UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

 

LANDSTAR, INC.

(Exact name of registrant as specified in its charter)

 

NEVADA   86-0914051
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

1053 E. Whitaker Mill Road, Suite 115,    
Raleigh, North Carolina   27604
(Address of principal executive offices)   (Zip code)

 

Registrant’s telephone number, including area code: 919-858-6542

 

COPIES TO :

Keith A. Rosenbaum

SPECTRUM LAW GROUP, APC

23 Corporate Plaza, Suite 150

Newport Beach, California 92660

949-851-4300

 

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

 

Title of each class   Name of each exchange on which
to be so registered   each class is to be registered
     
None   None

 

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

 

COMMON STOCK, Par Value $0.001

(Title of class)

 

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.

 

Large Accelerated Filer [  ] Accelerated Filer [  ]
Non-Accelerated Filer [  ] Smaller reporting company [X]
    Emerging growth company [  ]

 

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. [  ]

 

 

 

 

 

 

EXPLANATORY NOTE

 

We are filing this General Form for Registration of Securities on Form 10 to register our common stock, par value $0.001 per share (the “Common Stock”), pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Once this Registration Statement is deemed effective, we will be subject to the requirements of Regulation 13A under the Exchange Act, which will require us to file annual reports on Form 10-K; quarterly reports on Form 10-Q; and, current reports on Form 8-K, and we will be required to comply with all other obligations of the Exchange Act applicable to issuers filing registration statements pursuant to Section 12(g) of the Exchange Act. Unless otherwise noted, references in this Registration Statement to the “Registrant”, the “Company”, “LandStar” “we”, “our”, or “us” means LandStar, Inc.

 

FORWARD LOOKING STATEMENTS

 

There are statements in this Registration Statement that are not historical facts. These “forward-looking statements” can be identified by use of terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control. For a discussion of these risks, you should read this entire Registration Statement carefully, especially the risks discussed under the section entitled “Risk Factors.” Although management believes that the assumptions underlying the forward looking statements included in this Registration Statement are reasonable, they do not guarantee our future performance, and actual results could differ from those contemplated by these forward looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Registration Statement will in fact transpire. You are cautioned to not place undue reliance on these forward-looking statements, which speak only as of their dates. We do not undertake any obligation to update or revise any forward-looking statements.

 

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

 

This Form 10 contains references to our trademarks, service marks and trade names and to trademarks, service marks and trade names belonging to other entities. Solely for convenience, trademarks, service marks and trade names referred to in this Form 10, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. Except as set forth in this Form 10, we do not intend our use or display of other companies’ trade names, service marks or trademarks or any artists’ or other individuals’ names to imply a relationship with, or endorsement or sponsorship of us by, any other companies or persons.

 

 

 

 

TABLE OF CONTENTS

 

    Page
Item 1. Business 1
Item 1A. Risk Factors 8
Item 2. Financial Information 22
Item 3. Properties 30
Item 4. Security Ownership of Certain Beneficial Owners and Management 30
Item 5. Directors and Executive Officers 31
Item 6. Executive Compensation 32
Item 7. Certain Relationships and Related Transactions, and Director Independence 33
Item 8. Legal Proceedings 33
Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matter 34
Item 10. Recent Sales of Unregistered Securities 35
Item 11. Description of Registrant’s Securities to be Registered 37
Item 12. Indemnification of Directors and Officers 38
Item 13. Financial Statements and Supplementary Data 39
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 39
Item 15. Financial Statements and Exhibits 40

 

 

 

 

ITEM 1. BUSINESS

 

Business History

 

LandStar, Inc. was incorporated as a Nevada corporation on May 4, 1998, for the purpose of purchasing, developing and reselling real property, with its principal focus on the development of raw land. From incorporation through December 31, 1998, LandStar had no business operations and was a development-stage company. LandStar did not purchase or develop any properties and decided to change its business plan and operations. On March 31, 1999, the Company acquired approximately 98.5% of the common stock of Rebound Rubber Corp. pursuant to a share exchange agreement with Rebound Rubber Corp. (“ Rebound Rubber ”) and substantially all of Rebound Rubber’s shareholders. The acquisition was effected by issuing 14,500,100 shares of common stock, which constituted 14.5% of the 100,000,000 authorized shares of LandStar, and 50.6% of the 28,622,100 issued and outstanding shares on completion of the acquisition. The acquisition was treated for accounting purposes as a continuation of Rebound Rubber under the LandStar capital structure. If viewed from a non-consolidated perspective, on March 31, 1999 LandStar issued 14,500,100 shares for the acquisition of the outstanding shares of Rebound Rubber.

 

The share exchange with Rebound Rubber (and other transactions occurring in March, 1999) resulted in a change of control of LandStar and the appointment of new officers and directors of the Company. These transactions also redefined the focus of the Company on the development and exploitation of the technology to de-vulcanize and reactivate recycled rubber for resale as a raw material in the production of new rubber products. The Company’s business strategy was to sell the de-vulcanized material (and compounds using the materials) to manufacturers of rubber products.

 

Prior to 2001 the Company had no revenues. In 2001 and 2002 revenues were derived from management services rendered to a rubber recycling company.

 

In August 2001 the Company amended its Articles of Incorporation to authorize 500,000,000 shares of common stock, $0.001 par value; and, 150,000,000 shares of preferred stock, $0.01 par value. Preferred stock. Preferred shares could be designated into specific classes and issued by action of the Company’s Board of Directors. In May 2008 the Company’s Board established a class of Convertible Preferred Series A (the “ Series A ”), authorizing 10,000,000 shares. The Series A provided for, among other things, (i) each share of Series A was convertible into 1,000 shares of the Company’s common stock; and, (ii) a holder of Series A was entitled to vote 1,000 shares of common stock for each share of Series A on all matters submitted to a vote by shareholders.

 

In September 2008 the Company amended its Articles to increase the number of authorized shares to 985,000,000, $0.001 par value. In January 2009 the Company amended its Articles to increase the number of authorized shares to 4,000,000,000, $0.001 par value. In January 2010 the Company once again amended its Articles to increase the number of authorized shares to 8,888,000,000, $0.001 par value.

 

The Company’s last filing of financial information with the SEC was the Form 10-QSB it filed on December 19, 2002 for the quarter ended 30 September 2002. No other filings were effected with the SEC until the Company filed a Form 15 May 19, 2008, which terminated the Company’s filing obligations with SEC.

 

The Company was effectively dormant for a number of years. In or around February 2014 there was a change in control when Kevin Hayes acquired 1,000,000 shares of the Series A, and was appointed as the sole director and officer. In or around April 2017 there was another change in control when Kevin Hayes sold the 1,000,000 shares of Series A to Hybrid Titan Management, which then proceeded to assign the Series A to William Alessi. Mr. Alessi was then appointed as the sole director and officer of the Company. Mr. Alessi initiated legal action in his home state of North Carolina to confirm, among other things, his ownership of the Series A; his “control” over the Company; and, the status of creditors of the Company. In or around June 2017 the court entered judgment in favor of Mr. Alessi.

 

1

 

 

In or around July 2017, while under the majority ownership and management of Mr. Alessi, the Company sought to effect a merger transaction (the “ Merger ”) under which the Company would be merged into Data443 Risk Mitigation, Inc. (“ Data443 ”). Data443 was formed as a North Carolina corporation in July 2017 under the original name LandStar, Inc. The name of the North Carolina corporation was changed to Data443 in December 2017. In November 2017 the controlling interest in the Company was acquired by our current chief executive officer and sole board member, Jason Remillard, when he acquired all of the Series A shares from Mr. Alessi. In that same transaction Mr. Remillard also acquired all of the shares of Data443 from Mr. Alessi. Mr. Remillard was then appointed as the sole director and sole officer of the Company, and of Data443. Initially, Mr. Remillard sought to recognize the Merger initiated by Mr. Alessi and respect the results of the Merger. The Company relied upon documents previously prepared and proceeded as if the Merger had been effected.

 

In January 2018 the Company acquired substantially all of the assets of Myriad Software Productions, LLC, which is owned 100% by Mr. Remillard. Those assets were comprised of the software program known as ClassiDocs, and all intellectual property and goodwill associated therewith. This acquisition changed the Company’s status to no longer being a “shell” under applicable securities rules. In consideration for the acquisition, the Company agreed to a purchase price of $1,500,000 comprised of (i) $50,000 paid at closing; (ii) $250,000 in the form of our promissory note; and, (iii) $1,200,000 in shares of our common stock, valued as of the closing, which equated to 1,200,000,000 shares of our common stock. The shares have not yet been issued and are not included as part of the issued and outstanding shares of the Company. However, these shares have been recorded as “Common Shares Issuable” within our financial statements for the period ending 30 June 2018.

 

In April 2018 the Company amended the designation for its Series A Preferred Stock by providing that a holder of Series A was entitled to (i) vote 15,000 shares of common stock for each share of Series A on all matters submitted to a vote by shareholders; and, (ii) convert each share of Series A into 1,000 shares of our common stock.

 

In May 2018 the Company amended and restated its Articles of Incorporation. The total authorized number of shares is: 8,888,000,000 shares of common stock, $0.001 par value; and, 50,000,000 shares of preferred stock, $0.001 par value, designated in the discretion of the Board of Directors. The Series A remains in full force and effect.

 

In June 2018, after careful analysis and in reliance upon professional advisors retained by the Company, it was determined that the Merger had, in fact, not been completed, and that the Merger was not in the best interests of the Company and its shareholders. As such, the Merger was legally terminated. In place of the Merger, in June 2018 the Company acquired all of the issued and outstanding shares of stock of Data443 (the “ Share Exchange ”). As a result of the Share Exchange, Data443 became a wholly-owned subsidiary of the Company, with both the Company and Data443 continuing to exist as corporate entities. The finances and business conducted by the respective entities prior to the Share Exchange will be treated as related party transactions in anticipation of the Share Exchange. As consideration in the Share Exchange, we agreed to issue to Mr. Remillard: (a) One hundred million (100,000,000) shares of our common stock; and (b) On the eighteen (18) month anniversary of the closing of the Share Exchange (the “ Earn Out Date ”), an additional 100,000,000 shares of our common stock (the “ Earn Out Shares ”) provided that Data 443 has at least an additional $1MM in revenue by the Earn Out Date (not including revenue directly from acquisitions). None of our shares of our common stock to be issued to Mr. Remillard under the Share Exchange have been issued. As such, none of said shares are included as part of the issued and outstanding shares of the Company. However, these shares have been recorded as “Common Shares Issuable” within our financial statements for the period ending 30 June 2018.

 

On or about June 29, 2018 we secured the rights to the WordPress GDPR Framework through our wholly owned subsidiary Data443 for a total consideration of €40,001, or $46,521, payable in four payments of €10,000, with the first payment due at closing, and the remaining payments issuable at the end of July, August and September, 2018. Upon issuance of the final payment, we have the right to enter into an asset transfer agreement for the nominal cost of one euro (€1).

 

2

 

 

On or about October 22, 2018 we closed on an acquisition under which we acquired substantially all of the assets of Modevity, LLC (“Modevity”), an enterprise cloud-based data storage, protection, and workflow automation platform known as ARALOC™. Included as part of the proposed purchase we would also acquire all technology, sales assets, and customers of Modevity. We paid Modevity (i) $200,000 in cash; (ii) $750,000, in the form of our 10-month promissory note; and, (iii) 164,533,821 shares of our common stock.

 

Business Overview

 

The Company is in the data security business, seeking to operate as a cybersecurity software and services provider. As cybersecurity is a large market place, the Company is focused primarily on the data security sector of the market. Data security and privacy legislation, such as the European Union’s General Data Protection Regulation (“GDPR”), is driving significant investment by organizations to offset risks from data breaches and damaging information disclosures of various types. The Company will seek to provide solutions for the marketplace that are designed to protect data via cloud, hybrid, and on-premise architectures. Sensitive files and emails; confidential customer, patient, and employee data; financial records; strategic and product plans; intellectual property; and, all other data requiring security are the focus of the Company’s suite of security products and protocols, allowing our clients to create, share, and protect their data wherever it is stored.

 

Data443 delivers its solutions and capabilities via all technical architectures, and in formats designed for each client. Licensing and subscription models are available to conform to customer purchasing requirements. Our solutions are driven by several proprietary technologies and methodologies that we have developed and acquired, giving us our primary competitive advantage.

 

We intend to sell substantially all of our products and services directly to end-users, though some sales may also be effected through channel partners, including distributors and resellers which sell to end-user customers. We believe that our sales model, which combines the leverage of a channel sales model with our highly trained and professional sales force, will play a significant role in our ability to grow and to successfully deliver our value proposition for data security. While our products serve customers of all sizes, in all industries and all geographies, the marketing focus and majority of our sales focus is on targeting organizations with 100 users or more who can make larger purchases with us over time and have a greater potential lifetime value. We also intend to focus on the European Union as the GDPR has driven increased IT spending as companies seek to securely manage data and comply with the GDPR. Targeted industries include the financial services, healthcare, public, industrial, insurance, energy and utilities, consumer and retail, education, media and entertainment and technology sectors.

 

Size of Our Market Opportunity

 

Companies are expected to spend $124 billion worldwide on information security products and services in 2019, and a large portion of that spending is to ensure GDPR compliance. As cloud-based services increase in popularity, that market increases to an estimated $300 billion by 2021. The International Data Corporation’s Data Age 2025: The Evolution of Data to Life-Critical study estimates that the amount of data created in the world will grow to 163 Zettabytes (or 151 trillion gigabytes) in 2025, representing a nearly tenfold increase from the amount created in 2016. They estimate that nearly 20% of that data will be critical to our daily lives (and nearly 10% hypercritical). The study also suggests that by 2025, almost 90% of all data will require a meaningful level of security, but less than half will be secured. Every enterprise and governmental agency will almost certainly require new technologies to protect and manage data.

 

We believe that the functionalities offered by our programs and services position us to benefit from this growing market. Further, as we continue to grow our business, we believe that we may have opportunities to expand into collateral growing markets, such IT operations management; storage management; and, data integration.

 

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Our Products

 

We currently have four (4) major product lines, each of which provides features and functionality which enable our clients to fully secure the value of their data. This architecture easily extends through modular functionalities giving our clients the flexibility to select the features they require for their business needs and the flexibility to expand their usage simply by adding a license.

 

ClassiDocs . ClassiDocs is our flagship/signature product, launched in the First Quarter of 2018. ClassiDocs is enterprise software that runs on premises or in the cloud. It provides our customers with data classification, governance, and discovery across local devices, networks, the cloud, and databases for data that is at rest and in flight. It also allows our customers to respond to 12 of the GDPR Articles.

 

WordPress GDPR Framework . WordPress GDPR Framework is our data protocol to identify and classify regulated data in the European Union that falls under the GDPR.

 

ARALOC Board Meeting Management Software . This software product enables secure distribution of board materials to board members using custom branded and configured applications for iPad, iPhone, Android, PC and Mac.

 

ARALOC Sales Content Management Software . This software product provides marketing and sales teams with a mobile content management and distribution tool allowing them to increase productivity while engaging their prospects more effectively in order to convert more leads to customers.

 

ARALOC K-12 Education – E-Learning Digital Publishing Platform . This product is a key technology component in supporting E-Learning, K-12, and continuing education companies for distributing, protecting and tracking any digital training program initiative.

 

SPARK Employee Communications Program . SPARK enables instant outbound critical messaging to all staff, rapid onboarding of new staff, mobile training, and secure content sharing across multiple devices.

 

Key Benefits of Our Products and Services

 

Protect Data Against Data Breaches and Cyber-attacks.

 

Highly Scalable and Flexible.

 

Broad Range of Functionality.

 

Satisfy Regulatory Compliance.

 

Usable Across All Major Enterprise Platforms & Systems.

 

Quick Implementation.

 

Easy to Use.

 

Our Growth Strategy

 

Our objective is to be a leading provider of data security products and services. The following are key elements of our growth strategy:

 

Acquisitions . We intend to aggressively pursue acquisitions of other cybersecurity software and services providers focused on the data security sector. Targets are companies with a steady client base, as well as companies with complementary product offerings.

 

4

 

 

Research & Development; Innovation . We intend to increase our spending on research and development in order to drive innovation to improve existing products and to deliver new products. We will work towards proactively identifying and solving the data security needs of our clients.

 

Grow Our Customer Base. We believe that the continued rise in enterprise data and increased cybersecurity concerns will increase demand for our services and products. We intend to capitalize on this demand by targeting new customers.

 

Expand Our Sales Force. Continuing to expand our salesforce will be essential to achieving our customer base expansion goals. At the appropriate time, we intend to expand our sales capacity by adding headcount throughout our sales and marketing department.

 

Focus on EU Opportunities . We believe there is a significant opportunity for our products and services in the EU, and other international markets, in order to enable compliance with the GDPR. We believe that a focus on the international market will be a key component of our growth strategy.

 

Our Customers

 

Our current customer base is comprised entirely of the AraLoc customers we acquired as a result of our acquisition from Modevity. Our customers vary greatly in size ranging from small and medium businesses to large enterprises.

 

Services

 

Maintenance and Support

 

Our intended customers will typically purchase software maintenance and support as part of their initial purchase of our products. These maintenance agreements provide customers the right to receive support and unspecified upgrades and enhancements when and if they become available during the maintenance period and access to our technical support services. We will maintain a customer support organization that provides all levels of support to our customers.

 

Professional Services

 

While users can easily download, install and deploy our software on their own, we anticipate that certain enterprises will use our professional service team to provide fee-based services, which include training our customers in the use of our products, providing advice on deployment planning, network design, product configuration and implementation, automating and customizing reports and tuning policies and configuration of our products for the particular characteristics of the customer’s environment.

 

Sales and Marketing

 

Sales

 

We intend to sell the majority of our products and services directly to our end users/clients. We will also propose to effect sales through a network of channel partners, which in turn, sell the products they purchase from us. We have a highly trained professional sales force that is responsible for overall market development, including the management of the relationships with our channel partners and supporting channel partners.

 

5

 

 

Marketing

 

Our marketing strategy focuses on building our brand and product awareness, increasing customer adoption and demand, communicating advantages and business benefits and generating leads for our channel partners and sales force. We will market our products as a solution for securing and managing file systems and enterprise data and protecting against cyber-attacks. Our internal marketing organization will be responsible for branding, content generation and product marketing. Our marketing efforts will also include public relations in multiple regions, analyst relations, customer marketing, and extensive content development available through our web site and social media outlets.

 

Seasonality

 

Our business is not subject to seasonality.

 

Research and Development

 

While currently limited, our planned research and development efforts will be focused on improving and enhancing our existing products and services, as well as developing new products, features and functionality. We plan to regularly release new versions of our products which incorporate new features and enhancements to existing ones.

 

Intellectual Property

 

We currently make use of the following trademarks in our business:

 

ClassiDocs

AraLoc

SPARK

 

Despite our efforts to protect our proprietary technologies and intellectual property rights, unauthorized parties may attempt to copy aspects of our products or obtain and use our trade secrets or other confidential information. We generally enter into confidentiality agreements with our employees, consultants, service providers, vendors and customers and generally limit internal and external access to, and distribution of, our proprietary information and proprietary technology through certain procedural safeguards. These agreements may not effectively prevent unauthorized use or disclosure of our intellectual property or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our intellectual property or technology. We cannot assure you that the steps taken by us will prevent misappropriation of our trade secrets or technology or infringement of our intellectual property. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States, and many foreign countries do not enforce these laws as diligently as government agencies and private parties in the United States.

 

Competition

 

The industry in which the Company competes is highly competitive. Many companies offer similar products and services for data security. We may be at a substantial disadvantage to our competitors who have more capital than we do to carry out operations and marketing efforts. We hope to maintain our competitive advantage by offering quality at a competitive price, and by utilizing the experience, knowledge, and expertise of our management team.

 

We will face competition from more established companies that have competitive advantages, such as greater name recognition, larger sales, marketing, research and acquisition resources, access to larger customer bases and channel partners, a longer operating history and lower labor and development costs, which may enable them to respond more quickly to new or emerging technologies and changes in customer requirements or devote greater resources to the development, promotion and sale of their products than we do. Increased competition could result in us failing to attract customers or maintaining them. It could also lead to price cuts, alternative pricing structures or the introduction of products available for free or a nominal price, reduced gross margins, longer sales cycles and loss of market share. If we are unable to compete successfully against current and future competitors, our business and financial condition may be harmed.

 

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Employees

 

As of September 30, 2018, we had 12 employees and independent contractors, of which 3 were considered to be part of our management team; 1 of those three is our sole director and sole officer, Jason Remillard. We have not experienced any work stoppages, and we consider our relations with our employees to be good.

 

Government regulation

 

We are subject to the laws and regulations of the jurisdictions in which we operate, which may include business licensing requirements, income taxes and payroll taxes. In general, the development and operation of our business is not subject to special regulatory and/or supervisory requirements.

 

Going Concern

 

We are dependent upon the receipt of capital investment and other financing to fund our ongoing operations and to execute our business plan. If continued funding and capital resources are unavailable at reasonable terms, we may not be able to implement our plan of operations. We may be required to obtain alternative or additional financing, from financial institutions or otherwise, in order to maintain and expand our existing operations. The failure by us to obtain such financing would have a material adverse effect upon our business, financial condition and results of operations.

 

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our independent registered public accounting firm has included an explanatory paragraph in their report in our audited financial statements for the fiscal year ended December 31, 2017 to the effect that our losses from operations and our negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern within one year after the date that the financial statements are issued. We may be required to cease operations which could result in our stockholders losing all or almost all of their investment.

 

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ITEM 1A. RISK FACTORS

 

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks, together with all of the other information contained in this Registration Statement, including our consolidated financial statements and related notes, before making a decision to invest in our common stock. Any of the following risks could have an adverse effect on our business, operating results, financial condition and prospects, and could cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment. Our business, operating results, financial condition and prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.

 

We consider the following to be the material risks for an investor regarding our common stock. Our Company should be viewed as a high-risk investment and speculative in nature. An investment in our common stock may result in a complete loss of the invested amount. An investment in our common stock is highly speculative, and should only be made by persons who can afford to lose their entire investment in us. You should carefully consider the following risk factors and other information in this Registration Statement before deciding to become a holder of our common stock. If any of the following risks actually occur, our business and financial results could be negatively affected to a significant extent.

 

Risks Relating to Our Company and Our Industry

 

We will require additional funds in the future to achieve our current business strategy and our inability to obtain funding will cause our business to fail.

 

We will need to raise additional funds through public or private debt or equity sales in order to fund our future operations and fulfill contractual obligations in the future. These financings may not be available when needed. Even if these financings are available, it may be on terms that we deem unacceptable or are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. Our inability to obtain financing would have an adverse effect on our ability to implement our current business plan and develop our products, and as a result, could require us to diminish or suspend our operations and possibly cease our existence.

 

Even if we are successful in raising capital in the future, we will likely need to raise additional capital to continue and/or expand our operations. If we do not raise the additional capital, the value of any investment in our Company may become worthless. In the event we do not raise additional capital from conventional sources, it is likely that we may need to scale back or curtail implementing our business plan.

 

Technology is constantly undergoing significant changes and evolutions and it is imperative that we keep up with an ever changing technological landscape in order to ensure the continued viability of our products and services.

 

Our industry is categorized by rapid technological progression, ever increasing innovation, changes in customer requirements, legal and regulatory compliance mandates, and frequent new product introductions. As a result, we must continually change and improve our products in response to such changes, and our products must also successfully interface with products from other vendors, which are also subject to constant change. While we believe we have the competency to aid our clients in all aspects of data security, we will need to constantly work on improving our current assets in order to keep up with technological advances that will almost certainly occur.

 

We cannot guarantee that we will be able to anticipate future market needs and opportunities or be able to develop new products or expand the functionality of our current products in a timely manner or at all. Even if we are able to anticipate, develop and introduce new products and expand the functionality of our current products, there can be no assurance that enhancements or new products will achieve widespread market acceptance. Should we fail to do so our business may be adversely affected and in the worst possible scenario we may have to cease operations altogether if we do not adapt to the constant changes that occur in the way business is conducted.

 

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We intend to acquire or invest in companies, which may divert our management’s attention and result in additional dilution to our stockholders. We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions.

 

Our success will depend, in part, on our ability to expand our solutions and services and grow our business in response to changing technologies, customer demands and competitive pressures. It is express plan to do so through the acquisition of, or investment in, new or complementary businesses and technologies rather than through internal development. The identification of suitable acquisition or investment candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions or investments. The risks we face in connection with acquisitions and/or investments include:

 

  an acquisition may negatively affect our operating results because it may require us to incur charges or assume substantial debt or other liabilities, may cause adverse tax consequences or unfavorable accounting treatment, may expose us to claims and disputes by stockholders and third parties, including intellectual property claims and disputes, or may not generate sufficient financial return to offset additional costs and expenses related to the acquisition;
     
  we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products, personnel or operations of any company that we acquire;
     
  an acquisition or investment may disrupt our ongoing business, divert resources, increase our expenses and distract our management;
     
  an acquisition may result in a delay or reduction of customer purchases for both us and the company acquired due to customer uncertainty about continuity and effectiveness of service from either company;
     
  we may encounter difficulties in, or may be unable to, successfully sell any acquired products or effectively integrate them into or with our existing solutions;
     
  our use of cash to pay for acquisitions or investments would limit other potential uses for our cash;
     
  if we incur debt to fund any acquisitions or investments, such debt may subject us to material restrictions on our ability to conduct our business; and
     
  if we issue a significant amount of equity securities in connection with future acquisitions, existing stockholders may be diluted and earnings per share may decrease.

 

The occurrence of any of these risks could adversely affect our business, operating results and financial condition.

 

We will face intense competition in our market, especially from larger, well established companies, and we may lack sufficient financial and other resources to maintain and improve our competitive position.

 

The market for data security and data governance solutions is intensely competitive and is characterized by constant change and innovation. We face competition from both traditional, larger software vendors offering enterprise-wide software frameworks and services, and smaller companies offering point solutions for specific identity and data governance issues. We also compete with IT equipment vendors and systems management solution providers whose products and services address identity and data governance requirements. Our principal competitors vary depending on the product we offer. Many of our existing competitors have, and some of our potential competitors could have, substantial competitive advantages, such as:

 

  greater name recognition and longer operating histories;

 

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  more comprehensive and varied products and services;
     
  broader product offerings and market focus;
     
  greater resources to develop technologies or make acquisitions;
     
  more expansive intellectual property portfolios;
     
  broader distribution and established relationships with distribution partners and customers;
     
  greater customer support resources; and
     
  substantially greater financial, technical and other resources.

 

Given their larger size, greater resources and existing customer relationships, our competitors may be able to compete and respond more effectively than we can to new or changing opportunities, technologies, standards or customer requirements. Our competitors may also seek to extend or supplement their existing offerings to provide data security and data governance solutions that more closely compete with our offerings. Potential customers may also prefer to purchase, or incrementally add solutions, from their existing suppliers rather than a new or additional supplier regardless of product performance or features.

 

In addition, with the recent increase in large merger and acquisition transactions in the technology industry, particularly transactions involving cloud-based technologies, there is a greater likelihood that we will compete with other large technology companies in the future. Some of our competitors have made acquisitions or entered into strategic relationships to offer a more comprehensive product than they individually had offered. Companies and alliances resulting from these possible consolidations and partnerships may create more compelling product offerings and be able to offer more attractive pricing, making it more difficult for us to compete effectively. In addition, continued industry consolidation may adversely impact customers’ perceptions of the viability of small and medium-sized technology companies and consequently their willingness to purchase from those companies. Conditions in our market could change rapidly and significantly as a result of technological advancements, partnering by our competitors or continuing market consolidation. These competitive pressures in our market or our failure to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, increased net losses, and loss of market share. Any failure to meet and address these factors could adversely affect our business, financial condition and operating results.

 

We are dependent on the continued services and performance of our founder, Jason Remillard, the loss of whom could adversely affect our business.

 

Our future performance depends in large part on the continued services and continuing contributions of our founder, Chief Executive Officer, and sole Director, Jason Remillard, to successfully manage our company, to execute on our business plan, and to identify and pursue new opportunities and product innovations. The loss of services of Mr. Remillard could significantly delay or prevent the achievement of our development and strategic objectives and adversely affect our business.

 

Our Officer and Directors lack experience in and with the reporting and disclosure obligations of publicly-traded companies.

 

Our CEO, CFO, and sole director, Jason Remillard, lacks experience in and with the reporting and disclosure obligations of publicly-traded companies and with serving as an Officer and Director of a publicly-traded company. Such lack of experience may impair our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures, which may result in material misstatements to our financial statements and an inability to provide accurate financial information to our stockholders. Consequently, our operations, future earnings and ultimate financial success could suffer irreparable harm due to Mr. Remillard’s lack of experience with publicly-traded companies and their reporting requirements in general.

 

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A failure to hire and integrate additional sales and marketing personnel or maintain their productivity could adversely affect our results of operations and growth prospects.

 

Our business requires intensive sales and marketing activities. Our sales and marketing personnel are essential to attracting new customers and expanding sales to the customers we recently acquired through acquisitions; this is key to our future growth. We face a number of challenges in successfully expanding our sales force. We must locate and hire a significant number of qualified individuals, and competition for such individuals is intense. We may be unable to achieve our hiring or integration goals due to a number of factors, including, but not limited to, the number of individuals we hire; challenges in finding individuals with the correct background due to increased competition for such hires; and, increased attrition rates among new hires and existing personnel. Furthermore, based on our past experience, it often can take up to 12 months before a new sales force member is trained and operating at a level that meets our expectations. We plan to invest significant time and resources in training new members of our sales force, and we may be unable to achieve our target performance levels with new sales personnel as rapidly as we have done in the past due to larger numbers of hires or lack of experience training sales personnel to operate in new jurisdictions. Our failure to hire a sufficient number of qualified individuals, to integrate new sales force members within the time periods we have achieved historically or to keep our attrition rates at levels comparable to others in our industry may materially impact our projected growth rate.

 

If we are unable to attract new customers and expand sales to existing customers, both domestically and internationally, our growth could be slower than we expect, and our business may be harmed.

 

Our future growth depends in part upon increasing our customer base. Our ability to achieve significant growth in revenues in the future will depend, in large part, upon the effectiveness of our sales and marketing efforts, both domestically and internationally, and our ability to attract new customers. If we fail to attract new customers and maintain and expand those customer relationships, our revenues will grow more slowly than expected, and our business will be harmed.

 

Our future growth also depends upon expanding sales of our products to existing customers and their organizations. If our customers do not purchase additional licenses or capabilities, our revenues may grow more slowly than expected, may not grow at all, or may decline. There can be no assurance that our efforts would result in increased sales to existing customers and additional revenues. If our efforts are not successful, our business would suffer.

 

If we are unable to maintain successful relationships with our channel partners, our business could be adversely affected.

 

We intend to rely on channel partners, such as distribution partners and resellers, to sell licenses and support and maintenance agreements. Our ability to achieve revenue growth in the future may depend in part on our success in maintaining successful relationships with our channel partners. Agreements with channel partners tend to be non-exclusive, meaning our channel partners may offer customers the products of several different companies. If our channel partners do not effectively market and sell our products and services, choose to use greater efforts to market and sell their own products or those of others, or fail to meet the needs of our customers, our ability to grow our business may be adversely affected. Further, agreements with channel partners generally allow them to terminate their agreements for any reason upon 30 days’ notice. A termination of the agreement has no effect on orders already placed. The loss of a substantial number of our channel partners, our possible inability to replace them, or the failure to recruit additional channel partners could materially and adversely affect our results of operations. If we are unable to maintain our relationships with these channel partners, our business, results of operations, financial condition or cash flows could be adversely affected.

 

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Breaches in our security, cyber-attacks or other cyber-risks could expose us to significant liability and cause our business and reputation to suffer.

 

Our operations involve transmission and processing of our customers’ confidential, proprietary and sensitive information. We have legal and contractual obligations to protect the confidentiality and appropriate use of customer data. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks as a result of third party action, employee error or misconduct. Security risks, including, but not limited to, unauthorized use or disclosure of customer data, theft of proprietary information, loss or corruption of customer data and computer hacking attacks or other cyber-attacks, could expose us to substantial litigation expenses and damages, indemnity and other contractual obligations, government fines and penalties, mitigation expenses and other liabilities. We are continuously working to improve our information technology systems, together with creating security boundaries around our critical and sensitive assets. We provide advance security awareness training to our employees and contractors that focuses on various aspects of the cyber security world. All of these steps are taken in order to mitigate the risk of attack and to ensure our readiness to responsibly handle any security violation or attack. However, because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until successfully launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures and our products could be harmed, we could lose potential sales and existing customers, our ability to operate our business could be impaired, and we may incur significant liabilities.

 

Failure to protect our proprietary technology and intellectual property rights could substantially harm our business.

 

The success of our business depends on our ability to obtain, protect, and enforce our trade secrets, trademarks, copyrights, patents and other intellectual property rights. We attempt to protect our intellectual property under patent, trademark, copyrights and trade secret laws, and through a combination of confidentiality procedures, contractual provisions and other methods, all of which offer only limited protection. The process of obtaining patent protection is expensive and time-consuming, and we may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions. In addition, issuance of a patent does not guarantee that we have an absolute right to practice the patented invention.

 

Our policy is to require our employees (and our consultants and service providers that develop intellectual property included in our products) to execute written agreements in which they assign to us their rights in potential inventions and other intellectual property created within the scope of their employment (or, with respect to consultants and service providers, their engagement to develop such intellectual property), but we cannot assure you that we have adequately protected our rights in every such agreement or that we have executed an agreement with every such party. Finally, in order to benefit from intellectual property protection, we must monitor, detect, and pursue infringement claims in certain circumstances in relevant jurisdictions, all of which is costly and time-consuming. As a result, we may not be able to obtain adequate protection of our intellectual property.

 

The data security, cyber-security, data retention, and data governance industries are characterized by the existence of a large number of relevant patents and frequent claims and related litigation regarding patent and other intellectual property rights. From time-to-time, third parties have asserted and may assert their patent, copyright, trademark and other intellectual property rights against us, our channel partners, or our customers. Successful claims of infringement or misappropriation by a third party could prevent us from distributing certain products or performing certain services or could require us to pay substantial damages (including, for example, treble damages if we are found to have willfully infringed patents and increased statutory damages if we are found to have willfully infringed copyrights), royalties or other fees. Such claims also could require us to cease making, licensing or using solutions that are alleged to infringe or misappropriate the intellectual property of others or to expend additional development resources to attempt to redesign our products or services or otherwise to develop non-infringing technology. Even if third parties may offer a license to their technology, the terms of any offered license may not be acceptable, and the failure to obtain a license or the costs associated with any license could cause our business, results of operations or financial condition to be materially and adversely affected. In some cases, we indemnify our channel partners and customers against claims that our products infringe the intellectual property of third parties. Defending against claims of infringement or being deemed to be infringing the intellectual property rights of others could impair our ability to innovate, develop, distribute and sell our current and planned products and services. If we are unable to protect our intellectual property rights and ensure that we are not violating the intellectual property rights of others, we may find ourselves at a competitive disadvantage to others who need not incur the additional expense, time and effort required to create the innovative products that have enabled us to be successful to date.

 

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Real or perceived errors, failures or bugs in our technology could adversely affect our growth prospects.

 

Because we use complex technology, undetected errors, failures, or bugs may occur. Our technology is often installed and used in a variety of computing environments with different operating system management software, and equipment and networking configurations, which may cause errors or failures of our technology or other aspects of the computing environment into which it is deployed. In addition, deployment of our technology into computing environments may expose undetected errors, compatibility issues, failures, or bugs in our technology. Despite testing by us, errors, failures, or bugs may not be found it is released to our customers. Moreover, our customers could incorrectly implement or inadvertently misuse our technology, which could result in customer dissatisfaction and adversely impact the perceived utility of our products. Any of these real or perceived errors, compatibility issues, failures, or bugs could result in negative publicity, reputational harm, loss of or delay in market acceptance, loss of competitive position, or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem.

 

We are subject to federal, state and industry privacy and data security regulations, which could result in additional costs and liabilities to us or inhibit sales of our software.

 

The regulatory framework for privacy issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Many federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations. In addition, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us. Because the interpretation and application of privacy and data protection laws are still uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data security practices. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify our technology, which could have an adverse effect on our business. Any inability to adequately address privacy concerns, even if unfounded, or comply with applicable privacy or data protection laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales and adversely affect our business.

 

Because our long-term success depends, in part, on our ability to expand the sales and marketing of our technology and solutions to customers located outside of the United States, our business will be susceptible to risks associated with international operations.

 

We intend to expand our international sales and marketing operations. Conducting international operations subjects us to risks that we do not generally face in the United States. These risks include:

 

  political instability, war, armed conflict or terrorist activities;
     
  challenges developing, marketing, selling and implementing our technology and solutions caused by language, cultural, and ethical differences and the competitive environment;
     
  heightened risks of unethical, unfair or corrupt business practices, actual or claimed, in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, and irregularities in, financial statements;
     
  competition from bigger and stronger companies in the new markets;

 

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  laws imposing heightened restrictions on data usage and increased penalties for failure to comply with applicable laws, particularly in the EU;
     
  currency fluctuations;
     
  management communication and integration problems resulting from cultural differences and geographic dispersion;
     
  potentially adverse tax consequences, including multiple and possibly overlapping tax structures, the complexities of foreign value added tax systems, restrictions on the repatriation of earnings and changes in tax rates;
     
  uncertainty around how the United Kingdom’s decision to exit the EU will impact its access to the European Union Single Market, the related regulatory environment, the global economy, and the resulting impact on our business; and
     
  lack of familiarity with local laws, customs and practices, and laws and business practices favoring local competitors or commercial parties.

 

The occurrence of any one of these risks could harm our international business and, consequently, our operating results. Additionally, operating in international markets requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required to operate in other countries will produce desired levels of revenue or net income.

 

The adoption of the recent tax reform and the enactment of additional legislation changing the United States taxation of international business activities could materially impact our financial position and results of operations.

 

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “ TCJA ”), which significantly reformed the Internal Revenue Code. The TCJA, among other things, included changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, restricts the use of net operating loss carry-forwards arising after December 31, 2017, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. We continue to examine the impact this tax reform legislation may have on our business. Due to the proposed expansion of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and adversely affect our financial position and results of operations. Further, foreign governments may enact tax laws in response to the TCJA that could result in further changes to global taxation and materially affect our financial position and results of operations. The impact of the TCJA on holders of our securities is uncertain. We urge our stockholders to consult with their legal and tax advisors with respect to such legislation and the potential tax consequences.

 

Changes in financial accounting standards may cause adverse and unexpected revenue fluctuations and impact our reported results of operations.

 

A change in accounting standards or practices could harm our operating results and may even affect our reporting of transactions completed before the change is effective. New accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may harm our operating results or the way we conduct our business. Additionally, the adoption of new or revised accounting principles may require that we make significant changes to our systems process and controls.

 

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Our business is subject to the risks of fire, power outages, floods, earthquakes and other catastrophic events, and to interruption by manmade problems such as terrorism.

 

A significant natural disaster, such as a fire, flood or an earthquake, or a significant power outage could have a material adverse impact on our business, results of operations and financial condition. In the event our customers’ information technology systems or our channel partners’ selling or distribution abilities are hindered by any of these events, we may miss financial targets, such as revenues and sales targets, for a particular quarter. Further, if a natural disaster occurs in a region from which we derive a significant portion of our revenue, customers in that region may delay or forego purchases of our products, which may materially and adversely impact our results of operations for a particular period. In addition, acts of terrorism could cause disruptions in our business or the business of channel partners, customers or the economy as a whole. All of the aforementioned risks may be exacerbated if the disaster recovery plans for us and our channel partners prove to be inadequate. To the extent that any of the above results in delays or cancellations of customer orders, or the delay in the manufacture, deployment or shipment of our products, our business, financial condition and results of operations would be adversely affected.

 

We anticipate that our operations will continue to increase in complexity as we grow, which will add additional challenges to the management of our business in the future.

 

We expect that our business will grow as we execute on our business, and that as we grow our operations will increase in complex. To effectively manage this growth, we have made and continue to make substantial investments to improve our operational, financial and management controls as well as our reporting systems and procedures. Further, as our customer base grows we will need to expand our professional services and other personnel. We also will need to effectively manage our direct and indirect sales processes as the number and type of our sales personnel and channel partners grows and becomes more complex, and as we expand into foreign markets. If we are unable to effectively manage the increasing complexity of our business and operations, the quality of our technology and customer service could suffer, and we may not be able to adequately address competitive challenges. These factors could all negatively impact our business, operations, operating results, and financial condition.

 

We expect our quarterly financial results to fluctuate.

 

We expect our net sales and operating results to vary significantly from quarter to quarter due to a number of factors, including changes in:

 

  Demand for data security;
     
  Our ability to retain existing customers or encourage repeat purchases;
     
  Advertising and other marketing costs; and
     
  General economic conditions

 

The variability and unpredictability of these and other factors, many of which are outside of our control, could result in our failing to meet or exceed financial expectations for a given period. If our operating results in future quarters fall below the expectations of investors or any securities analysts that cover our stock, the price of our common stock could decline substantially.

 

The recently enacted JOBS Act will allow the Company to postpone the date by which it must comply with certain laws and regulations intended to protect investors and to reduce the amount of information provided in reports filed with the SEC.

 

The recently enacted JOBS Act is intended to reduce the regulatory burden on “emerging growth companies”. The Company meets the definition of an “emerging growth company” and so long as it qualifies as an “emerging growth company,” it will be, among other things:

 

  exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which requires that its independent registered public accounting firm provide an attestation report on the effectiveness of its internal control over financial reporting;

 

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  exempt from the “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and certain disclosure requirements of the Dodd-Frank Act relating to compensation of Chief Executive Officers;
     
  permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Exchange Act and instead provide a reduced level of disclosure concerning executive compensation; and
     
  exempt from any rules that may be adopted by the Public Company Accounting Oversight Board (the “PCAOB”) requiring mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.

 

Although the Company is still evaluating the JOBS Act, it currently intends to take advantage of all of the reduced regulatory and reporting requirements that will be available to it so long as it qualifies as an “emerging growth company”. The Company has elected not to opt out of the extension of time to comply with new or revised financial accounting standards available under Section 102(b)(1) of the JOBS Act. Among other things, this means that the Company’s independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of the Company’s internal control over financial reporting so long as it qualifies as an “emerging growth company”, which may increase the risk that weaknesses or deficiencies in the internal control over financial reporting go undetected. Likewise, so long as it qualifies as an “emerging growth company”, the Company may elect not to provide certain information, including certain financial information and certain information regarding compensation of executive officers, which would otherwise have been required to provide in filings with the SEC, which may make it more difficult for investors and securities analysts to evaluate the Company. We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that is held by non-affiliates exceeds $700 million. As a result, investor confidence in the Company and the market price of its common stock may be adversely affected.

 

Notwithstanding the above, we are also currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event that we are still considered a “smaller reporting company”, at such time are we cease being an “emerging growth company”, the disclosure we will be required to provide in our SEC filings will increase, but will still be less than it would be if we were not considered either an “emerging growth company” or a “smaller reporting company”. Specifically, similar to “emerging growth companies”, “smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, being required to provide only two years of audited financial statements in annual reports. Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or “smaller reporting company” may make it harder for investors to analyze the Company’s results of operations and financial prospects.

 

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Adverse economic conditions may negatively impact our business.

 

Our business depends on the overall demand for information technology and on the economic health of our current and prospective customers. Any significant weakening of the economy in the United States or Europe and of the global economy, more limited availability of credit, a reduction in business confidence and activity, decreased government spending, economic uncertainty and other difficulties may affect one or more of the sectors or countries in which we sell our solutions. Global economic and political uncertainty may cause some of our customers or potential customers to curtail spending generally or IT and data security spending specifically, and may ultimately result in new regulatory and cost challenges to our operations. In addition, a strong dollar could reduce demand for our products in countries with relatively weaker currencies. These adverse conditions could result in reductions in sales of our solutions, longer sales cycles, slower adoption of new technologies and increased price competition. Any of these events could have an adverse effect on our business, operating results and financial position.

 

We cannot predict every event and circumstance that may impact our business and, therefore, the risks discussed herein may not be the only ones you should consider.

 

As we continue to grow our business, we may encounter other risks of which we are not aware as of the date of this Registration Statement. These additional risks may cause serious damage to our business in the future, the impact of which we cannot estimate at this time.

 

Risks Relating to Our Common Stock

 

Our common stock is currently quoted on the OTC Pink under the trading symbol “LDSR”. However, trading in stocks quoted on the OTC Pink is often thin. Therefore, you may be unable to liquidate your investment in our stock.

 

Trading in stocks quoted on the OTC Pink is often thin and is characterized by wide fluctuations in trading prices due to many factors that may have little to do with a company’s operations or business prospects. We cannot assure you that there will be a market for our common stock in the future. We do not have intention to apply for quotation on the OTCQB at this moment, but we could apply for OTCQB in the near future.

 

We have had a history of losses and may incur future losses, which may prevent us from attaining profitability.

 

We have had a history of operating losses since our inception and, as of 30 September 2018, we had an accumulated deficit of $13,368,350. We may incur operating losses in the future, and these losses could be substantial and impact our ability to attain profitability. We do not expect to significantly increase expenditures for product development, general and administrative expenses, and sales and marketing expenses; however, if we cannot increase revenue growth, we will not achieve or sustain profitability or positive operating cash flows. Even if we achieve profitability and positive operating cash flows, we may not be able to sustain or increase profitability or positive operating cash flows on a quarterly or annual basis.

 

There is substantial doubt about our ability to continue as a going concern.

 

We have not generated any profit from combined operations since our inception. We expect that our operating expenses will increase over the next twelve months to continue our business development activities. Based on our average monthly expenses and current burn rate, we estimate that our cash on hand as of 30 September 2018 will not sufficiently support our operation for the next twelve months.

 

Our independent registered public accounting firm has included an explanatory paragraph in their report in our audited financial statements for the fiscal year ended December 31, 2017 to the effect that our losses from operations and our negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern within one year after the date that the financial statements are issued. We may be required to cease operations which could result in our stockholders losing all or almost all of their investment.

 

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Because we will become a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not be able to attract the attention of research analysts at major brokerage firms.

 

Because we will not become a reporting company by conducting an underwritten initial public offering, or IPO, of our common stock, and because we will not be listed on a national securities exchange, security analysts of brokerage firms may not provide coverage of our company. In addition, investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we were to become a public reporting company by means of an IPO because they may be less familiar with our company as a result of more limited coverage by analysts and the media, and because we became public at an early stage in our development.

 

Our common stock is subject to the SEC’s penny stock rules, which may make it difficult for broker-dealers to complete customer transactions and could adversely affect trading activity in our securities.

 

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock may be less than $5.00 per share for some period of time and therefore would be a “penny stock” according to SEC rules, unless we are listed on a national securities exchange. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:

 

  make a special written suitability determination for the purchaser;
     
  receive the purchaser’s prior written agreement to the transaction;
     
  provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and
     
  obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a “penny stock” can be completed.

 

If required to comply with these rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected.

 

The market price of our common stock may be volatile and may fluctuate in a way that is disproportionate to our operating performance.

 

Our stock price may experience substantial volatility as a result of a number of factors, including:

 

  sales or potential sales of substantial amounts of our common stock;
     
  the success of competitive products or technologies;
     
  announcements about us or about our competitors, including new product introductions and commercial results;
     
  the recruitment or departure of key personnel;
     
  litigation and other developments;

 

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  actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
     
  variations in our financial results or those of companies that are perceived to be similar to us; and
     
  general economic, industry and market conditions.

 

Many of these factors are beyond our control. The stock markets in general, and the market for Pink Sheet companies in particular, have historically experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors could reduce the market price of our common stock, regardless of our actual operating performance.

 

We currently have outstanding shares of preferred stock that have special rights that could limit our ability to undertake corporate transactions, inhibit potential changes of control and reduce the proceeds available to our common stockholders in the event of a change in control.

 

We currently have outstanding two classes of stock, common stock and preferred stock, and there is one series of preferred stock, Series A Preferred Stock. The holders of Series A Preferred Stock are entitled to vote on all matters submitted to holders of common stock at a conversion ratio of 15,000 votes for each share of Series A Preferred Stock.

 

As a result of the rights our preferred stockholders have, we may not be able to undertake certain corporate transactions, including equity or debt offerings necessary to raise sufficient capital to run our business, change of control transactions or other transactions that may otherwise be beneficial to our businesses. These provisions may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which our common stockholders might otherwise receive a premium price for their shares. The market price of our common stock could be adversely affected by the rights of our preferred stockholders.

 

We have never paid and do not intend to pay cash dividends.

 

We have never paid cash dividends on any of our capital stock and we currently intend to retain future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be our common stockholders’ sole source of gain for the foreseeable future. Under the terms of our existing Articles of Incorporation, we cannot declare, pay or set aside any dividends on shares of any class or series of our capital stock, other than dividends on shares of common stock payable in shares of common stock, unless we pay dividends to the holders of our preferred stock. Additionally, without special stockholder and board approvals, we cannot currently pay or declare dividends and will be limited in our ability to do so until such time, if ever, that we are listed on a stock exchange.

 

Our sole director and sole officer has the ability to control all matters submitted to stockholders for approval.

 

Our sole director and sole officer, Jason Remillard, holds 1,000,000 shares of our Series A Preferred Stock (each share votes as the equivalent of 15,000 shares of common stock on all matters submitted for a vote by the common stockholders), and as such, Mr. Remillard would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, Mr. Remillard would control the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire.

 

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Provisions in our Articles of Incorporation and Bylaws and under Nevada law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.

 

Provisions in our Articles of Incorporation and Bylaws, respectively, may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which our common stockholders might otherwise receive a premium price for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.

 

We will incur increased costs as a result of operating as a public reporting company, and our management will be required to devote substantial time to new compliance initiatives.

 

As a public reporting company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC, have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Complying with these laws and regulations requires the time and attention of our Board of Directors and management, and increases our expenses. After we file this Registration Statement with the SEC we will become fully subject to the information and reporting requirements of the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other federal securities laws, rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act. We estimate that we will incur approximately $150,000 to $200,000 in 2019 to comply with public company compliance requirements with many of those costs recurring annually thereafter.

 

Among other things, we will be required to:

 

  maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
     
  maintain policies relating to disclosure controls and procedures;
     
  prepare and distribute periodic reports in compliance with our obligations under federal securities laws;
     
  institute a more comprehensive compliance function, including corporate governance; and
     
  involve, to a greater degree, our outside legal counsel and accountants in the above activities.

 

The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders are expensive and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire additional financial reporting, internal controls and other finance personnel, and will involve a material increase in regulatory, legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.

 

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We may be exposed to potential risks resulting from requirements under Section 404 of the Sarbanes-Oxley Act of 2002.

 

As a reporting company we are required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, to include in our annual report our assessment of the effectiveness of our internal control over financial reporting. We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees.

 

We do not currently have independent audit or compensation committees. As a result, our sole director has the ability, among other things, to determine his own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.

 

We currently have outstanding, and we may in the future issue, instruments which are convertible into shares of common stock, which will result in additional dilution to you.

 

We currently have outstanding instruments which are convertible into shares of common stock, and we may need to issue similar instruments in the future. In the event that these convertible instruments are converted into shares of common stock outstanding stock, or that we make additional issuances of other convertible or exchangeable securities, you could experience additional dilution. Furthermore, we cannot assure you that we will be able to issue shares or other securities in any other offering at a price per share that is equal to or greater than the price per share paid by investors or the then current market price.

 

We may, in the future, issue additional shares of our common stock, which may have a dilutive effect on our current stockholders.

 

Our Articles of Incorporation authorizes the issuance of 8,888,000,000 shares of common stock, of which 4,847,676,982 shares were issued and outstanding as of 31 October 2018. The future issuance of our common shares may result in substantial dilution in the percentage of our common shares held by our then existing stockholders. We may value any common stock issued in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any trading market for our common stock.

 

State Securities Laws may limit secondary trading, which may restrict the states in which and conditions under which you can sell shares.

 

Secondary trading in our common stock may not be possible in any state until the common stock is qualified for sale under the applicable securities laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the common stock in any particular state, the common stock cannot be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the liquidity for the common stock could be significantly impacted.

 

An investment in our common stock is speculative and there can be no assurance of any return on any such investment.

 

An investment in our common stock is speculative and there is no assurance that investors will obtain any return on their investment. Investors will be subject to substantial risks involved in an investment in our Company, including the risk of losing their entire investment.

 

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ITEM 2. FINANCIAL INFORMATION

 

The discussion of our financial condition and operating results should be read together with our accompanying audited consolidated financial statements included in this Registration Statement.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward Looking Statements

 

You should read the following discussion of our financial condition and results of operations together with our audited consolidated financial statements and notes to such financial statements included elsewhere in this Form 10.

 

The following discussion contains forward-looking statements that involve risks and uncertainties regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

 

The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed under “Item 1A. Risk Factors” and other sections in this Form 10.

 

Overview

 

LandStar, Inc. was incorporated as a Nevada corporation on May 4, 1998, for the purpose of purchasing, developing and reselling real property, with its principal focus on the development of raw land. From incorporation through December 31, 1998, LandStar had no business operations and was a development-stage company. LandStar did not purchase or develop any properties and decided to change its business plan and operations. On March 31, 1999, the Company acquired approximately 98.5% of the common stock of Rebound Rubber Corp. pursuant to a share exchange agreement with Rebound Rubber Corp. (“ Rebound Rubber ”) and substantially all of Rebound Rubber’s shareholders. The acquisition was effected by issuing 14,500,100 shares of common stock, which constituted 14.5% of the 100,000,000 authorized shares of LandStar, and 50.6% of the 28,622,100 issued and outstanding shares on completion of the acquisition. The acquisition was treated for accounting purposes as a continuation of Rebound Rubber under the LandStar capital structure. If viewed from a non-consolidated perspective, on March 31, 1999 LandStar issued 14,500,100 shares for the acquisition of the outstanding shares of Rebound Rubber.

 

The share exchange with Rebound Rubber (and other transactions occurring in March, 1999) resulted in a change of control of LandStar and the appointment of new officers and directors of the Company. These transactions also redefined the focus of the Company on the development and exploitation of the technology to de-vulcanize and reactivate recycled rubber for resale as a raw material in the production of new rubber products. The Company’s business strategy was to sell the de-vulcanized material (and compounds using the materials) to manufacturers of rubber products.

 

Prior to 2001 the Company had no revenues. In 2001 and 2002 revenues were derived from management services rendered to a rubber recycling company.

 

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In August 2001 the Company amended its Articles of Incorporation to authorize 500,000,000 shares of common stock, $0.001 par value; and, 150,000,000 shares of preferred stock, $0.01 par value. Preferred stock. Preferred shares could be designated into specific classes and issued by action of the Company’s Board of Directors. In May 2008 the Company’s Board established a class of Convertible Preferred Series A (the “ Series A ”), authorizing 10,000,000 shares. The Series A provided for, among other things, (i) each share of Series A was convertible into 1,000 shares of the Company’s common stock; and, (ii) a holder of Series A was entitled to vote 1,000 shares of common stock for each share of Series A on all matters submitted to a vote by shareholders.

 

In September 2008 the Company amended its Articles to increase the number of authorized shares to 985,000,000, $0.001 par value. In January 2009 the Company amended its Articles to increase the number of authorized shares to 4,000,000,000, $0.001 par value. In January 2010 the Company once again amended its Articles to increase the number of authorized shares to 8,888,000,000, $0.001 par value.

 

The Company’s last filing of financial information with the SEC was the Form 10-QSB it filed on December 19, 2002 for the quarter ended 30 September 2002. No other filings were effected with the SEC until the Company filed a Form 15 May 19, 2008, which terminated the Company’s filing obligations with SEC.

 

The Company was effectively dormant for a number of years. In or around February 2014 there was a change in control when Kevin Hayes acquired 1,000,000 shares of the Series A, and was appointed as the sole director and officer. In or around April 2017 there was another change in control when Kevin Hayes sold the 1,000,000 shares of Series A to Hybrid Titan Management, which then proceeded to assign the Series A to William Alessi. Mr. Alessi was then appointed as the sole director and officer of the Company. Mr. Alessi initiated legal action in his home state of North Carolina to confirm, among other things, his ownership of the Series A; his “control” over the Company; and, the status of creditors of the Company. In or around June 2017 the court entered judgment in favor of Mr. Alessi.

 

In or around July 2017, while under the majority ownership and management of Mr. Alessi, the Company sought to effect a merger transaction (the “ Merger ”) under which the Company would be merged into Data443 Risk Mitigation, Inc. (“ Data443 ”). Data443 was formed as a North Carolina corporation in July 2017 under the original name LandStar, Inc. The name of the North Carolina corporation was changed to Data443 in December 2017. In November 2017 the controlling interest in the Company was acquired by our current chief executive officer and sole board member, Jason Remillard, when he acquired all of the Series A shares from Mr. Alessi. In that same transaction Mr. Remillard also acquired all of the shares of Data443 from Mr. Alessi. Mr. Remillard was then appointed as the sole director and sole officer of the Company, and of Data443. Initially, Mr. Remillard sought to recognize the Merger initiated by Mr. Alessi and respect the results of the Merger. The Company relied upon documents previously prepared and proceeded as if the Merger had been effected.

 

In January 2018 the Company acquired substantially all of the assets of Myriad Software Productions, LLC, which is owned 100% by Mr. Remillard. Those assets were comprised of the software program known as ClassiDocs, and all intellectual property and goodwill associated therewith. This acquisition changed the Company’s status to no longer being a “shell” under applicable securities rules. In consideration for the acquisition, the Company agreed to a purchase price of $1,500,000 comprised of (i) $50,000 paid at closing; (ii) $250,000 in the form of our promissory note; and, (iii) $1,200,000 in shares of our common stock, valued as of the closing, which equated to 1,200,000,000 shares of our common stock. The shares have not yet been issued and are not included as part of the issued and outstanding shares of the Company. However, these shares have been recorded as “Common Shares Issuable” within our financial statements for the period ending 30 June 2018.

 

In April 2018 the Company amended the designation for its Series A Preferred Stock by providing that a holder of Series A was entitled to (i) vote 15,000 shares of common stock for each share of Series A on all matters submitted to a vote by shareholders; and, (ii) convert each share of Series A into 1,000 shares of our common stock.

 

In May 2018 the Company amended and restated its Articles of Incorporation. The total authorized number of shares is: 8,888,000,000 shares of common stock, $0.001 par value; and, 50,000,000 shares of preferred stock, $0.001 par value, designated in the discretion of the Board of Directors. The Series A remains in full force and effect.

 

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In June 2018, after careful analysis and in reliance upon professional advisors retained by the Company, it was determined that the Merger had, in fact, not been completed, and that the Merger was not in the best interests of the Company and its shareholders. As such, the Merger was legally terminated. In place of the Merger, in June 2018 the Company acquired all of the issued and outstanding shares of stock of Data443 (the “ Share Exchange ”). As a result of the Share Exchange, Data443 became a wholly-owned subsidiary of the Company, with both the Company and Data443 continuing to exist as corporate entities. The finances and business conducted by the respective entities prior to the Share Exchange will be treated as related party transactions in anticipation of the Share Exchange. As consideration in the Share Exchange, we agreed to issue to Mr. Remillard: (a) One hundred million (100,000,000) shares of our common stock; and (b) On the eighteen (18) month anniversary of the closing of the Share Exchange (the “ Earn Out Date ”), an additional 100,000,000 shares of our common stock (the “ Earn Out Shares ”) provided that Data 443 has at least an additional $1MM in revenue by the Earn Out Date (not including revenue directly from acquisitions). None of our shares of our common stock to be issued to Mr. Remillard under the Share Exchange have been issued. As such, none of said shares are included as part of the issued and outstanding shares of the Company. However, these shares have been recorded as “Common Shares Issuable” within our financial statements for the period ending 30 June 2018.

 

On or about 29 June 2018 we secured the rights to the WordPress GDPR Framework through our wholly owned subsidiary Data443 for a total consideration of €40,001, or $46,521, payable in four payments of €10,000, with the first payment due at closing, and the remaining payments issuable at the end of July, August and September, 2018. Upon issuance of the final payment, we have the right to enter into an asset transfer agreement for the nominal cost of one euro (€1).

 

On or about 22 October 2018 we closed on an acquisition under which we acquired substantially all of the assets of Modevity, LLC (“Modevity”), an enterprise cloud-based data storage, protection, and workflow automation platform known as ARALOC™. Included as part of the proposed purchase we would also acquire all technology, sales assets, and customers of Modevity. We paid Modevity (i) $200,000 in cash; (ii) $750,000, in the form of our 10-month promissory note; and, (iii) 164,533,821 shares of our common stock.

 

Recent Accounting Pronouncements

 

From time-to-time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), or other standard setting bodies, relating to the treatment and recording of certain accounting transactions. Unless otherwise discussed herein, management of the Company has determined that these recent accounting pronouncements will not have a material impact on the financial position or results of operations of the Company.

 

Critical Accounting Policies

 

Critical Accounting Policies and Significant Judgments and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements which we have been prepared in accordance with U.S. generally accepted accounting principles. In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material.

 

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These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

 

While our significant accounting policies are described in more detail in Note 2 of our annual financial statements included in this Annual Report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements:

 

Assumption as a Going Concern

 

Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. However, given our current financial position and lack of liquidity, there is substantial doubt about our ability to continue as a going concern.

 

Convertible Financial Instruments

 

The Company bifurcates conversion options from their host instruments and accounts for them as free standing derivative financial instruments if certain criteria are met. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable GAAP.

 

When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, discounts are recorded for the intrinsic value of conversion options embedded in the instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the instrument.

 

Beneficial Conversion Feature

 

The issuance of the convertible debt issued by the Company (described in Note 4 to the Financial Statements) generated a beneficial conversion feature (“BCF”), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The Company recognized the BCF by allocating the intrinsic value of the conversion option, which is the number of shares of common stock available upon conversion multiplied by the difference between the effective conversion price per share and the fair value of common stock per share on the commitment date, resulting in a discount on the convertible debt (recorded as a component of additional paid in capital).

 

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Fair Value of Financial Instruments

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

  Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
     
  Level 2:

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

     
  Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

 

Stock-Based Compensation

 

We measure the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based compensation expense is recorded by us in the same expense classifications in the consolidated statements of operations, as if such amounts were paid in cash.

 

Deferred Tax Assets and Income Taxes Provision

 

The Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13 which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.

 

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The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses and presently has no revenue-producing business; (b) general economic conditions; and, (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.

 

Results of Operations

 

For the year ended December 31, 2017 compared with the year ended December 31, 2016

 

Revenues

 

The Company has not generated any revenue for the year ended December 31, 2017, as compared to zero revenue generated for the year ended December 31, 2016.

 

General and Administrative Expenses

 

General and administrative expenses for the year ended December 31, 2017 amounted to $13,227 as compared to $6,808 for the year ended December 31, 2017, an increase of $6,419. The expenses for the years ended December 31, 2017 and 2016 primarily consisted of audit and review fees, filing fees, and professional fees.

 

Net Loss

 

The net loss for the year ended December 31, 2017 was $271,187 as compared to $6,808 for the year ended December 31, 2016. The net loss mainly derived from the loss from change in fair value of derivative liability of $276,100 associated with warrants attached to convertible notes payable. The net loss for the year ended December 31, 2016 was derived from general and administrative expenses incurred.

 

Related Party Transactions

 

The following individuals and entities have been identified as related parties based on their affiliation with our CEO and sole director, Jason Remillard:

 

Jason Remillard

 

Myriad Software Productions, LLC

 

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The following amounts were owed to related parties, affiliated with the CEO and Chairman of the Board, at the dates indicated:

 

    December 31, 2017  
Jason Remillard   $ 7,990  
         
Myriad Software Productions, LLC   $ 0  

 

Liquidity and Capital Resources

 

As of December 31, 2017 and 2016, we had no cash or cash equivalents and a working capital deficit of $481,627 and $210,440 respectively. During the fourth quarter of fiscal year 2017 and through the date of this Registration Statement, we have faced an increasingly challenging liquidity situation that has severely hamstrung our ability to execute our operating plan. We have generated no revenue though we have actively prepared to initiate business in the data security market, and we acquired an active business subsequent to December 31, 2017. We have also been required to maintain our corporate existence; satisfy the requirements of being a public company; and, have chosen to become a mandatory filer with the SEC. We will need obtain capital to continue operations. There is no assurance that our Company will be able to secure such funding on acceptable (or any) terms. During the year ended December 31, 2017 we reported a net loss of $271,187 and had negative cash flows from operating activities totaling $0 for the same period. Combined with a beginning cash balance of $0 as of January 01, 2017.

 

As of December 31, 2017, we had assets of cash in the amount of $0, and no other assets as the Company was just commencing operations. As of December 31, 2017, we had liabilities of $481,627. The Company’s accumulated deficit was $5,717,106.

 

The revenues, if any, generated from our acquisitions alone will not be sufficient to fund our operations or planned growth. We will require additional capital to continue to operate our business, and to further expand our business. Sources of additional capital through various financing transactions or arrangements with third parties may include equity or debt financing, bank loans or revolving credit facilities. We may not be successful in locating suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means. Unless the Company can attract additional investment, the future of the Company operating as a going concern is in serious doubt.

 

We will now be obligated to file annual, quarterly and current reports with the SEC pursuant to the Exchange Act. In addition, the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the rules subsequently implemented by the SEC and the Public Company Accounting Oversight Board have imposed various requirements on public companies, including requiring changes in corporate governance practices. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities of ours more time- consuming and costly. In order to meet the needs to comply with the requirements of the Securities Exchange Act, we will need investment of capital.

 

Management has determined that additional capital will be required in the form of equity or debt securities. There is no assurance that management will be able to raise capital on terms acceptable to the Company. If we are unable to obtain sufficient amounts of additional capital, we may have to cease filing the required reports and cease operations completely. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our shareholders will be reduced, shareholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock.

 

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For the Nine Month Period Ended September 30, 2018, as Compared to the Comparable Prior Period Ended September 30, 2017

 

Revenues and Cost of Goods Sold . No revenue was recorded for the nine month period ended September 30, 2018. No revenue was recorded in the comparable prior period ended September 30, 2017. No cost of goods sold were recorded during either period in 2018 or 2017.

 

General and Administrative . General and administrative expenses for the nine month period ended September 30, 2018 were $1,854,051, a significant increase of $1,845,576 from $5,475 incurred in the comparable prior period ended September 30, 2017. The increase was the result of the Company no longer being a shell company and having higher staffing levels, professional and service provider costs, and associated operating costs involved with the business operations.

 

Other income/expense. The Company had no “Other income” for the nine months ended September 30, 2018 and “Other expense” of $2,978,103 consisting mainly of interest expense and loss on the change in fair value of derivative liability. During the comparable prior period ended September 30, 2017, the Company had no “Other Income” or “Other expenses”.

 

Interest expense . Interest expense accrued for the nine month period ended September 30, 2018 was $22,115, compared with no interest expense for the comparable prior period in 2017. The increase in the accrued interest expense was due to the related increase in outstanding notes payable.

 

Net loss. Net loss for the nine month period ended September 30, 2018 was $4,832,154, compared to a net loss of $5,475 for the comparable period in 2017.

 

For the Three Month Period Ended September 30, 2018, as Compared to the Comparable Prior Period Ended September 30, 2017

 

Revenues and Cost of Goods Sold . We had no revenues for the three month period ended September 30, 2018, compared to no revenue in the comparable prior period ended September 30, 2017. No cost of goods sold were recorded during either period in 2018 or 2017.

 

General and Administrative . General and administrative expenses for the three month period ended September 30, 2018 were $562,838, as compared to no such expenses incurred in the comparable prior period ended September 30, 2017. The increase was the result of the Company no longer being a shell and commencing business operations.

 

Interest expense. The Company had interest expense of $13,408 for the three month period ended September 30, 2018, compared to no interest expense for the comparable prior three month period ended 2017.

 

Net loss. Net income for the three month period ended September 30, 2018 was $3,382,742 compared to a net loss of $0 in the comparable prior three month period in 2017.

 

Going Concern

 

Our consolidated financial statements included elsewhere in this Form 10 have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in such consolidated financial statements, we had a stockholders’ deficit of $481,627 at December 31, 2017 and incurred a net loss of $271,187 for the year ended December 31, 2017. These factors raise substantial doubt about our ability to continue as a going concern. In addition, our independent registered public accounting firm in their audit report to our financial statements for the years ended December 31, 2017 and 2016 expressed substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern was raised due to our net losses and negative cash flows from operations since inception and our expectation that these conditions may continue for the foreseeable future. In addition, we will require additional financing to fund future operations. Our consolidated financial statements included elsewhere in this Form 10 do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

 

The ability of the Company to continue its operations in the future is dependent on the plans of the Company’s management, which will include the raising of capital through debt and/or equity markets, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence. There can be no assurance that the Company will be able to raise any additional capital.

 

Off-Balance Sheet Arrangements

 

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

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ITEM 3. PROPERTIES .

 

Our principal executive office is located at 1053 E. Whitaker Mill Rd. Suite 115 Raleigh, North Carolina, 27604. The space is a shared office space, which at the current time is suitable for the conduct of our business.

 

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

 

The following table sets forth, as of January 10, 2019, certain information with regard to the record and beneficial ownership of the Company’s common stock by (i) each person known to the Company to be the record or beneficial owner of more than 5% of the Company’s common stock, (ii) each director of the Company, (iii) each of the named executive officers, and (iv) all executive officers and directors of the Company as a group:

 

    Number of Shares     Percentage of  
Name & Address (1)   Beneficially Owned (2)     Outstanding Shares (2)  
             
Executive Officers & Directors                
Jason Remillard     2,300,000,000 (3)     31.03 %(4)
                 
All current executive officers and directors as a group (1 person)     2,300,000,000       31.03 %
                 
5% Shareholders                
Jason Remillard     2,300,000,000       31.03 %

 

(1) The mailing address for each person is c/o LandStar, Inc., 1053 E. Whitaker Mill Rd. Suite 115 Raleigh, North Carolina, 27604.

 

(2) Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Beneficial ownership also includes shares of stock subject to options and warrants currently exercisable or exercisable within 60 days of the date of this table. In determining the percent of common stock owned by a person or entity as of the date of this Registration Statement (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding as of the date of this Form 10, which is 5,112,210,803 shares, and (ii) the total number of shares that the beneficial owner may acquire upon exercise of the derivative securities. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares.

 

(3) Includes (i) 1,000,000,000 shares which would be issued to Mr. Remillard upon conversion of his Series A Preferred Stock; (ii) 1,200,000,000 shares to be issued to Mr. Remillard from the Myriad acquisition; and, (iii) 100,000,000 shares to be issued to Mr. Remillard from the Data443 acquisition.

 

(4) Based upon assuming 7,412,210,803 issued and outstanding shares.

 

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ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.

 

The following table sets forth certain information regarding our current executive officers and directors as of December 31, 2017:

 

NAME   AGE   POSITION
         
Jason Remillard   44   President; Chief Executive Officer;
        Chief Financial Officer; Secretary;
        Director

 

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our Bylaws. Our officers are appointed by our board of directors and hold office until removed by the board. All officers and directors listed above will remain in office until the next annual meeting of our shareholders, and until their successors have been duly elected and qualified. There are no agreements with respect to the election of Directors.

 

Set forth below is a brief description of the background and business experience of our executive officers and directors for the past five years.

 

Jason Remillard. Started his career in the early 1990’s with an internet service provider, Mr. Remillard has led software organizations of all sizes throughout his career. In addition to product management, development, and marketing, he has delivered strategic consulting for leading organizations worldwide and in both cyber-security and IT operations capabilities. He has had a distinguished career of over 25-years in the business of enterprise information technology, providing services world-wide. He has been on all three of the recognized aspects of information technology: (i) as a vendor; (ii) as an implementer; and, (iii) as the customer. Mr. Remillard has developed, delivered, and sold pervasive solutions and products for companies culminating in four successful market exits.

 

Mr. Remillard holds an MBA from the Richard Ivey School of Business (London, ON Canada). He is also a Certified Information Systems Security Professional (CISSP). Mr. Remillard is a founding member of the Blockchain Executive Group; former VP of CISO Global Security Architecture and Engineering at Deutsche Bank; Senior Product Manager for Dell/Quest Software; Management Consultant for IBM; and, Strategic Consultant for RBC Bank, TD Bank. Based upon his experience, and expertise, in the data security space, Mr. Remillard lends himself to be an ideal candidate to head the Company and serve on the Board.

 

Family Relationships

 

There are no family relationships between any of our officers and directors.

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Exchange Act, as amended, will require our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of the our common stock and other equity securities, on Form 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.

 

Board Committee

 

The Company does not have a formal Audit Committee, Nominating Committee and Compensation Committee. As the Company’s business expands, the directors will evaluate the necessity of an Audit Committee.

 

Code of Ethics

 

The Company has not adopted a code of ethics to apply to its principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions.

 

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ITEM 6. EXECUTIVE COMPENSATION.

 

Our named executive officers, consisting of our principal executive officer, as of December 31, 2017 and December 31, 2016 (the “ Named Executive Officers ”), were:

 

  William Alessi Chief Executive Officer; Chief Financial Officer; Sole Director

 

Summary Compensation Table

 

The following table sets forth, for the fiscal years ended December 31, 2017 and 2016, compensation awarded or paid to our Named Executive Officers:

 

                                        Non-Qualified              
                                  Non-Equity     Deferred     All        
Name &                     Stock     Option     Incentive Plan     Compensation     Other        
Principal Position   Year     Salary     Bonus     Awards     Awards     Compensation     Earnings     Compensation     Total  
William Alessi;                                                                        
CEO, CFO, Sole                                                                        
Board Member     2017       -0-       -0-       -0-       -0-            -0-           -0-           -0-       -0-  

 

There were no officers or directors in 2016.

 

Employment Agreements

 

We do not have an employment or consulting agreement with any officers or directors.

 

Director Compensation

 

Our Board of Directors does not currently receive any consideration for their services as members of the Board of Directors. The Board of Directors reserves the right in the future to award the members of the Board of Directors cash or stock based consideration for their services to the Company, which awards, if granted shall be in the sole determination of the Board of Directors.

 

Executive Compensation Philosophy

 

Our Board of Directors determines the compensation given to our executive officers in their sole determination. Our Board of Directors reserves the right to pay our executive or any future executives a salary, and/or issue them shares of common stock in consideration for services rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s performance. This package may also include long-term stock based compensation to certain executives, which is intended to align the performance of our executives with our long-term business strategies. Additionally, while our Board of Directors has not granted any performance base stock options to date, the Board of Directors reserves the right to grant such options in the future, if the Board in its sole determination believes such grants would be in the best interests of the Company.

 

Incentive Bonus

 

The Board of Directors may grant incentive bonuses to our executive officer and/or future executive officers in its sole discretion, if the Board of Directors believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and the amount of revenue we are able to generate each month, which revenue is a direct result of the actions and ability of such executives.

 

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Long-term, Stock Based Compensation

 

In order to attract, retain and motivate executive talent necessary to support the Company’s long-term business strategy we may award our executive and any future executives with long-term, stock-based compensation in the future, at the sole discretion of our Board of Directors, which we do not currently have any immediate plans to award.

 

ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Certain Relationships and Related Transactions

 

There were none in 2016 or 2017

 

Review, Approval and Ratification of Related Party Transactions

 

Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described above, with our executive officer(s), Director(s) and significant stockholders. We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional Directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate committee thereof. On a moving forward basis, our Directors will continue to approve any related party transaction.

 

Director Independence

 

Our board of directors is currently composed of a single member, Jason Remillard, who does not qualify as an independent director in accordance with the published listing requirements of the NASDAQ Global Market. The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the director, nor any of his family members has engaged in various types of business dealings with us. In addition, our board of directors has not made a subjective determination as to each director that no relationships exist which, in the opinion of our board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the NASDAQ rules. Had our board of directors made these determinations, our board of directors would have reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management.

 

ITEM 8. LEGAL PROCEEDINGS.

 

From time to time we may be involved in litigation relating to claims arising out of the operation of our business in the normal course of business. Other than as described below, as of the date of this Registration Statement we are not aware of potential dispute or pending litigation and are not currently involved in a litigation proceeding or governmental actions the outcome of which in management’s opinion would be material to our financial condition or results of operations. An adverse result in these or other matters may have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

 

On or about April 9, 2018, a Current Report on Form 8-K (the “8-K”) was filed under the name “Landstar, Inc.” The filing was not authorized by the Company and the Company has had no communication with the named filer. The 8-K purports to present financial statements for the years ended December 31, 2017 and 2016, and includes an entry for “long-term debt with interest” for $1,000,000 on the balance sheet. Although the Company is aware of an unsubstantiated claim for a $500,000 debt obligation, the Company is not familiar with the allegations that form the basis for this claim. The Company intends to vigorously dispute this claim.

 

Chuguan Industry Co. Ltd., which the Company believes is located in Beijing, China, appears on the Company’s shareholder list as a shareholder of record for 1,500,000,000 shares of Company common stock. However, the Company’s research has uncovered credible documentation that these shares were cancelled and should not be listed as issued and outstanding. The Company continues to investigate the validity of the cancellation documentation in order to determine if these shares are actually outstanding.

 

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The Company recently received a demand for conversion of a purported $90,000 note purportedly issued by the Company in 2008. The Company has no record of this obligation and there is indication that this purported obligation was ever recorded in the financial records of the Company. The Company believes that any action or collection or conversion of this purported note will be barred by the statute of limitations. As such, the Company has denied the existence and viability of the note, and will vigorously dispute this claim.

 

The Company recently received a demand from the same party claiming to have ownership of one million shares of the Company preferred stock. No stock certificate has been presented by the party claiming ownership, and there are no records indicating that the Corporation ever issued these shares to the claimant, or to the party from which the claimant contends it acquired the shares. Further, we believe that any such claim, if there is one, is barred by the statute of limitations. As such, the Company has rejected the claim to the shares, and the Company will vigorously dispute this claim.

 

The Company recently received a demand from a former consultant demanding payment of amounts purportedly owed to the consultant. The Company believes that no amounts are owed to the consultant. The Company is reviewing all relevant facts and circumstances and considering all available legal options.

 

Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

 

Our common stock is currently quoted on the OTC Pink under the trading symbol “LDSR”. Trading in stocks quoted on the OTC Pink is often thin and is characterized by wide fluctuations in trading prices due to many factors that may have little to do with a company’s operations or business prospects. We cannot assure you that there will be a market for our common stock in the future.

 

For the periods indicated, the following table sets forth the high and low bid prices per share of common stock based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

Fiscal Year 2016   High Bid     Low Bid  
First Quarter   $ 0.0001     $ 0.0001  
Second Quarter   $ 0.0001     $ 0.0001  
Third Quarter   $ 0.0001     $ 0.0001  
Fourth Quarter   $ 0.0001     $ 0.0001  

 

Fiscal Year 2017   High Bid     Low Bid  
First Quarter   $ 0.0001     $ 0.0001  
Second Quarter   $ 0.0003     $ 0.0001  
Third Quarter   $ 0.0009     $ 0.0002  
Fourth Quarter   $ 0.0011     $ 0.0001  

 

Holders

 

As of December 31, 2017, we had 3,947,676,982 shares of our Common Stock, par value $.001, issued and outstanding. There were 502 beneficial owners of our Common Stock.

 

Transfer Agent and Registrar

 

The transfer agent for our capital stock is Madison Stock Transfer Inc., with an address of 2500 Coney Island Ave, Sub Level Brooklyn, New York 11223, with a telephone of 718-627-4453.

 

Penny Stock Regulations

 

The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share. Our Common Stock is currently within the definition of a penny stock and will be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000, or annual incomes exceeding $200,000 individually, or $300,000, together with their spouse).

 

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For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our Common Stock and may affect the ability of investors to sell their Common Stock in the secondary market.

 

In addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit the investors’ ability to buy and sell our stock.

 

Dividend Policy

 

Any future determination as to the declaration and payment of dividends on shares of our Common Stock will be made at the discretion of our board of directors out of funds legally available for such purpose. We are under no contractual obligations or restrictions to declare or pay dividends on our shares of Common Stock. In addition, we currently have no plans to pay such dividends. Our board of directors currently intends to retain all earnings for use in the business for the foreseeable future.

 

Equity Compensation Plan Information

 

Currently, there is no equity compensation plan in place.

 

Purchases of Equity Securities by the Registrant and Affiliated Purchasers

 

We have not repurchased any shares of our common stock during the fiscal years ended December 31 2017 or 2016, respectively.

 

ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.

 

The following information represents securities sold by the Company within the past three years which were not registered under the Securities Act. Included are sales of reacquired securities, as well as new issues, securities issued in exchange for property, services, or other securities, and new securities resulting from the modification of outstanding securities.

 

  On 26 January 2018 the Company agreed to issue $1,200,000 in shares of our common stock, valued as of that date, to Jason Remillard under the transaction in which we acquired substantially all of the assets of Myriad Software Productions, LLC. This equated to 1,200,000,000 shares of our common stock, none of which have been issued to Mr. Remillard. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

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  On or about February 6, 2018, the Company entered into a Securities Purchase Agreement (the “ SPA ”) with Blue Citi LLC (“Blue Citi”) under which Blue Citi would purchase $500,000 in 8% interest accruing, convertible notes, maturing 18 months after issue. Subsequently, the Company and Blue Citi reached a verbal agreement to extend the SPA to $1,000,000. Each note was previously convertible at the option of Blue Citi into common shares at a 25% discount to the lowest trading price during the ten consecutive trading days immediately preceding the date of conversion. See, below, the discussion for the September 30, 2018 transactions involving the Restructuring Agreement and the Consolidated Note.
     
  On March 16, 2018, the Company converted $2,000 of a promissory note into 40,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On March 20, 2018, the Company converted $1,750 of a promissory note into 35,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2).
     
  On April 18, 2018, the Company converted $3,100 of a promissory note into 62,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On April 19, 2018, the Company converted $3,150 of a promissory note into 63,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On 29 June 2018 the Company agreed to issue 100,000,000 shares of our common stock, and an additional 100,000,000 shares upon satisfaction of certain conditions, to Mr. Remillard under the transaction in which we acquired all of the shares of Data443. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  Through Data443, we have signed consulting contracts with a team of consultants and advisors, of which, four provide senior leadership to the Company in corporate development, technology development, finance, operations, and sale and marketing, with the others providing services in administration, marketing, sales, and engineering. Additionally, we engage junior and mid-level engineering consultants on a project-by-project basis to further develop technology and to implement services for prospective clients. Collectively, the team is paid approximately $200,000 each quarter. Additionally, we have granted stock and stock options to some of these consultants and advisors as part of their compensation or in lieu of cash to reduce cash outlays. Grants of stock and stock options are awarded selectively to consultants upon their start dates, and every quarter thereafter throughout the term of their engagement at a fixed dollar amount. Each grant of stock and stock options is irrevocable, and some stock grants include registration rights; however, each grant of stock is restricted until the one-year anniversary from the grant date, and each grant of stock options vests on the one-year anniversary of the grant date. For the nine-month period ended September 30, 2018: (i) 133,567,651 common shares were granted as restricted stock awards; and, (ii) options to purchase 182,550,551 common shares were granted. The exercise prices for the grants of stock options range from $0.0014 to $0.018. One of our consulting contracts is with Myriad Software. Of the shares and options reserved for consultants during the period ending September 30, 2018, approximately 36,055,901 common shares and 36,287,144 in stock options were granted to Myriad Software. Of the approximately $400,000 payable to consultants and advisors in the period ending September 30, 2018, $30,000 of the Company’s consultant expense was due to Myriad Software for services rendered by Jason Remillard during the period. None of the shares committed under this paragraph have been issued as of the date of this Statement. These shares have been recorded as common shares issuable and included in additional paid-in capital – stock subscription within our financial statements for the period ending September 30, 2018 and have not been included in the total number of issued and outstanding shares reflected herein.

 

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  On July 2, 2018, the Company converted $10,000 of a promissory note into 200,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 9, 2018, the Company converted $5,000 of a promissory note into 100,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  O n September 30, 2018, the Company entered into a Debt Restructuring Agreement with Blue Citi (the “ Restructuring Agreement ”). Pursuant to the Restructuring Agreement, the parties agreed, among other things, to combine all of the Convertible Notes and other amounts owed to Blue Citi into a single note dated 30 September 2018 (the “ Consolidated Note ”). The Consolidated Note made the Convertible Notes null and void, and provided for, among other things, (i) an original principal amount of $829,680; (ii) 8% annual interest; (iii) 18-month maturity; (iv) reduction in the conversion discount from 25% to 10%, meaning that the Conversion Note, at the option of Blue Citi, is convertible into common shares at a price equal to 90% of the lowest trading price during the ten consecutive trading days immediately preceding the date of conversion; and, (v) Blue Citi waived all known and unknown breaches under the Convertible Notes. The outstanding principal for the Consolidated Note as of September 30, 2018 was $829,680. Based on this amount, and the Company’s lowest stock price of $0.0056 per share during the preceding ten day period, the Consolidated Note is convertible into approximately 148,157,143 shares of our common stock. However, the Consolidated Note contains a limiter prohibiting the holder from converting if the conversion would cause the holder to own more than 4.99% of the Company’s then outstanding common stock after giving effect to the conversion of the stock. The issuance of the Consolidated Note was exempt under Section 4(a)(2) of the Securities Act.
     
  On October 12, 2018, the Company issued to AFT Funding Corp. the Company’s promissory note in the amount of $110,000 in exchange for $100,000 in net proceeds. The note provides for a maturity date of July 16, 2019; 8% interest; and, the right of the holder to convert all amounts due into shares of the Company’s common stock at a price equal to 70% of the lesser of (i) the lowest price for our common stock during the 20-days preceding the conversion; or, (ii) the lowest price for our common stock for the 20-days preceding the issuance of the note. The issuance of the note was exempt under Section 4(a)(2) of the Securities Act.
     
  On 16 October 2018, the Company converted $20,000 of a promissory note into 400,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On 22 October 2018 the Company agreed to issue 164,533,821 shares of our common stock Modevity, LLC under the transaction in which we acquired substantially all of the assets of Modevity, LLC. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On October 23, 2018, the Company issued to Smea2z LLC the Company’s promissory note in the amount of $220,000 in exchange for $200,000 in net proceeds. The note provides for a maturity date of July 23, 2019; 8% interest; and, the right of the holder to convert all amounts due into shares of the Company’s common stock at a price equal to 70% of the lesser of (i) the lowest price for our common stock during the 20-days preceding the conversion; or, (ii) the lowest price for our common stock for the 20-days preceding the issuance of the note. The issuance of the note was exempt under Section 4(a)(2) of the Securities Act.
     
  On 15 November 2018 the Company converted $5,000 of a promissory note into 100,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  From October 01, 2018 through December 13, 2018, Blue Citi loaned to the Company an additional $175,000, which amount is to be added to the Consolidated Note and subject to the same terms and conditions therein. These amounts added to the Consolidated Note was exempt under Section 4(a)(2) of the Securities Act.
     
  On December 20, 2018 the Company issued a total of 252,016,130 restricted shares of its common stock for subscriptions of $500,000. The Company received the entire amount of the proceeds. In connection with the issuance of the shares, the Company also issued to the subscribers warrants to acquire a total of 50,403,226 shares of our common stock at a strike price of $0,003 per share, with a cashless exercise feature and a five (5) year term. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.

 

Common Stock

 

This Form 10 relates to our common stock, $0.001 par value per share (the “Common Stock”). We are authorized to issue 8,888,000,000 shares of Common Stock. We are also authorized to issue 50,000,000 shares of preferred stock, par value $0.001(the “Preferred Stock”). As of December 31, 2017, there were 3,947,676,982 shares of Common Stock and 1,000,000 shares of Preferred Stock outstanding.

 

The holders of our Common Stock have equal ratable rights to dividends from funds legally available therefore, when, as and if declared by our board of directors. Holders of Common Stock are also entitled to share ratably in all of our assets available for distribution to holders of Common Stock upon liquidation, dissolution or winding up of the affairs.

 

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The holders of shares of our Common Stock do not have cumulative voting rights, which means that the holders of more than 50% of such outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose and in such event, the holders of the remaining shares will not be able to elect any of our directors. The holders of 50% percent of the outstanding Common Stock constitute a quorum at any meeting of shareholders, and the vote by the holders of a majority of the outstanding shares or a majority of the shareholders at a meeting at which quorum exists are required to effect certain fundamental corporate changes, such as liquidation, merger or amendment of our articles of incorporation.

 

Preferred Stock

 

We have authority to issue 50,000,000 shares of “blank check” Preferred Stock. Our Board of Directors may issue the authorized Preferred Stock in one or more series and may fix the number of shares of each series of preferred stock. Our Board of Directors also has the authority to set the voting powers, designations, preferences and relative, participating, optional or other special rights of each series of Preferred Stock, including the dividend rights, dividend rate, terms of redemption, redemption price or prices, conversion and voting rights and liquidation preferences. Preferred Stock can be issued and its terms set by our Board of Directors without any further vote or action by our stockholders.

 

Series A Preferred Stock

 

As of December 31, 2017, there were 1,000,000 shares of Series A Preferred Stock issued and outstanding. The Series A Preferred shares (i) vote on all matters with the holders of common stock as if each shares of Series A was converted into 15,000 shares of common stock; and, (ii) are convertible into shares of common stock, at any time in the discretion of the holders of the Series A shares, at a ratio of 1,000 shares of common stock for each share of Series A.

 

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

 

Under our Bylaws, every person who was or is a party to, or is threatened to be made a party to, or is involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer of the Company, or is or was serving at the request of the Company as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, shall be indemnified and held harmless to the fullest extent legally permissible under the laws of the State of Nevada from time to time against all expenses, liability, and loss (including attorneys’ fees judgments, fines, and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right, which may be enforced in any manner desired by such person. The expenses of officers and directors incurred in defending a civil or criminal action, suit, or proceeding must be paid by the Company as they are incurred and in advance of the final disposition of the action, suit, or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the company. Such right of indemnification shall not be exclusive of any other right which such directors, officers, or representatives may have or hereafter acquire, and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of shareholders, provision of law, or otherwise.

 

Without limiting the application of the foregoing, the Board of Directors may adopt bylaws from time to time with respect to indemnification, to provide at all times the fullest indemnification permitted by the laws of the State of Nevada, and may cause the Company to purchase and maintain insurance on behalf of any person who is or was a director or officer of the Company, or is or was serving at the request of the Company as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Company would have the power to indemnify such person. The indemnification provided shall continue as to a person who has ceased to be a director, officer, employee, or agent, and shall inure to the benefit of the heirs, executors and administrators of such person.

 

38

 

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

 

We have not entered into any agreements with our directors and executive officers that require us to indemnify these persons against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred (including expenses of a derivative action) in connection with any proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that the person is or was a director or officer of our Company or any of our affiliated enterprises. We do not maintain any policy of directors’ and officers’ liability insurance that insures its directors and officers against the cost of defense, settlement or payment of a judgment under any circumstances.

 

ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Our financial statements, notes thereto and the related independent registered accounting firm’s report are set forth immediately following the signature page to this registration statement beginning at page F-1 and are incorporated herein by reference.

 

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None.

39

 

 

ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.

 

(a) Financial Statements

 

The following financial statements are being filed as part of this Registration Statement:

 

Index to Consolidated Financial Statements

 

    Page
Report of Independent Registered Public Accounting Firm   F-1
     
For the fiscal years ended December 31, 2017 and 2016    
Consolidated Balance Sheets   F-2
Consolidated Statements of Operations   F-3
Consolidated Statements of Shareholders’ Deficit   F-4
Consolidated Statements of Cash Flows   F-5
Notes to Consolidated Financial Statements   F-6
     
For the period ended September 30, 2018    
Condensed Consolidated Balance Sheets (Unaudited)   F-19
Condensed Consolidated Statements of Operations (Unaudited)   F- 20
Condensed Consolidated Statements of Cash Flows (Unaudited)   F-21
Notes to Condensed Consolidated Financial Statements   F- 22

 

40

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders

Landstar, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Landstar, Inc. (the “Company”) as of December 31, 2017 and 2016, and the related statements of operations, stockholders’ deficit, and cash flows, for each of the years in the two-year period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Emphasis of Matter

 

The accompanying financial statements have been prepared assuming that the Company will become a going concern. As described in Note 3 to the financial statements, the Company has not generated any revenue and has limitations as limitations on its operating capital resources, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Thayer O’Neal Company, LLC

We have served as the Company’s auditor since 2018.

Houston, Texas

January 10, 2019

 

F- 1

 

 

LANDSTAR, INC.

Balance Sheets

December 31, 2017 and 2016

 

    2017     2016  
             
Assets                
Total assets   $ -     $ -  
                 
Liabilities                
                 
Current liabilities:                
Accounts payable   $ 52,837     $ 65,740  
Convertible notes payable     125,000       125,000  
Derivative liability     295,800       19,700  
Due to related party     7,990       -  
                 
Total current liabilities     481,627       210,440  
                 
Total liabilities     481,627       210,440  
                 
Stockholders’ deficit                
               
Preferred stock, $0.001 par value; 50,000,000 shares authorized; 1,000,000 issued and outstanding as of December 31, 2017 and 2016     1,000       1,000  
Common stock, $0.001 par value; 8,888,000,000 shares authorized; 3,947,676,982 issued and outstanding as of December 31, 2017 and 2016     3,947,677       3,947,677  
Additional paid-in capital     1,286,802       1,286,802  
Accumulated deficit     (5,717,106 )     (5,445,919 )
                 
Total stockholders’ deficit     (481,627 )     (210,440 )
                 
Total liabilities and stockholders’ deficit   $ -     $ -  

 

See the accompanying Notes, which are an integral part of these Financial Statements

 

F- 2

 

 

LANDSTAR, INC.

Statements of Operations

For the Years Ended December 31, 2017 and 2016

 

    2017     2016  
             
Revenue   $ -     $ -  
                 
Operating expenses:                
General and administrative     13,227       6,808  
Sales and marketing     1,000       -  
                 
Total operating expenses     14,227       6,808  
                 
Loss from operations     (14,227 )     (6,808 )
                 
Other income (expense):                
Other income     19,140       -  
                 
Loss from change in fair value of derivative liability     (276,100 )     -  
                 
Net loss   $ (271,187 )   $ (6,808 )
                 
Net loss per common share, basic and diluted     (0.00 )     (0.00 )
                 
Weighted-average common shares, basic and diluted     3,947,676,982       3,947,676,982  

 

See the accompanying Notes, which are an integral part of these Financial Statements

 

F- 3

 

 

LANDSTAR, INC.

Statements of Stockholders’ Deficit

For the Years Ended December 31, 2017 and 2016

 

    Convertible Preferred Series A     Common Stock     Additional
Paid-in
    Accumulated     Total
Stockholder
 
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
                                           
Balance as of January 1, 2016     1,000,000     $ 1,000       3,947,676,982     $ 3,947,677     $ 1,286,802     $ (5,439,111 )   $ (203,632 )
                                                         
Net loss     -       -       -       -       -       (6,808 )     (6,808 )
                                                         
Balance as of
December 31, 2016
    1,000,000       1,000       3,947,676,982       3,947,677       1,286,802       (5,445,919 )     (210,440 )
                                                         
Net loss     -       -       -       -       -       (271,187 )     (271,187 )
                                                         
Balance as of December 31, 2017     1,000,000     $ 1,000       3,947,676,982     $ 3,947,677     $ 1,286,802     $ (5,717,106 )   $ (481,627 )

 

See the accompanying Notes, which are an integral part of these Financial Statements

 

F- 4

 

 

LANDSTAR, INC.

Statements of Cash Flows

For the Years Ended December 31, 2017 and 2016

 

    2017     2016  
             
Cash flows from operating activities                
                 
Net loss   $ (271,187 )   $ (6,808 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
Loss from change in fair value of derivative liability     276,100       -  
Changes in operating assets and liabilities:                
Accounts payable     (12,903 )     6,808  
Due to related party     7,990          
                 
Net cash used in operating activities     -       -  
                 
Net change in cash     -       -  
                 
Cash as of beginning of year     -       -  
                 
Cash as of end of year   $ -     $ -  

 

Supplemental cash flow information:                
                 
Cash paid for interest   $ -     $ -  
Cash paid for income tax   $ -     $ -  

 

See the accompanying Notes, which are an integral part of these Financial Statements

 

F- 5

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Business Description

 

LandStar, Inc. (the “Company”) was incorporated as a Nevada corporation on May 4, 1998. The Company is developing products that enable secure data, at rest and in flight, across local devices, network, cloud, and databases.

 

Basis of Presentation

 

The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Convertible Financial Instruments

 

The Company bifurcates conversion options from their host instruments and accounts for them as free-standing derivative financial instruments if certain criteria are met. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable U.S. GAAP.

 

When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, discounts are recorded for the intrinsic value of conversion options embedded in the instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the instrument.

 

F- 6

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Common stock purchase warrants and derivative financial instruments - Common stock purchase warrants and other derivative financial instruments are classified as equity if the contracts (1) require physical settlement or net-share settlement, or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). Contracts which (1) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) that contain reset provisions that do not qualify for the scope exception are classified as liabilities. The Company assesses classification of its common stock purchase warrants and other derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.

 

Beneficial Conversion Feature - The issuance of the convertible debt described in Note 4, below, generated a beneficial conversion feature (“BCF”), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The Company recognized the BCF by allocating the intrinsic value of the conversion option, which is the number of shares of common stock available upon conversion multiplied by the difference between the effective conversion price per share and the fair value of common stock per share on the commitment date, resulting in a discount on the convertible debt (recorded as a component of additional paid-in capital).

 

Income Taxes

 

The liability method is used in the Company’s accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

 

Deferred tax assets and liabilities are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. In estimating future tax consequences, all expected future events are considered other than enactment of changes in the tax law or rates.

 

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.

 

The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

 

F- 7

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

The determination of recording or releasing tax valuation allowance is made, in part, pursuant to an assessment performed by management regarding the likelihood that the Company will generate future taxable income against which benefits of its deferred tax assets may or may not be realized. This assessment requires management to exercise significant judgment and make estimates with respect to its ability to generate taxable income in future periods.

 

Fair Value Measurements

 

The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques 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 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

 

The three levels of the fair value hierarchy are described as follows:

 

  Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
       
  Level 2 Inputs to the valuation methodology include:

 

  quoted prices for similar assets or liabilities in active markets;
     
  quoted prices for identical or similar assets or liabilities in inactive markets;
     
  inputs other than quoted prices that are observable for the asset or liability;
     
  inputs that are derived principally from or corroborated by observable market data by correlation or other means.
     
  If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

 

  Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

Net Loss Per Common Share

 

The Company calculates net loss per common share as a measurement of the Company’s performance while giving effect to all dilutive potential common shares that were outstanding during the reporting period. As the Company had a net loss for all periods presented, the inclusion of common stock options or other similar instruments would be anti-dilutive. Therefore, the weighted average shares used to calculate both basic and diluted earnings per share are the same.

 

F- 8

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Segments

 

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company operates and manages its business as one operating segment and all of the Company’s operations are in North America.

 

Recently Issued Accounting Pronouncements

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment . The FASB issued ASU 2016-09 to simplify several aspects of the accounting for share-based payment transactions, including income tax consequences. The guidance is currently effective for the Company for the year-ending December 31, 2018. The Company is currently evaluating the effect of this guidance on its financial statements.

 

In November 2015, FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes . The new standard requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual report period. The amendments in this ASU may be applied either prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company adopted this standard as of December 31, 2017.

 

In August 2014, FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern , which requires management to assess an entity’s ability to continue as a going concern and to provide related disclosures in certain circumstances. Under the new guidance, disclosures are required when conditions give rise to substantial doubt about an entity’s ability to continue as a going concern within one year from the financial statement issuance date. The guidance is effective for annual periods ending after December 15, 2016, and all annual and interim periods thereafter. The Company adopted ASU 2014-15 for the year ended December 31, 2016.

 

F- 9

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The provisions of ASU 2016-02 set out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months, regardless of their classification. Leases with a term of 12 months or less will be accounted for in a similar manner as under existing guidance for operating leases. ASU 2016-02 supersedes the previous lease standard, Topic 840, Leases . This guidance is effective for the Company for the year ending December 31, 2020. The Company is currently evaluating the impact that the implementation of this standard will have on the Company’s financial statements.

 

Note 2: Restatement of Previously Issued Financial Statements

 

The Company has restated previously issued financial statements as of December 31, 2017 and 2016, to reflect the correction of errors related to understatements of accounts payable and amounts due to a related party, and accounting for liabilities created by a beneficial conversion feature associated with the issuance of a convertible note payable.

 

The following sets forth the previously reported and restated amounts of selected items within the balance sheet and statement of operations as of and for the year ended December 31, 2017 and 2016:

 

    2017  
    As Previously Reported    

Correction

of Errors

    As Restated  
                   
Accounts payable   $ -     $ 52,837     $ 52,837  
Due to related party     -       7,990       7,990  
Derivative liability     -       295,800       295,800  
Stockholders’ deficit, December 31, 2017     125,000       356,627       481,627  
Net loss for the year ended December 31, 2017     -       271,187       271,187  

 

F- 10

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

Note 2: Restatement of Previously Issued Financial Statements (concluded)

 

    2016  
    As Previously Reported     Correction of Errors     As Restated  
                   
Accounts payable   $ -     $ 65,740     $ 65,740  
Derivative liability     -       19,700       19,700  
Stockholders’ deficit, January 1, 2016     125,000       78,632       203,632  
Stockholders’ deficit, December 31, 2016     125,000       85,540       210,440  
Net loss for the year ended December 31, 2016     -       6,808       6,808  

 

NOTE 3: LIQUIDITY AND GOING CONCERN

 

The accompanying financial statements have been prepared (i) in accordance with accounting principles generally accepted in the United States, and (ii) assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated significant income to date. The Company is subject to the risks and uncertainties associated with a business with no substantive revenue, as well as limitations on its operating capital resources. These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. In light of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise capital and generate revenue and profits in the future.

 

During 2018, the Company has made one product acquisition, ClassiDocs, and completed the acquisition of one entity, Data443 Risk Mitigation, Inc. (“Data443”). The Company is actively seeking new products and entities to acquire, with several candidates identified. The Company has developed, and continues to develop, large scale relationships with cyber security, marketing and product organizations, and to market and promote ClassiDocs and other products the Company may develop or acquire. As of December 31, 2017, the Company had operating losses, negative net working capital, and an accumulated deficit. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

F- 11

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 4: CONVERTIBLE NOTE PAYABLE

 

Convertible note payable consists of a non-interest bearing convertible note for the original principal of $125,000, payable on demand and convertible at the option of the holder into common shares at the conversion price of $0.00005 per share. The outstanding principal for the convertible note was $125,000 as of December 31, 2017 and 2016. The embedded conversion feature in this note created a beneficial conversion feature (“BCF”) totaling $296,000 and $375,000 as of December 31, 2017 and 2016.

 

NOTE 5: DERIVATIVE LIABILITY

 

Management determined that liabilities created by a beneficial conversion feature associated with the issuance of a convertible note payable (see Note 4) meets the criteria of a derivative and is required to be measured at fair value. The fair value of this derivative liability was determined based on management’s estimate of the expected future cash flows required to settle the liability. This valuation technique involves management’s estimates and judgment based on unobservable inputs and is classified in level 3.

 

Derivative liability as of December 31, 2016   $ 19,700  
Change in fair value of derivative liability     276,100  
         
Derivative liability as of December 31, 2017   $ 295,800  
         
The amount of net loss for the period attributable to the unrealized losses relating to liability still held at the reporting date   $ 276,100  

 

NOTE 6: CAPITAL STOCK

 

Preferred Stock

 

The Company is authorized to issue 50,000,000 shares of preferred stock with a par value of $0.001, of which 1,000,000 shares have been designated as Series A. As of December 31, 2017 and 2016, 1,000,000 shares of Series A were issued and outstanding, and each share of Series A was (i) convertible into 1,000 shares of common stock, and (ii) entitled to vote 1,000 shares of common stock on all matters submitted to a vote by shareholders voting common stock. All issued and outstanding shares of Series A Preferred Stock are held by Mr. Jason Remillard, (“Mr. Remillard”) sole director and sole officer of the Company.

 

Common Stock

 

The Company is authorized to issue 8,888,000,000 shares of common stock with a par value of $0.001 per share. All shares have equal voting rights, are non-assessable, and have one vote per share. The total number of shares of Company common stock issued and outstanding as of December 31, 2017 and 2016 was 3,947,676,982.

 

F- 12

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 7: INCOME TAXES

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows as of December 31:

 

    2017     2016  
Noncurrent:            
Deferred tax assets:                
Tax loss   $ 1,250,100     $ 1,941,500  
Valuation allowance     (1,250,100 )     (1,941,500 )
                 
Total deferred tax assets, noncurrent   $ -     $ -  

 

The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. During 2017 and 2016, the valuation allowance decreased by $691,400 and increased by $2,400, respectively. The Company has net operating and economic loss carryforwards of $5,441,000 available to offset future federal and state taxable income.

 

The reasons for the difference between actual income tax expense (benefit) for the years ended December 31, 2017 and 2016, and the amount computed by applying the statutory federal income tax rate to losses before income tax (benefit) are as follows:

 

    2017     2016  
    Amount     % of Pretax Earnings     Amount     % of Pretax Earnings  
                         
Income tax benefit at statutory rate   $ (92,200 )     (34.0 %)     (2,300 )     (34.0 %)
State income taxes, net of federal tax benefit     (5,400 )     (2.0 %)     (100 )     (1.5 %)
Change in valuation allowance     97,600       36.0 %     2,400       35.5 %
                                 
Income tax benefit   $ -       0.0 %   $ -       0.0 %

 

NOTE 8: RELATED PARTY TRANSACTIONS

 

During 2017, Mr. Remillard made certain advances to the Company totaling $7,990 to be used for operating expenses. As of December 31, 2017, $7,990 was included in due from related party for those advances.

 

F- 13

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 9: LEGAL AND OTHER MATTERS

 

On or about April 9, 2018, a Current Report on Form 8-K (“8-K”) was filed under the name “Landstar, Inc.” The filing was not authorized by the Company and the Company has had no communication with the named filer. The 8-K purports to present financial statements for the years ended December 31, 2017 and 2016, and includes an entry for “long-term debt with interest” for $1,000,000 on the balance sheet. Although the Company is aware of an unsubstantiated claim for a $500,000 debt obligation, the Company is not familiar with the allegations that form the basis for this claim. The Company has yet to initiate action in response, though the Company intends to vigorously dispute this claim.

 

Chuguan Industry Co. Ltd., which the Company believes is located in Beijing, China, appears on the Company’s shareholder list as a shareholder of record for 1,500,000,000 shares of Company common stock. However, the Company’s research has uncovered credible documentation that these shares were cancelled and should not be listed as issued and outstanding. The Company continues to investigate the validity of the cancellation documentation in order to determine if these shares are actually outstanding.

 

The Company recently received a demand for conversion of a purported $90,000 note purportedly issued by the Company in 2008. The Company has no record of this obligation and there is indication that this purported obligation was ever recorded in the financial records of the Company. The Company believes that any action or collection or conversion of this purported note will be barred by the statute of limitations. As such, the Company has denied the existence and viability of the note, and will vigorously dispute this claim.

 

The Company recently received a demand from the same party claiming to have ownership of one million shares of the Company preferred stock. No stock certificate has been presented by the party claiming ownership, and there are no records indicating that the Corporation ever issued these shares to the claimant, or to the party from which the claimant contends it acquired the shares. Further, we believe that any such claim, if there is one, is barred by the statute of limitations. As such, the Company has rejected the claim to the shares, and the Company will vigorously dispute this claim.

 

The Company recently received a demand from a former consultant demanding payment of amounts purportedly owed to the consultant. The Company believes that no amounts are owed to the consultant. The Company is reviewing all relevant facts and circumstances and considering all available legal options.

 

In the normal course of business, the Company may become a party to litigation matters involving claims against the Company. The Company’s management is unaware of any other pending or threatened assertions and there are no current matters that would have a material effect on the Company’s financial position or results of operations.

 

NOTE 10: SUBSEQUENT EVENTS

 

Myriad Software Productions, LLC Acquisition

 

In January 2018 the Company acquired substantially all of the assets of Myriad Software Productions, LLC (“Myriad”), which was wholly owned by Mr. Remillard. Those assets were comprised of the software program known as ClassiDocs, and all intellectual property and goodwill associated therewith. This acquisition changed the Company’s status to no longer being a “shell” under applicable securities rules. In consideration for the acquisition, the Company agreed to a purchase price of $1,500,000 comprised of the following: $50,000 paid at closing, (ii) $250,000 in the form of a promissory note, and (iii) $1,200,000 in shares of common stock, valued as of the closing, which equated to 1,200,000,000 shares of Company common stock.

 

F- 14

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 10: SUBSEQUENT EVENTS (continued)

 

As the transaction was a business combination among entities under common control, the Company recorded the assets and liabilities of Myriad at carrying value, as though the transaction occurred at the beginning of the applicable period, or January 1, 2018. The following table summarizes the carrying value of the assets acquired and liabilities assumed as of January 1, 2018:

 

Carrying value of operating assets acquired:      
Cash   $ 4,478  
         
Carrying value of liabilities assumed:        
Accounts payable     116,039  
         
Net carrying value acquired   $ (111,561 )

 

Data443 Risk Mitigation, Inc. Acquisition

 

During June 2018, the Company acquired Data443 through a share exchange whereby the outstanding common stock in Data443, which was wholly owned by Mr. Remillard, was exchanged for shares of common stock of the Company. The total consideration issued for the acquisition of Data443 was as follows:

 

  (a) 100,000,000 shares of Company common stock, and
   
  (b) On the 18-month anniversary of the closing of the share exchange (the “Earn Out Date”), an additional 100,000,000 shares of Company common stock (the “Earn Out Shares”) provided that Data443 has at least an additional $1,000,000 in revenue by the Earn Out Date (not including revenue directly from acquisitions).

 

None of the shares of common stock to be issued to Mr. Remillard under the share exchange have been issued.

 

As the transaction was a business combination among entities under common control, the Company recorded the assets and liabilities of Data443 at carrying value, as though the transaction occurred at the beginning of the applicable period, or January 1, 2018. The following table summarizes the carrying value of the liabilities assumed as of January 1, 2018:

 

Carrying value of liabilities assumed:      
Accounts payable   $ 17,993  
         
Net carrying value acquired   $ (17,993 )

 

F- 15

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 10: SUBSEQUENT EVENTS (continued)

 

Equity Purchase Agreement

 

On or about February 5, 2018, the Company entered into the EPA with Blue Citi, under which Blue Citi could purchase up to $10,000,000 of the Company’s common stock over a period of time terminating on the earlier of, (i) 24 months from the date on which the EPA was executed, or (ii) the date on which Blue Citi purchased the aggregate maximum purchase price of $10,000,000 pursuant to the EPA. The purchase price for the Company’s shares of common stock to be paid by Blue Citi was 85% of the price of Company shares traded on the principal market of the Company’s common stock pursuant to a specific time period and formula in the EPA.

 

Additionally, in connection with the EPA, the Company agreed to a $100,000 commitment fee (the “Commitment Fee”), payable in common shares which equated to 28,571,429 shares of Company common stock (the “Commitment Shares”).

 

During September 2018, in connection with the Convertible Note Amendment (note 5), the Company and Blue Citi agreed to terminate the EPA.

 

Consulting Agreements

 

During 2018, through Data443, the Company has signed consulting contracts with a team of consultants and advisors, of which, four provide senior leadership to the Company in corporate development, technology development, finance, operations, and sales and marketing, with the others providing services in administration, marketing, sales, and engineering. Additionally, the Company engages j unior - and mid-level engineering consultants on a project-by-project basis to further develop technology and to implement services for prospective clients. Collectively, the team is paid approximately $200,000 each quarter. Additionally, the Company has granted stock and stock options to some of these consultants and advisors as part of their compensation and/or in lieu of cash to reduce cash outlays. Stock and stock option grants are awarded selectively to consultants upon their start dates, and every quarter thereafter, during the term of their engagement, at a fixed dollar amount. Each stock and stock option grant is irrevocable, and some stock grants include registration rights; however, each stock and stock option grant is restricted until the one-year anniversary from the date of each respective grant.

 

F- 16

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 10: SUBSEQUENT EVENTS (continued)

 

Convertible Notes Payable

 

During 2018, the following convertible notes payable were issued:

 

  1. Non-interest bearing convertible note held by Blue Citi LLC (“Blue Citi”) for the original principal of $125,000, payable on demand and convertible at the option of the holder into common shares at the conversion price of $0.00005 per share. The outstanding principal for the convertible note was $100,000 and $125,000 as of September 30, 2018 and December 31, 2017. During the nine-month period ending September 30, 2018, Blue Citi converted $25,000 of this convertible note into 500,000,000 shares of common stock. During the period of October 01, 2018 to December 20, 2018, Blue Citi converted an additional $25,000 of this convertible note into 500,000,000 shares of common stock.
     
  2. Convertible note held by Blue Citi for a total principal of $829,680 (the “Consolidated Note”). The Consolidated Note (i) accrues interest at the rate of 8% per annum; (ii) can be converted into shares of our common stock at a 10% discount to the lowest trading price during the ten consecutive trading days immediately preceding the date of conversion (40% discount upon an event of default under the note), and (iii) is due and payable upon the 18-month anniversary of its issuance.
     
    During September 2018, the Consolidated Note was issued to Blue Citi in connection with a restructuring (the “Convertible Note Restructuring”) of previously outstanding convertible notes with Blue Citi. Immediately prior to the issuance of this note, various convertible notes totaling $810,000, which had been issued between February and September 2018, were outstanding with Blue Citi, along with associated accrued interest total $19,680. Those notes (i) accrued interest at the rate of 8% per annum; (ii) could be converted into shares of the Company’s common stock at a 25% discount to the lowest trading price during the ten consecutive trading days immediately preceding the date of conversion (50% discount upon an event of default under the note), and (iii) were due and payable upon the 12-month or 18-month anniversary of their issuance.
     
  3. Blue Citi loaned an additional $175,000 to the Company during the period of October 01, 2018 to December 20, 2018. This amount was added to the principal balance of the Consolidated Note and is subject to the same terms and conditions therein.
     
  4. On October 12, 2018, the Company issued to AFT Funding Corp. the Company’s promissory note in the amount of $110,000 in exchange for $100,000 in net proceeds. The note provides for a maturity date of July 16, 2019; 8% interest; and, the right of the holder to convert all amounts due into shares of the Company’s common stock at a price equal to 70% of the lesser of (i) the lowest price for our common stock during the 20-days preceding the conversion; or, (ii) the lowest price for our common stock for the 20-days preceding the issuance of the note.
     
  5. On October 23, 2018, the Company issued to Smea2z LLC the Company’s promissory note in the amount of $220,000 in exchange for $200,000 in net proceeds. The note provides for a maturity date of July 23, 2019; 8% interest; and, the right of the holder to convert all amounts due into shares of the Company’s common stock at a price equal to 70% of the lesser of (i) the lowest price for our common stock during the 20-days preceding the conversion; or, (ii) the lowest price for our common stock for the 20-days preceding the issuance of the note. The issuance of the note was exempt under Section 4(a)(2) of the Securities Act.

 

Each of these convertible notes (collectively the “Convertible Notes”) contains an embedded conversion feature that the Company has determined is a derivative requiring bifurcation.

 

Stock Purchases

 

During 2018, the Company issued shares of its common stock in the following transactions:

 

On December 20, 2018 the Company issued a total of 252,016,130 restricted shares of its common stock for subscriptions of $500,000. The Company received the entire amount of the proceeds. In connection with the issuance of the shares, the Company also issued to the subscribers warrants to acquire a total of 50,403,226 shares of our common stock at a strike price of $0,003 per share, with a cashless exercise feature and a five (5) year term.

 

F- 17

 

 

LANDSTAR, INC.

Notes to Financial Statements

December 31, 2017 and 2016

 

NOTE 10: SUBSEQUENT EVENTS (concluded)

 

Stock Options and Restricted Stock

 

During 2018, the Company granted options to purchase common stock and restricted stock awards to certain consultants and advisors as consideration for services rendered. The terms of the stock option grants and awards of restricted stock are determined by the Company’s Board of Directors. The Company’s stock options and awards of restricted stock generally vest over a period of one year and have a maximum term of ten years. As of November 16, 2018 approximately 207,970,754 options and approximately 151,844,997 shares of restricted stock had been granted.

 

Other Items

 

On or about July 29, 2018, the Company entered into a letter of intent to acquire from Modevity, LLC (“Modevity”), an enterprise cloud-based data storage, protection, and workflow automation platform known as ARALOC™. Included as part of the proposed purchase, the Company would also acquire all technology, sales assets, and customers of Modevity. The total consideration for this agreement includes a deposit of $50,000 which was made in July 2018, and (i) an additional $150,000, payable at closing, (ii) $750,000, in the form of a 10-month promissory note, and (iii) 164,533,821 shares of Company common stock.

 

On or about 22 October 2018 we closed on the acquisition with Modevity. We paid Modevity (i) $200,000 in cash; (ii) $750,000, in the form of our 10-month promissory note; and, (iii) 164,533,821 shares of our common stock.

 

The Company has evaluated subsequent events through January 10, 2019, the date at which the financial statements were available for issuance.

 

F- 18

 

 

LANDSTAR, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

September 30, 2018 and December 31, 2017 (Unaudited)

 

    2018     2017  
             
Assets                
                 
Current assets:                
Cash   $ 17,555     $ -  
Prepaid expenses and other current assets     2,662       -  
                 
Total current assets     20,217       -  
                 
Other noncurrent assets:                
Intellectual property     46,800       -  
Deposits     50,000       -  
                 
Total assets   $ 117,017     $ -  
             
Liabilities                
                 
Current liabilities:                
Accounts payable   $ 404,342     $ 52,837  
Accrued consulting expense     78,500       -  
Convertible notes payable, current portion     100,000       125,000  
Derivative liability, current portion     3,088,000       295,800  
Due to related party     315,409       7,990  
Common stock issuable    

2,440,000

      -  
                 
Total current liabilities     6,426,252       481,627  
                 
Long-term liabilities:                
Convertible notes payable, net of current portion and unamortized discount of $829,680     -       -  
Derivative liability, net of current portion     1,205,500       -  
                 
Total liabilities     7,631,752       481,627  
                 
Stockholders’ deficit                
                 
Preferred stock, $0.001 par value; 50,000,000 shares authorized; 1,000,000 issued and outstanding as of September 30, 2018 and December 31, 2017     1,000       1,000  
Common stock, $0.001 par value; 8,888,000,000 shares authorized; 4,447,676,982 issued and outstanding as of September 30, 2018; 3,947,676,982 issued and outstanding as of December 31, 2017     4,447,677       3,947,677  
Additional paid-in capital     -       1,286,802  
Additional paid-in capital - stock subscription    

1,607,322

      -  
Accumulated deficit     (13,570,734 )     (5,717,106 )
                 
Total stockholders’ deficit     (7,514,735 )     (481,627 )
                 
Total liabilities and stockholders’ deficit   $ 117,017     $ -  

 

See accompanying notes to condensed consolidated financial statements

 

  F- 19  
     

 

LANDSTAR, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Three and Nine Months Ended September 30, 2018 and 2017 (Unaudited)

 

    Three Months Ended     Nine Months Ended  
    2018     2017     2018     2017  
Revenue   $ -     $ -     $ -     $ -  
                                 
Operating expenses:                                
                                 
Research and development     37,262       -       104,732       -  
General and administrative     514,058       -       1,714,372       5,475  
Sales and marketing     11,518       -       34,947       -  
                                 
Total operating expenses     562,838       -       1,854,051       5,475  
                                 
Loss from operations     (562,838 )     -       (1,854,051 )     (5,475 )
                                 
Other income (expense):                                
Interest expense     (13,408 )     -       (22,115 )     -  
L oss on change in fair value of derivative liability     3,194,580       -     (3,168,020 )     -
Other income     -       -       10,462       -  
                                 
Total other expense     3,382,742      

-

    (2,978,103 )    

-

                                 
Net gain (loss)   $ 2,618,334     $

-

  $ (5,034,538 )   $

( 5,475

)
                                 
Net gain (loss) per common share, basic and diluted     *       *       *       *  
                                 
Weighted- average common shares, basic     4,699,850,895       3,947,676,982       4,594,907,672       3,947,676,982  
                                 
Weighted- average common shares, diluted     5,700,728,525      

**

     

**

     

**

 

 

* Less than $(0.01) per share

* Weighted average diluted is the same as basic for periods with net loss

 

See accompanying notes to condensed consolidated financial statements

 

  F- 20  
     

 

LANDSTAR, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2018 and 2017 (Unaudited)

 

    2018     2017  
             
Cash flows from operating activities                
                 
Net loss   $ (5,034,538 )   $ (5,475 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Loss from change in fair value of derivative liability     3,168,020      

-

 
Consulting fees settled through common shares issuable     407,322       -  
Share-based compensation expense     469,950       -  
Changes in operating assets and liabilities:                
Prepaid expenses and other assets     (2,662 )     -  
Accounts payable     160,621       5,475  
Due to related party     7,419       -  
Accrued consulting expense     78,500       -  
                 
Net cash used in operating activities     (744,554 )     -  
                 
Cash flows from investing activities                
                 
Cash received from acquisition of Myriad Software Productions, LLC     4,478       -  
Deposit on acquisition of Modevity, LLC     (50,000 )     -  
                 
Net cash used by investing activities     (45,522 )     -  
                 
Cash flows from financing activities                
                 
Proceeds from issuance of convertible notes payable     829,680       -  
Distributions to shareholders     (22,049 )     -  
                 
Net cash provided by financing activities     807,631       -  
                 
Net increase in cash     17,555       -  
                 
Cash as of beginning of period     -       -  
                 
Cash as of end of period   $ 17,555     $ -  
             
Noncash investing and financing activities                
                 
Intangible assets acquired through issuance of accounts payable   $ 46,800     $ -  
                 
Settlement of convertible notes payable through issuance of common stock   $ 25,000     $ -  
                 
Common stock issuable from acquisitions   $ 2,440,000     $ -  
                 
Increase in due to related party from acquisition   $ 300,000     $ -  
                 
Settlement of accrued interest through issuance of convertible notes payable   $ 19,680     $ -  

 

See accompanying notes to condensed consolidated financial statements

 

  F- 21  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Business Description

 

LandStar, Inc. (“LandStar”) was incorporated as a Nevada corporation on May 4, 1998. LandStar and its Subsidiaries are developing products that enable secure data, at rest and in flight, across local devices, network, cloud, and databases.

 

Basis of Presentation

 

The unaudited condensed consolidated financial statements as of September 30, 2018, and for the three and nine months ended September 30, 2018 and 2017, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement of the consolidated balance sheets, operating results, and cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Operating results for the three and nine months ended September 30, 2018, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the SEC’s rules and regulations for interim reporting. The Company’s financial position, results of operations, and cash flows are presented in U.S. Dollars.

 

The accompanying condensed consolidated financial statements include the accounts of Landstar, Inc. and its wholly owned subsidiary, Data443 Risk Mitigation, Inc. and an entity under common control, Myriad Software Productions, LLC (together, the “Company”). Intercompany transactions and balances have been eliminated upon consolidation.

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

  F- 22  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Convertible Financial Instruments

 

The Company bifurcates conversion options from their host instruments and accounts for them as free-standing derivative financial instruments if certain criteria are met. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable U.S. GAAP.

 

When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, discounts are recorded for the intrinsic value of conversion options embedded in the instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the instrument.

 

Common stock purchase warrants and derivative financial instruments - Common stock purchase warrants and other derivative financial instruments are classified as equity if the contracts (1) require physical settlement or net-share settlement, or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). Contracts which (1) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) that contain reset provisions that do not qualify for the scope exception are classified as liabilities. The Company assesses classification of its common stock purchase warrants and other derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.

 

Beneficial conversion feature - The issuance of the convertible debt described in Note 5, below, generated a beneficial conversion feature (“BCF”), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The Company recognized the BCF by allocating the intrinsic value of the conversion option, which is the number of shares of common stock available upon conversion multiplied by the difference between the effective conversion price per share and the fair value of common stock per share on the commitment date, resulting in a discount on the convertible debt (recorded as a component of additional paid-in capital).

 

  F- 23  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Share-Based Compensation

 

Employees - The Company accounts for share-based compensation under the fair value method which requires all such compensation to employees, including the grant of employee stock options, to be calculated based on its fair value at the measurement date (generally the grant date), and recognized in the condensed consolidated statement of operations over the requisite service period.

 

Nonemployees - During June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) to simplify the accounting for share- based payments to nonemployees by aligning it with the accounting for share-based payments to employees. The Company elected to early adopt ASU 2018-07. Under the requirements of ASU 2018-07, the Company accounts for share-based compensation to non-employees under the fair value method which requires all such compensation to be calculated based on the fair value at the measurement date (generally the grant date), and recognized in the statement of operations over the requisite service period.

 

The Company recorded approximately $240,700 in nonemployee share-based compensation expense for the nine -month period ended September, 2018. There was no share-based compensation expense for the nine-month period ended September 30, 2017.

 

Determining the appropriate fair value model and the related assumptions requires judgment. There were no option grants during 2017. During 2018, the fair value of each option grant was estimated using a Black-Scholes option-pricing model on the date of the grant as follows:

 

    Nonemployees  
       
Estimated dividend yield     0.00 %
Expected stock price volatility     34 0.00 %
Weighted-average risk-free interest rate     2.70 %
Expected life of options     5.00  
Weighted-average fair value per share   $ 0.0040  

 

The expected volatility represents the historical volatility of the Company’s publicly traded common stock. Due to limited historical data, the Company calculates the expected life based on the mid-point between the vesting date and the contractual term which is in accordance with the simplified method. The expected term for options granted to nonemployees is the contractual life. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of stock options. The Company has not paid and does not anticipate paying cash dividends on its shares of common stock; therefore, the expected dividend yield is assumed to be zero.

 

  F- 24  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Intangible Assets

 

Intangible assets with finite lives are amortized over their respective estimated useful lives to their estimated residual values. Estimated lives are reviewed annually. During June 2018, the Company purchased the rights to the WordPress GDPR framework for $46,800.

 

Impairment of Long-Lived Assets

 

Long-lived assets, such as intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset 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 estimated undiscounted future 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 for an amount by which the carrying amount of the asset exceeds the fair value of the asset.

 

Income Taxes

 

The liability method is used in the Company’s accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Although no changes were made to provisional amounts during the nine months ended September 30, 2018, the Company will continue to evaluate their estimates related to the new legislation as clarifying guidance and interpretations are issued and the 2017 tax returns are completed.

 

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin (“SAB”) 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (“TCJA”). SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740, Income Taxes .

 

Fair Value Measurements

 

The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques 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 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

 

  F- 25  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

The three levels of the fair value hierarchy are described as follows:

 

  Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
     
  Level 2 Inputs to the valuation methodology include:

 

  quoted prices for similar assets or liabilities in active markets;
  quoted prices for identical or similar assets or liabilities in inactive markets;
  inputs other than quoted prices that are observable for the asset or liability;
  inputs that are derived principally from or corroborated by observable market data by correlation or other means.
  If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

 

  Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

Following is a description of the valuation methodology used for significant liabilities measured at fair value:

 

Management determined that liabilities created by beneficial conversion features associated with the issuance of certain convertible notes payable (see Note 5), meet the criteria of derivatives and are required to be measured at fair value. The fair value of these derivative liabilities was determined based on management’s estimate of the expected future cash flows required to settle the liabilities. This valuation technique involves management’s estimates and judgment based on unobservable inputs and is classified in level 3.

 

Derivative liability as of December 31, 2017   $ 295,800  
Addition of new derivatives recognized as debt discounts     829,680  
Change in fair value of derivative liabilities     3,168,020  
         
Derivative liability as of September 30, 2018   $ 4,293,500  
         
The amount of net loss for the nine-month period ending September 30, 2018,
attributable to the unrealized losses relating to liability still held at the
reporting date
  $ 3,168,020  

 

  F- 26  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (concluded)

 

Net Loss Per Common Share

 

The Company calculates net income or loss per common share as a measurement of the Company’s performance while giving effect to all dilutive potential common shares that were outstanding during the reporting period. For periods when the Company had a net loss, the inclusion of common stock options or other similar instruments would be anti-dilutive. Therefore, potential common shares are excluded from such periods.

 

Segments

 

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company operates and manages its business as one operating segment and all of the Company’s operations are in North America.

 

Recently Issued Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The provisions of ASU 2016-02 set out the principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of- use asset and a lease liability for all leases with a term of greater than 12 months, regardless of their classification. Leases with a term of 12 months or less will be accounted for in a similar manner as under existing guidance for operating leases. ASU 2016-02 supersedes the previous lease standard, Topic 840, Leases . This guidance is effective for the Company for the year ending December 31, 2019. The Company is currently evaluating the impact that the implementation of this standard will have on the Company’s consolidated financial statements.

 

  F- 27  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 2: LIQUIDITY AND GOING CONCERN

 

The accompanying condensed consolidated financial statements have been prepared (i) in accordance with U.S. GAAP, and (ii) assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated significant income to date. The Company is subject to the risks and uncertainties associated with a business with no substantive revenue, as well as limitations on their operating capital resources. These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. In light of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise capital and generate revenue and profits in the future.

 

During the last nine months, the Company has made one product acquisition, ClassiDocs (see Note 4), and completed the acquisition of one entity, Data443 Risk Mitigation, Inc. (“Data443,” see note 4). The Company is actively seeking new products and entities to acquire, with several candidates identified. The Company has developed, and continues to develop, large scale relationships with cybersecurity, marketing and product organizations, and to market and promote ClassiDocs and other products the Company may develop or acquire. As of September 30, 2018, the Company had operating losses, negative net working capital, and an accumulated deficit. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

  F- 28  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 3: ACQUISITIONS

 

Data443 Risk Mitigation, Inc. Acquisition

 

During June 2018, the Company acquired Data443 through a share exchange whereby the outstanding common stock in Data443, which was wholly owned by Mr. Jason Remillard (“Mr. Remillard”), sole director and sole officer of the Company, was exchanged for shares of common stock of the Company. The total consideration issued for the acquisition of Data443 was as follows:

 

  (a) 100,000,000 shares of the Company’s common stock, valued at $1,220,000, and
     
  (b) On the 18-month anniversary of the closing of the share exchange (the “Earn Out Date”), an additional 100,000,000 shares of the Company’s common stock (the “Earn Out Shares”), valued at $1,220,000, provided that Data443 has at least an additional $1,000,000 in revenue by the Earn Out Date (not including revenue directly from acquisitions).

 

None of the shares of common stock to be issued to Mr. Remillard under the share exchange have been issued. As such, none of said shares are included as part of the issued and outstanding shares. However, these shares, including the Earn Out Shares, have been recorded as common shares issuable within the condensed consolidated financial statements as of September 30, 2018.

 

As the transaction was a business combination among entities under common control, the Company recorded the assets and liabilities of Data443 at carrying value, as though the transaction occurred at the beginning of the applicable period, or January 1, 2018. The following table summarizes the carrying value of the liabilities assumed as of January 1, 2018:

 

Carrying value of liabilities assumed:        
Accounts payable   $ 27,232  
Net carrying value acquired   $ (27,232 )

 

Myriad Software Productions, LLC Acquisition

 

In January 2018 the Company acquired substantially all of the assets of Myriad Software Productions, LLC (“Myriad”), which was wholly owned by Mr. Remillard. Those assets were comprised of the software program known as ClassiDocs, and all intellectual property and goodwill associated therewith. This acquisition changed the Company’s status to no longer being a “shell” under applicable securities rules. In consideration for the acquisition, the Company agreed to a purchase price of $1,500,000 comprised of the following: (i) $50,000 paid at closing, (ii) $250,000 in the form of a promissory note, and (iii) $1,200,000 in shares of common stock, valued as of the closing, which equated to 1,200,000,000 shares of Company common stock. The shares have not yet been issued and are not included as part of the issued and outstanding shares. However, these shares have been recorded as common shares issuable and included in additional paid-in capital - stock subscription within the condensed consolidated financial statements as of September 30, 2018.

 

  F- 29  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 3: ACQUISITIONS (concluded)

 

As the transaction was a business combination among entities under common control, the Company recorded the assets and liabilities of Myriad at carrying value, as though the transaction occurred at the beginning of the applicable period, or January 1, 2018. The following table summarizes the carrying value of the assets acquired and liabilities assumed as of January 1, 2018:

 

Carrying value of operating assets acquired:        
Cash   $ 4,478  
Carrying value of liabilities assumed:        
Accounts payable     116,039  
Net carrying value acquired   $ (111,561 )

 

Modevity, LLC Acquisition

 

During October 2018, the Company entered into a letter of intent to acquire from Modevity, LLC (“Modevity”), an enterprise cloud-based data storage, protection, and workflow automation platform known as ARALOC™. Included as part of the proposed purchase, the Company would also acquire all technology, sales assets, and customers of Modevity. The total consideration for this agreement includes (i) a deposit of $50,000 which was made in July 2018 and is included in deposit within the condensed consolidated financial statements as of September 30, 2018, (ii) an additional $150,000, paid at closing, (iii) $750,000, in the form of a 10-month promissory note, and (iv) 164,533,821 shares of Company common stock.

 

NOTE 4: CONVERTIBLE NOTES PAYABLE

 

The convertible notes payable consist of:

 

  1) Non-interest bearing convertible note held by Blue Citi LLC (“Blue Citi”) for the original principal of $125,000, payable on demand and convertible at the option of the holder into common shares at the conversion price of $0.00005 per share. The outstanding principal for the convertible note was $100,000 and $125,000 as of September 30, 2018 and December 31, 2017. During the nine-month period ending September 30, 2018, Blue Citi converted $25,000 of this convertible note into 500,000,000 shares of common stock. The embedded conversion feature in this note created a BCF totaling approximately $3,088,000 as of September 30, 2018.

 

  F- 30  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 4: CONVERTIBLE NOTES PAYABLE (concluded)

 

  2)

Convertible note held by Blue Citi for a total principal of $829,680 as of September 30, 2018. The note (i) accrues interest at the rate of 8% per annum; (ii) can be converted into shares of our common stock at a 10% discount to the lowest trading price during the ten consecutive trading days immediately preceding the date of conversion (40% discount upon an event of default under the note), and (iii) is due and payable upon the 18-month anniversary of its issuance.

     
   

During September 2018, this convertible note was issued to Blue Citi in connection with a restructuring (the “Convertible Note Restructuring”) of previously outstanding convertible notes with Blue Citi. Immediately prior to the issuance of this note, various convertible notes totaling $810,000 were outstanding with Blue Citi, along with associated accrued interest total $19,680. Those notes (i) accrued interest at the rate of 8% per annum; (ii) could be converted into shares of the Company’s common stock at a 25% discount to the lowest trading price during the ten consecutive trading days immediately preceding the date of conversion (50% discount upon an event of default under the note), and (iii) were due and payable upon the 12-month or 18-month anniversary of their issuance.

     
    The Company evaluated the terms of the conversion features of this convertible note in accordance with ASC 815, Derivatives and Hedging , and determined it is indexed to the Company's common stock and that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability. The Company determined the value of the conversion feature using the binomial valuation model as follows:

 

Expected term     18 months  
Expected stock price volatility     340.00 %
Weighted-average risk-free interest rate     2.70 %
Expected dividend   $ 0.00  

 

  As of September 30, 2018, which was also the date of issuance of the convertible note, a liability totaling $1,205,500 was recorded and is included in long-term liabilities. This derivative liability was recorded with $829,680 of the value recognized as a debt discount on the convertible note which will be amortized over the life of the convertible note, and the remaining balance of $375,820 included in the change in fair value of the derivative liability within the consolidated statement of operations as of September 30, 2018.
     
    As of September 30, 2018, the outstanding principal balance of the note was $829,680, offset by an unamortized debt discount balance of $829,680.

 

NOTE 5: COMMITMENTS AND CONTINGENCIES

 

Through Data443, the Company has signed consulting contracts with a team of consultants and advisors, of which, four provide senior leadership to the Company in corporate development, technology development, finance, operations, and sales and marketing, with the others providing services in administration, marketing, sales, and engineering. Additionally, the Company engages junior- and mid-level engineering consultants on a project-by-project basis to further develop technology and to implement services for prospective clients. Collectively, the team is paid approximately $200,000 each quarter. Additionally, the Company has granted stock and stock options to some of these consultants and advisors as part of their compensation and/or in lieu of cash to reduce cash outlays. Stock and stock option grants are awarded selectively to consultants upon their start dates, and every quarter thereafter, during the term of their engagement, at a fixed dollar amount. Each stock and stock option grant is irrevocable, and some stock grants include registration rights; however, each stock and stock option grant is restricted until the one-year anniversary from the date of each respective grant.

 

  F- 31  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 5: COMMITMENTS AND CONTINGENCIES (concluded)

 

On or about February 5, 2018, the Company entered into the Equity Purchase Agreement (“EPA”) with Blue Citi, under which Blue Citi could purchase up to $10,000,000 of the Company’s common stock over a period of time terminating on the earlier of (i) 24 months from the date on which the EPA was executed, or (ii) the date on which Blue Citi purchased the aggregate maximum purchase price of $10,000,000 pursuant to the EPA. The purchase price for the Company’s shares of common stock to be paid by Blue Citi was 85% of the price of Company shares traded on the principal market of the Company’s common stock pursuant to a specific time period and formula in the EPA. The embedded conversion feature in the EPA created a BCF totaling approximately $1,500,000 which was previously recognized as of June 30, 2018.

 

Additionally, in connection with the EPA, the Company agreed to a $100,000 commitment fee (the “Commitment Fee”), payable in common shares which equated to 28,571,429 shares of Company common stock (the “Commitment Shares”). The Commitment Fee was previously recognized in general and administrative expenses and the Commitment Shares, which were not issued, were recorded as common shares issuable and included in additional paid-in capital - stock subscription within the condensed consolidated financial statements as of June 30, 2018.

 

During September 2018, in connection with the Convertible Note Amendment (See Note 5), the Company and Blue Citi agreed to terminate the EPA. As a result of the termination, a gain on the change in fair value of the derivative liability totaling $1,500,000 was recognized during September 2018. As noted in the above paragraph, the Commitment Fee was previously recognized in general and administrative expenses and the Commitment Shares were never issued. As such, a reduction in general administrative expenses totaling $100,000 was recognized as of September 30, 2018.

 

NOTE 6: CAPITAL STOCK

 

Preferred Stock

 

The Company is authorized to issue 50,000,000 shares of preferred stock with a par value of $0.001, of which 1,000,000 shares have been designated as Series A. As of September 30, 2018 and December 31, 2017, 1,000,000 shares of Series A were issued and outstanding. Each share of Series A is (i) convertible into 1,000 shares of common stock, and (ii) entitled to vote 15,000 shares of common stock on all matters submitted to a vote by shareholders voting common stock. All issued and outstanding shares of Series A Preferred Stock are held by Mr. Remillard.

 

Common Stock

 

The Company is authorized to issue 8,838,000,000 shares of common stock with a par value of $0.001 per share. All shares have equal voting rights, are non-assessable, and have one vote per share. The total number of shares of Company common stock issued and outstanding as of September 30, 2018 and December 31, 2017, was 4,447,676,982 and 3,947,676,982. This number does not include shares of common stock which the Company is obligated to issue.

 

  F- 32  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 6: CAPITAL STOCK (concluded)

 

On or about January 26, 2018, the Company committed to issue 1,200,000,000 shares to Myriad, a company wholly owned by the Chief Executive Officer and controlling shareholder Mr. Remillard, as part of the payment for the Company’s purchase of ClassiDocs from Myriad. Those shares will now be issued to Mr. Remillard pursuant to instructions from Myriad. While not yet issued as of this filing, these shares have been recorded as common shares issuable and included in additional paid-in capital - stock subscription within the condensed consolidated financial statements as of September 30, 2018. These shares have not been included in the total number of issued and outstanding shares reflected herein.

 

During June 2018, the Company committed to issue 100,000,000 shares to Mr. Remillard, and an additional estimated 100,000,000 shares as an earn out, to Mr. Remillard, under the transaction in which the Company acquired all of the shares of Data443. While not yet issued as of this filing, these shares have been recorded as common shares issuable and included in additional paid-in capital - stock subscription within the condensed consolidated financial statements as of September 30, 2018. These shares have not been included in the total number of issued and outstanding shares reflected herein.

 

NOTE 7: SHARE-BASED COMPENSATION

 

Stock Options

 

During 2018, the Company granted options to purchase common stock to certain consultants and advisors as consideration for services rendered. The terms of the stock option grants are determined by the Company’s Board of Directors. The Company’s stock options generally vest upon the one-year anniversary date of the grant and have a maximum term of ten years.

 

The following summarizes the stock option activity for the nine-month period ended September 30, 2018:

 

                Weighted-  
                Average  
    Available for     Options     Exercise  
    Grant     Outstanding     Price  
Balance as of January 1, 2018     -       -     $ -  
Authorization of awards     182,550,551       -       -  
Grants of stock options     (182,550,551 )     182,550,551       0.0046  
Balance as of September 30, 2018     -       182,550,551     $ 0.0046  

 

  F- 33  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 7: SHARE-BASED COMPENSATION (continued)

 

The following summarizes certain information about stock options vested and expected to vest as of September 30, 2018:

 

          Weighted-Average        
          Remaining     Weighted-  
          Contractual Life     Average  
    Number of Options     (In Years)     Exercise Price  
Outstanding     182,550,551       9.45     $ 0.0046  
Exercisable     -       -       -  

 

The following table summarizes certain information about the stock options outstanding and exercisable as of September 30, 2018:

 

            Weighted-Average        
      Number of Options     Remaining Life     Number of Options  
Exercise Price     Outstanding     (In Years)     Exercisable  
$ 0.0080       1,562,500       9.25       -  
  0.0014       121,428,571       9.34       -  
  0.0105       2,380,952       9.68       -  
  0.0106       1,000,000       9.67       -  
  0.0114       11,030,701       9.67       -  
  0.0115       14,782,607       9.58       -  
  0.0141       1,773,050       9.52       -  
  0.0144       1,666,666       9.64       -  
  0.0148       844,595       9.50       -  
  0.0150       1,600,000       9.40       -  
  0.0179       1,675,978       9.42       -  
  0.0100       8,737,864       9.84       -  
  0.0103       3,398,058       9.84       -  
  0.0070       3,428,572       9.90       -  
  0.0096       4,166,667       9.92       -  
  0.0122       3,073,770       9.75       -  
          182,550,551               -  

 

As of September 30, 2018, there was approximately $400,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements which is expected to be recognized within the next year.

 

  F- 34  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 7: SHARE-BASED COMPENSATION (concluded)

 

Restricted Stock Awards

 

During 2018, the Company issued restricted stock awards for shares of common stock which have been reserved for the holders of the awards. Restricted stock awards were issued to certain consultants and advisors as consideration for services rendered. The terms of the restricted stock units are determined by the Company’s Board of Directors. The Company’s restricted stock shares generally vest over a period of one year and have a maximum term of ten years.

 

The following summarizes the nonvested restricted stock activity for the nine-month period ended September 30, 2018:

 

          Weighted- Average  
    Shares     Fair Value  
Nonvested as of January 1, 2018     -       -  
Shares of restricted stock reserved     133,567,651       0.0039  
Nonvested as of September 30, 2018     133,567,651       0.0039  

 

Share-based compensation expense for restricted stock grants during the nine months ended September 30, 2018, was approximately $229,250.

 

As of September 30, 2018, there was approximately $296,000 of total unrecognized compensation cost related to nonvested share-based compensation, which is expected to be recognized over the next year.

 

NOTE 8: LEGAL AND OTHER MATTERS

 

On or about April 9, 2018, a Current Report on Form 8-K (“8-K”) was filed under the name “Landstar, Inc.” The filing was not authorized by the Company and the Company has had no communication with the named filer. The 8-K purports to present financial statements for the years ended December 31, 2017 and 2016, and includes an entry for “long-term debt with interest” for $1,000,000 on the balance sheet. Although the Company is aware of an unsubstantiated claim for a $500,000 debt obligation, the Company is not familiar with the allegations that form the basis for this claim. The Company intends to vigorously dispute this claim.

 

  F- 35  
 

 

LANDSTAR, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

September 30, 2018 and December 31, 2017 (Unaudited)

 

NOTE 8: LEGAL AND OTHER MATTERS (concluded)

 

Chuguan Industry Co. Ltd., which the Company believes is located in Beijing, China, appears on the Company’s shareholder list as a shareholder of record for 1,500,000,000 shares of Company common stock. However, the Company’s research has uncovered credible documentation that these shares were cancelled and should not be listed as issued and outstanding. The Company continues to investigate the validity of the cancellation documentation in order to determine if these shares are actually outstanding.

 

The Company recently received a demand for conversion of a purported $90,000 note purportedly issued by the Company in 2008. The Company has no record of this obligation and there is indication that this purported obligation was ever recorded in the financial records of the Company. The Company believes that any action or collection or conversion of this purported note will be barred by the statute of limitations. As such, the Company has denied the existence and viability of the note, and will vigorously dispute this claim.

 

The Company recently received a demand from the same party claiming to have ownership of one million shares of the Company preferred stock. No stock certificate has been presented by the party claiming ownership, and there are no records indicating that the Corporation ever issued these shares to the claimant, or to the party from which the claimant contends it acquired the shares. Further, we believe that any such claim, if there is one, is barred by the statute of limitations. As such, the Company has rejected the claim to the shares, and the Company will vigorously dispute this claim.

 

The Company recently received a demand from a former consultant demanding payment of amounts purportedly owed to the consultant. The Company believes that no amounts are owed to the consultant. The Company is reviewing all relevant facts and circumstances and considering all available legal options.

 

In the normal course of business, the Company may become a party to litigation matters involving claims against the Company. The Company’s management is unaware of any other pending or threatened assertions and there are no current matters that would have a material effect on the Company’s condensed consolidated financial position or results of operations.

 

NOTE 9: SUBSEQUENT EVENTS

 

During October and November 2018, the Company converted $25,000 of an existing promissory note into 500,000,000 shares of common stock.

 

During October 2018, the Company amended an existing convertible note with Blue Citi to increase the outstanding principal from $829,680 to $1,004,680. Otherwise, there was no change to the existing terms of this convertible note.

 

During October 2018, the Company issued a convertible promissory note to AFT Funding Corp.   totaling $110,000 in exchange for net proceeds of $100,000. The note (i) accrues interest at the rate of 8% per annum; (ii) is scheduled to mature in July 2019; and (iii) can be converted into shares of our common stock at a 30% discount to (a) the lowest trading price during the 20 consecutive trading days immediately preceding the date of conversion or (b) the lowest price of our common stock during the 20 consecutive trading days preceding the issuance of the note. (40% discount upon an event of default under the note), and (iii) is due and payable upon the 18-month anniversary of its issuance. The note can be converted at any time in the discretion of the holder. The embedded conversion feature in this note creates a BCF for which the value has not yet been determined as of the date of these condensed consolidated financial statements.

 

During October 2018, the Company issued a convertible promissory note to Smea2z LLC   totaling $220,000 in exchange for net proceeds of $200,000. The note (i) accrues interest at the rate of 8% per annum; (ii) is scheduled to mature in July 2019; and (iii) can be converted into shares of our common stock at a 30% discount to (a) the lowest trading price during the 20 consecutive trading days immediately preceding the date of conversion or (b) the lowest price of our common stock during the 20 consecutive trading days preceding the issuance of the note. (40% discount upon an event of default under the note), and (iii) is due and payable upon the 18-month anniversary of its issuance. The note can be converted at any time in the discretion of the holder. The embedded conversion feature in this note creates a BCF for which the value has not yet been determined as of the date of these condensed consolidated financial statements.

 

During December 2018, the Company issued 252,016,130 share of common stock at price of approximately $0.002 per share for net proceeds of $500,000. In connection with the issuance of the common stock, the subscribers received warrants to purchase an additional 50,403,226 shares of common stock at a price of $0.003 per share. The warrants have a five year term and cashless exercise is permitted.

 

The Company has evaluated subsequent events through January 10, 2019, the date at which the condensed financial statements were available for issuance.

 

  F- 36  
 

 

(b) Exhibits

 

Exhibit Number   Description of Document
     
2.1   Share Exchange Agreement dated December 31, 1998, by and between the Registrant and Rebound Corp., incorporated by reference to Exhibit 10.7 to Form 10-SB/A as filed by the Registrant with the Securities and Exchange Commission on January 7, 2000.
     
3.1   Articles of Incorporation of the Registrant, dated May 04, 1998, incorporated by reference to Exhibit 3(I) to Form 10-SB as filed by the Registrant with the Securities and Exchange Commission on January 4, 2000.
     
3.2*   Amended and Restated Articles of Incorporation of the Registrant, dated May 01, 2018.
     
3.3*   Certificate of Designation for Preferred Series A Stock of the Registrant, dated May 28, 2008.
     
3.4*   Amendment to Certificate of Designation for Preferred Series A Stock of the Registrant, dated April 27, 2018.
     
3.5   Bylaws of the Registrant, incorporated by reference to Exhibit I to Form 10-SB as filed by the Registrant with the Securities and Exchange Commission on January 4, 2000.
     
4.1*   Convertible Note issued by the Registrant on October 17, 2014 in favor of Atlantic Holding Corp. in the original principal amount of $125,000.
     
4.2*   8% Convertible Redeemable Note issued by the Registrant on October 16, 2018 in favor of AFT Funding Corp. in the original principal amount of $110,000.
     
4.3*   8% Convertible Redeemable Note issued by the Registrant on October 23, 2018 in favor of Smea2Z LLC in the original principal amount of $220,000.
     
10.1*   Asset Purchase Agreement dated January 26, 2018 by and between Myriad Software Productions, LLC and Data443 Risk Management, Inc.
     
10.2*   Secured Promissory Note dated January 26, 2018 issued by Data443 Risk Management, Inc. in favor of Myriad Software Productions, LLC in the original principal amount of $250,000.
     
103.*   Security Agreement dated January 26, 2018 executed by Data443 Risk Management, Inc. in favor of Myriad Software Productions, LLC.
     
10.4*   Share Exchange Agreement dated June 29 2018 by and between LandStar, Inc.; Data443 Risk Mitigation, Inc.; and, Jason Remillard.
     
10.5*   Asset Purchase Agreement dated October 22, 2018 by and between Data443 Risk Mitigation, Inc.; Modevity, LLC; and, Jim Coyne.
     
10.6*   Secured Promissory Note dated October 22, 2018 issued by Data443 Risk Management, Inc. in favor of Modevity, LLC in the original principal amount of $750,000.
     
10.7*   Security Agreement dated October 22, 2018 executed by Data443 Risk Management, Inc. in favor of Modevity, LLC.
     
10.8*   Debt Restructuring Agreement dated September 30, 2018 by and between LandStar, Inc. and Blue Citi LLC.
     
10.9*   Consolidated Note dated September 30, 2018 issued by LandStar, Inc. in favor of Blue Citi LLC Modevity, LLC in the original principal amount of $829,680.
     
10.10*   Form of Common Stock Purchase Agreement executed in connection with the issuance in December 2018 of 252.016,130 shares of the Registrant’s common stock in exchange for $500,000.
     
10.11*   Form of Common Stock Purchase Warrant issued in December 2018 in connection with the Common Stock Purchase Agreement and the issuance thereunder, for a total of 50,403,226 warrants.
     
21.1*   List of subsidiaries of the Registrant.

 

* Filed herewith.

 

40

 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  LANDSTAR, INC.
     
DATED: January 11, 2019   BY: /s/ JASON REMILLARD
    JASON REMILLARD,
    President; Chief Executive Officer;
    Chief Financial Officer

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “1933 ACT”)

 

$110 , 000.00

 

LANDSTAR, INC.

8% CONVERTIBLE REDEEMABLE NOTE

DUE July 16, 2019

 

FOR VALUE RECEIVED, LandStar, Inc. (the “Company”) promises to pay to the order of AFT Funding Corp and its authorized successors and permitted assigns (“Holder”), the aggregate principal face amount of One Hundred and Ten Thousand Dollars exactly (U.S.$110 , 000.00) on July 16, 2019 (“Maturity Date”) and to pay interest on the principal amount outstanding hereunder at the rate of 8% per annum commencing on October 16, 2018 (the “ Issue Date ”). This Note contains an original issue discount of Ten Thousand Dollars ($10,000.00) such that the purchase price of the note is $100,000 . The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note. The principal of , and interest on, this Note are payable to AFT Funding Corp. initially , and if changed , last appearing on the records of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein. This Note is subject to the following additional provisions:

 

1. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations , as requested by the Holder surrendering the same. No ser vice charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith.

 

_____

Initials

 

     
 

 

2. The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.

 

3. This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (“Act”), and applicable state securities laws. Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due present ment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company’s records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted (“Notice of Conversion”) in the form an nexed hereto as Exhibit A. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date.

 

4. (a) The Holder of this Note is entitled, at its option at any time, to con- vert all or any amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock (the “Common Stock”) , at a price (“Conversion Price”) for each share of Common Stock equal to 70% of the lowest trading price of the Common Stock as reported on the OTCPK marketplace which the Company’s shares are traded or any market upon which the Common Stock may be traded in the future (“Exchange”) , for twenty day look back at the lower of (i) 20 trading days immediately preceding the Issue Date or (ii) 20 trading days immediately preceding the receipt of a notice of conversion (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price). If the shares have not been delivered within 5 business days, the Notice of Conversion may be rescinded. Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business days of receipt by the Company of the Notice of Conversion. Once the Holder has received such shares of Common Stock, the Holder shall surrender this Note to the Company, executed by the Holder evidencing such Holder’s intention to convert this Note or a specified portion hereof, and accompanied by proper assignment hereof. Accrued, but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 60% instead of 70% while that “Chill” is in effect. If the Company fails to repay the Note on the Maturity Date, the conversion discount shall be increased by 20%. In no event shall the Holder be allowed to effect a conversion if such conversion, along with all other shares of Company Common Stock beneficially owned by the Holder and its affiliates would exceed 9.9% of the outstanding shares of the Common Stock of the Company.

 

  2  
 

 

(b) Interest on any unpaid principal balance of this Note shall be paid at the rate of 8% per annum. Interest shall be paid by the Company in Common Stock (“Interest Shares”). Holder may , at any time , send in a Notice of Conversion to the Company for Interest Shares based on the formula provided in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated on the unpaid principal balance of this Note to the date of such notice.

 

(c) Upon the occurrence of any Event of Default, the Holder shall have the right, at its option to have the Note redeemed equal to 150% of the unpaid principal amount of this Note along with any accrued interest.

 

(d) Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions , (ii) a reclassification , capital reorganization or other change or exchange of outstanding shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i) , (ii) and (iii) being referred to as a “Sale Event”) , then, in each case, the Company shall , upon request of the Holder , redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.

 

(e) In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter , by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification , capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note , immediately prior to such Sale Event. The forego ing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.

 

5. No provision of this Note shall alter or impair the obligation of the Com- pany, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.

 

6. The Company hereby expressly waives demand and presentment for pay- ment, notice of non-payment , protest , notice of protest , notice of dishonor, notice of acceleration or intent to accelerate , and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.

 

  3  
 

 

7. PREPAYMENT CLAUSE:

 

If at any time after the Issue Date the Company wishes to repurchase this Note, the following terms apply:

 

1-60 days - 120% of face amount of Note plus any accrued int.

61-120 days -135% of face amount of Note plus any accrued int.

121-180 days - 150% of face amount of Note plus any accrued int.

 

8. The Company agrees to pay all costs and expenses , including reasonable attorneys’ fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.

 

9. If one or more of the following described “Events of Default” shall occur:

 

(a) The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or

 

(b) An y of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note shall be false or misleading in any respect ; or

 

(c) The Company shall fail to perform or observe , in any respect , any covenant , term , provision, condition, agreement or obligation of the Company under this Note or any other note issued by the Company to the Holder ; or

 

(d) The Company shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution ; (4) apply for or consent to the appointment of a trustee , liquidator or receiver for its or for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief , all under federal or state laws as applicable; or

 

(e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or

 

(f) An y governmental agency or any court of competent jurisdiction at the in- stance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or

 

(g) One or more mone y judgments , writs or warrants of attachment, or similar process , in excess of fifty thousand dollars ($50,000) in the aggregate , shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid , unvacated , unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or

 

  4  
 

 

(h) The Company shall have defaulted on or breached any term of any other note or similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period; or

 

(i) The Company shall have its Common Stock delisted from a trading market (including the OTC Exchange Market) or , if the Common Stock trades on an exchange, then trad ing in the Common Stock shall be suspended for more than 10 consecutive days or ceases to file its 1934 act reports with the SEC after it becomes a mandatory filer with the SEC;

 

g) If Jason Remillard ceases to be a member of the Board of Directors of the Company, or once the Company has more than three (3) Directors, a majority of the then members of the Board of Directors of the Company on are no longer serving as members of the Board;

 

(k) The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein within 3 business days of its receipt of a Notice of Conversion;

 

(1) The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the Holder;

 

(m) The Company shall not get “current” within six months after the Issue Date, or thereafter stay current in its filings with the Securities and Exchange Commission; or

 

(n) The Company shall lose the “bid” price for its stock in a market (including the OTC marketplace or other exchange).

 

Then , or at any time thereafter, unless cured within 5 days, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder’s rights and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default , interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not issued beginning on the 4 th day after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10 th day. The penalty for a breach of Section 9(n) shall be an increase of the outstanding principal amounts by 20%. In case of a breach of Section 9(i), the outstanding principal due under this Note shall increase by 50%. If this Note is not paid at maturity, the outstanding principal due under this Note shall increase by 10%. Further, if a breach of Section 9(m) occurs or is continuing after the 6 month anniversary of the Note, then the Holder shall be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion . For example , if the lowest closing bid price during the delinquency period is $0.01 per share and the conversion dis count is 50% the Holder may elect to convert future conversions at $0.005 per share.

 

  5  
 

 

If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including , without limitation, engaging an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its reasonable attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

Make-Whole for Failure to Deliver Loss. At the Holder’s election , if the Company fails for any reason to deliver to the Holder the conversion shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if the Holder incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating the amounts payable to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder whole as follows: Failure to Deliver Loss= [(High trade price at any time on or after the day of exercise) x (Number of conversion shares)]

 

The Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day from the time of the Holder’s written notice to the Company.

 

10. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be ad justed rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.

 

11. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.

 

12. The Company shall issue irrevocable transfer agent instructions reserving 50,000,000 shares of its Common Stock when practicable for conversions under this Note (the “Share Reserve”). Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled. The Company shall pay all costs associated with issuing and delivering the shares. If such amounts are to be paid by the Holder, it may deduct such amounts from the Con version Price. Conversion Notices may be sent to the Company or its transfer agent via electric mail. The Company should at all times reserve a minimum of five times the amount of shares required if the Note would be fully converted. The Holder may reasonably request increases from time to time to reserve such amounts.

 

13. The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.

 

14. This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of New York or in the federal courts sitting in the county and city of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.

 

  6  
 

 

IN WITN E SS WHEREOF , the Company has caused this Note to be duly executed by an officer thereunto duly authorized .

 

Dated :_Oct 16,2018_______    
     
  LandStar Inc.
     
  By:       
     
  Title

 

  7  
 

 

EXHIBIT A

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert the Note)

 

The undersigned hereby irrevocably elects to convert $ ____________ of the above Note into _________________ Shares of Common Stock of LandStar, Inc. (“Shares”) according to the conditions set forth in such Note, as of the date written below.

 

If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto .

 

Date of Conversion: ___________________________________

Applicable Conversion Price:_________________________________________

Signature: __________________________________________________

 

[Print Name of Holder and Title of Signer]

Address: ___________________________________

_________________________________________________________________________________

 

SSN or EIN: ___________________________________

Shares are to be registered in the following name: ______________________________________________

 

Name: _______________________________________

Address: _____________________________________

Tel: _________________________________________

Fax: _________________________________________

SSN or EIN: ___________________________________

 

Shares are to be sent or delivered to the following account:

 

Account Name: ___________________________________

Address: ________________________________________

 

  8  
 

 

THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “1933 ACT”)

 

$220,000.00

 

LANDSTAR, INC.

8% CONVERTIBLE REDEEMABLE NOTE
DUE July 23, 2019

 

FOR VALUE RECEIVED, Landstar, Inc. (the “Company”) promises to pay to the order of SMEA2Z LLC and its authorized successors and permitted assigns (“Holder”), the aggregate principal face amount of Two Hundred and Twenty Thousand Dollars exactly (U.S.$220,000.00) on July 23, 2019 (“Maturity Date”) and to pay interest on the principal amount outstanding hereunder at the rate of 8% per annum commencing on October 23, 2018 (the “ Issue Date ”). This Note contains original issue discount in the amount of Twenty Thousand Dollars ($20,000.00), such that the purchase price of the note is $200,000. The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note are payable to SMEA2Z LLC. initially, and if changed, last appearing on the records of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein. This Note is subject to the following additional provisions:

 

1. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No ser vice charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith.

  _____

Initials

 

     

 

 

2. The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.

 

3. This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (“Act”), and applicable state securities laws. Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due present ment for transfer ofthis Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company’s records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted (“Notice of Conversion”) in the form annexed hereto as Exhibit A. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date.

 

4. (a) The Holder of this Note is entitled, at its option at any time, to con- vert all or any amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock (the “Common Stock”) at a price (“Conversion Price”) for each share of Common Stock equal to 70% of the lowest trading price of the Common Stock as reported on the OTCPK marketplace which the Company’s shares are traded or any market upon which the Common Stock may be traded in the future (“Exchange”) , for twenty day look back at the lower of (i) 20 trading days immediately preceding the Issue Date or (ii) 20 trading days immediately preceding the receipt of a notice of conversion (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price). If the shares have not been delivered within 5 business days, the Notice of Conversion may be rescinded. Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business days of receipt by the Company of the Notice of Conversion. Once the Holder has received such shares of Common Stock, the Holder shall surrender this Note to the Company, executed by the Holder evidencing such Holder’s inten tion to convert this Note or a specified portion hereof, and accompanied by proper assignment hereof. Accrued, but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 60% instead of 70% while that “Chill” is in effect. If the Company fails to repay the Note on the Maturity Date, the conversion discount shall be increased by 20%. In no event shall the Holder be allowed to effect a conversion if such conversion, along with all other shares of Company Common Stock beneficially owned by the Holder and its affiliates would exceed 9.9% of the outstanding shares of the Common Stock of the Company.

   

  2  

 

 

(b) Interest on any unpaid principal balance of this Note shall be paid at the rate of 8% per annum. Interest shall be paid by the Company in Common Stock (“Interest Shares”). Holder may, at any time, send in a Notice of Conversion to the Company for Interest Shares based on the formula provided in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated on the unpaid principal balance of this Note to the date of such notice.

 

(c) Upon the occurrence of any Event of Default, the Holder shall have the right, at its option to have the Note redeemed equal to 150% of the unpaid principal amount of this Note along with any accrued interest.

 

(d) Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization or other change or exchange of outstanding shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a “Sale Event”), then, in each case, the Company shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of re demption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.

 

(e) In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassifica tion, capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.

 

5. No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.

 

6. The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.

 

  3  

 

 

  7. PREPAYMENT CLAUSE:
   
    If at anytime after the Issue Date the Company wishes to repurchase this Note, the following terms apply:
     
    1-60 days - 120% of face amount of Note plus any accrued int.
    61-120 days -135% of face amount of Note plus any accrued int.
    121-180 days - 150% of face amount of Note plus any accrued int.

 

8. The Company agrees to pay all costs and expenses, including reasonable attorneys’ fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.

 

9. If one or more of the following described “Events of Default” shall occur:

 

(a) The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or

 

(b) Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note, shall be false or misleading in any respect; or

 

(c) The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation of the Company under this Note or any other note issued by the Company to the Holder; or

 

(d) The Company shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or

 

(e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or

 

(f) Any governmental agency or any court of competent jurisdiction at the in- stance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or

 

(g) One or more money judgments , writs or warrants of attachment, or similar process, in excess of fifty thousand dollars ($50,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or

 

  4  

 

 

(h) The Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period; or

 

(i) The Company shall have its Common Stock delisted from a trading market (including the OTC Exchange Market) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days or ceases to file its 1934 act reports with the SEC after it becomes a mandatory filer with the SEC;

 

(g) Jason Remillard no longer serves on the Board of Directors of the Company;

 

(k) The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein within 3 business days of its receipt of a Notice of Conversion; or

 

(1) The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the Holder.

 

(m) The Company shall not get “current” within six months after the Issue Date, or thereafter stay current in its filings with the Securities and Exchange Commission; or

 

(n) The Company shall lose the “bid” price for its stock in a market (including the OTC marketplace or other exchange).

 

Then, or at any time thereafter, unless cured within 5 days, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately due and payable, without present ment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder’s rights and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not issued beginning on the 4 th day after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10 th day. The penalty for a breach of Section 8(n) shall be an increase of the outstanding principal amounts by 20%. In case of a breach of Section 8(i), the outstanding principal due under this Note shall increase by 50%. If this Note is not paid at maturity, the outstanding principal due under this Note shall increase by 10%. Further, if a breach of Section 8(m) occurs or is continuing after the 6 month anniversary of the Note, then the Holder shall be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion. For example, if the lowest closing bid price during the delinquency period is $0.01 per share and the conversion discount is 50% the Holder may elect to convert future conversions at $0.005 per share.

 

If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its reasonable attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

  5  

 

 

Make-Whole for Failure to Deliver Loss. At the Holder’s election, if the Company fails for any reason to deliver to the Holder the conversion shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if the Holder incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating the amounts payable to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder whole as follows: Failure to Deliver Loss= [(High trade price at any time on or after the day of exercise) x (Number of conversion shares)]

 

The Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day from the time of the Holder’s written notice to the Company.

 

10. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.

 

11. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.

 

12. The Company shall issue irrevocable transfer agent instructions reserving 50,000,000 shares of its Common Stock when practicable for conversions under this Note (the “Share Reserve”). Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled. The Company shall pay all costs associated with issuing and delivering the shares. If such amounts are to be paid by the Holder, it may deduct such amounts from the Con version Price. Conversion Notices may be sent to the Company or its transfer agent via electric mail. The Company should at all times reserve a minimum of five times the amount of shares required if the Note would be fully converted. The Holder may reasonably request increases from time to time to reserve such amounts.

 

13. The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.

 

14. This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of New York or in the federal courts sitting in the county and city of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an

executed counterpart to this Agreement shall be effective as an original.

 

  6  

 

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.

 

Dated:    Oct 23,2018                 

 

  Landstar Inc.
   
  By:       
  Title  

 

  7  

 

 

EXHIBIT A

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert the Note)

 

The undersigned hereby irrevocably elects to convert $       of the above Note into      Shares of Common StockLandStar, Inc. (“Shares”) according to the conditions set forth in such Note, as of the date written below.

 

If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto.

 

Date of Conversion:_________________________________________________________________

Applicable Conversion Price: ___________________________________________________________

Signature:__________________________________________________________________________

[Print Name of Holder and Title of Signer]

Address:____________________________________________________________

_________________________________________________________________

SSN or EIN:__________________________

Shares are to be registered in the following name:___________________________________________________

 

Name: _______________________________________________________________

Address:________________________________________________________________

Tel:_____________________________________

Fax:_____________________________

SSN or EIN:_______________________

 

Shares are to be sent or delivered to the following account:

 

Account Name: __________________________________________________________

Address:_______________________________________________________________

 

  8  

 

 

 

ASSET PURCHASE AGREEMENT

 

This Asset Purchase Agreement (the “Agreement”), dated January 26, 2018, is by and between Myriad Software Productions, LLC, a North Carolina limited liability company (“Seller”); and, Data443 Risk Mitigation, Inc., a North Carolina corporation (“Buyer”). Buyer desires to purchase, and Seller wishes to sell to Buyer, the Purchased Assets (as defined herein), subject to the terms and conditions set forth below.

 

WHEREAS, Buyer and Seller are under common ownership and management; and

 

WHEREAS, both Parties believe it is advantageous for Seller to transfer the Purchased Assets to Buyer for operating purposes; and

 

NOW THEREFORE, for good and valuable consideration set forth below, the receipt of which is hereby acknowledged, the Parties hereby agree as follows:

 

Article I
Purchase and Sale

 

Section 1.01 Purchase and Sale of Assets. Subject to the terms and conditions set forth herein, Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from Seller, all of Seller’s right, title and interest in the assets related to the Seller’s Advertising Media business (such business, the “Purchased Business,” and such assets, the “Purchased Assets”), free and clear of any mortgage, pledge, lien, charge, security interest, claim or other encumbrance (“Encumbrance”). The Purchased Assets constitute all of the assets necessary to conduct the Purchased Business in the manner currently conducted by Seller. The Purchased Assets shall include, without limitation, the following relating to the Purchased Business:

 

(a) all proprietary software, firmware and hardware together with any works in progress, updates, upgrades and improvements;

 

(b) all assets, rights, tangible and intangible property used in or relating to the Purchased Business, including specifically but without limitation, all patents, patent applications, patents pending, and any rights related thereto;

 

(c) licenses;

 

(d) computer equipment, software, data, email addresses and accounts used in the Purchased Business;

 

(e) such books and records as are necessary to conduct the business of the Purchased Business exactly as it is now being conducted;

 

(f) internet protocol addresses, trade names, trademarks and service marks, mark registrations and applications, domain name registrations, web sites and related content, images and designs, copyrights, material that is subject to non-copyright protections, trade secrets, proprietary information, know how, technology, technical data, customer lists, client information and related client or user data, intellectual property rights acquired by license or agreement, telephone numbers, and all related goodwill and other rights; and

 

(g) all documentation related to any of the above.

 

Page 1 of 7
 

 

Section 1.02 No Liabilities. Seller represents below that it has no liabilities. Buyer shall not assume any liabilities or obligations of Seller of any kind, whether known or unknown, contingent, matured or otherwise, whether currently existing or hereinafter created.

 

Section 1.03 Purchase Price. The aggregate purchase price for the Purchased Assets shall be $1,500,000.00 USD (the “Purchase Price”) which reflects the fact that the Parties are related and under common ownership and control. The Buyer shall pay the Purchase Price to Seller at the Closing (as defined below) as follows:

 

(a) $50,000 in cash, by wire transfer of immediately available funds in accordance with the wire transfer instructions provided by the Seller in writing to Buyer;

 

(b) Buyer’s promissory note in the form attached hereto as Exhibit A (the “Note”); and

 

(c) 1,200,000,000 shares of Buyer’s common stock, issued in the name of Seller or Seller’s duly designated assignee (the “Shares”).

 

Section 1.04 Allocation of Purchase Price. Seller and Buyer agree to allocate the Purchase Price among the Purchased Assets for all purposes as agreed by their respective accountants, negotiating in good faith and agree file all tax returns and information reports in a manner consistent with such allocation.

 

Section 1.05 Withholding Tax. Buyer shall be entitled to deduct and withhold from the Purchase Price all taxes that Buyer may be required to deduct and withhold under any applicable tax law. All such withheld amounts shall be treated as delivered to Seller.

 

Article II
Closing

 

Section 2.01 Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place simultaneously with the execution of this Agreement on the date of this Agreement (the “Closing Date”) at the offices of Seller, or at such other time and/or place as shall be mutually agreed upon by the Buyer and the Seller. The consummation of the transactions contemplated by this Agreement shall be deemed to occur at 12:01 a.m. on the Closing Date.

 

Section 2.02 Closing Deliverables

 

(a) At the Closing, Seller shall deliver to Buyer the following:

 

(i) a bill of sale in the form of Exhibit B hereto (the “Bill of Sale”) and duly executed by Seller, transferring the Purchased Assets to Buyer;

 

(ii) an assignment of intellectual property in the form of Exhibit C hereto (the “Intellectual Property Assignment”) and duly executed by Seller, transferring all of Seller’s right, title and interest in and to the Purchased Assets to Buyer;

 

(iii) a certificate of the Secretary or Assistant Secretary (or equivalent officer) of Seller certifying as to (A) the resolutions of the board of directors of Seller, duly adopted and in effect, which authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby, and (B) the names and signatures of the officers of Seller authorized to sign this Agreement and the documents to be delivered hereunder;

 

Page 2 of 7
 

 

(iv) an asset list describing in detail all of the Purchased Assets in the form of Exhibit D hereto (the “Asset List”); and

 

(v) domain name assignment documentation, sublease assignment, other and such other customary instruments of transfer reasonably satisfactory to Buyer, as may be required to give effect to this Agreement.

 

(b) At the Closing, Buyer shall deliver to Seller:

 

(i) the 50,000 in cash;

 

(ii) the signed Note; and

 

(iii) the Shares.

 

Article III
Representations and Warranties of Seller

 

Seller represents and warrants to Buyer that the statements contained in this Article III are true and correct as of the date hereof.

 

Section 3.01 Organization and Authority of Seller. Seller is a limited liability company duly organized under the laws of the state of North Carolina. Seller has full power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Seller. This Agreement and the documents to be delivered hereunder have been duly executed and delivered by Seller.

 

Section 3.02 No Conflicts. The execution, delivery and performance by Seller of this Agreement and the documents to be delivered hereunder, and the consummation of the transactions contemplated hereby, do not and will not: (a) violate or conflict with the organizational documents or operating agreement of Seller; (b) violate or conflict with any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Seller or the Purchased Assets; (c) conflict with, or result in (with or without notice or lapse of time or both) any violation of, or default under, or give rise to a right of termination, acceleration or modification of any obligation or loss of any benefit under any contract or other instrument to which Seller is a party or to which any of the Purchased Assets are subject; or (d) result in the creation or imposition of any Encumbrance on the Purchased Assets.

 

Section 3.03 No Consents. No consent, approval, waiver or authorization is required to be obtained by Seller from any person or entity (including any governmental authority) in connection with the execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated hereby. No consent, approval, waiver or authorization is required to be obtained by Seller from any person or entity (including any governmental authority) in connection with the execution, delivery and performance by Seller of this Agreement and the consummation of the transactions contemplated hereby.

 

Section 3.04 Title to Purchased Assets. Seller owns and has good title to the Purchased Assets, free and clear of Encumbrances.

 

Section 3.05 Intellectual Property

 

Page 3 of 7
 

 

(a) “Intellectual Property” means any and all of the following in any jurisdiction throughout the world: (i) trademarks and service marks, including all applications and registrations and the goodwill connected with the use of and symbolized by the foregoing; (ii) copyrights, including all applications and registrations related to the foregoing; (iii) trade secrets and confidential know-how; (iv) patents and patent applications; (v) internet domain name registrations; and (vi) other intellectual property and related proprietary rights, interests and protections (including all rights to sue and recover and retain damages, costs and attorneys’ fees for past, present and future infringement and any other rights relating to any of the foregoing).

 

(b) The Purchased Assets include all of the Intellectual Property owned by the Seller that is necessary or desirable for conducting the Purchased Business in the manner it is presently being conducted (“Purchased IP Assets”). Seller owns or has adequate, valid and enforceable rights to use all the Purchased IP Assets, free and clear of all Encumbrances. Seller is not bound by any outstanding judgment, injunction, order or decree restricting the use of the Purchased IP Assets, or restricting the licensing thereof to any person or entity. With respect to any registered Intellectual Property included in the Purchased IP Assets, (i) all such Intellectual Property is valid, subsisting and in full force and effect and (ii) Seller has paid all maintenance fees and made all filings required to maintain Seller’s ownership thereof.

 

(c) Seller’s prior and current use of the Purchased IP Assets has not and does not infringe, violate, dilute or misappropriate the Intellectual Property of any person or entity and there are no claims pending or threatened by any person or entity with respect to the ownership, validity, enforceability, effectiveness or use of the Purchased IP Assets. No person or entity is infringing, misappropriating, diluting or otherwise violating any of the Purchased IP Assets, and neither Seller nor any affiliate of Seller has made or asserted any claim, demand or notice against any person or entity alleging any such infringement, misappropriation, dilution or other violation.

 

Section 3.07 Compliance With Laws. Seller has complied, and is now complying, with all applicable federal, state and local laws and regulations applicable to ownership and use of the Purchased Assets.

 

Section 3.08 Legal Proceedings. There is no claim, action, suit, proceeding or governmental investigation (“Action”) of any nature pending or threatened against or by Seller (a) relating to or affecting the Purchased Assets; or (b) that challenges or seeks to prevent the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may give rise to, or serve as a basis for, any such Action.

 

Section 3.9 Brokers. No broker, finder or investment banker is entitled to any fee or commission in connection with this Agreement or the transactions contemplated herein.

 

Section 3.10 Full Disclosure. No representation or warranty by Seller in this Agreement and no statement contained in any certificate or other document furnished or to be furnished to Buyer pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.

 

Page 4 of 7
 

 

Article IV
Representations and Warranties of Buyer

 

Buyer represents and warrants to Seller that the statements contained in this Article IV are true and correct as of the date hereof.

 

Section 4.01 Organization and Authority of Buyer; Enforceability. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the state of North Carolina. Buyer has full corporate power and authority to enter into this Agreement and the documents to be delivered hereunder, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance by Buyer of this Agreement and the documents to be delivered hereunder and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Buyer. This Agreement and the documents to be delivered hereunder have been duly executed and delivered by Buyer, and (assuming due authorization, execution and delivery by Seller) this Agreement and the documents to be delivered hereunder constitute legal, valid and binding obligations of Buyer enforceable against Buyer in accordance with their respective terms.

 

Section 4.02 Investigation. On or prior to the Closing, Buyer will inspect the physical condition of the Purchased Assets. Prior to the Closing, Buyer will have also had the opportunity to investigate the books, records, and the Financial Statements of Seller. As of the Closing, Buyer will be purchasing the Purchased Assets based upon its own independent investigation and evaluation of the Purchased Business and its prospects, and the covenants, representations, and warranties of Seller set forth herein. Buyer is expressly not relying on any oral representations made by Seller with regard to the Purchased Assets or the Business.

 

Article V
Indemnification

 

Section 5.01 Survival. All representations, warranties, covenants and agreements contained herein and all related rights to indemnification shall survive the Closing.

 

Section 5.02 Indemnification By Seller. Subject to the other terms and conditions of this Article V, Seller shall defend, indemnify and hold harmless Buyer, its affiliates and their respective stockholders, directors, officers and employees from and against all claims, judgments, damages, liabilities, settlements, losses, costs and expenses, including attorneys’ fees and disbursements, arising from or relating to:

 

(a) any inaccuracy in or breach of any of the representations or warranties of Seller contained in this Agreement or any document to be delivered hereunder; or

 

(b) any breach or non-fulfilment of any covenant, agreement or obligation to be performed by Seller pursuant to this Agreement or any document to be delivered hereunder.

 

Section 5.03 Effect of Investigation. Buyer’s right to indemnification or other remedy based on the representations, warranties, covenants and agreements of Seller contained herein will not be affected by any investigation conducted by Buyer with respect to, or any knowledge acquired by Buyer at any time, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or agreement.

 

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Article VI
Miscellaneous

 

Section 6.01 Expenses. All costs and expenses incurred in connection with this Agreement and any related transactions shall be the responsibility of the party incurring such amounts.

 

Section 6.02 Notices. All notices and other communications pursuant to this agreement shall be in writing (including electronically), sent to the below-listed addresses, as updated by the parties, and will be deemed given (a) when received by the addressee (with confirmation of receipt from the deliverer); (b) on the date sent by e-mail with reply confirmation; or (c) on the third day after the date mailed by certified mail (with return receipt).

 

Notice Addresses:

 

If to Seller:

1053 E Whitaker Mill Rd #115, Raleigh, NC 27604

jason@classidocs.com

 

If to Buyer:

1053 E Whitaker Mill Rd #115, Raleigh, NC 27604

jason@data443.com

 

Section 6.03 Severability. If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction.

 

Section 6.04 Entire Agreement. This Agreement and the documents to be delivered hereunder constitute the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein, and supersede all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Agreement and the documents to be delivered hereunder (including the Exhibits), the statements in the body of this Agreement will control.

 

Section 6.05 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld or delayed. No assignment shall relieve the assigning party of any of its obligations hereunder.

 

Section 6.06 Amendment, Modification& Waiver. This Agreement may be amended, modified or supplemented, and any provision hereof shall be waived, only by an agreement in writing signed by each party hereto. No delay in exercising any right or remedy hereunder shall be construed as a waiver thereof.

 

Section 6.07 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. Facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as an original signed copy.

 

Section 6.08 Transfer Taxes. All transfer, documentary, sales, use, stamp, registration, value added and other such taxes and fees incurred in connection with this Agreement shall be paid by Seller when due. Seller shall, at its own expense, timely file any tax return or other document with respect to such taxes or fees.

 

The parties hereby agree, as evidence by the signatures below of respective duly-authorized officers.

 

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Myriad Software Productions, LLC  
     
By             
Name: Jason Remillard  
Title: President  
     
Date:    
     
Data443 Risk Mitigation, INC.  
     
By      
Name: Jason Remillard  
Title: CEO  
Date:    

 

Exhibits

 

Exhibit A - Note

Exhibit B - Bill of Sale

Exhibit C – Intellectual Property Assignment

Exhibit D - Asset List

 

Page 7 of 7
 

 

SECURED PROMISSORY NOTE

 

DATA443 RISK MITIGATION, INC.,

AS PAYOR

 

MYRIAD SOFTWARE PRODUCTIONS, LLC,

AS HOLDER

 

26 JANUARY 2018

 

     

 

 

SECURED PROMISSORY NOTE

 

 

$250,000.00 Raleigh, North Carolina
  Issue Date: 26 January 2018

 

FOR VALUE RECEIVED , DATA443 RISK MITIGATION, INC., a North Carolina corporation (“ Payor ”), promises to pay to the order of MYRIAD SOFTWARE PRODUCTIONS, LLC, a North Carolina limited liability company (“ Holder ”), the sum of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) in legal and lawful money of the United States of America, with the simple interest at the rate of eight percent (8%) per annum

thereon from the Issue Date until 26 July 2018 (the “ Maturity Date ”), pursuant to the terms and conditions outlined in this Secured Promissory Note (the “ Note ”).

 

I

PAYMENT OBLIGATIONS

 

1.1 Required Payments . Payment of all outstanding principal and all accrued and unpaid interest shall be paid-in-full on the Maturity Date.

 

1.2 Computation of Interest . Simple interest shall be computed on the unpaid principal hereunder on the basis of a three hundred sixty-five (365) day year and the actual days elapsed from the date of this Note.

 

1.3 Prepayments . Payor shall have the right, at any time, to prepay any unpaid principal or interest due hereunder. All payments shall be applied to accrued interest first, with the remainder, if any, applied in reduction of the principal sum due hereunder.

 

1.4 Delivery of Payments . All payments under this Note, whether of principal or interest, or both, shall be made to Holder in lawful money of the United States at such place as Holder shall designate in writing to Payor.

 

1.5 Illegality . Nothing in this Note contained shall be construed or shall operate, either presently or prospectively, (a) to require Payor to pay interest at a rate greater than is at any time lawful in such case to contract for but shall require payment of interest only to the extent of such lawful rate, or (b) to require Payor to make any payment or do any act contrary to law. If it should be held that the interest payable under this Note is in excess of the maximum permitted by law, the interest chargeable hereunder (whether included in the face amount or otherwise) shall be reduced to the maximum amount permitted by law, and any excess of the said maximum amount permitted by law shall be cancelled automatically and, at the option of Holder, if theretofore or thereafter paid, shall be either refunded to Payor or credited to the principal balance of this Note (without prepayment penalties) and applied to the payment of the last maturing installment or installments of the indebtedness evidenced hereby (whether or not then due and payable) and not to the payment of interest.

 

1.6 Purchase Agreement . This Note is the promissory note referred to in that certain Asset Purchase Agreement dated as of 26 January 2018, entered into by and between Payor and Holder and to which this Note is attached thereto as Exhibit “A” (the “ Purchase Agreement ”). This Note is entitled to the benefits of, and is subject to the terms contained in, the Purchase Agreement.

 

1.7 Security . This Note and the obligations hereunder are secured by a Security Agreement dated 26 January 2018, and is subject to all terms and conditions thereof (the “ Security Agreement ”).

 

  1  

 

 

II

DEFAULTS AND REMEDIES

 

2.1 Events of Default . An “ Event of Default ” hereunder shall mean any of the following:

 

(a) If a default shall be made in the payment of any installment of principal and interest hereof, as when due and payable and continuing for a period of fifteen (15) days following written notice thereof by Holder to Payor.

 

(b) If a default shall have occurred under the Purchase Agreement or the Security Agreement, which default remains uncured after 10-days written notice of such default.

 

(c) Payor or a subsidiary of Payor becomes subject to a Bankruptcy Event.

 

2.2 Bankruptcy Event . For purposes of this Note, “ Bankruptcy Event ” means any of the following events: (a) Payor or any of its subsidiaries commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to a Payor or a subsidiary; (b) there is commenced against Payor or a subsidiary any such case or proceeding that is not dismissed within 60 days after commencement; (c) Payor or any subsidiary is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) Payor or a subsidiary suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment; (e) Payor or a subsidiary makes a general assignment for the benefit of creditors; (f) Payor or a Subsidiary calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or, (g) Payor or a subsidiary, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

2.3 Remedies . At any time after the occurrence of an Event of Default and until such time as the Event of Default is cured and no longer existing, the Holder may, by written notice sent to Payor, declare the entire amount of this Note to be forthwith due and payable, whereupon this Note shall become forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived. Upon acceleration by Holder, Holder shall be entitled to those remedies contained in the Security Agreement of even date herewith securing the performance by Payor of its obligations under this Note, in addition to and without limitation, all other available remedies under applicable law. In connection with such acceleration described herein, Holder need not provide, and Payor hereby waives, any presentment, demand, protest or other notice of any kind, and Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

III

ADDITIONAL PROVISIONS

 

3.1 Waiver . The granting, without notice, of any extension or extensions of time for payment of any amount due hereunder, or for the performance of any covenant, condition or agreement herein, or the granting of any other indulgences to Payor, or any other modification or amendment of this Note shall in no way release or discharge the liability of Payor, or of any endorser, guarantor or other person secondarily liable for this Note. Payor and any other persons presently liable hereon agree that additional makers, endorsers, guarantors or sureties may become parties hereto or liable hereon without notice to them and without affecting their liability hereunder. Unless agreed to the contrary in writing, failure or delay on the part of Holder to enforce any provision of this Note shall not be deemed a waiver of any such provision, nor shall the Holder be estopped from enforcing any such provision at a later time.

 

3.2 Entire Agreement . This Note, the Purchase Agreement, the Security Agreement, and all references herein contain the entire understanding among the parties hereto and supersedes any and all prior written or oral agreements, understandings, and negotiations between them respecting the subject matter contained herein. Each and every provision of this Note is severable and independent of any other term or provision of this Note. If any term or provision hereof is held void or invalid for any reason by a court of competent jurisdiction, such invalidity shall not affect the remainder of this Note.

 

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3.3 Governing Law . This Note shall be governed by the laws of the State of North Carolina, without giving effect to any choice or conflict of law provision or rule (whether of the State of North Carolina or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of North Carolina. If any legal action, including arbitration, is necessary to enforce the terms and conditions of this Note, the prevailing party shall be entitled to costs and reasonable attorney’s fees. If any court action is necessary to enforce the terms and conditions of this Note, the parties hereby agree that the appropriate court in Mecklenburg County, North Carolina, shall be the sole jurisdiction and venue for the bringing of such action.

 

3.4 Additional Documentation . The parties hereto agree to execute, acknowledge and cause to be filed and recorded, if necessary, any and all documents, amendments, notices and certificates which may be necessary or convenient under the laws of the States of North Carolina.

 

3.5 Amendment and Assignability . This Note may be amended or modified only by a writing signed by all parties. This Note is free assignable by Holder in its sole and absolute discretion. Payor may not assign its obligations hereunder without the expressed written consent of Holder.

 

3.6 Preparation of the Note . This Note shall be deemed to have been drafted by all parties and, in the event of a dispute, no party hereto shall be entitled to claim that any provision should be construed against any other party by reason of the fact that it was drafted by one particular party.

 

3.7 Absolute Obligation . Except as expressly provided herein, nothing herein shall alter or impair the obligations of Payor, which are absolute and unconditional. This Note is a direct debt obligation of Payor.

 

  PAYOR :
     
  DATA443 RISK MITIGATION, INC.
     
  BY:                    
     
  NAME:  
     
  TITLE:  
     
  DATED:  

 

ACCEPTANCE AND ACKNOWLEDGEMENT

 

The undersigned hereby accepts receipt of this Note and acknowledges that said acceptance shall serve as the evidence of payment of part of the purchase price under the Purchase Agreement.

 

  HOLDER :
     
  MYRIAD SOFTWARE PRODUCTIONS, LLC
     
  BY:                         
     
  NAME:  
     
  TITLE:  
     
  DATED:  

 

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SECURITY AGREEMENT

 

 

DATA443 RISK MITIGATION, INC.,

AS THE DEBTOR

 

and

 

MYRIAD SOFTWARE PRODUCTIONS, LLC,

AS THE SECURED PARTY

 

 

26 January 2018

 

 
 

 

SECURITY AGREEMENT

 

I

PARTIES

 

THIS SECURITY AGREEMENT (the “ Agreement ”) is entered into effective as of the 26 th day of January, 2018 (the “ Effective Date ”), by and between DATA443 RISK MITIGATION, INC., a North Carolina corporation (“ Debtor ”); and , MYRIAD SOFTWARE PRODUCTIONS, LLC, a North Carolina limited liability company (“ Secured Party ”). Debtor and Secured Party are sometimes referred to collectively herein as the “Parties”, and each individually as a “Party”.

 

II

RECITALS

 

A. The Parties have concurrently entered into that certain Asset Purchase Agreement (the “ Purchase Agreement ”) under which Debtor acquired the Purchased Assets. Capitalized terms not defined herein shall have the same meanings as attached to them as in the Purchase Agreement.

 

B. In connection with, and as partial payment for the Purchased Assets, Debtor delivered to Secured Party its secured promissory note (the “ Note ”), which is the same note attached to the Purchase Agreement as Exhibit “A”.

 

C. This Agreement is the “Security Agreement” referred to in Section 1.7 of the Note.

 

D. This Agreement is subject to all terms and conditions of the Note and the Purchase Agreement which are not expressly inconsistent with the terms and conditions hereof.

 

E. It is a condition precedent to the closing of the transactions contemplated under the Note that Debtor execute and deliver this Agreement.

 

F. Debtor desires to grant Secured Party a continuing security interest in the Collateral to secure Debtor’s performance under the Note, this Agreement, and the Purchase Agreement (collectively, the “ Transaction Documents ”).

 

G. NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

 

III

CREATION OF SECURITY INTEREST

 

3.1 Grant . Debtor hereby grants to Secured Party a present and continuing security interest (the “ Security Interest ”) in those assets constituting and consisting of the Purchased Assets and all proceeds of and replacements thereof (collectively, the “ Collateral ”). The Collateral shall specifically be limited to the following:

 

(a) All of the Purchased Assets and all replacements, substitutions, accessions, additions, and improvements thereto; and

 

(b) All proceeds of the Collateral, including but not limited to all accounts, instruments, contract rights, chattel paper, notes, general intangibles, goods, equipment, inventory, deposit accounts, money, and other tangible and intangible property of Debtor resulting from the sale or other disposition of the Collateral or the proceeds thereof, together with all proceeds of insurance relating thereto.

 

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3.2 Obligations Secured . The Security Interest is granted to secure the timely payment and performance of Debtor’s obligations under each of the Transaction Documents (collectively, the “ Obligations ”), which Obligations include without limitation payment and performance of Debtor’s obligations under the Note, and payment and performance of Debtor’s obligations under this Agreement.

 

IV

DEBTOR’S RETAINED RIGHTS, OBLIGATIONS, WARRANTIES, AND REPRESENTATIONS

 

4.1 Debtor’s Treatment of Collateral . Debtor warrants, represents, and covenants to Secured Party that so long as the Note remains outstanding and Secured Party does not consent in writing to the contrary:

 

(a) Debtor will defend title to the Collateral and the Security Interest of Secured Party therein against the claims and demands of all persons;

 

(b) Debtor will, at Debtor’s own cost and expense, keep the Collateral in a good state of repair, and maintain the Collateral in the ordinary course of business of the Debtor;

 

(c) Debtor will not waste, destroy, misuse, abuse, or illegally use the Collateral, or any part thereof, and will not be negligent in the care thereof;

 

(d) Debtor will keep the Collateral free and clear of all attachments, levies, taxes, liens, purchase money and other security interests, charges and all other encumbrances of every kind and nature (other than liens for taxes not yet due and payable);

 

(e) Debtor will not sell, assign, transfer, lease, exchange, hypothecate or in any way allow or suffer the Collateral, or any part thereof or any right or interest therein, to be transferred or come into the possession of any other person or removed from the Premises, other than (i) in the ordinary course of business of Debtor, or (ii) if relocated to any other facility which is owned or operated by Debtor or any of its affiliates;

 

(f) Debtor will keep the Collateral insured in accordance with present practice, and name Secured Party as an additional insured on all such insurance policies;

 

(g) Debtor will, at Debtor’s own cost and expense, pay prior to delinquency all taxes or other charges levied against or otherwise respecting the Collateral;

 

(h) Debtor will, when requested by Secured Party, execute any and all written instruments and documents, and, at Debtor’s sole cost and expense, do any other acts necessary to effectuate the purposes and provisions of this Agreement, including but not limited to executing a Form UCC-1 covering the Collateral; and

 

(i) Debtor shall not be released from this Agreement because of the loss, injury, or destruction of the Collateral.

 

4.2 Encumbrances and the Like . Notwithstanding any other provision herein to the contrary, Debtor shall take all reasonably ordinary and necessary measures to ensure that the Debtor does not create or suffer to exist any lien, security interest or other encumbrance or the like after the date of this Agreement in respect to the Collateral, except for (i) liens and taxes not yet due and payable; (ii) those incurred in the ordinary course and scope of its business; and, (iii) those issued in favor of Debtor’s primary lender.

 

4.3 Retained Rights . Until an Event of Default hereunder, Debtor shall be entitled to retain possession and enjoy the use of the Collateral, subject to the provisions of Section 4.1, hereof.

 

4.4 Change of Address . Debtor will immediately notify Secured Party of any change in Debtor’s address.

 

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4.5 Express Waivers . Debtor hereby expressly waives:

 

(a) Diligence, presentment, protest, demand, and notice of every kind, except as required under the Note or the Transaction Documents;

 

(b) The right, if any, to require Secured Party to proceed against any person liable for the payment of any of the Obligations of Debtor as a condition or prior to proceeding under this Agreement; and

 

(c) The right, if any, to require Secured Party to foreclose upon, sell or otherwise realize upon, collect or apply any other property, real or personal, securing any of the Obligations of Debtor as a condition or prior to proceeding hereunder.

 

4.6 Insurance . Debtor, at Debtor’s sole cost and expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks ordinarily insured against by owners of similar properties in similar businesses for the full insurable value thereof, and shall maintain business interruption insurance and public liability and property damage insurance relating to Debtor’s ownership and use of Debtor’s other assets. All policies of insurance shall be in such form, with such companies, and in such amounts as may be satisfactory to Secured Party. Debtor shall deliver to Secured Party certified copies of all required policies of insurance and, at the request of Secured Party, evidence of the payment of all premiums therefore. All required policies of insurance (except those of public liability and property damage) shall contain an endorsement, in a form satisfactory to Secured Party, showing loss payable to Secured Party. Upon receipt by Secured Party, all proceeds shall be applied on the account of Debtor’s Obligations. To secure the payment of Debtor’s Obligations, Debtor grants Secured Party a security interest in and to all required policies of insurance (except those of public liability and property damage) and the proceeds thereof and shall direct all insurers to pay all proceeds directly to Secured Party. Debtor hereby irrevocably appoints Secured Party (and any of Secured Party’s designated officers, employees, or agents) as Debtor’s attorney-in-fact for the purpose of making, settling and adjusting claims and for making all determinations and decisions with respect to required policies of insurance. Each insurer shall agree by endorsement upon the policy or policies of insurance issued by it to Debtor, or by independent instruments furnished to Secured Party, that it will give Secured Party at least ten (10) days written notice before any policy or policies of insurance may be altered or cancelled, and that no act or default of Debtor, or any other person, shall affect the right of Secured Party to recover under any required policy or policies of insurance. Secured Party, without waiving or releasing any Obligations or defaults of Debtor hereunder, may, but shall not be required to, obtain and maintain any required policies of insurance and to pay premiums and take any other action which Secured Party deems advisable. All amounts disbursed by Secured Party under this Section 4.6, together with all costs and expenses, including reasonable attorney fees, shall be repaid by Debtor.

 

4.7 Representations and Warranties Concerning the Business of Debtor . With regard to the business of Debtor, Debtor hereby represents and warrants to Secured Party as follows:

 

4.7.1. Organization . Debtor is a corporation, duly organized, validly existing, and in good standing under the laws of the State of North Carolina, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Debtor is not violation or default of any of the provisions of its Certificate or Articles of Incorporation, Bylaws, or other organizational or charter documents. Debtor is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any of the Transaction Documents; (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of Debtor, taken as a whole; or, (iii) a material adverse effect on the ability of Debtor to perform in any material respect on a timely basis its obligations under any Loan Document, and no proceeding has been instituted in any such jurisdiction revoking, limiting, or curtailing or seeking to revoke, limit, or curtail such power and authority or qualification.

 

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4.7.2. Execution and Performance of Agreement . Debtor has the requisite right, corporate power, authority, and capacity to enter into, execute, deliver, perform, and carry out the terms and conditions of this Agreement and (i) each of the Transaction Documents; and, (ii) each of the other instruments and agreements to be executed and delivered by Debtor in connection with this Agreement, as well as all transactions contemplated hereunder. All requisite corporate proceedings have been taken and Debtor has obtained all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance by Debtor of this Agreement, and each of the Transaction Documents to which it is a party. This Agreement has been duly and validly executed and delivered by Debtor and constitutes the valid, binding, and enforceable obligation of Debtor, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditor’s rights generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law.

 

4.7.3. Effect of Agreement . As of the Effective Date the consummation by Debtor of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement and the Transaction Documents to which it is a party, will not:

 

(a) Violate any judgment, statute, law, code, act, order, writ, rule, ordinance, regulation, governmental consent or governmental requirement, or determination or decree of any arbitrator, court, or other governmental agency or administrative body, which now or at any time hereafter may be applicable to and enforceable against the relevant party, work, or activity in question or any part thereof (collectively, “Requirement of Law”) applicable to or binding upon Debtor or any of its assets;

 

(b) Violate (i) the terms of the Articles of Incorporation or Bylaws of Debtor; or, (ii) any material agreement, contract, mortgage, indenture, bond, bill, note, or other material instrument or writing binding upon Debtor or to which Debtor is subject;

 

(c) Accelerate or constitute an event entitling the holder of any indebtedness of Debtor to accelerate the maturity of such indebtedness or to increase the rate of interest presently in effect with respect to such indebtedness; or

 

(d) Result in the breach of, constitute a default under, constitute an event which with notice or lapse of time, or both, would become a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any part of the assets of Debtor or any other assets of Debtor under any agreement, commitment, contract (written or oral) or other instrument to which Debtor is a party, or by which any of its assets (or any part thereof) is bound or affected.

 

4.7.4. Consents . No consents, approvals or other authorizations or notices, other than those which have been obtained and are in full force and effect, are required by any state or federal regulatory authority or other person or entity in connection with the execution and delivery of the Transaction Documents and the performance of any obligations contemplated thereby.

 

V

RIGHTS OF SECURED PARTY

 

Secured Party may, at Secured Party’s option, from time to time, and without notice to Debtor except as otherwise required hereunder, and without affecting the obligations of Debtor:

 

(a) pay, purchase, contest, compromise or discharge any attachments, levies, taxes, claims, debts, liens, charges, security interests, or encumbrances which, in Secured Party’s judgment, may affect or appear to affect the Collateral or Secured Party’s rights under this Agreement;

 

(b) pay for the maintenance and preservation of the Collateral, with all amounts advanced by Secured Party under this Article V, together with all costs and expenses, including reasonable attorney fees, shall be repaid by Debtor, together with interest at the highest allowed under applicable law;

 

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(c) release, renew, extend, or alter the time or terms of payment of any Obligation;

 

(d) release, surrender, or substitute any property or other security;

 

(e) accept any type of further security therefore;

 

(f) demand that Debtor shall, and Debtor shall act to, at the sole expense of Debtor, promptly execute and deliver any and all such further instruments and documents and take such further action as Secured Party Debtor may reasonably deem necessary to obtain the full benefits of the rights and powers herein granted;

 

(g) take all action as Secured Party may reasonably deem necessary to obtain the full benefits of the rights and powers herein granted, including but not limited to filing any financing or continuation statements under the UCC or any federal law with respect to the Security Interest granted hereby, executing and filing any mortgage or other agreement, paying any necessary filing fees or taxes, executing any additional agreement, granting any proxy or power, giving any notice, or otherwise; and

 

(h) file financing statements and continuation statements without the signature of or other authentication by Debtor to the extent permitted by applicable law.

 

VI

DEFAULT AND ACCELERATION

 

6.1 Event of Default . An “Event of Default” hereunder shall include the following:

 

(a) Default by Debtor in the payment or performance of any of the Obligations, which default is not cured within the cure period and in compliance with any other cure requirements, as provided in the applicable Transaction Document underlying the Obligation in default; or

 

(b) Insolvency, business failure, assignment for the benefit of creditors, the appointment at a receiver or special monitor for Debtor, or the commencement of any bankruptcy or insolvency proceeding by or against Debtor; or

 

(c) Default by Debtor of any material provision hereunder and not cured within ten (10) days after Debtor’s receipt of written notice from Secured Party identifying the material breach.

 

6.2 Remedies . Upon a default by Debtor, and at the option of Secured Party, all of Debtor’s Obligations shall become immediately due and payable without notice or demand (except as otherwise required hereunder or under any of the Settlement Documents), and then and thereafter Secured Party shall have all of the rights and remedies of a secured party under the Nevada Uniform Commercial Code. Secured Party shall have the immediate right to:

 

(a) Notify all persons indebted to Debtor under leases, trade accounts and other obligations to make all payments solely and directly to Secured Party;

 

(b) Take and maintain possession of the Collateral and in so doing, alone or with any other person, enter upon the premises where the Collateral may be found or believed by Secured Party to be located. Debtor hereby waives all claims for damages and otherwise, due to, arising from, or connected with any entry upon the premises or any seizure of the Collateral by Secured Party;

 

(c) Maintain possession and dispose of the Collateral on any premises of Debtor or under Debtor’s control; or

 

(d) Remove the Collateral or any part thereof to any place Secured Party may desire.

 

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6.3 Acceleration . Upon an Event of Default, all Obligations secured by this Agreement shall immediately become due and payable at the option of Secured Party.

 

6.4 Remedies . If an Event of Default shall occur and be continuing, Secured Party may exercise, in addition to all other rights and remedies granted to it herein, all rights and remedies of a secured party under the UCC. Debtor shall remain liable for any deficiency if the Collateral is insufficient to pay all amounts to which the Secured Party is entitled hereunder.

 

6.5 Sale of Collateral . If requested by Secured Party, Debtor shall assemble and make the Collateral available to Secured Party at a place to be designated by Secured Party. In the event of a sale by Secured Party after an Event of Default by Debtor, the Collateral need not be in view of those present attending the sale, or at the same location at which the sale is being conducted. Secured Party may sell the Collateral in such order, priority, and lots as is commercially reasonable in the opinion of Secured Party. Debtor shall receive all notices of sale required to be given and which cannot be waived by law, all other notices of every type, nature, or kind being hereby expressly waived by Debtor. Any notice required to be given by law shall be conclusively presumed given and received by Debtor when it is mailed, postage prepaid, to Debtor at Debtor’s last business address known to Secured Party. Unless the Collateral is perishable, depreciates rapidly, or is of a type customarily sold on a recognized market, Debtor will be given reasonable notice of the time and place of any public sale, or of the time on or after which any private sale or other intended disposition is to be made. The requirements of reasonable notice shall be met if notice is mailed, postage prepaid, to Debtor at least five (5) days before the time of sale or other disposition. Secured Party may be the purchaser at any public sale of the Collateral.

 

VII

TERM

 

This Agreement and the Security Interest created hereunder shall remain in effect until such time as no indebtedness is owing to Secured Party under the Note. Upon payment in full of all of the indebtedness of Debtor under the Note, this Agreement shall terminate and be of no further force or effect. The Secured Party shall thereupon execute and deliver to Debtor a termination statement of the Security Interest (commonly referred to as a Form UCC-2) as provided for in the Uniform Commercial Code, as adopted by the State of North Carolina.

 

VIII

ADDITIONAL PROVISIONS

 

8.1 Executed Counterparts . This Agreement may be executed in any number of counterparts, all of which when taken together shall be considered one and the same agreement, it being understood that all Parties need not sign the same counterpart. In the event that any signature is delivered by Fax or E-Mail, such signature shall create a valid and binding obligation of that Party (or on whose behalf such signature is executed) with the same force and effect as an original thereof. Any photographic, photocopy, or similar reproduction copy of this Agreement, with all signatures reproduced on one or more sets of signature pages, shall be considered for all purposes as if it were an executed counterpart of this Agreement.

 

8.2 Entire Agreement . This Agreement, and all references, documents, or instruments referred to herein, contains the entire agreement and understanding of the Parties in respect to the subject matter contained herein. The Parties have expressly not relied upon any promises, representations, warranties, agreements, covenants, or undertakings, other than those expressly set forth or referred to herein. This Agreement supersedes (i) any and all prior written or oral agreements, understandings, and negotiations between the Parties with respect to the subject matter contained herein; and, (ii) any course of performance and/or usage of the trade inconsistent with any of the terms hereof.

 

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8.3 Severability . Each and every provision of this Agreement is severable and independent of any other term or provision of this Agreement. If any term or provision of this Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal, or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

 

8.4 Governing Law . This Agreement shall be governed by the laws of the State of North Carolina, without giving effect to any choice or conflict of law provision or rule (whether of the State of North Carolina or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of North Carolina. If any court action is necessary to enforce the terms and conditions of this Agreement, the Parties hereby agree that the appropriate court in Mecklenburg County, North Carolina, shall be the sole jurisdiction and venue for the bringing of such action. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTER CLAIM BROUGHT BY ANY OF THEM AGAINST THE OTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR THE ADMINISTRATION THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.

 

8.5 Enforcement . The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that the Parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. The remedies of the Parties under this Agreement are cumulative and shall not exclude any other remedies to which any person may be lawfully entitled.

 

8.6 Waiver . No failure by any Party to insist on the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy on a breach shall constitute a waiver of any such breach or of any other covenant, duty, agreement, or condition.

 

8.7 Recovery of Fees by Prevailing Party . In the event of any legal action to enforce or interpret this Agreement, the non-prevailing Party shall pay the reasonable attorneys’ fees and other costs and expenses (including expert witness fees) of the prevailing Party in such amount as the may be determined. In addition, such non-prevailing Party shall pay reasonable attorneys’ fees incurred by the prevailing Party in enforcing, or on appeal from, a judgment in favor of the prevailing Party. The preceding sentence is intended by the Parties to be severable from the other provisions of this Agreement and to survive and not be merged into such judgment.

 

8.8 Recitals . The facts recited in Article II, above, are hereby conclusively presumed to be true as between and affecting the Parties.

 

8.9 Amendment . This Agreement may be amended or modified only by a writing signed by all Parties.

 

8.10 Successors and Assigns . Except as expressly provided in this Agreement, each and all of the covenants, terms, provisions, conditions, and agreements herein contained shall be binding upon and shall inure to the benefit of the successors and assigns of the Parties. Secured Party may freely assign its rights hererunder, in its sole and absolute discretion, in connection with its assignment of the Note. This Agreement is not assignable by Debtor without the expressed written consent of Secured Party.

 

8.11 Time . All Parties agree that time is of the essence as to this Agreement.

 

8.12 Provision Not Construed Against Party Drafting Agreement . This Agreement is the result of negotiations by and between the Parties; is the product of the work and efforts of all Parties; and, shall be deemed to have been drafted by all Parties. Each Party has had the opportunity to be represented by independent legal counsel of its choice. In the event of a dispute, no Party shall be entitled to claim that any provision should be construed against any other Party by reason of the fact that it was drafted by one particular Party.

 

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8.13 Agreement Provisions, Exhibits, and Schedules . When a reference is made in this Agreement to an Article, Section, Subsection, Exhibit, or Schedule, such reference shall be to said item of this Agreement unless otherwise indicated. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof as if set out in full herein.

 

8.14 Consents, Approvals, and Discretion . Except as herein expressly provided to the contrary, whenever this Agreement requires consent or approval to be given by a Party, or a Party must or may exercise discretion, the Parties agree that such consent or approval shall not be unreasonably withheld, conditioned, or delayed, and such discretion shall be reasonably exercised. Except as otherwise provided herein, if no response to a consent or request for approval is provided within ten (10) days from the receipt of the request, then the consent or approval shall be presumed to have been given.

 

8.15 Further Assurances . Each Party agrees (i) to furnish upon request to each other Party such further information; (ii) to execute and deliver to each other Party such other documents; and, (iii) to do such other acts and things, all as another Party may reasonably request for the purpose of carrying out the intent of this Agreement and the transactions envisioned hereunder. However , this provision shall not require that any additional representations or warranties be made and no Party shall be required to incur any material expense or potential exposure to legal liability pursuant to this Section 8.15.

 

8.16 Notices .

 

8.16.1. Method and Delivery . All notices, requests and demands hereunder shall be in writing and delivered by hand, by Electronic Transmission, by mail, or by recognized commercial over-night delivery service (such as Federal Express or UPS), and shall be deemed given (a) if by hand delivery, upon such delivery; (b) if by Electronic Transmission, upon telephone confirmation of receipt of same; (c) if by mail, forty-eight (48) hours after deposit in the United States mail, first class, registered or certified mail, postage prepaid; or, (d) if by recognized commercial over-night delivery service, upon such delivery.

 

8.16.2. Consent to Electronic Transmission . Each Party hereby expressly consents to the use of Electronic Transmission for communications and notices under this Agreement. For purposes of this Agreement, “Electronic Transmission” means a communication (i) delivered by Fax or E-Mail when directed to the Fax number or E-Mail address, respectively, for that recipient on record with the sending Party; and, (ii) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form.

 

8.16.3. Address Changes . Any Party may alter the Fax number, E-Mail address, physical address, or postage address to which communications or copies are to be sent by giving notice of such change of address to the other Parties in accordance with the provisions of this Section 8.16.

 

8.18 Disputes . The Parties agree to cooperate and meet in order to resolve any disputes or controversies arising under this Agreement. Should they be unable to do so, then either may elect arbitration under the rules of the American Arbitration Association, and both Parties are obligated to proceed thereunder. Arbitration shall proceed in Orange County, and the Parties agree to be bound by the arbitrator’s award, which may be filed in the Superior Court of North Carolina, County of Orange. The Parties consent to the jurisdiction of North Carolina Courts for enforcement of this determination by arbitration. In any arbitration proceeding conducted pursuant to the provisions of this Section, both Parties shall have the right to conduct discovery, to call witnesses and to cross-examine the opposing Party’s witnesses, either through legal counsel, expert witnesses or both, and the provisions of the North Carolina Code of Civil Procedure (Right to Discovery; Procedure and Enforcement) are hereby incorporated into this Agreement by this reference and made a part hereof.

 

8.19 Best Efforts . Each Party shall cooperate in good faith with the other Parties generally, and in particular, the Parties shall use and exercise their best efforts, taking all reasonable, ordinary and necessary measures to ensure an orderly and smooth relationship under this Agreement, and further agree to work together and negotiate in good faith to resolve any differences or problems which may arise in the future. However , the obligations under this Section 8.19 shall not include any obligation to incur substantial expense or liability.

 

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8.20 Definitional Provisions . For purposes of this Agreement, (i) those words, names, or terms which are specifically defined herein shall have the meaning specifically ascribed to them; (ii) wherever from the context it appears appropriate, each term stated either in the singular or plural shall include the singular and plural; (iii) wherever from the context it appears appropriate, the masculine, feminine, or neuter gender, shall each include the others; (iv) the words “hereof”, “herein”, “hereunder”, and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole, and not to any particular provision of this Agreement; (v) all references to “Dollars” or “$” shall be construed as being United States Dollars; (vi) the term “including” is not limiting and means “including without limitation”; and, (vii) all references to all statutes, statutory provisions, regulations, or similar administrative provisions shall be construed as a reference to such statute, statutory provision, regulation, or similar administrative provision as in force at the date of this Agreement and as may be subsequently amended.

 

IX

EXECUTION

 

IN WITNESS WHEREOF , this SECURITY AGREEMENT has been duly executed by the Parties in Raleigh, North Carolina, and shall be effective as of and on the Effective Date set forth in Article I of this Agreement. Each of the undersigned Parties hereby represents and warrants that it (i) has the requisite power and authority to enter into and carry out the terms and conditions of this Agreement, as well as all transactions contemplated hereunder; and, (ii) it is duly authorized and empowered to execute and deliver this Agreement.

 

DEBTOR :   SECURED PARTY :
         
DATA443 RISK MITIGATION, INC.,   MYRIAD SOFTWARE PRODUCTIONS, LLC,
a North Carolina corporation   a North Carolina limited liability company
         
BY:                BY:                 
NAME:       NAME:    
TITLE:       TITLE:    
DATED:       DATED:    

 .

9
 

 

 

SHARE EXCHANGE AGREEMENT

 

LANDSTAR, INC.

 

and

 

DATA443 RISK MITIGATION, INC.

 

and

 

JASON REMILLARD

 

EFFECTIVE DATE:

29 JUNE 2018

 

     

 

 

SHARE EXCHANGE AGREEMENT

 

 

I

PARTIES

 

THIS SHARE EXCHANGE AGREEMENT (the “ Agreement ”) is entered into effective as of the 29 th day of June, 2018 (the “ Effective Date ”), by and between LANDSTAR, INC., a Nevada corporation (“ LDSR ”); DATA443 RISK MITIGATION, INC., a North Carolina corporation (“Data4 43 ”); and, JASON REMILLARD, as the sole shareholder of Data443 (“ Remillard ”). LDSR, Data443, and Remillard are sometimes referred to collectively herein as the “ Parties ”, and each individually as a “ Party ”.

 

II

RECITALS

 

A. LDSR is a public company whose common stock is traded on the OTC Pink Sheets under the symbol “LDSR”.

 

B. Data443 is a privately-held company which is primarily involved in the business of current and next generation cyber security product offerings.

 

C. Remillard is the owner of one hundred percent of all classes of issued and outstanding shares of stock of Data443.

 

D. The Parties have previously entered into a transaction under which, among other things, LDSR would have merged into Data443, resulting in Data443 being the surviving entity and LDSR being the disappearing entity (the “ Merger Transaction ”).

 

E. The Merger Transaction, which was deemed effective prior to 31 December 2017, in fact was never consummated, even though the Parties treated the Merger Transaction as having been closed.

 

F. LDSR desires to acquire from Remillard one hundred percent (100%) of the issued and outstanding shares of all classes of stock of Data443, in exchange for the Exchange Consideration, as defined below.

 

G. Remillard desires to exchange one hundred percent (100%) of the issued and outstanding shares of all classes of stock of Data443 in exchange for the Exchange Consideration.

 

H. The Parties desire that the transactions contemplated herein replace the Merger Transaction and that same be deemed effective and closed as of and on 29 June 2018.

 

I. The Parties intend for this Agreement to constitute a plan of reorganization within the meaning of Section 368(a)(1)(B) of the Code and that all transactions contemplated hereunder shall be pursuant to said plan of reorganization.

 

J. The Parties intend that all transactions contemplated hereunder and pursuant to the plan of reorganization shall be a tax-free reorganization under Section 368(a)(1)(B) of the Code, or such other tax-free reorganization exemptions that may otherwise be available under the Code.

 

K. NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to consummate the foregoing plan of reorganization, the Parties, intending to be legally bound, hereby adopt said plan of reorganization and agree as follows:

 

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III

DEFINED TERMS AND INTERPRETATION

 

3.1 Definitions . The following capitalized terms shall have the respective meanings specified in this Article III. Other terms defined elsewhere herein shall have meanings so given them.

 

Affiliate ” means, with respect to any Person, any other Person which directly or indirectly controls, is controlled by, or is under common control with the indicated Person.

 

Closing ” means the consummation of the Share Exchange.

 

Closing Date ” means the date on which the Closing occurs, which is deemed to be 29 June 2018.

 

Code ” means the Internal Revenue Code of 1986, as amended from time-to-time.

 

Commission ” means the United States Securities and Exchange Commission or any other federal agency then administering the Securities Act.

 

Exchange Act ” means the United States Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same will be in effect at the time.

 

Governmental Entity ” means any (a) domestic or foreign, federal, national, state, regional, municipal, international, multinational, local, or other government, government or public department, central bank, court, tribunal, arbitral body, commission, board, bureau or agency, domestic or foreign; (b) subdivision, agent, commission, board, or authority of any of the foregoing; or, (c) quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under of, or for the account of, any of the foregoing.

 

Indebtedness ” means any obligation, contingent or otherwise. Any obligation secured by a Lien on, or payable out of the proceeds of, or production from, property of the relevant party will be deemed to be Indebtedness.

 

Intellectual Property ” means all intellectual property, including, without limitation, all U.S. and non-U.S. patents, patent applications, patent rights, trademarks, trademark applications, common law trademarks, Internet domain names, trade names, service marks, service mark applications, common law service marks, and the goodwill associated therewith, copyrights, in both published and unpublished works, whether registered or unregistered, copyright applications, franchises, licenses, know-how, trade secrets, technical data, designs, customer lists, confidential and proprietary information, processes and formulae, all computer software programs or applications, layouts, inventions, development tools and all documentation and media constituting, describing or relating to the above, including manuals, memoranda, and records, whether such intellectual property has been created, applied for or obtained anywhere throughout the world.

 

LDSR Common Stock ” means the shares of common stock of LDSR, par value US $0.0001 per share.

 

Lien ” means any mortgage, pledge, security interest, encumbrance, lien, charge, or claim of any kind, including, without limitation, any conditional sale or other title retention agreement, any lease in the nature thereof and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction and including any lien or charge arising under applicable law, as well as any claim of any kind under any voting trust, proxy, stockholder agreement, or any similar agreement affecting or otherwise regarding the ownership, voting, or transferability of the underlying security.

 

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Material Adverse Change ” means, when used in connection with LDSR or Data443, any change, event or occurrence that is, or would reasonably be expected to be, material and adverse to the financial condition, business, assets (including intangible assets) or results of operations of such party and its subsidiaries taken as a whole other than any change, event or occurrence relating to the United States’ economy or securities markets in general or related to the announcement of this Agreement and the transactions contemplated herein.

 

Material Adverse Effect ” means, when used with respect to LDSR or DATA443, as the case may be, any change, effect or circumstance which, individually or in the aggregate, would reasonably be expected to (a) have a material adverse effect on the business, assets, financial condition or results of operations of LDSR or the DATA443, as the case may be, in each case taken as a whole; or, (b) materially impair the ability of LDSR or the DATA443, as the case may be, to perform their obligations under this Agreement, excluding any change, effect or circumstance resulting from (i) the announcement, pendency or consummation of the transactions contemplated by this Agreement; (ii) changes in the United States securities markets generally; or, (iii) changes in general economic, currency exchange rate, political or regulatory conditions in industries in which LDSR or DATA443 , as the case may be, operate.

 

Material Contract ” means, when used in connection with LDSR or Data443, any and all agreements, contracts, arrangements, licenses, franchise, lease transaction, commitments or other right or obligation, of LDSR or Data443, as the case may be.

 

Order ” means any award, decision, decree, injunction, judgment, order, ruling, subpoena, writ, judgment, determination, award or verdict entered, issued, made, or rendered by any Governmental Entity.

 

Organizational Documents ” means (a) the articles or certificate of incorporation and the bylaws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) the articles or certificate of formation or organization and the operating agreement of a limited liability company; (e) such other documents performing a similar function to the documents specified in clauses (a), (b), (c), and (d) adopted or filed in connection with the creation, formation or organization of a Person; and, (f) any and all amendments to any of the foregoing.

 

Permitted Lien ” means (a) Liens for Taxes not yet payable or in respect of which the validity thereof is being contested in good faith by appropriate proceedings and for the payment of which the relevant party has made adequate reserves; (b) Liens in respect of pledges or deposits under workmen’s compensation laws or similar legislation, carriers, warehousemen, mechanics, laborers and materialmen and similar Liens, if the obligations secured by such Liens are not then delinquent or are being contested in good faith by appropriate proceedings conducted and for the payment of which the relevant party has made adequate reserves; (c) statutory Liens incidental to the conduct of the business of the relevant party which were not incurred in connection with the borrowing of money or the obtaining of advances or credits and that do not in the aggregate materially detract from the value of its property or materially impair the use thereof in the operation of its business; and, (d) Liens that would not have a Material Adverse Effect.

 

Person ” means any individual, firm, company, partnership, joint venture, venture capital fund, limited liability company, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate, corporation, unincorporated association or organization, Governmental Entity, syndicate or other entity, whether or not having legal status.

 

Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

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Securities Act ” means the United States Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same will be in effect at the time.

 

Share Exchange ” means the transfer, by the Remillard of the Data443 Shares to LDSR in exchange for issuance, by LDSR, of the Exchange Consideration directly to Remillard.

 

Tax ” and “ Taxes ” means, with respect to any entity, all foreign, federal, state or local taxes, charges, fees, levies, imposts, duties and other assessments, as applicable, of any and all kind whatsoever, together with any interest and any penalties or additional amounts imposed by any taxing authority (domestic or foreign) on such entity, and any interest, penalties, additional taxes and additions to tax imposed with respect to the foregoing.

 

3.2 Accounting Terms and Determinations . All accounting terms used in this Agreement and not otherwise defined shall have the meaning accorded to them in accordance with GAAP and, except as expressly provided herein, all accounting determinations shall be made in accordance with GAAP, consistently applied. When used herein, the term “financial statements” shall include the notes and schedules attached thereto. The term “ GAAP ” means generally accepted accounting principles consistently applied as in effect from time to time.

 

3.3 Interpretation .

 

3.3.1. Provision Not Construed Against Party Drafting Agreement . This Agreement is the result of negotiations by and between the Parties; is the product of the work and efforts of all Parties; and, shall be deemed to have been drafted by all Parties. Each Party has had the opportunity to be represented by independent legal counsel of its choice. In the event of a dispute, no Party shall be entitled to claim that any provision should be construed against any other Party by reason of the fact that it was drafted by one particular Party.

 

3.3.2. Agreement Provisions, Exhibits, and Schedules . When a reference is made in this Agreement to an Article, Section, Subsection, Exhibit, or Schedule, such reference shall be to said item of this Agreement unless otherwise indicated. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof as if set out in full herein.

 

3.3.3. Entire Agreement . This Agreement, and all references, documents, or instruments referred to herein, contains the entire agreement and understanding of the Parties in respect to the subject matter contained herein. The Parties have expressly not relied upon any promises, representations, warranties, agreements, covenants, or undertakings, other than those expressly set forth or referred to herein. This Agreement supersedes (i) any and all prior written or oral agreements, understandings, and negotiations between the Parties with respect to the subject matter contained herein; and, (ii) any course of performance and/or usage of the trade inconsistent with any of the terms hereof.

 

3.3.4. Severability . Each and every provision of this Agreement is severable and independent of any other term or provision of this Agreement. If any term or provision of this Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal, or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

 

3.3.5. Successors and Assigns . Except as expressly provided in this Agreement, each and all of the covenants, terms, provisions, conditions, and agreements herein contained shall be binding upon and shall inure to the benefit of the successors and assigns of the Parties. This Agreement is not assignable by either Party without the expressed written consent of all Parties.

 

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3.3.6. Time . All Parties agree that time is of the essence as to this Agreement.

 

3.3.7. Governing Law . This Agreement shall be governed by the laws of the State of Nevada, without giving effect to any choice or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Nevada. If any court action is necessary to enforce the terms and conditions of this Agreement, the Parties hereby agree that the Superior Court of California, County of Orange, shall be the sole jurisdiction and venue for the bringing of such action.

 

3.4 Additional Definitions and Interpretation Provisions . For purposes of this Agreement, (i) those words, names, or terms which are specifically defined herein shall have the meaning specifically ascribed to them; (ii) wherever from the context it appears appropriate, each term stated either in the singular or plural shall include the singular and plural; (iii) wherever from the context it appears appropriate, the masculine, feminine, or neuter gender, shall each include the others; (iv) the words “hereof”, “herein”, “hereunder”, and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole, and not to any particular provision of this Agreement; (v) all references to “Dollars” or “$” shall be construed as being United States Dollars; (vi) the term “including” is not limiting and means “including without limitation”; and, (vii) all references to all statutes, statutory provisions, regulations, or similar administrative provisions shall be construed as a reference to such statute, statutory provision, regulation, or similar administrative provision as in force at the date of this Agreement and as may be subsequently amended.

 

IV

EXCHANGE AND CONSIDERATION

 

4.1 Share Exchange .

 

4.1.1. Transfer of Data443 Shares . On the Closing Date, Remillard shall deliver to LDSR all of the issued and outstanding shares of stock of all classes of Data443, with all such shares summarized on Exhibit 4.1.1., attached hereto and incorporated herein by reference (the “ Data443 Shares ”). The Data443 Shares will be exchanged for and concurrent with the issuance of the Exchange Consideration as described below, and in accordance with the terms and conditions of this Agreement.

 

4.1.2. Exchange Consideration . In exchange for the Data443 Shares, LDSR shall issue to Remillard that number of fully paid and nonassessable unregistered shares of LDSR Common Stock as follows (collectively, the “ Exchange Consideration ”):

 

(a) On the Closing Date, one hundred million (100,000,000) shares of LDSR Common stock;

 

(b) On the eighteen (18) month anniversary of the Closing Date (the “ Earn Out Date ”), that number of shares LDSR Common Stock (the “ Earn Out Shares ”) equal to (w) the total amount of gross sales actually collected by LDSR from the Closing Date to the Earn Out Date; (x) divided by one million; (y) multiplied by one hundred thousand; then, (z) divided by the closing price for LDSR Common Stock on the Earn Out Date. The Earn Out Shares are expressly (i) part of the Exchange Consideration; (ii) not in exchange for services rendered or to be rendered by Remillard; and, (iii) shall be issued to Remillard irrespective of whether he continues to be employed by LDSR, Data443, or any Affiliate of either.

 

4.2 Reorganization . For U.S. federal income tax purposes, the Share Exchange is intended to constitute a “reorganization” within the meaning of Section 368(a)(1)(B), as amended, of the Code. The Parties hereby adopt this Agreement as a “plan of reorganization” within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. Notwithstanding the foregoing or any other provision herein to the contrary, the Parties acknowledge and agree that no Party is making any representation or warranty as to the qualification of the Share Exchange as a reorganization under Section 368 of the Code or as to the effect, if any, that any transaction consummated prior to the Closing Date has or may have on any such reorganization status.

 

5

 

 

4.3 Independent Legal Review . Each Party acknowledges and agrees that it:

 

(a) has had the opportunity to obtain independent legal and tax advice with respect to the transaction contemplated hereunder; and

 

(b) is responsible for its own planning of any the Tax consequences of the Share Exchange, including, without limitation, paying its own that may result if the Share Exchange is determined to not qualify as a reorganization under Section 368 of the Code.

 

4.4 Capitalization of LDSR at Closing . On the Closing Date the issued and outstanding shares of all classes of stock of LDSR will be as summarized on Exhibit 4.4, attached hereto and incorporated herein by reference.

 

V

REPRESENTATIONS AND WARRANTIES OF REMILLARD

 

Remillard represents and warrants to LDSR that the representations and warranties contained in this Article V are true, correct, and complete as of the Closing Date, except as otherwise expressly provided for to contrary herein:

 

5.1 Good Title . Remillard is the record and beneficial owner of, and has good title to, the Data443 Shares, with the right and authority to sell and deliver such Data443 Shares. Upon delivery of any certificate or certificates duly assigned, representing the same as herein contemplated, or upon registering LDSR as the new owner of such Data443 Shares in the share register of Data443, LDSR will receive good title to such Data443 Shares, free and clear of all Liens.

 

5.2 Execution and Performance of Agreement . Remillard has the requisite right, power, authority, and capacity to enter into, execute, deliver, perform, and carry out the terms and conditions of this Agreement and all other instruments and agreements to be executed and delivered by Remillard in connection with this Agreement, as well as all transactions contemplated hereunder. Remillard has obtained all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance by Remillard of this Agreement. This Agreement has been duly and validly executed and delivered by Remillard and constitutes the valid, binding, and enforceable obligation of Remillard, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditor’s rights generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law.

 

5.3 Effect of Agreement . As of the Closing, the consummation by Remillard of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement, will not:

 

(a) Violate any judgment, statute, law, code, act, order, writ, rule, ordinance, regulation, governmental consent or governmental requirement, or determination or decree of any Governmental Entity which now or at any time hereafter may be applicable to and enforceable against the relevant party, work, or activity in question or any part thereof (collectively, “ Requirement of Law ”) applicable to or binding upon Remillard or the Data443 Shares;

 

(b) Violate any material agreement, contract, mortgage, indenture, bond, bill, note, or other material instrument or writing binding upon Remillard or to which the Data443 Shares are subject; or

 

6

 

 

(c) Result in the breach of, constitute a default under, constitute an event which with notice or lapse of time, or both, would become a default under, or result in the creation of any Lien upon the Data443 Shares.

 

5.4 Consents . No consents, approvals or other authorizations or notices, other than those which have been obtained and are in full force and effect, are required by any Person in connection with the execution and delivery of this Agreement and the performance of Remillard’s obligations contemplated hereunder.

 

5.5 Accredited Investor Status . Remillard is an “accredited investor”, as defined in Rule 501(a) under Regulation D of the Securities Act. Remillard agrees to furnish any additional information requested to assure compliance with applicable federal and state securities laws in connection with the Share Exchange.

 

5.6 Investment Experience . Remillard has such knowledge, skill, and experience in business, financial and investment matters so that he is capable of evaluating the merits and risks of an investment in the Exchange Consideration. To the extent necessary, Remillard has retained, at his own expense, and relied upon, appropriate professional advice regarding the investment, tax and legal merits and consequences of this Agreement and owning the Exchange Consideration.

 

5.7 Purchase Entirely for Own Account . The Exchange Consideration to be received by Remillard hereunder will be acquired for Remillard’s own account; not as nominee or agent; and, not with a view to the resale or distribution of any part thereof in violation of the Securities Act. Remillard has no present intention of selling, granting any participation in, or otherwise distributing the any part of the Exchange Consideration in violation of the Securities Act. However, nothing contained herein shall (i) prejudice Remillard’s right at all times to sell or otherwise dispose of all or any part of the Exchange Consideration in compliance with applicable federal and state securities laws; or, (ii) be deemed a representation or warranty by such Remillard to hold the Exchange Consideration for any period of time.

 

5.8 Acknowledgement of Restricted Securities . Remillard understands and agrees that the share constituting the Exchange Consideration to be issued pursuant to this Agreement are characterized as “restricted securities” and have not been registered under the Securities Act or the securities laws of any state by reason of specific exemptions under the provisions thereof which require a transaction not involving a public offering, and which depend, in part, upon the investment intent of Remillard and on other representations made by Remillard in this Agreement. Remillard understands that LDSR is relying upon his representations and agreements hereunder for the purpose of determining whether this transaction meets the requirements for such exemptions.

 

5.9 Independent Investigation . As of the Closing, Remillard will be acquiring the Exchange Consideration based upon his own independent investigation and evaluation of LDSR and its prospects, and the covenants, representations, and warranties of LDSR set forth herein. Remillard is expressly not relying on any oral representations made by LDSR or any of its agents.

 

5.10 Stock Legends . Remillard agrees that the shares representing Exchange Consideration will bear the following legend(s):

 

  (a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE “ACT”), OR ANY STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT
       
  (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS; OR

 

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  (ii) PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, IN WHICH CASE THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY AN OPINION OF COUNSEL, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.  
       
  (b) Any other legend required under any applicable laws, including, without limitation, any state corporate and state securities law, or contract.

 

5.11 Litigation . There is no pending or threatened Proceeding against Remillard which challenges, or may have the effect of preventing, delaying or making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement and, to the knowledge of such Remillard, no such Proceeding has been threatened, and no event or circumstance exists that is reasonably likely to give rise to or serve as a basis for the commencement of any such Proceeding.

 

5.12 No Broker or Similar Fee . Remillard has not created any obligation for any finder’s, investment banker’s, broker’s, or any similar fee in connection with the Share Exchange. Remillard will indemnify and hold LDSR and Data443 and their respective directors and officers harmless against any liability or expense arising out of, or in connection with, any such claim.

 

5.13 No General Solicitation . Remillard did not learn of the investment in the Exchange Consideration as a result of any public advertising or general solicitation.

 

5.14 No Registration Rights . Remillard shall have no right to compel LDSR to register or otherwise qualify any of the shares representing the Exchange Consideration for public sale.

 

VI

REPRESENTATIONS AND WARRANTIES OF DATA443

 

Data443 and Remillard, jointly and severally, hereby represent and warrant to LDSR that the representations and warranties contained in this Article VI are true, correct, and complete as of the Closing Date, except as otherwise expressly provided for to contrary herein:

 

6.1 Organization . Data443 is a corporation, duly organized, validly existing, and in good standing under the laws of the State of North Carolina, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Data443 is not violation or default of any of the provisions of its Organizational Documents. Data443 is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in a Material Adverse Effect. Data443 does not own, directly or indirectly, any equity or other ownership interest in any corporation, partnership, joint venture or other entity or enterprise.

 

6.2 Execution and Performance of Agreement . Data443 has the requisite right, corporate power, authority, and capacity to enter into, execute, deliver, perform, and carry out the terms and conditions of this Agreement and each of the other instruments and agreements to be executed and delivered by Data443 in connection with this Agreement, as well as all transactions contemplated hereunder. All requisite corporate proceedings have been taken and Data443 has obtained all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance by Data443 of this Agreement. This Agreement has been duly and validly executed and delivered by Data443 and constitutes the valid, binding, and enforceable obligation of Data443, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditor’s rights generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law.

 

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6.3 Effect of Agreement . As of the Closing, the consummation by Data443 of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement, will not:

 

(a) Violate Requirement of Law applicable to or binding upon Data443, or any of its assets;

 

(b) Violate (i) the terms of any of its Organizational Documents; or, (ii) any Material Contract, or writing binding upon Data443 or to which Data443 is subject; or

 

(c) Result in the breach of, constitute a default under, constitute an event which with notice or lapse of time, or both, would become a default under, or result in the creation of any Lien upon any part of the assets of Data443 or any other assets of Data443 under any Material Contract (written or oral) or other instrument to which Data443 is a party, or by which any of its assets (or any part thereof) is bound or affected.

 

6.4 Consents . No consents, approvals or other authorizations or notices, other than those which have been obtained and are in full force and effect, are required by any state or federal regulatory authority or other person or entity in connection with the execution and delivery of this Agreement and the performance of any obligations contemplated thereby.

 

6.5 Capitalization and Related Matters . Immediately prior to the Closing, the issued and outstanding shares of all classes of stock of Data443 is as summarized on Exhibit 4.1.1. All Data443 Shares are duly authorized, validly issued, fully paid, nonassessable, and have not been issued in violation of any preemptive or similar rights. There are no outstanding options, warrants, calls, subscription rights, conversion privileges or rights (including any preemptive, or contingent or otherwise), purchase agreements, participation agreements, exchange rights or other securities or contracts that could require Data443 to issue, sell or otherwise cause to become outstanding any of its authorized but unissued shares of capital stock or any securities convertible into, exchangeable for or carrying a right or option to purchase shares of capital stock or to create, authorize, issue, sell or otherwise cause to become outstanding any new class of capital stock. There are no outstanding stockholders’ agreements, voting trusts or arrangements, registration rights agreements, rights of first refusal or other contracts pertaining to the capital stock of Data443. There are no outstanding contractual obligations (contingent or otherwise) of Data443 to retire, repurchase, redeem or otherwise acquire any outstanding securities, or other ownership interests in, Data443 or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other Person.

 

6.6 Certain Proceedings . There is no pending Proceeding that has been commenced against Data443 and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated hereunder. To the knowledge of Data443 and Remillard, no such Proceeding has been threatened.

 

6.7 Title to the Assets . Data443 has good and marketable title to all of its assets, free and clear of all Liens, other than Permitted Liens and except as expressly disclosed on Schedule 6.7, attached hereto and incorporated herein by reference.

 

6.8 Financial Statements . The financial statements of Data443 dated 31 March 2018 (the “ Financial Statements ”), which have been previously delivered to LDSR, have been prepared on a consistent basis and present fairly the financial position of Data443 as of the date thereof. Except to the extent reflected and reserved against in the Financial Statements, Data443 did not have, as of the date of the Financial Statements, any debts, liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, except for those obligations that are not required by GAAP to be included in the Financial Statements.

 

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6.9 Changes in Financial Condition . Since the date of the Financial Statements, there has not been:

 

(a) Any Material Adverse Change in the condition (financial or otherwise) or business of Data443, except changes in the ordinary course of business, none of which has been a Materially Adverse Change;

 

(b) Any damage, destruction or loss (whether or not covered by insurance) representing a Material Adverse Change affecting the properties, assets, business or prospects of Data443;

 

(c) Any change in the accounting methods or business followed by Data443, or any change in the depreciation or amortization policies or rates adopted by Data443 (whether or not presently outstanding), except liabilities incurred, and obligations under agreements entered into, in the ordinary course of business; or

 

(d) Any sale, lease, abandonment or other disposition by Data443, other than in the ordinary course of business, of any machinery, equipment or other operating properties directly or indirectly related to its business.

 

6.10 Employee Benefit Plans . Data443 is not a party to any written or oral (i) contract with any labor union, (ii) bonus, pension, profit-sharing, retirement, deferred compensation, savings, stock purchase, stock option, hospitalization, insurance or other plan providing employees benefits, (iii) employment, agency, consulting or similar contract which cannot be terminated by it in one hundred twenty (120) days or less, without cost, or (iv) any other plan, agreement or arrangement governed by the Employee Retirement Income Security Act of 1974, as amended.

 

6.11 Permits and Licenses . Data443 has all licenses and permits (federal, state and local) required by governmental authorities to own, operate, and carry on its business as now being conducted, and such licenses and permits are in full force and effect. No violations are or have been recorded in respect to the licenses or permits, included but not limited to fire and health and safety law violations, and no proceeding is pending or threatened looking toward the revocation or limitation of any of them. All permits, licenses, orders or approvals of governmental or administrative authorities required to permit Data443 to carry on after the Closing the business of Data443 as currently conducted have been obtained and are in full force and effect.

 

6.12 Customers and Suppliers . The books and records of Data443 contain a correct and complete list of each of its customers and suppliers who have dealt with Data443 during the twelve (12) month period ending on the Closing Date (the “ Customers and Suppliers ”). Data443 has taken all commercially reasonable steps to maintain the confidentiality of the Customers and Suppliers. To the best knowledge of Data 443 and Remillard:

 

(a) None of the Customers or Suppliers, or any other person or entity having material business dealings with Data443, will or may cease to continue such relationship with Data443;

 

(b) None of the Customers or Suppliers, or any other person or entity having material business dealings with Data443, will or may substantially reduce the extent of such relations with Data443 at any time from or after the Closing;

 

(c) There are no other existing or contemplated material modifications or changes in the business relationship of any Customers or Suppliers with Data443;

 

(d) There are no existing conditions or state of facts or circumstances which could have a Materially Adverse Effect on the relationship of Data443 with Customers or Suppliers after the Closing, or which has prevented or will prevent such business from being carried on by Data443, after the Closing, in essentially the same manner as it is currently carried on.

 

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6.13 Leases and Similar Agreements . Except as set forth in Schedule 6.13, attached hereto and incorporated herein by reference, Data443 is not a party to, nor are any of its assets bound by or subject to, any leases or other similar agreements or instruments, whether as lessor or lessee. With regard to all such disclosed leases and similar agreements, Data443 has delivered to LDSR any and all consents or waivers of other parties necessary for the continuation of the leases and similar agreements upon the same terms and conditions in effect as of the Closing.

 

6.14 Material Agreements . Except as set forth in Schedule 6.14, attached hereto and incorporated herein by reference, Data443 is not a party to any Material Contracts, nor are any of its assets bound by or subject to, any of the following:

 

(a) agreement or other arrangement for the sales of goods or services to any Governmental Entity;

 

(b) agreement with any vendor, distributor, dealer, sales agent or representative other than contracts or orders for the purchase or sale of goods made in the usual and ordinary course of business at an aggregate price per contract or order of less than $10,000 and a terms of less than ninety (90) days under any such contract or order;

 

(c) agreement with any supplier or customer with respect to discounts (other than those reflected on the current price lists of Data443) or allowances or extended payment terms;

 

(d) joint venture or partnership agreement with any other person;

 

(e) agreement which restricts Data443 from doing business anywhere in the world; or

 

(f) long-term services agreement.

 

6.15 Employment Agreements . Except as set forth on Schedule 6.15, attached hereto and incorporated herein by reference, Data443 is not a party to any employment agreement, independent contractor agreement, or similar arrangement or agreement, whether it be reduced to written form or an oral promise.

 

6.16 Other Arrangements . Data443 is not a party to any contract, commitment or agreement, nor are any of its assets subject to, or bound or affected by, any Order or other restriction of any kind or character which is not applicable to its business generally, which would, individually or in the aggregate, constitute a Material Adverse Effect. Data443 is also not a party or subject to any agreement, contract or other obligation which would require the making of any payment, other than payments contemplated by this Agreement, to any other person as a result of the consummation of the transactions contemplated herein.

 

6.17 Intellectual Property Rights . Data443 is the owner of all right, title, and interest in its Intellectual Property, free and clear of all Liens and all other adverse claims, and has the right to use without payment to a third party. Further, all Intellectual Property is (i) in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use); (ii) valid and enforceable; and, (iii) not subject to any adverse claim and has not been challenged or threatened in any way.

 

6.18 Material Defaults . Data443 is not in material default, or alleged to be in default, under any Material Contract or obligation, and no other party to any agreement, contract, lease, mortgage, commitment, instrument or obligation to which Data443 is a party is in default thereunder, which default would have a Material Adverse Effect.

 

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6.19 Tax Matters . Except in respect for the current taxation year, Data443 has filed all tax returns (federal, state and local) required to be filed by it; has paid all Taxes shown to be due and payable on the returns or any assessments or penalties received by it; and, has paid all other Taxes (federal, state and local) due and payable by it. There are no audits pending and there are no present disputes as to Taxes of any nature payable by Data443.

 

6.20 Interested Party Transactions . No officer, director, or shareholder of Data443 or any Affiliate of any such Person, has or has had, either directly or indirectly:

 

(a) an interest in any Person which:

 

(i) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by DATA443; or

 

(ii) purchases from or sells or furnishes to, or proposes to purchase from, sell to or furnish Data443 any goods or services; or

 

(b) a beneficial interest in any contract or agreement to which DATA443 is a party or by which it may be bound or affected.

 

6.21 Books and Records . The books, records, and accounts of DATA443, in all material respects:

 

(a) have been maintained in accordance with good business practices on a basis consistent with prior years; and

 

(b) are stated in reasonable detail and accurately and fairly reflect the transactions and business of Data443 and have been maintained in accordance with good business practices on a basis consistent with prior years.

 

6.22 Brokers or Finders . No Person has, or as a result of the transactions contemplated herein will have, any right or valid claim against Data443 for any commission, fee, or other compensation as a finder or broker, or in any similar capacity, and Data443 will indemnify and hold LDSR, and LDSR’s directors and officers, harmless against any liability or expense arising out of, or in connection with, any such claim.

 

6.23 No Directed Selling Efforts or General Solicitation . Neither Data443 nor any Person acting on its behalf has conducted any general solicitation or general advertising in connection with the offer or sale of any of the Exchange Consideration.

 

6.24 Disclosure . No representation or warranty made by Data443 in this Agreement or in any writing furnished or to be furnished pursuant to or in connection with this Agreement knowingly contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact required to make the statements herein or therein contained not misleading. Data443 has disclosed to LDSR all material information known to it related to Data443 and its business.

 

VII

REPRESENTATIONS AND WARRANTIES OF LDSR

 

LDSR hereby represents and warrants to Remillard and Data443 that the representations and warranties contained in this Article VII are true, correct, and complete as of the Closing Date, except as otherwise expressly provided for to contrary herein:

 

7.1 Organization . LDSR is a corporation, duly organized, validly existing, and in good standing under the laws of the State of Nevada, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted, and is not in violation or default of any of the provisions of its Organizational Documents.

 

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7.2 Execution and Performance of Agreement . LDSR has the requisite right, corporate power, authority, and capacity to enter into, execute, deliver, perform, and carry out the terms and conditions of this Agreement and each of the other instruments and agreements to be executed and delivered by LDSR in connection with this Agreement, as well as all transactions contemplated hereunder. All requisite corporate proceedings have been taken and LDSR has obtained all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance by LDSR of this Agreement. This Agreement has been duly and validly executed and delivered by LDSR and constitutes the valid, binding, and enforceable obligation of LDSR, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditor’s rights generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law.

 

7.3 Effect of Agreement . As of the Closing, the consummation by LDSR of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement, will not:

 

(a) Violate any Requirement of Law applicable to or binding upon LDSR;

 

(b) Violate (i) the terms of any of its Organizational Documents; or, (ii) any Material Contract or other material instrument or writing binding upon LDSR or to which LDSR is subject; or

 

(c) Result in the breach of, constitute a default under, or constitute an event which with notice or lapse of time, or both, would become a default under, any agreement, commitment, contract (written or oral) or other instrument to which LDSR is a party or is otherwise bound or affected.

 

7.4 Consents . No consents, approvals or other authorizations or notices, other than those which have been obtained and are in full force and effect, are required by any Governmental Entity or other Person in connection with the execution and delivery of this Agreement and the performance of any obligations contemplated thereby.

 

7.5 Investigation . On or prior to the Closing, LDSR will have had the opportunity to investigate the books and records of Data443, and the Financial Statements. As of the Closing, LDSR will be entering into this Agreement based upon its own independent investigation and evaluation of the Data443 and its prospects, and the covenants, representations, and warranties of Data443 and Remillard set forth herein. LDSR is expressly not relying on any oral representations made by Data443 or Remillard or any Affiliate of either.

 

7.6 Capitalization and Related Matters . Immediately after the Closing, the issued and outstanding shares of all classes of stock of LDSR will be as summarized on Exhibit 7.6, attached hereto and incorporated herein by reference. All issued and outstanding shares of all classes of stock of LDSR’s are duly authorized, validly issued, fully paid and nonassessable, and have not been issued in violation of any preemptive or similar rights. At the Closing Date, and at the Earn Out Date, LDSR will have sufficient authorized and unissued LDSR Common Stock to consummate the transactions contemplated hereby. The issuance of all of the shares of constituting the Exchange Consideration will be in compliance with all applicable federal and state securities laws.

 

7.7 The Exchange Consideration . Upon each delivery to Remillard of stock certificates representing the shares constituting the Exchange Consideration, all such shares will have been validly issued, fully paid, nonassessable, and free and clear of all Liens and restrictions, other than Liens created by Remillard and restrictions on transfer imposed by this Agreement and the Securities Act.

 

7.8 Certain Proceedings . There is no pending Proceeding that has been commenced against LDSR and that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, any of the transactions contemplated by this Agreement. Other than as disclosed in Section 7.8, attached hereto and incorporated herein by reference, to the knowledge of LDSR, no such Proceeding has been threatened.

 

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7.9 Brokers or Finders . No Person has, or as a result of the transactions contemplated herein will have, any right or valid claim against LDSR for any commission, fee, or other compensation as a finder or broker, or in any similar capacity, and LDSR will indemnify and hold Remillard, Data443, and Data443’s directors and officers, harmless against any liability or expense arising out of, or in connection with, any such claim.

 

7.10 No Directed Selling Efforts or General Solicitation . Neither LDSR nor any Person acting on its or their behalf has conducted any general solicitation or general advertising in connection with the transactions envisioned hereunder.

 

7.11 Filings . All information contained in the filings of LDSR with and on the OTC Markets disclosure portal, including, without limitation, all financial statements contained in the filings (collectively, the “ Filings ”) are true and correct as of the day of each such Filings. None of the Filings, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statement therein, in light of the circumstances under which they were made, not misleading. All Material Contracts to which LDSR is a party or to which the property or assets of LDSR are subject have been appropriately disclosed in the Filings. LDSR Common Stock is listed on the OTC Markets Pink Sheets, and LDSR is not aware of any facts which would make LDSR Common Stock ineligible for continued quotation on the Pink Sheets.

 

7.12 Independent Investigation . As of the Closing, LDSR will enter into this Agreement based upon his own independent investigation and evaluation of Data443 and its prospects, and the covenants, representations, and warranties of Remillard and Data443 set forth herein. LDSR is expressly not relying on any oral representations made by Remillard or Data443 or any of their agents.

 

7.13 Disclosure . No representation or warranty made by LDSR in this Agreement or in any writing furnished or to be furnished pursuant to or in connection with this Agreement knowingly contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact required to make the statements herein or therein contained not misleading. LDSR has disclosed to Data443 and Remillard all material information known to it related to LDSR and its business.

 

VIII

CONDITIONS TO THE SHARE EXCHANGE

 

8.1 Conditions to Obligations of LDSR . Unless otherwise waived, in whole or in part, in writing by LDSR, the obligations of LDSR to effect the consummation of the transactions contemplated hereunder, and in the other agreements referred to herein, shall be subject to the satisfaction at the Closing of each of the following conditions:

 

8.1.1. Representations and Warranties of Remillard and Data443 to be True . The representations and warranties of Remillard and Data443 contained in this Agreement or in any statement, certificate, schedule or other document delivered pursuant to this Agreement or in connection with the transactions contemplated hereby, shall be true and correct in all material respects on the Closing with the same force and effect as though made at such time. Remillard and Data443 shall have performed all obligations and complied with all covenants required by this Agreement, and the other agreements referred to herein, to be performed or complied with by him prior to the Closing.

 

8.1.2. No Proceedings . No Proceeding shall be pending or threatened which seeks to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or to obtain damages or other relief in connection therewith.

 

8.1.3. No Adverse Change . Since the Effective Date there shall not have been any Material Adverse Change for Data443.

 

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8.1.4. Consents . Remillard and Data443 shall have obtained and delivered to LDSR all written consents of the other party to all contracts which by their terms or otherwise require the consent of such party to the transfer thereof by Remillard and Data443.

 

8.2 Conditions to Obligations of Remillard and Data443 . Unless otherwise waived, in whole or in part, in writing by Remillard and Data443, the obligations of Remillard and Data443 to effect the consummation of the transactions contemplated hereunder, and in the other agreements referred to herein, shall be subject to the satisfaction at the Closing of each of the following conditions:

 

8.2.1. Representations and Warranties of LDSR to be True . The representations and warranties of LDSR contained in this Agreement or in any statement, certificate, schedule or other document delivered pursuant to this Agreement or in connection with the transactions contemplated hereby, shall be true and correct in all material respects on the Closing with the same force and effect as though made at such time. LDSR shall have performed all obligations and complied with all covenants required by this Agreement, and the other agreements referred to herein, to be performed or complied with by it prior to the Closing.

 

8.2.2. No Proceedings . No Proceeding shall be pending or threatened which seeks to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or to obtain damages or other relief in connection therewith.

 

8.2.3. No Adverse Change . Since the Effective Date there shall not have been any Material Adverse Change for LDSR.

 

8.2.4. Consents . LDSR shall have obtained and delivered to Remillard and Data443 all written consents of the other party to all contracts which by their terms or otherwise require the consent of such party to the transfer thereof by LDSR.

 

8.3 No Force Majeure Event . There shall not have been any delay, error, failure or interruption in the conduct of the business of LDSR or Data443, or any loss, injury, delay, damage, distress, or other casualty, due to force majeure, including, without limitation:

 

(a) acts of God;

 

(b) fire or explosion;

 

(c) war, acts of terrorism, or other civil unrest; or

 

(d) national emergency.

 

IX

CLOSING

 

9.1 Closing Date . The Closing shall be deemed to have occurred as of and on the Closing Date, which for all purposes shall be 29 June 2018.

 

9.2 Obligations of Remillard and Data443 . At the Closing, Remillard and Data443 shall deliver or cause to be delivered to LDSR:

 

(a) Share certificates representing the Data443 Shares, duly endorsed for transfer, free and clear of all Liens, and dated as of the Closing;

 

(b) Duly executed stock powers for transfer by Remillard of the Data443 Shares to LDSR;

 

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(c) Executed version of this Agreement; and

 

(d) Any governmental and third party consents, approvals, assurances or UCC-2 termination statements necessary for the consummation of the transactions contemplated by this Agreement or as may be required to permit Remillard and Data443 to deliver the Data443 Shares free and clear of any and all Liens.

 

9.3 Obligations of LDSR . At the Closing, LDSR shall deliver or cause to be delivered to Remillard and Data443:

 

(a) All shares representing the Exchange Consideration, duly issued by the transfer agent for LDSR, in the name of Remillard; and

 

(b) Executed version of this Agreement.

 

X

INDEMNIFICATION

 

10.1 Indemnification by Remillard and Data443 . Remillard and Data443 hereby jointly and severally covenant and agree that notwithstanding any investigation made at any time by or on behalf of LDSR or any information LDSR may have and regardless of the Closing, Remillard and Data443 shall indemnify LDSR and its directors, officers, shareholders and affiliates, and each of their successors and assigns (each individually referred to herein as a “ LDSR Indemnified Party ”) and hold each harmless from, against and in respect of any and all costs (including interest which may be imposed in connection therewith, court costs and reasonable fees and disbursements of legal counsel) losses, claims, liabilities, fines, penalties, damages, demands, judgments, debts, obligations, causes of action and expenses (cumulatively referred to as the “ Indemnified Claims ”) arising by reason of or in connection with any of the following:

 

(a) Any material breach of, or any material inaccuracy in, any of the representations, warranties, covenants or agreements made by Remillard and Data443 in this Agreement, any other agreement referred to herein, any Exhibit or Schedule to this Agreement, or any certificate, instrument or writing delivered in connection therewith; or

 

(b) Any Proceeding arising out of or incidental to any of the matters indemnified against in this Section 10.1. However , Remillard and Data443 shall not be obligated to indemnify a LDSR Indemnified Party and hold it harmless under this Section 10.1 with respect to any settlement of a claim to which Remillard and Data443 has not consented, which consent shall not unreasonably be withheld;

 

10.2 Indemnification by LDSR . LDSR hereby covenants and agrees that notwithstanding any investigation made at any time by or on behalf of Remillard and Data443 or any information Remillard and Data443 may have and regardless of the Closing of the purchase of the Stock hereunder, LDSR shall indemnify Remillard and Data443 and their respective Affiliates, successors and assigns (each individually referred to herein as a “ Remillard and Data443 Indemnified Party ”) and hold each harmless from, against and in respect of any and all Indemnified Claims arising by reason of or in connection with any of the following:

 

(a) Any and all Indemnified Claims against a Remillard and Data443 Indemnified Party of any nature, whether accrued, absolute, contingent or otherwise relating to Data443, except if (i) such liability results from or arises in connection with the breach of any of the representations, warranties, covenants or agreements made by Remillard and Data443 in this Agreement, any other agreement referred to herein, any Schedule or Exhibit hereto, any of the Settlement Documents, or any certificate, instrument or writing delivered in connection herewith or therewith, or (ii) such liability is included under Section 10.1, above;

 

(b) Any material breach of, or any material inaccuracy in, any of the representations, warranties, covenants or agreements made by LDSR in this Agreement, any other agreement referred to herein, any Exhibit or Schedule to this Agreement, or any certificate, instrument or writing delivered in connection therewith;

 

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(c) Any attempt (whether or not successful) by any person to cause or require a Remillard and Data443 Indemnified Party to pay or discharge any debt, obligation, liability or commitment of LDSR; and

 

(d) Any action, suit, proceeding, compromise, settlement, assessment or judgment arising out of or incidental to any of the matters indemnified against in this Section 10.2. However , LDSR shall not be obligated to indemnify a Remillard and Data443 Indemnified Party and hold it harmless under this Section 10.2 with respect to any settlement of a claim to which LDSR has not consented, which consent shall not unreasonably be withheld.

 

10.3 Right to Defend . If the facts giving rise to any claim for indemnification under this Article X shall involve any actual claim or demand by any third person against a LDSR Indemnified Party or a Remillard and Data443 Indemnified Party (cumulatively referred to hereinafter as an “ Indemnified Party ”), the indemnifying party shall be entitled to notice of and entitled to (without prejudice to the right of any Indemnified Party to participate at its own expense with counsel if its own choosing) defend or prosecute such claim at its own expense and through counsel of its own choosing if it gives written notice of its intention to do so no later than the time by which the interests of the Indemnified Party would be materially prejudiced as a result of its failure to have received such notice. However , if the defendants in any action shall include both the indemnifying party and the Indemnified Party, and the Indemnified Party shall have reasonably concluded that counsel selected by the indemnifying party has a conflict of interest because of the availability of different or additional defenses to the Indemnified Party, the Indemnified Party shall have the right to select separate counsel to participate in the defense of such action on its behalf, at the expense of the indemnifying party. The Indemnified Party shall cooperate fully in the defense of such claim and shall make available to the indemnifying party pertinent information under its control relating thereto, but shall be entitled to be reimbursed, as provided in this Article X, for all costs and expenses incurred by it in connection therewith.

 

XI

POST-CLOSING COVENANTS

 

11.1 Books and Records . Remillard and Data443 shall deliver, at Closing or as soon as possible after Closing, all books and records of Data443.

 

11.2 Reasonable Assistance . Remillard and Data443 shall use and exercise their respective best efforts, taking all reasonable, ordinary and necessary measures to ensure an orderly and smooth transition and conversion of the transfer of ownership of Data443 to LDSR.

 

11.3 Public Announcements . The Parties will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press release or other public statements with respect to the Agreement and the transactions envisioned hereunder, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law or Proceeding.

 

11.4 Fees and Expenses . All fees and expenses incurred in connection with this Agreement shall be paid by the Party incurring such fees or expenses, whether or not this Agreement is consummated.

 

11.5 Continued Efforts . Each Party shall use commercially reasonable efforts to (a) take all action reasonably necessary to consummate the transactions envisioned hereunder; and, (b) take such steps and do such acts as may be necessary to keep all of its representations and warranties true and correct as of the Closing Date with the same effect as if the same had been made, and this Agreement had been dated, as of the Closing Date.

 

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XII

ADDITIONAL PROVISIONS

 

12.1 Executed Counterparts . This Agreement may be executed in any number of counterparts, all of which when taken together shall be considered one and the same agreement, it being understood that all Parties need not sign the same counterpart. In the event that any signature is delivered by Fax or E-Mail, such signature shall create a valid and binding obligation of that Party (or on whose behalf such signature is executed) with the same force and effect as an original thereof. Any photographic, photocopy, or similar reproduction copy of this Agreement, with all signatures reproduced on one or more sets of signature pages, shall be considered for all purposes as if it were an executed counterpart of this Agreement.

 

12.2 Enforcement . The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that the Parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. The remedies of the Parties under this Agreement are cumulative and shall not exclude any other remedies to which any person may be lawfully entitled.

 

12.3 Waiver . No failure by any Party to insist on the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy on a breach shall constitute a waiver of any such breach or of any other covenant, duty, agreement, or condition.

 

12.4 Recovery of Fees by Prevailing Party . In the event of any legal action (including arbitration) to enforce or interpret this Agreement, the non-prevailing Party shall pay the reasonable attorneys’ fees and other costs and expenses (including expert witness fees) of the prevailing Party in such amount as the may be determined. In addition, such non-prevailing Party shall pay reasonable attorneys’ fees incurred by the prevailing Party in enforcing, or on appeal from, a judgment in favor of the prevailing Party. The preceding sentence is intended by the Parties to be severable from the other provisions of this Agreement and to survive and not be merged into such judgment.

 

12.5 Recitals . The facts recited in Article II, above, are hereby conclusively presumed to be true as between and affecting the Parties.

 

12.6 Amendment . This Agreement may be amended or modified only by a writing signed by all Parties.

 

12.7 No Third Party Beneficiaries . This Agreement has been entered into solely by and between the Parties, solely for their benefit. Except as otherwise expressly provided for herein, there is no intent by any Party to create or establish a third party beneficiary to this Agreement, and no such third party shall have any right to enforce any right, claim, or cause of action created or established under this Agreement.

 

12.8 Further Assurances . Each Party agrees (i) to furnish upon request to each other Party such further information; (ii) to execute and deliver to each other Party such other documents; and, (iii) to do such other acts and things, all as another Party may reasonably request for the purpose of carrying out the intent of this Agreement and the transactions envisioned hereunder. However , this provision shall not require that any additional representations or warranties be made and no Party shall be required to incur any material expense or potential exposure to legal liability pursuant to this Section 12.8.

 

12.9 Notices .

 

12.9.1. Method and Delivery . All notices, requests and demands hereunder shall be in writing and delivered by hand, by Electronic Transmission, by mail, or by recognized commercial over-night delivery service (such as Federal Express or UPS), and shall be deemed given (a) if by hand delivery, upon such delivery; (b) if by Electronic Transmission, upon telephone confirmation of receipt of same; (c) if by mail, forty-eight (48) hours after deposit in the United States mail, first class, registered or certified mail, postage prepaid; or, (d) if by recognized commercial over-night delivery service, upon such delivery.

 

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12.9.2. Consent to Electronic Transmission . Each Party hereby expressly consents to the use of Electronic Transmission for communications and notices under this Agreement. For purposes of this Agreement, “Electronic Transmission” means a communication (i) delivered by Fax or E-Mail when directed to the Fax number or E-Mail address, respectively, for that recipient on record with the sending Party; and, (ii) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form.

 

12.9.3. Address Changes . Any Party may alter the Fax number, E-Mail address, physical address, or postage address to which communications or copies are to be sent by giving notice of such change of address to the other Parties in accordance with the provisions of this Section 12.9.

 

12.10 Best Efforts . E ach Party shall cooperate in good faith with the other Parties generally, and in particular, t he Parties shall use and exercise their best efforts, taking all reasonable, ordinary and necessary measures to ensure an orderly and smooth relationship under this Agreement, and further agree to work together and negotiate in good faith to resolve any differences or problems which may arise in the future. However , the obligations under this Section 12.10 shall not include any obligation to incur substantial expense or liability.

 

XIII

EXECUTION

 

IN WITNESS WHEREOF , this SHARE EXCHANGE AGREEMENT has been duly executed by the Parties, and shall be effective as of and on the Effective Date. Each of the undersigned Parties hereby represents and warrants that it (i) has the requisite power and authority to enter into and carry out the terms and conditions of this Agreement, as well as all transactions contemplated hereunder; and, (ii) it is duly authorized and empowered to execute and deliver this Agreement.

 

LDSR :   DATA443 :
     
LANDSTAR, INC.,   DATA443 RISK MITIGATION, INC.,
a Nevada corporation   a North Carolina corporation
     
BY:            BY:           
     
NAME:     NAME:  
     
TITLE:     TITLE:  
     
DATED:     DATED:  

 

REMILLARD :  
   
   
JASON REMILLARD  
   
DATED:                   

 

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EXHIBIT 4.1.1.

DATA443 SHARES

 

One million (1,000,000) shares common stock owned by Remillard.

 

20

 

 

EXHIBIT 4.4

LDSR CAP TABLE AT CLOSING

 

4,147,676,982 shares of LDSR Common Stock.

 

1,200,000,000 shares of LDSR Common Stock to be issued to Remillard under the Myriad Software Productions, LLC asset purchase.

 

1,000,000 shares of LDSR Series A Preferred stock.

 

21

 

 

EXHIBIT 7.6

LDSR CAP TABLE IMMEDIATELY AFTER CLOSING

 

4,247,676,982 shares of LDSR Common Stock.

 

1,200,000,000 shares of LDSR Common Stock to be issued to Remillard under the Myriad Software Productions, LLC asset purchase.

 

An undetermined number of shares of LDSR Common Stock to be issued to Remillard on the Earn Out Date.

 

1,000,000 shares of LDSR Series A Preferred stock.

 

22

 

 

ASSET PURCHASE AGREEMENT

 

ACQUISITION BY

DATA443 RISK MITIGATION, INC.

OF

THE ASSETS

OF

MODEVITY, LLC

COMPRISING THE ARALOC BUSINESS

 

______, 2018

 

     

 

 

ASSET PURCHASE AGREEMENT

 

I

PARTIES

 

THIS ASSET PURCHASE AGREEMENT (the “ Agreement ”) is entered into effective as of the ____ day of ________, 2018 (the “ Execution Date ”), by and between DATA443 RISK MITIGATION, INC., a North Carolina corporation (“ Buyer ”); and , MODEVITY, LLC, a Pennsylvania limited liability company (“ Seller ”), and JIM COYNE, an individual residing in the State of Pennsylvania (“ Coyne ”). Buyer, Seller, and Coyne are sometimes referred to collectively herein as the “ Parties ”, and each individually as a “ Party ”.

 

II

RECITALS

 

A.        Seller desires to sell substantially all of its assets used in connection with the operation of the ARALOC Business, and Buyer desires to purchase said assets from Seller pursuant to the terms, covenants, and conditions contained herein.

 

B.        Coyne (sometimes referred to herein as the “ Sole Member ”) is the only member of Seller, owning 100% of the issued and outstanding ownership interests in Seller, and has been responsible for the management and conduct of the Business since its inception.

 

C.        As further outlined below, unless specifically provided to the contrary, the purchase of substantially all of the assets used by Seller in connection with the operation of the ARALOC Business shall include, but not be limited to, the assets described on Exhibit II-C, attached hereto and incorporated herein by reference (collectively, the “ Purchased Assets ”).

 

D.        The Sole Member deems it advisable and in the best interests of Seller that the Parties consummate the transactions envisioned hereunder, upon the terms and conditions provided for herein.

 

E.        The Parties have previously executed that certain Letter of Intent dated 19 July 2018 (the “ LOI ”), a copy of which is attached hereto as Exhibit II-E. This Agreement is intended to expressly supersede and replace the LOI.

 

F.         NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

 

III

DEFINED TERMS AND INTERPRETATION

 

3.1        Definitions . The following capitalized terms shall have the respective meanings specified in this Article III. Other terms defined elsewhere herein shall have meanings so given them.

 

Affiliate ” shall mean a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the first Person.

 

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ARALOC Business ” shall mean all aspects of the business conducted in the Ordinary Course of Business by Seller prior to the Closing, generally described as digital content distribution platforms and content rights management software technology under the names ARALOC and SPARK, and secure backend hosted in the cloud with vertical integrations for the following industry segments: board of director management software; employee communication; secure content distribution; sales content management; and, educational content distribution. Any business of Seller not otherwise related to the above description shall not be included as part of the ARALOC Business.

 

Code ” shall mean the Internal Revenue Code of 1986, as amended from time-to-time, and the rules and regulations thereunder.

 

Governmental Entity ” means any (a) domestic or foreign, federal, national, state, regional, municipal, international, multinational, local, or other government, government or public department, central bank, court, tribunal, arbitral body, commission, board, bureau or agency, domestic or foreign; (b) subdivision, agent, commission, board, or authority of any of the foregoing; or, (c) quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under of, or for the account of, any of the foregoing.

 

Intellectual Property ” (also referred to as “ Intellectual Property Assets ”) shall mean and include the following, as well as all other general intangibles of a like nature and all (i) goodwill, and (ii) confidential data or information relating to the below listed items, for the ARALOC Business of Seller:

 

(a)       The names ARALOC and SPARK and all derivations thereof used by Seller, all fictional business names, trading names, designs, registered and unregistered trademarks, registered and unregistered service marks, and applications (collectively, the “ Marks ”);

 

(b)       All patents, patent applications, and inventions and discoveries that may be patentable (collectively, the “ Patents ”);

 

(c)       All copyrights in both published works and unpublished works (collectively, the “ Copyrights ”);

 

(d)       All rights in mask works (collectively, the “ Rights in Mask Works ”); and

 

(e)       All know-how, trade secrets, confidential information, customer lists, computer software, databases, source codes, object codes, works of authorship, know-how, technical information, data, process technology, user interfaces, proprietary concepts, ideas, techniques, business models and methodologies, plans, drawings, and blue prints owned, used, or licensed by Seller as licensee or licensor (collectively, the “ Trade Secrets ”).

 

Knowledge ” shall mean, with respect to a Party, that the Party will be deemed to have actual knowledge of a particular fact or other matter if:

 

(a)       the Party is an individual, such individual is actually aware of such fact or other matter; or

 

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(b)       the Party is an individual, that a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonably comprehensive investigation concerning the existence of such fact or other matter; or

 

(c)       the Party is other than an individual, and any individual who is serving, or who has at any time served, as a member, director, officer, partner, executor or trustee of such Person (or in any similar capacity) is actually aware of such fact or other matter; or that a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonably comprehensive investigation concerning the existence of such fact or other matter.

 

Material Adverse Effect ” shall mean the following meaning:

 

(a)       with respect to Seller, (i) a material adverse effect on the financial condition, business, results of operations or properties of Seller, other than a material adverse effect that results from general economic, social, political or other conditions or events that affect in general the industry in which Seller operates; (ii) an effect which would materially impair Seller’s ability to timely to consummate the transactions contemplated under this Agreement; and

 

(b)       with respect to Buyer, (i) a material adverse effect on the financial condition, business, results of operations or properties of Buyer on a consolidated basis, other than a material adverse effect that results from general economic, social, political or other conditions or events that affect in general the industry in which Buyer operates; (ii) an effect which would materially impair Buyer’s ability timely to consummate the transactions contemplated under this Agreement.

 

Ordinary Course of Business ” shall mean an action taken by a Person only if:

 

(a)       such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person;

 

(b)       such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority); and

 

(c)       such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person.

 

Organizational Documents ” means (a) the articles or certificate of incorporation and the bylaws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate of limited partnership of a limited partnership; (d) the articles or certificate of formation or organization and the operating agreement of a limited liability company; (e) such other documents performing a similar function to the documents specified in clauses (a), (b), (c), and (d) adopted or filed in connection with the creation, formation or organization of a Person; and, (f) any and all amendments to any of the foregoing.

 

Person ” shall mean any individual, corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization, unincorporated organization, governmental entity, or any other type of entity.

 

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Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

Security Interest ” shall mean any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic’s, materialmen’s, and similar liens, (b) liens for taxes not yet due and payable or for taxes that the taxpayer is contesting in good faith through appropriate proceedings, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money.

 

Tax” or “Taxes ” shall mean any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

 

Tax Return ” shall mean any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

Transaction Documents ” means all additional agreements and documents executed and delivered concurrent with execution of, or Closing under, this Agreement, including, without limitation, all agreements attached as exhibits hereto.

 

Transaction Expenses ” shall mean and include all reasonable, actual, and documented out-of-pocket expenses (including, without limitation, all reasonable fees and expenses of counsel, accountants, and investment bankers to a Party and its Affiliates) incurred by a Party or on its behalf in connection with or related to (i) the authorization, preparation, negotiation, execution, and performance of this Agreement; (ii) the preparation, printing, filing, and mailing of any SEC Filings made or contemplated by that Party in connection with this Agreement and the transactions envisioned hereunder; and, (iii) all other matters related to the consummation of the transactions contemplated under this Agreement.

 

3.2        Accounting Terms and Determinations . All accounting terms used in this Agreement and not otherwise defined shall have the meaning accorded to them in accordance with GAAP and, except as expressly provided herein, all accounting determinations shall be made in accordance with GAAP, consistently applied. The term “ GAAP ” means generally accepted accounting principles of the United States of America consistently applied as in effect from time-to-time.

 

3.3        Interpretation .

 

3.3.1.        Provision Not Construed Against Party Drafting Agreement . This Agreement is the result of negotiations by and between the Parties; is the product of the work and efforts of all Parties; and, shall be deemed to have been drafted by all Parties. Each Party has had the opportunity to be represented by independent legal counsel of its choice. In the event of a dispute, no Party shall be entitled to claim that any provision should be construed against any other Party by reason of the fact that it was drafted by one particular Party.

 

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3.3.2.        Agreement Provisions, Exhibits, and Schedules . When a reference is made in this Agreement to an Article, Section, Subsection, Exhibit, or Schedule, such reference shall be to said item of this Agreement unless otherwise indicated. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof as if set out in full herein.

 

3.3.3.        Entire Agreement . This Agreement, and all references, documents, or instruments referred to herein, contains the entire agreement and understanding of the Parties in respect to the subject matter contained herein. The Parties have expressly not relied upon any promises, representations, warranties, agreements, covenants, or undertakings, other than those expressly set forth or referred to herein. This Agreement supersedes (i) any and all prior written or oral agreements, understandings, and negotiations between the Parties with respect to the subject matter contained herein; (ii) the LOI, and in the event of any conflict between this Agreement and the LOI, this provisions of this Agreement shall expressly control; and, (iii) any course of performance and/or usage of the trade inconsistent with any of the terms hereof.

 

3.3.4.        Severability . Each and every provision of this Agreement is severable and independent of any other term or provision of this Agreement. If any term or provision of this Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal, or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

 

3.3.5.        Successors and Assigns . Except as expressly provided in this Agreement, each and all of the covenants, terms, provisions, conditions, and agreements herein contained shall be binding upon and shall inure to the benefit of the successors and assigns of the Parties. Except as otherwise permitted under Section 13.8, below, this Agreement is not assignable by either Party without the expressed written consent of all Parties.

 

3.3.6.        Time . All Parties agree that time is of the essence as to this Agreement.

 

3.3.7.        Governing Law . This Agreement shall be governed by the laws of the State of Nevada, without giving effect to any choice or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Nevada.

 

3.4        Additional Definitions and Interpretation Provisions . For purposes of this Agreement, (i) those words, names, or terms which are specifically defined herein shall have the meaning specifically ascribed to them; (ii) wherever from the context it appears appropriate, each term stated either in the singular or plural shall include the singular and plural; (iii) wherever from the context it appears appropriate, the masculine, feminine, or neuter gender, shall each include the others; (iv) the words “ hereof ”, “ herein ”, “ hereunder ”, and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole, and not to any particular provision of this Agreement; (v) all references to “ Dollars ” or “ $ ” shall be construed as being United States Dollars; (vi) the term “ including ” is not limiting and means “ including without limitation ”; and, (vii) all references to all statutes, statutory provisions, regulations, or similar administrative provisions shall be construed as a reference to such statute, statutory provision, regulation, or similar administrative provision as in force at the date of this Agreement and as may be subsequently amended.

 

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IV

SALE AND TRANSFER OF THE PURCHASED ASSETS

 

4.1        Purchase and Sale . On the Closing Date specified in Section 14.1, herein, Seller shall sell, transfer, convey, and deliver to Buyer, and Buyer shall purchase from Seller, all of the Purchased Assets, pursuant to this Agreement, and as further reflected in and evidenced by that certain Bill of Sale, and Assignment and Assumption of I.P. Agreement, in the form attached hereto as Exhibit 4.1-A (the “ Bill of Sale ”), and Exhibit 4.1-B (the “ IP Assignment ”), respectively.

 

4.2         Scope of the Purchased Assets . The Purchased Assets shall include any and all tangible and intangible assets used by Seller in connection with the operation of the ARALOC Business, unless specifically excluded to the contrary herein, which Seller may retain for its own use and benefit, as further particularly described in Section 5.1, below.

 

4.3        Purchase Price .

 

4.3.1.         Amount . At the Closing, Buyer shall acquire the Purchased Assets for an aggregate Purchase Price of One Million Eight Hundred Fifty Thousand Dollars ($1,850,000).

 

4.3.2.        Payment . The Purchase Price shall be at the Closing as follows:

 

(a)       The Fifty Thousand Dollars ($50,000) previously paid to Seller by Buyer in connection with the LOI, the receipt of which is hereby acknowledged by Seller, shall be credited to the Purchase Price.

 

(b)       Cash payment of One Hundred Fifty Thousand Dollars ($150,000) via wire transfer in accordance with the instructions provided to Seller by Buyer.

 

(c)        Nine Hundred Thousand Dollars ($900,000) (the “ Notional Amount ”), worth of shares of restricted common stock (the “ Shares ”) of LandStar, Inc., a Nevada corporation (“ LandStar ”), which is the corporate parent of Buyer. The number of shares to be transferred at Closing to Seller shall be equal to the Notional Amount divided by the per share closing share price on the day preceding Closing, but in no event less than eighty one million eighty one thousand eight one (81,081,081) shares.

 

(d)       Buyer’s secured promissory note in the original principal amount of Seven Hundred Fifty Thousand Dollars ($750,000) in form attached hereto as Exhibit 4.3.2.(d) (the “ Note ”),and incorporated herein by reference.

 

(e)       The Note shall be secured by a Security Agreement in the form attached hereto as Exhibit 4.3.2.(e) (the “ Security Agreement ”) and incorporated herein by reference.

 

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4.3.3.        Additional Shares . The Parties shall additionally determine the value of the Shares on the later of (i) the date all payments have been made under the Note and the Note is extinguished; or, (ii) the date on which the Shares are eligible for the exclusion under Rule 144 (the “ Valuation Date ”). Value shall be determined using the closing share price for LandStar’s common stock on the Valuation Date (the “ Closing Price ”). In the event the value is less than Seven Hundred Twenty Thousand ($720,000), then no later than five (5) business days after the Valuation Date, Buyer shall ensure that LandStar issues to Seller that additional number of shares of LandStar common stock (using the Closing Price) so that the total value of all such shares equals Seven Hundred Twenty Thousand ($720,000).

 

4.4        Allocation . The Parties agree to allocate the Purchase Price among the Purchased Assets as specified on Schedule 4.4, attached hereto and incorporated herein by reference. The allocation of the Purchase Price is intended to comply with the requirements of Section 1060 of the Code. The Parties covenant and agree that (i) such allocation was determined in an arm’s length negotiation and none of the Parties shall take a position on any tax return (including IRS Form 8594), before any tax authority or in any judicial proceeding that is in any manner inconsistent with such allocation without the written consent of the other Parties to this Agreement or unless specifically required pursuant to a determination by an applicable tax authority; (ii) they shall cooperate with each other in connection with the preparation, execution, and filing of all tax returns related to such allocation; and, (iii) they shall promptly advise each other regarding the existence of any tax audit controversy or litigation related to such allocation.

 

V

ASSETS AND LIABILITIES

 

5.1         Excluded Assets . Except as expressly provided to the contrary on Schedule 5.1 (the “ Excluded Assets ”), attached hereto and incorporated herein by reference, and as otherwise expressly provided for in the Security Agreement, upon purchase of the Purchased Assets by Buyer, Seller shall retain no rights to any assets currently held by it.

 

5.2         Assumed Liabilities . Except as expressly provided to the contrary on Schedule 5.2 (the “ Assumed Liabilities ”), attached hereto and incorporated herein by reference, Buyer shall not, and expressly does not, assume any liabilities, obligations, or commitments of Seller the Sole Member, known or unknown, contingent or otherwise, of whatsoever kind or nature.

 

5.3         Bulk Sale Compliance . The Parties agree that the transactions envisioned hereunder are exempt from the requirements of applicable bulk sales rules, and the Parties will take all actions consistent therewith.

 

VI

INSPECTION AND DUE DILIGENCE

 

At the sole discretion of Buyer, and at its own cost, Buyer may undertake an inspection and due diligence review of the financial and business records of Seller at any time prior to the Closing, but only during the regular business hours of Seller, upon reasonable notice given to Seller, and without unreasonably disrupting the business of Seller. In the event the transaction envisioned hereunder is not effected, for any reason, then Buyer shall maintain the confidentiality of the information it obtained during its inspection and due diligence review. Seller agrees to cooperate with the reasonable requests of Buyer under this Article VI.

 

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VII

REPRESENTATIONS AND WARRANTIES BY SELLER AND SOLE MEMBER

 

Except as expressly set forth to the contrary herein or in the Schedules attached to this Agreement, corresponding to the lettered and numbered Sections contained in this Article VII, Seller and each of the Sole Member hereby jointly and severally represent and warrant to Buyer that the representations and warranties contained in this Article VII are true, correct, and complete as of the Effective Date and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the Effective Date throughout this Article VII):

 

7.1        Organization . Seller is a limited liability company, duly organized, validly existing, and in good standing under the laws of the Commonwealth of Pennsylvania, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Seller is not violation or default of any of the provisions of its Organizational Documents. Seller is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in a Material Adverse Effect as to Seller, and no Proceeding has been instituted in any such jurisdiction revoking, limiting, or curtailing or seeking to revoke, limit, or curtail such power and authority or qualification.

 

7.2        Execution and Performance of Agreement . Seller has the requisite right, power, authority, and capacity to enter into, execute, deliver, perform, and carry out the terms and conditions of this Agreement and (i) each of the Transaction Documents; and, (ii) each of the other instruments and agreements to be executed and delivered by Seller in connection with this Agreement, as well as all transactions contemplated hereunder. All requisite proceedings have been taken and Seller has obtained all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance by Seller of this Agreement, and each of the Transaction Documents to which it is a party. This Agreement has been duly and validly executed and delivered by Seller and constitutes the valid, binding, and enforceable obligation of Seller, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditor’s rights generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law.

 

7.3        Effect of Agreement . As of the Closing, the consummation by Seller of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement and the Transaction Documents to which it is a party, will not:

 

(a)       Violate any judgment, statute, law, code, act, order, writ, rule, ordinance, regulation, governmental consent or governmental requirement, or determination or decree of any arbitrator, court, or other governmental agency or administrative body, which now or at any time hereafter may be applicable to and enforceable against the relevant party, work, or activity in question or any part thereof (collectively, “ Requirement of Law ”) applicable to or binding upon Seller or any of the Purchased Assets;

 

(b)       Violate (i) the terms of any of the Organizational Documents of Seller; or, (ii) any material agreement, contract, mortgage, indenture, bond, bill, note, or other material instrument or writing binding upon Seller or to which Seller is subject; or

 

(c)       Result in the breach of, constitute a default under, constitute an event which with notice or lapse of time, or both, would become a default under, or result in the creation of any Security Interest upon any part of the assets of Seller or any other assets of Seller under any agreement, commitment, contract (written or oral) or other instrument to which Seller is a party, or by which any of its assets (or any part thereof) is bound or affected.

 

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7.4        Consents . No consents, approvals or other authorizations or notices, other than those which have been obtained and are in full force and effect, are required by any state or federal regulatory authority or other person or entity in connection with the execution and delivery of the Transaction Documents and the performance of any obligations contemplated thereby.

 

7.5        Title to the Purchased Assets . Seller has good and marketable title to all of the Purchased Assets, free and clear of all Security Interests, of any nature, except as expressly disclosed on Schedule 7.5, attached hereto and incorporated herein by reference.

 

7.6         Condition of the Purchased Assets . The Purchased Assets constitute substantially all of the assets used in the conduct of the ARALOC Business, and are sufficient for the proper operation of the ARALOC Business in the Ordinary Course of Business.

 

7.7        Financial Statements . The financial statements of Seller dated __ _______ 2018 (the “ Financial Statements ”), which have been previously delivered by Seller to Buyer, are true, complete and accurate in all material respects, have been prepared in accordance with GAAP, and present fairly the financial position of Seller as of the date thereof. Except to the extent reflected and reserved against in the Financial Statements, Seller did not have, as of the date of the Financial Statements, any debts, liabilities, or obligations of any nature, whether accrued, absolute, contingent or otherwise, and whether due or to become due, except for those obligations that are not required by GAAP to be included in the Financial Statements.

 

7.8         Changes in Financial Condition . Since the date of the Financial Statements, there has not been:

 

(a)       Any material change in the condition (financial or otherwise) or business of Seller, except changes in the Ordinary Course of Business, none of which has been materially adverse;

 

(b)       Any damage, destruction, or loss (whether or not covered by insurance) materially and adversely affecting the properties, assets, business or prospects of Seller;

 

(c)       Any change in the accounting methods or practices followed by Seller or any change in the depreciation or amortization policies or rates adopted by Seller (whether or not presently outstanding), except liabilities incurred, and obligations under agreements entered into, in the Ordinary Course of Business; or

 

(d)       Any sale, lease, abandonment or other disposition by Seller, other than in the Ordinary Course of Business, of any machinery, equipment or other operating properties directly or indirectly related to the ARALOC Business.

 

7.9         Proceedings . Except as set forth in Schedule 7.9, attached hereto and incorporated herein by reference, there are no Proceedings pending or to the best Knowledge of Seller and the Sole Member, threatened against Seller, the ARALOC Business, or any of the Purchased Assets (or in which Seller or the ARALOC Business is plaintiff or otherwise a party thereto), and, to the best Knowledge of Seller and the Sole Members, there are no facts existing which might result in any such claim, action, suit, arbitration, investigation, hearing, notice of claim or other legal, administrative or governmental proceeding that might reasonably be expected to have a Material Adverse Effect or that might reasonably be expected to threaten or impede the consummation of the transactions contemplated by this Agreement. Seller has not waived any statute of limitations or other affirmative defense with respect to any of its liabilities. There is no continuing order, injunction, or decree of any court, arbitrator, or governmental or administrative authority to which Seller or the ARALOC Business is a party or to which it or any of the Purchased Assets is subject. Seller has not been permanently or temporarily enjoined or barred by order, judgment or decree of any court or other tribunal or any agency or regulatory body from engaging in or continuing any conduct or practice.

 

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7.10         Permits and Licenses . Seller has all licenses and permits (federal, state and local) required by any Governmental Entity to own, operate, and carry on the ARALOC Business as now being conducted, and such licenses and permits are in full force and effect. No violations are or have been recorded in respect to the licenses or permits, included but not limited to fire and health and safety law violations, and no proceeding is pending or threatened looking toward the revocation or limitation of any of them.

 

7.11         Customers and Suppliers . The books and records of Seller contain a correct and complete list of each of the customers and suppliers of the ARALOC Business who have dealt with the ARALOC Business during the three (3) year period ending on the date hereof (the “ Customers and Suppliers ”). Seller has taken all commercially reasonable steps to maintain the confidentiality of the Customers. To the best Knowledge of Seller:

 

(a)       None of the Customers or Suppliers, or any other person or entity having material business dealings with the ARALOC Business, will or may cease to continue such relationship with Buyer;

 

(b)       None of the Customers or Suppliers, or any other person or entity having material business dealings with the ARALOC Business, will or may substantially reduce the extent of such relations with the ARALOC Business at any time from or after the Closing;

 

(c)       There are no other existing or contemplated material modification or change in the business relationship of any Customers or Suppliers with Seller;

 

(d)       There are no existing conditions or state of facts or circumstances which is a Materially Adverse Effect, or will have a Materially Adverse Effect, on the relationship of the ARALOC Business with Customers or Suppliers when it is acquired by Buyer, or which has prevented or will prevent Buyer from carrying on the ARALOC Business, after the Closing.

 

7.12         Material Agreements . Except as set forth in Schedule 7.12, attached hereto and incorporated herein by reference, Seller is not a party to, nor are any of the Purchased Assets bound by or subject to, any of the following:

 

(a)       license agreement, assignment or contract (whether as licensor or licensee, assignor or assignee) relating to trademarks, trade names, patents or copyrights (or applications therefore), know-how or technical assistance, or other proprietary rights (other than trademark agreements which are entered into in the ordinary course of the Seller’s business in conjunction with sales agreements;

 

(b)       agreement or other arrangement for the sales of goods or services by the Seller to any Governmental Entity;

 

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(c)       agreement with any vendor, distributor, dealer, sales agent or representative other than contracts or orders for the purchase or sale of goods made in the usual and Ordinary Course of Business at an aggregate price per contract or order of less than $10,000 and a terms of less than ninety days under any such contract or order;

 

(d)       agreement with any supplier or customer with respect to discounts (other than those reflected on the Seller’s current price lists) or allowances or extended payment terms;

 

(e)       joint venture or partnership agreement with any other person;

 

(f)       agreement which restricts Seller from doing business anywhere in the world; or

 

(g)       long-term services agreement.

 

7.13         Employees .

 

(a)       Schedule 7.13, attached hereto and incorporated herein by reference, contains a list of (i) all employees of Seller, along with the position and the annual rate of compensation of each such person; and, (ii) all independent contractors of Seller rendering services to Seller, along with a brief description of the terms of each such contractor’s arrangement. Except as set forth on Schedule 7.13, each such employee and contractor has entered into a confidentiality and assignment of inventions agreement with Seller.

 

(b)       Except as set forth in Schedule 7.13, neither Seller nor the Sole Member has Knowledge of any former employees of Seller engaged in an enterprise competitive with the ARALOC Business.

 

(c)       Except as set forth in Schedule 7.13, and except as otherwise provided for herein, Seller is not a party to any employment agreement, independent contractor agreement, or similar arrangement or agreement, whether it be reduced to written form or an oral promise.

 

7.14         Restrictive Covenants . Schedule 7.14, attached hereto and incorporated herein by reference, represents a list of all restrictive covenant agreements and arrangements held by Seller with regard to the ARALOC Business. All of such contracts are hereunder assigned to Buyer, and Seller has the requisite power and ability to so assign all said contracts.

 

7.15         Environmental Matters . To the best Knowledge of Seller and the Sole Member, with regard to matters of environmental compliance:

 

(a)       Seller has conducted and is conducting the Business, and has used and is using its properties, whether currently owned, operated or leased or owned, operated or leased by Seller at any time in the past; and at the time of acquisition of any security interest, all properties in which Seller has a security interest had always been used, in compliance with all applicable Requirement of Law, except where the failure to comply with such Requirement of Law, has not had and could not have a Material Adverse Effect on the condition (financial or otherwise) of Seller, the Purchased Assets or the ARALOC Business.

 

(b)       Neither Seller, the ARALOC Business nor any property currently owned, operated or leased or which has been owned, operated or leased by Seller, is subject to any existing, pending or threatened Proceeding, including any notice of violation, by any Governmental Entity regarding contamination of any part of such property or infractions of any law, statute, ordinance or regulation or any license or permit issued by any government agency pertaining to health, industrial hygiene or environmental safety or environmental conditions on, under or about such property, except where such investigations, actions, proceedings, notifications or infractions, in the aggregate, have not had and could not have a Material Adverse Effect on the condition (financial or otherwise), of Seller, the Purchased Assets, or the ARALOC Business.

 

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(c)       Except as set forth in Schedule 7.15, attached hereto and incorporated herein by reference, there are no underground storage tanks or toxic or hazardous wastes, substances, or materials, or pollutants or contaminants, including asbestos, presently located on or under any property which is currently or has been owned, operated or leased by Seller; there were no underground storage tanks or toxic or hazardous wastes, substances, or materials, or pollutants or contaminants, including asbestos, located on or under any property in which Seller or Seller has or had an interest. As used herein, the terms toxic or hazardous wastes, substances or materials, pollutants and contaminants mean any material which is or becomes during the term of this Agreement regulated or controlled as a hazardous or toxic waste or environmental pollutant under any federal, state or local law, ordinance, order, decree or regulation currently in effect and applicable to Seller or any property owned, operated or leased by Seller.

 

7.16        Intellectual Property . The Intellectual Property Assets are all those necessary for the operation of the ARALOC Business, and are listed on Schedule 7.16, attached hereto and incorporated herein by reference. Seller is the owner of all right, title, and interest in and to each of the Intellectual Property Assets, free and clear of all Security Interests and any other adverse claims, and has the right to use without payment to a third party all of the Intellectual Property Assets. All Intellectual Property is (i) in compliance with formal legal requirements (including payment of filing, examination, and maintenance fees and proofs of working or use); (ii) valid and enforceable; and, (iii) not subject to any adverse claim and has not been challenged or threatened in any way. To the extent that any employee or former employee of Seller has developed or invented or otherwise produced any of the Intellectual Property Assets, all such former and current employees of Seller have executed written contracts that assign to Seller all rights to any inventions, improvements, discoveries, or information relating to the Intellectual Property Assets. No such employee or former employee has entered into any contract that restricts or limits in any way the scope or type of work in which the employee may be engaged or requires the employee to transfer, assign, or disclose information concerning his work to anyone other than Seller.

 

7.17        Trade Secrets . In addition to the provisions of Section 7.16, above, with respect to the Trade Secrets of Seller:

 

(a)       The documentation relating to each such Trade Secret is current, accurate, and sufficient in detail and content to identify and explain it and to allow its full and proper use without reliance on the Knowledge or memory of any individual.

 

(b)       Seller has taken all reasonable precautions to protect the secrecy, confidentiality, and value of the Trade Secrets.

 

(c)       Seller has good title and an absolute (but not necessarily exclusive) right to use the Trade Secrets. The Trade Secrets are not part of the public knowledge or literature, and, to Seller’s Knowledge, have not been used, divulged, or appropriated either for the benefit of any Person or to the detriment of Seller.

 

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(d)       No Trade Secret is subject to any adverse claim or has been challenged or threatened in any way.

 

7.18         Other Arrangements . Seller is not a party to any contract, commitment or agreement, nor are any of the Purchased Assets subject to, or bound or affected by, any order, judgment, decree, law, statute, ordinance, rule, regulation or other restriction of any kind or character which is not applicable to the ARALOC Business generally, which would, individually or in the aggregate, result in a Material Adversely Effect on the ARALOC Business or any of the Purchased Assets. Seller is also not a party or subject to any agreement, contract or other obligation which would require the making of any payment, other than payments contemplated by this Agreement, to any other person as a result of the consummation of the transactions contemplated herein.

 

7.19         Disclosure . No representation or warranty made by Seller or the Sole Member in this Agreement or in any writing furnished or to be furnished pursuant to or in connection with this Agreement knowingly contains or will contain any untrue statement of a material fact, or omits or will omit to state any material fact required to make the statements herein or therein contained not misleading. Seller and the Sole Member have disclosed to Buyer all material information known to it related to Seller and the ARALOC Business, and their respective condition, operations, and prospects.

 

7.20         Material Defaults . Seller is not in material default, or alleged to be in default, under any material agreement, contract, lease, mortgage, commitment, instrument or obligation, and no other party to any agreement, contract, lease, mortgage, commitment, instrument or obligation to which Seller or the ARALOC Business is a party is in default thereunder, which default would materially and adversely affect the properties, assets, business or prospects of the ARALOC Business.

 

7.21         Tax Matters .

 

(a)       Seller has filed all Tax Returns (federal, state and local) required to be filed by it (except where a timely extension has been filed), and all such Tax Returns filed are complete and accurate in all material respects.

 

(b)       Seller has paid all Taxes shown to be due and payable on the returns or any assessments or penalties received by it and all other Taxes (federal, state and local) due and payable by it.

 

(c)       Seller has collected and withheld all Taxes which it has been required to collect or withhold and has timely submitted all such collected and withheld amounts to the appropriate authorities.

 

(d)       Seller is in compliance with the back-up withholding and information reporting requirements under the Code and any state, local, or foreign laws, and the rules and regulations thereunder.

 

(e)       No examination or audit of any Tax Returns of Seller by any governmental entity is currently in progress or, to the Knowledge of Seller, threatened or contemplated. Seller has not waived any statute of limitations with respect to Taxes or agreed to an extension of time with respect to a Tax assessment or deficiency.

 

7.22        Voting and Operational Control . Seller’s only member, Coyne (i) owns all of the issued and outstanding ownership interests of Seller; (ii) constitutes the only manager of Seller; and, (iii) need not obtain the consent of any person to execute this Agreement and consummate the transactions envisioned hereunder.

 

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7.23        Other Matters . Neither Seller nor the Sole Member has taken, nor has agreed to take, any action, and has no Knowledge of any fact or circumstances that would materially impede or delay the consummation of the transactions contemplated under this Agreement.

 

7.24        No Other Representations and Warranties . Except for the representations and warranties contained in this Article VII (including the related portions of the Schedules), neither Seller nor the Sole Member has made or makes any other express or implied representation or warranty, either written or oral, on behalf of Seller, including any representation or warranty as to the accuracy or completeness of any information regarding Seller, the ARALOC Business, or the Purchased Assets, or as to the future revenue, profitability, or success of the ARALOC Business.

 

7.25        Advice of Changes . Between the Execution Date and the Closing Date, Seller shall promptly advise Buyer in writing of any fact which, if existing or known at the Execution Date, would have been required to be set forth or disclosed in or pursuant to this Agreement or of any fact which, if existing or known at the Execution Date, would have made any of the representations contained herein untrue.

 

VIII

REPRESENTATIONS AND WARRANTIES BY BUYER

 

Buyer hereby represents and warrants to Seller that the representations and warranties contained in this Article VIII are true, correct, and complete as of the Effective Date and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the Effective Date throughout this Article VIII):

 

8.1        Organization . Buyer is a corporation, duly organized, validly existing, and in good standing under the laws of the State of North Carolina, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Buyer is not violation or default of any of the provisions of its Organizational Documents.

 

8.2        Execution and Performance of Agreement . Buyer has the requisite right, corporate power, authority, and capacity to enter into, execute, deliver, perform, and carry out the terms and conditions of this Agreement and (i) each of the Transaction Documents; and, (ii) each of the other instruments and agreements to be executed and delivered by Buyer in connection with this Agreement, as well as all transactions contemplated hereunder. All requisite proceedings have been taken and Buyer has obtained all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance by Buyer of this Agreement, and each of the Transaction Documents to which it is a party. This Agreement has been duly and validly executed and delivered by Buyer and constitutes the valid, binding, and enforceable obligation of Buyer, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditor’s rights generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law.

 

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8.3        Effect of Agreement . As of the Closing, the consummation by Buyer of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement and the Transaction Documents to which it is a party, will not:

 

(a)       Violate any Requirement of Law applicable to or binding upon Buyer or any of its assets; or

 

(b)       Violate (i) the terms of any of the Organizational Documents of Buyer; or, (ii) any material agreement, contract, mortgage, indenture, bond, bill, note, or other material instrument or writing binding upon Buyer or to which Buyer is subject.

 

8.4        Consents . No consents, approvals or other authorizations or notices, other than those which have been obtained and are in full force and effect, are required by any state or federal regulatory authority or other person or entity in connection with the execution and delivery of the Transaction Documents and the performance of any obligations contemplated thereby.

 

8.5        Sufficiency of Funds . Buyer has sufficient sources of immediately available funds to enable it to make payment of the Purchase Price in a timely fashion, and consummate the transactions contemplated by this Agreement.

 

8.6        Solvency . Immediately after giving effect to the transactions contemplated hereby, Buyer shall be solvent and shall: (a) be able to pay its debts as they become due; and, (b) have adequate capital to carry on its business.

 

8.7         Investigation . As of the Closing, Buyer will be purchasing the Purchased Assets based upon its own independent investigation and evaluation of the ARALOC Business and its prospects, and the covenants, representations, and warranties of Seller, as set forth herein. Buyer is expressly not relying on any oral representations made by Seller or its members with regard to the Purchased Assets or the ARALOC Business.

 

8.8        Other Matters . Buyer has not taken and has not agreed to take any action, and has no Knowledge of any fact or circumstances that would materially impede or delay the consummation of the transactions contemplated under this Agreement.

 

8.9        No Other Representations and Warranties . Except for the representations and warranties contained in this Article VIII, Buyer has not made or makes any other express or implied representation or warranty, either written or oral, including any representation or warranty as to the accuracy or completeness of any information regarding Buyer.

 

8.10        Subsidiary of LandStar . Buyer is the wholly owned subsidiary of LandStar and has obtained all consents and agreements necessary from LandStar to ensure the issuance of the LandStar common stock hereunder.

 

8.11        Advice of Changes . Between the Execution Date and the Closing Date, Buyer shall promptly advise Seller in writing of any fact which, if existing or known at the Execution Date, would have been required to be set forth or disclosed in or pursuant to this Agreement or of any fact which, if existing or known at the Execution Date, would have made any of the representations contained herein untrue.

 

IX

CONDUCT PRIOR TO CLOSING

 

9.1        Conduct of the ARALOC Business . Seller hereby covenants and agrees that, prior to the Closing, unless the prior written consent of Buyer shall have been obtained, which consent shall not be unreasonably withheld, and except as otherwise contemplated in this Agreement, Seller shall operate the ARALOC Business only in the usual, regular, and Ordinary Course of Business and in accordance with its prior practices, and shall use its reasonable best efforts to preserve intact its business organizations and assets and maintain its rights, franchises, and business and customer relations necessary to run its business as currently run.

 

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9.2        Forbearances . From the Execution Date until the Closing, Seller and the Sole Member covenant and agree to ensure that other than as contemplated in this Agreement or as otherwise disclosed in writing to Buyer, Seller will not do any of the following without the prior written consent of Buyer, which consent shall not be unreasonably withheld:

 

(a)       issue, sell or deliver or enter into any agreement to issue, sell or deliver any ownership interests or any options, warrants, or other rights, agreements, commitments, arrangements or understandings of any kind, contingent or otherwise, to purchase, sell or deliver any such ownership interests, or any securities convertible into or exchangeable for any such ownership interests, or effect any stock split, or otherwise change, combine or reclassify its authorized capitalization;

 

(b)       incur any indebtedness or issue or sell any debt securities or prepay any debt;

 

(c)       mortgage, pledge or otherwise subject to any material lien or lease, any of its properties or assets, tangible or intangible or permit or suffer any such property or asset to be subjected to any material lien or lease, or license or dispose of any material assets;

 

(d)       modify or extend the current term of any material agreement, or waive any material rights thereunder;

 

(e)       enter into any type of business not conducted by it as of the Execution Date or create or organize any subsidiary or enter into or participate in any joint venture or partnership;

 

(f)       except as otherwise expressly contemplated by this Agreement, enter into any agreement or transaction or make any amendment or modification to any such agreement; or

 

(g)       enter into any contract, commitment or arrangement to do any of the foregoing.

 

9.3        Full Access . Seller will permit representatives of Buyer to have full access to all premises, properties, personnel, books, records (including tax records), contracts, and documents of or pertaining to the ARALOC Business. Buyer will treat and hold all such confidential information as confidential. Buyer shall in no manner or form be liable to Seller for any Indemnified Claims arising under this Section 9.3 post-Closing, or unless directly caused by the gross negligence or criminal conduct of Buyer or any of it authorized agents or representatives.

 

9.4        Mutual Obligations . The Parties agree as follows with respect to the period from and after the Execution Date up to and including the Closing:

 

9.4.1. General . Each of the Parties will use its best efforts to take all action and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of all conditions for Closing established herein).

 

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9.4.2. Notices and Consents . Each Party will give any notices to third parties, and will use its best efforts to obtain any third party consents the other reasonably may request in connection with the transactions contemplated hereunder.

 

9.4.3. Regulatory Matters and Approvals . Each of the Parties will give any notices to, make any filings with, and use its best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies in connection with the matters referred to herein.

 

9.4.4. Notice of Developments . Until the Closing, each Party shall promptly notify the other Party in writing of any fact, change, condition, or circumstance of which it is aware that will or is reasonably likely to result in any of the conditions set forth in Article X becoming incapable of being satisfied. Each Party shall have the right prior to the Closing to supplement and update the Schedules attached to this Agreement with respect to any fact, change, condition or circumstance occurring after the date of this Agreement which would have been required to be set forth on or described in such Schedules had it occurred prior to the date of this Agreement. Any such supplemental disclosure will be deemed to not have been disclosed solely for the purposes of determining whether the conditions set forth in Article X have been satisfied.

 

X

CONDITIONS PRECEDENT

 

10.1         Conditions to Obligations of Buyer . Unless otherwise waived, in whole or in part, in writing by Buyer, the obligations of Buyer to effect the consummation of the transactions contemplated hereunder, and in the other agreements referred to herein, shall be subject to the satisfaction at the Closing of each of the following conditions:

 

10.1.1.        Representations and Warranties of Seller and the Sole Member to be True . The representations and warranties of Seller and the Sole Member contained herein or in any statement, certificate, schedule or other document delivered pursuant to this Agreement or in connection with the transactions contemplated hereby, shall be true and correct in all material respects on the Closing with the same force and effect as though made at such time. Seller and the Sole Member shall have performed all obligations and complied with all covenants required by this Agreement, and the other agreements referred to herein, to be performed or complied with prior to the Closing.

 

10.1.2.         No Proceedings . No Proceeding shall be pending or threatened which seeks to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or to obtain damages or other relief in connection therewith.

 

10.1.3.         No Adverse Change . Since the Execution Date there shall not have been any material adverse change in the properties, prospects, results of operation or condition of Seller or the ARALOC Business, except as otherwise expressly provided for herein.

 

10.1.4.         Consents . Seller shall have obtained and delivered to Buyer all written consents to all contracts which by their terms or otherwise require the consent of such party to the transfer by Seller.

 

10.1.5.         Contemporaneous Transactions . Buyer and Seller and the Sole Member shall have executed a Business Covenants Agreement in the form attached hereto as Exhibit 10.1.5.(a) (the “ Covenants Agreement ”). Seller shall have executed the Bill of Sale and the IP Assignment.

 

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10.2         Conditions to Obligations of Seller . Unless otherwise waived, in whole or in part, in writing by Seller, the obligations of Seller to effect the consummation of the transactions contemplated hereunder, and in the other agreements referred to herein, shall be subject to the satisfaction at the Closing of each of the following conditions:

 

10.2.1.        Representations and Warranties of Buyer to be True . The representations and warranties of Buyer contained in this Agreement or in any statement, certificate, schedule or other document delivered pursuant to this Agreement or in connection with the transactions contemplated hereby, shall be true and correct in all material respects on the Closing with the same force and effect as though made at such time. Buyer shall have performed all obligations and complied with all covenants required by this Agreement, and the other agreements referred to herein, to be performed or complied with by it prior to the Closing.

 

10.2.2.         No Proceedings . No proceeding shall be pending or threatened before any court or other governmental agency which seeks to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or to obtain damages or other relief in connection therewith.

 

10.2.3.         Consents . Buyer shall have obtained and delivered to Seller all written consents of the other party to all contracts which by their terms or otherwise require the consent of such party to the acquisition thereof by Buyer.

 

10.2.4.         Contemporaneous Transactions . Buyer shall have executed and delivered to Seller, the Covenants Agreement, the Note, and the Security Agreement.

 

XI

TERMINATION

 

11.1        Termination of Agreement . This Agreement may be terminated as provided below:

 

(a)       Seller may terminate this Agreement by giving written notice to Buyer at any time prior to the Closing Date (i) in the event Buyer has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, and Seller has notified Buyer in writing of the breach, and the breach has continued without cure for a period of five (5) days after the notice of breach; or, (ii) if the Closing shall not have occurred on or before the 30 th day of October, 2018, through no fault of Seller.

 

(b)       Buyer may terminate this Agreement by giving written notice to Seller at any time prior to the Closing Date (i) in the event Seller has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, and Buyer has notified Seller in writing of the breach, and the breach has continued without cure for a period of five (5) days after the notice of breach; or, (ii) if the Closing shall not have occurred on or before the 30 th day of October, 2018, through no fault of Buyer.

 

(c)       Buyer may terminate this Agreement by giving written notice to Seller at any time in the event this Agreement and transactions envisioned hereunder fails to be approved by the sole member of Seller.

 

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11.2        Effect of Termination . If any Party terminates this Agreement pursuant to this Article XI, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party, except for any liability of any Party then in breach.

 

XII

CLOSING DATE AND TRANSFER DATE

 

12.1         Closing Date . The closing of the transactions contemplated under this Agreement (the “ Closing ”) and the transfer of the Purchased Assets by Seller to Buyer shall have taken place on the day and at such place as the Parties may agree. The date on which the Closing occurs is also referred to herein as the “ Closing Date ”.

 

12.2        Obligations of Seller . At the Closing, Seller shall deliver or cause to be delivered to Buyer the following:

 

(a)       Executed version of this Agreement;

 

(b)       Executed version of all Transaction Documents;

 

(c)       Executed resolutions of the Manager and of the Member of Seller authorizing the transactions contemplated hereunder and under the Transaction Documents;

 

(d)       Executed certificate, dated the Closing Date and signed by a duly authorized officer of Seller, in the form attached hereto as Exhibit 12.2(d);

 

(e)       All consents and additional agreements required of the Sole Manager, including, without limitation, the assignment to Buyer of all domain names listed as part of the Purchased Assets, pursuant to the assignment in the form attached hereto as Exhibit 12.2(e); and

 

(f)       Any governmental and third party consents, approvals, assurances or UCC-2 termination statements necessary for the consummation of the transactions contemplated by this Agreement or as may be required to permit Seller to deliver the Purchased Assets free and clear of any and all Security Interests.

 

12.3        Obligations of Buyer . At the Closing, Buyer shall deliver or cause to be delivered to Seller:

 

(a)       Executed version of this Agreement;

 

(b)       Executed version of all Transaction Documents;

 

(c)       Wire transfer of $150,000;

 

(d)       Executed Note and, Security Agreement;

 

(e)       Proof that the transfer agent for LandStar has been instructed to issue the Shares; and

 

(f)       Executed Board of Directors resolution authorizing the transactions contemplated hereunder and under the Transaction Documents.

 

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XIII

POST-CLOSING OBLIGATIONS AND AGREEMENTS

 

13.1        Clients and Collections . With regard to clients and customers (collectively, “ Clients ”), and collecting therefrom, the Parties hereby agree as follows:

 

13.1.1.        Existing Clients of Seller . All Clients of Seller as of the Closing shall be listed on Schedule 13.1.1 (the “ Existing Clients ”). Buyer shall service all Existing Clients, and Seller shall invoice and collect payments from all Existing Clients, exercising its best efforts to offer the same level of customer service and collection success as in the past. Amounts collected by Seller from Existing Clients each month after the Closing (the “ Collected Amount ”) shall be reflected in a statement prepared by Seller, and certified as true and correct, in the form of Exhibit 13.1.1., attached hereto and incorporated herein by reference (the “ Certified Statement ”). Each Certified Statement shall be delivered to Buyer from Seller within five (5) days after the end of each calendar month. Seller shall retain the Collected Amount for each month up to the amount then due and payable under the Note, and shall be credited against Buyer’s payment due to Seller under the Note in the month of receipt of a Certified Statement by Buyer. The balance due Seller from Buyer, after the application of the credit for the amount described in the Certified Statement, shall be paid to Buyer by Seller in accordance with the terms of the Note. This process shall continue until the Note is paid in full; thereafter, the Existing Clients shall be invoiced directly by Buyer, with payment going directly to Buyer.

 

13.1.2.        Renewals of Existing Clients . Until such time as the Note is paid in full, Seller shall process all renewals of the contracts with Existing Clients. All payments received from renewed Existing Clients shall be collected and credited pursuant to Section 13.1.1.

 

13.1.3.        New Clients . Other than Existing Clients all clients engaged or obtained after Closing shall be serviced and invoiced by Buyer, and Buyer shall also directly invoice and collect from such clients. Seller shall have no obligation to solicit, service, invoice, or collect payments from any such clients with whom Buyer engages or contracts after Closing.

 

13.2        Lock-Up Agreement . All Shares, including all additional shares under Section 4.3.3., shall be subject to a “lock up”, as that term in commonly defined in a securities context, with Seller not being able to sell, assign, hypothecate, encumber, pledge, alienate, or otherwise transfer any of the Shares for twelve (12) months after receipt.

 

13.3        Brokers . Each Party to this Agreement represents and warrants that no broker or finder has acted for it in connection with this Agreement or the transactions contemplated hereby and that no broker or finder is entitled to any brokerage or finder’s fee or other commission. Each Party to this Agreement agrees to indemnify and hold harmless the other Parties hereto with respect to any claim for any brokerage or finder’s fee or other commission.

 

13.4         Books and Records . Seller shall keep available for inspection by Buyer all books and records of Seller reasonably related to the conduct of the ARALOC Business and the rights and obligations of Buyer hereunder for a period of no less than five (5) years from the Closing.

 

13.5         Continued Use Of Name . From and after the Closing, Seller shall make no further use of the name “ARALOC”, or any similar derivation thereof, for any purpose other than to collect from Existing Clients pursuant to Section 13.1.1., above.

 

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13.6         Taxes .

 

13.6.1.        Payment of Taxes: Filing of Returns . Seller shall remain liable for the filing of all tax returns and reports and for the payment of all federal, state, and local taxes of Seller. Seller shall remain so liable for the payment of all taxes attributable to or relating to the consummation of the transactions contemplated herein, and shall indemnify and hold Buyer harmless from and against all liability in connection therewith.

 

13.6.2.        Sales Taxes . Seller shall bear the responsibility for sales, use, or other similar taxes, if any, arising out of the consummation of the transactions contemplated herein and for the filing of all necessary tax returns and reports with respect to such taxes.

 

13.7        Payment of Transaction Expenses . Except in the event of the breach of this Agreement by one Party, all Transaction Expenses incurred by each Party will be borne solely and entirely by the Party that incurred such Transaction Expenses. In the event of the breach of this Agreement by one Party, in the event of the payment by the breaching Party of the Transaction Expenses for the other Party, the breaching Party shall not be relieved of any liability or damages resulting from any breach by such Party of any of its representations, warranties, covenants, or agreements set forth in this Agreement.

 

13.8        Public Disclosure . Without limiting any other provision of this Agreement, unless otherwise required by a Requirement of Law, the Parties will use their reasonable best efforts to consult with each other before issuing, and provide each other the opportunity to review, comment upon and concur with, and use all reasonable efforts to agree on any press release or public statement with respect to this Agreement and the transactions contemplated hereby, and will not issue any such press release or make any such public statement prior to such consultation and (to the extent practicable) agreement, except as may be required by a Requirement of Law.

 

13.9        Assignee of Buyer . Buyer may, at any time prior to Closing and upon written consent of Seller, assign its rights and obligations hereunder to any party in its sole and absolute discretion, so long as said assignee executes this Agreement as the “Buyer” hereunder.

 

XIV

SURVIVAL AND INDEMNIFICATION PROVISIONS

 

14.1        Survival of Representations . All of the covenants, agreements, representations, and warranties made by each party in this Agreement, or pursuant hereto or in connection with the transactions contemplated hereby, shall survive the Closing for a period of two (2) year.

 

14.2        Indemnification by Seller . Seller and the Sole Member hereby jointly and severally covenant and agree that notwithstanding any investigation made at any time by or on behalf of Buyer or any information Buyer may have and regardless of the Closing of the purchase of the Stock hereunder, Seller and the Sole Member shall indemnify Buyer and its directors, officers, and Affiliates, and each of their successors and assigns (each individually referred to herein as a “ Buyer Indemnified Party ”) and hold each harmless from, against and in respect of any and all costs (including interest which may be imposed in connection therewith, court costs and reasonable fees and disbursements of legal counsel) losses, claims, liabilities, fines, penalties, damages, demands, judgments, debts, obligations, causes of action and expenses (cumulatively referred to as the “ Indemnified Claims ”) arising by reason of or in connection with any of the following:

 

  21  

 

 

(a)       Any and all Indemnified Claims against a Buyer Indemnified Party of any nature, whether accrued, absolute, contingent or otherwise, other than the Assumed Liabilities referenced on Schedule 5.2, arising out of the business of Seller (whether known or unknown to Seller or any Buyer Indemnified Party), to the extent arising out of the operation of the ARALOC Business by Seller, except if (i) such liability results from or arises in connection with the breach of any of the representations, warranties, covenants or agreements made by Buyer in this Agreement, any Schedule or Exhibit hereto, any of the Transaction Documents, or any certificate, instrument or writing delivered in connection herewith or therewith; or (ii) such liability is included under Section 14.3, below;

 

(b)       Any material breach of, or any material inaccuracy in, any of the representations, warranties, covenants or agreements made by Seller or the Sole Member in this Agreement, any other agreement referred to herein, any Exhibit or Schedule to this Agreement, any of the Transaction Documents, or any certificate, instrument or writing delivered in connection therewith;

 

(c)       Any attempt (whether or not successful) by any person to cause or require a Buyer Indemnified Party to pay or discharge any debt, obligation, liability or commitment of Seller other than the Assumed Liabilities;

 

(d)       Any Proceeding arising out of or incidental to any of the matters indemnified against in this Section 14.2. However , Seller and the Sole Member shall not be obligated to indemnify a Buyer Indemnified Party and hold it harmless under this Section 14.2 with respect to any settlement of a claim to which Seller has not consented, which consent shall not unreasonably be withheld;

 

(e)       Any tax liabilities, and all interest, penalties, assessments and all other Indemnified Claims in respect thereof, of Seller;

 

(f)       Any and all Indemnified Claims arising by reason of or in connection with any act or omission pursuant to, or in breach of this Agreement, any other agreement referred to herein, any Exhibit or Schedule to this Agreement, any of the Transaction Documents, or any certificate, instrument or writing delivered in connection therewith, by Seller or the Sole Member; and

 

(g)       Any and all Indemnified Claims arising from or in any way related to any claim by an employee of Seller arising out of or related to employment with Seller.

 

14.3         Indemnification by Buyer . Buyer hereby covenants and agrees that notwithstanding any investigation made at any time by or on behalf of Buyer or any information Buyer may have and regardless of the Closing of the purchase of the Purchased Assets, Buyer shall indemnify Seller and its directors, officers, members, managers and Affiliates, and each of their successors and assigns (each individually referred to herein as a “ Seller Indemnified Party ”) and hold each harmless from, against and in respect of any and all Indemnified Claims arising by reason of or in connection with any of the following:

 

(a)       Any and all Indemnified Claims against a Seller Indemnified Party of any nature, whether accrued, absolute, contingent or otherwise attributable to any event occurring after the Closing (whether known or unknown to Seller, or Buyer), relating to Buyer’s ownership of the Purchased Assets or operation of the ARALOC Business from and after the Closing, except if (i) such liability results from or arises in connection with the breach of any of the representations, warranties, covenants or agreements made by Seller or the Sole Member in this Agreement, any other agreement referred to herein, any Schedule or Exhibit hereto, any of the Transaction Documents, or any certificate, instrument or writing delivered in connection herewith or therewith; or (ii) such liability is included under Section 14.2, above;

 

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(b)       Any material breach of, or any material inaccuracy in, any of the representations, warranties, covenants or agreements made by Buyer in this Agreement, any other agreement referred to herein, any Exhibit or Schedule to this Agreement, any of the Transaction Documents, or any certificate, instrument or writing delivered in connection therewith;

 

(c)       Any attempt (whether or not successful) by any person to cause or require a Seller Indemnified Party to pay or discharge any debt, obligation, liability or commitment of Buyer; and

 

(d)       Any Proceeding arising out of or incidental to any of the matters indemnified against in this Section 14.3. However , Buyer shall not be obligated to indemnify a Seller Indemnified Party and hold it harmless under this Section 14.3 with respect to any settlement of a claim to which Buyer has not consented, which consent shall not unreasonably be withheld.

 

14.4         Right to Defend . If the facts giving rise to any claim for indemnification under this Article XIV shall involve any actual claim or demand by any third person against a Buyer Indemnified Party or a Seller Indemnified Party (cumulatively referred to hereinafter as an “ Indemnified Party ”), the indemnifying party shall be entitled to notice of and entitled to (without prejudice to the right of any Indemnified Party to participate at its own expense with counsel if its own choosing) defend or prosecute such claim at its own expense and through counsel of its own choosing if it gives written notice of its intention to do so no later than the time by which the interests of the Indemnified Party would be materially prejudiced as a result of its failure to have received such notice. However , if the defendants in any action shall include both the indemnifying party and the Indemnified Party, and the Indemnified Party shall have reasonably concluded that counsel selected by the indemnifying party has a conflict of interest because of the availability of different or additional defenses to the Indemnified Party, the Indemnified Party shall have the right to select separate counsel to participate in the defense of such action on its behalf, at the expense of the indemnifying party. The Indemnified Party shall cooperate fully in the defense of such claim and shall make available to the indemnifying party pertinent information under its control relating thereto, but shall be entitled to be reimbursed, as provided in this Article XIV, for all costs and expenses incurred by it in connection therewith.

 

14.5        Knowledge of Breach . Notwithstanding any provision contained in this Agreement to the contrary, no Indemnified Party shall be entitled to indemnification under this Article XIV with respect to any matter of which such Indemnified Party had Knowledge as of the Closing.

 

XV

NOTICES

 

All notices, requests, demands and other communications required or permitted to be given hereunder shall be effected pursuant to Section 16.9, below, as follows:

 

If to Buyer : With a copy to :
Mr. Jason Remillard Keith A. Rosenbaum, Esq.
DATA443 RISK MITIGATION, INC. SPECTRUM LAW GROUP, APC
1053 E. Whitaker Mill Road 23 Corporate Plaza Drive
Suite 115 Suite 150
Raleigh, North Carolina 27604 Newport Beach, California 92660
jason@data443.com keith@spcetrumlawgroup.com
   
If to Seller or the Sole Member : With a Copy to :
Mr.James Coyne Edward T. Lawlor, Esq.
MODEVITY, INC. 115 N. Jackson Street
Malvern, PA Media, PA 19063
  elawlor@swartzcampbell.com

 

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XVI

ADDITIONAL PROVISIONS

 

16.1        Executed Counterparts . This Agreement may be executed in any number of counterparts, all of which when taken together shall be considered one and the same agreement, it being understood that all Parties need not sign the same counterpart. In the event that any signature is delivered by Fax or E-Mail, such signature shall create a valid and binding obligation of that Party (or on whose behalf such signature is executed) with the same force and effect as an original thereof. Any photographic, photocopy, or similar reproduction copy of this Agreement, with all signatures reproduced on one or more sets of signature pages, shall be considered for all purposes as if it were an executed counterpart of this Agreement.

 

16.2        Enforcement . The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that the Parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. The remedies of the Parties under this Agreement are cumulative and shall not exclude any other remedies to which any person may be lawfully entitled.

 

16.3        Waiver . No failure by any Party to insist on the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy on a breach shall constitute a waiver of any such breach or of any other covenant, duty, agreement, or condition.

 

16.4        Recovery of Fees by Prevailing Party . In the event of any legal action (including arbitration) to enforce or interpret this Agreement, the non-prevailing Party shall pay the reasonable attorneys’ fees and other costs and expenses (including expert witness fees) of the prevailing Party in such amount as the may be determined. In addition, such non-prevailing Party shall pay reasonable attorneys’ fees incurred by the prevailing Party in enforcing, or on appeal from, a judgment in favor of the prevailing Party. The preceding sentence is intended by the Parties to be severable from the other provisions of this Agreement and to survive and not be merged into such judgment.

 

16.5        Recitals . The facts recited in Article II, above, are hereby conclusively presumed to be true as between and affecting the Parties.

 

16.6        Amendment . This Agreement may be amended or modified only by a writing signed by all Parties.

 

16.7        No Third Party Beneficiaries . This Agreement has been entered into solely by and between the Parties, solely for their benefit. Except as otherwise expressly provided for herein, there is no intent by any Party to create or establish a third party beneficiary to this Agreement, and no such third party shall have any right to enforce any right, claim, or cause of action created or established under this Agreement.

 

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16.8        Further Assurances . Each Party agrees (i) to furnish upon request to each other Party such further information; (ii) to execute and deliver to each other Party such other documents; and, (iii) to do such other acts and things, all as another Party may reasonably request for the purpose of carrying out the intent of this Agreement and the transactions envisioned hereunder. However , this provision shall not require that any additional representations or warranties be made and no Party shall be required to incur any material expense or potential exposure to legal liability pursuant to this Section 16.8.

 

16.9         Notices .

 

16.9.1.        Method and Delivery . All notices, requests and demands hereunder shall be in writing and delivered by hand, by Electronic Transmission, by mail, or by recognized commercial over-night delivery service (such as Federal Express or UPS), and shall be deemed given (a) if by hand delivery, upon such delivery; (b) if by Electronic Transmission, upon telephone confirmation of receipt of same; (c) if by mail, forty-eight (48) hours after deposit in the United States mail, first class, registered or certified mail, postage prepaid; or, (d) if by recognized commercial over-night delivery service, upon such delivery.

 

16.9.2.        Consent to Electronic Transmission . Each Party hereby expressly consents to the use of Electronic Transmission for communications and notices under this Agreement. For purposes of this Agreement, “ Electronic Transmission ” means a communication (i) delivered by Fax or E-Mail when directed to the Fax number or E-Mail address, respectively, for that recipient on record with the sending Party; and, (ii) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form.

 

16.9.3.        Address Changes . Any Party may alter the Fax number, E-Mail address, physical address, or postage address to which communications or copies are to be sent by giving notice of such change of address to the other Parties in accordance with the provisions of this Section 16.9.

 

16.10        Best Efforts . Each Party shall cooperate in good faith with the other Parties generally, and in particular, the Parties shall use and exercise their best efforts, taking all reasonable, ordinary and necessary measures to ensure an orderly and smooth relationship under this Agreement, and further agree to work together and negotiate in good faith to resolve any differences or problems which may arise in the future. However , the obligations under this Section 16.10 shall not include any obligation to incur substantial expense or liability.

 

XVII

EXECUTION

 

IN WITNESS WHEREOF , this ASSET PURCHASE AGREEMENT has been duly executed by the Parties and shall be effective as of and on the Execution Date. Each of the undersigned Parties hereby represents and warrants that it (i) has the requisite power and authority to enter into and carry out the terms and conditions of this Agreement, as well as all transactions contemplated hereunder; and, (ii) it is duly authorized and empowered to execute and deliver this Agreement.

 

[ SIGNATURES APPEAR ON NEXT PAGE]

 

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BUYER :   SELLER :
     
DATA443 RISK MITIGATION, INC.,   MODEVITY, LLC,
a North Carolina corporation   a Pennsylvania limited liability company
         
BY:             BY:         
         
NAME:     NAME:  
         
TITLE:     TITLE:  
         
DATED:     DATED:  

 

SOLE MEMBER :  
   
   
JIM COYNE  

 

DATED:

 

LANDSTAR : With regard only to the obligations to issue all Shares, and any Additional Shares, hereunder.

 

LANDSTAR, INC.,  
a Nevada corporation  
   
BY:          
     
NAME:    
     
TITLE:    
     
DATED:    

 

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EXHIBIT II-C

PURCHASED ASSETS

 

All “intellectual property” , including though not limited to, any and all of the following in any jurisdiction throughout the world: (i) trademarks, service marks, trade dress, trade names, brands, slogans, logos, Internet domain names, and corporate names, all translations, adaptations, derivations, and combinations of the foregoing, and all applications, registrations, and renewals in connection therewith, together with all of the goodwill associated with the foregoing; (ii) copyrights and works of authorship (whether or not copyrightable), and moral rights, and all applications, registrations, and renewals; (iii) computer software (including source code and object code, data, databases and documentation thereof); (iv) trade secrets and other confidential or proprietary information, know-how, processes, formulations, methods and techniques, research and development information, industry analyses, drawings, specifications, designs, plans, proposals, industrial models, technical data, financial and accounting data, business and marketing plans and customer and supplier lists and related information; (v) patents (including all reissues, divisionals, provisionals, continuations and continuations-in-part, re-examinations, renewals, substitutions and extensions thereof), patent applications, and other patent rights and any other governmental authority-issued indicia of invention ownership (including inventor’s certificates, petty patents and patent utility models); (vi) copies and tangible embodiments of any of the foregoing, in whatever form or medium; and, (vii) all other intellectual property and industrial property rights and assets, and all rights, interests and protections that are associated with, similar to, or required for the exercise of, any of the foregoing.

 

All “intangible personal property” , including though not limited to, any and all of the following in any jurisdiction throughout the world: (i) all domains owned or used by Seller, as well as all code and content embedded in or contained on the websites, to specifically include, without limitation, www.araloc.com; (ii) all phone and fax numbers; (iii) all E-Mail addresses; (iv) all social media accounts used in connection with the business of Seller; (v) all “apps” and all information relating to research & development, new products, marketing, business plans, and market intelligence related to said apps; and, (vi) all proprietary rights granted by employees and contractors to Seller.

 

All “apps” used by Seller or under development or otherwise owned or licensed by Seller, as well as all the source code, software, trade secrets, processes, ideas, know-how, improvements, discoveries, developments, designs, techniques and contract rights related thereto.

 

All “books and records” , including though not limited to customer lists; customer purchasing histories; price lists; discount schedules; distribution lists; supplier lists; vendor lists; product SKU’s and descriptions; production data; quality control records and procedures; customer complaints and inquiry files; research and development files; records and data (including all correspondence with any governmental authority); sales material and records; strategic plans; internal financial statements; and, marketing and promotional surveys, material, and research.

 

All packaging, supplies, parts, and related items.

 

All permits used in connection with the business, though only to the extent transferrable and desired by Buyer.

 

All “goodwill” associated with any of the Purchased Assets.

 

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EXHIBIT II-E

LOI

 

  28  

 

 

EXHIBIT 4.1-A

BILL OF SALE

 

  29  

 

 

EXHIBIT 4.1-B

IP ASSIGNMENT

 

  30  

 

 

EXHIBIT 4.3.2.(D)

THE NOTE

 

  31  

 

 

EXHIBIT 4.3.2.(E)

SECURITY AGREEMENT

 

  32  

 

 

EXHIBIT 10.1.5.(a)

COVENANTS AGREEMENT

 

  33  

 

 

EXHIBIT 12.2(d)

SELLER CLOSING CERTIFICATE

 

  34  

 

 

EXHIBIT 12.2(e)

DOMAIN ASSIGNMENT

 

  35  

 

 

EXHIBIT 13.1.1.

MONTHLY CERTIFIED STATEMENT OF COLLECTED AMOUNT

 

  36  

 

 

SCHEDULE 5.1

EXCLUDED ASSETS

 

Office furniture and fixtures; equipment not otherwise specifically identified as a Purchased Asset; all leases; accounts receivable; and cash on hand.

 

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SECURED PROMISSORY NOTE

 

 

DATA443 RISK MITIGATION, INC.,

AS PAYOR

 

MODEVITY, LLC,

AS HOLDER

 

____________, 2018

 

     
 

 

SECURED PROMISSORY NOTE

 

$750,000.00 Raleigh, North Carolina
 

__ __________, 2018

 

THIS SECURED PROMISSORY NOTE (the “ Note ”) is being issued and executed by DATA443 RISK MITIGATION, INC., a North Carolina corporation (“ Payor ”), in favor of and being delivered to MODEVITY, LLC, a Pennsylvania limited liability company (“ Holder ”) in connection with, and pursuant to, that certain Asset Purchase Agreement concurrently executed by and between Payor and Holder (the “ Purchase Agreement ”). This Note is intended to embody that portion of the Purchase Price (as defined in the Purchase Agreement) which is payable to Holder pursuant to Section 4.3.2.(d) of the Purchase Agreement, and is the same Note as attached to the Purchase Agreement as Exhibit 4.3.2.(d). Unless otherwise separately defined herein, all capitalized terms used in this Note shall have the same meaning as set forth in the Purchase Agreement.

 

FOR VALUE RECEIVED , Payor does hereby unconditionally promise to pay to the order of Holder the original principal balance of SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000) in legal and lawful money of the United States of America, pursuant to the following terms and conditions:

 

I

PAYMENT OBLIGATIONS

 

1.1 Required Payments . Payments of principal (no interest is charged hereunder) shall be made in ten (10) equal monthly principal installments of SEVENTY FIVE THOUSAND DOLLARS ($75,000). Said payments shall begin on the thirtieth (30 th ) day following the Closing Date, and continue thereafter on the same day of each successive month until the ten (10) month anniversary of the Closing Date (the “Maturity Date”), at which time the entire remaining principal amount, plus any and all accrued interest and all other amounts due hereunder, shall be due and payable.

 

1.2 Default Interest Rate . Without limitation on Holder’s other rights and remedies, upon the earliest to occur of an Event of Default or the Maturity Date, accelerated or otherwise, and until payment in full of the amount due hereunder, the rate of interest accruing on the unpaid principal balance shall be at the rate equal to the highest rate permitted under applicable law (the “ Default Rate ”), from and after the date of the Event of Default, irrespective of the acceleration of the unpaid principal balance. This Section 1.2 shall not be construed as an agreement or privilege to extend the date upon which payment in full is due hereunder, or a waiver of any other right or remedy available to Holder hereunder.

 

1.3 Prepayments . Payor shall have the right, at any time, to prepay any unpaid principal or interest due hereunder without penalty.

 

1.4 Delivery of Payments . All payments under this Note, whether of principal or interest, or both, shall be made to Holder in lawful money of the United States at such place as Holder shall designate in writing to Payor, without any offset, reduction, or recoupment whatsoever, unless expressly provided to the contrary herein. All payments shall be applied first against outstanding fees and damages, then against accrued interest, and then applied in reduction of the principal sum due hereunder. Upon assignment of the interest of Holder in this Note, Payor shall instead make its payment pursuant to the assignee’s instructions upon receipt of written notice thereof.

 

1.5 Illegality . Nothing in this Note shall be construed or shall operate, either presently or prospectively, (a) to require Payor to pay interest at a rate greater than is at any time lawful in such case to contract for but shall require payment of interest only to the extent of such lawful rate; or, (b) to require Payor to make any payment or do any act contrary to law. If it should be held that the interest payable under this Note is in excess of the maximum permitted by law, the interest chargeable hereunder (whether included in the face amount or otherwise) shall be reduced to the maximum amount permitted by law, and any excess of the said maximum amount permitted by law shall be cancelled automatically and, at the option of Holder, if theretofore or thereafter paid, shall be either refunded to Payor or credited to the principal balance of this Note (without prepayment penalties) and applied to the payment of the last maturing installment or installments of the indebtedness evidenced hereby (whether or not then due and payable) and not to the payment of interest.

 

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1.6 Security Interest . This Note is secured by a security interest granted by Payor to Holder pursuant to a Security Agreement concurrently executed by Payor and Holder (the “ Security Agreement ”). This Note is subject to all terms and conditions of the Security Agreement. Payor acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against the Payor, or if any of the Collateral (as defined in the Security Agreement) should become the subject of any bankruptcy or insolvency proceeding, then Holder will be entitled to, among other relief to which the Holder may be entitled under this Note, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit Holder to exercise all of its rights and remedies pursuant to the Security Agreement and/or applicable law. PAYOR EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362. FURTHERMORE, PAYOR EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE, OR INHIBIT IN ANY WAY THE ABILITY OF HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE SECURITY AGREEMENT AND/OR APPLICABLE LAW. Payor hereby consents to any motion for relief from stay that may be filed by Holder in any bankruptcy or insolvency proceeding initiated by or against Payor and, further, agrees not to file any opposition to any motion for relief from stay filed by Holder. Payor represents, acknowledges, and agrees that this provision is a specific and material aspect of this Note and the Purchase Agreement, and that Holder would not agree to the terms of the Purchase Agreement if this waiver were not a part of this Note. Payor further represents, acknowledges, and agrees that (i) this waiver is knowingly, intelligently, and voluntarily made; (ii) neither Holder nor any person acting on behalf of Holder has made any representations to induce this waiver; and, (iii) Payor has been represented (or has had the opportunity to he represented) in the signing of this Note and all Transaction Documents and in the making of this waiver by independent legal counsel selected by Payor and that the Payor has discussed this waiver with counsel.

 

1.7 Purchase Agreement . This Note is entitled to the benefits of, and is subject to the terms contained in, the Purchase Agreement.

 

1.8 Covenants Agreements . This Note is entitled to the benefits of, and is subject to the terms contained in, that certain Business Covenants Agreement concurrently executed pursuant to the Purchase Agreement (the “ Covenants Agreement ”).

 

II

EVENTS OF DEFAULT AND REMEDIES

 

2.1 Events of Default . An “ Event of Default ” hereunder shall mean any of the following:

 

(a) If a default shall be made in the payment of any installment of principal or interest or any other amount due hereunder, as when due and payable and continuing for a period of ten (10) days following written notice thereof by Holder to Payor.

 

(b) If under any of the Transaction Documents, an Event of Default shall have occurred, as such term is defined in the particular Transaction Document.

 

(c) Any representation or warranty made in (i) this Note; (ii) any of the Transaction Documents; (iii) any written statement pursuant hereto or thereto; or, (iv) any other report, financial statement, or certificate made or delivered to Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

(d) The common stock of Payor shall not be eligible for listing or quotation for trading on a trading market and shall not be eligible to resume listing or quotation for trading thereon within ten (10) trading days;

 

  2  
 

 

(e) If at any time Holder fails to have a first priority perfected security interest in the Collateral; or  

 

(f) Payor shall be subject to a Bankruptcy Event. For purposes of this Note, the term “ Bankruptcy Event ” means any of the following events: (a) Payor commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Payor; (b) there is commenced against Payor any such case or proceeding that is not dismissed within sixty (60) calendar days after commencement; (c) a Payor is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) Payor suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within sixty (60) calendar days after such appointment; (e) Payor makes a general assignment for the benefit of creditors; (f) Payor calls a meeting of its creditors with a view to arranging a composition, adjustment, or restructuring of its debts; or, (g) Payor, by any act or failure to act, expressly indicates its consent to, approval of, or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

(g) If Payor’s business suspends business or ceases to exist.

 

2.2 Acceleration . At any time after the occurrence of an Event of Default and until such time as the Event of Default is cured and no longer existing, Holder may, by written notice sent to Payor, declare the entire amount of this Note to be forthwith due and payable, whereupon this Note shall become forthwith due and payable without presentment, demand, protest, or other notice of any kind, all of which are expressly waived. However , if Payor pays to Holder all scheduled installments of principal and interest due and owing (without regard to any acceleration hereunder) within ten (10) days of receipt of the notice referred to herein, then this Note shall be reinstated and such acceleration shall be deemed rescinded. No such rescission or reinstatement shall affect any subsequent Event of Default.

 

2.3 Remedies . Upon acceleration by Holder, Holder shall be entitled to those remedies contained in the Security Agreement and all other legal and equitable rights available under applicable law. The remedies of Holder shall be distinct and cumulative, and may be pursued singly, successively, or together, at the sole discretion of Holder, and may be exercised as often as occasion therefor shall arise. Failure to exercise any of the foregoing options upon the occurrence of an Event of Default shall not constitute a waiver of the right to exercise the same or any other option at any subsequent time in respect to the same or any other further exercise of the same or any other right or remedy. Holder shall have no duty to exercise any or all of the rights and remedies herein provided or contemplated. The acceptance by Holder of any payment hereunder that is less than payment in full of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the foregoing rights or remedies at that time, or nullify any prior exercise of any such rights or remedies without the express written consent of Holder.

 

2.4 Confession of Judgment for Possession .

 

(a) Payor, without further consent of or notice thereto, hereby irrevocably and unconditionally authorizes the prothonotary, clerk of court, or any attorney of any court of record in the Commonwealth of Pennsylvania, or any other jurisdiction, as attorney for Payor to appear for Payor in such court and, with or without one or more complaints filed, confess judgment or judgments against Payor in favor of Holder, and its successors and assigns, at any time following the occurrence and continuance of an event of default hereunder for all amounts due under this Note, with release of all errors and waiver of any right to a stay of execution, for which this Note or a verified copy hereof shall be sufficient warrant. The authority to enter judgment solely for possession of the Collateral, as defined in the Security Agreement, shall not be exhausted by one exercise hereof, but, to the extent permitted by law, shall continue from time to time until full payment of all amounts hereunder. The foregoing right and remedy is in addition to and not in lieu of any other right or remedy available to Holder under this Note or otherwise.

 

(b) Payor, being fully aware of the right to prior notice and a hearing concerning the validity of any and all claims that may be asserted against Payor by Holder before a judgment can be rendered hereunder or before execution may be levied on such judgment against the Collateral, hereby waives these rights and agrees and consents to judgment being entered by confession for possession of the Collateral, in accordance with the terms hereof without first giving notice and the opportunity to be heard on the validity of the claim or claims upon which such judgment is entered.

 

  3  
 

 

(c) Holder may confess one or more judgments in the same or different jurisdictions for all amounts owing hereunder, without regard to whether judgment has theretofore been confessed on more than one occasion for the same amount. In the event any judgment confessed against Payor hereunder is stricken or opened upon application by or on Payor’s behalf for any reason, Holder is hereby authorized and empowered to again appear for and confess judgment against Payor for any part or all of the amounts owing hereunder, as provided for herein, if doing so will cure any errors or defects in such prior proceedings.

 

(d) Payor acknowledges and agrees that Holder may, after entry of judgment, foreclose upon, attach, levy, take possession of or otherwise seize the Collateral in full payment of the judgment, including but not limited to the passwords and codes for the AraLoc Business Assets, as defined in the Purchase Agreement. Being fully aware of its rights after judgment is entered, Payor hereby freely, knowingly and intelligently waives these rights and expressly agrees and consents to Holder taking such actions as may be permitted under applicable law without prior notice to Payor.

 

III

ADDITIONAL PROVISIONS

 

3.1 Waiver . The granting, without notice, of any extension or extensions of time for payment of any sum or sums due hereunder, or for the performance of any covenant, condition or agreement contained herein, or the granting of any other indulgences to Payor, or any other modification or amendment of this Note shall in no way release or discharge the liability of Payor, or of any endorser, guarantor or other person secondarily liable for this Note. Payor and any other persons presently liable hereon agree that additional makers, endorsers, guarantors or sureties may become parties hereto or liable hereon without notice to them and without affecting their liability hereunder. Unless agreed to the contrary in writing, failure or delay on the part of Holder to enforce any provision of this Note shall not be deemed a waiver of any such provision, nor shall the Holder be estopped from enforcing any such provision at a later time.

 

3.2 Absolute Obligation . Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of Payor, which is absolute and unconditional, to pay the principal, accrued interest, and all other amounts due hereunder, at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of Payor.

 

3.3 Amendment and Assignability . This Note may be amended or modified only by a writing signed by all parties. This Note shall apply to and bind Payor and each of its successors and assigns. Payor may not assign its obligations under this Note without Holder’s prior written consent, and any such assignment shall not relieve Payor of its obligations hereunder.

 

3.4 Selected Provisions of the Purchase Agreement . To the extent not expressly inconsistent with this Note, and applying all necessary revisions to apply to this Note, Sections 3.3 and 3.4, and Article XVI of the Purchase Agreement are hereby expressly incorporated herein by reference as if set forth in full herein.

 

3.5 Waiver of Jury Trial . PAYOR HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND WHETHER ARISING OUT OF, UNDER OR BY REASON OF THIS NOTE OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR ANY ASSIGNMENT OR TRANSACTION THEREUNDER. PAYOR UNDERSTANDS THAT HOLDER IS RELYING ON THIS WAIVER IN MAKING THE LOAN EVIDENCED BY THIS NOTE.

 

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IV

EXECUTION

 

Payor hereby represents and warrants that it (i) has the requisite power and authority to enter into and carry out the terms and conditions of this Note, as well as all transactions contemplated hereunder; and, (ii) it is duly authorized and empowered to execute and deliver this Note.

 

  PAYOR :
   
  DATA443 RISK MITIGATION, INC.,
  a North Carolina corporation
   
  BY: ___________________________
  NAME: _________________________
  TITLE: ________________________
  DATED: __________________

 

ACCEPTANCE AND ACKNOWLEDGEMENT

 

Holder hereby accepts receipt of this Note and acknowledges that said acceptance shall serve as evidence of payment of part of the Purchase Price under the Purchase Agreement.

 

  HOLDER :
   
  MODEVITY, LLC,
  a Pennsylvania limited liability company
   
  BY: ___________________________
  NAME: ________________________
  TITLE: _________________________
  DATED : ________________________

 

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SECURITY AGREEMENT

 

 

MODEVITY, LLC,

AS THE SECURED PARTY

 

and

 

DATA443 RISK MITIGATION, INC.,

AS THE DEBTOR

 

 

_________________, 2018

 

 
 

 

SECURITY AGREEMENT

 

I

PARTIES

 

THIS SECURITY AGREEMENT (the “ Agreement ”) is entered into effective as of the ____ day of ________, 2018, by and between MODEVITY, LLC, a Pennsylvania limited liability company (“ Secured Party ”); and , DATA443 RISK MITIGATION, INC., a North Carolina corporation (“ Debtor ”). Debtor and Secured Party are sometimes referred to collectively herein as the “Parties”, and each individually as a “Party”.

 

II

RECITALS

 

A. Debtor has concurrently acquired the Purchased Assets from Secured Party pursuant to an Asset Purchase Agreement concurrently executed by the Parties (the “ Purchase Agreement ”). Capitalized terms not defined herein shall have the same meanings attached to them as in the Purchase Agreement.

 

B. Pursuant to the Purchase Agreement, Debtor provided to Secured Party the Note as part of the Purchase Price.

 

C. This Agreement is the “ Security Agreement ” referred to in Section 4.3.2.(e) of the Purchase Agreement attached thereto as Exhibit 4.3.2.(e).

 

D. The Note is secured by this Agreement and is subject to all terms and conditions of the Note which are not expressly inconsistent with the terms and conditions hereof.

 

E. It is a condition precedent to the closing of the transactions contemplated under the Purchase Agreement that Debtor execute and deliver this Agreement.

 

F. Debtor desires to grant Secured Party a continuing security interest in the Collateral to secure Debtor’s performance under the Note and the Purchase Agreement.

 

G. NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

 

III

CREATION OF SECURITY INTEREST

 

3.1 Grant . Debtor hereby grants to Secured Party a present and continuing security interest (the “ Granted Interest ”) in the Purchased Assets (the “ Collateral ”). The Collateral shall specifically be limited to the following:

 

(a) Each, every, and all of the Purchased Assets and all replacements, substitutions, accessions, additions, and improvements thereto; and

 

(b) All proceeds of the Collateral, including but not limited to all accounts, instruments, contract rights, chattel paper, notes, general intangibles, goods, equipment, inventory, deposit accounts, money, and other tangible and intangible property of Debtor resulting from the sale or other disposition of the Collateral or the proceeds thereof, together with all proceeds of insurance relating thereto.

 

3.2 Obligations Secured . The Granted Interest is granted to secure the timely payment and performance of Debtor’s obligations under the Note and the Purchase Agreement (collectively, the “ Obligations ”), which Obligations include, without limitation, payment and performance of Debtor’s obligations under the Note.

 

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IV

DEBTOR’S RETAINED RIGHTS, OBLIGATIONS, WARRANTIES, AND REPRESENTATIONS

 

4.1 Debtor’s Treatment of Collateral . Debtor warrants, represents, and covenants to Secured Party that so long as the Note remains outstanding and Secured Party does not consent in writing to the contrary:

 

(a) Debtor will defend title to the Collateral and the Granted Interest of Secured Party therein against the claims and demands of all persons;

 

(b) Debtor will, at Debtor’s own cost and expense, keep the Collateral in a good state of repair, and maintain the Collateral in the ordinary course of business of the Debtor;

 

(c) Debtor will not waste, destroy, misuse, abuse, or illegally use the Collateral, or any part thereof, and will not be negligent in the care thereof;

 

(d) Debtor will keep the Collateral free and clear of all attachments, levies, taxes, liens, purchase money and other Security Interests, charges and all other encumbrances of every kind and nature (other than liens for taxes not yet due and payable);

 

(e) Debtor will not sell, assign, transfer, lease, exchange, hypothecate or in any way allow or suffer the Collateral, or any part thereof or any right or interest therein, to be transferred or come into the possession of any other person or removed from the Premises, other than (i) in the ordinary course of business of Debtor, or (ii) if relocated to any other facility which is owned or operated by Debtor or any of its affiliates;

 

(f) Debtor will keep the Collateral insured in accordance with present practice, and name Secured Party as an additional insured on all such insurance policies;

 

(g) Debtor will, at Debtor’s own cost and expense, pay prior to delinquency, all taxes or other charges levied against or otherwise respecting the Collateral;

 

(h) Debtor will, when requested by Secured Party, execute any and all written instruments and documents, and, at Debtor’s sole cost and expense, do any other acts necessary to effectuate the purposes and provisions of this Agreement, including but not limited to executing a Form UCC-1 covering the Collateral; and

 

(i) Debtor shall not be released from this Agreement because of the loss, injury, or destruction of the Collateral.

 

4.2 Encumbrances and the Like . Notwithstanding any other provision herein to the contrary, Debtor shall take all reasonably ordinary and necessary measures to ensure that the Debtor does not create or suffer to exist any Security Interest after the Closing Date in respect to the Collateral.

 

4.3 Retained Rights . Until an Event of Default hereunder, Debtor shall be entitled to retain possession and enjoy the use of the Collateral, subject to the provisions of Article V, below.

 

4.4 Change of Address . Debtor will immediately notify Secured Party of any change in Debtor’s address.

 

4.5 Express Waivers . Debtor hereby expressly waives:

 

(a) Diligence, presentment, protest, demand, and notice of every kind, except as required under the Note or the Purchase Agreement;

 

(b) The right, if any, to require Secured Party to proceed against any person liable for the payment of any of the Obligations of Debtor as a condition or prior to proceeding under this Agreement; and

 

2
 

 

(c) The right, if any, to require Secured Party to foreclose upon, sell or otherwise realize upon, collect or apply any other property, real or personal, securing any of the Obligations of Debtor as a condition or prior to proceeding hereunder.

 

4.6 Confession of Judgment for Possession . Section 2.4 of the Note, in its entirety, is hereby incorporated by reference as if set forth in full herein.

 

4.7 Insurance . Debtor, at Debtor’s sole cost and expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks ordinarily insured against by owners of similar properties in similar businesses for the full insurable value thereof, and shall maintain business interruption insurance and public liability and property damage insurance relating to Debtor’s ownership and use of Debtor’s other assets. All policies of insurance shall be in such form, with such companies, and in such amounts as may be satisfactory to Secured Party. Debtor shall deliver to Secured Party certified copies of all required policies of insurance and, at the request of Secured Party, evidence of the payment of all premiums therefore. All required policies of insurance (except those of public liability and property damage) shall contain an endorsement, in a form satisfactory to Secured Party, showing loss payable to Secured Party. Upon receipt by Secured Party, all proceeds shall be applied on the account of Debtor’s Obligations. To secure the payment of Debtor’s Obligations, Debtor grants Secured Party a Security Interest in and to all required policies of insurance (except those of public liability and property damage) and the proceeds thereof and shall direct all insurers to pay all proceeds directly to Secured Party. Debtor hereby irrevocably appoints Secured Party (and any of Secured Party’s designated officers, employees, or agents) as Debtor’s attorney-in-fact for the purpose of making, settling and adjusting claims and for making all determinations and decisions with respect to required policies of insurance. Each insurer shall agree by endorsement upon the policy or policies of insurance issued by it to Debtor, or by independent instruments furnished to Secured Party, that it will give Secured Party at least ten (10) days written notice before any policy or policies of insurance may be altered or cancelled, and that no act or default of Debtor, or any other person, shall affect the right of Secured Party to recover under any required policy or policies of insurance. Secured Party, without waiving or releasing any Obligations or defaults of Debtor hereunder, may, but shall not be required to, obtain and maintain any required policies of insurance and to pay premiums and take any other action which Secured Party deems advisable. All amounts disbursed by Secured Party under this Section 4.6, together with all costs and expenses, including reasonable attorney fees, shall be repaid by Debtor, together with interest at two percent (2%) above the prime interest rate (the “Prime Rate”) charged by commercial banks in New York, New York to its most credit worthy customers on unsecured commercial loans of ninety (90) day maturities, unless otherwise limited by applicable law.

 

4.8 Representations and Warranties Concerning the Business of Debtor . With regard to the business of Debtor, Debtor hereby represents and warrants to Secured Party as follows:

 

4.8.1. Organization . Debtor is a corporation, duly organized, validly existing, and in good standing under the laws of the State of North Carolina, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Debtor is not violation or default of any of the provisions of its Organizational Documents.

 

4.8.2. Execution and Performance of Agreement . Debtor has the requisite right, corporate power, authority, and capacity to enter into, execute, deliver, perform, and carry out the terms and conditions of this Agreement and each of the other instruments and agreements to be executed and delivered by Debtor in connection with this Agreement, as well as all transactions contemplated hereunder. All requisite corporate proceedings have been taken and Debtor has obtained all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance by Debtor of this Agreement, and the Purchase Agreement to which it is a party. This Agreement has been duly and validly executed and delivered by Debtor and constitutes the valid, binding, and enforceable obligation of Debtor, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditor’s rights generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law.

 

3
 

 

4.8.3. Effect of Agreement . As of the Closing Date the consummation by Debtor of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement and the Purchase Agreement to which it is a party, will not:

 

(a) Violate any Requirement of Law applicable to or binding upon Debtor or any of its assets;

 

(b) Violate (i) the terms of any of the Organizational Documents of Debtor; or, (ii) any material agreement, contract, mortgage, indenture, bond, bill, note, or other material instrument or writing binding upon Debtor or to which Debtor is subject;

 

(c) Accelerate or constitute an event entitling the holder of any indebtedness of Debtor to accelerate the maturity of such indebtedness or to increase the rate of interest presently in effect with respect to such indebtedness; or

 

(d) Result in the breach of, constitute a default under, constitute an event which with notice or lapse of time, or both, would become a default under, or result in the creation of any Security Interest upon any part of the assets of Debtor or any other assets of Debtor under any agreement, commitment, contract (written or oral) or other instrument to which Debtor is a party, or by which any of its assets (or any part thereof) is bound or affected.

 

4.8.4. Consents . No consents, approvals or other authorizations or notices, other than those which have been obtained and are in full force and effect, are required by any state or federal regulatory authority or other person or entity in connection with the execution and delivery of the Purchase Agreement and the performance of any obligations contemplated thereby.

 

V

RIGHTS OF SECURED PARTY

 

5.1 Source Codes . All source codes and similar solutions related to the ARALOC system and software, as well as sole administrative access to third party automated technology support services accounts, marketing support accounts, and other services necessary to maintain control over the ARALOC software and system shall be maintained and retained by Secured Party as part of the Collateral.

 

5.2 Additional Enforcement Rights . In addition to all other rights afforded Secured Party hereunder, Secured Party may, at Secured Party’s option, from time-to-time, and without notice to Debtor except as otherwise required hereunder, and without affecting the obligations of Debtor:

 

(a) pay, purchase, contest, compromise or discharge any Security Interests, which, in Secured Party’s judgment, may affect or appear to affect the Collateral or Secured Party’s rights under this Agreement;

 

(b) pay for the maintenance and preservation of the Collateral, with all amounts advanced by Secured Party under this Article V, together with all costs and expenses, including reasonable attorney fees, shall be repaid by Debtor;

 

(c) release, renew, or extend the time or terms of payment of any Obligation;

 

(d) release, surrender, or substitute any property or other security;

 

(e) accept any type of further security therefore;

 

4
 

 

(f) demand that Debtor shall, and Debtor shall act to, at the sole expense of Debtor, promptly execute and deliver any and all such further instruments and documents and take such further action as Secured Party Debtor may reasonably deem necessary to obtain the full benefits of the rights and powers herein granted;

 

(g) take all action as Secured Party may reasonably deem necessary to obtain the full benefits of the rights and powers herein granted, including but not limited to filing any financing or continuation statements under the UCC or any federal law with respect to the Granted Interest granted hereby, executing and filing any mortgage or other agreement, paying any necessary filing fees or taxes, executing any additional agreement, granting any proxy or power, giving any notice, or otherwise; and

 

(h) file financing statements and continuation statements without the signature of or other authentication by Debtor to the extent permitted by applicable law.

 

VI

DEFAULT AND ACCELERATION

 

6.1 Event of Default . An “ Event of Default ” hereunder shall include the following:

 

(a) Default by Debtor in the payment or performance of any of the Obligations, which default is not cured within the cure period and in compliance with any other cure requirements, as provided in the document underlying the Obligation in default; or

 

(b) Default by Debtor of any material provision hereunder and not cured within fifteen (15) days after Debtor’s receipt of written notice from Secured Party identifying the material breach.

 

6.2 Acceleration . Upon an Event of Default, all Obligations secured by this Agreement shall immediately become due and payable at the option of Secured Party.

 

6.3 Remedies . Upon a default by Debtor, and at the option of Secured Party, all of Debtor’s Obligations shall become immediately due and payable without notice or demand (except as otherwise required hereunder or under any of the Settlement Documents), and then and thereafter Secured Party shall have all of the rights and remedies of a secured party under the Nevada Uniform Commercial Code. Secured Party shall have the immediate right to:

 

(a) Notify all persons indebted to Debtor under leases, trade accounts and other obligations to make all payments solely and directly to Secured Party;

 

(b) Take and maintain possession of the Collateral and in so doing, alone or with any other person, enter upon the premises where the Collateral may be found or believed by Secured Party to be located. Debtor hereby waives all claims for damages and otherwise, due to, arising from, or connected with any entry upon the premises or any seizure of the Collateral by Secured Party;

 

(c) Maintain possession and dispose of the Collateral on any premises of Debtor or under Debtor’s control; or

 

(d) Remove the Collateral or any part thereof to any place Secured Party may desire.

 

6.4 No Deficiency . Debtor shall not be liable for any deficiency if the Collateral is insufficient to pay all amounts to which the Secured Party is entitled hereunder.

 

6.5 Sale of Collateral . If requested by Secured Party, Debtor shall assemble and make the Collateral available to Secured Party at a place to be designated by Secured Party. In the event of a sale by Secured Party after an Event of Default by Debtor, the Collateral need not be in view of those present attending the sale, or at the same location at which the sale is being conducted. Secured Party may sell the Collateral in such order, priority, and lots as is commercially reasonable in the opinion of Secured Party. Debtor shall receive all notices of sale required to be given and which cannot be waived by law, all other notices of every type, nature, or kind being hereby expressly waived by Debtor. Any notice required to be given by law shall be conclusively presumed given and received by Debtor when it is mailed, postage prepaid, to Debtor at Debtor’s last business address known to Secured Party. Unless the Collateral is perishable, depreciates rapidly, or is of a type customarily sold on a recognized market, Debtor will be given reasonable notice of the time and place of any public sale, or of the time on or after which any private sale or other intended disposition is to be made. The requirements of reasonable notice shall be met if notice is mailed, postage prepaid, to Debtor at least five (5) days before the time of sale or other disposition. Secured Party may be the purchaser at any public sale of the Collateral.

 

5
 

 

VII

TERM

 

This Agreement and the Granted Interest created hereunder shall remain in effect until such time as no indebtedness is owing to Secured Party under the Note. Upon payment in full of all of the indebtedness of Debtor under the Note, this Agreement shall terminate and be of no further force or effect. The Debtor shall thereafter be entitled to file a termination statement of the Granted Interest (commonly referred to as a Form UCC-2).

 

VIII

ADDITIONAL PROVISIONS

 

To the extent not expressly inconsistent with this Agreement, and applying all necessary revisions to apply to this Agreement, Sections 3.3 and 3.4, and Article XVI of the Purchase Agreement are hereby expressly incorporated herein by reference as if set forth in full herein.

 

IX

EXECUTION

 

IN WITNESS WHEREOF , this SECURITY AGREEMENT has been duly executed by the Parties and shall be effective as of and on the Closing Date. Each of the undersigned Parties hereby represents and warrants that it (i) has the requisite power and authority to enter into and carry out the terms and conditions of this Agreement, as well as all transactions contemplated hereunder; and, (ii) it is duly authorized and empowered to execute and deliver this Agreement.

 

SECURED PARTY :   DEBTOR :
                   
MODEVITY, LLC,   DATA443 RISK MITIGATION, INC.,
a Pennsylvania limited liability company   a North Carolina corporation
                              
BY:            BY:         
NAME:     NAME:  
TITLE:     TITLE:  
DATED:     DATED:  

 

6
 

 

 

DEBT RESTRUCTURING AGREEMENT

 

I

PARTIES

 

THIS DEBT RESTRUCTURING AGREEMENT (the “ Agreement ”) is entered into as of the 30 th day of September, 2018 (the “ Effective Date ”), by and between LANDSTAR, INC., a Nevada corporation (“ LDSR ”); and , BLUE CITI LLC, a New York limited liability company (“ Blue Citi ”). LDSR and Blue Citi are sometimes referred to collectively herein as the “ Parties ”, and each individually as a “ Party ”.

 

II

RECITALS

 

A. LDSR has previously issued in favor of Blue Citi a series of convertible promissory notes in the original total principal amount of Eight Hundred Ten Thousand Dollars ($810,000), which notes are collectively referred to herein as the “ Convertible Notes ”.

 

B. LDSR and Blue Citi have also previously entered into that certain Equity Purchase Agreement dated 5 February 2018 (the “ Purchase Agreement ”) providing for an “ Equity Line ”. In connection with the Equity Line, the Parties also entered into a Registration Rights Agreement (the “ Registration Agreement ”).

 

C. As part of the Equity Line, LDSR also issued to Blue Citi its convertible note dated 6 February 2018 in the original principal amount of $25,000 (the “ Expense Note ”).

 

D. Blue Citi believes that there currently exists a number of Events of Default under the Convertible Note, with all such alleged Events of Default referred to herein as the “ Defaults ”.

 

E. The Parties wish to cancel the Equity Line and restructure the debt represented by the Convertible Notes and the Expense Note.

 

F. Blue Citi is willing to waive its rights to remedy the Defaults provided that LDSR complies with the terms of this Agreement.

 

G. NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:

 

III

CANCELLATION OF THE EQUITY LINE

 

3.1 Cancellation . The Parties hereby agree that as of and on the Effective Date, the Parties have hereby cancelled the Equity Line. The Purchase Agreement and the Registration Agreement are each cancelled in their respective entirety and shall be of no further force and effect, and the Equity Line shall be completely null and void.

 

3.2 Commitment Shares . The obligation to issue the Commitment Shares to Blue Citi, as defined and provided for in Section 4.1.2. of the Purchase Agreement, is hereby null and void in all respects. The Commitment Shares will not be issued, and Blue Citi shall have no further right to receive the Commitment Shares.

 

3.3 Expense Note . Notwithstanding any other provision herein to the contrary, the Expense Note shall become part of the Consolidated Note, as provided for in Section 4.2, below. Once included as part of the Consolidated Note, the Expense Note shall be of no further force and effect, other than to represent the original issuance date of the Expense Note, which the Parties agree is 06 February 2018.

 

1

 

 

IV

CONSOLIDATION OF OBLIGATIONS

 

4.1 Consolidated Debt . The Parties hereby that as of the Effective Date, the total amount owed by LDSR to Blue Citi under the Convertible Note and the Expense Note, including all interests and all other amounts (the “ Consolidated Debt ”) is Eight Hundred Twenty Nine Thousand Six Hundred Eighty Dollars ($829,680). The calculation of the Consolidated Debt is reflected and summarized on Exhibit 4.1, attached hereto and incorporated herein by reference.

 

4.2 Consolidated Note . Concurrent with the execution of this Agreement, LDSR shall issue and deliver to Blue Citi the Consolidated Note, in the form of Exhibit 4.2, attached hereto and incorporated herein by reference. The Consolidated Note, among other things:

 

(a) Represents the entire Consolidated Debt;

 

(b) completely replaces and supersedes Expense Note and each of the Convertible Notes, each of which shall be of no further force and effect;

 

(c) was issued in exchange for the Expense and the Convertible Notes.

 

4.3 No Continued Effectiveness . Except as to provide the original date of investment, the Expense Note and each of the Convertible Notes shall be null and void as of the Effective Date.

 

4.4 Amount Owed . The amount of principal owed under the Consolidated Note as of the Effective Date is hereby agreed to be the Consolidated Debt. After the Effective Date, interest shall accrue on the Consolidated Debt. No other imposition of any penalties, additional interest, or any other amounts shall be included in the Consolidated Debt. However, in the event of an Event of Default under the Consolidated Note after the Effective Date, then Blue Citi shall also be entitled to all remedies provided under the Consolidated Note.

 

4.5 Conversion Rights . All conversion rights under the Expense Note and the Convertible Notes are replaced by the Consolidated Note. The conversion discount shall be reduced from twenty-five percent (25%) to ten percent (10%).

 

4.6 Right of First Refusal . So long as any portion of the Consolidation Note remain outstanding, LDSR covenants and agrees that it will not, without first giving Blue Citi a right of first refusal, enter into any equity line of credit agreement with a third party, or any other arrangement or agreement having terms and conditions substantially comparable to the Equity Line. Agreement. For the avoidance of doubt, nothing contained in this Agreement shall restrict, or require the consent of Blue Citi for any agreement providing for the issuance or distribution of (or the issuance or distribution of) any equity securities pursuant to any agreement or arrangement that is not commonly understood to be an “equity line of credit”. LDSR shall deliver all written agreements and documents for any arrangement under this Section 4.6 no later than 20-days prior to proposed closing of said transaction. Blue Citi shall thereafter have the right to enter into the proposed transaction under the same terms and conditions up to and until the day prior to the proposed closing date.

 

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V

AGREEMENT TO WAIVE CLAIMS

 

Blue Citi hereby agrees to waive all Defaults, and all known and unknown claims arising under or related to the Equity Line, the Convertible Notes, and the Expense Note as of the Effective Date. Blue Citi will not exercise any of its rights and remedies as to any of the Defaults as of the Effective Date. Upon the occurrence of any subsequent Event of Default under the Consolidated Note after the Effective Date, Blue Citi shall be free to exercise all rights and remedies afforded Blue Citi under the Consolidated Note. The execution and delivery of this Agreement shall not: (a) give rise to any obligation on the part of Blue Citi to extend, modify, or waive any term or condition of the Consolidated Note in the future; (b) give rise to any defenses or counterclaims to the right of Blue Citi to compel payment or conversion of all amounts due under the Consolidated Note or to otherwise enforce its rights and remedies under the Consolidated Note; or, (c) establish a custom or course of dealing between or among LDSR and Blue Citi.

 

VI

REPRESENTATIONS AND WARRANTIES

 

6.1 LDSR . LDSR hereby represents and warrants to Blue Citi as follows as of the Effective Date:

 

(a) The execution, delivery, and performance of this Agreement by LDSR are within LDSR’s corporate power and have been duly authorized by all necessary corporate action.

 

(b) This Agreement constitutes a valid and legally binding agreement and obligation of LDSR, enforceable against LDSR in accordance with its terms subject to the effects of bankruptcy, insolvency, fraudulent conveyance, and other laws affecting creditors’ rights generally and to general equitable principals.

 

(c) As of the Effective Date, the consummation by LDSR of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement, will not:

 

(i) Violate any judgment, statute, law, code, act, order, writ, rule, ordinance, regulation, governmental consent or governmental requirement, or determination or decree of any arbitrator, court, or other governmental agency or administrative body, which now or at any time hereafter may be applicable to and enforceable against the relevant party, work, or activity in question or any part thereof (collectively, “ Requirement of Law ”) applicable to or binding upon LDSR or any of its assets;

 

(ii) Violate (i) the terms of the Articles of Incorporation or Bylaws of LDSR; or, (ii) any material agreement, contract, mortgage, indenture, bond, bill, note, or other material instrument or writing binding upon LDSR or to which LDSR is subject; or

 

(iii) Accelerate or constitute an event entitling the holder of any indebtedness of LDSR to accelerate the maturity of such indebtedness or otherwise constitute an event of default under such indebtedness.

 

(d) LDSR is expressly not relying on any oral representations made by Blue Citi or any of its agents.

 

6.2 Blue Citi . Blue Citi hereby represents and warrants to LDSR as follows as of the Effective Date:

 

(a) Blue Citi is (i) an “accredited investor” as that term is defined in Rule 501 under the Securities Act of 1933; (ii) experienced in making investments of the kind described in this Agreement and the related documents; (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by LDSR or any of its affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and to evaluate the merits and risks of an investment in LDSR.

 

(b) The execution, delivery, and performance of this Agreement by Blue Citi are within Blue Citi’s powers and have been duly authorized by all necessary action.

 

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(c) This Agreement constitutes a valid and legally binding agreement and obligation of Blue Citi, enforceable against Blue Citi in accordance with its terms subject to the effects of bankruptcy, insolvency, fraudulent conveyance, and other laws affecting creditors’ rights generally and to general equitable principals.

 

(d) As of the Effective Date, the consummation by Blue Citi of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement, will not:

 

(i) Violate any Requirement of Law applicable to or binding upon Blue Citi; or

 

(ii) Violate (i) the terms of the Articles of Organization or Operating Agreement of Blue Citi; or, (ii) any material agreement, contract, mortgage, indenture, bond, bill, note, or other material instrument or writing binding upon Blue Citi or to which Blue Citi is subject.

 

(e) Blue Citi is expressly not relying on any oral representations made by LDSR or any of its agents.

 

VII

ADDITIONAL PROVISIONS

 

7.1 Executed Counterparts . This Agreement may be executed in any number of counterparts, all of which when taken together shall be considered one and the same agreement, it being understood that all Parties need not sign the same counterpart. If any signature is delivered by Fax or E-Mail, such signature shall create a valid and binding obligation of that Party (or on whose behalf such signature is executed), with the same force and effect as an original. Any photographic, photocopy, or similar reproduction copy of this Agreement, with all signatures reproduced on one or more sets of signature pages, shall be considered for all purposes as if it were an executed counterpart of this Agreement.

 

7.2 Entire Agreement . This Agreement, and all references, documents, or instruments referred to herein, contains the entire agreement and understanding of the Parties in respect to the subject matter contained herein. The Parties have expressly not relied upon any promises, representations, warranties, agreements, covenants, or undertakings, except as expressly set forth or referred to herein. This Agreement supersedes any and all (i) prior written or oral agreements, understandings, and negotiations between the Parties with respect to the subject matter herein; and, (ii) course of performance and/or usage of the trade inconsistent with any of the terms hereof.

 

7.3 Severability . Each and every provision of this Agreement is severable and independent of any other term or provision of this Agreement. If any term or provision hereof is held void or invalid for any reason by a court of competent jurisdiction, such invalidity shall not affect the remainder of this Agreement.

 

7.4 Governing Law . This Agreement shall be governed by the laws of the State of New York, without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. If any court action is necessary to enforce the terms and conditions of this Agreement, the Parties hereby agree that the Supreme Court of New York, New York County, shall be the sole jurisdiction and venue for the bringing of such action. This choice of venue provision shall also apply to the Consolidated Note, superseding any and all contrary provisions in the Consolidated Note. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTER CLAIM BROUGHT BY ANY OF THEM AGAINST THE OTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR THE ADMINISTRATION THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.

 

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7.5 Enforcement . The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that the Parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. The remedies of the Parties under this Agreement are cumulative and shall not exclude any other remedies to which any person may be lawfully entitled.

 

7.6 Waiver . No failure by any Party to insist on the strict performance of any covenant, duty, agreement, or condition of this Agreement or to exercise any right or remedy on a breach shall constitute a waiver of any such breach or of any other covenant, duty, agreement, or condition.

 

7.7 Recovery of Fees by Prevailing Party . In the event of any legal action (including arbitration) to enforce or interpret the provisions of this Agreement, the non-prevailing Party shall pay the reasonable attorneys’ fees and other costs and expenses, including expert witness fees, of the prevailing Party in such amount as the court shall determine, as well as same incurred by the prevailing Party in enforcing, or on appeal from, a judgment in favor of the prevailing Party. The preceding sentence is intended by the Parties to be severable from the other provisions of this Agreement and to survive and not be merged into such judgment.

 

7.8 Recitals . The facts recited in Article II, above, are hereby conclusively presumed to be true as between and affecting the Parties.

 

7.9 Amendment . This Agreement may be amended or modified only by a writing signed by all Parties.

 

7.10 Successors and Assigns . Except as expressly provided in this Agreement, each and all of the covenants, terms, provisions, conditions, and agreements herein contained shall be binding upon and shall inure to the benefit of the successors and assigns of the Parties. This Agreement is assignable by Blue Citi to the same extent as provided for under the Note.

 

7.11 Provision Not Construed Against Party Drafting Agreement . This Agreement is the result of negotiations by and between the Parties; is the product of the work and efforts of all Parties; and, shall be deemed to have been drafted by all Parties. Each Party has had the opportunity to be represented by independent legal counsel of its choice. In the event of a dispute, no Party may claim that any provision should be construed against any other Party by reason of the fact that it was drafted by one particular Party.

 

7.12 Agreement Provisions, Exhibits, and Schedules . When a reference is made in this Agreement to an Article, Section, Subsection, Exhibit, or Schedule, such reference shall be to said item of this Agreement unless otherwise indicated. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof as if set out in full herein.

 

7.13 Further Assurances . Each Party agrees (i) to furnish upon request to each other Party such further information; (ii) to execute and deliver to each other Party such other documents; and, (iii) to do such other acts and things, all as another Party may reasonably request for the purpose of carrying out the intent of this Agreement and the transactions envisioned hereunder. However , this provision shall not require that any additional representations or warranties be made and no Party shall be required to incur any material expense or potential exposure to legal liability pursuant to this Section 7.13.

 

7.14 Notices .

 

7.14.1. Method and Delivery . All notices, requests and demands hereunder shall be in writing and delivered by hand, by Electronic Transmission, by mail, or by recognized commercial over-night delivery service (such as Federal Express or UPS), and shall be deemed given (a) if by hand delivery, upon such delivery; (b) if by Electronic Transmission, twenty-four (24) hours after transmission; (c) if by mail, forty-eight (48) hours after deposit in the United States mail, first class, registered or certified mail, postage prepaid; or, (d) if by recognized commercial over-night delivery service, upon such delivery.

 

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7.14.2. Consent to Electronic Transmission . Each Party hereby expressly consents to the use of Electronic Transmission for communications and notices under this Agreement. For purposes of this Agreement, “Electronic Transmission” means a communication (i) delivered by Fax or E-Mail when directed to the Fax number or E-Mail address, respectively, for that recipient on record with the sending Party; and, (ii) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form.

 

7.14.3. Address Changes . Any Party may alter the Fax number, E-Mail address, physical address, or postage address to which communications or copies are to be sent by giving notice of such change of address to the other Parties in accordance with the provisions of this Section 7.14.

 

7.15 Best Efforts . Each Party shall cooperate in good faith with the other Parties generally, and in particular, the Parties shall use and exercise their best efforts, taking all reasonable, ordinary and necessary measures to ensure an orderly and smooth relationship under this Agreement, and further agree to work together and negotiate in good faith to resolve any differences or problems which may arise in the future. However , the obligations under this Section 7.15 shall not include any obligation to incur substantial expense or liability.

 

7.16 Definitional Provisions . For purposes of this Agreement, (i) those words, names, or terms which are specifically defined herein shall have the meaning specifically ascribed to them; (ii) wherever from the context it appears appropriate, each term stated either in the singular or plural shall include the singular and plural; (iii) wherever from the context it appears appropriate, the masculine, feminine, or neuter gender, shall each include the others; (iv) the words “hereof”, “herein”, “hereunder”, and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole, and not to any particular provision of this Agreement; (v) all references to “Dollars” or “$” shall be construed as being United States Dollars; (vi) the term “including” is not limiting and means “including without limitation”; and, (vii) all references to all statutes, statutory provisions, regulations, or similar administrative provisions shall be construed as a reference to such statute, statutory provision, regulation, or similar administrative provision as in force at the date of this Agreement and as may be subsequently amended.

 

VII

EXECUTION

 

IN WITNESS WHEREOF , this DEBT RESTRUCTURING AGREEMENT has been duly executed by the Parties and shall be effective as of Effective Date. Each of the Parties hereby represents and warrants that it (i) has the requisite power and authority to enter into and carry out the terms and conditions of this Agreement, as well as all transactions contemplated hereunder; and, (ii) it is duly authorized and empowered to execute and deliver this Agreement.

 

BLUE CITI :   LDSR :
     
BLUE CITI LLC,   LANDSTAR, INC.,
a New York limited liability company   a Nevada corporation
         
BY:       BY:      
NAME:     NAME:  
TITLE:     TITLE:  
DATED:     DATED:  

 

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EXHIBIT 4.1

CONSOLIDATED DEBT

 

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EXHIBIT 4.2

CONSOLIDATED NOTE

 

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COMMON STOCK PURCHASE AGREEMENT

 

THIS COMMON STOCK PURCHASE AGREEMENT (this “ Agreement ”) is dated as of December __, 2018, among LANDSTAR, INC., a Nevada corporation (the “ Company ”), and each purchaser identified on the Purchaser Signature Pages attached hereto (each, including its successors and assigns, a “ Purchaser ” and collectively the “ Purchasers ”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement, and pursuant to Section 4(2) of the Securities Act (as defined below) and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agree as follows:

 

ARTICLE I.
DEFINITIONS

 

1.1 Certain Definitions . In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:

 

Action ” shall have the meaning ascribed to such term in Section 3.1(j).

 

Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act.

 

Board of Directors ” means the board of directors of the Company.

 

Business Day ” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

Closing ” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.

 

Closing Date ” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchaser’s obligation to pay the Subscription Amount has been satisfied or waived; and, (ii) the Company’s obligations to deliver the Securities have been satisfied or waived.

 

Commission ” means the United States Securities and Exchange Commission.

 

Common Stock ” means the common stock of the Company, $0.01 par value, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

Common Stock Equivalents ” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

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Company Counsel ” means Spectrum Law Group, APC, with offices located at 23 Corporate Plaza, Suite 150, Newport Beach, California, 92660.

 

Company Party ” shall have the meaning ascribed to such term in Section 4.4.

 

Disclosure Schedules ” means the Disclosure Schedules of the Company delivered concurrently herewith.

 

Evaluation Date ” shall have the meaning ascribed to such term in Section 3.1(r).

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

GAAP ” shall have the meaning ascribed to such term in Section 3.1(h).

 

Intellectual Property Rights ” shall have the meaning ascribed to such term in Section 3.1(o).

 

Liens ” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

Material Adverse Effect ” shall have the meaning ascribed to such term in Section 3.1(b).

 

Material Permits ” shall have the meaning ascribed to such term in Section 3.1(m).

 

Per Share Purchase Price ” equals the amount reflected on the Purchaser Signature Page attached hereto, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

Proceeding ” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

Public Filings ” shall have the meaning ascribed to such term in Section 3.1(h).

 

Purchaser Party ” shall have the meaning ascribed to such term in Section 4.3.

 

Required Approvals ” shall have the meaning ascribed to such term in Section 3.1(e).

 

Registrable Securities ” means the Shares, including all Common Stock of the Company issued or issuable upon any stock split, stock dividend, recapitalization, or similar event. The terms “ register ,” “ registered ” and “ registration ” refers to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.

 

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Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

Securities ” means the Shares and the Warrants.

 

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Shares ” means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement.

 

Subscription Amount ” means, as to each Purchaser, the aggregate amount to be paid for Shares purchased hereunder as specified below such Purchaser’s name on the Purchaser Signature Page of this Agreement and next to the heading “Subscription Amount”, in United States dollars and in immediately available funds.

 

Subsidiary ” means any subsidiary of the Company as set forth on Schedule 3.1(a) , and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

 

Trading Day ” means a day on which the principal Trading Market is open for trading.

 

Trading Market ” means the public market or exchange on which the Common Stock is listed or quoted for trading on the date in question.

 

Transaction Documents ” means this Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

Transfer Agent ” means Madison Stock Transfer Corporation, the current transfer agent of the Company, with a mailing address of 2500 Coney Island Ave, Lower Level, Brooklyn, New York, 11223, and any successor transfer agent of the Company.

 

1.2 Other Definitional Provisions . For purposes of this Agreement, (i) those words, names, or terms which are specifically defined herein shall have the meaning specifically ascribed to them; (ii) wherever from the context it appears appropriate, each term stated either in the singular or plural shall include the singular and plural; (iii) wherever from the context it appears appropriate, the masculine, feminine, or neuter gender, shall each include the others; (iv) the words “hereof”, “herein”, “hereunder”, and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole, and not to any particular provision of this Agreement; (v) all references to “Dollars” or “$” shall be construed as being United States Dollars; (vi) the term “including” is not limiting and means “including without limitation”; and, (vii) all references to all statutes, statutory provisions, regulations, or similar administrative provisions shall be construed as a reference to such statute, statutory provision, regulation, or similar administrative provision as in force at the date of this Agreement and as may be subsequently amended.

 

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ARTICLE II.
PURCHASE AND SALE

 

2.1 Closing . On the Closing Date, the Company shall sell, and the Purchasers, severally and not jointly, shall purchase, up to an aggregate of Five Hundred Thousand Dollars ($500,000) of Shares. Each Purchaser shall deliver to the Company, via wire transfer of immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the Purchaser Signature Page attached hereto executed by such Purchaser. Upon receipt of the wire transfer for such Purchaser’s Subscription Amount, the Company shall instruct the Transfer Agent to deliver without delay to each Purchaser its respective Shares as determined pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing, as appropriate. The Closing shall occur at the offices of the Company or such other location as the parties shall mutually agree.

 

2.2 Deliverables .

 

(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:

 

  (i) this Agreement duly executed by the Company; and
     
  (ii) the Warrant, as further described in Section 2.3, below.

 

(b) As soon as practicable after the Closing Date, though in no event more than five (5) Business Days, the Company or the Transfer Agent shall deliver the respective Purchaser a stock certificate for an amount of Shares equal to such Purchaser’s Subscription Amount divided by the Per Share Purchase Price, registered in the name of such Purchaser as set forth on the Purchaser Signature Page attached hereto.

 

(c) On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:

 

  (i) this Agreement duly executed by such Purchaser; and
     
  (ii) such Purchaser’s Subscription Amount by wire transfer.

 

2.3 Warrants . At the Closing each Purchaser shall also receive a Warrant, in the form of Exhibit 2.3, attached hereto (the “ Warrants ”). Each respective Purchaser shall receive a Warrant to acquire that number of shares of Common Stock as set forth on the Purchaser Signature Page attached hereto executed by such respective Purchaser.

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company . Except as set forth in the Disclosure Schedules and in the Public Filings, which Disclosure Schedules and Public Filings shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules or in the Public Filings, the Company hereby makes the following representations and warranties to each Purchaser as of the date of this Agreement:

 

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(a) Subsidiaries . All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable, and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, then references in the Transaction Documents to the Subsidiaries shall be disregarded.

 

(b) Organization and Qualification . The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

(c) Authorization; Enforcement . The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s shareholders in connection therewith other than in connection with the Required Approvals. Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

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(d) No Conflicts . The execution, delivery and performance by the Company of the Transaction Documents, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby to which it is a party do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(e) Filings, Consents, and Approvals . The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filing of a Form 8-K with the Commission or a similar form with OTC Markets, as appropriate, describing the material terms of the transactions contemplated hereby, and including the Transaction Documents as exhibits thereto, (ii) the filing with the Commission of a notice of exempt offering on Form D, and (iii) such filings as are required to be made under applicable state securities laws, if any (collectively, the “ Required Approvals ”).

 

(f) Issuance of the Securities . The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement and the Warrants.

 

(g) Capitalization . The capitalization of the Company is as described on Schedule 3.1(g). Any Person having any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents has waived all such rights. Except as described in the Public Filings or as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any shareholder, the Board of Directors, or others is required for the issuance and sale of the Securities. Except as disclosed in the Public Filings, there are no shareholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s shareholders.

 

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(h) Public Filings; Financial Statements . The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the rules of the OTC Marketplace, and will effect such filings with the Commission under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, as soon as practicable in order to be a reporting company with the Commission (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “ Public Filings ”). As of their respective dates, the Public Filings complied in all material respects with the requirements of the OTC Marketplace or Securities Act and the Exchange Act, as applicable, and none of the Public Filings, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company has never been an issuer subject to, or identified in, Rule 144(i) under the Securities Act. To the best knowledge of the Company, the financial statements of the Company included in the Public Filings comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“ GAAP ”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

(i) Material Changes; Undisclosed Events, Liabilities or Developments . Since the date of the latest audited financial statements included within the Public Filings, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement or as set forth on Schedule 3.1(i), no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective business, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the date that this representation is made.

 

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(j) Litigation . Except as otherwise disclosed in the Public Filings, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “ Action ”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

(k) Labor Relations . No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. No executive officer, to the knowledge of the Company, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local, and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l) Compliance . Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

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(m) Regulatory Permits . The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the Public Filings, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“ Material Permits ”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

(n) Title to Assets . The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting, and enforceable leases with which the Company and the Subsidiaries are in compliance.

 

(o) Patents and Trademarks . The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or material for use in connection with their respective businesses as described in the Public Filings and which the failure to so have could have a Material Adverse Effect (collectively, the “ Intellectual Property Rights ”). Neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality, and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(p) Insurance . The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

(q) Transactions With Affiliates and Employees . Except as set forth in the Public Filings, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company.

 

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(r) Sarbanes-Oxley; Internal Accounting Controls . The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange Act (such date, the “ Evaluation Date ”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

(s) Certain Fees . No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(t) Investment Company . The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended.

 

(u) Listing and Maintenance Requirements . The Company is taking all necessary action to register its Common Stock pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, negating such registration of the Common Stock, nor has the Company received any notification that the Commission is contemplating rejecting such registration.

 

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(v) Application of Takeover Protections . The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

 

(w) Disclosure . All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

 

(x) No Integrated Offering . Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of any Trading Market.

 

(y) Solvency . Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date.

 

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(z) Tax Status . Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

 

(aa) Foreign Corrupt Practices . Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

(bb) Accountants . The Company’s accounting firm and independent registered public accounting firm is set forth on Schedule 3.1(bb) of the Disclosure Schedules. To the knowledge and belief of the Company, such independent registered public accounting firm (i) is a registered public accounting firm as required by the Exchange Act; and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Form 10 it will file with the Commission as soon as practicable.

 

(cc) Acknowledgment Regarding Purchasers’ Purchase of Securities . The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

3.2 Representations and Warranties of the Purchasers . Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the execution of this Agreement on date hereof to the Company as follows (unless as of a specific date therein):

 

(a) Organization; Authority . Such Purchaser is either an individual or an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

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(b) Own Account . Such Purchaser is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty not limiting such Purchaser’s right to sell the Securities in compliance with applicable federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.

 

(c) Purchaser Status . At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is, either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(5), (a)(6), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

 

(d) Experience of Such Purchaser . Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication, and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

 

(e) Certain Transactions and Confidentiality . Other than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed any purchases or sales of the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Other than to other Persons party to this Agreement, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

 

(f) Restricted Securities . Such Purchaser understands that the Securities it is purchasing are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act only in certain limited circumstances. In this connection, such Purchaser represents that it is familiar with Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act. Such Purchaser understands that such Securities have not been and will not be registered under the Act and have not been and will not be registered or qualified in any state in which they are offered, and thus the Purchaser will not be able to resell or otherwise transfer such Securities unless they are registered under the Act and registered or qualified under applicable state securities laws, or an exemption from such registration or qualification is available. Such Purchaser has no immediate need for liquidity in connection with this investment, and does not anticipate that the Purchaser will be required to sell such Securities in the foreseeable future.

 

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(g) Reliance on Exemptions . The Purchaser understands that the Shares are being offered and sold to it in reliance upon specific exemptions from the registration requirements of the Securities Act, the Rules and Regulations and state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Shares.

 

(h) Residency . The Purchaser is domiciled in the jurisdiction set forth immediately below the Purchaser’s name on the Purchaser Signature Page attached hereto.

 

(i) Legends . It is understood that the certificates evidencing the Securities may bear a legend substantially as follows:

 

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.”

 

The Company acknowledges and agrees that the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transaction contemplated hereby.

 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1 Furnishing of Information . Until the time that no Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would no longer require or otherwise permit such termination. As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities, including without limitation, under Rule 144. The Company further covenants that it will take such further action as any holder of Securities may reasonably request, to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act, including without limitation, within the requirements of the exemption provided by Rule 144.

 

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4.2 Use of Proceeds . The Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes.

 

4.3 Indemnification of Purchasers . Subject to the provisions of this Section 4.3, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “ Purchaser Party ”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any shareholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such shareholder or any violations by such Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

 

4.4 Indemnification of the Company . Subject to the provisions of this Section 4.4, each Purchaser will severally, but not jointly, indemnify and hold the Company and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “ Company Party ”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Company Party may suffer or incur as a result of or relating to any breach of any of the representations, warranties, covenants or agreements made by such Purchaser in this Agreement or in the other Transaction Documents.

 

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4.5 Reservation of Common Stock . As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares pursuant to this Agreement and the Warrants.

 

4.6 Listing of Common Stock . The Company hereby agrees to use its best efforts to maintain the listing or quotation of the Common Stock on the Trading Market on which it is currently listed, and concurrently with the execution hereof, the Company shall list or quote all of the Shares on such Trading Market and promptly secure the listing of all of the Shares on such Trading Market. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will then include in such application all of the Shares, and will take such other action as is necessary to cause all of the Shares to be listed or quoted on such other Trading Market as promptly as possible. The Company will then take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of such Trading Market.

 

4.7 Equal Treatment of Purchasers . No consideration (including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

 

4.8 Certain Transactions and Confidentiality . Each Purchaser, severally and not jointly with the other Purchasers, covenants that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any transactions involving any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced by the Company. Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company, such Purchaser will maintain the confidentiality of the existence and terms of this transaction and the information included in the Disclosure Schedules.

 

4.9 Further Limitations on Disposition . Without in any way limiting the representations of the Purchasers set forth in Section 3.2 above, each Purchaser further agrees not to make any disposition of all or any portion of the Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 4, and

 

(a) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement (it being expressly understood that the Company is under no obligation to file such a registration statement); or

 

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(b) (i) Such Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, such Purchaser shall have furnished the Company with an opinion of counsel reasonably satisfactory to the Company that such disposition will not require registration of such shares under the Act.

 

(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Purchaser that is a partnership or limited liability company to a partner of such partnership or a member of such limited liability company to an affiliated venture capital fund, or a retired partner of such partnership who retires after the date hereof or a retired member of such limited liability company who retires after the date hereof, or to the estate of any such partner, retired partner, member or retired member or the transfer by gift, will or intestate succession by any partner or member to his or her spouse or to the siblings, lineal descendants or ancestors of such partner or member or his or her spouse, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were an original Purchaser hereunder.

 

4.10 Registration Rights . On or prior to thirty (30) days after the effectiveness of the Form 10 to be filed (or filed) by the Company with the Commission, the Company shall prepare and file with the Commission a “Shelf” Registration Statement covering the resale of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form S-1 and shall contain (unless otherwise directed by the Purchasers) a “Plan of Distribution” reasonably agreed upon the Purchasers and the Company. Subject to the terms of this Agreement, the Company shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Purchasers (the “ Effectiveness Period ”). The Company shall immediately notify the Purchasers via E-Mail of the effectiveness of the Registration Statement not later than 2-days after the Company receives notification of the effectiveness from the Commission.

 

ARTICLE V.
MISCELLANEOUS

 

5.1 Fees and Expenses . Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

 

5.2 Entire Agreement . This Agreement, and all references, documents, or instruments referred to herein, contains the entire agreement and understanding of the parties in respect to the subject matter contained herein. The parties have expressly not relied upon any promises, representations, warranties, agreements, covenants, or undertakings, other than those expressly set forth or referred to herein. This Agreement supersedes (i) any and all prior written or oral agreements, understandings, and negotiations between the parties with respect to the subject matter contained herein; and, (ii) any course of performance and/or usage of the trade inconsistent with any of the terms hereof.

 

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5.3 Notices .

 

5.3.1. Method and Delivery . All notices, requests and demands hereunder shall be in writing and delivered by hand, by Electronic Transmission, by mail, or by recognized commercial over-night delivery service (such as Federal Express or UPS), and shall be deemed given (a) if by hand delivery, upon such delivery; (b) if by Electronic Transmission, upon telephone confirmation of receipt of same; (c) if by mail, forty-eight (48) hours after deposit in the United States mail, first class, registered or certified mail, postage prepaid; or, (d) if by recognized commercial over-night delivery service, upon such delivery.

 

5.3.2. Consent to Electronic Transmission . Each party hereby expressly consents to the use of Electronic Transmission for communications and notices under this Agreement. For purposes of this Agreement, “Electronic Transmission” means a communication (i) delivered by Fax or E-Mail when directed to the Fax number or E-Mail address, respectively, for that recipient on record with the sending party; and, (ii) that creates a record that is capable of retention, retrieval, and review, and that may thereafter be rendered into clearly legible tangible form.

 

5.3.3. Address Changes . Any party may alter the Fax number, E-Mail address, physical address, or postage address to which communications or copies are to be sent by giving notice of such change of address to the other parties in accordance with the provisions of this Section 5.3.

 

5.4 Amendments; Waivers . No provision of this Agreement or any other Transaction Document may be waived, modified, supplemented, or amended except in a written instrument signed by the Company and the Purchasers holding at least 50% in interest of the Shares then outstanding. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

5.5 Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser (other than by merger). Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchasers”.

 

5.6 No Third-Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.3 and Section 4.4.

 

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5.7 Governing Law . All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the County of Wake, State of North Carolina. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the County of Wake, State of North Carolina, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.3 and the obligations of a Purchaser under Section 4.4, the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

5.8 Survival . The representations and warranties contained herein shall survive the Closing and the delivery of the Securities.

 

5.9 Execution . This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

5.10 Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.11 Rescission and Withdrawal Right . Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

 

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5.12 Replacement of Securities . If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.13 Remedies . In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

5.14 Payment Set Aside . To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

5.15 Independent Nature of Purchasers’ Obligations and Rights . The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights including, without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any of the Purchasers.

 

5.16 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.17 Construction . The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.

 

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5.18 WAIVER OF JURY TRIAL . IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

5.19 Acknowledgment . Each Purchaser acknowledges that: (a) it has read this Agreement; (b) it has been represented in the preparation, negotiation and execution of this Agreement by legal counsel of its own choice or has voluntarily declined to seek such counsel; and (c) it understands the terms and consequences of this Agreement and is fully aware of the legal and binding effect of this Agreement.

 

IN WITNESS WHEREOF, the parties hereto have caused this Common Stock Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

LANDSTAR, INC.   ADDRESS FOR NOTICE :
     
      1053 E. Whitaker Mill Road
      Suite 115
BY:              

Raleigh, NC 27604

NAME:       jason@data443.com
TITLE:        
DATED:        

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;

PURCHASER SIGNATURE PAGE FOLLOWS]

 

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[PURCHASER SIGNATURE PAGE TO

LANDSTAR COMMON STOCK PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned has caused this Common Stock Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser:  

 

Signature of Authorized Signatory of Purchaser :  

 

Name of Authorized Signatory:  

 

Title of Authorized Signatory:  

 

Email Address of Authorized Signatory:  

 

Facsimile Number of Authorized Signatory:  

 

EIN or SSN of Purchaser:  

 

State of Formation/Residence of Purchaser:  

 

Address for Notice of Purchaser:

 

   
   
   
   
   
   
   

 

Address for Delivery of Securities for Purchaser (if not same as address for notice):

 

   
   
   
   
   
   
   

 

Subscription Amount: $   Per Share Purchase Price:    

 

Shares:      
       
Warrants:      

 

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DISCLOSURE SCHEDULES

 

  Schedule 3.1(a) Subsidiaries .
     
  Schedule 3.1(g) Capitalization .
     
  Schedule 3.1(bb) Accountants/Auditors .

 

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NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

 

COMMON STOCK PURCHASE WARRANT

 

LANDSTAR, INC.

 

Warrant Shares:___________     Issue Date: December __, 2018

 

THIS COMMON STOCK PURCHASE WARRANT (the “ Warrant ”) certifies that, for value received, the person more particularly descried on Exhibit “A”, attached hereto and incorporated herein by reference (the “ Holder ”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Issue Date (as defined above) and on or prior to the close of business on the fifth (5 th ) anniversary of the Issue Date (the “ Termination Date ”) but not thereafter, to subscribe for and purchase from LANDSTAR, INC., a Nevada corporation (the “ Company ”), up to ___________________ shares (the “ Warrant Shares ”) (whereby such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b), subject to adjustment herein. This Warrant is issued by the Company as of the Issue Date noted above hereof in connection with that certain Common Stock Purchase Agreement dated of even date by and between the Company and the Holder (the “ Purchase Agreement ”).

 

Section 1 . Definitions . Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement, pursuant to which this Warrant is being issued.

 

Section 2 . Exercise .

 

a) Exercise of Warrant . Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time and from time to time on or after the Issue Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (“ Notice of Exercise ”) (which delivery may be made in any manner set forth in the Purchase Agreement, including without limitation by email); and, within three (3) Trading Days of the date said Notice of Exercise is delivered to the Company, the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank, unless payment is being made by cashless exercise as provided in Section 2(c) below. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

 

b) Exercise Price . The exercise price per share of the Common Stock under this Warrant shall be $0.____ , subject to adjustment hereunder (the “ Exercise Price ”).

 

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c) Cashless Exercise . This Warrant may also be exercised by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (B), where:

 

(A) = the Market Price (as defined below);

 

(B) = the Exercise Price of this Warrant (as adjusted); and

 

(X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

 

“Market Price” shall mean the closing sale price per share of Common Stock on the principal market where the Common Stock is traded on the Trading Day immediately preceding delivery of the Notice of Exercise or the Closing Date, whichever is greater.

 

d) Holder’s Restrictions . The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other person or entity acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any rights or securities convertible into or exercisable for Common Stock (“Common Stock Equivalents”)) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent periodic or annual report, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 9.9% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. By written notice to the Company, the Holder may at any time and from time to time increase or decrease the Beneficial Ownership Limitation to any other percentage specified in such notice (or specify that the Beneficial Ownership Limitation shall no longer be applicable), provided, however, that (A) any such increase (or inapplicability) shall not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (B) any such increase or decrease shall apply only to the Holder and not to any other holder of Warrants. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

 

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e) Mechanics of Exercise .

 

i. Delivery of Certificates Upon Exercise . Certificates for shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“ DWAC ”) system if the Company is a participant in such system and either (x) there is an effective registration statement permitting the resale of the Warrant Shares by the Holder, or (y) such shares may be sold pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise, within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant (if required) and payment of the aggregate Exercise Price as set forth above (“ Warrant Share Delivery Date ”). This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price (or by cashless exercise) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance of such shares, have been paid. If the Company fails for any reason to deliver to the Holder the Warrant Shares or certificates evidencing the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, $1,000.00 per Trading Day (increasing to $2,000.00 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such shares or certificates are delivered.

 

ii. Delivery of New Warrants Upon Exercise . If this Warrant shall have been exercised in part, the Company shall, at the request of the Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

 

iii. Rescission Rights . If the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares (or otherwise transmit such shares via DWAC to the Holders DTC account) pursuant to this Section 2(e) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

 

iv. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise . In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares (or otherwise transmit such shares via DWAC to the Holders DTC account) pursuant to an exercise on or before the Warrant Share Delivery Date and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. By way of example and limitation, if the Holder purchases Common Stock having a total purchase price of $11,000.00 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000.00, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000.00. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver the Warrant Shares or certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

 

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v. No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

 

vi. Charges, Taxes and Expenses . Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

 

Section 3 . Certain Adjustments .

 

a) Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

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b) Subsequent Equity Sales . If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or securities entitling any Person to acquire shares of Common Stock (upon conversion, exercise or otherwise), at an effective price per share less than the then Exercise Price (such lower price, the “ Base Share Price ” and such issuances collectively, a “ Dilutive Issuance ”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then the Exercise Price shall be reduced and only reduced to equal the Base Share Price, and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “ Dilutive Issuance Notice ”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

 

c) Subsequent Rights Offerings . If the Company, at any time while the Warrant is outstanding, shall issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the closing price at the record date mentioned below, then the Exercise Price shall be multiplied by a fraction, of which the denominator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares issued (assuming receipt by the Company in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such closing price. Such adjustment shall be made whenever such rights or warrants are issued, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, options or warrants.

 

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d) Pro Rata Distributions . If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the closing price determined as of the record date mentioned above, and of which the numerator shall be such closing price on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

 

e) Fundamental Transaction . If, at any time while this Warrant is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (each “ Fundamental Transaction ”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(e) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the Securities Exchange Act of 1934, as amended, or (3) a Fundamental Transaction involving a person or entity not traded on a national securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the Company or any successor entity shall pay at the Holder’s option, exercisable at any time concurrently with or within 30 days after the consummation of the Fundamental Transaction, an amount of cash equal to the value of this Warrant as determined in accordance with the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg L.P. using a price per share of Common Stock equal to the closing price of the Common Stock for the Trading Day immediately preceding the date of consummation of the applicable Fundamental Transaction, (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of the date of consummation of the applicable Fundamental Transaction and (iii) an expected volatility equal to the 100 day volatility obtained from the “HVT” function on Bloomberg L.P. determined as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction.

 

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f) Calculations . All calculations under this Section 3 shall be made to the nearest two decimal places or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

 

g) Notice to Holder .

 

i. Adjustment to Exercise Price . Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Exercise by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 7 business days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.

 

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Section 4 . Transfer of Warrant .

 

a) Transferability . Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

 

b) New Warrants . This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issue Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 

c) Warrant Register . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

 

d) Transfer Restrictions . If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws or eligible for resale under Rule 144, the Company may require, as a condition of allowing such transfer, that the Holder and transferee of this Warrant both satisfy the conditions to being an accredited investor, as defined under Regulation D promulgated under the Securities Act of 1933, as amended.

 

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Section 5 . Miscellaneous .

 

a) No Rights as Shareholder Until Exercise . This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof as set forth in Section 2(e)(i).

 

b) Loss, Theft, Destruction or Mutilation of Warrant . The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

 

c) Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

d) Authorized Shares . The Company covenants that during the period from the issuance of the Warrant until the Termination Date it will reserve from its authorized and unissued Common Stock, the number of shares of Common Stock issuable upon the full exercise of this Warrant (without regard to the beneficial ownership limitations contained herein). The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the trading market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

 

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e) Jurisdiction . All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

 

f) Restrictions . The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

 

g) Nonwaiver and Expenses . No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

 

h) Notices . Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

 

i) Limitation of Liability . No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

 

j) Remedies . Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

 

k) Successors and Assigns . Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

 

l) Amendment . This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

 

m) Severability . Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

 

n) Headings . The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

 

o) Signatures . Any signature transmitted by facsimile, e-mail, or other electronic means shall be deemed to be an original signature.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

 

  LANDSTAR, INC.
     
  BY:        
  NAME:  
  TITLE:  

 

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EXHIBIT “A”

HOLDER

 

Name of Holder:_________________________________________  
   
Name of Authorized Representative: :_________________________________________  
   
Title of Authorized Representative: :__________________________________________  
   
Email Address of Authorized Representative: :__________________  
   
Facsimile Number of Authorized Representative: __________________  
   
EIN or SSN of Holder: :_______________________  
   
State of Formation/Residence of Holder: :_______________  
   

 

Holder’s Address for Notice:

 

     
     
     
     

 

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NOTICE OF EXERCISE

 

TO: LANDSTAR, INC.
   
RE: Warrant originally issued on or about December __, 2018, for ______________ Warrant Shares.

 

  (1) The undersigned hereby elects to purchase _____________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
     
  (2) Payment shall take the form of (check applicable box):

 

  [  ] in lawful money of the United States; or
     
  [  ] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

  (3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

 

     

 

  (4) The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

 

     
     
     
     
     

 

  (5) The undersigned hereby confirms it is an “accredited investor”, as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

Name of Warrant Holder: __________________________________  
   
Signature of Authorized Signatory: __________________________________  
   
Name of Authorized Signatory: ________________________  
   
Title of Authorized Signatory: _________________________  
   
Date: _________________________  

 

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ASSIGNMENT FORM

 

(To assign the foregoing Warrant, execute this form and supply required information.

Do not use this form to exercise the Warrant.)

 

FOR VALUE RECEIVED, [ _________ ] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to:

 

     

 

whose address is:

 

     
     
     

 

HOLDER:__________________________________  
   
Signature of Authorized Signatory: __________________________________  
   
Name of Authorized Signatory: ________________________  
   
Title of Authorized Signatory: ________________________  
   
Date: ________________________  

 

Signature Guaranteed:

 

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

 

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EXHIBIT 21.1

LIST OF SUBSIDIARIES

 

Name of consolidated

subsidiary or entity

  State or other jurisdiction of incorporation or organization   Date of incorporation or formation (date of acquisition, if applicable)   Attributable Interest  
                 
Data443 Risk Mitigation, Inc.   North Carolina   07/12/2017     100 %