| SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 – SIGNIFICANT ACCOUNTING POLICIES A
summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements
are as follows: Basis
of Presentation and Principles of Consolidation The
Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States (“US GAAP”). The consolidated financial statements of the Company include the Company and its wholly-owned
subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. Our
consolidated financial statements as of December 31, 2020 and 2019 include the accounts of DarkPulse Inc. and its subsidiaries: DarkPulse
Technologies Inc. (“DPTI”), a New Brunswick, Canada corporation, a wholly owned subsidiary, incorporated December
16, 2010. DPTI
owns 100% of DarkPulse Technology Holdings Inc., a New York corporation, incorporated July 6, 2017. DPTI
indirectly owns 37.572% of DarkPulse Technologies International Inc., ("DPTINY") a New York corporation, incorporated
on September 7, 2017. On or about September 18, 2017, DPTI entered into a shareholder agreement with three investors, whereby
DPTI would own 50.2% of DPTINY and the investors would own 49.8%. On or about October 3, 2017, another investor entered into an
agreement with DPTINY to fund it $37,500 for a 0.5% equity interest in DPTINY. On December 26, 2017, DPTI’s CEO incorporated
another corporation named DarkPulse Technologies International Inc., ("DPTIDel") in the State of Delaware. On or about
April 16, 2018, seven investors and DPTI entered into a new agreement whereby it was agreed that the investors would own 62.428%
of DPTIDel, and the September 18, 2017 agreement with respect to DPTINY was considered null and void. Accordingly, the funding
of $37,500 to DPTINY in October 2017 has been converted to an equity interest in DPTIDel as of April 2018. As of April 16, 2018,
DPTI owns approximately 37.572% of the shares of common stock of DPTIDel and 100% of the issued shares of Series A Preferred Stock
of DPTIDel, pursuant to which the Company controls both DPTIDel and DPTINY. The
Company does not own any interest in DarkPulse East LLC, ("DPE") an entity organized on December 8, 2017 in Russia, by
two of the shareholders of DPTIDel, to act as a sales organization to promote the Company's products within Russia. Each of the
two shareholders own 50% interest in DPE. During November and December 2017 DPTINY funded DarkPulse East LLC a total of $20,650
to establish and launch the Company's business in Russia. The Company is considered to be the primary beneficiary of DPE based
on implicit obligations to fund it, and accordingly, the operations of DPE are consolidated into these financial statements. As
of December 31, 2018, DPE had no assets or liabilities. The Company is not liable for obligations of DPE, and creditors of DPE
do not have recourse to the general credit of the Company. On
February 8, 2018, DPTI formed DarkPulse BVTK, LLC, a Virginia Limited Liability Company (“JV Entity”). The Company,
through its wholly-owned subsidiary DPTI, holds a 60% equity interest in the JV Entity, and Bravatek Solutions, Inc ("Bravatek")
has a 40% interest. The primary business purpose of the JV Entity was to develop, market, and sell products and services based
on the Company's patented BOTDA dark-pulse technology. Both the CEO of the Company and the CEO of Bravatek were to manage the
day to day operations of the JV Entity. The operations of JV Entity are not consolidated into these financial statements. On
March 26, 2019, DPTI informed the JV Entity and Bravatek that, effective immediately, DPTI was revoking from the JV Entity the
revocable Licensed Technology exclusively owned by DPTI and the Company. Use
of Estimates In
preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the statements of financial condition, and revenues and expenses for the years
then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but
are not limited to, the assumptions used to calculate stock-based compensation, derivative liabilities, preferred deemed dividend
and common stock issued for services. Cash
and Cash Equivalents The
Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents.
The Company places its cash with high credit quality financial institutions. The Company’s account at this institution is
insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. To reduce its risk associated with
the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in
which it holds deposits. Foreign
Currency Translation The
Company’s reporting currency is US Dollars. The accounts of one of the Company’s subsidiaries is maintained using
the appropriate local currency, Canadian Dollar (“CAD”) as the functional currency. All assets and liabilities are
translated into U.S. Dollars at balance sheet date, shareholders' equity is translated at historical rates and revenue and expense
accounts are translated at the average exchange rate for the year or the reporting period. The translation adjustments are reported
as a separate component of stockholders’ equity, captioned as accumulated other comprehensive (loss) gain. Transaction gains
and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency
are included in the statements of operations. The
relevant translation rates are as follows: for the year ended December 31, 2020 closing rate at 1.2754 US$: CAD, average rate
at 1.3388 US$:CAD and for the year ended December 31, 2019 closing rate at 1.2988 US$: CAD, average rate at 1.3234 US$. Intangible
assets Intangible
assets consist of capitalized software development costs and patents and trademarks. The
Company reviews intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets,
management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining
amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future
cash flows. Intangible
Assets - Intrusion Detection Intellectual Property The
Company relies on patent laws and restrictions on disclosure to protect its intellectual property rights. As of December 31, 2020,
the Company held three U.S. and foreign patents on its intrusion detection technology, which expire in calendar years 2025 through
2034 (depending on the payment of maintenance fees). The
DPTI issued patents cover a System and Method for Brillouin Analysis, a System and Method for Resolution Enhancement of a Distributed
Sensor, and a Flexible Fiber Optic Deformation System Sensor and Method. Maintenance of intellectual property rights and the protection
thereof is important to our business. Any patents that may be issued may not sufficiently protect the Company's intellectual property
and third parties may challenge any issued patents. Other parties may independently develop similar or competing technology or
design around any patents that may be issued to the Company. The Company cannot be certain that the steps it has taken will prevent
the misappropriation of its intellectual property, particularly in foreign countries where the laws may not protect proprietary
rights as fully as in the United States. Further, the Company may be required to enforce its intellectual property or other proprietary
rights through litigation, which, regardless of success, could result in substantial costs and diversion of management's attention.
Additionally, there may be existing patents of which the Company is unaware that could be pertinent to its business, and it is
not possible to know whether there are patent applications pending that the Company's products might infringe upon, since these
applications are often not publicly available until a patent is issued or published. For
the year ended December 31, 2020, the Company had patent amortization costs on its intrusion detection technology totaling $51,028.
Patents costs are being amortized over the remaining life of each patent, which is from 7 to 16 years. The
DPTI issued patents cover a System and Method for Brillouin Analysis, a System and Method for Resolution Enhancement of a Distributed
Sensor, and a Flexible Fiber Optic Deformation System Sensor and Method. Maintenance of intellectual property rights and the protection
thereof is important to our business. Any patents that may be issued may not sufficiently protect the Company's intellectual property
and third parties may challenge any issued patents. Other parties may independently develop similar or competing technology or
design around any patents that may be issued to the Company. The Company cannot be certain that the steps it has taken will prevent
the misappropriation of its intellectual property, particularly in foreign countries where the laws may not protect proprietary
rights as fully as in the United States. Further, the Company may be required to enforce its intellectual property or other proprietary
rights through litigation, which, regardless of success, could result in substantial costs and diversion of management's attention.
Additionally, there may be existing patents of which the Company is unaware that could be pertinent to its business, and it is
not possible to know whether there are patent applications pending that the Company's products might infringe upon, since these
applications are often not publicly available until a patent is issued or published. The
following is a summary of activity related to the DPTI patents for the year ended December 31, 2020:
Balance
at January 1, 2020 $ 445,018
Additions –
Amortization (51,028 )
Balance
at December 31, 2020 $ 393,990 The
following is a summary of the DPTI patents as of December 31, 2020:
2019
Historical
cost $ 904,269
Accumulated
amortization (510,279 )
Carrying
Value $ 393,990 Future
expected amortization of intangible assets is as follows:
Year Ending December
31,
2021 $ 51,028
2022 51,028
2023 51,028
2024 51,028
2025 51,028
Thereafter 138,850
$ 393,990 Property
and Equipment Property
and equipment are capitalized and depreciated over their estimated economic useful lives. Upon sale or other disposition of property
and equipment, the cost and related accumulated depreciation or amortization are removed from the accounts and any gain or loss
is included in the determination of income or loss. The Company had no assets as of December 31, 2020 and 2019. Revenue
Recognition The
Company currently has no revenues from its operations. We anticipate that revenues from product sales, net of estimated returns
and allowances, will be recognized when evidence of an arrangement is in place, related prices are fixed and determinable, contractual
obligations have been satisfied, title and risk of loss have been transferred to the customer and collection of the resulting
receivable is reasonably assured. Concentration
of Credit Risk The
Company has no significant concentrations of credit risk. Related
Parties The
Company accounts for related party transactions in accordance with ASC 850 (“Related Party Disclosures”). A party
is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls,
is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its
management, members of the immediate families of principal owners of the Company and its management and other parties with which
the Company may deal if one party controls or can significantly influence the management or operating policies of the other to
an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which
can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest
in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties
might be prevented from fully pursuing its own separate interests is also a related party. Derivative
Financial Instruments The
Company evaluates the embedded conversion feature within its convertible debt instruments under ASC 815-15 and ASC 815-40 to determine
if the conversion feature meets the definition of a liability and, if so, whether to bifurcate the conversion feature and account
for it as a separate derivative liability. For derivative financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value
reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a lattice model,
in accordance with ASC 815-15 “Derivative and Hedging” to value the derivative instruments at inception and on subsequent
valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance
sheet as current or non-current based on whether net-cash settlement of the derivative instrument could be required within 12
months after the balance sheet date. Beneficial
Conversion Features The
Company evaluates the conversion feature for whether it was beneficial as described in ASC 470-30. The intrinsic value of a beneficial
conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible
note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount
is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the
note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement
to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after
considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value
of the shares of common stock at the commitment date to be received upon conversion. Fair
Value of Financial Instruments The
Company measures its financial assets and liabilities in accordance with the requirements of FASB ASC 820, “Fair Value Measurements
and Disclosures”. As defined in FASB ASC 820, the fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company
utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs
can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on
the observability of those inputs. FASB ASC 820 established a fair value hierarchy that prioritizes the inputs used to measure
fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement) as follows: Level
1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets
are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information
on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities
and listed equities. Level
2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly
observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies.
These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities,
time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant
economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument,
can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options
and collars. Level
3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may
be used with internally developed methodologies that result in management’s best estimate of fair value. Income
Taxes The
Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC
740-10”) which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset
and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided
to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will
not be realized. The
Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed,
there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained.
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset
or aggregated with other positions. Tax
positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more
than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated
with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax
benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing
authorities upon examination. The
Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded
a liability for uncertain tax benefits. The
Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine
whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides
that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally
extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even
if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and
the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination
by the IRS and state taxing authorities, generally for three years after they are filed. The
Company's U.S. subsidiaries were incorporated in 2017, and tax returns have not yet been filed. The Company does not anticipate
a tax liability for the years 2020 and 2019. The Company has filed tax returns in Canada for the year ending December 31, 2018,
and they are still subject to audit. Income
(Loss) Per Common Share The
Company accounts for earnings per share pursuant to ASC 260, Earnings per Share, which requires disclosure on the financial statements
of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share are computed by dividing net
income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed
by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive)
related to stock options and warrants for each year. In periods where the Company has a net loss, all dilutive securities are
excluded.
December
31, 2020 December
31, 2019
Convertible preferred stock – –
Stock Options – –
Stock Warrants – –
Total – – Recently
Issued Accounting Pronouncements On
February 25, 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842). The new guidance establishes the
principles to report transparent and economically neutral information about the assets and liabilities that arise from leases.
The updated standard was effective for us in the first quarter of 2019. Adoption of this standard did not have a material impact
on the Company’s financial statements as the Company does not have any leases. In
August 2018, the FASB issued Accounting Standards Update No. 2018-15 (“ASU 2018-15”), Intangibles —
Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs
Incurred in a Cloud Computing Arrangement That Is a Service Contract. In
December 2019, the FASB issued Accounting Standards Update No. 2019-12 (“ASU 2019-12”), Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes Although
there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt,
as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its
financial position or results of operations. |
