UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
For the transition period from ________ to ________
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State of incorporation) |
(I.R.S. Employer Identification No.) |
| ( | ||
| (Address of principal executive offices) | (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
| None | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and, (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |||
| Smaller reporting company ☒ | Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
The outstanding number of shares of common stock as of February 14, 2023 was: .
METAVESCO, INC.
FORM 10-Q
TABLE OF CONTENTS
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
METAVESCO, INC.
CONDENSED BALANCE SHEETS
| December 31, 2022 | June 30, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Digital assets held, net of impairment | ||||||||
| Deposit on equipment | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Promissory note (net of
debt discount of $ | ||||||||
| Promissory notes - related
parties (net of debt discount of $ | ||||||||
| Convertible promissory
note (net of debt discount of $ | ||||||||
| Convertible
promissory notes - related party (net of debt discount of $ | ||||||||
| Total current liabilities | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock: $ par value; shares authorized | ||||||||
| Series A Convertible Preferred Stock: and shares issued and outstanding at December 31, 2022 and June 30, 2022, respectively | ||||||||
| Common stock: $ par value; shares authorized; shares issued and outstanding at December 31, 2022 and June 30, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Shares to be issued | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 3 |
METAVESCO, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three
months ended December 31, | Six
months ended December 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Liquidity pool fees | $ | $ | $ | $ | ||||||||||||
| Expense | ||||||||||||||||
| Administrative expenses | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Impairment of digital assets held | ||||||||||||||||
| Total Expense | ||||||||||||||||
| Other income | ||||||||||||||||
| Other rewards | ||||||||||||||||
| Realized gain on sale/ exchange of digital assets held | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
METAVESCO, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
For the three and six months ended December 31, 2022 and 2021
(Unaudited)
| Series A Convertible Preferred Stock ($0.0001 par value) | Common Stock ($0.0001 par value) | Additional | Shares | Total | ||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value |
paid-in capital |
to be issued |
Accumulated deficit | stockholders’ equity | |||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | | |||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Series A Convertible Preferred Stock ($0.0001 par value) | Common Stock ($0.0001 par value) | Additional | Shares | Total | ||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value |
paid-in capital |
to be issued |
Accumulated deficit |
stockholders’ equity | |||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Warrants | - | - | ||||||||||||||||||||||||||||||
| Shares to be issued | - | - | ||||||||||||||||||||||||||||||
| Beneficial conversion feature | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Series A Convertible Preferred Stock ($0.0001 par value) | Common Stock ($0.0001 par value) | Additional | Shares | Total | ||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value |
paid-in capital |
to be issued |
Accumulated deficit | stockholders’ equity | |||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Series A Convertible Preferred Stock ($0.0001 par value) | Common Stock ($0.0001 par value) | Additional | Shares | Total | ||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value |
paid-in capital |
to be issued |
Accumulated deficit | stockholders’ equity | |||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
| Forgiveness of convertible note payable, accrued interest and advances - related party | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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METAVESCO, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
| Six
months ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Impairment of digital assets held | ||||||||
| Realized (gain) loss on sales/ exchange digital assets held | ( | ) | ||||||
| Digital assets received as revenue and other rewards | ( | ) | ||||||
| Digital assets paid as expense | ||||||||
| Non-cash interest expense | ||||||||
| Forgiveness of interest - related party | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in prepaid | ( | ) | ||||||
| Increase (decrease) in accounts payable and accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of digital assets held | ( | ) | ||||||
| Sale of digital assets held | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Advances from related party | ||||||||
| Proceeds from issuance of promissory note payable | ||||||||
| Proceeds from issuance of promissory note payable | ||||||||
| Proceeds from issuance of convertible notes payable - related party | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
| Cash paid during period for: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ | ||||||
| Non-cash Investing and Financing Activities | ||||||||
| Purchase of digital assets held with other digital assets | $ | $ | ||||||
| Proceeds from sale of digital assets for other digital assets | $ | $ | ||||||
| Intrinsic value of embedded beneficial conversion feature on convertible note payable - related party | $ | $ | ||||||
| Deposit on equipment | $ | $ | ||||||
| Warrants issued in conjunction with promissory note | $ | $ | ||||||
| Shares to be issued in conjunction with the amendment of terms of promissory note - related party | $ | $ | ||||||
| Forgiveness of convertible note payable, accrued interest and advances - related party | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
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METAVESCO, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
December 31, 2022
NOTE 1 – ORGANIZATION AND OPERATIONS
Metavesco, Inc. (formerly Waterside Capital Corporation) (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 Company (“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 of 1940, as amended (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.
On
May 28, 2014, with the Company’s consent, the United States District Court for the Eastern District of Virginia, having jurisdiction
over an action filed by the SBA (the “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 receiver of the
Company for the purpose of marshaling and liquidating in an orderly manner all of the Company’s assets and entered judgment in
favor of the United States of America, on behalf of the SBA, against the Company in the amount of $
The Company effectively stopped conducting an active business upon the appointment of the SBA as the receiver and the commencement of the court-ordered receivership (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. On June 28, 2017, the Receivership was terminated with the entry of a Final Order by the Court. 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.
The Company filed with the Securities and Exchange Commission (the “SEC”) an application pursuant to Section 8(f) of the Investment Company Act for an order declaring that the Company had ceased to be a registered investment company. On April 22, 2020, the SEC issued an order under Section 8(f) of the Investment Company Act declaring that the Company had 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. Roran agreed to sell to the Buyer shares of common stock of the Company held
by Roran for a total purchase price of $. In conjunction with the SPA, Roran agreed to forgive all amounts due to Roran by the
Company totaling $
Effective November 29, 2021, the Company converted from a Virginia corporation to a Nevada corporation.
On December 15, 2021, the Company filed with the Nevada Secretary of State amended and restated articles of incorporation. The amended and restated articles of incorporation had the effect of (i) increasing the Company’s authorized common stock to million shares, (ii) increasing the Company’s authorized preferred stock to million shares, and (iii) reducing the par value of each of the Company’s common stock and preferred stock to $ per share. Common stock and additional paid-in capital for all periods presented in these unaudited financial statements have been adjusted retroactively to reflect the reduction in par value.
On December 17, 2021, the majority shareholder and board of directors approved an amendment to the amended and restated articles of incorporation that would change the Company’s name from Waterside Capital Corporation to Metavesco, Inc. The name change was effective June 3, 2022, following clearance by the Financial Industry Regulatory Authority (“FINRA”).
In March 2022, the Company commenced operations as a web3 enterprise. The Company generates income as a liquidity provider, via decentralized exchanges such as Uniswap. Additionally, the Company farms tokens via Proof of Stake protocols on decentralized exchanges, as well as centralized exchanges including the Coinbase, Inc. (“Coinbase”) exchange. The Company also invests in what it considers promising non-fungible token (“NFT”) projects and virtual land, primarily on Ethereum virtual machine (“EVM”) protocols.
The interim unaudited financial statements herein have been prepared by the Company pursuant to the rules and regulations of the SEC. The accompanying interim unaudited financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements for the latest fiscal year ended June 30, 2022. Accordingly, note disclosures which would substantially duplicate the disclosures contained on June 30, 2022, audited financial statements have been omitted from these interim unaudited financial statements. The Company evaluated all subsequent events and transactions through the date of filing this report.
| 7 |
Certain information and note disclosures normally included in financial statements prepared in accordance with the United States generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended December 31, 2022, are not necessarily indicative of the results that may be expected for the year ending June 30, 2023. For further information, refer to the audited financial statements and notes for the year ended June 30, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on October 7, 2022.
Going Concern
The
Company’s unaudited financial statements are prepared in accordance with GAAP applicable to a going concern. This contemplates
the realization of assets and the liquidation of liabilities in the normal course of business. During the six months ended December
31, 2022, the Company incurred a net loss of $
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended June 30, 2022, as filed with the SEC.
Fiscal Year-End
The Company elected June 30 as its fiscal year-end date.
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with GAAP 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 dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
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.
Cash and cash equivalents
Cash
and cash equivalents include cash and interest-bearing highly liquid investments held at financial institutions, cash on hand that is
not restricted as to withdrawal or use with an initial maturity of three months or less, and cash held in accounts at crypto trading
venues. At December 31, 2022, $
Intangible Assets
Digital assets held by the Company are accounted for as intangible assets with indefinite useful lives, and are initially measured at cost. The Company assigns costs to transactions on a first-in, first-out basis (FIFO).
An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital assets at the time its fair value is being measured.
Tokens are subject to impairment losses if the fair value a tokens decreases below the carrying value at any time during the period. The fair value is measured using the quoted price in the principal market of the tokens. The Company currently obtains the quoted price of tokens from www.cryptocompare.com.
Liquidity pool tokens and non-fungible tokens are subject to impairment losses if the fair value a token decreases below the carrying value at the end of each quarterly accounting period. The fair value of liquidity pool tokens is based on the quoted price on the last day of the quarter at 4PM Eastern Time. The fair value of NFTs is based on the average trading price on the last day of each quarter.
| 8 |
Impairment for liquidity pool tokens and NFTs is assessed quarterly due to each token being a unique asset and due to the illiquid markets in which these tokens trade. The Company is continuously reviewing available markets and information and its methodology when determining the fair value of digital assets.
The Company currently reviews quoted prices of its liquidity pool tokens, NFTs and comparable tokens at https://uniswap.org/ and https://opensea.io. Impairment expense is reflected in total expense in the statements of operations. Subsequent reversal of impairment losses is not permitted.
The sales of digital assets held are included within investing activities in the accompanying statements of cash flows and any realized gains or losses from such sales are included in other income (expense) in the statements of operations.
Revenue recognition
The Company recognizes revenue under the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| ● | Step 1: Identify the contract with the customer | |
| ● | Step 2: Identify the performance obligations in the contract | |
| ● | Step 3: Determine the transaction price | |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract | |
| ● | Step 5: Recognize revenue when the Company satisfies a performance obligation |
Revenue is recognized when control of the promised goods or services is transferred to customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company generates revenue through liquidity pools and staking rewards.
Liquidity Pools
Liquidity pools are a collection of digital assets locked in a smart contract that provide liquidity to decentralized exchanges. Liquidity allows digital assets to be converted to cash quickly and efficiently without drastic price swings. An important component of a liquidity pool are automated market makers (“AMMs”). An AMM is a protocol that uses liquidity pools to allow digital assets to be traded by a mathematical formula rather than though a traditional market of buyers and sellers.
Revenue is recognized from liquidity pools when the award is claimed and deposited in the Company wallet. The transaction consideration the Company receives is noncash in the form of digital assets. Revenue is measured at the fair value of the digital asset awards received.
Staking Rewards
Staking rewards are granted to holders of a crypto asset when the holders lock up that crypto asset as collateral to secure fairness when validating transactions or other network actions.
The Company participates in networks with proof-of-stake consensus algorithms, through creating or validating blocks on the network. In exchange for participating in the consensus mechanism of these networks, the Company earns rewards in the form of the native token of the network. Each block creation or validation is a performance obligation. Revenue is recognized at the point when the block creation or validation is complete and the rewards are transferred into a digital wallet that the Company controls. Revenue is measured based on the number of tokens received and the fair value of the token at contract inception.
Airdrops
Airdrops are the distribution of tokens without compensation generally undertaken with a view of increasing awareness of a new token, to encourage adoption of a new token and to increase liquidity in the early stages of a token project.
The Company recognizes crypto assets received through an airdrop if the crypto asset is expected to generate a probable future benefit and if the Company is able to support the trading, custody, or withdrawal of these assets.
Airdrops are accounted for in accordance with ASC 610-20, Sales and Transfer of Nonfinancial Assets, Receipt of a airdrops are classified as gains on the statement of operations.
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.
| 9 |
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 generated a beneficial conversion feature (“BCF”), which arises when a debt or equity security is issued with a non-separated 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). The BCF is amortized into interest expense over the life of the related debt.
Related Parties
The Company follows subtopic 850-10 of the ASC for the identification of related parties and disclosure of related party transactions.
The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and, (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitments and Contingencies
The Company follows ASC 450-20 to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. Management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, management evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Deferred Tax Assets and Income Taxes Provision
The
Company follows the provisions of ASC 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 ASC 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
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.
| 10 |
The Company computes net income or loss per share in accordance with ASC 260 Earnings Per Share. Under the provisions of ASC 260, basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of ASC for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of ASC (“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 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 broad levels. The three 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. |
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.
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This update amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related earnings per share guidance for both Subtopics. This standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2023, which means it will be effective for our fiscal year beginning July 1, 2024. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact of ASU 2020-06 on our financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
NOTE 3 – DIGITAL ASSETS HELD, NET OF IMPAIRMENT
Digital assets held, net of impairment have consisted of:
| Digital Assets | ||||
| Balance, June 30, 2022 | $ | |||
| Purchase of digital assets | ||||
| Proceeds from sale of digital assets | ( | ) | ||
| Realized gain on sale/ exchange of digital assets held | ||||
| Acquired digital assets by liquidity pools and other rewards | ||||
| Digital assets used to pay prepaid, deposit and expenses | ( | ) | ||
| Impairment charges | ( | ) | ||
| Balance, December 31, 2022 | $ | |||
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As at December 31, 2022, the Company’s holdings of digital assets held, net of impairment consists of:
| Units held | Carrying value, at cost less impairment | |||||||
| Cryptocurrency | ||||||||
| ETH | $ | |||||||
| MATIC | ||||||||
| DYDX | ||||||||
| USDC | ||||||||
| CRV | ||||||||
| LDO | ||||||||
| Other | ||||||||
| $ | ||||||||
| Liquidity Pool Tokens | ||||||||
| Uniswap V3 | $ | |||||||
| CAKE | ||||||||
| $ | ||||||||
| Non-Fungible Tokens | ||||||||
| Other Deed | $ | |||||||
| Mutant Ape Yacht Club | ||||||||
| Meebits | ||||||||
| Art Gobblers | ||||||||
| Other NFT | ||||||||
| $ | ||||||||
| Total digital assets, net of impairment | $ | |||||||
NOTE 4 – DEPOSIT ON EQUIPMENT
On
August 22, 2022, the Company made a deposit of $
NOTE 5 – NOTES PAYABLE – RELATED PARTIES
Demand Promissory Note – Related Parties
On
October 18, 2021, the Company issued a Promissory Note in the principal amount of $
On
June 29, 2022, the Company issued a Promissory Note in the principal amount of $
On
August 12, 2022, the Company issued a Promissory Note in the principal amount of $
Demand Promissory Note and Common Stock Purchase Warrant
On
August 12, 2022, the Company issued a Promissory Note in the principal amount of $
.
Convertible Promissory Notes
On
May 10, 2022, the Company issued a Convertible Promissory Note in the principal amount of $
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Convertible Promissory Notes – Related Party
On
March 4, 2022, the Company issued a Convertible Promissory Note in the principal amount of $
On
March 10, 2022, the Company issued a Convertible Promissory Note in the principal amount of $
On
May 6, 2022, the Company issued a Convertible Promissory Note in the principal amount of $
On
May 9, 2022, the Company issued a Convertible Promissory Note in the principal amount of $
NOTE 6 – SHAREHOLDER DEFICIT
On December 15, 2021, the Company filed with the Nevada Secretary of State amended and restated articles of incorporation. The amended and restated articles had the effect of (i) increasing the Company’s authorized common stock to million shares, (ii) increasing the Company’s authorized preferred stock to million shares, and (iii) reducing the par value of each of the Company’s common stock and preferred stock to $ per share. Common stock and additional paid-in capital for all periods presented in these financial statements have been adjusted retroactively to reflect the reduction in par value.
On
March 11, 2022, the Company filed with the State of Nevada a certificate of designations for the Company’s Series A Convertible
Preferred Stock (“Series A Stock”). The Series A Certificate of Designations provides (i) the number of authorized shares
will be ,
(ii) each share will have a stated value of $
Warrants
On
March 16, 2022, the Company entered into Stock Purchases Agreements whereby the Company issued shares to Series A Stock and various
Warrants for $
On
August 12, 2022, the Company issued a common stock purchase warrant in conjunction with a Promissory Note. The Warrant comprise of
The weighted average remaining legal life of the warrants outstanding at December 31, 2022 is years.
Forward Stock Split
On
July 15, 2022, the Company’s director and shareholders approved an amendment of the Company’s Articles of Incorporation that,
if filed, would effect a
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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. |
All references to “Metavesco”, “we”, “our,” “us” and the “Company” in this Item 2 refer to Metavesco, Inc..
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, 2022 and 2021, respectively, should be read in conjunction with our unaudited 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, 2022, filed with the SEC on October 7, 2022. 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 & Management Plans
In March 2022, the Company commenced operations as a web3 enterprise. The Company generates revenue as a liquidity provider, via decentralized exchanges such as Uniswap. Additionally, the Company farms tokens via Proof-of-Stake (“PoS”) protocols on decentralized exchanges, as well as centralized exchanges, including Coinbase. Yield farmers provide liquidity to various token pairs and earn rewards in cryptocurrencies. The Company also invests in non-fungible token (“NFT”) projects and virtual land that it believes are promising, primarily on Ethereum Virtual Machine (“EVM”) protocols.
Web3 includes many different technologies but is generally defined as the use of internet protocols incentivized with token-based rewards built on top of open source, decentralized and distributed systems. Examples of web3 technologies include blockchain networks, cryptocurrencies, NFTs and smart contracts.
The Company primarily invests in NFT collections from Yuga Labs which includes the Mutant Ape Yacht Club and the metaverse platform. As of December 31, 2022, we are invested in 20 NFT tokens with a carrying value of $90,371. If sold, our NFTs may require the payment of a royalty to the creator. Our NFTs currently do not generated royalties or other income.
EVM is a computation engine that facilitates the deployment and operation of smart contracts.
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The Company has four areas of focus:
| ● | Liquidity Provider - In decentralized finance (“DeFi”), the ability to trade assets from one to another is facilitated by Liquidity Pools (“LPs”) which generally contain a 50/50 balance between both underlying tokens. The Company expects to invest substantially in LPs to generate ongoing revenue. The Company earns income based on a percentage of the value of each trade for providing liquidity. We expect that this revenue will fuel our other initiatives as we build the Company. | |
| ● | Staking - Like LPs, staking can provide potential revenue to the Company. Purchasing large blocks of lucrative PoS assets to grow the passive income portfolio is expected to be a major cornerstone to our success. This is a much greener approach to the traditional Proof of Work model, which is used by Bitcoin. | |
| ● | NFTs - The Company holds NFTs for capital appreciation and for potential income from IP licensing. | |
| ● | Bitcoin Mining Operations |
At December 31, 2022, the Company was invested in Uniswap V3 (liquidity pool), CAKE (staking) and NFTs.
On August 29, 2022, the Company announced its plan to begin bitcoin mining operations. Bitcoin mining has been part of the Company roadmap since entering the web3 space in March 2022, although our plans have been accelerated with the recent decrease in the price of Bitcoin. Mining equipment has become much more affordable as overleveraged miners are forced to sell equipment at reduced prices. In August 2022, the Company began its Bitcoin mining operations by purchasing cryptocurrency mining machines and arranging hosting space in Texas. We anticipate the Company will eventually open a second site in Georgia.
Bitcoin Mining Operations
On August 22, 2022, the Company made a deposit of $72,095 with USDC to purchase 18 Antminer S19j Pro 100TH Bitcoin mining machines. The Company originally expected delivery and deployment of these machines in December 2022. These machines were deployed, became operational and started to generate revenue on February 7, 2023. The delay is due to the lack of electric power at the host. The host was seeking permission from the electric utility to turn the power on for these machines.
The Company plans to earn transaction fees with its crypto mining machines by validating requesting customers’ transactions to a distributing ledger. We joined a mining pool and expect to receive a pro-rata share of a bitcoin award for completing a blockchain.
The Company has entered into digital asset mining pools by entering into an agreement with one mining pool operator The agreement is terminable at any time by either party. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency award the mining pool operator receives (less digital asset transaction fees to the mining pool operator which are immaterial and are recorded as a deduction from revenue), for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.
Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contracts with mining pool operators. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.
Fair value of the cryptocurrency award received is determined using the quoted price of the related cryptocurrency at the time of receipt.
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 (“GAAP”). 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.
While our significant accounting policies are described in more detail in Note 2 to our unaudited 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 unaudited 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.
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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.
Intangible Assets
Digital assets held by the Company are accounted for as intangible assets with indefinite useful lives, and are initially measured at cost. The Company assigns costs to transactions on a first-in, first-out basis (FIFO).
An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the digital assets at the time its fair value is being measured.
Tokens are subject to impairment losses if the fair value a tokens decreases below the carrying value at any time during the period. The fair value is measured using the quoted price in the principal market of the tokens. The Company currently obtains the quoted price of tokens from www.cryptocompare.com.
Liquidity pool tokens and non-fungible tokens are subject to impairment losses if the fair value a token decreases below the carrying value at the end of each quarterly accounting period. The fair value of liquidity pool tokens is based on the quoted price on the last day of the quarter at 4PM Eastern Time. The fair value of NFTs is based on the average trading price on the last day of each quarter.
Impairment for liquidity pool tokens and non-fungible tokens is assessed quarterly due to each token being a unique asset and due to the illiquid markets in which these tokens trade. The Company is continuously reviewing available markets and information and its methodology when determining the fair value of digital assets.
The Company currently reviews quoted prices of its liquidity pool tokens, non-fungible tokens and comparable tokens at https://uniswap.org/ and https://opensea.io. Impairment expense is reflected in total expense in the statements of operations. Subsequent reversal of impairment losses is not permitted.
The sales of digital assets held are included within investing activities in the accompanying statements of cash flows and any realized gains or losses from such sales are included in other income (expense) in the statements of operations.
Revenue recognition
The Company recognizes revenue under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The core principle of the revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| ● | Step 1: Identify the contract with the customer | |
| ● | Step 2: Identify the performance obligations in the contract | |
| ● | Step 3: Determine the transaction price | |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract | |
| ● | Step 5: Recognize revenue when the Company satisfies a performance obligation |
Revenue is recognized when control of the promised goods or services is transferred to customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company generates revenue through liquidity pools and staking rewards.
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Liquidity Pools
Liquidity pools are a collection of digital assets locked in a smart contract that provide liquidity to decentralized exchanges. Liquidity allows digital assets to be converted to cash quickly and efficiently without drastic price swings. An important component of a liquidity pool are automated market makers (AMM). An AMM is a protocol that uses liquidity pools to allow digital assets to be traded by a mathematical formula rather than though a traditional market of buyers and sellers.
The Company earns fees by providing liquidity on Uniswap V2 and Uniswap V3. The Company earns fees proportionate to the liquidity they have supplied to the exchange. The fee for each trade is set at 0.05% for stable coins, 0.3% for most pairs and 1.0% for exotic pairs. The fees earned by the Company depends on the risk characteristics of each pair of tokens selected and the price range liquidity is provided. Uniswap V2 requires users to provide liquidity over the entire price curve, whereas Uniswap V3 provides users with liquidity over a price range.
Revenue is recognized from liquidity pools when the award is claimed and deposited in the Company wallet. The transaction consideration the Company receives is noncash in the form of digital assets. Revenue is measured at the fair value of the digital asset awards received.
Staking Rewards
Staking rewards are granted to holders of a crypto asset when the holders lock up that crypto asset as collateral to secure fairness when validating transactions or other network actions.
The Company participates in networks with proof-of-stake consensus algorithms, through creating or validating blocks on the network. In exchange for participating in the consensus mechanism of these networks, the Company earns rewards in the form of the native token of the network. Each block creation or validation is a performance obligation. Revenue is recognized at the point when the block creation or validation is complete and the rewards are transferred into a digital wallet that the Company controls. Revenue is measured based on the number of tokens received and the fair value of the token at contract inception.
Airdrops
Airdrops are the distribution of tokens without compensation generally undertaken with a view of increasing awareness of a new token, to encourage adoption of a new token and to increase liquidity in the early stages of a token project.
The Company recognizes crypto assets received through an airdrop if the crypto asset is expected to generate a probable future benefit and if the Company is able to support the trading, custody, or withdrawal of these assets.
Airdrops are accounted for in accordance with ASC 610-20, Sales and Transfer of Nonfinancial Assets, Receipt of a airdrops are classified as gains on the statement of operations.
Beneficial Conversion Feature
The issuance of the convertible debt issued by the Company 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 FASB ASC for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the ASC (“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 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. |
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.
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Deferred Tax Assets and Income Taxes Provision
The Company adopted the provisions of paragraph 740-10-25-13 of the ASC. 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 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, 2022 and 2021
Revenue
In March 2022, the Company commenced operations as a web3 enterprise and purchasing digital assets. Revenue for the three months ended December 31, 2022 and 2021 was derived from liquidity pool fees of $43,464 and $0, respectively.
Our business plan includes earning income from liquidity fees and staking. The Company seeks higher returns from liquidity pool fees by selecting pairs with higher risk and good volumes.
Our high trade volume is due to adjusting parameters on our liquidity pools. Each trade generates a realized gain or loss.
Administrative Expenses
Administrative expenses totaled $52,500 and $29,185 for the three months ended December 31, 2022 and 2021, respectively. These expenses are primarily costs related to accounting, audit, legal and investor relations.
Interest Expense
Interest expense totaled $24,991 and $0 for the three months ended December 31, 2022 and 2021, respectively. The increase in interest expense is due to amortization of debt discount and accrued interest on new promissory notes and new convertible promissory notes issued since October 2021.
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Impairment of Digital Assets Held
Impairment of digital assets held totaled $256,018 and $0 for the three months ended December 31, 2022 and 2021, respectively. Digital assets are accounted for as intangible assets are subject to impairment losses if the fair value of digital assets decreases below the carrying value at any time during the period. Subsequent reversal of impairment losses is not permitted. We will not recognize any increases in the fair value of digital assets held until a gain is recognized on sale. Impairment losses are a non-cash expense.
Other Income (Expense)
Other rewards – we earned $GOO tokens as a result of holding an Art Gobblers NFT.
Realized Gain on Sale/ Exchange on Digital Assets Held - We generally do not seek to earn income from actively trading digital assets held. We will dispose of assets in circumstances when there is a significant increase in the fair value of an asset or when holding an asset is no longer consistent with our business plan.
Net Loss
We reported a net loss of $107,015 and $29,185 for the three months ended December 31, 2022 and 2021, respectively. Any increase in revenue and realized gain on sales/ exchange on digital assets held was offset by an increase in administrative, interest and impairment expenses.
Our losses were primarily due to a steep drop in market price of crypto assets, high volatility of prices and a broad deterioration of the crypto-currency market. During 2022, there has been a sustained period of lower prices. The broad deterioration of the crypto-currency market has been highlighted by well publicized business failures such as FTX Exchange and BlockFi and the price collapse of TerraUSD and LUNA. We have not suffered direct losses as a counterparty in a contract as a result of recent business failures. The broad deterioration in prices has reduced the capital we can invest and, therefore, reduced our revenue from liquidity pools and staking rewards. We are unable to predict if or when prices will recover.
Comparison of Six Months Ended December 31, 2022 and 2021
Revenue
In March 2022, the Company commenced operations as a web3 enterprise and purchasing digital assets. Revenue for the six months ended December 31, 2022 and 2021 was derived liquidity pool fees of $83,894 and $0, respectively.
Our business plan includes earning income from liquidity fees and staking. The Company seeks higher returns from liquidity pool fees by selecting pairs with higher risk and good volumes.
Our high trade volume is due to adjusting parameters on our liquidity pools. Each trade generates a realized gain or loss.
Administrative Expenses
Administrative expenses totaled $177,510 and $51,010 for the six months ended December 31, 2022 and 2021, respectively. These expenses are primarily costs related to accounting, audit, legal and investor relations.
Interest Expense
Interest expense totaled $48,533 and $2,997 for the six months ended December 31, 2022 and 2021, respectively. The increase in interest expense is due to amortization of debt discount and accrued interest on new promissory notes and new convertible promissory notes issued since October 2021.
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Impairment of Digital Assets Held
Impairment of digital assets held totaled $281,317 and $0 for the six months ended December 31, 2022 and 2021, respectively. Digital assets are accounted for as intangible assets are subject to impairment losses if the fair value of digital assets decreases below the carrying value at any time during the period. Subsequent reversal of impairment losses is not permitted. We will not recognize any increases in the fair value of digital assets held until a gain is recognized on sale. Impairment losses are a non-cash expense.
Other Income (Expense)
Other rewards – we earned $GOO tokens as a result of holding an Art Gobblers NFT.
Realized Gain on Sale/ Exchange on Digital Assets Held - We generally do not seek to earn income from actively trading digital asset held. We will dispose of assets in circumstances when there is a significant increase in the fair value of an asset or when holding an asset is no longer consistent with our business plan.
Net Loss
We reported a net loss of $165,326 and $54,007 during the six months ended December 31, 2022 and 2021, respectively. Any increase in revenue and realized gain on sales/ exchange on digital assets held was offset by an increase in administrative, interest and impairment expenses.
Our losses were primarily due to a steep drop in market price of crypto assets, high volatility of prices and a broad deterioration of the crypto-currency market. During 2022, there has been a sustained period of lower prices. The broad deterioration of the crypto-currency market has been highlighted by well publicized business failures such as FTX Exchange and BlockFi and the price collapse of TerraUSD and LUNA. We have not suffered direct losses as a counterparty in a contract as a result of recent business failures. The broad deterioration in prices has reduced the capital we can invest and, therefore, reduced our revenue from liquidity pools and staking rewards. We are unable to predict if or when prices will recover.
Liquidity and Capital Resources
We have incurred recurring operating losses and negative operating cash flows through December 31, 2022, and we expect to continue to incur losses and negative operating cash flows at least through the near future. During the six months ended December 31, 2022, we obtained $75,000 of funding by issuing a demand promissory note and promissory note – related party to meet our most critical cash requirements. At December 31, 2022, $972 of cash was in held at a financial institution and $0 was held at Coinbase, Inc. The Company expects over the next twelve months, cash held at a financial institution will be expended on professional fees, transfer agent, Edgar agent and other administrative costs. We estimate $200,000 of cash per annum will be required to maintain current operations and remain in business. We hope that we can generate enough revenue from liquidity pools and staking rewards to pay ongoing expenses. In order to remain in business we may have to sell digital assets for cash or issue additional debt order equity. The cash held at Coinbase Inc. will be deployed to purchase digital assets to generate staking rewards and liquidity pool fees. We hope to start paying some of our suppliers and contractors in digital assets in the coming months. However, there can be no assurance we will be able to pay any of our suppliers and contractors in digital assets.
On August 22, 2022, the Company made a deposit of $72,095 with USDC to purchase 18 Antminer S19j Pro 100TH Bitcoin mining machines.
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 2022 financial statements, expressed substantial doubt about our ability to continue as a going concern. Our financial statements as of and for the year ended June 30, 2022, do not contain any adjustments for this uncertainty. In response to our Company’s cash needs, we raised funding as described in Note 5 and Note 6 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.
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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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by our Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Pursuant to Rule 13a-15(b) under the Exchange Act, our Company carried out an evaluation as of December 31, 2022 with the participation of our Company’s management, including our Company’s Chief Executive Officer (“CEO”) and our Company’s Chief Financial Officer (“CFO”), of the effectiveness of our Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our Company’s CEO and CFO concluded that our Company’s disclosure controls and procedures were not effective as of December 31, 2022 due to our Company’s limited internal resources and lack of ability to have multiple levels of transaction review.
Management is in the process of determining how best to change our current system and implement a more effective system to insure that information required to be disclosed in the reports that we file or submit under the Exchange Act have been recorded, processed, summarized and reported accurately. Our management intends to develop procedures to address the current deficiencies to the extent possible given limitations in financial and personnel resources. While management is working on a plan, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting during the period ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in the aggregate) may materially and adversely affect our financial condition, results of operations and liquidity. In addition, the ultimate outcome of any litigation is uncertain. Any outcome (including any for the actions described above), whether favorable or unfavorable, may materially and adversely affect us due to legal costs and expenses, diversion of management attention and other factors. We expense legal costs in the period incurred. We cannot assure you that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against us in the future, and these matters could relate to prior, current or future transactions or events.
We are not currently a party to any other material legal proceedings. We are not aware of any pending or threatened litigation against us that in our view would have a material adverse effect on our business, financial condition, liquidity, or operating results. However, legal claims are inherently uncertain, and we cannot assure you that we will not be adversely affected in the future by legal proceedings.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. Before investing in our common stock, you should consider carefully the risks described below, together with the other information included or incorporated by reference in this Quarterly Report on Form 10-Q. The occurrence of any of the following risks could materially adversely affect our business, financial condition, results of operations and future growth prospects. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment.
For a discussion identifying risk factors and other important factors that could cause actual results to differ materially from those anticipated, see the discussions under Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022 and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to Consolidated Financial Statements” in this Quarterly Report on Form 10-Q. There has been a material change to the Risk Factors described in Part I “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022 as filed with the SEC.
The following additional risk factor should be added to the discussions under Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022.
A particular digital asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty, and if we are unable to correctly characterize a digital asset, we may be subject to regulatory scrutiny, investigations, fines, sanctions, penalties and other adverse consequences, including potentially becoming subject to the Investment Company Act of 1940 which would impose significant regulatory burdens and compliance costs.
The SEC and its staff have taken the position that certain digital assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given digital asset is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular digital asset as a security. Furthermore, the SEC’s views in this area have evolved over time and it is difficult to predict the direction or timing of any continuing evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners could substantially impact the views of the SEC and its staff. Public statements by senior officials at the SEC indicate that the SEC does not intend to take the position that Bitcoin or Ethereum are securities (in their current form). Bitcoin and Ethereum are the only digital assets as to which senior officials at the SEC have publicly expressed such a view. Moreover, such statements are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or court and cannot be generalized to any other digital asset. With respect to all other digital assets, there is currently no certainty under the applicable legal test that such assets are not securities, notwithstanding the conclusions we may draw based on our risk-based assessment regarding the likelihood that a particular digital asset could be deemed a “security” under applicable laws. Similarly, though the SEC’s Strategic Hub for Innovation and Financial Technology published a framework for analyzing whether any given digital asset is a security in April 2019, this framework is also not a rule, regulation or statement of the SEC and is not binding on the SEC.
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The classification of a digital asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer, sale, trading, and clearing of such assets. For example, a digital asset that is a security in the U.S. may generally only be offered or sold in the U.S. pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons that effect transactions in digital assets that are securities in the U.S. may be subject to registration with the SEC as a “broker” or “dealer.” Platforms that bring together purchasers and sellers to trade digital assets that are securities in the U.S. are generally subject to registration as national securities exchanges, or must qualify for an exemption, such as by being operated by a registered broker-dealer as an alternative trading system, or ATS, in compliance with rules for ATSs. Persons facilitating clearing and settlement of securities may be subject to registration with the SEC as a clearing agency. Foreign jurisdictions may have similar licensing, registration, and qualification requirements.
While we do not currently, nor do we plan to, offer, sell, trade, and clear digital assets or take custody of others digital assets as part of any potential Staking-as-a-Service operations we may undertake, however, digital assets we stake and validate transactions for could be deemed to be a “security” under applicable laws. Our blockchain infrastructure operations which entails securing blockchains by processing and validating blockchain transactions (most analogous to Bitcoin mining or operating a Bitcoin mining pool) could be construed as facilitating transactions in digital assets; as such we could be subject to legal or regulatory action in the event the SEC, a foreign regulatory authority, or a court were to determine that a blockchain we secure is a “security” under applicable laws. Because our platform is not registered or licensed with the SEC or foreign authorities as a broker-dealer, national securities exchange, or ATS (or foreign equivalents), and we do not seek to register or rely on an exemption from such registration or license to secure blockchains.
Further, if any digital asset is deemed to be a security under any U.S. federal, state, or foreign jurisdiction, or in a proceeding in a court of law or otherwise, it may have adverse consequences for such digital asset. For instance, the networks on which such digital assets are utilized may be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render the network impracticable for its existing purposes. Further, it could draw negative publicity and a decline in the general acceptance of the digital asset. Also, such a development may make it difficult for such supported digital asset to be traded, cleared, and custodied as compared to other digital asset that are not considered to be securities.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
| Exhibit Number | Description | |
| 31.1 | Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(*). | |
| 31.2. | Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(*). | |
| 32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002(**). | |
| 101.SCH | Inline XBRL Schema Document(*) | |
| 101.INS | Inline XBRL Instance Document(*) | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document(*) | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document(*) | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document(*) | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document(*) | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
| (*) | Filed herewith. | |
| (**) | Furnished herewith. |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, our Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: February 14, 2023 | METAVESCO, INC. | |
| By: | /s/ Ryan Schadel | |
| Name: | RYAN SCHADEL | |
| Chief Executive Officer, Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
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