Metavesco, Inc. 10-K

ITEM 1. BUSINESS The Company was incorporated in the Commonwealth of Virginia on July 13, 1993, and was a closed-end investment company licensed by the Small Business Administration (the “SBA”) as a Small Business Investment Corporation (“SBIC”). The Company previously made equity investments in and provided loans to small businesses to finance their growth, expansion, and development. Under applicable SBA regulations, the Company was restricted to investing only in qualified small businesses as contemplated by the Small Business Investment Act of 1958. As a registered investment company under the Act, the Company’s investment objective was to provide its shareholders with a high level of income, with capital appreciation as a secondary objective. The Company made its first investment in a small business in October 1996. On March 30, 2010, the SBA notified the Company that its account had been transferred to liquidation status and that the outstanding debentures of $16.1 million-plus accrued interest (the “Debentures”) were due and payable within fifteen days of the date of the letter. The Company did not possess adequate liquid assets to make this payment. The Company negotiated terms of a settlement agreement with the SBA effective September 1, 2010. The Debentures were repurchased by the SBA in September 2010, represented by a Note Agreement between the SBA and the Company. The Note Agreement had a maturity of March 31, 2013. In the event of a default, the SBA had the ability to seek receivership. On May 24, 2012, the SBA delivered to the Company a notice of an event of default for failure to meet the principal repayment schedule under the Note Agreement (the “Notice”). Under the terms of the Notice and the Note Agreement, the SBA maintained a continuing right to terminate the Note Agreement and appoint a receiver to manage the Company’s assets. On November 20, 2013, the SBA filed a complaint in the United States District Court for the Eastern District of Virginia (the “ District Court ”) seeking, among other things, receivership for the Company and judgment in the amount outstanding under the Note Agreement plus continuing interest. The complaint alleged that as of October 31, 2013, there remained an outstanding balance of $11,762,634.58 under the Note Agreement, including interest, which continued to accrue at the rate of $2,021.93 per day. In filing the complaint, the SBA requested that the District Court take exclusive jurisdiction of the Company and all of its assets wherever located and appoint the SBA as permanent receiver of the Company to liquidate all of the Company’s assets and satisfy the claims of its creditors in the order of priority as determined by the District Court. On May 28, 2014, the District Court entered a Consent Order and Judgment Dismissing Counterclaim, Appointing Receiver, Granting Permanent Injunctive Relief and Granting Money Judgment (the “ Order ”). The Order appointed the SBA as receiver of the Company, and the SBA designated Charles Fulford as its principal agent to act on its behalf as the receiver (the “Receiver”). The Order authorized the Receiver to marshal and liquidate all of the Company’s assets in an orderly manner. The Order also served to enter judgment in favor of the United States of America, on behalf of the SBA, against the Company for $11,770,722. Such amount represented $11,700,000 in principal and $70,722 in accrued interest. The District Court assumed jurisdiction over the Company, and the SBA was appointed Receiver effective May 28, 2014. The Company effectively stopped conducting an active business upon the appointment of the SBA as Receiver and the commencement of the receivership ordered by the District Court (the “ Receivership ”). Over the course of the Receivership, the activity of the Company was limited to the liquidation of the Company’s assets by the Receiver and the payment of the proceeds therefrom to the SBA and for the expenses of the Receivership. The SBIC license granted to the Company by the SBA was revoked by the SBA effective March 20, 2017, in conjunction with the entry by the District Court of the Order Approving the Procedures for Winding Up and Terminating the Receivership Estate. On June 28, 2017, the Receivership was terminated pursuant to the entry of a Final Order by the District Court, further discharged all claims and obligations of the Company other than the judgment held by SBA (the “ Final Order ”). Prior to the Final Order, the Receiver provided notice to all shareholders of the Company. The Receiver also initiated separate contact with the largest shareholders of the Company in an attempt to identify a shareholder willing to assume responsibility for the control of the Company on behalf of the Company’s shareholders. Roran Capital, LLC (“Roran”), was the only shareholder willing to assume such control. As such, at the direction of the Receiver, paragraph 4 of the Final Order specifically stated that “Control of Waterside shall be unconditionally transferred and returned to its shareholders c/o Roran Capital, LLC (“Roran”) upon notification of entry of this Order”. At that time Roran owned 51,000 shares of the Company which represented 2.7% of the issued and outstanding common stock at that time (and owns 4,247,666 shares currently which represents 70% of the issued and outstanding shares of the Company at this time). 99% of the equity interests in Roran were at the time, and remain, beneficially owned by Yitzhak Zelmanovitch. At the time of the Final Order, the Company had no assets, and a sole remaining liability owed to the SBA in an amount exceeding $10,000,000. 1 Upon termination of the Receivership, Roran took possession of all books and records made available to it by the Receiver. The termination of the Receivership, and the termination of the power and authority of the Receiver, left the Company with no Board of Directors and no officers. It was impossible to convene a shareholders meeting as there were no corporate officers or directors to provide (i) notice, or (ii) the administrative oversight required for such a meeting. Upon the advice of former counsel, Roran, in reliance on and in compliance with the Final Order, sought to appoint a new board of directors (the “ New Board ”). Without a New Board, the Company would be unable to operate as a viable business, and appointment by Roran was the only manner in which the New Board could be constituted. Roran expended a good faith effort to seek out qualified third parties to serve on the New Board. Because of the liability exposure inherent in serving on the board of a public company, the Company’s lack of financial resources, and the Company’s loss of its SBIC license, Roran was unable to locate any qualified individuals to serve on the New Board and thus appointed Zindel Zelmanovitch, the father of Yitzhak Zelmanovitch, as the sole director and officer of the Company. Zindel is an experienced business person who has previously served as the CEO and director of a public company; thus, although related to the 99% owner of Roran, he has objectively acceptable qualifications to serve in this dual position. Zindel Zelmanovitch has never owned any shares of stock of the Company and has not been compensated for any of his services as a director or officer of the Company to date. In his capacity as the sole director and officer of the Company, Zindel Zelmanovitch considered a variety of options for the Company, including bankruptcy and liquidation, neither of which would have yielded any economic benefit for the Company’s shareholders. Thus, Zindel Zelmanovitch negotiated with Roran to provide a loan or loans to fund reasonable expenses of the Company, on arm’s length terms, so long as progress was being made to reorganize the Company and to identify either (i) a new business to enter into; or, (ii) an active business with which to merge or otherwise acquire, which would benefit from operating as a public entity. The New Board (Zindel Zelmanovitch) has continued to work toward achieving that goal. With no assets and no SBIC license from the SBA, no income, and liabilities in excess of $10,000,000 (which has now been forgiven in full as stated below), the New Board (Zindel Zelmanovitch) concluded that continuing to operate as a registered investment company was impossible; furthermore, the consistent feedback from third parties with which the New Board has sought to consummate a transaction to commence a new business or acquire or merge a new business into the Company has been that until the Company’s Application Pursuant to Section 8(f) of the Investment Company Act of 1940 for an order declaring that the Company has ceased to be an Investment Company is approved, no such transaction is feasible. On April 22, 2020, the SEC issued an order declaring that the Company has ceased to be an investment company. As a result the Company is now a reporting company under the Securities Exchange Act of 1934, as amended. Since the entry of the Final Order (June 28, 2017) and the termination of the Receivership, the Company has been maintained for the benefit of its shareholders and pursuant to, and in compliance with, the Final Order. The Company has no assets, and the Company no longer has the SBIC license from the SBA. The Company is no longer operating as a registered investment company under the Investment Company Act. While it would have been possible for the Company to merely dissolve, the Company has instead decided to endeavor to reconstitute itself as a viable business. The Company has engaged and intends to continue to engage, qualified professionals and personnel to bring the Company current in its SEC filings and audits. The Company filed a Form 10-K for the period ending June 30, 2017 and has subsequently timely filed all periodic reports on Forms 10-Q and Form 10-K. 2 The Company’s outstanding judgment payable owed to the SBA was purchased by Roran from the SBA in July 2017. As such, all amounts due under the outstanding judgment payable were owed to Roran rather than the SBA. Upon purchase, the Company began to accrue interest that was due under the original terms of the judgment payable. The statutory interest rate is 0.094%. The Company has accrued $163,991 in interest on the judgment payable as of March 31, 2019. On May 16, 2019, Roran forgave the entire principal amount and interest due thereon of $10,609,635. On September 19, 2017, the Company issued a Convertible Promissory Note in an amount up to $150,000 in favor of Roran which was increased to $200,000 on June 17, 2019 and $250,000 on December 13, 2019 (the “ Note ”). The Note was issued pursuant to a Convertible Loan Agreement with Roran (the “ Loan Agreement ”). All outstanding principal and accrued interest on the Note is due and payable on the maturity date, which was March 19, 2019 and then extended to September 19, 2019 and then June 19, 2020 and a further extension is being negotiated. Amounts borrowed under the Note bear interest at 12% per annum. Roran has the right to convert all or any portion of the Note into shares of the Company’s common stock at a conversion price equal to 60% of the 20 day trailing lowest share price. As a result of the advances made pursuant to the Loan Agreement, the Company has has incurred total obligations of $104,838 as of June 30, 2020 (exclusive of accrued interest).The use of proceeds of this loan has been and continues to be the payment by the Company of its reasonable operational expenses payable to third-party service providers (consisting solely of third party expenses such as legal, accounting, transfer agent and edgarization costs, all at the actual cost for such services). The loan is not a senior or a secured instrument. The Company is currently authorized to issue twenty-five thousand (25,000) shares of preferred stock, with a par value of $1.00 per share. There are zero (0) shares of preferred stock issued. The Company is also authorized to issue ten million (10,000,000) shares of common stock, with a par value of $1.00 per share. As of June 30, 2020, and currently, 6,082,214 shares of common stock of the Company were outstanding. These shares are quoted over the counter with Pink OTC Markets Inc. under the ticker symbol “WSCC” and are held by 27 shareholders of record. The Company does not have any other equity securities outstanding. Current Business Strategy and Operations The Company continues to explore options to either (i) enter into a new business, or, (ii) merge with, or otherwise acquire, an active business that would benefit from operating as a public entity. The New Board continues to search to identify the best possible candidate(s) in order to provide value to the shareholders of the Company. On April 22, 2020, the SEC issued an order declaring that the Company has ceased to be an investment company. As a result the Company is now a reporting company under the Securities Exchange Act of 1934, as amended. The Company has satisfied its filing obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) for the last fiscal year, and is a mandatory filer under the Exchange Act. It will continue to list its common stock on the Pink OTC Markets for the benefit of its shareholders. As a result of these efforts, the Company is and holds itself out as being engaged primarily in the business of seeking either (i) a new business to enter into; or, (ii) merger or acquisition candidates, which would benefit from being public. 3 Our Business We are a shell company as that term is defined under federal securities laws. Our business plan is to seek (i) a new business to enter into; or, (ii) acquire assets or shares of an entity actively engaged in the business that generates revenues in exchange for our securities. We will not restrict our search to any specific business, industry, or geographical location, and we may participate in a business venture of virtually any kind or nature. This discussion of our new business is purposefully general and is not meant to be restrictive of our virtually unlimited discretion to search for and enter potential business opportunities. Management anticipates that it may be able to participate in only one potential business venture because we have nominal assets and limited financial resources. This lack of diversification should be considered a substantial risk to our shareholders because it will not permit us to offset potential losses from one venture against gains from another. Plan of Operations We currently plan to investigate and, if such investigation warrants, either (i) enter into a new business; or, (ii) acquire assets or shares of an entity actively engaged in business and which is seeking the perceived advantages of being a publicly held corporation. Our principal business objective for the next 12-months and beyond will be to achieve long-term growth potential through either entering into a new business or a combination with an existing business, rather than immediate, short-term earnings. We will not restrict our search for potential candidate target companies to any specific business, industry, or geographical location and, thus, may acquire, or enter into, any type of business. The analysis of new business opportunities will be undertaken by or under the supervision of the New Board. We have not had any material conversations with potential merger or acquisition targets, nor have we entered into any definitive agreement with any party. In our efforts to analyze and evaluate a prospective target business, we will consider several factors, including, without limitation, the following: ● experience and skill of management and availability of additional personnel of the target business; ● costs associated with effecting the business combination; ● equity interest retained by our shareholders in the merged entity; ● growth potential of the target business; ● capital requirements of the target business; ● capital available to the target business; ● stage of development of the target business; ● proprietary features and degree of intellectual property or other protection of the target business; ● the financial statements of the target business; and ● the regulatory environment in which the target business operates. 4 The foregoing criteria are not intended to be exhaustive, and any evaluation relating to the merits of a particular target business will be based, to the extent relevant, on the above factors, as well as other considerations we deem relevant. In connection with our evaluation of a prospective target business, we anticipate that we will conduct a due diligence review which will encompass, among other things, meeting with incumbent management as well as a review of financial, legal and other information. The time and costs required to select and evaluate a target business (including conducting a due diligence review) and to structure and consummate the business combination (including negotiating and documenting relevant agreements and preparing requisite documents for filing pursuant to applicable corporate and securities laws) cannot be determined at this time. Our sole officer and director intend to devote only a very small portion of his time to our affairs, and, accordingly, the consummation of a business combination may require a longer time than if he devoted his full time to our affairs. However, he will devote such time as he deems reasonably necessary to carry out our business and affairs. The amount of time devoted to our business and affairs may vary significantly depending upon, among other things, whether we have identified a target business or are engaged in the active negotiation of a business combination. We anticipate that various prospective target businesses will be brought to our attention from various sources, including securities broker-dealers, investment bankers, venture capitalists, bankers, and other members of the financial community, including, possibly, Roran. Various impediments to a business combination or an entry into a new business may arise, such as appraisal rights afforded the shareholders of a target business under the laws of its state of the organization. This may prove to be a deterrent to a particular combination. The way we participate in an opportunity will depend upon the nature of the opportunity, our respective needs and desires as well as those of the promoters of the opportunity, and the relative negotiating strength of ourselves and such promoters. It is likely that we will acquire our participation in a business opportunity through the issuance of common stock or other securities. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called “tax-free” reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the “Code”), depends upon the issuance to the shareholders of the acquired company of at least 80% of the common stock of the combined entities immediately following the reorganization. If a transaction were structured to take advantage of these provisions rather than other “tax-free” provisions provided under the Code, all prior shareholders would, in such circumstances, retain 20% or less of the total issued and outstanding shares. Under other circumstances, depending upon the relative negotiating strength of the parties, prior shareholders may retain substantially less than 10% of the total issued and outstanding shares. This could result in substantial additional dilution to the equity of those who were our shareholders prior to such reorganization. Our present shareholders will likely not have control of a majority of our voting shares following a reorganization transaction. As part of such a transaction, our current director may resign, and new directors may be appointed without any vote by shareholders. In the case of an acquisition, the transaction may be accomplished upon the sole determination of our management without any vote or approval by shareholders. In the case of a statutory merger or consolidation directly involving our Company, it will likely be necessary to call a shareholders’ meeting and obtain the approval of the holders of a majority of the outstanding shares. The necessity to obtain such stockholder approval may result in delay and additional expense in the consummation of any proposed transaction and will also give rise to certain appraisal rights to dissenting shareholders. Most likely, management will seek to structure any such transaction so as not to require stockholder approval, if possible. It is anticipated that the investigation of specific business opportunities and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and other instruments will require substantial management time and attention and substantial cost for accountants, attorneys, and others. If a decision is made not to participate in a specific business opportunity, the costs theretofore incurred in the related investigation would not be recoverable. Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in our loss of the related costs incurred. 5 During the year ended June 30, 2020, we did not engage in any business activities that provided us with positive cash flows. As such, the costs of investigating and analyzing business combinations for the next 12-months and beyond will be paid with funds raised through other sources, which may not be available on favorable terms, if at all. The Company, at this time, does not intend to obtain funds in one or more private placements to finance the operation of any acquired business opportunity until the Company has successfully consummated such a merger or acquisition or entered into a new business. Instead, the Company intends to borrow money to finance ongoing operations. Government Regulations The Company is no longer a registered investment company though it remains a public company, and will be subject to the reporting requirements of the Exchange Act, which includes the preparation and filing of periodic, quarterly and annual reports on Forms 8-K, 10-Q, and 10-K. The Exchange Act specifically requires that any merger or acquisition candidate complies with all applicable reporting requirements, which include providing audited financial statements to be included within the numerous filings relevant to comply with the Exchange Act. The Company’s common stock is a “penny stock,” as defined in Rule 3a51-1 under the Exchange Act. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that the broker-dealer, not otherwise exempt from such rules, must make a special written determination that the penny stock is suitable for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure rules have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. So long as the Company’s common stock is subject to the penny stock rules, it may be more difficult to sell our common stock. Patents, Trademarks, Franchises, Royalty Agreements or Labor Contracts We have no current plans for any registrations such as patents, trademarks, copyrights, franchises, concessions, royalty agreements, or labor contracts. We will assess the need for any copyright, trademark, or patent applications on an ongoing basis. Competition The Company will remain an insignificant participant among the firms which engage in the acquisition of business opportunities. There are many established venture capital and financial concerns that have significantly greater financial and personnel resources and technical expertise than the Company. Given the Company’s extremely limited financial resources and limited management availability, the Company will continue to be at a significant competitive disadvantage compared to the Company’s competitors. Employees The Company currently has no employees. It is the sole officer, who is also the director, will manage the business of the Company. The sole officer and director may join the Company as an employee in the future. The Company does not anticipate a need to engage any full-time employees at this time. 6 Available Information The Company expects to continue to file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, proxy statements and other information with the SEC. Any materials filed by the Company with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the SEC’s Public Reference Room is available by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including the Company) file electronically with the SEC. The Internet address of the SEC’s website is http://www.sec.gov . At some point in the near future, we intend to make our reports, amendments thereto, and other information available, free of charge, on a website for the Company. At this time, the Company does not maintain a website, and there is no estimate for when the Company will maintain such a website. Our corporate offices are located at 140 West 31 st Street, Second Floor, New York, New York, 10001. Our telephone number is 212-686-1515.