Metavesco, Inc 10-Q for FY2022 Q3
Metavesco, Inc. (MVCO)
About this 10-Q
Metavesco, Inc filed this 10-Q on May 16, 2022, covering the quarter ended March 31, 2022 (FY2022 Q3).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $40.21K
- Net loss
- $15.38K
- compared with a net loss of $14.32K a year earlier
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) |
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). Yes ☐
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 May 16, 2022 was: .
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 |
WATERSIDE CAPITAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
| 2 |
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WATERSIDE CAPITAL CORPORATION
CONDENSED BALANCE SHEETS
As of March 31, 2022 (Unaudited) and June 30, 2021
| 1 | 2 | |||||||
| March 31, 2022 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Digital assets held, net of impairment | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Promissory note - related party | ||||||||
| Accrued interest payable - related party | ||||||||
| Convertible note payable - related party | ||||||||
| Convertible promissory notes - related party (net of debt discount of $ | ||||||||
| Total current liabilities | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock; $ par value; shares authorized | ||||||||
| Series A Convertible Preferred Stock: and shares issued and outstanding at March 31, 2022 and June 30, 2021 | ||||||||
| Common stock; $ par value; shares authorized; shares issued and outstanding at March 31, 2022 and June 30, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed interim financial statements.
| 3 |
WATERSIDE CAPITAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
For the three and nine months ended March 31, 2022 and 2021
(Unaudited)
| 1 | 2 | 3 | 4 | |||||||||||||
| Three month period ended March 31, | Nine month period ended March 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Airdrops | $ | $ | $ | $ | ||||||||||||
| Liquidity pool fees | ||||||||||||||||
| Total Revenue | ||||||||||||||||
| Expense | ||||||||||||||||
| Administrative expenses | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Impairment of digital assets held | ||||||||||||||||
| Total Expense | ||||||||||||||||
| Other income (expense) | ||||||||||||||||
| Realized gain (loss) on sales/ exchange digital assets held | ||||||||||||||||
| Total Other income (expense) | ||||||||||||||||
| 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 interim financial statements.
| 4 |
WATERSIDE CAPITAL CORPORATION
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the three and nine months ended March 31, 2022 and 2021
(Unaudited)
| Series A Convertible Preferred
Stock ($0.0001 par value) | Common Stock ($0.0001 par value) | Additional paid-in | Accumulated | Total stockholders’ | ||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | capital | deficit | equity | ||||||||||||||||||||||
| Balance, December 31, 2021 | - | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Issue of Series A Convertible Preferred Stock | $ | - | ||||||||||||||||||||||||||
| Beneficial conversion feature | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Series A Convertible Preferred
Stock ($0.0001 par value) | Common Stock ($0.0001 par value) | Additional paid-in | Accumulated | Total stockholders’ | ||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | capital | deficit | equity | ||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issue of Series A Convertible Preferred Stock | $ | - | ||||||||||||||||||||||||||
| Beneficial conversion feature | - | - | ||||||||||||||||||||||||||
| Forgiveness of convertible note payable, accrued interest and advances - related party | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Series A Convertible Preferred
Stock ($0.0001 par value) | Common Stock ($0.0001 par value) | Additional paid-in | Accumulated | Total stockholders’ | ||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | capital | deficit | equity | ||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Beneficial conversion feature | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Series A Convertible Preferred
Stock ($0.0001 par value) | Common Stock ($0.0001 par value) | Additional paid-in | Accumulated | Total stockholders’ | ||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | capital | deficit | equity | ||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Beneficial conversion feature | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed interim financial statements.
| 5 |
WATERSIDE CAPITAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOW
For the nine months ended March 31, 2022 and 2021
(Unaudited)
| 1 | 2 | |||||||
| Nine month periods ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Amortization of debt discount | ||||||||
| Impairment of digital assets held | ||||||||
| Forgiveness of interest - related party | ||||||||
| Realized (gain) loss on sales/ exchange digital assets held | ( | ) | ||||||
| Digital assets received as revenue | ( | ) | ||||||
| Digital assets paid as expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in prepaid | ( | ) | ||||||
| (Decrease) increase in accounts payable and accrued liabilities | ||||||||
| Increase in accrued interest payable - related party | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of digital assets held | ( | ) | ||||||
| Net cash provided by financing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Advances from related party | ||||||||
| Proceeds from issuance of promissory note payable - related party | ||||||||
| Proceeds from issuance of convertible note payable - related party | ||||||||
| Issuance of Series A Convertible Preferred Stock | ||||||||
| 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 convertible promissory notes - related party | $ | $ | ||||||
| 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 and convertible promissory notes - related party | $ | $ | ||||||
| Forgiveness of convertible note payable, accrued interest and advances - related party | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed interim financial statements.
| 6 |
WATERSIDE CAPITAL CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2022
NOTE 1 – ORGANIZATION AND OPERATIONS
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 SEC an application pursuant to Section 8(f) of the Investment Company Act of 1940 for an order declaring that the Company has 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 of 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. 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, the 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 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 interim 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 will not be effective until it is cleared 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 Coinbase exchange. The Company also invests in promising NFT projects and virtual land, primarily on EVM protocols.
The interim unaudited financial statements herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (“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, 2021. Accordingly, note disclosures which would substantially duplicate the disclosures contained on June 30, 2021, 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.
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 nine months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the year ending June 30, 2022. For further information, refer to the audited financial statements and notes for the year ended June 30, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on September 1, 2021.
| 7 |
Going Concern
The
accompanying financial statements of our Company have been prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”). The Company effectively ceased operations, has no significant liquid assets and continues
to have net losses through the date of these financial statements. Our financial statements have been presented on the basis that our
business is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of
business. We are subject to the risks and uncertainties associated with a business with no operating business or assets and no revenue,
as well as limitations on our capital resources. We have incurred losses and negative operating cash flows since the Receivership, and
we expect to continue to incur losses and negative operating cash flows at least through the near future. The Company on October 18,
2021, issued to Ryan Schadel, the Company’s Chief Executive Officer, sole director and majority stockholder, a demand promissory
note for $
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.
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 June 30, 2021 financial statements included in its 2021 Annual Report on Form 10-K.
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 March 31, 2022, $
| 8 |
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.
Cryptocurrencies are subject to impairment losses if the fair value a cryptocurrency 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 cryptocurrency. The Company currently obtains the quoted price of cryptocurrency from www.coinmarketcap.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. Impairment for 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 tokens. The Company currently reviews quoted prices of its 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
There is currently no definitive guidance under GAAP or alternative accounting framework for the accounting for digital assets recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s financial position and results from operations.
Revenue is recognized 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 assets awards received using the quoted price
Airdrop
Airdrop is the distribution of tokens without compensation generally undertaken with a view of increasing awareness of a new token, to encourage adoption of new token and to increase liquidity in the early stages of a token project.
Liquidity Pools
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 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.
| 9 |
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.
The Company computes net income or loss per share in accordance with ASC 260 Earnings Per Share. Under the provisions of the Earnings per Share Topic ASC, 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 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. |
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.
| 10 |
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard-setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
NOTE 3 – DIGITAL ASSETS HELD, NET OF IMPAIRMENT
Digital assets held, net of impairment have consisted of:
SCHEDULE OF DIGITAL ASSETS HELD NET OF IMPAIRMENT
| Cryptocurrency | Tokens | Total | ||||||||||
| Balance, July 1, 2021 | $ | $ | $ | |||||||||
| Purchase of digital assets | ||||||||||||
| Proceeds from sale of digital assets | ( | ) | ( | ) | ( | ) | ||||||
| Realized gain loss on sales/ exchange digital assets | ||||||||||||
| Acquired digital assets by Airdrop | ||||||||||||
| Acquired digital assets by Liquidity Pools | ||||||||||||
| Digital assets used to pay fees | ( | ) | ( | ) | ||||||||
| Impairment charges | ( | ) | ( | ) | ( | ) | ||||||
| Balance, March 31, 2022 | $ | $ | $ | |||||||||
As at March 31, 2022, the Company’s holdings of digital assets held, net of impairment consists of:
SCHEDULE OF ASSETS DIGITAL HOLDING IMPAIRMENTS
| Units held | Carrying value, at cost less impairment | |||||||
| Cryptocurrency | ||||||||
| APE | $ | |||||||
| ETH | ||||||||
| SOL | ||||||||
| USDC | ||||||||
| EFI | ||||||||
| DAO | ||||||||
| STG | ||||||||
| Cryptocurrency Total | $ | |||||||
| Liquidity Pool Tokens | ||||||||
| Uniswap V3 | $ | |||||||
| Liquidity Pool Tokens Total | $ | |||||||
| Non-Fungible Tokens | ||||||||
| Mutant Ape Yacht Club | $ | |||||||
| Dour Darcels | ||||||||
| Council of Kingz | ||||||||
| Board Ape Kennel Club | ||||||||
| Meebits | ||||||||
| Non-Fungible Tokens Total | $ | |||||||
| 11 |
NOTE 4 – NOTES PAYABLE – RELATED PARTIES
Roran Obligations
On
September 19, 2017, the Company entered into a Convertible Loan Agreement with Roran (the “Loan Agreement”).
During
the nine months ended March 31, 2022, Roran made non-interest bearing, unsecured, short-term cash advances to the Company totaling $
On
September 2, 2021, in conjunction with the SPA, Roran agreed to forgive all obligations due to Roran by the Company totaling $
SCHEDULE OF AMOUNTS OWNED TO RELATED PARTIES
| Debts forgiven by Roran on September 2, 2021 | ||||
| Convertible note payable – related party | $ | |||
| Interest on convertible note payable – related party | ||||
| Advance from related party | ||||
| Forgiveness of convertible note payable, accrued interest and advances – related party | $ | |||
As a result of Roran agreeing to forgive all obligations, as of March 31, 2022, no obligations are due to Roran.
Demand Promissory Note
On
October 18, 2021, the Company issued a Promissory Note in the principal amount of $
Convertible Promissory Notes
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 $
| 12 |
NOTE 5 - RELATED PARTY TRANSACTIONS
The following individuals and entities have been identified as related parties based on their family affiliation with our former CEO and former Chairman of the Board:
Yitzhak Zelmanovitch
Roran Capital LLC
The following amounts were owed to related parties affiliated with the former CEO and former Chairman of the Board, at the dates indicated:
SCHEDULE OF CONVERTIBLE DEBTS
| March 31, 2022 | June 30, 2021 | |||||||
| Convertible Note Payable | $ | $ | ||||||
| Interest on Convertible Note Payable | - | |||||||
| Total | $ | $ | ||||||
NOTE 6 – SHAREHOLDER DEFICIT
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 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 $
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 interim unaudited 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 100. (ii) each share will have a stated value of $
On
March 16, 2022, the Company entered into Stock Purchases Agreements whereby the Company issued shares to Series A Stock and various
Warrants for $
NOTE 7 – SUBSEQUENT EVENTS
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 $
On
May 10, 2022, the Company issued a Convertible Promissory Note in the principal amount of $
| 13 |
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 “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 nine months ended March 31, 2022 and 2021, 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 & Management Plans
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.
| 14 |
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.
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 (“PoS”) protocols on decentralized exchanges, as well as centralized exchanges, including Coinbase. The Company also invests in non-fungible token (“NFT”) projects and virtual land that it believes are promising, primarily on EVM protocols.
The Company has three areas on which it will 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. We expect that this revenue will fuel our other initiatives as we build the Company.
Staking - Like LPs, staking can provide potential passive 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 and Ethereum. Ethereum 2.0 is expected to be on PoS in the near future and our goal is to eventually become a validator on the network.
NFTs - The Company intends to build a world-class NFT project research team that will guide the strategic investments for the overall portfolio. We anticipate that our portfolio will contain digital assets known as NFTs, including digital real estate in multiple metaverse platforms such as The Sandbox and Otherside. These assets are expected to be used for licensing and royalty income. NFT assets have multiple use cases, in addition to the potential appreciation in the underlying digital asset. We believe that we can harness the power of acquired assets through the metaverse to grow our portfolio faster and stronger than traditional asset acquisitions typically allow.
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 unaudited 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:
| 15 |
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.
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.
Cryptocurrencies are subject to impairment losses if the fair value a cryptocurrency 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 cryptocurrency. The Company currently obtains the quoted price of cryptocurrency from www.coinmarketcap.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. Impairment for 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 tokens. The Company currently reviews quoted prices of its 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
There is currently no definitive guidance under GAAP or alternative accounting framework for the accounting for digital assets recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s financial position and results from operations.
Revenue is recognized 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 assets awards received using the quoted price
Airdrop
Airdrop is the distribution of tokens without compensation generally undertaken with a view of increasing awareness of a new token, to encourage adoption of new token and to increase liquidity in the early stages of a token project.
Liquidity Pools
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 the provide liquidity over a price range.
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).
| 16 |
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.
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 March 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 March 31, 2022 was derived from airdrops and liquidity pool fees of $17,439 and $22,772, respectively.
Our business plan includes earning income from liquidity fees and staking. Airdrop revenue represents APE coin awards received as a result of holding the Mutant Ape Yacht Club NFT. Airdrop revenue is generally a one-time award and the Company does not have expectations of further airdrop revenue. The Company seeks higher returns from liquidity pool fees by selecting pairs with higher risk and good volumes.
Administrative Expenses
Administrative expenses totaled $34,833 and $6,764 for the three months ended March 31, 2022 and 2021, respectively. These expenses are primarily costs related to keeping the Company current in its SEC filings and costs incurred for legal expenses related to the issuance of Series A Convertible Preferred Stock.
Interest Expense
Interest expense totaled $1,294 and $7,560 for the three months ended March 31, 2022 and 2021, respectively. The decrease in interest expense is due to the settlement of the convertible note payable.
| 17 |
Impairment of Digital Assets Held
Impairment of digital assets held totaled $51,983 and $0 for the three months ended March 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.
Realized Gain (Loss) on Sales/ Exchange 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 $15,380 and $14,324 during the three months ended March 31, 2022 and 2021, respectively. Any increase in revenue and gains on sales of digital assets was offset by an increase in administrative and impairment expenses.
Comparison of Nine Months Ended March 31, 2022 and 2021
Revenue
In March 2022, the Company commenced operations as a web3 enterprise and purchasing digital assets. Revenue for the nine months ended March 31, 2022 was derived from airdrops and liquidity pool fees of $17,439 and $22,772, respectively.
Our business plan includes earning income from liquidity fees and staking. Airdrop revenue represents APE coin awards received as a result of holding the Mutant Ape Yacht Club NFT. Airdrop revenue is generally a one-time award and the Company does not have expectations of airdrop further revenue. The Company seeks higher returns from liquidity pool fees by selecting pairs with higher risk and good volumes.
Administrative Expenses
Professional fees totaled $88,840 and $51,905 for the nine months ended March 31, 2022 and 2021, respectively. These expenses are primarily costs related to keeping the Company current in its SEC filings and costs incurred for legal expenses related to conversion from a Virginia corporation to a Nevada corporation, amendments to the amended and restated articles of incorporation and the issuance of Series A Convertible Preferred Stock.
Interest Expense
Interest expense totaled $1,294 and $36,353 for the nine months ended March 31, 2022 and 2021, respectively. The decrease in interest expense is due to the settlement of the convertible note payable.
Impairment of Digital Assets Held
Impairment of digital assets held totaled $51,983 and $0 for the nine months ended March 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.
Realized Gain (Loss) on Sales/ Exchange 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 $69,387 and $88,258 during the nine months ended March 31, 2022 and 2021, respectively. Any increase in revenue and gains on sales of digital assets was offset by an increase in administrative and impairment expenses.
Liquidity and Capital Resources
We have incurred recurring operating losses and negative operating cash flows through March 31, 2022, 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 on October 18, 2021, issued to Ryan Schadel, the Company’s Chief Executive Officer, sole director and majority stockholder, a demand promissory note for $100,000 in cash. On March 16, 2022, the Company entered into Stock Purchases Agreements whereby the Company issued 22 shares to Series A Convertible Preferred Stock and various Warrants for $1,100,000 in cash. At March 31, 2022, $95,854 of cash was in held at a financial institution and $400,673 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. 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.
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 March 31, 2022, do not contain any adjustments for this uncertainty. In response to our Company’s cash needs, we raised funding as described in Note 4 and Note 6 to our unaudited 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.
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.
| 18 |
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 March 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 March 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 March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
| 19 |
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, 2021 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. Except as set forth below, there have been no material changes 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, 2021 as filed with the SEC.
Risks Related to Our Business
Our holdings are controlled by one shareholder which owns approximately 70% of our issued and outstanding stock.
70% of our issued and outstanding common stock is controlled by Mr. Schadel, our sole officer and director. As a result, Mr. Schadel can direct the affairs of the Company as the majority shareholder and there is no assurance that any decisions made through a shareholder vote will be the same decisions that one or more minority shareholders would make.
The Company has a limited operating history.
The Company has a limited history of operations and is in the early stage of development. As such, the Company will be subject to many risks common to such enterprises, including undercapitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders’ investment and the likelihood of success must be considered in light of its early stage of operations. There can be no assurance that the Company will be able to develop any of its projects profitably or that any of its activities will generate positive cash flow.
| 20 |
The Company’s compliance and risk management programs may not be effective.
The Company’s ability to comply with applicable laws and rules will be largely dependent on the establishment and maintenance of compliance, review and reporting systems, as well as the ability to attract and retain qualified compliance and other risk management personnel. The Company cannot provide any assurance that its compliance policies and procedures will always be effective or that the Company will be successful in monitoring or evaluating its risks. In the case of alleged non-compliance with applicable laws or regulations, the Company could be subject to investigations and judicial or administrative proceedings that may result in substantial penalties or civil lawsuits, including by customers, for damages, restitution or other remedies, which could be significant. Any of these outcomes, individually or together, may among other things, materially and adversely affect the Company’s reputation, financial condition, investment and trading strategies, and asset value and the value of any investment in the Company’s common stock.
The Company may require additional funds to finance its operations.
Additional funds, raised through debt or equity offerings, may be needed to finance the Company’s future activities. There can be no assurance that the Company will be able to obtain adequate financing in the future or that the terms of such financing will be favorable. Failure to obtain such additional financing could cause the Company to reduce or terminate its operations.
If additional funds are raised through further issuances of equity or securities convertible into equity, existing shareholders could suffer significant dilution, and any new equity securities issued could have rights, preferences and privileges superior to those of holders of the Company’s common stock. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities.
Market adoption of digital assets has been limited to date and further adoption is uncertain.
Currently, there is relatively small use of digital assets in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect an investment in the Company’s common stock. Digital assets have only recently become accepted as a means of payment for goods and services by certain major retail and commercial outlets and use of digital assets by consumers to pay such retail and commercial outlets remains limited. Conversely, a significant portion of digital asset demand is generated by speculators and investors seeking to profit from the short- or long-term holding of tokens. A lack of expansion by digital assets into the retail and commercial markets, or a contraction of such use, may result in increased volatility or a reduction in the market price of these assets. Further, if fees increase for recording transactions on these blockchains, demand for digital assets may be reduced and prevent the expansion of the networks to retail merchants and commercial businesses, resulting in a reduction in the price of these assets.
The value of digital assets may be subject to momentum pricing risk.
Momentum pricing typically is associated with growth stocks and other assets whose valuation, as determined by the investing public, accounts for anticipated future appreciation in value. Market prices of digital assets are determined primarily using data from various exchanges, over-the-counter markets, and derivative platforms. Momentum pricing may have resulted, and may continue to result, in speculation regarding future appreciation in the value of digital assets, inflating and making their market prices more volatile. As a result, they may be more likely to fluctuate in value due to changing investor confidence in future appreciation (or depreciation) in their market prices, which could adversely affect the value of the Company’s digital asset holdings and the value of the Company’s common stock.
A decline in the adoption and use of digital assets could materially and adversely affect the performance of the Company.
Because digital assets are a relatively new asset class and a technological innovation, they are subject to a high degree of uncertainty. As a related but separate issue from that of the regulatory environment, the adoption, growth and longevity of any digital asset will require growth in its usage and in the blockchain for various applications. A lack of expansion in use of digital assets and blockchain technologies would adversely affect the financial performance of the Company. In addition, there is no assurance that any digital assets will maintain their value over the long term. Even if growth in the use of any digital assets occurs in the near or medium term, there is no assurance that such use will continue to grow over the long term. A lack of expansion of digital assets into the retail and commercial markets, may result in increased volatility or a reduction in the market price of these assets. Further, if fees increase for recording transactions on these blockchains, demand for digital assets may be reduced and prevent the expansion of the networks to retail merchants and commercial businesses, resulting in a reduction in the price of these assets. A contraction in use of any digital asset may result in increased volatility or a reduction in prices, which could materially and adversely affect the Company’s investment and trading strategies, the value of its assets and the value of any investment in the Company’s common stock.
We may invest or spend our cash in ways with which you may not agree or in ways which may not yield a significant return.
Mr. Schadel, our sole officer and director and a significant stockholder, has considerable discretion in the use of our cash. Our cash may be used for purposes that do not increase our operating results or market value. Until the cash is used, it may be placed in investments that do not produce significant income or that may lose value. The failure of our management to invest or spend our cash effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.
Our digital assets may be subject to concentration risk.
Concentration risk is the risk of amplified losses that may occur from having a large portion of our holdings in digital assets. Digital assets returns may be highly corelated and may also be Illiquid. Investments within the same industry, geographic region or security type tend to be highly correlated, meaning that what happens to one investment is likely to happen to the others. Digital assets may also be difficult to sell off quickly. Should we need quick access to cash and are heavily invested in illiquid securities, we may not be able to tap this money in a timely or cost-efficient manner.
| 21 |
Risks Related to our Operations
Cyber-attacks, data breaches or malware may disrupt our operations and trigger significant liability for us, which could harm our operating results and financial condition, and damage our reputation or otherwise materially harm our business.
As a publicly traded company, we may experience cyber-attacks and other attempts to gain unauthorized access to our systems on a regular basis. There is a risk that some or all of our cryptocurrencies could be lost or stolen as a result of one or more of these incursions. As we increase in size, we may become a more appealing target of hackers, malware, cyber-attacks or other security threats, and, despite our implementation of strict security measures and it is impossible to eliminate all such vulnerability. For instance, we may not be able to ensure the adequacy of the security measures employed by third parties, such as our service providers. Efforts to limit the ability of malicious actors to disrupt the operations of the internet or undermine our own security efforts may be costly to implement and may not be successful. Such breaches, whether attributable to a vulnerability in our systems or otherwise, could result in claims of liability against us, damage our reputation and materially harm our business.
We have not to date experienced a material cyber-event; however, the occurrence of any such event in the future could subject us to liability give rise to legal and/or regulatory action, which could damage our reputation or otherwise materially harm our business, operating results, and financial condition.
Incorrect or fraudulent digital assets transactions may be irreversible and we could lose access to our digital assets.
Digital asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the digital assets from the transaction. Because of the decentralized nature of the blockchain, once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer of a digital or a theft thereof generally will not be reversible, and we may not have sufficient recourse to recover our losses from any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, our rewards or fees could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. Though recent high profile enforcement actions against individuals laundering stolen digital assets have demonstrated some means of bringing malicious actors to justice for their theft, the stolen digital assets is likely to remain unrecoverable. Furthermore, we must possess both the unique public and private keys to our digital wallets to gain access to our digital assets and the loss of a private key required may be irreversible. Therefore, if we lose, or if a malicious actor successfully denies us access to our private keys, we may be permanently denied access to the digital assets held in the wallet corresponding to the lost, stolen or blocked keys. Though we have taken and continue to take reasonable steps to secure our private keys. if we were to lose access to our private keys or otherwise experience data loss relating to our digital wallets, we could effectively lose access to and the ability to use our digital assets. Moreover, we may be unable to secure insurance policies for our digital assets at rates or on terms acceptable to us, if at all. To the extent that we are unable to recover our losses from such action, error or theft, such events could have a material adverse effect on our business, results of operations and financial condition.
Our business could be harmed by prolonged power and internet outages, shortages, or capacity constraints.
Our operations require access to high-speed internet to be successful. If we lose internet access for a prolonged period, we may be required to reduce our operations or cease them altogether. If this occurs, our business and results of operations may be materially and adversely affected.
Risks Related to Governmental Regulation and Enforcement
Regulatory changes or actions may alter the nature of an investment in us or restrict the use of digital assets in a manner that adversely affects our business, prospects, or operations.
As digital assets have grown in both popularity and market size, governments around the world have reacted differently to digital assets; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as in the U.S., subject the mining, ownership and exchange of digital assets to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. Ongoing and future regulatory actions could have a material adverse effect on our business, prospects or operations.
Our interactions with a blockchain may expose us to SDN or blocked persons and new legislation or regulation could adversely impact our business or the market for cryptocurrencies.
The Office of Financial Assets Control (“OFAC”) of the U.S. Department of Treasury requires us to comply with its sanction program and not conduct business with persons named on its specially designated nationals (“SDN”) list. However, because of the pseudonymous nature of blockchain transactions we may inadvertently and without our knowledge engage in transactions with persons named on OFAC’s SDN list. Our Company’s policy prohibits any transactions with such SDN individuals, but we may not be adequately capable of determining the ultimate identity of the individual with whom we transact with respect to selling cryptocurrency assets. Moreover, the use of cryptocurrencies, including Bitcoin, as a potential means of avoiding federally-imposed sanctions, such as those imposed in connection with the Russian invasion of Ukraine. For example, on March 2, 2022, a group of United States Senators sent the Secretary of the United States Treasury Department a letter asking Secretary Yellen to investigate its ability to enforce such sanctions vis-à-vis Bitcoin, and on March 8, 2022, President Biden announced an executive order on cryptocurrencies which seeks to establish a unified federal regulatory regime for cryptocurrencies. We are unable to predict the nature or extent of new and proposed legislation and regulation affecting the cryptocurrency industry, or the potential impact of the use of cryptocurrencies by SDN or other blocked or sanctioned persons, which could have material adverse effects on our business and our industry more broadly. Further, we may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties as a result of any regulatory enforcement actions, all of which could harm our reputation and affect the value of our common stock.
Digital assets may be made illegal in certain jurisdictions which could adversely affect our business prospects and operations.
Although we do not anticipate any material adverse regulations on digital assets in our jurisdictions of operation, it is possible that state or federal regulators may seek to impose harsh restrictions or total bans on digital assets which may make it impossible for us to do business. Further, although digital assets in general are largely unregulated in most countries (including the United States), regulators in certain jurisdictions may undertake new or intensify existing regulatory actions in the future that could severely restrict the right to mine, acquire, own, hold, sell, or use digital assets or to exchange it for traditional fiat currency such as the United States Dollar. Such restrictions may adversely affect us as the large-scale use of digital assets as a means of exchange is presently confined to certain regions globally. Such circumstances could have a material adverse effect on us, which could have a material adverse effect on our business, prospects or operations and potentially the value of digital assets we acquire and thus harm investors.
| 22 |
The Company will have to adapt to respond to evolving security risks.
As technological change occurs, the security threats to the Company’s digital assets will likely adapt, and previously unknown threats may emerge. The ability of the Company and Coinbase to adopt technology in response to changing security needs or trends may pose a challenge to the safekeeping of their assets. To the extent that the Company or Coinbase is unable to identify and mitigate or stop new security threats, The Company’s assets may be subject to theft, loss, destruction or other attack.
The majority of the Company’s digital assets are held in Self Custody (Non-Custodial) wallets. The Company holds the majority of its digital assets in Self Custody (Non-Custodial) wallets. These wallets are used to interact with Decentralized Exchanges and other DeFi focused protocols. Mr. Schadel, our sole officer and director and our majority stockholder, is currently the holder of the private keys that provide access to these wallets.
Additionally, the Company from time to time holds assets at Coinbase, a SOC 1/ SOC 2 certified digital asset custodian. If Coinbase were to be subject to a malicious attack or otherwise cease its operations, the Company will be at risk of losing the majority of its digital assets. There is no assurance that Coinbase will not be subject to any such attack and there is no guarantee that Coinbase won’t cease its operations.
Banks may not provide banking services, or may cut off banking services, to businesses that provide digital asset-related services.
A number of companies that provide digital asset-related services have been unable to find banks that are willing to provide them with bank accounts and banking services. Similarly, a number of such companies have had their existing bank accounts closed by their banks. Banks may refuse to provide bank accounts and other banking services to digital asset-related companies, or companies that accept digital assets, for a number of reasons, such as perceived compliance risks or costs. The difficulty that many businesses that provide digital asset-related services have and may continue to have in finding banks willing to provide them with bank accounts and other banking services may decrease the usefulness of digital assets as a payment system and harm public perception of digital assets. Similarly, the usefulness of digital assets as a payment system and the public perception of digital assets could be damaged if banks were to close the accounts of many or of a few key businesses providing digital asset-related services. This could decrease the market prices of digital assets, and adversely affect the value of the Company’s digital asset holdings and the Company’s common stock.
The Company’s business is exposed to the potential misuse of digital assets and malicious actors.
Since the existence of digital assets, there have been attempts to use them for speculation or malicious purposes. Although lawmakers increasingly regulate the use and applications of digital assets, and software is being developed to curtail speculative and malicious activities, there can be no assurances that those measures will sufficiently deter those and other illicit activities in the future. Advances in technology, such as quantum computing, could lead to a malicious actor or botnet (a voluntary or hacked collection of computers controlled by networked software coordinating the actions of the computers) being able to alter the blockchain on which digital asset transactions rely. In such circumstances, the malicious actor or botnet could control, exclude or modify the ordering of transactions, or generate new digital assets or transactions using such control. The malicious actor or botnet could double spend its own digital assets and prevent the confirmation of other users’ transactions for so long as it maintains control. Such changes could adversely affect an investment in the Company’s common stock.
The security procedures and operational infrastructure of the Company and Coinbase may be breached due to the actions of outside parties, error or malfeasance of an employee of the Company or Coinbase, or otherwise, and, as a result, an unauthorized party may obtain access to the Company’s digital asset accounts, private keys, data or tokens. Additionally, outside parties may attempt to fraudulently induce employees of the Company or Coinbase to disclose sensitive information in order to gain access to the infrastructure of the Company or Coinbase. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event, and often are not recognized until launched against a target, The Company may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of the Company’s digital assets account occurs, the market perception of the effectiveness of its security protocols could be harmed and the value of the Company’s common stock could be materially adversely affected.
The Company’s use of proprietary and non-proprietary software, data and intellectual property may be subject to substantial risk.
The Company’s token selection strategy may rely heavily on the use of proprietary and non-proprietary software, data and intellectual property of third parties in the digital asset sector. The reliance on this technology and data is subject to a number of important risks. For example, the operation of any element of the digital assets network, or any other electronic platform, may be severely and adversely affected by the malfunction of technology. For example, an unforeseen software or hardware malfunction could occur as a result of a virus or other outside force, or as result of a design flaw in the design and operation of the network or platform. In addition, the underlying technology of the tokens themselves, may be inactive for periods of time, known as “downtime” and could have serious adverse effects on our business.
Risks Related to Ownership of Our Common Stock
Nevada law contains provisions that could discourage, delay or prevent a change in control of our company, prevent attempts to replace or remove current management and reduce the market price of our stock.
Certain provisions of Nevada law described below may make us a less attractive candidate for acquisition, which may adversely impact the value of the shares of our capital stock held by our stockholders. We have not opted out of these provisions in our Bylaws, as permitted under the Nevada Revised Statutes.
Nevada Revised Statutes Sections 78.411 through 78.444 (the “Nevada Combinations Statute”) generally prohibit “combinations” including mergers, consolidations, sales and leases of assets, issuances of securities and similar transactions by a Nevada corporation having a requisite number of stockholders of record (of which we are one) with any person who beneficially owns (or any affiliate or associate of the corporation who within the previous two years owned), directly or indirectly, 10% or more of the voting power of the outstanding voting shares of the corporation (an “interested stockholder”), within two years after such person first became an interested stockholder unless (i) the board of directors of the corporation approved the combination or transaction by which the person first became an interested stockholder before the person first became an interested stockholder or (ii) the board of directors of the corporation has approved the combination in question and, at or after that time, such combination is approved at an annual or special meeting of the stockholders of the target corporation, and not by written consent, by the affirmative vote of holders of stock representing at least 60% of the outstanding voting power of the target corporation not beneficially owned by the interested stockholder or the affiliates or associates of the interested stockholder.
| 23 |
Two years after the date the person first became an interested stockholder, the Nevada Combinations Statute prohibits any combination with that interested stockholder unless (i) the board of directors of the corporation approved the combination or transaction by which the person first became an interested stockholder before the person first became an interested stockholder or (ii) such combination is approved by a majority of the outstanding voting power of the corporation not beneficially owned by the interested stockholder or any affiliate or associate of the interested stockholder. The Nevada Combinations Statute does not apply to combinations with an interested stockholder after the expiration of four years from when the person first became an interested stockholder.
Because there has been limited precedent set for financial accounting of digital assets, the determination that we have made for how to account for digital assets transactions may be subject to change.
Because there has been limited precedent set for the financial accounting of cryptocurrencies and related revenue recognition and no official guidance has yet been provided by the FASB or the SEC, it is unclear how companies may in the future be required to account for cryptocurrency transactions and assets and related revenue recognition. A change in regulatory or financial accounting standards could result in the necessity to change our accounting methods and restate our financial statements. Such a restatement could adversely affect the accounting for our newly mined cryptocurrency rewards and more generally negatively impact our business, prospects, financial condition and results of operations. Such circumstances would have a material adverse effect on our ability to continue as a going concern or to pursue our new strategy at all, which would have a material adverse effect on our business, prospects or operations as well as and potentially the value of any cryptocurrencies we hold or expects to acquire for our own account and harm investors.
We have identified material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our financial statements or cause us to fail to meet our periodic reporting obligations.
We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”). Section 404 requires that we document and test our internal control over financial reporting and issue management’s assessment of our internal control over financial reporting. Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2021. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Based on our assessment, as of June 30, 2021, we concluded that our internal control over financial reporting contained material weaknesses. To remediate these material weaknesses, our management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively.
We believe that these actions will remediate the material weakness. However, the remediation cannot be deemed successful until the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively. If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, the accuracy and timeliness of the filing of our annual and quarterly reports may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. In addition, a material weakness in the effectiveness of our internal control over financial reporting could result in an increased chance of fraud and the loss of customers, reduce our ability to obtain financing and require additional expenditures to comply with these requirements, each of which could have a material adverse effect on our business, results of operations and financial condition.
Substantial sales of our common stock may impact the market price of our common stock.
Future sales of substantial amounts of our common stock, including shares that we may issue upon exercise of options and warrants could adversely affect the market price of our common stock. Furthermore, if we raise additional funds through the issuance of common stock or securities convertible into our common stock, the percentage ownership of our shareholders will be reduced, and the price of our common stock may fall.
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.
| 24 |
ITEM 6. EXHIBITS
| 25 |
| 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. |
| 26 |
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: May 16, 2022 | WATERSIDE CAPITAL CORPORATION | |
| By: | /s/ Ryan Schadel | |
| Name: | RYAN SCHADEL | |
| Chief Executive Officer, Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
| 27 |
EXHIBIT 31.1
CERTIFICATIONS
I, RYAN SCHADEL, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Waterside Capital Corporation for the period ended March 31, 2022; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
Date: May 16, 2022
| By: | /s/ Ryan Schadel | |
| Name: | RYAN SCHADEL | |
| Title: | Chief Executive Officer, Chief Financial Officer (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATIONS
I, RYAN SCHADEL, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Waterside Capital Corporation for the period ended March 31, 2022; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
Date: May 16, 2022
| By: | /s/ Ryan Schadel | |
| Name: | RYAN SCHADEL | |
| Title: | Chief Executive Officer, Chief Financial Officer (Principal Financial Officer) |
EXHIBIT 32.1
Certification
Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Waterside Capital Corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Quarterly Report on Form 10-Q for the period ended March 31, 2022 (the “Form 10-Q”) of our Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of our Company.
Date: May 16, 2022
| By: | /s/ Ryan Schadel | |
| Name: | RYAN SCHADEL | |
| Title: | Chief Executive Officer, Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
A signed original of this written statement required by Section 906 has been provided to our Company and will be retained by our Company and furnished to the Securities and Exchange Commission or its staff upon request.