UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the quarterly period ended June 30, 2021 | ||
For the quarterly period ended September 30, 2020Or
| TRANSITION REPORT | ||
| For the transition period from _______________________to___________________________ | ||
For the transition period from ___________ to ___________
Commission File No. Number: 000-18730
DARKPULSE, INC.DarkPulse, Inc.
(Exact name of registrant as specified in its charter)
| 87-0472109 | ||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
1345 Ave of the Americas , New York | 10105 | |
| (Address of principal executive offices) | (Zip Code) |
(800) 436-1436
(Registrant’s telephone number, including area code: (800) 436-1436code)
Securities registered pursuant to section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Not applicable | Not applicable | Not applicable |
Indicate by check mark whether the Registrant (1)registrant has filed (1) all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesx No ¨☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yesx No ¨☐
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”,filer,” “smaller reporting company”,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 | x | |
| 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. o☐
Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐Nox
Securities registered pursuant to Section 12(b)The number of shares outstanding of the Act:
As of November 10, 2020, there were 4,088,762,156 shares of the Registrant’sregistrant’s common stock $0.01 par value per share, issued.on August 11, 2021, was .
DARKPULSE, INC.
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20202021
| 2 |
PART I - FINANCIAL INFORMATION
DARKPULSE, INC.
Condensed Consolidated Balance Sheets
Unaudited
| September 30, | December 31, | JUNE 30, | DECEMBER 31, | |||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||
| Cash | $ | 519 | $ | 1,210 | $ | 148,562 | $ | 337 | ||||||||
| Prepaid expenses | 746 | 746 | ||||||||||||||
| Deposits | 4,000 | 0 | ||||||||||||||
| TOTAL CURRENT ASSETS | 1,265 | 1,956 | 152,562 | 337 | ||||||||||||
| Other assets, net | 121,464 | 116,495 | 179,328 | 91,464 | ||||||||||||
| Patents, net | 406,747 | 445,018 | 368,476 | 393,990 | ||||||||||||
| TOTAL ASSETS | $ | 529,476 | $ | 563,469 | $ | 700,366 | $ | 485,791 | ||||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||
| Accounts payable | $ | 498,887 | $ | 323,948 | $ | 371,557 | $ | 519,899 | ||||||||
| Convertible notes, net of discount $0 and $39,414 respectively | 944,306 | 1,033,249 | ||||||||||||||
| Convertible notes, net of discount $344,421 and $39,414 respectively | 1,240,153 | 931,158 | ||||||||||||||
| Derivative liability | 1,320,184 | 1,275,500 | 893,381 | 1,220,877 | ||||||||||||
| Accrued liabilities | 588,693 | 497,078 | 562,677 | 569,970 | ||||||||||||
| Contract liability, related party | 42,000 | 42,000 | ||||||||||||||
| Related party notes payable | 44,096 | 44,096 | ||||||||||||||
| TOTAL CURRENT LIABILITIES | 3,438,166 | 3,215,871 | 3,067,768 | 3,241,904 | ||||||||||||
| Secured debenture | 1,141,494 | 1,155,150 | 1,210,155 | 1,176,092 | ||||||||||||
| TOTAL LIABILITIES | 4,579,660 | 4,371,021 | 4,277,923 | 4,417,996 | ||||||||||||
| Commitments and contingencies | – | – | ||||||||||||||
| STOCKHOLDERS' DEFICIT | ||||||||||||||||
| Common stock (par value $0.01), 20,000,000,000 shares authorized, 3,394,817,156 and 1,392,042,112 shares issued and outstanding respectively | 33,948,172 | 13,920,421 | ||||||||||||||
| Common stock (par value $), shares authorized, and shares issued and outstanding respectively | 477,033 | 408,876 | ||||||||||||||
| Treasury stock, 100,000 shares | (1,000 | ) | (1,000 | ) | (1,000 | ) | (1,000 | ) | ||||||||
| Convertible preferred stock, Series D (par value $0.01) 100,000 shares authorized, 88,235 shares issued and outstanding respectively | 883 | 883 | ||||||||||||||
| Convertible preferred stock, Series D (par value $) shares authorized, shares issued and outstanding respectively | 883 | 883 | ||||||||||||||
| Paid in capital in excess of par value | (31,773,340 | ) | (11,877,864 | ) | 2,363,848 | 1,805,813 | ||||||||||
| Non-controlling interest in a variable interest entity and subsidiary | (12,439 | ) | (12,439 | ) | (12,439 | ) | (12,439 | ) | ||||||||
| Accumulated other comprehensive income | 350,429 | 336,775 | 281,769 | 315,832 | ||||||||||||
| Accumulated deficit | (6,562,889 | ) | (6,174,328 | ) | (6,687,651 | ) | (6,450,170 | ) | ||||||||
| TOTAL STOCKHOLDERS' DEFICIT | (4,050,184 | ) | (3,807,552 | ) | (3,577,557 | ) | (3,932,205 | ) | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 529,476 | $ | 563,469 | $ | 700,366 | $ | 485,791 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
DARKPULSE, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months September 30, | Nine Months September 30, | THREE MONTHS JUNE 30, | SIX MONTHS JUNE 30, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| REVENUES | $ | – | $ | – | $ | – | $ | – | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||||||||||||||||
| General and administrative expenses | 34,782 | 40,453 | 120,866 | 144,965 | 95,165 | 44,710 | 124,853 | 86,271 | ||||||||||||||||||||||||
| Payroll and compensation | – | – | 187 | 168,945 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
| Legal expenses | – | 48,868 | 48,297 | 96,962 | 146,619 | 44,185 | 220,972 | 48,297 | ||||||||||||||||||||||||
| Amortization of patents | 12,757 | 12,757 | 38,271 | 38,271 | 12,757 | 12,757 | 25,514 | 25,514 | ||||||||||||||||||||||||
| Debt transaction expenses | – | – | – | 24,900 | 109,200 | – | 151,950 | – | ||||||||||||||||||||||||
| TOTAL OPERATING EXPENSES | 47,539 | 102,078 | 207,621 | 474,043 | 363,741 | 101,652 | 523,289 | 160,082 | ||||||||||||||||||||||||
| OPERATING LOSS | (47,539 | ) | (102,078 | ) | (207,621 | ) | (474,043 | ) | (363,741 | ) | (101,652 | ) | (523,289 | ) | (160,082 | ) | ||||||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||||||||||||||||||
| Interest expense | (37,318 | ) | (50,649 | ) | (97,842 | ) | (399,895 | ) | (318,921 | ) | (25,154 | ) | (350,584 | ) | (60,524 | ) | ||||||||||||||||
| Loss on convertible notes | (1,313 | ) | (47,266 | ) | (39,414 | ) | (351,662 | ) | 138,615 | (2,890 | ) | 308,896 | (38,101 | ) | ||||||||||||||||||
| Gain on the forgiveness of debt | – | – | 1,000 | – | 0 | 1,000 | 0 | 1,000 | ||||||||||||||||||||||||
| Gain(loss) on change in fair market values of derivative liabilities | (87,852 | ) | 221,879 | (44,684 | ) | 566,127 | 358,440 | (11,544 | ) | 327,496 | 43,169 | |||||||||||||||||||||
| TOTAL OTHER INCOME (EXPENSE) | (126,483 | ) | 123,964 | (180,940 | ) | (185,430 | ) | 178,134 | (38,588 | ) | 285,808 | (54,456 | ) | |||||||||||||||||||
| NET INCOME (LOSS) | (174,022 | ) | 21,886 | (388,561 | ) | (659,473 | ) | |||||||||||||||||||||||||
| NET LOSS | (185,607 | ) | (140,240 | ) | (237,481 | ) | (214,538 | ) | ||||||||||||||||||||||||
| Net loss attributable to noncontrolling interests in variable interest entity and subsidiary | – | – | – | – | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||
| Net loss attributable to Company stockholders | $ | (174,022 | ) | $ | 21,886 | $ | (388,561 | ) | $ | (659,473 | ) | $ | (185,607 | ) | $ | (140,240 | ) | $ | (237,481 | ) | $ | (214,538 | ) | |||||||||
| GAIN (LOSS) PER SHARE: | ||||||||||||||||||||||||||||||||
| LOSS PER SHARE: | ||||||||||||||||||||||||||||||||
| Basic and Diluted | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||||||||||||||||||||||||||
| Basic and Diluted | 2,355,108,904 | 518,604,087 | 1,754,933,152 | 252,457,517 | 4,740,200,371 | 1,511,053,102 | 4,599,529,434 | 1,451,547,607 | ||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
DARKPULSE, INC.
Condensed Consolidated Statements of Comprehensive Gain/Loss
(Unaudited)
| FOR THE | FOR THE | |||||||||||||||||||||||||||||||
| THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | |||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| NET INCOME (LOSS) | $ | (174,022 | ) | $ | 21,886 | $ | (388,561 | ) | $ | (659,473 | ) | |||||||||||||||||||||
| NET LOSS | $ | (185,607 | ) | $ | (140,240 | ) | $ | (237,481 | ) | $ | (214,538 | ) | ||||||||||||||||||||
| OTHER COMPREHENSIVE GAIN (LOSS) | ||||||||||||||||||||||||||||||||
| OTHER COMPREHENSIVE LOSS | ||||||||||||||||||||||||||||||||
| Unrealized Gain (Loss) on Foreign Exchange | (39,945 | ) | 12,671 | 13,656 | (30,722 | ) | (16,154 | ) | (39,046 | ) | (34,063 | ) | 53,601 | |||||||||||||||||||
| COMPREHENSIVE GAIN (LOSS) | $ | (213,967 | ) | $ | 34,557 | $ | (374,905 | ) | $ | (690,195 | ) | $ | (201,761 | ) | $ | (179,286 | ) | $ | (271,544 | ) | $ | (160,937 | ) | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
DARKPULSE, INC.
Consolidated Statement of Stockholders' Deficit
For the Periods Ended SeptemberJune 30, 20202021 and 20192020
| Preferred Stock | Common Stock | Treasury | Paid in Capital in Excess of Par | Non-Controlling Interest in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Stock | Value | Subsidiary | Income | Deficit | Deficit | |||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 88,235 | $ | 883 | 4,088,762,156 | $ | 408,876 | $ | (1,000 | ) | $ | 1,805,813 | $ | (12,439 | ) | $ | 315,832 | $ | (6,450,170 | ) | $ | (3,932,205 | ) | ||||||||||||||||||
| Conversion of convertible notes | – | – | 600,999,995 | 60,100 | – | 189,839 | – | – | – | 249,939 | ||||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | – | – | – | (17,909 | ) | – | (17,909 | ) | ||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | (51,874 | ) | (51,874 | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2021 | 88,235 | $ | 883 | 4,689,762,151 | $ | 468,976 | $ | (1,000 | ) | $ | 1,995,652 | $ | (12,439 | ) | $ | 297,923 | $ | (6,502,044 | ) | $ | (3,752,049 | ) | ||||||||||||||||||
| Conversion of convertible notes | – | – | 20,565,040 | 2,057 | – | 124,863 | – | – | – | 126,920 | ||||||||||||||||||||||||||||||
| Stock based loan acquisition cost | – | – | 60,000,000 | 6,000 | – | 243,333 | – | – | – | 249,333 | ||||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | – | – | – | (16,154 | ) | – | (16,154 | ) | ||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | (185,607 | ) | (185,607 | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 88,235 | $ | 883 | 4,770,327,191 | $ | 477,033 | $ | (1,000 | ) | $ | 2,363,848 | $ | (12,439 | ) | $ | 281,769 | $ | (6,687,651 | ) | $ | (3,577,557 | ) | ||||||||||||||||||
| Balance, December 31, 2019 | 88,235 | $ | 883 | 1,392,042,112 | $ | 13,920,421 | $ | (1,000 | ) | $ | (11,877,864 | ) | $ | (12,439 | ) | $ | 336,775 | $ | (6,174,328 | ) | $ | (3,807,552 | ) | |||||||||||||||||
| Conversion of convertible notes | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | – | – | – | 92,646 | – | 92,646 | ||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | (74,298 | ) | (74,298 | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2020 | 88,235 | $ | 883 | 1,392,042,112 | $ | 13,920,421 | $ | (1,000 | ) | $ | (11,877,864 | ) | $ | (12,439 | ) | $ | 429,421 | $ | (6,248,626 | ) | $ | (3,789,204 | ) | |||||||||||||||||
| Conversion of convertible notes | – | – | 217,142,858 | 2,171,429 | – | (2,156,228 | ) | – | – | – | 15,201 | |||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | – | – | – | (39,047 | ) | – | (39,047 | ) | ||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | (140,240 | ) | (140,240 | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2020 | 88,235 | $ | 883 | 1,609,184,970 | $ | 16,091,850 | $ | (1,000 | ) | $ | (14,034,092 | ) | $ | (12,439 | ) | $ | 390,374 | $ | (6,388,866 | ) | $ | (3,953,290 | ) | |||||||||||||||||
| Preferred Stock | Common Stock | Treasury | Paid in Capital in Excess of Par | Non-Controlling Interest in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Stock | Value | Subsidiary | Income | Deficit | Deficit | |||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 88,235 | $ | 883 | 1,392,042,112 | $ | 13,920,421 | $ | (1,000 | ) | $ | (11,877,864 | ) | $ | (12,439 | ) | $ | 336,775 | $ | (6,174,328 | ) | $ | (3,807,552 | ) | |||||||||||||||||
| Conversion of convertible notes | – | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | – | – | – | 92,646 | – | 92,646 | ||||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | (74,298 | ) | (74,298 | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2020 | 88,235 | $ | 883 | 1,392,042,112 | $ | 13,920,421 | $ | (1,000 | ) | $ | (11,877,864 | ) | $ | (12,439 | ) | $ | 429,421 | $ | (6,248,626 | ) | $ | (3,789,204 | ) | |||||||||||||||||
| Conversion of convertible notes | – | – | 217,142,858 | 2,171,429 | – | (2,156,228 | ) | – | – | – | 15,201 | |||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | – | – | – | (39,047 | ) | – | (39,047 | ) | ||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | (140,241 | ) | (140,241 | ) | ||||||||||||||||||||||||||||
| Balance, June 30, 2020 | 88,235 | $ | 883 | 1,609,184,970 | $ | 16,091,850 | $ | (1,000 | ) | $ | (14,034,092 | ) | $ | (12,439 | ) | $ | 390,374 | $ | (6,388,867 | ) | $ | (3,953,291 | ) | |||||||||||||||||
| Conversion of convertible notes | – | – | 1,785,632,186 | 17,856,322 | – | (17,739,248 | ) | – | – | – | 117,074 | |||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | – | – | – | (39,945 | ) | – | (39,945 | ) | ||||||||||||||||||||||||||||
| Net gain | – | – | – | – | – | – | – | – | (174,022 | ) | (174,022 | ) | ||||||||||||||||||||||||||||
| Balance, September 30, 2020 | 88,235 | $ | 883 | 3,394,817,156 | $ | 33,948,172 | $ | (1,000 | ) | $ | (31,773,340 | ) | $ | (12,439 | ) | $ | 350,429 | $ | (6,562,889 | ) | $ | (4,050,184 | ) | |||||||||||||||||
| Balance, December 31, 2018 | 88,235 | $ | 883 | 89,680,467 | $ | 896,806 | $ | (1,000 | ) | $ | 859,481 | $ | (12,439 | ) | $ | 389,680 | $ | (4,348,859 | ) | $ | (2,215,448 | ) | ||||||||||||||||||
| Conversion of convertible notes | – | – | 12,488,347 | 124,883 | – | (45,837 | ) | – | – | – | 79,046 | |||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | – | – | – | (22,050 | ) | – | (22,050 | ) | ||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | – | (806,568 | ) | (806,568 | ) | ||||||||||||||||||||||||||||
| Balance, March 31, 2019 | 88,235 | $ | 883 | 102,168,914 | $ | 1,021,689 | $ | (1,000 | ) | $ | 813,644 | $ | (12,439 | ) | $ | 367,630 | $ | (5,155,427 | ) | $ | (2,965,020 | ) | ||||||||||||||||||
| Conversion of convertible notes | – | – | 137,005,692 | 1,370,057 | – | (1,284,135 | ) | – | – | – | 85,922 | |||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | – | – | – | (21,343 | ) | – | (21,343 | |||||||||||||||||||||||||||||
| Net gain | – | – | – | – | – | – | – | – | 125,210 | 125,210 | ||||||||||||||||||||||||||||||
| Balance, June 30, 2019 | 88,235 | $ | 883 | 239,174,606 | $ | 2,391,746 | $ | (1,000 | ) | $ | (471,491 | ) | $ | (12,439 | ) | $ | 346,287 | $ | (5,030,217 | ) | $ | (2,775,231 | ) | |||||||||||||||||
| Conversion of convertible notes | – | – | 137,005,692 | 1,370,057 | – | (1,284,135 | ) | – | – | – | 85,922 | |||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | – | – | – | 12,671 | – | 12,671 | ||||||||||||||||||||||||||||||
| Net gain | – | – | – | – | – | – | – | – | 21,886 | 21,886 | ||||||||||||||||||||||||||||||
| Balance, September 30, 2019 | 88,235 | $ | 883 | 239,174,606 | $ | 2,391,746 | $ | (1,000 | ) | $ | (471,491 | ) | $ | (12,439 | ) | $ | 358,958 | $ | (5,008,332 | ) | $ | (2,642,069 | ) | |||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
DARKPULSE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
| FOR THE | ||||||||||||||||
| NINE MONTHS ENDED SEPTEMBER 30, | SIX MONTHS ENDED JUNE 30, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
| Net Gain/(Loss) | $ | (388,561 | ) | $ | (659,473 | ) | ||||||||||
| Net Loss | $ | (237,481 | ) | $ | (214,538 | ) | ||||||||||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||||||||||
| Depreciation and amortization | 38,271 | 38,271 | 25,514 | 25,514 | ||||||||||||
| Loan acquisition costs | – | 24,900 | (480,450 | ) | 0 | |||||||||||
| Gain on reduction of loan default penalty | (9,900 | ) | – | 0 | (9,900 | ) | ||||||||||
| Interest on notes payable | – | 27,446 | ||||||||||||||
| Debt discount | (205,000 | ) | ||||||||||||||
| Stock based loan acquisition costs | 249,333 | 0 | ||||||||||||||
| Amortization of debt discount | 39,414 | 568,985 | 171,554 | 38,101 | ||||||||||||
| Derivative liability | 44,684 | (312,622 | ) | (327,496 | ) | (43,169 | ) | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts payable | 174,935 | 205,025 | (148,344 | ) | 140,421 | |||||||||||
| Accrued liabilities | 105,435 | 110,340 | 34,759 | 68,749 | ||||||||||||
| Net cash used by operating activities | 4,278 | (202,128 | ) | |||||||||||||
| Net cash (Used by) Provided by operating activities | (712,611 | ) | 5,178 | |||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
| Investment in patents | (4,969 | ) | (54,930 | ) | ||||||||||||
| Investment in demo box | (87,864 | ) | (4,969 | ) | ||||||||||||
| Deposits | (4,000 | ) | 0 | |||||||||||||
| Net Cash Used by Investing Activities | (4,969 | ) | (54,930 | ) | (91,864 | ) | (4,969 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
| Proceeds from convertible notes payable | – | 180,100 | 1,102,700 | 0 | ||||||||||||
| Payments on convertible notes | – | (24,650 | ) | |||||||||||||
| Payments on notes payable | (150,000 | ) | 0 | |||||||||||||
| Net Cash Provided by Financing Activities | – | 155,450 | 952,700 | 0 | ||||||||||||
| NET INCREASE (DECREASE) IN CASH | (691 | ) | (70,886 | ) | ||||||||||||
| NET INCREASE IN CASH | 148,225 | 209 | ||||||||||||||
| CASH, beginning of period | 1,210 | 72,294 | 337 | 1,210 | ||||||||||||
| CASH, end of period | $ | 519 | $ | 1,408 | $ | 148,562 | $ | 1,419 | ||||||||
| Noncash investing and financing activities for the quarter ending September 30: | ||||||||||||||||
| Noncash investing and financing activities for the quarter ending June 30: | ||||||||||||||||
| Stock issued for convertible notes payable and accrued interest | $ | 132,276 | $ | 232,535 | $ | 376,860 | $ | 15,200 | ||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||||||
| Interest paid in cash | $ | – | $ | – | $ | 23,000 | $ | 0 | ||||||||
| Taxes paid in cash | $ | – | $ | – | $ | 0 | $ | 0 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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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, 20192020 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, 2019,2020, which are contained in Form 10-K as filed with the Securities and Exchange Commission on June 8, 2020.April 15, 2021. The consolidated balance sheet as of December 31, 20192020 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 SeptemberJune 30, 2020,2021, and the results of operations for three and ninesix months and cash flows for the ninesix months ended SeptemberJune 30, 20202021 have been included. The results of operations for the three and ninesix months ended SeptemberJune 30, 20202021 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"). The Company’sIts’ wholly-owned subsidiary, DarkPulse Technologies Inc. ("DPTI"), originally started as a technology spinout from the University of New Brunswick, (the “University”) located in 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 wasis being be accounted for as a recapitalization in a manner similar to a reverse acquisition.
On July 20, 2018, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the State of Delaware, changing the name of the Company to DarkPulse, Inc. The Company filed a corporate action notification with the Financial Industry Regulatory Authority (FINRA), and the Company's ticker symbol was changed to DPLS.
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Going Concern Uncertainty
As shown in the accompanying financial statements, during the ninesix months ended SeptemberJune 30, 2020,2021, the Company did not generate any revenues and reported a net loss of $214,539.$237,481. As of SeptemberJune 30, 2020,2021, the Company’s current liabilities exceeded its current assets by $3,436,901.$2,915,206. As of SeptemberJune 30, 2020,2021, the Company had $519$148,562 of cash.
The Company will require additional funding during the next nine months to finance the growth of itsour operations and achieve itsour strategic objectives. These factors, as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as to the Company’sour ability to continue as a going concern. The Company isWe are seeking to raise additional capital principally through private placement offerings and isare targeting strategic partners in an effort to finalizeaccelerate the developmentsales and marketing of itsour products and begin generating revenues. TheOur ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements, and expansion of its operations.our operations and generating sales. The accompanying financial statements do not include any adjustments that might be necessary should the Companywe 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,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.
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 a high credit quality financial institution.institutions. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000.$250,000. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.
Intangible Assets
The Company reviews intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.
Foreign Currency Translation
The company translates monetary assets and liabilities (any item paid for or settled in foreign currency) into the United States Dollar at exchange rates prevailing on the balance sheet date. Non-monetary assets and liabilities are translated at the historical rate in effect when the transaction occurred. Revenues and expenses are translated at the spot rate on the date the transaction occurred. Exchange gains and losses from the translation of monetary items are included in unrealized gain/loss on Foreign Exchange as Other Comprehensive Loss.
The following table discloses the dates and exchange rates used for converting Canadian Dollar amounts to U.S. Dollar amounts disclosed in the balance sheet and the statement of operations.
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The spot exchange rate between the Canadian Dollar and the U.S. Dollar on, December 31, 20192020 closing rate at 1.29881.2754 US$: CAD, average rate at 1.32341.3388 US$: CAD and for the three months ended SeptemberJune 30, 20202021 closing rate at 1.31411.2395 US$: CAD, average rate at 1.33401.2249 US$.
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.
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.
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 SeptemberJune 30, 2020,2021, 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.
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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 ninesix months ended SeptemberJune 30, 2020,2021, there were no stock options nor convertible preferred stock outstanding. For the three and ninesix months ended SeptemberJune 30, 2020,2021, 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 2,138,539,9861,970,029,676 common shares reserved for the potential conversion of the Company's convertible debt.
NOTE 2 - DEBENTURE
DPTI issued a convertible debentureDebenture to the University in exchange for the patents (the “Patents”)Patents assigned to the Company, in the amount of CAD$1,500,000,Canadian $1,500,000, or USD$1,491,923US $1,491,923 on December 16, 2010, the date of the convertible debenture.Debenture. On April 24, 2017 DPTI issued a replacement secured term convertible debenture (the “Debenture”)Debenture in the same CAD$C$1,500,000 amount as the original convertible debenture.Debenture. The interest rate is the Bank of Canada Prime overnight rate plus 1% per annum. The Debenture had an initial required payment of CADCanadian $42,000 (USD$(US$33,385) due on April 24, 2018 for reimbursement to the University forof 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 yearsix-year period in the amount of CAD$62,500.Canadian Dollars $62,500. Based on the exchange rate between the Canadian Dollar and the U.S. Dollar on SeptemberJune 30, 2020,2021, the quarterly principal repayment amounts will be USD$44,271. On May 1, 2020, the Company received an extension for this payment until July 23, 2020. Additionally on July 16, 2020, the Company received a further four month extension until November 2020.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 agreementEscrow Agreement dated April 24, 2017, between DPTI and the University.
The Debenture was initially recorded at USD$1,491,923the $1,491,923 equivalent to CAD$1,500,000US Dollar amount of Canadian $1,500,000 as of December 16, 2010, the date of the original convertible debenture.Debenture. The liability is being adjusted quarterly based on the current exchange value of the Canadian dollar to the US dollar at the end of each quarter. The adjustment is recorded as unrealized gain or loss in the change of the value of the two currencies during the quarter. The amounts recorded as an unrealized gain (loss)loss for the three months ended SeptemberJune 30, 2021 and 2020, were $16,154and 2019, were ($39,945) and 12,671$39,04639,046 respectively. These amounts are included in Accumulated Other Comprehensive Loss in the Equity section of the consolidated balance sheet, and as Unrealized Loss on Foreign Exchange on the consolidated statement of comprehensive loss. The Debenture also includes a provision requiring DPTI to pay the University a two percent (2%) royalty on sales of any and all products or services which incorporate the Patents for a period of five (5) years from April 24, 2018.
For the three months ended SeptemberJune 30, 2020,2021, and 2019,2020, the Company recorded interest expense of $12,255$13,463 and $12,745,$12,255, respectively.
As of SeptemberJune 30, 2020,2021 the Debenturedebenture liability totaled $1,141,494,$1,210,155, all of which was long term.
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Future minimum required payments over the next five5 years and thereafter are as follows:
| Period ending September 30, | ||||||||
| 2021 | $ | – | ||||||
| Future minimum required payments | ||||||||
| Period ending June 30, | ||||||||
| 2022 | – | $ | 0 | |||||
| 2023 | – | 0 | ||||||
| 2024 | – | 0 | ||||||
| 2025 and after | 1,062,503 | |||||||
| 2025 | 0 | |||||||
| 2026 and after | 1,210,155 | |||||||
| Total | $ | 1,062,503 | $ | 1,210,155 | ||||
NOTE 3 – 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 SeptemberJune 30, 2020.2021. Management determined the expected volatility between 489.35-582.90%of %, a risk freerisk-free rate of interest between 0.12-0.13%of %, 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 | Q3 change | Derivative Balance | ||||||||||||||||||||||||||||||||||||
| Amount | Discount | Loss | in FMV | 9/30/2020 | ||||||||||||||||||||||||||||||||||||
| Schedule of convertible debt | ||||||||||||||||||||||||||||||||||||||||
| $ | 90,228 | $ | – | $ | 58,959 | $ | 65,666 | $ | 147,000 | Face | Debt | Initial | Change | Derivative Balance | ||||||||||||||||||||||||||
| 162,150 | – | 74,429 | 106,304 | 264,566 | Amount | Discount | Loss | in FMV | 6/30/2021 | |||||||||||||||||||||||||||||||
| 72,488 | – | 11,381 | (5,738 | ) | 109,166 | $ | 90,228 | $ | 0 | $ | 58,959 | $ | (51,635 | ) | $ | 78,488 | ||||||||||||||||||||||||
| 201,436 | – | – | (13,300 | ) | 279,035 | 162,150 | 0 | 74,429 | (84,378 | ) | 152,222 | |||||||||||||||||||||||||||||
| 76,657 | – | 8,904 | (1,310 | ) | 106,219 | 72,488 | 0 | 11,381 | (6,399 | ) | 112,674 | |||||||||||||||||||||||||||||
| 60,115 | – | 5,651 | (10,556 | ) | 106,405 | 53,397 | 0 | 5,651 | 13,592 | 94,616 | ||||||||||||||||||||||||||||||
| 53,864 | – | 28,566 | (6,472 | ) | 64,690 | 53,864 | 0 | 28,566 | (5,860 | ) | 69,333 | |||||||||||||||||||||||||||||
| 25,468 | – | 16,558 | (3,060 | ) | 30,587 | 18,613 | 0 | 16,558 | (1,142 | ) | 13,512 | |||||||||||||||||||||||||||||
| 29,250 | – | – | 17,148 | 28,965 | 40,000 | 0 | 10,605 | (4,416 | ) | 51,397 | ||||||||||||||||||||||||||||||
| 49,726 | – | – | 29,152 | 49,241 | 42,350 | 22,302 | 7,350 | (4,887 | ) | 54,120 | ||||||||||||||||||||||||||||||
| 41,774 | – | – | 24,490 | 41,367 | 94,200 | 57,316 | 19,200 | (8,263 | ) | 105,683 | ||||||||||||||||||||||||||||||
| 29,250 | – | – | 17,148 | 28,965 | 76,200 | 58,036 | 16,200 | (5,915 | ) | 86,548 | ||||||||||||||||||||||||||||||
| 40,000 | – | 10,605 | (4,932 | ) | 47,835 | 64,200 | 49,073 | 14,200 | 74,788 | 74,788 | ||||||||||||||||||||||||||||||
| 11,900 | – | 17,676 | (126,690 | ) | 16,143 | 825,000 | 779,194 | 203,500 | 0 | 0 | ||||||||||||||||||||||||||||||
| Subtotal | 944,306 | – | 232,729 | (87,850 | ) | 1,320,184 | 1,584,574 | 965,921 | 466,599 | (235,737 | ) | 893,381 | ||||||||||||||||||||||||||||
| Transaction expense | – | – | – | – | – | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
| $ | 944,306 | $ | – | $ | 232,729 | $ | (87,850 | ) | $ | 1,320,184 | $ | 1,584,574 | $ | 965,921 | $ | 466,599 | $ | (235,737 | ) | $ | 893,381 | |||||||||||||||||||
DuringOn April 5, 2021, the three months ended September 30, 2020,Company entered into a totalsecurities purchase agreement with Geneva Roth Remark Holdings, Inc. (“Geneva”) issuing to Geneva a convertible promissory note in the aggregate principal amount of $103,257$64,200 with a $10,700 original issue discount and $3,500 in principaltransactional expenses due to Geneva and $10,754its counsel. The note bears interest wasat 4.5% per annum and may be converted into 1,785,632,186common shares of the Company’sCompany's common stock.
Asstock at a conversion price equal to 81% of September 30, 2020 and 2019 respectively, there was $944,306 and $928,702the lowest two trading prices of convertible debt outstanding, net of debt discount of $0, and $93,138, As of September 30, 2020 and 2019 respectively, there was derivative liability of $1,320,184 and $341,209 related to convertible debt securities.the Company's common stock during the 10 prior trading days. The Company recorded interest expense related to the outstanding convertible debt of $21,366 and $22,059 for the three months ended September 30, 2020 and 2019 respectively.received $50,000 net cash.
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On April 26, 2021, the Company entered a Securities Purchase Agreement (the “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 SPA closed on April 30, 2021. 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 $ 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 shares of Common Stock. In addition, on April 30, 2021, the Company issued shares of common stock valued at $ as compensation for loan acquisition costs, which will be amortized over the life of the note. For the three months ended June 30, 2021, the Company expensed $249,333 to interest expense.
The Registration Rights Agreement provides that the Company shall (i) use its best efforts to file with the Securities and Exchange Commission (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 Commission within 180 days after the date the Registration Statement is filed with the Commission.
On May 19, 2021, the Company entered into a Stipulation of Settlement with four note holders pursuant to which the Company agreed to pay $173,000 to the note holders.
On June 3, 2021, the Company entered into a Settlement and Mutual Release Agreement with Auctus Fund, LLC (the “Lender”). Pursuant to the Agreement, the Lender agreed to convert the Promissory Note issued on September 25, 2018 by the Company to the Lender in the principal amount of $100,000 (the “Auctus Note”) into shares of the Company’s Common stock (the “Shares”) as consideration for full and complete satisfaction of and settlement of the Auctus Note, which also terminates all obligations owing under both the Auctus Note and the corresponding Securities Purchase Agreement dated September 25, 2018 between the Company and the Lender. The Lender also agreed to limit the resales of the Shares in the public market to no more than shares per calendar week until all of the Shares have been sold.
As of June 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 June 30, 2021 and 2020 respectively, there was derivative liability of $893,381 and $1,232,344 related to convertible debt securities.
NOTE 4 - STOCKHOLDERS' DEFICIT
As of SeptemberJune 30, 2020,2021, there were 3,394,817,156 shares of common stock and shares of preferred stock issued and outstanding.
NOTE 5 - 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 Patentspatents for a period of five years from April 24, 2018.
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Legal Matters
Carebourn Capital, L.P.
On March 27, 2019, Thomas A. Cellucci, et al. v. DarkPulse, Inc. et al. (the “Complaint”January 29, 2021, Carebourn Capital, L.P. (“Carebourn”) was filed in the United States District Court for the Southern District of New York by certain of the Company’s former executive officers, one also being a former director, and a non-employee shareholder (collectively, the “Plaintiffs”),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 sole officercommon stock to any third parties. Following submission of briefing by both parties and director,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 others, claiming thatasserted new claims. On May 13, 2021, the Plaintiffs brought the action to protect their individual rights as minority shareholders, as improperly-ousted officers (other than the non-employee shareholder), and as an improperly-ousted director, seeking equitable relief, damages, recovery of unpaid salaries and other relief. It is the Company's position that the Complaint represents a frivolous harassment lawsuit. The Company has 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 claims madecontracts 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 June 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 ComplaintFormer 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, 2018, 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.
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The Company intends to otherwise defend itself vigorouslyagainst the allegations asserted in this matter.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 is also considering filing counterclaimscontends 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 Plaintiffs in the action.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.
COVID-19
On March 11, 2020, the World Health Organization announced that infections of the novel Coronavirus (COVID-19) had become pandemic, and on March 13, the U.S. President announced a National Emergency relating to the disease. There is a possibility of continued widespread infection in the United States and abroad, with the potential for catastrophic impact. National, state and local authorities have required or recommended social distancing and imposed or are considering quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures, while intended to protect human life, are expected to have serious adverse impacts on domestic and foreign economies of uncertain severity and duration. Some economists are predicting the United States will soon enter a recession. The sweeping nature of the coronavirus pandemic makes it extremely difficult to predict how the Company’s business and operations will be affected in the longer run, but we expect that it may materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Moreover, the coronavirus outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely affected to the extent that this coronavirus or any other epidemic harms the global economy generally and/or the markets in which we operate specifically. Any of the foregoing factors, or other cascading effects of the coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our revenues and damage the Company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted.
NOTE 6 – INTANGIBLE ASSETS
Intangible Assets - Intrusion Detection Intellectual Property
The Company relies on patent laws and restrictions on disclosure to protect its intellectual property rights. As of SeptemberJune 30, 2020,2021, the Company held three3 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).
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The DPTI issued patents cover a System and Method for Brillouin Analysis, a System and Method for Resolution Enhancement of a Distributed Sensor, and a Flexible Fiber Optic Deformation System Sensor and Method. Maintenance of intellectual property rights and the protection thereof is important to our business. Any patents that may be issued may not sufficiently protect the Company's intellectual property and third parties may challenge any issued patents. Other parties may independently develop similar or competing technology or design around any patents that may be issued to the Company. The Company cannot be certain that the steps it has taken will prevent the misappropriation of its intellectual property, particularly in foreign countries where the laws may not protect proprietary rights as fully as in the United States. Further, the Company may be required to enforce its intellectual property or other proprietary rights through litigation, which, regardless of success, could result in substantial costs and diversion of management's attention. Additionally, there may be existing patents of which the Company is unaware that could be pertinent to its business, and it is not possible to know whether there are patent applications pending that the Company's products might infringe upon, since these applications are often not publicly available until a patent is issued or published.
For the three months ended SeptemberJune 30, 20202021 and 2019,2020, the Company amortized $12,757,$12,757 and $12,757, respectively. Future amortization of intangible assets is as follows:
| 2020 | $ | 12,757 | ||||||
| Schedule of Intangible Assets | ||||||||
| 2021 | 51,028 | $ | 25,514 | |||||
| 2022 | 51,028 | 51,028 | ||||||
| 2023 | 51,028 | 51,028 | ||||||
| 2024 | 51,028 | 51,028 | ||||||
| 2025 | 51,028 | |||||||
| Thereafter | 189,878 | 138,850 | ||||||
| $ | 406,747 | |||||||
| Total | $ | 368,476 | ||||||
NOTE 7 – 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.
In May 2018,During the JV Entity received $42,000three months ended June 30, 2021 and 2020, the Company’s Chief Executive Officer advanced personal funds in the amount of $0 and $33,820 for an order from Bravetek andCompany expenses. As of June 30, 2021, the JV Entity then placedCompany’s Chief Executive Officer is owed a corresponding order with the Company. The Company’s former executive office is also the CEOtotal of Bravatek. The proceeds were to be used$98,930 for marketing efforts to generate sales of our intrusion detection product. The order has been recorded as a prepaid sale and is a current liability as of September 30, 2020.advanced personal funds.
NOTE 8 – PREFERRED STOCK
In accordance with the Company’s bylaws,Certificate of Incorporation, the Company has authorized a total of shares of preferred stock, par value $0.01$ per share, for all classes. As of SeptemberJune 30, 20202021, and December 31, 2019,2020, there were total preferred shares issued and outstanding for all classes.
During the three months ended SeptemberJune 30, 2020,2021, the Company issued no shares of preferred stock.
NOTE 9 – COMMON STOCK
In accordance with the Company’s bylaws, the Company has authorized a total of shares of common stock, par value $0.01$ per share. As of SeptemberJune 30, 20202021 and December 31, 2019,2020, there were 3,394,817,156 and 1,392,042,112 common shares issued and outstanding, respectively.outstanding.
During the three months ended SeptemberJune 30, 2020,2021, the Company issued the following shares of common stock:
On July 9, 2020,April 15, 2021, the Company issued an aggregate of 80,000,000 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019,October 7, 2020, in the amount of $5,600.$47,850 and interest of $2,153.25.
On July 16, 2020,April 30, 2021, the Company issued shares of common stock as compensation for loan acquisition costs associated with the note issued on the same date for the amount of $825,000.
On June 4, 2021, the Company issued an aggregate of 82,857,143 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $5,800.
On July 28, 2020, the Company issued an aggregate of 82,857,143 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $5,800.
On August 3, 2020, the Company issued an aggregate of 91,428,571 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $6,400.
On August 6, 2020, the Company issued an aggregate of 91,428,571 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $6,400.
On August 10, 2020, the Company issued an aggregate of 91,428,571 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $6,400.
On August 13, 2020, the Company issued an aggregate of 91,428,571 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $6,400.
On August 18, 2020, the Company issued an aggregate of 110,000,000 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $7,700.
On August 20, 2020, the Company issued an aggregate of 115,714,286 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $8,100.
On August 31, 2020, the Company issued an aggregate of 115,714,286 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $8,100.
On September 1, 2020, the Company issued an aggregate of 115,714,286 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $8,100.
On September 1, 2020, the Company issued an aggregate of 119,157,924 shares of common stock upon the conversion of interest of convertible debt, as issued on July 17, 2018, in the amount of $6,315.
On September 1, 2020, the Company issued an aggregate of 85,000,000 shares of common stock upon the conversion of convertible debt, as issued on September 24, 2018, in the amount of $7,000.
On September 2, 2020, the Company issued an aggregate of 123,474,262 shares of common stock upon the conversion of interest of convertible debt, as issued on September 24, 2018, in the amount of $4,439.
On September 3, 2020, the Company issued an aggregate of 115,714,286 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $8,100.
On September 11, 2020, the Company issued an aggregate of 115,714,286 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $8,100.
On September 30, 2020, the Company issued an aggregate of 158,000,000 shares of common stock upon the conversion of convertible debt, as issued on September 25, 2018, in the amount of $5,257.$76,656.83 and interest of $260.61.
The Company’s shareholders previously approved, by a majority vote, the adoption of the 1998 Stock Incentive Plan (the “Plan”). As amended on August 11, 2003, the Plan reserves 20,000,000 shares of common stock for issuance upon the exercise of options which may be granted from time-to-time to officers, directors, certain employees and consultants of the Company or its subsidiaries by the Board of Directors. The Plan permits the award of both qualified and non-qualified incentive stock options.
During the three months ended SeptemberJune 30, 2020,2021, the Company did nott issue any stock options and had no stock options outstanding at SeptemberJune 30, 2020. 2021.
NOTE 11 – 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:
On October 7, 2020,July 12, 2021, the Company issued an aggregate of 161,428,5711,784,146 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019,January 12, 2021, in the amount of $11,800.$42,350.
On October 7, 2020,July 14, 2021, the Company issued an aggregate of 169,000,00045,037,115 shares of common stock upon the conversion of convertible debt, as issued on February 12, 2019,October 7, 2020, in the amount of $6,855.$93,864 and interest of $26,246.
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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.
On October 7, 2020,July 19, 2021, the Company issued an aggregate of 143,519,0002,898,382 shares of common stock upon the conversion of convertible debt, as issued on September 25, 2018,October 7, 2020, in the amount of $4,677.$10,497 and interest of $6,748.
On October 12, 2020,August 3, 2021, the Company issuedentered into an aggregate of 142,374,429 shares of common stock uponEngagement Agreement and Terms and Conditions (the “Agreement”) with Energy & Industrial Advisory Partners, LLC ( “EIAP”). Pursuant to the conversion of convertible debt,Agreement, the Company has engaged EIAP to serve as issued on May 3, 2019,an advisor to the Company in the amountproposed transaction for agreed target company or any of $600its 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 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 Agreement, or (b) within two years following the date of the 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 principal and $9,366 in interest.full all fees, expenses and/or outlays due or to become due to EIAP as at the date of the 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.
On October 22, 2020, the Company issued an aggregate of 77,623,000 shares of common stock upon the conversion of convertible debt, as issued on September 25, 2018, in the amount of $2,041.
On September 2, 2020,August 9, 2021, the Company entered into a securities purchase agreementShare Purchase Agreement with Geneva Roth Remark Holdings, Inc. (“Geneva”Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”) issuing, pursuant to Geneva a convertible promissory note inwhich the aggregate principal amount of $47,850 (the “Financing”) with a $4,350 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 9% per annum and may be converted into common sharesCompany purchased from the Sellers all of the Company's common stock atissued and outstanding equity interests of Optilan HoldCo 3 Limited, a conversion price equalprivate company incorporated in England and Wales (“Optilan”) for £1.00 and also a commitment to 70%enter into the Subscription (as defined below). As of August 9, 2021, the Company owns all of the lowest trading priceequity interests of the Company's common stock during the 20 prior trading days. The Company received $40,000 net cash in the Financing which closed on October 7, 2020.Optilan.
On September 2, 2020,August 9, 2021, the Company entered into a securities purchase agreement with Geneva Roth Remark Holdings, Inc. (“Geneva”) issuing to Geneva a convertible promissory note in the aggregate principal amount of $47,850Subscription Agreement (the “Financing”“Subscription”) with a $4,350 original issue discount and $3,500 in transactional expenses dueOptilan, pursuant to Geneva and its counsel. The note bears interest at 9% per annum and may be converted into common shareswhich the Company agreed to purchase an aggregate of the Company's common stock at a conversion price equal to 70%4,000,000 Ordinary Shares of the lowest tradingOptilan (the “Shares”) for an aggregate purchase price of the Company's common stock during the 20 prior trading days. The Company received $40,000 net cash in the Financing which closed on October 7, 2020.£4,000,000.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
BackgroundThis 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 of our Annual Report on Form 10-K for the year ended December 31, 2020. 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.
Background
DarkPulse, Inc. ("DPI" or the "Company", a Delaware corporation (the “Company”), is a technology-security company incorporated in 1989 as Klever Marketing, Inc. ("Klever"). The Company’s wholly-owned subsidiary, DarkPulse Technologies Inc. ("DPTI"), originally started ascreated to develop, market, and distribute a technology spinout from the Universityfull suite of New Brunswick, Fredericton, Canada. The Company’sengineering, monitoring, installation and security management solutions for critical infrastructure/key resources to both industries 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’sgovernments. Coupled with our patented BOTDA dark-pulse sensor technology allows(the “DarkPulse Technology”), DarkPulse provides its customers a comprehensive data stream of critical metrics for assessing the monitoringhealth and security of highly dynamic environmentstheir infrastructure. Our comprehensive system provides for rapid, precise analysis and responsive activities predetermined by the end-user customer. Our activities since inception have consisted of developing various solutions, obtaining patents and trademarks related to its technology, raising capital, 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.
Recent Events
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 greater resolutioncounsel. The note bears interest at 8% per annum and accuracy.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.
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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 27, 2018, Klever5, 2021, the Company entered into an Agreementa 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 Plan of Merger (the “Merger Agreement” or the “Merger”) involving Klever as the surviving parent corporation$3,500 in transactional expenses due to Geneva 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,counsel. The note bears interest at 4.5% per annum and the namemay be converted into common shares of the Company was subsequently changedCompany's common stock at a conversion price equal to DarkPulse, Inc. With the change of control81% 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 “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 Merger was accounted for asprincipal 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 recapitalizationDTC “chill” on our shares, an additional discount of 10% will apply to the conversion price while the “chill” is in a manner similareffect. Upon the issuance of the FirstFire Note, we have initially agreed to a reverse acquisition.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 Commission within 180 days after the date the Registration Statement is filed with the Commission.
On July 20, 2018,14, 2021, the Company filedentered a CertificateSecurities Purchase Agreement 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 Amendment$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 its Certificatevarious “Events of IncorporationDefault,” 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.
Partnerships
We have entered into a consulting agreement with the State of Delaware, changingBachner Group to assist in the name ofsuccessful 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 Companysky” drone capabilities.
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We have entered into a partnership with Unleash Live to DarkPulse, Inc. The Company filedexpand our service offerings to include AI enhanced image evaluation and secure private networking capabilities.
We continue to evaluate partnership and licensing opportunities we deem important to our transformation to a corporate action notification with the Financial Industry Regulatory Authority (FINRA), and the Company's ticker symbol was changed to DPLS.sales-focused company.
Going Concern Uncertainty
As shown in the accompanying financial statements, during the ninesix months ended SeptemberJune 30, 2020,2021, the Company did not generate any revenues and reported a net loss of $214,539.$237,481. As of SeptemberJune 30, 2020,2021, the Company’s current liabilities exceeded its current assets by $3,436,901.$2,915,206. As of SeptemberJune 30, 2020,2021, the Company had $519$148,562 of cash.
The CompanyWe will require additional funding during the next nine months to finance the growth of itsour operations and achieve itsour strategic objectives. These factors, as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as to the Company’sour ability to continue as a going concern. The Company isWe are seeking to raise additional capital principally through private placement offerings and isare targeting strategic partners in an effort to finalizeaccelerate the developmentsales and marketing of itsour products and begin generating revenues. TheOur ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements, and expansion of its operations.our operations and generating sales. The accompanying financial statements do not include any adjustments that might be necessary should the Companywe 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,operations; however, management cannot make any assurances that such financing will be secured.
Results of Operations
Revenues
To date, the Company has not generated any operating revenues.
Operating Expenses
General and administrative expenses for three months ended SeptemberJune 30, 2020, decreased2021 increased by $5,671$50,455 to $34,782$95,165 from $40,453$44,710 for the three months ended SeptemberJune 30, 2019. 2020.
General and administrative expenses for ninesix months ended SeptemberJune 30, 2020, decreased2021 increased by $24,099$38,582 to $120,866$124,853 from $144,965$86,271 for the ninesix months ended SeptemberJune 30, 2019.2020.
Legal expenses for three months ended SeptemberJune 30, 2020, decreased2021, increased by $48,868$102,434 to $0$146,619 from $48,868$44,185 for the three months ended SeptemberJune 30, 2019. 2020. The increase is related to legal expenses associated with the increase in litigation.
Legal expenses for ninesix months ended SeptemberJune 30, 2020, decreased2021, increased by $48,665$172,675 to $96,962$220,972 from $48,297 for the ninesix months ended SeptemberJune 30, 2019.
Payroll and compensation expenses for nine months ended September 30, 2020, decreased by $168,758 to $187 from $168,945 for the nine months ended September 30, 2019.2020. The decreaseincrease is related to a significant reductionlegal expenses associated with the increase in payroll related expenses in 2019 because it terminated four employees during March 2019.litigation.
Amortization of Patentspatents expense for three and nine months ended SeptemberJune 30, 2020,2021, remained the same at $12,757 and $25,514, respectively compared tofor the three and nine months ended SeptemberJune 30, 2019.2020.
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Other Income (Expense)
Interest expense was $37,318$318,921 and $50,649$25,154 for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. This $13,331 decrease$293,767 increase is primarily related to the decreaseincrease in non-cash expenses related to notes payable issued in 2019.2021.
Interest expense was $97,842$350,584 and $399,895$60,524 for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. This $302,053 decrease$290,060 increase is primarily related to the decreaseincrease in non-cash expenses related to notes payable issued in 2019.2021
LossGain on convertible notes expense was $1,313$138,615 for the three months ended SeptemberJune 30, 2020. 2021.
The lossgain on the change in fair market value of derivative liabilities was $87,853$358,440 for the three months ended SeptemberJune 30, 2020.2021.
LossGain on convertible notes expense was $39,414$308,896 for the ninesix months ended SeptemberJune 30, 2020.2021. The lossgain on the change in fair market value of derivative liabilities was $44,684$327,496 for the ninesix months ended SeptemberJune 30, 2020.2021.
Provision for Income Taxes
The provision for income taxes was $0 and $0 for the three and nine months ended SeptemberJune 30, 20202021 and 2019,2020, respectively.
Net Income (Loss)
As a result of the above, we reported a net loss of $174,023$185,607 for the three months ended SeptemberJune 30, 20202021 compared to $21,886a net loss of $140,240 for the three months ended SeptemberJune 30, 2019.2020.
Additionally, as a result of the above, we reported a net loss of $388,561$237,481 for the ninesix months ended SeptemberJune 30, 20202021 compared to a net loss of $659,473$214,538 for the ninesix months ended SeptemberJune 30, 2019.2020.
Liquidity and Capital Resources
The Company requiresWe require working capital to fund the furthercontinued development and commercialization of itsour proprietary fiber optic sensing devices, and for operating expenses. During the three months ended June 30, 2021, we had $889,200 in new cash proceeds compared to the three months ended June 30, 2020, when we had no new cash proceeds.
As of SeptemberJune 30, 2020,2021, we had cash of $519,$148,562, compared to $1,408$337 as of December 31, 2019.2020. As of SeptemberJune 30, 2020,2021, our current liabilities exceeded our current assets by $2,508,467.$2,915,206.
Cash Flows Fromfrom Operating Activities
During the ninesix months ended SeptemberJune 30, 2020,2021, net cash provided by operating activities was $4,278,$712,611, resulting from our net loss of $388,561and 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 of $174,938 and accrued liabilities of $105,435.
During the nine months ended September 30, 2019, net cash used by operating activities was $202,128, resulting from our net loss of $659,473$237,481 and an increase in expenses related to our convertible notes payables, including amortization of debt discount of $568,985, debt discount$171,554, decrease in derivative liability of $205,000, increases$327,496, decrease in accounts payable of $205,025$148,344 and an increase in accrued liabilities of $34,759.
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By comparison, during the six months ended June 30, 2020, net cash provided by operating activities was $5,180, resulting from our net loss of $214,539 and an increase in expenses related to our convertible notes payables, including amortization of debt discount of $38,101, decrease in derivative liability of $43,169, increase in accounts payable of $140,423 and accrued liabilities of $110,340.$68,749.
Cash Flows Fromfrom Investing Activities
During the ninesix months ended SeptemberJune 30, 2020, Company2021, we had net cash used in investing activities of $4,969.$87,864. During the ninesix months ended SeptemberJune 30, 2019, the Company2020, we had net cash used $54,930 in investing activities with both periods relating to our patents and trademarks.of $4,969.
Cash Flows Fromfrom Financing Activities
During the ninesix months ended SeptemberJune 30, 2020, Company had no net cash provided by or used in financing activities. During the nine months ended September 30, 2019, net cash provided by financing activities was $155,450,$952,700, comprised of proceeds from the issuance of convertible debt in the amount of $180,100,$1,102,700, offset by payments on convertible debt of $24,650.$150,000. During the six months ended June 30, 2020, we had no net cash provided by or used in financing activities.
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
The Company hasWe have provided a discussion of recent accounting pronouncements in Note 1 to the Condensed Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable: The Company isAs a “smallersmaller reporting company.”company, we have elected not to provide the disclosure required by this item.
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Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintainhave established disclosure controls and procedures that are designed to help ensure that information required to be disclosed in our filingsreports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. This informationCommission and, as such, is accumulated and communicated to our Chief Executive Officer, Dennis O’Leary, who serves as our principal executive officer and Chief Financial Officerprincipal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial OfficerMr. O’Leary, evaluated the effectiveness of our disclosure controls and procedures, (asas defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation and the requirements of the Exchange Act, our Chief Executive Officeras of June 30, 2021. Based on his evaluation, Mr. O’Leary concluded that as of September 30, 2020, our disclosure controls and procedures continue to be ineffective. The small sizewere effective as of our Company does not provide for the desired segregation of duty control functions, and we do not have the required level of documentation of our monitoring and control procedures. Currently, our financial constraints prevent us from fully implementing the internal controls prescribed by the Sarbanes-Oxley Act.June 30, 2021.
Changes in Internal Control Over Financial Reporting
Management and directors will continue to monitor and evaluate the effectiveness of the Company's internal controls and procedures and the Company's internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. The Company will continue to use outside accounting consultants to assist with the Company’s financial reporting. Otherwise, there haveThere has been no changeschange in our internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during the quarter ended June 30, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting during the quarter ended September 30, 2020.reporting.
PART II – II—OTHER INFORMATION
Carebourn Capital, L.P.
On March 27, 2019, Thomas A. Cellucci, et al. v. DarkPulse, Inc. et al. (the “Complaint”January 29, 2021, Carebourn Capital, L.P. (“Carebourn”) was filed in the United States District Court for the Southern District of New York by certain of the Company’s former executive officers, one also being a former director, and a non-employee shareholder (collectively, the “Plaintiffs”),commenced suit against the Company its sole officerin the 4th Judicial District (Hennepin County District Court, Minnesota), alleging the Company breached the terms and director,conditions of two convertible promissory notes and others, claiming that the Plaintiffs brought the action to protect their individual rights as minority shareholders, as improperly-ousted officers (other than the non-employee shareholder), and as an improperly-ousted director, seeking equitable relief, damages, recovery of unpaid salaries and other relief. It is the Company's position that the Complaint represents a frivolous harassment lawsuit,accompanying securities purchase agreements Carebourn and the Company hasentered 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 all claims madeCarebourn’s amended complaint, arguing that Carebourn is conducting itself as an unregistered dealer, in violation of Section 15(a) of the ComplaintSecurities and intendsExchange Act of 1934 (the “Act”), and, pursuant to otherwise defend itself vigorously in this matter. TheSection 29(b) of the Act, the Company is also considering filing counterclaims against the Plaintiffs in the action.
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likelyentitled to have a material adverse effect on our business, financial condition and operating results.
Readers should carefully consider the risks and uncertainties described in ITEM 1A in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC before deciding whether to invest in shares of our common stock. See also risks discussed aboveall contracts arising under the section on “Factors That May Affect Future Results”unlawful securities transaction declared void ab initio and “Internal Controls”.
Our failure to successfully address the risks and uncertainties described in our 2019 Form 10-K 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.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 enterprise engagedunregistered 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.
Former DarkPulse Officers
On June 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 developmentFormer Officers’ complaint. If the case progresses, then 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 new technology, our businessa convertible promissory note and accompanying securities purchase agreement that 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.
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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 inherently risky. Our common shares are considered speculative duringan unregistered dealer acting in violation of Section 15(a) of the developmentAct and, pursuant to Section 29(b) of our new business operations. 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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
DuringConvertible Promissory Notes
On April 5, 2021, we entered into a securities purchase agreement with Geneva issuing to Geneva a convertible promissory note in the three months endedaggregate 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 the SPA and Registration Rights Agreement with FirstFire, pursuant to which we issued to FirstFire 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.
In addition, on April 30, 2021, we issued to FirstFire 60,000,000 shares of common stock valued at $1,122,000 as compensation for loan acquisition costs.
On June 3, 2021, we entered into a Settlement and Mutual Release Agreement with Auctus Fund, LLC (the “Auctus”). Pursuant to the Agreement, Auctus agreed to convert the Promissory Note issued on September 30, 2020, we had25, 2018 in the principal amount of $100,000 into 12,500,000 shares of our Common Stock as consideration for full and complete satisfaction of and settlement of the note, which also terminated all obligations owing under both the note and the corresponding Securities Purchase Agreement dated September 25, 2018. Auctus also agreed to limit the resales of the shares in the public market to no unregistered salesmore than 2,500,000 shares per calendar week until all of equitythe shares have been sold.
These securities were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(a)(2) thereof, and Rule 506(b) promulgated thereunder, as a transaction by an issuer not involving any public offering. No selling commissions were paid in connection with the issuances of these securities.
Item 3. Defaults upon Senior SecuritiesConvertible Promissory Note Conversions
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
On April 15, 2021, we issued an aggregate of 8,065,040 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $47,850 and interest of $2,153.
Item 5. Other InformationOn June 4, 2021, we issued an aggregate of 12,500,000 shares of common stock upon the conversion of convertible debt, as issued on September 25, 2018, in the amount of $76,657 and interest of $261.
Not Applicable.The securities were issued without registration under the Securities Act by reason of the exemption from registration afforded by the provisions of Section 4(a)(2) thereof, and Rule 506(b) promulgated thereunder, as a transaction by an issuer not involving any public offering. No selling commissions were paid in connection with the issuance of the securities.
The following exhibits are filed as part of this report:
__________________________
*Filed with this Report.
**Furnished with this Report.
In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: August 16, 2021 | By | /s/ Dennis |
| Dennis O’Leary, Chairman, Chief Executive Officer, | ||
| (Principal Executive Officer and Principal | ||
| Financial | ||