10-Q: Data443 Risk Mitigation Reports Q3 2024 Results, Revenue Up 65% Year-Over-Year

Data443 Risk Mitigation, Inc. reports a 65% increase in revenue for the third quarter of 2024 compared to the same period last year, alongside a reduced net loss.

Summary

• Data443 Risk Mitigation, Inc. reported a net loss of $1,281,999 for the three months ended September 30, 2024, compared to a net loss of $1,979,676 for the same period in 2023.
• The company's revenue increased by 65% to $1,146,937 for the third quarter of 2024, up from $693,835 in the third quarter of 2023.
• Gross profit for the quarter was $774,286, a 54% increase from $503,410 in the prior year.
• Operating expenses totaled $1,588,932 for the quarter, a 6% increase from $1,505,454 in the same period last year.
• For the nine months ended September 30, 2024, the company's net loss was $4,421,955, compared to a net loss of $2,628,029 for the same period in 2023.
• Revenue for the nine months ended September 30, 2024, increased by 41% to $3,807,080, up from $2,692,681 in the prior year.
• The company's gross profit for the nine months was $2,014,400, a slight decrease from $2,048,393 in the prior year.
• Operating expenses for the nine months totaled $4,143,145, an 11% decrease from $4,638,315 in the same period last year.
• The company has a working capital deficiency of $15,974,728 as of September 30, 2024.

Sentiment

Score: 4

Explanation: The document presents mixed signals. While there is strong revenue growth, the company is still experiencing significant losses, has a large working capital deficiency, and faces material weaknesses in internal controls. The company's reliance on debt and the risk of default are also concerning. The sentiment is therefore cautiously negative.

Positives

• The company experienced a significant increase in revenue, with a 65% jump in Q3 2024 compared to the same period last year.
• Gross profit also saw a substantial increase of 54% in Q3 2024.
• The net loss decreased by 35% in Q3 2024, indicating improved financial performance.
• Operating expenses decreased by 11% for the nine months ended September 30, 2024, showing cost control efforts.
• The transition to an all-remote working environment is expected to result in significant annual savings of over $385,000.

Negatives

• The company continues to operate with a significant working capital deficiency of $15,974,728.
• The company's net loss for the nine months ended September 30, 2024, increased by 68% compared to the same period in 2023.
• The company has material weaknesses in its internal control over financial reporting.
• The company is in default on several convertible notes payable and promissory notes.
• The company is facing a lawsuit related to the acquisition of Cyren assets.

Risks

• The company has a substantial working capital deficiency and may not be able to secure additional funding on acceptable terms.
• There is substantial doubt about the company's ability to continue as a going concern.
• The company faces intense competition in its market and may lack sufficient resources to maintain its competitive position.
• The company is dependent on the continued services of its CEO, Jason Remillard.
• The company's common stock is thinly traded, which may reduce the ability to liquidate investments.
• The company has a history of losses and may incur future losses, which may prevent it from attaining profitability.
• The company has material weaknesses in its internal control over financial reporting, which could lead to misstatements in financial reports.
• The company is in default on several debt obligations, which could lead to legal action and further financial strain.
• The company is facing a lawsuit related to the Cyren asset acquisition, which could result in significant financial liabilities.

Future Outlook

The company aims to further integrate its suite of data security, ransomware protection, and privacy products, offering them directly and through partner channels. They intend to pursue acquisitions, increase R&D spending, grow their customer base, and expand their sales capacity. The company also plans to continue onboarding to cloud-native technology adoption portals.

Management Comments

• Management plans to continue growing the business through strategic acquisitions and expanding sales across subsidiaries.
• Management anticipates incurring costs related to filing Exchange Act reports and operating the business.
• Management acknowledges the need to raise additional capital through debt or equity financing.
• Management uses booked revenues as an internal measure to track contract value growth and other indicators.
• Management believes the Cyren acquisition enhances the company's product portfolio and accelerates the development of next-generation solutions.

Industry Context

The company operates in the data security and privacy management sector, which is experiencing increased demand due to the growing threat landscape and complex data privacy regulations. The company's focus on cloud security and ransomware protection aligns with current industry trends. The acquisition of Cyren assets is a strategic move to enhance its product offerings and competitive position.

Comparison to Industry Standards

• While the document does not provide specific industry benchmarks, the company's revenue growth of 65% in Q3 2024 is significant and suggests strong market demand for its products.
• However, the company's continued net losses and working capital deficiency are concerning and indicate a need for improved financial management.
• The company's focus on cloud security and ransomware protection aligns with industry trends, but its financial performance lags behind some established players in the sector.
• Companies like CrowdStrike, Palo Alto Networks, and Okta are examples of established cybersecurity firms with strong financial performance and market presence, which Data443 is not yet comparable to.
• The company's reliance on debt financing and convertible notes is a common practice for early-stage tech companies, but the high interest rates and default risks are a concern.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in routine legal proceedings incidental to its business.
• The company's subsidiary is facing a lawsuit filed by the Appointed Receiver for the Assets of Cyren Ltd. related to the Cyren asset purchase agreement.

Related Party Transactions

• During the nine months ended September 30, 2024, the company borrowed $0 from its CEO, the CEO paid operating expenses of $214,165 on behalf of the company, and the company repaid $302,939 to the CEO.
• As of September 30, 2024, the company had $253,663 due to related party transactions.

Stakeholder Impact

• Shareholders face the risk of dilution due to potential equity financing and the risk of loss due to the company's financial challenges.
• Employees may be impacted by the company's cost-cutting measures, including the transition to an all-remote working environment.
• Customers may benefit from the company's expanded product offerings and improved technology, but may also be concerned about the company's financial stability.
• Creditors face the risk of default on outstanding debt obligations.

Next Steps

• The company plans to continue growing through strategic acquisitions.
• The company intends to increase spending on research and development.
• The company aims to expand its customer base and sales capacity.
• The company will need to raise additional capital through debt or equity financing.
• The company is working to remediate material weaknesses in internal control over financial reporting.

Key Dates

Keywords

Data Security, Cybersecurity, Ransomware Protection, Data Privacy, Financial Results, Software, Cloud Security, Threat Intelligence, Data Management, Compliance