UNITED STATES
SECURITIES AND EXCHANGE COMMIS SION
Washington, D.C. 20549

FORM 10-Q
 
☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2018
☐
       .   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.)

10615 Professional Circle, Suite 201
Reno, NV 89521
(Address of Principal Executive Offices)

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

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 and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted 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 and post such files). Yes X . No ☐      .

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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
☐  (Do not check if a smaller reporting company)
Smaller reporting company
☒
Emerging growth company
  .☐.
   

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(aq) of the Exchange Act.  Yes☐    No X .

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:

The number of shares outstanding of each of the Registrant's classes of common equity, as of the latest practicable date:
        
Class
Outstanding as of May 15, 2018
Common Capital Voting Stock, $0.001 par value per share
77,922,902 shares


FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, Financial Statements and Notes to Financial Statements contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. 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.


PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

March 31, 2018

C O N T E N T S

PART I - Financial Information
 
   
Item 1.  Financial Statements  (Unaudited)
Page
   
 
Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017
 2
     
 
Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017
 3
     
 
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017
 4
     
 
Notes to Consolidated Financial Statements
 5
     
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations 
 14
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk 
 21
   
Item 4.  Controls and Procedures 
 21
 
 
 
 PART II - Other Information 
 
   
Item 1.  Legal Proceedings 
 22
   
Item 1A.  Risk Factors 
 22
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 
 22
   
Item 3.  Defaults upon Senior Securities 
 22
   
Item 4.  Mine Safety Disclosures 
 22
   
Item 5.  Other Information 
 22
   
Item 6.  Exhibits 
 23
   
Signatures 
 24


1
BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS

   
March 31,
   
December 31,
 
   
2018
   
2017
 
   
(unaudited)
       
ASSETS
           
Current Assets
           
Cash
 
$
300,438
   
$
421,869
 
Accounts receivable
   
115,925
     
217,380
 
Inventory
   
41,580
     
40,408
 
Prepaid expenses
   
396,058
     
361,642
 
Total Current Assets
   
854,001
     
1,041,299
 
                 
Property and equipment, net
   
85,426
     
87,628
 
Intangible assets, net
   
7,502,518
     
7,043,644
 
Total Assets
 
$
8,441,945
   
$
8,172,571
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current Liabilities
               
Accounts payable and accrued expenses
 
$
2,935,128
   
$
2,633,610
 
Accounts payable and accrued expenses – related party
   
28,179
     
68,060
 
Accrued interest
   
101,848
     
59,545
 
Accrued interest – related party
   
218,563
     
180,066
 
Advances – related party
   
140,000
     
65,000
 
Wages payable
   
2,440,078
     
2,133,210
 
Deferred revenue
   
5,573
     
8,760
 
Short-term notes payable
   
50,232
     
50,232
 
Short term notes payable – related party
   
350,657
     
-
 
Current portion of long term debt
   
400,000
     
400,000
 
Convertible notes, short term
   
9,552
     
-
 
Convertible notes, short term – related party
   
521,172
     
521,172
 
Total Current Liabilities
   
7,200,982
     
6,119,655
 
                 
Noncurrent Liabilities
               
Contingent liability
   
37,500
     
37,500
 
Notes payable
   
266,658
     
366,658
 
Convertible notes, long term, net of discounts
   
111,641
     
80,404
 
Total Liabilities
   
7,616,781
     
6,604,217
 
                 
Stockholders' Equity
               
Preferred Stock, Par Value $.001, 10,000,000 shares authorized; 3,594,610 and 3,639,783 issued and outstanding at March 31, 2018 and December 31, 2017, respectively
   
3,595
     
3,640
 
Common Stock, Par Value $.001, 200,000,000 shares authorized; 77,922,902 and 77,063,171 issued and outstanding at March 31, 2018 and December 31, 2017, respectively
   
77,923
     
77,063
 
Additional paid-in capital
   
53,874,800
     
51,384,027
 
Accumulated deficit
   
(53,131,154
)
   
(49,896,376
)
Subscription payable
   
-
     
-
 
Total Stockholders' Equity
   
825,164
     
1,568,354
 
Total Liabilities and Stockholders' Equity
 
$
8,441,945
   
$
8,172,571
 

See accompanying notes to the unaudited consolidated financial statements.
2

BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
For the
Three Months Ended
 
 
 
March 31,
   
March 31,
 
 
 
2018
   
2017
 
 
           
Revenue
 
$
3,188
   
$
28,741
 
Cost of Goods Sold
   
50
     
-
 
Gross Profit
   
3,138
     
28,741
 
 
               
Operating Expenses:
               
Engineering
   
39,814
     
40,239
 
General and administrative
   
3,058,623
     
1,556,509
 
Total operating expenses
   
3,098,437
     
1,596,748
 
 
               
Loss From Operations
   
(3,095,299
)
   
(1,568,007
)
                 
Other Income (Expense)
               
Interest expense
   
(100,982
)
   
(65,742
)
Interest expense – related party
   
(38,497
)
   
(160,838
)
Total other income (expense)
   
(139,479
)
   
(226,580
)
                 
Net Loss Before Income Taxes
   
(3,234,778
)
   
(1,794,587
)
                 
Income Tax
   
-
     
-
 
                 
Net Loss From Continuing Operations
   
(3,234,778
)
   
(1,794,587
)
                 
Discontinued Operations
               
Loss on disposal of discontinued operations
   
-
     
(484,927
)
Loss from discontinued operations
   
-
     
(8,737
)
Loss on discontinued operations
   
-
     
(493,664
)
 
               
Net Loss
 
$
(3,234,778
)
 
$
(2,288,251
)
                 
Loss From Continuing Operations per Common Share - Basic and Diluted
 
$
(0.04
)
 
$
(0.11
)
Loss From Discontinued Operations per Common Share - Basic and Diluted
 
$
-
     
(0.02
)
                 
Weighted Average Shares Outstanding - Basic and Diluted
   
78,092,929
     
17,046,510
 
 
See accompanying notes to the unaudited consolidated financial statements.
3
 
BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Three Months Ended
March 31,
 
   
2018
   
2017
 
Cash Flows From Operating Activities
           
Net loss
 
$
(3,234,778
)
 
$
(2,288,251
)
Net loss from discontinued operations
   
-
     
493,664
 
Net loss from continuing operations
   
(3,234,778
)
   
(1,794,587
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
   
121,332
     
75,193
 
Amortization of debt discounts
   
57,951
     
29,002
 
Warrants issued in conjunction with advances
   
-
     
27,945
 
Common stock issued in conjunction with contracts
   
123,670
     
-
 
Share based compensation
   
101,413
     
-
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
101,455
     
(3,540
)
Inventory
   
(1,172
)
   
-
 
Prepaid expenses
   
(34,416
)
   
(55,300
)
Accounts payable
   
301,518
     
323,513
 
Accounts payable – related party
   
(39,881
)
   
63,140
 
Accrued interest
   
42,303
     
7,790
 
Accrued interest – related party
   
38,497
     
161,544
 
Deferred revenue
   
(3,187
)
   
(251
)
Wages payable
   
283,530
     
246,233
 
Net Cash Used in Operating Activities, Continuing Operations
   
(2,141,765
)
   
(919,318
)
Net Cash Provided by Operating Activities, Discontinued Operations
   
-
     
45,028
 
Net Cash Used in Operating Activities
   
(2,141,765
)
   
(874,290
)
                 
Cash Flows From Investing Activities
               
Proceeds from business acquisition
   
-
     
10,559
 
Purchases of intangible assets
   
(554,666
)
   
(150,570
)
Net Cash Used in Investing Activities, Continuing Operations
   
(554,666
)
   
(140,011
)
Net Cash Used in Investing Activities, Discontinued Operations
   
-
     
-
 
Net Cash Used in Investing Activities
   
(554,666
)
   
(140,011
)
                 
Cash Flows From Financing Activities
               
Proceeds from sale of common stock
   
-
     
2,747,572
 
Proceeds from sale of preferred stock
   
-
     
275,000
 
Proceeds from short term notes – related party
   
500,000
     
-
 
Proceeds from subscriptions payable
   
-
     
20,000
 
Proceeds from issuance of short term convertible notes
   
2,100,000
     
100,000
 
Proceeds from advances
   
-
     
40,000
 
Proceeds from advances – related party
   
75,000
     
50,000
 
Repayments on long term debt
   
(100,000
)
   
(122,229
)
Net Cash Provided by Financing Activities, Continuing Operations
   
2,575,000
     
3,110,343
 
Net Cash Used in Financing Activities, Discontinued Operations
   
-
     
(54,735
)
Net Cash Provided by Financing Activities
   
2,575,000
     
3,055,608
 
                 
Net Increase (Decrease) In Cash
   
(121,431
)
   
2,041,307
 
Cash, Beginning of Period
   
421,869
     
57,033
 
Cash, End of Period
 
$
300,438
   
$
2,098,340
 
                 
Non-Cash Investing and Financing Activities
               
Wages payable included in capitalized intangible assets
 
$
23,338
   
$
119,588
 
Common stock converted to preferred stock
 
$
-
   
$
500
 
Preferred stock converted to common stock
 
$
536
   
$
-
 
Business acquisition
 
$
-
   
$
483,957
 
Warrants issued in conjunction with debt agreements
 
$
1,219,524
   
$
31,002
 
Warrants issued and expensed in conjunction with advances
 
$
-
   
$
27,945
 
Beneficial conversion features
 
$
1,046,982
   
$
-
 
                 
Supplemental Disclosure of Cash Flow Information:
               
Cash paid for interest
 
$
728
   
$
2,445
 
Cash paid for income taxes
 
$
-
   
$
-
 

See accompanying notes to the unaudited consolidated financial statements.
4

BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization   –   BlackRidge Technology International, Inc. (the "Company") was incorporated under the laws of the State of Nevada on March 15, 2004 under the name " Grote Molen, Inc."   The Company sells identity-based network security to protect hybrid cloud and mainframe workloads from cyber-attacks and insider threats.

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 September 22, 2017, the Company formed a new business subsidiary called BlackRidge Secure Blockchain to pursue new market opportunities for securing blockchain applications.

On October 13, 2017, the Company formed a new business subsidiary called BlackRidge Secure Services 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.

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 Blockchain, Inc
BlackRidge Secure Services, Inc.

All intercompany balances have been eliminated in consolidation.

Basis of Presentation – The accompanying consolidated financial statements as of March 31, 2018 and for the three months ended March 31, 2018 and 2017 are unaudited.  In the opinion of management, all adjustments have been made, consisting of normal recurring items, that are necessary to present fairly the consolidated financial position as of March 31, 2018 as well as the consolidated results of operations and cash flows for the three months ended March 31, 2018 and 2017 in accordance with U.S. generally accepted accounting principles.  The results of operations for any interim period are not necessarily indicative of the results expected for the full year.  The interim consolidated financial statements and related notes thereto should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2017.

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 months ended March 31, 2018 are not necessarily indicative of the final results that may be expected for the year ended December 31, 2018. 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, 2017 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.
5

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 March 31, 2018, the Company did not have any cash balances in excess of FDIC insured limits.  At December 31, 2017, the Company had cash balances in excess of FDIC insured limits of $169,751.

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
 
 
Three Months Ended
March 31,
 
March 31,
 
 
Customers
 
2018
 
2017
 
2018
 
2017
 
Customer A
   
37
%
   
90
%
   
-
     
-
 
Customer B
   
63
%
   
9
%
   
-
     
-
 


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 March 31, 2018 and December 31, 2017 consisted primarily of hardware appliances valued as follows:

 
 
As of
March 31,
2018
   
As of
December 31,
2017
 
Inventory
 
$
377,235
   
$
376,063
 
Less: allowance for obsolescence
   
(335,655
)
   
(335,655
)
 
 
$
41,580
   
$
40,408
 

Revenue Recognition - We account for product revenue in accordance with Accounting Standards Codification 606, Revenue Recognition, and all related interpretations.  Revenue is recognized when the following criteria are met:

·
Identification of the contract, or contracts, with a customer
·
Identification of the performance obligations in the contract 
·
Determination of the transaction price
·
Allocation of the transaction price to the performance obligations in the contract 
·   Recognition of revenue when, or as, we satisfy performance obligation

Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.

Revenue recognition for multiple-element arrangements requires judgment to determine if multiple elements exist, whether elements can be accounted for as separate units of accounting, and if so, the fair value for each of the elements.

The Company may enter into arrangements that can include various combinations of software, services, and hardware. Where elements are delivered over different periods of time, and when allowed under U.S. GAAP, revenue is allocated to the respective elements based on their relative selling prices at the inception of the arrangement, and revenue is recognized as each element is delivered. We use a hierarchy to determine the fair value to be used for allocating revenue to elements: (i) vendor-specific objective evidence of fair value ("VSOE"), (ii) third-party evidence, and (iii) best estimate of selling price ("ESP"). For software elements, we follow the industry specific software guidance which only allows for the use of VSOE in establishing fair value. Generally, VSOE is the price charged when the deliverable is sold separately, or the price established by management for a product that is not yet sold if it is probable that the price will not change before introduction into the marketplace. ESPs are established as best estimates of what the selling prices would be if the deliverables were sold regularly on a stand-alone basis. Our process for determining ESPs requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable.
6

Any revenue received that does not yet meet the above recognition standards is recorded to unearned revenue and held as a liability until recognition occurs.

Earnings (Loss) Per Share – The basic computation of loss per share is based on the weighted average number of shares outstanding during the period presented in accordance with ASC 260, "Earnings Per Share".  The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the period.  Common stock equivalents are not included in the diluted earnings per share calculation when their effect is antidilutive.

Share-Based Payments and Stock-Based Compensation – Share-based compensation awards, including stock options and restricted stock awards, are recorded at estimated fair value on the applicable award's grant date, based on estimated number of awards that are expected to vest. The grant date fair value is amortized on a straight-line basis over the time in which the awards are expected to vest, or immediately if no vesting is required. Share-based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the fair value of the share-based payments whichever is more readily determinable. The fair value of restricted stock awards is based on the fair value of the stock underlying the awards on the grant date as there is no exercise price.

Property and Equipment - Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the respective assets or, in the case of leasehold improvements, the remaining lease term, if shorter. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are removed, and the resulting gains or losses are recorded as part of other income or expense in the statements of operations. Repairs and maintenance costs are expensed as incurred.

The estimated useful lives of the property and equipment are as follows:
 
Property and Equipment
Estimated Useful Life
Building improvements
15 years
Furniture, fixtures and equipment
7 years
Computer equipment
5 years


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, 2018, 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.

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 three months ended March 31, 2018 the Company incurred a net loss of $3,234,778 and inception to date losses are equal to $53,131,154.  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 three months ended March 31, 2018 and 2017, the Company capitalized $578,004 and $119,588, respectively, towards the development of software, intellectual property, and patent expenses.
7

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 recorded amortization of $119,130 and $75,193 related to intangible assets during the three months ended March 31, 2018 and 2017, respectively.

NOTE 4 – NOTES PAYABLE

Short term notes

At March 31, 2018 and December 31, 2017, the Company had outstanding short-term debt totaling $50,232, respectively.  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 some of these notes have exceeded their initial maturity dates, they are subject to the default interest rate of 18% per annum.

The following table summarizes the Company's short-term notes payable for the three months ended March 31, 2018 and the year ended December 31, 2017:

   
March 31,
2018
   
December 31,
 2017
 
Beginning Balance
 
$
50,232
   
$
89,221
 
Notes acquired in business acquisition
   
-
     
208,811
 
Repayments – continuing operations
   
-
     
(38,989
)
Repayments – discontinued operations
   
-
     
(53,132
)
Notes divested in disposal of discontinued operations
   
-
     
(155,679
)
Ending Balance
 
$
50,232
   
$
50,232
 

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 the rate of $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 debt agreement.  At March 31, 2018, the Company has accrued interest for this note in the amount of $6,466 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.

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 three months ended March 31, 2018 and the year ended December 31, 2017:


   
March 31,
2018
   
December 31,
2017
 
Beginning Balance
 
$
766,658
   
$
1,200,000
 
Notes acquired in business acquisition
   
-
     
136,830
 
Repayments – continuing operations
   
(100,000
)
   
(433,342
)
Repayments – discontinued operations
   
-
     
(1,603
)
Notes divested in disposal of discontinued operations
   
-
     
(135,227
)
Ending Balance
 
$
666,658
   
$
766,658
 
Short Term Portion of Long Term Debt
 
$
400,000
   
$
400,000
 
Long Term Debt
 
$
266,658
   
$
366,658
 

8
NOTE 5 – CONVERTIBLE NOTES

Short term convertible notes

On January 31, 2018, the Company issued a $100,000 convertible note bearing interest at 9% per annum.  The note matures on February 29, 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 $46,991 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 312,500 shares of the company's common stock at an exercise price of $0.32 per share.  The warrants were valued at $46,991 using the Black-Scholes pricing model and were recorded as a discount to the debt agreement.  At March 31, 2018, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at $9,491. The Company had accrued interest for this note in the amount of $1,293, which is included in accrued interest on the Company's consolidated balance sheets.

On February 23, 2018, the Company issued a $1,000,000 convertible note bearing interest at 9% per annum.  The note matures on February 29, 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 $459,447 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 $540,553 using the Black-Scholes pricing model and were recorded as a discount to the debt agreement.  At March 31, 2018, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at $33. The Company had accrued interest for this note in the amount of $7,890, which is included in accrued interest on the Company's consolidated balance sheets.
 
On February 27, 2018, the Company issued an additional $1,000,000 convertible note bearing interest at 9% per annum.  The note matures on February 29, 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 $458,756 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 $541,244 using the Black-Scholes pricing model and were recorded as a discount to the debt agreement.   At March 31, 2018, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at $28.  The Company had accrued interest for this note in the amount of $7,014, 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 Council (as defined below) 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 March 31, 2018 and December 31, 2017, the principal balance was still outstanding, and the Company had accrued interest for this note in the amount of $151,070 and $136,469, respectively, 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, the Company's Chief Technology Officer 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.  At March 31, 2018 and December 31, 2017, the Company has accrued interest for this note in the amount of $61,027 and $17,431, respectively, 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.

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 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 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 debt agreement.  At March 31, 2018 and December 31, 2017, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at $14,603 and $10,521, respectively.  The Company had accrued interest for this note in the amount of $3,288 and $329, respectively, which is included in accrued interest on the Company's consolidated balance sheets.
9

On December 22, 2017, the Company issued a $1,000,000 convertible note bearing interest at 8% per annum.  The note matures on December 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 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 debt agreement.  At March 31, 2018 and December 31, 2017, the principal balance was still outstanding and is included on the Company's consolidated balance sheets net of discounts at $97,038 and $69,883, respectively, and the Company had accrued interest for this note in the amount of $21,699 and $1,973, respectively, which is included in accrued interest on the Company's consolidated balance sheets.

Long term convertible notes – related party
 
During 2011 to 2014, the Company's Chief Technology Officer and significant shareholder of the Company loaned a total of $2,673,200 to the Company.  On October 1, 2014, all prior notes including accrued interest were combined into a single $3,712,637 convertible note bearing interest at 12% annually and convertible into 4,125,154 shares of Series A preferred stock at the rate of $0.90 per share.  On November 9, 2017, the Company converted the note and accrued interest of $1,665,991 into 10,757,254 shares of the Company's common stock at a conversion rate of $0.50 per share.  The Company also issued a 5 year warrant to purchase an additional 5,378,627 shares of the Company s common stock at a purchase price of $0.50 per share as further consideration for this conversion.  The Company recognized a loss on extinguishment of debt related to this transaction of $913,238.

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 three months ended March 31, 2018 and the year ended December 31, 2017:

   
March 31,
2018
   
December 31,
2016
 
Beginning Balance
 
$
601,576
   
$
3,996,810
 
Proceeds from issuance of convertible notes, net of issuance discounts
   
6,036
     
146,669
 
Proceeds from issuance of convertible notes – related party
   
-
     
237,000
 
Repayments
   
-
     
(100,000
)
Conversion of notes payable into common stock
   
-
     
(3,712,638
)
Amortization of discounts
   
34,752
     
33,735
 
Ending Balance
 
$
642,364
   
$
601,576
 
Convertible notes, short term
 
$
2,100,000
   
$
-
 
Convertible notes, long term
 
$
1,150,000
   
$
1,150,000
 
Convertible notes, short term – related party
 
$
521,172
   
$
521,172
 
Debt discounts
 
$
3,128,808
   
$
1,069,596
 


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 during 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 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 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.
10
 
Rent expense was $74,737 and $51,378 for the three months ended March 31, 2018 and 2017, respectively.

As of March 31, 2018, future minimum lease payments are as follows:
 
Year Ending December 31,
     
2018 (nine months)
 
$
206,461
 
2019
   
259,851
 
2021
   
209,559
 
2021
   
214,107
 
2022
   
218,654
 
2023 and thereafter
   
18,569
 
Total minimum lease payments
 
$
1,127,201
 

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.

Contingent Liability

On October 15, 2011, the Company entered into an agreement with a consultant by which the consultant's invoices for the previous four months would be accrued as a liability to be paid out upon (a) the Company's successful raising of $10,000,000 in capital funding, or (b) the Company reaching total revenues of $10,000,000.  The Company has a balance due under this agreement of $37,500 at March 31, 2018 and December 31, 2017, respectively.

Legal Proceedings

On December 2, 2016, AltEnergy Cyber, LLC ("Plaintiff") instituted a legal action in Connecticut against the Company and Robert Zahm.  The complaint alleged that (i) the Company improperly extended the maturity date of the Plaintiff's convertible note in the amount of $1,500,000 and (ii) improperly converted the loan into the Company's stock. The Complaint alleges that the Company is liable to the Plaintiff for $4,500,000 plus interest.  This litigation is still ongoing.   During the year ended December 31, 2017, Robert Zahm was dismissed from the proceedings for lack of personal jurisdiction.  On March 29, 2018, the AltEnergy Cyber, LLC's legal action was dismissed through a motion for summary judgement.  As of the date of this filing, the appeal period has expired and it is the Company's belief that this matter is fully resolved through the dismissal.

NOTE 7 ‑ RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2018, the Company incurred interest expense on notes to related parties in the aggregate amount of $38,497 (see Note 5 – Convertible Notes).

Accounts payable related party

At March 31, 2018 and December 31, 2017, the Company had a balance in related party accounts payable of $28,179 and $68,060, respectively, which consisted of the following:
 
         
March 31,
   
December 31,
 
Party Name:
Relationship:
Nature of transactions:
 
2018
   
2017
 
John Hayes
Chief Technology Officer
Expense reimbursement
 
$
22,179
   
$
55,254
 
Robert Graham
Chairman and Chief Executive Officer
Expense reimbursement
   
-
     
6,806
 
Robert Graham
Chairman and Chief Executive Officer
Rent
   
6,000
     
6,000
 
 
 
   
 
$
28,179
   
$
68,060
 

11
Advances related party

During the three months ended March 31, 2018, the Company received advances of $50,000 from Mag Ventures, a company controlled by Tom Bruderman, a director and shareholder.  These advances are included in Advances – related party on the Company's Balance sheet.

During the three months ended March 31, 2018, the Company received advances of $25,000 from J. Allen Kosowsky, a director and shareholder.  These advances are included in Advances – related party on the Company's Balance sheet.

At March 31, 2018 and December 31, 2017, the Company had a balance in related party advances of $140,000 and $65,000, respectively, which consisted of the following:

      
December 31,
   
December 31,
 
Party Name:
Relationship:
 
2017
   
2016
 
J Allen Kosowsky
Director
 
$
25,000
   
$
-
 
Thomas Bruderman
Director and significant shareholder
   
115,000
     
65,000
 
 
  
 
$
140,000
   
$
65,000
 


NOTE 8 ‑ STOCKHOLDERS' EQUITY

The Company has authorized 200 million shares of common stock, par value $.001 per share, and 10 million shares of preferred stock, par value $.001 per share.  Each share of the Company's preferred stock is 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 recipient to the receipt of net assets on a pro-rata basis.  The Company has 77,922,902 and 77,047,617 common shares issued and outstanding and 3,594,610 and 3,639,783 Series A preferred shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively.

During the three months ended March 31, 2018, the Company issued an aggregate 624,166 shares of the Company's common stock pursuant to consulting contracts valued at $363,670, or and average of  $0.58 per share.

During the three months ended March 31, 2018, the Company converted an aggregate 45,173 shares of the Company's preferred stock into 535,565 shares of the Company's common stock after receiving conversion exercises from multiple preferred stockholders.

On March 30, 2018, a contractor rescinded a provision in its contract for common stock payments, and returned 300,000 shares previously issued to them during 2017.  The Company retired the returned shares and recaptured the original $240,000 expensed when the shares were issued.


NOTE 9 – SHARE BASED COMPENSATION

During the year ended December 31, 2017, the Company issued 5,570,000 5 year options to purchase common stock to employees and directors under the 2017 Stock Incentive Plan.  The options were valued at $1,557,089 using the Black-Scholes pricing model.  As of March 31, 2018, the total unrecognized expense for unvested share based compensation was $1,345,576.  The 2017 Stock Incentive Plan allows for a maximum 25,000,000 shares to be issued, of which 19,430,000 shares remain available for issuance as of March 31, 2018.
The activity of options granted to during the three months ended March 31, 2018 is as follows:


   
Employee and
Director
Options
Outstanding
   
Weighted
Average
Exercise
Price
 
Weighted
Average
 Remaining Life
 
Weighted
Average
Grant Date
Fair Value
   
Intrinsic Value
Beginning Balance – December 31, 2017
   
5,570,000
   
$
0.60
 
4.65 years
 
$
0.28
      
Granted
   
-
                                  
Exercised
   
-
                                  
Cancelled
   
-
                                  
Ending Balance – March 31, 2018
   
5,570,000
   
$
0.60
 
4.4 years
 
$
0.28
  $   15,113
Exercisable options
   
755,648
   
$
0.60
 
4.4 years
 
$
0.28
  $
15,113

The weighted average fair value per option issued during the year ended December 31, 2017 was $0.28.
 
The following table summarizes non-vested option activity during the three months ended March 31, 2018;

   
Non-Vested
Options
   
Weighted
Average
 Grant Date Fair Value
 
Beginning Balance – December 31, 2017
   
5,177,042
   
$
0.28
 
Granted
   
-
         
Vested
   
(362,690
)
       
Forfeited
   
-
         
Ending Balance – March 31, 2018
   
4,814,352
   
$
0.28
 
 

12
NOTE 10 – BUSINESS ACQUISITION

On September 6, 2016, the Company and BlackRidge entered into an Agreement and Plan of Reorganization (the "Reorganization Agreement") originally dated as of September 6, 2016, and amended on February 22, 2017 to update the number of common shares, warrants, and options granted and outstanding as of the closing date.

On February 22, 2017, we completed the actions contemplated by the Reorganization Agreement and merged with and into BlackRidge with BlackRidge continuing as the surviving corporation ("Reorganization"). Upon completion of the Agreement, we issued 3,783,791 shares of our newly designated Series A Preferred Stock and 12,825,683 shares of common stock to the stockholders of BlackRidge in exchange for all the issued and outstanding shares of Series A Preferred Stock and common stock of BlackRidge.  Additionally, certain stockholders of BlackRidge returned for cancellation a total of 16,284,330 shares of our common stock.  Upon the completion of the Reorganization, BlackRidge became a wholly-owned subsidiary of the Company and the Company had a total of 3,783,791 shares of Series A Preferred Stock and 21,790,683 shares of common stock outstanding, with the former BlackRidge stockholders owning 3,783,791 shares or 100% of Series A Preferred Stock and 12,825,683 shares or approximately 58.9% of common stock.  Upon completion of the Reorganization, we also had outstanding warrants entitling the holders to acquire a total of 18,541,579 shares of the Company's common stock at an average exercise price of $0.46 per share.  The Reorganization resulted in a change of control of the Company.  For accounting purposes, BlackRidge was treated as the acquirer and the historical financial statements of BlackRidge became the Company's historical financial statements.  The acquisition is intended to constitute a tax-free reorganization pursuant to the applicable provisions of the Internal Revenue Code of 1986, as amended.

NOTE 11 – DISCONTINUED OPERATIONS

On March 31, 2017, the Company completed the sale of substantially all the assets, other than cash, used in or connection with the Company's home grain mill and kitchen mixer business to John Hofman and Bruce Crane, former officers and directors of the Company, in consideration for the assumption by such persons of substantially all the liabilities incurred by the Company in connection with such business.  The assets divested consisted of the non-cybersecurity assets of the Company and included accounts receivable, inventory, deposits, property and equipment and intangible assets.  The liabilities divested included the non-cybersecurity liabilities of the Company and included accounts payable and accrued expenses and long and short-term notes payable and accrued interest thereon.  Upon completion of the divestiture, the Company recognized a $484,927 loss on disposal.  Additionally, during the period from February 22, 2017 through March 31, 2017, the Company incurred a loss from discontinued operations of $8,737.

The following table shows the value of assets and liabilities divested:

Assets
     
Accounts receivable
 
$
40,044
 
Deposits and prepaid expenses
   
90,559
 
Inventory
   
1,157,555
 
Property and equipment
   
117,254
 
Intangible assets
   
62,820
 
Total Assets
   
1,468,232
 
         
Liabilities
       
Accounts payable and accrued expenses
   
692,399
 
Notes payable – short term
   
64,000
 
Notes payable – short term, related party
   
91,679
 
Line of credit
   
135,227
 
Total Liabilities
   
983,305
 
         
Loss on disposal
 
$
484,927
 


13
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 as disclosed below, there were no additional reportable subsequent events to be disclosed.

Notes Payable

Between April and May 2018, the Company issued aggregate convertible notes to several investors payable in the aggregate amount of $3,500,000.  These notes bear interest in the amount of 9% per annum and are convertible into shares of Series B Preferred Stock at a price per share of $0.32.  In addition, the Company issued an aggregate 10,937,500 warrants to purchase shares of the Company's common stock at a price per share of $0.25 in conjunction with these notes.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-looking Statements

Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and our business, including, without limitation, (i) our ability to raise capital, and (ii) 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.

Forward-looking statements involve 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 communities 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, 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.

General

BlackRidge Technology International, Inc., formerly known as Grote Molen, Inc., ("we," "us," "our," the "Company" or "BlackRidge") was incorporated under the laws of the State of Nevada on March 15, 2004.

We develop and market next generation cyber defense solutions that stop cyber-attacks and block unauthenticated access. Our network and server security products are based on our patented Transport Access Control technology and are designed to isolate, cloak and protect servers and cloud services and segment networks for regulatory compliance. BlackRidge products are used in enterprise and government computing environments, the industrial Internet of Things ("IoT"), and other cloud service provider and network systems.

Business

The Company develops, markets and supports a family of products that provide a next generation cyber security solution for protecting enterprise networks and cloud services. With our patented technology, network and server resources located in the enterprise, datacenters and cloud systems, are better protected, less expensive to protect, and less vulnerable to compromise from cyber-attacks and insider threats. We believe that our identity-based approach to network and cloud security offers superior performance compared to legacy network security approaches, and reduces the total cost of ownership for organizations by eliminating malicious and unwanted traffic from their networks and systems.

BlackRidge products provide advanced capabilities compared to advanced firewalls in applications such as network segmentation and isolating cloud services.  BlackRidge also cloaks protected network resources from network mapping, reconnaissance and other forms of unauthorized access and attacks which cannot be blocked by advanced firewalls or malware detection systems.
14

Our proprietary technology, BlackRidge Transport Access Control ("TAC"), authenticates user or device identity and applies security policies across networks and cloud services before application sessions are established. Underlying BlackRidge TAC is our patented First Packet Authentication™ which conveys and authenticates identity in the "first packet" of a TCP network session request. This fundamental invention addresses a security gap in how the Internet operates: the inability to authenticate network traffic sources. Without authentication, unidentified and unauthorized users and devices can scan, probe and access networks and cloud services. This security gap is exploited in all cyber-attacks through the process of network scanning and reconnaissance, and it has been further exposed and magnified by cloud services, mobile connectivity, and the Internet of Things.

The Company's technology is first to market with this approach of enforcing security policy based on cryptographically secured identity on every TCP/IP session.

Our products are protected by multiple U.S. Patents including "First Packet Authentication," "Concealing a Network Connected Device," "Digital Identity Authentication," and "Statistical Object Identification."

Products

BlackRidge and our partners sell network security products and solutions based on our proprietary BlackRidge TAC software. BlackRidge TAC provides high throughput and low latency network security that operates pre-session, in real time, before other security defenses engage. BlackRidge products can be deployed inside a network or a cloud to cloak and protect servers and segment networks, in front of existing security stacks to filter anonymous traffic, or as part of service provider or OEM (as defined below) solution.

The BlackRidge solution is available in the following product configurations, with additional platform support and endpoint under development:

·
1U rack-mountable 1GbE or 10GbE network appliance
·
1GbE fanless desktop appliance
·
VMware ESXi™ virtual appliance
·
IBM z Systems™ LPAR and IBM z/VM® software appliances
·
Amazon Web Services appliances
·
Windows and Linux software endpoints

BlackRidge products are priced per appliance or gateway and on the total number of user and device identities supported in an implementation. Enterprise and OEM licensing along with subscription pricing are available. BlackRidge appliances can support up to 100,000 identities and 4,000,000 sessions, providing a highly scalable enterprise solution that operates with low latency and high throughput compared to current network security devices.

Network and cloud deployments options include deploying in-line as a Layer 2 transparent bridge or logically inline as a Layer 3 gateway for cloud deployments.  BlackRidge software and systems are designed to be highly resilient and can be configured for high availability and failover. Security policies can be verified during deployment with progressive modes of bridge, monitor and audit, and then enforce policy.

Support and Maintenance

BlackRidge offers standard and premium support to our end-customers and channel partners, where our channel partners typically deliver level one support and we provide level two and level three support. The support for our end customers includes ongoing maintenance services for both hardware and software to receive software upgrades, bug fixes, and repairs. End customers typically purchase these services for a one year or longer term at the time of the initial product sale and typically renew for successive one year or longer periods.

Professional Services. 

Professional services are primarily delivered through our channel partners and include experts who plan, design, and deploy effective security solutions tailored to our end-customers' specific requirements. These services include solution design and planning, configuration, and installation. Our education services provide online and classroom-style training and are also primarily delivered through our internal team.

Technology Alliance Partners

BlackRidge participates in an ecosystem of technology alliance partners to extend the breadth and depth of our products and partner solutions. By helping to ease the complications that organizations face when implementing multi-layered security solutions, our technology alliances facilitate integrated solution design, accelerate the time to realize value, and enhance our role as a strategic security partner.
15

Markets, Customers and Distribution Channels

The BlackRidge network security and adaptive cyber defense solution is broadly applicable to virtually all enterprise, government and industrial control market segments. Whether deployed directly in a customer's environment or embedded as part of partner cloud service or solution, BlackRidge provides a new level of cyber defense not available in the market today.

BlackRidge markets and sells its products through multiple channels, including direct sales, integrator and reseller channel partners, cloud and managed service providers, and through strategic original equipment manufacturer ("OEM") partners to both government and commercial users. The initial sales focus and market entry strategy for BlackRidge was the US Department of Defense, which is a key leverage point for the company's current commercial, government, and international sales efforts. Our customers and partners include IBM, Ciena, Crimson Logic, the US Department of Defense, the US Department of Energy, Marist College, Nihon Cornet Technology, Splunk and healthcare providers.

Within the commercial markets, BlackRidge sells both direct and through our strategic partners to large enterprise accounts, and indirectly through certain channel partners to specific verticals and international market segments. Our initial market entry strategy for the commercial market is to sell directly in order to establish customer references with large enterprises in North America that have high security and compliance requirements.  These include more complex regulated enterprises such as Financial Services, Healthcare, Insurance and Utility companies. Our channel partners are recruited to assist with expanding enterprise sales, commercializing specific vertical markets, and penetrating the international markets. Revenue from commercial sales includes product licensing fees, installation services, and annual support based on a standard price list.

In the government markets, BlackRidge sells its standard commercial products through a wholly owned subsidiary, BlackRidge Technology Government, to government resellers, integrators and contractors who resell to the Department of Defense (DOD) and civilian agencies. BlackRidge has been involved with the DOD for over six years, including our initial product development funding which was provided by the U.S. DOD. The BlackRidge products have been designed for several large DOD programs and they have been extensively tested and validated for use by the Defense Information Systems Agency ("DISA") labs. The timing of the DOD adoption of BlackRidge products depends on approval of budgets and final product testing approvals from DISA. BlackRidge Government revenue is net of government discounts, contracting fees, and channel and service partner discounts.

The BlackRidge OEM and service provider partnership strategy is to make targeted investments to capitalize on opportunities in specific market segments such as the industrial IoT, blockchain networks, and cloud solution providers. For these markets and our partners, BlackRidge TAC can be deployed as an integrated or embedded capability in the partners' equipment and vertical market solutions, and sold and supported by our partner. BlackRidge provides unique, integrated identity-based cyber defense for these OEM products or service offerings that provides their end user customer with a competitive market advantage in the face of today's advanced cyber threats. Revenue from OEM offerings flows from embedded product licensing fees and support fees that are somewhat unique to each OEM offering.

Marketing

Our marketing is focused on building our brand reputation and market awareness for our company and our unique technology capabilities and platform, driving customer demand and building a strong sales pipeline, and working with our channel and OEM partners. Our marketing team consists of corporate marketing, product marketing and product management, marketing operations, and corporate communications. Marketing activities include sales training and enablement, demand generation programs, digital marketing programs, product launch activities, managing our corporate and investor website, social media, trade shows and conferences, and press and analyst relations.

Research and Development

We continue to enhance our BlackRidge TAC software, the core software used in the BlackRidge products. This software is responsible for the TAC token generation, token validation, the token cache, packet processing and the insertion of TAC tokens into TCP connection requests. The TAC software has been developed domestically within the U.S. using only U.S. citizens. This software includes implementations of granted and pending patents owned by BlackRidge.

We continue to pursue research and development to improve our existing products. These improvements include making our products easier to manage, easier to deploy in large numbers, and improvements in our integrations with 3rd party products that communicate with BlackRidge products.

Our product development efforts release software with new features from time to time.  When a new feature is significant enough, we produce a major software release.  In between major software releases, there may be one or more minor software releases that also introduce less significant new features.
16

Intellectual Property

BlackRidge focuses on developing patent protection for products it develops and for products and features that are anticipated. We constantly perfect and file new applications.  We continue to develop our products; we will continue to file additional patent applications where appropriate.

The granted patents focus on the communication of identity tokens at the network layer (6,973,496, 8,346,951), combining Identity authentication at different security layers (8,281,127, 8,635,445), insuring the integrity of token authentication (8,572,697) and using identity to select amongst a set of trusted resources (9,118,644). The pending applications focus on extending the above protections (13/987,747, 14/544,987, 14/998,645), using network identity in a firewall (14/545,988), making network routing policy decisions using identity (14/999,317) and detecting tampering of hardware and software systems (13/199,050).

As of release 3.0, our products use the technology described in patents 6,973,496, 8,346,951 and 8,572,697 as well as technology described in some of our pending applications.  As we continue to add products and features, we will be incorporating technology described in additional patents and applications. All patents and completed applications are assigned to BlackRidge Technology Holdings, Inc.

Granted Patents
Concealing a Network Connected Device US Patent number 6,973,496, Patent Application U.S. Ser. No. 10/094,425. Filed 5 March 2002, Granted 6 December 2005, 1 Claim.

Method for Digital Identity Authentication US Patent number 8,281,127, Patent Application U.S. Ser. No. 12/658,113. Filed 1 February 2010, Granted 2 October 2012, 20 Claims.

Method for First Packet Authentication US Patent number 8,346,951, Patent Application U.S. Ser. No. 11/242,637.  Filed 30 Sept 2005, Granted 1 January 2013, 25 Claims.

Method for Statistical Object Identification US Patent number 8,572,697, Patent Application U.S. Ser. No. 13/373,586.  Filed 18 November 2011, Granted 29 October 2013, 43 Claims.

Method for Digital Identity Authentication US Patent number 8,635,445, Patent Application U.S. Ser. No. 13/573,077.  Filed 16 August 2012, Granted 21 January 2014, 23 Claims.

17
Method for Directing Requests to Trusted Resources US Patent number 9,118,644, Patent Application U.S. Ser. No. 13/573,238.  Filed 30 August 2012, Granted 25 August 2015, 27 Claims.

Published Pending Applications
Method for Statistical Object Identification Patent Application U.S. Ser. No. 13/987,747, filed 27 August 2013, continuation-in-part of Patent 8,572,697.

Unpublished Pending Applications
U.S. Patent Applications are published by the patent office 18 months after filing.

Method for Network Security Using Statistical Object Identification Patent Application U.S. Ser. No. 14/544,987, filed 11 March 2015, continuation-in-part of Patent 8,572,697.

Method for Attribution Security System Patent Application U.S. Ser. No. 14/545,988, filed 13 July 2015.

Method for Statistical Object Identification Patent Application U.S. Ser. No. 14/998,645, filed 16 January 2016, continuation-in-part of Patent 8,572,697.

Method for Using Authenticated Requests to Select Network Routes Patent Application U.S. Ser. No. 14/999,317, filed 22 April 2016.

Secure Cloud Computing System Patent Application U.S. Ser. No. pending, filed 6 August 2016, continuation-in-part of Patent Applications U.S. Ser. No. 13/199,050 and 13/999,757.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

Accounts Receivable

Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. We determine the allowance for doubtful accounts by identifying potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income when received. We determined that no allowance for doubtful accounts was required at March 31, 2018 and December 31, 2017.

Intangible Assets

Acquired intangible assets are recorded at estimated fair value, net of accumulated amortization. Costs incurred in obtaining certain patents and intellectual property as well as software development expenses, are capitalized and amortized over their related estimated useful lives, using a straight-line basis consistent with the underlying expected future cash flows related to the specific intangible asset. Costs to renew or extend the life of intangible assets are capitalized and amortized over the remaining useful life of the asset. Amortization expenses are included as a component of selling, general and administrative expenses in the consolidated statements of operations.  The Company's continued ability to extend and/or renew the rights associated with these intangible assets may have an impact on future cash flows.

Useful life estimates for the Company's significant intangible asset classes are as follows:

 
Useful Life
Patent Costs
20 years
Software Licenses
7 years
Software Development Costs
15 years

Impairment of Long-Lived Assets

The Company reviews long-lived assets, at least annually, to determine if impairment has occurred and whether the economic benefit of the asset (fair value of assets to be used and fair value less disposal cost for assets to be disposed of) is expected to be less than the carrying value.  Triggering events, which signal further analysis, consist of a significant decrease in the asset's market value, a substantial change in the use of an asset, a significant physical change in the asset, a significant change in the legal or business climate that could affect the asset, an accumulation of costs significantly in excess of the amount originally expected to acquire or construct the asset, or a history of losses that imply continued loss associated with assets used to generate revenue.

Revenue Recognition

Revenue is recognized when the following criteria are met:

·
Identification of the contract, or contracts, with a customer
·
Identification of the performance obligations in the contract 
·
Determination of the transaction price
·
Allocation of the transaction price to the performance obligations in the contract 
·
Recognition of revenue when, or as, we satisfy performance obligation


18
Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.

Revenue recognition for multiple-element arrangements requires judgment to determine if multiple elements exist, whether elements can be accounted for as separate units of accounting, and if so, the fair value for each of the elements.

The Company may enter into arrangements that can include various combinations of software, services, and hardware. Where elements are delivered over different periods of time, and when allowed under U.S. GAAP, revenue is allocated to the respective elements based on their relative selling prices at the inception of the arrangement, and revenue is recognized as each element is delivered. We use a hierarchy to determine the fair value to be used for allocating revenue to elements: (i) vendor-specific objective evidence of fair value ("VSOE"), (ii) third-party evidence, and (iii) best estimate of selling price ("ESP"). For software elements, we follow the industry specific software guidance which only allows for the use of VSOE in establishing fair value. Generally, VSOE is the price charged when the deliverable is sold separately or the price established by management for a product that is not yet sold if it is probable that the price will not change before introduction into the marketplace. ESPs are established as best estimates of what the selling prices would be if the deliverables were sold regularly on a stand-alone basis. Our process for determining ESPs requires judgment and considers multiple factors that may vary over time depending upon the unique facts and circumstances related to each deliverable.

Any revenue received that does not yet meet the above recognition standards is recorded to unearned revenue, and held as a liability until recognition occurs.

Income Taxes

We account for income taxes in accordance with FASB ASC Topic 740, Income Taxes , using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

FASB ASC Topic 740, Income Taxes, requires us to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, we must measure the tax position to determine the amount to recognize in our consolidated financial statements. We performed a review of our material tax positions in accordance with recognition and measurement standards established by ASC Topic 740 and concluded we had no unrecognized tax benefit that would affect the effective tax rate if recognized for the nine months ended September 30, 2017 and 2016.

We include interest and penalties arising from the underpayment of income taxes, if any, in our consolidated statements of operations in general and administrative expenses. As of March 31, 2018 and December 31, 2017, we had no accrued interest or penalties related to uncertain tax positions.

Fair Value of Financial Instruments

The Company's financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses, notes payable and convertible debt.  The carrying amount of these financial instruments approximates fair value because of the short-term nature of these items.

Results of Operations

Three Months Ended March 31, 2018 Compared to the Three Months Ended March 31, 2017

Sales

Total sales during the three months ended March 31, 2018 were $3,188, as compared to sales during the three months ended September 30, 2017 of $28,741, a decrease of $25,553.  This decrease was due to a reduction in one-time sales.  Management believes historical sales not to be indicative of future expectations due to our historically limited business operations.  We believe that future sales will be significantly increased as we market our new suite of products.

Operating Expenses

Our selling, general and administrative expenses were $3,098,437 for the three months ended March 31, 2018, compared to $1,596,748 for the three months ended March 31, 2017, an increase of $1,501,689, or approximately 94%.  The increase in selling, general and administrative expenses in the current year is primarily attributable to an approximate $125,000 increase in non-cash expenses related to stock issuances for consulting contracts, an approximate $170,000 increase in professional fees, an approximate $890,000 in salaries and wages related to our increase in hiring since the previous year's quarter and an increase of approximately $100,000 in employee stock share based compensation.
19

Interest Income (Expense)

Other expense includes interest expense on our indebtedness, a portion of which is indebtedness to related parties.  Total net interest expense was $139,479 and $226,580 for the three months ended March 31, 2018 and 2017, respectively.  The decrease in interest expense of $87,101 in the current year is attributable primarily to the conversion of approximately $3.2 million of convertible debt into equity during the prior year.

Loss on disposal of discontinued operations

On March 31, 2017, the Company completed the sale of substantially all the assets, other than cash, used in or connection with the Company's home grain mill and kitchen mixer business to John Hofman and Bruce Crane, former officers and directors of the Company, in consideration for the assumption by such persons of substantially all the liabilities incurred by the Company in connection with such business.  The assets divested consisted of the non-cybersecurity assets of the Company and included accounts receivable, inventory, deposits, property and equipment and intangible assets.  The liabilities divested included the non-cybersecurity liabilities of the Company and included accounts payable and accrued expenses and long and short-term notes payable and accrued interest thereon.  Upon completion of the divestiture, the Company recognized a $484,927 non-cash loss on disposal.

Loss from discontinued operations

During the period from February 22, 2017 through March 31, 2017, the Company recognized a loss from discontinued operations of $8,737.  This loss was primarily driven by lower than anticipated product sales of the entity that was eventually sold.

Liquidity and Capital Resources

At March 31, 2018, we had total current assets of $854,001, including cash of $300,438, and current liabilities of $7,200,982, resulting in working capital deficit of $6,346,981.  Our current assets and working capital included receivables of $115,925, inventory of $41,580 and prepaid expenses of $396,058. 

In addition, as March 31, 2018, we had total stockholders' equity of $825,164.  As we have worked toward our acquisition and new product launches, we have primarily financed recent operations, the development of technologies, and the payment of expenses through the issuance of our debt, common stock, preferred stock and warrants.

For the three months ended March 31, 2018, net cash used in operating activities was $2,141,765, as a result of our net loss from continued operations of $3,234,778 and increases in inventory of $1,172, prepaid expenses of $34,416, and decreases in deferred revenue of $3,187, accounts payable and accrued expenses – related party of $39,881, partially offset by non-cash expenses totaling $404,366, and increases in accounts payable and accrued expenses of $301,518, accrued interest of $42,303, accrued interest - related party of $38,497, wages payable of $283,530, and a decrease in accounts receivable of $101,455.

By comparison, for the three months ended March 31, 2017, net cash used in operating activities was $874,290, as a result of our net loss from continued operations of $1,794,587 and increases in accounts receivable of $3,540, prepaid expenses of $55,300, and decreases in deferred revenue of $251, partially offset by non-cash expenses totaling $132,140, and increases in accounts payable and accrued expenses of $323,513, accounts payable and accrued expenses – related party of $63,140, accrued interest of $7,790, accrued interest - related party of $161,544, wages payable of $246,233, loss from discontinued operation of $493,664 and cash flows from discontinued operations of $45,028.

Cash used in investing activities for the three months ended March 31, 2018 was $554,666 compared to $140,011 for the three months ended March 31, 2017.  The increase in the current period is due primarily to an increase in capitalized engineering costs related to the Company's technology development.

For the three months ended March 31, 2018, net cash provided by financing activities was $2,575,000, comprised of proceeds from the sale short term notes – related party of $500,000, short term notes of $2,100,000 and advances – related party of $75,000, partially offset by the repayments of long-term notes of $100,000.
20

For the three months ended March 31, 2017, net cash provided by financing activities was $3,055,608, comprised of proceeds from the sale of common stock of $2,747,572, preferred stock of $275,000 and subscriptions payable of $20,000, proceeds from short term notes of $100,000, advances of $40,000 and advances – related party of $50,000, partially offset by the repayment of long-term notes of $122,229 and cash flows from discontinued operations of $54,735.

Based on our current business plan, we anticipate that our operating activities will use approximately $500,000 in cash per month over the next twelve months, or $6 million. Currently we do not have enough cash on hand to fully implement our business plan, and will require additional funds within the next year. We believe that our operations will not begin to generate significant cash flows until the second quarter of 2018 when we expect to begin new product contracts.  

In order to remedy this liquidity deficiency, we are actively seeking to raise additional funds through the sale of equity and debt securities, and ultimately plan to generate substantial positive operating cash flows. Our internal sources of funds will consist of cash flows from operations, but not until we begin to realize substantial revenues from sales. In December 2017, we entered into a term sheet for a private placement of up to $7 million to fund continuing operations.  If we are unable to raise additional funds in the near term, we may not be able to fully implement our business plan, and it is unlikely that we will be able to continue as a going concern.

Off-balance Sheet Arrangements

None.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not required.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls over Procedures

Under the supervision and with the participation of our management, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("the Exchange Act") as of September 30, 2017, the end of the period covered by this report.  Based upon that evaluation, we have concluded that our disclosure controls and procedures as of March 31, 2018 were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management as appropriate to allow timely decisions regarding disclosure.  A controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

None


21
PART II - OTHER INFORMATION

Item 1. Legal Proceedings

On December 2, 2016, AltEnergy Cyber, LLC ("Plaintiff") instituted a legal action in Connecticut against the Company and Robert Zahm.  The complaint alleged that (i) the company improperly extended the maturity date of the Plaintiff's convertible note in the amount of $1,500,000 and (ii) improperly converted the loan into the Company's stock. The Complaint alleges that the Company is liable to the Plaintiff for the $4,500,000 plus interest.  This litigation is still ongoing.  During the year ended December 31, 2017, Robert Zahm was dismissed from the proceedings for lack of personal jurisdiction.  On March 29, 2018, the AltEnergy Cyber, LLC's legal action was dismissed through a motion for summary judgement.  As of the date of this filing, the appeal period has expired and it is the Company's belief that this matter is fully resolved through the dismissal.
 
Item 1A. Risk Factors
Not required.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2018, the Company issued an aggregate 624,166 shares of the Company's common stock pursuant to consulting contracts valued at $363,670, or an average of $0.58 per share.

On March 30, 2018, a contractor rescinded a provision in its contract for common stock payments, and returned 300,000 shares previously issued to them during 2017.  The Company retired the returned shares and recaptured the original $240,000 expensed when the shares were issued.

During the three months ended March 31, 2018, the Company converted an aggregate 45,173 shares of the Company's preferred stock into 535,565 shares of the Company's common stock after receiving conversion exercises from multiple preferred stockholders.

We believe that the foregoing transactions were exempt from the registration requirements under Section 4(a)(2) of the Securities Act of 1933, as amended ("the Act"), based on the following facts: there was no general solicitation, there was a limited number of purchasers, each of whom the Registrant believes was an "accredited investor" (within the meaning of Regulation D under the Securities Act of 1933, as amended) and was sophisticated about business and financial matters, and all shares issued were subject to restriction on transfer, so as to take reasonable steps to assure that the purchaser was not an underwriter within the meaning of Section 2(11) under the Act.

We believe the foregoing transaction was exempt from the registration requirements under Section 3(a)(9) of the Act. No commission or other remuneration is paid or given directly or indirectly for such exchange other than the surrender and cancellation of the Company's preferred stock.
 
Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

22
Item 6. Exhibits

The following exhibits are filed as part of this report:

Identification of Exhibit

3.1
   
10.1
Form of convertible note issued January 31, 2018
   
10.2
Form of note issued January 31, 2018
   
10.3
Form of note issued February 23, 2018 and February 28, 2018
   
31.1
Section 302 Certification of Chief Executive Officer *
   
31.2
Section 302 Certification of Chief Financial Officer *
   
32.1
Section 1350 Certification of Chief Executive Officer *
   
32.2
  Section 1350 Certification of Chief Financial Officer *
 
(1)
Incorporated by reference to the Company's June 30, 2017 Report on Form 10-Q filed August 14, 2017.

*   Filed herewith

23

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BLACKRIDGE TECHNOLOGY INTERNATIONAL, INC.
(Issuer)

Date:
May 15, 2018
 
By:
/s/ Robert Graham
       
Robert Graham,
Chief Executive Officer and President

Date:
May 15, 2018
 
By:
/s/ John Bluher
       
John Bluher,
Chief Financial Officer
 
 
 
 
24
Exhibit 10.1
 

Promissory Note


$100,000
January 31, 2018
 

Blackridge Technology International, Inc. (the "Obligor"), hereby promises to pay to the order of ____________ and his lawful successors and assigns (the "Holder"), the principal sum of One Hundred and no/100 DOLLARS ($150,000) on January 31, 2019 plus any accrued but unpaid interest.  The Obligor shall pay interest on the outstanding principal amount from the date hereof until the principal is paid in full at the rate of 8.0% per annum, payable annually in cash on each January 31 until maturity, and, upon default and/or after maturity at a rate of 15.0% per annum.  All payments will be made to the Holder, at such address as the Holder may designate, in money of the United States of America.    This Note shall automatically convert into the Obligor's Series B Preferred Stock at $.32 per share or 312,500 shares once converted, convertible after March 31, 2018.    Additionally, as part of this transaction, the Holder is being granted one (1) warrant with a 5-year term and a $.32 cent per share exercise price (cash exercise) with 100% warrant coverage or 312,500 warrants.  After closing, the Obligor shall deliver a form of Warrant to the Holder in form and substance consistent with other Obligor warrants.

1.   Remedies .
a.
Events of Default .  "Event of Default," wherever used herein, means any one of the following events:
i.
default in the payment of the principal of this Note at its maturity or any interest payment; or
ii.
the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of  the Obligor in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Obligor a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Obligor under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Obligor or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or
1
iii.
the commencement by The Obligor of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of The Obligor in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of The Obligor or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by The Obligor in furtherance of any such action; or
iv.
The dissolution of The Obligor; or
v.
Any representation or warranty made to the Holder by The Obligor pursuant to this Note is false or misleading in any material respect; or
vi.
The Obligor fails to observe or perform any material covenant or agreement made by the Obligor to the Holder pursuant to this Note.
b.
Acceleration of Maturity .  If any Event of Default occurs and is continuing, then and in every such case the Holder may declare the principal on this Note to be due and payable immediately, by a notice in writing to the Obligor, and upon any such declaration such principal shall become immediately due and payable.
c.
Payment of Expenses .  If any part of the Aggregate Balance is not paid when due, or if the Obligor fails to perform any obligation required hereunder, the Obligor shall pay any and all reasonable costs of collection or enforcement of all outstanding obligations under this Note incurred by the Holder, including reasonable attorneys' fees and expenses.
2.   Prepayment .   The Obligor may prepay this Note without penalty in full at any time.
3.     Notices .  All notices and communications provided for herein or made hereunder shall be delivered, or mailed first class with postage prepaid, or faxed, addressed in each case as follows, until some other address shall have been designated in a written notice given in like manner, and shall be deemed to have been given or made when so delivered or mailed or faxed:
2
(a) if to the Obligor:
BlackRidge Technology
5390 Kietzke Lane Suite 104
Reno, NV 89511

(b) if to the Holder:




or to such other person or address as the party entitled to notice hereunder shall designate by notice in accordance with this Note.

4.   Miscellaneous.
a.
This Note may be amended only by a writing signed by the Obligor and the Holder.  All covenants and agreements in this Note by the Obligor shall bind its successors and assigns.
b.
In case any provision in this Note shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.  Specifically, if the interest rate on this Note is deemed to exceed some statutory maximum, the interest rate will be reduced to the legal maximum.
c.
The Obligor shall pay any stamp, transfer or other taxes or regulatory fees that may be imposed on any transaction contemplated by this Note.
d.
This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to the principles of conflicts of laws thereof.
e.
This Note constitute the full and entire understanding between the Obligor and the Holder with respect to the subject matter hereof and thereof.
f.
This Note is binding on the Obligor, and the Obligor, and all sureties, guarantors and endorsers hereby waive presentment, demand, notice and protest and any defense by reason of an extension of time for payment or other indulgences.  Failure of, or delay by, the Holder to assert any right herein shall not be deemed to be a waiver thereof, nor shall any such failure or delay on any one or more occasions be deemed to prohibit or waive the same or any other right on any future occasion.

3
 
 
 
4
Exhibit 10.2
 
See attached pdf
 
 
 
 
 
 
 
 
 
 
 
 
Exhibit 10.3

Convertible Promissory Note

 
$1,000,000
February __, 2018

Blackridge Technology International, Inc. (the "Obligor"), hereby promises to pay to the order of ____________, and its lawful successors and assigns (the "Holder"), the principal sum of One Million and no/100 DOLLARS ($1,000,000.00) on February 31, 2019 plus any accrued but unpaid interest.  The Obligor shall pay interest on the outstanding principal amount from the date hereof until the principal is paid in full at the rate of 9.0% per annum, payable annually in cash on each February 31, until maturity, and, upon default and/or after maturity at a rate of 15.0% per annum.  All payments will be made to the Holder, at such address as the Holder may designate, in money of the United States of America.    This Note shall automatically convert into the Obligor's Preferred B Shares at $.32 per share or 3,125,000 shares once converted, no sooner than March 31, 2018.    Additionally, as part of this transaction, the Holder is being granted one (1) warrant with a 5-year term which exercises at $.25 cent per share exercise price (cash exercise) with 100% warrant coverage or 3,125,000 warrants.  After closing, the Obligor shall deliver a form of Warrant to the Holder in form and substance consistent with other Obligor warrants.

1.   Remedies .
a.
Events of Default .  "Event of Default," wherever used herein, means any one of the following events:
i.
default in the payment of the principal of this Note at its maturity or any interest payment; or
ii.
the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of  the Obligor in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Obligor a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Obligor under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Obligor or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or
iii.
the commencement by The Obligor of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of The Obligor in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of The Obligor or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by The Obligor in furtherance of any such action; or
1
iv.
The dissolution of The Obligor; or
v.
Any representation or warranty made to the Holder by The Obligor pursuant to this Note is false or misleading in any material respect; or
vi.
The Obligor fails to observe or perform any material covenant or agreement made by the Obligor to the Holder pursuant to this Note.
b.
Acceleration of Maturity .  If any Event of Default occurs and is continuing, then and in every such case the Holder may declare the principal on this Note to be due and payable immediately, by a notice in writing to the Obligor, and upon any such declaration such principal shall become immediately due and payable.
c.
Payment of Expenses .  If any part of the Aggregate Balance is not paid when due, or if the Obligor fails to perform any obligation required hereunder, the Obligor shall pay any and all reasonable costs of collection or enforcement of all outstanding obligations under this Note incurred by the Holder, including reasonable attorneys' fees and expenses.
2.   Prepayment .   The Obligor may prepay this Note without penalty in full at any time.
3.     Notices .  All notices and communications provided for herein or made hereunder shall be delivered, or mailed first class with postage prepaid, or faxed, addressed in each case as follows, until some other address shall have been designated in a written notice given in like manner, and shall be deemed to have been given or made when so delivered or mailed or faxed:
2
(a) if to the Obligor:
BlackRidge Technology
5390 Kietzke Lane Suite 104
Reno, NV 89511

(b) if to the Holder:


Or the address on Subscription Agreement


or to such other person or address as the party entitled to notice hereunder shall designate by notice in accordance with this Note.

4.   Miscellaneous.
a.
This Note may be amended only by a writing signed by the Obligor and the Holder.  All covenants and agreements in this Note by the Obligor shall bind its successors and assigns.
b.
In case any provision in this Note shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.  Specifically, if the interest rate on this Note is deemed to exceed some statutory maximum, the interest rate will be reduced to the legal maximum.
c.
The Obligor shall pay any stamp, transfer or other taxes or regulatory fees that may be imposed on any transaction contemplated by this Note.
d.
This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to the principles of conflicts of laws thereof.
e.
This Note constitute the full and entire understanding between the Obligor and the Holder with respect to the subject matter hereof and thereof.
f.
This Note is binding on the Obligor, and the Obligor, and all sureties, guarantors and endorsers hereby waive presentment, demand, notice and protest and any defense by reason of an extension of time for payment or other indulgences.  Failure of, or delay by, the Holder to assert any right herein shall not be deemed to be a waiver thereof, nor shall any such failure or delay on any one or more occasions be deemed to prohibit or waive the same or any other right on any future occasion.

3
 
 
 
 
 
4

EXHIBIT 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert Graham, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of BlackRidge Technology International, Inc. (the "Registrant");

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.
The Registrant other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

5.
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions);

(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.


         
Date:
May 15, 2018
 
By:
/s/ Robert Graham
 
 
 
 
Robert Graham
Chief Executive Officer and President
 
 
 
EXHIBIT 31.2


CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Bluher, certify that:

6.
I have reviewed this Quarterly Report on Form 10-Q of BlackRidge Technology International, Inc. (the "Registrant");

7.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

8.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

9.
The Registrant other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Registrant and have:

(e)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(f)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(g)
evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(h)
disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and

10.
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions);

(c)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and

(d)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.


         
Date:
May 15, 2018
 
By:
/s/ John Bluher
 
 
 
 
John Bluher
Chief Financial Officer
 
 
 
EXHIBIT 32.1

 
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of BlackRidge Technology International, Inc. (the "Registrant") on Form 10-Q for the quarter ending March 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the "Quarterly Report"), I, Robert Graham, Chief Executive Officer of the registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Quarterly Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and result of operations of the Registrant.

         
Date:
May 15, 2018
 
By:
/s/ Robert Graham
 
 
 
 
Robert Graham
Chief Executive Officer and President

 
 
EXHIBIT 32.2
 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of BlackRidge Technology International, Inc. (the "Registrant") on Form 10-Q for the quarter ending March 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the "Quarterly Report"), I, John Bluher, Chief Financial Officer of the registrant, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(3)
The Quarterly Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(4)
The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and result of operations of the Registrant.

         
Date:
May 15, 2018
 
By:
/s/ John Bluher
 
 
 
 
John Bluher
Chief Financial Officer