| 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, 2021 and 2020 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. On August 9, 2021, the Company entered into a
Share Purchase Agreement with Optilan Guernsey Limited and Optilan Holdco 2 Limited (the “Sellers”), pursuant to which the
Company purchased from the Sellers all of the issued and outstanding equity interests of Optilan HoldCo 3 Limited, a private company
incorporated in England and Wales (“Optilan”) for £1.00 and also a commitment to enter into the Subscription (as defined
below). As of August 9, 2021, the Company owns all of the equity interests of Optilan. On August 30, 2021, the Company closed two
separate Membership Interest Purchase Agreements with Remote Intelligence, Limited Liability Company, a Pennsylvania limited
liability company (“ RI WS 15,000,000 1,000,000 60 On September 8, 2021, the Company entered into
and closed the Stock Purchase Agreement with TJM Electronics West, Inc., an Arizona corporation (“ TJM 450,000 Effective October 1, 2021 the Company entered
into and closed the Membership Purchase Agreement with TerraData Unmanned, PLLC, a Florida limited liability company (“ TerraData 60 3,725,386 400,000 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, British Pound (“GBP”)
as the functional currency. The accounts of one of the Company’s subsidiaries is maintained using the appropriate local currency,
Canadian Dollar (“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, 2021 closing rate at 1.353583 1.375671 1.38138 The relevant translation rates are as follows:
for the year ended December 31, 2021 closing rate at 1.2794 1.2534 1.2754 1.3388 Long-Lived Assets and Goodwill The Company accounts for long-lived assets in
accordance with the provisions of ASC 360-10-35, Property, Plant and Equipment, Impairment or Disposal of Long-lived Assets. This accounting
standard requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value
of the asset. The Company accounts for goodwill and intangible
assets in accordance with ASC 350, Intangibles – Goodwill and Other. Goodwill represents the excess of the purchase price of an
entity over the estimated fair value of the assets acquired and liabilities assumed. ASC 350 requires that goodwill and other intangibles
with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value
of an asset has decreased below its carrying value. During the fourth quarter of 2020, the Company adopted ASU No. 2017-04, Intangibles
– Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This guidance simplifies the accounting for goodwill
impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment
will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of
goodwill. The adoption of this standard had no material impact on the Consolidated Financial Statements. During fiscal 2021 and 2020,
the Company recorded no impairments. 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, 2021, 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, 2021, the Company
had patent amortization costs on its intrusion detection technology totaling $ 51,028 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, 2021:
Intangible Assets
Balance at January 1, 2021 $ 393,990
Additions –
Amortization (51,028 )
Balance at December 31, 2021 $ 342,962 The following is a summary of the DPTI patents
as of December 31, 2021:
2021
Historical cost $ 904,269
Accumulated amortization (561,307 )
Carrying Value $ 342,962 Future expected amortization of intangible
assets is as follows:
Future expected amortization of intangible assets
Year Ending December 31,
2022 $ 51,028
2023 51,028
2024 51,028
2025 51,028
2026 51,028
Thereafter 87,822
Total $ 342,962 Property and Equipment Property and equipment are carried at historical
cost less accumulated depreciation. Depreciation is based on the estimated service lives of the depreciable assets and is calculated
using the straight-line method. Expenditures that increase the value or productive capacity of assets are capitalized. Fully depreciated
assets are retained in the property and equipment, and accumulated depreciation accounts until they are removed from service. When property
and equipment are retired, sold or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are
removed from the accounts and any gain or loss is included in operations. Repairs and maintenance are expensed as incurred. The estimated useful lives of property and equipment
are generally as follows:
Schedule of estimated useful lives
Years
Office furniture and fixtures 4
Plant and equipment 4 8
Leasehold Improvements 10
Motor Vehicles 3 Revenue Recognition The Company’s revenues are generated primarily
from the sale of our products, which consist primarily of advanced technology solutions for integrated communications and security systems.
At contract inception, we assess the goods and services promised in the contract with customers and identify a performance obligation
for each. To determine the performance obligation, we consider all products and services promised in the contract regardless of whether
they are explicitly stated or implied by customary business practices. The timing of satisfaction of the performance obligation is not
subject to significant judgment. We measure revenue as the amount of consideration expected to be received in exchange for transferring
goods and services. We generally recognize product revenues at the time of shipment, provided that all other revenue recognition criteria
have been met. 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 December 31, 2021 and December 31, 2020, we had contract liabilities
of $ 3,216,562 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. 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. 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. 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 2021 and 2020. The Company
has filed tax returns in Canada for the year ended December 31, 2018, and they are still subject to audit. Stock-based Compensation Stock-based compensation is accounted for based
on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of
the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director
is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement
of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Pursuant to ASC Topic 718, for share-based payments
to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized
over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain.
The Company initially records compensation expense based on the fair value of the award at the reporting date. Further, ASC Topic 718,
provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification
accounting in Topic 718, such as the repricing of share options, which would revalue those options and the accounting for the cancellation
of an equity award whether a replacement award or other valuable consideration is issued in conjunction with the cancellation. If not,
the cancellation is viewed as a replacement and not a modification, with a repurchase price of $ 0 . 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.
Schedule of antidilutive shares
December
31, 2021 December
31, 2020
Convertible preferred stock – –
Stock Options – –
Stock Warrants – – Recently Issued Accounting Pronouncements In October 2016, the FASB issued ASU 2016-16,
“ Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory In January 2017, the FASB issued ASU 2017-04
Intangibles-Goodwill and Other (“ASC 350”): Simplifying the Accounting for Goodwill Impairment In July 2021, the FASB issued ASU No. 2021-05,
Lessors—Certain Leases with Variable Lease In November 2021, the FASB issued ASU No. 2021-08,
Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers 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. |
