% compared to $0 for the same period in 2020 with no gross profit margin.

 

 

 

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Operating Expenses

 

Selling, general and administrative expenses for three months ended September 30, 2021 increased by $372,158 to $406,940 from $34,782 of 1,070% for the three months ended September 30, 2020.

 

General and administrative expenses for nine months ended September 30, 2021 increased by $410,927 to $531,793 from $120,866 or 340% for the nine months ended September 30, 2020.

 

Payroll related expenses for three months ended September 30, 2021, increased by $1,007,453 to $1,007,453 from $0 for the three months ended September 30, 2020. The increase primarily consisted of an increase to the numbers of employees inherited from our various acquisitions.

 

Payroll related for nine months ended September 30, 2021, increased by $1,007,266 to $1,007,453 from $187 for the nine months ended September 30, 2020. The increase primarily consisted of an increase to the numbers of employees inherited from our various acquisitions in the most recent three months period.

 

Professional fees for three months ended September 30, 2021, increased by $1,680,600 to $1,680,600 from $0 for the three months ended September 30, 2020. This increase primarily consisted of increased legal expenditures associated with the increase in litigation.

 

Professional fees for nine months ended September 30, 2021, increased by $1,853,275 to $1,901,572 from $48,297 for the nine months ended September 30, 2020. This increase primarily consisted of increased legal expenditures associated with the increase in litigation.

 

Depreciation and amortization for three months ended September 30, 2021, increased by $78,465 to $91,222 from $12,757 for the three months ended September 30, 2020. This increase is primarily due to the increase in depreciable assets we acquired from new acquisitions.

 

Depreciation and amortization for nine months ended September 30, 2021, increased by $78,465 to $116,736 from $38,271 for the three months ended September 30, 2020. This increase is primarily due to the increase in depreciable assets we acquired from new acquisitions.

 

Other Income (Expense)

 

For the three months ended September 30, 2021, other income $798,654 compared to other expense of $126,483 for the same period in 2020, an increase in income of $925,137. This increase primarily consisted of $785,240 of gain related to the extinguishment of debt, $434,206 of gain on convertible notes, $153,360 of gain on foreign currency exchange rate variance offset by an increase in interest expense of $283,388 due to increased borrowings and $163,281 increase in the fair value of the Company’s derivative instruments.

 

For the nine months ended September 30, 2021, other income $1,084,462 compared to other expense of $180,940 for the same period in 2020, an increase in income of $1,265,402. This increase primarily consisted of $785,240 of gain related to the extinguishment of debt, $781,203 of gain on convertible notes, $153,360 of gain on foreign currency exchange rate variance offset by an increase in interest expense of $573,448 due to increased borrowings and $121,047 increase in the fair value of the Company’s derivative instruments.

 

Net Income (Loss)

 

As a result of the above, we reported a net loss of $1,686,830 for the three months ended September 30, 2021 compared to a net loss of $174,022 for the three months ended September 30, 2020.

 

Additionally, as a result of the above, we reported a net loss of $1,924,311 for the nine months ended September 30, 2021 compared to a net loss of $388,561 for the nine months ended September 30, 2020.

 

 

 

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For the Years Ended December 31, 2020 and 2019

 

Revenues

 

As of December 31, 2020, the Company has not generated any operating revenues.

 

Operating Expenses

 

Operating expenses for the year ended December 31, 2020 decreased by $287,497 or 52.6% to $258,739 from $546,236 for the year ended December 31, 2019. The primary reason for the overall decrease in general and administrative expense in the current year is a decrease in payroll and compensation of $168,758.

 

General and administrative expenses for the year ended December 31, 2020 decreased by $33,824 or 18.5% to $149,259 from $183,083 for the year ended December 31, 2019. 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, 2020 decreased to $187 from $168,945 or 99.9% for the year ended December 31, 2019. 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.

 

Amortization expenses for the years ended December 31, 2020 and 2019 remained constant at $51,028.

 

Legal expenses for the year ended December 31, 2020 decreased $50,415 from $118,281 for the year ended December 31, 2019. 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, 2020 decreased $17,050 or 68.5% from $24,900 to $7,850. The primary reason for the decrease is related to the decrease in convertible notes entered into during 2020.

 

Other Income (Expense)

  

Total other expenses totaled $17,102 and $1,279,233 for the years ended December 31, 2020 and 2019, respectively. The $1,262,131 decrease is primarily attributed to the decrease recognized due to changes in the fair value of derivative instruments of $422,787, loss on convertible notes of $401,497 and a decrease in interest expense of $370,619.

 

Net Loss

 

As a result, net loss for the year ended December 31, 2020 decreased by $1,549,627 to $275,842 from $1,825,469 for the year ended December 31, 2019.

 

Comprehensive (Loss) Gain

 

The Company recorded a loss for foreign currency translation adjustments for the year ended December 31, 2020 of $20,941 and a loss of $52,905 for the year ended December 31, 2019. The fluctuations of the increase/decrease are primarily attributed to the change in the value of the note recognized due to exchange rate variances. Comprehensive loss was $296,785 as compared to $1,878,374 for the years ended December 31, 2020 and 2019, respectively.

 

 

 

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Liquidity and Capital Resources

 

September 30, 2021 Compared to September 30, 2020

 

We require working capital to fund the continued development and commercialization of our proprietary fiber optic sensing devices, and for operating expenses. During the three months ended September 30, 2021, we had $11,102,700 in new cash proceeds compared to the three months ended September 30, 2020, when we had no new cash proceeds.

 

As of September 30, 2021, we had cash of $2,564,492, compared to $337 as of December 31, 2020. As of September 30, 2021, our current liabilities exceeded our current assets by $12,139,503.

 

December 31, 2020 Compared to December 31, 2019

 

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, 2020, we had a cash balance of $337. Our working capital deficit is approximately $3,241,567 at December 31, 2020.

 

As of December 31, 2020, we had cash of $337, compared to $1,210 as of December 31, 2019. 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, 2020, our current liabilities of $3,241,904 exceeded our current assets of $337 by $3,241,567.

 

Cash Flows from Operating Activities

 

During the nine months ended September 30, 2021, net cash used by operating activities was $7,446,593, resulting from our net loss of $1,924,311 and an increase in expenses related to our convertible notes payables, including amortization of debt discount of $404,087 and loan acquisition costs of $480,450, increase in stock-based compensation of $649,334, increase in inventory of $410,836 and operating lease liabilities of $1,398,068. These increases were offset by a decrease in derivative liability of $741,789, increase in accounts payable and accrued expenses of $4,362,016 and an increase from the gain on the extinguishment of debt of $785,240, increase in accounts receivable of $893,366, unbilled revenue of $563,555 and increase in contract liability of $1,439,504.

 

By comparison, during the nine months ended September 30, 2020, net cash provided by operating activities was $4,278, resulting from our net loss of $388,561 and an increase in expenses related to our convertible notes payables, including amortization of debt discount of $39,414, increase in derivative liability of $44,684, increase in accounts payable and accrued expenses of $280,370.

 

During the year ended December 31, 2020, net cash used by operating activities was $8,194, resulting from our net loss of $275,842 partially offset by non-cash expenses totaling $14,446 and increases in accounts payable of $195,951 and accrued liabilities of $72,892.

 

By comparison, 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.

 

 

 

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Cash Flows from Investing Activities

 

During the nine months ended September 30, 2021, we had net cash used in investing activities of $546,765. During the nine months ended September 30, 2020, we had net cash used in investing activities of $4,969.

 

During the year ended December 31, 2020, net cash used by investing activities was $4,969, of capitalized patents costs of $4,969. During the year ended December 31, 2019, net cash used by investing activities was $54,930.

 

Cash Flows from Financing Activities

 

During the nine months ended September 30, 2021, net cash provided by financing activities was $10,718,100, comprised of proceeds from the sale of common stock from offering of $8,000,000, the issuance of convertible debt in the amount of $1,102,700, the issuance of notes payable of $2,000,000 offset by payments on convertible debt of $384,600. During the nine months ended September 30, 2020, we had no net cash provided by or used in financing activities.

 

During the year ended December 31, 2020, net cash used by financing activities was $4,096, comprised of proceeds from issuance of convertible notes payable of $40,000, offset by repayments of related party notes payable of $44,096. 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.

 

Factors That May Affect Future Results

 

Management’s Discussion and Analysis contains information based on management’s beliefs and forward-looking statements that involve a number of risks, uncertainties, and assumptions. There can be no assurance that actual results will not differ materially from the forward-looking statements as a result of various factors, including but not limited to, our ability to obtain the equity funding or borrowings necessary to market and launch our products, our ability to successfully serially produce and market our products; our success establishing and maintaining collaborative licensing and supplier arrangements; the acceptance of our products by customers; our continued ability to pay operating costs; our ability to meet demand for our products; the amount and nature of competition from our competitors; the effects of technological changes on products and product demand; and our ability to successfully adapt to market forces and technological demands of our customers.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.

 

Recent Accounting Pronouncements

 

We have provided a discussion of recent accounting pronouncements in Note 1 to the Condensed Financial Statements.

 

 

 

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BUSINESS

 

Organization

 

DarkPulse is a technology-security company incorporated in 1989 as Klever. Its principal wholly-owned subsidiary, DPTI originally started as a technology spinout from the University of New Brunswick, Fredericton, Canada. DPI is comprised of two security platforms: Fiber and UHSS.

 

On April 27, 2018, Klever entered into a 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 FINRA and the Company's ticker symbol was changed to “DPLS.”

 

The Company’s security and monitoring systems will be delivered in applications for critical infrastructure/ key resources such as but not limited to border security, pipelines, the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision. 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 pursuant to which the University sold, transferred, and assigned to the Company certain patents related to the Patents in exchange for the issuance of a debenture to the University in the amount of C$1,500,000 (Canadian dollars).  In April 2017, DPTI issued the Debenture to the University. The Patents and the Debenture were initially recorded in the Company’s accounts at $1,491,923, based upon the exchange rate between the U.S. dollar and the Canadian dollar on December 16, 2010, the date of the original debenture. In addition to the repayment of principal and interest, the Debenture requires DPTI to pay the University a 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 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 corrosion and structural health monitoring of Critical Infrastructure/Key Resources including Bridges, Buildings, Roadways pipelines and mining installations.

 

 

 

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DarkPulse Technology’s differentiators from and advantages over existing technologies:

 

  · Real-time Reporting: Higher data acquisition speeds allowing for structural monitoring of dynamic systems
     
  · Cost to Customer: Significantly lower acquisition and operating costs
     
  · Precision: A greater magnitude of precision and spatial resolution than other systems currently available
     
  · Applications: Wider range of capabilities than other systems currently available
     
  · Power consumption: Lower power consumption than existing systems allowing for off-grid installations
     
  · Integration: Capable of integrating with existing systems
     
  · Central station monitoring/cloud-based GUI

 

We believe that these key advantages should allow 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.

 

 

 

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Our Market

 

Current uses of fiber optic distributed sensor technology have been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision. Our DarkPulse Technology allows for the monitoring of highly dynamic environments due to its magnitude of increased resolution and greater accuracy. The resulting high speed, real-time monitoring capabilities of our DarkPulse Technology should satisfy a broad range of existing and emerging requirements. Use of the DarkPulse Technology by our customers should result in lower production costs with increased sensing capabilities that can integrate with existing technology and be upgraded cost effectively.

 

Due to the characteristics of the fiber used in fiber optic sensing, the uses of our DarkPulse Technology are wide ranging. Optical fiber is hard-wearing, which allows it to be used in environments where other technologies fail (for example, at temperatures ranging from -40°C to 300°C and 1000psi). Additionally, DarkPulse Technology’s sensors allow for live sensing due to the speed at which the analysis takes place.

  

Our management team is continually identifying markets in which our DarkPulse Technology may be readily applied. Once these markets (as described below) have been addressed, our DarkPulse Technology may be adapted and applied to new markets.

 

Structural Monitoring

 

· Buildings and Skyscrapers

 

· Bridges, Tunnels and Dams

 

· Roads and Railway tracks

 

Temperature Sensing

 

· Fire Alarm and Environment control

 

· Low cost and maintenance

 

· Long life span

 

· Ability to withstand harsh working environment

 

Security & Defense

 

· National Border Protection

 

· Protection of Military and other sensitive installations

 

 

 

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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.

 

 

 

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Competition

 

The overall optical sensing market is projected to reach USD $3.47 billion by 2023 from USD $1.13 billion in 2016, at a CAGR of 15.47% between 2017 and 2023.[1] We are active in the optical sensing market, including Oil & Gas pipeline health monitoring, National Border Security applications, and the mining industry. We believe that fiber sensing applications which incorporate our DarkPulse Technology may provide significant competitive advantages over structural health monitoring applications offered by the long-term leaders in the field, such as Schlumberger, Hewlett-Packard, and Yokogawa, which collectively account for a significant portion of industry sales. These companies, as well as others, have numerous differences in feature sets and functionality, but all share certain basic attributes: a bright-pulse technology as the core of their systems architecture. An architecture designed using bright-pulsing technology has limited sensing capabilities and resolutions of one meter allowing for mostly long-term quasi-static deployments.

 

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.

 

Through DPTI’s April 2017 Intellectual Property agreement with the University, DPTI was sold, transferred, and assigned U.S. Patent Nos. 7,245,790, 8,643,829, and 9,534,965, each of which are related to our BOTDA dark-pulse technology. In addition, Canadian Patent No. 2,502,275 was also assigned.

 

Suppliers

 

We currently rely on a full-time, dedicated, external team of experienced professionals for the coding and maintenance of our products.  We believe we have mitigated the associated risks of managing an external team of software and engineering development professionals by incorporating internal management and oversight, as well as appropriate systems, protocols, controls, and procedures and ensuring that we have access to additional qualified professionals to provide like or complementary services.

 

 

 

_____________________

 

[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)

 

 

 

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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.

 

Employees

 

As of November 30, 2021, we had seven full-time employee and no part-time employees. 

 

Legal Proceedings

 

Former Officers

 

On September 10, 2021, Stephen Goodman, Mark Banash, and David Singer (the “Former Officers”), all former officers and employees of the Company, commenced suit against the Company in Arizona Superior Court, Maricopa County. The complaint alleges the Company breached the rights of the Former Officers in connection with Series D preferred stock issued to the Former Officers. The Company intends to defend itself against the allegations asserted in the Former Officers’ complaint. if the case progresses the Company will file countersuits against all plaintiffs.

 

More Capital, LLC

 

On June 29, 2021, More Capital, LLC (“More”) commenced suit against the Company, et al., in the 4th Judicial District (Hennepin County District Court) (Minnesota), alleging the Company breached the terms and conditions of a convertible promissory note and accompanying securities purchase agreement More and the Company entered into on August 20, 2018.

 

On July 20, 2021, the Company filed a motion to dismiss More’s complaint, arguing that the claims asserted against the Company fail to state a claim upon which relief can be granted.

 

The Company intends to defend itself against the allegations asserted in More’s complaint and interpose the defenses provided under the Exchange Act, including but not limited to asserting that More is an unregistered dealer acting in violation of Section 15(a) of the Exchange Act and, pursuant to Section 29(b) of the Exchange Act, the Company interposing its right to rescind the unlawful securities contracts in their entirety and, furthermore, seek rescissionary damages for any unlawful securities transactions effected by More. The Company contends that its arguments are brought in good faith, particularly in light of recent SEC enforcement actions and the SEC’s ongoing investigation against More, among other parties, for violations of federal securities laws, including violations of Section 15(a) of the Exchange Act. See U.S. Securities and Exchange Commission v. Carebourn Capital, LP et al, Case No. 1:20-cv-07162 (N.D. Ill.).

 

 

 

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Carebourn Capital, L.P.

 

On January 29, 2021, Carebourn Capital, L.P. (“Carebourn”) commenced suit against the Company in the 4th Judicial District (Hennepin County District Court, Minnesota), alleging the Company breached the terms and conditions of two convertible promissory notes and accompanying securities purchase agreements Carebourn and the Company entered into on July 17, 2018 and July 24, 2018, respectively.

 

Also on January 29, 2021, Carebourn moved for a temporary injunction to enjoin the Company from transferring any shares of its common stock to any third parties. Following submission of briefing by both parties and oral arguments on Carebourn’s motion, on March 17, 2021, the Court denied Carebourn’s motion for a temporary injunction.

 

On April 14, 2021, Carebourn filed an amended complaint and asserted new claims. On May 13, 2021, the Company filed a motion to dismiss Carebourn’s amended complaint, arguing that Carebourn is conducting itself as an unregistered dealer, in violation of Section 15(a) of the Exchange Act, and, pursuant to Section 29(b) of the Securities Act, the Company is entitled to have all contracts arising under the unlawful securities transaction declared void ab initio and seek rescissionary damages for any unlawful securities transactions effected by Carebourn.

 

As of the date hereof, a ruling has not been issued on the foregoing motions to dismiss filed by the Company and Standard Registrar and Transfer Company, Inc., and the Company and Carebourn are conducting discovery. The Company intends to defend itself against the allegations asserted in Carebourn’s amended complaint and interpose the defenses provided under the Act, including but not limited to asserting that Carebourn is an unregistered dealer acting in violation of Section 15(a) and, pursuant to Section 29(b), the Company interposing its right to rescind the unlawful securities contracts in their entirety and, furthermore, seek rescissionary damages for any unlawful securities transactions effected by Carebourn.

 

Recent Developments

 

Acquisitions

 

On August 9, 2021, the Company entered into a Share Purchase Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”), pursuant to which the Company purchased from the Sellers all of the issued and outstanding equity interests of Optilan HoldCo 3 Limited, a private company incorporated in England and Wales (“Optilan”) for £1.00 and also a commitment to enter into the Subscription (as defined below). Optilan is now a wholly-owned subsidiary of the Company.

 

On August 9, 2021, the Company entered into a Subscription Agreement with Optilan, pursuant to which the Company agreed to purchase an aggregate of 4,000,000 Ordinary Shares of Optilan for an aggregate purchase price of £4,000,000.

 

On August 30, 2021, the Company closed two separate Membership Interest Purchase Agreements (the “MPAs”) with Remote Intelligence, Limited Liability Company, a Pennsylvania limited liability company (“RI”) and Wildlife Specialists, LLC, a Pennsylvania limited liability company (“WS”) pursuant to which the Company agreed to pay to the majority shareholder of each of RI and WS an aggregate of 15,000,000 shares of the Company’s Common Stock, $500,000 to be paid on the closing date, and an additional $500,000 to be paid 12 weeks from closing date in exchange for 60% ownership of each of RI and WS. RI and WS are now subsidiaries of the Company.

 

On September 8, 2021, the Company entered into and closed the Stock Purchase Agreement (the “TJM SPA”) with TJM Electronics West, Inc., an Arizona corporation (“TJM”), and TJM’s shareholders, pursuant to which the Company agreed to purchase all of the equity interests in TJM in exchange for $450,000, subject to adjustments as defined in the TJM SPA. TJM is now a wholly-owned subsidiary of the Company.

 

Effective October 1, 2021, the Company entered into and closed the Membership Purchase Agreement (the “TerraData MPA”) with TerraData Unmanned, PLLC, a Florida limited liability company (“TerraData”), and Justin Dee, the sole shareholder of TerraData, pursuant to which we agreed to purchase 60% of the equity interests in TerraData in exchange for 3,725,386 shares of our Common Stock and $400,000, subject to adjustments as defined in the TerraData MPA, to be paid within 12 weeks of closing. TerraData is now a subsidiary of the Company.

 

 

 

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Financings

 

On January 4, 2021, we entered into a securities purchase agreement with Geneva Roth Remark Holdings, Inc. (“Geneva”) issuing to Geneva a convertible promissory note in the aggregate principal amount of $42,350 with a $3,850 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 8% per annum and may be converted into common shares of the Company's common stock at a conversion price equal to 70% of the lowest trading price of our common stock during the 20 prior trading days. We received $35,000 net cash.

 

On February 3, 2021, we entered into a securities purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $94,200 with a $15,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of our common stock at a conversion price equal to 81% of the lowest two trading prices of our common stock during the 10 prior trading days. We received $75,000 net cash.

 

On February 18, 2021, we entered into a securities purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $76,200 with a $12,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of our common stock at a conversion price equal to 81% of the lowest two trading prices of our common stock during the 10 prior trading days. We received $60,000 net cash.

 

On April 5, 2021, we entered into a securities purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $64,200 with a $10,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of the Company's common stock at a conversion price equal to 81% of the lowest 2 trading prices of the Company's common stock during the 10 prior trading days. The Company received $50,000 net cash.

 

On April 26, 2021, we entered a Securities Purchase Agreement (the “FirstFire SPA”) and Registration Rights Agreement (the “FirstFire Registration Rights Agreement”) with FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, a Delaware limited liability company (the “FirstFire”), pursuant to which we issued to FirstFire a Convertible Promissory Note in the principal amount of $825,000 (the “FirstFire Note”). The purchase price of the FirstFire Note is $750,000. The FirstFire Note matures on January 26, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the FirstFire Note at 10% per annum guaranteed until the FirstFire Note becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The FirstFire Note is convertible at any time after 180 days from issuance, upon the election of the FirstFire, into shares of our Common Stock at $0.015 per share. The FirstFire Note is subject to various “Events of Default,” which are disclosed in the FirstFire Note. Upon the occurrence of an “Event of Default,” the conversion price will become $0.005. In the event of a DTC “chill” on our shares, an additional discount of 10% will apply to the conversion price while the “chill” is in effect. Upon the issuance of the FirstFire Note, we have initially agreed to reserve 550,000,000 shares of Common Stock.

 

The FirstFire Registration Rights Agreement provides that we shall (i) use our best efforts to file with the Commission an S-1 Registration Statement within 90 days of the date of the FirstFire Registration Rights Agreement to register the shares into which the FirstFire Note is convertible; and (ii) have the Registration Statement declared effective by the SEC within 180 days after the date the Registration Statement is filed with the SEC.

 

On July 14, 2021, we entered a Securities Purchase Agreement with GS Capital Partners, LLC (the “GS”), pursuant to which we issued to GS a 6% Redeemable Note in the principal amount of $2,000,000 (the “GS Note”). The purchase price of the GS Note is $1,980,000. The GS Note matures on July 14, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the GS Note at 6% per annum until the GS Note becomes due and payable. The GS Note is subject to various “Events of Default,” which are disclosed in the GS Note. Upon the occurrence of an “Event of Default,” the interest rate on the GS Note will be 18%. The GS Note is not convertible into shares of our Common Stock and is not dilutive to existing or future shareholders and we plan on using a portion of the proceeds of the GS Note to retire existing convertible debt.

 

 

 

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On August 19, 2021, we entered into the Purchase Agreement with GHS, for the offering of up to $45,000,000 worth of Common Stock. Pursuant to the Purchase Agreement, on August 19, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 31,799,260 shares of Common Stock for total proceeds to the Company, net of discounts, of $3,300,000, at an effective price of $0.1038 per share (the “First Closing”). We received approximately $2,790,000 in net proceeds from the First Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the First Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to the Company’s registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021.

 

Pursuant to the Purchase Agreement, on August 31, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 27,297,995 shares of Common Stock for total proceeds to us, net of discounts, of $3,300,000, at an effective price of $0.120888 per share (the “Second Closing”). We received approximately $2,885,000 in net proceeds from the Second Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Second Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021.

 

Pursuant to the Purchase Agreement, on September 22, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 25,630,272 shares of Common Stock for total proceeds to us, net of discounts, of $2,000,000, at an effective price of $0.085836 per share (the “Third Closing”). We received approximately $1,915,000 in net proceeds from the Third Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Third Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021.

 

Pursuant to the Purchase Agreement, on October 1, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 37,187,289 shares of Common Stock for total proceeds to us, net of discounts, of $3,000,000, at an effective price of $0.08874 per share (the “Fourth Closing”). We received approximately $2,850,000 in net proceeds from the Fourth Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Fourth Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021.

 

Pursuant to the Purchase Agreement, on October 15, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 14,282,304 shares of Common Stock for total proceeds to us, net of discounts, of $ $1,055,000, at an effective price of $0.0812544 per share (the “Fifth Closing”). We received approximately $1,102,475 in net proceeds from the Fifth Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Fifth Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021.

 

Partnerships

 

We have entered into a consulting agreement with the Bachner Group to assist in the successful transformation from an R&D focused company to a sales-focused company, and assist us with federal contract opportunities.

 

We have entered into a partnership with Remote Intelligence to expand our service offerings to include “eye in the sky” drone capabilities.

 

We have entered into a partnership with Unleash Live to expand our service offerings to include AI enhanced image evaluation and secure private networking capabilities.

 

 

 

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Other Events

 

On August 3, 2021, the Company entered into an Engagement Agreement and Terms and Conditions (the “EIAP Agreement”) with Energy & Industrial Advisory Partners, LLC ( “EIAP”). Pursuant to the EIAP Agreement, the Company has engaged EIAP to serve as an advisor to the Company in the proposed transaction for agreed target company or any of its subsidiaries and/or the whole or any part of its or their business or assets (the “Transaction”). EIAP will receive a monthly retainer of $10,000 per month payable upon receipt of an invoice. EIAP will also receive a consulting bonus fee of $350,000 payable upon completion of the Transaction. In the event of successful completion of the Transaction as a result of EIAP’s involvement, EIAP agrees to deduct the total retainer fee from the consulting bonus fee. The EIAP Agreement may be terminated, with or without cause, by either party upon ten days’ written prior notice thereof to the other party. If (a) during the term of the EIAP Agreement, or (b) within two years following the date of the EIAP Agreement’s termination by the Company (provided that such two-year period shall be extended by the same period of time that the Company takes to settle in full all fees, expenses and/or outlays due or to become due to EIAP as at the date of the EIAP Agreement’s termination), the Company completes a transaction with the target company or a similar transaction to the Transaction, then the Company shall pay the consulting bonus fee at the completion of the transaction.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

 

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 48 Director
     
Carl Eckel 63 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 five 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.

  

 

 

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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.

 

Legal Proceedings

 

During the past ten years there have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any of our directors or executive officers, and none of these persons has been involved in any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity, any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws or regulations, or any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or other self-regulatory organization. 

  

Family Relationships

 

There are no family relationships between any of our directors and executive officers. 

 

Code of Ethics

 

We have not adopted a formal, written code of ethics due to a small number of members of management, lack of previous business operations, and lack of resources. We plan to adopt a Code of Ethics during the fiscal year ending December 31, 2021. 

 

Audit Committee

 

As of December 31, 2020, we did not have a functioning Audit Committee. Our management is currently reviewing our SEC filings and relying on outside experts to assist with this process.

 

 

 

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EXECUTIVE COMPENSATION

 

Summary Compensation

 

The following table shows the executive compensation paid to our named executive officers and directors for the years ended December 31, 2020 and 2019.

 

Name and Principal Position   Year Ended Dec 31,     Salary (1)     Total  
Dennis O’Leary     2020     $ 0     $ 0  
Chairman/CEO and Director     2019     $ 18,000     $ 18,000  
Dr. Anthony Brown     2020     $ 0     $ 0  
Director     2019     $ 0     $ 0  
Carl Eckel     2020     $ 0     $ 0  
Director     2019     $ 0     $ 0  

___________________________

(1) The Company accrued $0 and $18,000 for compensation for Mr. O’Leary during the years ended December 31, 2020 and 2019, respectively, of which $0 has been paid, respectively.

 

Equity Awards

 

As of December 31, 2020, there were no outstanding equity awards.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  44  

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

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 5,154,132,642 (5,154,044,407 common plus 88,235 preferred) shares as of November 22, 2021. 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 November 22, 2021. 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. The address for each of the Company’s directors, executive officers, and named executive officers is 1345 Avenue of the Americas, 2nd Floor, New York, NY 10105.

 

Name and Position

Shares of

Common

Stock

Owned

Shares of

Series D

Preferred

Stock Owned

Amount and

Nature of

Beneficial

Ownership(1)

Percentage of Beneficial Ownership Before Offering Percentage of Beneficial Ownership Assuming all Shares are Sold
Dennis O’Leary, CEO and Director - 67,647 21,620,914,482 81.29% 80.38%
Dr. Anthony Brown, Director - 5,882 1,879,968,348 27.42% 26.29%
Carl Eckel, Director - - - -  
>5% Shareholders

Fantastic Northamerica, LLC

Avenue of the Americas

2nd Floor

New York, NY 10105

- 67,647 21,620,914,482 81.29% 80.38%

Dr. Thomas A. Cellucci

42757 Cedar Ridge Blvd.

Chantilly, VA 20152

- 9,412 3,008,205,047 37.67% 36.31%

Stephen Goodman

1873 W Dion Drive

Anthem, AZ 85086

- 1,177 376,185,437 7.03% 6.65%

Mark Banash

52 Rice Ln

Bedford, NH 03110

- 1,176 375,865,824 7.02% 6.64%

David Singer

200 South Ironton St., #109

Aurora, CO 80012

- 1,176 375,865,824 7.02% 6.64%

Brunson, Chandler & Jones, PLLC

175 S Main St.

SLC, UT 84111

- 1,175 375,546,210 7.01% 6.63%

 

*Less than 1%

 

(1) Under Rule 13d-3 of the Exchange Act, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the number of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the above table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on the date of this prospectus.

 

(2) Includes 67,647 shares of Series D Preferred Stock are owned by Fantastic Northamerica, LLC which is owned and controlled by Mr. O’Leary, the Company’s Chief Executive Officer.

 

 

 

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Certain Relationships and Related Transactions

 

Except as disclosed below, for transactions with our executive officers and directors, please see the disclosure under “EXECUTIVE COMPENSATION” above.

 

Accrued Compensation

 

Dennis O’Leary, the Company’s CEO, accrued $0 and $18,000 for compensation for the CEO during the years ended December 31, 2020 and 2019, 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 members Eckel and Brown are independent directors.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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DESCRIPTION OF SECURITIES

 

We have authorized capital stock consisting of the following. The total number of shares of capital stock which the Company has the authority to issue is: 20,002,000,000. These shares shall be divided into two classes with 20,000,000,000 shares designated as common stock at $0.0001 par value (the “Common Stock”) and 2,000,000 shares designated as preferred stock at $0.01 par value (the “Preferred Stock”).The Preferred Stock of the Company is issuable by authority of the Board of Director(s) of the Company in one or more classes or one or more series within any class and such classes or series shall have such voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as our Board of Directors may determine, from time to time. We have 5,154,044,407 common shares and 88,235 preferred shares outstanding as of the date of this prospectus.

  

Common Stock

 

Our Certificate of Incorporation authorize us to issue 20,000,000,000 shares of common stock, par value $0.0001 per share. The holders of outstanding common shares are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. There is no cumulative voting of the election of directors then standing for election. The common shares are not entitled to pre-emptive rights and are not subject to conversion or redemption. Upon liquidation, dissolution or winding up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common shares after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. Each outstanding common share is duly and validly issued, fully paid and non-assessable.

 

Preferred Stock

 

Our Certificate of Incorporation authorize us to issue 2,000,000 shares of preferred stock, par value $0.01 per share. Our Board of Directors has the authority to issue additional shares of preferred stock in one or more series, and fix for each series, the designation of and number of shares to be included in each such series. Our Board of Directors is also authorized to set the powers, privileges, preferences, and relative participating, optional or other rights, if any, of the shares of each such series and the qualifications, limitations or restrictions of the shares of each such series.

 

Unless our Board of Directors provides otherwise, the shares of all series of preferred stock will rank on parity with respect to the payment of dividends and to the distribution of assets upon liquidation. Any issuance by us of shares of our preferred stock may have the effect of delaying, deferring or preventing a change of our control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of common stock.

 

On July 12, 2018, we 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.” As of July 18, 2018, all shares of the Company’s Class A Voting Preferred Stock, Class B Voting Preferred Stock, and Class C Voting Preferred Stock had been returned to the Company and cancelled. There are presently 88,235 shares of Series D Preferred Stock outstanding.

 

Each share of Series D Preferred Stock entitles the holder to 6,000 votes on all matters submitted to a vote of our stockholders and is convertible at the election of the holder into a number of shares of common stock equal to the number of our outstanding shares of stock multiplied by 5 ⅔, divided by the number of outstanding shares of Series D Preferred Stock.

 

Stock Options

 

We currently have no outstanding stock options.

 

 

 

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Dividend Policy

 

We have never declared a cash dividend on our common stock and our Board of Directors does not anticipate that we will pay cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results, capital requirements, restrictions contained in our agreements and other factors which our Board of Directors deems relevant.

 

Transfer Agent

 

We have appointed Standard Registrar and Transfer Company, 440 East 400 South, Suite 200, Salt Lake City, UT 84111, to act as transfer agent for the common stock.

 

Anti-Takeover Effects of Delaware Law, Our Certificate of Incorporation and Bylaws

 

Certain provisions of our charter documents and Delaware law could have an anti-takeover effect and could delay, discourage or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might otherwise result in a premium being paid over the market price of our common stock.

 

Charter and Bylaws

 

Our Certificate of Incorporation and Bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors, including, among other things:

 

· no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

· the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

· the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

· the requirement that a special meeting of stockholders may be called only by a majority vote of our board of directors or by stockholders holding shares of our common stock representing in the aggregate a majority of votes then outstanding, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and

 

· the ability of our board of directors, by majority vote, to amend our bylaws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquirer to amend our by-laws to facilitate a hostile acquisition.

 

 

 

  48  

 

 

Delaware Anti-Takeover Statute

 

Under Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or (i) our board of directors approves the transaction prior to the stockholder acquiring the 15% ownership position, (ii) upon consummation of the transaction that resulted in the stockholder acquiring the 15% ownership position, the stockholder owns at least 85% of the outstanding voting stock (excluding shares owned by directors or officers and shares owned by certain employee stock plans) or (iii) the transaction is approved by the board of directors and by the stockholders at an annual or special meeting by a vote of 66 2/3% of the outstanding voting stock (excluding shares held or controlled by the interested stockholder). In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any such entity or person.

 

A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or by-laws approved by its stockholders. We have opted out of Section 203.

 

Authorized but Unissued Shares

 

Our authorized but unissued shares of Common Stock and Preferred Stock will be available for future issuance without stockholder approval, except as may be required under the listing rules of any stock exchange on which our Common Stock is then listed. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of Common Stock and Preferred Stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

 

Limitations on Liability and Indemnification of Officers and Directors

 

Under our Certificate of Incorporation, our directors have no personal liability to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except (i) for any breach of the duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL as it may from time to time be amended or any successor provision thereto, or (iv) for any transaction from which a director derives an improper personal benefit.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  49  

 

 

PLAN OF DISTRIBUTION

 

The common stock offered by this prospectus is being offering by the Selling Security Holder. The common stock may be sold or distributed from time to time by the Selling Share Holder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market price prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices , or at fixed prices, which may be changed . The Selling Security Holder may use any one or more of the following methods when selling securities:

 

  · ordinary brokers’ transactions;

 

  · transactions involving cross or block trades;

 

  · through brokers, dealers, or underwriters may act solely as agents;

 

  · “at the market” into an existing market for the common stock;

 

  · in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents;

 

  · in privately negotiated transactions; or

 

  · any combination of the foregoing.

 

In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the state’s registration or qualification requirement is available and complied with.

 

The Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.

 

GHS has informed us that it intends to use an unaffiliated broker-dealer to effectuate all sales, if any, of the common stock that it may purchase from us pursuant to the EFA. Such sales will be made at prices and at terms then prevailing or at prices related to the then current market price. Each such unaffiliated broker-dealer will be an underwriter within the meaning of Section 2(a)(11) of the Securities Act. GHS has informed us that each such broker-dealer will receive commissions from GHS that will not exceed customary brokerage commissions.

 

Brokers, dealers, underwriters or agents participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions from the Selling Security Holder and/or purchasers of the common stock for whom the broker-dealers may act as agent. The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions. Neither we nor GHS can presently estimate the amount of compensation that any agent will receive.

 

We know of no existing arrangements between GHS or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares offered by this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters or dealers and any compensation from the Selling Security Holder, and any other required information.

 

We will pay the expenses incident to the registration, offering, and sale of the shares to GHS. We have agreed to indemnify GHS and certain other persons against certain liabilities in connection with the offering of shares of common stock offered hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. GHS has agreed to indemnify us against liabilities under the Securities Act that may arise from certain written information furnished to us by GHS specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.

 

 

 

  50  

 

 

GHS has represented to us that at no time prior to the EFA has GHS or its agents, representatives or affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of our common stock or any hedging transaction , which establishes a net short position with respect to our common stock. GHS agreed that during the term of the EFA, it, its agents, representatives or affiliates will not enter into or effect, directly or indirectly, any of the foregoing transactions.

 

We have advised GHS that it is required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the selling stockholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered by this prospectus.

 

This offering will terminate on the date that all shares offered by this prospectus have been sold by GHS or November 9, 2023, whichever occurs sooner.

 

Our common stock is quoted on the OTC Markets under the symbol “DPLS.”

 

The Selling Security Holder is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.

 

The Selling Security Holder and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The Selling Security Holder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

 

Because the Selling Security Holder is deemed to be an “underwriter” within the meaning of the Securities Act, it will be subject to the prospectus delivery requirements of the Securities Act, including Rule 172 thereunder. In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus. The Selling Security Holder has advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale securities by the Selling Security Holder.

 

We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Security Holder without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for us to be in compliance with the current public information requirement under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Security Holder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the Common Stock by the Selling Security Holder or any other person. We will make copies of this prospectus available to the Selling Security Holder and have informed the Selling Security Holder of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

 

 

  51  

 

 

SHARES ELIGIBLE FOR FUTURE SALE

 

The sale of a substantial number of shares of our Common Stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our Common Stock. In addition, any such sale or perception could make it more difficult for us to sell equity, or equity related, securities in the future at a time and price that we deem appropriate. If and when this Registration Statement becomes effective, we might elect to adopt a stock option plan and file a Registration Statement under the Securities Act registering the shares of Common Stock reserved for issuance thereunder. Following the effectiveness of any such Registration Statement, the shares of Common Stock issued under such plan, other than shares held by affiliates, if any, would be immediately eligible for resale in the public market without restriction.

 

The sale of shares of our Common Stock which are not registered under the Securities Act, known as “restricted” shares, typically are effected under Rule 144. As of November 22, 2021, we had outstanding an aggregate of 5,154,044,407 shares of Common Stock of which approximately 37,448,333 shares are restricted Common Stock. All our shares of Common Stock might be sold under Rule 144 after having been held for six months. No prediction can be made as to the effect, if any, that future sales of “restricted” shares of our Common Stock, or the availability of such shares for future sale, will have on the market price of our Common Stock or our ability to raise capital through an offering of our equity securities.

 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

As of December 31, 2020, the Company had no securities authorized for issuance under equity compensation plans either approved or not approved by the Company’s shareholders.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

 

On March 11, 2019 (the “Dismissal Date”), we advised Haynie & Company (the “Former Auditor”) that it was dismissed as our independent registered public accounting firm. The decision to dismiss the Former Auditor as our independent registered public accounting firm was approved by our Board of Directors.

 

During the years ended December 31, 2017 and 2016 and through the Dismissal Date, there were no disagreements with the Former Auditor on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the Former Auditor’s satisfaction, would have caused them to make reference thereto in their reports on our financial statements for such years.

 

Except as set forth below, during the years ended December 31, 2017 and 2016 and through the Dismissal Date, the reports of the Former Auditor on our financial statements did not contain any adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope, or accounting principle, except that the reports contained a paragraph stating there was substantial doubt about our ability to continue as a going concern.

 

On March 11, 2019, (the “Engagement Date”), we engaged Boyle CPA, LLC (the “New Auditor”) as its independent registered public accounting firm for our fiscal year ended December 31, 2018. The decision to engage the New Auditor as our independent registered public accounting firm was approved by our Board of Directors.

 

During the two most recent fiscal years and through the Engagement Date, we had not consulted with the New Auditor regarding either:

 

1. application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and neither a written report was provided to us nor oral advice was provided that the New Auditor concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or

 

any matter that was either the subject of a disagreement (as defined in Regulation S-K, Item 304(a)(1)(iv) and the related instructions) or reportable event (as defined in Regulation S-K, Item 304(a)(1)(v)).

 

 

 

  52  

 

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION OF SECURITIES ACT LIABILITIES

 

We have entered into indemnification agreements with each of our directors, executive officers and other key employees. The indemnification agreements will require us to indemnify our directors to the fullest extent permitted by Delaware law. We have agreed to indemnify each of our directors and certain officers against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

LEGAL MATTERS

 

The legality of the issuance of the shares of Common Stock offered by this Prospectus will be passed upon for us by Business Legal Advisors, LLC, Draper, Utah.

 

EXPERTS

 

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the Common Stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

 

The financial statements of DarkPulse, Inc. as of December 31, 2020, and 2019, which includes an explanatory paragraph relating to its ability to continue as a going concern, included in this Prospectus have been audited by Boyle CPA, LLC, an independent auditor, as stated in their reports appearing herein. Such financial statements have been so included in reliance upon the reports of such firm given its authority as experts in accounting and auditing.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed a registration statement on Form S-1 under the Securities Act (SEC File No. 333-_________) relating to the shares of common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of DarkPulse, Inc., filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the SEC.

 

Upon the effective date of the registration statement of which this prospectus is a part, we will be required to file reports and other documents with the SEC. We do not presently intend to voluntarily furnish you with a copy of our Prospectus. You may read and copy any materials we file with the SEC at the public reference room of the SEC at 100 F Street, NE., Washington, DC 20549, between the hours of 10:00 a.m. and 3:00 p.m., except federal holidays and official closings, at the Public Reference Room. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to you on the Internet website for the SEC at http://www.sec.gov.

 

 

 

  53  

 

 

INDEX TO FINANCIAL STATEMENTS

 

Condensed Consolidated Interim Financial Statements:  
   
Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020 F-2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited) F-3
Condensed Consolidated Statements of Stockholders’ Deficit for the Periods Ended September 30, 2021 and 2020 (unaudited) F-5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited) F-7
Notes to Condensed Consolidated Financial Statements (unaudited) F-8

 

Audited Financial Statements:

 

Report of Independent Registered Public Accounting Firm F-27
Consolidated Balance Sheets as of December 31, 2020 and 2019 F-28
Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019 F-29
Consolidated Statements of Comprehensive Loss F-30
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2020 and 2019 F-31
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 F-32
Notes to the Financial Statements F-33

 

 

 

  F- 1  

 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

 

DARKPULSE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

                 
          Audited  
    September 30,     December 31,  
    2021     2020  
             
ASSETS                
                 
CURRENT ASSETS:                
Cash   $ 2,564,492     $ 337  
Accounts receivable, net     5,812,003        
Inventory     1,630,051        
Unbilled revenue     1,103,876        
Other current assets     137,979        
TOTAL CURRENT ASSETS     11,248,401       337  
                 
NON-CURRENT ASSETS:                
Property and equipment, net     1,837,399        
Operating lease right-of-use assets     1,476,771        
Patents, net     355,719       393,990  
Goodwill     15,536,899        
Other assets, net     282,881       91,464  
TOTAL NON-CURRENT ASSETS     19,489,673       485,454  
                 
TOTAL ASSETS   $ 30,738,072     $ 485,791  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
                 
CURRENT LIABILITIES:                
Accounts payable and accrued expenses   $ 9,549,305     $ 1,089,869  
Convertible notes, net of discount $111,888 and $39,414 respectively     1,091,375       931,158  
Notes payable     2,000,000        
Customer deposits     4,802,891        
Derivative Liability     479,088       1,220,877  
Contract liabilities     2,699,688        
Operating lease liabilities - current     575,446        
Other current liabilities     2,190,110        
TOTAL CURRENT LIABILITIES     23,387,903       3,241,904  
                 
NON-CURRENT LIABILITIES:                
Secured debenture     1,184,516       1,176,092  
Operating lease liabilities - non-current     1,592,880        
TOTAL NON-CURRENT LIABILITIES     2,777,396       1,176,092  
                 
TOTAL LIABILITIES     26,165,299       4,417,996  
                 
STOCKHOLDERS' DEFICIT                
Common Stock, Par Value $0.0001, 20,000,000,000 shares authorized 4,922,968,442 and 4,088,762,156 shares issued and outstanding respectively     492,297       408,876  
Treasury Stock, 100,000 shares     (1,000 )     (1,000 )
Convertible Preferred Stock, Series D, par value $0.01, 100,000 shares authorized, 88,235 shares issued and outstanding     883       883  
Paid in capital in excess of par value     12,327,090       1,805,813  
Distributions     (6,400 )      
Non-controlling interest in a variable interest entity and subsidiary     (34,113 )     (12,439 )
Accumulated other comprehensive income     168,496       315,832  
Accumulated deficit     (8,374,480 )     (6,450,170 )
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)     4,572,773       (3,932,205 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 30,738,072     $ 485,791  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

  F- 2  

 

 

DARKPULSE, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

 

 

                                 
    FOR THE THREE MONTHS     FOR THE NINE MONTHS  
    ENDED SEPTEMBER 30,     ENDED SEPTEMBER 30,  
    2021     2020     2021     2020  
                         
REVENUE   $ 3,500,970     $     $ 3,500,970     $  
COST OF GOODS SOLD     2,767,239             2,767,239        
GROSS PROFIT     733,731             733,731        
                                 
OPERATING EXPENSES:                                
Selling, general and administrative     406,940       34,782       531,793       120,866  
Salaries, wages and payroll taxes     1,007,453             1,007,453       187  
Professional fees     1,680,600             1,901,572       48,297  
Depreciation and amortization     91,222       12,757       116,736       38,271  
Debt transaction expenses     33,000             184,950        
TOTAL OPERATING EXPENSES     3,219,215       47,539       3,742,504       207,621  
                                 
NET OPERATING LOSS     (2,485,484 )     (47,539 )     (3,008,773 )     (207,621 )
                                 
OTHER INCOME (EXPENSE):                                
Interest expense     (320,706 )     (37,318 )     (671,290 )     (97,842 )
Gain on settlement of debt     785,240             785,240       1,000  
Change in fair market of derivative liabilities     (251,133 )     (87,852 )     76,363       (44,684 )
Gain/Loss on convertible notes     432,893       (1,313 )     741,789       (39,414 )
Foreign currency exchange rate variance     152,361             152,360        
TOTAL OTHER INCOME (EXPENSE)     798,655       (126,483 )     1,084,462       (180,940 )
                                 
NET LOSS     (1,686,829 )     (174,022 )     (1,924,311 )     (388,561 )
Net Loss attributable to noncontrolling interests in variable interest entity and subsidiary     15,838             15,838        
Net loss attributable to Company stockholders   $ (1,670,991 )   $ (174,022 )   $ (1,908,473 )   $ (388,561 )
                                 
LOSS PER SHARE:                                
Basic and Diluted   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 
WEIGHTED AVERAGE SHARES OUTSTANDING:                                
Basic and Diluted     4,835,935,495       2,355,108,904       4,679,197,410       1,754,933,152  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

                             

 

 

  F- 3  

 

 

DARKPULSE, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(UNAUDITED)

                             

 

                                 
    FOR THE THREE MONTHS     FOR THE NINE MONTHS  
    ENDED SEPTEMBER 30,     ENDED SEPTEMBER 30,  
    2021     2020     2021     2020  
                         
NET LOSS   $ (1,670,991 )   $ (174,022 )   $ (1,908,473 )   $ (388,561 )
                                 
OTHER COMPREHENSIVE GAIN (LOSS)                                
Unrealized Gain (Loss) on Foreign Exchange     26,539       (39,945 )     (7,524 )     13,656  
COMPREHENSIVE LOSS   $ (1,644,452 )   $ (213,967 )   $ (1,915,997 )   $ (374,905 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

  F- 4  

 

 

DARKPULSE, INC.

Consolidated Statement of Stockholders' Deficit

For the Periods Ended September 30, 2021 and 2020

 

 

                                                   
    Preferred Stock     Common Stock     Treasury     Paid in Capital in Excess of Par    
    Shares     Amount     Shares     Amount     Stock     Value    
Balance, December 31, 2020     88,235     $ 883       4,088,762,156     $ 408,876     $ (1,000 )   $ 1,805,813    
Conversion of convertible notes                 600,999,995       60,100             189,839    
Foreign currency adjustment                                      
Net loss                                      
Balance, March 31, 2021     88,235     $ 883       4,689,762,151     $ 468,976     $ (1,000 )   $ 1,995,652    
Conversion of convertible notes                 20,565,040       2,057             124,863    
Stock based loan acquisition cost                 60,000,000       6,000             243,333    
Foreign currency adjustment                                      
Net loss                                      
Balance, June 30, 2021     88,235     $ 883       4,770,327,191     $ 477,033     $ (1,000 )   $ 2,363,848    
Conversion of convertible notes                 49,719,643       4,972             183,679    
Issuance of common stock for public offering                 84,727,527       8,473             7,991,527    
Issuance of common stock for Wildlife Specialist acquisition                 7,500,000       750             654,380    
Issuance of common stock for Remote Intelligence acquisition                 7,500,000       750             733,975    
Share-based compensation                 3,194,081       319             399,681    
Distributions                                      
Foreign currency adjustment - NCI                                      
Foreign currency adjustment                                      
Net loss                                      
Balance, September 30, 2021     88,235     $ 883       4,922,968,442     $ 492,297     $ (1,000 )   $ 12,327,090    
                                                   
Balance, December 31, 2019     88,235     $ 883       1,392,042,112     $ 13,920,421     $ (1,000 )   $ (11,877,864 )  
Conversion of convertible notes                                      
Foreign currency adjustment                                      
Net loss                                      
Balance, March 31, 2020     88,235     $ 883       1,392,042,112     $ 13,920,421     $ (1,000 )   $ (11,877,864 )  
Conversion of convertible notes                 217,142,858       2,171,429             (2,156,228 )  
Foreign currency adjustment                                      
Net loss                                      
Balance, June 30, 2020     88,235     $ 883       1,609,184,970     $ 16,091,850     $ (1,000 )   $ (14,034,092 )  
Conversion of convertible notes                 1,785,632,186       17,856,322             (17,739,248 )  
Foreign currency adjustment                                      
Net loss                                      
Balance, September 30, 2020     88,235     $ 883       3,394,817,156     $ 33,948,172     $ (1,000 )   $ (31,773,340 )  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

  F- 5  

 

 

DARKPULSE, INC.

Consolidated Statement of Stockholders' Deficit

For the Periods Ended September 30, 2021 and 2020 (continued)

 

 

                                         
          Non-Controlling Interest in     Accumulated Other Comprehensive     Accumulated     Total Stockholders’  
    Distributions     Subsidiary     Income     Deficit     Deficit  
Balance, December 31, 2020   $     $ (12,439 )   $ 315,832     $ (6,450,170 )   $ (3,932,205 )
Conversion of convertible notes                             249,939  
Foreign currency adjustment                 (17,909 )           (17,909 )
Net loss                       (51,874 )     (51,874 )
Balance, March 31, 2021   $     $ (12,439 )   $ 297,923     $ (6,502,044 )   $ (3,752,049 )
Conversion of convertible notes                             126,920  
Stock based loan acquisition cost                             249,333  
Foreign currency adjustment                 (16,154 )           (16,154 )
Net loss                       (185,607 )     (185,607 )
Balance, June 30, 2021   $     $ (12,439 )   $ 281,769     $ (6,687,651 )   $ (3,577,557 )
Conversion of convertible notes                             188,651  
Issuance of common stock for public offering                             8,000,000  
Issuance of common stock for Wildlife Specialist acquisition                             655,130  
Issuance of common stock for Remote Intelligence acquisition                             734,725  
Share-based compensation                             400,000  
Distributions     (6,400 )                       (6,400 )
Foreign currency adjustment - NCI           (21,674 )                 (21,674 )
Foreign currency adjustment                 (113,273 )           (113,273 )
Net loss                       (1,686,829 )     (1,686,829 )
Balance, September 30, 2021   $ (6,400 )   $ (34,113 )   $ 168,496     $ (8,374,480 )   $ 4,572,773  
                                         
Balance, December 31, 2019   $ (12,439 )   $ (12,439 )   $ 336,775     $ (6,174,328 )   $ (3,807,552 )
Conversion of convertible notes                              
Foreign currency adjustment                 92,646             92,646  
Net loss                       (74,298 )     (74,298 )
Balance, March 31, 2020   $ (12,439 )   $ (12,439 )   $ 429,421     $ (6,248,626 )   $ (3,789,204 )
Conversion of convertible notes                             15,201  
Foreign currency adjustment                 (39,047 )           (39,047 )
Net loss                       (140,240 )     (140,240 )
Balance, June 30, 2020   $ (12,439 )   $ (12,439 )   $ 390,374     $ (6,388,866 )   $ (3,953,290 )
Conversion of convertible notes                             117,074  
Foreign currency adjustment                 (39,945 )           (39,945 )
Net loss                       (174,022 )     (174,022 )
Balance, September 30, 2020   $ (12,439 )   $ (12,439 )   $ 350,429     $ (6,562,889 )   $ (4,050,184 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

  F- 6  

 

 

 

DARKPULSE, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

 

                 
    FOR THE NINE MONTHS  
    ENDED SEPTEMBER 30,  
    2021     2020  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
                 
Net Loss   $ (1,924,311 )   $ (388,561 )
Adjustments to reconcile net loss to net cash used by operating activities:                
Gain on extinguishment of debt     (785,240 )      
Stock based compensation     649,334        
Operating lease expense     (90,946 )      
Loan acquisition costs     (480,450 )     (9,900 )
Derivative liability     (741,789 )     44,684  
Amortization of debt discount     404,087       39,414  
Depreciation and amortization     116,736       38,271  
Changes in operating assets and liabilities:              
Accounts receivable     (893,366 )      
Inventory     410,836        
Unbilled Revenue     (563,555 )      
Customer Deposits     1,634,397        
Contract liability     (1,439,504 )      
Accounts payable and accrued expenses     (4,362,016 )     280,370  
Operating lease liabilities     1,398,068        
Other current liabilities     (778,874 )      
                 
Net Cash Used by Operating Activities     (7,446,593 )     4,278  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
                 
Purchases of property and equipment     (78,662 )      
Business acquisitions, net of cash received     (152,683 )      
Deposits     (124,000 )      
Investment in patents     (191,420 )     (4,969 )
                 
Net Cash Used by Investing Activities     (546,765 )     (4,969 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
                 
Proceeds from sale of common stock from offering     8,000,000        
Proceeds from convertible notes payable     1,102,700        
Payments on convertible notes     (384,600 )      
Proceeds from notes payable     2,000,000        
                 
Net Cash Provided by Financing Activities     10,718,100        
                 
Net Cash Increase (Decrease)     2,724,742       (691 )
                 
Effect of exchange rate on cash     (160,587 )      
                 
Cash, Beginning of Period     337       1,210  
Cash, End of Period   $ 2,564,492     $ 519  
                 
Supplementary Cash Flow Information:                
Interest paid in cash   $     $  
Taxes paid in cash   $     $  
                 
Non-cash finance and investing activities for the quarter ending September 30:                
Issuance of common stock for convertible notes payable and accrued interest     181,560        
Issuance of common stock for Wildlife Specialists     750        
Issuance of common stock for Remote Intelligence     750        

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

  F- 7  

 

 

DARKPULSE, INC.

Notes to Condensed Financial Statements

(Unaudited)

 

 

NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The consolidated financial statements as of December 31, 2020 have been audited by an independent registered public accounting firm. The accounting policies and procedures employed in the preparation of these condensed consolidated financial statements have been derived from the audited financial statements of the Company for the year ended December 31, 2020, which are contained in Form 10-K as filed with the Securities and Exchange Commission on April 15, 2021. The consolidated balance sheet as of December 31, 2020 was derived from those financial statements.

 

Basis of Presentation and Principles of Consolidation

 

The consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles of the United States of America (“U.S. GAAP”) and the rules and regulations of the U.S Securities and Exchange Commission for Interim Financial Information. The condensed consolidated financial statements of the Company include the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of September 30, 2021, and the results of operations for three and nine months and cash flows for the nine months ended September 30, 2021 have been included. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year.

 

Description of Business

 

DarkPulse, Inc. ("DPI" or "Company") is a technology-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 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 has recently completed several acquisitions. See Note 2 – Business Acquisitions for more information.

 

 

 

  F- 8  

 

 

Going Concern Uncertainty

 

As shown in the accompanying financial statements, during the nine months ended September 30, 2021, the Company reported a net loss of $1,924,311. As of September 30, 2021, the Company’s current liabilities exceeded its current assets by $12,139,502. As of September 30, 2021, the Company had $2,564,492 of cash.

 

The Company will require additional funding to finance the growth of our operations and achieve our strategic objectives. These factors, as relative to capital raising activities, create doubt as to our ability to continue as a going concern. We are seeking to raise additional capital and are targeting strategic partners in an effort to accelerate the sales and marketing of our products and begin generating revenues. Our ability to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements, expansion of our operations and generating sales. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations however, management cannot make any assurances that such financing will be secured.

 

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.

 

COVID-19 Pandemic

 

On January 30, 2020, the World Health Organization (WHO) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spread globally beyond the point of origin. On March 20, 2020 the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of these condensed consolidated financial statements. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s combined financial condition, liquidity and future results of operations. Management is actively monitoring the impact of the global situation on its consolidated financial condition, liquidity, operations, suppliers, industry and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021 beyond the results presented in these condensed consolidated financial statements and this quarterly report.

 

Due to the impacts of COVID-19 we have seen an increase in recruiting and labor costs as well as delays in supply chain.

 

Revenue Recognition

 

The Company’s revenues are generated primarily from the sale of our products, which consist primarily of advanced technology solutions for integrated communications and security systems. At contract inception, we assess the goods and services promised in the contract with customers and identify a performance obligation for each. To determine the performance obligation, we consider all products and services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not subject to significant judgment. We measure revenue as the amount of consideration expected to be received in exchange for transferring goods and services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met.

 

 

 

 

  F- 9  

 

 

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

In accordance with ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient, which is to (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was no impact as a result of adopting this ASU on the financial statements and related disclosures. Based on the terms and conditions of the product arrangements, the Company believes that its products and services can be accounted for separately as its products and services have value to the Company’s customers on a stand-alone basis. When a transaction involves more than one product or service, revenue is allocated to each deliverable based on its relative fair value; otherwise, revenue is recognized as products are delivered or as services are provided over the term of the customer contract.

 

Contract liabilities is shown separately in the unaudited consolidated balance sheets as current liabilities. At September 30, 2021 and December 31, 2020, we had contract liabilities of $2,699,688 and $0, respectively.

 

Cost of Product Sales and Services

 

Cost of sales consists primarily of materials, airtime and overhead costs incurred internally and amounts incurred to contract manufacturers to produce our products, airtime and other implementation costs incurred to install our products and train customer personnel, and customer service and third-party original equipment manufacturer costs to provide continuing support to our customers. There are certain costs which are deferred and recorded as prepaids, until such revenue is recognized. Refer to revenue recognition above as to what constitutes deferred revenue.

 

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. 

 

 

 

 

  F- 10  

 

 

Intangible Assets

 

The Company reviews intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.

 

Goodwill and other intangible assets

 

In accordance with ASC 350-30-65, “Intangibles - Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

 

Factors the Company considers to be important which could trigger an impairment review include the following:

 

· Significant underperformance relative to expected historical or projected future operating results;
· Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and
· Significant negative industry or economic trends.

 

When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.

 

Foreign Currency Translation

 

The Company’s reporting currency is U.S. Dollars. The accounts of one of the Company’s subsidiaries, Optilan, is maintained using the appropriate local currency, Great British Pound, 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 three and nine months ended September 30, 2021, closing rate at 1.3468 US$: GBP, quarterly average rate at 1.3787 US$: GBP.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the "more likely than not" criteria of ASC 740.

 

 

 

 

  F- 11  

 

 

ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the "more-likely-than-not" threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

Leases

 

Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.

 

In calculating the right of use asset and lease liability, the Company has elected to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.

 

Accounting for Derivatives

 

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. 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 probability weighted average series Binomial lattice formula pricing models 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 or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

 

Fair Value of Financial Instruments

 

The carrying amounts of the Company's financial assets and liabilities, such as cash, prepaid expenses, and accruals approximate their fair values because of the short maturity of these instruments. The Company believes the carrying value of its secured debenture payable approximates fair value because the terms were negotiated at arm’s length.

 

Recent Accounting Pronouncements

 

There were no new accounting pronouncements issued or proposed by the Financial Accounting Standards Board during the three months ended September 30, 2021, and through the date of filing of this report that the Company believes has had or will have a material impact on its financial position or results of operations, including the recognition of revenue, cash flow, the merger that was consummated on July 18, 2018. The Company has no lease obligations.

 

 

 

 

  F- 12  

 

 

Income (Loss) Per Common Share

 

Basic net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share of common stock is computed by dividing net income (loss) by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents outstanding. Potential dilutive common share equivalents consist of shares issuable upon exercise of outstanding convertible preferred stock and stock options.

  

For the three and nine months ended September 30, 2021, there were no stock options outstanding. For the three and nine months ended September 30, 2021, common stock equivalents related to convertible preferred stock and convertible debt have not been included in the calculation of diluted loss per common share because they are anti-dilutive. Therefore, basic loss per common share is the same as diluted loss per common share. There are 1,970,029,676 common shares reserved for the potential conversion of the Company's convertible debt.

 

NOTE 2 – BUSINESS ACQUISITIONS

 

Optilan Holdco 3 Limited

 

On August 9, 2021, the Company entered into a Share Purchase Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”), pursuant to which the Company purchased from the Sellers all of the issued and outstanding equity interests of Optilan HoldCo 3 Limited, a private company incorporated in England and Wales (“Optilan”) for £1.00 and also a commitment to enter into the Subscription (as defined below). As of August 9, 2021, the Company owns all of the equity interests of Optilan.

 

The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities and the preliminary acquisition accounting for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at September 30, 2021: 

       
    Fair Value  
Cash   $ 736,177  
Accounts receivable     4,619,381  
Inventory     2,040,887  
Unbilled revenue     540,321  
Property & equipment     1,393,274  
Right of use     1,385,825  
Goodwill     12,181,350  
Total assets     22,891,215  
Accounts payable     11,622,018  
Contract deposits     3,168,493  
Contract liabilities, current     4,139,193  
Lease liabilities, current     141,730  
Other current liabilities     2,496,725  
Lease liabilities, noncurrent     628,529  
Total purchase consideration   $ 694,527  

 

This purchase price allocation is preliminary and is pending the finalization of the third-party valuation analysis and working capital, as the Company has not yet completed the detailed valuation analyses as of the filing date of this Form 10-Q.

 

 

 

 

  F- 13  

 

 

Wildlife Specialists, LLC and Remote Intelligence, LLC

 

On August 30, 2021, we closed two separate Membership Interest Purchase Agreements (the “MPAs”) with Remote Intelligence, Limited Liability Company, a Pennsylvania limited liability company (“RI”) and Wildlife Specialists, LLC, a Pennsylvania limited liability company (“WS”) pursuant to which we agreed to pay to the majority shareholder of each of RI and WS an aggregate of 15,000,000 shares of our Common Stock, $500,000 to be paid on the closing date, and an additional $500,000 to be paid 12 weeks from closing date in exchange for 60% ownership of each of RI and WS. RI and WS are now subsidiaries of the Company.

 

The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities and the preliminary acquisition accounting for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at September 30, 2021: 

       
WILDLIFE SPECIALISTS   Fair Value  
Cash   $ 33,910  
Accounts receivable     161,866  
Other current assets     600  
Property & equipment     99,490  
Goodwill     1,191,085  
Total assets     1,486,951  
Accounts payable     151,888  
Other current liabilities     241,763  
Total purchase consideration   $ 1,478,000  

 

       
REMOTE INTELLIGENCE   Fair Value  
Cash   $ 6,158  
Accounts receivable     24,036  
Property & equipment     111,636  
Goodwill     1,729,800  
Total assets     1,871,630  
Accounts payable     141,859  
Other long term liabilities     251,771  
Total purchase consideration   $ 1,478,000  

 

These purchase price allocations are preliminary and are pending the finalization of the third-party valuation analysis and working capital, as the Company has not yet completed the detailed valuation analyses as of the filing date of this Form 10-Q.

 

 

 

 

  F- 14  

 

 

TJM Electronics West, Inc.

 

On September 8, 2021, we entered into and closed the Stock Purchase Agreement (the “TJM SPA”) with TJM Electronics West, Inc., an Arizona corporation (“TJM”), and TJM’s shareholders, pursuant to which we agreed to purchase all of the equity interests in TJM in exchange for $450,000, subject to adjustments as defined in the TJM SPA. TJM is now a wholly-owned subsidiary of the Company.

 

The Company has accounted for the purchase using the acquisition method of accounting for business combinations under ASC 805. Accordingly, the purchase price has been allocated to the underlying assets and liabilities in proportion to their respective fair values. The excess of the consideration transferred over the estimated fair values of the net assets acquired was recorded as goodwill. The following table summarizes the acquired assets and assumed liabilities and the preliminary acquisition accounting for the fair value of the assets and liabilities recognized in the Condensed Consolidated Balance Sheet at September 30, 2021:

 

       
    Fair Value  
Accounts receivable   $ 3,400  
Property & equipment     91,051  
Goodwill     355,549  
Total assets     450,000  
Total purchase consideration   $ 450,000  

 

This purchase price allocation is preliminary and is pending the finalization of the third-party valuation analysis and working capital, as the Company has not yet completed the detailed valuation analyses as of the filing date of this Form 10-Q.

 

NOTE 3 – REVENUE

 

The following table is a summary of the Company’s timing of revenue recognition for the three and nine months ended September 30, 2021 and 2020: 

                               
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
Timing of revenue recognition:                        
Services and products transferred at a point in time   $ 3,500,970     $     $ 3,500,970     $  
Services and products transferred over time     138             328        
Total revenue   $ 3,500,970     $     $ 3,500,970     $  

 

The Company disaggregates revenue by source and geographic destination to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

 

Revenue by source consisted of the following for the three and nine months ended September 30, 2021 and 2020: 

  Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
Revenue by products and services:                                
Products   $ 1,533,377     $     $ 1,533,377     $  
Services     1,967,593             1,967,593        
Total revenue   $ 3,500,970     $     $ 3,500,970     $  

 

 

 

  F- 15  

 

 

Revenue by geographic destination consisted of the following for the for the three and nine months ended September 30, 2021 and 2020: 

                               
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2021     2020     2021     2020  
Revenue by geography:                                
North America   $ 120,336     $     $ 120,336     $  
International     3,380,634             3,380,634        
Total revenue   $ 3,500,970     $     $ 3,500,970     $  

 

Contract Balances

 

The Company records contract assets when it has a right to consideration and records accounts receivable when it has an unconditional right to consideration. Contract liabilities consist of cash payments received (or unconditional rights to receive cash) in advance of fulfilling performance obligations. As of September 30, 2021, the Company did not have a contract assets balance.

 

The following table is a summary of the Company’s opening and closing balances of contract liabilities related to contracts with customers. 

       
    Total  
Balance at December 31, 2020   $  
Additions through advance billings to or payments from vendors      
Additions through business acquisition     4,139,193  
Revenue recognized from current period advance billings to or payments from vendors      
Revenue recognized from amounts acquired through business acquisition     1,439,505  
Balance at September 30, 2021   $ 2,699,688  

 

NOTE 4 – ACCOUNTS RECEIVABLE

 

Accounts receivable consisted of the following as of September 30, 2021 and December 31, 2020: 

               
    September 30,     December 31,  
    2021     2020  
Accounts receivable   $ 5,812,003     $  
Less: Allowance for doubtful accounts            
Total accounts receivable   $ 5,812,003     $  

 

 

 

 

 

  F- 16  

 

 

NOTE 5 – INVENTORY

 

Inventory consisted of the following as of September 30, 2021 and December 31, 2020: 

               
    September 30,     December 31,  
    2021     2020  
Raw materials   $ 209,478     $  
Work in progress     1,401,521        
Finished goods     19,052        
Total inventory     1,630,051        
Reserve            
Total inventory, net   $ 1,630,051     $  

 

 

NOTE 6 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following as of September 30, 2021 and December 31, 2020: 

               
    September 30,     December 31,  
    2021     2020  
Property and equipment   $ 1,775,332     $  
Leasehold improvements     63,180        
      1,838,512        
Less - accumulated depreciation     (1,113 )      
    $ 1,837,399     $  

 

 

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consisted of the following as of September 30, 2021 and December 31, 2020: 

               
    September 30,     December 31,  
    2021     2020  
Accounts payable   $ 8,946,714     $ 519,899  
Accrued liabilities     602,591       569,970  
Total accounts payable and accrued expenses   $ 9,549,305     $ 1,089,869  

 

 

 

  F- 17  

 

 

 

NOTE 8 – LEASES

 

We adopted ASC 842 “Leases” using the modified retrospective approach, electing the practical expedient that allows us not to restate our comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption.

 

The following was included in our balance sheet as of September 30, 2021: 

       
Operating leases  

September 30,

 2021

 
       
Assets        
ROU operating lease assets   $ 1,476,771  
         
Liabilities        
Current portion of operating lease   $ 575,446  
Operating lease, net of current portion   $ 1,592,880  
Total operating lease liabilities   $ 2,168,326  

 

The weighted average remaining lease term and weighted average discount rate at September 30, 2021 were as follows: 

       
Weighted average remaining lease term (years)  

September 30,

2021

 
Operating leases     6.61  
Weighted average discount rate        
Operating leases     6.00%  

 

Operating Leases

 

On January 12, 2021, the Company’s new acquired subsidiary entered into an operating lease agreement to rent office space in Mumbai, India. This three-year agreement commenced January 12, 2021 with an annual rent of approximately $50,000.

 

On May 27, 2021, the Company’s new acquired subsidiary entered into an operating lease agreement to rent office space in Mumbai, United Kingdom. This ten-year agreement commenced May 27, 2021 with an annual rent of approximately $85,000 with the first six months rent free.

 

 

 

 

  F- 18  

 

 

 

The following table reconciles future minimum operating lease payments to the discounted lease liability as of September 30, 2021: 

       
2021     82,394  
2022     330,171  
2023     324,910  
2024     279,112  
2025 and later     842,673  
Total lease payments     1,859,260  
Less imputed interest     (391,127 )
Total lease obligations     1,468,133  
Less current obligations     (330,171 )
Long-term lease obligations   $ 1,137,962  

 

 

NOTE 9 – GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill

 

The following table sets forth the changes in the carrying amount of goodwill for the nine months ended September 30, 2021: 

       
    Total  
Balance at December 31, 2020   $  
2021 Acquisitions     15,536,899  
Balance at September 30, 2021   $ 15,536,899  

 

Intangible Assets - Intrusion Detection Intellectual Property

 

The Company relies on patent laws and restrictions on disclosure to protect its intellectual property rights. As of September 30, 2021, 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.

 

 

 

 

 

  F- 19  

 

 

 

For the three months ended September 30, 2021 and 2020, the Company amortized $12,757 and $12,757, respectively. Future amortization of intangible assets is as follows: 

       
2021   $ 12,757  
2022     51,028  
2023     51,028  
2024     51,028  
2025     51,028  
Thereafter     138,850  
 Total   $ 355,719  

 

 

NOTE 10 – DEBT AGREEMENTS

 

Secured Debenture

 

DPTI issued a convertible Debenture to the University in exchange for the Patents assigned to the Company, in the amount of Canadian $1,500,000, or US $1,491,923 on December 16, 2010, the date of the Debenture. On April 24, 2017 DPTI issued a replacement secured term Debenture in the same C$1,500,000 amount as the original Debenture. The interest rate is the Bank of Canada Prime overnight rate plus 1% per annum. The Debenture had an initial required payment of Canadian $42,000 (US$33,385) due on April 24, 2018 for reimbursement to the University of its research and development costs, and this has been paid. Interest-only maintenance payments are due annually starting after April 24, 2018. Payment of the principal begins on the earlier of (a) three years following two consecutive quarters of positive earnings before interest, taxes, depreciation and amortization, (b) six years from April 24, 2017, or (c) in the event DPTI fails to raise defined capital amounts or secure defined contract amounts by April 24 in the years 2018, 2019, and 2020. The Company has raised funds in excess of the amount required by April 24, 2018. The principal repayment amounts will be due quarterly over a six-year period in the amount of Canadian Dollars $62,500. Based on the exchange rate between the Canadian Dollar and the U.S. Dollar on September 30, 2021, the quarterly principal repayment amounts will be US$49,750. The Debenture is secured by the Patents assigned by the University to DPTI by an Assignment Agreement on December 16, 2010. DPTI has pledged the Patents, and granted a lien on them pursuant to an Escrow Agreement dated April 24, 2017, between DPTI and the University.

 

The Debenture was initially recorded at the $1,491,923 equivalent US Dollar amount of Canadian $1,500,000 as of December 16, 2010, the date of the original Debenture. The liability is being adjusted quarterly based on the current exchange value of the Canadian dollar to the US dollar at the end of each quarter. The adjustment is recorded as unrealized gain or loss in the change of the value of the two currencies during the quarter. The amounts recorded as an unrealized loss for the three months ended September 30, 2021 and 2020, were $16,155 and $39,047 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 years from April 24, 2018.

 

For the three months ended September 30, 2021, and 2020, the Company recorded interest expense of $13,168 and $12,255, respectively.

 

As of September 30, 2021 the debenture liability totaled $1,184,516, all of which was long term.

 

 

 

 

 

  F- 20  

 

 

 

Future minimum required payments over the next 5 years and thereafter are as follows: 

       
Period ending September 30,        
2022   $  
2023      
2024      
2025      
2026 and after     1,184,516  
Total   $ 1,184,516  

 

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 September 30, 2021. Management determined the expected volatility of 359.78%, a risk-free rate of interest of 0.09%, and contractual lives of the debt varying from six months to two years. The table below details the Company's nine outstanding convertible notes, with totals for the face amount, amortization of discount, initial loss, change in the fair market value, and the derivative liability. 

                                       
    Face     Debt     Initial     Change     Derivative
Balance
 
    Amount     Discount     Loss     in FMV     9/30/2021  
    $ 90,228     $     $ 58,959     $ 30,042     $ 108,530  
      162,150             74,429       42,819       195,041  
      72,488             11,381       (25,482 )     87,192  
      53,397             5,651       13,592       94,615  
      53,864             28,566       (69,333 )      
      18,613             16,558       (13,512 )      
      40,000             10,605       (51,397 )      
      42,350             7,350       54,120        
      94,200             19,200       (105,683 )      
      76,200             16,200       (86,548 )      
      64,200             14,200       (74,788 )      
      825,000       733,387       203,500              
Subtotal     1,584,574       733,387       466,599       (517,087 )     479,088  
Transaction expense                              
    $ 1,584,574     $ 733,387     $ 466,599     $ (517,087 )   $

479,088

 

 

 

 

  F- 21  

 

 

On July 14, 2021, the Company entered a Securities Purchase Agreement (the “GS SPA”) with GS Capital Partners, LLC (the “Lender”), pursuant to which the Company issued to the Lender a 6% Redeemable Note in the principal amount of $2,000,000 (the “Note”). The purchase price of the Note is $1,980,000. The Note matures on July 14, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the Note at 6% per annum until the Note becomes due and payable. The Note is subject to various “Events of Default,” which are disclosed in the Note. Upon the occurrence of an “Event of Default,” the interest rate on the Note will be 18%. The Note is not convertible into shares of the Company’s Common Stock and is not dilutive to existing or future shareholders and the Company plans on using a portion of the proceeds of the Note to retire existing convertible debt.

 

As of September 30, 2021 and 2020 respectively, there was 1,584,574 and $1,072,663 of convertible debt outstanding, net of debt discount of $965,921, and $1,313, As of September 30, 2021 and 2020 respectively, there was derivative liability of $893,381 and $1,232,344 related to convertible debt securities.

 

 

NOTE 11 - STOCKHOLDERS' DEFICIT

 

As of September 30, 2021, there were 4,922,968,442 shares of common stock and 88,235 shares of preferred stock issued and outstanding.

 

Preferred Stock

 

In accordance with the Company’s Certificate of Incorporation, the Company has authorized a total of 2,000,000 shares of preferred stock, par value $0.01 per share, for all classes. As of September 30, 2021, and December 31, 2020, there were 88,235 total preferred shares issued and outstanding for all classes.

 

During the three months ended September 30, 2021, the Company issued no shares of preferred stock.

 

Common Stock

 

In accordance with the Company’s bylaws, the Company has authorized a total of 20,000,000,000 shares of common stock, par value $0.0001 per share. As of September 30, 2021 and December 31, 2020, there were 4,922,968,442 and 4,088,762,156 common shares issued and outstanding.

 

During the three months ended September 30, 2021, the Company issued the following shares of common stock:

 

On July 12, 2021, the Company issued an aggregate of 1,784,146 shares of common stock upon the conversion of convertible debt, as issued on January 12, 2021, in the amount of $42,350.

 

On July 14, 2021, the Company issued an aggregate of 45,037,115 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $93,864 and interest of $26,246.

 

On July 19, 2021, the Company issued an aggregate of 2,898,382 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $10,497 and interest of $6,748.

 

Stock Options

 

During the three months ended September 30, 2021, the Company did not issue any stock options and had no stock options outstanding at September 30, 2021.

 

 

 

 

  F- 22  

 

 

Public Offerings

 

On August 19, 2021, we entered into the Purchase Agreement with GHS, for the offering of up to $45,000,000 worth of Common Stock. Pursuant to the Purchase Agreement, on August 19, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from the Company, 31,799,260 shares of Common Stock for total proceeds to the Company, net of discounts, of $3,300,000, at an effective price of $0.1038 per share (the “First Closing”). We received approximately $2,790,000 in net proceeds from the First Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the First Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021. On September 30, 2021, the Company paid a $275,000 placement fee to J.H. Darbie & Co, $125,000 cash and $150,000 with 1,073,730 shares of common stock.

 

Pursuant to the Purchase Agreement, on August 31, 2021, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 27,297,995 shares of Common Stock for total proceeds to us, net of discounts, of $3,300,000, at an effective price of $0.120888 per share (the “Second Closing”). We received approximately $2,885,000 in net proceeds from the Second Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Second Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021. On September 30, 2021, the Company paid a $262,000 placement fee to J.H. Darbie & CO, $112,000 cash and $150,000 with 1,185,771 shares of common stock.

 

Pursuant to the Purchase Agreement, on September 22, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 25,630,272 shares of Common Stock for total proceeds to us, net of discounts, of $2,000,000, at an effective price of $ $0.085836 per share (the “Third Closing”). We received approximately $1,915,000 in net proceeds from the Third Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Third Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021. On September 30, 2021, the Company paid a $185,000 placement fee to J.H. Darbie & CO, $85,000 cash and $100,000 with 934,580 shares of common stock.

 

 

NOTE 12 – 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.

 

 

 

 

  F- 23  

 

 

 

During the three months ended September 30, 2021 and 2020, the Company’s Chief Executive Officer advanced personal funds in the amount of $0 and $10,582 for Company expenses. As of September 30, 2021, the Company’s Chief Executive Officer is owed a total of $23,980 for advanced personal funds.

 

 

NOTE 13 - COMMITMENTS & CONTINGENCIES

 

Potential Royalty Payments

 

The Company, in consideration of the terms of the debenture to the University of New Brunswick, shall pay to the University a two percent royalty on sales of any and all products or services which incorporate the Company's patents for a period of five years from April 24, 2018.

 

Legal Matters

 

Carebourn Capital, L.P.

 

On January 29, 2021, Carebourn Capital, L.P. (“Carebourn”) commenced suit against the Company in the 4th Judicial District (Hennepin County District Court) (Minnesota), alleging the Company breached the terms and conditions of two convertible promissory notes and accompanying securities purchase agreements Carebourn and the Company entered into on July 17, 2018 and July 24, 2018, respectively.

 

Also on January 29, 2021, Carebourn moved for a temporary injunction to enjoin the Company from transferring any shares of its common stock to any third parties. Following submission of briefing by both parties and oral arguments on Carebourn’s motion, on March 17, 2021, the Court denied Carebourn’s motion for a temporary injunction.

 

On April 14, 2021, Carebourn filed an amended complaint and asserted new claims. On May 13, 2021, the Company filed a motion to dismiss Carebourn’s amended complaint, arguing that Carebourn is conducting itself as an unregistered dealer, in violation of Section 15(a) of the Securities and Exchange Act of 1934 (the “Act”), and, pursuant to Section 29(b) of the Act, the Company is entitled to have all contracts arising under the unlawful securities transaction declared void ab initio and seek rescissionary damages for any unlawful securities transactions effected by Carebourn.

 

As of the date hereof, a ruling has not been issued on the foregoing motions to dismiss filed by the Company and other defendants. Furthermore, as of the date hereof, the Company and Carebourn are conducting discovery. The Company intends to defend itself against the allegations asserted in Carebourn’s amended complaint and interpose the defenses provided under the Act, including but not limited to asserting that Carebourn is an unregistered dealer acting in violation of Section 15(a) and, pursuant to Section 29(b), the Company interposing its right to rescind the unlawful securities contracts in their entirety and, furthermore, seek rescissionary damages for any unlawful securities transactions effected by Carebourn. The Company contends that its arguments are brought in good faith, particularly in light of recent SEC enforcement actions and the SEC’s ongoing investigation against Carebourn, among other parties, for violations of federal securities laws, including violations of Section 15(a) of the Act. See U.S. Securities and Exchange Commission v. Carebourn Capital, LP et al, Case No. 1:20-cv-07162 (N.D. Ill.).

 

Former DarkPulse Officers

 

On September 10, 2021, Stephen Goodman, Mark Banash, and David Singer (the “Former Officers”), all former officers and employees of the Company, commenced suit against the Company in Arizona Superior Court, Maricopa County. The complaint alleges the Company breached the rights of the Former Officers in connection with Series D preferred stock issued to the Former Officers. The Company intends to defend itself against the allegations asserted in the Former Officers’ complaint. if the case progresses the Company will file countersuits against all plaintiffs.

 

 

 

 

  F- 24  

 

 

More Capital, LLC

 

On June 29, 2021, More Capital, LLC (“More”) commenced suit against the Company, et al., in the 4th Judicial District (Hennepin County District Court) (Minnesota), alleging the Company breached the terms and conditions of a convertible promissory note and accompanying securities purchase agreement More and the Company entered into on August 20, 2018.

 

On July 20, 2021, the Company filed a motion to dismiss More’s complaint, arguing that the claims asserted against the Company fail to state a claim upon which relief can be granted.

 

The Company intends to defend itself against the allegations asserted in More’s complaint and interpose the defenses provided under the Act, including but not limited to asserting that More is an unregistered dealer acting in violation of Section 15(a) of the Act and, pursuant to Section 29(b) of the Act, the Company interposing its right to rescind the unlawful securities contracts in their entirety and, furthermore, seek rescissionary damages for any unlawful securities transactions effected by More. The Company contends that its arguments are brought in good faith, particularly in light of recent SEC enforcement actions and the SEC’s ongoing investigation against More, among other parties, for violations of federal securities laws, including violations of Section 15(a) of the Act. See U.S. Securities and Exchange Commission v. Carebourn Capital, LP et al, Case No. 1:20-cv-07162 (N.D. Ill.).

 

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.

 

 

NOTE 14– SUBSEQUENT EVENTS

 

The Company evaluated events occurring after the date of the accompanying unaudited condensed consolidated balance sheets through the date the financial statements were issued and has identified the following subsequent events that it believes require disclosure:

 

Effective October 1, 2021, we entered into and closed the Membership Purchase Agreement (the “TerraData MPA”) with TerraData Unmanned, PLLC, a Florida limited liability company (“TerraData”), and Justin Dee, the sole shareholder of TerraData, pursuant to which we agreed to purchase 60% of the equity interests in TerraData in exchange for 3,725,386 shares of our Common Stock and $400,000, subject to adjustments as defined in the TerraData MPA, to be paid within 12 weeks of closing. TerraData is now a subsidiary of the Company.

 

Pursuant to the Purchase Agreement, on October 1, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 37,187,289 shares of Common Stock for total proceeds to us, net of discounts, of $3,000,000, at an effective price of $0.08874 per share (the “Fourth Closing”). We received approximately $2,850,000 in net proceeds from the Fourth Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Fourth Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021.

 

Pursuant  to the Purchase Agreement, on October 14, 2021, we and GHS agreed that we would issue and sell to GHS, and GHS would purchase from us, 14,282,304 shares of Common Stock for total proceeds to us, net of discounts, of $1,055,000, at an effective price of $0.08125 per share (the “Fifth Closing”). We received approximately $1,002,250 in net proceeds from the Fifth Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Fifth Closing for working capital and for general corporate purposes. The shares were issued to GHS in a registered direct offering, pursuant to a prospectus supplement to our currently effective registration statement on Form S-3 (File No. 333-257826), which was initially filed with the SEC on July 12, 2021, and was declared effective on August 18, 2021.

 

 

 

 

  F- 25  

 

 

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, 2020 and 2019, the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

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.

 

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.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Accounting for Embedded Derivative Liabilities Related to Convertible Debentures

 

As described in Note 4 to the financial statements, the Company had convertible debentures that required accounting considerations and significant estimates.

 

 

 

 

  F- 26  

 

 

The Company determined that variable conversion features issued in connection with certain convertible debentures required derivative liability classification. These variable conversion features were initially measured at fair value and subsequently have been remeasured to fair value at each reporting period. The Company determined the fair value of the embedded derivatives using the Black-Scholes-Merton option pricing model. The value of the embedded derivative liabilities related to the convertible debentures was $1,220,877 at December 31, 2020.

 

We identified the accounting considerations and related valuations, including the related fair value determinations of the embedded derivative liabilities of such as a critical audit matter. The principal considerations for our determination were: (1) the accounting consideration in determining the nature of the various features (2) the evaluation of the potential derivatives and potential bifurcation in the instruments, and (3) considerations related to the determination of the fair value of the various debt and equity instruments and the conversion features that include valuation models and assumptions utilized by management. Auditing these elements is especially challenging and requires auditor judgement due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.

 

Our audit procedures related to management’s conclusion on the evaluation and related valuation of embedded derivatives, included the following, among others: (1) evaluating the relevant terms and conditions of the various financings, (2) assessing the appropriateness of conclusions reached by the Company with respect to the accounting for the convertible debt, and the assessment and accounting for potential derivatives and (3) independently recomputing the valuations determined by Management.

 

/s/ Boyle CPA, LLC

 

We have served as the Company’s auditor since 2019

 

Bayville, NJ

April 15, 2021

 

361 Hopedale Drive SE P (732) 822-4427
Bayville, NJ 08721 F (732) 510-0665

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  F- 27  

 

 

DARKPULSE, INC.

Consolidated Balance Sheets

 

    December 31,  
    2020     2019  
ASSETS            
             
CURRENT ASSETS:                
Cash   $ 337     $ 1,210  
Prepaid expenses           746  
                 
TOTAL CURRENT ASSETS     337       1,956  
                 
Other assets, net     91,464       116,495  
Patents, net     393,990       445,018  
                 
TOTAL ASSETS   $ 485,791     $ 563,469  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
                 
CURRENT LIABILITIES:                
Accounts payable   $ 519,899     $ 323,948  
Convertible notes, net of discount $35,525 and $39,414 respectively     931,158       1,033,249  
Derivative liability     1,220,877       1,275,500  
Accrued liabilities     569,970       497,078  
Contract liability, related party           42,000  
Related party notes payable           44,096  
                 
TOTAL CURRENT LIABILITIES     3,241,904       3,215,871  
                 
Secured debenture     1,176,092       1,155,150  
                 
TOTAL LIABILITIES     4,417,996       4,371,021  
                 
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, 2020 and, 2019, respectively)     883       883  
Common stock (par value $0.0001), 20,000,000,000 shares authorized, 4,088,762,151 and 1,392,042,112 shares issued and outstanding at December 31, 2020 and, 2019, respectively     408,876       13,920,421  
Treasury stock, 100,000 shares at December 31, 2020 and December 31, 2019     (1,000 )     (1,000 )
Paid-in capital in excess of par value     1,805,813       (11,877,864 )
Non-controlling interest in variable interest entity and subsidiary     (12,439 )     (12,439 )
Accumulated other comprehensive income     315,832       336,775  
Accumulated deficit     (6,450,170 )     (6,174,328 )
                 
TOTAL STOCKHOLDERS’ DEFICIT     (3,932,205 )     (3,807,552 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 485,791     $ 563,469  

 

See accompanying notes to consolidated financial statements.