| 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, 2021 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, 2021, which are contained in Form 10-K as filed with the Securities and Exchange
Commission on April 15, 2022. The consolidated balance sheet as of December 31, 2021 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, 2022, and the results of operations for three months and cash flows for the three months ended March 31, 2022
have been included. The results of operations for the three months ended March 31, 2022 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. The Company’s patented
BOTDA dark-pulse sensor technology allows for the monitoring of highly dynamic environments due to its greater resolution and accuracy. On April 27, 2018, Klever entered into an Agreement
and Plan of Merger (the “Merger Agreement” or the “Merger”) involving Klever as the surviving parent corporation
and acquiring a privately held New Brunswick corporation known as DarkPulse Technologies Inc. as its wholly owned subsidiary. On July
18, 2018, the parties closed the Merger Agreement, as amended on July 7, 2018, and the name of the Company was subsequently changed to
DarkPulse, Inc. With the change of control of the Company, the Merger is being be accounted for as a recapitalization in a manner similar
to a reverse acquisition. On July 20, 2018, the Company filed a Certificate
of Amendment to its Certificate of Incorporation with the State of Delaware, changing the name of the Company to DarkPulse, Inc. The Company
filed a corporate action notification with the Financial Industry Regulatory Authority (FINRA), and the Company's ticker symbol was changed
to DPLS. Reclassifications Certain amounts in the Company’s prior period consolidated financial
statements have been reclassified to conform to the current period presentation. These reclassifications have not changed the results
of operations of prior periods. Going Concern Uncertainty As shown in the accompanying financial statements,
during the three months ended March 31, 2022, the Company reported a net loss of $ 5,384,270 7,610,707 The Company will require additional funding during
the next twelve months to finance the growth of its current 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
or 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 through calendar year 2022. However, management cannot make any assurances that such financing
will be secured. Use of Estimates In preparing the consolidated financial statements,
management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of
the statements of financial condition, and revenues and expenses for the years then ended. Actual results may differ significantly from
those estimates. Significant estimates made by management include, but are not limited to, the assumptions used to calculate stock-based
compensation, derivative liabilities, preferred deemed dividend and common stock issued for services. Cash and Cash Equivalents The Company considers all highly liquid investments
with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with 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 three months ended March 31, 2022 closing rate at 1.31524 1.342089 1.353583 1.375671 The relevant translation rates are as follows:
for the three months ended March 31, 2022 closing rate at 1.2484 1.2614 1.2794 1.2534 Long-Lived Assets and Goodwill 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. 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 March 31, 2022 and December 31, 2021, we had contract liabilities of
$ 4,667,905 3,216,562 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 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. 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. For the three months ended March 31, 2021, there
were no stock options outstanding. For the three months ended March 31, 2021, common stock equivalents related to convertible preferred
stock and convertible debt have not been included in the calculation of diluted loss per common share because they are anti-dilutive.
Therefore, basic loss per common share is the same as diluted loss per common share. There are 1,970,029,676 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. |
