10-Q: Data443 Risk Mitigation Reports Increased Q1 Revenue but Net Loss Widens

Data443 Risk Mitigation, Inc. reports a revenue increase for Q1 2024, driven by the Cyren acquisition, but faces a larger net loss due to higher costs and interest expenses.

Summary

• Data443 Risk Mitigation, Inc. reported its financial results for the quarter ended March 31, 2024.
• Revenue increased by 10% to $1,511,058 compared to $1,379,806 in the same period last year, primarily due to the acquisition of assets from Cyren Ltd.
• The company's cost of revenue significantly increased by 193% to $612,958, up from $208,982 in the prior year, attributed to data center costs from the Cyren acquisition.
• Operating expenses rose slightly by 2% to $1,458,413.
• The net loss attributable to common stockholders widened to $1,629,159, compared to $737,893 in the same quarter of the previous year.
• Basic and diluted loss per share was $(5.34) compared to $(100.97) for the same period in 2023.
• The company had a working capital deficiency of $(14,318,754) as of March 31, 2024.
• The company's management expresses substantial doubt about its ability to continue as a going concern.
• The company is pursuing strategic acquisitions and organic growth to improve its financial position.

Sentiment

Score: 3

Explanation: The document presents a mixed picture with increased revenue offset by a larger net loss and concerns about the company's ability to continue as a going concern. The presence of material weaknesses in internal control further dampens the sentiment.

Positives

• Revenue increased by 10% year-over-year, reaching $1,511,058, driven by the Cyren acquisition.
• The company is pursuing strategic acquisitions and organic growth to improve its financial position.
• The company is offering and closing deals based on professional services consulting to further enable our technological capabilities within our existing customer base.

Negatives

• The net loss for Q1 2024 widened to $1,629,159, compared to $737,893 in Q1 2023.
• Cost of revenue increased by 193% due to data center costs associated with the Cyren acquisition.
• The company's management expresses substantial doubt about its ability to continue as a going concern.
• The company had a working capital deficiency of $(14,318,754) as of March 31, 2024.
• The company did not have controls designed to validate the completeness and accuracy of underlying data used in the determination of accounting transactions.
• The company does not have written documentation of its internal control policies and procedures.
• The company does not have sufficient segregation of duties within accounting functions, which is a basic internal control.
• The company does not have a functioning audit committee or outside directors on its board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.

Risks

• The company's management expresses substantial doubt about its ability to continue as a going concern.
• The company will need additional capital to fund its operations.
• The company faces intense competition in its market.
• The company is dependent on the continued services and performance of its founder and Chief Executive Officer, Jason Remillard.
• The company's common stock is currently quoted on the OTC Pink and is thinly traded, reducing your ability to liquidate your investment in us.
• The company has had a history of losses and may incur future losses, which may prevent us from attaining profitability.
• The market price of the company's common stock may be volatile and may fluctuate in a way that is disproportionate to our operating performance.
• The company has shares of preferred stock that have special rights that could limit our ability to undertake corporate transactions, inhibit potential changes of control, and reduce the proceeds available to our common stockholders in the event of a change in control.
• The company has never paid and does not intend to pay cash dividends.
• The company's Chief Executive Officer has the ability to control all matters submitted to stockholders for approval, which limits our stockholders ability to influence corporate affairs.

Future Outlook

The company aims to further integrate its suite of data security, ransomware protection, and privacy products and offer them to enterprise customers directly and via partner channels, positioning its products to meet the challenges of data privacy, security breaches, data storage expansion, and remote work requirements.

Management Comments

• Management expresses substantial doubt about the company's ability to continue as a going concern.
• Management plans to continue to grow the business through strategic acquisitions, and then expand selling across our subsidiaries and affiliated companies.

Industry Context

The company operates in the data security and privacy management solutions market, which is experiencing increased demand due to the rising threat of ransomware and evolving data privacy regulations.

Comparison to Industry Standards

• The document does not provide enough information to make a detailed comparison to industry standards.
• Without specific benchmarks or competitor data, it's difficult to assess Data443's performance relative to industry peers.
• Companies like Palo Alto Networks, CrowdStrike, and Okta are key players in the cybersecurity space, but a direct comparison would require more granular data on Data443's specific product lines and customer segments.

Related Party Transactions

• During the three months ended March 31, 2024, the Company borrowed $0 from our CEO, our CEO paid operating expenses of $ 52,780 on behalf of the Company and the Company repaid $ 78,100 to our CEO.
• As of March 31, 2024 and December 31, 2023, we had due to related party transactions in the amounts of $ 316,118 and $ 341,437 , respectively.

Stakeholder Impact

• Shareholders face increased risk due to the company's financial instability and potential dilution from future equity offerings.
• Employees may experience uncertainty due to the company's going concern status.
• Customers may be concerned about the long-term viability of the company and its ability to provide ongoing support and services.
• Creditors face increased risk of non-payment due to the company's financial difficulties.

Next Steps

• The company intends to aggressively pursue acquisitions of other cybersecurity software and service providers focused on the data security sector.
• The company intends to increase its 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.
• The company intends to capitalize on this demand by continually developing and curating a collection of products and services that are attractive and relevant to both our established revenue base and to new customers.
• The company intends to expand its sales capacity by adding sales and marketing employees, with heavy focus on customer success and leveraging our existing customer relationships.

Key Dates

Keywords

Data443, Risk Mitigation, Financial Results, Q1 2024, Revenue, Net Loss, Cyren Acquisition, Going Concern, Debt, Equity, Data Security, Privacy Management