# EDGAR Filing Document

**Accession Number:** 0001068689
**File Stem:** 0001493152-23-005934
**Filing Date:** 2023-2
**Character Count:** 452496
**Document Hash:** 348da05473b8e1996a867d8b554ec468
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001493152-23-005934.hdr.sgml**: 20230224

**ACCESSION NUMBER**: 0001493152-23-005934

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 174

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230224

**DATE AS OF CHANGE**: 20230224

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Data443 Risk Mitigation, Inc.
- **CENTRAL INDEX KEY:** 0001068689
- **STANDARD INDUSTRIAL CLASSIFICATION:** SERVICES-PREPACKAGED SOFTWARE [7372]
- **IRS NUMBER:** 860914051
- **STATE OF INCORPORATION:** NV
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 000-30542
- **FILM NUMBER:** 23665175

**BUSINESS ADDRESS:**
- **STREET 1:** 4000 SANCAR DRIVE
- **CITY:** TRIANGLE RESEARCH PARK
- **STATE:** NC
- **ZIP:** 27709
- **BUSINESS PHONE:** 919-858-6542

**MAIL ADDRESS:**
- **STREET 1:** 4000 SANCAR DRIVE
- **CITY:** TRIANGLE RESEARCH PARK
- **STATE:** NC
- **ZIP:** 27709

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** LandStar, Inc.
- **DATE OF NAME CHANGE:** 20181212

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** DATA443 RISK MITIGATION, INC.
- **DATE OF NAME CHANGE:** 20180409

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** LANDSTAR INC
- **DATE OF NAME CHANGE:** 20100909

?xml version="1.0" encoding="utf-8"?

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**Form 10-K**

(Mark One)

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

For the fiscal year ended: **<u>December 31, 2022</u>**

or

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

For the transition period from _______ to _______

Commission file number: **<u>000-30542</u>**

**<u>DATA443 RISK MITIGATION, INC.</u>**

(Exact name of registrant as specified in its charter)

---

| | |
|:---|:---|
| **Nevada** | **86-0914051** |
| (State or other jurisdiction of<br> incorporation or organization) | (I.R.S. Employer<br> Identification No.) |

---

**<u>4000 Sancar Drive, Suite 400</u>**

**<u>Research Triangle Park, North Carolina 27709</u>**

(Address of principal executive offices, Zip Code)

**<u>(919) 858-6542</u>**

(Registrant's telephone number, including area code)

**<u>101 J Morris Commons Lane, Suite 105</u>**

**<u>Morrisville, North Carolina, 27560</u>**

(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 | Trading Symbol | Name of Each Exchange On Which Registered |
| **N/A** | **N/A** | **N/A** |

---

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

**<u>Common Stock, $0.001 par value</u>**

(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 ☒

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 ☒

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 ☒ 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 ☒ 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 ☒ | Smaller reporting company ☒ |
|  | 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

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

Yes ☐ No ☒

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, 2022: $1,594,117.

The number of shares of registrant's common stock outstanding as of February 24 2023 was 3,772,767.

**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.

All share and per share amounts in this Annual Report reflect the 1-for-8 reverse stock split effected on March 8, 2022.

**DATA443 RISK MITIGATION, INC.**

**FORM 10-K**

**DECEMBER 31, 2022**

**<u>**TABLE OF CONTENTS**</u>**

---

| | |
|:---|:---|
| **[Part I](#ay_001)** |  |
| [Item 1. Business.](#ay_002) | 4 |
| [Item 1A. Risk Factors.](#ay_003) | 9 |
| [Item 1B. Unresolved Staff Comments.](#ay_004) | 26 |
| [Item 2. Properties.](#ay_005) | 27 |
| [Item 3. Legal Proceedings.](#ay_006) | 27 |
| [Item 4. Mine Safety Disclosures.](#ay_007) | 27 |
| **[Part II](#ay_008)** |  |
| [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.](#ay_009) | 27 |
| [Item 6. \[Reserved\]](#ka_001) | 31 |
| [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](#ka_002). | 31 |
| [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](#ka_003). | 40 |
| [Item 8. Consolidated Financial Statements and Supplementary Data](#ka_004). | 40 |
| [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.](#ka_005) | 40 |
| [Item 9A. Controls and Procedures.](#ka_006) | 40 |
| [Item 9B. Other Information.](#ka_007) | 42 |
| [Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections.](#ka_008) | 42 |
| **[Part III](#ka_009)** |  |
| [Item 10. Directors, Executive Officers, and Corporate Governance.](#ka_010) | 42 |
| [Item 11. Executive Compensation.](#ka_011) | 44 |
| [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.](#ka_012) | 47 |
| [Item 13. Certain Relationships and Related Transactions, and Director Independence.](#ka_013) | 48 |
| [Item 14. Principal Accounting Fees and Services.](#ka_014) | 48 |
| **[Part IV](#ka_015)** |  |
| [Item 15. Exhibits and Financial Statement Schedules](#ka_016) | 49 |
| [Item 16. Form 10-K Summary.](#ka_017) | 51 |
| [Index to Consolidated Financial Statements](#ka_023) | F-1 |
| [Signatures](#ka_024) | 52 |

---

**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**

Except for historical information, this Annual Report on Form 10-K (the "<u>Annual Report</u>") 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 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 founder & 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 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 current 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 risks described in "Risk Factors".

The risks described above should not be construed as exhaustive and should be read with the other cautionary statements in this Annual Report.

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.

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. 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 risks we describe in the reports we will file from time to time with the SEC after the date of this Annual Report. Readers are urged to carefully review and consider the various disclosures made in this Annual Report.

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.

**PART I**

**Item 1. Business.**

Our company was incorporated as LandStar, Inc., a Nevada corporation, on May 4, 1998. We provide data security and privacy management solutions across the enterprise and in the cloud. With over 10,000 customers, we provide the visibility and control needed to protect data at scale, regardless of format, location, or consumer, and to facilitate compliance with fast-changing global data privacy requirements. Our customers include established leaders and up-and-coming businesses spanning the private and public/government sectors across diverse industries and fields, including financial services, healthcare, manufacturing, retail, technology, and telecommunications.

The ransomware landscape and other threats to data have accelerated the rate at which businesses are adopting data security solutions, and we believe that our portfolio of data security and privacy products provides an encompassing solution set such that we are well positioned to capitalize on this trend and establish our products as new data privacy and security standards. Our offerings are anchored in reliable and comprehensive privacy management and equip organizations with a seamless approach to safeguard data, protect against attacks, and otherwise mitigate the most critical risks.

We believe that sector-specific US laws, state-level legislation, and outside-the-United States regulations are confounding enterprises of all sizes for whom safeguarding and stewarding data is key, but for whom becoming specialists in privacy and security is not feasible. For many of these enterprises, we can bridge the gap between their need to protect data and their need to use their resources to grow their core business, by offering turnkey solutions and related counseling and technical support to offset risks from data breaches and security incidents of various types. We provide products and services for the marketplace that are designed to protect data that is stored in the cloud, on-premises, and in hybrid cloud/on-premises environments, and data that is transmitted throughout the enterprise, including but not limited to by remote employees. Our suite of security products focuses on protecting sensitive files and email, confidential customer, patient and employee data, financial records, strategic and product plans, intellectual property and other proprietary information, allowing our customers to create, share, and protect their sensitive data wherever it is stored and however it is used.

We deliver solutions and capabilities that businesses can use in conjunction with their use of established cloud vendors such as Microsoft® Azure, Google® Cloud Platform (GCP), and Amazon® Web Services (AWS), as well as with on-premises databases and database applications and with virtualization platforms, such as those hosted or configured using VMWare®, Citrix®, and Oracle® products.

We sell or plan to sell substantially all of our products and services through a sales model that combines the leverage of a channel sales model or direct account management, thereby providing us with opportunities to grow our current customer base and deliver our value proposition for data privacy and security. We endeavor to use subscription models to license products and services, commonly for a paid in-advance, multiyear term that is auto-renewing. We also make use of channel partners, distributors, and resellers which sell to end-users of the products and services. This approach allows us to maintain close relationships with our customers and benefit from the global reach of our partners. Additionally, we are enhancing our product offerings and go-to-market strategy by establishing technology alliances within the IT infrastructure and security vendor ecosystem. Our sales and marketing focus for new organic growth is on organizations with 500 or more users who are adopting cloud services and can make larger purchases with us over time and have a greater potential lifetime value.

We continue to onboard to cloud-native technology adoption portals such as the Microsoft® Azure Marketplace and the Amazon® AWS Marketplace. Vendors may offer incentives to us as a software and services provider to onboard and market via their marketplace portals.

We strive to create new and innovative products and to improve existing products, proactively identifying and solving the data security needs of our customers.

As cloud adoption continues to accelerate, data privacy requirements get more complex, and data security becomes more challenging, we believe we are well positioned to capture more market share, continue to lead in strategic data security technology development, and prepare organizations for the next epoch in IT data privacy services.

**Market Opportunity**

By 2024, according to a study from Gartner, Inc., it is expected that 30% of enterprises will have adopted data security platforms, up from less than 5% in 2019. Gartner, Inc. also stated in another report titled "Predicts 2022: Consolidated Security Platforms Are The Future" that customers are working on vendor consolidation strategies aggressively in addition to expecting a portfolio or stack approach to their purchasing requirements.

We expect that current market conditions, recent data thefts, ransomware shutdowns and continued variability in the worldwide worker and retail marketplace will continue to position our product line front and center for many strategic IT and critical board-level opportunities with customers.

The competitive marketplace continues to consolidate via buyouts, take-private transactions and large 'unicorn' competitors being acquired prior to their initial public offerings. We believe that these changes in ownership, closure of product lines and general turmoil in certain product segments represent opportunities for us.

We believe that the functionalities offered by our programs and services position us to benefit from this growing market. Furthermore, 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**

Each of our major product lines provides features and functionality that we believe enable our customers to optimally secure their data. Our products are modular, giving our customers the flexibility to select what they require for their business needs and to expand their usage by simply adding a license. We currently offer the following products and services:

● **Data443® Ransomware Recovery Manager** (also known as SmartShield™), a unique offering designed to recover a workstation immediately upon infection to the last known business-operable state, without requiring any end user or IT administrator intervention.

● **Data443® Data Identification Manager** (also known as ClassiDocs® and FileFacets®), our data classification and governance technology, which supports the California Consumer Privacy Act ("CCPA"), the General Personal Data Protection Law ("LGPD") (Brazil) and the General Data Protection Regulation ("GDPR") (Europe) compliance in a Software-as-a-Service (SaaS) platform that performs sophisticated data discovery and content searching of structured and unstructured data within corporate networks, servers, content management systems, email, desktops, and laptops.

● **Data443® Data Archive Manager** (also known as ArcMail®), a simple, secure, and cost-effective enterprise data retention management and archiving.

● **Data443® Sensitive Content Manager** (also known as ARALOC®), a secure, cloud-based platform for managing, protecting and distributing digital content to desktop and mobile devices, which protects an organization's confidential content and intellectual property assets from accidental leakage or intentional misappropriation - without impeding all other authorized users of the content and stakeholders from collaborating.

● **Data443® Data Placement Manager** (also known as DATAEXPRESS®), a data transport, transformation, and delivery product trusted by leading financial organizations worldwide.

● **Data443® Access Control Manager** (also known as "Resilient Access"), enables fine-grained access controls across a wide variety of platforms at scale for internal client systems and commercial public cloud platforms like Salesforce®, Box.Net, Google® G Suite, Microsoft® OneDrive, and others.

● **Data443® Blockchain Protection Manager** (also known as ClassiDocs® for Blockchain), provides an active implementation for the Ripple XRP that protects blockchain transactions from inadvertent disclosure and data leaks.

● **Data443® Global Privacy Manager**, the privacy compliance and consumer loss mitigation platform which is integrated with Data443® Data Identification Manager to do the delivery portions of GDPR and CCPA as well as process privacy-related requests under such laws, and therefore enables customers to manage the full range of privacy-law driven requirements, such as responding to permitted consumer demands for access or removal, as well as to remediate issues and monitor and report on status and compliance.

● **Data443® IntellyWP**, products for enhancing the user experience for the world's largest content management platform, WordPress.

● **Data443® Chat History Scanner**, which scans chat messages for compliance, security, personally identifiable information (PII), personal information (PI), payment card industry (PCI) information as well as any custom keywords selected by the customer, and which can be used with third party platforms such as the Zoom Video Communications, Inc. video conferencing platform.

● **Data443® - GDPR Framework, CCPA Framework, and LGPD Framework WordPress® Plugins**, which help organizations of all sizes comply with privacy rules and regulations from Europe, California, and Brazil, and are currently used by over 30,000 active site owners. We offer the plugins with a "freemium" business model, i.e., basic features at no cost and additional or more advanced features at a premium.

**Growth Strategy**

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

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

 

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

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

*Expand Our Sales Force*. Expanding our salesforce will be essential to achieving our customer base expansion goals. We intend to expand our sales capacity by adding headcount throughout our sales and marketing department.

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

**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**

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, selling the products they purchase from us. We have a highly-trained professional sales force responsible for overall market development, including the management of the relationships with our channel partners and supporting channel partners.

***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 website and social media outlets.

**Seasonality**

Our business is not subject to seasonality.

**Research and Development**

While currently limited, our planned research and development efforts are expected to focus on improving and enhancing our existing products and services and developing new products, features, and functionality. We plan to regularly release new versions of our products, incorporating new features and enhancements to existing ones.

**Intellectual Property**

We require key employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting relationship. We also require relevant employees to assign all rights to any inventions made or conceived during their employment with us to us. In addition, we require individuals and entities with whom we discuss potential business relationships to sign non-disclosure agreements. Our agreements with clients include confidentiality and non-disclosure provisions. We cannot assure you that our steps will prevent the misappropriation of our trade secrets, technology, or intellectual property infringement. 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. 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* <sup>®</sup>

● *ARALOC* <sup>®</sup>

● *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 expiry dates for the federal trademark on the three trademarks we make use of in our business are as follows:

*ClassiDocs*: September 14, 2027

*ARALOC*: September 14, 2027

*DataExpress:* September 14, 2027

**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 utilizing our management team's experience, knowledge, and expertise.

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 maintain 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 January 31, 2023, we had 22 employees and 5 independent contractors, of which two were considered to be part of our management team; our CEO, Jason Remillard, and CFO, Greg McCraw. We have not experienced any work stoppages, and we consider our relations with our employees to be good. We believe that we will be successful in attracting experienced and capable personnel. Our employees are not represented by any labor union.

**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 are not subject to special regulatory and/or supervisory requirements.

***Implications of Being an Emerging Growth Company***

We qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the "JOBS Act." An emerging growth company may take advantage of certain reduced disclosure and other requirements that are otherwise generally applicable to public companies. As a result, the information that we provide to stockholders may be different than the information you may receive from other public companies in which you hold equity. For example, as long as we are an emerging growth company:

● we are not required to engage an auditor to report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

● we are not required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or the PCAOB, regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

● we are not required to submit certain executive compensation matters to stockholder advisory votes, such as "say-on-pay," "say-on-frequency" and "say-on-golden parachutes"; and

● we are not required to comply with certain disclosure requirements related to executive compensation, such as the requirement to disclose the correlation between executive compensation and performance and the requirement to present a comparison of our Chief Executive Officer's compensation to our median employee compensation.

We may take advantage of these reduced disclosure and other requirements until the last day of our fiscal year following the fifth anniversary of the completion of our IPO, or such earlier time that we are no longer an emerging growth company. For example, if certain events occur before the end of such five-year period, including if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period, we will cease to be an emerging growth company.

As mentioned above, the JOBS Act permits us, as an emerging growth company, to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected not to opt out of the extended transition period which means that when an accounting standard is issued or revised, and it has different application dates for public or private companies, as an emerging growth company, we can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make it difficult or impossible because of the potential differences in accounting standards used to compare our financial statements with the financial statements of a public company that is not an emerging growth company, or the financial statements of an emerging growth company that has opted out of using the extended transition period.

**Recent Developments**

On January 5, 2022, we filed a Certificate of Amendment to our Articles of Incorporation (the "<u>Certificate of Amendment</u>") which (i) reduced the number of authorized shares of common stock, par value $0.001 per share (our "<u>Common Stock</u>") to 125,000,000; and, (ii) effected a reverse stock split (the "<u>1-for-8 Reverse Stock Split</u>") of our issued Common Stock at a ratio of 1-for-8. The 1-for-8 Reverse Stock split became effective at the start of trading on March 8, 2022. As a result of the 1-for-8 Reverse Stock Split, every eight shares of our issued and outstanding Common Stock was converted into one share of Common Stock. All share and per share amounts in this Annual Report reflect the 1-for-8 Reverse Stock Split.

On January 19, 2022, we entered into an Asset Purchase Agreement with Centurion Holdings I, LLC ("<u>Centurion</u>") to acquire the intellectual property rights and certain assets collectively known as Centurion SmartShield Home and SmartShield Enterprise, patented technology that protects and recovers devices in the event of ransomware attacks. The total purchase price of $3,400,000 consisted of (i) a $250,000 cash payment at closing; (ii) a $2,900,00 promissory note issued by us in favor of Centurion; and (iii) $250,000 in the form of a contingent payment.

**Available Information**

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the SEC. Any materials that we file with the SEC are available free of charge on the website maintained by the SEC. The Internet address of the SEC's website is *http://www.sec.gov*. We also make our reports and other information available, free of charge, on our website at www.data443.com. Our corporate offices are located at 4000 Sancar Drive, Suite 400, Research Triangle Park, North Carolina 27709. Our telephone number is 919-858-6542.

**Item 1A. Risk Factors.**

Investing in our Common Stock involves a high degree of risk. You should carefully consider the following risk factors, as well as other information in this Annual Report, before deciding whether to invest in the shares of our Common Stock. The occurrence of any of the events described below could have a material adverse effect on our business, financial condition or results of operations. In the case of such an event, the trading price of our Common Stock may decline and you may lose all or part of your investment.

**Risk Factor Summary**

Our business is subject to numerous risks and uncertainties, including those described in "Risk Factors" in this Annual Report, any of which could materially and adversely impact our business and operations, adversely impact our growth prospects, cause us to incur additional costs or liabilities and/or cause the price of our Common Stock to decline. You should carefully consider these risks and uncertainties when investing in our Common Stock. Some of the principal risks and uncertainties include the following:

● We
 will require additional funds in the future to achieve our current business strategy;

● Technology
 is constantly changing and evolving and the continued viability of our products and services requires that we keep up with an ever-changing
 technological landscape;

● We
 face intense competition in our market, especially from larger, well-established companies;

● We
 are dependent on the continued services and performance of our founder and Chief Executive Officer;

● We
 may be unable to attract new customers and/or expand sales to existing customers;

● We
 may be unable to maintain successful relationships with our channel partners;

● We
 may be subject to breaches in our security, cyberattacks or other cyber risks;

● We
 may be unable to protect our proprietary technology and intellectual property rights;

● We
 may be subject to real or perceived errors, failures, or bugs in our technology;

● We
 are subject to federal, state and industry privacy and data security regulations;

● Our
 business is susceptible to risks associated with international operations;

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

● Our
 operations may continue to increase in complexity as we grow, which will add additional challenges to the management of our business
 in the future;

● We
 may be unable to secure necessary financing on acceptable terms and in a timely manner;

● There
 is no assurance that future financing from Mr. Remillard will be available or, if available, that it will be on terms that are satisfactory
 to us;

● We
 may not be able to identify suitable acquisition candidates or consummate acquisitions on acceptable terms, or we may be unable to
 successfully integrate acquisitions;

● The
 JOBS Act allows us to postpone the date by which we must comply with certain laws and regulations intended to protect investors and
 to reduce the amount of information we provide in reports filed with the SEC;

● Failure
 to implement proper and effective internal controls or to remediate weakness in internal accounting controls could result in material
 misstatements in our financial statements.

● We
 have secured debt, which could have adverse consequences to you;

● We
 may not be able to attract the attention of research analysts at major brokerage firms;

● In
 the event of a bankruptcy, liquidation or winding up of our assets, our Common Stock will rank junior to all of our liabilities to
 third party creditors, and to any class or series of our capital stock created after this offering that, by its terms, ranks senior
 to our Common Stock;

● Future
 issuances of debt securities and preferred stock may adversely affect the return of your investment;

● Our
 Common Stock is subject to the SEC's penny stock rules;

● Our
 Common Stock has historically experienced low trading volume on the OTC Pink, and therefore the price may not accurately reflect
 our value and there can be no assurance that an active market for our Common Stock will develop, either now or in the future;

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

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

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

● Our
 Chief Executive Officer has the ability to control all matters submitted to stockholders for approval;

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

● We
 may issue additional shares of our Common Stock, which may dilute current stockholders;

● Our
 management will have broad discretion in the use of the net proceeds from this offering;

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

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

**Risks Related to Our Business and Industry**

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

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

Even if we are successful in raising capital in the future, we will likely need to raise additional capital to continue and/or expand our operations. If we do not raise the additional capital, the value of any investment in us may become worthless.

If we do raise additional capital but from other than conventional sources, we may need to scale back or otherwise adjust our growth strategy which may prevent us from fully implementing our business plan.

***Technology is constantly changing and evolving and the continued viability of our products and services requires that we keep up with an ever-changing technological landscape.***

Our industry is categorized by rapid technological progression, ever-increasing innovation, changes in customer requirements, and frequent new product introductions, and we may be subject to legal and regulatory compliance mandates as the relevant law develops in the fields in which our products are used. As a result, we must continually change and improve our products in response to such changes, and our products must also successfully interface with products from other vendors, which are also subject to constant changes. While we believe we have the competency to aid our customers in all aspects of data privacy and security, we will need to constantly improve our current assets and offerings to keep up with technological advances that are expected to occur.

We cannot guarantee that we will be able to anticipate future market needs and opportunities or be able to develop new products and services or expand the functionality of our current products and services in a timely manner or at all. Even if we are able to anticipate, develop, and introduce new products and expand the functionality of our current products, there can be no assurance that enhancements or new products will achieve widespread market acceptance: If they do not, our business may be adversely affected and we may have to cease operations altogether.

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

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

● greater name recognition and longer operating histories;

● more comprehensive and varied products and services;

● broader market focus;

● greater resources to develop technologies or make acquisitions;

● intellectual property portfolios that may limit our ability to market or sell products and services in the United States or markets outside the United States;

● broader distribution capabilities and established relationships with distribution partners and customers;

● greater customer support resources; and

● substantially greater financial, technical, and other resources.

Our competitors may be able to compete and respond more effectively than we can to new or changing opportunities, technologies, standards, or customer requirements. Our competitors may also seek to extend or supplement their existing products and services to provide data security and data governance solutions that more closely compete with our products and services offerings. Potential customers may also prefer to purchase, or incrementally add solutions, from their existing suppliers rather than to onboard with us as a new or additional supplier regardless of whether our products offer better performance or more features.

In addition, with the recent increase in large merger and acquisition transactions in the technology industry, particularly transactions involving cloud-based technologies, there is a greater likelihood that we will compete with other large technology companies in the future.

Some of our competitors have made acquisitions or entered into strategic relationships to provide more comprehensive product offerings in combination than they were previously able to offer alone. Companies resulting from these possible consolidations and partnerships may be able to offer more attractive pricing, making them more compelling to customers and more difficult for us to compete with effectively. In addition, continued industry consolidation may adversely impact customer perceptions of the viability of small- and medium-sized technology companies and consequently their willingness to purchase from those companies. Conditions in our market could change rapidly and significantly as a result of technological advancements, partnering among our competitors, or continuing market consolidation. These competitive pressures in our market or our potential inability to compete effectively may result in price reductions, fewer orders, reduced revenue and gross margins, increased net losses, and loss of market share. Any failure to meet and address these factors could adversely affect our business, financial condition, and operating results.

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

Our future performance largely depends on the continued services and contributions of our founder, Chief Executive Officer and president, Jason Remillard, to successfully manage our company, execute our business plan, identify and pursue new opportunities, and deliver product innovations. The loss of Mr. Remillard's services could significantly delay or prevent us from achieving our development and strategic objectives and adversely affect our business.

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

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

Our future growth also depends upon expanding sales of our products and services to existing customers and their organizations. If our customers do not purchase additional licenses or our other offerings related to complementary products and services, our revenues may grow more slowly than expected, may not grow at all, or may decline. There can be no assurance that our efforts will increase sales to existing customers and additional revenues. If our efforts are not successful, our business may suffer.

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

We intend to rely to some extent on channel partners, such as distribution partners and resellers, to sell licenses for our products and to sell our technical support and maintenance services. Our ability to achieve revenue growth in the future may depend in part on our success in maintaining successful relationships with our channel partners. Agreements with channel partners tend to be non-exclusive, meaning our channel partners may offer customers the products of several different companies. If our channel partners do not effectively market and sell our products and services, choose to use greater efforts to market and sell their own products or those of others, or fail to meet the needs of our customers, our ability to grow our business may be adversely affected. Furthermore, agreements with channel partners generally allow them to terminate their agreements for any reason upon 30 days' notice. If we are unable to maintain our relationships with these channel partners, our business, results of operations, financial condition, or cash flows could be adversely affected.

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

Our operations may involve transmitting and processing our customers' confidential, proprietary, and sensitive information. We have legal and contractual obligations to protect the confidentiality of and to use customer data appropriately. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks due to third-party action, employee error, or misconduct. Security risks, including, but not limited to, unauthorized use or disclosure of customer data, theft of proprietary information, loss or corruption of customer data, and computer hacking attacks or other cyberattacks, could expose us to substantial litigation expenses and damages, indemnity and other contractual obligations, government fines and penalties, mitigation expenses and other liabilities. We have been subject to attempted cyberattacks in the past and expect to be subject to such attacks in the future. We continuously work to improve our information technology systems and to create security boundaries around our critical and sensitive assets. We perform activities to mitigate the risk of attacks and increase our capabilities to responsibly handle any security violation or attack. However, because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until successfully launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures and our products could be harmed, we could lose potential sales and existing customers, our ability to operate our business could be impaired, and we may incur significant liabilities.

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

The success of our business depends on our ability to obtain, protect, and enforce our trade secrets, patents, and other intellectual property rights, such as copyrights and trademarks. We attempt to protect our intellectual property under trade secret, patent, copyright, and trademark laws, and through a combination of confidentiality procedures, contractual provisions, and other methods, all of which offer only limited protection. The process of obtaining patent protection is expensive and time-consuming, and we may choose not to seek patent protection for certain innovations. We may choose not to pursue patent protection in certain jurisdictions in which we do or plan to do business. Not seeking patent protection may limit our options to exclude competitors from using those innovations altogether or in those jurisdictions.

Our policy is to require our employees to execute written agreements in which they assign to us their rights in potential inventions and other intellectual property created within the scope of their employment. We also require any consultants we engage to provide services that may result in intellectual property that would benefit us to contractually agree to assign their rights to their inventions or creations to us, in connection with the engagement. However, we cannot assure you that we have adequately protected our rights in every such agreement or that we have executed an agreement with every such party. Finally, in order to benefit from intellectual property protection, we must monitor, detect, and pursue infringement claims in certain circumstances in relevant jurisdictions, all of which is costly and time-consuming. As a result, we may not be able to adequately protect our intellectual property rights.

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

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

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

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

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

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

We intend to expand our international sales and marketing operations. Conducting international operations subjects us to risks that we may not face in the United States or may prove more challenging to address. These risks include:

● pandemics, political instability, war, armed conflict, or terrorist activities;

● challenges developing, marketing, selling, and implementing our technology and solutions caused by language, cultural and ethical differences, and the competitive environment;

● heightened risks of unethical, unfair, or corrupt business practices, actual or claimed, in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and necessitate restatements of or result in irregularities in financial statements;

● competition from bigger and stronger companies in the new markets;

● laws imposing heightened restrictions on data use and increased penalties for failure to comply with applicable laws, particularly in countries within the European Union (EU);

● currency fluctuations;

● management communication and integration problems resulting from cultural differences and geographic dispersion;

● potentially adverse tax consequences, including multiple and possibly overlapping tax structures, the complexities of foreign value-added tax (VAT) systems, restrictions on the repatriation of earnings and changes in tax rates; and

● lack of familiarity with local laws, customs and practices, and laws and business practices favoring local competitors or commercial parties.

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

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

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

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

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

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

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

***We require additional financing to sustain our operations and execute our business plan. If we fail to secure the required additional financing on acceptable terms and in a timely manner, our ability to implement our business plan will be compromised and we may be unable to sustain our operations.***

We have limited capital resources and operations. To date, our operations have been funded largely from the proceeds of debt and equity financings. We will require substantial additional capital in the near future to operate our business. We may be unable to obtain additional financing on terms acceptable to us, or at all. Even if we obtain financing for our short-term operations, we expect that we will require additional capital thereafter. Our capital needs will depend on numerous factors including but not limited to (i) the scale of our marketing and sales activities, (ii) other expenditures of resources to maintain or increase revenue and (iii) the amount of our capital expenditures, including acquisitions. We cannot assure you that we will be able to obtain capital in the future to meet our needs. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership held by our existing shareholders will be reduced and our shareholders may experience significant dilution. In addition, new securities may contain rights, preferences, or privileges that are senior to those of our Common Stock. If we raise additional capital by incurring debt, this will result in increased interest expense. If we raise additional funds through the issuance of securities, market fluctuations in the price of our shares of Common Stock could limit our ability to obtain equity financing. We cannot give any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us. If we are unable to raise capital when needed, our business, financial condition, and results of operations would be materially adversely affected, and we could be forced to reduce or discontinue our operations.

***We have relied on funding from Jason Remillard for working capital to fund operations in the past, and there is no assurance that future financing from Mr. Remillard will be available or, if available, that it will be on terms that are satisfactory to us.***

For the past several years, we have depended on our Chief Executive Officer, Jason Remillard, for working capital to fund our operations and to execute our business plan. In addition, we have in the past been and in the future be dependent upon Mr. Remillard to provide continued funding and capital resources. However, no assurance can be given that future financing from Mr. Remillard will be available or, if available, that it will be on terms that are satisfactory to us. In the absence of financing from other sources, the inability to obtain additional financing from Mr. Remillard could result in the scaling back or discontinuance of our operations or our inability to successfully implement our plan of operations.

***We have made and expect to continue to make acquisitions as a primary component of our growth strategy. We may not be able to identify suitable acquisition candidates or consummate acquisitions on acceptable terms, or we may be unable to successfully integrate acquisitions, which could disrupt our operations and adversely impact our business and operating results.***

A primary component of our growth strategy is to acquire complementary businesses. We intend to continue to pursue acquisitions of complementary technologies, products, and businesses as a primary component of our growth strategy to enhance the features and functionality of our offerings, to expand our customer base and access to new markets, and to increase benefits of scale. Acquisitions involve certain known and unknown risks that could cause our actual growth or operating results to differ from our expectations. For example:

● we may not be able to identify suitable acquisition candidates or to consummate acquisitions on acceptable terms;

● we may pursue international acquisitions, which inherently pose more risks than domestic acquisitions;

● we compete with others to acquire complementary products, technologies, and businesses, which may result in decreased availability of, or increased price for, suitable acquisition candidates;

● we may not be able to obtain the necessary financing on favorable terms or at all, to finance our potential acquisitions;

● we may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a technology, product, or business; and

● acquired technologies, products, or businesses may not perform as we expect and we may fail to realize anticipated revenue and profits.

In addition, our acquisition strategy may divert management's attention away from our existing business, resulting in the loss of key customers or employees, and expose us to unanticipated problems or legal liabilities, including responsibility as a successor for undisclosed or contingent liabilities of acquired businesses or assets.

If we fail to conduct due diligence on our potential targets effectively, we may, for example, not identify problems at target companies or fail to recognize incompatibilities or other obstacles to successful integration. Our inability to successfully integrate future acquisitions could impede us from realizing all of the benefits of those acquisitions and could severely weaken our business operations. The integration process may disrupt our business and, if new technologies, products, or businesses are not implemented effectively, may preclude the realization of the full benefits expected by us and could harm our results of operations. In addition, the overall integration of new technologies, products, or businesses may result in unanticipated problems, expenses, liabilities, and competitive responses.

In addition, even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of the acquisition, including the synergies, cost savings, or growth opportunities that we expect. The benefits we do realize may not be achieved within the anticipated time frame.

***The JOBS Act allows us to postpone the date by which we must comply with certain laws and regulations intended to protect investors and to reduce the amount of information we provide in reports filed with the SEC.***

The JOBS Act is intended to reduce the regulatory burden on "emerging growth companies." We meet the definition of an emerging growth company and so long as we qualify as an emerging growth company, we are, among other things:

● not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act, which include having an independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting;

● subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exempt from the requirement to hold a nonbinding advisory vote on executive compensation and stockholder approval of any "golden parachute" payments not previously approved;

● permitted to present only two years of audited financial statements and only two years of management's discussion and analysis of financial condition and results of operations disclosure in this Annual Report; and

● not required to comply with any rules that may be adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor's report on our financial statements.

We may choose to take advantage of some or all of these reduced burdens while we qualify as an emerging growth company. We have taken advantage of all of these reduced burdens in this Annual Report, and currently intend to do so in future filings. As a result, the information we provide stockholders may be less than information you might receive from other public companies in which you hold equity. In addition, the JOBS Act provides that an emerging growth company can delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to avail ourselves of this exemption. We will remain an emerging growth company until the earliest to occur of 1) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; 2) the last day of the fiscal year in which we qualify as a "large accelerated filer", 3) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities; and 4) the last day of the fiscal year in which the fifth anniversary of this offering occurs.

We are also currently a "smaller reporting company," meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company. We may continue to be a smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliates is less than $250 million as of the last business day of the second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million as of the last business day of the second fiscal quarter. In the event that we are still considered a smaller reporting company, at the time we cease being an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that area available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Decreased disclosures in our SEC filings due to our status as an emerging growth company or smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects.

***Failure to remediate weakness in internal accounting controls could result in material misstatements in our financial statements and may result in a lack of certain protections typically afforded to investors.***

As a reporting company we are required, pursuant to the Sarbanes-Oxley Act, to include in our annual report our assessment of the effectiveness of our internal control over financial reporting. Our assessment must include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, and when we cease to be an emerging growth company, we will need to provide a statement that our independent registered public accounting firm has issued an opinion on the effectiveness of our internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our consolidated financial statements will not be prevented or detected on a timely basis. Our management has identified a material weakness in our internal control over financial reporting related to lack of segregation of duties resulting from our limited personnel and has concluded that, due to such weakness, our disclosure controls and procedures were not effective as of December 31, 2021. We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees, and we do not expect to be able to remediate this weakness until after the offering. If not remediated, or if we identify further weaknesses in our internal controls, our failure to establish and maintain effective disclosure controls and procedures and internal control over financial reporting could result in material misstatements in our financial statements and a failure to meet our reporting and financial obligations, each of which could have a material adverse effect on our financial condition and the trading price of our Common Stock.

***We do not have a majority of independent directors on our board of directors, and we have not voluntarily implemented various corporate governance measures, in the absence of which stockholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.***

Federal legislation, including the Sarbanes-Oxley Act, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or the NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address the board of directors' independence, audit committee oversight, and the adoption of a code of ethics. Although we plan to adopt these corporate governance measures upon our listing on The Nasdaq Capital Market, we have not yet adopted any of these other corporate governance measures and since our securities are not yet listed on a national securities exchange, we are not required to do so.

Our Board of Directors is comprised of one individual, who is also our executive officer. As a result, we do not have independent directors on our Board of Directors. Upon our listing on The Nasdaq Capital Market, we plan to establish audit and compensation committees comprised only of independent directors. However, until that date, our current sole director has the ability, among other things, to determine his own level of compensation and to unilaterally make certain other governance decisions. and the prior absence of such standards of corporate governance may leave our stockholders without protections against interested-director transactions, conflicts of interest, and similar matters.

***We have secured debt, which could have adverse consequences to you.***

The terms of the secured debt we have incurred could result in adverse consequences, including but not limited to the following:

● limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions, and other general corporate requirements;

● limiting our flexibility in planning for or reacting to changes in our business and the industry in which we operate; and

● placing us at a competitive disadvantage compared to competitors that may have proportionately less debt and greater financial resources.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional capital, or restructure our debt. In the event that we are required to dispose of material assets or operations to service our debt and to meet our other obligations, the value realized on such assets or operations will depend on market conditions and the availability of buyers. Accordingly, any such sale may not, among other things, be for a sufficient dollar amount. Certain of our obligations are secured by a security interest in all of our assets. The foregoing encumbrances may limit our ability to dispose of material assets or operations. We also may not be able to restructure our indebtedness on favorable economic terms, if at all.

**Risks Related to Ownership of Our Securities**

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

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

**Risks Related to Our Common Stock**

***Our Common Stock will rank junior to all our liabilities to third party creditors, and to any class or series of our capital stock created after this offering specifically ranking by its terms senior to our Common Stock, in the event of a bankruptcy, liquidation or winding up of our assets.***

In the event of bankruptcy, liquidation or winding up, our assets will be available to pay obligations on our Common Stock only after all our liabilities have been paid. Our Common Stock will effectively rank junior to all existing and future liabilities held by third party creditors. The terms of our Common Stock do not restrict our ability to raise additional capital in the future through the issuance of debt or senior series of preferred stock. Our Common Stock will also rank junior to our existing Series A Preferred Stock and any Series B Preferred Stock we may issue, as well as any class or series of our capital stock created after this offering specifically ranking by its terms senior to our Common Stock. In the event of bankruptcy, liquidation or winding up, there may not be sufficient assets remaining, after paying our liabilities, to pay amounts due on any or all of our Common Stock then outstanding.

***Future issuances of debt securities, which would rank senior to our Common Stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which could rank senior to our Common Stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our Common Stock.***

In the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders of our Common Stock. Moreover, if we issue preferred stock, the holders of such preferred stock could be entitled to preferences over holders of Common Stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to issue debt or preferred stock in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any such future offerings or borrowings. Holders of our Common Stock must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return, if any, they may be able to achieve from an investment in our Common Stock.

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

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

● make a special written suitability determination for the purchaser;

● receive the purchaser's prior written agreement to the transaction;

● provide the purchaser with risk disclosure documents which identify certain risks associated with investing in penny stocks and which describe the market for these penny stocks as well as a purchaser's legal remedies; and

● obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a penny stock can be completed.

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

***Our Common Stock has historically experienced low trading volume on the OTC Pink, and therefore the price may not accurately reflect our value. There can be no assurance that an active market for our Common Stock will develop, either now or in the future*.**

Our shares of Common Stock have been thinly traded on the OTC Pink. Only a small percentage of our Common Stock is available to be traded and is held by a small number of holders and the price, if traded, may not reflect our actual or perceived value. There can be no assurance that there will be an active market for our shares of Common Stock either now or in the future. The market liquidity will be dependent on the perception of our operating business, among other things. We will take certain steps that may include any or all of investor awareness campaigns, press releases, road shows and conferences to increase awareness of our business and any steps that we might take to bring us to the awareness of investors may require that we compensate consultants with cash and/or stock.

In addition, the trading volume of stocks quoted on the OTC Pink is often low and is often 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. Because our Common Stock is only quoted on the OTC Pink, trading is only possible through broker-dealers, and the trading volume of our Common Stock has been low. Because we are quoted on the OTC Pink and were not a privately-held company, you may experience difficulty liquidating your investment in our Common Stock or liquidating it at a price that reflects the value of our business. As a result, holders of our securities may not find purchasers for our securities should they desire to sell them. Accordingly, our securities should be purchased only by investors having no need for liquidity in their investment and who can hold our securities for an indefinite period of time.

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

We have had a history of operating losses since our inception and, as of December 31, 2022, we had an accumulated deficit of $51,412,128. We may incur operating losses in the future, and these losses could be substantial and impact our ability to attain profitability. If we cannot increase revenue growth, we will not achieve or sustain profitability or positive operating cash flows. Even if we achieve profitability and positive operating cash flows, we may not be able to sustain or increase profitability or positive operating cash flows on a quarterly or annual basis.

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

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, 2022 to the effect that our losses from operations and our negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern within one year after the date that the financial statements are issued. We may be required to cease operations which could result in our stockholders losing all or almost all of their investment. As of December 31, 2022, we had cash balance of $1,712 and our principal sources of liquidity were trade accounts receivable of $31,978 and prepaid, advance payment for acquisition of $2,726,188 and other current assets of $91,204, as compared to cash of $1,204,933, trade accounts receivable of $21,569 and prepaid and other current assets of $70,802 as of December 31, 2021.

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

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

● sales or potential sales of substantial amounts of our Common Stock;

● the success of competitive products or technologies;

● announcements about us or about our competitors, including new product introductions and commercial results;

● the recruitment or departure of key personnel;

● litigation and other developments;

● actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

● variations in our financial results or those of companies that are perceived to be similar to us; and

● general economic, industry and market conditions.

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

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

We currently have Common Stock and preferred stock outstanding. Our preferred stockholders have special rights that holders of our Common Stock do not have. Currently, we have two types of preferred stock: Series A Preferred Stock and Series B Preferred Stock. An example of special rights that holders of our Series A Preferred Stock have is the ability to vote on all matters submitted to holders of Common Stock with 15,000 votes for each share of Series A Preferred Stock. Examples of the special rights that holders of our Series B Preferred Stock have are that each share of Series B Preferred Stock has (i) a stated value of $10.00 per share; (ii) is convertible into Common Stock at a price per share equal to 61% of the lowest price for our Common Stock during the 20 days of trading preceding the date of the conversion; (iii) earns dividends at the rate of 9% per annum; but (iv) has no voting rights. Our Series A Preferred Stock and Series B Preferred Stock ranks senior to holders of our Common Stock as to dividend rights and liquidation preference. We currently have shares 149,892 of Series A Preferred Stock.

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

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

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

***Our Chief Executive Officer has the ability to control all matters submitted to stockholders for approval, which limits stockholders' ability to influence corporate affairs.***

Our Chief Executive Officer, Jason Remillard, holds 149,892 shares of our Series A Preferred Stock (each share votes as the equivalent of 15,000 shares of Common Stock on all matters submitted for a vote by the common stockholders), and as such, Mr. Remillard would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs. For example, Mr. Remillard would control the election of directors and approval of any merger, consolidation, or sale of all or substantially all of our assets.

This concentration of voting power could delay or prevent a change of control of our company on terms that other stockholders may desire, which could deprive our stockholders from receiving a premium for their Common Stock. Concentrated ownership and control by Mr. Remillard could adversely affect the price of our Common Stock. Any material sales of Common Stock by Mr. Remillard, for example, could adversely affect the price of our Common Stock.

The interests of Mr. Remillard and his affiliates may differ from the interests of other stockholders with respect to the issuance of shares, business transactions with and/or sales to other companies, selection of officers and directors, and other business decisions. The non-controlling stockholders are severely limited in their ability to override the decisions of Mr. Remillard.

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

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

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

As a public reporting company, we incur significant legal, accounting, and other expenses that private companies do not incur. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC have imposed various requirements on public companies, including establishing and maintaining effective disclosure, financial controls, and corporate governance practices. Complying with these laws and regulations will require the time and attention of our Board of Directors and management and will increase our expenses. We estimate that we will incur approximately $350,000 to $600,000 in 2023 to comply with public company compliance requirements, with many of those costs recurring annually thereafter.

Among other things, we will be required to:

● maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

● maintain adequate insurance coverage to attract and retain directors and officers;

● provide adequate compensation to attract qualified directors;

● maintain policies relating to disclosure controls and procedures;

● prepare and distribute periodic reports in compliance with our obligations under federal securities laws;

● institute a more comprehensive compliance function, including corporate governance; and

● involve, to a greater degree, our outside legal counsel and accountants in the above activities.

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

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

We currently have outstanding instruments which are convertible into shares of Common Stock, and we may need to issue similar instruments in the future. If these convertible instruments are converted into shares of Common Stock, or if we issue other convertible or exchangeable securities, you could experience additional dilution. Furthermore, we cannot assure you that we will be able to issue shares or other securities in any other offering at a price per share that is equal to or greater than the price per share you pay or the then-current market price.

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

Our articles of incorporation authorize the issuance of 125,000,000 shares of Common Stock, of which 3,772,767 shares were issued and outstanding as of February 17, 2020. The future issuance of shares of our Common Stock may result in substantial dilution in the percentage of our Common Stock held by our then- existing stockholders. We may value any Common Stock issued in the future on an arbitrary basis. The issuance of Common Stock for future services or acquisitions or other corporate actions may have the effect of diluting the value of the shares held by our investors and might have an adverse effect on any trading market for our Common Stock.

***An investment in our Common Stock is speculative and there can be no assurance of any return on any such investment.***

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

***If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately or prevent fraud. Any inability to report and file our financial results accurately and on a timely basis could harm our reputation and adversely impact the trading price of our Common Stock***.

Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation, and access to capital. We have not performed an in-depth analysis to determine if historical undiscovered failures of internal controls exist, and we may in the future discover areas of our internal control that need improvement.

We must ensure that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis. We have tested our internal controls and identified a weakness and may find additional areas for improvement in the future. Remediating this weakness will require us to hire and train additional personnel. Implementing any future changes to our internal controls may require compliance training of our directors, officers, and employees, entail substantial costs to modify our accounting systems and take a significant period of time to complete. Such changes may not, however, be effective in establishing the adequacy of our internal control over financial reporting, and our failure to produce accurate financial statements on a timely basis could increase our operating costs and could materially impair our ability to operate our business. In addition, investor perception that our internal control over financial reporting is inadequate or that we are unable to produce accurate financial statements may materially adversely affect our stock price.

***Offers or availability for sale of a substantial number of shares of our Common Stock may cause the price of our Common Stock to decline*.**

If our stockholders sell substantial amounts of our Common Stock in the public market, or upon the expiration of any statutory holding period under Rule 144 or upon the exercise of outstanding options or warrants, such sale could create a circumstance commonly referred to as an "overhang". In anticipation of an overhang, the market price of our Common Stock could decline. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional funds through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

***Our management has broad discretion in the use of the net proceeds from any offerings or other financing activities and may invest or spend the proceeds in ways with which you do not agree and in ways that may not yield a return.***

Our management will have broad discretion in the application of the net proceeds from any offering of shares of our Common Stock or warrants or from other financing activities, such as convertible debt and you will not have the opportunity as part of any investment decision to assess whether the net proceeds are being used appropriately. The failure by our management to apply these funds effectively could harm our business.

***Our Common Stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the liquidity of our Common Stock may not improve***.

Although we believe that a higher market price of our Common Stock may help generate greater or broader investor interest, there can be no assurance that our share price will rise to a price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our Common Stock will satisfy the investing requirements of those investors.

***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, pandemics have caused and may continue to cause travel bans or disruptions, supply chain delays and disruptions, and additional macroeconomic uncertainty. The impact of a pandemic 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 customers deciding to delay or abandon their planned purchases, us deciding to delay, cancel, or withdraw from user and industry conferences and other marketing events, and delays or disruptions in our or our 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 to our customers may be effected, and it may continue to be more difficult for us to forecast our operating results. These macroeconomic challenges and uncertainties, including a possible pandemic, have, and may continue to, put pressure on global economic conditions and overall IT spending and may cause our customers to modify spending priorities or delay or abandon purchasing decisions, thereby lengthening sales cycles and potentially lowering prices for our solutions and product and services offerings, 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 our operations and overall financial performance.***

We may face risks related to public health threats or outbreaks of communicable diseases. A global health crisis could adversely affect the United States and global economies and limit the ability of enterprises to conduct business for an indefinite period. Such crisis may also cause 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 our business.

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, which beyond our control, could cause a decrease in business investments, including corporate spending on enterprise software in general, and could negatively affect the rate of growth of our business. Uncertainty in the global economy makes it 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.

A significant number of our customers have been and continue to be impacted by the economic turmoil. 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.

In addition, should we have a significant number of our employees contract the communicable diseases, it could have a negative impact on our ability to serve customers in a timely fashion.

**Item 1B. Unresolved Staff Comments.**

None.

**Item 2. Properties.**

Our corporate office is located at 4000 Sancar Drive, Suite 400, Research Triangle Park, NC 27709. In July 2022, Data443 NC, our wholly-owned subsidiary, entered into a five-year lease for approximately 13,867 square feet of office space at this address. We believe 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.

**Items 3. Legal Proceedings**.

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

**Item 4. Mine Safety Disclosures.**

Not applicable.

**PART II**

**Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.**

There is no established public trading market for our Common Stock. Our Common Stock is currently quoted on the OTC Pink under the trading symbol "ATDS". 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-8 shares of Common Stock, which became effective on March 8, 2022.

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| | | |
|:---|:---|:---|
| **Fiscal Year 2022** | **High Bid** | **Low Bid** |
| First Quarter | $18.40 | $1.41 |
| Second Quarter | $7.50 | $1.55 |
| Third Quarter | $6.99 | $1.44 |
| Fourth Quarter | $2.80 | $.28 |

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| | | |
|:---|:---|:---|
| **Fiscal Year 2021** | **High Bid** | **Low Bid** |
| First Quarter | $592.00 | $96.00 |
| Second Quarter | $206.40 | $73.60 |
| Third Quarter | $80.40 | $25.00 |
| Fourth Quarter | $28.00 | $6.40 |

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**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.

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, stockholders may have difficulty selling their securities.

**Reports**

We are subject to certain filing requirements and will furnish annual financial reports to our stockholders, 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**

Our transfer agent is Madison Stock Transfer Inc., located at 2500 Coney Island Ave, Sub Level Brooklyn, New York 11223, with a telephone number of 718-627-4453.

**Number of Equity Security Holders**

As of February 24, 2023, there were 543 holders of record of our Common Stock. This does not include beneficial owners holding Common Stock in street name, and as such, the number of beneficial holders of our shares may be larger than the number of stockholders of record.

**Dividend Policy**

Holders of our Common Stock are entitled to receive dividends as may be declared from time to time by our sole director. We have not paid any cash dividends on our Common Stock since inception and do not anticipate paying any in the foreseeable future. Our current policy is to retain earnings, if any, for use in our operations.

**Recent Sales of Unregistered Securities**

The following information represents securities sold by us within the past year 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. All issuances were exempt under Section 4(a)(2) of the Securities Act unless otherwise noted.

● On February 8, 2022, a noteholder converted $27,812 of convertible debt into 6,091 shares of Common Stock.

● On February 11, 2022, noteholders converted $47,997 of convertible debt into 4,150 shares of Common Stock.

● On February 28, 2022, a noteholder converted 6,631 of warrants into 6,631 shares of Common Stock.

● On March 1, 2022, a noteholder converted $14,496 of convertible debt into 1,469 shares of Common Stock.

● On April 7, 2022, we issued 2,402 shares of Common Stock to Root Ventures, LLC pursuant to an agreement with Root Ventures, LLC, in exchange for $15,013.

● On April 7, 2022, we issued 1,852 shares of Common Stock to One44 Capital, LLC pursuant to an agreement with One44 Capital, LLC, in exchange for $11,575.

● On April 7, 2022, we issued 933 shares of Common Stock to GS Capital Partners, LLC pursuant to an agreement with GS Capital Partners, LLC, in exchange for $5,831.

● On April 7, 2022, we issued 6,431 shares of Common Stock to Westland Properties, LLC pursuant to an agreement with Westland Properties, LLC, in exchange for 40,194.

● On April 7, 2022, we issued 2,402 shares of Common Stock to Fast Capital, LLC pursuant to an agreement with Fast Capital, LLC, in exchange for $15,013.

● On April 20, 2022, we issued 380,952 shares of Common Stock to Centurion Holdings I, LLC pursuant to an purchase agreement with Centurion Holdings I, LLC, in exchange for $2,476,188.

● On May 3, 2022, we issued 76,000 shares of our common stock to Allan S. Brantley pursuant to an agreement with SJSS Investments, in exchange for $760 of note payable principal.

● On May 3, 2022, we issued 75,200 shares of Common Stock to SJSS Investments pursuant to an agreement with SJSS Investments, in exchange for $752 of note payable principal.

● On July 26, 2022, we issued 31,019 shares of Common Stock to One44 Capital, LLC pursuant to an agreement with One44 Capital, LLC, in exchange for $30,000 in note payable principal and $1,221 of accrued interest.

● On August 18, 2022, we issued 27,322 shares of Common Stock to Fast Capital, LLC pursuant to an agreement with Fast Capital, LLC, in exchange for $50,000 in note payable principal.

● On August 19, 2022, we issued 23,460 shares of Common Stock to Allan S. Brantley pursuant to an agreement with Allan S. Brantley, in exchange for $235 in note payable principal.

● On September 14, 2022, we issued 11,111 shares of Common Stock to Red Road Holdings Corporation pursuant to an agreement with Red Road Holdings Corporation, in exchange for $20,000 in note payable principal.

● On September 21, 2022, we issued 30,700 shares of Common Stock to SJSS Investments pursuant to an agreement with SJSS Investments, in exchange for $307 in note payable principal.

● On October 8, 2022, we issued 30,700 shares of Common Stock to Red Road Holdings Corporation pursuant to an agreement with Red Road Holdings Corporation, in exchange for $15,000 in note payable principal.

● On November 7, 2022, we issued 54,776 shares of Common Stock to Mast Hill Fund pursuant to an agreement with Mast Hill Fund, in exchange for $54,776 of accrued interest.

● On November 8, 2022, we issued 18,382 shares of Common Stock to Red Road Holdings Corporation pursuant to an agreement with Red Road Holdings Corporation, in exchange for $15,000 in note payable principal.

● On November 15, 2022, we issued 32,895 shares of Common Stock to Red Road Holdings Corporation pursuant to an agreement with Red Road Holdings Corporation, in exchange for $30,000 in note payable principal.

● On November 21, 2022, we issued 27,627 shares of Common Stock to Red Road Holdings Corporation pursuant to an agreement with Red Road Holdings Corporation, in exchange for $21,813 in note payable principal and accrued interest of $6,919.

● On November 23, 2022, we issued 24,038 shares of Common Stock to 1800 Diagonal Lending, LLC pursuant to an agreement with 1800 Diagonal Lending, LLC, in exchange for $25,000 in note payable principal.

● On November 23, 2022, we issued 54,776 shares of Common Stock to Mast Hill Fund pursuant to an agreement with Mast Hill Fund, in exchange for $21,988 in note payable principal and $8,730 of accrued interest.

● On November 28, 2022, we issued 47,753 shares of Common Stock to GS Capital Partners LLC pursuant to an agreement with GS Capital Partners LLC, in exchange for $32,500 in note payable principal and $2,499 of accrued interest.

● On November 28, 2022, we issued 28,846 shares of Common Stock to 1800 Diagonal Lending, LLC pursuant to an agreement with 1800 Diagonal Lending, LLC, in exchange for $30,000 in note payable principal.

● On November 30, 2022, we issued 37,602 shares of Common Stock to 1800 Diagonal Lending, LLC pursuant to an agreement with 1800 Diagonal Lending, LLC, in exchange for $35,562 in note payable principal and $4,157 of accrued interest.

● On November 30, 2022, we issued 30,750 shares of Common Stock to Jefferson Street Capital LLC pursuant to an agreement with Jefferson Street Capital LLC, in exchange for $30,000 in note payable principal and $750 of accrued interest.

● On December 7, 2022, we issued 30,750 shares of Common Stock to Jefferson Street Capital LLC pursuant to an agreement with Jefferson Street Capital LLC, in exchange for $30,000 in note payable principal and $750 of accrued interest.

● On December 7, 2022, we issued 96,432 shares of Common Stock to Fast Capital LLC pursuant to an agreement with Fast Capital LLC, in exchange for $50,000 in note payable principal.

● On December 8, 2022, we issued 83,189 shares of Common Stock to GS Capital Partners LLC pursuant to an agreement with GS Capital Partners LLC, in exchange for $40,000 in note payable principal and $3,134 of accrued interest.

● Between August 25, 2022, and November 7, 2022, we sold 931,000 shares of Common Stock to 39 accredited investors in a private placement offering, in exchange for $931,000.

**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. [Reserved]**

**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 years ended December 31, 2022 and 2021 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.*

***CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS***

*This annual report includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions, or projections regarding future events or future results and therefore are, or may be deemed to be, "forward-looking statements." All statements other than statements of historical facts contained in this annual report may be forward-looking statements. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "continues," "anticipates," "expects," "seeks," "projects," "intends," "plans," "may," "will," "would" or "should" or, in each case, their negative or other variations or comparable terminology. They appear in a number of places throughout this annual report, and include statements regarding our intentions, beliefs, or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies, future acquisitions, and the industry in which we operate.*

*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 founder and 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 Chief Executive Officer has the ability to control all matters submitted to stockholders for approval, which limits our 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.*

*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 "Overview", "Risk Factors," "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.*

*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.*

**Overview**

We provide data security and privacy management solutions across the enterprise and in the cloud. With over 10,000 customers, we provide the visibility and control needed to protect data at scale, regardless of format, location, or consumer, and to facilitate compliance with fast-changing global data privacy requirements. Our customers include established leaders and up-and-coming businesses spanning the private and public/government sectors across diverse industries and fields, including financial services, healthcare, manufacturing, retail, technology, and telecommunications.

The ransomware landscape and other threats to data have accelerated the rate at which businesses are adopting data security solutions and we believe that our portfolio of data security and privacy products provides an encompassing solution set such that we are well positioned to capitalize on this trend and establish our products as new data privacy and security standards. Our offerings are anchored in reliable and comprehensive privacy management and equip organizations with a seamless approach to safeguard data, protect against attacks, and otherwise mitigate the most critical risks.

Sector-specific US laws, state-level legislation, and outside-the-United States regulations are confounding enterprises of all sizes for whom safeguarding and stewarding data is key, but for whom becoming specialists in privacy and security is not an element of their strategic roadmap. For many of these enterprises, we can bridge the gap between their need to protect data and their need to use their resources to grow their core business by offering turnkey solutions and related counseling and technical support to offset risks from data breaches and security incidents of various types. We provide products and services for the marketplace that are designed to protect data that is stored in the cloud, on-premises, and in hybrid cloud/on-premises environments, and data that is transmitted throughout the enterprise, including but not limited to by remote employees. Our suite of security products focuses on protecting sensitive files and email, confidential customer, patient and employee data, financial records, strategic and product plans, intellectual property and other proprietary information, allowing our customers to create, share, and protect their sensitive data wherever it is stored and however it is used.

We deliver solutions and capabilities that businesses can use in conjunction with their use of established cloud vendors such as Microsoft® Azure, Google® Cloud Platform (GCP), and Amazon® Web Services (AWS), as well as with on-premises databases and database applications and with virtualization platforms, such as those hosted or configured using VMWare®, Citrix®, and Oracle® products.

We sell or plan to sell substantially all of our products and services through a sales model that combines the leverage of a channel sales model or direct account management, thereby providing us with opportunities to grow our current customer base and deliver our value proposition for data privacy and security. We endeavor to use subscription models to license products and services, commonly for a paid in-advance, multiyear term that is auto-renewing. We also make use of channel partners, distributors, and resellers which sell to end-users of the products and services. This approach allows us to maintain close relationships with our customers and benefit from the global reach of our partners. Additionally, we are enhancing our product offerings and go-to-market strategy by establishing technology alliances within the IT infrastructure and security vendor ecosystem. Our sales and marketing focus for new organic growth is on organizations with 500 or more users who are adopting cloud services and can make larger purchases with us over time and have a greater potential lifetime value.

We continue to onboard to cloud-native technology adoption portals such as the Microsoft® Azure Marketplace and the Amazon® AWS Marketplace. Vendors may offer incentives to us as a software and services provider to onboard and market via their marketplace portals.

We strive to create new and innovative products and to improve existing products, proactively identifying and solving the data security needs of our customers.

As cloud adoption continues to accelerate, data privacy requirements get more complex, and data security becomes more challenging, we believe we are well positioned to capture more market share, continue to lead in strategic data security technology development, and prepare organizations for the next epoch in IT data privacy services.

**Our Products**

Each of our major product lines provides features and functionality which we believe enable our customers to optimally secure their data. The products are modular, giving our customers the flexibility to select what they require for their business needs and the flexibility to expand their usage simply by adding a license. We currently offer the following products and services:

● **Data443® Ransomware Recovery Manager** (also known as SmartShield™), a unique offering designed to recover a workstation immediately upon infection to the last known business-operable state, without requiring any end user or IT administrator intervention.

● **Data443® Data Identification Manager** (also known as ClassiDocs® and FileFacets®), our data classification and governance technology, which supports CCPA (California), LGPD (Brazil) and GDPR (Europe) compliance in a Software-as-a-Service (SaaS) platform that performs sophisticated data discovery and content searching of structured and unstructured data within corporate networks, servers, content management systems, email, desktops, and laptops.

● **Data443® Data Archive Manager** (also known as ArcMail®), a simple, secure, and cost-effective enterprise data retention management and archiving.

● **Data443® Sensitive Content Manager** (also known as ARALOC®), a secure, cloud-based platform for managing, protecting and distributing digital content to desktop and mobile devices, which protects an organization's confidential content and intellectual property assets from accidental leakage or intentional misappropriation - without impeding all other authorized users of the content and other stakeholder from collaborating.

● **Data443® Data Placement Manager** (also known as DATAEXPRESS®), a data transport, transformation, and delivery product trusted by leading financial organizations worldwide.

● **Data443® Access Control Manager** (also known as "Resilient Access"), enables fine-grained access controls across a wide variety of platforms at scale for internal client systems and commercial public cloud platforms like Salesforce®, Box.Net, Google® G Suite, Microsoft® OneDrive, and others.

● **Data443® Blockchain Protection Manager** (also known as ClassiDocs® for Blockchain), provides an active implementation for the Ripple XRP that protects blockchain transactions from inadvertent disclosure and data leaks.

● **Data443® Global Privacy Manager**, the privacy compliance and consumer loss mitigation platform which is integrated with Data443® Data Identification Manager to do the delivery portions of GDPR and CCPA as well as process privacy-related requests under such laws, and therefore enables customers to manage the full range of privacy-law driven requirements, such as responding to permitted consumer demands for access or removal, as well as to remediate issues and monitor and report on status and compliance.

● **Data443® IntellyWP**, products for enhancing the user experience for the world's largest content management platform, WordPress.

● **Data443® Chat History Scanner**, which scans chat messages for compliance, security, personally identifiable information (PII), personal information (PI), payment card industry (PCI) information as well as any custom keywords selected by the customer, and which can be used with third party platforms such as the Zoom Video Communications, Inc. video conferencing platform.

● **Data443® - GDPR Framework, CCPA Framework, and LGPD Framework WordPress® Plugins**, which help organizations of all sizes comply with Europe, California and Brazil privacy rules and regulations and are currently used by over 30,000 active site owners. We offer the plugins with a "freemium" business model, i.e., basic features at no cost and additional or more advanced features at a premium.

**Outlook**

Our objective is to further integrate our suite of data security, ransomware protection, and privacy products and offer the products alone or in combination to enterprise customers directly and via our partner channels. We aim to position our products to meet the challenges our customers face - data privacy concerns grow in lockstep with security breaches, the need to continually expand data storage, and to meet telework, telehealth, and remote learning requirements.

We have relied on and expect to continue to benefit from strategic acquisitions of products, talent, and an established customer base to contribute to our long-term growth objectives.

Key elements of our growth strategy may be summarized as follows:

*Acquisitions*. We intend to aggressively pursue acquisitions of other cybersecurity software and service providers focused on the data security sector. We target companies with a developed and/or steady client base, as well as companies with offerings that complement our existing suite of products.

*Research & Development; Innovation*. We intend to increase our spending on research and development to create new and innovative products and to improve existing products, proactively identifying and solving the data security needs of our clients.

*Grow Our Customer Base*. We believe the continued challenges businesses face in managing their enterprise data and the ever-evolving landscape of cybersecurity threats will keep the demand high for the type of products and services we offer. We intend to capitalize on this demand by continually developing and curating a collection of products and services that are attractive and relevant to both our established revenue base and to new customers.

 

*Expand Our Sales Capacity*. We believe that continuing to expand our sales force will be essential to achieving our expansion and growth. We intend to expand our sales capacity by adding sales and marketing employees, with heavy focus on customer success and leveraging our existing customer relationships.

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

**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.

While we primarily report income based on recognized and deferred revenue, another measurement internally for the business is booked revenues. Management uses 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 executed 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.

 ****

**Results of Operations for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021**

Our operations for the year ended December 31, 2022 and 2021 are outlined below:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Years Ended** | **Years Ended** | | |
|  | **December 31,** | **December 31,** | | |
|  | **2022** | **2021** | **Change** | **%** |
| Revenue | 2627123 | 3609494 | (982371) | (27)% |
| Cost of revenue | 518843 | 546888 | $(28045) | (5)% |
| Gross Profit | 2108280 | 3062606 | (954326) | (31)% |
| Gross Profit Percentage | 80% | 85% | (7)% | (5)% |
| Operating expense | 5784408 | 5699845 | (84563) | (1)% |
| Other expense | (6037339) | (3837915) | (2199424) | (57)% |
| Net loss | (9713467) | (6475154) | (3238313) | (50)% |

---

***Revenue***

The decrease in revenue in part is due to our ongoing shift for some products from one-time sales perpetual licenses with annual maintenance contracts (also referred to as perpetual license "renewals") to time-based subscriptions with multiyear upfront payments; this shift resulted in fewer customers paying for subscriptions or renewals in the year. We also believe customers and prospective customers were reluctant to consider deals regarding new business opportunities due to concerns based on economic uncertainty and other global events. However, we continue to see organic growth in increased consumption of our services that contain storage or volume components, matching our expectations and as is reflected in our continuing Annual Recurring Revenue ("ARR') growth.

***Cost of revenue***

Cost of revenue consists of direct expenses, such as labor, shipping, and supplies.

 

*For the years ended December 31, 2022 and 2021 our operating expenses are as follows*:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Years Ended** | **Years Ended** | | |
|  | **December 31,** | **December 31,** | | |
|  | **2022** | **2021** | **Change** | **%** |
| Operating expenses |  |  |  |  |
| General and administrative | 5552936 | 5433113 | (119823) | (2)% |
| Sales and marketing | 231472 | 266732 | 35260 | 13% |
| Total operating expenses | 5784408 | 5699845 | (84563) | (1)% |

---

***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 our business. Additionally, we continue to incur specific one-time costs in relation to our planned Nasdaq Capital Markets uplist, additional financing activities and related functions. The increase in general and administrative expense was primarily due to an increase in professional service fees.

*Sales and Marketing Expenses*

The sales and marketing expenses primarily consisted of continuing to shift our sales operation toward an inbound model, continued high focus on renewals and customer success operations and 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 trade show events, related travel and marketing expenses.

*Other income (expense)*

Other expenses for the year ended December 31, 2022 consisted primarily of interest expense. Other expenses for the year ended December 31, 2022 consisted of interest expense and loss on change in fair value of derivative. The increase in other expenses was primarily due to an increase in interest expense.

***Net Loss***

The net loss for the year ended December 31, 2022 was mainly derived from an operating loss of $3,676,128, and interest expense of $5,979,456 and loss on change in fair value of derivative liability of $57,883. The net loss for the year ended December 31, 2021 was mainly derived from an operating loss of $2,637,239, and interest expense of $3,334,413 and loss on change in fair value of derivative liability of $614,658.

***Cash Flow for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021***

*Liquidity and Capital Resources*

The following table provides selected financial data about us as of December 31, 2022 and 2021, respectively.

 

*Working Capital*

The following table provides selected financial data about us as of December 31, 2022 and 2021, respectively.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | December 31,<br>2022 | December 31,<br>2021 |<br>Change |% |
| Current assets | $2851082 | $1297304 | $1553778 | 120% |
| Current liabilities | $8604066 | $4502937 | $(4101129) | (91)% |
| Working capital deficiency | $(5752984) | $(3205633) | $(2547351) | (79)% |

---

We require cash to fund our operating expenses and working capital requirements, including outlays for capital expenditures. As of December 31, 2022, our principal sources of liquidity were cash of $1,712, trade accounts receivable of $31,978 and prepaid and other current assets of $2,817,392, as compared to cash of $1,204,933 and trade accounts receivable of $21,569 and prepaid and other current assets of $70,802 as of December 31, 2021.

During the last two years, and through the date of this Report, we have faced an increasingly challenging liquidity situation that has limited our ability to execute our operating plan. We will need to obtain capital to continue operations. There is no assurance that we will be able to secure such funding on acceptable terms. During the year ended December 31, 2022 and 2021, we reported a loss from operations of $3,676,128, and $2,637,239, respectively, and had negative cash flows used in operating activities of $2,886,337 and $855,540, respectively, for the same periods.

As of December 31, 2022, we had assets of cash in the amount of $1,712 and other current assets in the amount of $2,849,370. As of December 31, 2022, we had current liabilities of $8,604,066. We accumulated deficit as of December 31, 2022 was $51,412,413.

As of December 31, 2021, we had assets of cash in the amount of $1,204,933 and other current assets in the amount of $92,371. As of December 31, 2021, we had current liabilities of $4,502,937. Our accumulated deficit as of December 31, 2021 was $42,033,887.

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 we can attract additional investment, our future 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 ("<u>Sarbanes-Oxley</u>") 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 an 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 us.

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 stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the Common Stock.

 ****

***Cash Flow***

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| | | | |
|:---|:---|:---|:---|
|  | Years Ended | Years Ended | |
|  | December 31, | December 31, | |
|  | 2022 | 2021 |<br>Change |
| Cash used in operating activities | $(2886337) | $(855540) | $(2030797) |
| Cash used in investing activities | $(561128) | $(138331) | $(422797) |
| Cash provided by financing activities | $2244244 | $2140021 | $104223 |
| Cash on hand | $1712 | $1204933 | $(1203221) |

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***Operating Activities***

During the year ended December 31, 2022, we used $2,886,337 in operating activities, compared to $855,540 during the year ended December 31, 2021. The increase in cash used in operating activities was primarily due to a decrease in operating liabilities.

***Investing Activities***

During the year ended December 31, 2022, we used funds in investing activities of $561,128 to acquire intellectual property and to acquire property and equipment. During the year ended December 31, 2021, we used funds in investing activities of $138,331 to acquire property and equipment.

***Financing Activities***

During the year ended December 31, 2022, we raised $931,000 through the issuance of Common stock; $75,000 through the issuance of Series B Preferred Stock; $1,747,680 from the issuance of convertible debt; $3,448,246 from the issuance of notes payable; and, $299,278 from a loan from a related party, offset in part through the redemption of Series B Preferred Stock of $487,730; repayment of convertible note payable of $1,146,359; repayment of $4,408,240 on notes payable; repayment to a related party of $434,584 and, $72,768 of capital lease payments. By comparison, during the year ended December 31, 2021, we raised $846,801 through the issuance of Common stock; $525,000 through the issuance of Series B Preferred Stock; $1,482,000 from the issuance of convertible debt; $4,377,226 from the issuance of notes payable; and, $366,943 from a loan from a related party, offset in part through the redemption of Series B Preferred Stock of $63,999; repayment of convertible note payable of $45,000; repayment of $4,577,578 on notes payable; repayment to a related party of $680,807, and $90,565 of capital lease payments.

We depend upon receiving capital investment or other financing to fund our ongoing operations and execute our business plan. In addition, we are dependent upon our controlling stockholder 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 we will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. We have 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. Our continuation as a going concern is dependent upon our ability to obtain necessary financing to achieve our operating objectives, and the attainment of profitable operations. As of December 31, 2022, we had an accumulated deficit and working capital deficiency. 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, 2022, 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 we will be able to raise any additional capital.

**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. We continue to focus heavily on our renewals business that we inherit from our acquisitions. 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. We expect our cost basis for fundraising to be significantly less if we are able to be listed on a major stock exchange. We also expect our equity components to have more value as part of our acquisitions and by virtue be less costly for us.

**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.

**Contractual Obligations**

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under this Item.

**Critical Accounting Policies**

***Critical Accounting Policies and Significant Judgments and Estimates***

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of income and expense during the reporting periods presented.

Our critical estimates include revenue recognition and intangible assets. Although we believe that these estimates are reasonable, actual results could differ from those estimates given a change in conditions or assumptions that have been consistently applied. We also have other policies that we consider key accounting policies, such as our policy for revenue recognition, however, the application of these policies does not require us to make significant estimates or judgments that are difficult or subjective.

The critical accounting policies used by management and the methodology for its estimates and assumptions are as follows:

***Convertible Financial Instruments***

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

When we have 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 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. We 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.

***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.

**Item 7A. Quantitative and Qualitative Disclosures About Market Risk.**

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under this Item.

**Item 8. Financial Statements and Supplemental Data.**

The information required by this Item is incorporated herein by reference to the consolidated financial statements and supplementary data set forth in *Item 15. Exhibits, Financial Statement Schedules* of Part IV of this Annual Report.

**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***

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. The term "disclosure controls and procedures," as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "<u>Exchange Act</u>"), 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, 2022 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***

Our Chief Executive Officer and Chief Financial Officer are 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 our 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 ("<u>COSO</u>").

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, 2022 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 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.

***Remediation Plan for Material Weaknesses in Internal Control over Financial Reporting***

Our management is committed to improving its internal controls when we have adequate resources to do so. We appointed a full-time Chief Financial Officer in September 2022, but do not currently have independent directors or an audit committee. Until there are independent directors and an audit committee, we will mitigate the lack of segregation of duties by (i) continuing to use third party specialists to assist us with accounting and finance matters; and (ii) commissioning frequent reconciliations of significant accounts using independent auditors.

Our 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.

**Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections.**

Not applicable.

**PART III**

**Item 10. Directors, Executive Officers and Corporate Governance.**

**Directors and Executive Officers**

Each of our directors holds office until the next annual meeting of our stockholders or until his or her successor has been elected and qualified, or until his or her earlier death, resignation, or removal. Our executive officers are appointed by our Board and serve until their respective successors are elected and appointed and qualify until their earlier resignation or removal from office.

Our current director and executive officers, their ages, positions held, and duration of such, are as follows:

---

| | | | |
|:---|:---|:---|:---|
| **Name** | **Position** | **Age** | **Date First Elected or Appointed** |
| Jason Remillard | President; Chief Executive Officer; Chairman; Secretary | 49 | November 2017 |
| Greg McCraw | Chief Financial Officer | 59 | September 2022 |

---

**Business Experience**

*Jason Remillard*

Jason Remillard is our President, Chief Executive Officer and Director, positions he has held since November 2017.

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 in both cyber-security and IT operations capabilities. He has had a distinguished career of over 25 years in the enterprise information technology business, providing services worldwide. He has been in all three of the recognized aspects of information technology: (i) as a vendor; (ii) as an implementer; and (iii) as a customer. Mr. Remillard has developed, delivered, and sold pervasive solutions and products for companies culminating in four successful market exits.

Immediately prior to forming our company, from 2016 until 2017, Mr. Remillard built ClassiDocs™, an award-winning data privacy and compliance product. 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 served 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. From 2011 to 2014, Mr. Remillard 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. From 2003 to 2009, Mr. Remillard was a management consultant for IBM Corporation. Prior to his time at IBM, he developed, marketed, and successfully managed five other startups in the cybersecurity space.

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 on his experience and expertise in data security, we believe Mr. Remillard is qualified to serve as our President, Chief Executive Officer and Director.

*Greg McCraw*

Effective September 6, 2022, Greg McCraw was appointed as our Chief Financial Officer. Mr. McCraw, 59, has more than 30 years of experience in public and corporate accounting and finance for US and international publicly listed companies, specializing in US GAAP financial reporting requirements. He advised and assisted public companies, government-sponsored entities, and federal agencies in restating and filing timely reporting as well as monitoring regulatory compliance. Immediately prior to joining Data443 Data Risk Mitigation, Inc, Mr. McCraw was the Vice President of Finance for Light Wave Dental Management from January 2021 through August 2022. From August 2016 until January 2021, he was Managing Director of FMAC Group, LLC, a finance and accounting consulting firm providing services to top 100 financial institutions. Mr. McCraw is a North Carolina State University graduate with a BA in Accounting, Certified Public Accountant licensed in NC, and Certified in Financial Forensics by the AICPA.

**Family Relationships**

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

**Legal Proceedings**

To our knowledge, (i) no director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years; (ii) no director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years; (iii) no director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years; and (iv) no director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.

**Delinquent Section 16(a) Reports**

Section 16(a) of the Exchange Act requires our directors, executive officers, and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers, and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish us with copies of all reports filed by them in compliance with Section 16(a). We are required to disclose delinquent filings of reports by such persons.

Based solely on our review of certain reports filed with the SEC pursuant to Section 16(a) of the Exchange Act, we believe that all Section 16(a) filing requirements applicable to our executive officers, directors, and 10% or greater beneficial stockholders were met during the fiscal years ended December 31, 2022 and 2021.

**Corporate Governance**

***Board Committees and Charters***

Our board of directors does not maintain a separate audit, nominating and corporate governance or compensation committee. Functions customarily performed by such committees are performed by our board of directors as a whole. We do not currently have an "audit committee financial expert" since we currently do not have an audit committee.

***Code of Business Conduct***

We have adopted a code of ethics that applies to our Chief Executive Officer, our Chief Financial Officer and our Principal Accounting Officer. We will provide any person a copy of our code of ethics without charge upon request to 4000 Sancar Drive, Suite 400, Research Triangle Park, North Carolina 27709, Attention: Jason Remillard.

***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 stockholders 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 stockholders. To date, no stockholders have made any such recommendations.

**Item 11. Executive Compensation.**

***Summary Compensation Table***

The following table sets forth certain compensation awarded to, earned by, or paid to the following "named executive officers," which is defined as follows:

&nbsp;&nbsp;&nbsp;&nbsp;(a) all
 individuals serving as our principal executive officer during the years ended December 31, 2022 and 2021; and

(b) all
 individuals serving as our principal financial officer during the years ended December 31, 2022 and 2021.

We did not have any individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer as of the fiscal year ended December 31, 2022.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| <br>**Name and Principal Position** |<br>**Fiscal**<br>**Year** |<br>**Salary**<br>**($)** | **Stock**<br>**Awards**<br>**($)** | **Option**<br>**Awards**<br>**($)** | **All Other**<br>**Compensation**<br>**($)** |<br>**Total**<br>**($)** |
| Jason Remillard | 2022 | $171006 |  | $412000 |  | $583006 |
| Chief Executive Officer and Director<sup>(1)</sup> | 2021 | 201441 |  | 6834 |  | $201441 |
| Greg McCraw | 2022 | $49842 |  | $41180 |  | $91026 |
| Chief Financial Officer<sup>(2)</sup> | 2021 |  |  |  |  |  |

---

(1) Mr. Remillard served as our Chief Financial Officer from January 24, 2020 until December 3, 2021.

(2) Mr. McCraw serves as our Chief Financial Officer since September 6, 2022.

 ****

***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, 2022:

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** | **Stock Awards** | **Stock Awards** | **Stock Awards** |
| <br>**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** |
| Jason Remillard | 3 |  |  | $62400 | December 30, 2028 |  |  |  |  |
|  |  | 18 |  | $10062 | February 9, 2031 |  |  |  |  |
|  | 317801 |  |  | $1.87 | November 15, 2027 |  |  |  |  |
|  |  |  |  |  |  | 18 | $157 |  | - \* |
|  |  |  |  |  |  | 192857 | $61714 |  |  |
| Greg McCraw | 41800 |  |  | $1.70 | November 15, 2027 |  |  |  |  |
|  |  |  |  |  |  | 192857 | $61714 |  |  |

---

**Employment Agreements** 

***Jason M. Remillard Employment Agreement***

Effective March 1, 2019, we and Mr. Remillard entered into an employment agreement (the "<u>Remillard Employment Agreement</u>") providing for at-will employment, each party having the right to terminate the employment relationship at any time for any reason or no reason.

The Remillard Employment Agreement provides that Mr. Remillard will be employed by us as President and Chief Executive Officer. Under the Remillard Employment Agreement, Mr. Remillard receives a base salary of $180,000 annually. Mr. Remillard is also entitled to receive restricted stock units ("<u>RSUs</u>") every three months until such time as Mr. Remillard is no longer employed by us. Each RSA consists of a number of shares of our Common Stock equal to the value of $45,000 under our 2019 Omnibus Incentive Plan (the "<u>2019 Plan</u>"). The RSUs vest in full six months from date of grant.

Each quarter, Mr. Remillard is also entitled to receive incentive stock options to purchase Common Stock up to a value of $35,000, in accordance with the vesting schedule determined by the administrator of the 2019 Plan.

Under the Remillard Employment Agreement, Mr. Remillard is entitled to participate in all employee benefit programs that we establish and make available to our employees from time to time, including our health and dental plans.

***Greg McCraw Employment Agreement***

Effective September 6, 2022, Mr. McCraw and the Company entered into an employment agreement (the "<u>McCraw Employment Agreement</u>") providing for at-will employment, each party having the right to terminate the employment relationship at any time for any reason or no reason.

The McCraw Employment Agreement provides that Mr. McCraw will be employed by the Company as Chief Financial Officer. Under the McCraw Employment Agreement, Mr. McCraw's receives a base salary of $180,000 annually. Mr. McCraw is also entitled to receive RSUs every three months until such time as Mr. McCraw is no longer employed by the Company. Each RSU consists of a number of shares of Common Stock equal to the value of $45,000 under the 2019 Plan. The RSUs vest in full six months from date of grant.

Each quarter, Mr. McCraw is also entitled to receive incentive stock options to purchase Common Stock up to a value of $35,000, in accordance with the vesting schedule determined by the administrator of the 2019 Plan.

Under the McCraw Employment Agreement, Mr. McCraw is entitled to participate in all employee benefit programs that we establish and make available to our employees from time to time, including our health and dental plans

**Director Compensation**

Our board of directors does not currently receive any consideration for their services as members of our board of directors. Our 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 us, which awards, if granted shall be in the sole determination of the board of directors.

**Executive Compensation Philosophy**

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

**Incentive Bonus**

Our board of directors may grant incentive bonuses to our executive officers and/or future executive officers in its sole discretion, if the board of directors believes such bonuses are in our best interests, 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 our long-term business strategy we may award our executives and any future executives with long-term, stock-based compensation in the future, at the sole discretion of our board of directors. We do not currently have any immediate plans to grant any additional awards.

Our 2019 Plan was adopted by our Board of Directors on May 16, 2019 and by a majority of our voting securities on June 24, 2019. The 2019 Plan permits the granting of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and dividend equivalent rights to eligible employees, directors and consultants. We grant options to purchase shares of Common Stock under the 2019 Plan at no less than the fair value of the underlying common stock as of the date of grant. Options granted under the Plan have a maximum term of ten years.

**Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.**

The following table sets forth, as of January 31, 2023, certain information with regard to the record and beneficial ownership of our Common Stock by (i) each person known to us to be the record or beneficial owner of more than 5% of our Common Stock, (ii) each of our directors, (iii) each of the named executive officers, and (iv) all of our executive officers and directors as a group.

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 2,615,737 shares, and (ii) the total number of shares of Common Stock 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.

---

| | | |
|:---|:---|:---|
| <br>**Name & Address (1)** | **Number of Shares**<br>**Beneficially Owned (2)** | **Percentage of**<br>**Outstanding Shares (2)** |
| **<u>Executive Officers & Directors</u>** |  |  |
| Jason Remillard | 13955 | 9.50%(3) |
| Greg McCraw | - | - |
| All current executive officers and directors as a group (2 people) | 13955 | 9.50%(3) |
| **<u>5% Stockholders</u>** |  |  |
| Jason Remillard | 13955 | 9.50%(3) |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) The
 mailing address for each officer and director is c/o Data443 Risk Mitigation, Inc., 4000 Sancar Drive, Triangle Research Park, North
 Carolina 27709.

&nbsp;&nbsp;&nbsp;&nbsp;(2) Includes
 (i) 149,892,000 shares which would be issued to Mr. Remillard upon conversion of his Series A Shares; (ii) three options to purchase
 shares of Common Stock; and, (iii) 108,379 shares of Common Stock currently owned by Mr. Remillard.

(3) Mr.
 Remillard does not have the right to convert Series A Shares to Common
 Stock if he would beneficially own in excess of 9.50% of the number of shares of our Common
 Stock outstanding immediately after giving effect to the conversion, and the percentages set
 forth give effect to such limitation.

 ****

***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 president and Chief Executive Officer and the 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.

On September 16, 2019, we entered into an Asset Purchase Agreement with DMB Group, LLC ("DMB Group"). A significant part of the purchase price was in the form of our Common stock. As a direct result of this transaction and our Common stock issued to DMB Group, we determined that DMB Group was a related party. Amounts owed to DMB Group, 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, 2022, we repaid a note payable of $124,985 including interest expense of $1,240. As of December 31, 2022 and December 31, 2021, we had recorded a liability to DMB Group totaling $0 and $123,745, respectively.

During the year ended December 31, 2022, we received cash from our Chief Executive Officer of $299,281, our CEO paid operating expenses of $167,653, and repaid $602,237 to our Chief Executive Officer.

As of December 31, 2022 and December 31, 2021, we had due to related party transactions in the amounts of $112,064 and $247,366, respectively.

***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 director will continue to approve any related party transaction.

***Director Independence***

Our Board of Directors is currently composed of a single member, Jason Remillard, who does not qualify as an independent director in accordance with the NASDAQ Listing Rule 5605(a)(2).

**Item 14. Principal Accountant Fees and Services.** 

The following table provides information regarding the fees billed to us by TPS Thayer in the years ended December 31, 2022 and 2021. All fees described below were approved by Board:

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| | | |
|:---|:---|:---|
|  | **For the years ended<br> December 31,** | **For the years ended<br> December 31,** |
|  | **2022** | **2021** |
| Audit Fees (1) | $82500 | $68000 |
| Audit Related Fees (2) |  |  |
| Tax Fees (3) | 1000 | - |
| All Other Fees (4) | - | - |
| Total Fees: | $83500 | $68000 |

---

(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 us to exceed the pre-approved aggregate amount requires specific pre-approval by the Board.

**PART IV**

**Item 15. Exhibits and Financial Statement Schedules.**

(a) The
 following documents are filed as part of this Annual Report on Form 10-K:

(1) Financial
 Statements – See Index on page F-1 of this report

(b) The
 following exhibits are filed herewith as a part of this report

---

| | | | | |
|:---|:---|:---|:---|:---|
| | | **Incorporated by Reference** | **Incorporated by Reference** | **Incorporated by Reference** |
| **Exhibit**<br>**Number** | <br>**Exhibit Description** | **Form** | **Exhibit** | **Filing Date/**<br> **Period End Date** |
| 3.1 | [Amended and Restated Articles of Incorporation, dated May 1, 2018](https://www.sec.gov/Archives/edgar/data/1068689/000149315219000470/ex3-2.htm). | 10-12G | 3.2 | 1/11/2019 |
| 3.2 | [Certificate of Designation for Preferred Series A Stock, dated May 28, 2008.](https://www.sec.gov/Archives/edgar/data/1068689/000149315219000470/ex3-3.htm) | 10-12G | 3.4 | 1/11/2019 |
| 3.3 | [Amendment to Certificate of Designation for Preferred Series A Stock, dated April 27, 2018.](https://www.sec.gov/Archives/edgar/data/1068689/000149315219000470/ex3-4.htm) | 10-12G | 3.4 | 1/11/2019 |
| 3.4 | [Bylaws of the Company.](https://www.sec.gov/Archives/edgar/data/1068689/000106868900000001/0001068689-00-000001.txt) | 10-SB | I | 1/4/2000 |
| 3.5 | [Certificate of Amendment to Articles of Incorporation dated August 17, 2020.](https://www.sec.gov/Archives/edgar/data/1068689/000149315220016527/ex3-1.htm) | 8-K | 3.1 | 8/21/2020 |
| 3.6 | [Certificate of Designation for Preferred Series B Stock, dated November 25, 2020.](https://www.sec.gov/Archives/edgar/data/1068689/000149315220022832/ex3-1.htm) | 8-K | 3.1 | 12/2/2020 |
| 3.7 | [Certificate of Amendment to Articles of Incorporation dated December 15, 2020, increasing the number of authorized shares of Common Stock to 1.8 billion.](https://www.sec.gov/Archives/edgar/data/1068689/000149315220023852/ex3-1.htm) | 8-K | 3.1 | 12/17/2020 |
| 3.8 | [Certificate of Amendment to Articles of Incorporation dated April 21, 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221009857/ex3-1.htm) | 8-K | 3.1 | 4/27/2021 |
| 3.9 | [Certificate of Amendment to Articles of Incorporation dated January 10, 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221014868/ex3-1.htm) | 8-K | 3.1 | 6/21/2021 |
| 3.10 | [Certificate of Change to Articles of Incorporation dated January 6, 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222006663/ex3-1.htm) | 8-K | 3.1 | 3/11/2022 |
| 4.1 | [Description of Securities](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex4-1.htm) | 10-K | 4.1 | 3/31/2022 |
| 4.2 | [Warrant Exchange Notes issued as of 17 November 2020 in the total original principal amount of $100,000.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221006652/ex4-7.htm) | 10-K | 4.7 | 3/23/2021 |
| 4.3 | [Common Stock Purchase Warrant issued in favor of Triton Funds LP on December 11, 2020.](https://www.sec.gov/Archives/edgar/data/1068689/000149315220023852/ex4-1.htm) | 8-K | 4.1 | 12/17/2020 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
| 4.4 | [Common Stock Purchase Warrant issued in favor of Auctus Fund, LLC on 23 April 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221009857/ex4-1.htm) | 8-K | 4.1 | 4/27/2021 |
| 4.5 | [Common Stock Purchase Warrant issued in favor of Auctus Fund, LLC on April 22, 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221009857/ex4-2.htm) | 8-K | 4.2 | 4/27/2021 |
| 4.6 | [Common Stock Purchase Warrant issued in favor of Auctus Fund, LLC on 30 July 2021 for the purchase of 62,667 shares of Common Stock at $4.50 per share.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221018448/ex4-11.htm) | 10-Q | 4.11 | 8/03/2021 |
| 4.7 | [Common Stock Purchase Warrant issued in favor of Auctus Fund, LLC on 30 July 2021 for the purchase of 62,667 shares of Common Stock at $4.50 per share.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221018448/ex4-12.htm) | 10-Q | 4.12 | 8/03/2021 |
| 4.8 | [Common Stock Purchase Warrant issued in favor of Jefferson Street Capital LLC on 28 September 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex4-9.htm) | 10-K | 4.9 | 03/31/2022 |
| 4.9 | [Convertible Promissory Note issued by the Company in favor of Jefferson Street Capital LLC on 28 September 2021 in the original principal amount of $110,000.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex4-10.htm) | 10-K | 4.1 | 03/31/2022 |
| 4.10 | [Common Stock Purchase Warrant issued in favor of Mast Hill Fund, LP on 19 October 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221026340/ex4-13.htm) | 10-Q | 4.13 | 10/26/2021 |
| 4.11 | [Common Stock Purchase Warrant issued in favor of Mast Hill Fund, LP on 19 October 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221026340/ex4-14.htm) | 10-Q | 4.14 | 10/26/2021 |
| 4.12 | [Common Stock Purchase Warrant issued in favor of Westland Properties, LLC on 21 December 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex4-13.htm) | 10-K | 4.13 | 03/31/2022 |
| 4.13 | [Convertible Promissory Note issued by the Company in favor of Westland Properties, LLC on 21 December 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex4-14.htm) | 10-K | 4.14 | 03/31/2022 |
| 4.14 | [Convertible Promissory Note issued by the Company in favor of GS Capital Partners, LLC on 11 February 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex4-15.htm) | 10-K | 4.15 | 03/31/2022 |
| 4.15 | [Convertible Promissory Note issued by the Company in favor of One44 Capital LLC on 11 February 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex4-16.htm) | 10-K | 4.16 | 03/31/2022 |
| 4.16 | [Convertible Promissory Note issued by the Company in favor of Fast Capital, LLC on 14 February 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex4-17.htm) | 10-K | 4.17 | 03/31/2022 |
| 4.17 | [Convertible Promissory Note issued by the Company in favor of Root Ventures, LLC on 1 March 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex4-18.htm) | 10-K | 4.18 | 03/31/2022 |
| 4.18 | [Convertible Promissory Note issued by the Company in favor of Red Road Holdings Corporation on 9 March 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex4-19.htm) | 10-K | 4.19 | 03/31/2022 |
| 4.19 | [Convertible Promissory Note issued by the Company in favor of Vital Link Financial Services, LLC on 30 June 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222032067/ex4-20.htm) | 10-Q | 4.2 | 9/30/2022 |
| 4.20 | [Convertible Promissory Note issued by the Company in favor of Walleye Opportunities Master Fund Ltd on 7 December 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222035103/ex4-1.htm) | 8-K | 4.1 | 12/12/2022 |
| 4.21 | [Common Stock Purchase Warrant issued to Walleye Opportunities Master Fund Ltd on 7 December 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222035103/ex4-2.htm) | 8-K | 4.2 | 12/12/2022 |
| 4.22 | [Convertible Promissory Note issued by the Company in favor of Walleye Opportunities Master Fund Ltd on January 24, 2023.](https://www.sec.gov/Archives/edgar/data/1068689/000149315223002968/ex4-1.htm) | 8-K | 4.1 | 1/30/2023 |
| 4.23 | [Common Stock Purchase Warrant issued to Walleye Opportunities Master Fund Ltd on January 24, 2023.](https://www.sec.gov/Archives/edgar/data/1068689/000149315223002968/ex4-2.htm) | 8-K | 4.2 | 1/30/2023 |
| 4.24\* | [Convertible Promissory Note issued by the Company in favor of Jefferson Street Capital LLC on May 9, 2022.](ex4-24.htm) |  |  |  |
| 4.25\* | [Common Stock Purchase Warrant issued to Moody Capital Solutions Inc. on May 9, 2022.](ex4-25.htm) |  |  |  |
| 4.26\* | [Convertible Promissory Note issued by the Company in favor of 1800 Diagonal Lending LLC on January 4, 2023.](ex4-26.htm) |  |  |  |
| 10.1 | [Asset Purchase Agreement dated January 26, 2018 by and between Myriad Software Productions, LLC and Data443 Risk Management, Inc.](https://www.sec.gov/Archives/edgar/data/1068689/000149315219000470/ex10-1.htm) | 10-12G | 10.1 | 1/11/2019 |
| 10.2 | [Secured Promissory Note dated January 26, 2018 issued by Data443 Risk Management, Inc. in favor of Myriad Software Productions, LLC.](https://www.sec.gov/Archives/edgar/data/1068689/000149315219000470/ex10-2.htm) | 10-12G | 10.2 | 1/11/2019 |
| 10.3 | [Security Agreement dated January 26, 2018 executed by Data443 Risk Management, Inc. in favor of Myriad Software Productions, LLC.](https://www.sec.gov/Archives/edgar/data/1068689/000149315219000470/ex10-3.htm) | 10-12G | 10.3 | 1/11/2019 |
| 10.4† | [2019 Omnibus Stock Incentive Plan dated May 16, 2019](https://www.sec.gov/Archives/edgar/data/1068689/000149315219007881/ex10-1.htm) | 8-K | 10.1 | 5/19/2019 |
| 10.5† | [Advisory Board Agreement, effective July 28, 2020, between the Company and Omkharan Arasaratnam.](https://www.sec.gov/Archives/edgar/data/1068689/000149315220014876/ex10-19.htm) | 10-Q | 10.19 | 8/6/2020 |
| 10.6 | [Letter Agreement effective August 28, 2020, between the Company and Maxim Group, LLC.](https://www.sec.gov/Archives/edgar/data/1068689/000149315220021394/ex10-23.htm) | 10-Q | 10.23 | 11/16/2020 |
| 10.7 | [Asset Sale Agreement effective January 31, 2021, between the Company and the secured creditors of Wala, Inc.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221006652/ex10-28.htm) | 10-K | 10.28 | 3/23/2021 |
| 10.8 | [Three Secured Promissory Notes, each effective January 31, 2021 and issued by the Company in favor of the secured creditors of Wala, Inc.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221006652/ex10-29.htm) | 10-K | 10.29 | 3/23/2021 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
| 10.9 | [Security Agreement effective January 31, 2021, between the Company and the secured creditors of Wala, Inc.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221006652/ex10-30.htm) | 10-K | 10.30 | 3/23/2021 |
| 10.10 | [Form of Securities Purchase Agreement entered into with Auctus Fund, LLC on April 23, 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221009857/ex10-1.htm) | 8-K | 10.1 | 4/27/2021 |
| 10.11 | [Form of Senior Secured Promissory Note issued in favor of Auctus Fund, LLC on April 23, 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221009857/ex10-2.htm) | 8-K | 10.2 | 4/27/2021 |
| 10.12 | [Form of Security Agreement entered into with Auctus Fund, LLC on April 23, 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221009857/ex10-3.htm) | 8-K | 10.3 | 4/27/2021 |
| 10.13† | [Employment Agreement, Effective March 1, 2019 between the Company and Jason Remillard](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex10-13.htm) | 10-K | 10.13 | 3/31/2022 |
| 10.14†\* | [Employment Agreement, effective December 1, 2021 between the Company and Greg McCraw](ex10-14.htm) |  |  |  |
| 10.15 | [Form of Securities Purchase Agreement entered into with Auctus Fund, LLC on 29 July 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221018448/ex10-34.htm) | 10-Q | 10.34 | 8/3/2021 |
| 10.16 | [Form of Senior Secured Promissory Note issued in favor of Auctus Fund, LLC on 29 July 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221018448/ex10-35.htm) | 10-Q | 10.35 | 8/3/2021 |
| 10.17 | [Form of Security Agreement entered into with Auctus Fund, LLC on 29 July 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221018448/ex10-36.htm) | 10-Q | 10.36 | 8/3/2021 |
| 10.18 | [Form of Securities Purchase Agreement entered into with Jefferson Street Capital LLC on 28 September 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex10-18.htm) | 10-K | 10.18 | 03/31/2022 |
| 10.19 | [Form of Securities Purchase Agreement entered into with Mast Hill Fund, LP on 19 October 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221026340/ex10-37.htm) | 10-Q | 10.37 | 10/26/2021 |
| 10.20 | [Form of Promissory Note issued in favor of Mast Hill Fund, LP on 19 October 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315221026340/ex10-38.htm) | 10-Q | 10.38 | 10/26/2021 |
| 10.21 | [Form of Securities Purchase Agreement entered into with Westland Properties, LLC on 21 December 2021.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex10-21.htm) | 10-K | 10.21 | 03/31/2022 |
| 10.22 | [Centurion Holdings I, LLC asset purchase agreement dated January 19, 2022](https://www.sec.gov/Archives/edgar/data/1068689/000149315222002091/ex10-1.htm) | 8-K | 10.1 | 1/19/2022 |
| 10.23 | [Form of Securities Purchase Agreement entered into with GS Capital Partners, LLC on 11 February 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex10-23.htm) | 10-K | 10.23 | 03/31/2022 |
| 10.24 | [Form of Securities Purchase Agreement entered into with One44 Capital LLC on 11 February 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex10-24.htm) | 10-K | 10.24 | 03/31/2022 |
| 10.25 | [Form of Securities Purchase Agreement entered into with Fast Capital, LLC on 14 February 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex10-25.htm) | 10-K | 10.25 | 03/31/2022 |
| 10.26 | [Form of Securities Purchase Agreement entered into with Root Ventures, LLC on 1 March 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex10-26.htm) | 10-K | 10.26 | 03/31/2022 |
| 10.27 | [Form of Securities Purchase Agreement entered into with Red Road Holdings Corporation on 9 March 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex10-27.htm) | 10-K | 10.27 | 03/31/2022 |
| 10.28 | [Form of Securities Purchase Agreement between the Company and Walleye Opportunities Master Fund Ltd, dated December 7, 2022.](https://www.sec.gov/Archives/edgar/data/1068689/000149315222035103/ex10-1.htm) | 8-K | 10.1 | 12/12/2022 |
| 10.29 | [Form of Securities Purchase Agreement between the Company and Walleye Opportunities Master Fund Ltd, dated January 30, 2023.](https://www.sec.gov/Archives/edgar/data/1068689/000149315223002968/ex10-1.htm) | 8-K | 10.1 | 1/30/2023 |
| 10.30\* | [Form of Securities Purchase Agreement between the Company and Jefferson Street Capital LLC, dated May 9, 2022, 2022.](ex10-30.htm) |  |  |  |
| 10.31\* | [Form of Securities Purchase Agreement between the Company and 1800 Diagonal Lending LLC, dated January 4, 2023.](ex10-31.htm) |  |  |  |
| 10.32\* | [Asset Sale Agreement, between the Company and Wala, Inc., dated January 31, 2021.](ex10-32.htm) |  |  |  |
| 10.33\* | [Bill of Sale, between the Company and the sellers listed therein, date January 31, 2021.](ex10-33.htm) |  |  |  |
| 10.34\* | [I.P. Assignment and Assumption Agreement, between the Company and certain noteholders of the Company, dated January 31, 2021.](ex10-34.htm) |  |  |  |
| 10.35\* | [Security Agreement, between the Company and certain secured parties listed therein, dated January 31, 2021.](ex10-35.htm) |  |  |  |
| 21.1 | [Subsidiaries of the Registrant](https://www.sec.gov/Archives/edgar/data/1068689/000149315222008586/ex21-1.htm) | 10-K | 21.1 | 3/31/2022 |
| 31.1\* | [Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.](ex31-1.htm) |  |  |  |
| 31.2\* | [Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.](ex31-2.htm) |  |  |  |
| 32.1\*\* | [Section 1350 Certification of Chief Executive Officer.](ex32-1.htm) |  |  |  |
| 32.2\*\* | [Section 1350 Certification of Chief Financial Officer.](ex32-2.htm) |  |  |  |
| 101\* | Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K. |  |  |  |
| 104\* | Inline XBRL for the cover page of this Annual Report on Form 10-K, included in the Exhibit 101 Inline XBRL Document Set. |  |  |  |

---

† Indicates management contract or compensatory plan or arrangement

**\*** Filed herewith.

\*\* Furnished herewith.

**Item 16. Form 10-K Summary**

None.

**DATA443 RISK MITIGATION, INC.**

**Consolidated Financial Statements**

**Contents**

---

| | |
|:---|:---|
|  | Page |
| [Report of Independent Registered Public Accounting Firm (PCAOB ID: 6706)](#ka_018) | F-2 |
| [Consolidated Balance Sheet as of December 31, 2022 and 2021](#ka_019) | F-3 |
| [Consolidated Statement of Operations for the Year Ended December 31, 2022 and 2021](#ka_020) | F-4 |
| [Consolidated Statement of Changes in Stockholders' Deficit for the Years Ended December 31, 2022 and 2021](#ka_021) | F-5 |
| [Consolidated Statement of Cash Flows for the Years Ended December 31, 2022 and 2021](#ka_022) | F-6 |
| [Notes to Consolidated Financial Statements](#ar_001) | F-7 |

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder's

Data443 Risk Mitigation

**Opinion on the Financial** 

We have audited the accompanying consolidated balance sheets of Data443 Risk Mitigation, Inc. (the Company) as of December 31, 2022 and 2021, and the related statements of operations, stockholders' deficit, and cash flows for each of the years in the period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

**Going Concern**

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, the Company has suffered recurring losses from operations and has negative working capital and a 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.

**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 audits 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 misstatement 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.

TPS Thayer, LLC

We have served as the Company's auditor since 2020.

Sugar Land, Texas

February 24, 2023

**DATA443 RISK MITIGATION, INC.**

**CONSOLIDATED BALANCE SHEETS**

---

| | | |
|:---|:---|:---|
|  | **As of** | **As of** |
|  | **December 31,**<br>**2022** | **December 31,**<br>**2021** |
| **Assets** |  |  |
| Current assets |  |  |
| &nbsp;&nbsp;&nbsp;Cash | $1712 | $1204933 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, net | 31978 | 21569 |
| &nbsp;&nbsp;&nbsp;Advance payment for acquisition | 2726188 |  |
| &nbsp;&nbsp;&nbsp;Prepaid expense and other current assets | 91204 | 70802 |
| Total current assets | 2851082 | 1297304 |
| &nbsp;&nbsp;&nbsp;Property and equipment, net | 427031 | 288406 |
| &nbsp;&nbsp;&nbsp;Operating lease right-of-use assets, net | 405148 | 174282 |
| &nbsp;&nbsp;&nbsp;Intellectual property, net of accumulated amortization | 454331 | 1269819 |
| &nbsp;&nbsp;&nbsp;Deposits | 45673 | 31440 |
| **Total Assets** | $4183265 | $3061251 |
| **Liabilities and Stockholders' Deficit** |  |  |
| Current Liabilities |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued liabilities | $1031931 | 115673 |
| &nbsp;&nbsp;&nbsp;Deferred revenue | 1704249 | 1035185 |
| &nbsp;&nbsp;&nbsp;Interest payable | 478712 | 204915 |
| &nbsp;&nbsp;&nbsp;Notes payable, net of unamortized discount | 918785 | 1720777 |
| &nbsp;&nbsp;&nbsp;Convertible notes payable, net of unamortized discount | 4134155 | 993931 |
| &nbsp;&nbsp;&nbsp;Due to a related party | 112062 | 247366 |
| &nbsp;&nbsp;&nbsp;Operating lease liability | 213831 | 112322 |
| &nbsp;&nbsp;&nbsp;Finance lease liability | 10341 | 72768 |
| Total Current Liabilities | 8604066 | 4502937 |
| &nbsp;&nbsp;&nbsp;Series B Preferred Stock, 80,000shares designated; $0.001par value; Stated value $10.00, 0 and 29,750 shares issued and outstanding, net of discount, respectively |  | 278811 |
| &nbsp;&nbsp;&nbsp;Notes payable, net of unamortized discount - non-current | 3104573 | 1770989 |
| &nbsp;&nbsp;&nbsp;Convertible notes payable, net of unamortized discount - non-current | 97946 | 22357 |
| &nbsp;&nbsp;&nbsp;Deferred revenues - non-current | 788902 | 573411 |
| &nbsp;&nbsp;&nbsp;Operating lease liability - non-current | 354631 | 125640 |
| &nbsp;&nbsp;&nbsp;Finance lease liability - non-current | - | 10341 |
| Total Liabilities | 12950118 | 7284486 |
| Stockholders' Deficit |  |  |
| Preferred stock: 337,500 authorized; $0.001 par value |  |  |
| &nbsp;&nbsp;&nbsp;Series A Preferred Stock, 150,000 shares designated; $0.001 par value; 149,892 and 150,000 shares issued and outstanding, respectively | 150 | 150 |
| Common stock: 125,000,000authorized; $0.001 par value; 2,615,737 and 122,044 shares issued and outstanding, respectively | 2611 | 122 |
| Additional paid in capital | 42642514 | 37810380 |
| Accumulated deficit | (51412128) | (42033887) |
| Total Stockholders' Deficit | (8766853) | (4223235) |
| **Total Liabilities and Stockholders' Deficit** | $4183265 | $3061251 |

---

***See the accompanying notes, which are an integral part of these consolidated financial statements.***

**DATA443 RISK MITIGATION, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

---

| | | |
|:---|:---|:---|
|  | **Years Ended** | **Years Ended** |
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
| **Revenue** | $2627123 | $3609494 |
| Cost of revenue | 518843 | 546888 |
| &nbsp;&nbsp;&nbsp;**Gross profit** | 2108280 | 3062606 |
| **Operating expenses** |  |  |
| &nbsp;&nbsp;&nbsp;General and administrative | 5552936 | 5433113 |
| &nbsp;&nbsp;&nbsp;Sales and marketing | 231472 | 266732 |
| &nbsp;&nbsp;&nbsp;**Total operating expenses** | 5784408 | 5699845 |
| Net loss from operations | (3676128) | (2637239) |
| **Other income (expense)** |  |  |
| &nbsp;&nbsp;&nbsp;Interest expense | (5979456) | (3334413) |
| &nbsp;&nbsp;&nbsp;Loss on impairment of intangible asset |  | (75000) |
| &nbsp;&nbsp;&nbsp;Gain (loss) on settlement of debt |  | 186156 |
| &nbsp;&nbsp;&nbsp;Change in fair value of derivative liability | (57883) | (614658) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other expense | (6037339) | (3837915) |
| **Loss before income taxes** | (9713467) | (6475154) |
| &nbsp;&nbsp;&nbsp;Provision for income taxes | - | - |
| **Net loss** | $**(9713467)** | $**(6475154)** |
| &nbsp;&nbsp;&nbsp;Dividend on Series B Preferred Stock | (104631) | **(40149)** |
| **Net loss attributable to common stockholders** | $**(9818098)** | $**(6515303)** |
| Basic and diluted loss per Common Share | $(3.75) | $(68.79) |
| Basic and diluted weighted average number of common shares outstanding | 2140198 | 94708 |

---

***See the accompanying notes, which are an integral part of these consolidated financial statements.***

**DATA443 RISK MITIGATION, INC.**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT**

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Series A** | **Series A** | | | | | |
|  | **Preferred Stock** | **Preferred Stock** | **Common Stock** | **Common Stock** | | | |
|  | **Shares** | **Amount** | **Shares** | **Amount** | **Additional**<br>**Paid in**<br>**Capital** |<br>**Accumulated**<br>**Deficit** | **Total**<br> **Stockholders'**<br>**Equity**<br>**(Deficit)** |
| **Balance - December 31, 2020** | 150000 | $150 | 65308 | $66 | $32027696 | $(35518584) | $&nbsp;&nbsp;&nbsp;&nbsp;(3490672) |
| Common stock issued for cash |  |  | 10419 | 10 | 846791 |  | 846801 |
| &nbsp;&nbsp;&nbsp;Common stock issued for conversion of Series B preferred stock |  |  | 18024 | 18 | 827088 |  | 827106 |
| &nbsp;&nbsp;&nbsp;Common stock issued for conversion of debt |  |  | 24536 | 25 | 1842828 |  | 1842853 |
| &nbsp;&nbsp;&nbsp;Common stock issued in conjunction with convertible notes |  |  | 1414 | 1 | 133662 |  | 133663 |
| &nbsp;&nbsp;&nbsp;Common stock issued for exercised cashless warrant |  |  | 1116 | 1 | (1) |  |  |
| &nbsp;&nbsp;&nbsp;Warrant issued in conjunction with debts |  |  |  |  | 1024780 |  | 1024780 |
| &nbsp;&nbsp;&nbsp;Resolution of derivative liability upon exercise of warrant |  |  |  |  | 139067 |  | 139067 |
| &nbsp;&nbsp;&nbsp;Stock-based compensation |  |  | 1227 | 1 | 968469 |  | 968470 |
| &nbsp;&nbsp;&nbsp;Net loss | - | - | - | - | - | (6515303) | (6515303) |
| **Balance - December 31, 2021** | 150000 | $150 | 122044 | $122 | $37810380 | $(42033887) | $(4223235) |
| &nbsp;&nbsp;&nbsp;Cumulative-effect adjustment from adoption of ASU 2020-06 |  |  |  |  | (517500) | 439857 | (77643) |
| &nbsp;&nbsp;&nbsp;Common stock issued for acquisition of Centurion assets |  |  | 380952 | 380 | 2475808 |  | 2476188 |
| &nbsp;&nbsp;&nbsp;Subscription for share issuance |  |  | 931000 | 931 | 930069 |  | 931000 |
| &nbsp;&nbsp;&nbsp;Common stock issued for conversion of preferred stock | (108) |  | 108000 | 108 | (108) |  |  |
| &nbsp;&nbsp;&nbsp;Common stock issued for conversion of debt |  |  | 998899 | 995 | 652801 |  | 653796 |
| &nbsp;&nbsp;&nbsp;Common stock issued in conjunction with convertible notes |  |  | 18170 | 18 | 140919 |  | 140937 |
| &nbsp;&nbsp;&nbsp;Common stock issued for exercised cashless warrants |  |  | 6631 | 7 | (7) |  |  |
| &nbsp;&nbsp;&nbsp;Common stock issued for service |  |  | 50041 | 50 | 164970 |  | 165020 |
| &nbsp;&nbsp;&nbsp;Resolution of derivative liability upon exercise of warrants |  |  |  |  | 57883 |  | 57883 |
| &nbsp;&nbsp;&nbsp;Warrants issued in conjunction with debts |  |  |  |  | 47628 |  | 47628 |
| &nbsp;&nbsp;&nbsp;Stock-based compensation |  |  |  |  | 879671 |  | 879671 |
| &nbsp;&nbsp;&nbsp;Net loss | - | - | - | - | - | (9818098) | (9818098) |
| **Balance - December 31, 2022** | 149892 | $150 | 2615737 | $2611 | $42642514 | $(51412128) | $(8766853) |

---

 

*See the accompanying notes, which are an integral part of these consolidated financial statements.*

**DATA443 RISK MITIGATION, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

---

| | | |
|:---|:---|:---|
|  | **Years Ended** | **Years Ended** |
|  | **December 31,** | **December 31,** |
|  | **2022** | **2021** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;Net loss | $(9713467) | $(6475154) |
| &nbsp;&nbsp;&nbsp;Adjustments to reconcile net loss to net cash used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;Change in fair value of derivative liability | 57883 | 614658 |
| &nbsp;&nbsp;&nbsp;(Gain) loss on settlement of debt |  | (186156) |
| &nbsp;&nbsp;&nbsp;Stock-based compensation expense | 1044691 | 968470 |
| &nbsp;&nbsp;&nbsp;Loss on impairment of intangible asset |  | 75000 |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization | 987991 | 1140362 |
| &nbsp;&nbsp;&nbsp;Amortization of debt discount | 2512725 | 2906645 |
| &nbsp;&nbsp;&nbsp;Bad debt |  | 36456 |
| &nbsp;&nbsp;&nbsp;Lease liability amortization | 99634 | (26214) |
| &nbsp;&nbsp;&nbsp;Penalty interest |  | 60133 |
| &nbsp;&nbsp;&nbsp;Accounts receivable | (10409) | 78478 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses and other assets | (20402) | (70802) |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued liabilities | 923107 | (291922) |
| &nbsp;&nbsp;&nbsp;Deferred revenue | 884555 | 90433 |
| &nbsp;&nbsp;&nbsp;Accrued interest | 361588 | 224073 |
| &nbsp;&nbsp;&nbsp;Deposit | (14233) | - |
| &nbsp;&nbsp;&nbsp;Net Cash used in Operating Activities | (2886337) | (855540) |
| **CASH FLOWS FROM INVESTING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;Advance payment for acquisition | (250000) |  |
| &nbsp;&nbsp;&nbsp;Purchase of property and equipment | (311128) | (138331) |
| &nbsp;&nbsp;&nbsp;Net Cash used in Investing Activities | (561128) | (138331) |
| **CASH FLOWS FROM FINANCING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;Proceeds from issuance of convertible notes payable | 1747680 | 1482000 |
| &nbsp;&nbsp;&nbsp;Repayment of convertible notes payable | 1146359 | (45000) |
| &nbsp;&nbsp;&nbsp;Proceeds from issuance of common stock | 931000 | 846801 |
| &nbsp;&nbsp;&nbsp;Proceeds from issuance of Series B Preferred Stock | 75000 | 525000 |
| &nbsp;&nbsp;&nbsp;Redemption of Series B Preferred Stock | (487730) | (63999) |
| &nbsp;&nbsp;&nbsp;Finance lease payments | (72768) | (90565) |
| &nbsp;&nbsp;&nbsp;Proceeds from issuance of notes payable | 3448246 | 4377226 |
| &nbsp;&nbsp;&nbsp;Repayment of notes payable | (4408240) | (4577578) |
| &nbsp;&nbsp;&nbsp;Proceeds from related parties | 299281 | 366943 |
| &nbsp;&nbsp;&nbsp;Repayment to related parties | (434584) | (680807) |
| &nbsp;&nbsp;&nbsp;Net Cash provided by (used in) Financing Activities | 2244244 | 2140021 |
| Net change in cash | (1203221) | 1146150 |
| Cash, beginning of period | 1204933 | 58783 |
| Cash, end of period | $1712 | $1204933 |
| Supplemental cash flow information |  |  |
| &nbsp;&nbsp;&nbsp;Cash paid for interest | $5979456 | $152643 |
| &nbsp;&nbsp;&nbsp;Cash paid for taxes | $- | $- |
| Non-cash Investing and Financing transactions: |  |  |
| &nbsp;&nbsp;&nbsp;Common stock issued for acquisition of subsidiary | $2476188 | $- |
| &nbsp;&nbsp;&nbsp;Common stock issued for exercised cashless warrant | $7 | $1 |
| &nbsp;&nbsp;&nbsp;Settlement of series B preferred stock through issuance of common stock | $- | $827106 |
| &nbsp;&nbsp;&nbsp;Settlement of convertible notes payable through issuance of common stock | $653796 | $1842853 |
| &nbsp;&nbsp;&nbsp;Common stock issued in conjunction with convertible note | $140937 | $133663 |
| &nbsp;&nbsp;&nbsp;Warrant issued in conjunction with debts | $47628 | $1024780 |
| &nbsp;&nbsp;&nbsp;Dividend Series B preferred stock | 104631 | 40149 |
| &nbsp;&nbsp;&nbsp;Resolution of derivative liability upon exercise of warrant | $57883 | $139067 |
| &nbsp;&nbsp;&nbsp;Resolution of derivative liability upon conversion of debt | $- | $531700 |
| &nbsp;&nbsp;&nbsp;Derivative liability recognized as debt discount | $- | $390000 |
| &nbsp;&nbsp;&nbsp;Settlement of convertible notes payable through issuance of preferred common stock | $- | $65600 |
| &nbsp;&nbsp;&nbsp;Note payable issued for settlement of License fee payable | $- | $1004880 |
| &nbsp;&nbsp;&nbsp;Cumulative-effect adjustment from adoption of ASU 2020-06 | $77643 | $- |

---

***See the accompanying notes, which are an integral part of these consolidated financial statements.***

**DATA443 RISK MITIGATION, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2022 AND 2021**

**NOTE 1: BUSINESS DESCRIPTION**

BUSINESS DESCRIPTION

**Description of Business**

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.

We deliver solutions and capabilities that businesses can use in conjunction with their use of established cloud vendors such as Microsoft® Azure, Google® Cloud Platform (GCP) and Amazon® Web Services (AWS), as well as with on-premises databases and database applications with virtualization platforms, such as those hosted or configured using VMWare®, Citrix® and Oracle® clouds/products).

***Advance Payment for Acquisition***

On January 19, 2022, we entered into an Asset Purchase Agreement with Centurion Holdings I, LLC ("Centurion") to acquire the intellectual property rights and certain assets collectively known as Centurion SmartShield Home and SmartShield Enterprise, patented technology that protects and recovers devices in the event of ransomware attacks. The total purchase price of $3,400,000 consists of: (i) a $250,000 cash payment at closing; (ii) a $2,900,000 promissory note issued by Data443 in favor of Centurion ("Centurion Note"); and (iii) $250,000 in the form of a contingent payment. The Centurion Note matures January 19, 2027 but provides that Data443's repayment obligation would accelerate on the occurrence of certain events. One of those events was a financing event that did not occur within the originally anticipated timeframe. If that event had occurred, then Data443's repayment obligation would have been to repay the balance of the outstanding principal and interest as follows: (i) $500,000 of the then-outstanding amount due in cash; and (ii) the remaining balance, at Data443's option, in Common stock or a combination of Common stock and cash, with the number of shares of Common stock to be determined according to a specified formula. In April 2022, Data443 and Centurion agreed that, even though the trigger for this acceleration event did not occur, Data443 would issue shares of Common stock to Centurion in an amount then-equivalent to $2,400,000, as partial repayment of the obligation due under the Centurion Note. The number of shares of Common stock Data443 issued to Centurion on April 20, 2022, was 380,952. Because Data443 still has some repayment obligations to fulfill under the Centurion Note, as of the filing date of these financial statements, the acquisition that is the subject of the Centurion Asset Purchase Agreement is still not completed, and is expected to be completed in 2023.

 ****

***Reverse Stock Splits***

Effective March 7, 2022 and July 1, 2021, we effected an 8 for 1 and 2,000 for 1 reverse stock split, respectively, of our issued and outstanding common stock (the "Reverse Stock Splits"). All references to shares of our common stock in this annual report refers to the number of shares of common stock after giving retrospective effect to these Reverse Stock Splits (unless otherwise indicated).

**NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Basis of Presentation and Principles of Consolidation**

The accompanying consolidated financial statements as of December 31, 2022 include the accounts of the Company and its wholly-owned subsidiary, Data 443 Risk Mitigation, Inc., a North Carolina operating company. All intercompany accounts and activities have been eliminated upon consolidation. 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.

**Reclassifications**

Certain prior year amounts have been reclassified to conform to the current presentation. These reclassifications had no impact on net earnings (loss) or and financial position.

**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 our data classification, movement, governance, encryption, access control and distribution software and related services. We also perform professional services consulting with specific deliverables managed primarily by statements of work. Customers typically enter into our services subscription and various statements of work concurrently. Most of the Company's performance obligations are not considered to be distinct from the subscriptions to our software or hosting platforms 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.

Revenues from professional services consist mostly of time and material services. The performance obligations are satisfied, and revenues are recognized, when the services are provided or over the time of the service term until it expires.

Subscription software that is sold on-premises is recognized at the point of time when the software license has been delivered and the benefit of the asset has transferred. Maintenance associated with subscription licenses is recognized ratably over the term of the agreement. Our SaaS offerings allow customers to use hosted software, and our revenue is recognized ratably over the associated contract time period.

**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, 2022 and 2021.

**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.

**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, 2022 and 2021 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 account for our convertible financial instruments in accordance with ASC 470-20 "Debt with Conversion and Other Options." Prior to the adoption of ASU 2020-06 on January 1, 2022, we separated the convertible notes into liability and equity components. The carrying amounts of the liability component of the convertible notes were calculated by measuring the fair value of similar debt instruments that do not have an associated convertible feature. The carrying amounts of the equity components, representing the conversion option, were determined by deducting the fair value of the liability components from the par value of the convertible notes. This difference represents the debt discount that is amortized to interest expense over the terms of the convertible notes using the effective interest rate method.

Following the adoption of ASU 2020-06 on January 1, 2022, which we elected to adopt using a modified retrospective approach, we no longer separate the convertible notes into liability and equity components. Now convertible notes are recorded and disclosed as convertible notes payable, net of unamortized discount.

**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 $879,671 in share-based compensation expense for the year ended December 31, 2022, compared to approximately $968,469 in share-based compensation expense for the year ended December 31, 2021.

Determining the appropriate fair value model and the related assumptions requires judgment. During the year ended December 31, 2022 and 2021, 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.

**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, 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.

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The carrying amounts of cash and cash equivalents, marketable securities, trade receivables, short-term deposits and trade payables approximate their fair value due to the short-term maturity of such instruments. This valuation technique involves management's estimates and judgment based on unobservable inputs and is classified in level 3.

**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, 2022 and 2021, 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.

SCHEDULE OF ANTI-DILUTIVE BASIC AND DILUTED EARNINGS PER SHARE

---

| | | |
|:---|:---|:---|
|  | Years Ended | Years Ended |
|  | December 31, | December 31, |
|  | 2022 | 2021 |
|  | (Shares) | (Shares) |
| Series A Preferred Stock | 149892000 | 150000000 |
| Stock options | 867237 | 2121 |
| Warrants | 159974 | 146842 |
| Convertible notes |  |  |
| Preferred B stock | - | 3955 |
| Total | 150919211 | 150152918 |

---

**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 Adopted Accounting Guidance**

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. Due to adoption of this accounting policy on January 1, 2022, we recognized a cumulative effect adjustment to increase the opening retained earnings as of January 1, 2022 by $77,643.

**Recently Issued Accounting Pronouncements**

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 assuming that we will continue as a going concern. As reflected in the financial statements, we have incurred significant current period losses and negative cash flows from operating activities, and we have negative working capital and an accumulated deficit. We have relied upon loans and issuances of our equity to fund our operations. These conditions, among others, raise substantial doubt about our ability to continue as a going concern. Management's plans regarding these matters, include raising additional debt or equity financing, the terms of which might not be acceptable. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

**NOTE 4: PROPERTY AND EQUIPMENT**

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

SUMMARY OF COMPONENTS OF PROPERTY AND EQUIPMENT

---

| | | |
|:---|:---|:---|
|  | December 31,<br>2022 | December 31,<br>2021 |
| Furniture and Fixtures | $6103 | $2991 |
| Computer Equipment | 867670 | 559654 |
|  | 873773 | 562645 |
| Accumulated depreciation | (446742) | (274239) |
| Property and equipment, net of accumulated depreciation | $427031 | $288406 |

---

Depreciation expense for the years ended December 31, 2022 and 2021, was $172,503 and $174,274, respectively, and recorded in general and administrative expenses.

During the years ended December 31, 2022 and 2021, the Company acquired property and equipment of $311,128 and $138,331, respectively.

**NOTE 5: INTELLECTUAL PROPERTY**

On February 7, 2019, the Company entered into an Exclusive License and Management Agreement (the "<u>License Agreement</u>") with WALA, INC., which conducts business under the name ArcMail Technology ("<u>ArcMail</u>"). 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. During the year ended December 31. 2021, the Company reached the agreement and issued notes payable of $1,404,000 to settle license fee payable of $1,094,691. As a result, the Company recorded a loss on settlement of debt of $309,309.

On August 13, 2020, the Company entered into an Asset Purchase Agreement to acquire certain assets collectively known as FileFacets<sup>™</sup>, 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. ("<u>RNS</u>") 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 following table summarizes the components of the Company's intellectual property as of the dates presented:

SCHEDULE OF INTELLECTUAL PROPERTY

---

| | | |
|:---|:---|:---|
|  | December 31,<br>2022 | December 31,<br>2021 |
| Intellectual property: |  |  |
| WordPress® GDPR rights | $46800 | $46800 |
| ARALOC™ | 1850000 | 1850000 |
| ArcMail License | 1445000 | 1445000 |
| DataExpress<sup>TM</sup> | 1388051 | 1388051 |
| FileFacets<sup>TM</sup> | 135000 | 135000 |
| IntellyWP™ | 60000 | 135000 |
| Resilient Network Systems | 305000 | 305000 |
|  | 5229851 | 5304851 |
| Accumulated amortization | (4775520) | (3960032) |
| Impairment | - | (75000) |
| Intellectual property, net of accumulated amortization | $454331 | $1269819 |

---

The Company recognized amortization expense of approximately $815,488 and $966,088 for the years ended December 31, 2022 and 2021, respectively, recorded as general and administrative expense.

During the year ended December 31, 2021 the Company determined that IntellyWP<sup>TM</sup> should be impaired because of the reduction in sales from this service. Accordingly, the Company estimated the undiscounted future cash flows to be generated by IntellyWP<sup>TM</sup> to be an immaterial amount, which was less than the carrying amount of IntellyWP<sup>TM</sup> of $75,000. This resulted in a $75,000 write-down of the assets, which was reflected as a separate line item in the income statement.

Based on the carrying value of definite-lived intangible assets as of December 31, 2022, we estimate our amortization expense for the next five years will be as follows:

SCHEDULE OF FUTURE AMORTIZATION EXPENSE OF INTANGIBLE ASSETS

---

| | | |
|:---|:---|:---|
|  | Amortization | Amortization |
| Year Ended December 31, | Expense | Expense |
| 2023 |  | 411581 |
| 2024 |  | 27000 |
| Thereafter | | 15,750 |
|  | | 454,331 |

---

**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:

SUMMARY OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

---

| | | |
|:---|:---|:---|
|  | December 31,<br>2022 | December 31,<br>2021 |
| Accounts payable | $427553 | $75628 |
| Credit cards | 50302 | 28492 |
| Accrued dividend - preferred stock |  | 6849 |
| Accrued liabilities | 554076 | 4704 |
| Balance, end of year | $1031931 | $115673 |

---

**NOTE 7: DEFERRED REVENUE**

For the years ended December 31, 2022 and 2021, changes in deferred revenue were as follows:

SUMMARY OF CHANGES IN DEFERRED REVENUE

---

| | | |
|:---|:---|:---|
|  | December 31,<br>2022 | December 31,<br>2021 |
| Balance, beginning of year | $1608596 | $1518163 |
| Deferral of revenue | 3511678 | 2581801 |
| Recognition of deferred revenue | (2627123) | (2491368) |
| Balance, end of year | $2493151 | $1608596 |

---

As of December 31, 2022 and 2021, is classified as follows:

SUMMARY OF DEFERRED REVENUE

---

| | | |
|:---|:---|:---|
|  | December 31,<br>2022 | December 31,<br>2021 |
| Current | $1704249 | $1035185 |
| Non-current | 788902 | 573411 |
| Balance, end of year | $2493151 | $1608596 |

---

**NOTE 8: LEASES**

Operating lease

We have two noncancelable operating leases for office facilities, one that we entered into January 2019 and that expires January 10, 2024 and another that we entered into in April 2022 and that expires April 30, 2024. Each operating lease has a renewal option and a rent escalation clause. In the summer of 2022, we relocated to the expanded square footage of the premises that are the subject of the April 2022 lease to support our growing operations, and entered into a commission agreement with the landlord of the building to sublet the premises that are the subject of the January 2019 lease.

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 $240,492 and $97,385 for the years ended December 31, 2022 and 2021, respectively, primarily related to operating lease costs paid to lessors from operating cash flows. As of December 31, 2022 and 2021, the Company recorded security deposit of $10,000. We entered into our operating lease in January 2019.

Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year at December 31, 2022 were as follows:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER OPERATING LEASES

---

| | |
|:---|:---|
|  | Total |
| Year Ended December 31, |  |
| 2023 | 484759 |
| 2024 | 121405 |
| Thereafter | - |
|  | 606164 |
| Less: Imputed interest | (37702) |
| Operating lease liabilities | 568462 |
| Operating lease liability - current | 213831 |
| Operating lease liability - non-current | $354631 |

---

The following summarizes other supplemental information about the Company's operating lease as of December 31, 2022:

SCHEDULE OF OTHER SUPPLEMENTAL INFORMATION UNDER OPERATING LEASE

---

| | | |
|:---|:---|:---|
| Weighted average discount rate | 8.0 | % |
| Weighted average remaining lease term (years) | 1.17 |  |

---

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, 2022 and 2021, capital lease obligations included in current liabilities were $10,341 and $72,768, respectively, and capital lease obligations included in long-term liabilities were $-0- and $10,341, respectively. As of December 31, 2022 and 2021, the Company recorded security deposit of $33,467. During the years ended December 31, 2022 and 2021, the Company paid interest expense of $7,047 and $15,967, respectively.

At December 31, 2022, future minimum lease payments under the finance lease obligations, are as follows:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER FINANCE LEASES

---

| | |
|:---|:---|
|  | Total |
| 2023 | 10341 |
| Thereafter | - |
|  | 10341 |
| Less: Imputed interest | (5300) |
| Finance lease liabilities | 5041 |
| Finance lease liability | 10341 |
| Finance lease liability - non-current | $- |

---

As of December 31, 2022 and 2021, finance lease assets are included in property and equipment as follows:

SCHEDULE OF FINANCE LEASE ASSETS

---

| | | |
|:---|:---|:---|
|  | December 31,<br>2022 | December 31,<br>2021 |
| Finance lease assets | $267284 | $267284 |
| Accumulated depreciation | (258506) | (192928) |
| Finance lease assets, net of accumulated depreciation | $8778 | $74356 |

---

**NOTE 9: CONVERTIBLE NOTES PAYABLE**

Convertible notes payable consists of the following:

SCHEDULE OF CONVERTIBLE NOTES PAYABLE

---

| | | |
|:---|:---|:---|
|  | December 31,<br>2022 | December 31,<br>2021 |
| Convertible Notes - Issued in fiscal year 2020 | 97946 | 100000 |
| Convertible Notes - Issued in fiscal year 2021 | 600400 | 1607857 |
| Convertible Notes - Issued in fiscal year 2022 | 3710440 | - |
|  | 4408786 | 1707857 |
| Less debt discount and debt issuance cost | (176685) | (691569) |
|  | 4232101 | 1016288 |
| Less current portion of convertible notes payable | 4134155 | 993931 |
| Long-term convertible notes payable | $97946 | $22357 |

---

During the years ended December 31, 2022 and 2021, the Company recognized interest expense on convertible notes payable of $3,795,591 and $131,623, and amortization of debt discount, included in interest expense of $911,020 and $478,582, respectively.

*Replacement of note*

During the year 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 sixteen (16) 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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 $112 ;

d. No
 prepayment premiums or penalties; and

e. Maturity
 date of September 30, 2021 . Notes were fully converted in February 2021

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:

&nbsp;&nbsp;&nbsp;&nbsp;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 $56 ;

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 $56 for at least 5-consecutive days; and

&nbsp;&nbsp;&nbsp;&nbsp;f. Leak
 out provision:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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). Notes were fully
 converted in February 2021

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 39. 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 $160; and, (v) typical events of default for such a note.

*Conversion*

During the year ended December 31, 2022, the Company converted notes with principal amounts and accrued interest of $653,796 into 998,899 shares of common stock.

During the year ended December 31, 2021, the Company converted notes with principal amounts and accrued interest of $1,450,150 into 24,536 shares of common stock. The corresponding derivative liability at the date of conversion of $392,703 was credited to additional paid in capital.

Convertible notes payable consists of the following:

*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 $16 to $112. 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 $160 .

As of December 31, 2021, $100,000 notes that were issued in fiscal year 2020 were outstanding.

*Promissory Notes - Issued in fiscal year 2021*

During the year ended December 31, 2021, the Company issued convertible notes of $1,696,999 for cash proceeds of $1,482,000 after deducting financing fee of $214,999 with the following terms;

● Terms ranging from 90 days to 12 months.

● Annual interest rates of 5 % to 12 %.

● Convertible at the option of the holders after varying dates.

● Conversion prices are typically based on the discounted (39% discount) average closing prices or lowest trading prices of the Company's shares during 20 periods prior to conversion.

● 1,414 shares of common stock valued at $133,663 issued in conjunction with convertible notes.

● 117,992 warrants to purchase shares of common stock with an exercise price a range from $7.44 to 36.00 granted in conjunction with convertible notes. The term of warrant is 5 years from issue date. (Note 12)

● The convertible note on October 19, 2021 by the Company in favor of Mast Hill Fund matured on October 19, 2022 which triggered the conversion provision, the default interest rate of 16% and penalty of 125% additional principal based on the outstanding principal balance and accrued interest. As a result of additional principal penalty, the outstanding principal balance increase $91,311 and the effective interest rate increased to 16% .

● The convertible note on December 21, 2021 by the Company in favor of Westland Properties, LLC matured on December 21, 2022 which triggered the default interest rate of 24% and penalty of 125% additional principal based on the outstanding principal balance and accrued interest. The Company broke certain covenants of the convertible note related to the failure of the Company uplist 60 days from the note issuance date that triggered a 10% penalty of the outstanding principal and additional 5% of the outstanding principal every 10 calendar days until the uplist is completed or the note is paid off. The conversion provision triggered on the 6 month anniversary of the note as a result of not completing the uplist. As a result of the covenants, outstanding principal increased by $1,974,914 and the effective interest rate increased to 24% with an additional 5% every 10 days until uplist.

As of December 31, 2021, $1,607,857 notes that were issued in fiscal year 2021 were outstanding.

Convertible note with outstanding balance $361,869 is in default as of October 19, 2022 with a default interest rate of 16%. We are in communication with the lender.

Convertible note with outstanding balance $238,532 is in default as of December 21, 2022 with a default interest rate of 24%. We are in communication with the lender.

 

*Promissory Notes - Issued in fiscal year 2022*

During the year ended December 31, 2022, we issued convertible promissory notes with principal amounts totaling $2,120,575, which resulted in cash proceeds of $1,857,800 after deducting a financing fee of $262,775. The 2022 Convertible Notes have the following key provisions:

● Terms ranging from 3 to 12 months.

● Annual interest rates of 9 % to 20 %.

● Convertible at the option of the holders after varying dates .

● Conversion price based on a formula corresponding to a discount (20% or 39% discount) off the lowest trading price of our Common stock for the 20 prior trading days including the day on which a notice of conversion is received, although one of the 2022 Convertible Notes establishes a fixed conversion price of $4.50 per share.

● 554,464 shares of common stock valued at $473,691 issued in conjunction with convertible notes.

In connection with the adoption of ASU 2020-06 on January 1, 2022, we reclassified $517,500, previously allocated to the conversion feature, from additional paid-in capital to convertible notes on our balance sheet. The reclassification was recorded to combine the two legacy units of account into a single instrument classified as a liability. As of January 1, 2022, we also recognized a cumulative effect adjustment of $439,857 to accumulated deficit on our balance sheet, that was primarily driven by the derecognition of interest expense related to the accretion of the debt discount as required under the legacy accounting guidance. Under ASU 2020-06, we will no longer incur non-cash interest expense related to the accretion of the debt discount associated with the embedded conversion option.

**NOTE 10: DERIVATIVE LIABILITIES**

We 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.

We 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, 2022. As of the year ended December 31, 2022, 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.

For the year ended December 31, 2022 and year ended December 31, 2021, the estimated fair values of the liabilities measured on a recurring basis are as follows:

The fair value of the derivative liability for all the notes that became convertible, including the notes issued in prior years, during the year ended December 31, 2022 amounted to $57,883 recognized as a derivative loss.

For the year ended December 31, 2022 and year ended December 31, 2021, the estimated fair values of the liabilities measured on a recurring basis are as follows:

SCHEDULE OF FAIR VALUE OF LIABILITIES MEASURED ON RECURRING BASIS

---

| | | |
|:---|:---|:---|
|  | Year ended<br>December 31,<br>2022 | Year ended<br>December 31,<br>2021 |
| Expected term | - \* | 0.48 - 5.00 years |
| Expected average volatility | 280% | 160%- 302 |
| Expected dividend yield |  |  |
| Risk-free interest rate | 3.65% | 0.04% - 1.24 |

---

\* There is no excepted term on the convertible notes.

The following table summarizes the changes in the derivative liabilities during the years ended December 31, 2022 and 2021:

SCHEDULE OF CHANGES IN DERIVATIVE LIABILITIES

---

| | |
|:---|:---|
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) |
| Derivative liability as of December 31, 2020 | $- |
| Addition of new derivatives recognized as debt discounts | 390000 |
| Addition of new derivatives recognized as day-one loss | 559939 |
| Derivative liabilities settled upon conversion of convertible note | (1004658) |
| Change in derivative liabilities recognized as loss on derivative | 54719 |
| Derivative liability as of December 31, 2021 | $- |
| Addition of new derivatives recognized as debt discounts |  |
| Addition of new derivatives recognized as day-one loss | 57883 |
| Derivative liabilities settled upon conversion of convertible note | (57883) |
| Change in derivative liabilities recognized as loss on derivative | - |
| Derivative liability as of December 31, 2022 | $- |

---

The aggregate loss on derivatives during the years ended December 31, 2022 and 2021 was $57,883 and $614,658, respectively.

**NOTE 11: NOTES PAYABLE**

Notes payable consists of the following:

SCHEDULE OF NOTES PAYABLE

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | December 31,<br>2022 | December 31,<br>2021 | <br>Maturity | Interest<br>Rate |
| Economic Injury Disaster Loan - originated in May 2020 <sup>(1, 2)</sup> | $500000 | $500000 | 30 years | 3.75% |
| Promissory note - originated in September 2020 | 20182 | 50456 | $2,873.89 monthly payment for 36 months | 14.0% |
| Promissory note - originated in December 2020 | 16047 | 33039 | $1,854.41 monthly payment for 36 months | 8.0% |
| Promissory note - originated in January 2021 | 22243 | 48583 | $2,675.89 monthly payment for 36 months | 18.0% |
| Promissory note - originated in February 2021 <sup>(3)</sup> | 1305373 | 1328848 | 5 years | 4.0% |
| Promissory note - originated in April 2021<sup>(4)</sup> | 866666 | 832000 | 1 year | 12% |
| Promissory note - originated in July 2021<sup>(4)</sup> | 352500 | 282000 | 1 year | 12% |
| Promissory note - originated in September 2021 | 43667 | 55576 | $1,383.56 monthly payment for 60 months | 28% |
| Promissory note - originated in December 2021 |  | 406300 | $20,050 weekly payment for 28 weeks | 49% |
| Promissory note - originated in December 2021 |  | 241716 | $10,071.45 weekly payment for 28 weeks | 4.94% |
| Promissory note - originated in December 2021 |  | 189975 | $2,793.75 daily payment for 80 days | 7% |
| Promissory note - originated in April 2022 | 73204 |  | $1,695.41 monthly payment for 36 months | 16.0% |
| Promissory note - originated in April 2022 | 239858 |  | $7,250 daily payment for 168 days | 25% |
| Promissory note – originated in June 2022 | 149011 |  | $20,995 weekly payment for 30 weeks | 49% |
| Promissory note - originated in July 2022 | 54557 |  | $1,485.38 monthly payment for 60 months | 18% |
| Promissory note - originated in July 2022 | 94878 |  | $3,546.87 monthly payment for 36 months | 10% |
| Promissory note - originated in August 2022 | 26538 |  | $589.92 monthly payment for 60 months | 8% |
| Promissory note - originated in October 2022 | 635745 | - | $1,749.00 daily payment for 30 days | 66% |
|  | 4400469 | 3968491 |  |  |
| Less debt discount and debt issuance cost | (377111) | (476727) |  |  |
|  | 4023358 | 3491766 |  |  |
| Less current portion of promissory notes payable | 918785 | 1720777 |  |  |
| Long-term promissory notes payable | $3104573 | $1770989 |  |  |

---

(1) We
 received an advance under the Economic Injury Disaster Loan (EIDL) program.

(2) We
 received a second advance under the EIDL program in fiscal year 2021.

(3) On
 February 12, 2021, we issued notes payable of $1,404,000 to settle license fee payable of $1,094,691 . As a result, we recorded loss
 on settlement of debt of $186,156 in fiscal year 2021.

(4) Note payable with outstanding balance of $866,666 matured on April 22, 2022 . Note payable with outstanding balance
of $352,500 matured on July 27, 2022 . The default annual interest rate of 16 % becomes the effective
 interest rate on the past due principal and interest. A penalty of 125% of the outstanding principal and accrued interest was triggered and as a result $173,333 and $70,500 ,
respectively, additional principal was added to the outstanding balance. We are in communication with the lender.

During the years ended December 31, 2022 and 2021, the Company recognized interest expense on notes payable of $505,198 and $260,155, and amortization of debt discount, included in interest expense of $2,537,167 and $2,906,645, respectively.

During the years ended December 31, 2022 and 2021, the Company issued a total of $4,840,215 and $6,094,051, less discount of $1,381,970 and $1,716,825 and repaid $4,408,240 and $4,577,578, respectively.

**NOTE 12: CAPITAL STOCK AND REVERSE STOCK SPLIT**

**Changes in Authorized Shares**

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.

On July 1, 2021, we effected a 1-for-2,000 reverse stock split of our issued and outstanding common stock.

On March 7, 2022, the Company filed an amendment to its Articles of Incorporation to effect a 1-for-8 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.

**Preferred Stock**

Each share of Series B (i) has a stated value of Ten Dollars ($10.00) per share; (ii) is convertible into Common stock at a price per share equal to sixty one percent (61%) of the lowest price for our Common stock during the twenty (20) days of trading preceding the date of the conversion; (iii) earns dividends at the rate of nine percent (9%) per annum; and, (iv) has no voting rights.

During the year ended December 31, 2022, we issued 7,875 shares of Series B preferred stock for $78,750, less $3,750 financing fees.

During the year ended December 31, 2022, we redeemed 37,625 shares of Series B preferred stock, representing all outstanding shares of Series B preferred stock, for $487,730.

During the year ended December 31, 2022 we recorded an accrued dividend of $104,631, and amortization of debt discount, included in interest expense of $22,439.

As of December 31, 2022 and December 31, 2021, 0 and 29,750 shares of Series B were issued and outstanding, respectively.

Each share of Series A is the equivalent of 15,000 shares of Common Stock. Our Chief Executive Officer, Jason Remillard, holds 149,892 shares of our Series A Preferred Stock. 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.

During the year ended December 31, 2022, we issued 108,000 shares of Common Stock for conversion of Series A preferred stock.

As of December 31, 2022 and December 31, 2021, 149,892 and 150,000 shares of Series A were issued and outstanding, respectively.

**Common Stock**

As of December 31, 2022, the Company is authorized to issue 125,000,000 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, 2022 and 2021, respectively, was 2,615,737 and 122,044 shares, respectively.

During the year ended December 31, 2022, the Company issued common stock as follows:

● 998,899 shares issued for conversion of debt;

● 6,631 shares issued upon the cash-less exercise of warrants;

● 380,952 shares issued for consideration under an asset purchase agreement;

● 108,000 shares issued for conversion of Series A preferred stock;

● 50,041 shares issued for services;

● 18,170 shares issued as a loan fee in connection with the issuance of promissory notes; and

● 931,000 shares were subscribed for cash pursuant to private placement offering.

During the year ended December 31, 2021, the Company issued common stock as follows:

● 24,536 shares issued for conversion of debt;

● 10,419 shares issued for cash of $1,000,000 , less financing cost of $10,000 , less an additional financing discount of $143,199 ;

● 1,227 shares issued for service;

● 1,116 shares issued upon the cash-less exercise of warrants;

● 18,024 shares issued for conversion of Series B preferred stock;

● 1,414 shares issued as a loan fee in connection with the issuance of promissory notes.

Beginning on August 25, 2022 and concluding on November 4, 2022, the Company initiated a private placement transaction with certain "accredited investors," as defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended. In connection with the Offering, we entered into a securities purchase agreement with each investor pursuant to which we offered and sold to the investors a total of 931,000 shares of our common stock, par value $0.001 at a purchase price of $1.00 per share, for aggregate gross proceeds of approximately $931,000. The Common stock has not been registered under the Securities Act, and may not be offered or sold in the United States absent effective registration or an applicable exemption from registration requirements. For these shares, we are relying on the private placement exemption from registration provided by Section 4(a)(2) of the Securities Act and by Rule 506 of Regulation D, promulgated thereunder and on similar exemptions under applicable state laws.

**Warrants**

The Company identified conversion features embedded within warrants issued during the year 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, 21 warrants were granted, for a period of five years from issuance, at price of $8,000 per share. However, as of September 30, 2020, 16 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 22,919 for the year ended December 31, 2020, and the total warrants exercisable into 23,057 shares of common stock at a weighted average exercise price of $81.60 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 2. 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 6,250 shares of the Company's Common Stock. The exercise price for the warrants is $160 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 1,250 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.

During the year ended December 31, 2021, the Company issued the following warrants: (i) to acquire 6,933 shares of the Company's common stock pursuant at an exercise price of $120, with a cashless exercise option; (ii) to acquire 6,933 shares of the Company's common stock at an exercise price of $120, exercisable only in the event of a default under that certain Senior Secured Promissory Note issued on 23 April 2021 in the original principal amount of $832,000; (iii) to acquire 15,666 shares of the Company's common stock at an exercise price of $36, exercisable only in the event of a default under that certain Senior Secured Promissory Note issued on July 27, 2021 in the original principal amount of $282,000; (iv) to acquire 2,917 shares of the Company's common stock at an exercise price of $36, exercisable only in the event of a default under that certain Convertible Promissory Note issued on September 28, 2021 in the original principal amount of $282,000; (v) to acquire 40,404 shares of the Company's common stock at an exercise price of $36, exercisable only in the event of a default under that certain Convertible Promissory Note issued on October 19, 2021 in the original principal amount of $444,444 and, (vi) to acquire 74,671 shares of the Company's common stock at an exercise price of $7.44, exercisable only in the event of a default under that certain Convertible Promissory Note issued on December 21, 2021 in the original principal amount of $555,555.

During the year ended December 31, 2022, the Company issued the following warrants: (i) to acquire 19,166 shares of the Company's common stock pursuant at an exercise price of $6, with a cashless exercise option; and (ii) to acquire 1,533 shares of the Company's common stock pursuant at an exercise price of $6, with a cashless exercise option.

A summary of activity during the period ended December 31, 2022 follows:

---

| | | |
|:---|:---|:---|
|  |<br>Shares | Weighted Average<br>Exercise Price |
| Outstanding, December 31, 2020 | 6250 | $20.00 |
| Granted | 141721 | 22.18 |
| Reset feature |  |  |
| Exercised | (2416) | 5.80 |
| Forfeited/canceled | - | - |
| Outstanding, December 31, 2021 | 146842 | $27.86 |
| Granted | 20699 | 6.00 |
| Reset feature | - |  |
| Exercised | (7567) | - |
| Forfeited/canceled | - | - |
| Outstanding, December 31, 2022 | 159974 | $22.07 |

---

The following table summarizes information relating to outstanding and exercisable warrants as of December 31, 2022:

---

| | | | | |
|:---|:---|:---|:---|:---|
| Warrants Outstanding | Warrants Outstanding | Warrants Outstanding | Warrants Exercisable | Warrants Exercisable |
| Number of <br> Shares | Weighted Average Remaining<br> Contractual life <br> (in years) | Weighted Average <br> Exercise Price | Number of <br>Shares | Weighted Average <br>Exercise Price |
| 6250 | 2.95 | $160.00 |  | $- |
| 6934 | 3.31 | $120.00 |  | $- |
| 15666 | 3.57 | $36.00 |  | $- |
| 2917 | 3.75 | $36.00 |  | $- |
| 32837 | 3.80 | $9.88 |  | $- |
| 74671 | 4.00 | $7.44 |  | $- |
| 20699 | 4.36 | $6.00 |  | $- |

---

**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,<br>2022 | December 31,<br>2021 |
| Non-operating loss carryforward | $6326000 | $4685000 |
| Valuation allowance | (6326000) | (4685000) |
| 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 2022 the valuation allowance increased by $1,641,000. The Company has net operating and economic loss carry-forwards of approximately $26,030,830 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, 2022 and 2021 is as follows:

---

| | | |
|:---|:---|:---|
|  | Years Ended | Years Ended |
|  | December 31, | December 31, |
|  | 2022 | 2021 |
| Loss for the year | $(9713467) | $(6475154) |
| Income tax (recovery) at statutory rate | $(2040000) | $(1360000) |
| State income tax expense, net of federal tax effect | (194000) | (130000) |
| Permanent difference and other | 593000 | 819000 |
| Change in valuation allowance | 1641000 | 671000 |
| 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 – 2022, are subject to review by the tax authorities.

**NOTE 14: SHARE-BASED COMPENSATION**

**Stock Options**

During the years ended December 31, 2022 and 2021, 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 or two-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, 2022 and 2021:

---

| | | |
|:---|:---|:---|
|  | Options<br>Outstanding | Weighted-Average<br>Exercise Price |
| Balance as of December 31, 2020 | 735 | $775.93 |
| Grants | 1386 | 304.44 |
| Exercised |  |  |
| Cancelled | - | - |
| Balance as of December 31, 2021 | 2121 | $775.93 |
| Grants | 865116 | 1.34 |
| Exercised |  |  |
| Cancelled | 1254 | 67.40 |
| Balance as of December 31, 2022 | 865983 | $1.67 |

---

The weighted average grant date fair value of stock options granted during the years ended December 31, 2022 and 2021 was $1.34 and $299, respectively. The total fair value of stock options that granted during the year ended December 31, 2022 and 2021 was approximately $1,341,002 and $414,902, 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, 2022 and 2021:

---

| | | |
|:---|:---|:---|
|  | 2022 | 2021 |
| Expected term (years) | 5 | 5.74 |
| Expected stock price volatility | 280.82% | 296.25% |
| Weighted-average risk-free interest rate | 3.65% | 0.62% |
| 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, 2022:

---

| | | | |
|:---|:---|:---|:---|
|  |<br>Number of<br>Options | Weighted-Average<br>Remaining Contractual Life<br>(In Years) |<br>Weighted-Average<br>Exercise Price |
| Outstanding | 865983 | 4.85 | $1.54 |
| Exercisable | 689948 | 4.83 | $1.67 |
| Expected to vest | 865983 | 4.85 | $1.54 |

---

As of December 31, 2022 and 2021, there was $381,547 and $381,547, respectively, of total unrecognized compensation cost related to non-vested stock-based compensation arrangements which is expected to be recognized within the next year.

**Restricted Stock Awards**

During the years ended December 31, 2022 and 2021, 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, 2022 and 2021:

---

| | | |
|:---|:---|:---|
|  |<br>Shares | Weighted-Average<br>Fair Value |
| Balance as of December 31, 2020 | 923 | 748.89 |
| Shares of restricted stock granted | 447 | 413.33 |
| Exercised |  |  |
| Cancelled | - | - |
| Balance as of December 31, 2021 | 1370 | 639.22 |
| Shares of restricted stock granted | 321428 | 225000 |
| Exercised |  |  |
| Cancelled | - | - |
| Balance as of December 31, 2022 | 322798 | 225639 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | December 31, | December 31, | December 31, | December 31, |
| Number of Restricted Stock Awards | 2022 | 2022 | 2021 | 2021 |
| Vested |  | 1370 |  | 1370 |
| Non-vested |  | 321428 |  |  |

---

As of December 31, 2022 and 2021, there was $0of total unrecognized compensation cost related to non-vested stock-based compensation, which is expected to be recognized over the next year.

**NOTE 15: INTEREST EXPENSE**

For the years ended December 31, 2022 and 2021, the Company recorded interest expense as follows:

---

| | | |
|:---|:---|:---|
|  | Year ended<br>December 31,<br>2022 | Year ended<br>December 31,<br>2021 |
| Interest expense - convertible notes | $2884571 | $131623 |
| Interest expense - notes payable | 505198 | 260155 |
| Interest expense - notes payable - related party |  | 9992 |
| Finance lease | 7047 | 15967 |
| Other | 45473 | 10031 |
| Amortization of debt discount | 2537167 | 2906645 |
|  | $5979456 | $3334413 |

---

**NOTE 16: 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 100 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. 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, 2022 and 2021, the Company repaid note payable of $124,985 and $281,638 including interest expense of $1,240 and $9,992, respectively. As of December 31, 2022 and 2021, the Company had recorded a liability to DMBGroup totaling $0 and $405,382, respectively.

During the year ended December 31, 2022, the Company borrowed $299,281 from our CEO, our CEO paid operating expenses of $167,653 on behalf of the Company and the Company repaid $602,237 to our CEO. During the year ended December 31, 2021, the Company borrowed $231,150 from our CEO, our CEO paid operating expenses of $135,793 on behalf of the Company and the Company repaid $399,169 to our CEO.

As of December 31, 2022 and 2021, the Company had due to related party of $112,062 and $247,366, respectively, which arose from the DMB transaction to acquire DataExpress™.

**NOTE 17: SUBSEQUENT EVENTS**

In accordance with ASC 855-10, "Subsequent Events", we analyzed our operations subsequent to December 31, 2022 to February 24, 2023, the date when these consolidated financial statements were issued.

● On January 4, 2023, GS Capital Partners LLC converted $15,000 of principal and $1,209 of accrued interest of the convertible note into 97,761 shares of our common stock.

● On January 9, 2023, Westland Properties, LLC converted $15,000 of principal of the convertible note into 83,333 shares of our common stock.

● On January 16, 2023, Root Ventures LLC converted $23,027 of principal of the convertible note into 139,557 shares of our common stock.

● On January 20, 2023, Fast Capital, LLC converted $20,000 of principal of the convertible note into 139,500 shares of our common stock.

● On January 24, 2023, the Company issued convertible note a total of $300,000 , which the term of notes is 1 year and Original Interest Discount of $50,000 . Note is convertible at the option of the holder at any time and conversion price are Conversion price is $.25 per share.

● On February 1, 2023, Mast Hill Fund converted $13,023 of principal and $14,949 of accrued interest of the convertible note into 165,000 shares of our common stock.

● On February 6, 2023, Westland Properties, LLC converted $15,000 of principal of the convertible note into 118,858 shares of our common stock.

● On February 17, 2023, Mast Hill Fund converted $21,638 of principal and $4,197 of accrued interest of the convertible note into 179,000 shares of our common stock.

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

---

| | | |
|:---|:---|:---|
| DATED: February 24, 2023 | DATA443 RISK MITIGATION, INC. | DATA443 RISK MITIGATION, 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; | February 24 2023 |
| Jason Remillard | Chief Executive Officer |  |
| */s/ Greg McCraw* | Chief Financial Officer | February 24, 2023 |
| Greg McCraw |  |  |

---

## Exhibit 4.24

**Exhibit 4.24**

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## Exhibit 4.25

**Exhibit 4.25**

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## Exhibit 4.26

**Exhibit 4.26**

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## Exhibit 10.14

**Exhibit 10.14**

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## Exhibit 10.30

**Exhibit 10.30**

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## Exhibit 10.31

**Exhibit 10.31**

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## Exhibit 10.32

**Exhibit 10.32**

**ASSET SALE AGREEMENT**

**PURCHASE OF THE ASSETS OF**

**WALA, INC.**

**BY**

**DATA443 RISK MITIGATION, INC.**

**January 31, 2021**

**ASSET SALE AGREEMENT**

**I**

**PARTIES**

**THIS ASSET SALE AGREEMENT** (the "<u>Agreement</u>") is entered into effective as of the 31st day of January 2021 (the "<u>Effective Date</u>"), by and between DATA443 RISK MITIGATION, INC., a North Carolina corporation ("<u>Buyer</u>"); **<u>and</u>**, each and all of those persons identified on Exhibit I, attached hereto and incorporated herein by reference, and each referred to herein individually as a "<u>Noteholder</u>", and collectively as the "<u>Noteholders</u>" or the "**<u>Sellers</u>**". Buyer and each of the Noteholders are sometimes referred to collectively herein as the "<u>Parties</u>", and each individually as a "<u>Party</u>".

**II**

**RECITALS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**A.** Noteholders previously entered into a transaction with WALA, INC., a Louisiana corporation, d/b/a Arcmail Technology ("<u>Debtor</u>") under which, among other things, Debtor issued a series of its promissory notes in favor of the Noteholders, with each of the notes having an effective date of 01 September 2014 (collectively, the "<u>Notes</u>"), in the original principal balances set forth on Exhibit I.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**B.** The Notes were secured by, among other things, the grant of a blanket security interest in all of the assets of Debtor (the "<u>Collateral</u>"), with said security interest perfected pursuant to that certain (i) Security Agreement by and among the Debtor, the CEO of Debtor, Rory Welch ("<u>Welch</u>"), and Noteholders, dated 01 September 2014 (the "<u>Debtor Security Agreement</u>"); and, (ii) UCC-1 Financing Statement #09-1249787, dated 10 October 2014 and filed in the State of Louisiana (the "<u>Financing Statement</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**C.** All obligations owed by the Debtor to the Noteholders under the Notes are referred to herein as the "<u>Indebtedness</u>".

**D**. On 07 February 2019 Buyer entered into an Exclusive License and Management Agreement (the "<u>License Agreement</u>") with Debtor under which Buyer was granted the exclusive right and license to receive all benefits from the marketing, selling, and licensing of the business conducted by Debtor under the name ArcMail (collectively, the "<u>ArcMail Business</u>"), which assets were included as part of the Collateral.

**E**. Buyer has continued to act under the License Agreement and operate the ArcMail Business and remit proceeds, at various times, to Debtor for repayment of the Indebtedness, and directly to Noteholders for repayment of the Indebtedness.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**F.** Debtor is in default of its obligations under the Notes, and all of such obligations are now past due and payable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**G.** Sellers have initiated a *dation en paiement* under Louisiana law (the "<u>Dation</u>"), under which Sellers will enforce its remedies against Debtor and the Collateral, resulting in Seller having clear and unencumbered title to the Collateral.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**H.** Subject to the terms and conditions of this Agreement, and conditioned on the successful completion of the Dation, Buyer has agreed to purchase from Sellers, and Sellers have agreed to sell to Buyer, all of Sellers' and Debtor's right, title and interest in the Purchased Assets (as defined below).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**I. 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**

**<u>DEFINED TERMS AND INTERPRETATION</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 **<u>Definitions</u>**. The following capitalized terms shall have the respective meanings specified in this Article III. Other terms defined elsewhere herein shall have meanings so given them.

"BriteForce Assets" means all computer programs/software, algorithms, intellectual property, business plans, customers, contracts, customer information and data, domain names, websites, phone numbers, and all computer drives, devices or storage units on which the BriteForce programs and intellectual property is stored, operating and or maintained.

"<u>Code</u>" means the Internal Revenue Code of 1986, as amended.

"<u>Encumbrance</u>" means any charge, claim, mortgage, servitude, easement, right of way, community or other marital property interest, covenant, equitable interest, license, lease or other possessory interest, lien, option, pledge, hypothecation, security interest, preference, priority, right of first refusal, condition, limitation or restriction of any kind or nature whatsoever (whether absolute or contingent).

"<u>Indebtedness</u>" means, with respect to any Person, (a) all indebtedness of such Person, whether or not contingent, for borrowed money; (b) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments or debt securities and warrants or other rights to acquire any such instruments or securities; and, (c) all Indebtedness of others referred to in clauses (a) and (b) hereof guaranteed, directly or indirectly, in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered), (iv) to grant an Encumbrance on property owned or acquired by such Person, whether or not the obligation secured thereby has been assumed, or (v) otherwise to assure a creditor against loss.

"<u>Intellectual Property</u>" means all of the following anywhere in the world and all legal rights, title or interest in, under or in respect of the following arising under applicable law, whether or not filed, perfected, registered or recorded and whether now or later existing, filed, issued or acquired, including all renewals: (a) all patents and applications for patents and all related reissues, reexaminations, divisions, renewals, extensions, provisionals, continuations and continuations in part; (b) all copyrights, copyright registrations and copyright applications, copyrightable works and all other corresponding rights; (c) all mask works, mask work registrations and mask work applications and all other corresponding rights; (d) all trade dress and trade names, logos, Internet addresses and domain names, trademarks and service marks and related registrations and applications, including any intent to use applications, supplemental registrations and any renewals or extensions, all other indicia of commercial source or origin and all goodwill associated with any of the foregoing; (e) all inventions (whether patentable or unpatentable and whether or not reduced to practice), know how, technology, technical data, trade secrets, confidential business information, manufacturing and production processes and techniques, research and development information, financial, marketing and business data, pricing and cost information, business and marketing plans, advertising and promotional materials, customer, distributor, reseller and supplier lists and information, correspondence, records, and other documentation, and other proprietary information of every kind; (f) all computer software (including source and object code), firmware, development tools, algorithms, files, records, technical drawings and related documentation, data and manuals; (g) all databases and data collections; (h) all other proprietary rights; and (i) all copies and tangible embodiments of any of the foregoing (in whatever form or medium).

"<u>Liability</u>" includes liabilities, debts or other obligations of any nature, whether known or unknown, absolute, accrued, contingent, liquidated, unliquidated or otherwise, due or to become due or otherwise, whether or not required to be reflected on a balance sheet prepared in accordance with GAAP.

"<u>Loss</u>" means any loss, Proceeding, Judgment, damage, fine, penalty, expense (including reasonable attorneys' or other professional fees and expenses and court costs), injury, Liability, Tax, Encumbrance or other cost or expense whatsoever, whether or not involving the claim of another person.

"<u>Material Adverse Effect</u>" means any event, change, circumstance, effect or other matter that has, or could reasonably be expected to have, either individually or in the aggregate with all other events, changes, circumstances, effects or other matters, with or without notice, lapse of time or both, a material adverse effect on the ArcMail Business, Purchased Assets, Assumed Liabilities, financial condition, operating results or operations of the ArcMail Business, taken as a whole; provided, however, that the following shall not be deemed by itself to constitute a Material Adverse Effect: effects caused by changes or circumstances affecting general market conditions in the U.S. or foreign economies or which are generally applicable to the industry in which the ArcMail Business operates.

"<u>Tax</u>" means (a) any federal, state, local, foreign or other tax, charge, fee, duty (including customs duty), levy or assessment, including any income, gross receipts, net proceeds, alternative or add-on minimum, corporation, ad valorem, turnover, real property, personal property (tangible or intangible), sales, use, franchise, excise, value added, stamp, leasing, lease, user, transfer, fuel, excess profits, profits, occupational, premium, interest equalization, windfall profits, severance, license, registration, payroll, environmental (including taxes under Section 59A of the Code), capital stock, capital duty, disability, estimated, gains, wealth, welfare, employee's income withholding, other withholding, unemployment or social security or other tax of whatever kind (including any fee, assessment or other charges in the nature of or in lieu of any tax) that is imposed by any governmental authority, (b) any interest, fines, penalties or additions resulting from, attributable to, or incurred in connection with any items described in this paragraph or any related contest or dispute and (c) any items described in this paragraph that are attributable to another Person but that the Debtor Companies are liable to pay by Law, by Contract or otherwise, whether or not disputed.

"<u>Ordinary Course of Business</u>" shall mean an action taken by a person only if: (a) such action is consistent with the past practices of such person and is taken in the ordinary course of the normal day-to-day operations of such person; (b) such action is not required to be authorized by the board of directors of such person (or by any person or group of persons exercising similar authority); and, (c) such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any person or group of persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other persons that are in the same line of business as such person.

"<u>Proceeding</u>" means any action, arbitration, audit, examination, investigation, hearing, litigation or suit (whether civil, criminal, administrative, judicial or investigative, whether formal or informal, and whether public or private) commenced, brought, conducted or heard by or before, or otherwise involving, any governmental authority or arbitrator.

"<u>Transaction Documents</u>" means, collectively, the Bill of Sale; the IP Assignments; the Security Agreement; and, all other documents and agreements required to be delivered at the Closing.

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3 **<u>Interpretation</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3.1. **<u>Provision Not Construed Against Party Drafting Agreement</u>**. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3.2. **<u>Agreement Provisions, Exhibits, and Schedules</u>**. 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.

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3.4. **<u>Severability</u>**. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3.5. **<u>Successors and Assigns</u>**. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3.6. **<u>Time</u>**. All Parties agree that time is of the essence as to this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3.7. **<u>Governing Law</u>**. Except where the application of Article 9 is specifically provided for, this Agreement shall be governed by the laws of the State of North Carolina, without giving effect to any choice or conflict of law provision or rule (whether of the State of North Carolina or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of North Carolina. If any court action is necessary to enforce the terms and conditions of this Agreement, the Parties hereby agree that the appropriate court in Wake County, North Carolina, shall be the sole jurisdiction and venue for the bringing of such action.

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

**IV**

**<u>THE TRANSACTION</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 **<u>Purchase and Sale of Purchased Assets</u>**. As a direct result of the successful completion of the Dation, and further pursuant to Article 9 of the Uniform Commercial Code as adopted by the State of Louisiana, as amended from time-to-time ("<u>Article 9</u>"), and in accordance with the provisions of this Agreement, Sellers hereby agree to irrevocably sell, convey, assign, and transfer to Buyer, and Buyer hereby agrees to purchase and acquire from Sellers, all right, title and interest of Sellers and Debtor, free and clear of any and all Encumbrances other than those expressly permitted hereunder, in and to all of the properties and assets listed on Exhibit 4.1, attached hereto and incorporated herein by reference, wherever located (collectively, the "<u>Purchased Assets</u>"), "as is", "where is", without recourse other than as provided and limited in Article XI of this Agreement, and without representations or warranties of any kind, express or implied, including, without limitation, any warranties as to title, possession, existence, quiet enjoyment, noninfringement, merchantability, value, useful life, fitness for intended use, or similar representations and warranties, other than the representations and warranties set forth in Article V of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2 **<u>Excluded Assets</u>**. Notwithstanding anything to the contrary in Section 4.1 or elsewhere in this Agreement, other than the BriteForce Assets, which shall be considered Excluded Assets (as defined below), all assets of Debtor not named as a Purchased Asset or otherwise related to the Purchased Assets are excluded from the Purchased Assets (collectively, the "<u>Excluded Assets</u>"). For the avoidance of doubt, all assets related to the ArcMail Business, and all Intellectual Property of Debtor, are to be specifically included as part of the Purchased Assets, except, however, the BriteForce Assets are not Purchased Assets, and are instead, Excluded Assets.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 **<u>Assumed Liabilities</u>**. Notwithstanding any other provision, the transfer of the Purchased Assets pursuant to this Agreement does not include the assumption of any Liability related to the Purchased Assets, other than the obligation to pay the Purchase Price pursuant to Section 4.5, below. Buyer assumes the liabilities arising out of the Purchased Assets and the operation of the ArcMail Business from and after the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4 **<u>Excluded Liabilities</u>**. Notwithstanding any other provision of this Agreement or any other writing to the contrary, and regardless of any information disclosed to Buyer or any of its Affiliates or representatives, Buyer does not assume and has no responsibility for any Liabilities arising out of or relating to any Liabilities of Debtor or Sellers other than the Assumed Liabilities specifically listed in Section 4.3 (such unassumed Liabilities, the "<u>Excluded Liabilities</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5 **<u>Purchase Price and Payment</u>**. As consideration for the transactions contemplated by this Agreement, Buyer shall pay to Sellers a total purchase price (the "<u>Purchase Price</u>") in the amount of One Million Four Hundred Four Thousand Dollars ($1,404,000), as evidenced by the promissory notes in the same form as Exhibits 4.5(a)-(c) attached hereto, and payable in accordance with the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Payments shall commence on the thirtieth (30<sup>th</sup>) day following Closing and continue thereafter on the same day of each successive month for a total of sixty (60) months, as follows:

---

| | |
|:---|:---|
| **Months** | **Payment** |
| 1-12 | $10000 |
| 13-24 | $15000 |
| 25-36 | $20000 |
| 37-48 | $30000 |
| 49-60 | $42000 |

---

The Payments shall be split among the Sellers as provided in the promissory notes in the same form as Exhibits 4.5(a)-(c) attached hereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Each payment shall be in the form of a wire transfer of immediately available funds, sent to Sellers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) A Seller's wire instructions may be amended at any time by written notice from such Seller to Buyer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6 **<u>Security for Payment</u>**. Prompt payment of the Purchase Price shall be secured by a Security Agreement in the form attached hereto as Exhibit 4.6 and incorporated herein by reference (the "<u>Security Agreement</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7 **<u>Right to Offset</u>**. In the event Buyer determines that payment of any Excluded Liability is necessary or desirable to allow the ArcMail Business, as acquired by Buyer hereunder, to continue on an uninterrupted basis, then Buyer shall be required to give Sellers fifteen (15) days prior written notice, which notice shall set forth the amount and identity of the Excluded Liability it proposes to pay (the "<u>Proposed Payment</u>"). If Sellers shall not have paid such Proposed Payment within such fifteen (15) day period or taken reasonable steps to contest such Proposed Payment where Sellers have reasonable basis to contest such Proposed Payment, then Buyer may remit payment of the Proposed Payment and offset the amount of such Proposed Payment against amounts then or thereafter due Sellers for the Purchase Price.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.8 **<u>Allocation of Purchase Price</u>**. The Purchase Price will be allocated in accordance with Schedule 4.8, attached hereto and incorporated herein by reference. After Closing the Parties will make consistent use of the allocation, fair market values and useful lives specified in Schedule 4.8 for all Tax purposes and in all filings, declarations and reports with the IRS in respect thereof, including the reports required to be filed under Section 1060 of the Code. In any Proceeding related to the determination of any Tax, neither Buyer nor any of the Sellers will contend or represent that such allocation is not a correct allocation.

**V**

**<u>REPRESENTATIONS AND WARRANTIES OF SELLERS</u>**

Each Seller, for himself/herself/itself, as appropriate, represents and warrants to Buyer that the representations and warranties contained in this Article V are true, correct, and complete as of the Effective Date and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the Effective Date throughout this Article V), except as otherwise expressly provided for to contrary herein:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1 **<u>Organization and Good Standing</u>**. Seller's principal place of business is reflected on Exhibit I, and if an entity, is duly formed, validly existing and in good standing under the laws of the state in which it was formed, having all requisite company power and authority to execute, deliver, and perform the transactions contemplated hereby.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2 **<u>Execution and Performance of Agreement</u>**. Seller has the requisite right, power, authority, and capacity to enter into, execute, deliver, perform, and carry out the terms and conditions of this Agreement and (i) each of the Transaction Documents; and, (ii) each of the other instruments and agreements to be executed and delivered by Seller in connection with this Agreement, as well as all transactions contemplated hereunder. All requisite proceedings have been taken and Seller has obtained all approvals, consents, and authorizations necessary to authorize the execution, delivery, and performance by Seller of this Agreement, and each of the Transaction Documents to which it is a party. This Agreement has been duly and validly executed and delivered by Seller and constitutes the valid, binding, and enforceable obligation of Seller, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, or other similar laws affecting the enforcement of creditor's rights generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3 **<u>Effect of Agreement</u>**. As of the Closing, the consummation by Seller of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement and the Transaction Documents to which it is a party, will not:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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, "<u>Requirement of Law</u>") applicable to or binding upon Seller or the Purchased Assets;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Violate (i) the terms of the formation or organizational documents of Seller; or, (ii) any material agreement, contract, mortgage, indenture, bond, bill, note, or other material instrument or writing binding upon Seller or to which Seller is subject; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Result in the breach of, constitute a default under, constitute an event which with notice or lapse of time, or both, would become a default under, or result in the creation of any lien, security interest, charge or encumbrance upon any part of the Purchased Assets under any agreement, commitment, contract (written or oral) or other instrument to which Seller is a party, or by which any of the Purchased Assets is bound or affected.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.4 **<u>Consents</u>**. No consents, approvals or other authorizations or notices, other than those which have been obtained and are in full force and effect, are required by any state or federal regulatory authority or other person or entity in connection with the execution and delivery of the Transaction Documents and the performance of any obligations contemplated thereby.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5 **<u>Title</u>**. At or before Closing, as a direct result of the Dation, (a) Seller will have clear legal ownership of and title to all of the Purchased Assets, free and clear of all Encumbrances; (b) Seller shall have eliminated the rights of all others in and to the Purchased Assets; (c) Seller has not amended or modified the Note so as to limit its right to enter into this Agreement with the Buyer to sell and convey Debtor's rights and interest in the Purchased Assets; and, (d) Seller has the right and is entitled to enforce its security interest by the Dation, and has taken all steps required under the Dation. Article 9, and applicable law, or otherwise has obtained a waiver of the right to notice from all parties entitled to such notice, to transfer to Buyer all rights and interest in the Purchased Assets, free and clear of the lien of Seller and any lien subordinate to the lien of Seller, and all other Encumbrances.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6 **<u>Indebtedness; Deficiency</u>**. The amount of the Indebtedness exceeds the amount of the Purchase Price. Sellers shall be entitled to receive the Purchase Price and no other payment for the Purchased Assets from Buyer, and hereby expressly waive any and all right to any further payment from Buyer for any such deficiency.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.7 **<u>Commercially Reasonable</u>**. Sellers have acted in a commercially reasonable manner and exercised and extended their best efforts to maximize value and return from a sale of the Purchased Assets.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.8 **<u>Proceedings</u>**. There are no pending Proceedings (a) by or against Seller that relate to the Indebtedness or related documents or related to or could reasonably be expected to affect the ArcMail Business or the Purchased Assets; or, (b) that challenge, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated by this Agreement. To Seller's Knowledge, no such Proceeding has been threatened.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.9 **<u>Investigation</u>**. Sellers have entered into this Agreement, and as of the Closing, will be selling the Purchased Assets, based upon its own independent investigation; advice of independent legal counsel selected in its sole discretion; and, the covenants, representations, and warranties of Buyer set forth herein. Sellers are expressly not relying on any oral representations made by Buyer or any representative of Buyer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.10 **<u>Disclosure</u>**. No representation or warranty of Sellers in this Agreement, or any certificate, instrument or other document delivered by or on behalf of Sellers pursuant to this Agreement or any Transaction Document to which it is a party, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.11 **<u>Advice of Changes</u>.** Between the Effective Date and the Closing Date, Sellers shall promptly advise Buyer in writing of any fact which, if existing or known at the Effective Date, would have been required to be set forth or disclosed in or pursuant to this Agreement or of any fact which, if existing or known at the Effective Date, would have made any of the representations contained herein untrue.

**VI**

**<u>REPRESENTATIONS AND WARRANTIES OF BUYER</u>**

Buyer represents and warrants to Sellers that the representations and warranties contained in this Article VI are true, correct, and complete as of the Effective Date and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the Effective Date throughout this Article VI), except as otherwise expressly provided for to contrary herein:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1 **<u>Organization</u>**. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of North Carolina. Buyer is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2 **<u>Authorization</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2.1. **<u>Operation of Business</u>**. Buyer has the corporate power and authority to own and operate its properties and to carry on its business as now being conducted. Buyer has the corporate authority to enter into, execute, and deliver this Agreement, and the agreements referred to herein, and to consummate the transactions contemplated hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2.2. **<u>Execution of Agreement</u>**. Buyer has the requisite corporate power and authority to enter into and carry out the terms and conditions of this Agreement and each of the Transaction Documents to which it is a party, as well as all transactions contemplated hereunder. All corporate proceedings have been taken and all corporate authorizations have been secured which are necessary to authorize the execution, delivery and performance by Buyer of this Agreement, and each of the Transaction Documents to which it is a party. This Agreement has been duly and validly executed and delivered by Buyer and constitutes the valid and binding obligations of Buyer, enforceable in accordance with the respective terms.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3 **<u>Effect of Agreement</u>**. As of the Closing, the consummation by Buyer of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement, will not:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Violate any Requirement of Law applicable to or binding upon Buyer;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Accelerate or constitute an event entitling the holder of any indebtedness of Buyer to accelerate the maturity of such indebtedness; or

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.4 **<u>Legal Proceedings</u>**. There is no Proceeding pending or, to Buyer's knowledge, threatened, against Buyer that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, any of the transactions contemplated by this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.5 **<u>Investigation</u>**. Buyer has entered into this Agreement, and as of the Closing, will be purchasing the Purchased Assets, based upon its own independent investigation; advice of independent legal counsel selected in its sole discretion; and, the covenants, representations, and warranties of Sellers set forth herein. Buyer is expressly not relying on any oral representations made by Seller or any representative of Sellers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.6 **<u>Disclosure</u>**. No representation or warranty of Buyer in this Agreement, or any certificate, instrument or other document delivered by or on behalf of Buyer pursuant to this Agreement or any Transaction Document to which it is a party, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances in which they were made, not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.7 **<u>Advice of Changes</u>.** Between the Effective Date and the Closing Date, Buyer shall promptly advise the Sellers' Representative in writing of any fact which, if existing or known at the Effective Date, would have been required to be set forth or disclosed in or pursuant to this Agreement or of any fact which, if existing or known at the Effective Date, would have made any of the representations contained herein untrue.

**VII**

**<u>PRE-CLOSING OBLIGATIONS</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1 **<u>Dation and Article 9 Obligations</u>**. Sellers shall take all action necessary to comply with the requirements of the Dation and Article 9 in order to obtain ownership of the Purchased Assets, free and clear of all Encumbrances; effect the transactions hereunder; and, otherwise satisfy its obligations hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2 **<u>Mutual Obligations</u>**. The Parties agree as follows with respect to the period from and after the Effective Date up to and including the Closing:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2.1. **<u>General</u>**. Each of the Parties will use its respective best efforts to take all action and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of all conditions for Closing established herein).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2.2. **<u>Notice of Proceedings</u>**. Each Party shall promptly notify the other Party, in writing, of any pending or, to the knowledge of such Party, threatened Proceeding by any other person (i) challenging or seeking material damages in connection with this Agreement or the transactions contemplated hereunder; (ii) seeking to restrain or prohibit the consummation of the transactions contemplated hereunder or otherwise limit the right of Buyer to own or operate all or any portion of the ArcMail Business or Purchased Assets; or, (iii) which could have a Material Adverse Effect on the transaction envisioned hereunder. From the Effective Date until the earlier of the Closing Date or the termination of this Agreement, the Parties shall promptly consult with each other to provide any necessary information with respect to (and, in the case of correspondence, provide the other party copies of), all such Proceedings. If a Party receives a request for additional information or documentary material or any similar demand from any person with respect to the transactions contemplated by this Agreement, then such Party shall use commercially reasonable efforts to make, or cause to be made, promptly and after consultation with the other Party, an appropriate response in compliance with such request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2.3. **<u>Notice of Events</u>**. Until the Closing, each Party will give prompt notice to the other Party of (a) the occurrence, or non-occurrence, of any event, the occurrence or non-occurrence of which would reasonably be expected to cause any representation or warranty of that Party contained in this Agreement to be untrue or inaccurate in any material respect; (b) any failure to comply with or satisfy in any material respect any covenant or agreement to be complied with or satisfied by the Party under this Agreement; and, (c) the failure of any condition precedent to the Party's obligations under this Agreement. No notification pursuant to this Section 7.2.3. will be deemed to prevent or cure any misrepresentation, breach of warranty or breach of covenant, or limit or otherwise affect any rights or remedies available to the impacted Party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3 **<u>Ordinary Course of Business</u>**. Buyer hereby covenants and agrees that, prior to the Closing, unless the prior written consent of Sellers shall have been obtained, and except as otherwise contemplated in this Agreement, Buyer shall operate the ArcMail Business only in the usual, regular, and Ordinary Course of Business and in accordance with its prior practices, and shall use its reasonable best efforts to preserve intact the ArcMail Business. In connection therewith, prior to Closing, Buyer shall not (i) mortgage, pledge or otherwise subject to any material lien or lease, any portion of the Purchased Assets in its possession, or permit or suffer any such property or asset to be subjected to any material lien or lease; or, (ii) dispose of any portion of the Purchased Assets in its possession, except in the Ordinary Course of Business consistent with its prior practice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4 **<u>Conditions to the Obligation of Buyer</u>**. The obligation of Buyer to consummate the transactions contemplated by this Agreement is subject to the satisfaction, on or before the Closing Date, of each of the following conditions (any of which may be waived by the Buyer, in whole or in part):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4.1. **<u>Accuracy of Representations and Warranties</u>**. The representations and warranties of Sellers in this Agreement must have been true and correct in all respects as of the Effective Date and must be true and correct in all material respects as of the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4.2. **<u>Performance of Covenants</u>**. All of the covenants and obligations that Sellers are required to perform or comply with under this Agreement on or before the Closing Date must have been duly performed and complied with in all respects.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4.3. **<u>Consents</u>**. All consents required by Sellers must have been obtained and must be in full force and effect, and all applicable waiting periods, if any, shall have expired or been terminated.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4.4. **<u>No Proceedings</u>**. There must not have been commenced or threatened any Proceeding, that in any case could (i) prevent, make illegal or restrain the consummation of, or otherwise materially alter, any of the transactions contemplated by this Agreement; or, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4.5. **<u>No Material Adverse Effect</u>**. Since the Effective Date there must not have been any Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4.6. **<u>Transaction Documents</u>**. Sellers must have delivered or caused to be delivered each of the Transaction Documents they are required to deliver.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4.7. **<u>Completion of Dation</u>**. Seller shall have successfully completed the Dation, and own the Purchased Assets free and clear of all Encumbrances.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5 **<u>Conditions to the Obligation of Sellers</u>**. The obligation of Sellers to consummate the transactions contemplated by this Agreement is subject to the satisfaction, on or before the Closing Date, of each of the following conditions (any of which may be waived by the Seller, in whole or in part):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5.1. **<u>Accuracy of Representations and Warranties</u>**. The representations and warranties of Buyer in this Agreement must have been true and correct in all respects as of the Effective Date, and must be true and correct in all material respects as of the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5.2. **<u>Performance of Covenants</u>**. All of the covenants and obligations that Buyer is required to perform or comply with under this Agreement on or before the Closing Date must have been duly performed and complied with in all material respects.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5.3. **<u>Consents</u>**. All consents required by Buyer must have been obtained and must be in full force and effect, and all applicable waiting periods, if any, shall have expired or been terminated.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5.4. **<u>No Proceedings</u>**. There must not have been commenced or threatened any Proceeding, that in any case could (i) prevent, make illegal or restrain the consummation of, or otherwise materially alter, any of the transactions contemplated by this Agreement; or, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5.5. **<u>No Material Adverse Effect</u>**. Since the Effective Date there must not have been any Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5.6. **<u>Transaction Documents</u>**. Buyer must have delivered or caused to be delivered each of the Transaction Documents it is required to deliver.

**VIII**

**<u>TERMINATION</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1 **<u>Termination Events</u>**. This Agreement may, by written notice given before the Closing, be terminated by:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) mutual consent of all Parties;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Buyer (so long as the Buyer is not then in material breach of any of its representations, warranties, covenants or agreements contained in this Agreement) if there has been a breach of any of Sellers' representations, warranties, covenants or agreements contained in this Agreement, and which breach has not been cured or cannot be cured within ten (10) days after the notice of the breach from Buyer;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Sellers (so long as no Seller is then in material breach of any of its representations, warranties, covenants or agreements contained in this Agreement) if there has been a breach of any of Buyer's representations, warranties, covenants or agreements contained in this Agreement, and which breach has not been cured or cannot be cured within ten (10) days after the notice of breach from any Seller; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Buyer if there has been a Material Adverse Effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2 **<u>Effect of Termination</u>**. Each Party's rights of termination under Section 8.1 are in addition to any other rights it may have under this Agreement or otherwise, and the exercise of such rights of termination is not an election of remedies. If this Agreement is terminated pursuant to Section 8.1, this Agreement and all rights and obligations of the Parties under this Agreement automatically end without liability against any Party or its Affiliates, except that Article XII and this Section 8.2 will remain in full force and survive any termination of this Agreement. If this Agreement is terminated by a Party because of the breach of this Agreement by the other Party or because one or more of the conditions to the terminating Party's obligations under this Agreement is not satisfied as a result of the other Party's failure to comply with its obligations under this Agreement, the terminating Party's right to pursue all legal remedies will survive such termination unimpaired.

**IX**

**<u>CLOSING</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1 **<u>Closing</u>**. The closing of the transactions contemplated by this Agreement (the "<u>Closing</u>") will take place at the offices of Buyer on the date as agreed upon by the Parties. The date on which the Closing actually occurs is referred to in this Agreement as the "<u>Closing Date</u>".

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2 **<u>Closing Deliveries</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2.1. **<u>By Sellers</u>**. At the Closing, Sellers will deliver or cause to be delivered to Buyer:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) A bill of sale in substantially the form of Exhibit 9.2.1.(a), attached hereto and incorporated herein by reference (the "<u>Bill of Sale</u>"), executed by Sellers;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Assignments of all Purchased Intellectual Property in substantially the form of Exhibit 9.2.1.(b), attached hereto and incorporated herein (the "<u>IP Assignments</u>"), executed by Sellers;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Release of the Purchased Assets from the Financing Statement in the form of Exhibit 9.2.1.(c), attached hereto and incorporated herein by reference (the "<u>Termination Statement</u>"); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Such other documents, instruments and agreements as Buyer reasonably requests for the purpose of consummating the transactions contemplated by this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2.2. **<u>By Buyer</u>**. At the Closing, Buyer will deliver or cause to be delivered to Sellers:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Executed versions of the Transaction Documents which require Buyer's execution, including, without limitation, the Security Agreement;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) A new UCC-1 financing statement covering the Purchase Assets in substantially the form of Exhibit 9.2.2.(b), attached hereto and incorporated herein by reference; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Such other documents, instruments and agreements as Sellers reasonably request for the purpose of consummating the transactions contemplated by this Agreement.

**X**

**<u>POST-CLOSING OBLIGATIONS AND AGREEMENTS</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.1 **<u>Consents and Filings; Reasonable Efforts; Notification</u>**. Buyer's counsel shall prepare and deliver to Sellers for its approval all documents reasonably necessary to terminate Sellers' original security interest and shall thereafter file such documents on Sellers' prior written approval to do so. Buyer shall bear any expense incurred in dealing with any domestic or foreign government or regulatory agency in transferring Debtor's right, title and interest in any of the Purchased Assets.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.2 **<u>Brokers</u>**. Each Party represents and warrants that no broker or finder has acted for it in connection with this Agreement or the transactions contemplated hereby and that no broker or finder is entitled to any brokerage or finder's fee or other commission. Each Party agrees to indemnify and hold harmless the other Parties hereto with respect to any claim for any brokerage or finder's fee or other commission.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.3 **<u>Tax Matters</u>**. Buyer shall pay in a timely manner all applicable sales, use, transfer, conveyance, documentary, recording, notarial, value added, excise, registration, stamp, gross receipts and similar Taxes and fees ("<u>Transfer Taxes</u>"), arising out of or in connection with or attributable to the transactions effected pursuant to this Agreement and the Transaction Documents, including expenses and fees relating to registering Purchased Intellectual Property in the name of Buyer or its designee. Buyer shall prepare and timely file all Tax Returns required to be filed in respect of Transfer Taxes, provided that Sellers will be permitted to prepare and file any such Tax Returns that are the primary responsibility of the Seller under applicable law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.4 **<u>Public Announcements</u>**. Each Party agrees not to issue any press release or make any other public announcement relating to this Agreement without the prior written approval of the other Party (with said approval not to be unreasonably withheld), except that each Party reserves the right, without the other Party's prior consent, to make any public disclosure it believes in good faith is required by applicable securities laws or securities listing standards (in which case the disclosing party agrees to use reasonable efforts to advise the other Party prior to making such disclosure. Any other public announcement or similar publicity with respect to this Agreement or the transactions contemplated by this Agreement will be issued at such time and in such manner as Buyer determines after consultation with the Sellers' Representative. Buyer and the Sellers' Representative will consult with each other concerning the means by which the employees, customers, suppliers and others having dealings with the ArcMail Business will be informed of the transactions contemplated by this Agreement, and Buyer has the right to be present for any such communication.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.5 **<u>Assistance in Proceedings</u>**. From and after the Closing, at the reasonable request of Buyer and subject to customary confidentiality restrictions, Sellers shall reasonably cooperate with Buyer and its counsel in the contest or defense of, and make reasonably available its personnel and provide any testimony and reasonable access to its books and records, during normal business hours on at least three (3) business days' prior written notice; in connection with, any Proceeding involving or relating to (i) any of the transactions contemplated by this Agreement; or, (ii) any action, activity, circumstance, condition, conduct, event, fact, failure to act, incident, occurrence, plan, practice, situation, status or transaction on or before the Closing Date involving the ArcMail Business; provided, that Buyer shall reimburse Sellers for all costs and expenses (including reasonable attorneys' fees) incurred in connection therewith.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.6 **<u>Further Assurances</u>**. 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. <u>However</u>, 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 10.6. In furtherance of the foregoing, from and after the Closing Date, in the event that Debtor retains, owns, or has any interest in any assets which are used by (or reasonably expected to be used) and required for the ArcMail Business, the Parties will work together in good faith to transfer such assets (or interests therein) in a manner consistent with the terms of this Agreement or take such other commercially reasonable action as is necessary to effect this Agreement.

**XI**

**<u>INDEMNIFICATION</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1 **<u>Indemnification by Sellers</u>**. NOTWITHSTANDING ANYTHING TO THE CONTRARY ANYWHERE IN THIS AGREEMENT OR IN ANY OF THE TRANSACTION DOCUMENTS, EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE XI, SELLERS SHALL HAVE NO LIABILITY TO BUYER FOR ANY INDEMNIFICATION OBLIGATION. Subject to this limitation and as expressly set forth in Section 11.6, below, Sellers will jointly and severally indemnify and hold harmless Buyer and its respective directors, officers, equity owners, employees, agents, consultants and other advisors and representatives (collectively, the "<u>Buyer Indemnified Parties</u>") from and against, and will pay to the Buyer Indemnified Parties the monetary value of, any and all Losses incurred or suffered by the Buyer Indemnified Parties directly or indirectly arising out of, relating to or resulting from any of the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) any inaccuracy in or breach of any representation or warranty of Sellers contained in this Agreement or any Transaction Document;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) any nonfulfillment, nonperformance or other breach of any covenant or agreement of Sellers contained in this Agreement or any Transaction Document;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) any Excluded Liability and any other Liability, whether arising before or after the Closing, arising from or relating to the ownership or operation of the ArcMail Business or the Purchased Assets before the Closing that is not an Assumed Liability;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) any liability or loss arising from the termination of this Agreement by either Party (other than through the failure of Buyer to comply fully with its obligations under this Agreement); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) any Proceedings, demands or assessments incidental to any of the matters set forth in clauses (a) through (d) above.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.2 **<u>Indemnification by the Buyer</u>**. Subject to the limitations expressly set forth in Section 11.6, below, Buyer will indemnify and hold harmless Sellers and their respective directors, officers, equity owners, employees, agents, consultants and other advisors and representatives (collectively, the "<u>Seller Indemnified Parties</u>") from and against, and will pay to the Seller Indemnified Parties the monetary value of, any and all Losses incurred or suffered by the Seller Indemnified Parties directly or indirectly arising out of, relating to or resulting from any of the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) any inaccuracy in or breach of any representation or warranty of Buyer contained in this Agreement or any Transaction Document;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) any nonfulfillment, nonperformance or other breach of any covenant or agreement of Buyer contained in this Agreement or any Transaction Document;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) any Assumed Liability and any other Liability arising from or relating to the ownership or operation of the ArcMail Business or the Purchased Assets after the Closing that is not an Excluded Liability; and,

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) any Proceedings, demands or assessments incidental to any of the matters set forth in clauses (a) through (c) above.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.3 **<u>Claim Procedure</u>**. A Party that seeks indemnity under this Article XI (an "<u>Indemnified Party</u>") will give written notice (a "<u>Claim Notice</u>") to the Party from whom indemnification is sought (an "<u>Indemnifying Party</u>") containing (i) a description and, if known, the estimated amount of any Losses incurred or reasonably expected to be incurred by the Indemnified Party; (ii) a reasonable explanation of the basis for the Claim Notice to the extent of the facts then known by the Indemnified Party; and, (iii) a demand for payment of those Losses.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Within thirty (30) days after delivery of a Claim Notice, the Indemnifying Party will deliver to the Indemnified Party a written response in which the Indemnifying Party will either:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) agree that the Indemnified Party is entitled to receive all of the Losses at issue in the Claim Notice; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) dispute the Indemnified Party's entitlement to indemnification by delivering to the Indemnified Party a written notice (an "<u>Objection Notice</u>") setting forth in reasonable detail each disputed item, the basis for each such disputed item and certifying that all such disputed items are being disputed in good faith.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If the Indemnifying Party fails to take either of the foregoing actions within thirty (30) days after delivery of the Claim Notice, then the Indemnifying Party will be deemed to have irrevocably accepted the Claim Notice and the Indemnifying Party will be deemed to have irrevocably agreed to pay the Losses at issue in the Claim Notice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) If the Indemnifying Party delivers an Objection Notice to the Indemnified Party within thirty (30) days after delivery of the Claim Notice, then the dispute may be resolved by any legally available means consistent with the provisions of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Any indemnification pursuant to this Article XI will be effected by wire transfer of immediately available funds to an account designated by the Indemnified Party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) The foregoing indemnification payments and transfers will be made within five (5) business days after the date on which (i) the amount of such payments are determined by mutual agreement of the Parties; (ii) the amount of such payments are determined pursuant to Section 11.3(b) if an Objection Notice has not been timely delivered in accordance with Section 11.3(a); or, (iii) both such amount and the Indemnifying Party's obligation to pay such amount have been finally determined by a final judgment of a court having jurisdiction over such proceeding (the "<u>Final Determination</u>") if an Objection Notice has been timely delivered in accordance with Section 11.3(b).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.4 **<u>Third Party Claims</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Without limiting the general application of the other provisions of this Article XI, if another Person not a party to this Agreement alleges facts that, if true, would mean that a Party has breached its representations and warranties in this Agreement, the Party for whose benefit the representations and warranties are made will be entitled to indemnity for those allegations and demands and related Losses under and pursuant to this Article XI. If the Indemnified Party seeks indemnity under this Article XI in respect of, arising out of or involving a claim or demand, whether or not involving a Proceeding, by another Person not a party to this Agreement (a "<u>Third Party Claim</u>"), then the Indemnified Party will include in the Claim Notice (i) notice of the commencement or threat of any Proceeding relating to such Third Party Claim within thirty (30) days after the Indemnified Party has received written notice of the commencement or threat of the Third Party Claim; and, (ii) the facts constituting the basis for such Third Party Claim and the amount of the damages claimed by the other Person, in each case to the extent known to the Indemnified Party. Notwithstanding the foregoing, no delay or deficiency on the part of the Indemnified Party in so notifying the Indemnifying Party will relieve the Indemnifying Party of any Liability or obligation under this Agreement except to the extent the Indemnifying Party has been materially prejudiced by the delay or other deficiency.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Within thirty (30) days after the Indemnified Party's delivery of a Claim Notice under this Section 11.4, the Indemnifying Party may assume control of the defense of such Third Party Claim by giving to the Indemnified Party written notice of the intention to assume such defense, but if and only if the Indemnifying Party further:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) acknowledges in writing to the Indemnified Party that any Losses that may be assessed in connection with the Third Party Claim constitute Losses for which the Indemnified Party will be indemnified pursuant to this Article XI without contest or objection and that the Indemnifying Party will advance all expenses and costs of defense; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) retains counsel for the defense of the Third Party Claim reasonably satisfactory to the Indemnified Party and furnishes to the Indemnified Party evidence satisfactory to the Indemnified Party that the Indemnifying Party has and will have sufficient financial resources to fund on a current basis the cost of such defense and pay all Losses that may arise under the Third Party Claim.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) However, if Sellers are the Indemnifying Party, in no event may the Indemnifying Party assume, maintain control of, or participate in, the defense of any Third Party Claim (A) involving criminal liability; (B) in which any relief other than monetary damages is sought against the Indemnified Party; or, (C) in which the outcome of any judgment or settlement in the matter could reasonably be expected to materially adversely affect the Indemnified Party's tax liability or the ability of the Indemnified Party to conduct its business. An Indemnifying Party will lose any previously acquired right to control the defense of any Third Party Claim if for any reason the Indemnifying Party ceases to actively, competently and diligently conduct the defense.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) If the Indemnifying Party does not, or is not able to, assume or maintain control of the defense of a Third Party Claim in compliance with Section 11.4(b), the Indemnified Party will have the right to control the defense of the Third Party Claim. For avoidance of doubt, it is expressly understood that Sellers have no obligation whatsoever to assume, control or otherwise defend a Third Party Claim. If the Indemnified Party controls the defense of the Third Party Claim, the Indemnifying Party agrees to pay to the Indemnified Party all reasonable attorneys' fees and other costs and expenses of defending the Third Party Claim promptly upon the determination that the Indemnified Party is entitled to indemnification by the Indemnifying Party pursuant to this Agreement to be satisfied solely to the extent set forth in Section 11.6 below. To the extent that the Third Party Claim does not constitute a claim under this Section 11.4, the Party not controlling the defense (the "<u>Noncontrolling Party</u>") may participate therein at its own expense. However, if the Indemnifying Party assumes control of such defense as permitted above and the Indemnified Party reasonably concludes that the Indemnifying Party and the Indemnified Party have conflicting interests or different defenses available with respect to the Third Party Claim, then the reasonable fees and expenses of counsel to the Indemnified Party will be considered and included as "Losses" for purposes of this Agreement. The party controlling the defense (the "<u>Controlling Party</u>") will reasonably advise the Noncontrolling Party of the status of the Third Party Claim and the defense thereof and, with respect to any Third Party Claim that does not relate to a Special Claim, the Controlling Party will consider in good faith recommendations made by the Noncontrolling Party. The Noncontrolling Party will furnish the Controlling Party with such information as it may have with respect to such Third Party Claim and related Proceedings (including copies of any summons, complaint or other pleading which may have been served on such party and any written claim, demand, invoice, billing or other document evidencing or asserting the same) and will otherwise cooperate with and assist in the defense of the Third Party Claim.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) The Indemnifying Party will not agree to any settlement of, or consent to the entry of any Judgment (other than a Judgment of dismissal on the merits) arising from, any such Third Party Claim without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld or delayed; <u>provided</u>, <u>however</u>, that the consent of the Indemnified Party will not be required if the Indemnifying Party agrees in writing to pay any amounts payable pursuant to such settlement or any judgment and such settlement or judgment includes a full, complete and unconditional release of the Indemnified Party from further Liability. The Indemnified Party will not agree to any settlement of, or the entry of any Judgment (other than a Judgment of dismissal on the merits) arising from, any such Third Party Claim without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld or delayed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) Notwithstanding the provisions of Section 3.3.7., the Parties consent to the non-exclusive jurisdiction of any court in which a Proceeding is brought by another person against any Indemnified Party for purposes of any claim that an Indemnified Party may have under this Agreement with respect to the Proceeding or the matters alleged therein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.5 **<u>Survival</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All representations and warranties contained in this Agreement or in any Transaction Document will survive the Closing until the second anniversary of the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) All claims for indemnification under this Article XI must be asserted prior to the expiration of the survival period set forth in Section 11.5(a); <u>provided</u>, <u>however</u>, that if an Indemnified Party delivers to an Indemnifying Party, before expiration of the applicable survival period of a representation or warranty as set forth in Section 11.5(a), either a Claim Notice based upon a breach of any such representation or warranty, or a notice that, as a result of a claim or demand made by a Person not a party to this Agreement, the Indemnified Party reasonably expects to incur Losses, then the applicable representation or warranty will survive until, but only for purposes of, the resolution of the matter covered by such notice. If the claim with respect to which such notice has been given is definitively withdrawn or resolved in favor of the Indemnified Party, the Indemnified Party will promptly so notify the Indemnifying Party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.6 **<u>Limitations on Liability</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Neither Sellers nor Buyer is liable under this Article XI unless and until the aggregate Losses for which they, respectively, would otherwise be liable under this Agreement exceed Fifty Thousand Dollars ($50,000), at which point Sellers or Buyer, as applicable, is liable for the aggregate Losses and not just amounts in excess of that sum; <u>provided</u>, <u>however</u>, that (subject to Section 11.6(b)) the maximum aggregate amount of all Losses for which Seller is obligated to indemnify the Buyer Indemnified Parties pursuant to this Article XI shall not exceed Five Hundred Thousand Dollars ($500,000.00), referred to herein as the "<u>Indemnification Cap</u>".

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Nothing in this Agreement will limit the Liability of a Party to the other Party for fraud or willful misconduct by such Party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) In no event will any Party be liable under this Agreement to any other Party or other Person for special, incidental, punitive or consequential damages (including lost profits) in connection with any claims, losses, damages or injuries arising out of the conduct of such party pursuant to this Agreement regardless of whether the nonperforming party was advised of the possibility of such damages or not. The exclusion of special, incidental, punitive or consequential damages as set forth in the preceding sentence will not apply to any such damages recovered by third parties against a Buyer Indemnified Party or a Seller Indemnified Party, as the case may be, in connection with Losses that may be indemnified under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) This Article XI shall be the sole and exclusive remedy of the Buyer Indemnified Parties and the Seller Indemnified Parties for monetary damages with respect to any and all claims relating to this Agreement, any Transaction Document, or the transactions contemplated by this Agreement or any Transaction Document.

**XII**

**<u>ADDITIONAL PROVISIONS</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.1 **<u>Executed Counterparts</u>**. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.2 **<u>Enforcement</u>**<u>.</u> 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.3 **<u>Waiver</u>**. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.4 **<u>Recovery of Fees by Prevailing Party</u>**. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.5 **<u>Recitals</u>**. The facts recited in Article II, above, are hereby conclusively presumed to be true as between and affecting the Parties.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.6 **<u>Amendment</u>**. This Agreement may be amended or modified only by a writing signed by all Parties.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.7 **<u>No Third Party Beneficiaries</u>**. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.8 **<u>Consents, Approvals, and Discretion</u>**. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.9 **<u>Notices</u>**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.9.1. **<u>Method and Delivery</u>**. All notices, requests and demands hereunder shall be in writing and delivered by hand, by Electronic Transmission, by mail, or by recognized commercial over-night delivery service (such as Federal Express or UPS), and shall be deemed given (a) if by hand delivery, upon such delivery; (b) if by Electronic Transmission, twenty-four (24) hours after transmission; (c) if by mail, forty-eight (48) hours after deposit in the United States mail, first class, registered or certified mail, postage prepaid; or, (d) if by recognized commercial over-night delivery service, upon such delivery.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.9.2. **<u>Consent to Electronic Transmission</u>**. 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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.9.3. **<u>Address Changes</u>**. Any Party may alter the Fax number, E-Mail address, physical address, or postage address to which communications or copies are to be sent by giving notice of such change of address to the other Parties in accordance with the provisions of this Section 12.9.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.10 **<u>Disputes</u>**. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTER CLAIM BROUGHT BY ANY OF THEM AGAINST THE OTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR THE ADMINISTRATION THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.11 **<u>Best Efforts</u>**. 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. <u>However</u>, the obligations under this Section 12.11 shall not include any obligation to incur substantial expense or liability.

**XIII**

**<u>EXECUTION</u>**

**IN WITNESS WHEREOF**, this Agreement has been duly executed by the Parties in, 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 BEGIN ON NEXT PAGE]**

---

| | |
|:---|:---|
| **<u>BUYER</u>:** | **<u>BUYER</u>:** |
| DATA443 RISK MITIGATION, INC., | DATA443 RISK MITIGATION, INC., |
| a North Carolina corporation | a North Carolina corporation |
| BY: | |
| Jason Remillard | Jason Remillard |
| TITLE: | President |
| DATED: | |

---

---

| | | | |
|:---|:---|:---|:---|
| **<u>NOTEHOLDERS</u>:** | **<u>NOTEHOLDERS</u>:** | | |
| HFST, L.L.C. | HFST, L.L.C. | SOMMS, L.L.C. | SOMMS, L.L.C. |
| By: |  | By: |  |
|  | Manager |  | Howard F. Sklar |
| Its: | Trustee | Its: | Manager |
| 2020 NOTEHOLDERS, LLC | 2020 NOTEHOLDERS, LLC |  |  |
| By: |  |  |  |
|  | Ross P. Barrett |  |  |
| Its: | Manager |  |  |

---

**EXHIBIT I**

**<u>NOTEHOLDERS</u>**

---

| | |
|:---|:---|
| **Noteholder Name and Address:** | **Original Principal Amount:** |
| HFST, L.L.C. | $861333.00 |
| SOMMS, L.L.C. | $124366.00 |
| 2020 Noteholders, LLC | $2133302 |

---

**EXHIBIT 4.1**

**<u>PURCHASED ASSETS</u>**

Any and all assets reasonably related to the ArcMail Business, including, without limitation:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All such assets already in the possession of Buyer other than the BriteForce Assets;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) All customers and clients of the ArcMail Business, other than the BriteForce clients;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) All Intellectual Property, except the BriteForce Assets; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) All other intangible rights, including all goodwill associated with the ArcMail Business or the Purchased Assets, except the BriteForce Assets;

**EXHIBIT 4.5(a), (b), & (c)**

**<u>PROMISSORY NOTES</u>**

*[see attached]*

**EXHIBIT 4.6**

**<u>SECURITY AGREEMENT</u>**

*[see attached]*

**EXHIBIT 9.2.1.(a)**

**<u>BILL OF SALE</u>**

*[see attached]*

**EXHIBIT 9.2.1.(b)**

**<u>IP ASSIGNMENTS</u>**

 

*[see attached]*

**EXHIBIT 9.2.1.(c)**

**<u>TERMINATION STATEMENT</u>**

 

*[see attached]*

**EXHIBIT 9.2.2.(b)**

**<u>NEW FINANCING STATEMENT</u>**

*[see attached]*

## Exhibit 10.33

**Exhibit 10.33**

**<u>BILL OF SALE</u>**

THIS BILL OF SALE (this "***Bill of Sale***"), effective as of January 31, 2021, is made by and between 2020 Noteholders, LLC, a Louisiana limited liability company, HFST, L.L.C., a Louisiana limited liability company, and SOMMS, L.L.C., a Louisiana limited liability company (collectively, "***Sellers***"), and DATA443 Risk Mitigation, Inc., a North Carolina corporation ("***Buyer***").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. Buyer and Sellers have entered into that certain Asset Purchase Agreement, dated as of January 31, 2021, by and among Buyer and Sellers (the "***Purchase Agreement***"), for the sale by Sellers to Buyer of the Purchased Assets.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. The execution and delivery of this Bill of Sale by Buyer and Sellers is contemplated by the Purchase Agreement.

NOW, THEREFORE, pursuant to the Purchase Agreement, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. <u>Conveyance</u>. Sellers hereby sell, assign, grant, convey and transfer to Buyer all of Sellers' right, title and interest in and to the Purchased Assets, free and clear of any and all Liens other than Permitted Liens.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. <u>Purchase Agreement</u>. The terms of the Purchase Agreement, including without limitation the representations, warranties, covenants and indemnities relating to the Purchased Assets are incorporated herein by reference. The intent of this Bill of Sale is to give further effect to the Purchase Agreement and, as such, nothing contained in this Bill of Sale shall be deemed to supersede, modify, limit or amend any of the rights, duties or obligations of Sellers or Buyer under the Purchase Agreement. In the event of any conflict or inconsistency between this Bill of Sale and the terms of the Purchase Agreement, the terms of the Purchase Agreement shall control.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. <u>Further Assurances</u>. Each of the parties hereto will perform such further acts and execute, acknowledge and deliver such further documents, instruments, conveyances and assurances as such other party reasonably requests to carry out the provisions hereof and give effect to the transactions contemplated hereby.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. <u>Capitalized Terms</u>. Unless otherwise defined in this Bill of Sale, all capitalized terms have the meaning ascribed to such terms in the Purchase Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. <u>Successors and Assigns</u>. This Bill of Sale shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. <u>Governing Law</u>. This Bill of Sale shall be construed in accordance with and governed by the internal law of the State of North Carolina without regard to conflict of law principles that would require the application of any other law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. <u>Counterparts</u>. This Bill of Sale may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The delivery by or on behalf of any party of its signature to this Bill of Sale by facsimile transmission, electronic mail or similar means shall for all purposes be the equivalent of the delivery of the original signature of such party.

**IN WITNESS WHEREOF**, this Agreement has been duly executed by the Parties in, 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.

 ****

---

| | |
|:---|:---|
| **<u>BUYER</u>:** | **<u>BUYER</u>:** |
| DATA443 RISK MITIGATION, INC., | DATA443 RISK MITIGATION, INC., |
| a North Carolina corporation | a North Carolina corporation |
| BY: | |
|  | Jason Remillard |
| Its: | President |

---

---

| | | | |
|:---|:---|:---|:---|
| **<u>SELLERS</u>:** | **<u>SELLERS</u>:** | | |
| HFST, L.L.C. | HFST, L.L.C. | SOMMS, L.L.C. | SOMMS, L.L.C. |
| By: |  | By: |  |
|  | Manager |  | Howard F. Sklar |
| Its: | Trustee | Its: | Manager |
| 2020 NOTEHOLDERS, LLC | 2020 NOTEHOLDERS, LLC |  |  |
| By: |  |  |  |
|  | Ross P. Barrett |  |  |
| Its: | Manager |  |  |

---

## Exhibit 10.34

**Exhibit 10.34**

**I.P. ASSIGNMENT AND ASSUMPTION AGREEMENT**

**THIS I.P. ASSIGNMENT AND ASSUMPTION AGREEMENT** (the "<u>Agreement</u>") is dated and effective as of the 31st day of January 2021 (the "<u>Effective Date</u>") and is entered into by and between 2020 NOTEHOLDERS2020 NOTEHOLDERS, LLC, a Louisiana limited liability company ("<u>2020 NOTEHOLDERS</u>"); and, DATA443 RISK MITIGATION, INC., a North Carolina corporation ("<u>Data443</u>"), each a "<u>Party</u>", and collectively the "<u>Parties</u>".

WHEREAS, pursuant to the Asset Sale Agreement by and between Data443 and the parties identified therein as the Sellers (the "<u>Sale Agreement</u>"), 2020 NOTEHOLDERS has agreed to assign to Data443 all of the intellectual property rights owned by 2020 NOTEHOLDERS relating to the business segment referred to as "ArcMail" (collectively, the "<u>ArcMail I.P. Rights</u>"), which include, without limitation, all right, title, and interest in and to the trademarks listed on the Execution Page to this Agreement (the "<u>Trademarks</u>"), together with the goodwill of 2020 Noteholders connected with and symbolized by the ArcMail I.P. Rights and the Trademarks; and

WHEREAS, the Effective Date hereunder is the same date of the Closing Date under the Sale Agreement.

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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**1.** 2020 NOTEHOLDERS hereby sells, assigns, transfers, conveys, and delivers to Data443, its successors and assigns, all of its right, title and interest in and to the ArcMail I.P. Rights, together with the Trademarks and the goodwill of 2020 NOTEHOLDERS connected with and symbolized by the ArcMail I.P Rights and the Trademarks (including, without limitation, the right to renew any registrations included in the Trademarks; the right to apply for trademark registrations within or outside the United States based in whole or in part upon the Trademarks: the right to bring an action for any and all past infringements of the rights being assigned and the right to collect and retain any proceeds therefrom; and, any priority right that may arise from the Trademarks), the same to be held and enjoyed by Data443 as fully and entirely as said interest could have been held and enjoyed by 2020 NOTEHOLDERS had this sale, assignment, transfer, conveyance, and deliverance not been made.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2.** At and from time-to-time following the Effective Date, 2020 NOTEHOLDERS agrees to (i) execute and deliver to Data443 such other documents; and, (ii) do such other acts and things, all as Data443 may reasonably request, for the purpose of carrying out the intent of this Agreement and the transactions envisioned hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3.** Each Party agrees to cooperate in good faith with the other Party, generally, and in particular, each Party shall use and exercise its best efforts, taking all reasonable, ordinary and necessary measures to resolve any differences or problems which may arise in the future.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4.** This Agreement may be executed by the Parties in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same agreement. Each counterpart may be delivered by facsimile transmission or electronic transmission (E-Mail), which transmission shall be deemed to be delivery of an originally executed document.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**5.** This Agreement shall be governed, including as to validity, interpretation, and effect, by, and construed in accordance with, the internal laws of the State of North Carolina applicable to agreements made and fully performed within the State of North Carolina.

Page 1 of 3 I.P. Assignment and Assumption Agreement

**IN WITNESS WHEREOF**, this Agreement has been duly executed by the Parties in Wake County, North Carolina, and shall be effective as of and on the Effective Date. Each Party 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.

**[Execution Page Follows]**

**[Execution Page to I.P. Assignment and Assumption Agreement]**

---

| | |
|:---|:---|
| **<u>2020 NOTEHOLDERS</u>:** | **<u>DATA443</u>:** |
| 2020 NOTEHOLDERS, INC., | DATA443 RISK MITIGATION, INC., |
| a Louisiana corporation | a North Carolina corporation |

---

---

| | | | |
|:---|:---|:---|:---|
| BY: | | BY: | |
| NAME: | Rory Welch | NAME: | Jason Remillard |
| TITLE: | President | TITLE: | President |
| DATED: | | DATED: | |

---

**<u>TRADEMARKS</u>**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Mark** | **Goods/Services** | **Application Serial Number** | **Registration Number** | **Applicant** | **Registration Date** |
| ARCMAIL | Class 9; 42; 45 | 86831604 | 5025732 | WALA, Inc. | 08-23-2016 |

---

Page 2 of 3 I.P. Assignment and Assumption Agreement

**<u>NOTARY/ACKNOWLEDGEMENTS</u>**

STATE OF LOUISIANA <br> ss <br> PARISHC OF CADDO

I, Richard D. Lamb, III, Notary Public, certify that Ross P. Barrett personally came before me this day and **acknowledged** that he is Manager of 2020 Noteholders2020 Noteholders, LLC, a State of Louisiana limited liability company, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its President sealed with its corporate seal, and attested by himself as its President.

Witness my hand and official seal, this the January ____, 2021

_________________________________

Print Name: ______________________

NOTARY PUBLIC

My commission expires: _________________.

[Seal]

STATE OF ________________ <br> ss <br> COUNTY OF _____________

I,___________________________, Notary Public, certify that Jason Remillard personally came before me this day and **acknowledged** that he is President of Data443 Risk Mitigation, Inc., a State of North Carolina corporation, and that by authority duly given and as the act of the corporation, the foregoing instrument was signed in its name by its President sealed with its corporate seal, and attested by himself as its President.

Witness my hand and official seal, this the January ____, 2021

_________________________________

Print Name: ______________________

NOTARY PUBLIC

My commission expires: _________________.

[Seal]

Page 3 of 3 I.P. Assignment and Assumption Agreement

## Exhibit 10.35

**Exhibit 10.35**

**SECURITY AGREEMENT**

**DATA443 RISK MITIGATION, INC., AS THE DEBTOR**

**January 31, 2021**

**SECURITY AGREEMENT**

**I**

**<u>PARTIES</u>**

**THIS SECURITY AGREEMENT** (the "<u>Agreement</u>") is entered into effective as of the 31st day of January 2021 (the "<u>Effective Date</u>"), by and between DATA443 RISK MITIGATION, INC., a North Carolina corporation ("<u>Debtor</u>"); **<u>and</u>**, each and all of those persons identified on Exhibit I, attached hereto and incorporated herein by reference, and collectively referred to herein as the "<u>Secured Party</u>". Debtor and Secured Party are sometimes referred to collectively herein as the "Parties", and each individually as a "Party".

**II**

**<u>RECITALS</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**A.** Debtor and Secured Party have concurrently entered into that certain Asset Sale Agreement (the "<u>Sale Agreement</u>"). Capitalized terms not defined herein shall have the same meanings attached to them as in the Sale Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**B.** Pursuant to the Sale Agreement, Debtor acquired the Purchased Assets in exchange for adequate and valid consideration, including the Purchase Price, a part of which consisted of three promissory notes in the form attached to the Sale Agreement as Exhibits 4.5(a), (b), and (c), a copy of which is attached hereto as Exhibit II-B (the "<u>Notes</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**C.** This Agreement is the "Security Agreement" referred to in Section 1.8 in each of the Notes, and is subject to all terms and conditions of the Notes which are not expressly inconsistent with the terms and conditions hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**D.** It is a condition precedent to the closing of the transactions contemplated under the Sale Agreement and the Note that Debtor execute and deliver this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**E.** Debtor desires to grant Secured Party a continuing security interest in the Collateral to secure Debtor's performance under the Sale Agreement, the Notes, and this Agreement (collectively, the "<u>Sales Documents</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**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**

**<u>CREATION OF SECURITY INTEREST</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 **<u>Grant</u>**. Debtor hereby grants to Secured Party a present and continuing security interest (the "<u>Security Interest</u>") in those assets of Debtor specifically referenced and described in Exhibit 3.1, attached hereto and incorporated herein by reference (the "<u>Collateral</u>"). The Collateral shall specifically be limited to the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Each, every, and all of the assets described on Exhibit 3.1, and all replacements, substitutions, accessions, additions, and improvements thereto; and

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 **<u>Obligations Secured</u>**. The Security Interest is granted to secure the timely payment and performance of Debtor's obligations under the Sales Documents (collectively, the "<u>Obligations</u>"), which Obligations include without limitation payment and performance of Debtor's obligations under the Notes, and payment and performance of Debtor's obligations under this Agreement.

**IV**

**<u>DEBTOR'S RETAINED RIGHTS, OBLIGATIONS, WARRANTIES, AND REPRESENTATIONS</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 **<u>Debtor's Treatment of Collateral</u>**. Debtor warrants, represents, and covenants to Secured Party that so long as any portion of any of the Notes remain outstanding and Secured Party does not consent in writing to the contrary:

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

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Debtor will keep the Collateral free and clear of all attachments, levies, taxes, liens, purchase money and other security interests, charges and all other encumbrances of every kind and nature (other than liens for taxes not yet due and payable), except as may be required to acquire inventory, supplies and/or replacement equipment;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) Debtor will keep the Collateral insured in accordance with present practice;

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

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

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 **<u>Retained Rights</u>**. Until an Event of Default hereunder, Debtor shall be entitled to retain possession and enjoy the use of the Collateral, subject to the provisions of Section 4.1, hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4 **<u>Change of Address</u>**. Debtor will immediately notify Secured Party of any change in Debtor's address.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5 **<u>Express Waivers</u>**. Debtor hereby expressly waives:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Diligence, presentment, protest, demand, and notice of every kind, except as required under the Sales Documents;

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6 **<u>Insurance</u>**. Debtor, at Debtor's sole cost and expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks ordinarily insured against by owners of similar properties in similar businesses for the full insurable value thereof, and shall maintain business interruption insurance and public liability and property damage insurance relating to Debtor's ownership and use of Debtor's other assets. Debtor shall deliver to Secured Party certified copies of all required policies of insurance and, at the request of Secured Party, evidence of the payment of all premiums therefore. To further secure the payment of Debtor's Obligations, Debtor grants Secured Party a security interest in and to all required policies of insurance (except those of public liability and property damage) and the proceeds thereof covering the Collateral.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7 **<u>Representations and Warranties Concerning the Business of Debtor</u>**. With regard to the business of Debtor, Debtor hereby represents and warrants to Secured Party as follows:

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7.3. **<u>Effect of Agreement</u>**. As of the Effective Date the consummation by Debtor of the transactions herein contemplated, including the execution, delivery and consummation of this Agreement and the Sales Documents to which it is a party, will not:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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 applicable to or binding upon Debtor or any of its assets;

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

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7.4. **<u>Consents</u>**. 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 Sales Documents and the performance of any obligations contemplated thereby.

**V**

**<u>RIGHTS OF SECURED PARTY</u>**

Secured Party may, jointly or severally, at the discretion of each Secured Party, from time to time, and without notice to Debtor except as otherwise required hereunder, and without affecting the obligations of Debtor:

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) pay for the maintenance and preservation of the Collateral, with all amounts advanced by Secured Party under this Article V, together with all costs and expenses, including reasonable attorney fees, shall be repaid by Debtor, together with interest at one percent (1%) per month;

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) accept any type of further security therefore;

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

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

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

**VI**

**<u>DEFAULT AND ACCELERATION</u>**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1 **<u>Event of Default</u>**. An "Event of Default" hereunder shall include the following:

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Default by Debtor of any material provision under any of the Sales Documents and not cured within ten (10) days after Debtor's receipt of written notice from Secured Party identifying the material breach.

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

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

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

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3 **<u>Acceleration</u>**. Upon an Event of Default, all Obligations secured by this Agreement shall immediately become due and payable at the option of Secured Party.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.4 **<u>Remedies</u>**. If an Event of Default shall occur and be continuing, Secured Party may exercise, in addition to all other rights and remedies granted to it herein, all rights and remedies of a secured party under the applicable provisions of the Uniform Commercial Code as adopted by the State of North Carolina from time-to-time. Debtor shall remain liable for any deficiency if the Collateral is insufficient to pay all amounts to which the Secured Party is entitled hereunder. Each Secured Party hereby agrees that no Secured Party may exercise their rights under this Security Agreement without the concurrence and consent of each other Secured Party.

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

**VII**

**<u>TERM</u>**

This Agreement and the Security Interest created hereunder shall remain in effect until such time as no indebtedness is owing to Secured Party under any of the Notes. Upon payment in full of all of the indebtedness of Debtor under the Notes, this Agreement shall terminate and be of no further force or effect. Debtor shall thereafter be vested with full right and authority, with no further action required of Secured Party, to file a termination statement of the Security Interest (commonly referred to as a Form UCC-2).

**VIII**

**<u>ADDITIONAL PROVISIONS</u>**

To the extent not expressly inconsistent with this Agreement, and applying all necessary revisions to apply to this Agreement, Sections 3.3 and 3.4 and Article XII of the Sale Agreement are hereby expressly incorporated herein by reference as if set forth in full herein.

***<u>[REST OF PAGE INTENTIONALLY LEFT BLANK; ARTICLE IXON NEXT PAGE]</u>***

**IX**

**<u>EXECUTION</u>**

**IN WITNESS WHEREOF**, this SECURITY AGREEMENT has been duly executed by the Parties in Wake County, North Carolina, 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.

---

| | | | |
|:---|:---|:---|:---|
| **<u>DEBTOR</u>:** | **<u>DEBTOR</u>:** | **<u>SECURED PARTY</u>:** | **<u>SECURED PARTY</u>:** |
| DATA443 RISK MITIGATION, INC., | DATA443 RISK MITIGATION, INC., | HFST, L.L.C. | HFST, L.L.C. |
| a North Carolina corporation | a North Carolina corporation |  |  |
| BY: |  | BY: |  |
| NAME: | Jason Remillard | NAME: | Howard F. Sklar |
| TITLE: | President | TITLE: | Manager |
| DATED: |  | DATED: |  |
|  |  | SOMMS, L.L.C. | SOMMS, L.L.C. |
|  |  | BY: |  |
|  |  | NAME: | Manager |
|  |  | TITLE: | Independent Executor |
|  |  | DATED: |  |
|  |  | 2020 NOTEHOLDERS, LLC | 2020 NOTEHOLDERS, LLC |
|  |  | BY: |  |
|  |  | NAME: | Ross P. Barrett |
|  |  | TITLE: | Manager |
|  |  | DATED: |  |

---

**EXHIBIT I**

**<u>SECURED PARTY</u>**

HFST, L.L.C.

SOMMS, L.L.C.

2020 Noteholders, LLC

**EXHIBIT II-B**

**<u>THE NOTES</u>**

**EXHIBIT 3.1**

**<u>COLLATERAL</u>**

The Purchased Assets under the Sales Agreement, identified as any and all assets reasonably related to the ArcMail Business, including, without limitation:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All such assets already in the possession of Debtor;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) All customers and clients of the ArcMail Business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) All Intellectual Property;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) All other intangible rights, including all goodwill associated with the ArcMail Business or the Purchased Assets;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) All attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located;

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) All of Debtor's books and records, in whatever format, relating to the foregoing and any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof.

## Exhibit 31.1

**EXHIBIT 31.1**

**CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)**

**OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED**

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 material fact or omit to state a material fact necessary to make the statements made, in light of the 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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.

---

| | | |
|:---|:---|:---|
| Date: February 24, 2023 | By: | */s/ Jason Remillard* |
|  | Name: | Jason Remillard |
|  | Title: | Chief Executive Officer |

---

## Exhibit 31.2

**EXHIBIT 31.2**

**CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)**

**OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED**

I, Greg McCraw, 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 material fact or omit to state a material fact necessary to make the statements made, in light of the 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:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.

---

| | | |
|:---|:---|:---|
| Date: February 24, 2023 | By: | */s/ Greg McCraw* |
|  | Name: | Greg McCraw |
|  | Title: | Chief Financial Officer |

---

## Exhibit 32.1

**EXHIBIT 32.1**

**CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906**

**OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Annual Report on Form 10-K for the period ended December 31, 2022 of Data443 Risk Mitigation, Inc. (the "Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), I, Jason Remillard, Chief Executive Officer of the Company certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and

2. The information contained in this Annual Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

---

| | | |
|:---|:---|:---|
| Date: February 24, 2023 | By: | */s/ Jason Remillard* |
|  | Name: | Jason Remillard |
|  | Title: | Chief Executive Officer |

---

## Exhibit 32.2

**EXHIBIT 32.2**

**CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906**

**OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Annual Report on Form 10-K for the period ended December 31, 2022 of Data443 Risk Mitigation, Inc. (the "Company"), as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), I, Greg McCraw, Chief Financial Officer of the Company certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Annual Report fully complies with the requirements of Section 13(a) or15(d) of the Securities and Exchange Act of 1934, as amended; and

2. The information contained in this Annual Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

---

| | | |
|:---|:---|:---|
| Date: February 24, 2023 | By: | */s/ Greg McCraw* |
|  | Name: | Greg McCraw |
|  | Title: | Chief Financial Officer |

---