Metavesco, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report, include forward-looking statements. Information in this report contains “forward-looking statements” which may be identified by the use of forward-looking terminology, such as “may”, “shall”, “will”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, “believes”, “estimates”, “projects”, “targets”, or similar terms, variations of those terms or the negative of those terms. Our management has compiled the forward-looking statements specified in the following information based on assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. Statements in this report concerning the following, without limitation, are forward-looking statements: ● future financial and operating results; ● our ability to fund operations and business plans, and the timing of any funding or corporate development transactions we may pursue; ● our ability to either (i) enter into a new business; or (ii) merge with, or otherwise acquire, an active business which would benefit from operating as a public entity; ● current and future economic and political conditions; ● overall industry and market trends; ● management’s goals and plans for future operations; and ● other assumptions described in this report underlying or relating to any forward-looking statements. 14 All references to “Waterside”, “we”, “our,” “us” and the “Company” in this Item 2 refer to Waterside Capital Corporation. The discussion in this section contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify forward-looking statements by terminology such as “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “would” or “will” or the negative of these terms or other comparable terminology, but their absence does not mean that a statement is not forward-looking. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, which could cause our actual results to differ from those projected in any forward-looking statements we make. You should understand that it is not possible to predict or identify all risks and uncertainties and you should not consider the risks and uncertainties identified by us to be a complete set of all potential risks or uncertainties that could materially affect us. You should not place undue reliance on the forward-looking statements we make herein because some or all of them may turn out to be wrong. We undertake no obligation to update any of the forward-looking statements contained herein to reflect future events and developments, except as required by law. The following discussion of the results of operations for the three and six months ended December 31, 2021 and 2020, respectively, should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements because of a number of factors. An investment in our common stock involves a high degree of risk. Readers of this Quarterly Report on Form 10-Q should carefully consider the risks set forth in the Risk Factors and Business sections of our Annual Report on Form 10-K for the year ended June 30, 2021, filed with the SEC on September 1, 2021. Our management has compiled the forward-looking statements specified in the following information based on assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements. Overview The Company was formed in the Commonwealth of Virginia on July 13, 1993 and was a closed-end investment company licensed by the SBA as an 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 Investment Company 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. In May 2014, the Company effectively ceased operations. The Company consented to a court order appointing the SBA as receiver of the Company to marshal and liquidate in an orderly manner all of the Company’s assets. That order also entered judgment in favor of the United States of America, on behalf of the SBA, against the Company in the amount of $11,770,722. The SBA was appointed receiver effective May 28, 2014. 15 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. On June 28, 2017, the Receivership was terminated. 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. Upon termination of the Receivership, Roran took possession of all books and records made available to it by the SBA. With no assets and no SBIC license from the SBA, no income, and liabilities, at that time, in excess of $10,000,000, it became clear to the Company that continuing to operate as a registered investment company was impossible. The Company and Roran entered into a Convertible Loan Agreement on September 19, 2017, as amended, to fund the Company’s expenses while it sought a new business to undertake or to merge with an existing business. The New Board has continued to work toward achieving that goal. On April 22, 2020, the SEC issued an order under Section 8(t) of the Investment Company Act 1940, as amended, 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. On September 2, 2021, the Company entered into a Stock Purchase Agreement (the “SPA”) by and between (i) the Company (ii) Ryan Schadel (“Buyer”) and (iii) Roran Capital, LLC (“Roran”). Roran agreed to sell to the Buyer 4,247,666 shares of common stock of the Company held by Roran for a total purchase price of $385,000. In conjunction with the SPA, Roran agreed to forgive all amounts due to Roran by the Company totaling $207,644 which is comprised of convertible note payable – related party, accrued interest payable – related party and advances from related party. The Buyer acquired 4,247,666 shares of the Company’s Common Stock, representing 69.7% of the issued and outstanding shares of Common Stock. As such, the Schadel SPA resulted in a change of control of the Company. Critical Accounting Policies Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements which we have been prepared in accordance with the U.S. generally accepted accounting principles. In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole 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. Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates. 16 While our significant accounting policies are described in more detail in Note 2 of our quarterly financial statements included in this Quarterly Report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements: Assumption as a Going Concern Management prepares the Company’s financial statements on the basis that the Company will continue as a going concern, which contemplates continuity of operations, the realization of assets, and liquidation of liabilities in the normal course of business. However, given our current financial position and lack of liquidity, there is substantial doubt about our ability to continue as a going concern. Convertible Financial Instruments The Company bifurcates conversion options from their host instruments and accounts for them as free-standing derivative financial instruments if certain criteria are met. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under applicable GAAP. When the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, discounts are recorded for the intrinsic value of conversion options embedded in the instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the instrument. Beneficial Conversion Feature The issuance of the convertible debt issued by the Company (described in Note 3 to the Financial Statements) generated a beneficial conversion feature (“BCF”), which arises when a debt or equity security is issued with an embedded conversion option that is beneficial to the investor or in the money at inception because the conversion option has an effective strike price that is less than the market price of the underlying stock at the commitment date. The Company recognized the BCF by allocating the intrinsic value of the conversion option, which is the number of shares of common stock available upon conversion multiplied by the difference between the effective conversion price per share and the fair value of common stock per share on the commitment date, resulting in a discount on the convertible debt (recorded as a component of additional paid-in capital). Fair Value of Financial Instruments The Company follows paragraph 825-10-50-10 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below: Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data. 17 Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Transactions involving related parties cannot be presumed to be carried out on an arms-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. Deferred Tax Assets and Income Taxes Provision The Company adopted the provisions of paragraph 740-10-25-13 of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification. Paragraph 740-10-25-13 which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest, and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13. The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carryforwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, a full valuation allowance offsets the potential tax benefits of the net loss carry-forwards. Management made this assumption based on (a) the Company has incurred recurring losses and presently has no revenue-producing business, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors. Comparison of Three months Ended December 31, 2021 and 2020 During the three months periods ended December 31, 2021 and 2020, the Company did not have any operations, and therefore, there were no revenues. Expenses were limited to maintaining the Company in good standing and staying current, respectively, in its filing obligations with the SEC. Administrative Expenses Professional fees totaled $29,186 and $23,162 for the three months ended December 31, 2021 and 2020, respectively. These expenses are primarily costs related to keeping the Company current in its SEC filings and costs incurred in 2021 for legal expenses related to conversion from a Virginia corporation to a Nevada corporation and amendments to the amended and restated articles of incorporation. Interest Expense Interest expense totaled $0 and $15,523 for the three months ended December 31, 2021 and 2020, respectively. The decrease in interest expense is due to the settlement of the convertible note payable. Net Loss We reported a net loss of $29,186 and $38,685 during the three months ended December 31, 2021 and 2020, respectively. The decrease in net loss was directly attributable to the decrease in interest expense. Comparison of Six months Ended December 31, 2021 and 2020 During the six months periods ended December 31, 2021 and 2020, the Company did not have any operations, and therefore, there were no revenues. Expenses were limited to maintaining the Company in good standing and staying current, respectively, in its filing obligations with the SEC. 18 Administrative Expenses Professional fees totaled $51,010 and $45,141 for the six months ended December 31, 2021 and 2020, respectively. These expenses are primarily costs related to keeping the Company current in its SEC filings and costs incurred in 2021 for legal expenses related to conversion from a Virginia corporation to a Nevada corporation and amendments to the amended and restated articles of incorporation. Interest Expense Interest expense totaled $2,997 and $28,793 for the six months ended December 31, 2021 and 2020, respectively. The decrease in interest expense was due a decrease in the amortization of debt discount on convertible note payable. Net Loss We reported a net loss of $54,007 and $73,934 during the six months ended December 31, 2021 and 2020, respectively. The decrease in net loss was directly attributable to the decrease in interest expense. Liquidity and Capital Resources We have incurred recurring operating losses and negative operating cash flows through December 31, 2021, and we expect to continue to incur losses and negative operating cash flows at least through the near future. We have obtained $100,000 of funding by issuing a demand promissory note on October 18, 2021 to Ryan Schadel, the Company’s Chief Executive Officer, sole director and majority stockholder, to meet our most critical cash requirements. The Company does not presently process the resources to repay related borrowings and there is not assurance that the Company will be able to borrow additional funds. As a result of the aforementioned factors, management has concluded that there is substantial doubt about our ability to continue as a going concern. Our independent registered public accounting firm, in its report on our fiscal 2021 financial statements, expressed substantial doubt about our ability to continue as a going concern. Our financial statements as of and for the period ended December 31, 2021, do not contain any adjustments for this uncertainty. In response to our Company’s cash needs, we raised funding as described in Note 3 to our financial statements. Any additional amounts raised will be used for our future investing and operating cash flow needs. However, there can be no assurance that we will be successful in raising additional amounts of financing. Management’s Plans We plan to seek, investigate, and consummate a merger or other business combination, purchase of assets or other strategic transaction (i.e., a merger) with a corporation, partnership, limited liability company or other operating business entity, or enter into a new business (collectively, a “Business Target”) desiring the perceived advantages of becoming a publicly reporting and publicly held corporation. We have no operating business and conduct minimal operations necessary to meet regulatory requirements. Our ability to commence any operations is contingent upon obtaining adequate financial resources. 19 We are not currently engaged in any business activities that provide cash flow. The costs of investigating and analyzing business combinations for the next 12 months and beyond such time will be paid with money borrowed from Ryan Schadel or other sources. During the next 12 months, we anticipate incurring costs related to (i) filing of Exchange Act reports; and (ii) either entering into a new business or identifying and consummating a transaction with a Business Target. We believe we will be able to meet these costs through the use of funds borrowed from Ryan Schadel, or other amounts to be loaned to or invested in us by other investors. We may consider a business which has recently commenced operations, is a developing company in need of additional funds for expansion into new products or markets, is seeking to develop a new product or service, or is an established business which may be experiencing financial or operating difficulties and needs additional capital. In the alternative, a business combination may involve the acquisition of, or merger with, a company which does not require substantial additional capital, but which desires to establish a public trading market for its shares, while avoiding, among other things, the time delays, significant expense, and loss of voting control which may occur in a public offering. Ryan Schadel, our chief executive officer, plans to devote the majority of his time to the affairs of the Company. No compensation has been paid to Mr. Schadel for his services as an officer and director. We do not anticipate hiring any full-time employees as long as we are seeking and evaluating Business Targets. At December 31, 2021, we had $58,484 cash on hand. On October 18, 2021, the Company issued a promissory note in the principal amount of $100,000 for cash to Ryan Schadel, the Company’s Chief Executive Officer, sole director and majority stockholder. Since we have no revenue or plans to generate any revenue, we will be dependent upon loans to fund expenses incurred in excess of our cash. In December 2019, a novel coronavirus disease (“COVID-19”) was initially reported, and in March 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 has had a widespread and detrimental effect on the global economy as a result of the continued increase in the number of cases and affected countries and actions by public health and governmental authorities, businesses, other organizations and individuals to address the outbreak, including travel bans and restrictions, quarantines, shelter in place, stay at home or total lock-down orders and business limitations and shutdowns. The ultimate impact of the COVID-19 pandemic on our business is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration and severity of the COVID-19 pandemic and any additional preventative and protective actions that governments may direct. Management believes the capital markets have been negatively impacted by COVID-19, which negatively impacts the Company’s ability to consummate a merger transaction. Off-Balance Sheet Arrangements There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.