This Management's Discussion and Analysis of Financial Condition and Results of
Operations is intended to provide a reader of our financial statements with a
narrative from the perspective of our management on our financial condition,
results of operations, liquidity, and certain other factors that may affect our
future results. The following discussion and analysis should be read in
conjunction with our audited consolidated financial statements and the
accompanying notes thereto included in "Item 8. Financial Statements and
Supplementary Data." In addition to historical financial information, the
following discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. See "Forward-Looking
Statements." Our results and the timing of selected events may differ
materially from those anticipated in these forward-looking statements as a
result of many factors.
9
Results of Operations
General
We have recognized net losses of $(2,124,279) and $(1,130,947) for the years
ended December 31, 2021 and 2020. As of December 31, 2021 and 2020, the Company
had an accumulated deficit of $7,274,955 and $5,150,676.
The following table provides selected balance sheet data as of December 31, 2021
and 2020.
Consolidated Balance Sheet Data: 12/31/2021 12/31/2020
Cash $ 588 $ 11,624
Loans Receivable - related parties, net of discounts and
allowances
$ - $ 737,389
Loans Receivable, net of discounts and allowances $ - $ 486,924
Total assets $ 904 $ 1,353,312
Current liabilities $ 1,156,223 $ 691,467
Total liabilities $ 1,156,223 $ 712,394
Temporary equity $ 410,410 $ 386,722
Stockholders' equity $ (1,565,729) $ 254,196
Year ended December 31, 2021 as compared to year ended December 31, 2020
For the year ended December 31, 2021, we generated $33,830 in net investment
income, compared to net investment income of $16,688 in 2020. Net investment
income in 2021 resulted from interest income of $68,278, reclassification of
related party interest of $13,552 the amortization of loan origination fees of
$36,000, offset by the amortization of loan costs of $84,000.. Net investment
income in 2020 resulted from interest income of $45,306, the amortization of
loan origination fees of $74,523, offset by the amortization of loan costs of
$103,141, We incurred $2,092,705 in operating expenses during the 2021 period,
compared to $1,072,921 in 2020, reflecting our decreased level of operations and
the creation of an allowance account of $1,383,380 to reflect revaluation of our
loans receivables. In 2021, the Company recognized $20,927 in debt forgiveness,
and $26,775 in net interest. In 2020, the Company recognized approximately
$44,000 of interest, primarily from the Partners South note payable. Interest
expense for year ended December 31, 2020 was $12,983, approximately $9,000
resulting from the redemption of common stock presented in temporary equity and
the release of escrow, and $3,000 related to the related party note issued in
October 2000.
2021 2020
Interest Income $ 68,278 $ 45,306
Accretion of Loan Origination Fees 36,000 74,523
Reclassification of related party interest total 13,552
Amortization of Loan Issuance Costs
(84,000 ) (103,141 )
Net Investment Income $ 33,830 $ 16,688
On December 31, 2021, the Company re-evaluated the Loans Receivable and Lines of
Credit Receivable. Considering the lack of activity in projects associated with
the loans and the economic stagnation of the construction markets in 2021,
partially due to the pandemic, the Company added $1,383,380 to an allowance
account to write down the values to $0. Going forward, loans will be evaluated
under contemporary economic circumstances and recorded accordingly.
Liquidity and Capital Resources
During the year ended December 31, 2020, Omega, the principal stockholder of the
Company, made additional capital contributions to the Company of approximately
$437,000 and the Company received a Payroll Protection loan in the amount of
$20,927.
During the year ended December 31, 2021, Omega, the principal stockholder of the
Company, made additional capital contributions to the Company of $388,486
including $185,075 in expenses paid on behalf of the Company. The Company's PPP
Loan of $20,927 was forgiven, and the balance expensed.
Related Party Transactions
Loans receivable
The Company has extended lines of credit and loans to related parties. See Note
4 to consolidated financial statements.
10
Management fee and other expenses
During the year ended December 31, 2021, Omega Commercial Finance Corp was
accrued $150,000 in management fees pursuant to a corporate governance
management agreement executed on June 1, 2017. Omega is to provide services
related to facilitating the introduction of potential investors for compensation
of no less than $150,000 per year, not to exceed $300,000 per year. The
agreement remains in effect until cancelled by Omega. During the year ended
December 31, 2020, Omega Capital Street, a wholly owned subsidiary of Omega
Commercial Finance Corp,. and 33 Capital, an unaffiliated entity, were paid a
combined $295,750 in consulting fees for services that were rendered throughout
2020.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and 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 presented. The Company is required to make
judgments and estimates about the effect of matters that are inherently
uncertain. The Company regularly evaluates estimates and assumptions related to
the valuation of the allowance for loan losses, loss contingencies, useful life
and recoverability of long-lived assets, deferred income tax asset valuations
and loss contingencies. The Company bases its estimates and assumptions on
current facts, historical experience and various other factors that it believes
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources.
Although, we believe our judgments and estimates are appropriate, actual future
results may be different; if different assumptions or conditions were to
prevail, the results could be materially different from our reported results.
Loans Receivable, net and Allowance for Losses
The Company records its investments in loans receivable at cost less unamortized
costs of issuance and deferred origination fees. Origination fees collected at
the time of investment are recorded against the loans receivable and amortized
into net interest income over the lives of the related loans. Issuance costs
incurred are capitalized along with the initial investment and amortized against
net interest income over the lives of the related loans.
When a loan receivable is placed on non-accrual status, the related interest
receivable is reversed against interest income of the current period. If a
non-accrual loan is returned to accrual status, the accrued interest existing at
the date the residential loan is placed on non-accrual status and interest
during the non-accrual period are recorded as interest income as of the date the
loan no longer meets the non-accrual criteria.
The Company maintains an allowance for loan losses on its investments in real
estate loans receivable for estimated credit impairment. Management's estimate
of losses is based on a number of factors including the types and dollar amounts
of loans in the portfolio, adverse situations that may affect the borrower's
ability to repay, prevailing economic conditions and the underlying collateral
securing the loan. Additions to the allowance are provided through a charge to
earnings and are based on an assessment of certain factors, which may indicate
estimated losses on the loans. Actual losses on loans are recorded first as a
reduction to the allowance for loan losses. Generally, subsequent recoveries of
amounts previously charged off are recognized as income.
Estimating allowances for loan losses requires significant judgment about the
underlying collateral, including liquidation value, condition of the collateral,
competency and cooperation of the related borrower and specific legal issues
that affect loan collections or taking possession of the property on an
individual loan receivable basis. As of December 31, 2021, given the shifting
economic conditions, the Company determined the likelihood of collecting these
loans was significantly diminished and established an allowance account to write
down the value of all receivables to $0.
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 is material to investors.
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