United States securities and exchange commission logo
October 16, 2020
Guy Zyskind
Chief Executive Officer, Chief Technology Officer, and President
Enigma MPC
186 Museum Way
San Francisco, CA 94114
Re: Enigma MPC
Form 10-12G
Filed September 18,
2020
File No. 000-56202
Dear Mr. Zyskind:
We have reviewed your filing and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your response and any amendment you may file in
response to these
comments, we may have additional comments.
Form 10-12G filed September 18, 2020
General, page iii
1. We note that here and
throughout your filing that you refer to the claims process as a
rescission or
"rescission offer." The claims process involves a notification to investors
of their ability to
pursue to their statutory rights to receive the consideration paid for the
security plus interest
and is not a rescission offer for purposes of the Securities Act of
1933, or otherwise
under the federal securities laws. Please delete the use of the term
rescission or
"rescission offer" and instead refer to it as the claims process
consistent
with the terms of the
settlement.
Item 1. Business, page 1
2. Please add a new
section at the beginning of this Item that describes the claims process,
including a new header
within this section identifying the Commission Order and
Guy Zyskind
FirstName LastNameGuy Zyskind
Enigma MPC
Comapany
October 16,NameEnigma
2020 MPC
October
Page 2 16, 2020 Page 2
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the claims process. The section should be in question-and-answer
format, and at a
minimum it should address the following questions:
What is the claims process?
Why are you engaging in the claims process?
Who is entitled to make a claim?
What will I receive if I make a claim?
How is the price at which I purchased tokens determined?
Do the tokens currently have any intrinsic value or use?
How was the interest rate determined?
When does the claims process terminate?
What do I need to do if I want to participate in the claims
process?
What do I need to do if I do not want to participate in the claims
process?
What happens to my tokens if I do not participate in the claims
process?
May I participate in the claims process solely with respect to a
portion of my tokens?
Can I change my mind after I have sent in my claim form?
When, how and in what form will payment be made?
Who can help answer my questions and what is their contact
information?
In addition, at the end of the section please include a
cross-references to the claims
process disclosure beginning on page 27.
Overview, page 1
3. Please disclose each of the following, if true, in the Overview
section:
you are no longer supporting, or otherwise actively involved with,
the Enigma
Network, including Catalyst and the Enigma Data Marketplace, or
the Enigma
Protocol;
neither the Enigma Network nor the Enigma Protocol have any
current utility;
Gamma is owned by Guy Zyskind, who owns 93.88% of your common
equity and
who is your sole director, chief executive officer, chief
technology officer and
president, and thus Gamma is your affiliate, and you and Gamma are
under the
common control of Mr. Zyskind;
your registered public accounting firm expressing in their audit
report substantial
doubt about your ability to continue as a going concern.
4. Please disclose the primary business activities of your affiliate
Gamma.
Secret Network, page 2
5. Please disclose why you believe the Secret Network is "the successor
of the Enigma
Protocol." In addition, please disclose why you are supporting the
development of the
Secret Network and whether you expect that your funding of the
development of the
Secret Network will generate revenue for you. Finally, please disclose
whether you are
providing additional support to the Secret Network beyond the
financial support pursuant
to the NRE Funding Agreement with Gamma.
Guy Zyskind
FirstName LastNameGuy Zyskind
Enigma MPC
Comapany
October 16,NameEnigma
2020 MPC
October
Page 3 16, 2020 Page 3
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6. You disclose that "validators receive gas fees in the form of
additional SCRT from
transactions included in the block and network rewards also paid in
SCRT for ensuring the
accuracy and correctness of transactions in the Secret Network."
Please clarify whether
these gas fees are paid by other validators, if they are part of the
genesis block, if they are
subsequently mined for payment, or through some other creation method.
We also note
your disclosure that validator nodes perform "the computation
specified in the secret
contract" in exchange for a payment of a SCRT gas fee. Please provide
examples of the
computations that have been performed on the Secret Network since the
genesis block.
ENG Tokens, page 8
7. Please revise this section as follows:
move it so it appears before the Secret Network Community;
disclose, if true, that you are no longer supporting either the
Enigma Network,
including both the catalyst and the Enigma Data Marketplace, or
the Enigma
Protocol;
disclose, if true, that the Enigma Tokens do not have any current
utility and that you
do not anticipate any future utility for them;
disclose whether your management believes the Enigma Tokens have
any current
value, as well as the basis for that belief;
explain why you decided to switch your business focus from your
direct development
of the Enigma Network and the Enigma Protocol to providing
financial support for
the development of the Secret Network.
Item 1A. Risk Factors, page 11
8. Please remove from the italicized introductory text references to
investing in or buying
ENG Tokens.
9. Please add new, separate risk factors to disclose the materials risks
associated with the
following:
the restrictions on the transferability of the ENG Tokens,
including the restrictions
imposed by the Securities Act and similar state securities laws;
the possibility that you may have insufficient funds to satisfy
claims made under the
claims process (disclosing the estimated total amount of your
liability, your existing
assets, including the current value of the digital assets that
you hold, and your plans
to address any shortfall between your assets and the liability)
and the potential
consequences of such shortfall, including, but not limited to,
bankruptcy;
your registered public accounting firm expressing in their audit
report substantial
doubt about your ability to continue as a going concern;
the potential conflict of interests that could arise between you
and Gamma as a result
of Mr. Zyskind s control of both companies;
the lack of any arm s length negotiation in your entry into your
agreements with
Gamma, including, but not limited to, the actual conflict of
interest that was created
by Mr. Zyskind s control of both parties to the agreements.
Guy Zyskind
FirstName LastNameGuy Zyskind
Enigma MPC
Comapany
October 16,NameEnigma
2020 MPC
October
Page 4 16, 2020 Page 4
FirstName LastName
The prices of blockchain assets are extremely volatile., page 11
10. Please revise this risk factor to emphasize, if true, that a
significant factor detracting from
the value of ENG Tokens is that you are no longer pursuing any
business activities that
either utilize or could potentially add value to the ENG Tokens.
Holders of SCRT coins have voted to enable the Secret Network to generate
additional SCRT
coins..., page 15
11. Please revise the heading to this risk factor to describe the material
risk to holders of ENG
Tokens. In addition, please disclose in the risk factor whether you or
any of your affiliates
have supported the Community Swap by voting in its favor or otherwise
taking steps to
facilitate it. If such support has been provided, please revise the
risk factor to eliminate
any statement or implication that you are neither directly nor
indirectly supporting the
Community Swap. Please aslo provide us with your written legal
analysis as to (a) why
you believe the Community Swap should not be considered a tender
offer or any other
offering of securities subject to SEC or other regulation and (b)
why you appear to
believe the ENG Tokens can be freely exchanged by their holders for
new instruments,
notwithstanding that the ENG Tokens are restricted securities.
Finally, please tell us
whether you have any visibility into the number of ENG Tokens that
have been "burnt,"
and if you do, please tell us how many have been burnt to date.
Item 2. Financial Information
Liquidity and Capital Resources, page 22
12. We note your disclosure stating that you believe your existing cash,
cash equivalents and
marketable securities, together with cash provided by operations, will
be sufficient to meet
your needs for at least the next 12 months. Please revise to provide a
more fulsome
description of your sources of liquidity, if any, and plan of
operations for the next 12
months considering the potentially significant cash outflows. In
addition, revise to
disclose all of the your required and potential cash commitments in
the next 12 months,
including funding commitments under the Non-recurring Engineering
("NRE") Funding
Agreement and potential claims to initial coin offering ("ICO")
purchasers, along with a
discussion of any material assumptions used to estimate the ENG Token
Liability.
13. Please disclose here (a) that your registered public accounting firm
has expressed in their
audit report substantial doubt about your ability to continue as a
going concern and (b) the
possibility that you may have insufficient funds to satisfy claims
made under the claims
process and the potential consequences of such shortfall, including,
but not limited to,
bankruptcy.
Guy Zyskind
FirstName LastNameGuy Zyskind
Enigma MPC
Comapany
October 16,NameEnigma
2020 MPC
October
Page 5 16, 2020 Page 5
FirstName LastName
Item 5. Directors and Executive Officers
Guy Zyskind, Chief Executive Officer, Chief Technology Officer, President and
Director, page
24
14. Please disclose approximately what percentage of his time Mr. Zyskind
devotes to the
business of Enigma and clarify whether he is also currently performing
services for
Gamma. If he is performing services for Gamma, please disclose
approximately what
percentage of his time he spends doing so.
Item 6. Executive Compensation
Summary Compensation Table, page 25
15. Please disclose here any compensation paid to your named executive
officers by your
affiliate Gamma. In addition, please clarify whether the figures in
the table are dollars in
thousands.
Item 15. Financial Statements and Exhibits
Exhibit Index, page 33
16. Please file as exhibits (a) the form of the claims form and (b) the
offering and purchase
documents you used for the offer and sale of the ENG Tokens.
17. Regarding Exhibit 10.5, Non-recurring Engineering Funding Agreement
between Enigma
MPC, Inc. and Gamma Research and Development Ltd., we note the
following recital in
the agreement: "WHEREAS Funding Partner s interest in entering this
Agreement is to
support the creation of the technology infrastructure which would
assist in enabling the
continuity of Funding Partner s digital assets and more broadly to
add value to the whole
blockchain industry." Please tell us what is meant by "enabling the
continuity of Funding
Partner s digital assets." In doing so, please identify the digital
assets by name.
Notes to Consolidated Financial Statements
Note 1 - Organization and Nature of Operations
B. Settlement of U.S. Securities and Exchange Commission ( SEC )
Administrative Proceeding,
page F-9
18. We note your disclosure here and on page F-12 stating that you
recorded a liability for the
estimated maximum claims of $24.9 million (the ENG Token Liability
). Please address
the following:
Confirm and revise to disclose that the maximum amount of
claims subject to
potential refund are the full amount of proceeds raised in the
ICO of $45 million;
Tell us why you do not believe it is appropriate to recognize a
liability for the full
maximum claims of $45 million; and
Guy Zyskind
FirstName LastNameGuy Zyskind
Enigma MPC
Comapany
October 16,NameEnigma
2020 MPC
October
Page 6 16, 2020 Page 6
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Tell us how you estimated the $24.9 million liability currently
recognized.
Note 2 - Summary of Significant Accounting Policies
Revenue Recognition, page F-12
19. We note your recognition of $22.3 million of revenue during the fiscal
year ended
February 28, 2019 and accounting for the Settlement Agreement as a
contract
modification in accordance with ASC 606-10-25-11 and 13(b). Please
address the
following:
Tell us how you considered the application of hindsight in your
determination that the
accounting for the contract modification should not be pushed
back to the date of the
ICO in the preparation of the financial statements. As part of
your response, include
discussion of whether you considered the contract modification a
recognized
subsequent event in accordance with ASC 855-20-25-1;
Tell us how you considered the impact of the contract
modification on the transaction
price. Specifically, tell us whether, along with an explanation
why, you view the
entire or only a portion of the proceeds raised in the ICO to be
variable consideration
in accordance with ASC 606-10-32-6; and
In light of the accounting considerations in the two bullet
points above, tell us why
you believe recognition of revenue was appropriate by providing
us with a detailed
accounting analysis addressing the various recognition criteria
in ASC 606-10-32-8,
32-11, 32-12 and 25-13(b). Include in your response why you do
not believe the
variable consideration was constrained due to the refund offer,
the uncertainty of
estimating claims and/or your recognition of a cumulative
catch-up adjustment to
revenue due to the contract modification.
Note 5 - Digital Assets, page F-17
20. We note that you recognized gains from impairment reversals in the
amounts of $4.3
million, $3.3 million and $336 thousand during the three months ended
May 31, 2019,
fiscal year ended February 29, 2020 and three months ended May 31,
2020, respectively.
Please provide us with your accounting analysis, with reference to
authoritative literature,
supporting your treatment, recognition and measurement of impairment
reversals during
the respective periods presented. In addition, tell us how this
accounting treatment is
consistent with your policy disclosure on page F-17, where you state
that the Company
will only recognize decreases in the value of its Ether and Bitcoin,
and any increase in
value will be recognized upon disposition.
Note 10 - Related Party Transactions, page F-24
21. We note your disclosure of entering into a NRE Funding Agreement on
September 1,
2020, along with your receipt of 10,000,000 SCRT Tokens, with an
agreement effective
Guy Zyskind
Enigma MPC
October 16, 2020
Page 7
date of January 1, 2020. Please address the following:
Tell us and explain if any of the activities relating to the
NRE Funding Agreement
(e.g., receipt of tokens or accrual of funding payments) are
reflected in the financial
statements presented;
Revise to include a subsequent events footnote, including
disclosure of this
agreement and any other material subsequent events in accordance
with ASC 855;
and
We note that the Company recognized $686 thousand in fiscal
year 2019 and $1,029
thousand in the three months ended May 31, 2020. Revise to
clarify the nature of the
activities, agreements and platforms being developed that these
expenses relate to. In
addition, tell us how they reconcile to the amounts you disclose
as payments to
Gamma for R&D on page 20 during each period presented.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Robert Klein at (202) 551-3847 or Hugh West at (202)
551-3872 if you
have questions regarding comments on the financial statements and related
matters. Please
contact Eric Envall at (202) 551-3234 or Dietrich King at (202) 551-8071 with
any other
questions.
FirstName LastNameGuy Zyskind Sincerely,
Comapany NameEnigma MPC
Division of
Corporation Finance
October 16, 2020 Page 7 Office of
Finance
FirstName LastName