NOTES PAYABLE

9 Months Ended

Sep. 30, 2024

NOTE 9: NOTES PAYABLE

Notes payable consists of the following:

SCHEDULE OF NOTES PAYABLE

	September 30, 2024			December 31, 2023			Maturity	Interest Rate
Economic Injury Disaster Loan - originated in May 2020	$	500,000		$	500,000		30 years		3.75	%
Promissory note - originated in February 2021		1,305,373			1,305,373		5 years		4.0	%
Promissory note - originated in April 2021 ⁽¹⁾		676,693			676,693		1 year		12	%
Promissory note - originated in July 2021 ⁽¹⁾		282,000			282,000		1 year		12	%
Promissory note - originated in September 2021		23,819			31,758		$1,383.56 monthly payment for 60 months		28	%
Promissory note - originated in April 2022		44,792			57,577		$1,695.41 monthly payment for 36 months		16.0	%
Promissory note - originated in April 2022		-			47,392		$7,250 daily payment for 168 days		25	%
Promissory note - originated in July 2022		34,597			43,579		$1,485.38 monthly payment for 60 months		18	%
Promissory note - originated in July 2022		42,848			67,333		$3,546.87 monthly payment for 36 months		10	%
Promissory note - originated in August 2022		16,969			20,797		$589.92 monthly payment for 60 months		8	%
Promissory note - originated in October 2022		824,032			1,081,032		$1,749.00 daily payment for 30 days		66	%
Promissory note - originated in January 2023		2,830			4,328		$237.03 monthly payment for 36 months		25	%
Promissory note - originated in March 2023		38,651			47,570		$1,521.73 monthly payment for 60 months		18	%
Promissory note - originated in March 2023		7,836			11,754		$559.25 monthly payment for 36 months		17	%
Promissory note - originated in April 2023		21,115			24,634		$3,999.00 monthly payment for 12 months		12	%
Promissory note - originated in April 2023		23,054			33,054		$3,918.03 monthly payment for 12 months		6	%
Promissory note - originated in May 2023 ⁽²⁾		75,000			322,000		3 months		29	%
Promissory note - originated in September 2023		285,480			394,444		12 months		18	%
Promissory note - originated in August 2023		11,371			15,895		36 months		14	%
Promissory note - originated in December 2023		1,145,882			1,145,882		12 months		10	%
		5,362,342			6,113,095
Less debt discount and debt issuance cost		(585,552	)		(1,053,637	)
		4,776,790			5,059,458
Less current portion of promissory notes payable		3,239,410			3,704,326
Long-term promissory notes payable	$	1,537,380		$	1,355,132

During the nine months ended September 30, 2024 and 2023, we recognized interest expense of $887,355 and $313,069, and amortization of debt discount, included in interest expense of $468,085 and $695,011, respectively.

During the three months ended September 30, 2024 and 2023, we recognized interest expense of $118,352 and $76,962, and amortization of debt discount, included in interest expense of $100,631 and $215,065, respectively

During the nine months ended September 30, 2024 and 2023, we issued promissory notes for a total of $-0- and $1,617,868, less discount of $-0- and $1,671,868, and repaid $739,753 and $205,737, respectively.

During the three months ended September 30, 2024 and 2023, we issued promissory notes for a total of $0 and $18,096, less discount of $0 and $18,096, and repaid $169,503 and $205,737, respectively.

Slate Advance Agreement

In March 2023 we entered into an agreement (the “Slate Agreement”) with Slate Advance (“Slate”) pursuant to which we sold $1,482,000 in future receivables (the “Slated Receivables Purchased Amount”) to Slate in exchange for payment to the Company of $975,000 in cash less fees of $40,325. The Company agreed to pay Slate at maximum of $14,999 each day until the Slate Receivables Purchased Amount is paid in full. The term of the Slate Agreement is indefinite. There is no stated interest rate. We recorded the difference between the purchase price and the receivable purchase as a debt discount. The debt discount balance is amortized as payments are made and recorded as interest expense.

In order to secure payment and performance of the Company’s obligations to Slate under the Slate Agreement, the Company granted to Slate a security interest in the following collateral: all accounts receivable and all proceeds as such term is defined by Article 9 of the UCC. We also agreed not to create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of such collateral.

We analyzed the transaction under the guidance of ASC 470-60 Troubled Debt Restructuring to determine if the transaction qualified as a troubled debt restructuring. For a debt restructuring to be considered troubled, the debtor must be experiencing financial difficulty, and the creditor must have granted a concession. We analyzed the Slate Transaction under ASC 470-60 and determined that we met one of the definitions of a company experiencing financial difficulty, such as currently in default of any of our debts. As we are not in default, the fair value of the debt has not changed, we did not recognize gain or loss as the fair value has not changed, and the future undiscounted cash flows are not greater or smaller than the carrying value, the creditor has not granted any concessions. We believe that the debt does not fall into the troubled debt restructuring guidance since no concessions were granted by the creditor.

Westland Properties, LLC

Effective September 1, 2023, the Company exchanged its convertible promissory note originally issued on December 21, 2021 in the amount of $555,555 in favor of Westland Properties, LLC for the issuance of a new promissory note issued in favor of Westland Properties, LLC in the amount of $665,000 (the “Exchange Note”). The original convertible Note was cancelled as a result of the exchange and the issuance of the Exchange Note. Terms of the Exchange Note include, without limitation, the following:

	a.	Principal balance of $665,000, interest rate of 3%, default interest rate of 18%;

	b.	$115,000 on or prior to July 25, 2023;

	c.	A series of nine (9) monthly payments to the Holder in the amount of $38,889 with the first payment beginning September 1, 2023 with the final payment to be adjusted for any interest; and

	d.	$200,000 on the earlier of (i) three (3) business days following the Company’s successful listing (“Uplisting”) on any of the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange or (ii) the receipt of not less than $4,000,000 in funding from a single transaction (in either event an “Uplist Payment”)

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

In addition to exchanging the original Note, Westland Properties, LLC forgave $4,724,299 in default accrued interest and interest of $179,782.

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 $2,900,000 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. The Company is in default of the promissory note. The Company and Centurion are in ongoing discussions concerning the outstanding balance. Centurion has not threatened any legal action against the Company.

Cyren Asset Purchase Agreement – Earnout Payable

On May 15, 2023 we entered into an agreement to purchase certain assets (the “Cyren Assets”) of Cyren Ltd. (“Cyren”) a company that provided emerging and high-volume risk mitigation services for some of the world’s largest name brand organizations prior to its bankruptcy filing in February 2023. Pursuant to a purchase agreement, the appointed receiver for the Cyren Assets (the “Receiver”) agreed to sell, transfer, assign, convey and deliver to us, and we agreed to purchase from the Receiver, all right, title, and interest in and to the Cyren Assets, as further described in the purchase agreement, as amended on December 12, 2023 (as so amended, the “Purchase Agreement”). On December 15, 2023 we closed the transaction.

As part of the Purchase Agreement, the Company recorded a liability for the balance of the Earnout amount that is still outstanding, $1,145,882, list above the notes payable section. The Company is in default of the outstanding Earnout amount stated above. As a result of the default on August 9, 2024, Plaintiff Guy Gissin, Adv., in his capacity as the Appointed Receiver for the Assets of Cyren Ltd. (“Plaintiff’) filed a lawsuit against Data443 Risk Mitigation, Inc., a North Carolina corporation, the Company’s wholly-owned subsidiary (the “Subsidiary”), in US District Court Eastern District of North Carolina, 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. Based on the early stages of the Complaint, and the inherent uncertainty as to the outcome, at this time, the Company is not able to reasonably estimate a possible range of loss.

Data443 Risk Mitigation, Inc. 10-Q