ATDS DATA443 Risk Mitigation Inc (PK)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

NOTE 1: GENERAL

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.

The Company believes that it is a leader in data security and privacy management, providing solutions for All Things Data Security®, across the enterprise and in the cloud. Trusted by over 10,000 clients, the Company provides the visibility and control needed to protect data at-scale, regardless of format, location or consumer and facilitate fast changing global data privacy requirements. Our clients include leading brand name enterprises in a diverse set of industries, including financial services, government, healthcare, manufacturing, retail, technology, and telecommunications.

The mounting ransomware and data threat landscape has accelerated data security adoption rates and we believe that our extensive portfolio of data security and privacy products provide an encompassing solution set to data privacy as the new security standard. Our offering is anchored in privacy management, equipping organizations with a seamless approach to safeguard their data, protect against attacks and mitigate the most critical risks.

Data security and privacy legislation is driving significant investment by organizations to offset risks from data breaches and information breaches of various types. We provide solutions for the marketplace that are designed to protect data that is stored in the cloud, hybrid, on-premises and with remote employees. Our suite of security products focuses on protection of sensitive files and emails, confidential customer, patient and employee data, financial records, strategic and product plans, intellectual property and other data requiring protection, allowing our clients to create, share and protect their sensitive data wherever it is stored and however it is used.

We deliver solutions and capabilities for cloud vendors (including Microsoft Azure, Google Cloud Platform (GCP) and Amazon Web Services (AWS)), for on premises and for virtualization platforms (including VMWare, Citrx and Oracle). Licensing subscription models conform to customer purchasing requirements, which are most commonly on an annualized term basis.

We sell substantially all our products, solutions 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 also make use of channel partners, distributors, and resellers which sell to end-user customers. This approach allows us to maintain close relationships with our customers and benefit from the global reach of our channel 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 is on targeting 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.

As cloud adoption continues to accelerate, data privacy requirements get more complex, and data security becomes more challenging, we believe that Data443 is well positioned to capture market share, continue to lead in strategic data security technologies and prepare organizations for the next epoch in IT data privacy services.

Our Products

Each of our major product lines provides feature and functionality which we believe enable our clients to fully secure their data. This design extends through modular functionalities, giving our clients the flexibility to select the features they require for their business needs and the flexibility to expand their usage simply by adding a license. As the result of a recent rebranding and marketing effort by the Company, the products and services offered by the Company are now marketed under the following names:

Our Growth Strategy

The following are key elements of our growth strategy:

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 steady client base, as well as companies with complementary product offerings.

Research & Development; Innovation. We intend to increase our spending on research and development in order to drive innovation to improve existing products and to deliver new products. We 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. We believe that continuing to expand our salesforce will be essential to achieving our customer base expansion goals. We intend to expand our sales capacity by adding employees throughout our sales and marketing department, with heavy focus on customer success and leveraging our existing client relationships.

Our Customers

Our current customer base is comprised primarily of customers in two verticals – commercial enterprises and open-source consumers. Our commercial enterprise clients are generally focused within the US and range from 500 employees to over 150,000 employees and use our data security and protection product lines. Our open-source offerings are more widely distributed geographically, used by organizations of all sizes and currently have over 200,000 active installations.

On January 19, 2022, the Company 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) the $2,900,00 promissory note issued by Data443 in favor of Centurion; and (iii) $250,000 in the form of a contingent payment. As of the filings date of these financial statements, the acquisition is still not completed.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements as of March 31, 2022 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, 2021 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 31, 2022. The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2022.

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 gain of $87,685 in share-based compensation expense for the three months ended March 31, 2022, compared to $404,118 in share-based compensation expense for the three months ended March 31, 2021. Determining the appropriate fair value model and the related assumptions requires judgment. During the three months ended March 31, 2022, 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 three months ended March 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:

COVID-19

In March 2020, the World Health Organization (“WHO”) declared the novel coronavirus COVID-19 (“COVID-19”) a global pandemic. The pandemic adversely affected workforces, economies, and financial markets globally in 2020 and, until contained, is still expected to disrupt general business operations. The COVID-19 pandemic and the measures taken by many governments around the world in response could in the future meaningfully impact our business, results of operations and financial condition. The Company is currently unable to predict the duration of that impact but continues to monitor its accounting estimates of the carrying value of certain assets and liabilities relating to its leases and will continue to do so as additional information is obtained or new events occur. Actual results could differ from our estimates and judgments, and any such differences may be material to our financial statements.

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. We recognized a cumulative effect adjustment to increase the opening retained earnings as of January 1, 2022 by $439,857.

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 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 only recently started to generate significant income. The Company is subject to the risks and uncertainties associated with a business with a limited history of substantive revenue, as well as limitations on its operating capital resources. These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern. These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. In light of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to raise capital and generate revenue and profits in the future.

During 2018, the Company made two product acquisitions, ClassiDocs®, and ARALOC®, and completed the acquisition of one entity, Data443 Risk Mitigation, Inc. (“Data443”), the North Carolina operating company. During 2019, the Company completed the acquisition of selected assets of DataExpress^™; and, completed a transaction under which the Company licensed the assets of ArcMail™. During the period ending September 30, 2020, the Company has completed the acquisition of selected assets of FileFacets™, and selected assets of Intelly WP™. The Company is actively seeking new products and entities to acquire, with several candidates identified. The Company has developed, and continues to develop, large scale relationships with cyber security, marketing and product organizations, and to market and promote ClassiDocs® and other products the Company may develop or acquire. As of March 31, 2022, 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:

Depreciation expense for the three months ended March 31, 2022 and 2021, was $39,605 and $35,757, respectively.

During the three months ended March 31, 2022 and 2021, the Company purchased property and equipment of $8,280 and $79,020, respectively.

NOTE 4: INTELLECTUAL PROPERTY

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

The Company recognized amortization expense of $230,272 and $241,522 for the three months ended March 31, 2022, and 2021, respectively.

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

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:

NOTE 6: DEFERRED REVENUE

For the three months ended March 31, 2022 and as of December 31 2021, changes in deferred revenue were as follows:

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

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 $83,339 and $24,000 for the three months ended March 31, 2022 and 2021, respectively, primarily related to operating lease costs paid to lessors from operating cash flows. As of March 31, 2022 and December 31, 2021, 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 March 31, 2022 were as follows:

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

 SCHEDULE OF OTHER SUPPLEMENTAL INFORMATION UNDER OPERATING LEASE

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 March 31, 2022 and December 31, 2021, capital lease obligations included in current liabilities were $61,237 and $72,768, respectively, and capital lease obligations included in long-term liabilities were $0 and $10,341, respectively. As of March 31, 2022 and December 31, 2021, the Company recorded security deposit of $10,944. As significant portion of our leasing costs are to support our data center buildouts.

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

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

NOTE 8: CONVERTIBLE NOTES PAYABLE

Convertible notes payable consists of the following:

During the three months ended March 31, 2022 and 2021, the Company recognized interest expense of $319,561 and $15,142, respectively, and amortization of debt discount, included in interest expense of $323,986 and $305,441, respectively.

Conversion

During the three months ended March 31, 2022, the Company converted notes with principal amounts and accrued interest of $27,812 into 6,090 shares of common stock. The corresponding derivative liability at the date of conversion of $57,883 was credited to additional paid in capital.

Convertible notes payable consists of the following:

Promissory Notes - Issued in fiscal year 2020

The Company has a total of $100,000 of notes with the following terms:

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;

During the three months ended March 31, 2022, the Company repaid principal amount of $729,506 and interest expense of $319,743.

Promissory Notes - Issued in fiscal year 2022

During the March 31, 2022, the Company issued convertible notes of $959,313 for cash proceeds of $902,000 after deducting financing fee of $57,313 with the following terms;

In connection with the adoption of ASU 2020-06, we reclassified $517,500, previously allocated to the conversion feature, from additional paid-in capital to convertible notes on our balance sheet as of January 1, 2022. The reclassification was recorded to combine the two legacy units of account into a single instrument classified as a liability. We also recognized a cumulative effect adjustment of $439,857 to accumulated deficit on our balance sheet as of January 1, 2022, 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 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 March 31, 2022. As of the three months ended March 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 three months ended March 31, 2022 and year ended December 31, 2021, 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 that became convertible, including the notes issued in prior years, during the three months ended March 31, 2022 amounted to $57,883 recognized as a derivative loss.

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

The aggregate loss on derivatives during the three months ended March 31, 2022 and 2021 was $57,883 and $185,256, respectively.

NOTE 10: NOTES PAYABLE

Notes payable consists of the following:

During the three months ended March 31, 2022 and 2021, the Company recognized interest expense of $56,457 and $17,170, and amortization of debt discount, included in interest expense of $387,766 and $469,471, respectively.

During the three months years ended March 31, 2022 and 2021, the Company issued a total of $682,400 and $2,800,191, less discount of $243,540 and $471,610, and repaid $972,853 and $1,256,591, 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 March 31, 2022, and based on that assessment there are no probable loss contingencies requiring accrual or establishment of a reserve.

DMB Note Collection Action

On June 17, 2021, DMB Group, LLC (“DMB”) filed a lawsuit against Data443 Risk Mitigation, Inc., a North Carolina corporation, the Company’s wholly-owned subsidiary (the “Subsidiary”), in County Court in Denton County, Texas, naming the Subsidiary as the defendant (the “Complaint”). The matter was settled on September 2021 by mutual agreement of the involved parties. The Subsidiary has made all payments and the matter is now considered closed.

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.

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

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

As of March 31, 2022, the Company is authorized to issue 337,500 shares of preferred stock with a par value of $0.001, of which 150,000 shares have been designated as Series A, and 80,000 shares have been designated as Series B.

Series A Preferred Stock

As of March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, 0 and 29,750 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 three months ended March 31, 2022, the Company issued 7,875 shares of Series B preferred stock for $78,750, less $3,750 financing fees

During the three months ended March 31, 2022, the Company redeemed 37,625 shares of series B preferred stock for $487,730.

During the three months ended March 31, 2022, the Company recorded accrued dividend of $104,631, and amortization of debt discount, included in interest expense of $22,439.

Common Stock

As of March 31, 2022, 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 March 31, 2022 and December 31, 2021, respectively, was 148,367 and 122,044 shares, respectively.

During the three months ended March 31, 2022, the Company issued common stock as follows:

Warrants

A summary of activity during the three months ended March 31, 2022 follows:

During the three months ended March 31, 2022, 7,567 warrants were exercised with cashless and the Company issued 6,631 shares of common stock.

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

NOTE 13: SHARE-BASED COMPENSATION

Stock Options

During the three months ended March 31, 2022, 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 three months ended March 31, 2022:

The following summarizes certain information about stock options vested and expected to vest as of March 31, 2022:

As of March 31, 2022 and December 31, 2021, there was $110,006 and $381,547, respectively, of total unrecognized compensation cost related to non-vested share-based compensation arrangements which is expected to be recognized within the next year.

Restricted Stock Awards

The following summarizes the restricted stock activity for the three months ended March 31, 2022:

NOTE 14: 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.

On September 16, 2019, the Company entered into an Asset Purchase Agreement with DMBGroup, LLC (“DMB Group”). A significant part of the purchase price was in the form of the Company’s common stock. As a direct result of this transaction and the Company’s common stock issued to DMB Group, we determined that DMB Group was a related party. Amounts owed to DMBGroup, including the note payable of $940,000 and member loans of $97,689 were recorded as amounts due to a related party. During the three months ended March 31, 2022, the Company repaid note payable of $124,985 including interest expense of $1,240. As of March 31, 2022 and December 31, 2021, the Company had recorded a liability to DMBGroup totaling $0 and $123,745, respectively.

During the three months ended March 31, 2022, the Company repaid $43 to our CEO.

As of March 31, 2022 and December 31, 2021, the Company had due to related party of $123,578 and $247,366, respectively.