ENIGMA-BULWARK, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the three months ended | | For the six months ended | |
| March 31, 2019 | | March 31, 2018 | | June 30, 2019 | | June 30, 2018 | |
Cash flow from operating activities: | | | | | | | | | | | | |
Net loss and comprehensive loss | $ | (210,375 | ) | $ | (224,189 | ) | $ | (476,707 | ) | $ | (449,563 | ) |
Comprehensive loss | | (1,206 | ) | | (2,412 | ) | | (1,206 | ) | | (2,412 | ) |
Net loss | | (209,169 | ) | | (221,777 | ) | | (475,501 | ) | | (447,151 | ) |
| | | | | | | | | | | | |
Adjustments to reconcile net loss to net cash used by operating activities: | | | | | | | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | |
Stock compensation/amortization of deferred compensation | | 750 | | | -- | | | 6,152 | | | -- | |
Accruals converted to related party loans | | 60,000 | | | 150,860 | | | 120,000 | | | 257,975 | |
Depreciation and amortization | | 518 | | | 118 | | | 1,036 | | | 236 | |
Discount amortization | | -- | | | 21,330 | | | -- | | | 42,897 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Increase in accounts payable and accrued expenses | | 70,016 | | | 60,906 | | | 138,377 | | | 125,172 | |
Increase (decrease) in related party payables | | 77,885 | | | (11,437 | ) | |
Net cash used by operating activities | | -- | | | -- | | |
Increase in related party payables | | | 209,936 | | | 20,871 | |
Net cash provided by operating activities | | | -- | | | -- | |
| | | | | | | | | | | | |
Net change in cash | | -- | | | -- | | | -- | | | -- | |
| | | | | | | | | | | | |
Cash - beginning of period | | -- | | | -- | | | -- | | | -- | |
| | | | | | | | | | | | |
Cash - end of period | $ | -- | | $ | -- | | $ | -- | | $ | -- | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
NONCASH ACTIVITIES | | | | | | | | | | | | |
Conversion of related party payable to related party convertible promissory note | $ | 60,000 | | $ | 150,860 | | $ | 120,000 | | $ | 257,975 | |
| | | | | | | | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | | SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | |
Interest paid | $ | -- | | $ | -- | | $ | -- | | $ | -- | |
Income taxes paid | $ | -- | | $ | -- | | $ | -- | | $ | -- | |
The accompanying notes are an integral part of these quarterly consolidated financial statements.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,JUNE 30, 2019, AND DECEMBER 31, 2018
NOTE 1. OVERVIEW AND NATURE OF BUSINESS
The accompanying unaudited consolidated financial statements of Enigma-Bulwark, Ltd., (the “Company” or “Enigma”) have been prepared in accordance with generally accepted accounting principles. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and that effect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2018. Notes to the consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements have been omitted.
The Company was incorporated in Nevada on September 30, 2005, and is headquartered in Los Angeles, California. Formerly PearTrack Security Systems, Inc., the Company’s name was changed to Enigma-Bulwark, Ltd., on October 9, 2019, pursuant to a majority of the Company’s shareholders and unanimous resolution of the board of directors.
Enigma-Bulwark, Ltd. (“Enigma” or “Company”) is a security and risk management company that provides physical security, technology-systems integration, and risk management advisory services. Services offered to assess and mitigate risk include security guards, risk management analysis, and proprietary and third-party technology and software. Target markets include corporations, governments and individuals across the globe.
As of March 31,June 30, 2019, the Company was structured with three wholly-owned subsidiaries: PearTrack Systems Group, Ltd. (“PTSG”), Ecologic Products, Inc. (“EPI”), and Ecologic Car Rentals, Inc. (“ECR”), all Nevada corporations. The Company’s current business activities are diversified into two specific markets: security and risk management, and remote/mobile asset tracking products.
The Company intends to provide a unique solution to security issues in the intermodal shipping container marketplace, with its patented container tracking and locking system, EnigmaLok (formerly PearLoxx), the rights of which were licensed to the Company in perpetuity in 2015.
Through the subsidiaries, Ecologic Car Rentals, Inc. and Ecologic Products, Inc., the Company continues its pursuits for strategic opportunities for its shareholders, as management believes that the brands have value for companies with environmentally-friendly consumer-related products and services.
Going Concern
The Company has incurred losses since inception resulting in a current period net loss of $210,375,$476,707, an accumulated deficit of $17,627,203,$17,893,535, and a working capital deficit of $4,097,498$4,357,910 as of March 31,June 30, 2019, and further losses are anticipated. The Company’s ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, which may not be available at commercially reasonable terms. There can be no assurance that the Company will be able to continue to raise funds, in which case the Company may be unable to meet its obligations and the Company may cease operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements reflect all adjustments consisting of normal recurring adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the periods shown. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue as a going concern.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
This summary of significant accounting policies is presented to assist in understanding the Company’s consolidated financial statements. These accounting policies conform to accounting principles, generally accepted in the United States of America, and have been consistently applied in the preparation of the consolidated financial statements.
The Company’s fiscal year end is December 31.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,JUNE 30, 2019, AND DECEMBER 31, 2018
Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. Estimates that are critical to the accompanying consolidated financial statements include the estimates related to asset impairments of long-lived assets and investments, classification of expenditures as either an asset or an expense, valuation of deferred tax assets, and the likelihood of loss contingencies. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions are revised periodically, and the effects of revisions are reflected in the consolidated financial statements in the period it is determined to be necessary. Actual results could differ from these estimates.
Fair Value Hierarchy
The Company utilizes the three-level valuation hierarchy for the recognition and disclosure of fair value measurements. The categorization of assets and liabilities within this hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. The three levels of the hierarchy consist of the following:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2: Inputs to the valuation methodology are quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active or inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.
Level 3: Inputs to the valuation methodology are unobservable inputs based upon management’s best estimate of inputs market participants could use in pricing the asset or liability at the measurement date, including assumptions about risk.
The Company’s investment in securities are classified as Level 1 assets, and were valued using the quoted prices in the active market (Note 3).
Fair Value of Financial Instruments
As of March 31,June 30, 2019, and December 31, 2018, respectively, the carrying values of Company’s Level 1 financial instruments including cash and cash equivalents, investments in securities, accounts receivable, accounts payable, and short-term debt approximate fair value. The fair value of Level 3 instruments is calculated as the net present value of expected cash flows based on externally provided or obtained inputs. Certain Level 3 instruments may also be based on sales prices of similar assets. The Company’s fair value calculations take into consideration the credit risk of both the Company and its counterparties as of the date of valuation.
Cash and Cash Equivalents
The Company considers cash in banks, deposits in transit, and highly-liquid debt instruments purchased with original maturities of three months or less to be cash and cash equivalents. As of March 31,June 30, 2019, and December 31, 2018, the Company had no cash equivalents.
Investments in Securities
Investments in securities are accounted for using the equity method if the investment provides the Company the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee's board of directors, are considered in determining whether the equity method is appropriate. All other equity investments, which consist of investments for which the Company does not possess the ability to exercise significant influence, are accounted for under the mark to market method. Under the mark to market method of accounting, investments are marked to market, with unrealized gains and losses being excluded from earnings and reflected as a component of other comprehensive income.
Property and Equipment
Property and equipment is carried at the cost of acquisition or construction and depreciated over the estimated useful lives of the assets. Costs associated with repairs and maintenance are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency of the Company’s property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are 5 to 7 years.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2019, AND DECEMBER 31, 2018
Intangible Assets
Product processes, patents and customer lists are amortized on a straight-line basis over their estimated useful lives between 4 to 20 years. Application development stage costs for significant internally developed software projects are capitalized and amortized on a straight-line basis over the useful life, between 2 to 5 years. Costs to extend and maintain patents and trademarks are charged directly to expense as incurred.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019, AND DECEMBER 31, 2018
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable. When such factors and circumstances exist, the Company compares the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made.
Due to the Company’s recurring losses and lack of revenue from its intellectual properties, its intellectual properties were evaluated for impairment, and it was determined that expected future cash flows were sufficient for recoverability of the assets at March 31, 2019, and December 31, 2018.
Convertible Debt
The Company recognizes the advantageous value of conversion rights attached to convertible debt. Such rights give the debt holder the ability to convert debt into common stock at a price per share that is less than the trading price to the public on the date of the debt. The beneficial value is calculated as the intrinsic value (the market price of the stock at the commitment date in excess of the conversion rate) of the beneficial conversion feature of the debt, and is recorded as a discount to the related debt and an addition to additional paid in capital. The discount is amortized over the remaining outstanding period of related debt using the interest method.
Revenue Recognition
Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service has been provided, and collectability is reasonably assured.
The Company’s revenue is generated from limited customer contracts for its tracking units and system. In addition, the Company provides consulting services as an additional revenue source. As of March 31,June 30, 2019, the Company has not commenced its principal operations, generating limited test sales of its security product line in prior years.line.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.
The Company has net operating loss carryforwards available to reduce future taxable income. Future tax benefits for these net operating loss carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. To the extent that the Company will not realize a future tax benefit, a valuation allowance is established.
As of March 31,June 30, 2019, the Company had not yet filed its 2013 through 2018 annual corporate income tax returns, which were filed in April 2022. Due to the Company’s recurring losses, no corporate income taxes are due for these periods.
Net Income (Loss) Per Common Share
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During the periods when anti-dilutive, common stock equivalents, if any, are not considered in the computation.
Other Comprehensive Income (Loss)
Other comprehensive income includes unrealized gains and losses on securities available for sale, and unrealized gains and losses resulting from foreign exchange differences. During the threesix months ended March 31,June 30, 2019 and 2018, respectively, other comprehensive losses of $1,206 and $2,412 have been recognized. As of March 31,June 30, 2019 and 2018, respectively, other comprehensive losses of $4,152 and $2,946 has been accumulated. accumulated. The following represents the accumulated comprehensive income activity:
| Unrealized Foreign Currency Exchange | | Unrealized Securities Gains (Losses) | | Comprehensive Income (Loss) | | Unrealized Foreign Currency Exchange | | Unrealized Securities Gains (Losses) | | Total Accumulated Other Comprehensive Income (Loss) | |
Balance, December 31, 2017 | $ | 6,703 | | $ | (7,237 | ) | $ | (534 | ) | $ | 6,703 | | $ | (7,237 | ) | $ | (534 | ) |
Gain (loss) | | -- | | | (2,412 | ) | | (2,412 | ) | | -- | | | (2,412 | ) | | (2,412 | ) |
Balance, March 31, 2018 | $ | 6,703 | | $ | (9,649 | ) | $ | (2,946 | ) | |
Balance, June 30, 2018 | | $ | 6,703 | | $ | (9,649 | ) | $ | (2,946 | ) |
| | | | | | | | | | | | | | | | | | |
Balance, December 31, 2018 | $ | 6,703 | | $ | (9,649 | ) | $ | (2,946 | ) | $ | 6,703 | | $ | (9,649 | ) | $ | (2,946 | ) |
Gain (loss) | | -- | | | (1,206 | ) | | (1,206 | ) | | -- | | | (1,206 | ) | | (1,206 | ) |
Balance, March 31, 2019 | $ | 6,703 | | $ | (10,855 | ) | $ | (4,152 | ) | |
Balance, June 30, 2019 | | $ | 6,703 | | $ | (10,855 | ) | $ | (4,152 | ) |
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,JUNE 30, 2019, AND DECEMBER 31, 2018
Stock Based Compensation
The Company records stock-based compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
Recent Accounting Pronouncements
The Company evaluates the pronouncements of various authoritative accounting organizations, primarily the Financial Accounting Standards Board (“FASB”), the US Securities and Exchange Commission (“SEC”), and the Emerging Issues Task Force (“EITF”), to determine the impact of new pronouncements on US GAAP and the impact on the Company. The Company has recently adopted the following new accounting standards:
Adopted:
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10: Recognition and Measurement of Financial Assets and Financial Liabilities). The new guidance is intended to improve the recognition, measurement, presentation and disclosure of financial instruments. Among other changes, there will no longer be an available-for-sale classification for which changes in fair value are currently reported in other comprehensive income for equity securities with readily determinable fair values. Equity investments with readily determinable fair values will be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for the Company beginning January 1, 2018, with early adoption not permitted.
In February 2016, the FASB issued ASU No. 2016-02, Leases. Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The ASU is effective for the Company beginning January 1, 2019, with early adoption permitted.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 provides guidance on eight specific cash flow issues, for which specific guidance had not previously been provided, with the objective of reducing the existing diversity in practice. The amendments in this update are effective for the Company for fiscal years beginning after December 15, 2017, and interim periods. Early adoption is permitted.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. As part of the Board’s initiative to reduce complexity in accounting standards. The amendments in this update are effective for the Company for annual reporting periods beginning after December 15, 2017, and interim periods. Early adoption is permitted for interim or annual reporting periods for which financial statements have not been issued or made available for issuance.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business. ASU 2017-01 assists entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments in this update are effective for the Company for annual periods beginning after December 15, 2017, and interim periods. Early adoption is permitted under certain conditions.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test, which should reduce the cost and complexity of evaluating goodwill for impairment. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 is effective for the Company for annual periods beginning after December 15, 2019, and interim periods. Early adoption is permitted for testing performed after January 1, 2017.
In May 2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. ASU 2017-09 clarifies and reduces both the (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. ASU 2017-09 is effective for the Company for annual periods beginning after December 15, 2017, and interim periods. Early adoption is permitted.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,JUNE 30, 2019, AND DECEMBER 31, 2018
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). ASU 2017-11 addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. ASU 2017-11 also addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification®. ASU 2017-11 is effective for the Company for annual periods beginning after December 15, 2018, and interim periods. Early adoption is permitted.
In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for the Company for annual periods beginning after December 15, 2018, and interim periods. Early adoption is permitted.
In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements. ASU 2018-11 addresses certain issues in implementing ASU 2016-02, Leases, which was issued to increase transparency ad comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing transaction. ASU 2018-11 clarifies 1) comparative reporting requirements for initial adoption; and 2) for lessors only, separating lease and non-lease components in a contract and allocating the consideration in the contract to the separate components. The amendments in this Update related to separating components of a contract affect the amendments in Update 2016-02, which is effective for the Company for annual periods beginning after December 15, 2018, and interim periods. Early adoption is permitted.
Not Yet Adopted:
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. ASU 2018-13 is effective for the Company for annual periods beginning after December 15, 2019, and interim periods. Early adoption is permitted. The Company is currently evaluating the impact of the application of this accounting standard update on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other Internal-Use Software (Subtopic 350-40). ASU 2018-15 was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. ASU 2018-15 is effective for the Company for annual periods beginning after December 15, 2019, and interim periods. Early adoption is permitted. The Company is currently evaluating the impact of the application of this accounting standard update on its consolidated financial statements and related disclosures.
In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The amendments to Topic 326 and other Topics in ASU 2019-04 clarify or address stakeholders’ specific issues about certain aspects of the amendments in Update 2016-13. The amendments to Topic 815 in ASU 2019-04 include items related to Update 2017- 12 and clarify certain aspects of Topic 815. The amendments to Topic 321 and other Topics in ASU 2019-04 relate to the amendments in Update 2016-01 and clarify certain aspects of the amendments in Update 2016-01. ASU 2019-04 is effective for the Company for annual periods beginning after December 15, 2019, and interim periods. Early adoption is permitted. The Company is currently evaluating the impact of the application of this accounting standard update on its consolidated financial statements and related disclosures.
Recently Issued Accounting Standards Updates:
There were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries. None of the updates are expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows.
NOTE 3. INVESTMENT IN SECURITIES
As of March 31,June 30, 2019, and December 31, 2018, the Company held 12,061,854 shares of Amazonas Florestal, Ltd. (OTC:AZFL) common stock. The securities are classified as Level 1 investments (Note 2, Fair Value Hierarchy), and are valued using the quoted market prices. During the threesix months ended March 31,June 30, 2019 and 2018, respectively, $1,206 and $2,412 in unrealized losses were recognized and included as part of comprehensive income (loss). As of March 31,June 30, 2019, and December 31, 2018, respectively, $10,855 and $9,649 in cumulative unrealized losses were recognized, and the securities held a fair value of $1,207 and $2,413.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2019, AND DECEMBER 31, 2018
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
| March 31, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 | |
Office equipment | $ | 2,362 | | $ | 2,362 | | $ | 2,362 | | $ | 2,362 | |
Accumulated depreciation | | (1,770 | ) | | (1,652 | ) | | (1,888 | ) | | (1,652 | ) |
Property and equipment, net | $ | 592 | | $ | 710 | | $ | 474 | | $ | 710 | |
During the threesix months ended March 31,June 30, 2019 and 2018, respectively, $118$236 and $118$236 in depreciation was expensed.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019, AND DECEMBER 31, 2018
NOTE 5. INTANGIBLE ASSETS
Intangible assets consists of the following:
| March 31, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 | |
Intellectual property | $ | 31,500 | | $ | 31,500 | | $ | 31,500 | | $ | 31,500 | |
Accumulated amortization | | (734 | ) | | (334 | ) | | (1,134 | ) | | (334 | ) |
Intellectual property, net | $ | 30,766 | | $ | 31,166 | | $ | 30,366 | | $ | 31,166 | |
During the threesix months ended March 31,June 30, 2019 and 2018, respectively, $400$800 and $0 in amortization was expensed.
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
| March 31, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 | |
Accounts payable-vendors | $ | 717,739 | | $ | 713,581 | | $ | 721,896 | | $ | 713,581 | |
Accrued payroll and taxes | | 92,995 | | | 80,995 | | | 101,995 | | | 80,995 | |
Accrued interest | | 951,249 | | | 897,391 | | | 1,006,453 | | | 897,391 | |
Other liabilities | | 779 | | | 779 | | | 779 | | | 779 | |
| | | | | | | | | | | | |
Total accounts payable and accrued expenses | $ | 1,762,762 | | $ | 1,692,746 | | $ | 1,831,123 | | $ | 1,692,746 | |
NOTE 7. NOTES AND LOANS PAYABLE
Notes and loans payable consists of the following:
| March 31, 2019 | | December 31, 2018 | | June 30, 2019 | | December 31, 2018 | |
Loans payable | $ | 44,605 | | $ | 44,605 | | $ | 44,605 | | $ | 44,605 | |
Notes payable, short term | | 125,000 | | | 125,000 | | | 125,000 | | | 125,000 | |
Total notes and loans payable | | 169,605 | | | 169,605 | | | 169,605 | | | 169,605 | |
| | | | | | | | | | | | |
Notes payable, short-term, convertible | | 500,000 | | | 500,000 | | | 500,000 | | | 500,000 | |
Total | $ | 669,605 | | $ | 669,605 | | $ | 669,605 | | $ | 669,605 | |
Notes payable includes the following convertible promissory notes at March 31,June 30, 2019, and December 31, 2018:
Description | Principal | | Interest Rate (%) | Conversion Rate | Maturity Date | |
| | | | | | | |
Matrix Advisors, Inc. | $ | 500,000 | | 5 | $0.25 | 12/31/2015 | [1] |
| | | | | | | |
Total convertible notes payable | $ | 500,000 | | | | | |
[1] No change in terms of promissory note due to breach. The debt was converted in November 2021.
During the threesix months ended March 31,June 30, 2019, and the year ended December 31, 2018, respectively, interest in the amount of $12,823$25,786 and $60,797 was expensed. As of March 31,June 30, 2019, and December 31, 2018, respectively, interest in the amount of $363,899$376,852 and $351,066 has been accrued and is included as part of accrued expenses on the accompanying consolidated balance sheets.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2019, AND DECEMBER 31, 2018
NOTE 8. RELATED PARTY TRANSACTIONS
Related party transactions consists of the following:
| March 31, 2019 | | December 31, 2018 | |
| | | | | | |
Notes payable, convertible, short-term | $ | 788,985 | | $ | 728,985 | |
| | | | | | |
Notes payable, convertible, long-term | | 2,443,720 | | | 2,443,720 | |
Total notes payable | | 3,232,705 | | | 3,172,705 | |
| | | | | | |
Accrued compensation | | 723,440 | | | 645,555 | |
Reimbursable expenses/cash advances payable | | 152,706 | | | 152,706 | |
Total related party payable | | 876,146 | | | 798,261 | |
| | | | | | |
Total related party transactions | $ | 4,108,851 | | $ | 3,970,966 | |
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019, AND DECEMBER 31, 2018
| June 30, 2019 | | December 31, 2018 | |
| | | | |
Notes payable, convertible, short-term | $ | 848,985 | | $ | 728,985 | |
| | | | | | |
Notes payable, convertible, long-term | | 2,443,720 | | | 2,443,720 | |
Total notes payable | | 3,292,705 | | | 3,172,705 | |
| | | | | | |
Accrued compensation | | 855,491 | | | 645,555 | |
Reimbursable expenses/cash advances payable | | 152,706 | | | 152,706 | |
Total related party payable | | 1,008,197 | | | 798,261 | |
| | | | | | |
Total related party transactions | $ | 4,300,902 | | $ | 3,970,966 | |
Related party notes payable consists of the following convertible notes payable at March 31,June 30, 2019, and December 31, 2018:
Description | Principal | | Interest Rate (%) | Conversion Rate | Maturity Date | | Principal | | Interest Rate (%) | Conversion Rate | Maturity Date | |
| | | | | | | | | | | | |
Short-term: | | | | | | | | | | | | |
Huntington Chase Financial Group | $ | 413,913 | | 7 | $0.05 | 1 year from demand | [1] | $ | 413,913 | | 7 | $0.05 | 1 year from demand | [1] |
Huntington Chase LLC | | 100,000 | | 5 | $0.05 | 12/31/2023 | | | 160,000 | | 5 | $0.05 | 12/31/2023 | |
William Nesbitt | | 86,317 | | 5 | $0.05 | Funding | [2] | | 86,317 | | 5 | $0.05 | Funding | [2] |
Kasper Group, Ltd. | | 188,755 | | 7 | $0.05 | 1 year from demand | [1] | | 188,755 | | 7 | $0.05 | 1 year from demand | [1] |
Total short-term | | 788,985 | | | | | | 848,985 | | | | |
| | | | | | | | | | | | |
Long-term: | | | | | | | | | | | | |
Huntington Chase Financial Group | | 1,123,000 | | 5 | $0.05 | 12/31/2021 | | | 1,123,000 | | 5 | $0.05 | 12/31/2021 | |
E. William Withrow Jr. | | 894,256 | | 5 | $0.05 | 12/31/2021 | | | 894,256 | | 5 | $0.05 | 12/31/2021 | |
John Macey | | 426,464 | | 4 | $0.25 | 12/31/2023 | | | 426,464 | | 4 | $0.25 | 12/31/2023 | |
Total long-term | | 2,443,720 | | | | | | 2,443,720 | | | | |
| | | | | | | | | | | | |
Total convertible notes payable | $ | 3,232,705 | | | | | $ | 3,292,705 | | | | |
[1] No demand has been made
[2] The requisite funding goals for repayment have not been met.
All outstanding promissory notes to related parties bear interest at a rate of 5 to 7 percent per annum, are due and payable within between one (1) year of written demand to December 31, 2023, or upon certain equity funding, and are convertible into the Company’s common stock at a price of between $0.05 to $0.25 per share.
As of March 31,June 30, 2019, and December 31, 2018, respectively, affiliates and related parties are due a total of $4,108,851$4,300,902 and $3,970,966, which is comprised of promissory notes to related parties net of unamortized discounts, in the amount of $3,232,705$3,292,705 and $3,172,705; accrued compensation in the amount of $723,440$855,491 and $645,555; and reimbursable expenses/cash advances to the Company in the amount of $152,706 and $152,706; for a net increase (decrease) of $137,885$329,936 and ($1,182,536). During the threesix months ended March 31,June 30, 2019, and the year ended December 31, 2018, respectively, promissory notes to related parties increased (decreased) by $60,000$120,000 and ($1,391,569), unamortized discounts decreased by $0 and $81,469, and accrued compensation increased by $77,885$209,936 and $127,564.
During the threesix months ended March 31,June 30, 2019, and the year ended December 31, 2018, respectively, promissory notes to related parties, net of unamortized discounts, increased (decreased) by $60,000$120,000 and ($1,310,100), as a result of an increase in accrued compensation owed to related parties in the amount of $60,000$120,000 and $419,676 converted to convertible promissory notes; $0 and $188,755 reclassified from non-related party promissory notes; $0 and $2,000,000 in secured promissory notes canceled; and a decrease in unamortized discount in the amount of $0 and $81,469.
During the threesix months ended March 31,June 30, 2019, and the year ended December 31, 2018, respectively, $137,885$329,936 and $548,240 in related party compensation was accrued, of which $60,000$120,000 and $419,676 was converted into convertible promissory notes; and $0 and $1,000 was paid;for a net increase in accrued compensation in the amount of $77,885$209,936 and $127,564.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2019, AND DECEMBER 31, 2018
During the threesix months ended March 31,June 30, 2019, and the year ended December 31, 2018, respectively, $41,036$83,276 and $215,096 in interest on related party loans was expensed. As of March 31,June 30, 2019, and December 31, 2018, respectively, $587,361$629,601 and $546,325 in interest on related party loans has been accrued, and is included as part of accrued expenses on the accompanying consolidated balance sheets.
Agreements
On May 1, 2019, the Company entered into Consulting Agreement with Mr. David Rocke. The agreement is for an initial term of three (3) years, and provides a base compensation of $150,000 per year, to be deferred until the Company reaches certain funding goals, as well as 12.5% of Enigma-Bulwark Security, Inc. adjusted gross earnings, as defined within the agreement. In addition, the agreement includes a grant of 6,875,093 options to purchase shares of the Company’s common stock, valued at $39,875 using the Black-Scholes method, at an exercise price of $0.005 per share. The options are exercisable for a period of five (5) years, of which 50% vest when certain performance goals are met, and the remainder vest when certain funding goals are met. The assumptions used in valuing the options were: expected term 4.00 years, expected volatility 38.58%, risk free interest rate 2.15%, and dividend yield 0%.
On May 1, 2019, the Company, through its wholly-owned subsidiary, Enigma-Bulwark Risk Management, Inc., entered into Consulting Agreement with Mr. Michael Gabriele, to serve as its President, and the President of its subsidiary, Enigma-Bulwark Security, Inc. The agreement is for an initial term of three (3) years, and provides a base compensation of $175,000 per year, to be deferred until the Company reaches certain funding goals, as well as 12.5% of Enigma-Bulwark Security, Inc. adjusted gross earnings, as defined within the agreement. In addition, the agreement includes a grant of 2,750,040 options to purchase shares of the Company’s common stock, valued at $15,950 using the Black-Scholes method, at an exercise price of $0.005 per share. The options are exercisable for a period of five (5) years, of which 50% vest when certain performance goals are met, and the remainder vest when certain funding goals are met. The assumptions used in valuing the options were: expected term 4.00 years, expected volatility 38.58%, risk free interest rate 2.15%, and dividend yield 0%.
NOTE 9. CAPITAL STOCK
The total number of authorized shares of common stock that may be issued by the Company is 250,000,000 shares with a par value of $0.001; and the total number of authorized preferred stock is 25,000,000 shares with a par value of $0.001.
As of March 31,June 30, 2019, and December 31, 2018, the Company had 77,382,753 shares of Common Stock issued and outstanding.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019, AND DECEMBER 31, 2018
NOTE 10. STOCK OPTIONS AND AWARDS
Stock Options
As of March 31,June 30, 2019, and December 31, 2018, respectively, the Company had 10,227,633 and 602,500 stock options issued and outstanding.
Outstanding and Exercisable Options | | | | | |
| | | | Remaining | | Exercise Price | | | |
| | Number of | | Contractual Life | | times Number | | Weighted Average | |
Exercise Price | | Shares | | (in years) | | of Shares | | Exercise Price | |
| | | | | | | | | | | |
$0.10 | | 500,000 | | 4.55 | | $ | 50,000 | | | $0.63 | |
$3.20 | | 102,500 | | 2.05 | | | 328,000 | | | $3.20 | |
| | 602,500 | | | | $ | 378,000 | | | $2.34 | |
On May 15, 2019, in connection with certain consulting agreements, the Company granted 9,625,133 options to purchase shares of its Common Stock, valued at $55,825 using the Black-Scholes method, at an exercise price of $0.005 per share. The options are exercisable for a period of five (5) years, of which 50% vest when certain performance goals are met, and the remainder vest when certain funding goals are met. .The assumptions used in valuing the options were: expected term 4.00 years, expected volatility 38.58%, risk free interest rate 2.15%, and dividend yield 0%.
Options Activity | Number | | Weighted Average | |
| of Shares | | Exercise Price | |
| | | | | |
Outstanding at December 31, 2018 | 602,500 | | | $2.34 | |
Granted | -- | | | -- | |
Exercised | -- | | | -- | |
Expired / Cancelled | -- | | | -- | |
Outstanding at March 31, 2019 | 602,500 | | | $2.34 | |
Outstanding and Exercisable Options | | | | | |
| | | | Remaining | | Exercise Price | | | |
| | Number of | | Contractual Life | | times Number | | Weighted Average | |
Exercise Price | | Shares | | (in years) | | of Shares | | Exercise Price | |
| | | | | | | | | | | |
$0.005 | | 9,625,133 | | 4.85 | | $ | 48,126 | | | $0.16 | |
$0.10 | | 500,000 | | 4.30 | | | 50,000 | | | $0.63 | |
$3.20 | | 102,500 | | 1.80 | | | 328,000 | | | $3.20 | |
| | 10,227,633 | | | | $ | 426,126 | | | $1.44 | |
Options Activity | Number | | Weighted Average | |
| of Shares | | Exercise Price | |
| | | | | |
Outstanding at December 31, 2018 | 602,500 | | | $2.34 | |
Granted | 9,625,133 | | | $0.16 | |
Exercised | -- | | | -- | |
Expired / Cancelled | -- | | | -- | |
Outstanding at June 30, 2019 | 10,227,633 | | | $1.44 | |
During the threesix months ended March 31,June 30, 2019, and the year ended December 31, 2018, the Company expensed no9,624,133 and 500,000 stock options were granted, for which $55,825 and $0 in deferred stock option compensation.compensation was recorded, and $4,652 and $0 was expensed. There remained no$51,173 and $0 in deferred stock option compensation at March 31,June 30, 2019, and December 31, 2018.2018, to be expensed over the next thirty-four (34) months.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2019, AND DECEMBER 31, 2018
Restricted Stock Awards
During the threesix months ended March 31,June 30, 2019, and the year ended December 31, 2018, respectively, 0 and 1,000,000 restricted stock awards were granted, valued at $0 and $9,000, net of cost in the amount of $0 and $1,000; and 83,333166,667 and 83,333 restricted stock awards vested, for which $750$1,500 and $750 in deferred stock compensation was expensed. As of March 31,June 30, 2019, and December 31, 2018, respectively, 833,334750,000 and 916,667 shares remain to be vested, and $7,500$6,750 and $8,250 deferred stock compensation remains to be expensed over the next thirty (30)twenty-seven (27) months.
Restricted Stock Awards Activity | Number | | Deferred | | Number | | Deferred | |
| of Shares | | Compensation | | of Shares | | Compensation | |
Outstanding at December 31, 2018 | 916,667 | | $ | 8,250 | | 916,667 | | $ | 8,250 | |
Granted | -- | | | -- | | -- | | | -- | |
Vested | (83,333 | ) | | (750 | ) | (166,667 | ) | | (1,500 | ) |
Forfeited/Canceled | -- | | | -- | | -- | | | -- | |
Outstanding at March 31, 2019 | 833,334 | | $ | 7,500 | | |
Outstanding at June 30, 2019 | | 750,000 | | $ | 6,750 | |
NOTE 11. SUBSEQUENT EVENTS
The Company has evaluated the events and transactions for recognition or disclosure subsequent to March 31,June 30, 2019, and has determined that there have been no events that would require disclosure, with the exception of the following:
During the period AprilJuly 1, 2019, to December 31, 2022, the Company increased its loans from related parties by $1,896,017,$1,703,966, from a total of $4,108,851$4,300,902 at March 31,June 30, 2019, to $6,004,868 at December 31, 2022. The increase represents (a) an increase in promissory notes in the amount of $2,256,466,$1,703,966, as a result of (i) $110,995 reclassified from non-related party transactions, (ii) $426,464 reclassified to non-related party transactions, (iii) $3,909,845$3,849,845 converted from accrued compensation, (iv) an increase in discounts resulting from beneficial conversion features of $1,052,494, (v) a decrease in unamortized discount of $741,616, (vi) payments to the Company in the amount of $5,500 for stock award payments, (vii) $521,557 converted to common stock, and (viii) payments to related parties in the amount of $499,975; (b) a decrease in accrued compensation of $244,717$376,768 as a result of (i) $3,781,600$3,589,549 in accrued compensation, of which $3,909,845$3,849,845 was converted into promissory notes, (ii) $55,000 in accrued compensation reclassified to non-related party transactions, (iii) payments to the Company in the amount of $5,500 for related party stock awards, and (iv) payments to related parties in the amount of $55,972; and (c) a decrease in reimbursable expenses and cash advances to the Company of $115,732. All outstanding related party promissory notes bear interest at a rate of 5 to 7 percent per annum, are due and payable between one (1) year of written demand and December 31, 2024, or upon certain equity funding, and are convertible into the Company’s common stock at a price of between $0.05 to $0.25 per share, or the 20-day average trading price.
On May 1, 2019, the Company entered into Consulting Agreement with Mr. David Rocke. The agreement is for an initial term of three (3) years, and provides a base compensation of $150,000 per year, to be deferred until the Company reaches certain funding goals, as well as 12.5% of Enigma-Bulwark Security, Inc. adjusted gross earnings, as defined within the agreement. In addition, the agreement includes a grant of 6,875,093 options to purchase shares of the Company’s common stock, valued at $39,875 using the Black-Scholes method, at an exercise price of $0.005 per share. The options are exercisable for a period of five (5) years, of which 50% vest when certain performance goals are met, and the remainder vest when certain funding goals are met. The assumptions used in valuing the options were: expected term 4.00 years, expected volatility 38.58%, risk free interest rate 2.15%, and dividend yield 0%.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019, AND DECEMBER 31, 2018
On May 1, 2019, the Company, through its wholly-owned subsidiary, Enigma-Bulwark Risk Management, Inc., entered into Consulting Agreement with Mr. Michael Gabriele, to serve as its President, and the President of its subsidiary, Enigma-Bulwark Security, Inc. The agreement is for an initial term of three (3) years, and provides a base compensation of $175,000 per year, to be deferred until the Company reaches certain funding goals, as well as 12.5% of Enigma-Bulwark Security, Inc. adjusted gross earnings, as defined within the agreement. In addition, the agreement includes a grant of 2,750,040 options to purchase shares of the Company’s common stock, valued at $15,950 using the Black-Scholes method, at an exercise price of $0.005 per share. The options are exercisable for a period of five (5) years, of which 50% vest when certain performance goals are met, and the remainder vest when certain funding goals are met. The assumptions used in valuing the options were: expected term 4.00 years, expected volatility 38.58%, risk free interest rate 2.15%, and dividend yield 0%.
On August 29, 2019, the Company entered into a Non-Compete, Non-Dilution and Registration Rights Agreement (“NC Agreement”) with Mr. David Rocke. The agreement is for an initial term of five (5) years, and provides as compensation a grant to purchase 6,667,000 shares of the Company’s restricted common stock, valued at $66,670, for $0.001 per share, plus the issuance of shares of the Company’s restricted common stock equal to seven percent (7%) of any issuance of common stock through May 15, 2019, originating from any financial instrument issued by the Company or its subsidiaries, in exchange for certain restrictions placed upon Mr. Rocke’s business activities.
On August 29, 2019, the Company entered into a Non-Compete, Non-Dilution and Registration Rights Agreement (“NC Agreement”) with Mr. Michael Gabriele, the President of the Company’s subsidiary, Enigma-Bulwark Risk Management, Inc. The agreement is for an initial term of five (5) years, and provides as compensation a grant to purchase 6,667,000 shares of the Company’s restricted common stock, valued at $66,670, for $0.001 per share, plus the issuance of shares of the Company’s restricted common stock equal to seven percent (7%) of any issuance of common stock through May 15, 2019, originating from any financial instrument issued by the Company or its subsidiaries, in exchange for certain restrictions placed upon Mr. Gabriele’s business activities.
On August 29, 2019, in connection with the Rocke and Gabriele NC Agreement, the Company issued 13,334,000 shares of its restricted common stock at $0.001 per share for cash in the amount of $13,334, plus 210,000 shares under the non-dilution provision at $0.001 per share for cash in the amount of $210.
On August 30, 2019, the Company formed Enigma-Bulwark Risk Management, Inc., a Delaware corporation and wholly-owned subsidiary, and acquired 100% of the common stock of Enigma-Bulwark Security, Inc., a Delaware corporation also formed by the Company.
On September 1, 2019, the Company, through its wholly-owned subsidiary, Enigma-Bulwark Risk Management, Inc., entered into Consulting Agreement with Mr. Clive Oosthuizen to serve as its Chief Executive Officer. The agreement is for an initial term of three (3) years, and provides a base compensation of $180,000 year one, $210,000 year two, and $240,000 year three, to be deferred until the Company reaches certain funding goals. In addition, the agreement includes a $25,000 signing bonus, and a grant of 1,250,000 options to purchase shares of the Company’s common stock, valued at $625 using the Black-Scholes method, at an exercise price of $0.05 per share. The options are exercisable for a period of five (5) years, and vest periodically over a period of thirty-six (36) months. The assumptions used in valuing the options were: expected term 5.75 years, expected volatility 41.3%, risk free interest rate 1.84%, and dividend yield 0%.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2019, AND DECEMBER 31, 2018
On September 20, 2019, in connection with the exercise of certain stock options, the Company issued 4,010,470 shares of its restricted common stock to related parties at an exercise price of $0.005, for cash in the amount of $20,052.
On October 1, 2019, the Company entered into a Consulting Agreement with Ms. Yinuo Jiang to serve as the Company’s Corporate Secretary effective October 8, 2019, among other duties. The agreement is for an initial term of three (3) years, and provides a base compensation of $100,000 per year, to be deferred until the Company reaches certain funding goals. In addition, the agreement includes a grant to purchase 1,000,000 shares of the Company’s restricted common stock, valued at $10,000, for $0.001 per share.
On October 1, 2019, in connection with the Consulting Agreement, the Company issued 1,000,000 shares of its restricted common stock at $0.001 per share, for cash in the amount of $1,000.
On October 6, 2019, pursuant to a resolution of the board of directors, the Company issued an aggregate of 6,000,000 shares of its restricted common stock, valued at $60,000, to its officers and directors at $0.001 per share, for cash in the amount of $6,000.
On October 10, 2019, the Company entered into a Non-Compete, Non-Dilution and Registration Rights Agreement (“NC Agreement”) with Mr. Clive Oosthuizen, the Chief Executive Officer of the Company’s subsidiary, Enigma-Bulwark Risk Management, Inc. The agreement is for an initial term of five (5) years, and provides as compensation a grant to purchase 4,000,000 shares of the Company’s restricted common stock, valued at $360,000, for $0.001 per share, plus the issuance of shares of the Company’s restricted common stock equal to four and one-half percent (4.5%) of any issuance of common stock originating from any financial instrument issued by the Company or its subsidiaries during the term, in exchange for certain restrictions placed upon Mr. Oosthuizen’s business activities.
ENIGMA-BULWARK, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2019, AND DECEMBER 31, 2018
On October 10, 2019, in connection with the Oosthuizen NC Agreement, the Company issued 4,000,000 shares of its restricted common stock at $0.001 per share for cash in the amount of $4,000.
On December 20, 2019, in connection with the exercise of certain stock options, the Company issued 802,094 shares of its restricted common stock to related parties at an exercise price of $0.005 for cash in the amount of $4,010.
On September 8, 2020, the Company, through its wholly-owned subsidiary, Enigma-Bulwark Risk Management, Inc., entered into a Joint Venture Agreement (the “JV Agreement”) with Prime African Security, Ltd., a South African corporation (“Prime”), to provide security and risk management services in South Africa. The joint venture formed Prime Enigma Africa (Pty) Ltd., a South African corporation (the “Joint Venture”), for which Prime owns 51% of the common stock and the Company owns 49%. The JV Agreement is for an initial term of three (3) years, and automatically renews unless canceled in writing by either party.
On August 31, 2021, in connection with the conversion of related party debt in the amount of $1,238,251, the Company issued an aggregate of 23,066,991 shares of its restricted Common Stock to six (6) related parties, including three (3) officers, of which $941,096 was at a conversion price of $0.05 per share, and $297,155 was at a conversion price of $0.07 per share.
On November 5, 2021, in connection with the conversion of debt in the amount of $696,301, the Company issued 2,785,205 shares of its restricted Common Stock at a conversion price of $0.25 per share.
On January 1, 2022, in connection with a consulting agreement, the Company issued 2,500,000 shares of restricted common stock at $0.001 per share for cash in the amount of $2,500.
Management Changes:
On September 20, 2019, during a meeting of the board of directors, Mr. John D. Macy was not re-elected to the board of directors.
On October 4, 2019, Mr. Clive Oosthuizen, Mr. David M. Rocke and Ms. Calli R. Bucci were appointed to the Board, to serve until the next annual meeting of the shareholders.
On October 8, 2019, Ms. Calli R. Bucci resigned as Corporate Secretary. This resignation did not involve any disagreement with the Company. Ms. Yinuo “Rachel” Jiang succeeded her to serve as Corporate Secretary until the next annual meeting of the shareholders and/or until she, or her successor is duly appointed.
On January 12, 2021, Mr. John L. Ogden resigned as a Board member. This resignation did not involve any disagreement with the Company. Mr. Kyle W. Withrow, the Company’s President and Chief Executive Officer, succeeded him as a director until the next annual meeting of the shareholders and/or until he, or his successor is duly appointed.
On April 6, 2021, Mr. E. William Withrow Jr. resigned as Executive Chairman of the Board. His resignation did not involve any disagreement with the Company. Mr. Clive Oosthuizen, a Board member, and the President of the Company’s subsidiary, Enigma-Bulwark Risk Management, Inc., succeeded him.
On April 6, 2021, Mr. Kyle W. Withrow resigned as the Company President and Chief Executive Officer, and as a Board member. His resignation did not involve any disagreement with the Company. Mr. Oosthuizen succeeded him as President and Chief Executive Officer until the next annual meeting of the shareholders and/or until he, or his successor, is duly appointed. The vacant Board member seat resulting from Mr. Withrow’s resignation will remain open until a new member is elected at the next annual meeting of the shareholders, or is duly appointed by the Board.
On April 12, 2021, Mr. David Rocke resigned as a Board member and consultant. His resignation was preceded by the Company’s inquiry into Mr. Rocke’s performance in connection with his Consulting Agreement dated May 1, 2019. The vacant Board member seat resulting from Mr. Rocke’s resignation will remain open until a new member is elected at the next annual meeting of the shareholders, or is duly appointed by the Board.
On April 12, 2021, Mr. Michael Gabriele resigned as President of Enigma-Bulwark Risk Management, Inc. and its subsidiaries. His resignation did not involve any disagreement with the Company.
* * * * *
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This quarterly report contains forward-looking statements. These statements relate to future events or the Company’s future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause the Company’s or the Company’s industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
The Company’s unaudited consolidated financial statements are stated in United States Dollars (US$), and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with the Company’s unaudited consolidated financial statements and the related notes that appear elsewhere in this quarterly report.
As used in this quarterly report and unless otherwise indicated, the terms “we”, “us”, “our”, “our company” and “Enigma” refer to Enigma-Bulwark, Ltd., and its subsidiaries, unless otherwise indicated.
Corporate History
The Company was incorporated in Nevada on September 30, 2005, and is headquartered in Los Angeles, California. Formerly PearTrack Security Systems, Inc., the Company’s name was changed to Enigma-Bulwark, Ltd., on October 9, 2019, pursuant to a majority of the Company’s shareholders and unanimous resolution of the board of directors.
Enigma-Bulwark, Ltd. (“Enigma” or “Company”) is a security and risk management company that provides physical security, technology-systems integration, and risk management advisory services. Services offered to assess and mitigate risk include security guards, risk management analysis, and proprietary and third-party technology and software. Target markets include corporations, governments and individuals across the globe.
During 2016 through 2018, the Company sought financing for the finalization of the PearLoxx container locking and tracking prototype. In addition, strategic acquisitions were pursued to expand the Company’s intellectual property portfolio.
Due to the Company’s inability to successfully commercialize the PearTrack IP tracking platform acquired in 2013, all rights, title and interest in the PearTrack IP reverted to the former licensees on December 31, 2018, and, pursuant to the terms of the collateralized agreement, the related Note issued to the licensors (the “Note Holders”) was canceled. In addition, all rights to future royalties collectible under any sub-license previously issued by the Company for the PearTrack IP reverted to the Note Holders. As a result, in 2018, the Company recognized a gain on the extinguishment of debt of $2,000,000.
Although the PearTrack IP commercialization was unsuccessful, the Company continued to focus on security and risk management, and acquired intellectual property that is based on a patent-pending 2 interactive spontaneous video security technology (the “Safer IP”). On October 11, 2018, the Company executed an Intellectual Property Purchase Agreement (the “Safer Agreement”) with Safer, Inc., a Florida corporation (the “Seller”), for the acquisition of the Safer IP. Pursuant to the Safer Agreement, in exchange for all rights, title and interest in the Safer IP, among other things, the Company delivered to Seller:
1.Common Stock Purchase Agreement providing for the Seller the right to purchase 3,500,000 shares of the Company’s restricted common stock at a price of $0.001 per share, for $3,500 cash; and
2.Revenue Sharing Agreement providing for a cash earn-out of 3% to be paid to the Seller, up to $1,000,000 paid to Seller, derived from the Adjusted Gross Revenue generated by the Company in connection with the Safer IP; and
3.Royalty Agreement providing for a royalty of 1.5% of the Adjusted Gross Revenue generated by the Company in connection with the Safer IP.
In 2019, the Company was presented with an opportunity to start a security and risk management business headquartered in Cape Town, South Africa, and identified key management to operate the business unit. On August 30, 2019, the Company formed Enigma-Bulwark Risk Management, Inc., a Delaware corporation and wholly-owned subsidiary (“EBRM”), to maintain the Company’s security and risk management operations and assets.
2 On July 21, 2021, the Company received a Notice of Allowance from the United States Patent and Trademark Office that its Patent Application 16/618,038 “Network Based Video Surveillance and Logistics for Multiple Users” was granted and would be issued to the Company.
In addition, EBRM acquired 100% of the shares of Enigma-Bulwark Security, Inc., a Delaware corporation formed by the Company in May 2019 (“EBS”). The Company attracted key senior management talent with backgrounds in structured finance, insurance, management, and M&A. On August 8, 2019, EBS received its license to provide physical security officers from the Florida Department of Agriculture and Consumer Services, and commenced its security protection operations in southern Florida, providing security services to the hospitality industry, as well as large events and VIPs/celebrities.
As part of the development of the South African business unit, the Company, through EBRM, entered into a Joint Venture Agreement (the “JV Agreement”) on September 8, 2020, with Prime African Security, Ltd., a South African corporation (“Prime”), to provide security and risk management services in South Africa. The joint venture formed Prime Enigma Africa (Pty) Ltd., a South African corporation (the “Joint Venture”), for which Prime owns 51% of the common stock and the Company owns 49%. The JV Agreement is for an initial term of three (3) years, and automatically renews unless canceled in writing by either party.
COVID-19 Pandemic
In December 2019, an outbreak of the COVID-19 virus was reported in Wuhan, China. On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 virus a global pandemic, and on March 13, 2020, former President Donald J. Trump declared the virus a national emergency in the United States. As of the date of the filing of this Quarterly Report, the WHO reports over 757 million confirmed COVID-19 cases and over 6.8 million deaths worldwide, including over 1.1 million in the U.S. This highly contagious disease has spread to most of the countries in the world and throughout the United States, creating a serious impact on customers, workforces and suppliers, disrupting economies and financial markets, and potentially leading to a world-wide economic downturn. It has caused a disruption of the normal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis.
The COVID-19 pandemic may adversely affect the Company’s clients’ operations, its employees and its employee productivity. It may also impact the ability of the Company’s subcontractors, partners, and suppliers to operate and fulfill their contractual obligations, and result in an increase in costs, delays or disruptions in performance. These effects, and the direct effect of the virus and the disruption on the Company’s employees and operations, may negatively impact both the Company’s ability to meet customer demand and its revenue and profit margins. The Company’s employees, in many cases, are working remotely and using various technologies to perform their functions. The Company might experience delays or changes in customer demand, particularly if customer funding priorities change. Further, in reaction to the spread of COVID-19 in the United States, many businesses have instituted social distancing policies, including the closure of offices and worksites and deferring planned business activity. Additionally, the disruption and volatility in the global and domestic capital markets may increase the cost of capital and limit the Company’s ability to access capital. Both the health and economic aspects of the COVID-19 virus are highly fluid and the future course of each is uncertain. For these reasons and other reasons that may come to light if the coronavirus pandemic and associated protective or preventative measures expand, the Company may experience a material adverse effect on its business operations, revenues and financial condition; however, its ultimate impact is highly uncertain and subject to change.
Current Business
The Company is currently structured with four wholly-owned subsidiaries: Enigma-Bulwark Risk Management, Inc., a Delaware corporation (“EBRM”), and PearTrack Systems Group, Ltd. (“PTSG”), Ecologic Products, Inc. (“EPI”), and Ecologic Car Rentals, Inc. (“ECR”), all Nevada corporations. The Company’s current business activities are diversified into two specific markets: security and risk management, and remote/mobile asset tracking products.
| Enigma-Bulwark, Ltd. Los Angeles, California | Parent Corporation Patented EnigmaLok Locking Technology | |
| Enigma-Bulwark Risk Management, Inc. Cape Town, South Africa | Tethered Drone System (Patent-Pending) Network-Based Video Surveillance (Patent-Pending) Security and Risk Management / Intelligence Security Guard Operations Hotels, Events, VIPs | |
| | ·Enigma-Bulwark Security, Inc. Miami, Florida | |
| | ·Prime-Enigma Africa Pvt. Joint Venture | |
| Ecologic Products, Inc. / Ecologic Car Rentals, Inc. Los Angeles, California | Environmental Transportation and Products Seeking Strategic Opportunities | |
Through its wholly-owned subsidiary, EBRM, the Company is operating a security and risk management business, and developing its proprietary, patent-pending and patented technology. EBRM is focused on providing security guards, both armed and unarmed, as well as security consulting and systems integration of security technology and software through the development of its patent-pending intellectual property, along with third-party Plug-N-Play products.
In August 2019, the Company, through EBRM’s subsidiary, Enigma-Bulwark Security, Inc. (“EBS”), a Delaware corporation, established and operates a full-service security business targeting hospitality, corporate/executives, and petroleum assets. In Miami, Florida. EBS services include security guards, both armed and unarmed, as well as CCTV and video capture technology and security consulting services. As of October 2022, EBS maintains a staff of approximately forty-five (45) employees, including over forty (40) fully licensed security personnel, serving eleven (11) luxury and boutique hotels, restaurants and resorts in the greater Miami Beach, Florida, area.
In August 2020, EBRM formed a joint venture with Prime African Security, Ltd. Pty, a Pretoria, South Africa based full-service security company, accredited under the Private Security Industry Regulation Act 56 of 2001 (PSIRA), called Prime-Enigma Africa Ltd. Pty (“Prime-Enigma”) headquartered in Pretoria, South Africa. Prime-Enigma is currently bidding on security tenders from large international corporations operating in South Africa.
The Company also intends to provide a unique solution to security issues in the intermodal shipping container marketplace, with its patented container tracking and locking system, EnigmaLok (formerly PearLoxx), the rights of which were licensed to the Company in perpetuity in 2015.
Through the subsidiaries, Ecologic Car Rentals, Inc. and Ecologic Products, Inc., the Company continues its pursuits for strategic opportunities for its shareholders, as management believes that the brands have value for companies with environmentally-friendly consumer-related products and services.
Management
Management experience and insight translates into best practices and proven strategies that will help anticipate and respond to myriad facility, operational, and safety challenges with confidence. Enigma’s management has extensive knowledge and experience in many fields requiring security and risk management protocols, such as multinational corporations, mining houses, telecommunication providers, transportation and energy companies.
Enigma’s team is at the core of its value, with decades of intelligence and military experience, as well as technology expertise and specialized experience in:
·advanced training techniques
·new and innovative technology applications
·intelligence and reconnaissance
·risk assessment and threat identification.
The Enigma team includes individuals with backgrounds from U.S. and South African Special Forces and military intelligence, and applies its experience to deliver measured and effective security management, regardless of adversary or operating environment. Additionally, Enigma is sensitive and experienced at managing low-profile, security operations in challenging environments.
The Company works with a core management team to remain flexible during times of non-engagement. With over forty years of professional military service, the Enigma team has established a large network of security professionals that can be deployed on a global basis. The Company will continue to identify diverse and skilled security personnel, and develop innovative solutions across the full spectrum of security needs.
The following summary of the Company’s financial condition and results of operations should be read in conjunction with the Company’s unaudited consolidated financial statements for the threesix months ending March 31,June 30, 2019, which are included herein. The financial information of Enigma-Bulwark, Ltd., and its wholly-owned subsidiaries as of March 31,June 30, 2019, PearTrack Systems Group, Ltd., Ecologic Car Rentals, Inc. and Ecologic Products, Inc. is provided below on a consolidated basis, unless otherwise indicated. All significant intercompany accounts and transactions have been eliminated.
Balance Sheet
As of March 31,June 30, 2019, the Company had total assets of $38,365$37,847 compared with total assets of $40,08940,089 at December 31, 2018. The decrease in total assets of $1,727$2,242 is attributable to a decrease in investment in securities of $1,206, depreciation of $118,$236, and amortization of $400.$800.
As of March 31,June 30, 2019, the Company had total liabilities of $6,541,218$6,801,630 compared with total liabilities of $6,333,317 at December 31, 2018. The increase in total liabilities of $207,901$468,313 is attributable to an increase in accounts payable and accrued expenses of $70,016,$138,377, an increase in related party payables of $77,885,$209,936, and an increase in related party convertible notes payable of $60,000.$120,000.
Results of Operations
Three and six months ended March 31,June 30, 2019, compared to three and six months ended March 31,June 30, 2018.
| For the three months ended | | For the three months ended | | For the six months ended | |
| March 31, 2019 | | March 31, 2018 | | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 | |
| | | | | | | | | | | | | | | | | | |
General and administrative expenses | $ | 155,311 | | $ | 151,763 | | $ | 211,128 | | $ | 152,702 | | $ | 366,439 | | $ | 304,465 | |
| | | | | | | | | | | | | | | | | | |
Operating loss | $ | (155,311 | ) | $ | (151,763 | ) | $ | (211,128 | ) | $ | (152,702 | ) | $ | (366,439 | ) | $ | (304,465 | ) |
| | | | | | | | | | | | | | | | | | |
Interest expense | $ | (53,858 | ) | $ | (48,684 | ) | $ | (55,204 | ) | $ | (51,105 | ) | $ | (109,062 | ) | $ | (99,789 | ) |
| | | | | | | | | | | | | | | | | | |
Discount amortization | $ | –– | | $ | (21,330 | ) | $ | –– | | $ | (21,567 | ) | $ | –– | | $ | (42,897 | ) |
| | | | | | | | | | | | | | | | | | |
Net loss | $ | (209,169 | ) | $ | (221,777 | ) | $ | (266,332 | ) | $ | (225,374 | ) | $ | (475,501 | ) | $ | (447,151 | ) |
| | | | | | | | | | | | | | | | | | |
Net comprehensive loss | $ | (1,206 | ) | $ | (2,412 | ) | $ | –– | | $ | –– | | $ | (1,206 | ) | $ | (2,412 | ) |
| | | | | | | | | | | | | | | | | | |
Net loss and comprehensive loss | $ | (210,375 | ) | $ | (224,189 | ) | $ | (266,332 | ) | $ | (225,374 | ) | $ | (476,707 | ) | $ | (449,563 | ) |
Revenue
For the three months ended March 31,June 30, 2019 and 2018, no revenue was generated.
For the six months ended June 30, 2019 and 2018, no revenue was generated.
At March 31,June 30, 2019, the Company had not yet begun full operations, generating limited test market sales.
Cost of sales
For the three months ended March 31,June 30, 2019 and 2018, no constcost of sales werewas incurred.
For the six months ended June 30, 2019 and 2018, no cost of sales was incurred.
At March 31,June 30, 2019, the Company had not yet begun full operations, generating limited test market sales.
General and Administrative Expenses
| For the three months ended | | | | For the three months ended | | For the six months ended | | Variances | |
| March 31, 2019 | | March 31, 2018 | | Variances | | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 | | 3-month | | 6-month | |
Legal and accounting fees | $ | 4,000 | | $ | 4,000 | | $ | –– | | $ | 4,000 | | $ | 4,000 | | $ | 8,000 | | $ | 8,000 | | $ | –– | | $ | –– | |
Management fees | | 149,885 | | | 148,423 | | | 1,462 | | | 201,051 | | | 148,423 | | | 350,936 | | | 296,846 | | | 52,628 | | | 54,090 | |
Stock compensation/amortization of deferred compensation | | 750 | | | –– | | | 750 | | | 5,402 | | | –– | | | 6,152 | | | –– | | | 5,402 | | | 6,152 | |
Depreciation and amortization | | 518 | | | 118 | | | 400 | | | 518 | | | 118 | | | 1,036 | | | 236 | | | 400 | | | 800 | |
Office supplies and miscellaneous expenses | | 158 | | | (778 | ) | | 936 | | | 157 | | | 161 | | | 315 | | | (617 | ) | | (4 | ) | | 932 | |
Total general and administrative expenses | $ | 155,311 | | $ | 151,763 | | $ | 3,548 | | $ | 211,128 | | $ | 152,702 | | $ | 366,439 | | $ | 304,465 | | $ | 58,426 | | $ | 61,974 | |
General and administrative expenses in the amount of $155,311$211,128 for the three months ended March 31,June 30, 2019, were comprised of $4,000 of legal and accounting fees, $149,885$201,051 of management fees, $750$5,402 of stock compensation/amortization of deferred compensation, $518 of depreciation and $158amortization, and $157 of office overhead and other general and administrative expenses.
General and administrative expenses in the amount of $151,763$152,702 for the three months ended March 31,June 30, 2018, were comprised of $4,000 of legal and accounting fees, $148,423 of management fees, $118 of depreciation, and ($778)$161 of office overhead and other general and administrative expenses.
General and administrative expenses of $155,311$211,128 for the three months ended March 31,June 30, 2019, as compared to $151,763$152,702 for the three-month periodthree months ended March 31,June 30, 2018, resulted in an increase in general and administrative expenses for the current period of $3,548.$58,426. The increase in general and administrative expenses of $3,548$58,426 was attributable to the following items:
·an increase in management fees of $1,462$52,628, due to an increase in accrued vacation;management personnel; and
·an increase in amortization of stock compensation/stock options of $750,$5,402, due to a stock grant in the prior year, resulting in deferred stock compensation amortization of $750; and stock options granted in the prior year, resulting in stock option amortization of $4,652; and
·an increase in depreciation and amortization expense of $400, due to the acquisition of intellectual property, resulting in amortization expense of $400; and
·a decrease in other general and administrative expenses of $4.
General and administrative expenses in the amount of $366,439 for the six months ended June 30, 2019, were comprised of $8,000 of legal and accounting fees, $350,936 of management fees, $6,152 of stock compensation/amortization of deferred compensation, $1,036 of depreciation and amortization, and $315 of office overhead and other general and administrative expenses.
General and administrative expenses in the amount of $304,465 for the six months ended June 30, 2018, were comprised of $8,000 of legal and accounting fees, $296,846 of management fees, $236 of depreciation, and ($617) of office overhead and other general and administrative expenses.
General and administrative expenses of $366,439 for the six months ended June 30, 2019, as compared to $304,465 for the six months ended June 30, 2018, resulted in an increase in general and administrative expenses for the current period of $61,974. The increase in general and administrative expenses of $61,974 was attributable to the following items:
·an increase in management fees of $54,090, due to an increase in management personnel; and
·an increase in amortization of stock compensation/stock options of $6,152, due to a stock grant in the prior year, resulting in deferred stock compensation amortization of $1,500; and stock options granted in the prior year, resulting in stock option amortization of $4,652; and
·an increase in depreciation and amortization expense of $800, due to the acquisition of intellectual property, resulting in amortization expense of $800; and
·an increase in other general and administrative expenses of $936, due to decreases in bank charges of $1,162, and a decrease in other general office and miscellaneous expenses of $226.$932.
General and administrative expenses for the threesix months ended March 31,June 30, 2019 and 2018, were incurred primarily for the purpose of advancing the Company closer to its financing and operating goals.
Net Loss
During the threesix months ended March 31,June 30, 2019, the Company incurred a net loss of $209,169,$475,501, compared with a net loss of $221,777$447,151 for the threesix months ended March 31,June 30, 2018. The decreaseincrease in net loss of $12,608$28,350 is attributable to an increase in general and administrative expenses of $3,548,$61,974, an increase in interest expense of $5,174,$9,273, and a decrease in discount amortization of $21,330.$42,897.
During the threesix months ended March 31,June 30, 2019, the Company incurred a net comprehensive loss of $1,206, compared with a net comprehensive loss of $1,206$2,412 for the threesix months ended March 31,June 30, 2018. The decrease in net comprehensive loss of $1,206 is attributable to a decrease in unrealized loss on securities of $1,206.
Liquidity and Capital Resources
Working Capital Deficit | | | | | | | | | | | | |
| March 31, 2019 | | December 31, 2018 | | Increase (decrease) | | June 30, 2019 | | December 31, 2018 | | Increase (decrease) | |
Current assets | $ | –– | | $ | –– | | $ | –– | | $ | –– | | $ | –– | | $ | –– | |
Current liabilities | | 4,097,498 | | | 3,889,597 | | | 207,901 | | | 4,357,910 | | | 3,889,597 | | | 468,313 | |
Working capital (deficit) | $ | (4,097,498 | ) | $ | (3,889,597 | ) | $ | (207,901 | ) | $ | (4,357,910 | ) | $ | (3,889,597 | ) | $ | 468,313 | |
As of March 31,June 30, 2019, and December 31, 2018, the Company had no cash.
The Company had a working capital deficit of $4,097,498$4,357,910 as of March 31,June 30, 2019, compared to a working capital deficit of $3,889,597 at December 31, 2018. The increase in working capital deficit of $207,901$468,313 is primarily attributable to an increase in accounts payable and accrued expenses of $70,016,$138,377, an increase in convertible related party promissory notes of $60,000,$120,000, and a decreasean increase in related party payable of $77,885.$209,936.
Cash Flows | For the threesix months ended | | | | |
| March 31,June 30, 2019
| | March 31,June 30, 2018
| | Increase (decrease) | |
Net cash provided by operating activities | $ | –– | | $ | –– | | $ | –– | |
Net cash provided by investing activities | | –– | | | –– | | | –– | |
Net cash provided by financing activities | | –– | | | –– | | | –– | |
Net change in cash | $ | –– | | $ | –– | | $ | –– | |
Cash Flows from Operating Activities
During the threesix months ended March 31,June 30, 2019 and 2018, the Company was provided withused no cash flow from operating activities. There was a decreasean increase in the net loss from operations of $12,608;$28,350; an increase in stock compensation/stock option amortization of $750;$6,152; a decrease in accruals converted to related party loans of $90,860;$137,975; an increase in depreciation and amortization of $400;$800; a decrease in discount amortization of $21,330;$42,897; and increases in the changes in accounts payable and accrued expenses of $9,110,$13,205, and related party payables of $89,332.$189,065.
Cash Flows from Investing Activities
During the threesix months ended March 31,June 30, 2019 and 2018, the Company was provided with no cash flows from investing activities.
Cash Flows from Financing Activities
During the threesix months ended March 31,June 30, 2019 and 2018, the Company was provided with no cash flows from financing activities.
As of March 31,June 30, 2019, affiliates and related parties are due a total of $4,108,851,$4,300,902, which is comprised of promissory notes to related parties in the amount of $3,232,705;$3,292,705; accrued compensation in the amount of $723,440;$855,491; and reimbursable expenses/cash advances to the Company in the amount of $152,706; for a net increase of $137,885.$329,936. During the threesix months ended March 31,June 30, 2019, promissory notes to related parties increased by $60,000,$120,000, and accrued compensation increased by $77,885.$206,936. All outstanding promissory notes to related parties bear interest at a rate of 5 to 7 percent per annum, are due and payable within between one (1) year of written demand and by December 31, 2023, or upon certain equity funding, and are convertible into the Company’s common stock at a price of between $0.05 and $0.25 per share.
The Company’s principal sources of funds have been from sales of the Company’s common stock and loans from related parties.
Contractual Obligations
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.
Going Concern
The Company has incurred losses since inception resulting in a current period net loss of $210,375,$468,313, an accumulated deficit of $17,627,203,$17,893,535, and a working capital deficit of $4,097,498,$4,357,910, and further losses are anticipated. The Company’s ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, which may not be available at commercially reasonable terms. There can be no assurance that the Company will be able to continue to raise funds, in which case the Company may be unable to meet its obligations and the Company may cease operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
The unaudited consolidated financial statements included with this quarterly report have been prepared on the going concern basis which assumes that adequate sources of financing will be obtained as required and that the Company’s assets will be realized, and liabilities settled in the ordinary course of business. Accordingly, the unaudited consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Critical Accounting Policies
The discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s audited consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. The Company believes that understanding the basis and nature of the estimates and assumptions involved with the following aspects of the Company’s consolidated financial statements is critical to an understanding of its consolidated financial statements. The following should be read in conjunction with Note 2 to the Company’s consolidated financial statements, “Summary of Significant Accounting Policies”:
Impairment reviews
Management is required to perform tests annually, or more often if necessary, for impairment of its finite lived and indefinite lived assets, to determine if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters, including management’s expectations of:
·growth in EBITDA, calculated as adjusted operating profit before depreciation and amortization;
·long term growth rates; and
·the selection of discount rates to reflect the risks involved.
The Company prepares five-year projections and uses these as the basis for its impairment reviews. Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the projections, could significantly affect the Company’s impairment evaluation and, hence, results.
The Company’s review for impairment also includes the evaluation of key assumptions related to sensitivity in the projections. Included are estimates for varying levels of growth, including aggressive, median, and conservative. In the Company’s evaluation, the conservative level of growth is utilized. For additional information, see Impairment of Long-Lived Assets under Note 2, Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements contained within this Quarterly Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Report on Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s president, chief executive officer and chief financial officer to allow for timely decisions regarding required disclosure. In designing and evaluating the Company’s disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company’s management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of March 31,June 30, 2019, the end of the Company’s period covered by this quarterly report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s president, chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s president, chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting that occurred during the threesix months ended March 31,June 30, 2019, that have materially or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company knows of no material existing or pending legal proceedings against it, nor is the Company involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to the Company.
ITEM 1A. RISK FACTORS
The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and is not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered securities issued by the Registrant during the current period, including sales of reacquired securities, as well as new issues, securities issued in exchange for property, services, or other securities, and new securities resulting from the modification of outstanding securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY STANDARDS
Not Applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibit Number | Description | Filing Reference |
(2) | Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or Succession | |
2.1 | Agreement and Plan of Merger between the Company, PearTrack Systems Group Limited and PearTrack Acquisition Corp. effective October 17, 2014 | Filed with the SEC on October 23, 2014, as part of the Company’s Current Report on Form 8-K |
(3) | Articles of Incorporation and Bylaws | |
3.1 | Articles of Incorporation | Filed with the SEC on November 30, 2006, as part of the Company’s registration statement on form SB-2 |
3.2 | Bylaws | Filed with the SEC on November 30, 2006, as part of the Company’s registration statement on form SB-2 |
3.3 | Certificate of Change filed with the Secretary of State of Nevada on April 2, 2008 | Filed with the SEC on April 21, 2008, as part of the Company’s Current Report on Form 8-K |
3.4 | Articles of Merger | Filed with the SEC on June 26, 2008, as part of the Company’s Current Report on Form 8-K |
3.5 | Certificate of Change filed with the Secretary of State of Nevada on August 29, 2008, with respect to reverse stock split | Filed with the SEC on September 17, 2008, as part of the Company’s Current Report on Form 8-K |
3.6 | Articles of Merger | Filed with the SEC on June 11, 2009, as part of the Company’s Current Report on Form 8-K |
3.7 | Certificate of Change filed with the Secretary of State of Nevada on May 15, 2009, with respect to reverse stock split | Filed with the SEC on June 11, 2009, as part of the Company’s Current Report on Form 8-K |
3.8 | Articles of Merger filed with the Secretary of State of Nevada on June 2, 2009, with respect to the merger between Ecological Acquisition Corp. and Ecologic Sciences, Inc. | Filed with the SEC on July 9, 2009, as part of the Company’s Current Report on Form 8-K |
3.9 | Certificate of Amendment filed with the Secretary of State of Nevada on September 29, 2014, effective October 17, 2014 | Filed with the SEC on October 2, 2014, as part of the Company’s Current Report on Form 8-K |
3.10 | Certificate of Amendment filed with the Secretary of State of Nevada on October 8, 2019, effective October 9, 2019 | Filed with the SEC on October 9, 2019, as part of the Company’s Current Report on Form 8-K |
3.11 | Amended and restated Articles of Incorporation filed with the Secretary of State of Nevada on October 8, 2019 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
3.12 | Certificate of Incorporation of Enigma-Bulwark Risk Management, Inc. filed August 30, 2019 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
(10) | Material Contracts | |
10.1 | License Agreement between PearTrack Systems Group Ltd. and AudioEye, Inc. dated June 30, 2014 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.2 | Assignment and Licensed Rights Agreement with PearLoxx Limited dated December 19, 2014 | Filed with the SEC on January 26, 2015, as part of the Company’s Current Report on form 8-K |
10.3 | Amendment to the Assignment and Licensed Rights Agreement with and PearLoxx Limited dated March 9, 2015 | Filed with the SEC on May 20, 2015, as part of the Company’s Quarterly Report on Form 10-Q |
10.4 | Intellectual Property Purchase Agreement with Safer, Inc. dated October 11, 2018 | Filed with the SEC on October 10, 2019, as part of the Company’s Current Report on form 8-K |
10.5 | Revenue Sharing Agreement with Safer, Inc. dated October 11, 2018 | Filed with the SEC on October 10, 2019, as part of the Company’s Current Report on form 8-K |
10.6 | Royalty Agreement with Safer, Inc. dated October 11, 2018 | Filed with the SEC on October 10, 2019, as part of the Company’s Current Report on form 8-K |
10.7 | Employment Agreement with Kyle W. Withrow dated October 1, 2018 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.8 | Intellectual Property Purchase Agreement with Intellectual Property Network, Inc. dated October 11, 2018 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.9 | Revenue Sharing Agreement with Intellectual Property Network, Inc. dated October 11, 2018 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.10 | Royalty Agreement with Intellectual Property Network, Inc. dated October 11, 2018 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.11 | Consulting Agreement with MJ Management Services, Inc. dated November 1, 2018 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.12 | Consulting Agreement with Huntington Chase Ltd. dated November 1, 2018 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.13 | Consulting Agreement with David Rocke dated May 1, 2019 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.14 | Consulting Agreement with Michael Gabriele dated May 1, 2019 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.15 | Non-Compete, Non-Dilution and Registration Rights Agreement with David Rocke dated August 28, 2019 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.16 | Non-Compete, Non-Dilution and Registration Rights Agreement with Michael Gabriele dated August 28, 2019 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.17 | Consulting Agreement with Clive Oosthuizen dated September 1, 2019 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.18 | Consulting Agreement with Yinuo Jiang dated October 1, 2019 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.19 | Non-Compete, Non-Dilution and Registration Rights Agreement with Michael Gabriele dated August 28, 2019 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
10.20 | Joint Venture Agreement with Prime Africa dated October 3, 2020 | Filed with the SEC on June 6, 2023, as part of the Company’s Quarterly Report on Form 10-Q |
(21) | Subsidiaries of the Registrant | |
21.1 | Enigma-Bulwark Risk Management, Inc. PearTrack Systems Group, Ltd. Ecologic Car Rentals, Inc. Ecologic Products, Inc. | |
(31) | Section 302 Certifications | |
31.1* | Section 302 Certification of Clive Oosthuizen | Filed herewith. |
31.2* | Section 302 Certification of Calli R. Bucci | Filed herewith. |
(32) | Section 906 Certifications | |
32.1* | Section 906 Certification of Clive Oosthuizen | Filed herewith. |
32.2* | Section 906 Certification of Calli R. Bucci | Filed herewith. |
(101) | Interactive Data Files | |
101.INS** | XBRL Instance Document | |
101.SCH** | XBRL Taxonomy Extension Schema Document | |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB** | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document | |
*Filed herewith.
**Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| ENIGMA-BULWARK, LTD. |
| |
| |
Dated: June 8, 2023 | /s/ Clive Oosthuizen |
| Clive Oosthuizen |
| President and CEO |
| |
| |
Dated: June 8, 2023 | /s/ Calli Bucci |
| Calli Bucci |
| Chief Financial Officer |
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