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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2021

 

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: 000-30542

 

DATA443 RISK MITIGATION, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   86-0914051

(State of

incorporation)

 

(I.R.S. Employer

Identification No.)

 

101 J Morris Commons Lane, Suite 105

Morrisville, North CarolinaNC

  27560
(Address of principal executive offices)   (Zip Code)

 

(919) 858-6542

(Registrant’s telephone number, including area code)

 

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

 

Title of Each Class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 is a shell company (as defined in Rule 12b-2 of the Act).

 

Yes ☐ No

 

The outstanding number of shares of common stock as of 03 August 2021 was: 762,880.

 

Documents incorporated by reference: None

 

 

 

 
 

 

DATA443 RISK MITIGATION, INC.

FORM 10-Q

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION  
     
ITEM 1. Financial Statements 2
  Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (unaudited) 2
  Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 (unaudited) 3
  Consolidated Statements of Stockholders’ Deficit for the three and six months ended June 30, 2021 and 2020 (unaudited) 4
  Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (unaudited) 6
  Notes to the Unaudited Consolidated Financial Statements 7
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
     
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 35
     
ITEM 4. Controls and Procedures 35
     
PART II. OTHER INFORMATION  
     
ITEM 1. Legal Proceedings 37
     
ITEM 1A. Risk Factors 37
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 40
     
ITEM 3. Defaults Upon Senior Securities 57
     
ITEM 4. Mine Safety Disclosures 57
     
ITEM 5. Other Information 57
     
ITEM 6. Exhibits 57
     
  SIGNATURES 60

 

1
 

 

PART I

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

DATA443 RISK MITIGATION, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

             
June 30, December 31,  
    2021     2020  
Assets                
Current assets                
Cash   $ 7,207     $ 58,783  
Accounts receivable, net     114,270       136,503  
Prepaid expense and other current assets     24,425       -  
Total current assets     145,902       195,286  
                 
Property and equipment, net     331,856       324,349  
Operating lease right-of-use assets, net     212,258       248,237  
Intellectual property, net of accumulated amortization     1,827,863       2,310,907  
Deposits     31,440       31,440  
Total Assets   $ 2,549,319     $ 3,110,219  
                 
Liabilities and Stockholders’ Deficit                
Current Liabilities                
Accounts payable and accrued liabilities   $ 411,227     $ 401,014  
Deferred revenue     1,065,120       1,478,430  
Interest payable     64,566       62,212  
Notes payable     1,587,552       585,310  
Convertible notes payable, net of unamortized discount     114,500       1,241,412  
Due to a related party     418,507       561,230  
License fee payable     -       1,094,691  
Operating lease liability     106,125       100,170  
Finance lease liability     87,829       90,565  
Total Current Liabilities     3,855,426       5,615,034  
                 
Series B Preferred Stock, 80,000 shares designated; $0.001 par value; Stated value $10.00 26,650 and 5,300 shares issued and outstanding, net of discount, respectively     252,702       50,203  
Notes payable - non-current     1,809,691       572,495  
Convertible notes payable, net of unamortized discount - non-current     12,273       2,356  
Deferred revenues - non-current     24,927       39,733  
Operating lease liability - non-current     182,920       237,961  
Finance lease liability - non-current     41,914       83,109  
Total Liabilities     6,179,853       6,600,891  
                 
Commitments and Contingenices     -          
                 
Stockholders’ Deficit                
Preferred stock: 337,500 authorized; $0.001 par value Series A Preferred Stock, 150,000 shares designated; $0.001 par value; 150,000 shares issued and outstanding, respectively     150       150  
Common stock: 1,000,000,000 authorized; $0.001 par value 743,246 and 522,006 shares issued and outstanding, respectively     743       522  
Additional paid in capital     35,618,250       32,027,240  
Accumulated deficit     (39,249,677 )     (35,518,584 )
Total Stockholders’ Deficit     (3,630,534 )     (3,490,672 )
Total Liabilities and Stockholders’ Deficit   $ 2,549,319     $ 3,110,219  

 

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

 

2
 

 

DATA443 RISK MITIGATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    2021     2020     2021     2020  
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2021     2020     2021     2020  
                         
                         
Revenue   $ 762,352     $ 465,935     $ 1,600,220     $ 943,812  
Cost of revenue     96,830       9,097       263,824       53,386  
Gross profit     665,522       446,838       1,336,396       890,426  
                                 
Operating expenses                                
General and administrative     1,311,396       1,666,196       2,744,961       3,091,430  
Sales and marketing     49,220       27,393       144,644       148,211  
Total operating expenses     1,360,616       1,693,589       2,889,605       3,239,641  
                                 
Net loss from operations     (695,094 )     (1,246,751 )     (1,553,209 )     (2,349,215 )
                                 
Other income (expense)                                
Interest expense     (671,862 )     (553,765 )     (1,577,288 )     (1,072,165 )
Loss on settlement of debt     -       -       (227,501 )     (54,000 )
Change in fair value of derivative liability     (178,398 )     (772,664 )     (363,654 )     (9,278,815 )
Total other income (expense)     (850,260 )     (1,326,429 )     (2,168,443 )     (10,404,980 )
                                 
Loss before income taxes     (1,545,354 )     (2,573,180 )     (3,721,652 )     (12,754,195 )
Provision for income taxes     -       -       -       -  
Net loss   $ (1,545,354 )   $ (2,573,180 )   $ (3,721,652 )   $ (12,754,195 )
                                 
Dividend on Series B Preferred Stock     (5,492 )     -       (9,441 )     -  
Net loss attributable to common stockholders   $ (1,550,846 )   $ (2,573,180 )   $ (3,731,093 )   $ (12,754,195 )
                                 
Basic and diluted loss per Common Share   $ (2.11 )   $ (78.93 )   $ (5.54 )   $ (639.72 )
Basic and diluted weighted average number of common shares outstanding     731,440       32,602       671,586       19,937  

 

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

 

3
 

 

DATA443 RISK MITIGATION, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

 

For the Six Months Ended June 30, 2021

 

    Shares     Amount     Shares     Amount     Capital     Deficit     (Deficit)  
                              Total  
   

Series A

Preferred Stock

    Common Stock    

Additional

Paid in

    Accumulated    

Stockholders’

Equity

 
    Shares     Amount     Shares     Amount     Capital     Deficit     (Deficit)  
                                           
Balance - December 31, 2020     150,000     $ 150       522,006     $ 522     $ 32,027,240     $ (35,518,584 )   $ (3,490,672 )
                                                         
Common stock issued for cash     -       -       83,336       83       846,718       -       846,801  
Common stock issued for conversion of preferred stock     -       -       14,533       15       312,908               312,923  
Common stock issued for conversion of debt     -       -       101,748       102       1,523,156       -       1,523,258  
Common stock issued in conjunction with convertible note     -       -       2,863       3       88,735       -       88,738  
Common stock issued for exercised cashless warrant     -       -       8,923       9       (9 )     -       -  
Resolution of derivative liability upon exercise of warrant     -       -       -       -       139,067       -       139,067  
Stock-based compensation     -       -       9,168       9       680,435       -       680,444  
Adjustment of reverse stock split     -       -       669       -       -       -       -  
Net loss attributable to common stockholders     -       -       -       -       -       (3,731,093 )     (3,731,093 )
Balance - June 30, 2021     150,000     $ 150       743,246     $ 743     $ 35,618,250     $ (39,249,677 )   $ (3,630,534 )

 

For the Three Months Ended June 30, 2021

 

    Series A                 Additional           Total  
    Preferred Stock     Common Stock     Paid in     Accumulated     Stockholders’  
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
                                           
Balance - March 31, 2021     150,000       150       721,032       721       34,864,967       (37,698,831 )     (2,832,993 )
Cash received for issued stock     -       -       -       -       193,196       -       193,196  
Common stock issued for conversion of preferred stock     -       -       8,934       9       144,707       -       144,716  
Common stock issued for exercised cashless warrant                     8,923       9       (9 )     -       -  
Resolution of derivative liability upon exercise of warrant                     -       -       139,067       -       139,067  
Stock-based compensation     -       -       3,688       4       276,322       -       276,326  
Adjustment of reverse stock split     -       -       669       -       -       -       -  
Net loss attributable to common stockholders     -       -               -       -       (1,550,846 )     (1,550,846 )
Balance - June 30, 2021     150,000       150       743,246       743       35,618,250       (39,249,677 )     (3,630,534 )

 

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

 

4
 

 

DATA443 RISK MITIGATION, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

 

For the Six Months Ended June 30, 2020

 

    Convertible                            
    Preferred
Series A
    Common Stock    

Additional

Paid in

    Accumulated    

Total

 Stockholders’

 
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
                                           
Balance - December 31, 2019     1,334     $ 1       9,692,065     $ 9,692     $ 15,204,771     $ (21,610,915 )   $       (6,396,451 )
Common stock issued for conversion of debt     -       -       134,019,210       134,019       4,195,140       -       4,329,159  
Stock issued for purchase of asset     -       -       2,465,754       2,466       (2,466 )     -       -  
Settlement of stock subscriptions     -       -       1,496,516       1,496       (1,496 )     -       -  
Stock-based compensation     -       -       12,435,000       12,435       686,571       -       699,006  
Net loss attributable to common stockholders     -       -       -       -       -       (12,754,195 )     (12,754,195 )
Balance - June 30, 2020     1,334     $ 1       160,108,545     $ 160,108     $ 20,082,520     $ (34,365,110 )   $ (14,122,481 )

 

For the Three Months Ended June 30, 2020

 

    Convertible                            
   

Preferred

Series A

    Common Stock    

Additional

Paid in

    Accumulated    

Total

Stockholders’

 
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
                                           
Balance - March 31, 2020     1,334     $ 1       19,482,091     $ 19,482     $ 16,725,143     $ (31,791,930 )   $ (15,047,304 )
Common stock issued for conversion of debt     -       -       127,194,938       127,195       2,877,454       -       3,004,649  
Settlement of stock subscriptions     -       -       1,496,516       1,496       (1,496 )     -       -  
Stock-based compensation     -       -       11,935,000       11,935       481,419       -       493,354  
Net loss attributable to common stockholders     -       -               -               (2,573,180 )     (2,573,180 )
Balance - June 30, 2020     1,334     $ 1       160,108,545     $ 160,108     $ 20,082,520     $ (34,365,110 )   $ (14,122,481 )

 

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

 

5
 

 

DATA443 RISK MITIGATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    2021     2020  
    Six Months Ended  
    June 30,  
    2021     2020  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (3,721,652 )   $ (12,754,195 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Change in fair value of derivative liability     363,654       9,278,815  
Loss on settlement of debt     227,501       54,000  
Stock-based compensation expense     680,444       699,006  
Depreciation and amortization     554,557       909,851  
Amortization of debt discount     1,448,308       816,949  
Bad debt     -       50,800  
Lease liability amortization     (13,107 )     22,218  
Changes in operating assets and liabilities:                
Accounts receivable     22,233       (20,856 )
Prepaid expenses and other assets     (24,425 )     484  
Accounts payable and accrued liabilities     13,057       (161,961 )
Deferred revenue     (428,116 )     258,872  
Payroll liability     -       102,859  
Accrued interest     63,912       171,639  
Accrued Dividend     (9,441 )        
Deposit     -       (10,496 )
Net Cash used in Operating Activities     (823,075 )     (582,015 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Purchase of property and equipment     (79,020 )     (5,081 )
Net Cash used in Investing Activities     (79,020 )     (5,081 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from issuance of convertible notes payable     100,000       652,250  
Proceeds from issuance of common stock     846,801       -  
Proceeds from issuance of series B Preferred Stock     250,000       -  
Finance lease payments     (43,931 )     (31,943 )
Proceeds from issuance of notes payable     2,574,647       1,077,843  
Repayment of notes payable     (2,734,275 )     (426,486 )
Proceeds from related parties     271,464       132,656  
Repayment to related parties     (414,187 )     (287,104 )
Net Cash provided by Financing Activities     850,519       1,117,216  
                 
Net change in cash     (51,576 )     530,120  
Cash, beginning of period     58,783       18,673  
Cash, end of period   $ 7,207     $ 548,793  
                 
Supplemental cash flow information                
Cash paid for interest   $ 24,770     $ 43,453  
Cash paid for taxes   $ -     $ -  
                 
Non-cash Investing and Financing transactions:                
Settlement of stock subscriptions   $ -     $ 1,496  
Common stock issued for exercised cashless warrant   $ 9     $ -  
Settlement of series B preferred stock through issuance of common stock   $ 312,923     $ -  
Settlement of convertible notes payable through issuance of common stock   $ 1,523,258     $ 1,153,596  
Common stock issued in conjunction with convertible note   $ 88,738     $ -  
Resolution of derivative liability upon exercise of warrant   $ 139,067       -  
Resolution of derivative liability upon conversion of debt   $ -       3,175,563  
Equipment paid by capital lease   $ -     $ 159,096  
Derivative liability recognized as debt discount   $ 150,000     $ 570,675  
Settlement of convertible notes payable through issuance of preferred common stock   $ 65,600     $ -  
Note payable issued for settlement of License fee payable   $ 1,404,000     $ -  

 

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

 

6
 

 

DATA443 RISK MITIGATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

 

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The accompanying consolidated financial statements as of June 30, 2021 include the accounts of the Company and its wholly-owned subsidiary, Data 443 Risk Mitigation, Inc., a North Carolina operating company, and the operations of Myriad Software Productions, LLC through September 2018 when it was liquidated. Prior to the acquisition of Data 443 Risk Mitigation, Inc. in North Carolina and the assets of Myriad Software Productions, LLC in 2018, these two entities were controlled by our sole director and officer, Jason Remillard. On November 17, 2017, Mr. Remillard acquired control of LandStar, Inc. through his purchase of all the outstanding Series A preferred shares of the Company, and as a result, these two entities became common controlled entities that require consolidation of results with the reporting company, LandStar, Inc., from the time common control occurred. All intercompany accounts and activities have been eliminated. These consolidated financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).

 

Interim Financial Statements

 

These unaudited consolidated financial statements have been prepared in accordance U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2020 and notes thereto and other pertinent information contained in our Form 10-K the Company has filed with the Securities and Exchange Commission (the “SEC”) on March 23, 2021. The results of operations for the six months ended June 30, 2021, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2021.

 

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.

 

7
 

 

DATA443 RISK MITIGATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

 

The Company recorded approximately $680,000 in share-based compensation expense for the six months ended June 30, 2021, compared to $699,000 in share-based compensation expense for the six months ended June 30, 2020. Determining the appropriate fair value model and the related assumptions requires judgment. During the six months ended June 30, 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.

 

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 six months ended June 30, 2021 and 2020, 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:

 

    June 30,  
    2021     2020  
    (Shares)     (Shares)  
Series A Preferred Stock     150,000,000       1,334,000  
Stock Options     12,471       498  
Warrants     105,467       137,595  
Convertible Notes     -       279,008  
Total     150,117,938       1,751,101  

 

Recently Issued Accounting Pronouncements

 

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

 

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

 

NOTE 2: LIQUIDITY AND GOING CONCERN

 

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

 

8
 

 

DATA443 RISK MITIGATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

 

During 2018, the Company made two product acquisitions, ClassiDocs™, and ARALOC, and completed the acquisition of one entity, Data443 Risk Mitigation, Inc. (“Data443”), the North Carolina operating company. During 2019, the Company completed the acquisition of selected assets of DataExpress; and, completed a transaction under which the Company licensed the assets of ArcMail™. During the period ending September 30, 2020, the Company has completed the acquisition of selected assets of FileFacets™, and selected assets of Intelly WP™. The Company is actively seeking new products and entities to acquire, with several candidates identified. The Company has developed, and continues to develop, large scale relationships with cyber security, marketing and product organizations, and to market and promote ClassiDocs and other products the Company may develop or acquire. As of June 30, 2021, the Company had negative net working capital; an accumulated deficit; and, had reduced its operating losses.

 

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

 

NOTE 3: PROPERTY AND EQUIPMENT

 

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

 

    June 30,     December 31,  
    2021     2020  
Furniture and Fixtures   $ 2,991     $ 2,991  
Computer Equipment     500,343       421,323  
 Property and equipment, gross     503,334       424,314  
Accumulated depreciation     (171,478 )     (99,965 )
Property and equipment, net of accumulated depreciation   $ 331,856     $ 324,349  

 

Depreciation expense for the six months ended June 30, 2021 and 2020, was $71,513 and $31,975, respectively.

 

During the six months years ended June 30, 2021 and 2020, the Company purchased property and equipment of $79,020 and $5,081, respectively.

 

NOTE 4: INTELLECTUAL PROPERTY

 

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

 

    June 30,     December 31,  
    2021     2020  
Intellectual property:                
Word press GDPR rights   $ 46,800     $ 46,800  
ARALOC™     1,850,000       1,850,000  
ArcMail License     1,445,000       1,445,000  
DataExpressTM     1,388,051       1,388,051  
FileFacetsTM     135,000       135,000  
IntellyWP™     135,000       135,000  
Resilient Network Systems     305,000       305,000  
 Intellectual property     5,304,851       5,304,851  
Accumulated amortization     (3,476,988 )     (2,993,944 )
Intellectual property, net of accumulated amortization   $ 1,827,863     $ 2,310,907  

 

9
 

 

DATA443 RISK MITIGATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

 

The Company recognized amortization expense of approximately $483,044 and $877,876 for the six months ended June 30, 2021, and 2020, respectively.

 

Based on the carrying value of definite-lived intangible assets as of June 30, 2021, we estimate our amortization expense for the next five years will be as follows:

 

    Amortization  
Year Ended December 31,   Expense  
2021 (excluding the six months ended June 30, 2021)   $ 483,044  
2022     860,484  
2023     441,585  
2024     27,000  
Thereafter     15,750  
 Intellectual property, net of accumulated amortization     1,827,863  

 

NOTE 5: 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:

 

    June 30,     December 31,  
    2021     2020  
             
Accounts payable   $ 216,947     $ 178,319  
Payroll liabilities     100,361       102,793  
Credit cards     47,505       31,918  
Accrued dividend - preferred stock     6,414       484  
Accrued liabilities     40,000       87,500  
 Accounts payable and accrued liabilities   $ 411,227     $ 401,014  

 

NOTE 6: DEFERRED REVENUE

 

Changes in deferred revenue were as follows:

 

    June 30,  
    2021  
Balance, beginning of period   $ 1,518,163  
Deferral of revenue     1,021,125  
Recognition of deferred revenue     (1,449,241 )
Balance, end of period   $ 1,090,047  

 

 SCHEDULE OF DEFERRED REVENUE

    June 30,     December 31,  
    2021     2020  
Current   $ 1,065,120     $ 1,478,430  
Non-current     24,927       39,733  
 Deferred revenue   $ 1,090,047     $ 1,518,163  

 

10
 

 

DATA443 RISK MITIGATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

 

NOTE 7: LEASES

 

Operating lease

 

We have a noncancelable operating lease for our office facility that expires in 2024. The operating lease has renewal options and rent escalation clauses.

 

We recognized total lease expense of approximately $49,000 and $52,000 for the six months ended June 30, 2021 and 2020, respectively, primarily related to operating lease costs paid to lessors from operating cash flows. As of June 30, 2021 and December 31, 2020, the Company recorded security deposit of $10,000. We entered into our operating lease in January 2019. On July 1, 2020, the Company renegotiated the office lease to obtain rent expense relief for the months of April 2020 – December 2020.

 

Future minimum lease payments under operating leases that have initial noncancelable lease terms in excess of one year at June 31, 2021 were as follows:

 

    Total  
Year Ended December 31,        
2021 (excluding the six months ended June 30, 2021)   $ 61,800  
2022     127,300  
2023     131,150  
Thereafter     -  
 Total lease payment     320,250  
Less: Imputed interest     (31,205 )
Operating lease liabilities     289,045  
         
Operating lease liability - current     106,125  
Operating lease liability - non-current   $ 182,920  

 

The following summarizes other supplemental information about the Company’s operating lease as of June 30, 2021:

 

Weighted average discount rate     8 %
Weighted average remaining lease term (years)     2.54  

 

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 June 30, 2021 and December 31, 2020, capital lease obligations included in current liabilities were $87,829 and $90,565, respectively, and capital lease obligations included in long-term liabilities were $41,914 and $83,109, respectively. As of June 30, 2021 and December 31, 2020, the Company recorded security deposit of $10,944.

 

At June 30, 2021, future minimum lease payments under the finance lease obligations, are as follows:

 

    Total  
       
2021 (excluding the six months ended June 30, 2021)   $ 53,266  
2022     78,379  
2023     10,496  
Thereafter     -  
 Total finance lease payment     142,141  
Less: Imputed interest     (12,398 )
Finance lease liabilities     129,743  
         
Finance lease liability     87,829  
Finance lease liability - non-current   $ 41,914  

 

11
 

 

DATA443 RISK MITIGATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

 

As of June 30, 2021 and December 31, finance lease assets are included in property and equipment as follows:

 

    June 30,     December 31,  
    2021     2020  
Finance lease assets   $ 267,284     $ 267,284  
Accumulated depreciation     (126,486 )     (87,337 )
Finance lease assets, net of accumulated depreciation   $ 140,798     $ 179,947  

 

NOTE 8: CONVERTIBLE NOTES PAYABLE

 

Convertible notes payable consists of the following:

 

    June 30,     December 31,  
    2021     2020  
Convertible Notes - Issued in fiscal year 2020     100,000       1,526,000  
Convertible Notes - Issued in fiscal year 2021     114,500       -  
 Convertible notes payable, Gross     214,500       1,526,000  
Less debt discount and debt issuance cost     (87,727 )     (282,232 )
 Convertible notes payable     126,773       1,243,768  
Less current portion of convertible notes payable     114,500       1,243,768  
Long-term convertible notes payable   $ 12,273     $ -  

 

During the six months ended June 30, 2021 and 2020, the Company recognized interest expense of $14,556 and $169,760, and amortization of debt discount, included in interest expense of $335,663 and $718,909, respectively.

 

Conversion

 

During the six months ended June 30, 2021, the Company converted notes with principal amounts and accrued interest of $1,340,150 into 101,748 shares of common stock. The corresponding derivative liability at the date of conversion of $183,108 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 $0.001 to $0.007. Certain note has a fixed conversion price of $0.5 for a first 5 months Certain note allows the principal amount will increase by $15,000 and the discount rate of conversion price will decrease by 18% if the conversion price is less than $$0.01.

 

12
 

 

DATA443 RISK MITIGATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

 

Promissory Notes - Issued during first six months of fiscal year 2021

 

During the six months ended June 30, 2021, the Company issued convertible note of $114,500 for cash proceeds of $100,000 after deducting financing fee of $14,500 with the following terms;

 

  Terms 90 days.
     
  Annual interest rates of 5%.
     
  Convertible at the option of the holders after maturity date
     
  Conversion price is the lesser of (i) $0.01 or (ii) 61% multiplied by the average of two lowest trading prices during the 20 trading day period prior to the conversion date.
     
  2,863 shares of common stock valued at $88,738 issued in conjunction with convertible note

 

NOTE 9: DERIVATIVE LIABILITIES

 

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

 

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

 

The Company determined our derivative liabilities to be a Level 3 fair value measurement during the year based on management’s estimate of the expected future cash flows required to settle the liabilities, and used the Binomial pricing model to calculate the fair value as of June 30, 2021. As of the six month period ended June 30, 2021, 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 six months June 30, 2021 and 2020, the estimated fair values of the liabilities measured on a recurring basis are as follows:

 

The Company valued the conversion feature using the Binomial pricing model. The fair value of the derivative liability for all the notes and convertible preferred stock that became convertible, including the notes and convertible preferred stock issued in prior years, during the six months ended June 30, 2021 amounted to $433,264, and $150,000 of the value assigned to the derivative liability was recognized as a debt discount to the notes, while the balance of $283,264 was recognized as a “day 1” derivative loss.

 

For the six months June 30, 2021 and year ended December 31, 2020, the estimated fair values of the liabilities measured on a recurring basis are as follows:

 

      Six months Ended       Year Ended  
      June 30,       December 31,  
      2021       2020  
Expected term     0.48 - 1.00 years       0.25 - 5.00 years  
Expected average volatility     186%- 302 %     187%- 464 %
Expected dividend yield     -       -  
Risk-free interest rate     0.04% - 0.16 %     0.01% - 1.57 %

 

13
 

 

DATA443 RISK MITIGATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

 

The following table summarizes the changes in the derivative liabilities during the six months ended June 30, 2021 and 2020:

 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Derivative liability as of December 31, 2020   $ -  
         
Addition of new derivatives recognized as debt discounts     150,000  
Addition of new derivatives recognized as day-one loss     283,264  
Derivative liabilities settled upon conversion of convertible note     (513,654 )
Change in derivative liabilities recognized as loss on derivative     80,390  
Derivative liability as of June 30, 2021   $ -  

 

The aggregate loss on derivatives during the six months ended June 30, 2021 and 2020 was $363,654 and $9,278,815, respectively.

 

NOTE 10: NOTES PAYABLE

 

Notes payable consists of the following:

 

    June 30,     December 31,            
    2021     2020     Maturity   Interest Rate  
10% Promissory note - originated in October 2019   $ 25,060     $ 25,060     Due on demand     10.0 %
Promissory note - originated in October 2019     25,060       25,060     Due on demand     10.0 %
Promissory note - originated in April 2020     10,000       10,000     Due on demand     No interest  
Paycheck Protection Program Promissory note - originated in April 2020 (1)     339,000       339,000     2 years     1.0 %
Economic Injury Disaster Loan - originated in May 2020 (2)     150,000       150,000     30 years     1.0 %
Promissory note - originated in June 2020     -       43,356     $3,942.86 daily payment     16.0 %
Promissory note - originated in September 2020     65,593       80,730     $2,873.89 monthly payment for 36 months     14.0 %
Promissory note - originated in October 2020     -       158,169     $2,293.31 daily payment     25.0 %
Promissory note - originated in November 2020     -       170,886     $4,497.00 daily payment     25.0 %
Promissory note - originated in November 2020     105,972       394,846     $6,999.00 daily payment     25.0 %
Promissory note - originated in December 2020     41,535       50,031     $1,854.41 monthly payment for 36 months     8.0 %
Promissory note - originated in January 2021     1,364,000       -     5 years     4.0 %
Promissory note - originated in January 2021     61,753       -     $2,675.89 monthly payment for 36 months     18.0 %
Promissory note - originated in January 2021     10,610       -     $4,497.00 daily payment     25.0 %
Promissory note - originated in March 2021     21,750       -     $870,00 daily payment     15.0 %
Promissory note - originated in April 2021     832,000       -     1 year     12 %
Promissory note - originated in April 2021     394,146       -     $8,284.92 daily payment     24 %
Promissory note - originated in June 2021     311,421       -     $3,971.43 daily payment     25 %
 Promissory notes payable, Gross     3,757,900       1,447,138              
Less debt discount and debt issuance cost     (360,657 )     (289,332 )            
 Promissory notes payable     3,397,243       1,157,806              
Less current portion of promissory notes payable     1,587,552       585,310              
Long-term promissory notes payable   $ 1,809,691     $ 572,496              

 

14
 

 

  (1) In response to the Coronavirus (COVID-19) pandemic, the US Government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. The CARES Act provides fast and direct economic assistance for entrepreneurs and small businesses through the US Small Business Administration (“SBA”).
     
    During the period, the Company received a loan issued under the CARES Act program - Paycheck Protection Program (“PPP”). This loan program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.
     
    Under the PPP, the Company may apply to have certain amounts forgiven under the direction of the Administrator of the SBA providing that the Company satisfies certain criteria. Repayment of the PPP loan will commence earlier of when the SBA remits the forgiveness amount to the lender or the Maturity Date.
     
  (2) The Company received an advance under the Economic Injury Disaster Loan (EIDL) program.
     
    As the Company received an EIDL advance and a PPP loan, the EIDL advance portion will be applied against the PPP forgiveness amount as repayment to the SBA upon approval of the PPP forgiveness application.
     
  (3) On February 12, 2021, the Company issued notes payable of $1,404,000 to settle license fee payable of $1,094,691. As a result, the Company recorded loss on settlement of debt of $309,309.

 

During the six months ended June 30, 2021 and 2020, the Company recognized interest expense of $57,209 and $18,878, and amortization of debt discount, included in interest expense of $995,066 and $98,040, respectively.

 

NOTE 11: COMMITMENTS AND CONTINGENCIES

 

The Company accounts for contingent liabilities in accordance with Accounting Standards Codification (“ASC”) Topic 450, Contingencies. This guidance requires management to assess potential contingent liabilities that may exist as of the date of the financial statements to determine the probability and amount of loss that may have occurred, which inherently involves an exercise of judgment. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed. For loss contingencies considered remote, no accrual or disclosures are generally made. Management has assessed potential contingent liabilities as of June 30, 2021, and based on that assessment there are no probable loss contingencies requiring accrual or establishment of a reserve.

 

DMB Note Collection Action

 

DMB Group, LLC (“DMB”) filed a lawsuit against Data443 Risk Mitigation, Inc., a North Carolina corporation, the Company’s wholly-owned subsidiary (the “Subsidiary”), June 17, 2021 in County Court in Denton County, Texas, naming the Subsidiary as the defendant (the “Complaint”). The Subsidiary is in the process of engaging local litigation counsel to defend itself in the litigation. An answer to the Complaint will be filed shortly. DMB claims a breach of the note issued to it on or around 16 September 2019 in the original principal amount of $940,000 (the “DMB Note”). The DMB Note was issued by the Subsidiary in connection with the Subsidiary’s acquisition of assets from DMB. DMB claims that the Subsidiary is delinquent on its payments under the DMB Note and is therefore in default under the DMB Note. The Company has already accounted for the liability owed under the DMB Note. While the Subsidiary is late in making payments under the DMB Note, the Company believes that there are a number of significant issues affecting the amounts due under the DMB Note and that the Subsidiary is justified in withholding payments under the DMB Note. At this time we are unable to forecast the likely amount, if any, which will be owed by the Subsidiary under the DMB Note, and we intend to vigorously defend against the claims of DMB. Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult, particularly where we are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we currently are unable to predict the ultimate timing or outcome of or reasonably estimate the possible losses or a range of possible losses resulting from this matter.

 

Employment Related Claims

 

The Company views most legal proceedings involving claims of former employees as routine litigation incidental to the business, and therefore not material. The Company is currently involved in two such matters with former employees. One matter involves three former employees; the other matter involves one former employee. In each matter, the former employee is seeking additional compensation. In response, the Company believes that in each matter the former employee was terminated “for cause” and is owed no further consideration or compensation. The Company intends to vigorously dispute each such claim.

 

Litigation

 

In the ordinary course of business, we are involved in a number of lawsuits incidental to our business, including litigation related to intellectual property, employees, and commercial matters. Although it is difficult to predict the ultimate outcome of these cases, management believes that any ultimate liability would not have a material adverse effect on our consolidated financial condition or results of operations. However, an unforeseen unfavorable development in any of these cases could have a material adverse effect on our consolidated financial condition, results of operations, or cash flows in the period in which it is recorded.

 

NOTE 12: CAPITAL STOCK AND REVERSE STOCK SPLIT

 

Changes in Authorized Shares

 

On February 19, 2021 the written consent of the holders of a majority of the voting power of the outstanding capital stock of the Company as of the Record Date (the “Consenting Stockholders”) approved the following corporate actions:

 

  (1) Amendment of our articles of incorporation (the “Articles of Incorporation”) to provide for a decrease in the authorized shares of the Company’s Common Stock from 1,800,000,000 to a number of not less than 10,000,000 and not more than 1,000,000,000 (the “Authorized Common Stock Reduction”), at any time prior to the one year anniversary of the filing of the Definitive Information Statement on Schedule 14C with respect to the actions envisioned under Preliminary Information Statement in Schedule 14C filed with the SEC on February 23 2021 (the “Definitive Information Statement”), with the Board of Directors of the Company (the “Board”) having the discretion to determine whether or not the Authorized Common Stock Reduction is to be effected, and if effected, the exact number of the Authorized Common Stock Reduction within the above range.
     
  (2) That the Board be authorized to implement through the amendment to our Articles of Incorporation a reverse stock split of the Company’s Common Stock by a ratio of not less than 1-for-10 and not more than 1-for-2,000, (the “Reverse Split”), at any time prior to the one year anniversary of the filing of the Definitive Information Statement, with the Board having the discretion to determine whether or not the Reverse Split is to be effected, and if effected, the exact ratio for the Reverse Split within the above range.

 

15
 

 

DATA443 RISK MITIGATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

 

On April 21, 2021, the Company increased the number of authorized shares of common stock from 1.8 billion to 3.8 billion. in order to satisfy the share reserve requirement under a financing closed on April 23, 2021.

 

On June 10, 2021, the Company filed a Certificate of Amendment to the Articles of Incorporation (the “Certificate of Amendment”) which served to (i) reduce the number of authorized shares of common stock to one billion (1,000,000,000); and, (ii) effect a reverse stock split (the “Reverse Stock Split”) of its issued common stock in a ratio of 1-for-2,000. The preferred stock of the Company was not changed. The 1-for-2,000 Reverse Stock split was processed by FINRA and became effective at the start of trading on July 1, 2021. As a result of the Reverse Stock Split, every 2,000 shares of the Company’s issued and outstanding common stock, par value $0.001 per share, were converted into one (1) share of common stock, par value $0.001 per share. No fractional shares will be issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive fractional shares because they hold a number of pre-Reverse Stock Split shares of the Company’s common stock not evenly divisible by 2,000 will have the number of post-Reverse Stock Split shares of the Company’s common stock to which they are entitled rounded up to the nearest whole number of shares of the Company’s common stock. No stockholders will receive cash in lieu of fractional shares.

 

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 

 

Series A Preferred Stock

 

As of June 30, 2021 and December 31, 2020, 150,000 shares of Series A were issued and outstanding. Each share of Series A was (i) convertible into 1,000 shares of common stock, and (ii) entitled to vote 15,000 shares of common stock on all matters submitted to a vote by shareholders voting common stock. All issued and outstanding shares of Series A Preferred Stock are held by Mr. Jason Remillard, sole director of the Company.

 

Series B Preferred Stock

 

As of June 30, 2021 and December 31, 2020, 26,650 and 5,300 shares of Series B were issued and outstanding, respectively. Each share of Series B (i) has a stated value of Ten Dollars ($10.00) per share; (ii) are convertible into common stock at a price per share equal to sixty one percent (61%) of the lowest price for the Company’s common stock during the twenty (20) day of trading preceding the date of the conversion; (iii) earn dividends at the rate of nine percent (9%) per annum; and, (iv) generally have no voting rights.

 

During the six months ended June 30, 2021, the Company issued a total of 33,210 shares of Series B preferred stock as follows

 

  26,650 shares for $266,500, less $16,500 financing fees.
     
  6,560 shares in exchange for convertible note and accrued interest of $65,600

 

During the six months ended June 30, 2021, shares of series B preferred stock was converted into 14,533 shares.

 

16
 

 

DATA443 RISK MITIGATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

 

Common Stock

 

As of June 30, 2021, the Company is authorized to issue 1,000,000,000 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 June 30, 2021 and December 31, 2020, respectively, was 743,246 and 522,006 shares, respectively.

 

During the six months ended June 30, 2021, the Company issued common stock as follows:

 

  101,748 shares issued for conversion of debt;
     
  83,336 shares issued for cash of $1,000,000, less financing cost of $10,000, less an additional financing discount of $143,199;
     
 

 

9,168 shares issued for service;

 

8,923 shares issued upon the cash-less exercise of a warrant;

     
  14,533 shares issued for conversion of Series B preferred stock; and
     
  2,863 shares issued as a loan fee in connection with the issuance of a promissory note.
     
  669 shares issued for adjustment of reverse stock split

 

Warrants

 

During the six months ended June 30, the Company issued warrants (i) to acquire 55,467 shares of the Company’s common stock pursuant at an exercise price of $15.00, with a cashless exercise option. any warrants; and, (ii) to acquire 55,467 shares of the Company’s common stock at an exercise price of $15.00, 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.

 

A summary of activity during the period ended June 30, 2021 follows:

 

    Warrants Outstanding  
          Weighted Average  
    Shares     Exercise Price  
Outstanding, December 31, 2020     50,000     $ 20.00  
Granted     55,467       15.00  
Reset feature     9,030       5.80  
Exercised     (9,030 )     5.80  
Forfeited/canceled     -       -  
Outstanding, June 30, 2021     105,467     $ 17.37  

 

The following table summarizes information relating to outstanding and exercisable warrants as of June 30, 2021:

 

Warrants Outstanding     Warrants Exercisable  
Number of     Weighted Average Remaining     Weighted Average     Number of     Weighted Average  
Shares     Contractual life
(in years)
    Exercise Price     Shares     Exercise Price  
  50,000       4.45     $ 20.00       50,000     $ 20.00  
  55,467       4.81     $ 15.00       55,467     $ 15.00  

 

17
 

 

DATA443 RISK MITIGATION, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

 

NOTE 13: SHARE-BASED COMPENSATION

 

Stock Options

 

During the six months ended June 30, 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 anniversary date of the grant and have a maximum term of ten years.

 

The following summarizes the stock option activity for the six months ended June 30, 2021: 

 

          Weighted-Average  
    Options Outstanding     Exercise Price  
Balance as of December 31, 2020     5,875     $ 96.99  
Grants     6,596       40.81  
Exercised     -       -  
Cancelled     -       -  
Balance as of June 30, 2021     12,471     $ 67.28  

 

The weighted average grant date fair value of stock options granted during the six months ended June 30, 2021 was $43.01. The total fair value of stock options that granted during the six months ended June 30, 2021 was approximately $284,000. 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 six months ended June 30, 2021:

 

Expected term (years)     5.74 years  
Expected stock price volatility     296.17 %
Weighted-average risk-free interest rate     0.64 %
Expected dividend   $ 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 June 30, 2021:

 

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