See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 six months ended June 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 June 30, 2019 and December 31, 2018, the Company had cash balances in excess of FDIC insured limits of $0 and $4,110,236, respectively.
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
|
|
Accounts Receivable
|
|
|
Six Months Ended June 30,
|
|
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Customer A
|
|
|
83
|
%
|
|
|
80
|
%
|
|
|
73
|
%
|
|
|
11
|
%
|
Customer B
|
|
|
15
|
%
|
|
|
3
|
%
|
|
|
19
|
%
|
|
|
89
|
%
|
Customer C
|
|
|
2
|
%
|
|
|
16
|
%
|
|
|
8
|
%
|
|
|
-
|
%
|
|
Revenue
|
|
|
Three Months Ended June 30,
|
|
|
2019
|
|
2018
|
|
Customer A
|
|
|
53
|
%
|
|
|
11
|
%
|
Customer B
|
|
|
44
|
%
|
|
|
-
|
%
|
Customer C
|
|
|
3
|
%
|
|
|
88
|
%
|
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 June 30, 2019 and December 31, 2018 consisted primarily of hardware appliances valued as follows:
|
|
As of
June 30,
2019
|
|
|
As of
December 31,
2018
|
|
Inventory
|
|
$
|
428,337
|
|
|
$
|
391,658
|
|
Less: allowance for obsolescence
|
|
|
(335,655
|
)
|
|
|
(335,655
|
)
|
|
|
$
|
92,682
|
|
|
$
|
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.
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
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Product
|
|
$
|
68,753
|
|
|
$
|
4,804
|
|
|
$
|
68,753
|
|
|
$
|
4,804
|
|
Technical support and other
|
|
|
(3,629
|
)
|
|
|
62,022
|
|
|
|
120,047
|
|
|
|
65,210
|
|
Total
|
|
$
|
65,124
|
|
|
$
|
66,826
|
|
|
$
|
188,800
|
|
|
$
|
70,014
|
|
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.
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 six months ended and as of June 30, 2019, the Company incurred a net loss of $15,609,911, had a working capital deficit of $18,232,214, and cash used in operations of $5,539,913. 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 six months ended June 30, 2019 and 2018, the Company capitalized $1,222,011 and $1,182,763, 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 $113,509 and
$226,977 and $134,824 and $253,954 related to intangible assets during the three and six months ended June 30, 2019 and 2018, respectively.
Intangible assets consisted of the following at June 30, 2019 and December 31, 2018:
|
|
As of
June 30,
2019
|
|
|
As of
December 31,
2018
|
|
Estimated
Useful Life
|
Patent Costs
|
|
|
554,874
|
|
|
|
542,846
|
|
15 years
|
Software Licenses
|
|
|
58,260
|
|
|
|
58,260
|
|
7 years
|
Software Development Costs
|
|
|
11,418,044
|
|
|
|
10,208,061
|
|
5 years
|
Less: accumulated amortization
|
|
|
(2,115,784
|
)
|
|
|
(1,888,807
|
)
|
|
|
|
$
|
9,915,394
|
|
|
$
|
8,920,360
|
|
|
Based upon currently launched products, the Company anticipates amortization expense of approximately $480,000 during each of the next five years.
NOTE 4 – NOTES PAYABLE
Short term notes
At June 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 six months ended June 30, 2019 and the year ended December 31, 2018:
|
|
June 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.
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 six months ended June 30, 2019 and the year ended December 31, 2018:
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
Beginning Balance
|
|
$
|
366,657
|
|
|
$
|
766,658
|
|
Repayments
|
|
|
(166,668
|
)
|
|
|
(400,001
|
)
|
Ending Balance
|
|
$
|
199,989
|
|
|
$
|
366,657
|
|
Short Term Portion of Long Term Debt
|
|
$
|
199,989
|
|
|
$
|
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 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 June 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 $14,759, 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. At
June 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 $145,973, 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 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. At
June 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 $144,986, 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 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. At June
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 $245,918, 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 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. At June 30, 2019, the principal balances were still outstanding and is included on the Company’s consolidated balance sheets. The Company had accrued interest for these notes in the amount of $171,123, 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 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. At June 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of
discounts at an aggregate $1,000,000. The Company had accrued interest for this note in the amount of $116,040, 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 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. At June 30, 2019, the principal balances were still outstanding and are included on the Company’s consolidated balance sheets net of discounts at an aggregate $1,536,443. The Company had accrued interest for these notes in the amount of
$177,041, which is included in accrued interest on the Company’s consolidated balance sheets.
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 June 30, 2019, the principal
balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at an aggregate $30,146. The Company had accrued interest for these notes in the amount of $2,801, 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 June 30, 2019, the
principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at an aggregate $190,214. The Company had accrued interest for these notes in the amount of $17,359, 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. At June 30, 2019, the
principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at an aggregate $180,102. The Company had accrued interest for these notes in the amount of $211,562, which is included in accrued
interest on the Company’s consolidated balance sheets.
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 June 30, 2019, the principal balance was still outstanding and is included
on the Company’s consolidated balance sheets net of discounts at an aggregate $13,105. The Company had accrued interest for these notes in the amount of $153,863, 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 June 30, 2019, the principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at an aggregate $2,101,242. The Company had accrued interest for these notes in the amount of
$142,767, which is included in accrued interest on the Company’s consolidated balance sheets.
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 June 30, 2019, $158,172 of the principal balance was still outstanding, and the Company had accrued interest for this note in the amount of $187,086 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 June 30, 2019, $200,000 of the principal balance was still outstanding, and the Company had accrued interest for this note in the
amount of $2,493, 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 June 30, 2019, $100,000 of the principal balance was still outstanding, and the Company had accrued interest for this note in the amount
of $1,688, 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 June 30, 2019, $300,000 of the principal balance was still outstanding, and the Company had accrued interest for this note in the
amount of $2,071, 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.
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 June 30, 2019 the principal balance was still outstanding and is included on the Company’s consolidated balance sheets net of discounts at $76,795. The Company had
accrued interest for this note in the amount of $18,280, 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 six months ended June 30, 2019 and the year ended December 31, 2018:
|
|
June 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
|
|
|
600,000
|
|
|
|
-
|
|
Repayments
|
|
|
(25,000
|
)
|
|
|
-
|
|
Restructuring of debt
|
|
|
-
|
|
|
|
(112,017
|
)
|
Conversion of notes payable into common stock
|
|
|
-
|
|
|
|
(570,000
|
)
|
Amortization of discounts
|
|
|
7,439,575
|
|
|
|
1,648,647
|
|
Ending Balance, net of discounts
|
|
$
|
11,486,219
|
|
|
$
|
3,471,644
|
|
Convertible notes, short term
|
|
$
|
17,860,274
|
|
|
$
|
17,860,274
|
|
Convertible notes, short term – related party
|
|
$
|
758,172
|
|
|
$
|
183,172
|
|
Convertible notes, long term
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Debt discounts
|
|
$
|
7,282,227
|
|
|
$
|
14,721,802
|
|
The following table summarizes the Company’s short term convertible notes payable as of June 30, 2019:
Note(s) Date
|
Maturity Date
|
|
Interest
|
|
|
Principal
|
|
1/31/2018*
|
1/31/2019
|
|
|
8
|
%
|
|
$
|
100,000
|
|
2/23/2018**
|
2/28/2019
|
|
|
9
|
%
|
|
|
1,000,000
|
|
2/27/2018**
|
2/28/2019
|
|
|
9
|
%
|
|
|
1,000,000
|
|
4/18/2018**
|
4/18/2019
|
|
|
9
|
%
|
|
|
2,000,000
|
|
5/4/2018**
|
5/31/2019
|
|
|
9
|
%
|
|
|
1,500,000
|
|
5/9/2018**
|
5/31/2019
|
|
|
9
|
%
|
|
|
1,028,274
|
|
7/5/2018**
|
7/5/2019
|
|
|
9
|
%
|
|
|
2,000,000
|
|
7/10/2018**
|
7/10/2019
|
|
|
9
|
%
|
|
|
32,000
|
|
7/13/2018**
|
7/13/2019
|
|
|
9
|
%
|
|
|
200,000
|
|
9/17/2018
|
9/17/2019
|
|
|
9
|
%
|
|
|
3,000,000
|
|
12/4/2018
|
12/4/2019
|
|
|
9
|
%
|
|
|
3,000,000
|
|
12/19/2018
|
12/19/2019
|
|
|
9
|
%
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
$
|
17,860,274
|
|
*Note currently in default. The Company is currently working with noteholder to extend the note
**Note maturity dates extended subsequent to the date of these financial statements
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 leases office space under a 23 month operating lease which expires during 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 six months ended June 30, 2019 and 2018, respectively.
As of June 30, 2019, future minimum lease payments are as follows:
Year Ending December 31,
|
|
|
|
2019 (six months)
|
|
$
|
101,619
|
|
2020
|
|
|
209,559
|
|
2021
|
|
|
214,107
|
|
2022
|
|
|
218,654
|
|
2023 and thereafter
|
|
|
18,569
|
|
Total minimum lease payments
|
|
$
|
762,508
|
|
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 six months ended June 30, 2019, the Company incurred interest expense on notes to related parties in the aggregate amount of $10,984 and $15,919, respectively (see Note 4 – Short term notes – related
party & Note 5 – Convertible Notes).
Accounts payable related party
At June 30, 2019 and December 31, 2018, the Company had a balance in related party accounts payable of $46,536 and $9,690, respectively, which consisted of the following:
|
|
|
|
June 30,
|
|
|
December 31,
|
|
Party Name:
|
Relationship:
|
Nature of transactions:
|
|
2019
|
|
|
2018
|
|
John Bluher
|
Chief Financial Officer
|
Expense reimbursement
|
|
$
|
75
|
|
|
$
|
4,465
|
|
Robert Graham
|
Chairman and CEO
|
Expense reimbursement
|
|
|
9,874
|
|
|
|
-
|
|
John Hayes
|
Chief Technology Officer
|
Expense reimbursement
|
|
|
36,587
|
|
|
|
5,225
|
|
|
|
|
|
$
|
46,536
|
|
|
$
|
9,690
|
|
Related Party Notes
During the six months ended June 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.
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. Each share of the Company’s 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. The Company had 97,297,725 and 96,872,725 common shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively and 3,577,370 Series A preferred shares issued and outstanding as of June 30, 2019 and
December 31, 2018. The Company did not declare any dividends during the six months ended June 30, 2019
During the six months ended June 30, 2019, the Company received an aggregate $350,000 in proceeds for the future issuance of Series B preferred stock at the unadjusted rate of $0.25 per share. The Company is currently
in the process of designating this series of preferred stock, at which time the subscriptions will be issued.
During the six months ended June 30, 2019, the Company received an aggregate $1,467,550 in proceeds from the sale of 30,000 shares $50 per share of preferred
stock in its Blackridge Research subsidiary. These shares are convertible into 1,500,000 common shares of Blackridge Research or convertible into common shares 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 common shares 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 six months ended June 30, 2019, the Company issued 248,000 5-year options to purchase common stock to employees and directors under the 2017 Stock Incentive Plan. The options were valued at $24,357 using the
Black-Scholes pricing model. As of June 30, 2019, the total unrecognized expense for unvested share based compensation is $1,584,394. The 2017 Stock Incentive Plan allows for a maximum 25,000,000 shares to be issued, of which 7,808,699 shares remain
available for issuance as of June 30, 2019. The Company recognized stock option expenses during the three and six months ended June 30, 2019 and 2018 of $219,201 and $438,056 and $106,711 and $208,124, respectively.
The fair values at the commitment date for the options were based upon the following management assumptions as of June 30, 2019:
|
|
Commitment
Date
|
|
Expected dividends
|
|
|
0
|
%
|
Expected term
|
|
5 years
|
|
Risk free rate
|
|
|
2.15 - 2.49
|
%
|
Volatility
|
|
|
48.21 – 48.46
|
%
|
The activity of options granted to during the year ended December 31, 2018 and six months ended June 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
|
|
|
248,000
|
|
|
$
|
0.25
|
|
5 years
|
|
$
|
0.10
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(3,125
|
)
|
|
$
|
0.35
|
|
4.5 years
|
|
$
|
0.16
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Ending Balance – June 30, 2019
|
|
|
17,191,301
|
|
|
$
|
0.43
|
|
3.89 years
|
|
$
|
0.20
|
|
Exercisable options
|
|
|
8,476,921
|
|
|
$
|
0.45
|
|
3.89 years
|
|
$
|
0.21
|
|
The Company’s outstanding employee options at June 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
|
|
|
|
17,191,301
|
|
|
|
3.89
|
|
|
$
|
0.43
|
|
|
|
7,808,699
|
|
|
$
|
0.45
|
|
|
$
|
-
|
|
The weighted average fair value per option issued during the six months ended June 30, 2019 was $0.10.
NOTE 10 – WARRANTS
During the six months ended June 30, 2019, the Company issued 4,625,000 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 $214,538 using the Black Scholes pricing model, $9,261 and $13,182 of which is included in selling, general and administrative expense on the Company’s statement of profit and loss for the three and six months ended June 30, 2019,
respectively.
The fair values at the commitment date for the warrants were based upon the following management assumptions as of June 30, 2019:
|
|
Commitment
Date
|
|
Expected dividends
|
|
|
0
|
%
|
Expected term
|
|
5 - 7 years
|
|
Risk free rate
|
|
|
1.76 - 2.62
|
%
|
Volatility
|
|
|
48.21 – 48.46
|
%
|
The activity of warrants granted to during the six months ended June 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
|
|
|
4,625,000
|
|
|
$
|
0.25
|
|
6.73 years
|
|
$
|
0.05
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Ending Balance – June 30, 2019
|
|
|
114,361,992
|
|
|
$
|
0.32
|
|
5.04 years
|
|
$
|
0.13
|
|
Exercisable options
|
|
|
114,361,992
|
|
|
$
|
0.32
|
|
5.04 years
|
|
$
|
0.13
|
|
The Company’s outstanding warrants at June 30, 2019 are as follows:
Warrants Outstanding
|
|
Warrants 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
|
|
|
$
|
0.01 - $0.70
|
|
|
|
114,361,992
|
|
|
|
5.04
|
|
|
$
|
0.32
|
|
|
|
109,771,492
|
|
|
$
|
0.32
|
|
|
$
|
525,463
|
|
NOTE 11 – EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is
computed by dividing net income (loss) for the period by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.
Since the Company reflected a net loss for the six months ended June 30, 2019 and the year ended December 31, 2018, respectively, the effect of considering any common stock equivalents, if exercisable, would have been
anti-dilutive. Therefore, a separate computation of diluted earnings (loss) per share is not presented.
The Company has the following common stock equivalents as of June 30, 2019 and December 31, 2018:
|
|
As of
June 30,
2019
|
|
|
As of
December 31,
2018
|
|
Warrants (exercise price $0.01 - $0.70/share)
|
|
|
114,361,992
|
|
|
|
109,736,992
|
|
Options (exercise price $0.25 - $0.66/share)
|
|
|
20,681,176
|
|
|
|
20,436,601
|
|
Preferred Stock (exchange ratio 16.69 – 16.97)
|
|
|
60,711,871
|
|
|
|
59,691,998
|
|
Preferred Stock in BlackRidge Research (exchange ratio 200)
|
|
|
8,000,000
|
|
|
|
-
|
|
Convertible Debt
|
|
|
2,400,000
|
|
|
|
-
|
|
|
|
|
206,155,039
|
|
|
|
189,865,591
|
|
NOTE 12 - SUBSEQUENT EVENTS
We have evaluated all events that occurred after the balance sheet date through the date when our financial statements were issued to determine if they must be reported. Management has determined that other than those
listed below, there were no additional reportable subsequent events to be disclosed.
Notes Payable
Effective July 25, 2019, The Company extended several matured notes totaling $8,528,274 to a new one year term maturing July 25, 2020. In conjunction with these extensions, aggregate accrued interest of $1,062,502 was
added to the principle of the outstanding notes. The extended notes bear interest at the original interest rate of 9%, and have a default rate of 15%.
Equity Issuance
On August 5, 2019, the Company received $500,000 in proceeds from the sale of 10,000 shares, or $50 per share, of preferred stock in its Blackridge Research
subsidiary. These shares are convertible into an equal number of common shares of Blackridge Research or convertible into common shares of the Company at the rate of 200 common shares per preferred share.