10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 o QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

 x TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File No. 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.)

225 West 34th Street, 9th Floor New York, NY	10022
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (800) 436-1436

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer  o	Accelerated filer  o
Non-accelerated filer  o	Smaller reporting company  x
Emerging growth company  o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

As of June 26, 2020, there were 1,609,184,970 shares of the Registrant’s common stock, $0.01 par value per share, issued.

EXPLANATORY NOTE

Reliance on SEC Relief from Filing Requirements

DarkPulse, Inc. (“DPI”, “DarkPulse” or the “Company”) is filing this Current Report on Form 10-Q in reliance upon the Order of the Commission dated March 25, 2020 (Release No. 34-88465) (the “Order”) permitting the delay of certain filings required under the Securities and Exchange Act of 1934, as amended. The Company filed its Current Report on Form 8-K on May 15, 2020, indicating its intent to rely upon the Order and that it required additional time to review and prepare certain information in its financial statements following delays resulting from the COVID-19 pandemic related challenges.

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DARKPULSE, INC.

FORM 10-Q

TABLE OF CONTENTS

FOR THE QUARTER ENDED MARCH 31, 2020

PART I - Financial Information
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019	4
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019 (unaudited)	5
	Condensed Consolidated Statements of Comprehensive Gain/Loss (unaudited)	6
	Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2020 and 2019 (unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
PART II - Other Information
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults upon Senior Securities	21
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	22
Signatures		23

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

DARKPULSE, INC.

Condensed Consolidated Balance Sheets

Unaudited

	March 31,			December 31,
	2020			2019
ASSETS
CURRENT ASSETS:
Cash	$	656		$	1,210
Prepaid expenses		746			746
TOTAL CURRENT ASSETS		1,402			1,956
Other assets, net		116,495			116,495
Patents, net		432,261			445,018
TOTAL ASSETS	$	550,158		$	563,469
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	369,865		$	353,948
Convertible notes, net of discount $4,203 and $39,414 respectively		1,068,460			1,033,249
Derivative liability		1,220,787			1,275,500
Accrued liabilities		531,651			497,078
Contract liability, related party		42,000			42,000
Related party notes payable		44,096			44,096
TOTAL CURRENT LIABILITIES		3,276,859			3,215,871
Secured debenture		1,062,503			1,155,150
TOTAL LIABILITIES		4,339,362			4,371,021
Commitments and contingencies
STOCKHOLDERS' DEFICIT
Common stock (par value $0.01), 20,000,000,000 shares authorized, 1,392,042,112 shares issued and outstanding respectively		13,920,421			13,920,421
Treasury stock, 100,000 shares		(1,000	)		(1,000	)
Convertible preferred stock, Series D (par value $0.01) 100,000 shares authorized, 88,235 shares issued and outstanding respectively		883			883
Paid in capital in excess of par value		(11,877,864	)		(11,877,864	)
Non-controlling interest in a variable interest entity and subsidiary		(12,439	)		(12,439	)
Accumulated other comprehensive income		429,421			336,775
Accumulated deficit		(6,248,626	)		(6,174,328	)
TOTAL STOCKHOLDERS' DEFICIT		(3,789,204	)		(3,807,552	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	550,158		$	563,469

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

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DARKPULSE, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

	FOR THE THREE MONTHS
	ENDED MARCH 31,
	2020			2019
REVENUES	$	–		$	–
OPERATING EXPENSES:
General and administrative expenses		45,638			44,606
Payroll and compensation		35			168,945
Amortization of patents		12,757			12,757
Debt transaction expenses		–			12,100
TOTAL OPERATING EXPENSES		58,430			238,408
OPERATING LOSS		(58,430	)		(238,408	)
OTHER INCOME (EXPENSE):
Interest expense		(35,370	)		(168,588	)
Loss on convertible notes		(35,211	)		(230,304	)
Loss on change in fair market values of derivative liabilities		54,713			(169,268	)
TOTAL OTHER EXPENSE		(15,868	)		(568,160	)
NET LOSS		(74,298	)		(806,568	)
Net Loss attributable to noncontrolling interests in variable interest entity and subsidiary		–			–
Net loss attributable to Company stockholders	$	(74,298	)	$	(806,568	)
LOSS PER SHARE:
Basic and Diluted	$	(0.00	)	$	(0.01	)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and Diluted		1,392,042,112			93,619,272

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

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DARKPULSE, INC.

Condensed Consolidated Statements of Comprehensive Gain/Loss

(Unaudited)

	FOR THE THREE MONTHS
	ENDED MARCH 31,
	2020			2019
NET LOSS	$	(74,298	)	$	(806,568	)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized Gain (Loss) on Foreign Exchange		92,646			(22,050	)
COMPREHENSIVE INCOME (LOSS)	$	18,348		$	(828,618	)

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

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DARKPULSE, INC.

Consolidated Statement of Stockholders' Deficit

For the Years Ended March 31, 2020 and 2019

	Preferred Stock				Common Stock				Treasury			Paid in Capital in Excess of Par			Non-Controlling Interest in			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Stock			Value			Subsidiary			Income			Deficit			Deficit
Balance, December 31, 2019		88,235	$	883		1,392,042,112	$	13,920,421	$	(1,000	)	$	(11,877,864	)	$	(12,439	)	$	336,775		$	(6,174,328	)	$	(3,807,552	)
Conversion of convertible notes		–		–		–		–		–			–			–			–			–			–
Foreign currency adjustment		–		–		–		–		–			–			–			92,646			–			92,646
Net loss		–		–		–		–		–			–			–			–			(74,298	)		(74,298	)
Balance, March 31, 2020		88,235	$	883		1,392,042,112	$	13,920,421	$	(1,000	)	$	(11,877,864	)	$	(12,439	)	$	429,421		$	(6,248,626	)	$	(3,789,204	)
Balance, December 31, 2018		88,235	$	883		89,680,467	$	896,806	$	(1,000	)	$	859,481		$	(12,439	)	$	389,680		$	(4,348,859	)	$	(2,215,448	)
Conversion of convertible notes		–		–		12,488,347		124,883		–			(45,837	)		–			–			–			79,046
Foreign currency adjustment		–		–		–		–		–			–			–			(22,050	)		–			(22,050
Net loss		–		–		–		–		–			–			–			–			(806,568	)		(806,568	)
Balance, March 31, 2019		88,235	$	883		102,168,914	$	1,021,689	$	(1,000	)	$	813,644		$	(12,439	)	$	367,630		$	(5,155,427	)	$	(2,965,020	)

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

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DARKPULSE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

	FOR THE THREE MONTHS
	ENDED MARCH 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(74,298	)	$	(806,568	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		12,757			12,757
Loan acquisition costs		–			12,100
Debt discount		–			(100,000	)
Amortization of debt discount		35,211			269,268
Derivative liability		(54,713	)		363,328
Changes in operating assets and liabilities:
Accounts payable		45,916			16,744
Accrued liabilities		34,573			126,887
Net cash used by operating activities		(554	)		(105,484	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in patents		–			(29,925	)
Net Cash Used by Investing Activities		–			(29,925	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable		–			87,900
Payments on convertible notes		–			(24,650	)
Net Cash Provided by Financing Activities		–			63,250
NET INCREASE (DECREASE) IN CASH		(554	)		(72,159	)
CASH, beginning of period		1,210			72,294
CASH, end of period	$	656		$	135
Noncash investing and financing activities for the quarter ending March 31:
Stock issued for convertible notes payable and accrued interest	$	–		$	78,022
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash	$	–		$	–
Taxes paid in cash	$	–		$	–

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

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DARKPULSE, INC.

Notes to Condensed Financial Statements

(Unaudited)

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

The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The information furnished reflects all adjustments, consisting only of normal recurring items which are, in the opinion of management, necessary in order to make the financial statements not misleading. The consolidated financial statements as of December 31, 2019 have been audited by an independent registered public accounting firm. The accounting policies and procedures employed in the preparation of these condensed consolidated financial statements have been derived from the audited financial statements of the Company for the year ended December 31, 2019, which are contained in Form 10-K as filed with the Securities and Exchange Commission on June 8, 2020. The consolidated balance sheet as of December 31, 2019 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 March 31, 2020, and the results of operations and cash flows for the three months ended March 31, 2020 have been included. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year.

Description of Business

DarkPulse, Inc. ("DPI" or "Company") is a technology-security company incorporated in 1989 as Klever Marketing, Inc. ("Klever"). Its’ wholly-owned subsidiary, DarkPulse Technologies Inc. ("DPTI"), originally started as a technology spinout from the University of New Brunswick (the “University”) located in Fredericton, Canada. The Company’s security and monitoring systems will initially be delivered in applications for border security, pipelines, the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision. The Company’s patented BOTDA dark-pulse sensor technology allows for the monitoring of highly dynamic environments due to its greater resolution and accuracy.

On April 27, 2018, Klever entered into an Agreement and Plan of Merger (the “Merger Agreement” or the “Merger”) involving Klever as the surviving parent corporation and acquiring a privately held New Brunswick corporation known as DarkPulse Technologies Inc. as its wholly owned subsidiary. On July 18, 2018, the parties closed the Merger Agreement, as amended on July 7, 2018, and the name of the Company was subsequently changed to DarkPulse, Inc. With the change of control of the Company, the Merger 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.

9

Going Concern Uncertainty

As shown in the accompanying financial statements, during the three months ended March 31, 2020, the Company did not generate any revenues and reported a net loss of $74,298. As of March 31, 2020, the Company’s current liabilities exceeded its current assets by $3,275,457. As of March 31, 2020, the Company had $656 of cash.

The Company will require additional funding during the next six months to finance the growth of its operations and achieve its strategic objectives. These factors, as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as to the Company’s ability to continue as a going concern. The Company is seeking to raise additional capital principally through private placement offerings and is targeting strategic partners in an effort to finalize the development of its products and begin generating revenues. The ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements and expansion of its operations. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations. 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. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits. 

Intangible Assets

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

Foreign Currency Translation

The company translates monetary assets and liabilities (any item paid for or settled in foreign currency) into the United States Dollar at exchange rates prevailing on the balance sheet date. Non-monetary assets and liabilities are translated at the historical rate in effect when the transaction occurred. Revenues and expenses are translated at the spot rate on the date the transaction occurred. Exchange gains and losses from the translation of monetary items are included in unrealized gain/loss on Foreign Exchange as Other Comprehensive Loss.

10

The following table discloses the dates and exchange rates used for converting Canadian Dollar amounts to U.S. Dollar amounts disclosed in the balance sheet and the statement of operations.

The spot exchange rate between the Canadian Dollar and the U.S. Dollar on, December 31, 2019 closing rate at 1.2988 US$: CAD, average rate at 1.3234 US$: CAD and for the three months ended March 31, 2020 closing rate at 1.4118 US$: CAD, average rate at 1.3597 US$.

Income Taxes

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

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

Accounting for Derivatives

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice formula pricing models to value the derivative instruments at inception and on subsequent valuation dates.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Fair Value of Financial Instruments

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

Recent Accounting Pronouncements

There were no new accounting pronouncements issued or proposed by the Financial Accounting Standards Board during the three months ended March 31, 2020, and through the date of filing of this report that the Company believes has had or will have a material impact on its financial position or results of operations, including the recognition of revenue, cash flow, the merger that was consummated on July 18, 2018. The Company has no lease obligations.

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Income (Loss) Per Common Share

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

For the three months ended March 31, 2020, there were no stock options nor convertible preferred stock outstanding. For the three months ended March 31, 2020, common stock equivalents related to convertible preferred stock and convertible debt have not been included in the calculation of diluted loss per common share because they are anti-dilutive. Therefore, basic loss per common share is the same as diluted loss per common share. There are 1,589,257,888 common shares reserved for the potential conversion of the Company's convertible debt.

NOTE 2 - DEBENTURE

DPTI issued a convertible debenture to the University in exchange for the patents (the “Patents”) assigned to the Company, in the amount of CAD$1,500,000, or USD$1,491,923 on December 16, 2010, the date of the convertible debenture. On April 24, 2017 DPTI issued a replacement secured term convertible debenture (the “Debenture”) in the same CAD$1,500,000 amount as the original convertible debenture. The interest rate is the Bank of Canada Prime overnight rate plus 1% per annum. The Debenture had an initial required payment of CAD $42,000 (USD$33,385) due on April 24, 2018 for reimbursement to the University for 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 principal repayment amounts will be due quarterly over a six year period in the amount of CAD$62,500. Based on the exchange rate between the Canadian Dollar and the U.S. Dollar on March 31, 2020, the quarterly principal repayment amounts will be USD$44,271. On May 1, 2020, the Company received an extension for this payment until July 23, 2020. 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 USD$1,491,923 equivalent to CAD$1,500,000 as of December 16, 2010, the date of the original convertible debenture. The liability is being adjusted quarterly based on the current exchange value of the Canadian dollar to the US dollar at the end of each quarter. The adjustment is recorded as unrealized gain or loss in the change of the value of the two currencies during the quarter. The amounts recorded as an unrealized gain (loss) for the three months ended March 31, 2020 and 2019, were $92,648 and ($22,050) respectively. These amounts are included in Accumulated Other Comprehensive Loss in the Equity section of the consolidated balance sheet, and as Unrealized Loss on Foreign Exchange on the consolidated statement of comprehensive loss. The Debenture also includes a provision requiring DPTI to pay the University a two percent (2%) royalty on sales of any and all products or services which incorporate the Patents for a period of five (5) years from April 24, 2018.

For the three months ended March 31, 2020, and 2019, the Company recorded interest expense of $11,820 and $21,651, respectively.

As of March 31, 2020 the Debenture liability totaled $1,062,503, all of which was long term.

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

Period ending March 31,
2021	$	–
2022		–
2023		–
2024		–
2025 and after		1,062,503
Total	$	1,062,503

NOTE 3 – CONVERTIBLE DEBT SECURITIES

The Company uses the Black-Scholes Model to calculate the derivative value of its convertible debt. The valuation result generated by this pricing model is necessarily driven by the value of the underlying common stock incorporated into the model. The values of the common stock used were based on the price at the date of issue of the debt security as of March 31, 2020. Management determined the expected volatility between 400.71-512.82%, a risk free rate of interest between 0.23-0.29%, and contractual lives of the debt varying from six months to two years. The table below details the Company's nine outstanding convertible notes, with totals for the face amount, amortization of discount, initial loss, change in the fair market value, and the derivative liability.

	Face		Debt		Initial		Q1 change			Derivative Balance
	Amount		Discount		Loss		in FMV			3/31/2020
	$	90,228	$	–	$	58,959	$	(15,910	)	$	118,752
		162,150		–		74,429		(26,912	)		216,474
		72,488		–		11,381		35,737			115,400
		208,436		–		–		(42,415	)		215,400
		76,657		–		8,904		(15,452	)		79,473
		65,372		–		5,651		(14,549	)		90,410
		53,864		–		28,566		39,839			72,101
		25,468		–		16,558		18,837			34,091
		29,250		656		–		(3,614	)		24,307
		49,726		1,460		–		(6,142	)		41,323
		41,774		1,228		–		(5,160	)		34,715
		29,250		859		–		(3,614	)		24,307
		40,000		–		10,605		30,541			53,495
		128,000		–		17,676		(45,900	)		100,541
Subtotal		1,072,663		4,203		232,729		(54,713	)		1,220,789
Transaction expense		–		–		–		–			–
		1,072,663		4,203		232,729		(54,713	)		1,220,789

As of March 31, 2020 and 2019 respectively, there was $1,068,460 and $767,846 of convertible debt outstanding, net of debt discount of $4,203, and $275,532, As of March 31, 2020 and 2019 respectively, there was derivative liability of $1,220,789 and $1,017,159 related to convertible debt securities.

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NOTE 4 - STOCKHOLDERS' DEFICIT

As of March 31, 2020, there were 1,392,042,112 shares of common stock and 88,235 shares of preferred stock issued and outstanding.

NOTE 5 - COMMITMENTS & CONTINGENCIES

Potential Royalty Payments

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

Legal Matters

On March 27, 2019, Thomas A. Cellucci, et al. v. DarkPulse, Inc. et al. (the “Complaint”) was filed in the United States District Court for the Southern District of New York by certain of the Company’s former executive officers, one also being a former director, and a non-employee shareholder (collectively, the “Plaintiffs”), against the Company, its sole officer and director, and others, claiming that the Plaintiffs brought the action to protect their individual rights as minority shareholders, as improperly-ousted officers (other than the non-employee shareholder), and as an improperly-ousted director, seeking equitable relief, damages, recovery of unpaid salaries and other relief. It is the Company's position that the Complaint represents a frivolous harassment lawsuit, and the Company intends to file a motion to dismiss all claims made in the Complaint and intends to otherwise defend itself vigorously in this matter. The Company is also exploring filing counterclaims against the Plaintiffs in the action.

From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business, financial condition and operating results.

COVID-19

On March 11, 2020, the World Health Organization announced that infections of the novel Coronavirus (COVID-19) had become pandemic, and on March 13, the U.S. President announced a National Emergency relating to the disease. There is a possibility of continued widespread infection in the United States and abroad, with the potential for catastrophic impact. National, state and local authorities have required or recommended social distancing and imposed or are considering quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures, while intended to protect human life, are expected to have serious adverse impacts on domestic and foreign economies of uncertain severity and duration. Some economists are predicting the United States will soon enter a recession. The sweeping nature of the coronavirus pandemic makes it extremely difficult to predict how the Company’s business and operations will be affected in the longer run, but we expect that it may materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Moreover, the coronavirus outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely affected to the extent that this coronavirus or any other epidemic harms the global economy generally and/or the markets in which we operate specifically. Any of the foregoing factors, or other cascading effects of the coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our revenues and damage the Company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted.

14

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 March 31, 2020, the Company held 3 U.S. and foreign patents on its intrusion detection technology, which expire in calendar years 2025 through 2034 (depending on the payment of maintenance fees).

For the three months ended March 31, 2020 and 2019, the Company amortized $12,757, respectively. Future amortization of intangible assets is as follows:

2020	$	38,271
2021		51,028
2022		51,028
2023		51,028
2024		51,028
Thereafter		189,878
	$	432,261

NOTE 7 – RELATED PARTY TRANSACTIONS

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include a) affiliates of the Company; b) Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement. 

15

In May 2018, the JV Entity received $42,000 for an order from Bravetek and the JV Entity then placed a corresponding order with the Company. The Company’s former executive office is also the CEO of Bravatek. The proceeds were to be used for marketing efforts to generate sales of our intrusion detection product. The order has been recorded as a prepaid sale and is a current liability as of March 31, 2020.

NOTE 8 – PREFERRED STOCK

In accordance with the Company’s bylaws, the Company has authorized a total of 2,000,000 shares of preferred stock, par value $0.01 per share, for all classes. As of March 2020, and December 31, 2019, there were 88,235 total preferred shares issued and outstanding for all classes.

During the three months ended March 31, 2020, the Company issued no shares of preferred stock.

NOTE 9 – COMMON STOCK

In accordance with the Company’s bylaws, the Company has authorized a total of 20,000,000,000 shares of common stock, par value $0.01 per share. As of March 31, 2020 and December 31, 2019, there were 1,392,042,112 common shares issued and outstanding.

During the three months ended March 31, 2020, the Company issued no shares of common stock.

NOTE 10 – STOCK OPTIONS

The Company’s shareholders approved, by a majority vote, the adoption of the 1998 Stock Incentive Plan (the “Plan”). As amended on August 11, 2003, the Plan reserves 20,000,000 shares of common stock for issuance upon the exercise of options which may be granted from time-to-time to officers, directors, certain employees and consultants of the Company or its subsidiaries by the Board of Directors. The Plan permits the award of both qualified and non-qualified incentive stock options.

During the three months ended March 31, 2020, the Company did not issue any stock options and had no stock options outstanding at March 31, 2020. 

NOTE 11 – SUBSEQUENT EVENTS

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

On April 29, 2020, the Company issued an aggregate of 68,571,429 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $4,800.

On May 4, 2020, the Company issued an aggregate of 72,857,143 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $5,100.

On June 9, 2020, the Company issued an aggregate of 75,714,286 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $5,300.

16

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Background

DarkPulse, Inc. ("DPI" or the "Company") is a technology-security company incorporated in 1989 as Klever Marketing, Inc. ("Klever"). Its wholly-owned subsidiary, DarkPulse Technologies Inc. ("DPTI"), originally started as a technology spinout from the University of New Brunswick, Fredericton, Canada. The Company’s security and monitoring systems will initially be delivered in applications for border security, pipelines, the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision. The Company’s patented BOTDA dark-pulse sensor technology allows for the monitoring of highly dynamic environments due to its greater resolution and accuracy.

On April 27, 2018, Klever entered into an Agreement and Plan of Merger (the “Merger Agreement” or the “Merger”) involving Klever as the surviving parent corporation and acquiring a privately held New Brunswick corporation known as DarkPulse Technologies Inc. as its wholly owned subsidiary. On July 18, 2018, the parties closed the Merger Agreement, as amended on July 7, 2018, and the name of the Company was subsequently changed to DarkPulse, Inc. With the change of control of the Company, the Merger is being be accounted for as a recapitalization in a manner similar to a reverse acquisition.

On July 20, 2018, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the State of Delaware, changing the name of the Company to DarkPulse, Inc. The Company filed a corporate action notification with the Financial Industry Regulatory Authority (FINRA), and the Company's ticker symbol was changed to DPLS.

Going Concern Uncertainty

As shown in the accompanying financial statements, during the three months ended March 31, 2020, the Company did not generate any revenues and reported a net loss of $74,298. As of March 31, 2020, the Company’s current liabilities exceeded its current assets by $3,275,457. As of March 31, 2020, the Company had $656 of cash.

The Company will require additional funding during the next six months to finance the growth of its operations and achieve its strategic objectives. These factors, as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as to the Company’s ability to continue as a going concern. The Company is seeking to raise additional capital principally through private placement offerings and is targeting strategic partners in an effort to finalize the development of its products and begin generating revenues. The ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements and expansion of its operations. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations. 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 March 31, 2020, increased by $1,032 to $45,638 from $44,606 for the three months ended March 31, 2019.

17

Payroll and compensation expenses for three months ended March 31, 2020, decreased by $168,910 to $35 from $168,945 for the three months ended March 31, 2019. The decrease is related to a significant reduction in payroll related expenses in 2019 because it terminated four employees during March 2019.

Amortization of Patents expense for three months ended March 31, 2020, remained the same at $12,757 for the three months ended March 31, 2019.

Other Income (Expense)

Interest expense was $35,370 and $168,588 for the three months ended March 31, 2020 and 2019, respectively. This decrease is primarily related to the decrease in non-cash expenses related to notes payable issued in 2019.

Loss on convertible notes expense was $35,211 for the three months ended March 31, 2020. Gain on change in fair market value of derivative liabilities was $54,713 for the three months ended March 31, 2020.

Provision for Income Taxes

The provision for income taxes was $0 and $0 for the three months ended March 31, 2020 and 2019, respectively.

Net Income (Loss)

As a result of the above, we reported a net loss of $74,298 and $806,568 for the three months ended March 31, 2020 and 2019, respectively.

Liquidity and Capital Resources

The Company requires working capital to fund the further development and commercialization of its proprietary fiber optic sensing devices, and for operating expenses. During the three months ended March 31, 2020, the Company had no new cash proceeds compared to the three months ended March 31, 2019, when the Company received cash proceeds from the issuance of convertible debt securities in the amount of $87,900.

As of March 31, 2020, we had cash of $656, compared to $1,210 as of December 31, 2019. As of March 31, 2020, our current liabilities exceeded our current assets by $3,275,457.

Cash Flows From Operating Activities

By comparison, during the three months ended March 31, 2020, net cash used by operating activities was $554, resulting from our net loss of $74,298 and an increase in expenses related to our convertible notes payables, including amortization of debt discount of $35,211, decrease in derivative liability of $54,713, increases in accounts payable of $45,916 and accrued liabilities of $34,573.

During the three months ended March 31, 2019, net cash used by operating activities was $105,484, resulting from our net loss of $806,568 and an increase in expenses related to our convertible notes payables, including amortization of debt discount of $269,268, debt discount of $100,000, increases in accounts payable of $16,744 and accrued liabilities of $91,323.

18

Cash Flows From Investing Activities

During the three months ended March 31, 2020, Company had no net cash provided by or used in investing activities. During the three months ended March 31, 2019, the Company used $29,925 in investing activities relating to our patents and trademarks in the amount of $29,925.

Cash Flows From Financing Activities

During the three months ended March 31, 2020, Company had no net cash provided by or used in financing activities. During the three months ended March 31, 2019, net cash provided by financing activities was $63,250, comprised of proceeds from the issuance of convertible debt in the amount of $87,900, offset by payments on convertible debt of $24,650.

Factors That May Affect Future Results

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

Recent Accounting Pronouncements

The Company has provided a discussion of recent accounting pronouncements in Note 1 to the Condensed Financial Statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable: The Company is a “smaller reporting company.”

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to help ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation and the requirements of the Exchange Act, our Chief Executive Officer concluded that, as of March 31, 2020, our disclosure controls and procedures continue to be ineffective. The small size of our Company does not provide for the desired segregation of duty control functions, and we do not have the required level of documentation of our monitoring and control procedures. Currently, our financial constraints prevent us from fully implementing the internal controls prescribed by the Sarbanes-Oxley Act.

19

Changes in Internal Control Over Financial Reporting

Management and directors will continue to monitor and evaluate the effectiveness of the Company's internal controls and procedures and the Company's internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. The Company will continue to use outside accounting consultants to assist with the Company’s financial reporting. Otherwise, there have been no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting during the quarter ended March 31, 2020.

20

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

On March 27, 2019, Thomas A. Cellucci, et al. v. DarkPulse, Inc. et al. (the “Complaint”) was filed in the United States District Court for the Southern District of New York by certain of the Company’s former executive officers, one also being a former director, and a non-employee shareholder (collectively, the “Plaintiffs”), against the Company, its sole officer and director, and others, claiming that the Plaintiffs brought the action to protect their individual rights as minority shareholders, as improperly-ousted officers (other than the non-employee shareholder), and as an improperly-ousted director, seeking equitable relief, damages, recovery of unpaid salaries and other relief. It is the Company's position that the Complaint represents a frivolous harassment lawsuit, and the Company intends to file a motion to dismiss all claims made in the Complaint and intends to otherwise defend itself vigorously in this matter. The Company is also exploring filing counterclaims against the Plaintiffs in the action.

From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business, financial condition and operating results.

Item 1A. Risk Factors

Readers should carefully consider the risks and uncertainties described in ITEM 1A in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC before deciding whether to invest in shares of our common stock. See also risks discussed above under the section on “Factors That May Affect Future Results” and “Internal Controls”.

Our failure to successfully address the risks and uncertainties described in our 2019 Form 10-K would have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock may decline and investors may lose all or part of their investment. We cannot assure you that we will successfully address these risks or other unknown risks that may affect our business.

As an enterprise engaged in the development of new technology, our business is inherently risky. Our common shares are considered speculative during the development of our new business operations. 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2020, we had no unregistered sales of equity securities.

Item 3. Defaults upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

21

Item 6: Exhibits

The following exhibits are filed as part of this report:

Exhibit Number	Title of Document
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.DEF	XBRL Definition Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL Presentation Linkbase Document

__________________________

22

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DARKPULSE, INC.
Dated: June 29, 2020	By  /s/ Dennis M. O’Leary
	Dennis M. O’Leary
	Chief Executive Officer and Chief Financial Officer
	(Principal Executive, Financial and Accounting Officer)

23

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dennis M. O’Leary, certify that:

1. I have reviewed this quarterly report on Form 10-Q of DarkPulse, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. As the registrant’s certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and I have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. As the registrant’s certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 29, 2020	/s/ Dennis M. O’Leary
	Dennis M. O’Leary Chief Executive Officer and Chief Financial Officer
	(Principal Executive, Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q of DarkPulse, Inc., for the period ended March 31, 2020, I, Dennis M. O’Leary, Chief Executive Officer and Chief Financial Officer of DarkPulse, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

1.   Such Quarterly Report on Form 10-Q for the period ended March 31, 2020, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.   The information contained in such Quarterly Report on Form 10-Q for the period ended March 31, 2020, fairly represents in all material respects, the financial condition and results of operations of DarkPulse, Inc.

June 29, 2020	/s/ Dennis M. O’Leary
	Dennis M. O’Leary Chief Executive Officer and Chief Financial Officer
	(Principal Executive, Financial and Accounting Officer)

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2020	Jun. 26, 2020
Cover [Abstract]
Entity Registrant Name	DarkPulse, Inc.
Entity Central Index Key	0000866439
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		1,609,184,970
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2020
Entity Small Business	true
Entity Emerging Growth	false
Entity Shell Company	false
Entity Incorporation State	DE
Entity File Number	000-18730
Entity Interactive data	Yes

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
CURRENT ASSETS:
Cash	$ 656	$ 1,210
Prepaid expenses	746	746
Total current assets	1,402	1,956
Other assets, net	116,495	116,495
Patents, net	432,261	445,018
Total assets	550,158	563,469
CURRENT LIABILITIES:
Accounts payable	369,865	323,948
Convertible notes, net of discount $4,203 and $39,414 respectively	1,068,460	1,033,249
Derivative liability	1,220,787	1,275,500
Accrued Liabilities	531,651	497,078
Contract liability, related party	42,000	42,000
Related party notes payable	44,096	44,096
Total current liabilities	3,276,859	3,215,871
Secured Debenture	1,062,503	1,155,150
Total liabilities	4,339,362	4,371,021
Commitments and contingencies
STOCKHOLDERS' DEFICIT
Common stock (par value $0.01), 20,000,000,000 shares authorized, 1,392,042,112 shares issued and outstanding respectively	13,920,421	13,920,421
Treasury stock, 100,000 shares	(1,000)	(1,000)
Convertible preferred stock, Series D (par value $0.01) 100,000 shares authorized, 88,235 shares issued and outstanding respectively	883	883
Paid-in capital in excess of par value	(11,877,864)	(11,877,864)
Non-controlling interest in a variable interest entity and subsidiary	(12,439)	(12,439)
Accumulated other comprehensive income	429,421	336,775
Accumulated deficit	(6,248,626)	(6,174,328)
TOTAL STOCKHOLDERS' DEFICIT	(3,789,204)	(3,807,552)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 550,158	$ 563,469

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Convertible Notes, discount	$ 4,203	$ 39,414
Convertible preferred stock - shares authorized	2,000,000	2,000,000
Common stock par value (in Dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000,000	20,000,000,000
Common stock, shares issued	1,392,042,112	1,392,042,112
Common stock, shares outstanding	1,392,042,112	1,392,042,112
Treasury stock shares	100,000	100,000
Class D Voting Preferred Stock [Member]
Convertible preferred stock - par value	$ 0.01	$ 0.01
Convertible preferred stock - shares authorized	100,000	100,000
Convertible preferred stock - shares issued	88,235	88,235
Convertible preferred stock - shares outstanding	88,235	88,235

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income Statement [Abstract]
Revenues	$ 0	$ 0
OPERATING EXPENSES:
General and administrative expenses	45,638	44,606
Payroll and compensation	35	168,945
Amortization of patents	12,757	12,757
Debt transaction expenses	0	12,100
Total operating expenses	58,430	238,408
OPERATING LOSS	(58,430)	(238,408)
OTHER INCOME (EXPENSE):
Interest expense	(35,370)	(168,588)
Loss on convertible notes	(35,211)	(230,304)
Loss on change in fair market values of derivative liabilities	54,713	(169,268)
TOTAL OTHER EXPENSES	(15,868)	(568,160)
NET LOSS	(74,298)	(806,568)
Net Loss attributable to noncontrolling interests in variable interest entity and subsidiary	0	0
Net loss attributable to Company stockholders	$ (74,298)	$ (806,568)
LOSS PER SHARE:
Basic and Diluted	$ (0.00)	$ (0.01)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and Diluted	1,392,042,112	93,619,272

XML

Condensed Consolidated Statements of Comprehensive Gain/Loss (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Income Statement [Abstract]
NET LOSS	$ (74,298)	$ (806,568)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized Gain (Loss) on Foreign Exchange	92,646	(22,050)
COMPREHENSIVE INCOME (LOSS)	$ 18,348	$ (828,618)

XML

Consolidated Statement of Stockholder's Equity (Deficit) (Unaudited) - USD ($)	Preferred Stock	Common Stock	Treasury Stock	Additional Paid-In Capital	Noncontrolling Interest	Other Comprehensive Income / Loss	Total
Beginning balance, shares at Dec. 31, 2018	88,235	89,680,467
Beginning balance, value at Dec. 31, 2018	$ 883	$ 896,806	$ (1,000)	$ 859,481	$ (12,439)	$ 389,680	$ (2,215,448)
Conversion of convertible notes, shares		12,488,347
Conversion of convertible notes, value		$ 124,883		(45,837)			79,046
Foreign currency adjustment						(22,050)	(22,050)
Net loss							(806,568)
Ending balance, shares at Mar. 31, 2019	88,235	102,168,914
Ending balance, value at Mar. 31, 2019	$ 883	$ 1,021,689	(1,000)	813,644	(12,439)	367,630	(2,965,020)
Beginning balance, shares at Dec. 31, 2019	88,235	1,392,042,112
Beginning balance, value at Dec. 31, 2019	$ 883	$ 13,920,421	(1,000)	(11,877,864)	(12,439)	336,775	(3,807,552)
Foreign currency adjustment						92,646	92,646
Net loss							(74,298)
Ending balance, shares at Mar. 31, 2020	88,235	1,392,042,112
Ending balance, value at Mar. 31, 2020	$ 883	$ 13,920,521	$ (1,000)	$ (11,877,684)	$ (12,439)	$ 429,421	$ (3,789,204)

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (74,298)	$ (806,568)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	12,757	12,757
Loan acquisition costs	0	12,100
Debt discount	0	(100,000)
Amortization of debt discount	35,211	269,268
Derivative liability	(54,713)	363,328
Changes in operating assets and liabilities:
Accounts payable	45,916	16,744
Accrued Liabilities	34,573	126,887
Net cash used in operating activities	(554)	(105,484)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in patents	0	(29,925)
Net cash used in investing activities	0	(29,925)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable	0	87,900
Repayments of convertible debentures	0	(24,650)
Net cash provided by financing activities	0	63,250
NET INCREASE (DECREASE) IN CASH	(554)	(72,159)
CASH, beginning of period	1,210	72,294
CASH, end of period	656	135
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest	0	0
Taxes	0	0
Noncash investing and financing
Stock issued for convertible notes payable and accrued interest	$ 0	$ 78,022

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1. BASIS OF FINANCIAL STATEMENT PRESENTATION

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF FINANCIAL STATEMENT PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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, 2019 have been audited by an independent registered public accounting firm. The accounting policies and procedures employed in the preparation of these condensed consolidated financial statements have been derived from the audited financial statements of the Company for the year ended December 31, 2019, which are contained in Form 10-K as filed with the Securities and Exchange Commission on June 8, 2020. The consolidated balance sheet as of December 31, 2019 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 March 31, 2020, and the results of operations and cash flows for the three months ended March 31, 2020 have been included. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year.

Description of Business

DarkPulse, Inc. ("DPI" or "Company") is a technology-security company incorporated in 1989 as Klever Marketing, Inc. ("Klever"). Its’ wholly-owned subsidiary, DarkPulse Technologies Inc. ("DPTI"), originally started as a technology spinout from the University of New Brunswick (the “University”) located in Fredericton, Canada. The Company’s security and monitoring systems will initially be delivered in applications for border security, pipelines, the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision. The Company’s patented BOTDA dark-pulse sensor technology allows for the monitoring of highly dynamic environments due to its greater resolution and accuracy.

On April 27, 2018, Klever entered into an Agreement and Plan of Merger (the “Merger Agreement” or the “Merger”) involving Klever as the surviving parent corporation and acquiring a privately held New Brunswick corporation known as DarkPulse Technologies Inc. as its wholly owned subsidiary. On July 18, 2018, the parties closed the Merger Agreement, as amended on July 7, 2018, and the name of the Company was subsequently changed to DarkPulse, Inc. With the change of control of the Company, the Merger 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.

Going Concern Uncertainty

As shown in the accompanying financial statements, during the three months ended March 31, 2020, the Company did not generate any revenues and reported a net loss of $74,298. As of March 31, 2020, the Company’s current liabilities exceeded its current assets by $3,275,457. As of March 31, 2020, the Company had $656 of cash.

The Company will require additional funding during the next six months to finance the growth of its operations and achieve its strategic objectives. These factors, as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as to the Company’s ability to continue as a going concern. The Company is seeking to raise additional capital principally through private placement offerings and is targeting strategic partners in an effort to finalize the development of its products and begin generating revenues. The ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements and expansion of its operations. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations. 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. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits. 

Intangible Assets

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

Foreign Currency Translation

The company translates monetary assets and liabilities (any item paid for or settled in foreign currency) into the United States Dollar at exchange rates prevailing on the balance sheet date. Non-monetary assets and liabilities are translated at the historical rate in effect when the transaction occurred. Revenues and expenses are translated at the spot rate on the date the transaction occurred. Exchange gains and losses from the translation of monetary items are included in unrealized gain/loss on Foreign Exchange as Other Comprehensive Loss.

The following table discloses the dates and exchange rates used for converting Canadian Dollar amounts to U.S. Dollar amounts disclosed in the balance sheet and the statement of operations.

The spot exchange rate between the Canadian Dollar and the U.S. Dollar on, December 31, 2019 closing rate at 1.2988 US$: CAD, average rate at 1.3234 US$: CAD and for the three months ended March 31, 2020 closing rate at 1.4118 US$: CAD, average rate at 1.3597 US$.

Income Taxes

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

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

Accounting for Derivatives

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice formula pricing models to value the derivative instruments at inception and on subsequent valuation dates.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Fair Value of Financial Instruments

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

Recent Accounting Pronouncements

There were no new accounting pronouncements issued or proposed by the Financial Accounting Standards Board during the three months ended March 31, 2020, and through the date of filing of this report that the Company believes has had or will have a material impact on its financial position or results of operations, including the recognition of revenue, cash flow, the merger that was consummated on July 18, 2018. The Company has no lease obligations.

Income (Loss) Per Common Share

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

For the three months ended March 31, 2020, there were no stock options nor convertible preferred stock outstanding. For the three months ended March 31, 2020, common stock equivalents related to convertible preferred stock and convertible debt have not been included in the calculation of diluted loss per common share because they are anti-dilutive. Therefore, basic loss per common share is the same as diluted loss per common share. There are 1,589,257,888 common shares reserved for the potential conversion of the Company's convertible debt.

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2. DEBENTURE

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Debenture

NOTE 2 - DEBENTURE

DPTI issued a convertible debenture to the University in exchange for the patents (the “Patents”) assigned to the Company, in the amount of CAD$1,500,000, or USD$1,491,923 on December 16, 2010, the date of the convertible debenture. On April 24, 2017 DPTI issued a replacement secured term convertible debenture (the “Debenture”) in the same CAD$1,500,000 amount as the original convertible debenture. The interest rate is the Bank of Canada Prime overnight rate plus 1% per annum. The Debenture had an initial required payment of CAD $42,000 (USD$33,385) due on April 24, 2018 for reimbursement to the University for 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 principal repayment amounts will be due quarterly over a six year period in the amount of CAD$62,500. Based on the exchange rate between the Canadian Dollar and the U.S. Dollar on March 31, 2020, the quarterly principal repayment amounts will be USD$44,271. On May 1, 2020, the Company received an extension for this payment until July 23, 2020. 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 USD$1,491,923 equivalent to CAD$1,500,000 as of December 16, 2010, the date of the original convertible debenture. The liability is being adjusted quarterly based on the current exchange value of the Canadian dollar to the US dollar at the end of each quarter. The adjustment is recorded as unrealized gain or loss in the change of the value of the two currencies during the quarter. The amounts recorded as an unrealized gain (loss) for the three months ended March 31, 2020 and 2019, were $92,648 and ($22,050) respectively. These amounts are included in Accumulated Other Comprehensive Loss in the Equity section of the consolidated balance sheet, and as Unrealized Loss on Foreign Exchange on the consolidated statement of comprehensive loss. The Debenture also includes a provision requiring DPTI to pay the University a two percent (2%) royalty on sales of any and all products or services which incorporate the Patents for a period of five (5) years from April 24, 2018.

For the three months ended March 31, 2020, and 2019, the Company recorded interest expense of $11,820 and $21,651, respectively.

As of March 31, 2020 the Debenture liability totaled $1,062,503, all of which was long term.

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

Period ending March 31,
2021	$	–
2022		–
2023		–
2024		–
2025 and after		1,062,503
Total	$	1,062,503

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3. CONVERTIBLE DEBT SECURITIES

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

CONVERTIBLE DEBT SECURITIES

NOTE 3 – CONVERTIBLE DEBT SECURITIES

The Company uses the Black-Scholes Model to calculate the derivative value of its convertible debt. The valuation result generated by this pricing model is necessarily driven by the value of the underlying common stock incorporated into the model. The values of the common stock used were based on the price at the date of issue of the debt security as of March 31, 2020. Management determined the expected volatility between 400.71-512.82%, a risk free rate of interest between 0.23-0.29%, and contractual lives of the debt varying from six months to two years. The table below details the Company's nine outstanding convertible notes, with totals for the face amount, amortization of discount, initial loss, change in the fair market value, and the derivative liability.

	Face		Debt		Initial		Q1 change			Derivative Balance
	Amount		Discount		Loss		in FMV			3/31/2020
	$	90,228	$	–	$	58,959	$	(15,910	)	$	118,752
		162,150		–		74,429		(26,912	)		216,474
		72,488		–		11,381		35,737			115,400
		208,436		–		–		(42,415	)		215,400
		76,657		–		8,904		(15,452	)		79,473
		65,372		–		5,651		(14,549	)		90,410
		53,864		–		28,566		39,839			72,101
		25,468		–		16,558		18,837			34,091
		29,250		656		–		(3,614	)		24,307
		49,726		1,460		–		(6,142	)		41,323
		41,774		1,228		–		(5,160	)		34,715
		29,250		859		–		(3,614	)		24,307
		40,000		–		10,605		30,541			53,495
		128,000		–		17,676		(45,900	)		100,541
Subtotal		1,072,663		4,203		232,729		(54,713	)		1,220,789
Transaction expense		–		–		–		–			–
		1,072,663		4,203		232,729		(54,713	)		1,220,789

As of March 31, 2020 and 2019 respectively, there was $1,068,460 and $767,846 of convertible debt outstanding, net of debt discount of $4,203, and $275,532, As of March 31, 2020 and 2019 respectively, there was derivative liability of $1,220,789 and $1,017,159 related to convertible debt securities.

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4. STOCKHOLDERS' DEFICIT

3 Months Ended

Mar. 31, 2020

STOCKHOLDERS' DEFICIT

STOCKHOLDERS' DEFICIT

NOTE 4 - STOCKHOLDERS' DEFICIT

As of March 31, 2020, there were 1,392,042,112 shares of common stock and 88,235 shares of preferred stock issued and outstanding.

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5. COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

NOTE 5 - COMMITMENTS & CONTINGENCIES

Potential Royalty Payments

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

Legal Matters

On March 27, 2019, Thomas A. Cellucci, et al. v. DarkPulse, Inc. et al. (the “Complaint”) was filed in the United States District Court for the Southern District of New York by certain of the Company’s former executive officers, one also being a former director, and a non-employee shareholder (collectively, the “Plaintiffs”), against the Company, its sole officer and director, and others, claiming that the Plaintiffs brought the action to protect their individual rights as minority shareholders, as improperly-ousted officers (other than the non-employee shareholder), and as an improperly-ousted director, seeking equitable relief, damages, recovery of unpaid salaries and other relief. It is the Company's position that the Complaint represents a frivolous harassment lawsuit, and the Company intends to file a motion to dismiss all claims made in the Complaint and intends to otherwise defend itself vigorously in this matter. The Company is also exploring filing counterclaims against the Plaintiffs in the action.

From time to time, we may become involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business, financial condition and operating results.

COVID-19

On March 11, 2020, the World Health Organization announced that infections of the novel Coronavirus (COVID-19) had become pandemic, and on March 13, the U.S. President announced a National Emergency relating to the disease. There is a possibility of continued widespread infection in the United States and abroad, with the potential for catastrophic impact. National, state and local authorities have required or recommended social distancing and imposed or are considering quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures, while intended to protect human life, are expected to have serious adverse impacts on domestic and foreign economies of uncertain severity and duration. Some economists are predicting the United States will soon enter a recession. The sweeping nature of the coronavirus pandemic makes it extremely difficult to predict how the Company’s business and operations will be affected in the longer run, but we expect that it may materially affect our business, financial condition and results of operations. The extent to which the coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others. Moreover, the coronavirus outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely affected to the extent that this coronavirus or any other epidemic harms the global economy generally and/or the markets in which we operate specifically. Any of the foregoing factors, or other cascading effects of the coronavirus pandemic that are not currently foreseeable, could materially increase our costs, negatively impact our revenues and damage the Company’s results of operations and its liquidity position, possibly to a significant degree. The duration of any such impacts cannot be predicted.

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6. INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

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 March 31, 2020, the Company held 3 U.S. and foreign patents on its intrusion detection technology, which expire in calendar years 2025 through 2034 (depending on the payment of maintenance fees).

For the three months ended March 31, 2020 and 2019, the Company amortized $12,757, respectively. Future amortization of intangible assets is as follows:

2020	$	38,271
2021		51,028
2022		51,028
2023		51,028
2024		51,028
Thereafter		189,878
	$	432,261

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7. RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2020

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 7 – RELATED PARTY TRANSACTIONS

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions. Pursuant to Section 850-10-20 the related parties include a) affiliates of the Company; b) Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement. 

In May 2018, the JV Entity received $42,000 for an order from Bravetek and the JV Entity then placed a corresponding order with the Company. The Company’s former executive office is also the CEO of Bravatek. The proceeds were to be used for marketing efforts to generate sales of our intrusion detection product. The order has been recorded as a prepaid sale and is a current liability as of March 31, 2020.

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8. PREFERRED STOCK

3 Months Ended

Mar. 31, 2020

Stockholders' Equity Note [Abstract]

PREFERRED STOCK

NOTE 8 – PREFERRED STOCK

In accordance with the Company’s bylaws, the Company has authorized a total of 2,000,000 shares of preferred stock, par value $0.01 per share, for all classes. As of March 2020, and December 31, 2019, there were 88,235 total preferred shares issued and outstanding for all classes.

During the three months ended March 31, 2020, the Company issued no shares of preferred stock.

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9. COMMON STOCK

3 Months Ended

Mar. 31, 2020

STOCKHOLDERS' DEFICIT

COMMON STOCK

NOTE 9 – COMMON STOCK

In accordance with the Company’s bylaws, the Company has authorized a total of 20,000,000,000 shares of common stock, par value $0.01 per share. As of March 31, 2020 and December 31, 2019, there were 1,392,042,112 common shares issued and outstanding.

During the three months ended March 31, 2020, the Company issued no shares of common stock.

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10. STOCK OPTIONS

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

STOCK OPTIONS

NOTE 10 – STOCK OPTIONS

The Company’s shareholders approved, by a majority vote, the adoption of the 1998 Stock Incentive Plan (the “Plan”). As amended on August 11, 2003, the Plan reserves 20,000,000 shares of common stock for issuance upon the exercise of options which may be granted from time-to-time to officers, directors, certain employees and consultants of the Company or its subsidiaries by the Board of Directors. The Plan permits the award of both qualified and non-qualified incentive stock options.

During the three months ended March 31, 2020, the Company did not issue any stock options and had no stock options outstanding at March 31, 2020. 

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11. SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 11 – SUBSEQUENT EVENTS

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

On April 29, 2020, the Company issued an aggregate of 68,571,429 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $4,800.

On May 4, 2020, the Company issued an aggregate of 72,857,143 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $5,100.

On June 9, 2020, the Company issued an aggregate of 75,714,286 shares of common stock upon the conversion of convertible debt, as issued on May 3, 2019, in the amount of $5,300.

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1. SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation and Principles of Consolidation

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 March 31, 2020, and the results of operations and cash flows for the three months ended March 31, 2020 have been included. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year.

Description of Business

Description of Business

DarkPulse, Inc. ("DPI" or "Company") is a technology-security company incorporated in 1989 as Klever Marketing, Inc. ("Klever"). Its’ wholly-owned subsidiary, DarkPulse Technologies Inc. ("DPTI"), originally started as a technology spinout from the University of New Brunswick, Fredericton, Canada. The Company’s security and monitoring systems will initially be delivered in applications for border security, pipelines, the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision. The Company’s patented BOTDA dark-pulse sensor technology allows for the monitoring of highly dynamic environments due to its greater resolution and accuracy.

On April 27, 2018, Klever entered into an Agreement and Plan of Merger (the “Merger Agreement” or the “Merger”) involving Klever as the surviving parent corporation and acquiring a privately held New Brunswick corporation known as DarkPulse Technologies Inc. as its wholly owned subsidiary. On July 18, 2018, the parties closed the Merger Agreement, as amended on July 7, 2018, and the name of the Company was subsequently changed to DarkPulse, Inc. With the change of control of the Company, the Merger is being be accounted for as a recapitalization in a manner similar to a reverse acquisition.

On July 20, 2018, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the State of Delaware, changing the name of the Company to DarkPulse, Inc. The Company filed a corporate action notification with the Financial Industry Regulatory Authority (FINRA), and the Company's ticker symbol was changed to DPLS.

Going Concern Uncertainty

Going Concern Uncertainty

As shown in the accompanying financial statements, during the 3 months ended March 31, 2020, the Company did not generate any revenues and reported a net loss of $74,298. As of March 31, 2020, the Company’s current liabilities exceeded its current assets by $3,275,457. As of March 31, 2020, the Company had $656 of cash.

The Company will require additional funding during the next six months to finance the growth of its operations and achieve its strategic objectives. These factors, as well as the uncertain conditions that the Company faces relative to capital raising activities, create substantial doubt as to the Company’s ability to continue as a going concern. The Company is seeking to raise additional capital principally through private placement offerings and is targeting strategic partners in an effort to finalize the development of its products and begin generating revenues. The ability of the Company to continue as a going concern is dependent upon the success of future capital offerings or alternative financing arrangements and expansion of its operations. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations. However, management cannot make any assurances that such financing will be secured.

Use of Estimates

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

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. 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

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 Currrency Translation

Foreign Currency Translation

The company translates monetary assets and liabilities (any item paid for or settled in foreign currency) into the United States Dollar at exchange rates prevailing on the balance sheet date. Non-monetary assets and liabilities are translated at the historical rate in effect when the transaction occurred. Revenues and expenses are translated at the spot rate on the date the transaction occurred. Exchange gains and losses from the translation of monetary items are included in unrealized gain/loss on Foreign Exchange as Other Comprehensive Loss.

The following table discloses the dates and exchange rates used for converting Canadian Dollar amounts to U.S. Dollar amounts disclosed in the balance sheet and the statement of operations.

The spot exchange rate between the Canadian Dollar and the U.S. Dollar on, December 31, 2019 closing rate at 1.2988 US$: CAD, average rate at 1.3234 US$: CAD and for the three months ended March 31, 2020 closing rate at 1.4118 US$: CAD, average rate at 1.3597 US$.

Income Taxes

Income Taxes

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

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

Accounting for Derivatives

Accounting for Derivatives

The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average series Binomial lattice formula pricing models to value the derivative instruments at inception and on subsequent valuation dates.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Fair Value of Financial Instruments

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 arms length.

Recently Accounting Pronouncements

Recent Accounting Pronouncements

There were no new accounting pronouncements issued or proposed by the Financial Accounting Standards Board during the three months ended March 31, 2020, and through the date of filing of this report that the Company believes has had or will have a material impact on its financial position or results of operations, including the recognition of revenue, cash flow, the merger that was consummated on July 18, 2018. The Company has no lease obligations.

Income (Loss) Per Common Share

Income (Loss) Per Common Share

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

For the three months ended March 31, 2020, there were no stock options nor convertible preferred stock outstanding. For the three months ended March 31, 2020, common stock equivalents related to convertible preferred stock and convertible debt have not been included in the calculation of diluted loss per common share because they are anti-dilutive. Therefore, basic loss per common share is the same as diluted loss per common share. There are 1,589,257,888 common shares reserved for the potential conversion of the Company's convertible debt.

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2. DEBENTURE (Tables)

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Future minimum required payments

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

Period ending March 31,
2021	$	–
2022		–
2023		–
2024		–
2025 and after		1,062,503
Total	$	1,062,503

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3. CONVERTIBLE DEBT SECURITIES (Tables)

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Schedule of convertible debt

	Face		Debt		Initial		Q1 change			Derivative Balance
	Amount		Discount		Loss		in FMV			3/31/2020
	$	90,228	$	–	$	58,959	$	(15,910	)	$	118,752
		162,150		–		74,429		(26,912	)		216,474
		72,488		–		11,381		35,737			115,400
		208,436		–		–		(42,415	)		215,400
		76,657		–		8,904		(15,452	)		79,473
		65,372		–		5,651		(14,549	)		90,410
		53,864		–		28,566		39,839			72,101
		25,468		–		16,558		18,837			34,091
		29,250		656		–		(3,614	)		24,307
		49,726		1,460		–		(6,142	)		41,323
		41,774		1,228		–		(5,160	)		34,715
		29,250		859		–		(3,614	)		24,307
		40,000		–		10,605		30,541			53,495
		128,000		–		17,676		(45,900	)		100,541
Subtotal		1,072,663		4,203		232,729		(54,713	)		1,220,789
Transaction expense		–		–		–		–			–
		1,072,663		4,203		232,729		(54,713	)		1,220,789

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6. INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of future amortization expense

2020	$	38,271
2021		51,028
2022		51,028
2023		51,028
2024		51,028
Thereafter		189,878
	$	432,261

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1. BASIS OF FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative)	3 Months Ended
	Mar. 31, 2020 USD ($) shares	Mar. 31, 2019 USD ($)	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Net loss	$ (74,298)	$ (806,568)
Working capital	(3,275,456)
Cash	$ 656	$ 135	$ 1,210	$ 72,294
Antidilutive shares outstanding | shares	1,589,257,888
C A D
Foreign currency translation rates	1.4118		1.2988
Foreign currency translation rates during the period	1.3597

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2. DEBENTURE (Details)	Mar. 31, 2020 USD ($)
Debt Disclosure [Abstract]
Period ending 2021	$ 0
Period ending 2022	0
Period ending 2023	0
Period ending 2024	0
Period ending 2025 and after	1,062,503
Total	$ 1,062,503

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2. DEBENTURE (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]
Unrealized gain (loss) on derivatives	$ 92,648	$ (22,050)
Interest expense	11,820	$ 21,651
Debenture liability	$ 1,062,503		$ 1,155,150

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3. CONVERTIBLE DEBT SECURITIES (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Amortization of discount	$ 35,211	$ 269,268
Initial loss	(92,648)	22,050
Change in Fair Market Value	54,713	$ (169,268)
Derivative balance	1,220,787		$ 1,275,500
Convertible Debt 1 [Member]
Face amount	90,228
Amortization of discount	0
Initial loss	58,959
Change in Fair Market Value	(15,910)
Derivative balance	118,752
Convertible Debt 2 [Member]
Face amount	162,150
Amortization of discount	0
Initial loss	74,429
Change in Fair Market Value	(26,912)
Derivative balance	216,474
Convertible Debt 3 [Member]
Face amount	72,488
Amortization of discount	0
Initial loss	11,381
Change in Fair Market Value	35,737
Derivative balance	115,400
Convertible Debt 4 [Member]
Face amount	208,436
Amortization of discount	0
Initial loss	0
Change in Fair Market Value	(42,415)
Derivative balance	215,400
Convertible Debt 5 [Member]
Face amount	76,657
Amortization of discount	0
Initial loss	8,904
Change in Fair Market Value	(15,452)
Derivative balance	79,473
Convertible Debt 6 [Member]
Face amount	65,372
Amortization of discount	0
Initial loss	5,651
Change in Fair Market Value	(14,549)
Derivative balance	90,410
Convertible Debt 7 [Member]
Face amount	53,864
Amortization of discount	0
Initial loss	28,566
Change in Fair Market Value	39,839
Derivative balance	72,101
Convertible Debt 8 [Member]
Face amount	25,468
Amortization of discount	0
Initial loss	16,558
Change in Fair Market Value	18,837
Derivative balance	34,091
Convertible Debt 9 [Member]
Face amount	29,250
Amortization of discount	656
Initial loss	0
Change in Fair Market Value	(3,614)
Derivative balance	24,307
Convertible Debt 10 [Member]
Face amount	49,726
Amortization of discount	1,460
Initial loss	0
Change in Fair Market Value	(6,142)
Derivative balance	41,323
Convertible Debt 11 [Member]
Face amount	41,774
Amortization of discount	1,228
Initial loss	0
Change in Fair Market Value	(5,160)
Derivative balance	34,715
Convertible Debt 12 [Member]
Face amount	29,250
Amortization of discount	859
Initial loss	0
Change in Fair Market Value	(3,614)
Derivative balance	24,307
Convertible Debt 13 [Member]
Face amount	40,000
Amortization of discount	0
Initial loss	10,605
Change in Fair Market Value	30,541
Derivative balance	53,495
Convertible Debt 14 [Member]
Face amount	128,000
Amortization of discount	0
Initial loss	17,676
Change in Fair Market Value	(45,900)
Derivative balance	$ 100,541
Derivative Liabilities [Member]
Face amount			1,072,663
Amortization of discount			4,203
Initial loss			232,729
Change in Fair Market Value			(54,713)
Transaction expense			0
Derivative balance			$ 1,275,500

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3. CONVERTIBLE DEBT SECURITIES (Details Narrative) - USD ($)	Mar. 31, 2020	Mar. 31, 2019
Debt Disclosure [Abstract]
Convertible debt outstanding	$ 1,068,460	$ 767,846
Unamortized debt discount	4,203	275,532
Derivative liability	$ 1,220,789	$ 1,017,159

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6. INTANGIBLE ASSETS (Details)	Mar. 31, 2020 USD ($)
Goodwill and Intangible Assets Disclosure [Abstract]
Future amortization 2020	$ 38,271
Future amortization 2021	51,028
Future amortization 2022	51,028
Future amortization 2023	51,028
Future amortization 2024	51,028
Thereafter	189,878
Total future amortization	$ 432,261

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6. INTANGIBLE ASSETS (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of intangibles	$ 12,757	$ 12,757

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7. RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2018	Mar. 31, 2020	Dec. 31, 2019
Contract liability, related party		$ 42,000	$ 42,000
Bravetek and JV Entity [Member]
Advance from related party	$ 42,000
Contract liability, related party		$ 42,000

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10. STOCK OPTIONS (Details Narrative)	3 Months Ended
	Mar. 31, 2020 shares
Share-based Payment Arrangement [Abstract]
Common stock reserved for issuance	20,000,000
Stock options granted	0