10-Q: DATA443 Reports Q3 Loss, Cites Going Concern Doubts

DATA443 Risk Mitigation, Inc. reported a reduced net loss for the nine months ended September 30, 2025, but continues to face substantial doubt about its ability to continue as a going concern.

Summary

• Net loss significantly decreased by 64% to $1,597,069 for the nine months ended September 30, 2025, compared to $4,421,955 in the prior year.
• Gross profit increased by 26% to $2,541,870, with gross profit percentage rising from 53% to 73%.
• Revenue decreased by 8% to $3,497,748 for the nine months ended September 30, 2025, primarily due to a lack of catch-up invoicing from Cyren Engine products and multi-year renewals.
• Operating expenses decreased by 16% to $3,474,610, driven by significant cost-saving efforts in general and administrative expenses and changes in sales and marketing staffing.
• The company has a working capital deficiency of $16,783,188 and an accumulated deficit of $63,341,087 as of September 30, 2025.
• Cash balance decreased to $49,086 as of September 30, 2025, from $168,208 at December 31, 2024.
• Numerous convertible notes payable are in default, with some incurring default interest rates of up to 24%.
• Issued 354,685,648 shares of common stock for conversion of debt and 127,832,600 shares for exercised cashless warrants during the nine months ended September 30, 2025.
• Subsequent to the reporting period, issued additional common stock totaling 80,395,200 shares to Auctus Fund, LLC via cashless warrant agreements.
• A new convertible note for $92,400 was issued on October 30, 2025, with a 12% annual interest rate and a conversion price based on a 39% discount to the lowest trading price.

Sentiment

Score: 3

Explanation: While the company reduced its net loss and improved gross profit percentage, the persistent 'going concern' doubt, significant working capital deficiency, declining cash balance, and numerous defaulted convertible notes indicate severe financial distress. The heavy reliance on dilutive equity issuances to manage debt further dampens sentiment, despite strategic growth plans.

Positives

• Net loss decreased significantly by 64% for the nine months ended September 30, 2025, to $1,597,069.
• Gross profit increased by 26% to $2,541,870, with the gross profit percentage improving from 53% to 73%.
• Operating expenses decreased by 16% due to significant cost-saving efforts.
• Organic growth observed in increased consumption of services with storage or volume components, contributing to Annual Recurring Revenue (ARR) growth.
• Successful integration of Cyren Assets led to reduced operating footprint and cost savings.

Negatives

• Substantial doubt about the ability to continue as a going concern due to significant current period losses, negative working capital, and an accumulated deficit.
• Revenue decreased by 8% for the nine months ended September 30, 2025, to $3,497,748.
• Cash balance significantly decreased to $49,086 as of September 30, 2025, from $168,208 at December 31, 2024.
• Working capital deficiency remains high at $16,783,188.
• Accumulated deficit increased to $63,341,087.
• Multiple convertible notes payable are in default, some with high default interest rates (e.g., 16%, 18%, 22%, 24%).
• Significant dilution from the issuance of 354,685,648 shares for debt conversion and 127,832,600 shares for cashless warrants during the nine months ended September 30, 2025.
• Further dilution from subsequent issuance of 80,395,200 shares to Auctus Fund, LLC.

Risks

• Need for additional capital to fund operations.
• Substantial doubt about the ability to continue as a going concern.
• Intense competition in the market and potential lack of sufficient financial and other resources to maintain and improve competitive position.
• Dependence on the continued services and performance of the founder and CEO, Jason Remillard.
• Common stock is quoted on the OTC Pink and is thinly traded, reducing liquidity for investors.
• History of losses and potential for future losses, preventing profitability.
• Volatility in the market price of common stock, potentially disproportionate to operating performance.
• Preferred stock has special rights that could limit corporate transactions, inhibit changes of control, and reduce proceeds for common stockholders.
• No intention to pay cash dividends.
• CEO has voting control over all matters submitted to stockholders for approval, limiting other stockholders' influence.
• Material weaknesses and significant deficiencies in internal control over financial reporting, including lack of controls for data completeness/accuracy, no written documentation of policies, insufficient segregation of duties, and no functioning audit committee or outside directors.

Future Outlook

The company aims to further integrate its suite of data security, ransomware protection, and privacy products, offering them individually or in combination to enterprise customers directly and through partner channels. It plans to capitalize on increasing demand for data security solutions by continually developing and curating attractive products and expanding its sales force, with a focus on organizations with 500+ users adopting cloud services. Strategic acquisitions of other cybersecurity software and service providers are also a key element of the growth strategy.

Management Comments

• "Our objective is to further integrate our suite of data security, ransomware protection, and privacy products and offer the products alone or in combination to enterprise customers directly and via our partner channels."
• "We aim to position our products to meet the challenges our customers face data privacy concerns grow in lockstep with security breaches, the need to continually expand data storage, and to meet telework, telehealth, and remote learning requirements."
• "We intend to aggressively pursue acquisitions of other cybersecurity software and service providers focused on the data security sector."
• "We intend to increase our spending on research and development to create new and innovative products and to improve existing products, proactively identifying and solving the data security needs of our clients."
• "We believe that continuing to expand our sales force will be essential to achieving our expansion and growth."
• "Our plan is to continue to grow our business through strategic acquisitions, and then expand selling across our subsidiaries and affiliated companies."
• "We will require additional operating capital to maintain and continue operations. We will need to raise additional capital through debt or equity financing, and there is no assurance we will be able to raise the necessary capital."

Industry Context

The company operates in the growing cybersecurity and data privacy management sector, driven by increasing ransomware attacks, complex data privacy regulations (e.g., GDPR, CCPA, LGPD), and accelerated cloud adoption. Its strategy of offering comprehensive solutions across cloud, on-premises, and hybrid environments, along with strategic acquisitions like Cyren, positions it to address these evolving market demands. The focus on organizations with 500+ users and leveraging cloud-native technology adoption portals (Microsoft Azure Marketplace, Amazon AWS Marketplace) aligns with current enterprise IT trends.

Management Changes

Corporate Governance

Legal Proceedings

• Not currently a party to any material litigation.
• Involved in routine litigation incidental to the business (intellectual property, employees, commercial matters), but management believes ultimate liability would not have a material adverse effect.

Related Party Transactions

• Jason Remillard, CEO and sole director, holds Series A Preferred Shares, giving him voting control.
• During the nine months ended September 30, 2025, the CEO paid $80,304 in operating expenses on behalf of the company, and the company repaid $113,055 to the CEO.
• As of September 30, 2025, $73,142 was due to related parties.

Stakeholder Impact

• Shareholders: Significant dilution from ongoing common stock issuances for debt conversion and cashless warrants. Risk of further dilution due to need for additional capital. CEO's voting control limits influence of other shareholders. Potential for share price volatility due to financial distress and OTC Pink listing.
• Creditors: Multiple convertible notes are in default, indicating elevated credit risk. The company's going concern doubt increases the risk of non-payment or restructuring.
• Employees: The company's financial instability and need for cost-saving efforts could impact job security or compensation.
• Customers: While the company aims to expand offerings and improve service, financial instability could raise concerns about long-term viability and service continuity.

Next Steps

• Further integrate the suite of data security, ransomware protection, and privacy products.
• Expand sales capacity by adding sales and marketing employees, focusing on customer success and existing relationships.
• Increase spending on research and development to create new and improve existing products.
• Aggressively pursue acquisitions of other cybersecurity software and service providers.
• Raise additional debt or equity financing to fund operations and growth.
• Complete the Centurion SmartShield acquisition (expected in 2025).
• Remediate identified material weaknesses in internal control over financial reporting, including appointing independent directors and an audit committee, using third-party specialists, and commissioning frequent reconciliations.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a "substantial doubt about its ability to continue as a going concern," a critically low cash balance of $49,086, and a massive working capital deficiency of over $16.7 million. Numerous convertible notes are in default, some with high default interest rates, indicating an unsustainable debt load. While the net loss decreased, this was largely due to cost-cutting and reduced interest expense, not robust revenue growth, which actually declined. The ongoing and significant dilution from common stock issuances for debt conversion and cashless warrants severely erodes shareholder value. Furthermore, identified material weaknesses in internal controls and a lack of independent board oversight present significant governance risks. Given these compounding factors, the company's long-term viability is highly questionable, making it a strong sell for investors.

Keywords

DATA443 Risk Mitigation, SEC 10-Q, Quarterly Report, Financial Results, Net Loss, Gross Profit, Operating Expenses, Going Concern, Convertible Notes, Debt Default, Stock Dilution, Cybersecurity, Data Security, Privacy Management, Cloud Security, Ransomware Recovery, Intellectual Property, Internal Controls, Capital Raise, Jason Remillard, Auctus Fund