UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 |
Or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from _______________________to___________________________ |
Commission File Number: 000-18730
DarkPulse, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 87-0472109 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 1345 Ave of the Americas, | 10105 |
| (Address of principal executive offices) | (Zip Code) |
(800(800)) 436-1436
(Registrant’s telephone number, including area code)
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 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 registrant was required to file such reports) and (2).
Yes ☐ No ☒
Indicate by check mark whether the registrant 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).
Yes x☒ 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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | Smaller reporting company | ||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No x☒
The number of shares outstanding of the registrant’s common stock on August 11, 2021,May 10, 2022, was .
DARKPULSE, INC.
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 2021
| 2 |
PART I - I—FINANCIAL INFORMATION
Item 1. Financial Statements
DARKPULSE, INC.
Condensed Consolidated Balance Sheets
Unaudited
| JUNE 30, | DECEMBER 31, | March 31, | December 31, | |||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| ASSETS | ||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||
| Cash | $ | 148,562 | $ | 337 | $ | 4,785,797 | $ | 3,658,846 | ||||||||
| Deposits | 4,000 | 0 | ||||||||||||||
| Accounts receivable, net | 6,747,200 | 4,223,990 | ||||||||||||||
| Inventory | 1,882,197 | 865,019 | ||||||||||||||
| Unbilled revenue | 242,151 | 497,773 | ||||||||||||||
| Other current assets | 138,227 | 181,000 | ||||||||||||||
| TOTAL CURRENT ASSETS | 152,562 | 337 | 13,795,572 | 9,426,628 | ||||||||||||
| NON-CURRENT ASSETS: | ||||||||||||||||
| Property and equipment, net | 1,781,788 | 1,787,824 | ||||||||||||||
| Operating lease right-of-use assets | 3,061,164 | 2,620,993 | ||||||||||||||
| Patents, net | 330,205 | 342,962 | ||||||||||||||
| Intangible assets | 3,738,087 | 3,886,588 | ||||||||||||||
| Goodwill | 16,801,192 | 17,088,501 | ||||||||||||||
| Other assets, net | 179,328 | 91,464 | 347,864 | 282,884 | ||||||||||||
| Patents, net | 368,476 | 393,990 | ||||||||||||||
| TOTAL NON-CURRENT ASSETS | 26,060,300 | 26,009,752 | ||||||||||||||
| TOTAL ASSETS | $ | 700,366 | $ | 485,791 | $ | 39,855,872 | $ | 35,436,380 | ||||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||
| Accounts payable | $ | 371,557 | $ | 519,899 | ||||||||||||
| Convertible notes, net of discount $344,421 and $39,414 respectively | 1,240,153 | 931,158 | ||||||||||||||
| Accounts payable and accrued liabilities | $ | 7,154,765 | $ | 7,844,271 | ||||||||||||
| Convertible notes, net of discount $0 and $35,525 respectively | 378,263 | 378,263 | ||||||||||||||
| Notes payable | 2,000,000 | 2,000,000 | ||||||||||||||
| Customer deposits | 4,667,905 | 2,802,809 | ||||||||||||||
| Derivative liability | 893,381 | 1,220,877 | 408,646 | 533,753 | ||||||||||||
| Accrued liabilities | 562,677 | 569,970 | ||||||||||||||
| Contract liabilities | 4,136,809 | 3,216,562 | ||||||||||||||
| Operating lease liabilities - current | 360,270 | 364,105 | ||||||||||||||
| Other current liabilities | 2,299,617 | 2,407,750 | ||||||||||||||
| TOTAL CURRENT LIABILITIES | 3,067,768 | 3,241,904 | 21,406,275 | 19,547,513 | ||||||||||||
| NON-CURRENT LIABILITIES: | ||||||||||||||||
| Secured debenture | 1,210,155 | 1,176,092 | 1,201,661 | 1,172,364 | ||||||||||||
| Operating lease liabilities – non-current | 3,158,040 | 2,474,530 | ||||||||||||||
| Other liabilities – non-current | 428,093 | 676,331 | ||||||||||||||
| TOTAL NON-CURRENT LIABILITIES | 4,787,794 | 4,323,225 | ||||||||||||||
| TOTAL LIABILITIES | 4,277,923 | 4,417,996 | 26,194,069 | 23,870,738 | ||||||||||||
| Commitments and contingencies | – | – | 0 | 0 | ||||||||||||
| STOCKHOLDERS' DEFICIT | ||||||||||||||||
| Common stock (par value $), shares authorized, and shares issued and outstanding respectively | 477,033 | 408,876 | ||||||||||||||
| Treasury stock, shares | (1,000 | ) | (1,000 | ) | ||||||||||||
| Convertible preferred stock, Series D (par value $) shares authorized, shares issued and outstanding respectively | 883 | 883 | ||||||||||||||
| Paid in capital in excess of par value | 2,363,848 | 1,805,813 | ||||||||||||||
| Non-controlling interest in a variable interest entity and subsidiary | (12,439 | ) | (12,439 | ) | ||||||||||||
| STOCKHOLDERS’ DEFICIT: | ||||||||||||||||
| Convertible preferred stock - Class D (par value $; shares authorized; issued and outstanding at March 31, 2022 and December 31, 2021, respectively) | 883 | 883 | ||||||||||||||
| Common stock (par value $), shares authorized, and shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively | 539,794 | 519,782 | ||||||||||||||
| Treasury stock, shares at March 31, 2022 and December 31, 2021 | (1,000 | ) | (1,000 | ) | ||||||||||||
| Paid-in capital in excess of par value | 27,928,691 | 20,248,703 | ||||||||||||||
| Non-controlling interest in variable interest entity and subsidiary | 2,358,227 | 2,358,227 | ||||||||||||||
| Accumulated other comprehensive income | 281,769 | 315,832 | (504,032 | ) | (284,463 | ) | ||||||||||
| Accumulated deficit | (6,687,651 | ) | (6,450,170 | ) | (16,660,760 | ) | (11,276,490 | ) | ||||||||
| TOTAL STOCKHOLDERS' DEFICIT | (3,577,557 | ) | (3,932,205 | ) | ||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 700,366 | $ | 485,791 | ||||||||||||
| TOTAL STOCKHOLDERS’ DEFICIT | 13,661,803 | 11,565,642 | ||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 39,855,872 | $ | 35,436,380 | ||||||||||||
TheSee accompanying notes are an integral part of these unaudited condensedto consolidated financial statements.
| 3 |
DARKPULSE, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
THREE MONTHS JUNE 30, | SIX MONTHS JUNE 30, | For the Three Months Ended | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | March 31, | ||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| REVENUES | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,018,333 | $ | 0 | ||||||||||||
| COST OF GOODS SOLD | 2,348,567 | 0 | ||||||||||||||||||||||
| GROSS LOSS | (330,234 | ) | 0 | |||||||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||||||||||
| General and administrative expenses | 95,165 | 44,710 | 124,853 | 86,271 | ||||||||||||||||||||
| Payroll and compensation | 0 | 0 | 0 | 0 | ||||||||||||||||||||
| Legal expenses | 146,619 | 44,185 | 220,972 | 48,297 | ||||||||||||||||||||
| Amortization of patents | 12,757 | 12,757 | 25,514 | 25,514 | ||||||||||||||||||||
| Selling, general and administrative | 978,208 | 29,688 | ||||||||||||||||||||||
| Salaries, wages and payroll taxes | 1,972,067 | 0 | ||||||||||||||||||||||
| Professional fees | 1,538,103 | 74,354 | ||||||||||||||||||||||
| Depreciation and amortization | 228,614 | 12,757 | ||||||||||||||||||||||
| Debt transaction expenses | 109,200 | – | 151,950 | – | 0 | 42,750 | ||||||||||||||||||
| TOTAL OPERATING EXPENSES | 363,741 | 101,652 | 523,289 | 160,082 | 4,716,992 | 159,549 | ||||||||||||||||||
| OPERATING LOSS | (363,741 | ) | (101,652 | ) | (523,289 | ) | (160,082 | ) | (5,047,226 | ) | (159,549 | ) | ||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||||||||||
| Interest expense | (318,921 | ) | (25,154 | ) | (350,584 | ) | (60,524 | ) | (517,754 | ) | (31,662 | ) | ||||||||||||
| Loss on convertible notes | 138,615 | (2,890 | ) | 308,896 | (38,101 | ) | ||||||||||||||||||
| Gain on the forgiveness of debt | 0 | 1,000 | 0 | 1,000 | ||||||||||||||||||||
| Gain(loss) on change in fair market values of derivative liabilities | 358,440 | (11,544 | ) | 327,496 | 43,169 | |||||||||||||||||||
| Gain (Loss) on change in fair market value of derivative liabilities | 125,107 | (30,944 | ) | |||||||||||||||||||||
| Gain (Loss) on convertible notes | 0 | 170,281 | ||||||||||||||||||||||
| Gain on forgiveness of debt | 35,750 | 0 | ||||||||||||||||||||||
| Foreign currency exchange rate variance | 19,853 | 0 | ||||||||||||||||||||||
| TOTAL OTHER INCOME (EXPENSE) | 178,134 | (38,588 | ) | 285,808 | (54,456 | ) | (337,044 | ) | 107,675 | |||||||||||||||
| NET LOSS | (185,607 | ) | (140,240 | ) | (237,481 | ) | (214,538 | ) | (5,384,270 | ) | (51,874 | ) | ||||||||||||
| Net loss attributable to noncontrolling interests in variable interest entity and subsidiary | 0 | 0 | 0 | 0 | ||||||||||||||||||||
| Net loss attributable to non-controlling interests in variable interest entity and subsidiary | 113,681 | 0 | ||||||||||||||||||||||
| Net loss attributable to Company stockholders | $ | (185,607 | ) | $ | (140,240 | ) | $ | (237,481 | ) | $ | (214,538 | ) | $ | (5,270,589 | ) | $ | (51,874 | ) | ||||||
| LOSS PER SHARE: | ||||||||||||||||||||||||
| Basic and Diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||||
| LOSS PER SHARE | ||||||||||||||||||||||||
| Basic | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||||||||||
| Diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||||||||||||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||||||||||||||||||
| Basic and Diluted | 4,740,200,371 | 1,511,053,102 | 4,599,529,434 | 1,451,547,607 | ||||||||||||||||||||
| Basic | 5,290,107,585 | 4,457,294,486 | ||||||||||||||||||||||
| Diluted | 5,290,107,585 | 4,457,294,486 | ||||||||||||||||||||||
TheSee accompanying notes are an integral part of these unaudited condensedto consolidated financial statements.
| 4 |
DARKPULSE, INC.
Condensed Consolidated Statements of Comprehensive Gain/Loss
(Unaudited)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| NET LOSS | $ | (5,270,589 | ) | $ | (51,874 | ) | ||
| OTHER COMPREHENSIVE LOSS | ||||||||
| Unrealized Gain (Loss) on Foreign Exchange | (219,569 | ) | (17,909 | ) | ||||
| COMPREHENSIVE LOSS | $ | (5,490,158 | ) | $ | (69,783 | ) | ||
See accompanying notes to consolidated financial statements.
| THREE MONTHS ENDED JUNE 30, | SIX MONTHS ENDED JUNE 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| NET LOSS | $ | (185,607 | ) | $ | (140,240 | ) | $ | (237,481 | ) | $ | (214,538 | ) | ||||
| OTHER COMPREHENSIVE LOSS | ||||||||||||||||
| Unrealized Gain (Loss) on Foreign Exchange | (16,154 | ) | (39,046 | ) | (34,063 | ) | 53,601 | |||||||||
| COMPREHENSIVE GAIN (LOSS) | $ | (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 PeriodsThree Months Ended June 30,March 31, 2022 and 2021 and 2020
| 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, 2021 | 88,235 | $ | 883 | 5,197,821,885 | $ | 519,782 | $ | (1,000 | ) | $ | 20,248,703 | $ | 2,358,227 | $ | (284,463 | ) | $ | (11,276,490 | ) | $ | 11,565,642 | |||||||||||||||||||
| Common stock issued for cash | – | – | 200,121,061 | 20,012 | 7,679,988 | – | – | 7,700,000 | ||||||||||||||||||||||||||||||||
| Foreign currency adjustment | – | – | – | – | - | – | – | (219,569 | ) | – | (219,569 | ) | ||||||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | – | (5,384,270 | ) | (5,384,270 | ) | |||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 88,235 | $ | 883 | 5,397,942,946 | $ | 539,794 | $ | (1,000 | ) | $ | 27,928,691 | $ | 2,358,227 | $ | (504,032 | ) | $ | (16,660,760 | ) | $ | 13,661,803 | |||||||||||||||||||
| 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 | ) |
See accompanying notes to consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
DARKPULSE, INC.
Condensed Consolidated StatementStatements of Cash Flows
(Unaudited)
SIX MONTHS ENDED JUNE 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss | $ | (237,481 | ) | $ | (214,538 | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Depreciation and amortization | 25,514 | 25,514 | ||||||
| Loan acquisition costs | (480,450 | ) | 0 | |||||
| Gain on reduction of loan default penalty | 0 | (9,900 | ) | |||||
| Stock based loan acquisition costs | 249,333 | 0 | ||||||
| Amortization of debt discount | 171,554 | 38,101 | ||||||
| Derivative liability | (327,496 | ) | (43,169 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable | (148,344 | ) | 140,421 | |||||
| Accrued liabilities | 34,759 | 68,749 | ||||||
| Net cash (Used by) Provided by operating activities | (712,611 | ) | 5,178 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investment in demo box | (87,864 | ) | (4,969 | ) | ||||
| Deposits | (4,000 | ) | 0 | |||||
| Net Cash Used by Investing Activities | (91,864 | ) | (4,969 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible notes payable | 1,102,700 | 0 | ||||||
| Payments on notes payable | (150,000 | ) | 0 | |||||
| Net Cash Provided by Financing Activities | 952,700 | 0 | ||||||
| NET INCREASE IN CASH | 148,225 | 209 | ||||||
| CASH, beginning of period | 337 | 1,210 | ||||||
| CASH, end of period | $ | 148,562 | $ | 1,419 | ||||
| Noncash investing and financing activities for the quarter ending June 30: | ||||||||
| Stock issued for convertible notes payable and accrued interest | $ | 376,860 | $ | 15,200 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest paid in cash | $ | 23,000 | $ | 0 | ||||
| Taxes paid in cash | $ | 0 | $ | 0 | ||||
For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (5,384,270 | ) | $ | (51,874 | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Depreciation and amortization | 228,615 | 12,757 | ||||||
| Loan acquisition costs | 0 | (212,750 | ) | |||||
| Gain on extinguishment of debt | (35,750 | ) | 0 | |||||
| Operating lease expense | (440,171 | ) | 0 | |||||
| Amortization of debt discount | 0 | 42,469 | ||||||
| Derivative liability | (125,107 | ) | 30,977 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (2,523,210 | ) | 0 | |||||
| Inventory | (1,017,178 | ) | 0 | |||||
| Unbilled revenue | 255,622 | 0 | ||||||
| Contract liability | 1,451,343 | 0 | ||||||
| Customer deposits | 1,334,000 | 0 | ||||||
| Accounts payable and accrued expenses | (355,697 | ) | 17,281 | |||||
| Operating lease liabilities | 679,675 | 0 | ||||||
| Other current liabilities | (356,372 | ) | 0 | |||||
| Net cash used by operating activities | (6,288,500 | ) | (161,173 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Capitalized patents | 0 | (1,200 | ) | |||||
| Deposits | (64,980 | ) | 0 | |||||
| Net cash used by investing activities | (64,980 | ) | (1,200 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of common stock | 7,700,000 | 0 | ||||||
| Proceeds from convertible debentures | 0 | 212,750 | ||||||
| Net cash provided by financing activities | 7,700,000 | 212,750 | ||||||
| NET INCREASE (DECREASE) IN CASH | 1,346,520 | 50,377 | ||||||
| Effect of exchange rate on cash | (219,569 | ) | 0 | |||||
| CASH, beginning of year | 3,658,846 | 337 | ||||||
| CASH, end of year | $ | 4,785,797 | $ | 50,714 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the three months ended March 31: | ||||||||
| Interest | $ | 0 | $ | 0 | ||||
| Income taxes | $ | 0 | $ | 0 | ||||
TheSee accompanying notes are an integral part of these unaudited condensedto consolidated financial statements.
| 7 |
DARKPULSE, INC.
Notes to Condensedthe Consolidated Financial Statements
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The consolidated financial statements as of December 31, 20202021 have been audited by an independent registered public accounting firm. The accounting policies and procedures employed in the preparation of these condensed consolidated financial statements have been derived from the audited financial statements of the Company for the year ended December 31, 2020,2021, which are contained in Form 10-K as filed with the Securities and Exchange Commission on April 15, 2021.2022. The consolidated balance sheet as of December 31, 20202021 was derived from those financial statements.
Basis of Presentation and Principles of Consolidation
The consolidated financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles of the United States of America (“U.S. GAAP”) and the rules and regulations of the U.S Securities and Exchange Commission for Interim Financial Information. The condensed consolidated financial statements of the Company include the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial position as of June 30, 2021,March 31, 2022, and the results of operations for three and six months and cash flows for the sixthree months ended June 30, 2021March 31, 2022 have been included. The results of operations for the three and six months ended June 30, 2021March 31, 2022 are not necessarily indicative of the results to be expected for the full year.
Description of Business
DarkPulse, Inc. ("DPI"(“DPI” or "Company"“Company”) is a technology-security company incorporated in 1989 as Klever Marketing, Inc. ("Klever"(“Klever”). Its’ wholly-owned subsidiary, DarkPulse Technologies Inc. ("DPTI"(“DPTI”), originally started as a technology spinout from the University of New Brunswick, Fredericton, Canada. The Company’s security and monitoring systems will initially be delivered in applications for border security, pipelines, the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision. The Company’s patented BOTDA dark-pulse sensor technology allows for the monitoring of highly dynamic environments due to its greater resolution and accuracy.
On April 27, 2018, Klever entered into an Agreement and Plan of Merger (the “Merger Agreement” or the “Merger”) involving Klever as the surviving parent corporation and acquiring a privately held New Brunswick corporation known as DarkPulse Technologies Inc. as its wholly owned subsidiary. On July 18, 2018, the parties closed the Merger Agreement, as amended on July 7, 2018, and the name of the Company was subsequently changed to DarkPulse, Inc. With the change of control of the Company, the Merger is being be accounted for as a recapitalization in a manner similar to a reverse acquisition.
On July 20, 2018, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the State of Delaware, changing the name of the Company to DarkPulse, Inc. The Company filed a corporate action notification with the Financial Industry Regulatory Authority (FINRA), and the Company's ticker symbol was changed to DPLS.
Reclassifications
Certain amounts in the Company’s prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.
| 8 |
Going Concern Uncertainty
As shown in the accompanying financial statements, during the sixthree months ended June 30, 2021,March 31, 2022, the Company did not generate any revenues and reported a net loss of $237,4815,384,270. As of June 30, 2021,March 31, 2022, the Company’s current liabilities exceeded its current assets by $2,915,2067,610,707. As of June 30, 2021,March 31, 2022, the Company had $148,562$4,785,797 of cash.
The Company will require additional funding during the next twelve months to finance the growth of ourits current operations and achieve ourits strategic objectives. These factors, as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as to ourthe Company’s ability to continue as a going concern. We areThe Company is seeking to raise additional capital principally through private placement offerings and areis targeting strategic partners in an effort to acceleratefinalize the sales and marketingdevelopment of ourits products and begin generating revenues. OurThe ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements or expansion of our operations and generating sales.its operations. The accompanying financial statements do not include any adjustments that might be necessary should wethe Company be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations however,through calendar year 2022. However, management cannot make any assurances that such financing will be secured.
Use of Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities, preferred deemed dividend and common stock issued for services.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with a high credit quality financial institutions. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000.$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) intoCompany’s reporting currency is US Dollars. The accounts of one of the United StatesCompany’s subsidiaries is maintained using the appropriate local currency, British Pound (“GBP”) as the functional currency. The accounts of one of the Company’s subsidiaries is maintained using the appropriate local currency, Canadian Dollar at exchange rates prevailing on(“CAD”) as the balance sheet date. Non-monetaryfunctional currency. All assets and liabilities are translated into U.S. Dollars at thebalance sheet date, shareholders' equity is translated at historical rate in effect when the transaction occurred. Revenuesrates and expensesrevenue and expense accounts are translated at the spotaverage exchange rate onfor the dateyear or the transaction occurred. Exchangereporting period. The translation adjustments are reported as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the translation of monetary itemsfunctional currency are included in unrealized gain/loss on Foreign Exchange as Other Comprehensive Loss.the statements of operations.
The following table disclosesrelevant translation rates are as follows: for the datesthree months ended March 31, 2022 closing rate at 1.31524 US$:GBP, average rate at 1.342089 US$:GBP and exchangefor the year ended December 31, 2021 closing rate at 1.353583 US$: GBP, average rate at 1.375671 US$:GBP.
The relevant translation rates usedare as follows: for converting Canadian Dollar amounts to U.S. Dollar amounts disclosed in the balance sheetthree months ended March 31, 2022 closing rate at 1.2484 US$:CAD, average rate at 1.2614 US$:CAD and for the statement of operations.
year ended December 31, 2021 closing rate at 1.2794 US$: CAD, average rate at 1.2534 US$:CAD.
| 9 |
The spot exchange rate betweenLong-Lived Assets and Goodwill
In accordance with ASC 350-30-65, “Intangibles - Goodwill and Others”, the Canadian DollarCompany assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Factors the Company considers to be important which could trigger an impairment review include the following:
| · | Significant underperformance relative to expected historical or projected future operating results; |
| · | Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and |
| · | Significant negative industry or economic trends. |
When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the U.S. Dollarcarrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on December 31, 2020 closinga projected discounted cash flow method using a discount rate at 1.2754 US$: CAD, average rate at 1.3388 US$: CADdetermined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and for the three months ended June 30, 2021 closing rate at 1.2395 US$: CAD, average rate at 1.2249 US$.in projecting cash flows.
Income TaxesProperty and Equipment
Property and equipment are carried at historical cost less accumulated depreciation. Depreciation is based on the estimated service lives of the depreciable assets and is calculated using the straight-line method. Expenditures that increase the value or productive capacity of assets are capitalized. Fully depreciated assets are retained in the property and equipment, and accumulated depreciation accounts until they are removed from service. When property and equipment are retired, sold or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. Repairs and maintenance are expensed as incurred.
The estimated useful lives of property and equipment are generally as follows:
| Schedule of estimated useful lives | ||||
| Years | ||||
| Office furniture and fixtures | 4 | |||
| Plant and equipment | 4-8 | |||
| Leasehold Improvements | 10 | |||
| Motor Vehicles | 3 | |||
Revenue Recognition
The Company’s revenues are generated primarily from the sale of our products, which consist primarily of advanced technology solutions for integrated communications and security systems. At contract inception, we assess the goods and services promised in the contract with customers and identify a performance obligation for each. To determine the performance obligation, we consider all products and services promised in the contract regardless of whether they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not subject to significant judgment. We measure revenue as the amount of consideration expected to be received in exchange for transferring goods and services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria have been met.
| 10 |
The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
In accordance with ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient, which is to (1) clarify the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. There was no impact as a result of adopting this ASU on the financial statements and related disclosures. Based on the terms and conditions of the product arrangements, the Company believes that its products and services can be accounted for separately as its products and services have value to the Company’s customers on a stand-alone basis. When a transaction involves more than one product or service, revenue is allocated to each deliverable based on its relative fair value; otherwise, revenue is recognized as products are delivered or as services are provided over the term of the customer contract.
Contract liabilities is shown separately in the unaudited consolidated balance sheets as current liabilities. At March 31, 2022 and December 31, 2021, we had contract liabilities of $4,667,905 and $3,216,562, respectively.
Cost of Product Sales and Services
Cost of sales consists primarily of materials, airtime and overhead costs incurred internally and amounts incurred to contract manufacturers to produce our products, airtime and other implementation costs incurred to install our products and train customer personnel, and customer service and third-party original equipment manufacturer costs to provide continuing support to our customers. There are certain costs which are deferred and recorded as prepaids, until such revenue is recognized. Refer to revenue recognition above as to what constitutes deferred revenue.
Concentration of Credit Risk
The Company has no significant concentrations of credit risk.
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Related Parties
The Company accounts for income taxesrelated party transactions 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 changes850 (“Related Party Disclosures”). A party is considered to be related to the assetsCompany if the party directly or liabilities from year to year. In providing for deferred taxes,indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, considers tax regulationsits management, members of the jurisdictions inimmediate families of principal owners of the Company and its management and other parties with which the Company operates, estimatesmay deal if one party controls or can significantly influence the management or operating policies of future taxable income,the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and available tax planning strategies. If tax regulations, operating resultscan significantly influence the other to an extent that one or more of the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities maytransacting parties might be required. Valuation allowances are recordedprevented from fully pursuing its own separate interests is also a 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.party.
Accounting for DerivativesLeases
Effective January 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the consolidated balance sheet as both a right of use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right of use asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the right of use asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred.
In calculating the right of use asset and lease liability, the Company has elected to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term.
Derivative Financial Instruments
The Company evaluates all ofthe embedded conversion feature within its financialconvertible debt instruments under ASC 815-15 and ASC 815-40 to determine if such instruments are derivatives or contain features that qualifythe conversion feature meets the definition of a liability and, if so, whether to bifurcate the conversion feature and account for it as embedded derivatives.a separate derivative liability. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice formula pricing modelsmodel, in accordance with ASC 815-15 “Derivative and Hedging” to value the derivative instruments at inception and on subsequent valuation dates.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months ofafter the balance sheet date.
Beneficial Conversion Features
The Company evaluates the conversion feature for whether it was beneficial as described in ASC 470-30. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the shares of common stock at the commitment date to be received upon conversion.
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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 PronouncementsStock-based Compensation
There were no new accounting pronouncements issuedStock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or proposed bydirector is required to perform the Financial Accounting Standards Board duringservices in exchange for the three months ended June 30, 2021,award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and throughdirector services received in exchange for an award based on the grant-date fair value of the award.
Pursuant to ASC Topic 718, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of 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.compensation expense remains uncertain. The Company has no lease obligations.initially records compensation expense based on the fair value of the award at the reporting date. Further, ASC Topic 718, provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, such as the repricing of share options, which would revalue those options and the accounting for the cancellation of an equity award whether a replacement award or other valuable consideration is issued in conjunction with the cancellation. If not, the cancellation is viewed as a replacement and not a modification, with a repurchase price of $0.
The Company accounts for earnings per share pursuant to ASC 260, Earnings per Share, which requires disclosure on the financial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share are computed by dividing net income (loss) per shareby the weighted average number of common stockshares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share ofplus common stock is computed by dividingequivalents (if dilutive) related to stock options and warrants for each year. In periods where the Company has a net income (loss) by the sum of the weighted average number of common shares outstanding and theloss, all 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.securities are excluded.
For the three and six months ended June 30,March 31, 2021, there were no stock options outstanding. For the three and six months ended June 30,March 31, 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 common shares reserved for the potential conversion of the Company's convertible debt.
Recently Issued Accounting Pronouncements
In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The adoption of ASU 2016-16 did not have a material impact on the consolidated financial statements.
| 13 |
In January 2017, the FASB issued ASU 2017-04 Intangibles-Goodwill and Other (“ASC 350”): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under ASU 2017-04, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests for fiscal years beginning after December 15, 2019. The adoption of ASU 2017-04 did not have a material impact on the consolidated financial statements.
In July 2021, the FASB issued ASU No. 2021-05, Lessors—Certain Leases with Variable Lease Payments (Topic 842), Which requires a lessor to classify a lease with variable lease payments that do not depend on an index or rate (hereafter referred to as “variable payments”) as an operating lease on the commencement date of the lease if specified criteria are met. ASU 2021-05 is effective for the fiscal year beginning after December 15, 2022, including interim periods within that fiscal year. The Company expects that there would be no material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.
In November 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, issued by the Financial Accounting Standards Board. This ASU requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in the recognition of contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The Company expects that there would be no material impact on the Company’s condensed consolidated financial statements upon the adoption of this ASU.
Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.
NOTE 2 – REVENUE
The following table is a summary of the Company’s timing of revenue recognition for the three months ended March 31, 2022 and 2021:
| Schedule of timing of revenue recognition | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Timing of revenue recognition: | ||||||||
| Services and products transferred at a point in time | $ | 2,018,333 | $ | 0 | ||||
| Services and products transferred over time | 0 | 0 | ||||||
| Total revenue | $ | 2,018,333 | $ | 0 | ||||
The Company disaggregates revenue by source and geographic destination to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
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Revenue by source consisted of the following for the three months ended March 31, 2022 and 2021:
| Schedule of revenue by source consisted | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue by products and services: | ||||||||
| Products | $ | 397,627 | $ | 0 | ||||
| Services | 1,620,706 | 0 | ||||||
| Total revenue | $ | 2,018,333 | $ | 0 | ||||
Revenue by geographic destination consisted of the following for the three months ended March 31, 2022 and 2021:
| Schedule of revenue by geographic destination | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue by geography: | ||||||||
| North America | $ | 161,372 | $ | 0 | ||||
| International | 1,856,961 | 0 | ||||||
| Total revenue | $ | 2,018,333 | $ | 0 | ||||
Contract Balances
The Company records contract assets when it has a right to consideration and records accounts receivable when it has an unconditional right to consideration. Contract liabilities consist of cash payments received (or unconditional rights to receive cash) in advance of fulfilling performance obligations. As of March 31, 2022, the Company did not have a contract assets balance.
The following table is a summary of the Company’s opening and closing balances of contract liabilities related to contracts with customers.
| Schedule of contract liabilities related to contracts with customers | ||||
| Total | ||||
| Balance at December 31, 2021 | $ | 3,216,562 | ||
| Additions through advance billings to or payments from vendors | 3,308,304 | |||
| Revenue recognized from current period advance billings to or payments from vendors | (1,856,961 | ) | ||
| Balance at March 31, 2022 | $ | 4,667,905 | ||
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NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of March 31, 2022 and December 31, 2021:
| Schedule of accounts receivable | ||||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accounts receivable | $ | 6,747,200 | $ | 4,223,990 | ||||
| Less: Allowance for doubtful accounts | 0 | 0 | ||||||
| Total accounts receivable | $ | 6,747,200 | $ | 4,223,990 | ||||
NOTE 4 – INVENTORY
Inventory consisted of the following as of March 31, 2022 and December 31, 2021:
| Schedule of inventory | ||||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Raw materials | $ | 525,516 | $ | 416,180 | ||||
| Work in progress | 1,310,470 | 436,891 | ||||||
| Finished goods | 46,211 | 11,948 | ||||||
| Total inventory | 1,882,197 | 865,019 | ||||||
| Reserve | 0 | 0 | ||||||
| Total inventory, net | $ | 1,882,197 | $ | 865,019 | ||||
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of March 31, 2022 and December 31, 2021:
| Schedule of property, plant and equipment | ||||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Property and equipment | $ | 2,114,106 | $ | 1,867,794 | ||||
| Leasehold improvements | 46,934 | 42,396 | ||||||
| 2,067,172 | 1,910,190 | |||||||
| Less - accumulated depreciation | (285,384 | ) | (122,366 | ) | ||||
| $ | 1,781,788 | $ | 1,787,824 | |||||
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NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following as of March 31, 2022 and December 31, 2021:
| Schedule of accounts payable and accrued liabilities | ||||||||
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accounts payable | $ | 6,470,247 | $ | 7,209,945 | ||||
| Accrued liabilities | 684,523 | 634,326 | ||||||
| Total accounts payable and accrued expenses | $ | 7,154,770 | $ | 7,844,271 | ||||
NOTE 7 – LEASES
We adopted ASC 842 “Leases” using the modified retrospective approach, electing the practical expedient that allows us not to restate our comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption.
The following was included in our balance sheet as of March 31, 2022:
| Schedule of operating leases | ||||
| Operating leases | March 31, 2022 | |||
| Assets | ||||
| ROU operating lease assets | $ | 3,061,164 | ||
| Liabilities | ||||
| Current portion of operating lease | $ | 360,270 | ||
| Operating lease, net of current portion | $ | 3,158,040 | ||
| Total operating lease liabilities | $ | 3,518,310 | ||
The weighted average remaining lease term and weighted average discount rate at March 31, 2022 were as follows:
| Schedule of weighted average remaining lease term and weighted average discount rate | ||||
| Weighted average remaining lease term (years) | March 31, 2022 | |||
| Operating leases | 8.03 | |||
| Weighted average discount rate | ||||
| Operating leases | 6.00% | |||
Operating Leases
On March 9, 2022, the Company entered into an operating lease agreement to rent office space in Houston, Texas. This ten-year agreement commenced March 9. 2022 with an annual rent of approximately $81,000 with the first twelve months rent free.
| 17 |
The following table reconciles future minimum operating lease payments to the discounted lease liability as of March 31, 2022:
| Schedule of future minimum operating lease payments | ||||
| 2022 | 300,939 | |||
| 2023 | 558,317 | |||
| 2024 | 538,312 | |||
| 2025 | 549,128 | |||
| 2026 and later | 2,274,688 | |||
| Total lease payments | 4,221,384 | |||
| Less imputed interest | (703,074 | ) | ||
| Total lease obligations | 3,518,310 | |||
| Less current obligations | (360,270 | ) | ||
| Long-term lease obligations | $ | 3,158,040 | ||
NOTE 8 – GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table sets forth the changes in the carrying amount of goodwill for the three months ended March 31, 2022:
| Schedule of changes in carrying amount of goodwill | ||||
| Total | ||||
| Balance at December 31, 2021 | $ | 17,088,501 | ||
| Exchange rate variation | (287,309 | ) | ||
| Balance at March 31, 2022 | $ | 16,801,192 | ||
Intangible Assets - Intrusion Detection Intellectual Property
The Company relies on patent laws and restrictions on disclosure to protect its intellectual property rights. As of March 31, 2022, the Company held three U.S. and foreign patents on its intrusion detection technology, which expire in calendar years 2025 through 2034 (depending on the payment of maintenance fees).
The DPTI issued patents cover a System and Method for Brillouin Analysis, a System and Method for Resolution Enhancement of a Distributed Sensor, and a Flexible Fiber Optic Deformation System Sensor and Method. Maintenance of intellectual property rights and the protection thereof is important to our business. Any patents that may be issued may not sufficiently protect the Company's intellectual property and third parties may challenge any issued patents. Other parties may independently develop similar or competing technology or design around any patents that may be issued to the Company. The Company cannot be certain that the steps it has taken will prevent the misappropriation of its intellectual property, particularly in foreign countries where the laws may not protect proprietary rights as fully as in the United States. Further, the Company may be required to enforce its intellectual property or other proprietary rights through litigation, which, regardless of success, could result in substantial costs and diversion of management's attention. Additionally, there may be existing patents of which the Company is unaware that could be pertinent to its business, and it is not possible to know whether there are patent applications pending that the Company's products might infringe upon, since these applications are often not publicly available until a patent is issued or published.
| 18 |
For the three months ended March 31, 2022 and 2021, the Company amortized $DEBENTURE12,757 and $12,757, respectively. Future amortization of intangible assets is as follows:
| Schedule of future amortization of intangible assets | ||||
| 2022 | $ | 38,271 | ||
| 2023 | 51,028 | |||
| 2024 | 51,028 | |||
| 2025 | 51,028 | |||
| 2026 | 51,028 | |||
| Thereafter | 87,822 | |||
| Total | $ | 330,205 | ||
NOTE 9 – DEBT AGREEMENTS
Secured Debenture
DPTI issued a convertible Debenture to the University in exchange for the Patents assigned to the Company, in the amount of Canadian $1,500,000, or US $1,491,923 on December 16, 2010, the date of the Debenture. On April 24, 2017 DPTI issued a replacement secured term Debenture in the same C$1,500,000 amount as the original Debenture. The interest rate is the Bank of Canada Prime overnight rate plus 1% per annum. The Debenture had an initial required payment of Canadian $42,000 (US$33,385) due on April 24, 2018 for reimbursement to the University of its research and development costs, and this has been paid. Interest-only maintenance payments are due annually starting after April 24, 2018. Payment of the principal begins on the earlier of (a) three years following two consecutive quarters of positive earnings before interest, taxes, depreciation and amortization, (b) six years from April 24, 2017, or (c) in the event DPTI fails to raise defined capital amounts or secure defined contract amounts by April 24 in the years 2018, 2019, and 2020. The Company has raised funds in excess of the amount required by April 24, 2018. The principal repayment amounts will be due quarterly over a six-year period in the amount of Canadian Dollars $62,500. Based on the exchange rate between the Canadian Dollar and the U.S. Dollar on June 30, 2021,March 31, 2022, the quarterly principal repayment amounts will be US$49,750. The Debenture is secured by the Patents assigned by the University to DPTI by an Assignment Agreement on December 16, 2010. DPTI has pledged the Patents, and granted a lien on them pursuant to an Escrow Agreement dated April 24, 2017, between DPTI and the University.
The Debenture was initially recorded at the $1,491,923 equivalent US Dollar amount of Canadian $1,500,000 as of December 16, 2010, the date of the original Debenture. The liability is being adjusted quarterly based on the current exchange value of the Canadian dollar to the US dollar at the end of each quarter. The adjustment is recorded as unrealized gain or loss in the change of the value of the two currencies during the quarter. The amounts recorded as an unrealized loss for the three months ended June 30,March 31, 2022 and 2021, and 2020, were $16,15429,297 and $39,04639,04617,909 respectively. These amounts are included in Accumulated Other Comprehensive Loss in the Equity section of the consolidated balance sheet, and as Unrealized Loss on Foreign Exchange on the consolidated statement of comprehensive loss. The Debenture also includes a provision requiring DPTI to pay the University a two percent (2%)2% royalty on sales of any and all products or services which incorporate the Patents for a period of five years from April 24, 2018.
For the three months ended June 30,March 31, 2022, and 2021, and 2020, the Company recorded interest expense of $13,46312,617 and $12,25513,283, respectively.
As of June 30, 2021March 31, 2022 the debenture liability totaled $1,210,1551,201,661, all of which was long term.
Future minimum required payments over the next 5 years and thereafter are as follows:
| Future minimum required payments | ||||
| Period ending June 30, | ||||
| 2022 | $ | 0 | ||
| 2023 | 0 | |||
| 2024 | 0 | |||
| 2025 | 0 | |||
| 2026 and after | 1,210,155 | |||
| Total | $ | 1,210,155 | ||
| Schedule of future minimum debt payments | ||||
| Period ending March 31, | ||||
| 2023 | $ | 0 | ||
| 2024 | 0 | |||
| 2025 | 0 | |||
| 2026 | 0 | |||
| 2027 and after | 1,201,661 | |||
| Total | $ | 1,201,661 |
NOTE 3 – CONVERTIBLE DEBT SECURITIESConvertible Debt Securities
The Company uses the Black-Scholes Model to calculate the derivative value of its convertible debt. The valuation result generated by this pricing model is necessarily driven by the value of the underlying common stock incorporated into the model. The values of the common stock used were based on the price at the date of issue of the debt security as of June 30, 2021.March 31, 2022. Management determined the expected volatility of %172.27%, a risk-free rate of interest of %1.63%, and contractual lives of the debt varying from six months to two years. The table below details the Company's ninefour outstanding convertible notes, with totals for the face amount, amortization of discount, initial loss, change in the fair market value, and the derivative liability.
| Schedule of convertible debt | ||||||||||||||||||||
| Face | Debt | Initial | Change | Derivative Balance | ||||||||||||||||
| Amount | Discount | Loss | in FMV | 6/30/2021 | ||||||||||||||||
| $ | 90,228 | $ | 0 | $ | 58,959 | $ | (51,635 | ) | $ | 78,488 | ||||||||||
| 162,150 | 0 | 74,429 | (84,378 | ) | 152,222 | |||||||||||||||
| 72,488 | 0 | 11,381 | (6,399 | ) | 112,674 | |||||||||||||||
| 53,397 | 0 | 5,651 | 13,592 | 94,616 | ||||||||||||||||
| 53,864 | 0 | 28,566 | (5,860 | ) | 69,333 | |||||||||||||||
| 18,613 | 0 | 16,558 | (1,142 | ) | 13,512 | |||||||||||||||
| 40,000 | 0 | 10,605 | (4,416 | ) | 51,397 | |||||||||||||||
| 42,350 | 22,302 | 7,350 | (4,887 | ) | 54,120 | |||||||||||||||
| 94,200 | 57,316 | 19,200 | (8,263 | ) | 105,683 | |||||||||||||||
| 76,200 | 58,036 | 16,200 | (5,915 | ) | 86,548 | |||||||||||||||
| 64,200 | 49,073 | 14,200 | 74,788 | 74,788 | ||||||||||||||||
| 825,000 | 779,194 | 203,500 | 0 | 0 | ||||||||||||||||
| Subtotal | 1,584,574 | 965,921 | 466,599 | (235,737 | ) | 893,381 | ||||||||||||||
| Transaction expense | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
| $ | 1,584,574 | $ | 965,921 | $ | 466,599 | $ | (235,737 | ) | $ | 893,381 | ||||||||||
On April 5, 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 $64,200 with a $10,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of the Company's common stock at a conversion price equal to 81% of the lowest two trading prices of the Company's common stock during the 10 prior trading days. The Company received $50,000 net cash.
On 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.
| Schedule of debt | ||||||||||||||||||||
| Face | Debt | Initial | Change | Derivative Balance | ||||||||||||||||
| Amount | Discount | Loss | in FMV | 12/31/2021 | ||||||||||||||||
| $ | 90,228 | $ | 0 | $ | 58,959 | $ | (29,258 | ) | $ | 99,112 | ||||||||||
| 162,150 | 0 | 74,429 | (52,579 | ) | 178,116 | |||||||||||||||
| 72,488 | 0 | 11,381 | (23,505 | ) | 79,625 | |||||||||||||||
| 53,397 | 0 | 7,850 | (19,765 | ) | 51,796 | |||||||||||||||
| Subtotal | 378,263 | – | 152,619 | (125,107 | ) | 408,649 | ||||||||||||||
| Transaction expense | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
| $ | 378,263 | $ | 0 | $ | 152,619 | $ | (125,107 | ) | $ | 408,649 | ||||||||||
As of June 30,March 31, 2022 and December 31, 2021 and 2020 respectively, there was $1,584,574378,263 and $1,072,663931,158 of convertible debt outstanding, net of debt discount of $965,9210, and $1,31335,525,. As of June 30,March 31, 2022 and December 31, 2021 and 2020 respectively, there was derivative liability of $893,381533,753 and $1,232,3441,220,880 related to convertible debt securities.
NOTE 410 - STOCKHOLDERS' DEFICIT
As of June 30, 2021,March 31, 2022, there were shares of common stock and shares of preferred stock issued and outstanding.
NOTE 5 -
| 20 |
Preferred Stock
In accordance with the Company’s Certificate of Incorporation, the Company has authorized a total of shares of preferred stock, par value $ per share, for all classes. As of March 31, 2022, and December 31, 2021, there were total preferred shares issued and outstanding for all classes.
During the three months ended March 31, 2022, the Company issued no shares of preferred stock.
Common Stock
In accordance with the Company’s bylaws, the Company has authorized a total of shares of common stock, par value $ per share. As of March 31, 2022 and December 31, 2021, there were and common shares issued and outstanding.
During the three months ended March 31, 2022, the Company issued the following shares of common stock:
On January 12, 2022, the Company issued shares of common stock for $1,150,000.
On January 21, 2022, the Company issued shares of common stock for $1,150,000.
On February 7, 2022, the Company issued shares of common stock for $500,000.
On March 3, 2022, the Company issued shares of common stock for $500,000.
On March 7, 2022, the Company issued shares of common stock for $2,500,000.
On March 14, 2022, the Company issued shares of common stock for $400,000.
On March 23, 2022, the Company issued shares of common stock for $1,500,000.
Stock Options
During the three months ended March 31, 2022, the Company did not issue any stock options and had stock options outstanding at March 31, 2022.
Potential Royalty PaymentsPublic Offerings
On November 9, 2021, we entered an Equity Financing Agreement (the “Equity Financing Agreement”) and Registration Rights Agreement (the “GHS Registration Rights Agreement”) with GHS, pursuant to which GHS agreed to purchase up to $30,000,000 in shares of our Common Stock, from time to time over the course of 24 months (the “Contract Period”) after effectiveness of a registration statement on Form S-1 (the “Registration Statement”) of the underlying shares of Common Stock.
The Company, in considerationGHS Registration Rights Agreement provides that we shall (i) use our best efforts to file with the SEC a Registration Statement within 45 days of the termsdate of the debentureGHS Registration Rights Agreement; and (ii) have the Registration Statement declared effective by the SEC within 30 days after the date the GHS Registration Statement is filed with the SEC, but in no event more than 90 days after the GHS Registration Statement is filed.
Pursuant to the UniversityEquity Financing Agreement, on January 12, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, shares of New Brunswick, shall payCommon Stock for total proceeds to us, net of discounts, of $1,150,000, at an effective price of $0.054124 per share (the “Second EFA Closing”). We received approximately $1,033,975 in net proceeds from the University a two percent royalty on sales of anySecond EFA Closing after deducting the fees and all products or services which incorporateother estimated offering expenses payable by us. We used the Company's patentsnet proceeds from the Second EFA Closing for a period of five years from April 24, 2018.
working capital and for general corporate purposes.
Pursuant to the Equity Financing Agreement, on January 21, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, shares of Common Stock for total proceeds to us, net of discounts, of $1,150,000, at an effective price of $0.037812 per share (the “Legal MattersThird EFA Closing”). We received approximately $1,033,975 in net proceeds from the Third EFA Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Third EFA Closing for working capital and for general corporate purposes.
Pursuant to the Equity Financing Agreement, on February 7, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, shares of Common Stock for total proceeds to us, net of discounts, of $500,000, at an effective price of $0.0342884 per share (the “Carebourn Capital, L.P.Fourth EFA Closing”). We received approximately $448,975 in net proceeds from the Fourth EFA Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Fourth EFA Closing for working capital and for general corporate purposes.
On January 29, 2021, Carebourn Capital, L.P. (“Carebourn”) commenced suit against the Company in the 4th Judicial District (Hennepin County District Court) (Minnesota), alleging the Company breached the terms and conditions of two convertible promissory notes and accompanying securities purchase agreements Carebourn and the Company entered into on July 17, 2018 and July 24, 2018, respectively.
Also on January 29, 2021, Carebourn moved for a temporary injunction to enjoin the Company from transferring anyFebruary 21, 2022, we sold shares of its common stock to any third parties. Following submissionour Common Stock at $0.032982 per share for total consideration of briefing by both parties and oral arguments on Carebourn’s motion, on March 17, 2021, the Court denied Carebourn’s motion for a temporary injunction.
On April 14, 2021, Carebourn filed an amended complaint and asserted new claims. On May 13, 2021, the Company filed a motion to dismiss Carebourn’s amended complaint, arguing that Carebourn is conducting itself as an unregistered dealer, in violation of Section 15(a) of the Securities and Exchange Act of 1934 (the “Act”), and, pursuant to Section 29(b) of the Act, the Company is entitled to have all contracts arising under the unlawful securities transaction declared void ab initio and seek rescissionary damages for any unlawful securities transactions effected by Carebourn.
As of the date hereof, a ruling has not been issued on the foregoing motions to dismiss filed by the Company and other defendants. Furthermore, as of the date hereof, the Company and Carebourn are conducting discovery. The Company intends to defend itself against the allegations asserted in Carebourn’s amended complaint and interpose the defenses provided under the Act, including but not limited to asserting that Carebourn is an unregistered dealer acting in violation of Section 15(a) and, pursuant to Section 29(b), the Company interposing its right to rescind the unlawful securities contracts in their entirety and, furthermore, seek rescissionary damages for any unlawful securities transactions effected by Carebourn. The Company contends that its arguments are brought in good faith, particularly in light of recent SEC enforcement actions and the SEC’s ongoing investigation against Carebourn, among other parties, for violations of federal securities laws, including violations of Section 15(a) of the Act. See U.S. Securities and Exchange Commission v. Carebourn Capital, LP et al, Case No. 1:20-cv-07162 (N.D. Ill.)$2,500,000.
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 Former Officers’ complaint. if the case progresses the Company will file countersuits against all plaintiffs.
More Capital, LLC
On June 29, 2021, More Capital, LLC (“More”) commenced suit against the Company, et al., in the 4th Judicial District (Hennepin County District Court) (Minnesota), alleging the Company breached the terms and conditions of a convertible promissory note and accompanying securities purchase agreement More and the Company entered into on August 20, 2018.
On July 20, 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.
The Company intends to defend itself against the allegations asserted in More’s complaint and interpose the defenses provided under the Act, including but not limited to asserting that More is an unregistered dealer acting in violation of Section 15(a) of the Act and, pursuant to Section 29(b) of the Act, the Company interposing its right to rescind the unlawful securities contracts in their entirety and, furthermore, seek rescissionary damages for any unlawful securities transactions effected by More. The Company contends that its arguments are brought in good faith, particularly in light of recent SEC enforcement actions and the SEC’s ongoing investigation against More, among other parties, for violations of federal securities laws, including violations of Section 15(a) of the Act. See U.S. Securities and Exchange Commission v. Carebourn Capital, LP et al, Case No. 1:20-cv-07162 (N.D. Ill.).
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business, financial condition and operating results.
COVID-19
On March 11, 2020,3, 2022, we sold shares of our Common Stock at $0.0301576 per share for total consideration of $500,000.
On March 14, 2022, we sold shares of our Common Stock at $0.071208 per share for total consideration of $400,000.
Pursuant to the World Health Organization announced that infections of the novel Coronavirus (COVID-19) had become pandemic, andEquity Financing Agreement, 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 States23, 2022, we 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 expectGHS agreed 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 June 30, 2021, the Company held 3 U.S.would issue and foreign patents on its intrusion detection technology, which expiresell to GHS, and GHS would purchase from us, shares of Common Stock for total proceeds to us, net of discounts, of $1,500,000, at an effective price of $0.056396 per share (the “Fifth EFA Closing”). We received approximately $1,348,975 in calendar years 2025 through 2034 (depending onnet proceeds from the payment of maintenance fees).
The DPTI issued patents cover a SystemFifth EFA Closing after deducting the fees and Methodother estimated offering expenses payable by us. We used the net proceeds from the Fifth EFA Closing for Brillouin Analysis, a Systemworking capital 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.general corporate purposes.
For the three months ended June 30, 2021 and 2020, the Company amortized $12,757 and $12,757, respectively. Future amortization of intangible assets is as follows:
| Schedule of Intangible Assets | ||||
| 2021 | $ | 25,514 | ||
| 2022 | 51,028 | |||
| 2023 | 51,028 | |||
| 2024 | 51,028 | |||
| 2025 | 51,028 | |||
| Thereafter | 138,850 | |||
| Total | $ | 368,476 |
NOTE 711 – RELATED PARTY TRANSACTIONS
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include a) affiliates of the Company; b) Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
During the three months ended June 30,March 31, 2022 and 2021, and 2020, the Company’s Chief Executive Officer advanced personal funds in the amount of $0$0 and $33,820$329 for Company expenses. As of June 30, 2021,March 31, 2022, the Company’s Chief Executive Officer is owed a total of $98,930$0 for advanced personal funds.
NOTE 8 –12 - PREFERRED STOCKCOMMITMENTS & CONTINGENCIES
In accordance with the Company’s Certificate of Incorporation, the Company has authorized a total of shares of preferred stock, par value $ per share, for all classes. As of June 30, 2021, and December 31, 2020, there were total preferred shares issued and outstanding for all classes.Potential Royalty Payments
DuringThe Company, in consideration of the three months ended June 30, 2021,terms of the Company issued no sharesdebenture to the University of preferred stock.New Brunswick, shall pay to the University a two percent royalty on sales of any and all products or services which incorporate the Company's patents for a period of five years from April 24, 2018.
NOTE 9 – COMMON STOCKLegal Matters
In accordance withDarkPulse, Inc. v. Twitter, Inc.
As disclosed in greater detail in the Company’s bylaws,Form 10-K, filed April 15, 2022, the Company’s investigation of the Investor News matter remains ongoing.
Carebourn Capital, L.P. v. DarkPulse, Inc.
As disclosed in greater detail in the Company’s Form 10-K, filed April 15, 2022, the Company has authorized a totalremains in active litigation with Carebourn Capital, L.P. (“Carebourn”). The remainder of shares of common stock, par value $ per share. As of June 30, 2021 and December 31, 2020, there were and common shares issued and outstanding.
Duringthis disclosure will address all material updates since the three months ended June 30, 2021, the Company issued the following shares of common stock:aforementioned Form 10-K.
On April 15, 2021,11, 2022, the Court held a hearing on Carebourn’s Motion to Compel DarkPulse. As of the date hereof, no decision has been rendered on Carebourn’s motion. On April 14, 2022, the Court granted the Company’s Motion to Enforce the Protective Order, and simultaneously denied Carebourn’s request for reconsideration of Carebourn’s Motion for Dispositive Relief. On April 27, 2022, the Court awarded the Company issued an aggregate$18,858.18 in attorneys’ fees from Carebourn in connection with the Court’s April 14, 2022 decision on the Company’s Motion to Compel Carebourn. Carebourn has been ordered to pay the $18,858.18 on or before July 26, 2022.
The Company remains committed to actively litigating its claims for relief under the Securities Exchange Act of shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020,1934.
More Capital, LLC v. DarkPulse, Inc. et al
As disclosed in greater detail in the amountCompany’s Form 10-K, filed April 15, 2022, the Company remains in active litigation with More Capital, LLC (“More”). The remainder of $47,850 and interest of $2,153.25.this disclosure will address all material updates since the aforementioned Form 10-K.
On April 30, 2021,11, 2014, the Court held a hearing on the Company’s Motion to Compel More and More’s Motion for Summary Judgment. As of the date hereof, no decision has been rendered on either of the aforesaid motions.
The Company remains committed to actively litigating its claims for relief under the Securities Exchange Act of 1934.
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Goodman et al. v. DarkPulse, Inc.
As disclosed in greater detail in the Company’s Form 10-K, filed April 15, 2022, the Company issued sharesremains in active litigation with Stephen Goodman (“Goodman”), Mark Banash (“Banash”), and David Singer (“Singer”) (Goodman, Banash, and Singer together, the “Series D Plaintiffs”). As of common stock as compensation for loan acquisition costs associatedApril 15, 2022, there has been no material updates to this litigation.
The Company remains committed to actively litigating its claims and defenses against the Series D Plaintiffs.
DarkPulse, Inc. v. FirstFire Global Opportunities Fund, LLC, and Eli Fireman (SDNY)
As disclosed in greater detail in the Company’s Form 10-K, filed April 15, 2022, the Company remains in active litigation with FirstFire Global Opportunities Fund, LLC (“FirstFire”), and Eli Fireman (“Fireman”) (FirstFire and Fireman together, the note issued on“FirstFire Parties”). The remainder of this disclosure will address all material updates since the same date for the amount of $825,000.aforementioned Form 10-K.
On June 4, 2021,May 5, 2022, the Company issued an aggregate of shares of common stock uponfiled its amended complaint (“FirstFire Amended Complaint”). Accordingly, the conversion of convertible debt, as issuedFirstFire Parties’ answer or motion in response to the FirstFire Amended Complaint is due on September 25, 2018,or before May 19, 2022.
FirstFire Global Opportunities Fund, LLC v. DarkPulse, Inc. (Del. Chancery Court)
As disclosed in greater detail in the amount of $76,656.83Company’s Form 10-K, filed April 15, 2022, there are no material updates to this litigation and interest of $260.61.the Company maintains its view that the FirstFire Delaware Chancery matter is fully disclosed. Absent any future material developments, no further disclosures will be made about the FirstFire Delaware Chancery matter.
NOTE 10 – STOCK OPTIONSDarkPulse, Inc. v. EMA Financial, LLC et al
DuringAs disclosed in greater detail in the three months ended June 30, 2021,Company’s Form 10-K, filed April 15, 2022, the Company did t issueremains in active litigation with EMA Financial, LLC (“EMA”), EMA Group, Inc. (“EMA Group”), and Felicia Preston (“Preston”) (EMA, EMA Group, and Preston together, the “EMA Parties”). The remainder of this disclosure will address all material updates since the aforementioned Form 10-K.
On March 28, 2022, the Company filed its first amended complaint against the EMA Parties (the “EMA Amended Complaint”). On April 22, 2022, the Company and the EMA Parties entered into a Stipulation, which the Court so ordered on May 3, 2022, and established the EMA Parties were required to file and serve their answer and/or pre-motion letter for a motion under Rule 12 to the EMA Amended Complaint on or before June 21, 2022.
The Company remains committed to actively litigating its claims for relief under the Securities Exchange Act of 1934.
From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any stock optionspending legal proceeding or litigation and, hadto the best of our knowledge, no stock options outstanding at June 30, 2021.governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business, financial condition and operating results.
NOTE 1113 – 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 July 12, 2021,April 8, 2022, the Company issued an aggregate of 1,784,14623,746,816 shares of common stock upon the conversion of convertible debt, as issued on January 12, 2021, in the amount of $42,350.for $1,000,000.
On July 14, 2021,May 3, 2022, the Company issued an aggregate of 45,037,11529,522,276 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $93,864 and interest of $26,246.for $1,000,000.
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 July 19, 2021, the Company issued an aggregate of 2,898,382 shares of common stock upon the conversion of convertible debt, as issued on October 7, 2020, in the amount of $10,497 and interest of $6,748.
On August 3, 2021, the Company entered into an Engagement Agreement and Terms and Conditions (the “Agreement”) with Energy & Industrial Advisory Partners, LLC ( “EIAP”). Pursuant to the Agreement, the Company has engaged EIAP to serve as an advisor to the Company in the proposed transaction for agreed target company or any of its subsidiaries and/or the whole or any part of its or their business or assets (the “Transaction”). EIAP will receive a monthly retainer of $10,000 per month payable upon receipt of an invoice. EIAP will also receive a consulting bonus fee of $350,000 payable upon completion of the Transaction. In the event of successful completion of the Transaction as a result of EIAP’s involvement, EIAP agrees to deduct the total retainer fee from the consulting bonus fee. The 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 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 August 9, 2021, the Company entered into a Share Purchase Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”), pursuant to which the Company purchased from the Sellers all of the issued and outstanding equity interests of Optilan HoldCo 3 Limited, a private company incorporated in England and Wales (“Optilan”) for £1.00 and also a commitment to enter into the Subscription (as defined below). As of August 9, 2021, the Company owns all of the equity interests of Optilan.
On August 9, 2021, the Company entered into a Subscription Agreement (the “Subscription”) with Optilan, pursuant to which the Company agreed to purchase an aggregate of 4,000,000 Ordinary Shares of Optilan (the “Shares”) for an aggregate purchase price of £4,000,000.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain certain forward-looking statements. Historical results may not indicate future performance. Our forward-looking statements reflect our current views about future events; are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2020.2021. 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.
BackgroundBusiness Overview
DarkPulse, Inc., a Delaware corporation (the “Company” or “DarkPulse”), is a technology-securitytechnology company created to develop, market,focused on the manufacture, sale, installation, and distributemonitoring of laser sensing systems based on its patented BOTDA dark-pulse sensor technology. The Company develops, markets, and distributes a full suite of engineering, monitoring, installation and security management solutions for critical infrastructure/key resources to both industries and governments. Coupled with our patented BOTDA dark-pulse technology (the “DarkPulse Technology”), DarkPulse provides its customers a comprehensive data stream of critical metrics for assessing the health and security of their infrastructure. Our comprehensive system provides forsystems provide rapid, precise analysis and responsive activities predetermined by the end-user customer. OurThe Company’s activities since inception have consisted of developing various solutions, obtaining patents and trademarks related to its technology, raising capital, acquisition of companies deemed to expand global operations and/or capabilities, creating key partnerships to expand our suite of products and services. Our activities have evolved to a sales-focused mission since the successful completion of our BOTDA system in December 2020.
Headquartered in New York, DarkPulse is a globally based technology company with presence in United Kingdom, India, Dubai, Russian Federation, Turkey, Azerbaijan, Iraq, Libya, Egypt, United States and Canada. In addition to the Company’s BOTDA systems, through a series of strategic acquisitions the Company offers the manufacture, sale, installation, and monitoring of laser sensing systems, O & G pipeline leak detection, physical security services, telecommunications and satellite communications services, drone and rover systems, and BDaaS. The Company is focused on expanding services through acquisitions and partnerships to address global infrastructure and critical environmental resource challenges. DarkPulse offers a full suite of engineering and environmental solutions that provide safety and security infrastructure projects. The sensing and monitoring capabilities offered by DarkPulse and our subsidiary companies operate in the Air, Land, Sea. Our patented technology provides rapid, precise analysis to protect and safeguard oil and gas pipelines above or below ground, physical security countermeasures, mining operations, and other critical infrastructure / key resources subject to vulnerability or risk. Our patented Brillouin scattering distributed fiber sensing system is best in class. The Company is able to monitor areas in around critical infrastructure buried or above ground including pipelines 100km or more in length and/ or localized pipes as small as 8 CM DIA, detecting internal anomalies before catastrophic failure. We are developing an Intelligent Rock Bolt, to prevent causalities and fatalities in mining operations and include a real time sensor system that can detect the location & movement of personnel & equipment throughout a mining operation. We monitor airflow, air quality, temperature, seismic events, etc. Our sensors cover extended areas, protecting an area from intrusion by detecting events at any location along the sensing cable. Working safely every day is our first core value and employees at DarkPulse and our subsidiary companies are recognized experts in their fields, providing comprehensive services for all our clients' needs.
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Our Operating Units
Our operating units consist of, Optilan, a company headquartered in Coventry, United Kingdom whose focus is in telecommunications, energy, rail, critical network infrastructure, pipeline integrity systems, renewables and security; Remote Intelligence, a company headquartered in Pennsylvania who provides unmanned aerial drone and UGC (unmanned ground crawler) services to a variety of clients from industrial mapping and ecosystem services, to search and rescue, to pipeline security; Wildlife Specialists, a company headquartered in Pennsylvania who provides clients with comprehensive wildlife and environmental assessment, planning, and monitoring services; TerraData Unmanned, a company headquartered in Florida who custom manufactures NDAA compliant drones and unmanned ground crawlers to meet the needs of its customers; and TJM West Electronics, a company headquartered in Arizona who is a U.S. manufacturer and test of advanced electronics, cables and sub-assemblies specializing in advanced package and complex CCA and hardware.
Recent Events
Financings
On January 4,November 9, 2021, we entered into a securities purchase agreement with Geneva Roth Remark Holdings, Inc. (“Geneva”) issuing to Geneva a convertible promissory note in the aggregate principal amount of $42,350 with a $3,850 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 8% per annum and may be converted into common shares of the Company's common stock at a conversion price equal to 70% of the lowest trading price of our common stock during the 20 prior trading days. We received $35,000 net cash.
On February 3, 2021, we entered into a securities purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $94,200 with a $15,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of our common stock at a conversion price equal to 81% of the lowest two trading prices of our common stock during the 10 prior trading days. We received $75,000 net cash.
On February 18, 2021, we entered into a securities purchase agreement with Geneva issuing to Geneva a convertible promissory note in the aggregate principal amount of $76,200 with a $12,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of our common stock at a conversion price equal to 81% of the lowest two trading prices of our common stock during the 10 prior trading days. We received $60,000 net cash.
On April 5, 2021, the Company entered into a securities purchase agreement with Geneva Roth issuing to Geneva a convertible promissory note in the aggregate principal amount of $64,200 with a $10,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of the Company's common stock at a conversion price equal to 81% of the lowest 2 trading prices of the Company's common stock during the 10 prior trading days. The Company received $50,000 net cash.
On April 26, 2021, we entered a Securities Purchasean Equity Financing Agreement (the “SPAEquity Financing Agreement”) and Registration Rights Agreement (the “GHS Registration Rights Agreement”) with FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, a Delaware limited liability company (the “FirstFire”),GHS, pursuant to which we issuedGHS agreed to FirstFire a Convertible Promissory Notepurchase up to $30,000,000 in the principal amount of $825,000 (the “FirstFire Note”). The purchase price of the FirstFire Note is $750,000. The FirstFire Note matures on January 26, 2022 upon which time all accrued and unpaid interest will be due and payable. Interest accrues on the FirstFire Note at 10% per annum guaranteed until the FirstFire Note becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The FirstFire Note is convertible at any time after 180 days from issuance, upon the election of the FirstFire, into shares of our Common Stock, at $0.015 per share. The FirstFire Note is subjectfrom time to various “Eventstime over the course of Default,24 months (the “Contract Period” 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) after effectiveness of a DTC “chill”registration statement on our shares, an additional discount of 10% will apply to the conversion price while the “chill” is in effect. Upon the issuanceForm S-1 (the “Registration Statement”) of the FirstFire Note, we have initially agreed to reserve 550,000,000underlying shares of Common Stock.
The GHS Registration Rights Agreement provides that we shall (i) use our best efforts to file with the Commission an S-1SEC a Registration Statement within 9045 days of the date of the GHS Registration Rights Agreement to register the shares into which the FirstFire Note is convertible;Agreement; and (ii) have the Registration Statement declared effective by the CommissionSEC within 18030 days after the date the GHS Registration Statement is filed with the Commission.SEC, but in no event more than 90 days after the GHS Registration Statement is filed.
Pursuant to the Equity Financing Agreement, on January 12, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 23,372,430 shares of Common Stock for total proceeds to us, net of discounts, of $1,150,000, at an effective price of $0.054124 per share (the “Second EFA Closing”). We received approximately $1,033,975 in net proceeds from the Second EFA Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Second EFA Closing for working capital and for general corporate purposes.
Pursuant to the Equity Financing Agreement, on January 21, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 33,454,988 shares of Common Stock for total proceeds to us, net of discounts, of $1,150,000, at an effective price of $0.037812 per share (the “Third EFA Closing”). We received approximately $1,033,975 in net proceeds from the Third EFA Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Third EFA Closing for working capital and for general corporate purposes.
Pursuant to the Equity Financing Agreement, on February 7, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 16,040,411 shares of Common Stock for total proceeds to us, net of discounts, of $500,000, at an effective price of $0.0342884 per share (the “Fourth EFA Closing”). We received approximately $448,975 in net proceeds from the Fourth EFA Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Fourth EFA Closing for working capital and for general corporate purposes.
On July 14, 2021, the Company entered a Securities 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 $2,000,000 (the “Note”). The purchase price of the Note is $1,980,000. The Note matures on July 14,February 21, 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 intowe sold 75,798,921 shares of the Company’sour Common Stock and is not dilutive to existing or future shareholders and the Company plans on using a portionat $0.032982 per share for total consideration of the proceeds of the Note to retire existing convertible debt.
Partnerships
We have entered into a consulting agreement with the Bachner Group to assist in the successful transformation from an R&D focused company to a sales-focused company, and assist us with federal contract opportunities.
We have entered into a partnership with Remote Intelligence to expand our service offerings to include “eye in the sky” drone capabilities.
$2,500,000.
We have entered into a partnership with Unleash Live to expandOn March 3, 2022, we sold 16,579,569 shares of our service offerings to include AI enhanced image evaluation and secure private networking capabilities.Common Stock at $0.0301576 per share for total consideration of $500,000.
On March 14, 2022, we sold 5,617,347 shares of our Common Stock at $0.071208 per share for total consideration of $400,000.
Pursuant to the Equity Financing Agreement, on March 23, 2022, we and GHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 29,257,395 shares of Common Stock for total proceeds to us, net of discounts, of $1,500,000, at an effective price of $0.056396 per share (the “Fifth EFA Closing”). We continuereceived approximately $1,348,975 in net proceeds from the Fifth EFA Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Fifth EFA Closing for working capital and for general corporate purposes.
Pursuant to evaluate partnershipthe Equity Financing Agreement, on April 11, 2022, we and licensing opportunitiesGHS agreed that the Company would issue and sell to GHS, and GHS would purchase from us, 23,746,816 shares of Common Stock for total proceeds to us, net of discounts, of $1,000,000, at an effective price of $0.04211091 per share (the “Sixth EFA Closing”). We received approximately $898,975 in net proceeds from the Sixth EFA Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Sixth EFA Closing for working capital and for general corporate purposes.
Pursuant to the Equity Financing Agreement, on May 3, 2022, we deem importantand GHS agreed that the Company would issue and sell to our transformationGHS, and GHS would purchase from us, 29,522,276 shares of Common Stock for total proceeds to a sales-focused company.us, net of discounts, of $1,000,000, at an effective price of $0.03387273 per share (the “Seventh EFA Closing”). We received approximately $898,975 in net proceeds from the Seventh EFA Closing after deducting the fees and other estimated offering expenses payable by us. We used the net proceeds from the Seventh EFA Closing for working capital and for general corporate purposes.
Going Concern Uncertainty
As shown in the accompanying financial statements, during the sixthree months ended June 30, 2021,March 31, 2022, the Company did not generate any revenues and reported a net loss of $237,481.$5,384,270. As of June 30, 2021,March 31, 2022, the Company’s current liabilities exceeded its current assets by $2,915,206.$7,610,707. As of June 30, 2021,March 31, 2022, the Company had $148,562$4,785,797 of cash.
We will require additional funding to finance the growth of our operations and achieve our strategic objectives. These factors, as relative to capital raising activities, create doubt as to our ability to continue as a going concern. We are seeking to raise additional capital and are targeting strategic partners in an effort to accelerate the sales and marketing of our products and begin generating revenues. Our ability to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements, expansion of our operations and generating sales. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations; however, management cannot make any assurances that such financing will be secured.
Results of Operations
Revenues
To date, the Company has not generated any operating revenues.
Operating Expenses
General and administrative expenses for three months ended June 30, 2021 increased by $50,455 to $95,165 from $44,710 forFor the three months ended June 30, 2020.
General and administrative expenses for six months ended June 30, 2021 increased by $38,582March 31, 2022, total revenues were $2,018,333 compared to $124,853 from $86,271$0 for the six months ended June 30, 2020.
Legal expenses for three months ended June 30,same period in 2021, increased by $102,434 to $146,619an increase of $2,018,333. This increase primarily consisted of revenues of $1,856,961 from $44,185 forOptilan, $34,094 from Wildlife Specialists and $118,926 from TJM Electronics as well as $8,352 from the three months ended June 30, 2020. The increase is related to legal expenses associated with the increase in litigation.
Legal expenses for six months ended June 30, 2021, increased by $172,675 to $220,972 from $48,297 for the six months ended June 30, 2020. The increase is related to legal expenses associated with the increase in litigation.
Amortization of patents expense for three months ended June 30, 2021, remained the same at $12,757 for the three months ended June 30, 2020.
remaining subsidiaries.
Other Income (Expense)Cost of Goods Sold and Gross Loss
Interest expense was $318,921 and $25,154For the three months ended March 31, 2022, cost of goods sold were $2,348,567 compared to $0 for the same period in 2021, an increase of $2,348,567.
Gross loss for the three months ended June 30,March 31, 2022 was $330,234 with a gross loss margin of (16.36)% compared to $0 for the same period in 2021 and 2020, respectively. This $293,767 increase is primarily related to the increase in non-cash expenses related to notes payable issued in 2021.with no gross profit margin.
Interest expense was $350,584Operating Expenses
Selling, general and $60,524administrative expenses for the sixthree months ended June 30, 2021 and 2020, respectively. This $290,060 increase is primarily relatedMarch 31, 2022 increased by $948,520, or 3,195%, to the increase in non-cash expenses related to notes payable issued in 2021
Gain on convertible notes expense was $138,615$978,208 from $29,688 for the three months ended June 30,March 31, 2021. The increase primarily consisted of an increase to the operations from our various acquisitions.
The gain on the change in fair market value of derivative liabilities was $358,440Payroll related expenses for the three months ended June 30, 2021.
Gain on convertible notes expense was $308,896 for the six months ended June 30, 2021. The gain on the change in fair market value of derivative liabilities was $327,496 for the six months ended June 30, 2021.
Provision for Income Taxes
The provision for income taxes was $0 andMarch 31, 2022, increased to $1,972,067 from $0 for the three months ended June 30,March 31, 2021. The increase primarily consisted of an increase to the numbers of employees inherited from our various acquisitions.
Professional fees for the three months ended March 31, 2022, increased by $1,463,749 to $1,538,103 from $74,354 for the three months ended March 31, 2021. This increase primarily consisted of increased legal expenditures associated with the increase in litigation.
Depreciation and amortization for three months ended March 31, 2022, increased by $215,857 to $228,614 from $12,757 for the three months ended March 31, 2021. This increase is primarily due to the increase in depreciable assets we acquired from new acquisitions.
Other Income (Expense)
For the three months ended March 31, 2022, we had other expense of $337,043 compared to other income of $107,675 for the same period in 2021, and 2020, respectively.an increase in expense of $444,718. This increase in other income primarily consisted of changes of $35,750 of gain related to the extinguishment of debt, $156,051 increase in the fair value of the Company’s derivative instruments, $19,853 of gain on foreign currency exchange rate variance, an increase in interest expense of $486,092 due to increased borrowings associated with acquisitions.
Net Income (Loss)Loss
As a result of the above, we reported a net loss of $185,607$5,384,270 and $51,874 for the three months ended June 30,March 31, 2022 and 2021, compared to a net loss of $140,240 for the three months ended June 30, 2020.
Additionally, as a result of the above, we reported a net loss of $237,481 for the six months ended June 30, 2021 compared to a net loss of $214,538 for the six months ended June 30, 2020.respectively.
Liquidity and Capital Resources
We require working capital to fund the continued development and commercialization of our proprietary fiber optic sensing devices, and for operating expenses. During the three months ended June 30, 2021,March 31, 2022, we had $889,200$7,700,000 in new cash proceeds compared to the three months ended June 30, 2020,March 31, 2021, when we had no$212,750 in new cash proceeds.
As of June 30, 2021,March 31, 2022, we had cash of $148,562,$4,785,797, compared to $337$50,714 as of DecemberMarch 31, 2020.2021. We currently do not have sufficient cash to fund our operations for the next 12 months and we will require working capital to complete development, testing and marketing of our products and to pay for ongoing operating expenses. We anticipate adding consultants for technology development and the corresponding operations of the Company, but this will not occur prior to obtaining additional capital. Management is currently in the process of looking for additional investors. Currently, loans from banks or other lending sources for lines of credit or similar short-term borrowings are not available to us. We have been able to raise working capital to fund operations through the issuances of convertible notes or obtained through the issuance of our restricted common stock. As of June 30, 2021,March 31, 2022, our current liabilities exceeded our current assets by $2,915,206.$7,610,707.
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Cash Flows fromFrom Operating Activities
During the sixthree months ended June 30, 2021,March 31, 2022, net cash providedused by operating activities was $712,611,$6,288,504, resulting from our net loss of $237,481$5,384,270 and an increase in expenses related to our convertible notes payables, including amortizationincrease in inventory of debt discount$1,017,178 and operating lease liabilities of $171,554,$440,171. These increases were offset by a decrease in derivative liability of $327,496,$125,107, decrease in accounts payable and accrued expenses of $148,344$355,398 and an increase from the gain on the extinguishment of debt of $35,750, increase in accrued liabilitiesaccounts receivable of $34,759.$2,523,210, decrease in unbilled revenue of $255,622 and increase in contract liability of $1,451,343.
By comparison, during the sixthree months ended June 30, 2020,March 31, 2021, net cash providedused by operating activities was $5,180,$161,173, resulting from our net loss of $214,539$51,874 partially offset by non-cash expenses totaling $126,580 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, increaseincreases in accounts payable of $140,423 and accrued liabilities of $68,749.$17,281.
Cash Flows fromFrom Investing Activities
During the sixthree months ended June 30, 2021,March 31, 2022, we had net cash used in investing activities of $87,864.$64,980. During the sixthree months ended June 30, 2020, we hadMarch 31, 2021, net cash used inby investing activities was $1,200, of $4,969.capitalized patents costs of $1,200.
Cash Flows fromFrom Financing Activities
During the sixthree months ended June 30, 2020,March 31, 2022, net cash provided by financing activities was $952,700,$7,700,000 which was comprised of proceeds from the sale of common stock from offering of $7,700,000. During the three months ended March 31, 2021, net cash used by financing activities was $212,750, which was comprised of proceeds from issuance of convertible debt in the amountnotes payable of $1,102,700, offset by payments on convertible debt of $150,000. During the six months ended June 30, 2020, we had no net cash provided by or used in financing activities.$212,750.
Factors That May Affect Future Results
Management’s Discussion and Analysis contains information based on management’s beliefs and forward-looking statements that involve a number of risks, uncertainties, and assumptions. There can be no assurance that actual results will not differ materially from the forward-looking statements as a result of various factors, including but not limited to, our ability to obtain the equity funding or borrowings necessary to market and launch our products, our ability to successfully serially produce and market our products; our success establishing and maintaining collaborative licensing and supplier arrangements; the acceptance of our products by customers; our continued ability to pay operating costs; our ability to meet demand for our products; the amount and nature of competition from our competitors; the effects of technological changes on products and product demand; and our ability to successfully adapt to market forces and technological demands of our customers.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Recent Accounting Pronouncements
We have provided a discussion of recent accounting pronouncements in Note 1 to the Condensed Financial Statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we havethe Company has elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We have established disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports 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 Securities and Exchange Commission and, as such, is accumulated and communicated to our Chief Executive Officer, Dennis O’Leary, who serves as our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Mr. O’Leary, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of June 30, 2021.March 31, 2022. Based on his evaluation, Mr. O’Leary concluded that ourthe Company’s disclosure controls and procedures were not effective as of June 30, 2021.March 31, 2022.
Changes in Internal Control Over Financial Reporting
There has been no change in ourthe Company’s internal control over financial reporting, as defined in Rules 13a-15(f) of the Exchange Act, during theour quarter ended June 30, 2021,March 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
DarkPulse, Inc. v. Twitter, Inc.
As disclosed in greater detail in the Company’s Form 10-K, filed April 15, 2022, the Company’s investigation of the Investor News matter remains ongoing.
Carebourn Capital, L.P. v. DarkPulse, Inc.
On January 29, 2021,As disclosed in greater detail in the Company’s Form 10-K, filed April 15, 2022, the Company remains in active litigation with Carebourn Capital, L.P. (“Carebourn”) commenced suit against. The remainder of this disclosure will address all material updates since the Company in the 4th Judicial District (Hennepin County District Court, Minnesota), alleging the Company breached the terms and conditions of two convertible promissory notes and accompanying securities purchase agreements Carebourn and the Company entered into on July 17, 2018 and July 24, 2018, respectively.
Also on January 29, 2021, Carebourn moved for a temporary injunction to enjoin the Company from transferring any shares of its common stock to any third parties. Following submission of briefing by both parties and oral arguments on Carebourn’s motion, on March 17, 2021, the Court denied Carebourn’s motion for a temporary injunction.aforementioned Form 10-K.
On April 14, 2021, Carebourn filed an amended complaint and asserted new claims. On May 13, 2021,11, 2022, the Company filedCourt held a motionhearing on Carebourn’s Motion to dismiss Carebourn’s amended complaint, arguing that Carebourn is conducting itself as an unregistered dealer, in violation of Section 15(a) of the Securities and Exchange Act of 1934 (the “Act”), and, pursuant to Section 29(b) of the Act, the Company is entitled to have all contracts arising under the unlawful securities transaction declared void ab initio and seek rescissionary damages for any unlawful securities transactions effected by Carebourn.
Compel DarkPulse. As of the date hereof, a rulingno decision has not been issuedrendered on Carebourn’s motion. On April 14, 2022, the foregoing motionsCourt granted the Company’s Motion to dismiss filed byEnforce the Protective Order, and simultaneously denied Carebourn’s request for reconsideration of Carebourn’s Motion for Dispositive Relief. On April 27, 2022, the Court awarded the Company and Standard Registrar and Transfer Company, Inc., and the Company and$18,858.18 in attorneys’ fees from 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.
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 issuedthe Court’s April 14, 2022 decision on the Company’s Motion to Compel Carebourn. Carebourn has been ordered to pay the Former Officers. The Company intends to defend itself against the allegations asserted in the Former Officers’ complaint. If the case progresses, then the Company will file countersuits against all plaintiffs.$18,858.18 on or before July 26, 2022.
The Company remains committed to actively litigating its claims for relief under the Securities Exchange Act of 1934.
More Capital, LLC v. DarkPulse, Inc. et al
On June 29, 2021,As disclosed in greater detail in the Company’s Form 10-K, filed April 15, 2022, the Company remains in active litigation with More Capital, LLC (“More”) commenced suit against. The remainder of this disclosure will address all material updates since 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 that More and the Company entered into on August 20, 2018.aforementioned Form 10-K.
On July 20, 2021,April 11, 2014, the Court held a hearing on the Company’s Motion to Compel More and More’s Motion for Summary Judgment. As of the date hereof, no decision has been rendered on either of the aforesaid motions.
The Company remains committed to actively litigating its claims for relief under the Securities Exchange Act of 1934.
Goodman et al. v. DarkPulse, Inc.
As disclosed in greater detail in the Company’s Form 10-K, filed April 15, 2022, the Company remains in active litigation with Stephen Goodman (“Goodman”), Mark Banash (“Banash”), and David Singer (“Singer”) (Goodman, Banash, and Singer together, the “Series D Plaintiffs”). As of April 15, 2022, there has been no material updates to this litigation.
The Company remains committed to actively litigating its claims and defenses against the Series D Plaintiffs.
DarkPulse, Inc. v. FirstFire Global Opportunities Fund, LLC, and Eli Fireman (SDNY)
As disclosed in greater detail in the Company’s Form 10-K, filed April 15, 2022, the Company remains in active litigation with FirstFire Global Opportunities Fund, LLC (“FirstFire”), and Eli Fireman (“Fireman”) (FirstFire and Fireman together, the “FirstFire Parties”). The remainder of this disclosure will address all material updates since the aforementioned Form 10-K.
On May 5, 2022, the Company filed aits amended complaint (“FirstFire Amended Complaint”). Accordingly, the FirstFire Parties’ answer or motion in response to dismiss More’s complaint, arguing that the claims asserted against the Company fail to state a claim upon which relief can be granted.
FirstFire Amended Complaint is due on or before May 19, 2022.
The Company intendsFirstFire Global Opportunities Fund, LLC v. DarkPulse, Inc. (Del. Chancery Court)
As disclosed in greater detail in the Company’s Form 10-K, filed April 15, 2022, there are no material updates to defend itself against the allegations asserted in More’s complaintthis litigation 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 interposingmaintains its right to rescindview that the unlawful securities contracts in their entirety and, furthermore, seek rescissionary damages forFirstFire Delaware Chancery matter is fully disclosed. Absent any unlawful securities transactions effected by More.future material developments, no further disclosures will be made about the FirstFire Delaware Chancery matter.
Item 2. Unregistered Sales of Equity Securities and Use of ProceedsDarkPulse, Inc. v. EMA Financial, LLC et al
As disclosed in greater detail in the Company’s Form 10-K, filed April 15, 2022, the Company remains in active litigation with EMA Financial, LLC (“Convertible Promissory NotesEMA”), EMA Group, Inc. (“EMA Group”), and Felicia Preston (“Preston”) (EMA, EMA Group, and Preston together, the “EMA Parties”). The remainder of this disclosure will address all material updates since the aforementioned Form 10-K.
On March 28, 2022, the Company filed its first amended complaint against the EMA Parties (the “EMA Amended Complaint”). On April 5, 2021, we22, 2022, the Company and the EMA Parties entered into a securities purchase agreement with Geneva issuingStipulation, which the Court so ordered on May 3, 2022, and established the EMA Parties were required to Genevafile and serve their answer and/or pre-motion letter for a convertible promissory note inmotion under Rule 12 to the aggregate principal amount of $64,200 with a $10,700 original issue discount and $3,500 in transactional expenses due to Geneva and its counsel. The note bears interest at 4.5% per annum and may be converted into common shares of our common stock at a conversion price equal to 81% of the lowest two trading prices of our common stock during the 10 prior trading days. We received $50,000 net cash.EMA Amended Complaint on or before June 21, 2022.
On April 26, 2021, we entered the SPA and Registration Rights Agreement with FirstFire, pursuantThe Company remains committed 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 compensationactively litigating its claims 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 25, 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 more than 2,500,000 shares per calendar week until all of the shares have been sold.
These securities were issued without registrationrelief under the Securities Exchange 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.1934.
Convertible Promissory Note Conversions
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.
On 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.
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.
Item 6. Exhibits
*Filed with this Report.
**Furnished with this Report.
SIGNATURES
Pursuant 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.
| DarkPulse, Inc. | ||
| Date: | By | /s/ Dennis O’Leary |
| Dennis O’Leary, Chairman, Chief Executive Officer, President, Chief Financial Officer | ||
| (Principal Executive Officer and Principal | ||
| Financial Officer) | ||