Company Quick10K Filing
BlackRidge Technology
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 97 $23
10-Q 2019-11-14 Quarter: 2019-09-30
10-Q 2019-08-14 Quarter: 2019-06-30
10-Q 2019-05-15 Quarter: 2019-03-31
10-K 2019-04-15 Annual: 2018-12-31
10-Q 2018-11-14 Quarter: 2018-09-30
10-Q 2018-08-14 Quarter: 2018-06-30
10-Q 2018-05-15 Quarter: 2018-03-31
10-K 2018-04-02 Annual: 2017-12-31
10-Q 2017-11-14 Quarter: 2017-09-30
10-Q 2017-08-14 Quarter: 2017-06-30
10-Q 2017-05-15 Quarter: 2017-03-31
10-K 2017-04-14 Annual: 2016-12-31
10-Q 2016-11-14 Quarter: 2016-09-30
10-Q 2016-08-15 Quarter: 2016-06-30
10-Q 2016-05-20 Quarter: 2016-03-31
10-K 2016-03-30 Annual: 2015-12-31
10-Q 2015-11-16 Quarter: 2015-09-30
10-Q 2015-08-14 Quarter: 2015-06-30
10-Q 2015-05-13 Quarter: 2015-03-31
10-K 2015-03-31 Annual: 2014-12-31
10-Q 2014-11-18 Quarter: 2014-09-30
10-Q 2014-08-14 Quarter: 2014-06-30
10-Q 2014-05-20 Quarter: 2014-03-31
10-K 2014-03-31 Annual: 2013-12-31
10-Q 2013-11-14 Quarter: 2013-09-30
10-Q 2013-08-14 Quarter: 2013-06-30
10-Q 2013-05-15 Quarter: 2013-03-31
10-K 2013-04-15 Annual: 2012-12-31
10-Q 2012-11-14 Quarter: 2012-09-30
10-Q 2012-08-14 Quarter: 2012-06-30
10-Q 2012-05-15 Quarter: 2012-03-31
10-K 2012-03-30 Annual: 2011-12-31
10-Q 2011-11-10 Quarter: 2011-09-30
10-Q 2011-08-12 Quarter: 2011-06-30
10-Q 2011-05-13 Quarter: 2011-03-31
10-K 2011-03-31 Annual: 2010-12-31
10-Q 2010-11-09 Quarter: 2010-09-30
10-Q 2010-08-13 Quarter: 2010-06-30
8-K 2019-05-29 Other Events, Exhibits
8-K 2019-01-08 Other Events, Exhibits
8-K 2018-08-23 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-05-17 Officers, Other Events, Exhibits
8-K 2018-01-29 Accountant, Exhibits
BRTI 2019-09-30
Part I - Financial Information
Item 1. Financial Statements.
Note 1 - Organization and Summary of Significant Accounting Policies
Note 2 -Going Concern
Note 3 - Intangible Assets
Note 4 - Notes Payable
Note 5 - Convertible Notes
Note 6 - Commitments and Contingencies
Note 7 ‑ Related Party Transactions
Note 8 ‑ Stockholders' Equity
Note 9 - Share Based Compensation
Note 10 - Warrants
Note 11 - Earnings (Loss) per Share
Note 12 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 exh10_1.htm
EX-10.2 exh10_2.htm
EX-10.3 exh10_3.htm
EX-10.4 exh10_4.htm
EX-10.5 exh10_5.htm
EX-31.1 exh31_1.htm
EX-31.2 exh31_2.htm
EX-32.1 exh32_1.htm
EX-32.2 exh32_2.htm

BlackRidge Technology Earnings 2019-09-30

BRTI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
LCTC 24 9 2 9 4 0 1 23 46% 25.1 4%
SRMC 24 12 3 17 13 0 1 22 78% 32.4 1%
ZNRG 24 1 2 1 0 -3 -3 24 14% -7.3 -336%
DOTA 24 59 54 0 0 -0 -0 24 -218.6 -0%
BCDA 23 3 5 0 -0 -15 -15 23 -7% -1.6 -538%
BRTI 23 11 19 0 0 -26 -14 23 95% -1.6 -242%
BHAC 23 9 4 0 0 -2 -2 14 -6.7 -22%
PVCT 23 3 24 0 0 -7 -6 22 -3.6 -261%
NUKK 23 0 1 19 0 -0 -0 23 2% -46.5 -136%
ASDN 23 0 0 -9 -8 23 -3.0 850,352,200%

10-Q 1 blackridge.htm 10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

  X . QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to____________

Commission File Number: 000-53661

BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC.
(Exact name of issuer as specified in its charter)

Nevada
20-1282850
(State or Other Jurisdiction of incorporation or organization)
(I.R.S. Employer I.D. No.)

5390 Kietzke Lane, Suite 104
Reno, NV 89511
(Address of Principal Executive Offices)

(855) 807-8776
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
     

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X   No ☐    .

Indicate by checkmark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes X . No   ☐   .

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 ☐     .
Accelerated filer
  ☐   .
Non-accelerated filer
 X .
Smaller reporting company
  X .
Emerging growth company
 X ..
   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.       . .

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No X .

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class
Outstanding as of November 14, 2019
Common Stock, $0.001 par value per share
100,209,188 shares


CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, contain “forward-looking statements” that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions including, without limitation, statements regarding (i) our ability to raise capital, and (ii) our ability to establish and grow our business and other statements preceded by, followed by or that include the words “may,” “would,” “could,” “should,” “expects,” “projects,” “anticipates,” “believes,” “estimates,” “plans,” “intends,” “targets” or similar expressions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended.

Readers are cautioned that forward-looking statements also involve numerous inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following: general economic or industry conditions, nationally and/or in the areas in which we may conduct business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting our current or potential business and related matters.

Accordingly, readers are cautioned that results actually achieved may differ materially from expected results in these statements. Forward-looking statements speak only as of the date they are made. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements, except as required by law.

TABLE OF CONTENTS

PART I - Financial Information
 
   
Item 1.  Financial Statements (Unaudited)
Page
     
 
Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
 F-2
     
 
Condensed Consolidated Statements of Operations for the Three and nine Months Ended September 30, 2019 and 2018
 F-3
     
 
Condensed Consolidated Statements of Changes in Stockholders’ Equity For the Nine Months Ended September 30, 2019 and 2018
 F -4
     
 
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended September 30, 2019 and 2018
 F- 5
     
 
Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2019 and 2018
 F -6
     
 
Notes to Condensed Consolidated Financial Statements
 F -7
     
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations 
 1
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk 
 8
   
Item 4.  Controls and Procedures 
 8
   
 PART II - Other Information 
 
   
Item 1.  Legal Proceedings 
 9
   
Item 1A.  Risk Factors 
 9
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 
 9
   
Item 3.  Defaults upon Senior Securities 
 9
   
Item 4.  Mine Safety Disclosures 
 9
   
Item 5.  Other Information 
 9
   
Item 6.  Exhibits 
 9
   
Signatures 
 10



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Financial Statements  (Unaudited)
Page
   
 
Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018
F-2
     
 
Condensed Consolidated Statements of Operations for the Three and nine Months Ended September 30, 2019 and 2018
F-3
     
 
Condensed Consolidated Statements of Stockholder’s Equity For the Nine Months Ended September 30, 2019 and 2018
F-4
     
 
Condensed Consolidated Statements of Stockholder’s Equity for the Three Months Ended September 30, 2019 and 2018
F-5
     
 
Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2019 and 2018
F-6
     
 
Notes to Condensed Consolidated Financial Statements
F-7

F - 1


BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
September 30,
   
December 31,
 
   
2019
   
2018
 
             
ASSETS
           
Current Assets
           
Cash
 
$
276,167
   
$
4,693,950
 
Accounts receivable
   
269,511
     
102,292
 
Inventory
   
95,013
     
56,003
 
Prepaid expenses
   
220,345
     
122,713
 
Total Current Assets
   
861,036
     
4,974,958
 
                 
Property and equipment, net
   
134,694
     
78,821
 
Intangible assets, net
   
10,369,326
     
8,920,360
 
Total Assets
 
$
11,365,056
   
$
13,974,139
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current Liabilities
               
Accounts payable and accrued expenses
 
$
3,940,261
   
$
2,089,322
 
Accounts payable and accrued expenses – related party
   
367,011
     
9,690
 
Accrued interest
   
739,298
     
714,187
 
Accrued interest – related party
   
208,708
     
177,419
 
Wages payable
   
1,946,241
     
1,928,639
 
Deferred revenue
   
31,434
     
3,535
 
Short-term notes payable
   
45,232
     
45,232
 
Current portion of long term debt
   
66,655
     
366,657
 
Convertible notes, short term, net of discounts
   
17,226,807
     
3,248,746
 
Convertible notes, long term, net of discounts, current portion
   
107,327
     
39,726
 
Convertible notes, short term – related party
   
758,172
     
183,172
 
Total Current Liabilities
   
25,437,146
     
8,806,325
 
                 
Total Liabilities
   
25,437,146
     
8,806,325
 
                 
Stockholders' (Deficit) Equity
               
Preferred Stock A, Par Value $0.001, 48,000,000 shares authorized; 3,577,370 issued and outstanding at September 30, 2019 and December 31, 2018, respectively
   
3,577
     
3,577
 
Preferred Stock B, Par Value $0.001, 2,000,000 shares authorized;  14,000 and none issued and outstanding at September 30, 2019 and December 31, 2018, respectively
   
14
     
-
 
Common Stock, Par Value $0.001, 500,000,000 shares authorized; 99,868,418 and 96,872,725 issued and outstanding at September 30, 2019 and December 31, 2018, respectively
   
99,868
     
96,873
 
Additional paid-in capital
   
76,242,582
     
72,114,707
 
Accumulated deficit
   
(90,418,131
)
   
(67,047,343
)
Total Stockholders' (Deficit) Equity
   
(14,072,090
)
   
5,167,814
 
Total Liabilities and Stockholders' (Deficit) Equity
 
$
11,365,056
   
$
13,974,139
 

See accompanying notes to the unaudited condensed consolidated financial statements.
F - 2

BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
For the
Three Months Ended
   
For the
Nine Months Ended
 
   
September 30,
2019
   
September 30,
2018
   
September 30,
2019
   
September 30,
2018
 
Revenue
 
$
108,811
   
$
74,102
   
$
297,611
   
$
144,116
 
Cost of Goods Sold
   
-
     
8,543
     
819
     
8,593
 
Gross Profit
   
108,811
     
65,559
     
296,792
     
135,523
 
                                 
Operating Expenses
                               
Engineering
   
1,853
     
48,775
     
81,208
     
84,119
 
Sales and Marketing
   
15,303
     
5,620
     
143,192
     
5,774
 
General and Administrative
   
3,572,044
     
3,824,520
     
10,790,247
     
10,254,826
 
Total Operating Expenses
   
3,589,200
     
3,878,915
     
11,014,647
     
10,344,719
 
                                 
Gain (Loss) from Operations
   
(3,480,389
)
   
(3,813,356
)
   
(10,717,855
)
   
(10,209,196
)
                                 
Other Income (Expense)
                               
Loss on extinguishment
   
309,013
     
(511,086
)
   
309,013
     
(606,890
)
Interest Income
   
-
     
-
     
-
     
-
 
Interest (Expense)
   
(4,574,131
)
   
(610,167
)
   
(12,930,657
)
   
(909,611
)
Interest (Expense) - related party
   
(15,370
)
   
(33,758
)
   
(31,289
)
   
(115,722
)
Total Other Income (Expense)
   
(4,280,488
)
   
(1,155,011
)
   
(12,652,933
     
(11,841,419
)
                                 
Net Loss Before Income Taxes
   
(7,760,877
)
   
(4,968,367
)
   
(23,370,788
)
   
(632,223
)
                                 
Income tax
   
-
     
-
     
-
     
-
 
                                 
Net Loss
 
$
(7,760,877
)
 
$
(4,968,367
)
 
$
(23,370,788
)
 
$
(11,841,419
)
                                 
Basic and Diluted loss per share
 
$
(0.08
)
 
$
(0.06
)
 
$
(0.24
)
 
$
(0.15
)
                                 
Weighted Average Shares Outstanding – Basic and Diluted
   
98,259,658
     
83,479,985
     
97,388,301
     
80,888,116
 

See accompanying notes to the unaudited condensed consolidated financial statements.
F - 3

BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

   
Shares
Outstanding – Preferred A
   
Preferred
Stock A
   
Shares
Outstanding – Preferred B
   
Preferred
Stock B
   
Shares
Outstanding - Common
   
Common Stock
   
Additional
Paid-in
Capital
   
Accumulated
Deficit
   
Total
Stockholders’
Deficit
 
Balance as of December 31, 2018
   
3,577,370
   
$
3,577
     
-
   
$
-
     
96,872,725
   
$
96,873
   
$
72,114,707
   
$
(67,047,343
)
 
$
5,167,814
 
                                                                         
Issuance of preferred stock
   
-
     
-
     
14,000
     
14
     
-
     
-
     
349,986
     
-
     
350,000
 
Issuance of common stock for advances
   
-
     
-
     
-
     
-
     
425,000
     
425
     
(425
)
   
-
     
-
 
Issuance of restricted stock for wages
   
-
     
-
     
-
     
-
     
792,435
     
792
     
178,642
     
-
     
179,434
 
Issuance of stock in conjunction with contracts
   
-
     
-
     
-
     
-
     
240,000
     
240
     
57,360
     
-
     
57,600
 
BlackRidge Research equity sales
   
-
     
-
     
-
     
-
     
-
     
-
     
1,983,755
     
-
     
1,983,755
 
Issuance of options for payables
   
-
     
-
     
-
     
-
     
-
     
-
     
7,551
     
-
     
7,551
 
Issuance of stock in conjunction with debt agreements
   
-
     
-
     
-
     
-
     
1,538,258
     
1,538
     
244,328
     
-
     
245,866
 
Issuance of warrants in conjunction with debt agreements
   
-
     
-
     
-
     
-
     
-
     
-
     
100,049
     
-
     
100,049
 
Issuance of options in conjunction with contracts
   
-
     
-
     
-
     
-
     
-
     
-
     
29,270
     
-
     
29,270
 
Issuance of options for wages payable
   
-
     
-
     
-
     
-
     
-
     
-
     
469,906
     
-
     
469,906
 
Share based compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
707,453
     
-
     
707,453
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(23,370,788
)
   
(23,370,788
)
                                                                         
Balance as of September 30, 2019
   
3,577,370
     
3,577
     
14,000
   
$
14
     
99,868,418
     
99,868
     
76,242,582
     
(90,418,131
)
   
(14,072,090
)
Balance as of December 31, 2017
   
3,639,783
     
3,640
     
-
     
-
     
77,063,171
     
77,063
     
51,384,027
     
(49,896,376
)
   
1,568,354
 
                                                                         
Preferred share conversion
   
(45,173
)
   
(45
)
   
-
     
-
     
535,565
     
536
     
(491
)
   
-
     
-
 
Issuance of restricted stock for wages
   
-
     
-
     
-
     
-
     
78,125
     
78
     
24,922
     
-
     
25,000
 
Issuance of stock in conjunction with contracts
   
-
     
-
     
-
     
-
     
5,719,304
     
5,719
     
407,951
     
-
     
413,670
 
Issuance of options in conjunction with contracts
   
-
     
-
     
-
     
-
     
-
     
-
     
85,921
     
-
     
85,921
 
Issuance of stock for debt conversion
   
-
     
-
     
-
     
-
     
4,775,638
     
4,776
     
1,189,134
     
-
     
1,193,910
 
Issuance of stock for wages payable
   
-
     
-
     
-
     
-
     
2,935,818
     
2,936
     
1,024,600
     
-
     
1,027,536
 
Beneficial conversion feature on convertible debt
   
-
     
-
     
-
     
-
     
-
     
-
     
5,726,678
     
-
     
5,726,678
 
Issuance of warrants in conjunction with debt
   
-
     
-
     
-
     
-
     
-
     
-
     
6,250,898
     
-
     
6,250,898
 
Share based compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
708,684
     
-
     
708,684
 
Net loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(11,841,419
)
   
(11,841,419
)
                                                                         
Balance as of September 30, 2018
   
3,594,610
   
$
3,595
     
-
   
$
-
     
91,107,621
   
$
91,108
   
$
66,802,323
   
$
(61,737,795
)
 
$
5,159,231
 

See accompanying notes to the unaudited condensed consolidated financial statements.
F - 4

BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)

   
Shares Outstanding – Preferred A
   
Preferred Stock A
   
Shares Outstanding – Preferred B
   
Preferred Stock B
   
Shares Outstanding - Common
   
Common Stock
   
Additional Paid-in
Capital
   
Accumulated Deficit
   
Subscriptions
Payable
   
Total Stockholders’ Deficit
 
Balance as of June 30, 2019
   
3,577,370
   
$
3,577
     
-
   
$
-
     
97,297,725
   
$
97,298
   
$
74,049,275
   
$
(82,657,254
)
 
$
333,795
   
$
(8,173,309
)
                                                                                 
Issuance of preferred stock
   
-
     
-
     
14,000
     
14
     
-
     
-
     
349,986
     
-
     
(350,000
)
   
-
 
Issuance of restricted stock for wages
   
-
     
-
     
-
     
-
     
792,435
     
792
     
178,642
     
-
     
-
     
179,434
 
Issuance of stock in conjunction with contracts
   
-
     
-
     
-
     
-
     
240,000
     
240
     
57,360
     
-
     
-
     
57,600
 
BlackRidge Research equity sales
   
-
     
-
     
-
     
-
     
-
     
-
     
500,000
     
-
     
16,205
     
516,205
 
Issuance of options for payables
   
-
     
-
     
-
     
-
     
-
     
-
     
7,551
     
-
     
-
     
7,551
 
Issuance of stock in conjunction with debt agreements
   
-
     
-
     
-
     
-
     
1,538,258
     
1,538
     
244,328
     
-
     
-
     
245,866
 
Issuance of warrants in conjunction with debt agreements
   
-
     
-
     
-
     
-
     
-
     
-
     
100,049
     
-
     
-
     
100,049
 
Issuance of options in conjunction with contracts
   
-
     
-
     
-
     
-
     
-
     
-
     
16,088
     
-
     
-
     
16,088
 
Issuance of options for wages payable
   
-
     
-
     
-
     
-
     
-
     
-
     
469,906
     
-
     
-
     
469,906
 
Share based compensation
   
-
     
-
     
-
     
-
     
-
     
-
     
269,397
     
-
     
-
     
269,397
 
Net loss
   
-
     
-
      -
      -
     
-
     
-
     
-
     
(7,760,877
)
   
-
     
(7,760,877
)
                                                                                 
Balance as of September 30, 2019
   
3,577,370
     
3,577
     
14,000
   
$
14
     
99,868,418
     
99,868
     
76,242,582
     
(90,418,131
)
   
-
     
(14,072,090
)
Balance as of June 30, 2018
   
3,594,610
     
3,595
     
-
   
$
-
     
83,396,165
     
83,396
     
58,027,102
     
(56,769,428
)
   
-
     
1,344,665
 
                                                                                 
Issuance of options in conjunction with contracts
   
-
     
-
     
-
     
-
     
-
     
-
     
85,921
     
-
     
-
     
85,921
 
Issuance of stock for debt conversion
   
-
     
-
     
-
     
-
     
4,775,638
     
4,776
     
1,189,134
     
-
     
-
     
1,193,910
 
Issuance of stock for wages payable
   
-
     
-
     
-
     
-
     
2,935,818
     
2,936
     
1,024,600
     
-
     
-
     
1,027,536
 
Beneficial conversion feature on convertible debt
   
-
     
-
      -
      -
     
-
     
-
     
2,859,566
     
-
     
-
     
2,859,566
 
Issuance of warrants in conjunction with debt
   
-
     
-
      -
      -
     
-
     
-
     
3,115,441
     
-
     
-
     
3,115,441
 
Share based compensation
   
-
     
-
      -
      -
     
-
     
-
     
500,560
     
-
     
-
     
500,560
 
Net loss
   
-
     
-
      -
      -
     
-
     
-
     
-
     
(4,968,367
)
   
-
     
(4,968,367
)
                                                                                 
Balance as of September 30, 2018
   
3,594,610
   
$
3,595
     
-
   
$
-
     
91,107,621
   
$
91,108
   
$
66,802,323
   
$
(61,737,795
)
 
$
-
   
$
5,159,231
 

See accompanying notes to the unaudited condensed consolidated financial statements.
F - 5

BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Nine Months
Ended September 30,
 
   
2019
   
2018
 
Cash Flows From Operating Activities
           
Net loss
 
$
(23,370,788
)
 
$
(11,841,419
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
365,718
     
348,712
 
Amortization of debt discounts
   
11,559,076
     
520,022
 
Common stock and warrants issued in conjunction with contracts
   
60,000
     
413,670
 
Share based compensation
   
707,453
     
708,684
 
Warrants issued in conjunction with contracts
   
29,270
     
85,921
 
(Gain) loss on extinguishment of debt
   
(309,013
)
   
606,890
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(167,219
)
   
48,859
 
Inventory
   
(39,010
)
   
(15,595
)
Prepaid expenses
   
(97,632
)
   
237,493
 
Accounts payable
   
1,868,439
     
(42,330
)
Accounts payable – related party
   
357,321
     
(11,411
)
Accrued interest
   
1,357,612
     
380,104
 
Accrued interest – related party
   
31,289
     
115,722
 
Deferred revenue
   
27,899
     
(3,822
)
Wages payable
   
963,606
     
736,108
 
Net Cash Used in Operating Activities
   
(6,655,979
)
   
(7,712,392
)
                 
Cash Flows From Investing Activities
               
Capitalized patent costs
   
(18,898
)
   
-
 
Purchases of property and equipment
   
(79,386
)
   
-
 
Purchases of intangible assets
   
(1,772,273
)
   
(1,683,431
)
Net Cash Used in Investing Activities
   
(1,870,557
)
   
(1,683,431
)
                 
Cash Flows From Financing Activities
               
Proceeds from sale of preferred stock
   
350,000
     
-
 
Proceeds from BlackRidge Research equity sales
   
1,983,755
     
-
 
Proceeds from short term notes – related party
   
600,000
     
732,000
 
Proceeds from issuance of short term convertible notes
   
1,500,000
     
10,832,000
 
                 
Proceeds from advances – related party
   
-
     
75,000
 
Repayments of short term debt
   
(25,000
)
   
(5,000
)
Repayments on long term debt
   
(300,002
)
   
(300,001
)
Net Cash Provided by Financing Activities
   
4,108,753
     
11,333,999
 
                 
Net Increase (Decrease) In Cash
   
(4,417,783
)
   
1,938,176
 
Cash, Beginning of Period
   
4,693,950
     
421,869
 
Cash, End of Period
 
$
276,167
   
$
2,360,045
 
                 
Non-Cash Investing and Financing Activities
               
Wages payable included in capitalized intangible assets
 
$
-
   
$
23,338
 
Preferred stock converted to common stock
 
$
-
   
$
536
 
Common stock issued in conjunction with debt agreements
 
$
245,866
   
$
-
 
Warrants issued in conjunction with debt agreements
 
$
100,049
   
$
5,644,008
 
Common stock issued for wages payable
 
$
198,108
   
$
-
 
Options issued for wages payable
 
$
707,453
   
$
-
 
Conversion of debt and interest
   
-
     
1,193,910
 
Beneficial conversion features
 
$
-
   
$
5,726,678
 
                 
Supplemental Disclosure of Cash Flow Information:
               
Cash paid for interest
 
$
13,969
   
$
9,485
 
Cash paid for income taxes
 
$
-
   
$
-
 

See accompanying notes to the unaudited condensed consolidated financial statements.
F - 6

BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization  BlackRidge Technology International, Inc. (the "Company" or, “we”, “us”, “our” and similar terminology) was incorporated under the laws of the State of Nevada in March 2004 under the name “Grote Molen, Inc.”   The Company develops and markets next generation cyber defense solutions that stop cyber-attacks and block unauthenticated access. The Company’s network and server security products are based on patented Transport Access Control technology (the “Blackridge Technology”) and are designed to isolate, cloak and protect servers and cloud services and segment networks for regulatory compliance. The Company’s products are used in enterprise and government computing environments, the industrial “internet of things” and other cloud service provider and network systems

On September 6, 2016, the Company entered into an agreement and plan of reorganization with BlackRidge Technology International, Inc., a Delaware corporation, and Grote Merger Co., a Delaware corporation providing for the Company’s acquisition of BlackRidge in exchange for a controlling number of shares of the Company’s preferred and common stock pursuant to the merger of Grote Merger Co. with and into BlackRidge, with BlackRidge continuing as the surviving corporation.    The transaction contemplated in the agreement closed on February 22, 2017.

On July 2, 2017, the Company filed a Certificate to Accompany Restated Articles or Amended and Restated Articles with the Secretary of State of Nevada to, among other things, change the Company’s name to BlackRidge Technology International, Inc.

On October 13, 2017, the Company formed a new business subsidiary called BlackRidge Secure Services, Inc. to work with partners on Secure Supervisory Control and Data Acquisition Systems (“SCADA”) infrastructure and to design and deliver secure systems using BlackRidge Technology products for use by the utilities industry.

On June 2, 2019, the Company formed a new business subsidiary named BlackRidge Research, Inc. to perform research and development for future products and patents.

Principles of Consolidation - The Company and its subsidiaries consist of the following entities, which have been consolidated in the accompanying financial statements:

BlackRidge Technology International, Inc.
BlackRidge Technology Holding, Inc.
BlackRidge Technology, Inc.
BlackRidge Technology Government, Inc.
BlackRidge Secure Services, Inc.
BlackRidge Research, Inc.

All intercompany balances have been eliminated in consolidation.

Interim Financial Statements – The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the financial statements not misleading. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the final results that may be expected for the year ended December 31, 2019. For more complete financial information, these unaudited financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2018 filed with the SEC.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated by management.

Concentrations - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The cash balance at times may exceed federally insured limits. Management believes the financial risk associated with these balances is minimal and has not experienced any losses to date.  At September 30, 2019 and December 31, 2018, the Company had cash balances in excess of FDIC insured limits of $0 and $4,110,236, respectively.
F - 7

Significant customers are those which represent more than 10% of the Company’s revenue for each period presented, or the Company’s accounts receivable balance as of each respective balance sheet date. For each significant customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total net accounts receivable are as follows:


 
Revenue
Nine Months
Ended September 30,
 
Accounts Receivable
September 30,
 
Customers
2019
 
2018
 
2019
 
2018
 
Customer A
   
64
%
   
77
%
   
41
%
   
7
%
Customer B
   
11
%
   
17
%
   
15
%
   
77
%
Customer C
   
2
%
   
7
%
   
8
%
   
16
%
Customer D
   
23
%
   
-
%
   
36
%
   
-
%

 
Revenue
 
 
Three Months
Ended September 30,
 
Customers
2019
 
2018
 
Customer A
   
33
%
   
1
%
Customer B
   
4
%
   
70
%
Customer C
   
2
%
   
29
%
Customer D
   
62
%
   
-
%

Inventory - Inventory is valued at the lower of cost or market value. Product-related inventories are primarily maintained using the average cost method.  When market value is determined to be less than cost, the Company records an allowance for obsolescence.  The company’s inventory assets at September 30, 2019 and December 31, 2018 consisted primarily of hardware appliances valued as follows:

 
 
As of
September 30,
2019
   
As of
December 31,
2018
 
Inventory
 
$
430,668
   
$
391,658
 
Less: allowance for obsolescence
   
(335,655
)
   
(335,655
)
 
 
$
95,013
   
$
56,003
 

Adoption of ASC Topic 606, Revenue from Contracts with Customers - In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers” (“ASC 606”). ASC 606 clarifies the accounting for revenue arising from contracts with customers and specifies the disclosures that an entity should include in its financial statements. During 2016, the FASB issued certain amendments to the standard relating to the principal versus agent guidance, accounting for licenses of intellectual property identifying performance obligations as well as the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes.

The effect of applying ASC 606 did not result in an opening balance adjustment to retained earnings or any other balance sheet accounts because the Company: (1) identified similar performance obligations under ASC 606 as compared with deliverables and separate units of account previously identified; (2) determined the transaction price to be consistent; and (3) concluded that revenue is recorded at the same point in time, upon performance under both ASC 605 and ASC 606. The adoption of ASC 606 did not require significant changes in our internal controls and procedures over financial reporting and disclosures. However, we made enhancements to existing internal controls and procedures to ensure compliance with the new guidance.

Revenue Recognition - We recognize revenue as we transfer control of deliverables (products, solutions and services) to our customers in an amount reflecting the consideration to which we expect to be entitled. To recognize revenue, we apply the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. We account for a contract based on the terms and conditions the parties agree to, the contract has commercial substance and collectability of consideration is probable. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience.
F - 8

We may enter into arrangements that consist of multiple performance obligations. Such arrangements may include any combination of our deliverables. To the extent a contract includes multiple promised deliverables, we apply judgment to determine whether promised deliverables are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a combined performance obligation. For arrangements with multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. Standalone selling price is the price at which we would sell a promised good or service separately to the customer. When not directly observable, we typically estimate standalone selling price by using the expected cost plus a margin approach. We typically establish a standalone selling price range for our deliverables, which is reassessed on a periodic basis or when facts and circumstances change.

For performance obligations where control is transferred over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the deliverables to be provided. Revenue related to fixed-price contracts for application development and systems integration services, consulting or other technology services is recognized as the service is performed using the output method, under which the total value of revenue is recognized based on each contract’s deliverable(s) as they are completed and when value is transferred to a customer. Revenue related to fixed-price application maintenance, testing and business process services is recognized based on our right to invoice for services performed for contracts in which the invoicing is representative of the value being delivered, in accordance with the practical expedient in ASC 606-10-55-18.

Our revenue consists of product and service revenue.  Product revenue primarily consists of sales of our BlackRidge products.  Service revenue relates to sales technical support services, and other services

Disaggregation of Revenue  the following table presents our revenue disaggregated by major product and service lines:

 
Three Months
Ended September 30,
 
Nine Months
Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
Product
 
$
90,966
   
$
-
   
$
159,719
   
$
4,804
 
Technical support and other
   
17,845
     
74,102
     
137,892
     
139,312
 
Total
 
$
108,811
   
$
74,102
   
$
297,611
   
$
144,116
 

Recently Issued Accounting Standards - From time to time, new accounting pronouncements are issued by FASB that are adopted by the Company as of the specified effective date.  If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s financial statements upon adoption.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes Topic 840, Leases (“ASU 2016-02”). The guidance in this new standard requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to the current accounting and eliminates the current real estate-specific provisions for all entities. The guidance also modifies the classification criteria and the accounting for sales-type and direct financing leases for lessors. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on all applicable operating leases.

In August 2018, the FASB issued ASU 2018-13 “Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU eliminates, amends, and adds disclosure requirements for fair value measurements. The new standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Although we are still evaluating the impact of this new standard, we do not believe that the adoption will materially impact our Consolidated Financial Statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04 “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which amends and simplifies the accounting standard for goodwill impairment. The new standard removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount a reporting unit’s carrying value exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. The new standard is effective for annual and any interim impairment tests for periods beginning after December 15, 2019. We are currently assessing the implication of our adoption as well as the potential impact that the standard will have on our consolidated financial statements.
F - 9

NOTE 2 –GOING CONCERN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, during the nine months ended and as of September 30, 2019, the Company incurred a net loss of $23,370,788, had a working capital deficit of $24,576,110, and cash used in operations of $6,655,979.  These factors raise substantial doubt about the ability of the Company to continue as a going concern.  In this regard, management is proposing to raise any necessary additional funds not provided by operations through investment capital.  There is no assurance that the Company will be successful in raising this additional capital or in achieving profitable operations.  The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 3 – INTANGIBLE ASSETS
 
During the nine months ended September 30, 2019 and 2018, the Company capitalized $1,772,273 and $1,683,431, respectively, towards the development of software, intellectual property, and patent expenses.

The Company amortizes these costs over their related useful lives (approximately 7 to 20 years), using a straight-line basis. Fair value is determined through various valuation techniques, including market and income approaches as considered necessary. The Company reviews capitalized assets periodically for impairment any time there is a significant change that could lead to impairment, but not less than annually.  The Company recorded amortization of $342,205 and $342,107 during the nine months ended September 30, 2019 and 2018, respectively. The Company recorded amortization of $115,228 and $88,153 during the three months ended September 30, 2019 and 2018, respectively.

Intangible assets consisted of the following at September 30, 2019 and December 31, 2018:

 
 
As of
September 30,
2019
   
As of
December 31,
2018
 
Estimated
Useful Life
Patent Costs
   
561,744
     
542,846
 
15 years
Software Licenses
   
58,260
     
58,260
 
7 years
Software Development Costs
   
11,980,333
     
10,208,061
 
5 years
Less: accumulated amortization
   
(2,231,011
)
   
(1,888,807
)
 
 
 
$
10,369,326
   
$
8,920,360
 
 

Based upon currently launched products, the Company anticipates amortization expense of approximately $500,000 during each of the next five years.
 
NOTE 4 – NOTES PAYABLE

Short term notes

At September 30, 2019 and December 31, 2018, the Company had outstanding short-term debt totaling $45,232.  These notes bear interest at the rates of between 10% and 12% annually and have maturity dates ranging from January 1, 2012 through December 31, 2014.  As these notes have exceeded their initial maturity dates, they are subject to the default interest rate of 15% per annum.

The following table summarizes the Company’s short-term notes payable for the nine months ended September 30, 2019 and the year ended December 31, 2018:

   
September 30,
2019
   
December 31,
2018
 
Beginning Balance
 
$
45,232
   
$
50,232
 
Repayments
   
-
     
(5,000
)
Ending Balance
 
$
45,232
   
$
45,232
 

Short term notes – related party

On January 31, 2018, the Company’s Chief Technology Officer and significant shareholder invested $500,000 via a one year note bearing interest at 8% annually.  In conjunction with this note, the Company issued 5 year detachable warrants to purchase 1,562,500 shares of the Company’s common stock at $0.50 per share.  These warrants were valued at $172,542 using the Black-Scholes pricing model and were recorded as a discount to the note.  The note carries a default rate of 18% for any principal not paid by the maturity date.  On September 30, 2018, the note along with interest of $29,712 was converted into 2,118,849 shares of the Company’s common stock at a rate of $0.25 per share.  Additionally, as part of the conversion, additional warrants to purchase 437,500 shares of common stock were issued and all warrants related to this note were repriced to reflect an exercise price of $0.25 per share.  The value of these additional warrants and the lowered conversion totaled $58,250 which the Company recorded as a loss on extinguishment of debt.
F - 10

Long term notes

On November 2, 2016, the Company entered into settlement agreements with two holders of convertible debt and other payables in which the Company agreed to issue new long-term debt agreements as settlement of amounts due.  Pursuant to these agreements, the Company issued two non-interest bearing $600,000 notes payable in 36 equal monthly installments of $16,667 beginning on January 1, 2017 and maturing on December 1, 2019.

The following table summarizes the Company’s long-term notes payable for the nine months ended September 30, 2019 and the year ended December 31, 2018:

   
September 30,
2019
   
December 31,
2018
 
Beginning Balance
 
$
366,657
   
$
766,658
 
Repayments
   
(300,002
)
   
(400,001
)
Ending Balance
 
$
66,655
   
$
366,657
 
Short Term Portion of Long Term Debt
 
$
66,655
   
$
366,657
 
Long Term Debt
 
$
-
   
$
-
 

NOTE 5 – CONVERTIBLE NOTES

Short term convertible notes

On January 31, 2018, the Company issued a $100,000 convertible note bearing interest at 8% per annum.  The note matured on January 31, 2019 and is convertible into the Company’s Series B Preferred Stock (“Preferred Stock”) at a price of $0.32 per share at the holder’s request.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 312,500 shares of the Company’s common stock at an exercise price of $0.32 per share. The Company has determined the note to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $88,219 based on the intrinsic per share value of the conversion feature, and the warrants at $46,991 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $68,021 and $31,969, respectively.  At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets. The Company had accrued interest for this note in the amount of $19,219, which is included in accrued interest on the Company’s consolidated balance sheets. The Company is currently in the process of extending this note.

On February 23, 2018, the Company issued a $1,000,000 convertible note bearing interest at 9% per annum.  The note matured on February 28, 2019 and is convertible, as amended, into the Company’s Series B Preferred Stock at a price of $0.25 per share at the holder’s request.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 3,125,000 shares of the Company’s common stock at an exercise price of $0.32 per share. The Company has determined the note to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $417,757 based on the intrinsic per share value of the conversion feature, and the warrants at $540,553 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $417,757 and $350,882, respectively.  On July 25, 2019, the Company extended the maturity date of the note as well as all accrued interest in the amount of $1,152,466.  At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets. The Company had accrued interest for this note in the amount of $19,039, which is included in accrued interest on the Company’s consolidated balance sheets.  The extended note matures on July 25, 2020 and carries a default rate of 15% for the principle balance remaining unpaid by the maturity date.

On February 27, 2018, the Company issued a $1,000,000 convertible note bearing interest at 9% per annum.  The note matured on February 28, 2019 and is convertible, as amended, into the Company’s Series B Preferred Stock at a price of $0.25 per share at the holder’s request.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 3,125,000 shares of the Company’s common stock at an exercise price of $0.32 per share. The Company has determined the note to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $444,923 based on the intrinsic per share value of the conversion feature, and the warrants at $541,244 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $444,923 and $351,173, respectively.   On July 25, 2019, the Company extended the maturity date of the note and accrued interest in the amount of $1,150,822. At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets.  The Company had accrued interest for this note in the amount of $19,012, which is included in accrued interest on the Company’s consolidated balance sheets.  The extended note matures on July 25, 2020 and carries a default rate of 15% for the principle balance remaining unpaid by the maturity date.

F - 11

On April 18, 2018, the Company issued a $2,000,000 convertible note bearing interest at 9% per annum.  The note matured on April 18, 2019 and is convertible, as amended, into the Company’s Series B Preferred Stock at a price of $0.25 per share at the holder’s request.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 6,250,000 shares of the Company’s common stock at an exercise price of $0.32 per share. The Company has determined the note to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $1,510,980 based on the intrinsic per share value of the conversion feature, and the warrants at $1,073,331 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $1,301,510 and $698,480, respectively.   On July 25, 2019, Company extended the maturity date of the note and accrued interest in the amount of $2,260,548. At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets. The Company had accrued interest for this note in the amount of $37,346, which is included in accrued interest on the Company’s consolidated balance sheets.  The extended note matures on July 25, 2020 and carries a default rate of 15% for the principle balance remaining unpaid by the maturity date.

On May 4, 2018, the Company issued an aggregate $1,500,000 in convertible notes bearing interest at 9% per annum.  These notes matured on May 31, 2019 and are convertible, as amended, into the Company’s Series B Preferred Stock at a price of $0.25 per share at the holder’s request.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 4,687,500 shares of the Company’s common stock at an exercise price of $0.25 per share. The Company has determined the note to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $1,133,680 based on the intrinsic per share value of the conversion feature, and the warrants at $806,050 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $975,685 and $524,305, respectively. On July 25, 2019, Company extended the maturity date of the note and accrued interest in the amount of $1,678,890. At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets.  The Company had accrued interest for this note in the amount of $27,736, which is included in accrued interest on the Company’s consolidated balance sheets. The extended note matures on July 25, 2020 and carries a default rate of 15% for the principle balance remaining unpaid by the maturity date.

On May 9, 2018, the Company issued a $1,028,274 convertible note bearing interest at 9% per annum as replacement for a $1,000,000 note plus accrued interest of $28,274 (see long term convertible notes section of this note).  The note matured on May 31, 2019 and is convertible, as amended, into the Company’s Series B Preferred Stock at a price of $0.25 per share at the holder’s request.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 3,213,356 shares of the Company’s common stock at an exercise price of $0.25 per share. The Company has determined the note to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $835,295 based on the intrinsic per share value of the conversion feature, and the warrants at $538,207 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based relative on fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $674,972 and $353,292, respectively. On July 25, 2019, Company extended the maturity date of the note and accrued interest in the amount of $1,151,611. At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets.  The Company had accrued interest for this note in the amount of $19,025, which is included in accrued interest on the Company’s consolidated balance sheets. The extended note matures on July 25, 2020 and carries a default rate of 15% for the principle balance remaining unpaid by the maturity date

On July 5, 2018, the Company issued an aggregate $2,000,000 in convertible notes bearing interest at 9% per annum.  These notes mature on July 5, 2019 and is convertible, as amended, into the Company’s Series B Preferred Stock at a price of $0.25 per share at the holder’s request.  The noteholders were also granted detachable 5 year warrants to purchase an aggregate of 8,000,000 shares of the Company’s common stock at an exercise price of $0.25 per share. The Company has determined the notes to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $1,307,658 based on the intrinsic per share value of the conversion feature, and the warrants at $1,354,741 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $1,192,302 and $807,658, respectively On July 25, 2019, Company extended the maturity dates of the notes and accrued interest in an aggregate amount of $2,196,438. At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets.  The Company had accrued interest for these notes in the amount of $36,286, which is included in accrued interest on the Company’s consolidated balance sheets. The extended notes mature on July 25, 2020 and carry a default rate of 15% for the principle balance remaining unpaid by the maturity date.
F - 12


On July 10, 2018, the Company issued a $32,000 convertible note bearing interest at 9% per annum.  This note matures on July 31, 2019 and is convertible into the Company’s Series B Preferred Stock at a price of $0.32 per share at the holder’s request.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 128,000 shares of the Company’s common stock at an exercise price of $0.25 per share. The Company has determined the note to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $15,005 based on the intrinsic per share value of the conversion feature, and the warrants at $21,711 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $15,005 and $12,935, respectively.   At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets.  The Company had accrued interest for these notes in the amount of $3,958, which is included in accrued interest on the Company’s consolidated balance sheets. 

On July 13, 2018, the Company issued a $200,000 in convertible notes bearing interest at 9% per annum.  This note matures on July 31, 2019 and is convertible into the Company’s Series B Preferred Stock at a price of $0.32 per share at the holder’s request.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 800,000 shares of the Company’s common stock at an exercise price of $0.25 per share. The Company has determined the note to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $68,266 based on the intrinsic per share value of the conversion feature, and the warrants at $135,474 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $68,266 and $80,766, respectively.   At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets.  The Company had accrued interest for these notes in the amount of $24,493, which is included in accrued interest on the Company’s consolidated balance sheets. 

On September 17, 2018, the Company issued an aggregate $3,000,000 in convertible notes bearing interest at 9% per annum.  The notes mature on September 17, 2019 and are convertible into the Company’s Series B Preferred Stock at a price of $0.25 per share at the holder’s request.  The noteholders were also granted detachable 7 year warrants to purchase an aggregate of 12,000,000 shares of the Company’s common stock at an exercise price of $0.25 per share. The Company has determined the notes to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $2,921,170 based on the intrinsic per share value of the conversion feature, and the warrants at $1,617,415 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $1,949,132 and $1,050,858, respectively.  Additionally, as further inducement to write this this note, the Company agreed to grant all of the investor’s existing notes as well as several other existing noteholders with relationships to the investor the same terms on their existing debt that this debt carries.  These new terms were required to write the notes, therefore, the Company has accounted them as a discount on this note, the value of which is included in the beneficial conversion value.  On September 17, 2019, Company extended the maturity dates of the notes and accrued interest in an aggregate amount of $3,270,000.  At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets. The Company had accrued interest for these notes in the amount of $11,288, which is included in accrued interest on the Company’s consolidated balance sheets.  The extended notes mature on September 17, 2020 and carry a default rate of 15% for the principle balance remaining unpaid by the maturity date.

On December 4, 2018, the Company issued an aggregate $3,000,000 in convertible notes bearing interest at 9% per annum.  The notes mature on December 4, 2019 and are convertible into the Company’s Series B Preferred Stock at a price of $0.25 per share at the holder’s request.  The noteholders were also granted detachable 7 year warrants to purchase an aggregate of 12,000,000 shares of the Company’s common stock at an exercise price of $0.25 per share. As additional consideration for this note, the Company issued an aggregate 4,006,250 shares of the Company’s common stock. The Company has determined the notes to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $2,248,088 based on the intrinsic per share value of the conversion feature, the warrants at $1,589,454 using the Black-Scholes pricing model, and the stock at $1,346,000.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature, warrants, and stock as a discount to the debt in the amount of $1,516,302, $803,369 and $680,319, respectively.  At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at an aggregate $300,806.  The Company had accrued interest for these notes in the amount of $221,918, which is included in accrued interest on the Company’s consolidated balance sheets. 

On December 19, 2018, the Company issued an aggregate $3,000,000 in convertible notes bearing interest at 9% per annum.  The notes mature on December 19, 2019 and are convertible into the Company’s Series B Preferred Stock at a price of $0.25 per share at the holder’s request.  The noteholders were also granted detachable 7 year warrants to purchase an aggregate of 12,000,000 shares of the Company’s common stock at an exercise price of $0.25 per share. The Company has determined the notes to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $555,512 based on the intrinsic per share value of the conversion feature, and the warrants at $1,581,347 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $555,512 and $1,035,512, respectively.  At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at an aggregate $2,541,434.  The Company had accrued interest for these notes in the amount of $210,822, which is included in accrued interest on the Company’s consolidated balance sheets. 
F - 13


On August 14, 2019, the Company issued a convertible note in the amount of $350,000. The note bears an interest rate of 9% per annum, and is convertible into the Company’s Series B Preferred Stock at a price of $0.25 per share at the holder’s request. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 1,400,000 shares of the Company’s common stock at an exercise price of $0.25 per share. The Company valued the warrants at $75,334 using the Black-Scholes pricing model.  Additionally, as further inducement to write this this note, the Company agreed to grant the noteholder an additional 754,258 shares of the Company’s common stock valued at $181,022.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the warrants and common stock as a discount to the debt in the amount of $43,484 and $104,489, respectively.  At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at an aggregate $216,843.  The Company had accrued interest for this note in the amount of $4,142, which is included in accrued interest on the Company’s consolidated balance sheets. The note matures on August 14, 2020 and carries a default rate of 15% for the principle balance remaining unpaid by the maturity date.

On August 29, 2019, the Company issued an aggregate $784,000 in convertible notes. The notes bear an interest rate of 6% per annum and is initially convertible into the Company’s Common Stock at a price of $0.35 per share at the holder’s request. The notes were issued at an initial discount of $84,000.  Additionally, an aggregate 784,000 shares of the Company’s common stock valued at $172,480 were issued as further inducement for the notes.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the common stock as a discount to the debt in the amount of $141,377.  At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at an aggregate $504,516.  The Company had accrued interest for this note in the amount of $4,253, which is included in accrued interest on the Company’s consolidated balance sheets. The note matures on August 29, 2020 and carries a default rate of 24% for the principle balance remaining unpaid by the maturity date.

On September 11, 2019, the Company issued a convertible note in the amount of $282,500. The note bears an interest rate of 10% per annum and is initially convertible, at the holder’s request, into the Company’s common stock at a $0.25 per share. The note was issued at an initial discount of $12,500. At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at an aggregate $251,594.  The Company had accrued interest for this note in the amount of $1,548, which is included in accrued interest on the Company’s consolidated balance sheets. The note matures on September 11, 2020 and carries a default rate of 24% for the principle balance remaining unpaid by the maturity date.

On September 26, 2019, the Company issued a convertible note in the amount of $85,000. The note bears an interest rate of 10% per annum and is initially convertible, at the holder’s request, into the Company’s common stock at a $0.25 per share. The note was issued at an initial discount of $10,000. The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 170,000 shares of the Company’s common stock at an exercise price of $0.50 per share. The Company valued the warrants at $9,210 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the warrants and as a discount to the debt in the amount of $8,309.  At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at an aggregate $66,794.  The Company had accrued interest for this note in the amount of $116, which is included in accrued interest on the Company’s consolidated balance sheets. The note matures on September 26, 2020 and carries a default rate of 15% for the principle balance remaining unpaid by the maturity date.

On September 27, 2019, the Company issued a convertible note in the amount of $240,000. The note bears an interest rate of 10% per annum, and is convertible into the Company’s Series B Preferred Stock at a price of $0.25 per share at the holder’s request. The note was issued at an initial discount of $22,750.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 600,000 shares of the Company’s common stock at an exercise price of $0.20 per share. The Company valued the warrants at $60,401 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the warrants and as a discount to the debt in the amount of $48,256.  At September 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at an aggregate $152,045.  The Company had accrued interest for this note in the amount of $263, which is included in accrued interest on the Company’s consolidated balance sheets. The note matures on September 27, 2020 and carries a default rate of 24% for the principle balance remaining unpaid by the maturity date.

F - 14

Short term convertible notes – related party

On October 31, 2013, the Company agreed to convert balances owed to the Company’s corporate counsel in the amount of $183,172 into a 42 month convertible note bearing interest at 12% annually and convertible into 203,525 shares of convertible preferred stock at the rate of $0.90 per share.  At September 30, 2019, $158,172 of the principal balance was still outstanding, and the Company had accrued interest for this note in the amount of $191,870 which is included in accrued interest – related party on the Company’s consolidated balance sheets.  The note carries a default rate of 18% for any principal not paid by the maturity date. 

On November 30, 2015, John Hayes, the Company’s Chief Technology Officer, Director and significant shareholder invested $101,000 via a one year convertible note bearing interest at 12% annually and convertible into 112,223 shares of Series A convertible preferred stock at the rate of $0.90 per share.  On September 1, 2017, $237,000 owed to John Hayes was added to the note.  On September 30, 2018, the note along with interest of $89,366 was converted into 1,709,466 shares of the Company’s common stock at a rate of $0.25 per share.  Additionally, as further inducement to convert the note, the Company issued the note holder 5 year warrants to purchase 1,352,000 shares of the Company’s common stock. The Company recognized a loss on extinguishment of debt of $384,200 related to the decrease in conversion price and warrants granted. 

On July 6, 2018, the Company issued a $200,000 convertible note bearing interest at 9% per annum to John Hayes, the Company’s Chief Technology Officer, Director and significant shareholder.  This note matures on July 31, 2019 and is convertible into the Company’s Series B Preferred Stock at a price of $0.32 per share at the holder’s request.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 800,000 shares of the Company’s common stock at an exercise price of $0.25 per share. The Company has determined the note to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $130,766 based on the intrinsic per share value of the conversion feature, and the warrants at $135,474 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based on relative fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $119,224 and $80,766, respectively.   On September 30, 2018, the note along with interest of $4,192 was converted into 816,767 shares of the Company’s common stock at a rate of $0.25 per share.  The Company recognized a loss on extinguishment of debt of $43,750 related to the decrease in conversion price.

On July 10, 2018, the Company issued a $32,000 in convertible notes bearing interest at 9% per annum to J Allen Kosowsky, a Director and related party.  This note matures on July 31, 2019 and is convertible into the Company’s Series B Preferred Stock at a price of $0.32 per share at the holder’s request.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 128,000 shares of the Company’s common stock at an exercise price of $0.25 per share.  The Company has determined the note to contain a beneficial conversion feature.  The Company valued the beneficial conversion feature at $15,005 based on the intrinsic per share value of the conversion feature, and the warrants at $21,711 using the Black-Scholes pricing model.  The Company has allocated the note proceeds based relative on fair value and has recorded the value of the beneficial conversion feature and warrants as a discount to the debt in the amount of $15,005 and $12,935, respectively.   On September 30, 2018, the note along with interest of $639 was converted into 130,556 shares of the Company’s common stock at a rate of $0.25 per share.  The Company recognized a loss on extinguishment of debt of $8,960 related to the decrease in conversion price. 

On April 26, 2019, the Company issued a $200,000 convertible note bearing interest at 7% per annum to John Hayes, the Company’s Chief Technology Officer, Director and significant shareholder.  This note matures on March 31, 2020 and is convertible into the Company’s common stock at a price of $0.25 per share at the holder’s request.  At September 30, 2019, $200,000 of the principal balance was still outstanding, and the Company had accrued interest for this note in the amount of $6,022, which is included in accrued interest – related party on the Company’s consolidated balance sheets.  The note carries a default interest rate of 15% for any principal remaining unpaid by the maturity date.

On May 3, 2019, the Company issued a $100,000 convertible note bearing interest at 7% per annum to John Hayes, the Company’s Chief Technology Officer, Director and significant shareholder.  This note matures on March 31, 2020 and is convertible into the Company’s common stock at a price of $0.25 per share at the holder’s request.  At September 30, 2019, $100,000 of the principal balance was still outstanding, and the Company had accrued interest for this note in the amount of $5,216, which is included in accrued interest – related party on the Company’s consolidated balance sheets.  The note carries a default interest rate of 15% for any principal remaining unpaid by the maturity date.

On May 15, 2019, the Company issued a $300,000 convertible note bearing interest at 7% per annum to John Hayes, the Company’s Chief Technology Officer, Director and significant shareholder.  This note matures on March 31, 2020 and is convertible into the Company’s common stock at a price of $0.25 per share at the holder’s request.  At September 30, 2019, $300,000 of the principal balance was still outstanding, and the Company had accrued interest for this note in the amount of $5,600, which is included in accrued interest – related party on the Company’s consolidated balance sheets.  The note carries a default interest rate of 15% for any principal remaining unpaid by the maturity date.
F - 15


Long term convertible notes
 
On December 21, 2017, the Company issued a $150,000 convertible note bearing interest at 8% per annum.  The note matures on December 21, 2019 and is convertible into the Company’s Series B Preferred Stock at a price of $0.32 per share at the holder’s request.  The Company has determined the note to contain a beneficial conversion feature valued at $69,935 based on the intrinsic per share value of the conversion feature.  This beneficial conversion feature is recorded as a discount to the debt agreement.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 468,750 shares of the company’s common stock at an exercise price of $0.32 per share.  The warrants were valued at $69,935 using the Black-Scholes pricing model and were recorded as a discount to the note.  At September 30, 2019 the principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at $107,327.  The Company had accrued interest for this note in the amount of $21,304, which is included in accrued interest on the Company’s consolidated balance sheets. 
 
On December 22, 2017, the Company issued a $1,000,000 convertible note bearing interest at 8% per annum.  The note matures on December 22, 2019 and is convertible into the Company’s Series B Preferred Stock at a price of $0.32 per share at the holder’s request.  The Company has determined the note to contain a beneficial conversion feature valued at $466,230 based on the intrinsic per share value of the conversion feature.  This beneficial conversion feature is recorded as a discount to the debt agreement.  The noteholder was also granted detachable 5 year warrants to purchase an aggregate of 3,125,000 shares of the company’s common stock at an exercise price of $0.32 per share.  The warrants were valued at $466,230 using the Black-Scholes pricing model and were recorded as a discount to the note.  On May 9, 2018, this note along with $28,274 was renegotiated into a new short term convertible note and the warrants associated with the original note were cancelled.  The newly negotiated note included an additional warrant benefit valued at $95,804 which was recorded as a loss on extinguishment of debt. 
 
Convertible debt holders are entitled, at their option, to convert all or part of the principal and accrued interest into shares of the Company’s common stock at the conversion prices and terms discussed above. The Company has determined that any embedded conversion options do not possess a beneficial conversion feature, and therefore has not separately accounted for their value.
 
The following table summarizes the Company’s convertible notes payable for the nine months ended September 30, 2019 and the year ended December 31, 2018:

   
September 30,
2019
   
December 31,
2018
 
Beginning Balance, net of discounts
 
$
3,471,644
   
$
601,576
 
Proceeds from issuance of convertible notes, net of issuance Discounts
   
-
     
1,903,438
 
New convertible notes net of discounts
   
1,754,085
     
-
 
Repayments
   
(25,000
)
   
-
 
Restructuring of debt
   
1,332,501
     
(112,017
)
Conversion of notes payable into common stock
   
-
     
(570,000
)
Amortization of discounts
   
11,559,076
     
1,648,647
 
Ending Balance, net of discounts
 
$
18,092,306
   
$
3,471,644
 
Convertible notes, short term
 
$
20,934,275
   
$
17,860,274
 
Convertible notes, short term – related party
 
$
758,172
   
$
183,172
 
Convertible notes, long term
 
$
150,000
   
$
150,000
 
Debt discounts
 
$
3,750,141
   
$
14,721,802
 

 The following table summarizes the Company’s short term convertible notes payable as of September 30, 2019: 

Note(s) Date
Maturity Date
 
Interest
   
Principal
 
1/31/2018*
1/31/2019
   
8
%
 
$
100,000
 
7/10/2018*
7/10/2019
   
9
%
   
32,000
 
7/13/2018*
7/13/2019
   
9
%
   
200,000
 
12/4/2018
12/4/2019
   
9
%
   
3,000,000
 
12/19/2018
12/19/2019
   
9
%
   
3,000,000
 
7/25/2019
7/25/2020
   
9
%
   
9,590,775
 
8/14/2019
8/14/2020
   
9
%
   
350,000
 
8/29/2019
8/29/2020
   
6
%
   
784,000
 
9/11/2019
9/11/2020
   
10
%
   
282,500
 
9/17/2019
9/17/2020
   
9
%
   
3,270,000
 
9/26/2019
9/26/2020
   
10
%
   
85,000
 
9/27/2019
9/27/2020
   
10
%
   
240,000
 
             
$
20,934,275
 
*Note currently in default.  The Company is currently working with noteholder to extend the note

F - 16


NOTE 6 – COMMITMENTS AND CONTINGENCIES

Operating Leases
 
The Company leases approximately 7,579 square feet of office space under a 62 month operating lease which expires in April 2023. The amounts reflected in the table below are for the aggregate future minimum lease payments under the non-cancelable facility operating leases.  Under lease agreements that contain escalating rent provisions, lease expense is recorded on a straight-line basis over the lease term.

The Company also leased office space under a 23 month operating lease which expired in August 2019. The amounts reflected in the table below are for the aggregate future minimum lease payments under the non-cancelable facility operating leases.  Under lease agreements that contain escalating rent provisions, lease expense is recorded on a straight-line basis over the lease term.

The Company also leases approximately 202 square feet of office space under a 12 month operating lease which originally expired in 2016.  The lease was renewed to May 2019, and is renewable at the Company’s option annually at a flat monthly amount of $400.  The amounts reflected in the table below are for the aggregate future minimum lease payments under the non-cancelable facility operating leases.
 
Rent expense was $150,666 and $155,474 for the nine months ended September 30, 2019 and 2018, respectively

As of September 30, 2019, future minimum lease payments are as follows:
 
Year Ending December 31,
     
2019 (three months)
 
$
38,924
 
2020
   
227,541
 
2021
   
232,628
 
2022
   
237,731
 
2023 and thereafter
   
18,569
 
Total minimum lease payments
 
$
755,393
 

On August 1, 2017, the Company entered into a 36 month lease of computer equipment.  The lease carries a monthly payment of $2,871 with the option to purchase the equipment at its fair market value at the end of the lease.

Restricted Stock Commitments

The Company has committed to settling a significant portion of its current accounts payable balances through the future issuance of restricted stock units.  While the terms of these agreements have not yet been formalized with employees and outside contractors, they could have a potentially dilutive effect to current shareholders.

NOTE 7 ‑ RELATED PARTY TRANSACTIONS

During the three and nine months ended September 30, 2019, the Company incurred interest expense on notes to related parties in the aggregate amount of $11,370 and $31,289, respectively (see Note 4 – Short term notes – related party & Note 5 – Convertible Notes).

Accounts payable related party

At September 30, 2019 and December 31, 2018, the Company had a balance in related party accounts payable of $367,011 and $9,690, respectively, which consisted of the following:

         
September 30,
   
December 31,
 
Party Name:
Relationship:
Nature of transactions:
 
2019
   
2018
 
John Bluher
Chief Financial Officer
Expense reimbursement
 
$
11,037
   
$
4,465
 
Robert Graham
Chairman and CEO
Expense reimbursement
   
10,688
     
-
 
John Hayes
Chief Technology Officer
Advances
   
300,000
     
-
 
John Hayes
Chief Technology Officer
Expense reimbursement
   
45,286
     
5,225
 
 
 
   
 
$
367,011
   
$
9,690
 

F - 17

Related Party Notes

During the nine months ended September 30, 2019 and the year ended December 31, 2018, the Company issued notes and converted notes to related parties, see Note 5 – Notes Payable, and Note 6 – Convertible Notes for full disclosure.

Equity issuances

On May 1,2019, the Company received $50,000 in proceeds for the issuance of Series B preferred stock at the unadjusted rate of $25 per share from J Allen Kosowsky, a director and related party.

NOTE 8 ‑ STOCKHOLDERS’ EQUITY

The Company is authorized to issue 500 million shares of common stock, par value $0.001 per share, and 50 million shares of preferred stock, par value $0.001 per share of which 48 million has been designated Series A Preferred Stock and 2 million designated as Series B Preferred Stock.  Each share of the Company’s Series A Preferred Stock was originally convertible into 10 shares of common stock, subject to adjustment, has voting rights equal to its common stock equivalent, 7% cumulative dividend rights, and has liquidation rights that entitle the holder to the receipt of net assets of the Company on a pro-rata basis.  On September 14, 2019, the Company designated its convertible Series B Preferred Stock, par value $0.001, with each share of Series B Preferred Stock convertible into 100 shares of common stock. The Series B Preferred Stock votes with common stock on an as converted basis as a single class, 8% cumulative dividend rights, and liquidation rights that entitle the holder to the receipt of net assets of the Company on a pro-rata basis.  The Company had 99,868,418 and 96,872,725 shares of common stock issued and outstanding as of September 30, 2019 and December 31, 2018, respectively, 3,577,370 Series A preferred shares issued and outstanding as of September 30, 2019 and December 31, 2018, and 14,000 and none shares of Series B Preferred Stock issued and outstanding as of September 30, 2019 and December 31, 2018.  The Company did not declare any dividends during the nine months ended September 30, 2019

During the nine months ended September 30, 2019, the Company received an aggregate $350,000 in proceeds for the issuance of Series B preferred stock at the unadjusted rate of $25 per share.

During the nine months ended September 30, 2019, the Company received an aggregate $1,983,755 in proceeds from the sale of 40,000 shares $50 per share of preferred stock in BlackRidge Research Inc.  These shares are convertible into 2,000,000 shares of common stock in Blackridge Research Inc. or convertible into shares of common stock of the Company at the rate 200 common shares per preferred share.  In conjunction with these sales, the company issued 4,000,000 warrants to purchase shares of  common stock of the Company at a price of $0.25 per share.  The Company valued the warrants at $189,594 using the Black Scholes pricing model.

NOTE 9 – SHARE BASED COMPENSATION

During the nine months ended September 30, 2019, the Company issued 3,031,000 5-year options to purchase common stock to employees and directors under the 2017 Stock Incentive Plan.  Additionally, the Company issued 18,500,000 5-year options to managers and executives of the Company outside of the 2017 Stock Incentive Plan.  The options were valued at $1,291,080 using the Black-Scholes pricing model.  As of September 30, 2019, the total unrecognized expense for unvested share based compensation is $2,314,696.  The 2017 Stock Incentive Plan allows for a maximum 25,000,000 shares to be issued, of which 5,314,152 shares remain available for issuance as of September 30, 2019.  The Company recognized stock option expenses during the three and nine months ended September 30, 2019 and 2018 of $269,397 and $707,453 and $500,560 and $708,684, respectively.

The fair values at the commitment date for the options were based upon the following management assumptions as of September 30, 2019:
  
 
 
Commitment
Date
 
Expected dividends
   
0
%
Expected term
 
5 years
 
Risk free rate
   
1.42 - 2.49
%
Volatility
   
47.64 – 48.46
%

F - 18

The activity of options granted to during the year ended December 31, 2018 and nine months ended September 30, 2019 is as follows:

   
Employee and Director
Options
Outstanding
   
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Life
 
Weighted
Average
Grant Date
Fair Value
 
Balance – December 31, 2017
   
6,962,560
   
$
0.60
 
4.65 years
 
$
0.28
 
Granted
   
10,390,741
   

0.33
 
5 years
 

0.16
 
Exercised
   
-
                   
Expired
   
(57,827
)
                 
Forfeited
   
(349,048
)
                 
Ending Balance – December 31, 2018
   
16,946,426
   

0.43
 
4.32 years
 

0.20
 
Granted
   
21,531,000
   

0.25
 
5 years
 

0.06
 
Exercised
   
-
                   
Expired
   
(63,839
)
                 
Forfeited
   
(227,738
)
                 
Ending Balance –September 30, 2019
   
38,185,848
   
$
0.33
 
4.33 years
 
$
0.12
 
Exercisable options
   
10,392,791
   
$
0.43
 
3.63 years
 
$
0.20
 

The Company’s outstanding employee options at September 30, 2019 are as follows:

Options Outstanding
 
Option Exercisable
 

Exercise Price Range
 
Number
Outstanding
 
Weighted Average
Remaining
Contractual Life (in
years)
 
Weighted Average
Exercise Price
 
Number
Exercisable
 
Weighted
Average
Exercise Price
 
Intrinsic Value
 
$
0.25 - $0.60
     
38,185,848
     
4.33
   
$
0.33
     
10,392,791
   
$
0.43
   
$
-
 
 
The weighted average fair value per option issued during the nine months ended September 30, 2019 was $0.06.

NOTE 10 – WARRANTS

During the nine months ended September 30, 2019, the Company issued 6,324,258 warrants to purchase common stock at a price of $0.25 per share.  The warrants vest ratably over a twelve month period. The Company valued the new warrants at $375,561 using the Black Scholes pricing model, $16,088 and $29,270 of which is included in selling, general and administrative expense on the Company’s statement of profit and loss for the three and nine months ended September 30, 2019, respectively.

The fair values at the commitment date for the warrants were based upon the following management assumptions as of September 30, 2019:
 
  
 
 
Commitment
Date
 
Expected dividends
   
0
%
Expected term
 
5 - 7 years
 
Risk free rate
   
1.51 - 2.62
%
Volatility
   
47.64 – 48.46
%

The activity of warrants granted to during the nine months ended September 30, 2019 and the year ended December 31, 2018 is as follows:

   
Warrants Outstanding
   
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Life
 
Weighted
Average
Grant Date
Fair Value
 
Balance – December 31, 2017
   
43,068,636
   
$
0.45
 
4.69 years
 
$
0.08
 
Granted
   
73,755,856
   

0.26
 
6.68 years
 

0.14
 
Exercised
   
-
                   
Expired
   
-
                   
Forfeited
   
(7,087,500
)
                 
Ending Balance – December 31, 2018
   
109,736,992
   

0.32
 
5.46 years
 

0.13
 
Granted
   
6,324,258
   

0.26
 
6.26 years
 

0.06
 
Exercised
   
-
                   
Expired
   
-
                   
Forfeited
   
-
                   
Ending Balance – September 30, 2019
   
116,061,250
   
$
0.32
 
4.78 years
 
$
0.13
 
Exercisable warrants
   
116,061,250
   
$
0.32
 
4.78 years
 
$
0.13
 

F - 19

The Company’s outstanding warrants at September 30, 2019 are as follows: