UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2020

 

Commission File Number: 000-30542

 

DATA443 RISK MITIGATION, 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.)

 

101 J Morris Commons Lane, Suite 105

Morrisville, North Carolina 27560

(Address of principal executive offices, Zip Code)

 

(919) 858-6542

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of Each Class   Name of Each Exchange On Which Registered
N/A   N/A

 

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

 

Common Stock, $0.001 par value

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act.

Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 [X] 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 [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

 

Aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2020: $1,771,695.

 

The number of shares of registrant’s common stock outstanding as of March 23, 2021 was 1,399,600,276.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

OTHER INFORMATION

 

As used in this Annual Report on Form 10-K, the terms “we”, “us”, “our”, “ATDS”, the “registrant”, and the “Company” refer to DATA443 RISK MITIGATION, INC., a Nevada corporation, unless otherwise stated. “SEC” and the “Commission” refers to the Securities and Exchange Commission.

 

 

 

 
 

 

DATA443 RISK MITIGATION, INC.

FORM 10-K

YEAR ENDED 31 DECEMBER 2020

 

TABLE OF CONTENTS

 

Part I  
   
Item 1. Business 3
   
Item 1A. Risk Factors 12
   
Item 1B. Unresolved Staff Comments 15
   
Item 2. Properties 15
   
Item 3. Legal Proceedings 15
   
Item 4. Mine Safety Disclosures 15
   
Part II  
   
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 16
   
Item 6. Selected Financial Data 32
   
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
   
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 44
   
Item 8. Consolidated Financial Statements and Supplementary Data 45
   
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 73
   
Item 9A. Controls and Procedures 73
   
Item 9B. Other Information 74
   
Part III  
   
Item 10. Directors, Executive Officers, and Corporate Governance 75
   
Item 11. Executive Compensation 77
   
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 81
   
Item 13. Certain Relationships and Related Transactions, and Director Independence 82
   
Item 14. Principal Accounting Fees and Services 83
   
Part IV  
   
Item 15. Exhibits, Financial Statement Schedules 84
   
Signatures 87

 

 
 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

Except for historical information, this Annual Report contains forward-looking statements within the meaning of the federal securities laws. Such forward-looking statements are based on management’s current expectations, assumptions, and beliefs concerning future developments and their potential effect on our business, and are subject to risks and uncertainties that could negatively affect our business, operating results, financial condition, and stock price. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” “would”, “if, “shall”, “might”, “will likely result, “projects”, “goal”, “objective”, or “continues”, or the negative of these terms or other comparable terminology, although the absence of these words does not necessarily mean that a statement is not forward-looking. Additionally, statements concerning future matters such as our business strategy, development of new products, sales levels, expense levels, cash flows, future commercial and financing matters, future partnering opportunities and other statements regarding matters that are not historical are forward-looking statements.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, those described in the “Risk Factors” section of this Annual Report, which include, but are not limited to, the following:

 

  we will need additional capital to fund our operations;
     
  there is substantial doubt about our ability to continue as a going concern;
     
  we will face intense competition in our market, and we may lack sufficient financial and other resources to maintain and improve our competitive position;
     
  we are dependent on the continued services and performance of our chief executive officer, Jason Remillard;
     
  our common stock is currently quoted on the OTC Pink and is thinly-traded, reducing your ability to liquidate your investment in us;
     
  we have had a history of losses and may incur future losses, which may prevent us from attaining profitability;
     
  the market price of our common stock may be volatile and may fluctuate in a way that is disproportionate to our operating performance;
     
  we have 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 have never paid and do not intend to pay cash dividends;
     
  our sole director and chief executive officer has the ability to control all matters submitted to stockholders for approval, which limits minority stockholders’ ability to influence corporate affairs; and
     
  the other factors described in “Risk Factors”.

 

Those factors should not be construed as exhaustive and should be read with the other cautionary statements in this Annual Report.

 

1
 

 

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Annual Report. The matters summarized under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business”, and elsewhere in this Annual Report could cause our actual results to differ significantly from those contained in our forward-looking statements. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Annual Report, those results or developments may not be indicative of results or developments in subsequent periods.

 

Although the forward-looking statements in this Annual Report reflect our good faith judgment, based on currently available information, they involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the section titled “Risk Factors.” Moreover, we operate in a very competitive and rapidly-changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Annual Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Annual Report to conform these statements to actual results or to changes in our expectations. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date we file this Annual Report. Readers are urged to carefully review and consider the various disclosures made in this Annual Report.

 

In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Annual Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments, except as required by applicable law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.

 

CERTAIN REFERENCES AND NAMES OF OTHERS USED HEREIN

 

This Annual Report may contain additional trade names, trademarks, and service marks of others, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

 

2
 

 

PART I

 

ITEM 1. BUSINESS

 

Business History

 

Our company was incorporated as LandStar, Inc., 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, we had no business operations and was a development-stage company. We did not purchase or develop any properties and decided to change our business plan and operations. On March 31, 1999, we acquired approximately 98.5% of the common stock of Rebound Rubber Corp. (“Rebound Rubber”) pursuant to a share exchange agreement with 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 of our authorized shares, and 50.6% of the 28,622,100 issued and outstanding shares on completion of the acquisition.

 

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

 

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

 

In August 2001, we amended our Articles of Incorporation to authorize 500,000,000 shares of common stock, $0.001 par value per share, and 150,000,000 shares of preferred stock, $0.01 par value per share. We may designate preferred stock into specific classes by action of our board of directors. In May 2008, our board of directors established a class of Convertible Preferred Series A (the “Series A”), authorizing 10,000,000 shares. When established, among other things, (i) each share of Series A was convertible into 1,000 shares of our 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 stockholders.

 

In September 2008, we amended our Articles of Incorporation to increase the number of authorized shares to 985,000,000, $0.001 par value per share, further amended the Articles in January 2009 to increase the number of authorized shares to 4,000,000,000, and in January 2010 amended our Articles to increase the number of authorized shares to 8,888,000,000.

 

We were effectively dormant for a number of years. In or around February 2014, there was a change in control whereby Kevin Hayes acquired 1,000,000 shares of the Series A and was appointed as our sole director and officer. In or around April 2017, there was another change in control when Mr. 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 our sole director and officer. 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, confirming his majority ownership and control of the company.

 

In or around July 2017, while under the majority ownership and management of Mr. Alessi, we sought to effect a merger transaction (the “Merger”) under which the company would be merged into Data443 Risk Mitigation, Inc., a North Carolina corporation (“Data443”). Data443 was originally formed under the name LandStar, Inc. The name of the North Carolina corporation was changed to Data443 in December 2017. In November 2017, our controlling interest 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 our sole director and sole officer and of Data443.

 

3
 

 

In January 2018, we acquired substantially all of the assets of Myriad Software Productions, LLC, which was owned 100% by Mr. Remillard. Those assets were comprised of the software program known as ClassiDocs®, and all intellectual property and goodwill associated therewith. As a result of the acquisition, the Company was no longer a “shell” under applicable securities rules. In consideration for the acquisition, we agreed to a purchase price of $1,500,000, comprised of: (i) $50,000 paid at closing; (ii) $250,000 in the form of a 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 our issued and outstanding shares. However, these shares have been recorded as “Acquisition of ClassiDocs” included in additional paid in capital within our financial statements for the year ending December 31, 2019.

 

In April 2018, we amended the designation for our Series A 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 stockholders, 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 per share, and 50,000,000 shares of preferred stock, $0.001 par value per share, designated in the discretion of our board of directors. The Series A remains in full force and effect.

 

In June 2018, after careful analysis and in reliance upon professional advisors we retained, 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 stockholders. As such, the Merger was legally terminated. In place of the Merger, in June 2018, we acquired all of the issued and outstanding shares of stock of Data443 (the “Share Exchange”). As a result of the Share Exchange, Data443 became our wholly-owned subsidiary, with both the Company and Data443 continuing to exist as corporate entities. As consideration in the Share Exchange, we agreed to issue to Mr. Remillard: (a) 100,000,000 shares of our common stock and (b) on the eighteen-month anniversary of the closing of the Share Exchange (the “Earn Out Date”), an additional 100,000,000 shares of our common stock, 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 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 our issued and outstanding shares. However, these shares have been recorded as “Share exchange with related party for Data443 additional share issuable” included in additional paid in capital within our financial statements for the year ending December 31, 2019.

 

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 approximately $46,521, payable in four payments of approximately €10,000, with the first payment due at closing, and the remaining payments due at the end of July, August and September 2018. Upon issuance of the final payment, we gained the right to enter into an asset transfer agreement for the nominal cost of one euro (€1).

 

On or about October 22, 2018, we entered into an asset purchase agreement with Modevity, LLC (“Modevity”) to acquire certain assets collectively known as ARALOC®, a software-as-a service (“SaaS”) platform that provides cloud-based data storage, protection, and workflow automation. The acquired assets consist of intellectual and related intangible property including applications and associated software code, and trademarks. Access to books and records related to the customers and revenues Modevity created on the ARALOC platform were also included in the asset purchase agreement. These assets were substantially less than the total assets of Modevity, and revenues from the platform comprised a portion of the overall sales of Modevity. We are required to create the technical capabilities to support the ongoing operation of this SaaS platform. A substantial effort on our part is needed to continue generating ARALOC revenues through development of a sales force, as well as billing and collection processes. We paid Modevity (i) $200,000 in cash, (ii) $750,000, in the form of a 10-month promissory note, and (iii) 164,533,821 shares of our common stock.

 

On or around February 7, 2019, the Company entered into an Exclusive License and Management Agreement (the “License Agreement”) with Wala, Inc. (“Wala”). Under the License Agreement the Company was granted the exclusive right and license to receive all benefits from the marketing, selling, and licensing of the data archiving platform known as ArcMail and all assets related thereto (the “ArcMail Assets”). In connection with the License Agreement, the Company also executed (i) a Stock Rights Agreement, under which the Company had the right to acquire all shares of stock of Wala; and, (ii) a Business Covenants Agreement, under which Wala and its CEO agreed to not compete with the Company’s use of the ArcMail assets for a designated period of time. The License Agreement, Stock Rights Agreement, and Business Covenants Agreement are collectively referred to herein as the “ArcMail Agreements”).

 

4
 

 

On June 21, 2019, the Company filed an amendment to its articles of incorporation to increase the total number authorized shares of the Company’s common stock, par value $0.001 per share, from 8,888,000,000 shares to 15,000,000,000 shares.

 

On September 16, 2019, the Company entered into an Asset Purchase Agreement with DMBGroup, LLC to acquire certain assets collectively known as DataExpressTM, a software platform for secure sensitive data transfer within the hybrid cloud. The total purchase price of approximately $2.8 million consists of: (i) a $410,000 cash payment at closing; (ii) a promissory note in the amount of $940,000, payable in the amount of $41,661 over 24 monthly payments starting on October 15, 2019, accruing at a rate of 6% per annum; (iii) assumption of approximately $98,000 in liabilities and, (iv) approximately 2,465,753 shares of our common stock. As of December 31, 2019, these shares have not been issued and are recorded as “Stock issuable for asset purchase” included in additional paid in capital.

 

On October 14, 2019, the Company filed an amendment to its Articles of Incorporation to change its name to Data443 Risk Mitigation, Inc., and to effect a 1-for-750 reverse stock split of its issued and outstanding shares of common and preferred shares, each with $0.001 par value, and to reduce the numbers of authorized common and preferred shares to 60,000,000 and 337,500, respectively. On October 28, 2019, the name change and the split and changes in authorized common and preferred shares was effected, resulting in approximately 7,282,678,714 issued and outstanding shares of the Company’s common stock to be reduced to approximately 9,710,239, and 1,000,000 issued and outstanding shares of the Company’s preferred shares to be reduced to 1,334 as of October 28, 2019. All per share amounts and number of shares, including the authorized shares, in the consolidated financial statements and related notes have been retroactively adjusted to reflect the reverse stock split and decrease in authorized common and preferred shares.

 

On March 05, 2020 the Company amended its Articles of Incorporation to increase the number of shares of authorized common stock to 250,000,000. On April 15, 2020 the Company further amended its Articles of Incorporation to increase the number of shares of authorized common stock to 750,000,000. On August 17, 2020 the Company again amended its Articles of Incorporation to increase the number of shares of authorized common stock to 1.5 billion. On November 25, 2020 the Company filed a Certificate of Designation to authorize and create its Series B Preferred shares, consisting of 80,000 shares. On December 15, 2020 the Company again amended its Articles of Incorporation to increase the number of shares of authorized common stock to 1.8 billion.

 

On August 13, 2020, the Company entered into an Asset Purchase Agreement to acquire certain assets collectively known as FileFacets, a Software-as-a-Service (SaaS) platform that performs sophisticated data discovery and content search of structured and unstructured data within corporate networks, servers, content management systems, email, desktops and laptops. The total purchase price was $135,000, which amount was paid in full at the closing of the transaction.

 

On September 21, 2020, the Company entered into an Asset Purchase Agreement with the owners of a business known as IntellyWP™, to acquire the intellectual property rights and certain assets collectively known as IntellyWP™, an Italy-based developer that produces WordPress plug-ins that enhance the overall user experience for webmaster and end users. The total purchase price of $135,000 consists of: (i) a $55,000 cash payment at closing; (ii) a cash payment of $40,000 upon completion of certain training; and, (iii) a cash payment of $40,000 upon the Company collecting $25,000 from the assets acquired in the subject transaction.

 

On October 08, 2020, the Company entered into an Asset Purchase Agreement with Resilient Network Systems, Inc. (“RNS”) to acquire the intellectual property rights and certain assets collectively known as Resilient Networks™, a Silicon Valley based SaaS platform that performs SSO and adaptive access control “on the fly” with sophisticated and flexible policy workflows for authentication and authorization. The total purchase price of $305,000 consists of: (i) a $125,000 cash payment at closing; and, (ii) the issuance of 19,148,936 shares of our common stock to RNS.

 

5
 

 

On December 11, 2020, the Company entered into a Common Stock Purchase Agreement (“CSPA”) with Triton Funds, LP, a Delaware limited partnership (“Triton”), an unrelated third party. Triton agreed to invest $1 million in the Company in the form of common stock purchases. Subject to the terms and conditions set forth in the CSPA, the Company agreed to sell to Triton common shares of the Company having an aggregate value of One Million Dollars ($1,000,000). The price of the shares to be sold will be $0.006 per shares. Triton’s obligation to purchase securities is conditioned on certain factors including, but not limited, to the Company having an effective registration available for resale of the securities being purchased; a minimum closing price of $0.009 per share for the Company’s common stock on the delivery date for the shares; and, Triton’s ownership not exceeding 9.9% of the issued and outstanding shares of the Company at any time. The Company filed a registration statement on Form S-1 with the SEC on December 28, 2020. The S-1 was declared effective by the SEC as of January 26, 2021.

 

On February 12, 2021, and effective January 31, 2021 the Company declared terminated each of the ArcMail Agreements. The Company has asserted numerous claims under the ArcMail Agreements. Further, Wala lost all rights to the ArcMail Assets through a foreclosure action brought by certain secured creditors of Wala (the “Wala Creditors”). The Company considers its relationship with Wala to be closed and will not pursue any further action in that regard.

 

On February 12, 2021 the Company closed its acquisition of the ArcMail Assets from the Wala Creditors pursuant to the terms and conditions of an Asset Sale Agreement executed by and between the Company and the Wala Creditors. The effective date of the Asset Sale Agreement and the acquisition was deemed to be January 31, 2021. Total purchase price (the “Purchase Price”) was One Million Four Hundred Four Thousand Dollars ($1,404,000), evidenced by three promissory notes in favor of the Wala Creditors in the total amount of the Purchase Price (the “Notes”). Payments under the Notes commence in 30-days and continue monthly thereafter for 60-months. The Notes are secured by a pledge of the ArcMail Assets as collateral under the terms of a Security Agreement in favor of the Wala Creditors. The foregoing descriptions of the Asset Sale Agreement; Notes; and, Security Agreement do not purport to be complete and are qualified in their entirety by the actual language contained in the Asset Sale Agreement, Notes, and Security Agreement, respectively.

 

On February 23, 2021, the Company filed with the SEC its Schedule 14C, Preliminary Information Statement, providing notice that the Board of Directors and the holders of a majority of our shares entitled to vote had approved and authorized the following actions:

 

(1) Amendment of our articles of incorporation (the “Articles of Incorporation”) to provide for a decrease in the authorized shares of the Company’s common stock from 1,800,000,000 to a number of not less than 10,000,000 and not more than 1,000,000,000 (the “Authorized Common Stock Reduction”), at any time prior to the one year anniversary of the filing of the Definitive Information Statement on Schedule 14C with respect to these actions the “Definitive Information Statement”), with the Board of Directors of the Company (the “Board”) having the discretion to determine whether or not the Authorized Common Stock Reduction is to be effected, and if effected, the exact number of the Authorized Common Stock Reduction within the above range.

 

(2) That the Board be authorized to implement through the amendment to our Articles of Incorporation a reverse stock split of the Company’s Common Stock by a ratio of not less than 1-for-10 and not more than 1-for-2,000, (the “Reverse Split”), at any time prior to the one year anniversary of the filing of the Definitive Information Statement, with the Board having the discretion to determine whether or not the Reverse Split is to be effected, and if effected, the exact ratio for the Reverse Split within the above range.

 

Business Overview

 

We are in the data security and privacy business, operating as a software and services provider. 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. We provide solutions for the marketplace that are designed to protect data via the cloud, hybrid, and on-premises architectures. Our suite of security products focus on the protection of: sensitive files and emails; confidential customer, patient, and employee data; financial records; strategic and product plans; intellectual property; and any other data requiring security, allowing our clients to create, share, and protect their data wherever it is stored.

 

We deliver 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 or acquired, giving us our primary competitive advantage.

 

6
 

 

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 own 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, 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

 

Worldwide spending on information security products and services will reach more than $114 billion in 2018, an increase of 12.4 percent from last year, according to the latest forecast from Gartner, Inc. In 2019, the market was forecast to grow 8.7 percent to $124 billion, with further increases expected for 2020. 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% will be 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.

 

Our Products

 

We currently have eight 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, our flagship/signature product, launched in the first quarter of 2018, 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.
     
DataExpress NonStop (DXNS)   Secure Managed File Transfer solutions exclusively for the HPE NonStop™ platform – powering data transfer for some of the world’s leading financial institutions for over 15 years.
     
DataExpress Open Platform (DXOP)   Secure Managed File Transfer solutions for open platforms such as Microsoft Windows, UNIX, Linux and OSX – DXOP supports all of the power, reliability and functionality of our leading DXNS capabilities for the Open Platform capabilities.
     
ARALOC   Sensitive Content Manager which is a market leading secure, cloud-based platform for the management, protection and distribution of digital content to the desktop and mobile devices using custom branded and configured applications for iPad, iPhone, Android, PC and Mac.

 

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ArcMail   Data Archive Manager, which is a leading provider of simple, secure and cost-effective email and enterprise archiving and management solutions.
     
FileFacets   Data Identification Manager, integrated with ClassiDocs, provides data classification and governance technology, which supports CCPA, LGPD, and GDPR compliance in a Software-as-a-Service (SaaS) platform that performs sophisticated data discovery and content search of structured and unstructured data within corporate networks, servers, content management systems, email, desktops and laptops.
     
WordPress GDPR Framework   Our data protocol to identify and classify regulated data in the European Union that falls under the GDPR.
     
Resilient Access   Access Control Manager, which enables fine-grained access controls across myriad platforms at scale for internal client systems and commercial public cloud platforms like Salesforce, Box.Net, Google G Suite, Microsoft OneDrive and others.

 

Key Benefits of Our Products and Services

 

Our products and services:

 

  protect data against data breaches and cyber-attacks;
     
  are highly scalable and flexible;
     
  have a broad range of functionality;
     
  satisfy regulatory compliance requirements;
     
  are usable across all major enterprise platforms and systems;
     
  are quick to implement; and
     
  are 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 and privacy 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. We plan to incorporate these acquisitions into our products and services, which we believe will in turn expand our market reach.

 

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. We will continue to seek additional opportunities to extend our technological capabilities and grow our business, from continued organic investments in our research and development efforts to technological acquisitions.

 

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, underserved markets, and expanded uses for our products and services. We provide solutions which address the needs of customers of all sizes, ranging from small and medium businesses to large multinational companies with thousands of employees. Although our solutions are applicable to organizations of all sizes, we will continue our focus on targeting mid-size organizations which can make purchases with us initially and over time.

 

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Expand Our Sales Force. Continuing to expand our salesforce will be essential to achieving our customer base expansion goals. We have recently expand our sales capacity by adding headcount throughout our sales and marketing department. As we continue to grow, we intend to continue to expand our sales and marketing department.

 

Increase Sales to Existing Customers. We believe significant opportunities exist to further expand relationships with our existing customers. We will continue to cultivate incremental sales from our existing customers by driving increased use of our software within our installed base by expanding footprint and usage. As we innovate and expand our product offering, we expect to have an even broader suite of products to offer our customers. Our key strategies to ensure a high subscription license renewal rate and maintain our high maintenance renewal rate include focusing on the quality and reliability of our customer service and support teams to ensure our customers receive value from our products and providing software upgrades and enhancements when and if they are available.

 

Focus on International 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 recently an office in Dubai, which has already resulted in significant new business for us. We believe that a focus on international markets will be a key component of our growth strategy, and we will continue to market our products and services overseas.

 

Our Customers

 

Our current customer base is comprised primarily of customers purchasing ARALOC, ArcMail, DataExpress, and ClassiDocs products. 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.

 

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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

 

The Company has a policy of requiring key employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting relationship. The Company’s employee agreements also require relevant employees to assign to it all rights to any inventions made or conceived during their employment with the Company. In addition, the Company has a policy of requiring individuals and entities with which it discusses potential business relationships to sign non-disclosure agreements. The Company’s agreements with clients include confidentiality and non-disclosure provisions. 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.

 

We currently make use of a number of trademarks in our business, including, without limitation, the following:

 

  ClassiDocs®
     
  ARALOC®
     
  DataExpress

 

Unlike copyrights and patents, trademark rights can last indefinitely so long as the owner continues to use the mark to identify its goods or services. The term of a federal trademark is ten years, with ten-year renewal terms. The number of years remaining for the federal trademark on the three trademarks we make use of in our business is as follows:

 

ClassiDocs: Eight years

 

ARALOC: Four years

 

DataExpress: Fourteen years

 

Competition

 

The industry in which we compete 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.

 

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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.

 

Employees

 

As of March 23, 2021, we had 22 employees and independent contractors, of which one was considered to be part of our management team; our sole director and officer, Jason Remillard. We have not experienced any work stoppages, and we consider our relations with our employees to be good. The Company believes that it will be successful in attracting experienced and capable personnel. The Company’s employees are not represented by any labor union.

 

In response to the COVID-19 pandemic, the safety of our employees and business partners has been made a priority, while continuing to support the needs of our customers and communities during the continuation of the pandemic. We temporarily closed our headquarters, and we continue to closely monitor and comply with state and local requirements, guidelines, and recommendations. We shifted from existing flexible working arrangements to working from home on a regular basis, using digital platforms and virtual collaboration tools to maintain productivity and to remain in contact with our employees, business partners, and customers. We have also limited travel to further support and protect our employees.

 

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.

 

Legal Proceedings

 

The Company may from time to time be involved in various claims and legal proceedings of a nature it believes are normal and incidental to its business. These matters may include product liability, intellectual property, employment, personal injury cause by the Company’s employees, and other general claims. The Company is not presently a party to any legal proceedings that, in the opinion of its management, are likely to have a material adverse effect on its business. Regardless of outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.

 

Properties

 

Our principal executive office is located at 101 J Morris Commons Lane, Suite 105, Morrisville, North Carolina 27560. The space is a shared office space, which at the current time is suitable for the conduct of our business.

 

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, 2020 to the effect that our limited operations and lack of profitability 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.

 

Available Information

 

The Company expects to continue to file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, proxy statements and other information with the SEC. Any materials filed by the Company with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the SEC’s Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including the Company) file electronically with the SEC. The Internet address of the SEC’s website is http://www.sec.gov. At some point in the near future we intend to make our reports, amendments thereto, and other information available, free of charge, on a website for the Company. At this time, the Company does not provide a link on its website to such filings, and there is no estimate for when such a link on the Company’s website will be available. Our corporate offices are located at 101 J Morris Commons Lane, Suite 105, Morrisville, North Carolina 27560. Our telephone number is 919-858-6542.

 

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ITEM 1A. RISK FACTORS

 

As a smaller reporting company, we are not required to provide the information required by this Item. However, as a result of recent events that may be outside of our control, such as political and social unrest, terrorist attacks, hostilities, malicious human acts, climate change, natural disasters (including extreme weather), pandemics or other major public health concerns, including the ongoing outbreak of a respiratory illness caused by the 2019 novel coronavirus that was recently named by the World Health Organization as COVID-19, and other similar events, we have included the following additional Risk Factors:

 

Adverse or uncertain macroeconomic or geopolitical conditions or reduced IT spending may adversely impact our business, revenues, and profitability.

 

Our business, operations and performance are dependent in part on worldwide economic conditions and events that may be outside of our control, such as political and social unrest, terrorist attacks, hostilities, malicious human acts, climate change, natural disasters (including extreme weather), pandemics or other major public health concerns and other similar events, and the impact these conditions and events have on the overall demand for enterprise computing infrastructure solutions and on the economic health and general willingness of our current and prospective end customers to purchase our solutions and to continue spending on IT in general. The global macroeconomic environment has been, and may continue to be, inconsistent, challenging and unpredictable due to international trade disputes, tariffs, including those recently imposed by the U.S. government on Chinese imports to the U.S., restrictions on sales and technology transfers, uncertainties related to changes in public policies such as domestic and international regulations, taxes, or international trade agreements, elections, geopolitical turmoil and civil unrests, instability in the global credit markets, uncertainties regarding the effects of the United Kingdom’s separation from the European Union, commonly known as “Brexit”, actual or potential government shutdowns, and other disruptions to global and regional economies and markets. Specifically, the recent and developing outbreak of a respiratory illness caused by the 2019 novel coronavirus that was named by the World Health Organization as COVID-19 (collectively with any future mutations or related strains thereof, “COVID-19”) has caused and may continue to cause travel bans or disruptions, supply chain delays and disruptions, and additional macroeconomic uncertainty. The impact of COVID-19 is fluid and uncertain, but it has caused and may continue to cause various negative effects, including an inability to meet with actual or potential customers, our end customers deciding to delay or abandon their planned purchases, us to delay, cancel, or withdraw from user and industry conferences and other marketing events, and delays or disruptions in our or our OEM partners’ supply chains, including delays or disruptions in procuring and shipping the hardware appliances on which our software solutions run. As a result, we may experience extended sales cycles, our ability to close transactions with new and existing customers and partners may be negatively impacted, potentially significantly, our ability to recognize revenue from software transactions we do close may be negatively impacted, potentially significantly, our demand generation activities, and the efficiency and effect of those activities, may be negatively affected, our ability to provide 24x7 worldwide support and/or replacement parts to our end customers may be effected, and it has been and, until the COVID-19 outbreak is contained, will continue to be more difficult for us to forecast our operating results. These macroeconomic challenges and uncertainties, including the COVID-19 outbreak, have, and may continue to, put pressure on global economic conditions and overall IT spending and may cause our end customers to modify spending priorities or delay or abandon purchasing decisions, thereby lengthening sales cycles and potentially lowering prices for our solutions, and may make it difficult for us to forecast our sales and operating results and to make decisions about future investments, any of which could materially harm our business, operating results and financial condition.

 

Public health threats or outbreaks of communicable diseases could have a material adverse effect on the Company’s operations and overall financial performance.

 

The Company may face risks related to public health threats or outbreaks of communicable diseases. A global health crisis, such as the current outbreak of coronavirus or COVID-19, could adversely affect the United States and global economies and limit the ability of enterprises to conduct business for an indefinite period of time. The current outbreak of COVID-19 has negatively impacted the global economy, disrupted financial markets, and international trade, resulted in increased unemployment levels and significantly impacted global supply chains, all of which have the potential to impact the Company’s business.

 

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In addition, government authorities have implemented various mitigation measures, including travel restrictions, limitations on business operations, stay-at-home orders, and social distancing protocols. The economic impact of the aforementioned actions may impair our ability to sustain sufficient financial liquidity and impact our financial results. Specifically, the continued spread of COVID-19 and efforts to contain the virus could: (i) result in an increase in costs related to delayed payments from customers and uncollectable accounts, (ii) cause a reduction in revenue related to late fees and other charges related to governmental regulations, (iii) cause delays and disruptions in the supply chain related to obtaining necessary materials for our network infrastructure or customer equipment, (iv) cause workforce disruptions, including the availability of qualified personnel; and (v) cause other unpredictable events.

 

As we cannot predict the duration or scope of the global health crisis, the anticipated negative financial impact to our operating results cannot be reasonably estimated, but could be material and last for an extended period of time.

 

Prolonged economic uncertainties or downturns could materially adversely affect our business.

 

Our business depends on our current and prospective customers’ ability and willingness to invest money in IT services, and more importantly cybersecurity projects, which in turn is dependent upon their overall economic health. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from COVID-19 and numerous other factors beyond our control, could cause a decrease in business investments, including corporate spending on enterprise software in general and negatively affect the rate of growth of our business. Uncertainty in the global economy makes it extremely difficult for our customers and us to forecast and plan future business activities accurately. This could cause our customers to reevaluate decisions to purchase our product or to delay their purchasing decisions, which could lengthen our sales cycles.

 

We have a significant number of customers, many of which are impacted significantly by the economic turmoil caused by the COVID-19 pandemic. Our customers may reduce their spending on IT; delay or cancel IT projects; focus on in-house development efforts; or, seek to lower their costs by renegotiating maintenance and support agreements. To the extent purchases of licenses for our software and services are perceived by customers and potential customers to be discretionary, our revenues may be disproportionately affected by delays or reductions in general IT spending. If the economic conditions of the general economy or industries in which we operate worsen from present levels, our business, results of operations and financial condition could be adversely affected.

 

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 success will depend, in part, on our ability to support new and existing customer growth and maintain customer satisfaction. Due to COVID-19, our sales and marketing teams have avoided in-person meetings and are increasingly engaging with customers online and through other communications channels, including virtual meetings. While our revenues increased in the fourth quarter of 2020 compared to the fourth quarter of 2019, there is no guarantee that for the long run our sales and marketing teams will be as successful or effective using these other communications channels as they try to build relationships. If we cannot provide the tools and training to our teams to efficiently do their jobs and satisfy customer demands, we may not be able to achieve anticipated revenue growth as quickly as expected.

 

Our future growth depends upon expanding sales of our products to existing customers and their organizations and receiving subscription and maintenance renewals. 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 (“upsells”) and additional revenues. If our efforts to upsell to our customers are not successful, our business would suffer. Our future growth also depends in part upon increasing our customer base, particularly those customers with potentially high customer lifetime values. 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. Our ability to attract new customers may be adversely affected by the continued COVID-19 pandemic. If we fail to attract new customers and maintain and expand those customer relationships, our revenues may be adversely affected, and our business will be harmed.

 

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Adverse or uncertain macroeconomic or geopolitical conditions or reduced IT spending may adversely impact our business, revenues and profitability.

 

Our business, operations and performance are dependent in part on worldwide economic conditions and events that may be outside of our control, such as political and social unrest, terrorist attacks, hostilities, malicious human acts, climate change, natural disasters (including extreme weather), pandemics or other major public health concerns and other similar events, and the impact these conditions and events have on the overall demand for enterprise computing infrastructure solutions and on the economic health and general willingness of our current and prospective end customers to purchase our solutions and to continue spending on IT in general. The global macroeconomic environment has been, and may continue to be, inconsistent, challenging and unpredictable due to international trade disputes, tariffs, including those recently imposed by the U.S. government on Chinese imports to the U.S., restrictions on sales and technology transfers, uncertainties related to changes in public policies such as domestic and international regulations, taxes, or international trade agreements, elections, geopolitical turmoil and civil unrests, instability in the global credit markets, uncertainties regarding the effects of the United Kingdom’s separation from the European Union, commonly known as “Brexit”, actual or potential government shutdowns, and other disruptions to global and regional economies and markets. Specifically, the recent and developing outbreak of a respiratory illness caused by the 2019 novel coronavirus that was named by the World Health Organization as COVID-19 (collectively with any future mutations or related strains thereof, “COVID-19”) has caused and may continue to cause travel bans or disruptions, supply chain delays and disruptions, and additional macroeconomic uncertainty. The impact of COVID-19 is fluid and uncertain, but it has caused and may continue to cause various negative effects, including an inability to meet with actual or potential customers, our end customers deciding to delay or abandon their planned purchases, us to delay, cancel, or withdraw from user and industry conferences and other marketing events, and delays or disruptions in our or our OEM partners’ supply chains, including delays or disruptions in procuring and shipping the hardware appliances on which our software solutions run. As a result, we may experience extended sales cycles, our ability to close transactions with new and existing customers and partners may be negatively impacted, potentially significantly, our ability to recognize revenue from software transactions we do close may be negatively impacted, potentially significantly, our demand generation activities, and the efficiency and effect of those activities, may be negatively affected, our ability to provide 24x7 worldwide support and/or replacement parts to our end customers may be effected, and it has been and, until the COVID-19 outbreak is contained, will continue to be more difficult for us to forecast our operating results. These macroeconomic challenges and uncertainties, including the COVID-19 outbreak, have, and may continue to, put pressure on global economic conditions and overall IT spending and may cause our end customers to modify spending priorities or delay or abandon purchasing decisions, thereby lengthening sales cycles and potentially lowering prices for our solutions, and may make it difficult for us to forecast our sales and operating results and to make decisions about future investments, any of which could materially harm our business, operating results and financial condition.

 

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ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

The Company’s corporate office is located at 101 J Morris Commons Lane, Suite 105, Morrisville, North Carolina 27560. In January 2019, Data443, a wholly-owned subsidiary of the Company, entered into a five (5) year lease for approximately 5,000 square feet of office space. The Company believes that the office facilities are sufficient for the foreseeable future and this arrangement will remain until we determine there is a need for a change.

 

ITEM 3. 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. As of the date of this Annual Report we are not aware of any 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.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock is currently quoted on the OTC Pink under the trading symbol “ATDS”. 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. All per share amounts are adjusted for the reverse stock split of 1-for-750 shares of common stock, which became effective on October 29, 2019.

 

Fiscal Year 2019   High Bid     Low Bid  
First Quarter   $ 4.4361     $ 1.2782  
Second Quarter   $ 1.8045     $ 0.4511  
Third Quarter   $ 0.7519     $ 0.3008  
Fourth Quarter   $ 1.90     $ 0.30  

 

Fiscal Year 2020   High Bid     Low Bid  
First Quarter   $ 0.79     $ 0.03  
Second Quarter   $ 0.075     $ 0.0097  
Third Quarter   $ 0.0429     $ 0.0075  
Fourth Quarter   $ 0.0120     $ 0.0049  

 

Penny Stock Rules

 

The Securities and Exchange Commission has also adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).

 

A purchaser is purchasing penny stock which limits the ability to sell the stock. Our shares constitute penny stock under the Securities and Exchange Act. The shares will remain penny stocks for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.

 

The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document, which:

 

  contains a description of the nature and level of risk in the market for penny stock in both public offerings and secondary trading;
     
  contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” price for the penny stock and the significance of the spread between the bid and ask price;
     
  contains a toll-free telephone number for inquiries on disciplinary actions;
     
  defines significant terms in the disclosure document or in the conduct of trading penny stocks; and
     
  contains such other information and is in such form (including language, type, size and format) as the SEC shall require by rule or regulation.

 

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The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:

 

  the bid and offer quotations for the penny stock;
     
  the compensation of the broker-dealer and its salesperson in the transaction;
     
  the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
     
  monthly account statements showing the market value of each penny stock held in the customer’s account.

 

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, shareholders may have difficulty selling their securities.

 

Reports

 

We are subject to certain filing requirements and will furnish annual financial reports to our shareholders, audited by our independent registered public accounting firm, and will furnish un-audited quarterly financial reports in our quarterly reports filed electronically with the SEC. All reports and information filed by us can be found at the SEC website, www.sec.gov.

 

Transfer Agent

 

The Company has retained Madison Stock Transfer Inc., with an address of 2500 Coney Island Ave, Sub Level Brooklyn, New York 11223, with a telephone number of 718-627-4453, as its transfer agent.

 

Number of Equity Security Holders

 

As of March 23, 2021, we had 540 holders of record of our common stock. This does not include beneficial owners holding common stock in street name. As such, the number of beneficial holders of our shares could be substantially larger than the number of shareholders of record.

 

Dividend Policy

 

We have never paid dividends and have no current plans to do so. We currently anticipate that we will retain all of our future earnings, if any, for use in the development and expansion of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our Board and will depend upon our results of operations, financial condition, and other factors that the Board, in its discretion, may deem relevant. There are no restrictions, other than applicable law, on the ability of the Board to declare and pay dividends.

 

Recent Sales of Unregistered Securities

 

The following information represents securities sold by the Company during the period covered by this Annual Report, and the subsequent period, 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 January 15, 2019, 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.

 

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  On February 6, 2019, the Company agreed to issue a total of 418,451,781 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 agreed to issue to the subscribers warrants to acquire a total of 218,413,977 shares of our common stock at a strike price of $0.0029 per share, with a cashless exercise feature and a five year term. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 7, 2019, 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 April 15, 2019, the Company issued a Convertible Promissory Note (the “Auctus Note”) in the aggregate principal amount of $600,000 (the “Principal Amount”), and received gross proceeds of $546,000 (excluded were legal fees and a transaction fee charged by the lender, Auctus Fund, LLC); the proceeds will be used for general corporate purposes. The Auctus Note may be converted into shares of the Company’s common stock in whole or in part at any time from time to time after the four (4) month anniversary of the issuance of the Auctus Note, at an initial conversion price per share equal to the lesser of: (a) $0.0015; or, (b) 50% multiplied by the lowest trading price for the Company’s common stock during the 25 days of trading ending on the latest complete trading day prior to the date of conversion. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends and other similar transactions and terms. The Company also granted to the lender warrants to purchase 60,000,000 shares of Common Stock at $0.005 per share, with a cashless exercise feature. The Auctus Note and the warrants were issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On June 12, 2019, the Company issued a Convertible Promissory Note (the “Redstart Note”) in the aggregate principal amount of $63,000, and received gross proceeds of $60,000 (excluded were legal fees and a transaction fee charged by the lender, Redstart Holdings, LLC). The proceeds will be used for general corporate purposes. The Redstart Note (i) accrues interest at a rate of 22% per annum, (ii) can be converted 180 days from June 12, 2019 at a discount of 39% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion, (iii) is due and payable June 12, 2020, and (iv) has an original issue discount of $3,000. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The Redstart Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On September 16, 2019, the Company entered into an Asset Purchase Agreement with DMBGroup, LLC to acquire certain assets collectively known as DataExpressTM, a software platform for secure sensitive data transfer within the hybrid cloud. The total purchase price of approximately $2.8 million consists of: (i) a $410,000 cash payment at closing; (ii) a promissory note in the amount of $940,000, payable in the amount of $41,661 over 24 monthly payments starting on October 15, 2019, accruing at a rate of 6% per annum; (iii) assumption of approximately $98,000 in liabilities and, (iv) approximately 2,465,753 shares of our common stock.
     
  On December 19, 2019, the Company issued a Convertible Promissory Note (the “Geneva Note”) in the aggregate principal amount of $38,000, and received gross proceeds of $38,000 from the lender, Geneva Roth Remark Holdings, Inc. The proceeds will be used for general corporate purposes. The Geneva Note (i) accrues interest at a rate of 22% per annum, (ii) can be converted 180 days from December 19, 2019 at a discount of 39% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion, and, (iii) is due and payable December 19, 2020. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The Geneva Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.

 

18
 

 

  Effective December 31, 2019 the Company entered into an agreement with Blue Citi to amend the Consolidated Note as follows: (i) principal balance of $1,700,000 as of 12-31-2019; (ii) zero interest would accrue on and after January 01, 2020 so long as the Consolidated Note was not otherwise in default; (iii) $270,000 of principal could not be converted until July 01, 2020; (iv) a maximum of $500,000 could be converted each month, unless there was at least $500,000 in daily trading volume for five (5) consecutive trading days; (v) conversions will be at a 40% discount to the lower of the lowest price for our common stock during the 20 days preceding the conversion, or the lowest price for our common stock for the 20 days preceding December 31, 2019; and, (vi) the maturity date of the Consolidated Note is March 31, 2021.
     
  Effective December 31, 2019 the Company entered into an agreement with Blue Citi to amend the AFT Note as follows: (i) principal balance of $441,150 as of 12-31-2019; (ii) no conversions until July 01, 2020; (iii) 12% interest; (iv) conversions will be at a 50% discount to the lower of the lowest price for our common stock during the 20 days preceding the conversion, or the lowest price for our common stock for the 20 days preceding December 02, 2019; and, (v) the maturity date of the AFT Note is April 15, 2020.
     
  Effective December 31, 2019 the Company entered into an agreement with Smea2z, LLC to amend the Smea2z Note as follows: (i) principal balance of $608,850 as of 12-31-2019; (ii) no conversions until July 01, 2020; (iii) 12% interest; (iv) conversions will be at a 50% discount to the lower of the lowest price for our common stock during the 20 days preceding the conversion, or the lowest price for our common stock for the 20 days preceding December 02, 2019; and, (v) the maturity date of the Smea2z Note is April 15, 2020.
     
  On January 3, 2020, the Company completed a settlement with Hubai Chuguan Industry Co. Ltd. under which the Company cancelled 2,000,000 shares of its common stock and returned those shares to authorized and unissued status.
     
  On January 6, 2020, the Company issued a total of 2,465,754 shares of its common stock to three individuals in connection with the transaction closed on September 16, 2019, in which we acquired certain assets collectively known as DataExpressTM from DMBGroup, LLC. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On January 13, 2020, the Company converted $20,000 of a promissory note into 81,766 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On January 17, 2020, the Company converted $84,000 of a promissory note into 400,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On January 21, 2020, the Company converted $23,000 of a promissory note into 94,031 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On January 27, 2020, the Company converted $15,000 of a promissory note into 110,294 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On January 29, 2020, the Company converted $8,150 of a promissory note into 63,622 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 3, 2020, the Company converted $36,000 of a promissory note into 500,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 11, 2020, the Company converted $36,000 of a promissory note into 500,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 12, 2020, the Company issued 500,000 shares of its common stock to its former chief financial officer as additional compensation. The issuance was effected under the Company’s Form S-8 filed with the SEC on May 20, 2019.
     
  On February 21, 2020, the Company converted $44,000 of a promissory note into 611,111 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

19
 

 

  On March 02, 2020, the Company converted $38,250 of a promissory note into 750,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On March 05, 2020, the Company issued a Convertible Promissory Note (the “GS Capital Note”) in the aggregate principal amount of $136,250, and received gross proceeds of $129,750 from the lender, GS Capital Partners, LLC. The proceeds will be used for general corporate purposes. The GS Capital Note (i) accrues interest at a rate of 10% per annum, (ii) can be converted six months after issuance at a discount of 35% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion, and, (iii) is due and payable March 05, 2021. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The GS Capital Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On March 10, 2020, the Company issued a Convertible Promissory Note (the “Adar Note”) in the aggregate principal amount of $78,750, and received gross proceeds of $75,000 from the lender, Adar Alef, LLC. The proceeds will be used for general corporate purposes. The Adar Note (i) accrues interest at a rate of 10% per annum, (ii) can be converted six months after issuance at a discount of 35% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion, and, (iii) is due and payable March 10, 2021. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The Adar Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On March 16, 2020, the Company converted $33,247.80 of a promissory note into 786,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On March 18, 2020, the Company converted $42,075 of a promissory note into 825,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On March 19, 2020, the Company converted $15,000 of a promissory note into 354,610 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On March 20, 2020, the Company issued a Convertible Promissory Note in the aggregate principal amount of $1,000,000. Of that amount, $125,000 was loaned immediately by the lender, Granite Global Value Investments Ltd. (the “Granite Note”), from which we received gross proceeds of $102,500. The proceeds will be used for general corporate purposes. The Granite Note (i) accrues interest at a rate of 12% per annum, (ii) can be converted six months after issuance at a discount of 25% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion, and, (iii) is due and payable six months after issuance. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The Granite Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On March 26, 2020, the Company converted $19,675 of a promissory note into 862.938 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On March 27, 2020, the Company converted $13,273.50 of a promissory note into 884,900 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On April 01, 2020, the Company issued 4,666 shares of its common stock to its president/chief executive officer, Jason Remillard, as additional compensation.
     
  On April 02, 2020, the Company converted $20,000 of a promissory note into 1,333,333 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

20
 

 

  On April 02, 2020, the Company converted $4,521.33 of a promissory note into 301,422 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On April 03, 2020, the Company converted $17,460 of a promissory note into 970,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On April 14, 2020, the Company converted $6,471.33 of a promissory note into 431,422 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On April 16, 2020, the Company converted $6,793.83 of a promissory note into 452,922 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On April 17, 2020 the Company issued a total of 11,935,000 shares of its common stock to twelve (12) individuals, each of whom was either an employee or services provider to the Company. The shares were issued under the Company’s S-8 filed with the SEC on May 20, 2019 (SEC File No. 333-231615).
     
  On April 22, 2020, the Company converted $20,000 of a promissory note into 1,388,888 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On April 27, 2020, the Company converted $19,922.10 of a promissory note into 1,811,100 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On April 28, 2020 the Company issued a total of 1,496,516 shares of its common stock to three persons who had previously invested $1,775,000 in the Company though the Company had not yet issued them their respective shares. These shares were issued for this prior investment, and the issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On April 28, 2020, the Company converted $24,540 of a promissory note into 1,804,411 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On May 02, 2020, the Company converted $15,600 of a promissory note into 2,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On May 06, 2020, the Company converted $10,080 of a promissory note into 1,680,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On May 06, 2020, the Company converted $8,490.72 of a promissory note into 2,166,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On May 07, 2020, the Company converted $11,494.90 of a promissory note into 2,357,929 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On May 12, 2020, the Company converted $14,700 of a promissory note into 2,450,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On May 19, 2020, the Company converted $16,620 of a promissory note into 2,770,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On May 21, 2020, the Company converted $16,800 of a promissory note into 2,800,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On May 26, 2020, the Company converted $18,000 of a promissory note into 3,000.000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On May 26, 2020, the Company converted $14,627.62 of a promissory note into 3,000,538 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

21
 

 

  On May 26, 2020, the Company converted $11,761.96 of a promissory note into 3,000,500 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On May 28, 2020, the Company converted $20,700 of a promissory note into 3,450,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On May 29, 2020, the Company converted $13,522.42 of a promissory note into 3,449,597 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 02, 2020, the Company converted $21,600 of a promissory note into 3,600,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 04, 2020, the Company converted $23,400 of a promissory note into 3,900,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 05, 2020, the Company converted $15,576.50 of a promissory note into 3,973,597 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 09, 2020, the Company converted $26,100 of a promissory note into 4,350,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 10, 2020, the Company converted $20,000 of a promissory note into 4,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 10, 2020, the Company issued a Convertible Promissory Note (the “JSJ Note”) in the aggregate principal amount of $84,500, and received gross proceeds of $75,000 from the lender, JSJ Investment Inc. The proceeds will be used for general corporate purposes. The JSJ Note (i) accrues interest at a rate of 12% per annum, (ii) can be converted 180 days from June 10, 2020 at a discount of 25% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion, and, (iii) is due and payable June 10, 2021. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The JSJ Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On June 11, 2020, the Company issued a Convertible Promissory Note (the “June 11 Geneva Note”) in the aggregate principal amount of $43,000, and received gross proceeds of $40,000 from the lender, Geneva Roth Remark Holdings, Inc. The proceeds will be used for general corporate purposes. The June 11 Geneva Note (i) accrues interest at a rate of 22% per annum, (ii) can be converted 180 days from June 11, 2020 at a discount of 39% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion, and, (iii) is due and payable June 11, 2021. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The June 11 Geneva Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On June 12, 2020, the Company converted $27,000 of a promissory note into 4,500,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 12, 2020, the Company converted $15,000 of a promissory note into 2,343,750 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 16, 2020, the Company converted $24,900 of a promissory note into 3,952,381 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 16, 2020, the Company converted $29,100 of a promissory note into 5,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

22
 

 

  On June 17, 2020, the Company converted $21,617.03 of a promissory note into 5,571,400 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 19, 2020, the Company converted $34,920 of a promissory note into 6,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 23, 2020, the Company converted $15,000 of a promissory note into 2,419,355 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 23, 2020, the Company converted $23,424 of a promissory note into 6,100,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 24, 2020, the Company converted $24,980.82 of a promissory note into 6,573,900 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 24, 2020, the Company converted $24,900 of a promissory note into 4,081,967 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 25, 2020, the Company converted $20,000 of a promissory note into 4,210,526 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 25, 2020, the Company issued a Convertible Promissory Note (the “June 25 Geneva Note”) in the aggregate principal amount of $43,000, and received gross proceeds of $40,000 from the lender, Geneva Roth Remark Holdings, Inc. The proceeds will be used for general corporate purposes. The June 25 Geneva Note (i) accrues interest at a rate of 22% per annum, (ii) can be converted 180 days from June 25, 2020 at a discount of 39% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion, and, (iii) is due and payable June 25, 2021. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The June 25 Geneva Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On June 26, 2020, the Company converted $24,700 of a promissory note into 6,500,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On June 29, 2020, the Company converted $26,600 of a promissory note into 7,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 01, 2020, the Company converted $29,032.38 of a promissory note into 7,640,100 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  Effective July 01, 2020, the Company entered into an agreement with Blue Citi under which Blue Citi agreed to forbear from enforcing its rights under the Consolidated Note with regard certain possible events of default under the Consolidated Note, and the Company and Blue Citi further agreed to amend the Consolidated Note as follows: (i) maturity date will be March 31, 2021; (ii) Blue Citi’s right to match a lower conversion rate will now only apply to convertible notes issued after July 01, 2020; and, (iii) no further interest shall accrue on the Consolidated Note so long as there is no event of default.
     
  Effective July 01, 2020, the Company entered into an agreement with Smea2z LLC (“Smea2z”) under which Smea2z agreed to forbear from enforcing its rights with regard certain possible events of default under that certain 8% Convertible Redeemable Note in the original principal amount of Two Hundred Twenty Thousand Dollars ($220,000) on 23 October 2018, with a maturity date of 23 July 2019 (the “SME Note”). The Company and Smea2z further agreed to amend the SME Note as follows: (i) maturity date will be September 30, 2020; (ii) Smea2z has no right to match a lower conversion rate; (iii) no conversions until October 01, 2020; and, (iv) no further interest shall accrue on the SME Note so long as there is no event of default.

 

23
 

 

  Effective July 01, 2020, the Company entered into an agreement with Blue Citi under which Blue Citi agreed to forbear from enforcing its rights with regard certain possible events of default under that certain 8% Convertible Redeemable Note in the original principal amount of One Hundred Ten Thousand Dollars ($110,000) on 16 October 2018, with a maturity date of 16 July 2019 (the “AFT Note”). The Company and Blue Citi further agreed to amend the AFT Note as follows: (i) maturity date will be September 30, 2020; (ii) Blue Citi has no right to match a lower conversion rate; (iii) no conversions until October 01, 2020; and, (iv) no further interest shall accrue on the AFT Note so long as there is no event of default.
     
  Effective July 01, 2020, the Company entered into an agreement with Blue Citi under which Blue Citi agreed to forbear from enforcing its rights under the Credit Line Note with regard certain possible events of default under the Credit Line Note, and the Company and Blue Citi further agreed to amend the Credit Line Note as follows: (i) maturity date will be June 30, 2021; (ii) Blue Citi no longer has a right to match a lower conversion rate; (iii) the conversion rate will be set at 40%; (iv) conversions can start at the earlier of (a) the maturity date or, (b) both the AFT Note and Smea2z Note are paid in full; and, (v) as additional consideration, the Company issued the Penalty Note to Blue, as discussed below.
     
  Effective July 01, 2020, the Company issued to Blue Citi a Convertible Promissory Note (the “Penalty Note”) in the aggregate principal amount of $25,000 as additional consideration for amendment and forbearance of the Credit Line Note. The Penalty Note (i) accrues interest at a rate of 10% per annum; (ii) can be converted starting on April 01, 2021, at a discount of 40% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion; (iii) Blue Citi has no right to match a lower conversion rate; and, (iv) is due and payable July 01, 2021. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The Penalty Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On July 01, 2020, the Company issued a Convertible Promissory Note (the “July Blue Citi Note”) in the aggregate principal amount of $150,000, and received gross proceeds of $140,000 from the lender, Blue Citi. The proceeds will be used for general corporate purposes. The July Blue Citi Note (i) accrues interest at a rate of 10% per annum, (ii) can be converted starting on April 01, 2021, at a discount of 40% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion; (iii) Blue Citi has no right to match a lower conversion rate; and, (iv) is due and payable July 01, 2021. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The July Blue Citi Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On July 06, 2020, the Company converted $28,500 of a promissory note into 7,500,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 10, 2020, the Company converted $33,230.62 of a promissory note into 8,744,900 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 10, 2020, the Company converted $20,000 of a promissory note into 4,210,526 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 16, 2020, the Company converted $33,060 of a promissory note into 8,700,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 17, 2020, the Company converted $37,336.90 of a promissory note into 9,825,500 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 20, 2020, the Company converted $34,200 of a promissory note into 9,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

24
 

 

  On July 21, 2020, the Company converted $3,800 of a promissory note into 1,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 22, 2020, the Company converted $40,906.62 of a promissory note into 10,764,900 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 23, 2020, the Company converted $39,900 of a promissory note into 10,500,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 23, 2020, the Company issued a Convertible Promissory Note (the “July 23 Geneva Note”) in the aggregate principal amount of $43,000, and received gross proceeds of $40,000 from the lender, Geneva Roth Remark Holdings, Inc. The proceeds will be used for general corporate purposes. The July 23 Geneva Note (i) accrues interest at a rate of 22% per annum, (ii) can be converted 180 days from July 23, 2020 at a discount of 39% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion, and, (iii) is due and payable July 23, 2021. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The July 23 Geneva Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On July 27, 2020, the Company converted $14,469.19 of a promissory note into 3,014,415 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 27, 2020, the Company converted $43,700 of a promissory note into 11,500,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  Effective July 28, 2020, the company entered into an Advisory Board Agreement (the “Advisory Agreement”) with Omkharan Arasaratnam (the “Advisor”). Pursuant to the Advisory Agreement, the Advisor joined the Advisory Board of the Company for a term of 12-months, although either party may terminate the Advisory Agreement early upon proper notice. The Company agreed to issue to the Advisor five million (5,000,000) shares of its common stock to the Advisor, which shares shall vest at the rate of 25% every 3-months under the Advisory Agreement. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 29, 2020, the Company converted $45,600 of a promissory note into 12,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 29, 2020, the Company converted $47,880.38 of a promissory note into 12,600,100 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On July 31, 2020, the Company converted $46,130 of a promissory note into 12,139,479 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 03, 2020, the Company issued a Convertible Promissory Note (the “August Blue Citi Note”) in the aggregate principal amount of $200,000, and received gross proceeds of $185,000 from the lender, Blue Citi. The proceeds will be used for general corporate purposes. The August Blue Citi Note (i) accrues interest at a rate of 10% per annum; (ii) can be converted starting on February 03, 2021, at a discount of 40% to the lowest trading price during the twenty consecutive trading days immediately preceding the (a) date of conversion or (b) issue date of the August Blue Citi Note; (iii) Blue Citi has no right to match a lower conversion rate; (iv) has prepayment premiums, and can be prepaid only during the first 6-months of the August Blue Citi Note; and, (v) is due and payable August 03, 2021. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The August Blue Citi Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.

 

25
 

 

  Effective August 03, 2020, the Company entered into an agreement with Blue Citi under which Blue Citi agreed to the following amendments to the respective convertible promissory notes:

 

AFT Note: maturity date extended to June 30, 2021.

 

Credit Line Note: (i) add the same prepayment premiums as under the August Blue Citi Note; and, (ii) six (6) months to prepay the Credit Line Note commencing on August 03, 2020.

 

July Blue Citi Note: (i) six (6) months to prepay the July Blue Citi Note; and, (ii) no prepayment premiums.

 

The conversion of all convertible promissory notes held by Blue Citi shall be covered by a single account of reserved shares with the transfer agent for the Company.

 

  Effective August 03, 2020, the Company entered into an agreement with Smea2z LLC to amend the Smea2z Note by extending the maturity date to June 30, 2021.
     
  On August 04, 2020, the Company converted $53,200 of a promissory note into 14,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 06, 2020, the Company converted $19,000 of a promissory note into 5,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 06, 2020, the Company converted $38,000 of a promissory note into 10,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 10, 2020, the Company converted $43,566 of a promissory note into 10,783,664 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 12, 2020, the Company converted $63,047.80 of a promissory note into 16,418,698 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 12, 2020, the Company converted $70,000 of a promissory note into 17,156,863 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 14, 2020, the Company converted $69,481.34 of a promissory note into 18,094,099 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 14, 2020, the Company entered into a Share Settlement Agreement with the Company’s CEO, Jason Remillard (the “Share Settlement Agreement”). Pursuant to the Share Settlement Agreement, the Company issued to Remillard 144,000 shares of the Company’s Series A preferred stock in exchange for (i) the shares of the Company’s common stock owed to Remillard for the Company’s acquisition of Myriad Software Productions, LLC and Data443 Risk Mitigation, Inc. (the North Carolina corporation) from Remillard; and, (ii) releases of liability from Remillard. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 19, 2020, the Company converted $48,000 of a promissory note into 10,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 21, 2020, the Company converted $56,678 of a promissory note into 11,807,917 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 21, 2020, the Company converted $56,678 of a promissory note into 11,807,917 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 21, 2020, the Company converted $56,678 of a promissory note into 11,807,917 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 24, 2020, the Company converted $116,976 of a promissory note into 19,496,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

26
 

 

  On August 24, 2020, the Company issued a Convertible Promissory Note (the “$300K Note”) in the aggregate principal amount of $300,000, and received gross proceeds of $275,000 from the lender, Blue Citi. The proceeds will be used for general corporate purposes. The $300K Note (i) accrues interest at a rate of 10% per annum; (ii) can be converted starting on February 24, 2021, at a discount of 40% to the lowest trading price during the twenty consecutive trading days immediately preceding the (a) date of conversion or (b) issue date of the $300K Note; (iii) Blue Citi has no right to match a lower conversion rate; (iv) has prepayment premiums, and can be prepaid only during the first 6-months of the $300K Note; and, (v) is due and payable August 24, 2021. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The $300K Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On August 27, 2020, the Company converted $41,600 of a promissory note into 10,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On August 28, 2020, Data443 Risk Mitigation, Inc. (the “Company”), entered into a letter agreement (the “Maxim Agreement”) with Maxim Group, LLC (“Maxim”) for Maxim to provide general financial advisory, investment banking, and digital marketing services for the Company for an initial term of 6-months. In exchange for the services under the Agreement, the Company shall issue to Maxim shares of the Company’s company stock (a) upon execution of the Maxim Agreement in an amount equal to 2.50% of the Company’s issued and outstanding shares of common stock; and, (b) 2.49% of the of the Company’s issued and outstanding shares of common stock upon the up-listing of the Company’s common stock to a national exchange (NASDAQ or NYSE). All shares issued to Maxim will be non-dilutable for 2-years. Further, cash fees will be paid to Maxim as follows: (i) monthly fee of $2,500; (ii) 8% of the amount of capital raised, invested or committed through or arranged by Maxim; (iii) fee for unallocated expenses of 1% of the amount of capital raised, invested or committed through or arranged by Maxim; and (iv) a 5-year warrant to purchase shares of the Company’s common stock equal to eight percent (8%) of the number of shares of the common stock underlying the securities issued in the financing arranged by Maxim. Lastly, Maxim shall receive a transaction fee equal of 3% of the consideration underlying an acquisitive transaction (such as a merger) arranged by Maxim.
     
  On August 31, 2020, the Company converted $86,100 of a promissory note into 21,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On September 01, 2020, the Company converted $40,696.47 of a promissory note into 7,979,700 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On September 02, 2020, the Company converted $94,300 of a promissory note into 23,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On September 09, 2020, the Company converted $143,368.15 of a promissory note into 23,426,168 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On September 10, 2020, the Company issued a Convertible Promissory Note (the “September 10 Geneva Note”) in the aggregate principal amount of $63,000, and received gross proceeds of $60,000 from the lender, Geneva Roth Remark Holdings, Inc. The proceeds will be used for general corporate purposes. The September 10 Geneva Note (i) accrues interest at a rate of 22% per annum, (ii) can be converted 180 days from September 10, 2020 at a discount of 39% to the lowest trading price during the twenty consecutive trading days immediately preceding the date of conversion, and, (iii) is due and payable September 10, 2021. The conversion price is subject to adjustment for stock splits, reverse stock splits, stock dividends, and other similar transactions and terms. The September 10 Geneva Note was issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On September 14, 2020, the Company converted $13,750 of a promissory note into 2,073,906 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

27
 

 

  On September 15, 2020, the Company converted $20,000 of a promissory note into 3,016,591 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On September 17, 2020, the Company converted $25,000 of a promissory note into 3,770,739 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On September 18, 2020, the Company converted $57,400 of a promissory note into 14,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On September 22, 2020, the Company converted $24,131.94 of a promissory note into 3,788,374 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On September 29, 2020 the Company converted $75,000 of a promissory note into 25,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  Effective September 30, 2020, the Company exchanged (i) its convertible promissory note originally issued on March 20, 2020 in the amount of $125,000 (referred to herein as the Granite Note); and, (ii) the Common Stock Purchase Warrant dated 18 March 2020 for the issuance of two hundred fifty thousand (250,0000) shares of Company Common Stock (the “Granite Warrant”) for the issuance of a new convertible promissory note issued in favor of Blue Citi LLC in the amount of $325,000 (the “Exchange Note”). Both the Granite Note and the Granite Warrant were cancelled as a result of the exchange and the issuance of the Exchange Note. Terms of the Exchange Note include, without limitation, the following:

 

  a. Principal balance of $325,000, which includes all accrued and unpaid interest on the Granite Note;
     
  b. No further interest shall accrue so long as there is no event of default;
     
  c. Conversions into common stock under the Exchange Note shall be effected at the lowest closing stock price during the five (5) days preceding any conversion, with -0- discount and a conversion price not below $0.007;
     
  d. No prepayment premiums or penalties; and
     
  e. Maturity date of September 30, 2021.

 

The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

  On October 02, 2020, the Company issued a total of 119,155,869 shares of its common stock to three individuals in connection with the transaction closed on September 16, 2019, in which we acquired certain assets collectively known as DataExpress® from DMBGroup, LLC. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On October 6, 2020, the Company issued 25,300,000 shares of its common stock upon the cashless exercise of a warrant. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On October 07, 2020, the Company converted $92,600 of a promissory note into 30,866,666 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On October 08, 2002, the Company entered into an Asset Purchase Agreement with Resilient Network Systems, Inc. (“RNS”) to acquire the intellectual property rights and certain assets collectively known as Resilient Networks™, a Silicon Valley based SaaS platform that performs SSO and adaptive access control “on the fly” with sophisticated and flexible policy workflows for authentication and authorization. The total purchase price of $305,000 consists of: (i) a $125,000 cash payment at closing; and, (ii) the issuance of 19,148,936 shares of our common stock to RNS. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

28
 

 

  On October 21, 2020, the Company converted $131,250 of a promissory note into 37,500,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On November 4, 2020, the Company issued 12,711,503 shares of its common stock upon the cashless exercise of a warrant. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On November 16, 2020, the Company converted $118,000 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 November 17, 2020, the Company entered into an agreement with an existing lender to settle a dispute regarding a convertible promissory note, and exchanged that note for a newly issued note. The disputed note, referred to herein as the “Smea2z Note”, was originally issued on 23 October 2018 in favor of SMEA2Z LLC in the original principal amount of Two Hundred Twenty Thousand Dollars ($220,000), with a variable conversion feature at discount to the market price, and a maturity date of 23 July 2019. Subsequent to the issuance of the Smea2z Note, a series of agreements were executed which amended various terms and conditions of the Smea2z Note, resulting in, among other things, a purported current principal balance of Six Hundred Thousand Eight Hundred Fifty Dollars ($608,850), a variable conversion feature at a deeper discount to the market price, and a maturity date of 30 June 2021. The Smea2z Note was recently acquired by the current holder. The Company and the holder executed a Settlement and Release Agreement (the “Settlement Agreement”) under which, among things, they agreed to settle all disputes regarding the Smea2z Note and release each other from all liability under the Smea2z Note. As a result, the Smea2z Note was cancelled, and a new note was issued (the “Smea2z Exchange Note”) in exchange for the Smea2z Note. The Smea2z Exchange Note was issued as of 17 November 2020 in the reduced original principal amount of Four Hundred Thousand Dollars ($400,000). The Smea2z Exchange Note further provides as follows: (i) no further interest shall accrue so long as there is no event of default; (ii) maturity date of 30 June 2021; (iii) no right to prepay; (iv) conversion price is fixed at $0.0035; (v) Typical events of default for such a note, as well as a default in the event the closing price for the Company’s common stock is less than $0.0035 for at least 5-consecutive days; and, (vi) leak-out provision providing for (a) one conversion per week, for no more than 40,000,000, and (b) if the trading volume for the Company’s common stock exceeds 50,000,000 shares on any day, a second conversion may be exercised during that week, for no more than 40,000,000 (a total of eighty million shares for that week).
     
  On November 18, 2020, the Company entered into an agreement with three existing investors in the Company (the “Warrant Holders”), each of which was the holder of warrants issued the Company. The total number of warrants (collectively, the “Exchanged Warrants”) held by the Warrant Holders totaled 617,682 (which were accounted for in the Company’s financial statements at approximately 300,000,000 warrants after resets and derivative liabilities). The Company and the Warrant Holders agreed to exchange the Exchanged Warrants for three newly issued promissory notes (the “Warrant Exchange Notes”). As a result of the exchange, the Exchanged Warrants were cancelled and of no further force and effect. The Warrants Exchange Notes were issued as of 18 November 2020 in the total original principal amount of One Hundred Thousand Dollars ($100,000). The Warrant Exchange Notes further provide as follows: (i) interest accrues at 5% per annum; (ii) maturity date of 18 November 2025; (iii) no right to prepay; (iv) fixed conversion price of $0.01; and, (v) typical events of default for such a note. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On November 23, 2020, the Company converted $44,900 of a promissory note into 15,482,759 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On November 25, 2020, the Company issued 5,300 shares of its Series B Preferred Stock in exchange for $50,000 of net proceeds from an investor. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On December 02, 2020, the Company converted $140,000 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 December 08, 2020, the Company converted $140,000 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.

 

29
 

 

  On December 11, 2020, the Company entered into a Common Stock Purchase Agreement (“CSPA”) with Triton Funds, LP, a Delaware limited partnership (“Triton”), an unrelated third party. Triton agreed to invest $1 million in the Company in the form of common stock purchases. Subject to the terms and conditions set forth in the CSPA, the Company agreed to sell to Triton common shares of the Company having an aggregate value of One Million Dollars ($1,000,000). The Company may, in its sole discretion, deliver a Purchase Notice to Triton which states the dollar amount of shares which the Company intends to sell to Triton. The price of the shares to be sold will be $0.006 per shares. Triton’s obligation to purchase securities is conditioned on certain factors including, but not limited, to the Company having an effective registration available for resale of the securities being purchased; a minimum closing price of $0.009 per share for the Company’s common stock on the delivery date for the shares; and, Triton’s ownership not exceeding 9.9% of the issued and outstanding shares of the Company at any time. In connection with the CSPA, the Company also issued to Triton warrants to acquire 100,000,000 shares of the Company’s common stock at an exercise price of $0.01 per shares, with a term of 5-years. The issuance of the warrants was exempt under Section 4(a)(2) of the Securities Act.
     
  On December 15, 2020, the Company converted $30,000 of a promissory note into 9,375,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On December 15, 2020, the Company converted $15,150 of a promissory note into 4,734,375 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On December 17, 2020, the Company converted $45,000 of a promissory note into 12,371,134 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On December 29, 2020, the Company converted $45,150 of a promissory note into 14,109,375 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On January 04, 2021, the Company converted $45,390 of a promissory note into 11,866,580 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On January 06, 2021, the Company issued 3,800 shares of its Series B Preferred Stock in exchange for $35,000 of net proceeds from an investor. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On January 25, 2021, pursuant to the terms and conditions of a Note Purchase Agreement, the Company issued a Convertible Promissory Note (the “Quick Capital Note”) in the aggregate principal amount of $114,500, and received gross proceeds of $100,000 from the lender, Quick Capital, LLC (“Quick Capital”). The proceeds will be used for general corporate purposes. The Quick Capital Note (i) has a one-time interest charge of five percent (5%); (ii) is due and payable 90-days from issuance; and, (iii) can be converted into shares of the Company’s common stock upon an event of default, at a conversion price equal to the lesser of: (a) $0.01, or (b) 61% multiplied by the average of the two lowest trading prices for our Common Stock during the 20-days prior to the date of the conversion. In connection with, and as a condition to, the issuance of the Quick Capital Note, the Company also issued 5,725,000 shares of its common stock to Quick Capital. The Quick Capital Note and the shares of common stock were issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On January 27, 2021, the Company converted $45,150 of a promissory note into 12,541,667 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On January 28, 2021, the Company issued 2,000,000 shares of its common stock to a consultant pursuant to an agreement with the consultant. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 02, 2021, the Company issued 20,684,000 shares of its common stock to Maxim Partners LLC pursuant to the Maxim Agreement. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

30
 

 

  On February 03, 2021, the Company issued 1,250,000 shares of its common stock to a member of the Company’s Advisory Board. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 03, 2021, the Company issued 1,250,000 shares of its common stock to a member of the Company’s Advisory Board. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  Effective February 08, 2021 the Company entered into the Blue Citi Notes Settlement Agreement with Blue Citi (the “Notes Settlement”) to, among other things, settle all disputes regarding all convertible promissory notes issued in favor of Blue Citi (the “Blue Citi Notes”). The following terms, among others, applied to each of the Blue Citi Notes:

 

  a. All accrued and unpaid interest under the Blue Citi Notes shall be nullified in full and be deemed to be zero, and no further interest of any amount shall accrue on any of the Blue Citi Notes.
     
  b. At no time shall the total ownership of shares of the Company’s common stock by Blue Citi exceed 9.99% of the total number of issued and outstanding shares of common stock.
     
  c. The Company shall have no right to prepayment, or any other right to repay in cash, any of the Blue Citi Notes. Similarly, Blue Citi shall have no right to demand cash payment under any of the Blue Citi Notes.
     
  d. Blue Citi shall be limited in its sales of our common stock to a maximum of fifty million (50,000,000) shares each calendar week. However, in the event that the total volume of traded shares for our common stock exceeds three hundred million (300,000,000) in any calendar week, then the trading limitation for the following calendar week shall be increased to seventy five million (75,000,000) shares of common stock.

 

With regard to each of the respective Blue Citi Notes, the Company and Blue Citi further agreed as follows:

 

  a. Convertible note in the original principal amount of Two Hundred Thousand Dollars ($200,000) issued on 08 January 2020 shall have a fixed conversion price of $0.01, resulting in the issuance of 20,000,000 shares upon conversion.
     
  b. Convertible note in the original principal amount of Twenty Five Thousand Dollars ($25,000) issued on 01 July 2020 shall be nullified in full and be deemed to be zero, and be of no further force and effect.
     
  c. Convertible note in the original principal amount of One Hundred Fifty Thousand Dollars ($150,000) issued on 01 July 2020 shall have a fixed conversion price of $0.01, resulting in the issuance of 15,000,000 shares upon conversion.
     
  d. Convertible note in the original principal amount of Two Hundred Thousand Dollars ($200,000) issued on 03 August 2020 shall have a fixed conversion price of $0.005, resulting in the issuance of 40,000,000 shares upon conversion.
     
  e. Convertible note in the original principal amount of Three Hundred Thousand Dollars ($300,000) issued on 24 August 2020 shall have a fixed conversion price of $0.005, resulting in the issuance of 60,000,000 shares upon conversion.
     
  f. Convertible note in the original principal amount of Three Hundred Twenty Five Thousand Dollars ($325,000) issued on 30 September 2020 shall have a fixed conversion price of $0.015, resulting in the issuance of 21,666,667 shares upon conversion.
     
  g. Convertible note in the original principal amount of Four Hundred Thousand Dollars ($400,000) issued on 17 November 2020 shall have a fixed conversion price of $0.0035, resulting in the issuance of 34,285,714 shares upon conversion.

 

31
 

 

  On February 09, 2021, the Company converted $120,000 of a promissory note into 34,285,714 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 10, 2021, the Company converted $200,000 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.
     
  Effective February 12, 2021 Geneva Roth Remark Holdings, Inc. (“Geneva Roth”) and the Company finalized and closed the Securities Exchange Agreement (the “Geneva Exchange Agreement”). Geneva Roth was the holder of that certain Convertible Promissory Note in the original principal amount of Sixty Three Thousand Dollars ($63,000) dated September 10, 2020, with a maturity date of September 10, 2021 (the “Geneva Roth Note”). Pursuant to the Geneva Exchange Agreement, and solely in exchange for the Geneva Roth Note, Geneva Roth exchanged the Geneva Roth Note for six thousand five hundred sixty (6,560) shares of our Series B Preferred Stock. The Geneva Roth Note was thereafter cancelled and of no further force and effect. The issuance was exempt under Section 4(a)(2) and 3(a)(9) of the Securities Act.
     
  On February 19, 2021, the Company converted $200,000 of a promissory note into 20,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 19, 2021, the Company converted $150,000 of a promissory note into 15,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 19, 2021, the Company issued 7,800 shares of its Series B Preferred Stock in exchange for $75,000 of net proceeds from an investor. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 19, 2021, the Company converted $100,000 of a promissory note into 20,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 24, 2021, the Company converted $200,000 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 February 25, 2021, the Company converted $325,000 of a promissory note into 21,666,667 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
 

On March 15, 2021, the Company converted 4,500 shares of its Series B Preferred Stock into 7,680,508 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

     
 

On March 16, 2021, the Company converted 2,060 shares of its Series B Preferred Stock into 3,515,966 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

Repurchase of Equity Securities

 

None.

 

Information About Our Equity Compensation Plans

 

The information required under this heading is incorporated herein by reference to the applicable information set forth in Item 12 of this Annual Report on Form 10-K.

 

ITEM 6. SELECTED FINANCIAL DATA

 

As a Smaller Reporting Company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

 

32
 

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the results of operations and financial condition for the fiscal years ended December 31, 2020 and 2019 should be read in conjunction with our consolidated financial statements, and the notes to those financial statements that are included elsewhere in this Annual Report.

 

All references to “Data443”, “we”, “our,” “us” and the “Company” in this Item 7 refer to Data443 Risk Mitigation, Inc.

 

The discussion in this section contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “would” or “will” or the negative of these terms or other comparable terminology, but their absence does not mean that a statement is not forward-looking. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, which could cause our actual results to differ from those projected in any forward-looking statements we make. Several risks and uncertainties we face are discussed in more detail under “Risk Factors” in Part I, Item 1A of the Form 10 filed by the Company with the SEC on 11 January 2019, and in the Part I, Item 1A of the Form 10-K filed by the Company with the SEC on 17 April 2020, and in the discussion and analysis below. You should, however, understand that it is not possible to predict or identify all risks and uncertainties and you should not consider the risks and uncertainties identified by us to be a complete set of all potential risks or uncertainties that could materially affect us. You should not place undue reliance on the forward-looking statements we make herein because some or all of them may turn out to be wrong. We undertake no obligation to update any of the forward-looking statements contained herein to reflect future events and developments, except as required by law. The following discussion should be read in conjunction with the consolidated financial statements and the notes to those statements included elsewhere in this Annual Report on Form 10-K.

 

Overview

 

Our company was incorporated as LandStar, Inc., 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, we had no business operations and was a development-stage company. We did not purchase or develop any properties and decided to change our business plan and operations. On March 31, 1999, we acquired approximately 98.5% of the common stock of Rebound Rubber Corp. (“Rebound Rubber”) pursuant to a share exchange agreement with 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 of our authorized shares, and 50.6% of the 28,622,100 issued and outstanding shares on completion of the acquisition.

 

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

 

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

 

In August 2001, we amended our Articles of Incorporation to authorize 500,000,000 shares of common stock, $0.001 par value per share, and 150,000,000 shares of preferred stock, $0.01 par value per share. We may designate preferred stock into specific classes by action of our board of directors. In May 2008, our board of directors established a class of Convertible Preferred Series A (the “Series A”), authorizing 10,000,000 shares. When established, among other things, (i) each share of Series A was convertible into 1,000 shares of our 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 stockholders.

 

In September 2008, we amended our Articles of Incorporation to increase the number of authorized shares to 985,000,000, $0.001 par value per share, further amended the Articles in January 2009 to increase the number of authorized shares to 4,000,000,000, and in January 2010 amended our Articles to increase the number of authorized shares to 8,888,000,000.

 

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We were effectively dormant for a number of years. In or around February 2014, there was a change in control whereby Kevin Hayes acquired 1,000,000 shares of the Series A and was appointed as our sole director and officer. In or around April 2017, there was another change in control when Mr. 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 our sole director and officer. 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, confirming his majority ownership and control of the company.

 

In or around July 2017, while under the majority ownership and management of Mr. Alessi, we sought to effect a merger transaction (the “Merger”) under which the company would be merged into Data443 Risk Mitigation, Inc., a North Carolina corporation (“Data443”). Data443 was originally formed under the name LandStar, Inc. The name of the North Carolina corporation was changed to Data443 in December 2017. In November 2017, our controlling interest 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 our sole director and sole officer and of Data443.

 

In January 2018, we acquired substantially all of the assets of Myriad Software Productions, LLC, which was owned 100% by Mr. Remillard. Those assets were comprised of the software program known as ClassiDocs®, and all intellectual property and goodwill associated therewith. As a result of the acquisition, the Company was no longer a “shell” under applicable securities rules. In consideration for the acquisition, we agreed to a purchase price of $1,500,000, comprised of: (i) $50,000 paid at closing; (ii) $250,000 in the form of a 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 our issued and outstanding shares. However, these shares have been recorded as “Acquisition of ClassiDocs” included in additional paid in capital within our financial statements for the year ending December 31, 2019.

 

In April 2018, we amended the designation for our Series A 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 stockholders, 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 per share, and 50,000,000 shares of preferred stock, $0.001 par value per share, designated in the discretion of our board of directors. The Series A remains in full force and effect.

 

In June 2018, after careful analysis and in reliance upon professional advisors we retained, 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 stockholders. As such, the Merger was legally terminated. In place of the Merger, in June 2018, we acquired all of the issued and outstanding shares of stock of Data443 (the “Share Exchange”). As a result of the Share Exchange, Data443 became our wholly-owned subsidiary, with both the Company and Data443 continuing to exist as corporate entities. As consideration in the Share Exchange, we agreed to issue to Mr. Remillard: (a) 100,000,000 shares of our common stock and (b) on the eighteen-month anniversary of the closing of the Share Exchange (the “Earn Out Date”), an additional 100,000,000 shares of our common stock, 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 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 our issued and outstanding shares. However, these shares have been recorded as “Share exchange with related party for Data443 additional share issuable” included in additional paid in capital within our financial statements for the year ending December 31, 2019.

 

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 approximately $46,521, payable in four payments of approximately €10,000, with the first payment due at closing, and the remaining payments due at the end of July, August and September 2018. Upon issuance of the final payment, we gained the right to enter into an asset transfer agreement for the nominal cost of one euro (€1).

 

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On or about October 22, 2018, we entered into an asset purchase agreement with Modevity, LLC (“Modevity”) to acquire certain assets collectively known as ARALOC®, a software-as-a service (“SaaS”) platform that provides cloud-based data storage, protection, and workflow automation. The acquired assets consist of intellectual and related intangible property including applications and associated software code, and trademarks. Access to books and records related to the customers and revenues Modevity created on the ARALOC platform were also included in the asset purchase agreement. These assets were substantially less than the total assets of Modevity, and revenues from the platform comprised a portion of the overall sales of Modevity. We are required to create the technical capabilities to support the ongoing operation of this SaaS platform. A substantial effort on our part is needed to continue generating ARALOC revenues through development of a sales force, as well as billing and collection processes. We paid Modevity (i) $200,000 in cash, (ii) $750,000, in the form of a 10-month promissory note, and (iii) 164,533,821 shares of our common stock.

 

On or around February 7, 2019, the Company entered into an Exclusive License and Management Agreement (the “License Agreement”) with Wala, Inc. (“Wala”). Under the License Agreement the Company was granted the exclusive right and license to receive all benefits from the marketing, selling, and licensing of the data archiving platform known as ArcMail and all assets related thereto (the “ArcMail Assets”). In connection with the License Agreement, the Company also executed (i) a Stock Rights Agreement, under which the Company had the right to acquire all shares of stock of Wala; and, (ii) a Business Covenants Agreement, under which Wala and its CEO agreed to not compete with the Company’s use of the ArcMail assets for a designated period of time. The License Agreement, Stock Rights Agreement, and Business Covenants Agreement are collectively referred to herein as the “ArcMail Agreements”).

 

On June 21, 2019, the Company filed an amendment to its articles of incorporation to increase the total number authorized shares of the Company’s common stock, par value $0.001 per share, from 8,888,000,000 shares to 15,000,000,000 shares.

 

On September 16, 2019, the Company entered into an Asset Purchase Agreement with DMBGroup, LLC to acquire certain assets collectively known as DataExpressTM, a software platform for secure sensitive data transfer within the hybrid cloud. The total purchase price of approximately $2.8 million consists of: (i) a $410,000 cash payment at closing; (ii) a promissory note in the amount of $940,000, payable in the amount of $41,661 over 24 monthly payments starting on October 15, 2019, accruing at a rate of 6% per annum; (iii) assumption of approximately $98,000 in liabilities and, (iv) approximately 2,465,753 shares of our common stock. As of December 31, 2019, these shares have not been issued and are recorded as “Stock issuable for asset purchase” included in additional paid in capital.

 

On October 14, 2019, the Company filed an amendment to its Articles of Incorporation to change its name to Data443 Risk Mitigation, Inc., and to effect a 1-for-750 reverse stock split of its issued and outstanding shares of common and preferred shares, each with $0.001 par value, and to reduce the numbers of authorized common and preferred shares to 60,000,000 and 337,500, respectively. On October 28, 2019, the name change and the split and changes in authorized common and preferred shares was effected, resulting in approximately 7,282,678,714 issued and outstanding shares of the Company’s common stock to be reduced to approximately 9,710,239, and 1,000,000 issued and outstanding shares of the Company’s preferred shares to be reduced to 1,334 as of October 28, 2019. All per share amounts and number of shares, including the authorized shares, in the consolidated financial statements and related notes have been retroactively adjusted to reflect the reverse stock split and decrease in authorized common and preferred shares.

 

On March 05, 2020 the Company amended its Articles of Incorporation to increase the number of shares of authorized common stock to 250,000,000. On April 15, 2020 the Company further amended its Articles of Incorporation to increase the number of shares of authorized common stock to 750,000,000. On August 17, 2020 the Company again amended its Articles of Incorporation to increase the number of shares of authorized common stock to 1.5 billion. On November 25, 2020 the Company filed a Certificate of Designation to authorize and create its Series B Preferred shares, consisting of 80,000 shares. On December 15, 2020 the Company again amended its Articles of Incorporation to increase the number of shares of authorized common stock to 1.8 billion.

 

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On August 13, 2020, the Company entered into an Asset Purchase Agreement to acquire certain assets collectively known as FileFacets, a Software-as-a-Service (SaaS) platform that performs sophisticated data discovery and content search of structured and unstructured data within corporate networks, servers, content management systems, email, desktops and laptops. The total purchase price was $135,000, which amount was paid in full at the closing of the transaction.

 

On September 21, 2020, the Company entered into an Asset Purchase Agreement with the owners of a business known as IntellyWP™, to acquire the intellectual property rights and certain assets collectively known as IntellyWP™, an Italy-based developer that produces WordPress plug-ins that enhance the overall user experience for webmaster and end users. The total purchase price of $135,000 consists of: (i) a $55,000 cash payment at closing; (ii) a cash payment of $40,000 upon completion of certain training; and, (iii) a cash payment of $40,000 upon the Company collecting $25,000 from the assets acquired in the subject transaction.

 

On October 08, 2020, the Company entered into an Asset Purchase Agreement with Resilient Network Systems, Inc. (“RNS”) to acquire the intellectual property rights and certain assets collectively known as Resilient Networks™, a Silicon Valley based SaaS platform that performs SSO and adaptive access control “on the fly” with sophisticated and flexible policy workflows for authentication and authorization. The total purchase price of $305,000 consists of: (i) a $125,000 cash payment at closing; and, (ii) the issuance of 19,148,936 shares of our common stock to RNS.

 

On December 11, 2020, the Company entered into a Common Stock Purchase Agreement (“CSPA”) with Triton Funds, LP, a Delaware limited partnership (“Triton”), an unrelated third party. Triton agreed to invest $1 million in the Company in the form of common stock purchases. Subject to the terms and conditions set forth in the CSPA, the Company agreed to sell to Triton common shares of the Company having an aggregate value of One Million Dollars ($1,000,000). The price of the shares to be sold will be $0.006 per shares. Triton’s obligation to purchase securities is conditioned on certain factors including, but not limited, to the Company having an effective registration available for resale of the securities being purchased; a minimum closing price of $0.009 per share for the Company’s common stock on the delivery date for the shares; and, Triton’s ownership not exceeding 9.9% of the issued and outstanding shares of the Company at any time. The Company filed a registration statement on Form S-1 with the SEC on December 28, 2020. The S-1 was declared effective by the SEC as of January 26, 2021.

 

The Company is now the de facto industry leader in data privacy solutions for All Things Data Security™, providing software and services to enable secure data across local devices, network, cloud, and databases, at rest and in flight. Its suite of products and services is highlighted by: (i) ARALOC, which is a market leading secure, cloud-based platform for the management, protection and distribution of digital content to the desktop and mobile devices, which protects an organization’s confidential content and intellectual property assets from leakage — malicious or accidental — without impacting collaboration between all stakeholders; (ii) DATAEXPRESS®, the leading data transport, transformation and delivery product trusted by leading financial organizations worldwide; (iii) ArcMail, which is a leading provider of simple, secure and cost-effective email and enterprise archiving and management solutions; (iv) ClassiDocs® the Company’s award-winning data classification and governance technology, which supports CCPA, LGPD, and GDPR compliance; (v) ClassiDocs for Blockchain, which provides an active implementation for the Ripple XRP that protects blockchain transactions from inadvertent disclosure and data leaks; (vi) Data443® Global Privacy Manager, the privacy compliance and consumer loss mitigation platform which is integrated with ClassiDocs to do the delivery portions of GDPR and CCPA as well as process Data Privacy Access Requests – removal request – with inventory by ClassiDocs; (vii) Resilient Access, which enables fine-grained access controls across myriad platforms at scale for internal client systems and commercial public cloud platforms like Salesforce, Box.Net, Google G Suite, Microsoft OneDrive and others; (viii) Data443 Chat History Scanner, which scans chat messages for Compliance, Security, PII, PI, PCI & custom keywords; (ix) the CCPA Framework WordPress plugin, which enables organizations of all sizes to comply with the CCPA privacy framework; (x) FileFacets™, a Software-as-a-Service (SaaS) platform that performs sophisticated data discovery and content search of structured and unstructured data within corporate networks, servers, content management systems, email, desktops and laptops; (xi) the GDPR Framework WordPress plugin, with over 30,000 active users and over 400,000 downloads it enables organizations of all sizes to comply with the GDPR and other privacy frameworks; and (xii) IntellyWP, a leading purveyor of user experience enhancement products for webmasters for the world’s largest content management platform, WordPress.

 

COVID-19 Update

 

The Company continues to closely monitor developments and is taking steps to mitigate the potential risks related to the COVID-19 pandemic to the Company, its employees and its customers. The extent to which the COVID-19 pandemic will impact our business and operations will depend on future developments that are highly uncertain. While in the near-term we may experience reductions in our billing and revenue growth rates, we are proactively managing expenditures, including reductions of non-critical and discretionary expenses, while preserving strategic investment in sales capacity and still seeking new acquisition targets and opportunities. To protect our employees while continuing to provide the services needed by our clients the Company continues to limit customer contact, and continues to minimize employee contact with other employees by having our employees work remotely while they shelter in place as required by local regulations. The dedication of our employees and their work ethic have allowed us to continue providing critical services to our customers during these challenging times.

 

Due to the pandemic, we have been forced to adapt and change the way we have historically operated. At the end of the first quarter, we temporarily closed our office and instructed our employees to work remotely as a precautionary measure intended to minimize the risk of the virus to them, our customers, partners and the communities in which we operate. Towards the end of the second quarter, we cautiously and gradually started to open our office. While we did not require employees to work from our office, we did ensure all required adjustments were made and all local regulations and recommendations were met to ensure the safety of our employees should they voluntarily choose to work from our office. As part of the move to remote work and virtual-only customer experience, we have had to postpone or cancel customer and industry events, as well as travel to visit potential customers, or conduct them virtually. We cannot predict with certainty the impact these changes may have on our sales.

 

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We believe that the impact of COVID-19 has increased the long-term opportunity that we see to help our customers protect their data and detect threats, as well as achieve regulatory compliance. Nevertheless, in the early stages of the pandemic, we experienced some negative impact on our results of operations in the last two weeks of the first quarter, as we believe our customers’ focus turned primarily to the safety of their employees and to positioning themselves to operate under a work-from-home environment. However, since that time, we have seen companies pivot from that emergency mode to become more focused on the elevated risks associated with having a highly distributed workforce. Companies around the world now have the majority of their employees working from potentially vulnerable home networks, accessing critical on-premises data stores and infrastructure through VPNs and in cloud data stores. We believe that the COVID-19 pandemic has significantly increased the threat of cybercrime, and that we remain positioned to help our clients protect against data and infrastructure against cybercrime. This has resulted in increase in traffic to our website. During the third and fourth quarters of 2020, as existing customers and prospects continued to adjust to the new working practices, we saw some of this interest convert into new business or the expansion of existing business. While we are encouraged by these trends, we continue to see corporate expenditures subject to elevated scrutiny in the current environment. We have also been unable to travel to meet with prospective new clients, which has impacted our ability to convert prospects into new clients. We anticipate that as the COVID-19 pandemic continues, it will continue to be challenging to estimate conversion rates of prospective business into actual new client.

 

Through December 31, 2020, there has not been a noticeable increase in accounts receivable for the Company. However, it is likely that if the COVID-19 pandemic persists and state stay-at-home orders remain in place, it is likely that more customers will be unable to keep their bills current. Further, while we have not yet experienced any interruption to our normal materials and supplies process, it is impossible to predict whether COVID-19 will cause future interruptions and delays.

 

Through December 31, 2020 we have not had any of our employees contract the COVID-19 virus. Should we have a significant number of our employees contract the COVID-19 virus it could have a negative impact on our ability to serve customers in a timely fashion.

 

CARES Act

 

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020. There are several different provisions with the CARES Act that impact income taxes for corporations. While we continue to evaluate the tax implications, we believe these provisions will not have a material impact to the financial statements.

 

Additionally, the Company has applied for, and has received, funds under the Paycheck Protection Program (the “PPP Loan”) after the period covered in these financial statements in the amount of $339,000. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on our having initially qualified for the loan and qualifying for the forgiveness of such loan based on our future adherence to the forgiveness criteria.

 

The PPP Loan has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The promissory note issued in connection with the PPP Loan contains events of default and other provisions customary for a loan of this type.

 

The PPP Loan is being used to retain our employees, as well as for other permitted uses under the terms and conditions of the PPP Loan.

 

The Company also received a $150,000 loan (the “EID Loan”) from the U.S. Small Business Administration (the “SBA”) under the SBA’s Economic Injury Disaster Loan program. The Company received the loan proceeds on or around May 27, 2020. The EID Loan has a thirty year term and bears interest at a rate of 3.75% per annum. Monthly principal and interest payments are deferred for twelve months after the date of disbursement. The EID Loan may be prepaid at any time prior to maturity with no prepayment penalties, and is otherwise repaid at the rate of $731 per month. The proceeds from the EID Loan must be used for working capital. The Loan Authorization and Agreement and the Note executed by the Company in connection with the EID Loan contains events of default and other provisions customary for a loan of this type.

 

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. For further discussion of recently issued and adopted accounting pronouncements, please see Note 1 to the consolidated financial statements included herein.

 

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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 consolidated financial statements which we have been prepared in accordance with U.S. generally accepted accounting principles. In preparing our consolidated 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 consolidated 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.

 

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 consolidated 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 consolidated Quarterly financial statements included in this Quarterly Report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated 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.

 

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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 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).

 

Fair Value of Financial Instruments

 

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows:

 

  Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;
     
  Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and
     
  Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

 

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. For non-employees, as per ASU No. 2018-7, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, remeasurement is not required. 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. Also, refer to Note 1 – Summary of Significant Accounting Policies, in the consolidated financial statements that are included in this Annual Report.

 

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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 consolidated 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 consolidated 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.

 

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.

 

Outlook

 

Our continued objective is to further integrate our growing suite of proven industry leading data security and privacy offerings and deliver the combined offering to our growing stable of enterprise and medium-sized clients directly and via our partner channel. Data privacy concerns continue to grow lockstep with security breaches and ongoing expansion of data storage, consumption and spread of telework, telehealth and remote learning requirements.

 

We have utilized, and expect to continue to utilize, acquisitions to contribute to our long-term growth objectives. During fiscal 2020 we hope to continue to acquire complimentary business assets and client bases. Some of the key element to our growth strategy include, without limitation:

 

  Improve and extend our technological capabilities, domestically and internationally.
  Further integrate our product offerings to provide an unmatched data privacy platform.
  Focus on underserved markets, such as sports teams (at all levels) and medium-sized businesses.
  Deliver capabilities via unconventional channels, including open-source and “freemium” and trial subscription models.
  Leverage our existing relationships for professional references, association and internal private industry level promotional events and other high-value and successful product positional activities.
  Be prepared to capture and execute on opportunities in the acquisition marketplace.
  Continued focus on net bookings with minimum long-term contract value.
  Improve SaaS Services with high increasing ‘attach’ rate for additional capabilities.
  Increase year-over-year conversions from perpetual one-time contract sales to multiyear recurring subscription revenue agreements.

 

40
 

 

While we report primarily income based on recognized and deferred revenue, another measurement internally for the business is booked revenues. Management utilizes this measure to track numerous indicators such as: contract value growth; initial contract value per customer; and, certain other values that change quarter-over-quarter. These results may also be subject to, and impacted by, sales compensation plans, internal performance objectives, and other activities. We continue to increase revenue from our existing operations. We generally recognize revenue from customers ratably over the terms of their subscription, which is generally one year at a time. As a result, a substantial portion of the revenue we report in each period is attributable to the recognition of deferred revenue relating to agreements that we entered into during previous periods. Consequently, any increase or decline in new sales or renewals in any one period will not be immediately reflected in our revenue for that period. Any such change, however, would affect our revenue in future periods. Accordingly, the effect of downturns or upturns in new sales and potential changes in our rate of renewals may not be fully reflected in our results of operations until future periods.

 

In December 2019, COVID-19 was reported in China; in January 2020 the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern;, and, in March 2020 the WHO declared it a pandemic. The long-term impact of COVID-19 on our operational and financial performance will depend on certain developments including the duration, spread, severity, and potential recurrence of the virus. Our future performance will also depend on the impact of COVID-19 on our customers, partners, employee productivity, and sales cycles, including as a result of travel restrictions. These potential developments are uncertain and cannot be predicted and as such, the extent to which COVID-19 will impact our business, operations, financial condition and results of operations over the long term is unknown. Furthermore, due to our shift to a predominantly subscription model, the effect of COVID-19 may not be fully reflected in our results of operations until future periods.

 

While we are actively managing our response to the COVID-19 pandemic, its impact on our year 2021 results and beyond is uncertain. We continue to conduct business as usual with modifications to employee travel, employee work locations, customer interactions, and cancellation of certain marketing events, among other things. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders. The extent to which the COVID-19 pandemic may impact our longer-term operational and financial performance remains uncertain. Furthermore, due to our subscription-based business model, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods, if at all. The extent of the impact of the COVID-19 pandemic will depend on several factors, including the pace of reopening the economy around the world; the possible resurgence in the spread of the virus; the development cycle of therapeutics and vaccines; the impact on our customers and our sales cycles; the impact on our customer, employee, and industry events; and the effect on our vendors. Please see Item 1A, “Risk Factors,” in this Annual Report for a further description of the material risks we currently face, including the risks related to the COVID-19 pandemic.

 

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2020 COMPARED TO THE YEAR ENDED DECEMBER 31, 2019

 

Our operations for the year ended December 31, 2020 and 2019 are outlined below:

 

    Year Ended        
    December 31,        
    2020     2019     Change  
Revenue   $ 2,474,627     $ 1,453,413     $ 1,021,214  
Cost of revenue     303,515       117,106       186,409  
Gross Profit     2,171,112       1,336,307       834,805  
Gross Profit Percentage     88 %     92 %     (4 )%
                         
Operating expense     6,071,597       5,270,386       801,211  
Other income (expense)     (10,006,700 )     3,326,708       (13,333,408 )
Net loss   $ (13,907,185 )   $ (607,371 )   $ (13,299,814 )

 

Revenue

 

The increase in revenue was primarily due to revenues from assets acquired during 2020.

 

41
 

 

Cost of revenue

 

Cost of revenue consists of direct expense, such as sales commission, shipping, and supplies. The increase in cost of revenue was primarily due to an increase in revenue.

 

For the years ended December 31, 2020 and 2019 our operating expenses are as follows:

 

  Year Ended        
    December 31,        
    2020     2019     Change  
Operating expenses                        
General and administrative   $ 5,830,703     $ 4,796,652     $ 1,034,051  
Sales and marketing     240,894       469,529       (228,635 )
Research and development     -       4,205       (4,205 )
Total operating expenses   $ 6,071,597     $ 5,270,386     $ 801,211  

 

General and Administrative Expenses

 

The general and administrative expenses primarily consisted of management costs, costs to integrate assets we acquired and to expand sales, product enhancements, audit and review fees, filing fees, professional fees, and other expenses related to SEC reporting, including the re-classification of sales-related management expenses, in connection with the projected growth of the Company’s business. The increase in general and administrative expense was primarily due to an increase in amortization of intangible assets, payroll expense, professional fees.

 

Sales and Marketing Expenses

 

The sales and marketing expenses primarily consisted of developing a sales operation, with some previously reported expenses, primarily management costs, reclassified to general and administrative expenses. The decrease in sales and marketing expense was primarily due to a decrease in consulting and management costs.

 

Other income (expense)

 

Other income for the year ended December 31, 2020 consisted of interest expense, loss on change in fair value of derivative, and loss on settlement and extinguishment of debt. Other income for the year ended December 31, 2019 consisted of interest expense, gain on change in fair value of derivative, gain on contingent liability, and loss on settlement on lawsuit. The increase in other income was primarily due to change in fair value of derivative liabilities.

 

Net Loss

 

The net loss for the year ended December 31, 2020 was mainly derived from an operating loss of $3,900,485, and loss on change in fair value of derivative liability of $7,406,416. The net loss for the year ended December 31, 2019 was mainly derived from an operating loss of $3,934,079, due in part by increased general and administrative costs and reduced by other net income of $3,326,708, which was mainly from a gain on change in fair value of derivative liability of $7,238,498.

 

CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2020 COMPARED TO THE YEAR ENDED DECEMBER 31, 2019

 

Liquidity and Capital Resources

 

The following table provides selected financial data about our company as of December 31, 2020 and 2019, respectively.

 

Working Capital

 

The following table provides selected financial data about our company as of December 31, 2020 and 2019, respectively.

 

    December 31,     December 31,        
    2020     2019     Change  
Current assets   $ 195,286     $ 91,337     $ 103,949  
Current liabilities   $ 5,617,390     $ 9,494,908     $ (3,877,518 )
Working capital deficiency   $ (5,422,104 )   $ (9,403,571 )   $ 3,981,467  

 

42
 

 

We require cash to fund our operating expenses and working capital requirements, including outlays for capital expenditures. As of December 31, 2020, our principal sources of liquidity were cash of $58,783 and trade accounts receivable of $136,503, as compared to cash of $18,673, trade accounts receivable of $63,556, inventory of $8,301 and other current assets of $807 as of December 31, 2019.

 

During the last two years, and through the date of this Annual Report, we have faced an increasingly challenging liquidity situation that has severely limited our ability to execute our operating plan. We generated no revenue until the fourth quarter of 2018, though we have actively prepared to initiate business in the data security market. 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 to obtain capital to continue operations. There is no assurance that we will be able to secure such funding on acceptable (or any) terms. During the year ended December 31, 2020 and 2019, we reported a loss from operations of $3,900,485 and $3,934,079, respectively, and had negative cash flows used in operating activities of $758,479 and $828,437, respectively, for the same periods.

 

As of December 31, 2020, we had assets of cash in the amount of $58,783 and other current assets in the amount of $136,503. As of December 31, 2020, we had current liabilities of $5,617,390. The Company’s accumulated deficit as of December 31, 2020 was $35,518,584.

 

As of December 31, 2019, we had assets of cash in the amount of $18,673 and other current assets in the amount of $72,664. As of December 31, 2019, we had current liabilities of $9,494,908. The Company’s accumulated deficit as of December 31, 2019 was $21,610,915. The decrease in working capital deficiency was primarily due to a decrease in derivative liability, offset by an increase in deferred revenue, convertible notes, due to related party and license fee payable.

 

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 are now 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 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.

 

Cash Flow

 

    Year Ended        
    December 31,        
    2020     2019     Change  
Cash used in operating activities   $ (758,479 )   $ (828,437 )   $ 69,958  
Cash used in investing activities   $ (461,400 )   $ (279,938 )   $ (181,462 )
Cash provided by financing activities   $ 1,259,989     $ 802,113     $ 457,876  
Cash on hand   $ 58,783     $ 18,673     $ 40,110  

 

43
 

 

Operating Activities

 

During the year ended December 31, 2020, our Company used $758,479 in operating activities, compared to $828,437 during the year ended December 31, 2019. Cash used in operation activities was primarily due to an increase in operating liabilities.

 

Investing Activities

 

During the year ended December 31, 2020, we used funds in investing activities of $315,000 to acquire intellectual property and $146,400 to acquire property and equipment. During the year ended December 31, 2019, we used funds in investing activities of $269,309 to acquire intellectual property and $10,629 to acquire property and equipment.

 

Financing Activities

 

During the year ended December 31, 2020 we raised $50,000 through the issuance of Series B Preferred Stock; $1,502,250 from issuance of convertible debt; $2,147,996 from issuance of notes payable; and, $299,173 from loan from related party, offset in part through repayment of $1,689,846 on notes payable; repayment to related party of $976,257 and, $73,327 of capital lease payments. By comparison, during the year ended December 31, 2019 we raised $500,000 through the issuance of approximately 557,936 shares of our common stock and warrants to acquire approximately 291,219 shares of our common stock on a post reverse split basis, $440,000 for stock subscriptions of commons stock and warrants to be issued later, and $676,000 from issuance of convertible debt, $215,120 from issuance of notes payable, $12,900 from loan form related party, offset in part through repayment of $650,000 on notes payable, repayment to related party of $371,623 and $20,284 of capital lease payments.

 

We are dependent upon the receipt of capital investment or other financing to fund our ongoing operations and to execute our business plan. In addition, we are dependent upon our controlling shareholder to provide continued funding and capital resources. If continued funding and capital resources are unavailable at reasonable terms, we may not be able to implement our plan of operations.

 

Going Concern

 

The consolidated financial statements accompanying this Annual Report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our Company has generated very limited revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon the ability of our company to obtain necessary financing to achieve our operating objectives, and the attainment of profitable operations. As of December 31, 2020, our Company has an accumulated deficit of $35,518,584. We do not have sufficient working capital to enable us to carry out our plan of operation for the next twelve months.

 

Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above in their report on the consolidated financial statements for the year ended December 31, 2020, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our consolidated financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

 

The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity or debt securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. 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.

 

Management’s Plans

 

Our plan is to continue to grow our business through strategic acquisitions, and then expand selling across our subsidiaries and affiliated companies. During the next twelve months, we anticipate incurring costs related to (i) filing of Exchange Act reports; and, (ii) operating our businesses. We will require additional operating capital to maintain and continue operations. We will need to raise additional capital through debt or equity financing, and there is no assurance we will be able to raise the necessary capital.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

 

44
 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

 

CONTENTS:   PAGE #
     
Report of Independent Registered Public Accounting Firm   46
     
Consolidated Balance Sheets as of December 31, 2020 and 2019   48
     
Consolidated Statements of Operations for the years ended December 31, 2020 and 2019   49
     
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2020 and 2019   50
     
Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019   51
     
Notes to the Consolidated Financial Statements   52

 

45
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

Data443 Risk Mitigation, Inc

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Data443 Risk Mitigation, Inc (“the Company”), as of December 31, 2020, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the year then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020, and the consolidated results of its operations and its cash flows for the year ended December 31, 2020, in conformity with U.S generally accepted accounting principles.

 

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 audit 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 audit, 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 audit 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 audit 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 audit provide a reasonable basis for our opinion.

 

Critical Accounting Matter

 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgement. The communication of a critical audit matter does not alter in anyway our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Going Concern Assessment

 

As described in Note 3 to the consolidated financial statements, the Company prepared its financial statements on a going concern basis, and management has concluded that the Company has not generated significant income to date. For the year ended December 31, 2020, the Company incurred net losses of USD 13.9 million and used the net cash in operating activities of USD 0.76 million. As of December 31, 2020, the accumulated deficit amounted to USD 35.52 million, total stockholders’ deficit of USD 3.49 million and the current liabilities exceeded the current assets in the amount of USD 5.42 million. 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. 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. These 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.

 

The principal consideration for our determination that performing procedures relating to the Company’s going concern assessment is a critical audit matter is the significant judgment by management for the going concern assessment, which is dependent upon the Company’s ability to raise capital and generate revenue and profits in the future.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the issuance of additional equity, debt securities and purchase of intellectual properties by the Company subsequent to year end. The evaluation of management’s going concern assessment also included consummation of external financing. Emphasis of a Matter is included regarding the Company’s ability to continue as a going concern below.

 

Emphasis of a Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3 to the financial statements and going concern assessment of critical accounting matter above, the Company has suffered recurring losses from operations and has working capital and stockholders’ deficit that raise 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.

 

/S/ TPS Thayer, LLC

 

TPS Thayer, LLC

We have served as the Company’s auditor since 2020

Sugar Land, Texas

March 23, 2021

 

46

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors and Stockholders

Data443 Risk Mitigation, Inc

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Data443 Risk Mitigation, Inc (formerly known as Landstar, Inc.) (“the Company”), as of December 31, 2019 and 2018, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the year then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with U.S generally accepted accounting principles.

 

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 a Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has limited working capital deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 2 The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/S/ Thayer O’Neal Company, LLC

 

Thayer O’Neal Company, LLC

We have served as the Company’s auditor from 2018

Sugar Land, Texas

April 17, 2020

 

47

 

 

DATA443 RISK MITIGATION, INC.

CONSOLIDATED BALANCE SHEETS

 

    December 31,     December 31,  
    2020     2019  
Assets                
Current assets                
Cash   $ 58,783     $ 18,673  
Accounts receivable     136,503       63,556  
Inventory     -       8,301  
Prepaid expense and other current assets     -       807  
Total current assets     195,286       91,337  
                 
Property and equipment, net     324,349       100,127  
Operating lease right-of-use assets, net     248,237       395,388  
Intellectual property, net of accumulated amortization     2,310,907       3,141,938  
Deposits     31,440       20,944  
Total Assets   $ 3,110,219     $ 3,749,734  
                 
Liabilities and Stockholders’ Deficit                
Current Liabilities                
Accounts payable and accrued liabilities   $ 401,014     $ 408,195  
Deferred revenue     1,478,430       728,749  
Interest payable     62,212       59,979  
Notes payable     585,310       165,120  
Convertible notes payable, net of unamortized discount     1,243,768       3,212,786  
Derivative liability     -       2,601,277  
Due to a related party     561,230       1,103,314  
License fee payable     1,094,691       1,094,691  
Operating lease liability     100,170       86,372  
Finance lease liability     90,565       34,425  
Total Current Liabilities     5,617,390       9,494,908  
                 
Series B Preferred Stock, 80,000 shares designated; $0.001 par value; Stated value $10.00
5,300 and 0 shares issued and outstanding, net of discount, respectively
    50,203       -  
Notes payable - non-current     572,495       -  
Deferred revenues - non-current     39,733       224,797  
Operating lease liability - non-current     237,961       373,000  
Finance lease liability - non-current     83,109       53,480  
Total Liabilities     6,600,891       10,146,185  
                 
Commitments and Contingencies    

-

     

-

 
Stockholders’ Deficit                
Preferred stock: 337,500 authorized; $0.001 par value                
Series A Preferred Stock, 150,000 shares designated; $0.001 par value;
150,000 and 1,334 shares issued and outstanding, respectively
    150       1  
Common stock: 1,800,000,000 authorized; $0.001 par value 1,044,012,947 and 9,692,065 shares issued and outstanding, respectively     1,044,013       9,692  
Additional paid in capital     30,983,749       15,204,771  
Accumulated deficit     (35,518,584 )     (21,610,915 )
Total Stockholders’ Deficit     (3,490,672 )     (6,396,451 )
Total Liabilities and Stockholders’ Deficit   $ 3,110,219     $ 3,749,734  

 

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

 

48

 

 

DATA443 RISK MITIGATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    Year Ended  
    December 31,  
    2020     2019  
             
Revenue   $ 2,474,627     $ 1,453,413  
Cost of revenue     303,515       117,106  
Gross profit     2,171,112       1,336,307  
                 
Operating expenses                
General and administrative     5,830,703       4,796,652  
Sales and marketing     240,894       469,529  
Research and development     -       4,205  
Total operating expenses     6,071,597       5,270,386  
                 
Net loss from operations     (3,900,485 )     (3,934,079 )
                 
Other income (expense)                
Interest expense     (2,517,947 )     (1,761,823 )
Loss on impairment of intangible asset     -       (1,328,638 )
Gain on contingent liability     -       450,000  
Loss on settlement and extinguishment of debt     (82,337 )     (1,271,329 )
Change in fair value of derivative liability     (7,406,416 )     7,238,498  
Total other income (expense)     (10,006,700 )     3,326,708  
                 
Loss before income taxes     (13,907,185 )     (607,371 )
Provision for income taxes     -       -  
Net loss   $ (13,907,185 )   $ (607,371 )
                 
Dividend on Series B Preferred Stock     (484 )     -  
Net loss attributable to common stockholders   $ (13,907,669 )   $ (607,371 )
                 
Basic and diluted loss per Common Share   $ (0.04 )   $ (0.07 )
Basic and diluted weighted average number of common shares outstanding     335,429,821       9,198,761  

 

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

 

49

 

 

DATA443 RISK MITIGATION, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

 

    Series A                 Additional          

Total

Stockholders’
 
    Preferred Stock     Common Stock     Paid in     Accumulated     Equity  
    Shares     Amount     Shares     Amount     Capital     Deficit     (Deficit)  
                                           
Balance - December 31, 2018     1,334     $ 1       6,816,281     $ 6,816     $ 8,689,353     $ (21,003,544 )   $ (12,307,374 )
                                                         
Common stock issued to settle debt     -       -       2,000,000       2,000       3,203,000       -       3,205,000  
Stock issuable for asset purchase     -       -       -       -       1,350,000       -       1,350,000  
Settlement of stock subscriptions     -       -       336,020       336       (336 )     -       -  
Issuance of restricted stock     -       -       236,681       237       (237 )     -       -  
Warrants on stock subscriptions     -       -       -       -       83,334       -       83,334  
Issuance of common stock     -       -       557,942       558       499,442       -       500,000  
Share-based compensation     -       -       -       -       869,960       -       869,960  
Stock subscriptions     -       -       -       -       440,000       -       440,000  
Share exchange with related party for Data443 additional share issuable     -       -       -       -       70,000       -       70,000  
Adjustment of reverse stock split     -       -       1,745,141       1,745       (1,745 )     -       -  
Cancellation of share due to settlement of lawsuit     -       -       (2,000,000 )     (2,000 )     2,000       -       -  
Net loss     -       -       -       -       -       (607,371 )     (607,371 )
Balance - December 31, 2019     1,334     $ 1       9,692,065     $ 9,692     $ 15,204,771     $ (21,610,915 )   $ (6,396,451 )
                                                         
Preferred stock issued for service - related party     4,666       5       -       -       158,639               158,644  
Common stock issued for conversion of debt     -       -       812,893,572       812,893       13,546,553       -       14,359,446  
Common stock issued for exercised cashless warrant     -       -       38,011,503       38,012       (38,012 )     -       -  
Common stock issued for asset purchase     -       -       140,770,559       140,771       39,229       -       180,000  
Resolution of derivative liability upon exercise of warrant     -       -       -       -       406,856       -       406,856  
Settlement of stock subscriptions     144,000       144       1,496,516       1,496       (1,640 )     -       -  
Stock-based compensation     -       -       41,148,732       41,149       1,149,853       -       1,191,002  
Beneficial conversion feature     -       -       -       -       517,500       -       517,500  
Net loss     -       -       -       -       -       (13,907,669 )     (13,907,669 )
Balance - December 31, 2020     150,000     $ 150       1,044,012,947     $ 1,044,013     $ 30,983,749     $ (35,518,584 )   $ (3,490,672 )

 

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

 

50

 

 

DATA443 RISK MITIGATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Year Ended  
    December 31,  
    2020     2019  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (13,907,669 )   $ (607,371 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Change in fair value of derivative liability     7,406,416       (7,238,498 )
Loss on impairment of asset     -       1,328,638  
Gain on contingent liability     -       (450,000 )
Loss on settlement and extinguishment of debt     82,337       1,206,329  
Stock-based compensation expense     1,349,646       869,960  
Depreciation and amortization     1,487,305       1,498,137  
Amortization of debt discount     2,110,645       1,460,309  
Bad debt     50,800       103,020  
Lease liability amortization     25,910       63,984  
Penalty interest     25,000       -  
Changes in operating assets and liabilities:                
Accounts receivable     (123,747 )     (596,873 )
Inventory     8,301       (8,301 )
Prepaid expenses and other assets     807       (20,251 )
Accounts payable and accrued liabilities     (161,104 )     310,995  
Deferred revenue     564,617       924,595  
Payroll liability     73,923       28,870  
Accrued interest     258,830       248,256  
Due to related parties     -       137,264  
Accrued consulting expense     -       (87,500 )
Deposit     (10,496 )     -  
Net Cash used in Operating Activities     (758,479 )     (828,437 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of intellectual property     (315,000 )     (269,309 )
Purchase of property and equipment     (146,400 )     (10,629 )
Net Cash used in Investing Activities     (461,400 )     (279,938 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from issuance of convertible notes payable     1,502,250       676,000  
Proceeds from issuance of common stock     -       940,000  
Proceeds from issuance of series B Preferred Stock     50,000       -  
Finance lease payments     (73,327 )     (20,284 )
Proceeds from issuance of notes payable     2,147,996       215,120  
Repayment of notes payable     (1,689,846 )     (650,000 )
Proceeds from related parties     299,173       12,900  
Repayment to related parties     (976,257 )     (371,623 )
Net Cash provided by Financing Activities     1,259,989       802,113  
                 
Net change in cash     40,110       (306,262 )
Cash, beginning of period     18,673       324,935  
Cash, end of period   $ 58,783     $ 18,673  
                 
Supplemental cash flow information                
Cash paid for interest   $ 83,347     $ 26,161  
Cash paid for taxes   $ -     $ -  
                 
Non-cash Investing and Financing transactions:                
Intangible assets acquired through issuance of accounts receivable   $ -     $ 410,000  
Intangible assets acquired through license fee payable   $ -     $ 1,445,000  
Common stock issued for purchase of intangibles   $ 180,000     $ 1,350,000  
Settlement of stock subscriptions   $ 1,640     $ -  
Common stock issued for exercised cashless warrant   $ 38,012     $ -  
Settlement of accrued interest through issuance of convertible notes payable   $ -     $ -  
Settlement of convertible notes payable through issuance of common stock   $ 3,811,434     $ 75,000  
Resolution of derivative liability upon exercise of warrant   $ 406,856       -  
Resolution of derivative liability upon conversion of debt   $ 10,548,012       3,130,000  
Beneficial conversion feature   $ 517,500     $ -  
Equipment paid by capital lease   $ 159,096     $ 108,189  
Increase in ROU asset and operating lease liability   $ -     $ 469,016  
Derivative liability recognized as debt discount   $ 947,175     $ 606,000  
Cancellation of common stock   $ -     $ 2,000  
Settlement of stock subscriptions   $ -     $ 336  
Issuance of restricted stock   $ -     $ 237  
Accounts payable for purchase of intellectual property   $ 80,000     $ -  
Issuance of convertible notes for repayment of due to related party   $ 150,000     $ -  
Adjustment of reverse stock split   $ -     $ 1,745  
Reclassification of APIC and Derivative   $ -     $ 83,334

 

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

 

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DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

NOTE 1: BUSINESS DESCRIPTION

 

Data443 Risk Mitigation, Inc. (the “Company”) was incorporated as a Nevada corporation on May 4, 1998. On October 15, 2019, the Company changed its name from LandStar, Inc. to Data443 Risk Mitigation, Inc. within the state of Nevada.

 

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The accompanying consolidated financial statements as of December 31, 2020 include the accounts of the Company and its wholly-owned subsidiary, Data 443 Risk Mitigation, Inc., a North Carolina operating company, and the operations of Myriad Software Productions, LLC through September 2018 when it was liquidated. Prior to the acquisition of Data 443 Risk Mitigation, Inc. in North Carolina and the assets of Myriad Software Productions, LLC in 2018, these two entities were controlled by our sole director and officer, Jason Remillard. On November 17, 2017, Mr. Remillard acquired control of LandStar, Inc. through his purchase of all the outstanding Series A preferred shares of the Company, and as a result, these two entities became common controlled entities that require consolidation of results with the reporting company, LandStar, Inc., from the time common control occurred. All intercompany accounts and activities have been eliminated. These consolidated financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).

 

Use of Estimates

 

The preparation of 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 consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

52

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

Revenue Recognition

 

The Company derives revenue primarily from contracts for subscription to access our SaaS platforms and, to a much lesser degree, ancillary services provided in connection with subscription services. The Company’s contracts include the performance obligations that require us to provide access to the platforms, usually on an annual subscription. The Company’s contracts are for subscriptions to DataExpressTM, ArcMail, and ARALOCTM, hosting of the platforms and related services. Custom work for specific deliverables is documented in the statements of work. Customers may enter into subscription and various statements of work concurrently or consecutively. Most of the Company’s performance obligations are not considered to be distinct from the subscription to DataExpressTM, ArcMail, and ARALOCTM, hosting of the platform and related services and are combined into a single performance obligation. New statements of work and modifications of contracts are reviewed each reporting period and to assess the nature and characteristics of the new or modified performance obligations on a contract by contract basis.

 

Revenue related to contracts with customers is evaluated utilizing the following steps: (i) Identify the contract, or contracts, with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; (v) Recognize revenue when the Company satisfies a performance obligation.

 

Cash and Cash Equivalents

 

For purposes of balance sheet presentation and reporting of cash flows, the Company considers all unrestricted demand deposits, money market funds and highly liquid debt instruments with an original maturity of less than 90 days to be cash and cash equivalents. The Company had no cash equivalents at December 31, 2020 and 2019.

 

Accounts Receivable

 

Accounts receivable are recorded in accordance with ASC 310, “Receivables.” Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company does not currently have any amount recorded as an allowance for doubtful accounts. Based on management’s estimate and based on all accounts being current, the Company has not deemed it necessary to reserve for doubtful accounts at this time.

 

Deferred Revenue

 

Deferred revenue mostly consists of service subscriptions received from users in advance of revenue recognition. The increase in the deferred revenue balance for the year ended December 31, 2020 was driven by cash payments from customers in advance of satisfying our performance obligations, offset by revenue recognized that was included in the deferred revenue balance at the beginning of the period.

 

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.

 

53

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

Beneficial Conversion Feature - The issuance of the convertible debt described in Note 9, 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). The discount is amortized to interest expense over the term of the convertible debt.

 

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 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 adopt ASU 2018-07 early. 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 $1,349,646 in share-based compensation expense for the year ended December 31, 2020, compared to approximately $869,960 in share-based compensation expense for the year ended December 31, 2019.

 

Determining the appropriate fair value model and the related assumptions requires judgment. During the year ended December 31, 2020, the fair value of each option grant was estimated using a Black-Scholes option-pricing model.

 

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.

 

Income Taxes

 

The asset and 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 adopted ASC 740 “Income Taxes,” 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 ASC 740, 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. ASC 740 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.

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.

 

54

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

Intellectual Property

 

The cost of intangible assets with determinable useful lives is amortized to reflect the pattern of economic benefits consumed on a straight-line basis over the estimated periods benefited. Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.

 

Long-Lived Assets

 

Long-lived assets are evaluated for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted future cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value.

 

Property and Equipment

 

Property and equipment, consisting mostly of computer equipment and software, is recorded at cost reduced by accumulated depreciation and impairment, if any. Depreciation expense is recognized over the assets’ estimated useful lives of three - seven years using the straight-line method. Major additions and improvements are capitalized as additions to the property and equipment accounts, while replacements, maintenance and repairs that do not improve or extend the life of the respective assets, are expensed as incurred. Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. When certain events or changes in operating conditions occur, asset lives may be adjusted and an impairment assessment may be performed on the recoverability of the carrying amounts.

 

Fair Value Measurements

 

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. The three tiers are defined as follows:

 

  Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;
     
  Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and
     
  Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

 

The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, note payable, due to related parties and accrued liabilities, are carried at historical cost. At December 31, 2020 and 2019, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments. Management determined that liabilities created by beneficial conversion features associated with the issuance of certain convertible notes payable (see Note 8), meet the criteria of derivatives and are required to be measured at fair value. The fair value of these derivative liabilities was determined during the year based on management’s estimate of the expected future cash flows required to settle the liabilities. As of the end of year, at December 31, 2020 there were no derivative liabilities due to a combination of all convertible notes being either (i) converted into common stock; or, (ii) amended to have a fixed conversion price. This valuation technique involves management’s estimates and judgment based on unobservable inputs and is classified in level 3.

 

55

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

Basic and Diluted Net Loss Per Common Share

 

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method and as if converted method. Dilutive potential common shares include outstanding stock options, warrant and convertible notes.

 

For the year ended December 31, 2020 and 2019, respectively, the following common stock equivalents were excluded from the computation of diluted net loss per share as the result of the computation was anti-dilutive.

 

    Year Ended  
    December 31,  
    2020     2019  
    (Shares)     (Shares)  
Series A Preferred Stock     150,000,000       1,334,000  
Stock options     11,751,592       377,277  
Warrants     -       1,873,684  
Convertible notes     260,714,286       4,278,258  
Total     422,465,878       7,863,219  

 

Leases

 

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities - current, and operating lease liabilities - noncurrent on the balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our balance sheets.

 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

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 revenues and operations are currently in the United States.

 

Recently Issued Accounting Pronouncements

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 is effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. For the Company, the new standard will be effective on January 1, 2020. ASU 2018-13 modifies prior disclosure requirements for fair value measurement. ASU 2018-13 removes certain disclosure requirements related to the fair value hierarchy, such as removing the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2, modifies existing disclosure requirements related to measurement uncertainty, and adds new disclosure requirements, such as disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurement. The impact of this new standard on the Company’s consolidated financial statements is not material.

 

56

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

In August 2018, the FASB issued ASU No. 2018-15, Internal-Use Software (Subtopic 350-40)—Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”). ASU 2018-15 is effective for reporting periods beginning after December 15, 2019 and early adoption is permitted. For the Company, the new standard will be effective on January 1, 2020. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license), by requiring a customer in a cloud computing arrangement that is a service contract to capitalize certain implementation costs as if the arrangement was an internal-use software project. The impact of this new standard on the Company’s consolidated financial statements has not been material.

 

We adopted recently issued accounting pronouncements in 2019, and we believe that none had a significant impact on our financial position, balance sheet, results of operations, or cash flow, except for ASC Update No. 2016-02—Leases, which requires organizations to recognize lease assets and lease liabilities on the balance sheet for leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. Data443 adopted ASU 2016-02 in the first quarter of 2019. See Note 5 for more complete details on balances at December 31, 2020.

 

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. We will adopt the new standard effective January 1, 2021 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

 

In August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options” and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting; and, (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.

  

The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its consolidated financial statements.

 

NOTE 3: LIQUIDITY AND GOING CONCERN

 

The accompanying consolidated 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 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 2018, the Company made two product acquisitions, ClassiDocs™, and ARALOC, and completed the acquisition of one entity, Data443 Risk Mitigation, Inc. (“Data443”), the North Carolina operating company. During 2019, the Company completed the acquisition of selected assets of DataExpress; and, completed a transaction under which the Company licensed the assets of ArcMail™. During the period ending September 30, 2020, the Company has completed the acquisition of selected assets of FileFacets™, and selected assets of Intelly WP™. 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, 2020, the Company had negative net working capital; an accumulated deficit; and, had reduced its operating losses. Subsequent to the year ended December 31, 2020, in order to meet capital requirements the Company raised net proceeds of (i) $110,000 from the sale of Series B Preferred Stock; (ii) $490,000 from the sale of its Common Stock; and, (iii) $114,500 from the sale of a promissory note. See Note 16, “Subsequent Events”, for further details.

 

We continue to monitor the effects COVID-19 could have on our operations and liquidity including our ability to collect account receivable timely from our customers due to the economic impacts COVID-19 could have on the general economy. COVID-19 has also impacted our ability to travel, meet distribution partners in their offices, present at tradeshows, and perform other enterprise-related sales functions. Many customers have still yet to return to their pre-pandemic “normal” office working conditions. These continued operating conditions have impacted our ability to execute and deploy some of our normal sales and marketing activities. While we are not unique in this position, these factors, among others, raise some doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

57

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

NOTE 4: PROPERTY AND EQUIPMENT

 

The following table summarizes the components of the Company’s property and equipment as of the dates presented:

 

    December 31,     December 31,  
    2020     2019  
Furniture and Fixtures   $ 2,991     $ 2,991  
Computer Equipment     421,323       115,827  
      424,314       118,818  
Accumulated depreciation     (99,965 )     (18,691 )
Property and equipment, net of accumulated depreciation   $ 324,349     $ 100,127  

 

Depreciation expense for the years ended December 31, 2020 and 2019, was $81,274 and $18,691, respectively.

 

During the years ended December 31, 2020 and 2019, the Company acquired property and equipment of $305,496 and $10,629, respectively.

 

NOTE 5: INTELLECTUAL PROPERTY

 

On February 7, 2019, the Company entered into an Exclusive License and Management Agreement (the “License Agreement”) with WALA, INC., which conducts business under the name ArcMail Technology (“ArcMail”). Under the License Agreement, the Company was granted the exclusive right and license to receive all benefits from the marketing, selling and licensing, of the ArcMail business products, including, without limitation, the good will of the business. The term of the License Agreement is twenty-seven (27) months, with the following payments to be made by the Company to ArcMail: (i) $200,000 upon signing the License Agreement; (ii) monthly payments starting 30 days after the execution of the License Agreement in the amount of $25,000 per month during months 1-6; (iii) monthly payments in the amount of $30,000 per month during months 7-17; and (iii) in month 18, final payment in the amount of $765,000. As of December 31, 2019, the balance of payments due under the License Agreement was $1,094,691. In connection with the execution of the License Agreement, two other agreements were also executed: (a) a Stock Purchase Rights Agreement, under which the Company has the right, though not the obligation, to acquire 100% of the issued and outstanding shares of stock of ArcMail from Rory Welch, the CEO of ArcMail (the right can be exercised over a period of 27 months); and (b) a Business Covenants Agreement, under which ArcMail and Mr. Welch agreed to not compete with the Company’s use of the ArcMail business under the License Agreement for a period of twenty-four (24) months. Mr. Welch shall continue to serve as ArcMail’s CEO. The Company has not purchased any outstanding shares under the Stock Purchase Rights Agreement. As of September 30, 2020, the Company terminated all agreements with Mr. Welch and ArcMail. The Company continued to use all assets under the License Agreement and was finalizing an agreement with the creditors of Mr. Welch and ArcMail (the creditors have taken ownership of the assets) for the Company’s continued use of all assets. Subsequent to the year end, the Company reached the agreement and issued notes payable of $1,404,000 to settle license fee payable of $1,094,691. It was considered as an unrecognized subsequent event for the extinguishment of debt.

 

On September 16, 2019, the Company entered into an Asset Purchase Agreement (the “APA”) with DMBGroup, LLC (“DMB”) to acquire certain assets collectively known as DataExpress, a software platform for secure sensitive data transfer within the hybrid cloud. The total purchase price of approximately $2.8 million consists of: (i) a $410,000 cash payment at closing; (ii) a promissory note in the amount of $940,000, payable in the amount of $41,661 over 24 monthly payments starting on October 15, 2019, accruing at a rate of 6% per annum; (iii) assumption of approximately $98,000 in liabilities and, (iv) approximately 2,465,753 shares of our common stock, representing $1,350,000.

 

During the year ended December 31, 2020 and 2019, the Company recorded impairment loss of $0 and $1,328,638, respectively. During the year ended December 31, 2019, we determined that the implied fair value of the intellectual property of DataExpress™ was substantially below the carrying value of the asset. This determination was based upon estimating the future income over the useful life of the asset and discounting it using an internal rate of return. Accordingly, we recognized an impairment loss of $1,328,638. This was based upon the following facts: (i) impairment loss is the difference of the purchase cost for DataExpress™ and the estimated fair value of DataExpress™; (ii) DataExpress™ fair value was determined using an income approach model; (iii) fair value of consideration paid by the Company was $2,716,689 at acquisition date; (iv) December 31, 2019 book value (after amortization) was $2,490,298; (v) fair value of DataExpress™ at December 31, 2019 valuation date was determined to be $1,161,660; and, (vi) December 31, 2019 impairment loss was $1,328,638 (book value less estimated fair value of DataExpress™).

 

On August 13, 2020, the Company entered into an Asset Purchase Agreement to acquire certain assets collectively known as FileFacets, a Software-as-a-Service (SaaS) platform that performs sophisticated data discovery and content search of structured and unstructured data within corporate networks, servers, content management systems, email, desktops and laptops. The total purchase price was $135,000, which amount was paid in full at the closing of the transaction.

 

On September 21, 2020, the Company entered into an Asset Purchase Agreement with the owners of a business known as IntellyWP™, to acquire the intellectual property rights and certain assets collectively known as IntellyWP™, an Italy-based developer that produces WordPress plug-ins that enhance the overall user experience for webmaster and end users. The total purchase price of $135,000 consists of: (i) a $55,000 cash payment at closing; (ii) a cash payment of $40,000 upon completion of certain training; and, (iii) a cash payment of $40,000 upon the Company collecting $25,000 from the assets acquired in the subject transaction.

 

On October 8, 2020, the Company entered into an Asset Purchase Agreement with Resilient Network Systems, Inc. (“RNS”) to acquire the intellectual property rights and certain assets collectively known as Resilient Networks™, a Silicon Valley based SaaS platform that performs SSO and adaptive access control “on the fly” with sophisticated and flexible policy workflows for authentication and authorization. The total purchase price of $305,000 consists of: (i) a $125,000 cash payment at closing; and, (ii) the issuance of 19,148,936 shares of our common stock to RNS.

 

58

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

The following table summarizes the components of the Company’s intellectual property as of the dates presented:

 

    December 31,     December 31,  
    2020     2019  
             
Intellectual property:                
Word press GDPR rights   $ 46,800     $ 46,800  
ARALOC™     1,850,000       1,850,000  
ArcMail License     1,445,000       1,445,000  
DataExpressTM     1,388,051       1,388,051  
FileFacetsTM     135,000       -  
IntellyWP™     135,000       -  
Resilient Network Systems     305,000       -  
      5,304,851       4,729,851  
Accumulated amortization     (2,993,944 )     (1,587,913 )
Intellectual property, net of accumulated amortization   $ 2,310,907     $ 3,141,938  

 

The Company recognized amortization expense of approximately $1,406,031 and $1,479,446 for the years ended December 31, 2020 and 2019, respectively.

 

Based on the carrying value of definite-lived intangible assets as of December 31, 2020, we estimate our amortization expense for the next five years will be as follows:

 

    Amortization  
Year Ended December 31,   Expense  
2021   $ 966,088  
2022     860,484  
2023     441,584  
2024     27,000  
Thereafter     15,750  
      2,310,907  

 

NOTE 6: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

The following table summarizes the components of the Company’s accounts payable and accrued liabilities as of the dates presented:

 

    December 31,     December 31,  
    2020     2019  
             
Accounts payable   $ 178,319     $ 339,882  
Credit cards and accrued liabilities     222,695       68,313  
    $ 401,014     $ 408,195  

 

NOTE 7: DEFERRED REVENUE

 

Changes in deferred revenue were as follows:

 

    December 31,     December 31,  
    2020     2019  
Balance, beginning of period   $ 953,546     $ 28,951  
Deferral of revenue     2,961,749       2,418,820  
Recognition of deferred revenue     (2,397,132 )     (1,494,225 )
Balance, end of period   $ 1,518,163     $ 953,546  
                 
Current   $ 1,478,430     $ 728,749  
Non-current     39,733       224,797  
    $ 1,518,163     $ 953,546  

 

NOTE 8: LEASES

 

Operating lease

 

We have noncancelable operating leases for our office facility that expire in 2024. The operating lease has renewal options and rent escalation clauses. On July 1, 2020, the Company renegotiated the office lease to obtain rent expense relief for the months of April 2020 – December 2020.

 

Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our estimated incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components in determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, if applicable. When lease terms include an option to extend the lease, we have not assumed the options will be exercised.

 

Lease expense for operating leases generally consist of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred, where applicable, and include agreed-upon changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. We recognized total lease expense of approximately $100,910 and $111,484 for the year ended December 31, 2020 and 2019, respectively, primarily related to operating lease costs paid to lessors from operating cash flows. As of December 31, 2020 and 2019, the Company recorded security deposit of $10,000. We entered into our operating lease in January 2019.

 

59

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year at December 31, 2020 were as follows:

 

    Total  
Year Ended December 31,        
2021   $ 123,600  
2022     127,300  
2023     131,150  
Thereafter     -  
      382,050  
Less: Imputed interest     (43,919 )
Operating lease liabilities     338,131  
         
Operating lease liability – current     100,170  
Operating lease liability - non-current   $ 237,961  

 

The following summarizes other supplemental information about the Company’s operating lease as of December 31, 2020:

 

Weighted average discount rate     8 %
Weighted average remaining lease term (years)     3.04  

 

Finance lease

 

The Company leases computer and hardware under non-cancellable capital lease arrangements. The term of those capital leases is 3 years and annual interest rate is 12%. At December 31, 2020 and 2019, capital lease obligations included in current liabilities were $90,565 and $34,425, respectively, and capital lease obligations included in long-term liabilities were $83,109 and $53,480, respectively. As of December 31, 2020 and 2019, the Company recorded security deposit of $10,944.

 

At December 31, 2020, future minimum lease payments under the finance lease obligations, are as follows:

 

    Total  
       
2021   $ 106,532  
2022     78,379  
2023     10,496  
Thereafter     -  
      195,407  
Less: Imputed interest     (21,733 )
Finance lease liabilities     173,674  
         
Finance lease liability – current     90,565  
Finance lease liability - non-current   $ 83,109  

 

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DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

As of December 31, 2020 and December 31, 2019, finance lease assets are included in property and equipment as follows:

 

    December 31,     December 31,  
    2020     2019  
Finance lease assets   $ 267,284     $ 109,280  
Accumulated depreciation     (87,337 )     (17,672 )
Finance lease assets, net of accumulated depreciation   $ 179,947     $ 91,608  

 

NOTE 9: CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following:

 

    December 31,     December 31,  
    2020     2019  
Convertible Notes - originated in September 2018   $ -     $ 1,700,000  
Convertible Notes - originated in October 2018     -       444,150  
Convertible Notes - originated in October 2018     -       608,850  
Convertible Notes - originated in April 2019     -       600,000  
Convertible Notes - originated in June 2019     -       63,000  
Convertible Notes - originated in November 2019     -       38,000  
Convertible Notes - originated in December 2019     -       38,000  
Convertible Notes - Issued in fiscal year 2020     1,526,000       -  
      1,526,000       3,492,000  
Less debt discount and debt issuance cost     (282,232 )     (279,214 )
      1,243,768       3,212,786  
Less current portion of convertible notes payable     1,243,768       3,212,786  
Long-term convertible notes payable   $ -     $ -  

 

During the years ended December 31, 2020 and 2019, the Company recognized interest expense of $274,857 and $246,914, and amortization of debt discount, included in interest expense of $1,576,907 and $1,460,309, respectively.

 

Replacement of note

 

During the twelve months ended December 31, 2020, the Company assigned a portion of note with outstanding principal amounts of $150,000 to a lender. Our CEO paid $135,000 to repay a principal amount of $81,000 on behalf of the company. As a result, the Company recorded due to related party of $135,000 and loss on settlement of debt of $54,000.

 

Effective September 30, 2020, the Company exchanged (i) its convertible promissory note originally issued on March 20, 2020 in the amount of $125,000 (referred to herein as the Granite Note); and, (ii) the Common Stock Purchase Warrant dated 18 March 2020 for the issuance of two hundred fifty thousand (250,0000) shares of Company Common Stock (the “Granite Warrant”) for the issuance of a new convertible promissory note issued in favor of Blue Citi LLC in the amount of $325,000 (the “Exchange Note”). Both the Granite Note and the Granite Warrant were cancelled as a result of the exchange and the issuance of the Exchange Note. Terms of the Exchange Note include, without limitation, the following:

 

  a. Principal balance of $325,000, which includes all accrued and unpaid interest on the Granite Note;
     
  b. No further interest shall accrue so long as there is no event of default;
     
  c. Conversions into common stock under the Exchange Note shall be effected at the lowest closing stock price during the five (5) days preceding any conversion, with -0- discount and a conversion price not below $0.007;
     
  d. No prepayment premiums or penalties; and
     
  e. Maturity date of September 30, 2021.

 

61

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

Effective November 17, 2020, the Company entered into a Settlement and Release Agreement (the “Settlement Agreement”) with an existing lender to, among things, settle all dispute regarding a convertible promissory note, and exchanged that note for a newly issued note. The disputed note, referred to herein as the “Smea2z Note”, was originally issued on October 23, 2018 in favor of Smea2z LLC in the original principal amount of Two Hundred Twenty Thousand Dollars ($220,000). Subsequent to the issuance of the Smea2z Note, a series of agreements were executed which amended various terms and conditions of the Smea2z Note, resulting in, among other things, a purported principal balance of Six Hundred Thousand Eight Hundred Fifty Dollars ($608,850). As a result of the Settlement Agreement, the Smea2z Note was cancelled, and a new note was issued (the “Exchange Note”) in exchange for the Smea2z Note. The Exchange Note was issued as of November 17, 2020 in the reduced original principal amount of Four Hundred Thousand Dollars ($400,000). The Exchange Note further provides as follows:

 

  a. No further interest shall accrue so long as there is no event of default;
       
  b. Maturity date remains the same: 30 June 2021;
       
  c. No right to prepay;
       
  d. Conversion price is fixed at $0.0035;
       
  e. Typical events of default for such a note, as well as a default in the event the closing price for the Company’s common stock is less than $0.0035 for at least 5-consecutive days; and
       
  f. Leak out provision:
       
    1. One conversion per week, for no more than forty million shares;
       
    2. If the trading volume for the Company’s common stock exceeds fifty million shares on any day, a second conversion may be exercised during that week, again for no more than forty million shares (a total of eighty million shares for that week).

 

Effective November 18, 2020, the Company entered into an agreement with three existing investors in the Company

(the “Warrant Holders”), each of which was the holder of warrants issued the Company. The total number of warrants (collectively, the “Exchanged Warrants”) held by the Warrant Holders totaled 617,682. The Company and the Warrant Holders agreed to exchange the Exchanged Warrants for three newly issued promissory notes (the “Warrant Exchange Notes”). As a result of the exchange, the Exchanged Warrants were cancelled and of no further force and effect. The Warrants Exchange Notes were issued as of November 18, 2020, in the total original principal amount of One Hundred Thousand Dollars ($100,000). The Warrant Exchange Notes further provide as follows: (i) interest accrues at 5% per annum; (ii) maturity date of November 18, 2025; (iii) no right to prepay; (iv) fixed conversion price of $0.01; and, (v) typical events of default for such a note.

 

Conversion

 

During the year ended December 31, 2020, the Company converted notes with principal amounts and accrued interest of $3,811,434 into 812,893,572 shares of common stock. The corresponding derivative liability at the date of conversion of $10,548,012 was credited to additional paid in capital.

 

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DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

Convertible notes payable consists of the following:

 

Promissory Notes - Issued in fiscal year 2018

 

On December 31, 2019, the Company entered into an Amendment and Forbearance Agreement with note holders of the 2018 notes. Under this agreement, note holders agreed to forbear from enforcing its rights under the note with regard to certain possible events of default, and further agreed to amend the note as follows:

 

  Terms ranging from 4 months to 15 months.
     
  Annual interest rates: 12%.
     
  Convertible at the option of the holders at earlier of (i) January 12, 2020 or April 15, 2020 or (ii) any event of default under the note.
     
  The conversion price shall be equal to 60% of the lesser of the lowest trading price of the Company’s common stock for (i) the 20 days immediately preceding December 31, 2019 or (ii) the 20 days immediately preceding the date of conversion.

 

As a result of an amendment and forbearance agreement, the Company recognized the settlement of original debt and recorded loss on settlement of debt of $1,206,329 during the year ended December 31, 2019.

 

As of December 31, 2020, there were no outstanding notes that were issued in fiscal year 2018.

 

Promissory Notes - Issued in fiscal year 2019

 

During the year ended December 31, 2019, the Company issued a total of $739,000 of notes with the following terms:

 

  Terms: 12 months.
     
  Annual interest rates of 10% - 12%.
     
  Convertible at the option of the holders at 4 months or 180 days after issuance date.
     
  Conversion prices are typically based on the discounted (39% to 50% discount) average closing prices or lowest trading prices of the Company’s shares during various periods prior to conversion.
     
  Certain note allows the principal amount will increase by $15,000 and the discount rate of conversion price will decrease by 10% if the conversion price is less than $$0.005.

 

The notes include original issue discounts and financing costs totaling to $63,000 and the Company received cash of $676,000.

 

As of December 31, 2020, there were no outstanding notes that were issued in fiscal year 2019.

 

Promissory Notes - Issued in fiscal year 2020

 

During the twelve months ended December 31, 2020, the Company issued a total of $2,466,500 of notes with the following terms:

 

  Terms ranging from 5 months to 60 months.
     
  Annual interest rates of 0% - 25%.
     
  Convertible at the option of the holders at issuance date, after maturity date or 6 months after issuance date.
     
  Conversion prices are typically based on the discounted (25% to 50% discount) average closing prices or lowest trading prices of the Company’s shares during various periods prior to conversion. Certain note has a fixed conversion price ranging from $0.001 to $0.007. Certain note has a fixed conversion price of $0.5 for a first 5 months Certain note allows the principal amount will increase by $15,000 and the discount rate of conversion price will decrease by 18% if the conversion price is less than $$0.01.

 

The Company determined that the conversion features, in the convertible notes, met the definition of a liability in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and therefore bifurcated the embedded conversion options once the notes become convertible and accounted for it as a derivative liability. The fair value of the conversion feature was recorded as a debt discount and amortized to interest expense over the term of the note.

 

The Company valued the conversion feature using the Binomial pricing model. The fair value of the derivative liability for all the notes that became convertible, including the notes issued in prior years, during the twelve months ended December 31, 2020 amounted to $10,854,214, and $947,175 of the value assigned to the derivative liability was recognized as a debt discount to the notes, while the balance of $9,907,039 was recognized as a “day 1” derivative loss.

 

As of December 31, 2020, $1,526,000 notes that were issued in fiscal year 2020 were outstanding.

 

NOTE 10: DERIVATIVE LIABILITIES

 

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

 

ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.

 

The Company determined our derivative liabilities to be a Level 3 fair value measurement during the year based on management’s estimate of the expected future cash flows required to settle the liabilities, and used the Binomial pricing model to calculate the fair value as of December 31, 2020. As of the end of year, at December 31, 2020 there were no derivative liabilities. The Binomial model requires six basic data inputs: the exercise or strike price, time to expiration, the risk-free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note and warrant is estimated using the Binomial valuation model.

 

63

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

For the years ended December 31, 2020 and, 2019, the estimated fair values of the liabilities measured on a recurring basis are as follows:

 

      Year Ended       Year Ended  
      December 31,       December 31,  
      2020       2019  
Expected term     0.02 - 5.00 years       0.25 - 5.00 years  
Expected average volatility     187%- 464 %     160%- 305 %
Expected dividend yield     -       -  
Risk-free interest rate     0.01% - 1.57 %     1.55% - 2.50 %

 

The following table summarizes the changes in the derivative liabilities during the years ended December 31, 2020 and 2019:

 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Derivative liability as of December 31, 2018   $ 12,447,109  
         
Addition of new derivatives recognized as debt discounts     606,000  
Addition of new derivatives recognized as day-one loss     1,544,785  
Derivative liabilities settled upon conversion of convertible note     (3,130,000 )
Reclassification from APIC to derivative due to tainted instruments     167,544  
Reclassification to APIC from derivative due to not tainted instruments     (250,878 )
Change in derivative liabilities recognized as loss on derivative     (8,783,283 )
Derivative liability as of December 31, 2019   $ 2,601,277  
         
Addition of new derivatives recognized as debt discounts     947,175  
Addition of new derivatives recognized as day-one loss     9,907,039  
Derivative liabilities settled upon conversion of convertible note     (10,954,868 )
Change in derivative liabilities recognized as loss on derivative     (2,500,623 )
Derivative liability as of December 31, 2020   $ -  

 

The aggregate gain (loss) on derivatives during the years ended December 31, 2020 and 2019 was $(7,406,416) and $7,238,498, respectively.

 

64

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

NOTE 11: NOTES PAYABLE

 

Notes payable consists of the following:

 

    December 31,     December 31,            
    2020     2019     Maturity   Interest Rate  
10% Promissory note - originated in October 2019   $ 25,060     $ 25,060     Due on demand     10.0 %
Promissory note - originated in October 2019     25,060       25,060     Due on demand     10.0 %
Promissory note - originated in November 2019     -       115,000     Due on August 19, 2020     10.0 %
Promissory note - originated in April 2020     10,000       -     Due on demand     No interest  
Paycheck Protection Program Promissory note - originated in April 2020 (1)     339,000       -     2 years     1.0 %
Economic Injury Disaster Loan - originated in May 2020 (2)     150,000       -     30 years     3.75 %
Promissory note - originated in June 2020     43,356       -     $3,942.86 daily payment     16.0 %
Promissory note - originated in September 2020     80,730       -     $2,873.89 monthly payment for 36 months     14.0 %
Promissory note - originated in October 2020     158,169       -     $2,293.31 daily payment     25.0 %
Promissory note - originated in November 2020     170,886       -     $4,497.00 daily payment     25.0 %
Promissory note - originated in November 2020     394,846       -     $6,999.00 daily payment     25.0 %
Promissory note - originated in December 2020    

50,030

      -     $1,854.41 monthly payment for 36 months     8.0 %
     

1,447,137

      165,120              
Less debt discount and debt issuance cost     (289,332 )     -              
     

1,157,805

      165,120              
Less current portion of promissory notes payable    

585,310

      -              
Long-term promissory notes payable   $

572,495

    $ 165,120              

 

(1) In response to the Coronavirus (COVID-19) pandemic, the US Government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. The CARES Act provides fast and direct economic assistance for entrepreneurs and small businesses through the US Small Business Administration (“SBA”).

 

During the period, the Company received a loan issued under the CARES Act program - Paycheck Protection Program (“PPP”). This loan program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.

 

Under the PPP, the Company may apply to have certain amounts forgiven under the direction of the Administrator of the SBA providing that the Company satisfies certain criteria. Repayment of the PPP loan will commence earlier of when the SBA remits the forgiveness amount to the lender or the Maturity Date.

 

(2) The Company received an advance under the Economic Injury Disaster Loan (EIDL) program.

 

As the Company received an EIDL advance and a PPP loan, the EIDL advance portion will be applied against the PPP forgiveness amount as repayment to the SBA upon approval of the PPP forgiveness application.

 

During the year ended December 31, 2020, the Company recognized interest expense of $34,331, and amortization of debt discount, included in interest expense of $534,535, respectively.

 

During the years ended December 31, 2020 and 2019, the Company issued a total of $4,375,864 and $215,120, less discount of $823,868 and $0 and repaid $1,689,845 and $650,000, respectively.

 

NOTE 12: CAPITAL STOCK AND REVERSE STOCK SPLIT

 

Changes in Authorized Shares

 

On October 14, 2019, the Company filed an amendment to its Articles of Incorporation to effect a 1-for-750 reverse stock split of its issued and outstanding shares of common and preferred shares, each with $0.001 par value. All per share amounts and number of shares, in the consolidated financial statements and related notes have been retroactively adjusted to reflect the reverse stock split.

 

On March 5, 2020, the Company amended its Articles of Incorporation to increase the number of shares of authorized common stock to 250,000,000.

 

On April 15, 2020, the Company amended its Articles of Incorporation to increase the number of shares of authorized common stock to 750,000,000.

 

On August 17, 2020, the Company amended its Articles of Incorporation to increase the number of shares of authorized common stock to 1,500,000,000.

 

On November 25, 2020 the Company filed a Certificate of Designation to authorize and create its Series B Preferred shares, consisting of 80,000 shares, $0.001 par value.

 

On December 15, 2020 the Company amended its Articles of Incorporation to increase the number of shares of authorized common stock to 1,800,000,000.

 

Preferred Stock

 

As of December 31, 2020, the Company is authorized to issue 337,500 shares of preferred stock with a par value of $0.001, of which 150,000 shares have been designated as Series A, and 80,000 shares have been designated as Series B.

 

As of December 31, 2020, and December 31, 2019, 150,000 and 1,334 shares of Series A were issued and outstanding, respectively. Each share of Series A was (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. Jason Remillard, sole director of the Company. During the year ended December 31, 2020, the Company issued a total of 148,666 shares of Series A preferred stock to Mr. Remillard.

 

65

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

As of December 31, 2020, and December 31, 2019, 5,300 and -0- shares of Series B were issued and outstanding, respectively. Each share of Series B (i) has a stated value of Ten Dollars ($10.00) per share; (ii) are convertible into common stock at a price per share equal to sixty one percent (61%) of the lowest price for the Company’s common stock during the twenty (20) day of trading preceding the date of the conversion; (iii) earn dividends at the rate of nine percent (9%) per annum; and, (iv) generally have no voting rights. During the year ended December 31, 2020, the Company issued a total of 5,300 shares of Series B preferred stock to Geneva Roth Remark Holdings, Inc.

 

Common Stock

 

As of December 31, 2020, the Company is authorized to issue 1,800,000,000 shares of common stock with a par value of $0.001. 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, 2020 and December 31, 2019, respectively, was 1,044,012,947 and 9,692,065 shares, respectively.

 

During the year ended December 31, 2020, the Company issued common stock as follows,

 

  812,893,572 shares issued for conversion of debt
     
  121,621,623 shares issued for the settlement of stock payable of acquisition DataExpress™
     
  1,496,516 shares issued for the settlement of stock subscription
     
  11,935,000 shares issued pursuance to S-8, of which 6,000,000 shares were issued to Mr. Remillard, who has not sold any of his shares (common or preferred)
     
  500,000 shares issued for compensation to our former CFO (who has since sold all of his shares)
     
  38,011,503 shares issued for cashless warrant
     
  19,148,936 shares issued for asset purchase
     
  28,713,732 shares issued for service

 

Warrants

 

The Company identified conversion features embedded within warrants issued during the period ended December 31, 2020. The Company has determined that the conversion feature of the Warrants represents an embedded derivative since the conversion price includes a reset provision which could cause adjustments upon conversion. During the year ended December 31, 2020, 330,000 warrants were granted, for a period of five years from issuance, at price of $0.50 per share. However, as of September 30, 2020, 250,000 of these original warrants, as reset, were completely cancelled and are all null and void in all respects as part of the consideration for the issuance of the Exchange Note.

 

As a result of the reset features, the warrants increased by 366,704,619 for the period ended December 31, 2020, and the total warrants exercisable into 368,908,303 shares of common stock at a weighted average exercise price of $0.0051 per share as of December 31, 2020. The reset feature of warrants was effective at the time that a separate convertible instrument with lower exercise price was issued. We accounted for the issuance of the Warrants as a derivative.

 

During the year ended December 31, 2020, the Company entered into an agreement with three existing investors in the Company (the “Holders”), each of which was the holder of warrants issued the Company. The total number of warrants (collectively, the “Warrants”) held by the Holders totaled 330,250,187. The Company and the Holders agreed to exchange the Warrants for three newly issued convertible promissory notes. As a result of the exchange, the Company recorded loss on settlement of $100,000.

 

On December 11, 2020, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Triton Funds LP, a Delaware limited partnership (“Triton”). Pursuant to the Purchase Agreement, subject to certain conditions set forth in the Purchase Agreement, Triton is obligated to purchase up to One Million Dollars ($1,000,000) of the Company’s common stock from time-to-time. The Company also granted to Triton warrants to purchase 100,000,000 shares of the Company’s Common Stock. The exercise price for the warrants is $0.01 per share, and may be exercised at any time, in whole or in part, prior to December 11, 2025. The Warrant Agreement provides for certain adjustments that may be made to the exercise price and the number of shares issuable upon exercise due to future corporate events. The Warrant Agreement also contains a limited cashless exercise feature, providing for the cashless exercise of 20,000,000 shares only upon the Company’s failure to secure the effectiveness of the Registration Statement, which is to include all shares under the Warrant Agreement.

 

A summary of activity during the period ended December 31, 2020 follows:

 

    Warrants Outstanding  
          Weighted Average  
    Shares     Exercise Price  
Outstanding, December 31, 2018     67,204     $ 0.003  
Granted     550,478       0.001864  
Reset feature     1,256,002       0.000648  
Exercised     -       -  
Forfeited/canceled     -       -  
Outstanding, December 31, 2019     1,873,684     $ 0.4914  
Granted     100,330,000       0.0142  
Reset feature     366,704,619       0.0051  
Exercised     (38,658,116 )     0.0051  
Forfeited/canceled     (330,250,187 )     0.0032  
Outstanding, December 31, 2020     100,000,000     $ 0.0100  

 

66

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

The following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2020:

 

Warrants Outstanding   Warrants Exercisable  
Number of   Weighted Average Remaining Contractual life     Weighted Average     Number of     Weighted Average  
Shares  
(in years)
    Exercise Price     Shares     Exercise Price  
100,000,000     4.95     $ 0.0100       100,000,000     $ 0.0100  

 

NOTE 13: 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:

 

    December 31,     December 31,  
    2020     2019  
             
Non-operating loss carryforward   $ 4,014,000     $ 3,016,000  
Valuation allowance     (4,014,000 )     (3,016,000 )
Net deferred tax asset   $ -     $ -  

 

The Company has established a valuation allowance against its deferred tax assets due to the uncertainty surrounding the realization of such assets. During 2020 the valuation allowance increased by $998,000. The Company has net operating and economic loss carry-forwards of approximately $15,754,000 available to offset future federal and state taxable income.

 

A reconciliation between expected income taxes, computed at the federal income tax rate of 21% applied to the pretax accounting loss, and our blended state income tax rate of 2.0%, and the income tax net expense included in the consolidated statements of operations for the years ended December 31, 2020 and 2019 is as follows:

 

    Year Ended  
    December 31,  
    2020     2019  
             
Loss for the year   $ (13,907,185 )   $ (607,371 )
                 
Income tax (recovery) at statutory rate   $ (2,921,000 )   $ (128,000 )
State income tax expense, net of federal tax effect     (270,000 )     (12,000 )
Permanent difference and other     2,201,000       (1,100,000 )
Change in valuation allowance     998,000       1,240,000  
Income tax expense per books   $ -     $ -  

 

The effective tax rate of 0% differs from our statutory rate of 21% primarily due to the effect of non-deductible income and expenses. Tax returns for the years ended 2013 – 2020, are subject to review by the tax authorities.

 

67

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

NOTE 14: SHARE-BASED COMPENSATION

 

Stock Options

 

During the years ended December 31, 2020 and 2019, the Company granted options for the purchase of the Company’s common stock to certain employees, 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 years ended December 31, 2020 and 2019:

 

    Options
Outstanding
    Weighted-Average
Exercise Price
 
Balance as of December 31, 2018     166,385     $ 3.45  
Grants     295,810       1.09  
Cancelled/expired     (84,968 )     3.82  
Balance as of December 31, 2019     377,227     $ 1.86  
Grants     12,503,783       0.02  
Exercised     (127,596 )     2.11  
Cancelled/expired     (1,001,822 )     0.11  
Balance as of December 31, 2020     11,751,592     $ 0.05  

 

The weighted average grant date fair value of stock options granted during the year ended December 31, 2020 and 2019 was $0.02 and $0.72, respectively. The total fair value of stock options that granted during the year ended December 31, 2020 and 2019 was approximately $251,117 and $211,838, respectively. The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following weighted average assumptions for stock options granted during the year ended December 31, 2020 and 2019:

 

    2020     2019  
Expected term (years)     5.7       2.8  
Expected stock price volatility     316.43 %     153.58 %
Weighted-average risk-free interest rate     0.40 %     1.13 %
Expected dividend   $ 0.00     $ 0.00  

 

Volatility is a measure of the amount by which a financial variable such as share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company estimates expected volatility giving primary consideration to the historical volatility of its common stock. The risk-free interest rate is based on the published yield available on U.S. Treasury issues with an equivalent term remaining equal to the expected life of the stock option. The expected lives of the stock options represent the estimated period of time until exercise or forfeiture and are based on the simplified method of using the mid-point between the vesting term and the original contractual term.

 

The following summarizes certain information about stock options vested and expected to vest as of December 31, 2020:

 

          Weighted-Average        
    Number of     Remaining Contractual Life     Weighted- Average  
    Options     (In Years)     Exercise Price  
Outstanding     11,751,592       9.51     $ 0.05  
Exercisable     655,642       9.07       0.43  
Expected to vest     11,095,950       9.54     $ 0.03  

 

As of December 31, 2020 and December 31, 2019, there was $211,661 and $18,229, respectively, of total unrecognized compensation cost related to non-vested stock-based compensation arrangements which is expected to be recognized within the next year.

 

68

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

Restricted Stock Awards

 

During the years ended December 31, 2020 and 2019, 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 restricted stock activity for the years ended December 31, 2020 and 2019:

 

          Weighted-Average  
    Shares     Fair Value  
Balance as of December 31, 2018     126,432     $ 3.70  
Shares of restricted stock granted     900,203       0.78  
Exercised     (261,135 )     1.67  
Cancelled/expired     (241,163 )     0.95  
Balance as of December 31, 2019     524,337       0.97  
Shares of restricted stock granted     14,260,568       0.0158  
Exercised     -       -  
Cancelled/expired     (72,145 )     0.60  
Balance as of December 31, 2020     14,712,760       0.05  

 

    December 31,     December 31,  
Number of Restricted Stock Awards   2020     2019  
Vested     452,192       57,243  
Non-vested     14,260,568       467,094  

 

As of December 31, 2020 and December 31, 2019, there was $144,964 and $147,743, respectively, of total unrecognized compensation cost related to non-vested stock-based compensation, which is expected to be recognized over the next year.

 

NOTE 15: RELATED PARTY TRANSACTIONS

 

Jason Remillard is our Chief Executive Officer and sole director. Through his ownership of Series A Preferred Shares, Mr. Remillard has voting control over all matters to be submitted to a vote of our shareholders.

 

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 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 1,600,000 shares of our common stock. The shares were issued in the form of 144,000 shares of the Company’s Series A preferred stock as part of the consideration under the Share Settlement Agreement dated August 14, 2020.

 

On September 16, 2019, the Company entered into an Asset Purchase Agreement with DMBGroup, LLC, as discussed in Note 4. Amounts owed to DMBGroup, LLC including the note payable of $940,000 and member loans of $97,689 were recorded as amounts due to a related party. During the year ended December 31, 2020, the Company repaid note payable of $458,275 including interest expense of $35,096. As of December 31, 2020 and December 31, 2019, the company had recorded a liability to DMBGroup totaling $405,382 and $828,561, respectively.

 

During the year ended December 31, 2020, our CEO paid operating expenses of $299,173 on behalf of the Company and the Company repaid $303,079 to our CEO. During the year ended December 31, 2019, the Company borrowed $12,900 from our CEO and repaid $162,495, and our CEO paid operating expenses of $137,264 on behalf of the Company.

 

During the year ended December 31, 2020, our CEO repaid $135,000 to purchase convertible note of $81,000 and a prepayment penalty of $54,000. As a result, the Company recorded $54,000 as loss on settlement of debt.

 

During the year ended December 31, 2020 we issued to our CEO a total of 148,666 shares of Series A preferred stock.

 

As of December 31, 2020 and December 31, 2019, the Company had due to related party of $561,230 and $1,103,314, respectively, which arose from the DMB transaction to acquire DataExpress™.

 

69

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

NOTE 16: SUBSEQUENT EVENTS

 

Subsequent to December 31, 2020, the following transactions occurred:

 

  On January 06, 2021, the Company issued 3,800 shares of its Series B Preferred Stock in exchange for $35,000 of net proceeds from an investor. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On January 25, 2021, pursuant to the terms and conditions of a Note Purchase Agreement, the Company issued a Convertible Promissory Note (the “Quick Capital Note”) in the aggregate principal amount of $114,500, and received gross proceeds of $100,000 from the lender, Quick Capital, LLC (“Quick Capital”). The proceeds will be used for general corporate purposes. The Quick Capital Note (i) has a one-time interest charge of five percent (5%); (ii) is due and payable 90-days from issuance; and, (iii) can be converted into shares of the Company’s common stock upon an event of default, at a conversion price equal to the lesser of: (a) $0.01, or (b) 61% multiplied by the average of the two lowest trading prices for our Common Stock during the 20-days prior to the date of the conversion. In connection with, and as a condition to, the issuance of the Quick Capital Note, the Company also issued 5,725,000 shares of its common stock to Quick Capital. The Quick Capital Note and the shares of common stock were issued in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws.
     
  On January 27, 2021, the Company converted $45,150 of a promissory note into 12,541,667 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On January 27, 2021, the Company issued 41,666,667 shares of its common stock to Triton pursuant to the CSPA executed on December 11, 2020. The Company received $240,000 in net proceeds from the transaction. The issuance was of shares registered under the S-1 filed by the Company on December 28, 2020 and effective on January 26, 2021.

 

70

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

  On February 02, 2021, the Company issued 20,684,000 shares of its common stock to Maxim Partners LLC pursuant to the Maxim Agreement. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 03, 2021, the Company issued 1,250,000 shares of its common stock to a member of the Company’s Advisory Board. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  Effective February 08, 2021 the Company entered into the Blue Citi Notes Settlement Agreement with Blue Citi (the “Notes Settlement”) to, among other things, settle all disputes regarding all convertible promissory notes issued in favor of Blue Citi (the “Blue Citi Notes”). The following terms, among others, applied to each of the Blue Citi Notes:

 

  a. All accrued and unpaid interest under the Blue Citi Notes shall be nullified in full and be deemed to be zero, and no further interest of any amount shall accrue on any of the Blue Citi Notes.
     
  b. At no time shall the total ownership of shares of the Company’s common stock by Blue Citi exceed 9.99% of the total number of issued and outstanding shares of common stock.
     
  c. The Company shall have no right to prepayment, or any other right to repay in cash, any of the Blue Citi Notes. Similarly, Blue Citi shall have no right to demand cash payment under any of the Blue Citi Notes.
     
  d. Blue Citi shall be limited in its sales of our common stock to a maximum of fifty million (50,000,000) shares each calendar week. However, in the event that the total volume of traded shares for our common stock exceeds three hundred million (300,000,000) in any calendar week, then the trading limitation for the following calendar week shall be increased to seventy five million (75,000,000) shares of common stock.

 

With regard to each of the respective Blue Citi Notes, the Company and Blue Citi further agreed as follows:

 

  a. Convertible note in the original principal amount of Two Hundred Thousand Dollars ($200,000) issued on 08 January 2020 shall have a fixed conversion price of $0.01, resulting in the issuance of 20,000,000 shares upon conversion.
     
  b. Convertible note in the original principal amount of Twenty Five Thousand Dollars ($25,000) issued on 01 July 2020 shall be nullified in full and be deemed to be zero, and be of no further force and effect.
     
  c. Convertible note in the original principal amount of One Hundred Fifty Thousand Dollars ($150,000) issued on 01 July 2020 shall have a fixed conversion price of $0.01, resulting in the issuance of 15,000,000 shares upon conversion.
     
  d. Convertible note in the original principal amount of Two Hundred Thousand Dollars ($200,000) issued on 03 August 2020 shall have a fixed conversion price of $0.005, resulting in the issuance of 40,000,000 shares upon conversion.

 

71

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

  e. Convertible note in the original principal amount of Three Hundred Thousand Dollars ($300,000) issued on 24 August 2020 shall have a fixed conversion price of $0.005, resulting in the issuance of 60,000,000 shares upon conversion.
     
  f. Convertible note in the original principal amount of Three Hundred Twenty Five Thousand Dollars ($325,000) issued on 30 September 2020 shall have a fixed conversion price of $0.015, resulting in the issuance of 21,666,667 shares upon conversion.
     
  g. Convertible note in the original principal amount of Four Hundred Thousand Dollars ($400,000) issued on 17 November 2020 shall have a fixed conversion price of $0.0035, resulting in the issuance of 34,285,714 shares upon conversion.

 

  On February 09, 2021, the Company converted $120,000 of a promissory note into 34,285,714 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 10, 2021, the Company converted $200,000 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 February 10, 2021, the Company issued 41,666,667 shares of its common stock to Triton pursuant to the CSPA executed on December 11, 2020. The Company received $250,000 in net proceeds from the transaction. The issuance was of shares registered under the S-1 filed by the Company on December 28, 2020 and effective on January 26, 2021.
     
  Effective February 12, 2021 Geneva Roth Remark Holdings, Inc. (“Geneva Roth”) and the Company finalized and closed the Securities Exchange Agreement (the “Geneva Exchange Agreement”). Geneva Roth was the holder of that certain Convertible Promissory Note in the original principal amount of Sixty Three Thousand Dollars ($63,000) dated September 10, 2020, with a maturity date of September 10, 2021 (the “Geneva Roth Note”). Pursuant to the Geneva Exchange Agreement, and solely in exchange for the Geneva Roth Note, Geneva Roth exchanged the Geneva Roth Note for six thousand five hundred sixty (6,560) shares of our Series B Preferred Stock. The Geneva Roth Note was thereafter cancelled and of no further force and effect. The issuance was exempt under Section 4(a)(2) and 3(a)(9) of the Securities Act.
     
  On February 12, 2021, and effective January 31, 2021 the Company confirmed the earlier termination of each of the ArcMail Agreements. The Company has asserted numerous claims under the ArcMail Agreements. Further, Wala lost all rights to the ArcMail Assets through a foreclosure action brought by certain secured creditors of Wala (the “Wala Creditors”). The Company considers its relationship with Wala to be closed and will not pursue any further action in that regard.
     
  On February 12, 2021 the Company closed its acquisition of the ArcMail Assets from the Wala Creditors pursuant to the terms and conditions of an Asset Sale Agreement executed by and between the Company and the Wala Creditors. The effective date of the Asset Sale Agreement and the acquisition was deemed to be January 31, 2021. Total purchase price (the “Purchase Price”) was One Million Four Hundred Four Thousand Dollars ($1,404,000), evidenced by three promissory notes in favor of the Wala Creditors in the total amount of the Purchase Price (the “Notes”). Interest accrues at the rate of four percent (4%) per annum. Payments under the Notes commence in 30-days and continue monthly thereafter for 60-months. The Notes are secured by a pledge of the ArcMail Assets as collateral under the terms of a Security Agreement in favor of the Wala Creditors. The foregoing descriptions of the Asset Sale Agreement; Notes; and, Security Agreement do not purport to be complete and are qualified in their entirety by the actual language contained in the Asset Sale Agreement, Notes, and Security Agreement, respectively.
     
  On February 19, 2021, the Company converted $200,000 of a promissory note into 20,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 19, 2021, the Company converted $150,000 of a promissory note into 15,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

72

 

 

DATA443 RISK MITIGATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2020 and 2019

 

  On February 19, 2021, the Company issued 7,800 shares of its Series B Preferred Stock in exchange for $75,000 of net proceeds from an investor. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 19, 2021, the Company converted $100,000 of a promissory note into 20,000,000 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
  On February 23, 2021, the Company filed with the SEC its Schedule 14C, Preliminary Information Statement, providing notice that the Board of Directors and the holders of a majority of our shares entitled to vote had approved and authorized the following actions:

 

  (1) Amendment of our articles of incorporation (the “Articles of Incorporation”) to provide for a decrease in the authorized shares of the Company’s common stock from 1,800,000,000 to a number of not less than 10,000,000 and not more than 1,000,000,000 (the “Authorized Common Stock Reduction”), at any time prior to the one year anniversary of the filing of the Definitive Information Statement on Schedule 14C with respect to these actions the “Definitive Information Statement”), with the Board of Directors of the Company (the “Board”) having the discretion to determine whether or not the Authorized Common Stock Reduction is to be effected, and if effected, the exact number of the Authorized Common Stock Reduction within the above range.
     
  (2) That the Board be authorized to implement through the amendment to our Articles of Incorporation a reverse stock split of the Company’s Common Stock by a ratio of not less than 1-for-10 and not more than 1-for-2,000, (the “Reverse Split”), at any time prior to the one year anniversary of the filing of the Definitive Information Statement, with the Board having the discretion to determine whether or not the Reverse Split is to be effected, and if effected, the exact ratio for the Reverse Split within the above range.

 

  On February 24, 2021, the Company converted $200,000 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 February 25, 2021, the Company converted $325,000 of a promissory note into 21,666,667 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.
     
 

On March 05, 2021, the Company issued 55,368,205 shares of its common stock to Triton pursuant to the CSPA executed on December 11, 2020. The Company is owed $332,209 in net proceeds from the transaction, which amount Triton has not yet paid to the Company. The issuance was of shares registered under the S-1 filed by the Company on December 28, 2020 and effective on January 26, 2021.

     
 

On March 15, 2021, the Company converted 4,500 shares of its Series B Preferred Stock into 7,680,508 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

     
 

On March 16, 2021, the Company converted 2,060 shares of its Series B Preferred Stock into 3,515,966 shares of its common stock. The issuance was exempt under Section 4(a)(2) of the Securities Act.

 

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Jason Remillard (“Remillard”), who serves as our Chief Executive Officer, Principal Executive Officer, Chief Financial Officer, and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on its evaluation, management concluded as of December 31, 2020 that our disclosure controls and procedures were not effective because of material weaknesses in our internal control over financial reporting, described below in Management’s Report on Internal Control Over Financial Reporting. Notwithstanding the identified material weaknesses, management believes the consolidated financial statements included in this Annual Report on Form 10-K fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

 

Management’s Report on Internal Control Over Financial Reporting

 

Jason Remillard, as our Principal Executive Officer and Principal Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Exchange Act. An evaluation was performed of the effectiveness of the Company’s internal control over financial reporting. The evaluation was based on the framework in 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Based on our evaluation under the criteria set forth in 2013 Internal Control — Integrated Framework, our management concluded that, as of December 31, 2020 our internal control over financial reporting was not effective because of the identification of material weaknesses described as follows:

 

  We did not have controls designed to validate the completeness and accuracy of underlying data used in the determination of accounting transactions. Accordingly, we believe we have a material weakness because there is a reasonable possibility that a material misstatement to the interim or annual consolidated financial statements would not be prevented or detected on a timely basis.
     
  We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
     
  We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
     
  We have an inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting.
     
  We do not have a functioning audit committee or outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.

 

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Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting

 

Management of the Company is committed to improving its internal controls and will (i) continue to use third party specialists to address shortfalls in staffing and to assist the Company with accounting and finance responsibilities; (ii) increase the frequency of independent reconciliations of significant accounts which will mitigate the lack of segregation of duties until there are sufficient personnel; (iii) seek to add a full-time Chief Financial Officer to replace Mr. Remillard when the Company has adequate financial resources; and, (iv) is currently considering appointing outside directors and audit committee members in the future.

 

Management has discussed the material weaknesses noted above with our independent registered public accounting firm. Due to the nature of these material weaknesses, it is reasonably possible that misstatements which could be material to the annual or interim consolidated financial statements could occur that would not be prevented or detected during our financial close and reporting process.

 

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.

 

Changes in Internal Controls Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Information Regarding Our Board of Directors

 

Pursuant to our Bylaws, the number of directors is fixed and may be increased or decreased from time to time by resolution of our Board of Directors (the “Board”). The Company currently has one individual serving on the Board (Mr. Remillard). The Company will seek to fill vacancies on the Board as it executes on its business plan and is able to fund the cost of errors and omissions insurance coverage for the Board.

 

Information with respect to our current directors is shown below.

 

  Name   Age   Director Since   Position(s) Held
               
  Jason Remillard   47   2017   President; Chief Executive Officer; Chairman; Chief Financial Officer; Secretary

 

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

 

Jason Remillard: Mr. Remillard started his career in the early 1990s 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.

 

Immediately prior to forming Data443, Mr. Remillard focused on building an award-winning data privacy and compliance product – ClassiDocs™. During this period he focused on enterprise customer relationships, strategic industry partnerships and setting the foundation for a new and unique entry into the global and growing data privacy and compliance marketplace. Prior to this, he relocated to New York City to serve as VP of Security Architecture and Engineering for Deutsche Bank and managed a large and complex portfolio of technology and staff globally, including risk management, data security and enterprise compliance programs. During the last five years Mr. Remillard also led a large global diversified security products portfolio for Dell Software (formerly Quest Software), with over 4,000 active customers, development & marketing teams, and international distribution channels. In addition to Mr. Remillard’s previous years as a management consultant for IBM Corporation, he has also developed, marketed and successfully managed five other startups in the cyber security space. With almost 30 years of enterprise IT, business development and product sales experience, Mr. Remillard continues to execute on his vision of simplifying important security capabilities to protect important assets.

 

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.

 

Mr. Remillard devotes one hundred percent (100%) of his time to us. Based upon his experience and expertise in the data security space, we believe Mr. Remillard is an ideal candidate to head the Company and serve as our sole director.

 

Family Relationships

 

None.

 

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Involvement in Certain Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

 

  been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
     
  had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
     
  been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
     
  been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
     
  been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
     
  been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers and persons who own more than 10% of our common stock to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. Based solely upon our review of the Forms 3, 4 and 5 filed during fiscal year ended December 31, 2018, we believe that as of December 31, 2018 our executive officers, directors and greater than 10 percent beneficial owners have complied on a timely basis with all Section 16(a) filing requirements.

 

Corporate Governance

 

Board Committees and Charters

 

Audit Committee

 

We do not currently have a separately constituted audit committee. We are considering forming an Audit Committee in fiscal 2021 and if appropriate will commence a search for new qualified independent board members, one of whom will meet the definition of an “audit committee financial expert”. The board of directors will also consider adopting a written audit committee charter.

 

77

 

 

Compensation Committee

 

We do not currently have a separately constituted compensation committee. Our board of directors has not yet determined whether to create a compensation committee.

 

Nominating Committee

 

We do not currently have a separately constituted nominating committee. Our board of directors has not yet determined whether to create a nominating committee.

 

Code of Business Conduct

 

We have not yet adopted a Code of Business Conduct, which would apply to our chief executive officer and chief financial officer, or to all directors and employees. Our board of directors plans to adopt a Code of Business Conduct as soon as practicable.

 

Board Diversity

 

While we do not have a formal policy on diversity, our board of directors considers diversity to include the skill set, background, reputation, type and length of business experience of our board of directors members, as well as, a particular nominee’s contributions to that mix. Our board of directors believes that diversity brings a variety of ideas, judgments, and considerations that can benefit our shareholders and us.

 

Stockholder Communications

 

We do not have a formal policy regarding communications with our board of directors, or for the consideration of director candidates recommended by shareholders. To date, no shareholders have made any such recommendations.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Named Executive Officers

 

Our named executive officers for 2019 and 2020 were Mr. Remillard (who served as our President; Chief Executive Officer; Secretary; and, Chairman), and Steven Dawson, who served as our Chief Financial Officer starting on May 01, 2019 up to and until his termination on January 24, 2020. Upon Mr. Dawson’s termination, Mr. Remillard also served as our Chief Financial Officer. Mr. Remillard and Mr. Dawson are collectively referred to herein as the “Named Executive Officers”.

 

Summary Compensation Table

 

The following table summarizes the compensation of our Named Executive Officers during fiscal years ended December 31, 2020 and 2019:

 

                Stock     Option     All Other        
          Salary     Awards     Awards     Compensation     Total  
Name and Principal Position   Year     ($)     ($)     ($)     ($)     ($)  
                                     
Jason Remillard     2020       163,282       216,000       -         -       379,283  
CEO, CFO, Sole Director     2019       109,359       185,000       -         -       294,788  
                                                 

Steven Dawson

CFO(1)

    2019       95,000       136,275       52,632       -       283,907  

 

(1) Mr. Dawson served as our Chief Financial Officer from May 1, 2019 until January 24, 2020.

 

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Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information regarding outstanding stock options and stock awards held by our Named Executive Officers as of December 31, 2020:

 

    Option Awards     Stock Awards  
Name   Number of Securities Underlying Unexercised Options: Exercisable     Number of Securities Underlying Unexercised Options: Unexercisable     Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options     Option Exercise Price     Option Expiration Date     Number of Shares or Units of Stock That Have Not Vested     Market Value of Shares or Units of Stock That Have Not Vested     Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested     Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested  
    (1)     (2)     (3)     (4)     (5)     (6)     (7)     (8)     (9)  
Jason Remillard     38,462       -       -     $ 3.90       December 30, 2028       -       -       -       -  

 

As of December 31, 2020, the Company recorded approximately $945,000 in share-based compensation expense, summarized as follows:

 

2018 Stock Incentive Plan

 

The following summarizes the 2018 Stock Incentive Plan as of December 31, 2020:

 

Plan   Number of Shares to be Issued Upon Exercise of Outstanding Equity Awards     Weighted Average Exercise Price of Outstanding Equity Awards     Number of Equity Awards Remaining for Future Issuance Under Equity Compensation Plan  
2018 Stock Incentive Plan     12,393,807     $ 0.0722       (11,321,614 )

 

Stock Options

 

During 2020, 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 twelve-month period ended December 31, 2020:

 

             
          Weighted-Average  
    Options Outstanding     Exercise Price  
Balance as of December 31, 2019     377,227     $ 1.86  
Grants     11,032,732       0.03  
Exercised     (6 )     3,750.00  
Cancelled     (81,962 )     1.53  
Balance as of December 31, 2020     11,327,991     $ 0.08  

 

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The following summarizes certain information about stock options vested and expected to vest as of December 31, 2020:

 

          Weighted-Average        
    Number of     Remaining Contractual Life     Weighted- Average  
    Options     (In Years)     Exercise Price  
Outstanding     11,327,991       9.44     $ 0.08  
Exercisable     1,859,771       9.07       0.32  
Expected to vest     9,468,220       9.51     $ 0.03  

 

As of December 31, 2020, there was approximately $21,756 of total unrecognized compensation cost related to non-vested share-based compensation arrangements which is expected to be recognized within the next year.

 

Restricted Stock Awards

 

During 2020, 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 restricted stock activity for the year ended December 31, 2020:

 

 

          Weighted-Average  
    Shares     Fair Value  
Balance as of December 31, 2019     524,337       0.97  
Shares of restricted stock granted     18,430,000       0.0001  
Exercised     -       -  
Cancelled     (72,145 )     0.60  
Balance as of December 31, 2020     18,882,192       0.02  

 

    December 31,  
Number of Restricted Stock Awards   2020  
Vested     13,907,192  
Non-vested     4,975,000  

 

Share-based compensation expense for restricted stock grants during the year ended December 31, 2020, was approximately $147,515.

 

As of December 31, 2020, there was approximately $228 of total unrecognized compensation cost related to non-vested share-based compensation, which is expected to be recognized over the next year.

 

Employment Agreements and Change-in-Control Arrangements

 

We have not entered into employment agreements or change-in-control arrangements with any of our other executive officers. Each of our executive officers is an at-will employee and their employment relationship with us may be terminated at any time.

 

There are no annuity, pension or retirement benefits proposed to be paid to officers, directors or employees in the event of retirement at normal retirement date pursuant to any presently existing plan provided or contributed to by the Company or any of its subsidiaries, if any.

 

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.

 

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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.

 

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.

 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth, as of March 23, 2021, 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     156,181,409 (3)     

11.5

%(4)
                 
All current executive officers and directors as a group (1 person)     156,181,409      

11.5

%
                 
5% Shareholders                
Jason Remillard     156,781,409       11.5 %

 

  (1) The mailing address for each officer and director is c/o Data443 Risk Mitigation, Inc., 101 J Morris Commons Lane, Suite 105, Morrisville, North Carolina 27560.
     
  (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 Annual Report (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 Annual Report, which is 1,399,600,276 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. Includes (i) 150,000,000 shares which would be issued to Mr. Remillard upon conversion of his Series A Preferred Stock; (ii) 133,334 shares to be issued to Mr. Remillard in connection with the acquisition of Data443 Risk Mitigation, Inc., a North Carolina corporation and wholly-owned subsidiary of the Company; and, (iii) 6,048,075 shares currently owned by Mr. Remillard.
     
  (3) Includes shares actually issued and outstanding (1,015,299,215); and, shares to be issued to Mr. Remillard (150,133,334), for a total of 1,165,432,549 shares.

 

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Changes in Control

 

We are not aware of any arrangements that may result in “changes in control” as that term is defined by the provisions of Item 403 of Regulation S.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Certain Relationships and Related Transactions

 

Jason Remillard is our sole director and sole director. Through his ownership of Series A Preferred Shares, Mr. Remillard has voting control over all matters to be submitted to a vote of our shareholders.

 

In January 2018, we acquired substantially all of the assets of Myriad Software Productions, LLC (“Myriad”), which was wholly owned by our sole director and chief executive officer, Jason Remillard. Those assets were comprised of the software program known as ClassiDocs, and all intellectual property and goodwill associated therewith. This acquisition changed our status to no longer being a “shell” under applicable securities rules. In consideration for the acquisition, we 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 1,600,000 shares of our common stock. The shares were issued in the form of 144,000 shares of the Company’s Series A preferred stock as part of the consideration under a Share Settlement Agreement dated August 14, 2020 by and between the Company and Mr. Remillard.

 

In June 2018, we acquired all of the issued and outstanding shares of stock (the “Share Exchange”) of Data443 Risk Mitigation, Inc., a North Carolina corporation (“Data443”). 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 were 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, 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 our shares of our common stock to be issued to Mr. Remillard under the Share Exchange have been issued.

 

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.

 

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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 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table provides information regarding the fees billed to us by Thayer O’Neal Company, LLC and TPS Thayer in the years ended December 31, 2020 and 2019. All fees described below were approved by Board:

 

    For the years ended
December 31
 
    2020     2019  
Audit Fees (1)   $ 76,000     $ 67,500  
                 
Audit Related Fees (2)    

-

      -  
                 
Tax Fees (3)    

-

     

-

 
                 
All Other Fees (4)    

-

     

-

 
                 
Total Fees:   $

76,000

    $ 67,500  

 

(1) Audit Fees include fees for services rendered for the audit of our consolidated financial statements, included in our Annual Report on Form 10-K.
   
(2) Audit Related Fess consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the SEC and other accounting consulting.
   
(3) Tax Fees consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
   
(4) All Other Fees consists of fees for other miscellaneous items.

 

Pre-Approval Policies and Procedures

 

The policy of our Board is to pre-approve all audit and permissible non-audit services provided by our independent auditors. These services may include audit services, audit-related services, tax services, and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services. The independent auditor and management are required to periodically report to the Board regarding the extent of services provided by the independent auditor in accordance with this pre-approval. Any proposed services not included within the list of pre-approved services or any proposed services that will cause the Company to exceed the pre-approved aggregate amount requires specific pre-approval by the Board.

 

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PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

  (a) (1) The Company’s consolidated financial statements and related notes thereto are listed and included in this Annual Report (Item 8).
       
    (2) Schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
       
    (3) The following exhibits are filed as part of this Annual Report pursuant to Item 601 of Regulation S-K:

 

Exhibit

Number

  Description of Document
     
2.1   Share Exchange Agreement dated December 31, 1998, by and between the Company and Rebound Corp., incorporated by reference to Exhibit 10.7 to Form 10-SB/A as filed by the Company with the Securities and Exchange Commission on January 7, 2000.
     
3.1   Articles of Incorporation of the Company, dated May 04, 1998, incorporated by reference to Exhibit 3(I) to Form 10-SB as filed by the Company with the Securities and Exchange Commission on January 4, 2000.
     
3.2   Amended and Restated Articles of Incorporation of the Company, dated May 01, 2018, incorporated by reference to Exhibit 3.2 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
3.3   Certificate of Designation for Preferred Series A Stock of the Company, dated May 28, 2008, incorporated by reference to Exhibit 3.3 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
3.4   Amendment to Certificate of Designation for Preferred Series A Stock of the Company, dated April 27, 2018, incorporated by reference to Exhibit 3.4 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
3.5   Bylaws of the Company, incorporated by reference to Exhibit I to Form 10-SB as filed by the Company with the Securities and Exchange Commission on January 4, 2000.
     
3.6   Certificate of Amendment to the Company’s Articles of Incorporation dated August 17, 2020, increasing the number of authorized shares of Common Stock to 1.5 billion, incorporated by reference to Exhibit 3.1 to Form 8-K as filed by the Company with the Securities and Exchange Commission on 21 August 2020.
     
3.7   Certificate of Designation for Preferred Series B Stock of the Company, dated November 25, 2020, incorporated by reference to Exhibit 3.1 to Form 8-K as filed by the Company with the Securities and Exchange Commission on 02 December 2020.
     
3.8   Certificate of Amendment to the Company’s Articles of Incorporation dated December 15, 2020, increasing the number of authorized shares of Common Stock to 1.8 billion, incorporated by reference to Exhibit 3.1 to Form 8-K as filed by the Company with the Securities and Exchange Commission on 17 December 2020.
     
4.1   Convertible Note issued by the Company on October 17, 2014 in favor of Atlantic Holding Corp. in the original principal amount of $125,000 incorporated by reference to Exhibit 4.1 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
4.2   8% Convertible Redeemable Note issued by the Company on October 16, 2018 in favor of AFT Funding Corp. in the original principal amount of $110,000 incorporated by reference to Exhibit 4.2 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
4.3   8% Convertible Redeemable Note issued by the Company on October 23, 2018 in favor of Smea2z LLC in the original principal amount of $220,000 incorporated by reference to Exhibit 4.3 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
4.4   Convertible Redeemable Note issued by the Company on April 15, 2019 in favor of Auctus Fund, LLC in the original principal amount of $600,000 incorporated by reference to Exhibit 4.1 to Form 8-K as filed by the Company with the Securities and Exchange Commission on 19 April 2019.

 

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4.5   Common Stock Purchase Warrant Agreement issued in favor of Auctus Fund, LLC on 15 April 2019 for the purchase of 60,000,000 shares of Common Stock at $0.005 per share, incorporated by reference to Exhibit 4.2 to Form 8-K as filed by the Company with the Securities and Exchange Commission on 19 April 2019.
     
 4.6*   Smea2z Exchange Note issued in favor of Blue Citi LLC on 17 November 2020 in the amount of $400,000.
     
 4.7*   Warrant Exchange Notes issued as of 18 November 2020 in the total original principal amount of $100,000.
     
4.8    Common Stock Purchase Warrant issued in favor of Triton Funds LP on 11 December 2020 for the purchase of 100,000,000 shares of Common Stock at $0.01 per share, incorporated by reference to Exhibit 4.1 to Form 8-K as filed by the Company with the Securities and Exchange Commission on 17 December 2020.
     
10.1   Asset Purchase Agreement dated January 26, 2018 by and between Myriad Software Productions, LLC and Data443 Risk Management, Inc., incorporated by reference to Exhibit 10.1 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
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, incorporated by reference to Exhibit 10.2 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
10.3   Security Agreement dated January 26, 2018 executed by Data443 Risk Management, Inc. in favor of Myriad Software Productions, LLC, incorporated by reference to Exhibit 10.3 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
10.4   Share Exchange Agreement dated June 29 2018 by and between LandStar, Inc.; Data443 Risk Mitigation, Inc.; and, Jason Remillard, incorporated by reference to Exhibit 10.4 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
10.5   Asset Purchase Agreement dated October 22, 2018 by and between Data443 Risk Mitigation, Inc.; Modevity, LLC; and, Jim Coyne, incorporated by reference to Exhibit 10.5 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
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, incorporated by reference to Exhibit 10.6 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
10.7   Security Agreement dated October 22, 2018 executed by Data443 Risk Management, Inc. in favor of Modevity, LLC, incorporated by reference to Exhibit 10.7 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
10.8   Debt Restructuring Agreement dated September 30, 2018 by and between LandStar, Inc. and Blue Citi LLC, incorporated by reference to Exhibit 10.8 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
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, incorporated by reference to Exhibit 10.9 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
10.10   Form of Common Stock Purchase Agreement executed in connection with the issuance in December 2018 of 252.016,130 shares of the Company’s common stock in exchange for $500,000, incorporated by reference to Exhibit 10.10 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.
     
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, incorporated by reference to Exhibit 10.11 to Form 10 as filed by the Company with the Securities and Exchange Commission on 11 January 2019.

 

86

 

 

10.12   Form of Exclusive License and Management Agreement entered into with Wala, Inc. on 07 February 2019, incorporated by reference to Exhibit 10.1 to Form 8-K as filed by the Company with the Securities and Exchange Commission on 11 February 2019.
     
10.13   Form of Stock Purchase Rights Agreement entered into with Rory Welch on 07 February 2019, incorporated by reference to Exhibit 10.2 to Form 8-K as filed by the Company with the Securities and Exchange Commission on 11 February 2019.
     
10.14   Form of Business Covenants Agreement entered into with Wala, Inc. and Rory Welch on 07 February 2019, incorporated by reference to Exhibit 10.3 to Form 8-K as filed by the Company with the Securities and Exchange Commission on 11 February 2019.
     
10.15   Form of Securities Purchase Agreement executed in connection with the issuance on 15 April 2019 of the Company’s convertible promissory note, incorporated by reference to Exhibit 10.1 to Form 8-K as filed by the Company with the Securities and Exchange Commission on 19 April 2019.
     
10.16   Form of Common Stock Purchase Agreement executed in connection with the issuance in February 2019, of 418,451,781 shares of the Company’s common stock in exchange for $500,000, incorporated by reference to Exhibit 10.16 to Form 10-Q as filed by the Company with the Securities and Exchange Commission on 15 May 2019.
     
10.17   Form of Common Stock Purchase Warrant issued in February 2019, in connection with the Common Stock Purchase Agreement and the issuance thereunder, for a total of 218,413,977 warrants, incorporated by reference to Exhibit 10.17 to Form 10-Q as filed by the Company with the Securities and Exchange Commission on 15 May 2019.
     
10.18†   Employment Agreement, effective May 01, 2019, between the Company and Steven Dawson, incorporated by reference to Exhibit 10.18 to Form 10-Q as filed by the Company with the Securities and Exchange Commission on 15 May 2019.
     
10.19†   Advisory Board Agreement, effective July 28, 2020, between the Company and Omkharan Arasaratnam, incorporated by reference to Exhibit 10.19 to Form 10-Q as filed by the Company with the Securities and Exchange Commission on 06 August 2020.
     
10.20   Exchange Note for $325,000 issued on September 30, 2020 in favor of Blue Citi LLC, incorporated by reference to Exhibit 10.20 to Form 10-Q as filed by the Company with the Securities and Exchange Commission on 16 November 2020.
     
10.21   Share Settlement Agreement effective August 14, 2020, between the Company and Jason Remillard, incorporated by reference to Exhibit 10.20 to Form 10-Q as filed by the Company with the Securities and Exchange Commission on 16 November 2020.
     
10.22   Convertible Promissory Note issued the Company in favor of Blue Citi LLC on August 24, 2020 in the original principal amount of $300,000, incorporated by reference to Exhibit 10.20 to Form 10-Q as filed by the Company with the Securities and Exchange Commission on 16 November 2020.
     
10.23   Letter Agreement effective August 28, 2020, between the Company and Maxim Group, LLC, incorporated by reference to Exhibit 10.20 to Form 10-Q as filed by the Company with the Securities and Exchange Commission on 16 November 2020.
     
10.24*   Settlement and Release Agreement dated November 17, 2020, by and between the Company and Smea2z LLC.
     
10.25   Common Stock Purchase Agreement effective December 11, 2020, between the Company and Triton Funds LP, incorporated by reference to Exhibit 10.1 to Form 8-K as filed by the Company with the Securities and Exchange Commission on 17 December 2020.
     
10.26*   Blue Citi Notes Settlement Agreement effective February 8, 2021, between the Company and Blue Citi LLC.
     
10.27*   Securities Exchange Agreement effective February 12, 2021, between the Company and Geneva Roth Remark Holdings, Inc.
     
10.28*   Asset Sale Agreement effective January 31, 2021, between the Company and the secured creditors of Wala, Inc.
     
10.29*   Three Secured Promissory Notes, each effective January 31, 2021 and issued by the Company in favor of the secured creditors of Wala, Inc.
     
10.30*   Security Agreement effective January 31, 2021, between the Company and the secured creditors of Wala, Inc.
     
21.1*   List of subsidiaries of the Company.
     
31.1*   Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1*   Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
     
32.2*   Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

 

* Filed herewith.

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

DATED: March 23, 2021 LANDSTAR, INC.
     
  BY: /S/ JASON REMILLARD
    Jason Remillard,
    Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

NAME   TITLE   DATED
         
/s/ Jason Remillard   Chairman of the Board;   March 23, 2021
    Chief Executive Officer; Chief Financial Officer    

 

88

 

Exhibit 4.6

 

NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS NOTE, NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED (i) IN THE ABSENCE OF (a) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR, (b) AN OPINION OF COUNSEL (SELECTED BY HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT; OR, (ii) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Principal Amount: $400,000.00 Issue Date: 17 November 2020

 

SMEA2Z EXCHANGE CONVERTIBLE PROMISSORY NOTE

 

BINDING RECITALS AND AGREEMENTS

 

  A. Borrower previously issued in favor of SMEA2Z LLC, a Wyoming limited liability company (“Smea2z”), that certain 8% Convertible Redeemable Note in the original principal amount of Two Hundred Twenty Thousand Dollars ($220,000) on 23 October 2018, with a maturity date of 23 July 2019 (the “Smea2z Note”).
     
  B. Subsequent to the issuance of the Smea2z Note, Borrower and Smea2z entered into a series of agreements which amended various terms and conditions of the Smea2z Note, resulting in a purported current principal balance of Six Hundred Thousand Eight Hundred Fifty Dollars ($608,850), and a maturity date of 30 June 2021.
     
  C. Pursuant to an Assignment Agreement dated 22 September 2020 by and between Smea2z and Holder, Holder acquired any and all rights arising under and related to the Smea2z Note, with Smea2z retaining no rights whatsoever in, under, or related to the Smea2z Note.
     
  D. Concurrent with the execution and issuance of this Exchange Note, Borrower and Holder have entered into that certain Settlement and Release Agreement, pursuant to which this Exchange Note is issued (the “Settlement Agreement”). This Exchange Note is subject to the terms and conditions of the Settlement Agreement as if set forth herein in full.
     
  E. This Exchange Note is issued solely in exchange for the Smea2z Note, and is expressly intended to satisfy all applicable requirements of Section 3(a)(9) of the Securities Act of 1933, as amended from time-to-time (the “Act”).
     
  F. No commission or other remuneration has been, or will be, paid or given directly or indirectly for soliciting the exchange of the Smea2z Note for this Exchange Note.
     
  G. This Smea2z Exchange Convertible Promissory Note is referred to herein as the “Exchange Note”).

 

1
 

 

GENERAL TERMS FOR THE NOTE

 

Solely in exchange for the Smea2z Note, and for no other consideration, DATA443 RISK MITIGATION, INC., a Nevada corporation (“Borrower”, or “Company”), hereby promises to pay to the order of BLUE CITI LLC, a New York limited liability company, or its registered assigns (the “Holder”), on 30 June 2021 (the “Maturity Date”), the sum of Four Hundred Thousand Dollars ($400,000), as set forth herein. No interest shall accrue on the outstanding principal balance hereunder except in the event of an Event of Default, as provided under Section 3.22, below.

 

All payments due hereunder shall be made in lawful money of the United States of America, at such address as Holder shall hereafter give to Borrower by written notice made in accordance with the provisions of this Exchange Note. Whenever any amount expressed to be due by the terms of this Exchange Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Exchange Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Exchange Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York, New York are authorized or required by law or executive order to remain closed.

 

This Exchange Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of Borrower and will not impose personal liability upon the holder thereof.

 

The following additional terms and conditions shall apply to this Exchange Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1. Conversion Right. Holder shall have the right, in its sole and absolute discretion, and at any time after the Issue Date to convert all or any part of the outstanding amount due under this Exchange Note into fully paid and non-assessable shares of common stock of Borrower, as such common stock exists on the Issue Date (“Common Stock”), or any shares of capital stock or other securities of Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price determined as provided herein (a “Conversion”). However, in no event shall Holder be entitled to convert any portion of this Exchange Note in excess of that portion of this Exchange Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Exchange Note or the unexercised or unconverted portion of any other security of Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein), and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Exchange Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of this Exchange Note, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulation 13D-G thereunder, except as otherwise provided in clause (1), above. However, the limitations on conversion may be waived by Holder upon, at the election of Holder, not less than 61 days’ prior notice to Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each Conversion of this Exchange Note (“Conversion Shares”) shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to Borrower by Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or E-Mail (or by other means resulting in, or reasonably expected to result in, notice) to Borrower before 11:59 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any Conversion of this Exchange Note, the sum of (1) the principal amount of this Exchange Note to be converted in such Conversion; plus (2) accrued and unpaid Default Interest, if any, on such principal amount being converted at the interest rates provided in this Exchange Note to the Conversion Date; plus (3) at Holder’s option, any amounts owed to Holder pursuant to Section 1.4(g) hereof.

 

2
 

 

1.2. Conversion Price.

 

a) Calculation of Conversion Price. For purposes hereof, the conversion price shall be $0.0035 (the “Conversion Price”). If an Event of Default under Article III of this Exchange Note has occurred, Holder, in its sole discretion, may elect to use the Conversion Price discounted by twenty percent (20%). If Borrower’s Common Stock is not traded on the Pink Sheets or OTCQB or an equivalent marketplace (NASDAQ, NYSE, e.g.), then such sale price shall be the sale price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no sale price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “Pink Sheets” by OTC Markets. If such sale price cannot be calculated for such security on such date in the manner provided above, such price shall be the fair market value as mutually determined by Borrower and Holder. If Borrower’s Common Stock is chilled for deposit at DTC, becomes chilled at any point while this Exchange Note remains outstanding or deposit or other additional fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, then such discount factor shall be forty percent (40%). In the event that the shares of Borrower’s Common Stock are not deliverable via DWAC following the conversion of any amount hereunder, an additional five percent (5%) discount will be attributed to the Conversion Price.

 

b) Cooperation. Borrower agrees to cooperate with all conversions hereunder, and that it will take all reasonable steps necessary or appropriate, including providing a board of directors resolution authorizing the issuance of common stock to Holder. So long as the requested sale may be made pursuant to Rule 144 as promulgated by the SEC, as such Rule 144 may be in effect from time to time (“Rule 144”), Borrower agrees to accept an opinion of counsel to Holder confirming the rights of Holder to sell shares of Common Stock issuable or issued to Holder on conversion of this Exchange Note pursuant to Rule 144, which opinion will be issued at Borrower’s expense and the conversion dollar amount will be reduced by $500.00 to cover the cost of such legal opinion. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the principal securities exchange or other securities market on which the Common Stock is then traded.

 

c) Additional Principal. If at any time the Conversion Price as determined hereunder for any Conversion would be less than the par value of the Common Stock, then the Conversion Price hereunder shall equal such par value for such Conversion and the Conversion Amount for such Conversion shall be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of Conversion Shares issuable upon such Conversion to equal the same number of Conversion Shares as would have been issued had the Conversion Price not been subject to the minimum price set forth in this Section 1.2(c).

 

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d) Failure to Timely Deliver. Without in any way limiting Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Exchange Note is not delivered by the Deadline (as defined below) Borrower shall pay to Holder $1,000.00 per day in cash, for each day beyond the Deadline that Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of Holder, shall be added to the principal amount of this Exchange Note, in which event such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Exchange Note. Borrower agrees that the right to convert this Exchange Note is a valuable right to Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion right are difficult if not impossible to quantify. Accordingly, the parties acknowledge the liquidated damages provision contained herein is justified.

 

1.3. Authorized Shares; Reserved Amount. Borrower covenants that at all times while this Exchange Note is outstanding it will have a sufficient number of shares of authorized and unissued Common Stock, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion or adjustment of this Exchange Note. Borrower shall maintain a separate reserve of shares of Common Stock with Borrower’s transfer agent exclusively under this Exchange Note, with said amount of reserve to be the lesser of (i) fifty million (50,000,000) shares of Common Stock; or, (ii) that number of shares of Common Stock needed to fully convert all amounts due hereunder. Borrower shall provide to its transfer agent irrevocable written instructions to enforce this Section 1.3 and all other conversion provisions hererunder.

 

1.4. Method of Conversion.

 

a) Mechanics of Conversion. Subject to Section 1.1, this Exchange Note may be converted by Holder in whole or in part at any time following the Issue Date by submitting to Borrower a Notice of Conversion by facsimile, E-Mail or other reasonable means of communication dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time.

 

b) Book Entry upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Exchange Note in accordance with the terms hereof, Holder shall not be required to physically surrender this Exchange Note to Borrower unless the entire unpaid principal amount of this Exchange Note is so converted. Holder and Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to Holder and Borrower, so as not to require physical surrender of this Exchange Note upon each such conversion. In the event of any dispute or discrepancy, such records of Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Exchange Note is converted as aforesaid, Holder may not transfer this Exchange Note unless Holder first physically surrenders this Exchange Note to Borrower, whereupon Borrower will forthwith issue and deliver upon the order of Holder a new Exchange Note of like tenor, registered as Holder (upon payment by Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Exchange Note. Holder and any assignee, by acceptance of this Exchange Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Exchange Note, the unpaid and unconverted principal amount of this Exchange Note represented by this Exchange Note may be less than the amount stated on the face hereof.

 

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c) Payment of Taxes. Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Exchange Note, and Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than Holder or the custodian in whose street name such shares are to be held for Holder’s account) requesting the issuance thereof shall have paid to Borrower the amount of any such tax or shall have established to the satisfaction of Borrower that such tax has been paid.

 

d) Delivery of Common Stock upon Conversion. Upon receipt by Borrower from Holder of a facsimile transmission or E-Mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt or such an event (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Exchange Note) in accordance with the terms hereof.

 

e) Obligation of Borrower to Deliver Common Stock. Upon receipt by Borrower of a duly and properly executed Notice of Conversion, Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, and the outstanding principal amount and the amount of accrued and unpaid interest on this Exchange Note shall be reduced to reflect such conversion or adjustment, and, unless Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Exchange Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If Holder shall have given a Notice of Conversion as provided herein, Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by Holder of any obligation to Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of Borrower to Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by Borrower before 11:59 p.m., New York, New York time, on such date.

 

f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

g) Failure to Deliver Common Stock Prior to Deadline. Without limiting Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion or adjustment of this Exchange Note is not delivered by the Deadline, Borrower shall pay to Holder $1,000.00 per day in cash, for each day beyond the Deadline that Borrower fails to deliver such Common Stock to Holder. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of Holder, shall be added to the principal amount of this Exchange Note, in which event interest shall accrue thereon in accordance with the terms of this Exchange Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Exchange Note. Borrower agrees that the right to convert and/or receive shares in the event of an adjustment is a valuable right to Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion or adjustment right are difficult, if not impossible, to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

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h) Rule 144. Borrower acknowledges that it will take all reasonable steps necessary or appropriate, including accepting an opinion of counsel to Holder confirming the rights of Holder to sell shares of Common Stock issued to Holder on conversion or adjustment of the Exchange Note pursuant to Rule 144. So long as the requested sale may be made pursuant to Rule 144 Borrower agrees to accept an opinion of counsel to Holder which opinion will be issued at Borrower’s expense.

 

i) Charges and Expenses. Issuance of Common Stock to Holder, or any of its assignees, upon the conversion of this Exchange Note shall be made without charge to Holder for any issuance fee, transfer tax, legal opinion and related charges, postage/mailing charge or any other expense with respect to the issuance of such Common Stock. Company shall pay all Transfer Agent fees incurred from the issuance of the Common Stock to Holder, as well as any and all other fees and charges required by the Transfer Agent as a condition to effectuate such issuance. Any such fees or charges as noted in this Section that are paid by Holder (whether from Borrower’s delays, outright refusal to pay, or otherwise), will be automatically added to the Principal Amount of the Exchange Note and tack back to the Issue Date herein for purposes of Rule 144.

 

1.5. Restricted Securities. The shares of Common Stock issuable upon conversion or adjustment of this Exchange Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act; or, (ii) Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; or, (iii) such shares are sold or transferred pursuant to Rule 144; or, (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined under the Act). Any legend set forth on any stock certificate evidencing any Conversion Shares shall be removed and Borrower shall issue to Holder a new certificate therefore free of any transfer legend if (i) Borrower or its transfer agent shall have received an opinion of counsel form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be reasonably acceptable to Borrower; or, (ii) in the case of the Common Stock issued or issuable upon conversion of this Exchange Note, such security is registered for sale by Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.

 

1.6. Effect of Certain Events.

 

a) Effect of Merger, Consolidation, Etc. At the option of Holder, the sale, conveyance or disposition of all or substantially all of the assets of Borrower, the effectuation by Borrower of a transaction or series of related transactions in which more than 50% of the voting power of Borrower is disposed of, or the consolidation, merger or other business combination of Borrower with or into any other Person (as defined below) or Persons when Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which Borrower shall be required to pay to Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

 

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b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Exchange Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of Borrower other than in connection with a plan of complete liquidation of Borrower, then Holder of this Exchange Note shall thereafter have the right to receive upon conversion of this Exchange Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which Holder would have been entitled to receive in such transaction had this Exchange Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of Holder of this Exchange Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Exchange Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time, for clarification, Holder shall be entitled to convert this Exchange Note) and (b) the resulting successor or acquiring entity assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

 

c) Adjustment Due to Distribution. If Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then Holder of this Exchange Note shall be entitled, upon any conversion of this Exchange Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. Such assets shall be held in escrow by the Company pending any such conversion

 

d) Purchase Rights. If, at any time when any part of the Exchange Note remains outstanding, Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Exchange Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are determined for the grant, issue or sale of such Purchase Rights.

 

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e) Stock Dividends and Stock Splits. If the Company, at any time while this Exchange Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any securities convertible into or exercisable for Common Stock; (ii) subdivides outstanding shares of Common Stock into a larger number of shares; (C) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (D) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price (and each sale or bid price used in determining the Conversion 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. Any adjustment made pursuant to this Section shall be 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.

 

f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of events described in this Section 1.6, Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to Holder a certificate setting forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based. Borrower shall, upon written request of Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Exchange Note.

 

1.7. Revocation. If any Conversion Shares are not received by the Deadline, Holder may revoke the Conversion pursuant to which the Conversion Shares were issuable. This Exchange Note shall remain convertible after the Maturity Date hereof until this Exchange Note is repaid or converted in full.

 

1.8. Repayment. Notwithstanding anything to the contrary contained in this Exchange Note, at no time shall Borrower shall have the right to prepay any part or all of the outstanding balance on this Exchange Note prior to the Maturity Date. Borrower has expressly and knowingly forever forfeited any and all rights to prepay the Exchange Note. However, Borrower shall continue to have the right to repay all obligations hereunder on, as of, and after the Maturity Date.

 

1.9. Leak-out Provisions. Notwithstanding anything to the contrary contained in this Exchange Note, Holder agrees to the following with regard to conversions hereunder:

 

a) Conversions Per Week. Holder may effect no more than one conversion per each calendar week, for no more than forty million (40,000,000) shares, under all convertible debt instruments issued by Borrower in favor of Holder.

 

b) Additional Permitted Conversion. In the event the total trading volume for the Common Stock exceeds fifty million (50,000,000) shares on any day, then during that calendar week Holder may initiate a second conversion during that calendar week, though in no event for more than an additional forty million (40,000,000) shares, for a total of eighty million (80,000,000) shares for that calendar week under all convertible debt instruments issued by Borrower in favor of Holder.

 

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ARTICLE II. CERTAIN COVENANTS

 

2.1. Distributions on Capital Stock. So long as any part of this Exchange Note remains unpaid, Borrower shall not without Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of Borrower’s disinterested directors.

 

2.2. Restriction on Stock Repurchases. So long as any part of the Exchange Note remains unpaid, Borrower shall not without Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any issued and outstanding shares of capital stock of Borrower.

 

2.3. Borrowings; Liens. So long as any part of the Exchange Note remains unpaid, Borrower shall not create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which Borrower has informed Holder in writing prior to the date hereof; or, (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business; or, (c) borrowings assumed as a result of an acquisition or similar transaction; or, (d) indebtedness of a subsidiary.

 

2.4. Sale of Assets. So long as any part of the Exchange Note remains unpaid, Borrower shall not, without Holder’s written consent, sell, lease or otherwise dispose of substantially all of its assets outside the ordinary course of business. Any consent to such a disposition of assets may be conditioned on a specified use of the proceeds of disposition.

 

2.5. Advances and Loans. So long as any part of this Exchange Note remains unpaid, Borrower shall not, without Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, officers, subsidiaries and affiliates of Borrower, except loans, credits, or advances in existence or committed on the date hereof and which Borrower has informed Holder in writing prior to the date hereof.

 

2.6. Charter. So long as any part of this Exchange Note remains unpaid, Borrower shall not amend its charter documents, including without limitation its articles of incorporation and bylaws, in any manner that materially and adversely affects any rights of Holder.

 

2.7. Transfer Agent. Borrower shall not change its transfer agent absent 5-days prior written notice to Holder. Any resignation by the transfer agent without a replacement transfer agent prior to such replacement taking effect shall constitute an Event of Default.

 

2.8. Unconditional Obligation; No Offset. Borrower acknowledges that this Exchange Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Holder, its successors and assigns, and agrees to make the payments and conversions called for herein in accordance with the terms of this Exchange Note.

 

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2.9. Exchange. This Exchange Note is issued solely in exchange for the Smea2z Note, and is expressly intended to satisfy all applicable requirements of Section 3(a)(9) of the Act. Securities Act of 1933, as amended from time-to-time (the “Act”). Borrower and Holder each represent and agree that (i) no additional consideration has been requested of or received from Holder; (ii) no additional consideration has been provided to Holder; and, (iii) Borrower has not paid any commission or remuneration for the solicitation of the exchange of the Smea2z Note for this Exchange Note.

 

ARTICLE III. EVENTS OF DEFAULT

 

Any one or more of the following events which shall occur and/or be continuing shall constitute an event of default (each, an “Event of Default”):

 

3.1. Failure to Pay Principal or Interest. Borrower fails to pay the principal hereof or interest thereon when due on this Exchange Note, whether at maturity, upon acceleration or otherwise.

 

3.2. Conversion and the Shares. Borrower fails to issue shares of Common Stock to Holder (or announces or threatens in writing that it will not honor its obligation to do so at any time following the execution hereof or) upon exercise by Holder of the conversion rights of Holder in accordance with the terms of this Exchange Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note, Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for five (5) business days after Holder shall have delivered a Notice of Conversion. It is an obligation of Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Exchange Note, if a conversion of this Exchange Note is delayed, hindered or frustrated due to a balance owed by Borrower to its transfer agent. If at the option of Holder, Holder advances any funds to Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by Borrower to Holder within forty eight (48) hours of a demand from Holder.

 

3.3. Breach of Covenants. Borrower breaches any material covenant or other material term or condition contained in this Exchange Note or the Settlement Agreement and such breach continues for a period of seven (7) days after written notice thereof to Borrower from Holder.

 

3.4. Breach of Representations and Warranties. Any representation or warranty of Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of Holder with respect to this Exchange Note.

 

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3.5. Receiver or Trustee. Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

 

3.6. Judgments. Any money judgment, writ or similar process shall be entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than $100,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by Holder, which consent will not be unreasonably withheld.

 

3.7. Bankruptcy. Bankruptcy, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against Borrower or any subsidiary of Borrower.

 

3.8. Delisting of Common Stock. Borrower shall fail to maintain the listing of the Common Stock on at least one of the Pink Sheets or OTCQB or an equivalent replacement exchange, NASDAQ, NYSE, or AMEX.

 

3.9. Failure to Comply with the Exchange Act. Borrower shall fail to comply in any material respect with the reporting requirements of the Exchange Act; shall cease to be subject to the reporting requirements of the Exchange Act; or, shall fail to remain current in its filings with the SEC. The possible reduction in the Conversion Price under Section 1.2(a) is an additional result of, and not an alternative remedy for, a breach of this Section 3.9.

 

3.10. Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.11. Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of Borrower’s ability to continue as a “going concern” shall not be an admission that Borrower cannot pay its debts as they become due.

 

3.12. Maintenance of Assets. The failure by Borrower, during the term of this Exchange Note, to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).

 

3.13. Financial Statement Restatement. The restatement of any financial statements filed by Borrower with the SEC for any date or period from two years prior to the Issue Date of this Exchange Note and until this Exchange Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of Holder with respect to this Exchange Note.

 

3.14. Reverse Splits. Borrower effectuates a reverse split of its Common Stock without ten (10) days prior written notice to Holder.

 

3.15. Replacement of Transfer Agent. In the event that Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, to the replacement transfer agent a fully executed copy of this Exchange Note.

 

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3.16. Cross-Default. Notwithstanding anything to the contrary contained in this Exchange Note or the other related or companion documents, a breach or default by Borrower of any covenant or other term or condition contained in any of the Other Agreements (as defined below), after the passage of all applicable notice and cure or grace periods, shall, at the option of Holder, be considered a default under this Exchange Note, in which event Holder shall be entitled (but in no event required) to apply all rights and remedies of Holder under the terms of this Exchange Note. For purposes of this Exchange Note, “Other Agreements” means, collectively, all agreements and instruments between, among, or by Borrower, and, or for the benefit of, Holder and any affiliate of Holder, including, without limitation, the Settlement Agreement and other promissory notes issued by Borrower in favor of Holder.

 

3.17. Closing Stock Price. If at any time the closing stock price for the Common Stock is below the Conversion Price, as adjusted hereunder, for at least five (5) consecutive days.

 

3.18. Inside Information. Borrower or its officers, directors, and/or affiliates attempt to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by Borrower or its officers, directors, and/or affiliates of, material non-public information concerning Borrower, to Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.

 

3.19. Bid Price. Borrower shall lose the “bid” price for its Common Stock ($0.0001 on the “Ask” with zero market makers on the “Bid” per Level 2) and/or a market (including the OTC Pink, OTCQB or an equivalent replacement exchange).

 

3.20. Insolvency. Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any.

 

3.21. DWAC. Borrower fails to remain DWAC eligible.

 

3.22. Consequences of Event of Default. Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date) or Section 3.2, the Exchange Note shall become immediately due and payable and Borrower shall pay to Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1, and/or 3.3 through and including 3.21, exercisable through the delivery of written notice to Borrower by Holder (the “Default Notice”), and upon the occurrence of an Event of Default specified in the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3.1, hereof), the Exchange Note shall become immediately due and payable and Borrower shall pay to Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Exchange Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Exchange Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) “Default Interest”, if any, in the amount of eighteen percent (18%) per annum from the date of the Event of Default on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Exchange Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

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If Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then Holder shall have the right at any time, so long as Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of Borrower equal to the Default Amount divided by the Conversion Price then in effect. Holder may still convert any amounts due hereunder, including without limitation, the Default Sum, until such time as this Exchange Note has been repaid in full.

 

ARTICLE IV. MISCELLANEOUS

 

4.1. Failure or Indulgence Not Waiver. No failure or delay on the part of Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2. Notices. 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 being sent; (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. Each party hereby expressly consents to the use of Electronic Transmission for communications and notices under this Exchange Note. For purposes of this Exchange Note, “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.

 

4.3. Amendments. This Exchange Note and any provision hereof may only be amended by an instrument in writing signed by Borrower and Holder. The term “Exchange Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

4.4. Assignability. This Exchange Note shall be binding upon Borrower and its successors and assigns, and shall inure to be the benefit of Holder and its successors and assigns. Borrower may not assign this Exchange Note without the prior written consent of Holder. This Exchange Note, and nay portion thereof, and any share of Common Stock issued upon the conversion of this Exchange Note, may be offered, sold, assigned, pledged, or transferred by Holder without the consent of Borrower.

 

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4.5. Cost of Collection. If default is made in the payment of this Exchange Note, Borrower shall pay Holder hereof costs of collection, including reasonable attorneys’ fees.

 

4.6. Governing Law. This Exchange Note shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction. Any action brought by either party against the other concerning the transactions contemplated by this Agreement must be brought only in (i) the state courts in Dade or Broward County, Florida; or (ii) the state courts in New York County, New York, in the sole discretion of the party bringing the action. Both parties and the individual signing this Agreement on behalf of Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Exchange Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Exchange Note. Nothing contained herein shall be deemed or operate to preclude Holder from bringing suit or taking other legal action against Borrower in any other jurisdiction to collect on Borrower’s obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other decision in favor of Holder. This Exchange Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of this Exchange Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Exchange Note.

 

4.7. Certain Amounts. Whenever pursuant to this Exchange Note Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, Borrower and Holder agree that the actual damages to Holder from the receipt of cash payment on this Exchange Note may be difficult to determine and the amount to be so paid by Borrower represents stipulated damages and not a penalty and is intended to compensate Holder in part for loss of the opportunity to convert this Exchange Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Exchange Note at a price in excess of the price paid for such shares pursuant to this Exchange Note. Borrower and Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to Holder from the receipt of a cash payment without the opportunity to convert this Exchange Note into shares of Common Stock.

 

4.8. Disclosure. Upon receipt or delivery by Borrower of any notice in accordance with the terms of this Exchange Note, unless Borrower has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to Borrower, Borrower shall within four (4) days after any such receipt or delivery, publicly disclose such material, non-public information on a Current Report on Form 8-K, or such similar disclosure in accordance with the rules of the OTC Markets. In the event that Borrower believes that a notice contains material, non-public information relating to Borrower, Borrower so shall indicate to Holder contemporaneously with delivery of such notice, and in the absence of any such indication, Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information relating to Borrower.

 

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4.9. Notice of Corporate Events. Except as otherwise provided below, Holder of this Exchange Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Exchange Note into Common Stock. Borrower shall provide Holder with prior notification of any meeting of Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of Borrower or any proposed liquidation, dissolution or winding up of Borrower, Borrower shall mail a notice to Holder, at least ten (10) days prior to the record date specified therein (or twenty (20) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. Borrower shall make a public announcement of any event requiring notification to Holder hereunder substantially simultaneously with the notification to Holder in accordance with this Section 4.9.

 

4.10. Remedies. Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, Borrower acknowledges that the remedy at law for a breach of its obligations under this Exchange Note will be inadequate and agrees, in the event of a breach or threatened breach by Borrower of the provisions of this Exchange Note, that Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Exchange Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

4.11. Voluntary Agreement. Borrower has carefully read this Exchange Note and has asked any questions needed for Borrower to understand the terms, consequences and binding effect of this Exchange Note and fully understand them. Borrower has had the opportunity to seek the advice of an attorney of Borrower’s choosing, or has waived the right to do so, and is executing this Exchange Note voluntarily and without any duress or undue influence by Holder or anyone else.

 

4.12. Accredited Investor Status. Holder is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D.

 

4.13. Severability. If any part of this Exchange Note is construed to be in violation of any law, such part shall be modified to achieve the objective of Borrower and Holder to the fullest extent permitted by law and the balance of this Exchange Note shall remain in full force and effect.

 

(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)

 

(SIGNATURE PAGE FOLLOWS)

 

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IN WITNESS WHEREOF, Borrower and Holder has each caused this Exchange Note to be signed in its respective name by its duly authorized officer as of the Issue Date first set forth above.

 

DATA443 RISK MITIGATION, INC.,

a Nevada corporation

 

BY:    
     
NAME:    
     
TITLE:    
     
DATED:    

 

ACKNOWLEDGED, ACCEPTED, AND AGREED:

 

BLUE CITI LLC,

a New York limited liability company

 

BY:    
     
NAME:    
     
TITLE:    
     
DATED:    

 

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EXHIBIT A

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the Smea2z Exchange Convertible Promissory Note dated 17 November 2020 and issued in the original principal amount of $400,000 (the “Exchange Note”) by DATA443 RISK MITIGATION, INC., a Nevada corporation (the Company”), into shares of common stock of the Company (the “Common Stock”), in accordance with the terms and conditions of the Exchange Note and as provided for herein, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 1.1 of this Exchange Note, as determined in accordance with Section 13(d) of the Exchange Act.

 

CONVERSION CALCULATIONS:

 

  Date of Conversion: ____________________ Conversion Price: ____________________
  Principal Amount Converted: ________________ Interest Converted: ____________________
  Number of Shares of Common Stock to be Issued: ___________________________
  Remaining Principal Balance of the Exchange Note: ___________________________

 

HOLDER: ____________________________

 

Authorized Signature: ____________________________

 

  Name:  ____________________________
     
  Title:   ____________________________

 

Address for Delivery of Certificates: _____________________________________
   
  _____________________________________
   
  _____________________________________

 

OR

 

DWAC Instructions: Broker #: _____________________________________
     
  Account #: _____________________________________

 

OR

 

Other Instructions:

 

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Exhibit 4.7

 

NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS NOTE, NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED (i) IN THE ABSENCE OF (a) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR, (b) AN OPINION OF COUNSEL (SELECTED BY HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT; OR, (ii) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Principal Amount: $40,448.00 Issue Date: 17 November 2020

 

BRANTLEY EXCHANGE CONVERTIBLE PROMISSORY NOTE

 

BINDING RECITALS AND AGREEMENTS

 

  A. Borrower previously issued in favor of Holder the following three (3) Common Stock Purchase Warrants (collectively, the “Warrants”):

 

  Issue Date   Number of Warrants
       
  12-10-2018  

25,201,613 (Originally issued in favor of Brantley Engineering LLC and assigned to Holder)

  07-11-2019   61,728,395
  02-06-2019   102,486,559

 

  B. This Exchange Note is issued solely in exchange for the Warrants, and is expressly intended to satisfy all applicable requirements of Section 3(a)(9) of the Securities Act of 1933, as amended from time-to-time (the “Act”).
     
  C. No commission or other remuneration has been, or will be, paid or given directly or indirectly for soliciting the exchange of the Warrants for this Exchange Note.
     
  D. This Brantley Exchange Convertible Promissory Note is referred to herein as the “Exchange Note”).

 

GENERAL TERMS FOR THE NOTE

 

Solely in exchange for the Warrants, and for no other consideration, DATA443 RISK MITIGATION, INC., a Nevada corporation (“Borrower”, or “Company”), hereby promises to pay to the order of ALLAN S. BRANTLEY, or his registered assigns (the “Holder”), on 17 November 2025 (the “Maturity Date”), the sum of Forty Thousand Four Hundred Forty Eight Dollars ($40,448), as set forth herein, together with interest on the unpaid principal balance hereof at the rate of five percent (5%) per annum (the “Interest Rate”) from the Issue Date until this Exchange Note, plus any and all other amounts due hereunder, are paid in full, and any additional amounts set forth herein, including without limitation any Additional Principal (as defined herein). Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of eighteen percent (18%) per annum from the due date thereof until same is paid (“Default Interest”).

 

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All payments due hereunder shall be made in lawful money of the United States of America, at such address as Holder shall hereafter give to Borrower by written notice made in accordance with the provisions of this Exchange Note. Whenever any amount expressed to be due by the terms of this Exchange Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Exchange Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Exchange Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York, New York are authorized or required by law or executive order to remain closed.

 

This Exchange Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of Borrower and will not impose personal liability upon the holder thereof.

 

The following additional terms and conditions shall apply to this Exchange Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1. Conversion Right. Holder shall have the right, in its sole and absolute discretion, and at any time after the Issue Date to convert all or any part of the outstanding amount due under this Exchange Note into fully paid and non-assessable shares of common stock of Borrower, as such common stock exists on the Issue Date (“Common Stock”), or any shares of capital stock or other securities of Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price determined as provided herein (a “Conversion”). However, in no event shall Holder be entitled to convert any portion of this Exchange Note in excess of that portion of this Exchange Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Exchange Note or the unexercised or unconverted portion of any other security of Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein), and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Exchange Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock. For purposes of this Exchange Note, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulation 13D-G thereunder, except as otherwise provided in clause (1), above. However, the limitations on conversion may be waived by Holder upon, at the election of Holder, not less than 61 days’ prior notice to Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each Conversion of this Exchange Note (“Conversion Shares”) shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to Borrower by Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or E-Mail (or by other means resulting in, or reasonably expected to result in, notice) to Borrower before 11:59 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any Conversion of this Exchange Note, the sum of (1) the principal amount of this Exchange Note to be converted in such Conversion; plus (2) accrued and unpaid Default Interest, if any, on such principal amount being converted at the interest rates provided in this Exchange Note to the Conversion Date; plus (3) at Holder’s option, any amounts owed to Holder pursuant to Section 1.4(g) hereof.

 

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1.2. Conversion Price.

 

a) Calculation of Conversion Price. For purposes hereof, the conversion price shall be $0.01 (the “Conversion Price”). If an Event of Default under Article III of this Exchange Note has occurred, Holder, in its sole discretion, may elect to use the Conversion Price discounted by twenty percent (20%). If Borrower’s Common Stock is not traded on the Pink Sheets or OTCQB or an equivalent marketplace (NASDAQ, NYSE, e.g.), then such sale price shall be the sale price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no sale price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “Pink Sheets” by OTC Markets. If such sale price cannot be calculated for such security on such date in the manner provided above, such price shall be the fair market value as mutually determined by Borrower and Holder. If Borrower’s Common Stock is chilled for deposit at DTC, becomes chilled at any point while this Exchange Note remains outstanding or deposit or other additional fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, then such discount factor shall be forty percent (40%). In the event that the shares of Borrower’s Common Stock are not deliverable via DWAC following the conversion of any amount hereunder, an additional five percent (5%) discount will be attributed to the Conversion Price.

 

b) Cooperation. Borrower agrees to cooperate with all conversions hereunder, and that it will take all reasonable steps necessary or appropriate, including providing a board of directors resolution authorizing the issuance of common stock to Holder. So long as the requested sale may be made pursuant to Rule 144 as promulgated by the SEC, as such Rule 144 may be in effect from time to time (“Rule 144”), Borrower agrees to accept an opinion of counsel to Holder confirming the rights of Holder to sell shares of Common Stock issuable or issued to Holder on conversion of this Exchange Note pursuant to Rule 144, which opinion will be issued at Borrower’s expense and the conversion dollar amount will be reduced by $500.00 to cover the cost of such legal opinion. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the principal securities exchange or other securities market on which the Common Stock is then traded.

 

c) Additional Principal. If at any time the Conversion Price as determined hereunder for any Conversion would be less than the par value of the Common Stock, then the Conversion Price hereunder shall equal such par value for such Conversion and the Conversion Amount for such Conversion shall be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of Conversion Shares issuable upon such Conversion to equal the same number of Conversion Shares as would have been issued had the Conversion Price not been subject to the minimum price set forth in this Section 1.2(c).

 

d) Failure to Timely Deliver. Without in any way limiting Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Exchange Note is not delivered by the Deadline (as defined below) Borrower shall pay to Holder $1,000.00 per day in cash, for each day beyond the Deadline that Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of Holder, shall be added to the principal amount of this Exchange Note, in which event such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Exchange Note. Borrower agrees that the right to convert this Exchange Note is a valuable right to Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion right are difficult if not impossible to quantify. Accordingly, the parties acknowledge the liquidated damages provision contained herein is justified.

 

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1.3. Authorized Shares. Borrower covenants that at all times while any portion of this Exchange Note is outstanding it will have a sufficient number of shares of authorized and unissued Common Stock, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion or adjustment of this Exchange Note.

 

1.4. Method of Conversion.

 

a) Mechanics of Conversion. Subject to Section 1.1, this Exchange Note may be converted by Holder in whole or in part at any time following the Issue Date by submitting to Borrower a Notice of Conversion by facsimile, E-Mail or other reasonable means of communication dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time.

 

b) Book Entry upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Exchange Note in accordance with the terms hereof, Holder shall not be required to physically surrender this Exchange Note to Borrower unless the entire unpaid principal amount of this Exchange Note is so converted. Holder and Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to Holder and Borrower, so as not to require physical surrender of this Exchange Note upon each such conversion. In the event of any dispute or discrepancy, such records of Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Exchange Note is converted as aforesaid, Holder may not transfer this Exchange Note unless Holder first physically surrenders this Exchange Note to Borrower, whereupon Borrower will forthwith issue and deliver upon the order of Holder a new Exchange Note of like tenor, registered as Holder (upon payment by Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Exchange Note. Holder and any assignee, by acceptance of this Exchange Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Exchange Note, the unpaid and unconverted principal amount of this Exchange Note represented by this Exchange Note may be less than the amount stated on the face hereof.

 

c) Payment of Taxes. Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Exchange Note, and Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than Holder or the custodian in whose street name such shares are to be held for Holder’s account) requesting the issuance thereof shall have paid to Borrower the amount of any such tax or shall have established to the satisfaction of Borrower that such tax has been paid.

 

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d) Delivery of Common Stock upon Conversion. Upon receipt by Borrower from Holder of a facsimile transmission or E-Mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt or such an event (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Exchange Note) in accordance with the terms hereof.

 

e) Obligation of Borrower to Deliver Common Stock. Upon receipt by Borrower of a duly and properly executed Notice of Conversion, Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, and the outstanding principal amount and the amount of accrued and unpaid interest on this Exchange Note shall be reduced to reflect such conversion or adjustment, and, unless Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Exchange Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If Holder shall have given a Notice of Conversion as provided herein, Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by Holder of any obligation to Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of Borrower to Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by Borrower before 11:59 p.m., New York, New York time, on such date.

 

f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

g) Failure to Deliver Common Stock Prior to Deadline. Without limiting Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion or adjustment of this Exchange Note is not delivered by the Deadline, Borrower shall pay to Holder $1,000.00 per day in cash, for each day beyond the Deadline that Borrower fails to deliver such Common Stock to Holder. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of Holder, shall be added to the principal amount of this Exchange Note, in which event interest shall accrue thereon in accordance with the terms of this Exchange Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Exchange Note. Borrower agrees that the right to convert and/or receive shares in the event of an adjustment is a valuable right to Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion or adjustment right are difficult, if not impossible, to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

h) Rule 144. Borrower acknowledges that it will take all reasonable steps necessary or appropriate, including accepting an opinion of counsel to Holder confirming the rights of Holder to sell shares of Common Stock issued to Holder on conversion or adjustment of the Exchange Note pursuant to Rule 144. So long as the requested sale may be made pursuant to Rule 144 Borrower agrees to accept an opinion of counsel to Holder which opinion will be issued at Borrower’s expense.

 

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i) Charges and Expenses. Issuance of Common Stock to Holder, or any of its assignees, upon the conversion of this Exchange Note shall be made without charge to Holder for any issuance fee, transfer tax, legal opinion and related charges, postage/mailing charge or any other expense with respect to the issuance of such Common Stock. Company shall pay all Transfer Agent fees incurred from the issuance of the Common Stock to Holder, as well as any and all other fees and charges required by the Transfer Agent as a condition to effectuate such issuance. Any such fees or charges as noted in this Section that are paid by Holder (whether from Borrower’s delays, outright refusal to pay, or otherwise), will be automatically added to the Principal Amount of the Exchange Note and tack back to the Issue Date herein for purposes of Rule 144.

 

1.5. Restricted Securities. The shares of Common Stock issuable upon conversion or adjustment of this Exchange Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act; or, (ii) Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; or, (iii) such shares are sold or transferred pursuant to Rule 144; or, (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined under the Act). Any legend set forth on any stock certificate evidencing any Conversion Shares shall be removed and Borrower shall issue to Holder a new certificate therefore free of any transfer legend if (i) Borrower or its transfer agent shall have received an opinion of counsel form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be reasonably acceptable to Borrower; or, (ii) in the case of the Common Stock issued or issuable upon conversion of this Exchange Note, such security is registered for sale by Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.

 

1.6. Effect of Certain Events.

 

a) Effect of Merger, Consolidation, Etc. At the option of Holder, the sale, conveyance or disposition of all or substantially all of the assets of Borrower, the effectuation by Borrower of a transaction or series of related transactions in which more than 50% of the voting power of Borrower is disposed of, or the consolidation, merger or other business combination of Borrower with or into any other Person (as defined below) or Persons when Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which Borrower shall be required to pay to Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

 

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b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Exchange Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of Borrower other than in connection with a plan of complete liquidation of Borrower, then Holder of this Exchange Note shall thereafter have the right to receive upon conversion of this Exchange Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which Holder would have been entitled to receive in such transaction had this Exchange Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of Holder of this Exchange Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Exchange Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time, for clarification, Holder shall be entitled to convert this Exchange Note) and (b) the resulting successor or acquiring entity assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

 

c) Adjustment Due to Distribution. If Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then Holder of this Exchange Note shall be entitled, upon any conversion of this Exchange Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. Such assets shall be held in escrow by the Company pending any such conversion

 

d) Purchase Rights. If, at any time when any part of the Exchange Note remains outstanding, Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Exchange Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are determined for the grant, issue or sale of such Purchase Rights.

 

e) Stock Splits. If the Company, at any time while this Exchange Note is outstanding: (i) subdivides outstanding shares of Common Stock into a larger number of shares; (ii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (iii) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, such action shall NOT affect or alter the Conversion Price, notwithstanding the number of times said action may be taken.

 

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1.7. Revocation. If any Conversion Shares are not received by the Deadline, Holder may revoke the Conversion pursuant to which the Conversion Shares were issuable. This Exchange Note shall remain convertible after the Maturity Date hereof until this Exchange Note is repaid or converted in full.

 

1.8. Repayment. Notwithstanding anything to the contrary contained in this Exchange Note, at no time shall Borrower have the right to prepay any part or all of the outstanding balance on this Exchange Note prior to the Maturity Date. Borrower has expressly and knowingly forever forfeited any and all rights to prepay the Exchange Note. However, Borrower shall continue to have the right to repay all obligations hereunder on, as of, and after the Maturity Date.

 

ARTICLE II. CERTAIN COVENANTS

 

2.1. Charter. So long as any part of this Exchange Note remains unpaid, Borrower shall not amend its charter documents, including without limitation its articles of incorporation and bylaws, in any manner that materially and adversely affects any rights of Holder.

 

2.2. Transfer Agent. Borrower shall not change its transfer agent absent 5-days prior written notice to Holder. Any resignation by the transfer agent without a replacement transfer agent prior to such replacement taking effect shall constitute an Event of Default.

 

2.3. Unconditional Obligation; No Offset. Borrower acknowledges that this Exchange Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Holder, its successors and assigns, and agrees to make the payments and conversions called for herein in accordance with the terms of this Exchange Note.

 

2.4. Exchange. This Exchange Note is issued solely in exchange for the Warrants, and is expressly intended to satisfy all applicable requirements of Section 3(a)(9) of the Act. Borrower and Holder each represent and agree that (i) no additional consideration has been requested of or received from Holder; (ii) no additional consideration has been provided to Holder; and, (iii) Borrower has not paid any commission or remuneration for the solicitation of the exchange of the Warrants for this Exchange Note. Upon issuance of this Exchange Note, the Warrants shall be null and void and of no further force and effect.

 

ARTICLE III. EVENTS OF DEFAULT

 

Any one or more of the following events which shall occur and/or be continuing shall constitute an event of default (each, an “Event of Default”):

 

3.1. Failure to Pay Principal or Interest. Borrower fails to pay the principal hereof or interest thereon when due on this Exchange Note, whether at maturity, upon acceleration or otherwise.

 

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3.2. Conversion and the Shares. Borrower fails to issue shares of Common Stock to Holder (or announces or threatens in writing that it will not honor its obligation to do so at any time following the execution hereof or) upon exercise by Holder of the conversion rights of Holder in accordance with the terms of this Exchange Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note, Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for five (5) business days after Holder shall have delivered a Notice of Conversion. It is an obligation of Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Exchange Note, if a conversion of this Exchange Note is delayed, hindered or frustrated due to a balance owed by Borrower to its transfer agent. If at the option of Holder, Holder advances any funds to Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by Borrower to Holder within forty eight (48) hours of a demand from Holder.

 

3.3. Breach of Covenants. Borrower breaches any material covenant or other material term or condition contained in this Exchange Note and such breach continues for a period of seven (7) days after written notice thereof to Borrower from Holder.

 

3.4. Breach of Representations and Warranties. Any representation or warranty of Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of Holder with respect to this Exchange Note.

 

3.5. Receiver or Trustee. Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

 

3.6. Judgments. Any money judgment, writ or similar process shall be entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than $100,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by Holder, which consent will not be unreasonably withheld.

 

3.7. Bankruptcy. Bankruptcy, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against Borrower or any subsidiary of Borrower.

 

3.8. Delisting of Common Stock. Borrower shall fail to maintain the listing of the Common Stock on at least one of the Pink Sheets or OTCQB or an equivalent replacement exchange, NASDAQ, NYSE, or AMEX.

 

3.9. Failure to Comply with the Exchange Act. Borrower shall fail to comply in any material respect with the reporting requirements of the Exchange Act; shall cease to be subject to the reporting requirements of the Exchange Act; or, shall fail to remain current in its filings with the SEC. The possible reduction in the Conversion Price under Section 1.2(a) is an additional result of, and not an alternative remedy for, a breach of this Section 3.9.

 

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3.10. Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.11. Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of Borrower’s ability to continue as a “going concern” shall not be an admission that Borrower cannot pay its debts as they become due.

 

3.12. Maintenance of Assets. The failure by Borrower, during the term of this Exchange Note, to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).

 

3.13. Financial Statement Restatement. The restatement of any financial statements filed by Borrower with the SEC for any date or period from two years prior to the Issue Date of this Exchange Note and until this Exchange Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of Holder with respect to this Exchange Note.

 

3.14. Reverse Splits. Borrower effectuates a reverse split of its Common Stock without ten (10) days prior written notice to Holder.

 

3.15. Replacement of Transfer Agent. In the event that Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, to the replacement transfer agent a fully executed copy of this Exchange Note.

 

3.16. Cross-Default. Notwithstanding anything to the contrary contained in this Exchange Note or the other related or companion documents, a breach or default by Borrower of any covenant or other term or condition contained in any of the Other Agreements (as defined below), after the passage of all applicable notice and cure or grace periods, shall, at the option of Holder, be considered a default under this Exchange Note, in which event Holder shall be entitled (but in no event required) to apply all rights and remedies of Holder under the terms of this Exchange Note. For purposes of this Exchange Note, “Other Agreements” means, collectively, all agreements and instruments between, among, or by Borrower, and, or for the benefit of, Holder and any affiliate of Holder, including, without limitation, any other promissory notes issued by Borrower in favor of Holder.

 

3.17. Inside Information. Borrower or its officers, directors, and/or affiliates attempt to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by Borrower or its officers, directors, and/or affiliates of, material non-public information concerning Borrower, to Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.

 

3.18. Bid Price. Borrower shall lose the “bid” price for its Common Stock ($0.0001 on the “Ask” with zero market makers on the “Bid” per Level 2) and/or a market (including the OTC Pink, OTCQB or an equivalent replacement exchange).

 

3.19. Insolvency. Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any.

 

3.20. DWAC. Borrower fails to remain DWAC eligible.

 

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3.21. Consequences of Event of Default. Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date) or Section 3.2, the Exchange Note shall become immediately due and payable and Borrower shall pay to Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1, and/or 3.3 through and including 3.20, exercisable through the delivery of written notice to Borrower by Holder (the “Default Notice”), and upon the occurrence of an Event of Default specified in the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3.1, hereof), the Exchange Note shall become immediately due and payable and Borrower shall pay to Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Exchange Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Exchange Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) “Default Interest”, if any, in the amount of eighteen percent (18%) per annum from the date of the Event of Default on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Exchange Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

If Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then Holder shall have the right at any time, so long as Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of Borrower equal to the Default Amount divided by the Conversion Price then in effect. Holder may still convert any amounts due hereunder, including without limitation, the Default Sum, until such time as this Exchange Note has been repaid in full.

 

ARTICLE IV. MISCELLANEOUS

 

4.1. Failure or Indulgence Not Waiver. No failure or delay on the part of Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2. Notices. 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 being sent; (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. Each party hereby expressly consents to the use of Electronic Transmission for communications and notices under this Exchange Note. For purposes of this Exchange Note, “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.

 

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4.3. Amendments. This Exchange Note and any provision hereof may only be amended by an instrument in writing signed by Borrower and Holder. The term “Exchange Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

4.4. Assignability. This Exchange Note shall be binding upon Borrower and its successors and assigns, and shall inure to be the benefit of Holder and its successors and assigns. Borrower may not assign this Exchange Note without the prior written consent of Holder. This Exchange Note, and nay portion thereof, and any share of Common Stock issued upon the conversion of this Exchange Note, may be offered, sold, assigned, pledged, or transferred by Holder without the consent of Borrower.

 

4.5. Cost of Collection. If default is made in the payment of this Exchange Note, Borrower shall pay Holder hereof costs of collection, including reasonable attorneys’ fees.

 

4.6. Governing Law. This Exchange Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction. Any action brought by either party against the other concerning the transactions contemplated by this Agreement must be brought only in (i) the state courts in Wake County, North Carolina. Both parties agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Exchange Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Exchange Note. Nothing contained herein shall be deemed or operate to preclude Holder from bringing suit or taking other legal action against Borrower in any other jurisdiction to collect on Borrower’s obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other decision in favor of Holder.

 

4.7. Certain Amounts. Whenever pursuant to this Exchange Note Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, Borrower and Holder agree that the actual damages to Holder from the receipt of cash payment on this Exchange Note may be difficult to determine and the amount to be so paid by Borrower represents stipulated damages and not a penalty and is intended to compensate Holder in part for loss of the opportunity to convert this Exchange Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Exchange Note at a price in excess of the price paid for such shares pursuant to this Exchange Note. Borrower and Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to Holder from the receipt of a cash payment without the opportunity to convert this Exchange Note into shares of Common Stock.

 

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4.8. Disclosure. Upon receipt or delivery by Borrower of any notice in accordance with the terms of this Exchange Note, unless Borrower has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to Borrower, Borrower shall within four (4) days after any such receipt or delivery, publicly disclose such material, non-public information on a Current Report on Form 8-K, or such similar disclosure in accordance with the rules of the OTC Markets. In the event that Borrower believes that a notice contains material, non-public information relating to Borrower, Borrower so shall indicate to Holder contemporaneously with delivery of such notice, and in the absence of any such indication, Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information relating to Borrower.

 

4.9. Notice of Corporate Events. Except as otherwise expressly provided for herein, Holder shall have no rights as a holder of Common Stock unless and only to the extent that it converts this Exchange Note into Common Stock.

 

4.10. Remedies. Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, Borrower acknowledges that the remedy at law for a breach of its obligations under this Exchange Note will be inadequate and agrees, in the event of a breach or threatened breach by Borrower of the provisions of this Exchange Note, that Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Exchange Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

4.11. Voluntary Agreement. Holder has carefully read this Exchange Note and has asked any questions needed for Holder to understand the terms, consequences and binding effect of this Exchange Note and fully understand them. Holder has had the opportunity to seek the advice of an attorney of Holder’s choosing, or has waived the right to do so, and is executing this Exchange Note voluntarily and without any duress or undue influence by Borrower or anyone else.

 

4.12. Accredited Investor Status. Holder is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Act.

 

4.13. Severability. If any part of this Exchange Note is construed to be in violation of any law, such part shall be modified to achieve the objective of Borrower and Holder to the fullest extent permitted by law and the balance of this Exchange Note shall remain in full force and effect.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, Borrower and Holder has each caused this Exchange Note to be signed in its respective name by its duly authorized officer as of the Issue Date first set forth above.

 

DATA443 RISK MITIGATION, INC.,

a Nevada corporation

 

BY:    
     
NAME:     
     
TITLE:    

 

ACKNOWLEDGED, ACCEPTED, AND AGREED:

 

BY:    
     
NAME:  ALLAN S. BRANTLEY  

 

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EXHIBIT A

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert the amount referenced below under and pursuant to that certain Brantley Exchange Convertible Promissory Note dated 17 November 2020 and issued in the original principal amount of $40,448 (the “Exchange Note”) by DATA443 RISK MITIGATION, INC., a Nevada corporation (the Company”), into shares of common stock of the Company (the “Common Stock”), in accordance with the terms and conditions of the Exchange Note and as provided for herein, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 1.1 of this Exchange Note, as determined in accordance with Section 13(d) of the Exchange Act.

 

CONVERSION CALCULATIONS:

 

  Date of Conversion: ____________________ Conversion Price: ____________________
  Principal Amount Converted: ________________ Interest Converted: ____________________
  Number of Shares of Common Stock to be Issued: ___________________________
  Remaining Principal Balance of the Exchange Note: ___________________________

 

HOLDER: ____________________________

 

Authorized Signature: ____________________________

 

  Name: ____________________________
     
  Title: ____________________________

 

Address for Delivery of Certificates: _____________________________________
   
  _____________________________________
   
  _____________________________________

 

OR

 

DWAC Instructions: Broker #: _____________________________________
     
  Account #: _____________________________________

 

OR

 

Other Instructions:

 

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NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS NOTE, NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED (i) IN THE ABSENCE OF (a) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR, (b) AN OPINION OF COUNSEL (SELECTED BY HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT; OR, (ii) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Principal Amount: $47,580.00 Issue Date: 17 November 2020

 

SJSS INVESTMENTS EXCHANGE CONVERTIBLE PROMISSORY NOTE

 

BINDING RECITALS AND AGREEMENTS

 

  A. Borrower previously issued in favor of Holder the following three (3) Common Stock Purchase Warrants (collectively, the “Warrants”):

 

  Issue Date   Number of Warrants  
         
  12-10-2018   25,201,613  
         
  02-06-2019   95,766,128  
         
  07-11-2019   101,851,851  

 

  B. This Exchange Note is issued solely in exchange for the Warrants, and is expressly intended to satisfy all applicable requirements of Section 3(a)(9) of the Securities Act of 1933, as amended from time-to-time (the “Act”).
     
  C. No commission or other remuneration has been, or will be, paid or given directly or indirectly for soliciting the exchange of the Warrants for this Exchange Note.
     
  D. This SJSS Investments Exchange Convertible Promissory Note is referred to herein as the “Exchange Note”).

 

GENERAL TERMS FOR THE NOTE

 

Solely in exchange for the Warrants, and for no other consideration, DATA443 RISK MITIGATION, INC., a Nevada corporation (“Borrower”, or “Company”), hereby promises to pay to the order of SJSS INVESTMENTS, or its registered assigns (the “Holder”), on 17 November 2025 (the “Maturity Date”), the sum of Forty Seven Thousand Five Hundred Eighty Dollars ($47,580), as set forth herein, together with interest on the unpaid principal balance hereof at the rate of five percent (5%) per annum (the “Interest Rate”) from the Issue Date until this Exchange Note, plus any and all other amounts due hereunder, are paid in full, and any additional amounts set forth herein, including without limitation any Additional Principal (as defined herein). Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of eighteen percent (18%) per annum from the due date thereof until same is paid (“Default Interest”).

 

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All payments due hereunder shall be made in lawful money of the United States of America, at such address as Holder shall hereafter give to Borrower by written notice made in accordance with the provisions of this Exchange Note. Whenever any amount expressed to be due by the terms of this Exchange Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Exchange Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Exchange Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York, New York are authorized or required by law or executive order to remain closed.

 

This Exchange Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of Borrower and will not impose personal liability upon the holder thereof.

 

The following additional terms and conditions shall apply to this Exchange Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.9. Conversion Right. Holder shall have the right, in its sole and absolute discretion, and at any time after the Issue Date to convert all or any part of the outstanding amount due under this Exchange Note into fully paid and non-assessable shares of common stock of Borrower, as such common stock exists on the Issue Date (“Common Stock”), or any shares of capital stock or other securities of Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price determined as provided herein (a “Conversion”). However, in no event shall Holder be entitled to convert any portion of this Exchange Note in excess of that portion of this Exchange Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Exchange Note or the unexercised or unconverted portion of any other security of Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein), and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Exchange Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock. For purposes of this Exchange Note, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulation 13D-G thereunder, except as otherwise provided in clause (1), above. However, the limitations on conversion may be waived by Holder upon, at the election of Holder, not less than 61 days’ prior notice to Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each Conversion of this Exchange Note (“Conversion Shares”) shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to Borrower by Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or E-Mail (or by other means resulting in, or reasonably expected to result in, notice) to Borrower before 11:59 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any Conversion of this Exchange Note, the sum of (1) the principal amount of this Exchange Note to be converted in such Conversion; plus (2) accrued and unpaid Default Interest, if any, on such principal amount being converted at the interest rates provided in this Exchange Note to the Conversion Date; plus (3) at Holder’s option, any amounts owed to Holder pursuant to Section 1.4(g) hereof.

 

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1.10. Conversion Price.

 

a) Calculation of Conversion Price. For purposes hereof, the conversion price shall be $0.01 (the “Conversion Price”). If an Event of Default under Article III of this Exchange Note has occurred, Holder, in its sole discretion, may elect to use the Conversion Price discounted by twenty percent (20%). If Borrower’s Common Stock is not traded on the Pink Sheets or OTCQB or an equivalent marketplace (NASDAQ, NYSE, e.g.), then such sale price shall be the sale price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no sale price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “Pink Sheets” by OTC Markets. If such sale price cannot be calculated for such security on such date in the manner provided above, such price shall be the fair market value as mutually determined by Borrower and Holder. If Borrower’s Common Stock is chilled for deposit at DTC, becomes chilled at any point while this Exchange Note remains outstanding or deposit or other additional fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, then such discount factor shall be forty percent (40%). In the event that the shares of Borrower’s Common Stock are not deliverable via DWAC following the conversion of any amount hereunder, an additional five percent (5%) discount will be attributed to the Conversion Price.

 

b) Cooperation. Borrower agrees to cooperate with all conversions hereunder, and that it will take all reasonable steps necessary or appropriate, including providing a board of directors resolution authorizing the issuance of common stock to Holder. So long as the requested sale may be made pursuant to Rule 144 as promulgated by the SEC, as such Rule 144 may be in effect from time to time (“Rule 144”), Borrower agrees to accept an opinion of counsel to Holder confirming the rights of Holder to sell shares of Common Stock issuable or issued to Holder on conversion of this Exchange Note pursuant to Rule 144, which opinion will be issued at Borrower’s expense and the conversion dollar amount will be reduced by $500.00 to cover the cost of such legal opinion. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the principal securities exchange or other securities market on which the Common Stock is then traded.

 

c) Additional Principal. If at any time the Conversion Price as determined hereunder for any Conversion would be less than the par value of the Common Stock, then the Conversion Price hereunder shall equal such par value for such Conversion and the Conversion Amount for such Conversion shall be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of Conversion Shares issuable upon such Conversion to equal the same number of Conversion Shares as would have been issued had the Conversion Price not been subject to the minimum price set forth in this Section 1.2(c).

 

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d) Failure to Timely Deliver. Without in any way limiting Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Exchange Note is not delivered by the Deadline (as defined below) Borrower shall pay to Holder $1,000.00 per day in cash, for each day beyond the Deadline that Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of Holder, shall be added to the principal amount of this Exchange Note, in which event such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Exchange Note. Borrower agrees that the right to convert this Exchange Note is a valuable right to Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion right are difficult if not impossible to quantify. Accordingly, the parties acknowledge the liquidated damages provision contained herein is justified.

 

1.11. Authorized Shares. Borrower covenants that at all times while any portion of this Exchange Note is outstanding it will have a sufficient number of shares of authorized and unissued Common Stock, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion or adjustment of this Exchange Note.

 

1.12. Method of Conversion.

 

a) Mechanics of Conversion. Subject to Section 1.1, this Exchange Note may be converted by Holder in whole or in part at any time following the Issue Date by submitting to Borrower a Notice of Conversion by facsimile, E-Mail or other reasonable means of communication dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time.

 

b) Book Entry upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Exchange Note in accordance with the terms hereof, Holder shall not be required to physically surrender this Exchange Note to Borrower unless the entire unpaid principal amount of this Exchange Note is so converted. Holder and Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to Holder and Borrower, so as not to require physical surrender of this Exchange Note upon each such conversion. In the event of any dispute or discrepancy, such records of Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Exchange Note is converted as aforesaid, Holder may not transfer this Exchange Note unless Holder first physically surrenders this Exchange Note to Borrower, whereupon Borrower will forthwith issue and deliver upon the order of Holder a new Exchange Note of like tenor, registered as Holder (upon payment by Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Exchange Note. Holder and any assignee, by acceptance of this Exchange Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Exchange Note, the unpaid and unconverted principal amount of this Exchange Note represented by this Exchange Note may be less than the amount stated on the face hereof.

 

c) Payment of Taxes. Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Exchange Note, and Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than Holder or the custodian in whose street name such shares are to be held for Holder’s account) requesting the issuance thereof shall have paid to Borrower the amount of any such tax or shall have established to the satisfaction of Borrower that such tax has been paid.

 

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d) Delivery of Common Stock upon Conversion. Upon receipt by Borrower from Holder of a facsimile transmission or E-Mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt or such an event (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Exchange Note) in accordance with the terms hereof.

 

e) Obligation of Borrower to Deliver Common Stock. Upon receipt by Borrower of a duly and properly executed Notice of Conversion, Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, and the outstanding principal amount and the amount of accrued and unpaid interest on this Exchange Note shall be reduced to reflect such conversion or adjustment, and, unless Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Exchange Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If Holder shall have given a Notice of Conversion as provided herein, Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by Holder of any obligation to Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of Borrower to Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by Borrower before 11:59 p.m., New York, New York time, on such date.

 

f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

g) Failure to Deliver Common Stock Prior to Deadline. Without limiting Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion or adjustment of this Exchange Note is not delivered by the Deadline, Borrower shall pay to Holder $1,000.00 per day in cash, for each day beyond the Deadline that Borrower fails to deliver such Common Stock to Holder. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of Holder, shall be added to the principal amount of this Exchange Note, in which event interest shall accrue thereon in accordance with the terms of this Exchange Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Exchange Note. Borrower agrees that the right to convert and/or receive shares in the event of an adjustment is a valuable right to Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion or adjustment right are difficult, if not impossible, to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

h) Rule 144. Borrower acknowledges that it will take all reasonable steps necessary or appropriate, including accepting an opinion of counsel to Holder confirming the rights of Holder to sell shares of Common Stock issued to Holder on conversion or adjustment of the Exchange Note pursuant to Rule 144. So long as the requested sale may be made pursuant to Rule 144 Borrower agrees to accept an opinion of counsel to Holder which opinion will be issued at Borrower’s expense.

 

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i) Charges and Expenses. Issuance of Common Stock to Holder, or any of its assignees, upon the conversion of this Exchange Note shall be made without charge to Holder for any issuance fee, transfer tax, legal opinion and related charges, postage/mailing charge or any other expense with respect to the issuance of such Common Stock. Company shall pay all Transfer Agent fees incurred from the issuance of the Common Stock to Holder, as well as any and all other fees and charges required by the Transfer Agent as a condition to effectuate such issuance. Any such fees or charges as noted in this Section that are paid by Holder (whether from Borrower’s delays, outright refusal to pay, or otherwise), will be automatically added to the Principal Amount of the Exchange Note and tack back to the Issue Date herein for purposes of Rule 144.

 

1.13. Restricted Securities. The shares of Common Stock issuable upon conversion or adjustment of this Exchange Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act; or, (ii) Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; or, (iii) such shares are sold or transferred pursuant to Rule 144; or, (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined under the Act). Any legend set forth on any stock certificate evidencing any Conversion Shares shall be removed and Borrower shall issue to Holder a new certificate therefore free of any transfer legend if (i) Borrower or its transfer agent shall have received an opinion of counsel form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be reasonably acceptable to Borrower; or, (ii) in the case of the Common Stock issued or issuable upon conversion of this Exchange Note, such security is registered for sale by Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.

 

1.14. Effect of Certain Events.

 

a) Effect of Merger, Consolidation, Etc. At the option of Holder, the sale, conveyance or disposition of all or substantially all of the assets of Borrower, the effectuation by Borrower of a transaction or series of related transactions in which more than 50% of the voting power of Borrower is disposed of, or the consolidation, merger or other business combination of Borrower with or into any other Person (as defined below) or Persons when Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which Borrower shall be required to pay to Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

 

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b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Exchange Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of Borrower other than in connection with a plan of complete liquidation of Borrower, then Holder of this Exchange Note shall thereafter have the right to receive upon conversion of this Exchange Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which Holder would have been entitled to receive in such transaction had this Exchange Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of Holder of this Exchange Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Exchange Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time, for clarification, Holder shall be entitled to convert this Exchange Note) and (b) the resulting successor or acquiring entity assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

 

c) Adjustment Due to Distribution. If Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then Holder of this Exchange Note shall be entitled, upon any conversion of this Exchange Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. Such assets shall be held in escrow by the Company pending any such conversion

 

d) Purchase Rights. If, at any time when any part of the Exchange Note remains outstanding, Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Exchange Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are determined for the grant, issue or sale of such Purchase Rights.

 

e) Stock Splits. If the Company, at any time while this Exchange Note is outstanding: (i) subdivides outstanding shares of Common Stock into a larger number of shares; (ii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (iii) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, such action shall NOT affect or alter the Conversion Price, notwithstanding the number of times said action may be taken.

 

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1.15. Revocation. If any Conversion Shares are not received by the Deadline, Holder may revoke the Conversion pursuant to which the Conversion Shares were issuable. This Exchange Note shall remain convertible after the Maturity Date hereof until this Exchange Note is repaid or converted in full.

 

1.16. Repayment. Notwithstanding anything to the contrary contained in this Exchange Note, at no time shall Borrower have the right to prepay any part or all of the outstanding balance on this Exchange Note prior to the Maturity Date. Borrower has expressly and knowingly forever forfeited any and all rights to prepay the Exchange Note. However, Borrower shall continue to have the right to repay all obligations hereunder on, as of, and after the Maturity Date.

 

ARTICLE II. CERTAIN COVENANTS

 

2.5. Charter. So long as any part of this Exchange Note remains unpaid, Borrower shall not amend its charter documents, including without limitation its articles of incorporation and bylaws, in any manner that materially and adversely affects any rights of Holder.

 

2.6. Transfer Agent. Borrower shall not change its transfer agent absent 5-days prior written notice to Holder. Any resignation by the transfer agent without a replacement transfer agent prior to such replacement taking effect shall constitute an Event of Default.

 

2.7. Unconditional Obligation; No Offset. Borrower acknowledges that this Exchange Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Holder, its successors and assigns, and agrees to make the payments and conversions called for herein in accordance with the terms of this Exchange Note.

 

2.8. Exchange. This Exchange Note is issued solely in exchange for the Warrants, and is expressly intended to satisfy all applicable requirements of Section 3(a)(9) of the Act. Borrower and Holder each represent and agree that (i) no additional consideration has been requested of or received from Holder; (ii) no additional consideration has been provided to Holder; and, (iii) Borrower has not paid any commission or remuneration for the solicitation of the exchange of the Warrants for this Exchange Note. Upon issuance of this Exchange Note, the Warrants shall be null and void and of no further force and effect.

 

ARTICLE III. EVENTS OF DEFAULT

 

Any one or more of the following events which shall occur and/or be continuing shall constitute an event of default (each, an “Event of Default”):

 

3.22. Failure to Pay Principal or Interest. Borrower fails to pay the principal hereof or interest thereon when due on this Exchange Note, whether at maturity, upon acceleration or otherwise.

 

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3.23. Conversion and the Shares. Borrower fails to issue shares of Common Stock to Holder (or announces or threatens in writing that it will not honor its obligation to do so at any time following the execution hereof or) upon exercise by Holder of the conversion rights of Holder in accordance with the terms of this Exchange Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note, Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for five (5) business days after Holder shall have delivered a Notice of Conversion. It is an obligation of Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Exchange Note, if a conversion of this Exchange Note is delayed, hindered or frustrated due to a balance owed by Borrower to its transfer agent. If at the option of Holder, Holder advances any funds to Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by Borrower to Holder within forty eight (48) hours of a demand from Holder.

 

3.24. Breach of Covenants. Borrower breaches any material covenant or other material term or condition contained in this Exchange Note and such breach continues for a period of seven (7) days after written notice thereof to Borrower from Holder.

 

3.25. Breach of Representations and Warranties. Any representation or warranty of Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of Holder with respect to this Exchange Note.

 

3.26. Receiver or Trustee. Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

 

3.27. Judgments. Any money judgment, writ or similar process shall be entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than $100,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by Holder, which consent will not be unreasonably withheld.

 

3.28. Bankruptcy. Bankruptcy, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against Borrower or any subsidiary of Borrower.

 

3.29. Delisting of Common Stock. Borrower shall fail to maintain the listing of the Common Stock on at least one of the Pink Sheets or OTCQB or an equivalent replacement exchange, NASDAQ, NYSE, or AMEX.

 

3.30. Failure to Comply with the Exchange Act. Borrower shall fail to comply in any material respect with the reporting requirements of the Exchange Act; shall cease to be subject to the reporting requirements of the Exchange Act; or, shall fail to remain current in its filings with the SEC. The possible reduction in the Conversion Price under Section 1.2(a) is an additional result of, and not an alternative remedy for, a breach of this Section 3.9.

 

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3.31. Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

3.32. Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of Borrower’s ability to continue as a “going concern” shall not be an admission that Borrower cannot pay its debts as they become due.

 

3.33. Maintenance of Assets. The failure by Borrower, during the term of this Exchange Note, to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).

 

3.34. Financial Statement Restatement. The restatement of any financial statements filed by Borrower with the SEC for any date or period from two years prior to the Issue Date of this Exchange Note and until this Exchange Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of Holder with respect to this Exchange Note.

 

3.35. Reverse Splits. Borrower effectuates a reverse split of its Common Stock without ten (10) days prior written notice to Holder.

 

3.36. Replacement of Transfer Agent. In the event that Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, to the replacement transfer agent a fully executed copy of this Exchange Note.

 

3.37. Cross-Default. Notwithstanding anything to the contrary contained in this Exchange Note or the other related or companion documents, a breach or default by Borrower of any covenant or other term or condition contained in any of the Other Agreements (as defined below), after the passage of all applicable notice and cure or grace periods, shall, at the option of Holder, be considered a default under this Exchange Note, in which event Holder shall be entitled (but in no event required) to apply all rights and remedies of Holder under the terms of this Exchange Note. For purposes of this Exchange Note, “Other Agreements” means, collectively, all agreements and instruments between, among, or by Borrower, and, or for the benefit of, Holder and any affiliate of Holder, including, without limitation, any other promissory notes issued by Borrower in favor of Holder.

 

3.38. Inside Information. Borrower or its officers, directors, and/or affiliates attempt to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by Borrower or its officers, directors, and/or affiliates of, material non-public information concerning Borrower, to Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.

 

3.39. Bid Price. Borrower shall lose the “bid” price for its Common Stock ($0.0001 on the “Ask” with zero market makers on the “Bid” per Level 2) and/or a market (including the OTC Pink, OTCQB or an equivalent replacement exchange).

 

3.40. Insolvency. Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any.

 

3.41. DWAC. Borrower fails to remain DWAC eligible.

 

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3.42. Consequences of Event of Default. Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date) or Section 3.2, the Exchange Note shall become immediately due and payable and Borrower shall pay to Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1, and/or 3.3 through and including 3.20, exercisable through the delivery of written notice to Borrower by Holder (the “Default Notice”), and upon the occurrence of an Event of Default specified in the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3.1, hereof), the Exchange Note shall become immediately due and payable and Borrower shall pay to Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Exchange Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Exchange Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) “Default Interest”, if any, in the amount of eighteen percent (18%) per annum from the date of the Event of Default on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Exchange Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

If Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then Holder shall have the right at any time, so long as Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of Borrower equal to the Default Amount divided by the Conversion Price then in effect. Holder may still convert any amounts due hereunder, including without limitation, the Default Sum, until such time as this Exchange Note has been repaid in full.

 

ARTICLE IV. MISCELLANEOUS

 

4.14. Failure or Indulgence Not Waiver. No failure or delay on the part of Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

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4.15. Notices. 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 being sent; (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. Each party hereby expressly consents to the use of Electronic Transmission for communications and notices under this Exchange Note. For purposes of this Exchange Note, “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.

 

4.16. Amendments. This Exchange Note and any provision hereof may only be amended by an instrument in writing signed by Borrower and Holder. The term “Exchange Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

4.17. Assignability. This Exchange Note shall be binding upon Borrower and its successors and assigns, and shall inure to be the benefit of Holder and its successors and assigns. Borrower may not assign this Exchange Note without the prior written consent of Holder. This Exchange Note, and nay portion thereof, and any share of Common Stock issued upon the conversion of this Exchange Note, may be offered, sold, assigned, pledged, or transferred by Holder without the consent of Borrower.

 

4.18. Cost of Collection. If default is made in the payment of this Exchange Note, Borrower shall pay Holder hereof costs of collection, including reasonable attorneys’ fees.

 

4.19. Governing Law. This Exchange Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction. Any action brought by either party against the other concerning the transactions contemplated by this Agreement must be brought only in (i) the state courts in Wake County, North Carolina. Both parties agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Exchange Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Exchange Note. Nothing contained herein shall be deemed or operate to preclude Holder from bringing suit or taking other legal action against Borrower in any other jurisdiction to collect on Borrower’s obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other decision in favor of Holder.

 

4.20. Certain Amounts. Whenever pursuant to this Exchange Note Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, Borrower and Holder agree that the actual damages to Holder from the receipt of cash payment on this Exchange Note may be difficult to determine and the amount to be so paid by Borrower represents stipulated damages and not a penalty and is intended to compensate Holder in part for loss of the opportunity to convert this Exchange Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Exchange Note at a price in excess of the price paid for such shares pursuant to this Exchange Note. Borrower and Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to Holder from the receipt of a cash payment without the opportunity to convert this Exchange Note into shares of Common Stock.

 

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4.21. Disclosure. Upon receipt or delivery by Borrower of any notice in accordance with the terms of this Exchange Note, unless Borrower has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to Borrower, Borrower shall within four (4) days after any such receipt or delivery, publicly disclose such material, non-public information on a Current Report on Form 8-K, or such similar disclosure in accordance with the rules of the OTC Markets. In the event that Borrower believes that a notice contains material, non-public information relating to Borrower, Borrower so shall indicate to Holder contemporaneously with delivery of such notice, and in the absence of any such indication, Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information relating to Borrower.

 

4.22. Notice of Corporate Events. Except as otherwise expressly provided for herein, Holder shall have no rights as a holder of Common Stock unless and only to the extent that it converts this Exchange Note into Common Stock.

 

4.23. Remedies. Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, Borrower acknowledges that the remedy at law for a breach of its obligations under this Exchange Note will be inadequate and agrees, in the event of a breach or threatened breach by Borrower of the provisions of this Exchange Note, that Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Exchange Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

4.24. Voluntary Agreement. Holder has carefully read this Exchange Note and has asked any questions needed for Holder to understand the terms, consequences and binding effect of this Exchange Note and fully understand them. Holder has had the opportunity to seek the advice of an attorney of Holder’s choosing, or has waived the right to do so, and is executing this Exchange Note voluntarily and without any duress or undue influence by Borrower or anyone else.

 

4.25. Accredited Investor Status. Holder is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Act.

 

4.26. Severability. If any part of this Exchange Note is construed to be in violation of any law, such part shall be modified to achieve the objective of Borrower and Holder to the fullest extent permitted by law and the balance of this Exchange Note shall remain in full force and effect.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, Borrower and Holder has each caused this Exchange Note to be signed in its respective name by its duly authorized officer as of the Issue Date first set forth above.

 

DATA443 RISK MITIGATION, INC.,

a Nevada corporation

 

BY:    
     
NAME:     
     
TITLE:    

 

ACKNOWLEDGED, ACCEPTED, AND AGREED:

 

SJSS INVESTMENTS

 

BY:    
     
NAME:    
     
TITLE:    

 

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EXHIBIT A

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert the amount referenced below under and pursuant to that certain SJSS Investments Exchange Convertible Promissory Note dated 17 November 2020 and issued in the original principal amount of $47,580 (the “Exchange Note”) by DATA443 RISK MITIGATION, INC., a Nevada corporation (the Company”), into shares of common stock of the Company (the “Common Stock”), in accordance with the terms and conditions of the Exchange Note and as provided for herein, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 1.1 of this Exchange Note, as determined in accordance with Section 13(d) of the Exchange Act.

 

CONVERSION CALCULATIONS:

 

  Date of Conversion: ____________________ Conversion Price: ____________________
  Principal Amount Converted: ________________ Interest Converted: ____________________
  Number of Shares of Common Stock to be Issued: ___________________________
  Remaining Principal Balance of the Exchange Note: ___________________________

 

HOLDER: ____________________________

 

Authorized Signature: ____________________________

 

  Name: ____________________________
     
  Title: ____________________________

 

Address for Delivery of Certificates: _____________________________________
   
  _____________________________________
   
  _____________________________________

 

OR

 

DWAC Instructions: Broker #: _____________________________________
     
  Account #: _____________________________________

 

OR

 

Other Instructions:

 

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NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS NOTE, NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE, HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED (i) IN THE ABSENCE OF (a) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR, (b) AN OPINION OF COUNSEL (SELECTED BY HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT; OR, (ii) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

Principal Amount: $11,972.00 Issue Date: 17 November 2020

 

STAN H. EXCHANGE CONVERTIBLE PROMISSORY NOTE

 

BINDING RECITALS AND AGREEMENTS

 

  A. Borrower previously issued in favor of Holder the following two (2) Common Stock Purchase Warrants (collectively, the “Warrants”):

 

  Issue Date   Number of Warrants  
         
  02-06-2019   20,161,290  
  07-11-2019   30,864,197  

 

  B. This Exchange Note is issued solely in exchange for the Warrants, and is expressly intended to satisfy all applicable requirements of Section 3(a)(9) of the Securities Act of 1933, as amended from time-to-time (the “Act”).
     
  C. No commission or other remuneration has been, or will be, paid or given directly or indirectly for soliciting the exchange of the Warrants for this Exchange Note.
     
  D. This Stan H. Exchange Convertible Promissory Note is referred to herein as the “Exchange Note”).

 

GENERAL TERMS FOR THE NOTE

 

Solely in exchange for the Warrants, and for no other consideration, DATA443 RISK MITIGATION, INC., a Nevada corporation (“Borrower”, or “Company”), hereby promises to pay to the order of STAN HOLZAEPFEL, or his registered assigns (the “Holder”), on 17 November 2025 (the “Maturity Date”), the sum of Eleven Thousand Nine Hundred Seventy Two Dollars ($11,972), as set forth herein, together with interest on the unpaid principal balance hereof at the rate of five percent (5%) per annum (the “Interest Rate”) from the Issue Date until this Exchange Note, plus any and all other amounts due hereunder, are paid in full, and any additional amounts set forth herein, including without limitation any Additional Principal (as defined herein). Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of eighteen percent (18%) per annum from the due date thereof until same is paid (“Default Interest”).

 

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All payments due hereunder shall be made in lawful money of the United States of America, at such address as Holder shall hereafter give to Borrower by written notice made in accordance with the provisions of this Exchange Note. Whenever any amount expressed to be due by the terms of this Exchange Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Exchange Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Exchange Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York, New York are authorized or required by law or executive order to remain closed.

 

This Exchange Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of Borrower and will not impose personal liability upon the holder thereof.

 

The following additional terms and conditions shall apply to this Exchange Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.17. Conversion Right. Holder shall have the right, in its sole and absolute discretion, and at any time after the Issue Date to convert all or any part of the outstanding amount due under this Exchange Note into fully paid and non-assessable shares of common stock of Borrower, as such common stock exists on the Issue Date (“Common Stock”), or any shares of capital stock or other securities of Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price determined as provided herein (a “Conversion”). However, in no event shall Holder be entitled to convert any portion of this Exchange Note in excess of that portion of this Exchange Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Exchange Note or the unexercised or unconverted portion of any other security of Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein), and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Exchange Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock. For purposes of this Exchange Note, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulation 13D-G thereunder, except as otherwise provided in clause (1), above. However, the limitations on conversion may be waived by Holder upon, at the election of Holder, not less than 61 days’ prior notice to Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each Conversion of this Exchange Note (“Conversion Shares”) shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to Borrower by Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or E-Mail (or by other means resulting in, or reasonably expected to result in, notice) to Borrower before 11:59 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any Conversion of this Exchange Note, the sum of (1) the principal amount of this Exchange Note to be converted in such Conversion; plus (2) accrued and unpaid Default Interest, if any, on such principal amount being converted at the interest rates provided in this Exchange Note to the Conversion Date; plus (3) at Holder’s option, any amounts owed to Holder pursuant to Section 1.4(g) hereof.

 

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1.18. Conversion Price.

 

a) Calculation of Conversion Price. For purposes hereof, the conversion price shall be $0.01 (the “Conversion Price”). If an Event of Default under Article III of this Exchange Note has occurred, Holder, in its sole discretion, may elect to use the Conversion Price discounted by twenty percent (20%). If Borrower’s Common Stock is not traded on the Pink Sheets or OTCQB or an equivalent marketplace (NASDAQ, NYSE, e.g.), then such sale price shall be the sale price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no sale price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “Pink Sheets” by OTC Markets. If such sale price cannot be calculated for such security on such date in the manner provided above, such price shall be the fair market value as mutually determined by Borrower and Holder. If Borrower’s Common Stock is chilled for deposit at DTC, becomes chilled at any point while this Exchange Note remains outstanding or deposit or other additional fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, then such discount factor shall be forty percent (40%). In the event that the shares of Borrower’s Common Stock are not deliverable via DWAC following the conversion of any amount hereunder, an additional five percent (5%) discount will be attributed to the Conversion Price.

 

b) Cooperation. Borrower agrees to cooperate with all conversions hereunder, and that it will take all reasonable steps necessary or appropriate, including providing a board of directors resolution authorizing the issuance of common stock to Holder. So long as the requested sale may be made pursuant to Rule 144 as promulgated by the SEC, as such Rule 144 may be in effect from time to time (“Rule 144”), Borrower agrees to accept an opinion of counsel to Holder confirming the rights of Holder to sell shares of Common Stock issuable or issued to Holder on conversion of this Exchange Note pursuant to Rule 144, which opinion will be issued at Borrower’s expense and the conversion dollar amount will be reduced by $500.00 to cover the cost of such legal opinion. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the principal securities exchange or other securities market on which the Common Stock is then traded.

 

c) Additional Principal. If at any time the Conversion Price as determined hereunder for any Conversion would be less than the par value of the Common Stock, then the Conversion Price hereunder shall equal such par value for such Conversion and the Conversion Amount for such Conversion shall be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of Conversion Shares issuable upon such Conversion to equal the same number of Conversion Shares as would have been issued had the Conversion Price not been subject to the minimum price set forth in this Section 1.2(c).

 

d) Failure to Timely Deliver. Without in any way limiting Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Exchange Note is not delivered by the Deadline (as defined below) Borrower shall pay to Holder $1,000.00 per day in cash, for each day beyond the Deadline that Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of Holder, shall be added to the principal amount of this Exchange Note, in which event such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Exchange Note. Borrower agrees that the right to convert this Exchange Note is a valuable right to Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion right are difficult if not impossible to quantify. Accordingly, the parties acknowledge the liquidated damages provision contained herein is justified.

 

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1.19. Authorized Shares. Borrower covenants that at all times while any portion of this Exchange Note is outstanding it will have a sufficient number of shares of authorized and unissued Common Stock, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion or adjustment of this Exchange Note.

 

1.20. Method of Conversion.

 

a) Mechanics of Conversion. Subject to Section 1.1, this Exchange Note may be converted by Holder in whole or in part at any time following the Issue Date by submitting to Borrower a Notice of Conversion by facsimile, E-Mail or other reasonable means of communication dispatched on the Conversion Date prior to 11:59 p.m., New York, New York time.

 

b) Book Entry upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Exchange Note in accordance with the terms hereof, Holder shall not be required to physically surrender this Exchange Note to Borrower unless the entire unpaid principal amount of this Exchange Note is so converted. Holder and Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to Holder and Borrower, so as not to require physical surrender of this Exchange Note upon each such conversion. In the event of any dispute or discrepancy, such records of Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Exchange Note is converted as aforesaid, Holder may not transfer this Exchange Note unless Holder first physically surrenders this Exchange Note to Borrower, whereupon Borrower will forthwith issue and deliver upon the order of Holder a new Exchange Note of like tenor, registered as Holder (upon payment by Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Exchange Note. Holder and any assignee, by acceptance of this Exchange Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Exchange Note, the unpaid and unconverted principal amount of this Exchange Note represented by this Exchange Note may be less than the amount stated on the face hereof.

 

c) Payment of Taxes. Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Exchange Note, and Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than Holder or the custodian in whose street name such shares are to be held for Holder’s account) requesting the issuance thereof shall have paid to Borrower the amount of any such tax or shall have established to the satisfaction of Borrower that such tax has been paid.

 

d) Delivery of Common Stock upon Conversion. Upon receipt by Borrower from Holder of a facsimile transmission or E-Mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt or such an event (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Exchange Note) in accordance with the terms hereof.

 

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e) Obligation of Borrower to Deliver Common Stock. Upon receipt by Borrower of a duly and properly executed Notice of Conversion, Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, and the outstanding principal amount and the amount of accrued and unpaid interest on this Exchange Note shall be reduced to reflect such conversion or adjustment, and, unless Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Exchange Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If Holder shall have given a Notice of Conversion as provided herein, Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by Holder of any obligation to Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of Borrower to Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by Borrower before 11:59 p.m., New York, New York time, on such date.

 

f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

 

g) Failure to Deliver Common Stock Prior to Deadline. Without limiting Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion or adjustment of this Exchange Note is not delivered by the Deadline, Borrower shall pay to Holder $1,000.00 per day in cash, for each day beyond the Deadline that Borrower fails to deliver such Common Stock to Holder. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of Holder, shall be added to the principal amount of this Exchange Note, in which event interest shall accrue thereon in accordance with the terms of this Exchange Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Exchange Note. Borrower agrees that the right to convert and/or receive shares in the event of an adjustment is a valuable right to Holder. The damages resulting from a failure, attempt to frustrate, or interference with such conversion or adjustment right are difficult, if not impossible, to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

h) Rule 144. Borrower acknowledges that it will take all reasonable steps necessary or appropriate, including accepting an opinion of counsel to Holder confirming the rights of Holder to sell shares of Common Stock issued to Holder on conversion or adjustment of the Exchange Note pursuant to Rule 144. So long as the requested sale may be made pursuant to Rule 144 Borrower agrees to accept an opinion of counsel to Holder which opinion will be issued at Borrower’s expense.

 

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i) Charges and Expenses. Issuance of Common Stock to Holder, or any of its assignees, upon the conversion of this Exchange Note shall be made without charge to Holder for any issuance fee, transfer tax, legal opinion and related charges, postage/mailing charge or any other expense with respect to the issuance of such Common Stock. Company shall pay all Transfer Agent fees incurred from the issuance of the Common Stock to Holder, as well as any and all other fees and charges required by the Transfer Agent as a condition to effectuate such issuance. Any such fees or charges as noted in this Section that are paid by Holder (whether from Borrower’s delays, outright refusal to pay, or otherwise), will be automatically added to the Principal Amount of the Exchange Note and tack back to the Issue Date herein for purposes of Rule 144.

 

1.21. Restricted Securities. The shares of Common Stock issuable upon conversion or adjustment of this Exchange Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act; or, (ii) Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; or, (iii) such shares are sold or transferred pursuant to Rule 144; or, (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined under the Act). Any legend set forth on any stock certificate evidencing any Conversion Shares shall be removed and Borrower shall issue to Holder a new certificate therefore free of any transfer legend if (i) Borrower or its transfer agent shall have received an opinion of counsel form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be reasonably acceptable to Borrower; or, (ii) in the case of the Common Stock issued or issuable upon conversion of this Exchange Note, such security is registered for sale by Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.

 

1.22. Effect of Certain Events.

 

a) Effect of Merger, Consolidation, Etc. At the option of Holder, the sale, conveyance or disposition of all or substantially all of the assets of Borrower, the effectuation by Borrower of a transaction or series of related transactions in which more than 50% of the voting power of Borrower is disposed of, or the consolidation, merger or other business combination of Borrower with or into any other Person (as defined below) or Persons when Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which Borrower shall be required to pay to Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

 

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b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Exchange Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of Borrower other than in connection with a plan of complete liquidation of Borrower, then Holder of this Exchange Note shall thereafter have the right to receive upon conversion of this Exchange Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which Holder would have been entitled to receive in such transaction had this Exchange Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of Holder of this Exchange Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Exchange Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time, for clarification, Holder shall be entitled to convert this Exchange Note) and (b) the resulting successor or acquiring entity assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

 

c) Adjustment Due to Distribution. If Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then Holder of this Exchange Note shall be entitled, upon any conversion of this Exchange Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. Such assets shall be held in escrow by the Company pending any such conversion

 

d) Purchase Rights. If, at any time when any part of the Exchange Note remains outstanding, Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Exchange Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are determined for the grant, issue or sale of such Purchase Rights.

 

e) Stock Splits. If the Company, at any time while this Exchange Note is outstanding: (i) subdivides outstanding shares of Common Stock into a larger number of shares; (ii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (iii) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, such action shall NOT affect or alter the Conversion Price, notwithstanding the number of times said action may be taken.

 

1.23. Revocation. If any Conversion Shares are not received by the Deadline, Holder may revoke the Conversion pursuant to which the Conversion Shares were issuable. This Exchange Note shall remain convertible after the Maturity Date hereof until this Exchange Note is repaid or converted in full.

 

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1.24. Repayment. Notwithstanding anything to the contrary contained in this Exchange Note, at no time shall Borrower have the right to prepay any part or all of the outstanding balance on this Exchange Note prior to the Maturity Date. Borrower has expressly and knowingly forever forfeited any and all rights to prepay the Exchange Note. However, Borrower shall continue to have the right to repay all obligations hereunder on, as of, and after the Maturity Date.

 

ARTICLE II. CERTAIN COVENANTS

 

2.9. Charter. So long as any part of this Exchange Note remains unpaid, Borrower shall not amend its charter documents, including without limitation its articles of incorporation and bylaws, in any manner that materially and adversely affects any rights of Holder.

 

2.10. Transfer Agent. Borrower shall not change its transfer agent absent 5-days prior written notice to Holder. Any resignation by the transfer agent without a replacement transfer agent prior to such replacement taking effect shall constitute an Event of Default.

 

2.11. Unconditional Obligation; No Offset. Borrower acknowledges that this Exchange Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Holder, its successors and assigns, and agrees to make the payments and conversions called for herein in accordance with the terms of this Exchange Note.

 

2.12. Exchange. This Exchange Note is issued solely in exchange for the Warrants, and is expressly intended to satisfy all applicable requirements of Section 3(a)(9) of the Act. Borrower and Holder each represent and agree that (i) no additional consideration has been requested of or received from Holder; (ii) no additional consideration has been provided to Holder; and, (iii) Borrower has not paid any commission or remuneration for the solicitation of the exchange of the Warrants for this Exchange Note. Upon issuance of this Exchange Note, the Warrants shall be null and void and of no further force and effect.

 

ARTICLE III. EVENTS OF DEFAULT

 

Any one or more of the following events which shall occur and/or be continuing shall constitute an event of default (each, an “Event of Default”):

 

3.43. Failure to Pay Principal or Interest. Borrower fails to pay the principal hereof or interest thereon when due on this Exchange Note, whether at maturity, upon acceleration or otherwise.

 

3.44. Conversion and the Shares. Borrower fails to issue shares of Common Stock to Holder (or announces or threatens in writing that it will not honor its obligation to do so at any time following the execution hereof or) upon exercise by Holder of the conversion rights of Holder in accordance with the terms of this Exchange Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note, Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to Holder upon conversion of or otherwise pursuant to this Exchange Note as and when required by this Exchange Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for five (5) business days after Holder shall have delivered a Notice of Conversion. It is an obligation of Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Exchange Note, if a conversion of this Exchange Note is delayed, hindered or frustrated due to a balance owed by Borrower to its transfer agent. If at the option of Holder, Holder advances any funds to Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by Borrower to Holder within forty eight (48) hours of a demand from Holder.

 

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3.45. Breach of Covenants. Borrower breaches any material covenant or other material term or condition contained in this Exchange Note and such breach continues for a period of seven (7) days after written notice thereof to Borrower from Holder.

 

3.46. Breach of Representations and Warranties. Any representation or warranty of Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of Holder with respect to this Exchange Note.

 

3.47. Receiver or Trustee. Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

 

3.48. Judgments. Any money judgment, writ or similar process shall be entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than $100,000.00, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by Holder, which consent will not be unreasonably withheld.

 

3.49. Bankruptcy. Bankruptcy, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against Borrower or any subsidiary of Borrower.

 

3.50. Delisting of Common Stock. Borrower shall fail to maintain the listing of the Common Stock on at least one of the Pink Sheets or OTCQB or an equivalent replacement exchange, NASDAQ, NYSE, or AMEX.

 

3.51. Failure to Comply with the Exchange Act. Borrower shall fail to comply in any material respect with the reporting requirements of the Exchange Act; shall cease to be subject to the reporting requirements of the Exchange Act; or, shall fail to remain current in its filings with the SEC. The possible reduction in the Conversion Price under Section 1.2(a) is an additional result of, and not an alternative remedy for, a breach of this Section 3.9.

 

3.52. Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

 

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3.53. Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of Borrower’s ability to continue as a “going concern” shall not be an admission that Borrower cannot pay its debts as they become due.

 

3.54. Maintenance of Assets. The failure by Borrower, during the term of this Exchange Note, to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).

 

3.55. Financial Statement Restatement. The restatement of any financial statements filed by Borrower with the SEC for any date or period from two years prior to the Issue Date of this Exchange Note and until this Exchange Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of Holder with respect to this Exchange Note.

 

3.56. Reverse Splits. Borrower effectuates a reverse split of its Common Stock without ten (10) days prior written notice to Holder.

 

3.57. Replacement of Transfer Agent. In the event that Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, to the replacement transfer agent a fully executed copy of this Exchange Note.

 

3.58. Cross-Default. Notwithstanding anything to the contrary contained in this Exchange Note or the other related or companion documents, a breach or default by Borrower of any covenant or other term or condition contained in any of the Other Agreements (as defined below), after the passage of all applicable notice and cure or grace periods, shall, at the option of Holder, be considered a default under this Exchange Note, in which event Holder shall be entitled (but in no event required) to apply all rights and remedies of Holder under the terms of this Exchange Note. For purposes of this Exchange Note, “Other Agreements” means, collectively, all agreements and instruments between, among, or by Borrower, and, or for the benefit of, Holder and any affiliate of Holder, including, without limitation, any other promissory notes issued by Borrower in favor of Holder.

 

3.59. Inside Information. Borrower or its officers, directors, and/or affiliates attempt to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by Borrower or its officers, directors, and/or affiliates of, material non-public information concerning Borrower, to Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.

 

3.60. Bid Price. Borrower shall lose the “bid” price for its Common Stock ($0.0001 on the “Ask” with zero market makers on the “Bid” per Level 2) and/or a market (including the OTC Pink, OTCQB or an equivalent replacement exchange).

 

3.61. Insolvency. Borrower becomes insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any.

 

3.62. DWAC. Borrower fails to remain DWAC eligible.

 

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3.63. Consequences of Event of Default. Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date) or Section 3.2, the Exchange Note shall become immediately due and payable and Borrower shall pay to Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1, and/or 3.3 through and including 3.20, exercisable through the delivery of written notice to Borrower by Holder (the “Default Notice”), and upon the occurrence of an Event of Default specified in the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3.1, hereof), the Exchange Note shall become immediately due and payable and Borrower shall pay to Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Exchange Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Exchange Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) “Default Interest”, if any, in the amount of eighteen percent (18%) per annum from the date of the Event of Default on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Exchange Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

If Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then Holder shall have the right at any time, so long as Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of Borrower equal to the Default Amount divided by the Conversion Price then in effect. Holder may still convert any amounts due hereunder, including without limitation, the Default Sum, until such time as this Exchange Note has been repaid in full.

 

ARTICLE IV. MISCELLANEOUS

 

4.27. Failure or Indulgence Not Waiver. No failure or delay on the part of Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.28. Notices. 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 being sent; (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. Each party hereby expressly consents to the use of Electronic Transmission for communications and notices under this Exchange Note. For purposes of this Exchange Note, “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.

 

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4.29. Amendments. This Exchange Note and any provision hereof may only be amended by an instrument in writing signed by Borrower and Holder. The term “Exchange Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

4.30. Assignability. This Exchange Note shall be binding upon Borrower and its successors and assigns, and shall inure to be the benefit of Holder and its successors and assigns. Borrower may not assign this Exchange Note without the prior written consent of Holder. This Exchange Note, and nay portion thereof, and any share of Common Stock issued upon the conversion of this Exchange Note, may be offered, sold, assigned, pledged, or transferred by Holder without the consent of Borrower.

 

4.31. Cost of Collection. If default is made in the payment of this Exchange Note, Borrower shall pay Holder hereof costs of collection, including reasonable attorneys’ fees.

 

4.32. Governing Law. This Exchange Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to conflicts of laws principles that would result in the application of the substantive laws of another jurisdiction. Any action brought by either party against the other concerning the transactions contemplated by this Agreement must be brought only in (i) the state courts in Wake County, North Carolina. Both parties agree to submit to the jurisdiction of such courts. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Exchange Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of this Exchange Note. Nothing contained herein shall be deemed or operate to preclude Holder from bringing suit or taking other legal action against Borrower in any other jurisdiction to collect on Borrower’s obligations to Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other decision in favor of Holder.

 

4.33. Certain Amounts. Whenever pursuant to this Exchange Note Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, Borrower and Holder agree that the actual damages to Holder from the receipt of cash payment on this Exchange Note may be difficult to determine and the amount to be so paid by Borrower represents stipulated damages and not a penalty and is intended to compensate Holder in part for loss of the opportunity to convert this Exchange Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Exchange Note at a price in excess of the price paid for such shares pursuant to this Exchange Note. Borrower and Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to Holder from the receipt of a cash payment without the opportunity to convert this Exchange Note into shares of Common Stock.

 

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4.34. Disclosure. Upon receipt or delivery by Borrower of any notice in accordance with the terms of this Exchange Note, unless Borrower has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to Borrower, Borrower shall within four (4) days after any such receipt or delivery, publicly disclose such material, non-public information on a Current Report on Form 8-K, or such similar disclosure in accordance with the rules of the OTC Markets. In the event that Borrower believes that a notice contains material, non-public information relating to Borrower, Borrower so shall indicate to Holder contemporaneously with delivery of such notice, and in the absence of any such indication, Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information relating to Borrower.

 

4.35. Notice of Corporate Events. Except as otherwise expressly provided for herein, Holder shall have no rights as a holder of Common Stock unless and only to the extent that it converts this Exchange Note into Common Stock.

 

4.36. Remedies. Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, Borrower acknowledges that the remedy at law for a breach of its obligations under this Exchange Note will be inadequate and agrees, in the event of a breach or threatened breach by Borrower of the provisions of this Exchange Note, that Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Exchange Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

4.37. Voluntary Agreement. Holder has carefully read this Exchange Note and has asked any questions needed for Holder to understand the terms, consequences and binding effect of this Exchange Note and fully understand them. Holder has had the opportunity to seek the advice of an attorney of Holder’s choosing, or has waived the right to do so, and is executing this Exchange Note voluntarily and without any duress or undue influence by Borrower or anyone else.

 

4.38. Accredited Investor Status. Holder is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Act.

 

4.39. Severability. If any part of this Exchange Note is construed to be in violation of any law, such part shall be modified to achieve the objective of Borrower and Holder to the fullest extent permitted by law and the balance of this Exchange Note shall remain in full force and effect.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, Borrower and Holder has each caused this Exchange Note to be signed in its respective name by its duly authorized officer as of the Issue Date first set forth above.

 

DATA443 RISK MITIGATION, INC.,

a Nevada corporation

 

BY:    
     
NAME:     
     
TITLE:    

 

ACKNOWLEDGED, ACCEPTED, AND AGREED:

 

BY:    
     
NAME:  STAN HOLZAEPFEL   

 

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EXHIBIT A

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert the amount referenced below under and pursuant to that certain Stan H. Exchange Convertible Promissory Note dated 17 November 2020 and issued in the original principal amount of $11,972 (the “Exchange Note”) by DATA443 RISK MITIGATION, INC., a Nevada corporation (the Company”), into shares of common stock of the Company (the “Common Stock”), in accordance with the terms and conditions of the Exchange Note and as provided for herein, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 1.1 of this Exchange Note, as determined in accordance with Section 13(d) of the Exchange Act.

 

CONVERSION CALCULATIONS:

 

  Date of Conversion: ____________________ Conversion Price: ____________________
  Principal Amount Converted: ________________ Interest Converted: ____________________
  Number of Shares of Common Stock to be Issued: ___________________________
  Remaining Principal Balance of the Exchange Note: ___________________________

 

HOLDER: ____________________________

 

Authorized Signature: ____________________________

 

  Name: ____________________________
     
  Title: ____________________________

 

Address for Delivery of Certificates: _____________________________________
   
  _____________________________________
   
  _____________________________________

 

OR

 

DWAC Instructions: Broker #: _____________________________________
     
  Account #: _____________________________________

 

OR

 

Other Instructions:

 

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Exhibit 10.24 

 

 

SETTLEMENT AND RELEASE

AGREEMENT

 

 

BLUE CITI LLC

 

and

 

DATA443 RISK MITIGATION, INC.

 

_____________, 2020

 

 
 

 

SETTLEMENT AND RELEASE AGREEMENT

 

 

I

PARTIES

 

THIS SETTLEMENT AND RELEASE AGREEMENT (the “Agreement”) is entered into this ____ day of ____________, 2020 (the “Effective Date”), by and between BLUE CITI LLC, a New York Limited liability company (“Blue Citi”); and, DATA443 RISK MITIGATION, INC., a Nevada corporation (“ATDS”). Blue Citi and ATDS are sometimes referred to collectively herein as the “Parties”, and each individually as a “Party”.

 

II

RECITALS

 

A. ATDS previously issued in favor of SMEA2Z LLC, a Wyoming limited liability company (“Smea2z”), that certain 8% Convertible Redeemable Note in the original principal amount of Two Hundred Twenty Thousand Dollars ($220,000) on 23 October 2018, with a maturity date of 23 July 2019 (the “Smea2z Note”).

 

B. Subsequent to the issuance of the Smea2z Note, ATDS and Smea2z entered into a series of agreements which amended various terms and conditions of the Smea2z Note, resulting in a purported current principal balance of Six Hundred Thousand Eight Hundred Fifty Dollars ($608,850), and a maturity date of 30 June 2021.

 

C. Pursuant to an Assignment Agreement dated 22 September 2020 by and between Smea2z and Blue Citi, Blue Citi acquired any and all rights arising under and related to the Smea2z Note, with Smea2z retaining no rights whatsoever in, under, or related to the Smea2z Note.

 

D. The Parties disagree as to various aspects of the Smea2z Note, including, without limitation, the enforceability of the Smea2z Note and the principal balance due thereunder.

 

E. This Agreement is to specifically encompass all of the claims and related factual and legal circumstances regarding the Smea2z Note, as well as other specifically identified obligations referenced herein (collectively referred to as the “Disputes”).

 

F. The Parties are desirous of settling the Disputes and releasing each other from all future liability, expect as expressly provided for herein to the contrary.

 

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

RELEASE

 

3.1 Exchange and Hold Harmless. In consideration of the covenants, promises, and satisfaction of the obligations contained in this Agreement, and other good and valuable consideration, the receipt and value of which is hereby confirmed, Blue Citi on the one hand, and ATDS on the other hand, shall hereby fully, finally, and forever settle and release each other and their respective executors, administrators, successors, assigns, directors, officers, shareholders, members, managers, owners, affiliates, and attorneys from any and all known and unknown claims of every nature and kind whatsoever, losses, fines, penalties, damages, demands, judgments, debts, obligations, interests, liabilities, causes of action, breaches of duty, costs, expenses, and injunctions of any nature whatsoever, whether known or unknown, arising under or related to the Disputes.

 

1
 

 

3.2 Express Waiver of Certain Rights. The Parties hereby agree that the release of claims hereunder shall expressly include (i) any and all known and unknown claims of every nature and kind whatsoever which the Parties now or hereafter may have with respect to each other with regard to ands arising under the Disputes; (ii) the complete cancellation and termination of the Smea2z Note; and, (iii) the irrevocable waiver by ATDS of all rights of offset, defense, or counterclaims with respect to the enforceability of the Exchange Note and all other promissory notes issued by ATDS in favor of Blue Citi (cumulatively referred to herein as the “Released Claims”).

 

3.3 Issuance of Exchange Note. In exchange for the Smea2z Note, and intended to satisfy all applicable requirements of Section 3(a)(9) of the Securities Act of 1933, as amended from time-to-time (the “Act”), upon execution hereof, ATDS shall issue in favor of Blue Citi the Smea2z Exchange Convertible Promissory Note in the original principal amount of Four Hundred Thousand Dollars ($400,000), in the form of Exhibit 3.3, attached hereto and incorporated herein by reference (the “Exchange Note”).

 

3.4 After Acquired Information. The Parties acknowledge that they may hereafter discover information, facts, or circumstances different from or in addition to those which they now know or believe to be true. This Agreement shall remain in full force and effect in all respects notwithstanding such discovery, and the Parties expressly accept and assume the risk of such possible additions to or differences from those facts now known or believed to be true.

 

3.5 Enforceability. The enforceability of this Agreement is conditioned upon ATDS satisfying its obligations under the Exchange Note, as well as all other obligations hereunder.

 

3.6 No Prior Assignment of Released Claims. The Parties hereby covenant that none of the Released Claims has been assigned to any other person, and that no other person has any interest in any of the Released Claims. In the event any other person asserts any interest with respect to the Released Claims, then the Party breaching this covenant shall indemnify the Party against whom such claim is asserted for any and all damages, costs, and fees.

 

3.7 Specific Exclusions. It is expressly understood that the release contained in this Agreement does not encompass the promises and obligations of the Parties under this Agreement. This Agreement also does not contemplate or include within the release hereunder post-Effective Date intentionally willful, tortious, or criminal acts of either Party, such acts being expressly excluded from this Agreement.

 

3.8 No Admission of Liability. Notwithstanding the terms and conditions of this Agreement, execution hereof shall in no manner or form constitute the admission of liability or responsibility of either Party in respect to the Disputes.

 

3.9 Independent Legal Counsel. The Parties to this Agreement warrant, represent, and agree that in executing this Agreement, they do so with full knowledge of the rights each may have with respect to the other Parties, and that each has received, or has had the opportunity to receive, independent legal advice as to these rights. Each of the Parties has executed this Agreement with full knowledge of these rights, and under no fraud, duress, or undue influence.

 

3.10 Disclosure. The Parties agree that ATDS shall be entitled to (i) issue a press release regarding the release hereunder and the issuance of the Exchange Note; and, (ii) file a form 8-K with the Securities and Exchange Commission in order to satisfy applicable federal securities laws.

 

IV

ADDITIONAL REPRESENTATIONS AND WARRANTIES OF BLUE CITI

 

Blue Citi hereby further represents and warrants to ATDS as follows as of the Effective Date:

 

4.1 Execution and Performance of Agreement. Blue Citi 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 transactions contemplated hereunder. All requisite proceedings and actions have been taken and all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance of this Agreement by Blue Citi have been obtained. This Agreement has been duly and validly executed and delivered by Blue Citi and constitutes the valid, binding, and enforceable obligation of Blue Citi except as such enforcement may be limited by laws such as 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).

 

2
 

 

4.2 Effect of Agreement. 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:

 

(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 Blue Citi;

 

(b) Violate the terms of the formation documents or other governing documents of Blue Citi; or

 

(c) Result in the breach of, or constitute a default under, any agreement, commitment, contract (written or oral), or other instrument under which Blue Citi is obligated.

 

4.3 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 Agreement and the performance of any obligations of Blue Citi contemplated hereunder.

 

4.4 Accredited Investor. Blue Citi is an “accredited investor”, as that term is defined under the Act.

 

V

ADDITIONAL REPRESENTATIONS AND WARRANTIES OF ATDS

 

ATDS hereby further represents and warrants to Blue Citi as follows as of the Effective Date:

 

5.1 Execution and Performance of Agreement. ATDS 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 transactions contemplated hereunder. All requisite proceedings and actions have been taken and all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance of this Agreement by ATDS have been obtained. This Agreement has been duly and validly executed and delivered by ATDS and constitutes the valid, binding, and enforceable obligation of ATDS except as such enforcement may be limited by laws such as 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).

 

5.2 Effect of Agreement. As of the Effective Date the consummation by ATDS 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 ATDS; or

 

(b) Violate the terms of the formation documents or other governing documents of ATDS; or

 

(c) Result in the breach of, or constitute a default under, any agreement, commitment, contract (written or oral), or other instrument under which ATDS is obligated.

 

3
 

 

5.3 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 of ATDS contemplated hereunder.

 

VI

ADDITIONAL PROVISIONS

 

6.1 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.

 

6.2 Entire Agreement. This Agreement, and all references, documents, or instruments referred to herein, contains the entire agreement and understanding of the Parties regarding the Disputes. 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.

 

6.3 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.

 

6.4 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, Manhattan County, shall be the sole jurisdiction and venue for the bringing of such action.

 

6.5 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.

 

6.6 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.

 

6.7 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.

 

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

 

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

 

6.10 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 not assignable by either Party without the expressed written consent of all Parties.

 

6.11 No Third Party Beneficiaries. This Agreement has been entered into solely by and between ATDS and Blue Citi, solely for their benefit. Except as otherwise provided in Section 3.1, above, there is no intent by either 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.

 

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

 

6.13 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.

 

6.14 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.

 

6.15 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.

 

6.16 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 6.16.

 

6.17 Notices.

 

6.17.1. Method and Delivery. All notices, requests, and demands hereunder shall be in writing and delivered by hand; Electronic Transmission; mail; or, recognized commercial over-night delivery service (Federal Express, e.g.), and shall be deemed given if (a) by hand delivery, upon such delivery; (b) by Electronic Transmission, 24-hours after transmission of same; (c) by mail, 48-hours after deposit in the U.S. mail, first class, registered or certified mail, postage prepaid; or, (d) by recognized commercial over-night delivery service, upon such delivery.

 

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6.17.2. 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.

 

6.17.3. 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 6.17.

 

6.18 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 6.19 shall not include any obligation to incur substantial expense or liability.

 

6.19 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 SETTLEMENT AND RELEASE 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.

 

EACH PARTY HAS CAREFULLY READ THIS AGREEMENT. ITS CONTENTS AND THE RELEASE CONTAINED HEREIN HAVE BEEN FULLY EXPLAINED TO EACH PARTY BY ITS RESPECTIVE ATTORNEY, OR THE PARTY HAS VOLUNTARILY ELECTED NOT TO SEEK THE ADVICE OF AN ATTORNEY. EACH PARTY FULLY UNDERSTANDS THE FINAL AND BINDING EFFECT OF THIS AGREEMENT. ALL PROMISES OR REPRESENTATIONS MADE TO EACH PARTY ABOUT THIS AGREEMENT, OR TO INDUCE THEM TO SIGN THIS AGREEMENT, ARE CONTAINED IN THIS AGREEMENT. EACH PARTY IS SIGNING THIS AGREEMENT KNOWINGLY AND VOLUNTARILY.

 

BLUE CITI: ATDS:
   
BLUE CITI LLC, DATA443 RISK MITIGATION, INC.,
a New York limited liability company a Nevada corporation
   
BY: ___________________________ BY: ___________________________
   
NAME: ________________________ NAME: _________________________
   
TITLE: ________________________ TITLE: ________________________

 

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EXHIBIT 3.3

EXCHANGE NOTE

 

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Exhibit 10.26

 

BLUE CITI NOTES SETTLEMENT AGREEMENT

 

 

I

PARTIES

 

THIS BLUE CITI NOTES SETTLEMENT AGREEMENT (the “Agreement”) is entered into as of the 8th day of February, 2021 (the “Effective Date”), by and between BLUE CITI LLC, a New York limited liability company (“Blue Citi”); and, DATA443 RISK MITIGATION, INC., a Nevada corporation (“Data443”). Data443 and Blue Citi are sometimes referred to collectively herein as the “Parties”, and each individually as a “Party”.

 

II

RECITALS

 

A. Data443 previously issued in favor of Blue Citi the following convertible promissory notes, collectively referred to herein as the “Convertible Notes”:

 

(i) Convertible note in the original principal amount of Two Hundred Thousand Dollars ($200,000) issued on 08 January 2020 (the “Credit Line Note”);

 

(ii) Convertible note in the original principal amount of Twenty Five Thousand Dollars ($25,000) issued on 01 July 2020 (the “Penalty Note”);

 

(iii) Convertible note in the original principal amount of One Hundred Fifty Thousand Dollars ($150,000) issued on 01 July 2020 (the “July $150K Note”);

 

(iv) Convertible note in the original principal amount of Two Hundred Thousand Dollars ($200,000) issued on 03 August 2020 (the “August $200K Note”);

 

(v) Convertible note in the original principal amount of Three Hundred Thousand Dollars ($300,000) issued on 24 August 2020 (the “August $300K Note”);

 

(vi) Convertible note in the original principal amount of Three Hundred Twenty Five Thousand Dollars ($325,000) issued on 30 September 2020 and which was issued in exchange for that certain note referred to as the Granite Note (the “Granite Exchange Note”); and

 

(vii) Convertible note in the original principal amount of Four Hundred Thousand Dollars ($400,000) issued on 17 November 2020 and which served to replace that certain note referred to as the Smea2z Note (the “Smea2z Exchange Note”).

 

B. The Convertible Notes have been modified, amended, or otherwise restructured in some manner or form since issuance. The Parties expressly agree that this Agreement shall supersede all previous modifications, amendments, and restructurings regarding to each of the Convertible Notes.

 

C. The Parties disagree as to various aspects of the Convertible Notes, including, without limitation, the enforceability of the Convertible Notes and the principal balance due under each of the respective Convertible Notes.

 

D. This Agreement is to specifically encompass all of the claims and related factual and legal circumstances regarding each of the Convertible Notes, as well as other specifically identified obligations referenced herein (collectively referred to as the “Disputes”).

 

E. The Parties are desirous of settling the Disputes and releasing each other from all future liability, expect as expressly provided for herein to the contrary.

 

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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

CONFIRMATION OF OBLIGATIONS; AMENDED AND NEW COVENANTS

 

3.1 Absence of Certain Rights. Data443 hereby acknowledges and agrees that as of the Effective Date, Data443 has no right of offset, defense, or counterclaim with respect to or under any of the Convertible Notes.

 

3.2 Continued Effectiveness. Except as otherwise expressly set forth in this Agreement, the terms and conditions of each of the Convertible Notes remain unchanged, and each of the Convertible Notes shall remain in full force and effect, and each is hereby confirmed and ratified. Data443 shall continue to perform and observe all terms and conditions of each of the Convertible Notes, as modified under this Agreement.

 

3.3 No Novation. This Agreement shall not be deemed or construed to be a satisfaction, reinstatement, novation, or release of any of the Convertible Notes, or, except as otherwise expressly provided herein, a waiver by Blue Citi of any of its rights or remedies under any of the Convertible Notes, at law or in equity.

 

3.4 Reaffirmation. Data443 hereby reaffirms each and every covenant, condition, obligation, and provision set forth in each of the Convertible Notes, as modified under this Agreement.

 

3.5 Conflicting Terms. In the event of any conflict or inconsistency between this Agreement and any of the Convertible Notes, and the terms of this Agreement shall expressly control.

 

3.6 Share Reserve. With regard to the reserve of shares of common stock of Data443 (the “Common Stock”) for the benefit of Blue Citi, a single reserve account will be maintained for conversion under all of the Convertible Notes with the transfer agent for Data443 (the “Reserve Account”). The Reserve Account shall at all times have a balance of least fifty million (50,000,000) shares of Common Stock, except for the when the number of shares of Common Stock to be converted under the Convertible Notes is less than fifty million, at which time the balance of the Reserve Account shall be no less than the number of shares of Common Stock to be converted under the Convertible Notes.

 

3.7 Accrued and Unpaid Interest. All accrued and unpaid interest under the Convertible Notes shall be nullified in full and be deemed to be zero as part of the mutual settlement provisions hereunder. No further interest of any amount shall accrue on any of the Convertible Notes.

 

3.8 Conversion of all Convertible Notes. Each of the Convertible Notes shall be converted into shares of Common Stock as quickly as possible, provided that:

 

(a) The Smea2z Exchange Note shall be converted first; and

 

(b) At no time shall the total ownership of shares of Common Stock by Blue Citi exceed 9.99% of the total number of issued and outstanding shares of Common Stock.

 

3.9 Credit Line Note: The Credit Line Note shall have a fixed conversion price of $0.01, resulting in the issuance of 20,000,000 shares upon conversion.

 

3.10 Penalty Note. The Penalty Note shall be nullified in full and be deemed to be zero as part of the mutual settlement provisions hereunder. The Penalty Note shall be of no further force and effect.

 

3.11 July $150K Note. The July $150K Note shall have a fixed conversion price of $0.01, resulting in the issuance of 15,000,000 shares upon conversion.

 

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3.12 August $200K Note. The August $200K Note shall have a fixed conversion price of $0.005, resulting in the issuance of 40,000,000 shares upon conversion.

 

3.13 August $300K Note. The August $300K Note shall have a fixed conversion price of $0.005, resulting in the issuance of 60,000,000 shares upon conversion.

 

3.14 Granite Exchange Note. The Granite Exchange Note shall have a fixed conversion price of $0.015, resulting in the issuance of 21,666,667 shares upon conversion.

 

3.15 Smea2z Exchange Note. The Smea2z Exchange Note shall have a fixed conversion price of $0.0035, resulting in the issuance of 34,285,714 shares upon conversion.

 

3.16 No Cash Payment Permitted. Data443 shall have no right to prepayment, or any other right to repay in cash, under any of the Convertible Notes. Similarly, Blue Citi shall have no right to demand cash payment under any of the Convertible Notes.

 

3.17 Leak-Out Provision. As of and after the Effective Date, sales of Common Stock by Blue Citi shall be limited to a maximum of fifty million (50,000,000) shares of Common Stock each calendar week. However, in the event that the total volume of traded shares for the Common Stock exceeds three hundred million (300,000,000) in any calendar week, then the trading limitation for the following calendar week shall be increased to seventy five million (75,000,000) shares of Common Stock.

 

IV

RELEASE

 

4.1 Exchange and Hold Harmless. In consideration of the covenants, promises, and satisfaction of the obligations contained in this Agreement, and other good and valuable consideration, the receipt and value of which is hereby confirmed, Blue Citi on the one hand, and Data443 on the other hand, shall hereby fully, finally, and forever settle and release each other and their respective executors, administrators, successors, assigns, directors, officers, shareholders, members, managers, owners, affiliates, and attorneys from any and all known and unknown claims of every nature and kind whatsoever, losses, fines, penalties, damages, demands, judgments, debts, obligations, interests, liabilities, causes of action, breaches of duty, costs, expenses, and injunctions of any nature whatsoever, whether known or unknown, arising under or related to the Disputes.

 

4.2 Express Waiver of Certain Rights. The Parties hereby agree that the release of claims hereunder shall expressly include (i) any and all known and unknown claims of every nature and kind whatsoever which the Parties now or hereafter may have with respect to each other with regard to ands arising under the Disputes; (ii) the complete cancellation and termination of the Penalty Note; (iii) the elimination of all accrued and unpaid interest in all of the Convertible Notes; and, (iv) the irrevocable waiver by Data443 of all rights of offset, defense, or counterclaims with respect to the enforceability of the Exchange Note and all other promissory notes issued by Data443 in favor of Blue Citi (cumulatively referred to herein as the “Released Claims”).

 

4.3 After Acquired Information. The Parties acknowledge that they may hereafter discover information, facts, or circumstances different from or in addition to those which they now know or believe to be true. This Agreement shall remain in full force and effect in all respects notwithstanding such discovery, and the Parties expressly accept and assume the risk of such possible additions to or differences from those facts now known or believed to be true.

 

4.4 Enforceability. The enforceability of this Agreement is conditioned upon each Party satisfying its respective obligations hereunder.

 

4.5 No Prior Assignment of Released Claims. The Parties hereby covenant that none of the Released Claims has been assigned to any other person, and that no other person has any interest in any of the Released Claims. In the event any other person asserts any interest with respect to the Released Claims, then the Party breaching this covenant shall indemnify the Party against whom such claim is asserted for any and all damages, costs, and fees.

 

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4.6 Specific Exclusions. It is expressly understood that the release contained in this Agreement does not encompass the promises and obligations of the Parties under this Agreement. This Agreement also does not contemplate or include within the release hereunder post-Effective Date intentionally willful, tortious, or criminal acts of either Party, such acts being expressly excluded from this Agreement.

 

4.7 No Admission of Liability. Notwithstanding the terms and conditions of this Agreement, execution hereof shall in no manner or form constitute the admission of liability or responsibility of either Party in respect to the Disputes.

 

4.8 Independent Legal Counsel. The Parties to this Agreement warrant, represent, and agree that in executing this Agreement, they do so with full knowledge of the rights each may have with respect to the other Parties, and that each has received, or has had the opportunity to receive, independent legal advice as to these rights. Each of the Parties has executed this Agreement with full knowledge of these rights, and under no fraud, duress, or undue influence.

 

4.9 Disclosure. The Parties agree that Data443 shall be entitled to (i) issue a press release regarding the release hereunder and the terms and conditions of this Agreement; and, (ii) file a form 8-K with the Securities and Exchange Commission in order to satisfy applicable federal securities laws.

 

V 

ADDITIONAL REPRESENTATIONS AND WARRANTIES OF BLUE CITI

 

Blue Citi hereby further represents and warrants to Data443 as follows as of the Effective Date:

 

5.1 Execution and Performance of Agreement. Blue Citi 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 transactions contemplated hereunder. All requisite proceedings and actions have been taken and all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance of this Agreement by Blue Citi have been obtained. This Agreement has been duly and validly executed and delivered by Blue Citi and constitutes the valid, binding, and enforceable obligation of Blue Citi except as such enforcement may be limited by laws such as 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).

 

5.2 Effect of Agreement. 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:

 

(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 Blue Citi;

 

(b) Violate the terms of the formation documents or other governing documents of Blue Citi; or

 

(c) Result in the breach of, or constitute a default under, any agreement, commitment, contract (written or oral), or other instrument under which Blue Citi is obligated.

 

5.3 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 Agreement and the performance of any obligations of Blue Citi contemplated hereunder.

 

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5.4 Accredited Investor. Blue Citi is (i) an “accredited investor”, as that term is defined in Rule 501 under the Securities Act of 1933, as amended from time-to-time (the “Act”); (ii) experienced in making investments of the kind described in this Agreement and the related documents; and, (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 Data443 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 entering in to this Agreement.

 

5.5 Investigation and Reliance. On or prior to the Effective Date, Blue Citi will have had an opportunity to inspect the books and records of Data443 and the filings of Data443 with the SEC. Blue Citi is executing this Agreement based upon its own independent investigation and evaluation of Data443 and its prospects, and the covenants, representations and warranties of Data443 set forth herein. Blue Citi is expressly not relying on any oral representations made by Data443 or any person affiliated with Data443.

 

VI

ADDITIONAL REPRESENTATIONS AND WARRANTIES OF DATA443

 

Data443 hereby further represents and warrants to Blue Citi as follows as of the Effective Date:

 

6.1 Execution and Performance of Agreement. Data443 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 transactions contemplated hereunder. All requisite proceedings and actions have been taken and all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance of this Agreement by Data443 have been obtained. 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 laws such as 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).

 

6.2 Effect of Agreement. As of the Effective Date the consummation by Data443 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 Data443; or

 

(b) Violate the terms of the formation documents or other governing documents of Data443; or

 

(c) Result in the breach of, or constitute a default under, any agreement, commitment, contract (written or oral), or other instrument under which Data443 is obligated.

 

6.3 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 of Data443 contemplated hereunder.

 

6.4 Enforceable Obligations. Each of the Convertible Notes constitutes a valid and legally binding obligation of Data443, enforceable against Data443 in accordance with the terms thereof subject to the effects of bankruptcy, insolvency, fraudulent conveyance, and other laws affecting creditors’ rights generally and to general equitable principals.

 

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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. 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 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 regarding the Disputes. 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.

 

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 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.

 

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, Manhattan County, shall be the sole jurisdiction and venue for such action.

 

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 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.

 

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.

 

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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 not assignable by either Party without the expressed written consent of all Parties.

 

7.11 No Third Party Beneficiaries. This Agreement has been entered into solely by and between Data443 and Blue Citi, solely for their benefit. Except as otherwise provided in Section 4.1, above, there is no intent by either 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.

 

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

 

7.13 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.

 

7.14 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.

 

7.15 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 7.15.

 

7.16 Notices.

 

7.16.1. Method and Delivery. All notices, requests, and demands hereunder shall be in writing and delivered by hand; Electronic Transmission; mail; or, recognized commercial over-night delivery service (Federal Express, e.g.), and shall be deemed given if (a) by hand delivery, upon such delivery; (b) by Electronic Transmission, 24-hours after transmission of same; (c) by mail, 48-hours after deposit in the U.S. mail, first class, registered or certified mail, postage prepaid; or, (d) by recognized commercial over-night delivery service, upon such delivery.

 

7.16.2. 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.

 

7.16.3. 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 7.16.

 

7.17 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 7.17 shall not include any obligation to incur substantial expense or liability.

 

7
 

 

7.18 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.

 

VIII

EXECUTION

 

IN WITNESS WHEREOF, this 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.

 

BLUE CITI: DATA443:
   
BLUE CITI LLC, DATA443 RISK MITIGATION, INC.,
a New York limited liability company a Nevada corporation

 

BY: __________________________ BY: __________________________
   
NAME: _______________________ NAME: _______________________
   
TITLE: _______________________ TITLE: _______________________
   
DATED: ______________________ DATED: ______________________

 

8

 

 

 

Exhibit 10.27

 

SECURITIES EXCHANGE AGREEMENT

 

 

I

PARTIES

 

THIS SECURITIES EXCHANGE AGREEMENT (the “Agreement”) is entered into this 12th day of February, 2021 (the “Effective Date”), by and between GENEVA ROTH REMARK HOLDINGS, INC., a New York corporation (“Geneva Roth”); and, DATA443 RISK MITIGATION, INC., a Nevada corporation (“ATDS”). Geneva Roth and ATDS are sometimes referred to collectively herein as the “Parties”, and each individually as a “Party”.

 

II

RECITALS

 

A. ATDS previously issued in favor of Geneva Roth that certain Convertible Promissory Note in the original principal amount of Sixty Three Thousand Dollars ($63,000) on 10 September 2020, with a maturity date of 10 September 2021 (the “Original Note”).

 

B. ATDS has a class of shares designated as the Series B Preferred Stock (the “Series B”), consisting of eighty thousand (80,000) authorized shares (stated value of $10.00 per share), as reflected in the Certificate of Designation for the Relative Rights and Preferences of the Series B Preferred Stock of Data443 Risk Mitigation, Inc. filed on 25 November 2020 with the Nevada Secretary of State (the “Certificate”).

 

C. The Parties wish to exchange the Original Note for shares of Series B, pursuant to the terms and conditions contained herein.

 

D. 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

EXCHANGE AND ISSUANCE

 

3.1 Exchange. Solely in exchange for the Original Note (no consideration other than the Original Note), and intended to satisfy all applicable requirements of Section 3(a)(9) of the Securities Act of 1933, as amended from time-to-time (the “Act”), and Rule 144(d)(3)(ii) under the Act, upon execution hereof, Geneva Roth shall exchange the Original Note for six thousand five hundred sixty (6,560) shares of Series B (the “Issued Shares”). The Original Note shall thereafter be cancelled and be of no further force and effect.

 

3.2 Issuance. The Issued Shares shall be deemed to have been issued as of and on 10 September 2020, with said date deemed to be the “Issuance Date” for all purposes under the Certificate. ATDS further represents and warrants to Geneva Roth as follows with regard to the Issued Shares:

 

(a) Upon issuance and delivery to Geneva Roth, the Issued Shares will be fully paid and nonassessable.

 

(b) The issuance of the Issued Shares will not be in violation of any preemptive rights or any federal or state securities laws.

 

(c) There are no outstanding subscriptions, options, warrants, calls, commitments, or agreements to which ATDS is a party or by which it is bound relating to the Issued Shares.

 

(d) Upon issuance and delivery to Geneva Roth, the Issued Shares will be owned beneficially and of record by Geneva Roth, free and clear of any lien or encumbrance whatsoever.

 

1
 

 

(e) ATDS has full and unrestricted right and power to issue and deliver the Issued Shares to Geneva Roth pursuant to the provisions of this Agreement without obtaining the consent or approval of any other person.

 

3.3 No Prior Assignment of Released Claims. Geneva Roth hereby covenants and agrees that no portion of the Original Note has been assigned to any other person, and that no other person has any interest in the Original Note.

 

3.4 Disclosure. The Parties agree that ATDS shall be entitled to (i) issue a press release regarding the transaction envisioned hereunder; and, (ii) file a form 8-K with the Securities and Exchange Commission in order to satisfy applicable federal securities laws.

 

V

ADDITIONAL PROVISIONS

 

6.1 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.

 

6.2 Entire Agreement. This Agreement, and all references, documents, or instruments referred to herein, contains the entire agreement and understanding of the Parties regarding the Disputes. 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.

 

6.3 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.

 

6.4 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, Manhattan County, shall be the sole jurisdiction and venue for the bringing of such action.

 

6.5 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.

 

2
 

 

6.6 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.

 

6.7 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.

 

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

 

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

 

6.10 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 not assignable by either Party without the expressed written consent of all Parties.

 

6.11 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 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.

 

6.12 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 6.12.

 

6.13 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 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.

 

[SIGNATURES APPEAR ON NEXT PAGE]

 

3
 

 

 

GENEVA ROTH: ATDS:
   
GENEVA ROTH REMARK HOLDINGS, INC., DATA443 RISK MITIGATION, INC.,
a New York corporation a Nevada corporation
   
BY: ___________________________ BY: ___________________________
   
NAME: Curt Kramer NAME: _________________________
   
TITLE: Chief Executive Officer TITLE: ________________________

 

4

 

 

 

Exhibit 10.28

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

 

 
 

 

 

 

 
 

 

 

 

 

 

 

Exhibit 10.29

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

 

 

 

Exhibit 10.30

 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

 

 

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%  

 

 

 

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Jason Remillard, Chief Executive Officer of Data443 Risk Mitigation, Inc., certify that:

 

1. I have reviewed this annual report on Form 10-K of Data443 Risk Mitigation, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: March 23, 2021 By: /s/ Jason Remillard
    JASON, REMILLARD,
    Chief Executive Officer

 

 

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER AND CHIEF OPERATING OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Jason Remillard, Chief Financial Officer of Data443 Risk Mitigation, Inc., certify that:

 

1. I have reviewed this annual report on Form 10-K of Data443 Risk Mitigation, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
     
  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: March 23, 2021 By: /s/ Jason Remillard
    JASON, REMILLARD,
    Chief Financial Officer

 

 

 

 

Exhibit 32.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. § 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Data443 Risk Mitigation, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

 

  (i) the accompanying report on Form 10-K of the Company for the fiscal year ended December 31, 2019, to which this Certificate is attached (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
     
  (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: March 23, 2021 By: /s/ Jason Remillard
    JASON, REMILLARD,
    Chief Executive Officer

 

A signed original of this written statement required by Section 906 has been provided to Data443 Risk Mitigation, Inc. and will be retained by Data443 Risk Mitigation, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

This certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Data443 Risk Mitigation, Inc. under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.

 

 

 

 

Exhibit 32.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER / CHIEF OPERATING OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and 18 U.S.C. § 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Data443 Risk Mitigation, Inc. (the “Company”) hereby certifies, to such officer’s knowledge, that:

 

  (i) the accompanying report on Form 10-K of the Company for the fiscal year ended December 31, 2019, to which this Certificate is attached (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
     
  (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: March 23, 2021 By: /s/ Jason Remillard
    JASON, REMILLARD,
    Chief Financial Officer

 

A signed original of this written statement required by Section 906 has been provided to Data443 Risk Mitigation, Inc. and will be retained by Data443 Risk Mitigation, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

This certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Data443 Risk Mitigation, Inc. under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.