BlackRidge Technology expects strong recovery after Chapter 11 filing

RENO, Nev. — It was a perfect storm. BlackRidge Technology, a provider of cyber defense solutions headquartered in Reno, was on the books to work with the U.S. Department of Defense on a cloud security project.

Before it got started, however, the project was canceled in September 2019.

“It was around $3 million revenue lost,” Bob Graham, CEO of BlackRidge Technology, told the NNBW in early April. “That put a huge hole in our cash flow.”

Complicating matters, the Reno-based company had been in the process of working with an investment bank on financing of $10 million in the first quarter of 2020 to support its growth in the Industrial Internet of Things (IIoT) market.

Without the government contract, and with the coronavirus pandemic beginning to grind the U.S. economy to a halt in late February, the funding round never happened.

“Our timing could not have been worse,” Graham said in a phone interview. “And we had some aggressive creditors coming at us.”

Consequently, BlackRidge Technology filed voluntarily for reorganization under Chapter 11 of the U.S. Bankruptcy Court in the U.S. Bankruptcy Court for the District of Nevada on March 13, 2020.

For those uninitiated, businesses often file for Chapter 11 if they intend to keep operating, but need time to restructure their finances in order to pay the bills. During a Chapter 11 proceeding, the court will help a business restructure its debts and obligations.

“It should improve the health of the company,” Graham told the NNBW. “Because we had taken some loans to get through this period, it will allow us, working with the courts, to get the loans into a situation where they won't be a threat to other people coming into the company.”

As such, BlackRidge will continue operating as “debtor-in-possession” on financing terms yet to be determined.

“It's the money we need between now and exit from bankruptcy,” Graham explained. “We expect to recover from this. We're working with a Reno lawyer (Stephen R. Harris) who knows what he's doing and working with the courts and we'll be back on our feet hopefully by September or so, given how the virus situation pans out the next few months.”

HITTING THE MARKET

To that end, due to the COVID-19 pandemic, BlackRidge Technology, which also has offices in Tokyo and Mumbai, had to furlough or lay off about half of its 45-person staff, said Graham, adding: “We're all not being paid right now, unfortunately.”

Graham said BlackRidge Technology typically does a lot of business in Asia, where the COVID-19 outbreak was first identified. Specifically, Graham cited projects in Singapore, India and Japan. Amid the pandemic, Graham said the company's business in those countries has “almost come to a complete standstill in Q1.”

“But,” he added, “we are working with all of our customers, and we'll hopefully see some recovery in Q2 and hopefully in Q3 things will go back to normal.”

For 2020, Graham said the company's goal is to fulfill the business in its pipeline, which includes projects with the U.S. Army and National Institute of Standards and Technology.

Prior to the COVID-19 crisis, BlackRidge Technology was less than a year into bringing its technology to the U.S. market as a commercial product — a cybersecurity device for IIoT networks.

“We use the shorthand of calling it ‘secure caller ID for the internet,'” said John Hayes, founder and chief technology officer of BlackRidge. “But it's more secure than caller ID, because the bad guys can't spoof this like they can caller ID … It's like unplugging all of your critical exposures from the network except those, whether its people or machines, that are already allowed to access that.”

Its applications, Hayes said, are to support network-connection authentication for power plants, manufacturing plants, and medical facilities, among others.

“We started to see orders flowing in winter of this year and then this (pandemic) hits,” Graham said. “We hope this year, as this (pandemic) loosens up, we get back to work and everything goes fine.”

RAMPING UP IN RENO

After all, since BlackRidge Technology relocated from Santa Clara to Reno in 2015, the company has been on an upward trajectory.

In 2017, the company entered into a term sheet for a private placement of $6 million with an option to invest an addition $1 million in preferred Series B shares and warrants to purchase its common stock.

A year ago, in April 2019, BlackRidge's impact in the tech sector was recognized in the form of Hayes being named NCET Technologist of the Year honor as part of the 2019 NCET Technology Awards in Reno.

And this past August, BlackRidge Research, a subsidiary of BlackRidge Technology, leased an office space at 200 S. Virginia St. in downtown Reno to enhance its research and product development.

Further, since 2015, the company has created roughly 15 jobs in Reno, with salaries ranging from $70,000 to $150,000, Graham said.

“We found there is a good labor force for things like tests and application development,” Graham said. “We've been working collectively with the university and found the quality of people as good as or better than California. We've been able to find most of the resources we need for our developmental growth.

“The business environment is a lot better than California. We felt paying high taxes in California, in a non-friendly business environment, was not a good thing.”

In fact, Graham and Hayes said they've noticed that Bay Area entrepreneurs' attitude toward the Biggest Little City has flipped over the past five years.

“When we first moved out here we used to get a snicker from tech people about being based in Reno,” Graham said.

“I would say now it's the opposite,” Hayes added. “It makes so much more sense because it's easier to do business than it is in California.

“And when Tesla located their factory here it helped with the cache of the area. Other companies have been moving here steadily for the last few years — like Microsoft and Apple — and I think it's changed the impression of the area.”