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OCFN > SEC Filings for OCFN > Form 10-K on 15-Apr-2014All Recent SEC Filings

Show all filings for OMEGA COMMERCIAL FINANCE CORP

Form 10-K for OMEGA COMMERCIAL FINANCE CORP


15-Apr-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following management's discussion and analysis should be read in conjunction with our historical combined financial statements and the related notes. The management's discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words "believe," "plan," "intend," "anticipate," "target," "estimate," "project," "expect" and the like, and/or future tense or conditional constructions ("will," "may," "could," "should," etc)., or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Current Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We disclaim any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Current Report. Please see "Forward-Looking Statements" and "Risk Factors" for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.

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We qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

submit certain executive compensation matters to shareholder advisory votes, such as "say-on-pay" and "say-on-frequency;" and

disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO's compensation to median employee compensation.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Overview

We were incorporated in the state of Wyoming on November 6, 1973 under the name DOL Resources, Inc. From inception until October 2002, our primary business activity was the acquisition, disposition, commercialization and/or exploration of interests in oil, gas and/or coal properties. In October 2002, we sold all of our oil and gas properties to Glauber Management Company whereupon we ceased any business operations and became a development stage company, whose activities were limited to that of a shell company seeking to merge with or acquire an operating business.

On September 14, 2007, we entered into a Stock Purchase Agreement and Share Exchange with Omega Capital Funding LLC, a Florida limited liability company ("Omega Capital") pursuant to which we acquired 100% ownership of Omega Capital (the "Reorganization"). After the Reorganization, our business operations consisted of those of Omega Capital. Prior thereto since 2002, we were a non-operating shell company with no revenue and minimal assets. As a result of the Reorganization, we were no longer considered a shell company.

Since the Reorganization in September 2007, our business operations, through various subsidiaries, have been directed primarily on offering financing to the real estate markets in the United States. We provide short and medium term loans to borrowers primarily consisting of commercial real estate developers and speculators, business owners, landlords, and owners of core and non-core assets.
We focus on various alternative commercial real estate financings with an emphasis on loans secured by commercial real estate and also on financing non-core assets, including ground up developments, as well as core assets, including office buildings, multi-family residences, shopping centers, and luxury residential estates. The loans consist of senior debt loans, mezzanine or subordinated loans, preferred equity, and other equity participation financing structures. Our operations are based primarily in Miami Beach, Florida.

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Going Concern

As of December 31, 2013, we have not yet achieved profitable operations. We have accumulated losses since inception, a working capital deficiency and we expect to incur further losses in the development of our business, all of which, according to our accountants, casts substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. We intend to seek additional funds by equity financing through an offering of our securities and/or related party advances, however there is no assurance of additional funding being available.

Results of Operations

Twelve months ended December 31, 2013 compared to twelve months ended December 31, 2012

Revenues

For the twelve months ended December 31, 2013, we generated $405,265 in revenues compared to $258,803 in revenues for the twelve months ended December 31, 2012 for an increase of $156,462. The increase in revenue is a result of the competitive commercial real estate financing sector and our limited working capital and sales force to market our lending programs.

Cost of Sales

Cost of sales for the twelve months ended December 31, 2013 was $168,692 compared to $1,053,528 for the twelve months ended December 31, 2012. Although revenue increased by approximately 61%, costs of sales decreased as a result of more efficient closings and less involvement from consultants. Cost of sales for the twelve months ended December 31, 2013 was 41% compared to407% for the twelve months ended December 31, 2012, which included $715,000 payment in stock issuances for services.

Operating Expenses

Total expenses increased to $2,306,631 for the twelve months ended December 31, 2012 from $ 820,320 for the twelve months ended December 31, 2012, an increase of $1,486,311. The increase was primarily due to $500,000 commissions paid in preferred stock on preferred stock issuance financing, $1,396,400 of common stock shares issued for services provided by PR/IR firms, an increase of $22,913 in other selling, general and administrative expenses related to our stepped up business efforts and $24,503 increase in professional fees associated with our SEC registrations and filings, and partially offset by a $4,103 reduction in dues and rent, $510,000 reduction in stock compensation to an officer and a slight increase of $24,006 in compensation to an officer .

Loss From Operations

We generated a net loss of $2.454.933 for the twelve months ended December 31, 2013 compared to a net loss of $1,656,911 for the same period in 2012 due to the circumstances set forth above.

Capital Resources and Liquidity

Liquidity is a measure of a company's ability to meet potential cash requirements. On December 31, 2013 we had total assets of $138,823 compared to $253,031on December 31, 2012, a decrease of $114,.208. We had a deficit in total stockholders' equity of $2,729,614 on December 31, 2013 compared to the deficit of stockholders' equity of $2,244,663 on December 31, 2012, an increase in the deficit of $473,951.

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All assets are booked at historical cost. Management reviews on an annual basis the book value, along with the prospective dismantlement, restoration, and abandonment costs and estimate residual value for the assets, in comparison to the carrying values on the financial statements.

Twelve months ended December 31, 2012 compared to twelve months ended December 31, 2011

Revenues

For the twelve months ended December 31, 2012, we generated $258,803 in revenues compared to $347,150 in revenues for the twelve months ended December 31, 2011 for a decrease of $88,347. The decrease in revenue is a result of the competitive commercial real estate financing sector and our limited working capital and sales force to market our lending programs.

Cost of Sales

Cost of sales for the twelve months ended December 31, 2012 was $1,053,528 compared to $234,704 for the twelve months ended December 31, 2011. Although revenue decreased by approximately 25.4%, costs of sales increased as a result of business development and consulting services related to ongoing projects for which we have not yet received revenues Cost of sales for the twelve months ended December 31, 2012 was 407% compared to 68% for the twelve months ended December 31, 2011.

Operating Expenses

Total expenses decreased to $820,320 for the twelve months ended December 31, 2012 from $ 897,756 for the twelve months ended December 31, 2011, a decrease of $77,436. The decrease was primarily due to the reduction in share based compensation to an officer, partially offset by a $574,414 increase in other selling, general and administrative expenses related to our stepped up business efforts and a $96,932 increase in professional fees associated with our SEC registration.

Loss From Operations

We generated a net loss of $1,656,911 for the twelve months ended December 31, 2012 compared to a net loss of $785,310 for the same period in 2011 due to the circumstances set forth above.

Capital Resources and Liquidity

Liquidity is a measure of a company's ability to meet potential cash requirements. On December 31, 2012 we had total assets of $253,031 compared to $2,663 on December 31, 2011, an increase of $250,368. We had a deficit in total stockholders' equity of $2,255,663 on December 31, 2012 compared to the deficit of stockholders' equity of $2,305,782 on December 31, 2011, an increase in the deficit of $50,119.

All assets are booked at historical cost. Management reviews on an annual basis the book value, along with the prospective dismantlement, restoration, and abandonment costs and estimate residual value for the assets, in comparison to the carrying values on the financial statements.

Financing - The Equity Line of Credit. As a means for financing operations, we had entered into an Investment Agreement/Equity Line of Credit with Dutchess Opportunity Fund, II, LP pursuant to which we had the right to "put" to Dutchess up to $25 million in shares of our common stock (i.e., we can compel Dutchess to purchase our common stock at a pre-determined formula). We terminated this agreement on February 7, 2013 and no sales of our common stock were made under this agreement.

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As discussed elsewhere in this report, on February 8, 2013 we entered into a Standby Equity Purchase Agreement (the "Agreement") with Lambert Private Equity LLC ("Lambert"). The Agreement provides us with an equity line whereby we can sell to Lambert, from time-to-time, our shares of common stock up to an aggregate value of $100 million over a thirty-six month period. Under the terms of the Agreement, once a registration statement becomes effective we will have the right to deliver to Lambert from time-to-time a "Draw Down Notice" stating the dollar amount of common shares we intend to sell to Lambert, up to a maximum of $100 million. Our board of directors will also have the discretion to use the funds for purposes it deems to be in our best interest. There can be no assurance that once we file a registration statement, it will become effective or that we will realize any proceeds from the Agreement. The Agreement will not be effective until the date a registration statement is declared effective by the SEC.

As discussed elsewhere in this report, n October 4, 2012, Omega Commercial Finance Corporation (Company) consummated a corporate action that entailed the closing of the Unit Subscription Agreement Titled USA 68207V208 OCFN, (the "USA") and has been formally closed by Elco Securities. In a Cash Account in the name of Omega Commercial Finance Corporation and is fully funded.

ITEM 3.02 UNREGISTERED SALE OF EQUITY SECURITES

The Unit Subscription Agreement (the "USA") contains 900 units priced at $45,156.85 totaling the $40,642,069. Pursuant to which the Company issued nine
(9) certificates each for 30,222 shares of newly designated Series A Preferred Stock (the "Series A Shares") and 101,258,100 Warrants (the "Common Stock Warrants") to purchase additional Company Stock with an average price of $1.42 per share.

The Investment amount of $40,642,069 is available to Omega Commercial Finance Corporation subject to the Account Management Agreement AMA 68207V208 OCFN dated September 30, 2013 (The "AMA") and Memorandum of Terms MOT 68207V208 OCFN dated September 30, 2013 (The "MOT") pursuant to the terms and conditions outlined in the full agreements (the "Agreements") listed in Item 9.01 (b) Exhibits incorporated herein.

Also included is the Investment amount of $3,000,000 which is available to Omega Commercial Finance Corporation subject to the Account Management Agreement AMA dated September 30, 2013 (The "MOT") pursuant to the terms and conditions outlined in the full agreements (the "Agreements") in exchange for the issuance of 30,000,000 shares of common stock, also held in trust by Elco Securities.

Net cash used in operating activities during the twelve months ended December 31, 2013 was $426,890 as compared to net cash used in operating activities of $99,377 for the twelve months ended December 31, 2012. The increase of $64,067 in cash used by operations was primarily due to an increase in our net loss partially offset by non-cash expenses in connection with the issuance of common stock for services rendered and a beneficial conversion feature of our Convertible Debentures issued during the year and a reduction of $175,460 in customer deposits.

Net cash used in investing activities during the twelve months ended December 31, 2013 was $140,435 as compared to net cash used in investing activities of $140,452 for the twelve months ended December 31, 2012. The increase was primarily a result of securities purchased on margin.

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Cash Requirements

We have not yet achieved profitable operations and expect to incur further losses in the development of our business, cash needs to complete various transactions we have entered into and repay certain indebtedness, the result of which casts substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from business operations when they come due. We intend to meet our financial needs for operations by equity and/or debt financing and/or related party advances. In the event we are unable to borrow or raise funds needed for our business, or we are unable to repay our current obligations when due, we will have to seek additional financing, and no assurances can be given that such financing would be available on a timely basis, on terms that are acceptable or at all. Failure to obtain such additional financing could result in delay or indefinite postponement of our planned operations which would materially adversely affect our business, results of operations and financial condition and threaten our financial viability.

Any additional funds raised through the issuance of equity or convertible debt securities will reduce the percentage ownership of our stockholders who may experience additional dilution and such securities may have rights, preferences or privileges senior to those of our common stock.

In the next twelve months, the company's goal is to achieve profitable operations through implementation of our proposed financing products and services.

We do not currently have any contractual restrictions on our ability to incur debt and, accordingly we could incur significant amounts of indebtedness to finance operations. Any such indebtedness could contain covenants which would restrict our operations.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Emerging Growth Company

We are an "emerging growth company" under the federal securities laws and will be subject to reduced public company reporting requirements. In addition,
Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards.

Critical Accounting Policies

Our financial statements are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

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Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause an effect on our results of operations, financial position or liquidity for the periods presented in this report.

Revenue Recognition

We will be primarily engaged in the sourcing of and providing advice in connection with second- and third-tier financing for commercial development and construction. Revenues are generated from fixed non-refundable processing fees associated with the contractual agreement. Revenues are recorded at the time each contract is signed and fees remitted.

The fees are non-refundable and fixed, which is unconditionally earned and is not contingent on success factors. We recognize revenues as amounts become billable in accordance with contract terms. These revenues based on contractual agreement with us are recognized as the contracts are signed and the fees are received, and amounts are earned in accordance with the Securities and Exchange Commission (the "SEC") Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"), as amended by SAB No. 104, "Revenue Recognition" ("SAB 104"). We consider amounts to be earned once evidence of an arrangement has been obtained, the contract signed, and the processing fees remitted.

In the past our fees have not been refundable, which resulted in unclear contracts and several lawsuits. Our contracts have been rewritten to clearly state the processing fees as non-refundable, and customers are clearly informed of the fees and policies. If the Company elects to refund any processing fees, determined on a case by case basis, a loss provision will be recorded in the period in which the loss first becomes probable and reasonably estimable. Contract losses are determined by the contractual agreement and the amount of processing fees associated with the customer. There were refunds of $9540 and $35,000 anticipated contract refunds as of December 31, 2013 and 2012.

Fair Value of Financial Instruments

The carrying amounts of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value because of their short maturities.

Investments in and Advances to Unconsolidated Entities

The trends, uncertainties or other factors that may negatively affected the Company's business and the finance, construction and new development industries in general may also affect the unconsolidated entities in which the Company may have investments. The Company will review each of its investments in unconsolidated entities on a quarterly basis to determine the recoverability of its investment. The Company evaluates the recoverability of its investment in unconsolidated entities, which entails a detailed cash flow analysis using many estimates including but not limited to expected sales pace, expected sales prices, expected incentives, costs incurred and anticipated, sufficiency of financing and capital, competition, and market conditions. When markets deteriorate and it is no longer probable that the Company can recover its investment in a joint venture, the Company impairs its investment. If a joint venture has its own loans or is principally a joint venture to hold an option, such impairment may result in the majority or all of our investment being impaired.

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Income Taxes - Valuation Allowance

Significant judgment is required in estimating valuation allowances for deferred tax assets. In accordance with ASC 740, a valuation allowance is established against a deferred tax asset if, based on the available evidence, it is more likely than not that such asset will not be realized. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carry forward periods under tax law. We periodically assesses the need for valuation allowances for deferred tax assets based on ASC 740's "more-likely-than-not" realization threshold criterion. In our assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative income and losses, forecasts of future profitability, the duration of statutory carryback or carry forward periods, its experience with operating loss and tax credit carry forwards being used before expiration, and tax planning alternatives.

In accordance with ASC 740, we assesses whether a valuation allowance should be established based on its determination of whether it is more likely than not that some or all of the deferred tax assets will not be realized. Our assessment of the need for a valuation allowance on its deferred tax assets includes assessing the likely future tax consequences of events that have been recognized in its consolidated financial statements or tax returns. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, on business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect actual tax results and future business results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our accounting for deferred tax assets represents its best estimate of future events using the guidance provided by ASC 740.

Due to uncertainties in the estimation process, particularly with respect to changes in facts and circumstances in future reporting periods (carry forward period assumptions), it is reasonably possible that actual results could differ from the estimates used in our historical analyses. Our assumptions require significant judgment because the residential homebuilding industry is cyclical and is highly sensitive to changes in economic conditions. If our results of operations are less than projected and there is insufficient objectively verifiable evidence to support the likely realization of its deferred tax assets, a valuation allowance would be required to reduce or eliminate its deferred tax assets.

Stock Based Compensation

From time to time, we have compensated our officers and vendors with the issuance of stock. The value of the transaction is determined by the trading price on the day of the transactions. We anticipate that we will continue to compensate our officers with stock and traditional payments in the future.
Since the stock price is variable and there is no assurance the stock price will remain at any level, the amount of stock issued for services in kind or bonus awards will vary, and dilution may occur.

COMMON STOCK

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