| BASIS OF PRESENTATION AND SUMMARY OF 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, 2020 have been audited by an independent registered public accounting firm. The accounting policies and
procedures employed in the preparation of these condensed consolidated financial statements have been derived from the audited financial
statements of the Company for the year ended December 31, 2020, which are contained in Form 10-K as filed with the Securities and Exchange
Commission on April 15, 2021. The consolidated balance sheet as of December 31, 2020 was derived from those financial statements. Basis of Presentation and Principles of
Consolidation The consolidated financial statements and accompanying
notes are prepared in accordance with generally accepted accounting principles of the United States of America (“U.S. GAAP”)
and the rules and regulations of the U.S Securities and Exchange Commission for Interim Financial Information. The condensed consolidated
financial statements of the Company include the Company and its wholly owned subsidiaries. All intercompany transactions and balances
have been eliminated. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s financial
position as of September 30, 2021, and the results of operations for three and nine months and cash flows for the nine months ended September
30, 2021 have been included. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative
of the results to be expected for the full year. Description of Business DarkPulse,
Inc. ("DPI" or "Company") is a technology-security company incorporated in 1989 as Klever Marketing, Inc. ("Klever").
Its’ wholly-owned subsidiary, DarkPulse Technologies Inc. ("DPTI"), originally started as a technology spinout from the
University of New Brunswick, Fredericton, Canada. The Company’s security and monitoring systems will initially be delivered in applications
for border security, pipelines, the oil and gas industry and mine safety. Current uses of fiber optic distributed sensor technology have
been limited to quasi-static, long-term structural health monitoring due to the time required to obtain the data and its poor precision.
On April 27, 2018, Klever entered into an Agreement
and Plan of Merger (the “Merger Agreement” or the “Merger”) involving Klever as the surviving parent corporation
and acquiring a privately held New Brunswick corporation known as DarkPulse Technologies Inc. as its wholly owned subsidiary. On July
18, 2018, the parties closed the Merger Agreement, as amended on July 7, 2018, and the name of the Company was subsequently changed to
DarkPulse, Inc. With the change of control of the Company, the Merger is being accounted for as a recapitalization in a manner similar
to a reverse acquisition. On July 20, 2018, the Company filed a Certificate
of Amendment to its Certificate of Incorporation with the State of Delaware, changing the name of the Company to DarkPulse, Inc. The Company
filed a corporate action notification with the Financial Industry Regulatory Authority (FINRA), and the Company's ticker symbol was changed
to DPLS. The Company has recently completed several acquisitions.
See Note 2 – Business Acquisitions for more information. Going
Concern Uncertainty As shown in the accompanying financial statements,
during the nine months ended September 30, 2021, the Company reported a net loss of $ 1,924,311 12,139,502 2,564,492 The Company will require additional funding to
finance the growth of our operations and achieve our strategic objectives. These factors, as relative to capital raising activities, create
doubt as to our ability to continue as a going concern. We are seeking to raise additional capital and are targeting strategic partners
in an effort to accelerate the sales and marketing of our products and begin generating revenues. Our ability to continue as a going concern
is dependent upon the success of future capital offerings or alternative financing arrangements, expansion of our operations and generating
sales. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as
a going concern. Management is actively pursuing additional sources of financing sufficient to generate enough cash flow to fund its operations
however, management cannot make any assurances that such financing will be secured. Use of Estimates In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of
the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from
those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based
compensation, derivative liabilities, preferred deemed dividend and common stock issued for services. COVID-19
Pandemic On January 30, 2020, the World Health Organization
(WHO) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”)
and the risks to the international community as the virus spread globally beyond the point of origin. On March 20, 2020 the WHO classified
the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues
to evolve as of the date of these condensed consolidated financial statements. As such, it is uncertain as to the full magnitude that
the pandemic will have on the Company’s combined financial condition, liquidity and future results of operations. Management is
actively monitoring the impact of the global situation on its consolidated financial condition, liquidity, operations, suppliers, industry
and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able
to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021
beyond the results presented in these condensed consolidated financial statements and this quarterly report. Due to the impacts of COVID-19 we have seen an
increase in recruiting and labor costs as well as delays in supply chain. Revenue
Recognition The Company’s revenues are generated primarily
from the sale of our products, which consist primarily of advanced technology solutions for integrated communications and security systems.
At contract inception, we assess the goods and services promised in the contract with customers and identify a performance obligation
for each. To determine the performance obligation, we consider all products and services promised in the contract regardless of whether
they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not
subject to significant judgment. We measure revenue as the amount of consideration expected to be received in exchange for transferring
goods and services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria
have been met. The Company recognizes revenue when its customer
obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for
those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606,
we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract;
(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize
revenue when (or as) we satisfy a performance obligation. The five-step model is applied to contracts when it is probable that we will
collect the consideration we are entitled to in exchange for the goods or services transferred to the customer. At contract inception,
once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine
those that are performance obligations and assess whether each promised good or service is distinct. We then recognize revenue in the
amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is
satisfied. In accordance with ASU No. 2016-12, Revenue
from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedient Contract liabilities is shown separately in
the unaudited consolidated balance sheets as current liabilities. At September 30, 2021 and December 31, 2020, we had contract
liabilities of $ 2,699,688 0 Cost of Product Sales and Services Cost of sales consists primarily of materials,
airtime and overhead costs incurred internally and amounts incurred to contract manufacturers to produce our products, airtime and other
implementation costs incurred to install our products and train customer personnel, and customer service and third-party original equipment
manufacturer costs to provide continuing support to our customers. There are certain costs which are deferred and recorded as prepaids,
until such revenue is recognized. Refer to revenue recognition above as to what constitutes deferred revenue. Cash and Cash Equivalents The Company considers all highly liquid
investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with high
credit quality financial institutions. The Company’s account at this institution is insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $ 250,000 Intangible Assets The Company reviews intangibles held and used
for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted
future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the
carrying value of the asset exceeds the expected future cash flows. Goodwill and other intangible assets In accordance with ASC 350-30-65, “Intangibles
- Goodwill and Others”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors the Company considers to be important
which could trigger an impairment review include the following:
· Significant underperformance relative to expected historical or projected
future operating results;
· Significant changes in the manner of use of the acquired assets or the strategy
for the overall business; and
· Significant negative industry or economic trends. When the Company determines that the carrying
value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying
value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures
any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with
the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment
exists and in projecting cash flows. Foreign Currency Translation The Company’s reporting
currency is U.S. Dollars. The accounts of one of the Company’s subsidiaries, Optilan, is maintained using the appropriate local
currency, Great British Pound, as the functional currency. All assets and liabilities are translated into U.S. Dollars at balance sheet
date, shareholders’ equity is translated at historical rates and revenue and expense accounts are translated at the average exchange
rate for the year or the reporting period. The translation adjustments are reported as a separate component of stockholders’ equity,
captioned as accumulated other comprehensive (loss) gain. Transaction gains and losses arising from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the statements of operations. The relevant translation rates are as follows:
for the three and nine months ended September 30, 2021, closing rate at 1.3468
1.3787
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. Leases Effective January 1, 2019, the Company accounts
for its leases under ASC 842, Leases In calculating the right of use asset and lease
liability, the Company has elected to combine lease and non-lease components. The Company excludes short-term leases having initial terms
of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over
the lease term. Accounting for Derivatives The Company evaluates all of its financial instruments
to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments
that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments,
the Company uses a probability weighted average series Binomial lattice formula pricing models to value the derivative instruments at
inception and on subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement
of the derivative instrument could be required within 12 months of the balance sheet date. Fair Value of Financial Instruments The carrying amounts of the Company's financial
assets and liabilities, such as cash, prepaid expenses, and accruals approximate their fair values because of the short maturity of these
instruments. The Company believes the carrying value of its secured debenture payable approximates fair value because the terms were negotiated
at arm’s length. Recent Accounting Pronouncements There were no new accounting pronouncements issued
or proposed by the Financial Accounting Standards Board during the three months ended September 30, 2021, and through the date of filing
of this report that the Company believes has had or will have a material impact on its financial position or results of operations, including
the recognition of revenue, cash flow, the merger that was consummated on July 18, 2018. The Company has no lease obligations. Income (Loss) Per Common Share Basic net income (loss) per share of common stock
is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income
(loss) per share of common stock is computed by dividing net income (loss) by the sum of the weighted average number of common shares
outstanding and the dilutive potential common share equivalents outstanding. Potential dilutive common share equivalents consist of shares
issuable upon exercise of outstanding convertible preferred stock and stock options. For the three and nine months ended September
30, 2021, there were no stock options outstanding. For the three and nine months ended September 30, 2021, common stock equivalents related
to convertible preferred stock and convertible debt have not been included in the calculation of diluted loss per common share because
they are anti-dilutive. Therefore, basic loss per common share is the same as diluted loss per common share. There are 1,970,029,676
common shares reserved for the potential conversion of the Company's convertible debt. |
