Metavesco, Inc. 10-K

ITEM 1A. RISK FACTORS You should carefully consider the risks described below, together with the other information set forth in this report, which could materially affect our business, financial condition, and future results. The risks described below are not the only risks facing our Company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results. Risks Related to Our Business We have no recent operating history or basis for evaluating prospects. We currently have no operating business or immediate plans to develop one. We are seeking to enter into a merger or business combination with another operating company or to enter into a new business. To date, our efforts have been limited to meeting our regulatory filing requirements and searching for a business target. We have limited resources and no revenues from operations and will need additional financing in order to execute any business plan. We have limited resources, no revenues from operations to date, and our cash on hand will not be sufficient to satisfy our cash requirements during the next twelve months. In addition, we will not achieve any revenues until, at the earliest, the consummation of a merger or similar business combination and we cannot ascertain our capital requirements until such time. There can be no assurance that determinations ultimately made by us will permit us to achieve our business objectives. Our business will have no revenues unless and until we merge with or acquire or start an operating business. We have no revenues from operations. We may not realize any revenues unless and until we successfully merge with or acquire an operating business or start our own operations. Since the Company has no assets and no present source of revenues, we are dependent upon the financial support of Roran. At present, our business activities are limited to seeking potential business opportunities. Due to our limited financial and personnel resources, there is only a limited basis upon which to evaluate our prospects for achieving our intended business objectives. We have no assets and have no operating income, revenues, or cash flow from operations. Roran is providing us with funding, on an as-need basis, under a loan arrangement, with amounts advanced limited to enabling us to continue our corporate existence and our business objective to seek new business opportunities, as well as to fund the costs, including professional accounting and legal fees. The amount to be loaned by Roran in the interim financing arrangement is limited to $250,000. 7 We will be able to effect at most one merger or similar business combination or enter into just one new business and thus may not have a diversified business. Our resources are limited, and we will most likely have the ability to effect only a single merger or similar business combination or enter into a single new business. This probable lack of diversification will subject us to numerous economic, competitive and regulatory developments, any or all of which may have a material adverse impact upon the particular industry in which we may operate after the consummation of a merger. We will become dependent upon the development or market acceptance of a single or a limited number of products, processes, or services. We depend substantially upon our chief executive officer to make all management decisions. Our ability to effect a merger or similar business combination or enter into a new business will be dependent upon the efforts of our sole director and officer, Zindel Zelmanovitch. Notwithstanding the importance of Mr. Zelmanovitch, we have not entered into any employment agreement or other understanding with Mr. Zelmanovitch concerning compensation or obtained any “key man” life insurance on any of his life. The loss of the services of Mr. Zelmanovitch will have a material adverse effect on achieving our business objectives and success. We will rely upon the expertise of Mr. Zelmanovitch and do not anticipate that we will hire additional personnel. There is competition for those private companies suitable for a business combination of the type contemplated by management. We are in a highly competitive market for a small number of business opportunities, which could reduce the likelihood of consummating a successful business combination. We are and will continue to be an insignificant participant in the business of seeking mergers with joint ventures with and acquisitions of small private and public entities. A large number of established and well-financed entities, including small public companies and venture capital firms, are active in mergers and acquisitions of companies that may be desirable target candidates for us. Nearly all these entities have significantly greater financial resources, technical expertise, and managerial capabilities than we do; consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. These competitive factors may reduce the likelihood of our identifying and consummating a successful business combination. Future success is highly dependent on the ability of management to locate and attract a suitable target business opportunity. The nature of our operations is highly speculative. The success of our plan of operation will depend to a great extent on the operations, financial condition, and management of the identified business opportunity. While management intends to seek business combination(s) with entities having established operating histories, we cannot assure you that we will be successful in locating candidates meeting that criterion. In the event we complete a business combination, the success of our operations may be dependent upon the management of the successor firm or venture partner firm and numerous other factors beyond our control. There is no assurance of a business combination or other transaction. No assurances can be given that we will successfully identify and evaluate suitable business opportunities or that we will conclude a business combination. We cannot guarantee that we will be able to negotiate a business combination on favorable terms, and there is consequently a risk that funds allocated to the purchase of our shares will not be invested in a company with active business operations. Management will change upon the consummation of a business combination. After the closing of a merger or business combination, it is likely our current management will not retain any control or managerial responsibilities. Upon such an event, Mr. Zelmanovitch intends to resign from his positions with us. 8 Current shareholders will be immediately and substantially diluted upon a merger or business combination. Our Articles of Incorporation authorized the issuance of (i) twenty-five thousand (25,000) shares of preferred stock, with a par value of $1.00 per share, of which none are issued; and, (ii) ten million (10,000,000) shares of common stock, with a par value of $1.00 per share, of which a total of 6,082,214 shares have been issued. To the extent that additional shares of common stock are authorized and issued in connection with a merger or business combination, our shareholders could experience significant dilution of their respective ownership interests. Furthermore, the issuance of a substantial number of shares of common stock may adversely affect prevailing market prices, if any, for the common stock and could impair our ability to raise additional capital through the sale of equity securities. There are relatively low barriers to becoming a blank check company or shell company, thereby increasing the competition for a small number of business opportunities. There are relatively low barriers to becoming a blank check or shell company. A newly incorporated company with a single stockholder and sole officer and director may become a blank check company or shell company by voluntarily subjecting itself to the SEC reporting requirements by filing and seeking effectiveness of Form 10, thereby registering its common stock pursuant to Section 12(g) of the Securities and Exchange Act of 1934 with the SEC. Assuming no comments to the Form 10 have been received from the SEC, that registration statement is automatically deemed effective 60 days after filing the Form 10 with the SEC. The relative ease and low cost with which a company can become a reporting blank check or shell company can increase the number of public companies seeking a business combination, thereby adding further competition to an already highly competitive market for a limited number of businesses that will consummate a successful business combination. Our management will only be able to devote a limited amount of time to seeking a target company or new business, which may adversely impact our ability to identify a suitable acquisition candidate. While seeking a business combination or developing our business plan, management anticipates devoting only a limited amount of time to the Company’s affairs in total. Our sole director and officer, Zindel Zelmanovitch, has not entered into a written employment agreement with us and is not expected to do so in the foreseeable future. This limited commitment may adversely impact our ability to identify and consummate a successful business combination. If we pursue a business combination or develop our plan of operations, we will need to have increased management involvement. There is no assurance that we will be able to expand our management resources to implement a business combination or business plan. The time and cost of preparing a private company to become a public reporting company may preclude us from entering into a merger or acquisition with the most attractive private companies. Target companies that fail to comply with SEC reporting requirements may delay or preclude acquisition. The time and additional costs that may be incurred by some target entities to prepare these statements may significantly delay or essentially preclude the consummation of an acquisition. Otherwise, suitable acquisition prospects that do not have or are unable to obtain the required audited statements may be inappropriate for acquisition. Any potential acquisition or a merger with a foreign company may subject us to additional risks. If we enter into a business combination with a foreign concern, we will be subject to risks inherent in business operations outside of the United States. These risks include, for example, currency fluctuations, regulatory problems, punitive tariffs, unstable local tax policies, trade embargoes, risks related to the shipment of raw materials and finished goods across national borders and cultural and language differences. Foreign economies may differ favorably or unfavorably from the United States economy in growth of the gross national product, rate of inflation, market development, rate of savings, and capital investment, resource self-sufficiency and balance of payments positions, and in other respects. 9 Our holdings are controlled by one shareholder which owns approximately 70% of our issued and outstanding stock. 70% of our issued and outstanding common stock is controlled by Roran Capital, which is beneficially owned by Yitzhak Zelmanovitch, the son of our sole officer and director, Zindel Zelmanovitch. As a result, Yitzhak Zelmanovitch can direct the affairs of the Company as the majority shareholder and there is no assurance that any decisions made through a shareholder vote will be the same decisions that one or more minority shareholders would make. The Company may be subject to certain tax consequences in our business, which may increase our cost of doing business. We may not be able to structure an acquisition to result in tax-free treatment for the companies or their shareholders, which could deter third parties from entering into certain business combinations with us or result in being taxed on consideration received in a transaction. Currently, a transaction may be structured to result in tax-free treatment to both companies, as prescribed by various federal and state tax provisions. We intend to structure any business combination to minimize the federal and state tax consequences to both us and the target entity; however, we cannot guarantee that the business combination will meet the statutory requirements of a tax-free reorganization or that the parties will obtain the intended tax-free treatment upon a transfer of stock or assets. A non-qualifying reorganization could result in the imposition of both federal and state taxes that may have an adverse effect on both parties to the transaction. As a blank check company, any registered offering of our securities will have to comply with Rule 419 under the Securities Act of 1933, which could impact our ability to raise equity funds from investors. In the event we register an offering of our securities with the SEC while we are a blank check company, we will have to comply with Rule 419 under the Securities Act of 1933. Rule 419 is a cumbersome rule applicable to blank check companies selling penny stocks in a registered offering. Rule 419 requires that the gross proceeds raised in such an offering be deposited into an escrow account with a financial institution insured by the FDIC or in a separate bank account established by a registered broker or dealer in which the broker or dealer acts as trustee for the persons having the beneficial interests in the account. Furthermore, Rule 419 requires the securities issued to investors in the blank check offering be issued in the name of such investors, but certificates representing such securities must be deposited into the escrow account instead of being delivered directly to investors, and the records of the escrow agent, maintained in good faith and in the regular course of business, must show the name and interest of each party to the account. The initial registration statement for the blank check offering shall disclose the specific terms of the offering, including, but not limited to, (i) the terms and provisions of the escrow or trust agreement and the effect thereof upon the company’s right to receive funds and the effect of the escrow or trust agreement upon the investor’s funds and securities required to be deposited into the escrow or trust account, including, if applicable, any material risk of non-insurance of investors’ funds resulting from deposits in excess of the insured amounts; and, (ii) the obligation of the company to provide, and the right of the purchaser to receive, information regarding an acquisition, including the requirement that pursuant to Rule 419, investors confirm in writing their investment in the Company’s securities. Rule 419 imposes certain additional disclosure obligations on companies making blank check offerings. Due to the requirements of Rule 419 and the fact that investors investing in blank check offerings have no idea if or when an acquisition or merger transaction will occur, or if the acquisition or merger target is worthy of the investors’ money or risks, it may be difficult for the company to complete a blank check offering successfully and even if the company is successful in raising funds in such an offering, it may not be able to find an attractive acquisition or merger candidate. Therefore, investors in a blank check offering will have their funds at risk for a prolonged period of time, and they may not be happy with the results of an acquisition or merger if one were to occur. 10 Risks Related to Ownership of Our Common Stock Our common stock is a “penny stock” which may restrict the ability of shareholders to sell our common stock in the secondary market. The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price, as defined, of less than $5.00 per share, or an exercise price of less than $5.00 per share, subject to certain exceptions, including an exception of equity security that is quoted on a national securities exchange. Our Common Stock is not quoted on a national exchange but is traded on the OTC Marketplace Pink Sheets (the “Pink Sheets”). Thus, they are subject to rules that impose additional sales practice requirements on broker-dealers who sell these securities. For example, the broker-dealer must make a special suitability determination for the purchaser of such securities and have received the purchaser’s written consent to the transactions prior to the purchase. Additionally, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered underwriter, and current quotations for the securities, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, among other requirements, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The “penny stock” rules may restrict the ability of our shareholders to sell our common stock in the secondary market. Trading in our securities could be subject to extreme price fluctuations that could adversely affect your investment. Historically speaking, the market prices for securities of small publicly traded companies have been highly volatile. Publicized events and announcements may have a significant impact on the market price of our common stock. In addition, the stock market from time to time experiences extreme price and volume fluctuations that particularly affect the market prices for small publicly traded companies and which are often unrelated to the operating performance of the affected companies. Because we may seek to complete a business combination through a “reverse merger,” we may not be able to attract the attention of major brokerage firms following such a transaction. Additional risks may exist since we may assist a privately held business to become public through a “reverse merger”. Securities analysts of major brokerage firms may not provide coverage of our Company since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of our post-merger Company in the future. We cannot assure you that following a business combination with an operating business or business start-up, our common stock will be listed on any securities exchange higher than the Pink Sheets. Although our common stock is currently quoted on the Pink Sheet, securities quoted on this trading platform often lack liquidity and analyst coverage, which may result in lower prices for our common stock than might be obtained in a larger, more established stock exchanges and may also result in a larger spread between the bid and asked price for our common stock. Following a business combination or business start-up, we may seek the listing of our common stock on NASDAQ or any other exchange, which represents a higher listing than the Pink Sheets. However, we cannot assure you that we will be able to meet the initial listing standards of any of those, or that we will be able to maintain a listing of our common stock on any stock exchange other than the Pink Sheets. Until our common stock is listed on the NASDAQ or another stock exchange, we expect that our common stock would be eligible to continue to trade on the Pink Sheets, where our shareholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. If a market for our common stock does not develop or is not sustained, it may be difficult for our shareholders to sell their shares of common stock at an attractive price or at all. In the absence of an active trading market for our common stock, shareholders may not be able to sell their common stock at or above the price at which they acquired the shares or at the time that they would like to sell. We cannot predict the prices at which our common stock will trade. In addition, we cannot assure you that we will be able to meet the initial listing standards of any national securities exchange, or, if we do meet such initial qualitative listing standards, that we will be able to maintain any such listing. In addition, we would be subject to an SEC rule that, if it failed to meet the criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling our common stock, which may further affect its liquidity. This would also make it more difficult for us to raise additional capital following a business combination. 11 Liquidity is limited, and we may be unable to obtain a listing of our common stock on a more liquid market. Our common stock is quoted on the Pink Sheets, which provides significantly less liquidity than a securities exchange (such as the American or New York Stock Exchange) or an automated quotation system (such as the Nasdaq Global Market or Capital Market). There is the uncertainty that we will ever be accepted for a listing on an automated quotation system or national securities exchange. Substantial sales of our common stock may impact the market price of our common stock. Future sales of substantial amounts of our common stock, including shares that we may issue upon exercise of options and warrants, and the resale of shares by investors who have registration rights, could adversely affect the market price of our common stock. Furthermore, if we raise additional funds through the issuance of common stock or securities convertible into our common stock, the percentage ownership of our shareholders will be reduced, and the price of our common stock may fall. We do not expect to pay dividends for the foreseeable future, and investors must look solely to the stock appreciation for a return on their investment in us. We have no plans to pay, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all future earnings to fund the development and growth of our business. Any payment of future dividends will be at the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the board of directors deems relevant. Investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our common stock. FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock. In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, the broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending low-priced, speculative securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares. Our publicly-filed reports are reviewed from time to time by the SEC, and any significant changes or amendments required as a result of any such review may result in material liability to us and may have a material adverse impact on the trading price of our common stock. The reports and other securities filings of publicly-traded companies are subject to review by the SEC from time to time for the purpose of assisting companies in complying with applicable disclosure requirements. The SEC is required, pursuant to the Sarbanes-Oxley Act of 2002, to undertake a comprehensive review of a company’s reports at least once every three years, although an SEC review may be initiated at any time. While we believe that our previously filed SEC reports comply, and we intend that all future reports will comply, in all material respects with the published rules and regulations of the SEC, we could be required to modify, amend, or reformulate information contained in our filings as a result of any SEC review. Any modification, amendment, or reformulation of information contained in such reports could be significant and result in material liability to us and have a material adverse impact on the trading price of our common stock. We may invest or spend our cash in ways with which you may not agree or in ways which may not yield a significant return. Our management has considerable discretion in the use of our cash. Our cash may be used for purposes that do not increase our operating results or market value. Until the cash is used, it may be placed in investments that do not produce significant income or that may lose value. The failure of our management to invest or spend our cash effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline. 12 ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable.