10-Q 1 tenq309.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended: March 31, 2009 -------------- Commission File Number: 0-17264 ------- Omagine, Inc. ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 20-2876380 --------------------------------- --------------------- State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 350 Fifth Avenue, Suite 1103, New York, N.Y. 10118 -------------------------------------------------- (Address of principal executive offices) (212) 563-4141 ---------------------------------------------------- (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. [X] Yes [ ] No (1) Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] Indicate by a check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No As of May 8, 2009, the Registrant had outstanding 46,750,135 shares of Common Stock, par value $.001 per share. (2) OMAGINE, INC. INDEX Forward-Looking Statements PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS: MARCH 31, 2009 AND DECEMBER 31, 2008 CONSOLIDATED STATEMENTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2009 AND MARCH 31, 2008 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY: THREE MONTHS ENDED MARCH 31, 2009 CONSOLIDATED STATEMENTS OF CASH FLOWS: THREE MONTHS ENDED MARCH 31, 2009 AND MARCH 31, 2008 NOTES TO FINANCIAL STATEMENTS ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 4: CONTROLS AND PROCEDURES PART II - OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K SIGNATURES (3) Forward-Looking Statements Some of the information contained in this Report may constitute forward-looking statements or statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations and projections about future events. The words "estimate", "plan", "intend", "expect", "anticipate" and similar expressions are intended to identify forward-looking statements which involve, and are subject to, known and unknown risks, uncertainties and other factors which could cause the Company's actual results, financial or operating performance or achievements to differ from future results, financial or operating performance or achievements expressed or implied by such forward-looking statements. Projections and assumptions contained and expressed herein were reasonably based on information available to the Company at the time so furnished and as of the date of this filing. All such projections and assumptions are subject to significant uncertainties and contingencies, many of which are beyond the Company's control, and no assurance can be given that the projections will be realized. Potential investors are cautioned not to place undue reliance on any such forward- looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. (4) PART I - FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS OMAGINE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 2009 2008 ASSETS --------- ----------- (Unaudited) CURRENT ASSETS: Cash $ 24,686 $ 49,511 Prepaid expenses and other current assets 38,376 40,774 -------- -------- Total Current Assets 63,062 90,285 -------- -------- PROPERTY AND EQUIPMENT: Office and computer equipment 129,941 129,941 General plant 17,800 17,800 Furniture and fixtures 15,951 15,951 Leasehold improvements 866 866 -------- -------- 164,558 164,558 Less: Accumulated depreciation and amortization (152,208) (150,719) -------- -------- 12,350 13,839 -------- -------- Other assets 13,606 13,749 -------- -------- TOTAL ASSETS: $ 89,018 $ 117,873 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Convertible notes payable and accrued interest $ 293,828 $ 238,728 Accounts payable 452,001 356,368 Accrued officer's payroll 145,000 72,500 Due officers and directors 34,275 26,335 Accrued expenses and other current liabilities 11,093 6,345 -------- -------- Total Current Liabilities 936,197 700,276 -------- -------- TOTAL LIABILITIES: 936,197 700,276 COMMITMENTS STOCKHOLDERS' EQUITY: Preferred stock: $0.001 par value Authorized: 850,000 shares Issued and outstanding: - none - - Common stock: $0.001 par value Authorized: 75,000,000 shares Issued and outstanding: 46,750,135 shares in 2009 46,387,635 shares in 2008 46,750 46,388 Capital in excess of par value 17,353,440 17,253,221 Retained earnings (deficit) (18,247,369) (17,882,012) ----------- ---------- Total Stockholders' Equity (Deficit) (847,179) (582,403) ----------- ---------- Total Liabilities And Stockholders' Equity $ 89,018 $ 117,873 =========== ========== See accompanying notes to consolidated financial statements.
(5) OMAGINE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED March 31, ---------------------- 2009 2008 ---- ---- (Unaudited) (Unaudited) REVENUE: Net sales $ - $ - ---------- ----------- Total revenue - - ---------- ----------- COSTS AND EXPENSES: Cost of sales - - Selling, general and administrative 358,668 252,478 ---------- ---------- Total Costs and Expenses 358,668 252,478 ---------- ---------- OPERATING LOSS (358,668) (252,478) Interest income 32 61 Interest expense (6,721) - ---------- ---------- NET LOSS (365,357) (252,417) ============ =========== LOSS PER SHARE $ (.01) $ (.01) ============ =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 46,496,385 45,523,159 ========== ========== See accompanying notes to consolidated financial statements.
(6) OMAGINE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Common Stock Capital in Retained Par Excess of Earnings Shares Value Par Value Deficit) --------------------------------------------- Balances At December 31, 2008 46,387,635 $46,388 $17,253,221 (17,882,012) ========== ====== =========== ============ Contribution of Common Stock to 401K Plan 362,500 362 72,137 Stock option expense - - 28,082 - Net loss - - - (365,357) ---------- ------ ---------- ----------- Balances At March 31, 2009 46,750,135 $46,750 $17,353,440 (18,247,369) ---------- ------ ---------- ----------- See accompanying notes to consolidated financial statements.
(7) OMAGINE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, ---------------------------- 2009 2008 ---- ---- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $( 365,357) $ (252,417) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 1,489 2,729 Stock based compensation related to stock options 28,082 9,210 Issuance of Common Stock for 401K contribution 72,500 - Changes in operating assets and liabilities: Prepaid expenses, other current assets and other assets 2,540 ( 4,827) Accounts payable 95,633 (118,804) Accrued expenses and other current liabilities 4,748 (26,667) Accrued officers payroll 72,500 - Accrued Interest on convertible notes payable 5,100 - ---------- ---------- Net cash flows used by operating activities ( 82,765) (390,776) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Loans from officers and directors 7,940 (1) Issuance of convertible notes payable 50,000 - ----------- ---------- Net cash flows from financing activities 57,940 (1) ----------- ---------- NET CHANGE IN CASH ( 24,825) (390,777) CASH BEGINNING OF PERIOD 49,511 713,145 ----------- ---------- CASH END OF PERIOD $ 24,686 $ 322,368 =========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Income taxes paid $ - $ - =========== ========== Interest paid $ 1,621 $ - =========== ========== See accompanying notes to consolidated financial statements.
(8) OMAGINE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED (UNAUDITED) INTERIM FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The consolidated balance sheet for Omagine, Inc. ("Omagine" or the "Company") at the end of the preceding fiscal year has been derived from the audited balance sheet and notes thereto contained in the Company's annual report on Form 10-K for the Company's fiscal year ended December 31, 2008 and is presented herein for comparative purposes. All other financial statements are unaudited. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for all periods presented, have been made. The results of operations for the interim periods presented herein are not necessarily indicative of operating results for the respective full years. As of the date of this report the Company has one wholly-owned subsidiary through which it conducts all operations. All inter-company transactions have been eliminated in the consolidated financial statements. Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted in accordance with the published rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2008. Net Loss Per Share - Loss per share is based upon the weighted- average number of common shares outstanding during the period and does not assume the conversion, exercise or contingent issuance of securities that would have a dilutive effect on loss per share. (9) Principles of Consolidation - The consolidated financial statements include the accounts of Omagine and its wholly-owned subsidiaries, Contact Sports, Inc. ("Contact Sports"), Ty- Breakers Corp. ("Ty-Breakers") and Journey of Light, Inc. ("JOL"), collectively referred to as the "Company". On March 26, 2008, Contact Sports and Ty-Breakers were merged with and into Omagine, and the remaining companies "Omagine" and "JOL" are now collectively referred to as the "Company". All intercompany transactions have been eliminated in consolidation. NOTE 2 - GOING CONCERN AND LIQUIDITY The Company has incurred significant operating losses raising substantial doubt about its ability to continue as a going concern. The continued existence of the Company is dependent upon its ability to attain profitable operations or obtain additional financing. NOTE 3 - CONVERTIBLE NOTES PAYABLE On August 22, 2008, the Company issued a total of $232,015 of convertible notes payable (the "Convertible Notes") to the Company's president and secretary in satisfaction of $182,015 accrued payroll due them and a $50,000 loan payable due to the Company's president for a cash loan to the Company made on August 14, 2008. The Convertible Notes bear interest at a rate of 8% per annum, were due February 28, 2009, and both principal and interest are convertible at the option of the holders into shares of the Company's common stock at a conversion price of $0.40 per share. The Convertible Notes are now due upon demand and continue to accrue interest. On March 1, 2009 and March 17, 2009, the Company issued a total of $50,000 of convertible promissory notes ("Promissory Notes") to two investors in exchange for cash loans to the Company in the amount of $50,000. The Promissory Notes bear interest at a rate of 15% per annum, are due February 28, 2010 and March 16, 2010, respectively, and both principal and interest are convertible at the option of the holders into shares of the Company's common stock at a conversion price of $0.50 per share. (10) NOTE 4 - COMMON STOCK In March 2009 the Company issued and contributed 362,500 shares of Common Stock to all eligible employees of the Omagine, Inc. 401(k) Plan. NOTE 5 - STOCK OPTIONS The following is a summary of stock option activity for the three months ended March 31, 2009: Outstanding at January 1, 2009 2,650,000 Granted and Issued - Exercised - Forfeited/expired/cancelled - --------- Outstanding at March 31, 2009 2,650,000 --------- Exercisable at March 31, 2009 1,380,000 --------- (11) Stock options outstanding at March 31, 2009 (all non-qualified) consist of:
Year Number Number Exercise Expiration Granted Outstanding Exercisable Price Date ------- ----------- ----------- -------- ---------- 2001 750,000 750,000 $ .25 August 31, 2011 2005 30,000 30,000 $1.00 June 30, 2010 2005 200,000 200,000 $ .82 December 31, 2011 2007(A) 800,000 320,000 $ .25 March 31, 2017 2007 60,000 60,000 $ .90 October 29, 2012 2008(B) 30,000 20,000 $ .80 December 31, 2012 2008(C) 750,000 - $ .52 September 23, 2018 2008(D) 30,000 - $ .52 September 23, 2013 --------- ---------- Totals 2,650,000 1,380,000 ========= ========== (A) Of the 480,000 unvested options relating to the 2007 grant, 160,000 vested on April 1, 2009 and 160,000 are scheduled to vest on each of April 1, 2010 and April 1, 2011. (B) The 10,000 unvested options relating to the 2008 grant are scheduled to vest on January 1, 2010. (C) The 750,000 unvested options related to the 2008 grant are scheduled to vest 150,000 on September 24, 2009 and then 150,000 on each September 24 in 2010, 2011, 2012 and 2013. (D) The 30,000 unvested options relating to the 2008 grant are scheduled to vest 10,000 on September 24, 2009 and then 10,000 on each September 24 in 2010 and 2011. As of March 31, 2009 there was $415,297 of total unrecognized compensation cost relating to unexpired stock options. That cost is expected to be recognized $84,246 in 2009, $110,040 in 2010, $92,498 in 2011, $75,447 in 2012 and $53,066 in 2013.
(12) NOTE 6 - COMMITMENTS Leases The Company leases its executive office in New York, N.Y. under a ten-year lease entered into in February 2003. The Company also rents warehouse space in Jersey City, New Jersey under a month- to-month lease. The Company also leases office space in Muscat, Oman under a one year lease expiring December 31, 2009. Rent expense for the three months ended March 31, 2009 and 2008 was $28,135 and $26,619, respectively. At March 31, 2009, the minimum future lease payments are as follows: 2009 $ 42,600 2010 56,800 2011 56,800 2012 56,800 2013 9,466 ---------- Total $ 222,466 ========== Employment Agreements Omagine is obligated to pay its President and Chief Executive Officer an annual base salary of $125,000 through December 31, 2010 plus an additional amount based on a combination of net sales and earnings before taxes. Omagine had been obligated to employ its Vice-President and Secretary under an employment agreement which was cancelled. Provided the Company is successful in signing the Development Agreement with the Government of Oman for the Omagine Project, the Company intends to enter into a new employment agreement with this individual. Equity Financing Agreement On December 22, 2008, Omagine entered into a Standby Equity Distribution Agreement (the "SEDA") with YA Global Investments, (13) L.P. ("YA"). The SEDA expires on December 21, 2010 and pursuant to its terms Omagine may, at its sole option and upon giving written notice to YA (a "Purchase Notice"), sell shares of its Common Stock to YA (the "Shares") at a "Purchase Price" equal to 95% of the lowest daily volume weighted average price for a share of Omagine's Common Stock as quoted by Bloomberg, L.P. during the five (5) consecutive trading days following such Purchase Notice (the "Pricing Period"). During the term of the SEDA, the Company is not obligated to sell any Shares to YA but may, in its sole discretion, sell that number of Shares valued at the Purchase Price from time to time in effect that equals five million dollars ($5,000,000). YA is obligated to purchase such Shares from the Company subject to certain conditions including (i) Omagine filing a registration statement with the Securities and Exchange Commission (the "SEC") to register the Shares ("Registration Statement"), (ii) the SEC declaring such Registration Statement effective, (iii) periodic sales of Shares to YA must be separated by a time period equal to the Pricing Period, and (iv) the amount of any such individual periodic sale of Shares may not exceed two hundred thousand dollars ($200,000). The Company has filed the Registration Statement with the SEC and the SEC has declared such Registration Statement to be effective as of May 1, 2009. All sales of Shares pursuant to the SEDA shall be made at the sole discretion of the Company. Omagine Project The Company's proposed Omagine Project is planned to be developed on one million square meters (equal to approximately 245 acres) of beachfront land facing the Gulf of Oman (the "Omagine Site") just west of the capital city of Muscat and nearby Muscat International Airport. JOL has concluded negotiations with respect to the Omagine Project and is awaiting the signing of a Development Agreement with the Government of Oman. The Omagine Project contemplates the integration of cultural, heritage, educational, entertainment and residential components, including a theme park and associated exhibition buildings, shopping and retail establishments, restaurants and several million square feet of residential development. (14) ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations As of the date of this report all of the Company's operations are conducted through its wholly-owned subsidiary, Journey of Light, Inc. ("JOL"). Critical Accounting Policies: ----------------------------- Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management 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 period. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Revenue Recognition. Revenue was recognized at Contact and Ty- Breakers when goods were shipped to customers from the Company's outside warehouse. In the event that JOL signs a Development Agreement with the Government of Oman, JOL will recognize revenue ratably over the development period, measured by methods appropriate to the services and products provided. General Statement: Factors that may affect future results --------------------------------------------------------- With the exception of historical information, the matters discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements within the meaning of the 1995 Private Securities Litigation Reform Act and they involve (15) various risks and uncertainties. Typically, these statements are indicated by words such as "anticipates", "expects", "believes", "plans", "could", and similar words and phrases. Factors that could cause the Company's actual results to differ materially from management's projections, forecasts, estimates and expectations include, but are not limited to, the following: * Failure of Omagine SAOC (the "Project Company") to sign the Development Agreement with the Government of Oman; * Failure of the Project Company to obtain the necessary financing required to design, build and operate the Omagine Project; * Inability of the Company to secure additional financing; * Unexpected economic or political changes in the United States or abroad; and * The imposition of new restrictions or regulations by government agencies in the U.S or abroad that affect the Company's business activities. The present nature of JOL's business is such that it is not expected to generate revenue until after the occurrence of an event - the development of the Omagine Project - which, as of the date hereof, is not certain to occur. Management is presently examining other possible sources of revenue which, subject to the Development Agreement being executed, may be added to the Company's operations. JOURNEY OF LIGHT, INC. ---------------------- The Omagine Project ------------------- JOL is engaged primarily in the business of real estate development in the country of the Sultanate of Oman ("Oman"). (16) JOL has proposed to the Government of Oman (the "Government") the development of a real-estate and tourism project (the "Omagine Project") to be developed in Oman by Omagine S.A.O.C. (the "Project Company"), an Omani corporation presently under formation. The Omani investors in the Project Company (the "Omani Shareholders"), Consolidated Contractors International Company S.A. ("CCIC") and JOL are the founder shareholders of Omagine SAOC (the "Founder Shareholders"). The Project Company will design, develop, own and operate the entire Omagine Project. The Omagine Project is planned to be developed on one million square meters (equal to approximately 245 acres) of beachfront land facing the Gulf of Oman (the "Omagine Site") just west of the capital city of Muscat and nearby Muscat International Airport. It is planned to be an integration of cultural, heritage, educational, entertainment and residential components, including: a "high culture" theme park containing seven pearl shaped buildings, each approximately 60 feet in diameter, associated exhibition buildings, a boardwalk; an open air amphitheater and stage; open space green areas; a canal and enclosed harbor and marina area; associated retail shops and restaurants, entertainment venues, boat slips, and docking facilities (collectively, the "Landmark"); two five-star resort hotels and a three or four star hotel; commercial office buildings; shopping and retail establishments integrated with the hotels, and several million square feet of residences to be developed for sale. The Government will issue a license to the Project Company designating the Omagine Project as an Integrated Tourism Complex ("ITC") and as such, the Project Company will be allowed to sell the freehold title to residential properties developed on the Omagine Site to any person, including any non-Omani person. Non-Omani persons (such as expatriates living and working in Oman) are forbidden by Omani law to purchase any land outside of an ITC. Significant commercial, retail, entertainment and hospitality elements are also included in the Omagine Project which is expected to take about 4 to 5 years to complete. The Company plans over time to also be in the property management, hospitality and entertainment businesses. The agreement between the Government and the Project Company governing the design, development, construction, management and (17) ownership of the Omagine Project is the "Development Agreement" (or the "DA"). The Government's intent is to employ one standardized DA ("Standard DA" or "SDA") for all ITC development projects in Oman, and integrate the specific terms, conditions and characteristics of each specific project into that Standard DA, a task while possible, is a complex undertaking given the complexities and considerable differences among the variety of proposed projects. In May 2008 the Government of Oman formally approved the terms by which the Omagine Project will be developed and the Company subsequently formally accepted the approved terms, a required step before the Government and the Project Company sign the Development Agreement. The Company and its attorneys have been negotiating the DA with the Government since 2006. Recently the Founder Shareholders and the Project Company's attorneys have been engaged with the Government, and more specifically with the three relevant Government Ministries - Ministry of Tourism ("MOT"), Ministry of Finance and Ministry of Legal Affairs - since a draft DA based on the proposed Standard DA was delivered to MOT in July 2008 (the "July 2008 Draft Agreement"). The July 2008 Draft Agreement incorporated the specific commercial and other terms for the Omagine Project that were agreed to and approved by the Government and accepted by the Company in formal written communications. The review process of the July 2008 Draft Agreement included each such Ministry and its respective legal staff and culminated in a November 2008 meeting among the representatives of Omagine and the three Government Ministries where the Company's "comment list" of required changes to the Standard DA necessary to make it suitable for the Omagine Project was reviewed. The parties agreed and accepted the majority of the Company's suggested changes (the "Agreed Changes") and, as requested by the Government, the Company subsequently delivered a "marked draft" of its proposed DA showing the additions and deletions necessary to incorporate such Agreed Changes (the "November 2008 Draft Agreement"). During December 2008 and throughout the first quarter of 2009, the Company and its attorneys remained engaged with the Ministry of Tourism in an attempt to conclude the Development Agreement. (18) These interactions and the official Government review and comment process for the November 2008 Draft Agreement resulted in a request from MOT to prepare yet another schedule detailing the Company's proposed changes to the Standard DA (the "Schedule of Changes"). The Company's attorneys prepared the Schedule of Changes and submitted it to the Government on February 17, 2009 together with an updated draft Development Agreement (the "February 2009 Draft Agreement"). The Government subsequently confirmed in writing to the Company that March 16, 2009 was the date that they would meet with the Company to discuss and conclude the Development Agreement (the "Final Meeting"), which the Government described as the "wrap-up" meeting for the Omagine Development Agreement. The Government also informed the Company's attorneys that it planned to conduct internal meetings (the "Government Internal Meetings") among the relevant Ministries (Tourism, Legal Affairs and Finance) in preparation for the Final Meeting and to review the Schedule of Changes with a view toward expediting the review process required at the Final Meeting. As of the date hereof, the Government has postponed the Final Meeting and the Government Internal Meetings have not yet been finalized or concluded. On March 30, 2009 the Company received a letter from MOT stating in relevant part that "... The inclusion of your comments and additions directly into the SDA very much impedes the sorting out of the points ..." Although such inclusion was done in a "redline document" at the specific request of the MOT, the letter went on to request: (i) "including the commercial terms with respect to the Landmark as a separate Annexure to the SDA", and (ii) including a separate document with "... any comments or additions on the SDA". Complying with this request did not change anything in our proposed February 2009 Draft DA but required (i) moving large amounts of the document into an annex which is then incorporated into the DA, and (ii) performing a clause-by-clause analysis of the DA showing those clauses where the SDA language and our proposed language differ and the reason for such difference. This was an enormous task which was completed and delivered to the MOT on April 30, 2009. While management believed this new annex ("Annex A") and the clause- by-clause analysis (the "Omagine Comments") were redundant and unnecessary, they are in fact startlingly clear and make all our proposed changes to the SDA simple to review and easy to understand. Moreover they positively illuminate how our proposed (19) changes to the SDA will work to the Government's and our mutual benefit. Notwithstanding the foregoing described delays and postponements, management believes that the Government's bureaucratic process has now run its course, and management is unwavering in its belief that the Company's persistent insistence upon the clarity of the language of the development agreement will be of enormous financial value to all parties once the actual development of the Omagine Project is underway. As of the date hereof the Government has re-started the Government Internal Meetings regarding Omagine and we expect very few, if any, controversial items to emerge. In view of the previously encountered delays, management is reluctant to make predictions, but we are of the opinion that the Company's patient approach to this process will yield positive results and that a development agreement will be signed by the Project Company and the Government within the next 60 days. Although the Company expects some inconsequential re-drafting of the February 2009 Draft Agreement to be required, management is highly confident that the Government Internal Meetings will result in a draft development agreement acceptable to all parties. The Company presently anticipates that, either the conclusion of the Government's review process in the Government Internal Meetings, or the Final Meeting, if required, will result in a fully settled and agreed document ready for printing and signature soon thereafter. Subsequent to execution of the Development Agreement, the Government, since it will not be a shareholder of the Project Company, will have significantly less input into the development of the Omagine Project and will have no control over the Project Company's day-to-day operations and execution of the project. It was previously agreed that Omagine SAOC (the Project Company) would be formed in Oman immediately after the Development Agreement had been signed. All parties had previously agreed that the Company and CCIC would sign the Development Agreement on behalf of Omagine SAOC (under formation) but the Government has now requested that we and CCIC and the Omani Shareholders form the Project Company prior to the signing of the Development Agreement so that the Project Company will be the legal Omani entity signing the DA with the Government. This is perfectly (20) reasonable and the Company has no objection. We are presently in the process of forming the Project Company so that it is legally in existence in Oman and ready to sign the Development Agreement when required. The Company believes that no outstanding issues exist in the February 2009 Draft Agreement and all parties, including the Government and the Omani Shareholders, are desirous of signing the Development Agreement expeditiously. The date of signing the Development Agreement is entirely in the hands of the Government. Based on recent letters received from the Government and on conversations with the Omani Shareholders, Government officials and the Company's attorneys, the Company understands that the Government is anxious to conclude this matter. No signing date for the Omagine Development Agreement has yet been determined, however the Company anticipates that following the completion of the Government Internal Meetings or the Final Meeting, if required, that a date will be indicated. Consolidated Contractors Group S.A.L. (www.ccc.gr) is a Lebanese multi-national corporation ("CCG") whose main activities involve general building contracting services in the Middle East. CCG employs approximately 125,000 people and has annual revenue of approximately $5 billion. Consolidated Contractors International Company, S.A., a Panamanian corporation ("CCIC") is the investment arm of CCG. Consolidated Contractors Company Oman, LLC, an Omani limited liability corporation ("CCC") is a construction company employing approximately 6,000 people in Oman and is CCG's operating subsidiary in Oman. Neither CCG, CCIC nor CCC is an affiliate of the Company. The three Omani Shareholders are (i) The Omani Union Real Estate Development Company LLC, an Omani limited liability company ("ORDC"), (ii) Mohammed Nasser Al-Khasibi, an Omani citizen ("MNK") and (iii) the Office of Royal Court Affairs, an Omani organization which represents the personal interests of His Majesty Sultan Qaboos bin Said, the ruler of the Sultanate of Oman ("RCA"). None of the Omani Shareholders are affiliates of the Company. The date the legally binding documents providing the construction and project financing for the Omagine Project are executed by the Project Company and the banks is the "Financial (21) Closing Date" and such date is expected to occur approximately six months after the development agreement is signed with the Government. As of the date hereof, the Company has arranged approximately USD $110 million of equity capital for the Project Company via written agreements for (i) the sale of minority equity interests totaling 49.5% of the Project Company to CCIC (12%); ORDC (20%); RCA (12.5%); and MNK (5%) for a total of $109.3 million and, (ii) the sale to JOL of a 50.5% majority stake in the Project Company for $656,500. The Company's attorneys are currently preparing the shareholders' agreement among the Founder Shareholders memorializing the foregoing. The legal requirement in Oman for the initial capitalization of Omagine S.A.O.C. is 500,000 Omani Rials or approximately one million three hundred thousand U.S. dollars ($1,300,000). Upon formation, each Founder Shareholder, including the Company, will be required to contribute its portion of such initial capital in proportion to its ownership percentage in order to organize the Project Company. The Company's required contribution will therefore be 50.5% of the $1,300,000 or approximately $656,500 (the "Company Capital Contribution"). Seventy-five percent (75%) of the remaining balance of the agreed capital coming from the Omani Shareholders (approximately $45 million) will be paid into the Project Company over the six month period immediately subsequent to the signing of the Development Agreement and twenty-five percent (25%) of such remaining balance of agreed capital (approximately $15 million) will be paid into the Project Company on the Financial Closing Date. One hundred percent (100%) of the remaining balance of the agreed capital coming from CCIC (approximately $49.4 million) will be paid into the Project Company on the Financial Closing Date. Other than the Company Capital Contribution which it will contribute upon formation of the Project Company, the Company is not required to contribute anything further to the Project Company. The Company has signed a contract with CCIC regarding (i) its approximately $49.4 million investment in the Project Company, and (ii) the appointment of CCC's Omani based subsidiary company as the general contractor for the construction of the Omagine Project. (22) The memoranda of understanding with the Omani Shareholders which memorialize the Company's agreements with them as indicated above (the "MOUs") and the contract with CCIC (collectively, the "Investor Agreements") have in the past been renewed from time to time as the signing of the Development Agreement was delayed. As of the date hereof each of the Investor Agreements have expired but both the Omani Shareholders and CCIC have verbally agreed to continue them in effect and to comply fully with their respective terms and conditions. The terms and conditions of the Investor Agreements are being incorporated into a written shareholders' agreement among the Founder Shareholders ("Shareholders' Agreement") presently being prepared. The Shareholders' Agreement will, among other things, memorialize the approximately USD $109.3 million combined investment into the Project Company by CCIC, ORDC, MNK and RCA. As previously disclosed, it has been management's experience that there is no shortage of willing investors or contractors for the Omagine Project and that continues to be the case. The date the Development Agreement is ratified by the Government of Oman is the "Effective Date". Pursuant to the Investor Agreements, the Shareholders' Agreement will provide that the investments by the Omani Shareholders into the Project Company will be paid to the Project Company in monthly installments during the period beginning on the Effective Date and ending on the Financial Closing Date. The Investor Agreement with CCIC provides that its investment into the Project Company will be paid to the Project Company on the Financial Closing Date. As presently contemplated by the terms of the Investor Agreements with the Omani Shareholders, the Project Company will have the financial capacity to begin development of the Omagine Project almost immediately after the Effective Date. In order to move into the actual development stage of the Omagine Project, the Project Company and the Government must first sign the Development Agreement. The Company and the Founder Shareholders are closely following the review process by the Government of the recently delivered Annex A and Omagine Comments. As of the date hereof the Government is continuing to conduct the Government Internal Meetings and the Company is awaiting news regarding any possible drafting changes to the February 2009 Draft Agreement that may be required. The Company (23) believes that neither Annex A, nor the Omagine Comments nor the February 2009 Draft Agreement contains any outstanding issues and expects to finalize and sign the Development Agreement after the conclusion of the Government Internal Meetings. As previously stated, the only new requirement imposed by the Government was that the Company form the Project Company with CCIC and the Omani Shareholders prior to the signing of the Development Agreement and the performance of that task is underway. As presently contemplated, after corporate formation of Omagine SAOC the Company will own 50.5% of the Project Company, CCIC will own 12% and the remaining 37.5% of the Project Company will be owned by the Omani Shareholders. The Government will not own any part of the Project Company. In accordance with accounting principles generally accepted in the United States of America, the financial results of Omagine SAOC will be consolidated with the financial results of the Company in such manner as to reflect the Company's percentage ownership of Omagine SAOC. Based upon the anticipated 50.5% majority ownership of Omagine SAOC by the Company, it is presently expected therefore that beginning on the Effective Date the Company will - on a consolidated basis - experience a monthly increase in net worth culminating in an aggregate increase in net worth of approximately USD $55 million on the Financial Closing Date as a result of the approximately USD $110 million capitalization of the Project Company. The Project Company's capital as well as its proceeds from the sales of residential units and bank borrowings will be utilized by it to develop the Omagine Project. The Project Company's ongoing financial results will continue to be consolidated with the Company's results as appropriate. As presently contemplated, BankMuscat, Oman's largest financial institution, will be hired by the Project Company to arrange all of the necessary construction and other financing for the Omagine Project ("Construction Financing"). The Company has an MOU with Bank Muscat regarding project financing and financial advisory services (the "Bank Muscat Agreement"). The Bank Muscat Agreement expired in November 2008 but BankMuscat has verbally agreed that it will be the Company's financial advisor if the Company so desires. (24) While the project financing environment is challenging at the present moment given the worldwide bank liquidity issues, management has been in touch with BankMuscat regarding the financing of the Omagine Project and BankMuscat has indicated that it expects the project finance market to be substantially more stable when the Project Company will be seeking such financing on the Financial Closing Date. Based upon local newspaper reports and conversations with Bank Muscat officials, management believes that the Omani banks have very little exposure to the sub-prime market problems afflicting other financial institutions outside Oman. The Project Company's prospective Omani bankers and partners are of the opinion that the present financial market turmoil is expected to increase the Project Company's cost of borrowing but otherwise have no material effect or impact on the Omagine Project. The Company expects, based on present assumptions which are subject to modification, that the development costs (including the costs for design, construction management, program management and construction) for the entire Omagine Project will be less than the approximately $1.6 billion dollars that it had heretofore budgeted for such work. Although the Government of Oman has approved the commercial terms for the Omagine Project, until the Development Agreement is signed, no assurance whatsoever can be given that it actually will be signed. Management therefore cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Prior estimates by the Company of when the Development Agreement would be signed have had to be frequently amended, as required, to reflect management's then current best estimate of the Government's bureaucratic process. As of the date hereof management estimates that the Development Agreement will be signed within the next sixty (60) days. The present nature of JOL's business is such that it is not expected to generate revenue until after the occurrence of an event - the beginning of the development of the Omagine Project - which, as of the date hereof, is not certain to occur. Notwithstanding the positive nature of the foregoing "forward looking statements", no assurances can be given at this time that the Development Agreement will actually be signed or that the Financial Closing Date will actually occur. (25) All "forward looking statements" contained herein are subject to, known and unknown risks, uncertainties and other factors which could cause Omagine SAOC's and the Company's actual results, financial or operating performance or achievements to differ from management's projections for them as expressed or implied by such forward-looking statements. Projections and assumptions contained and expressed herein are based on information available to the Company at the time so furnished and as of the date of this report and are, in the opinion of management, reasonable. All such projections and assumptions are subject to significant uncertainties and contingencies, many of which are beyond the Company's control, and no assurances can be given that the projections will be realized. Potential investors are cautioned not to place undue reliance on any such forward- looking statements, which speak only as of the date hereof. Omagine's website is www.omagine.com and a dedicated investor relations hub for Omagine and the Omagine Project may be found at www.agoracom.com/IR/Omagine. RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2009 vs. THREE MONTHS ENDED MARCH 31, 2008 The Company had no revenue in the first quarter of 2009 and 2008. Selling, general and administrative expenses were $358,668 in the first quarter of 2009, compared to $252,478 in the first quarter of 2008. This increase of $106,190 (42%) was attributable to increased stock option expense of $18,872, increased pension expense of $72,500, increased accounting fees of $10,000, increased legal fees of $35,367, increased consulting fees of $17,615, increased stockholder relations expense of $8,946 and various increases of $1,986 offset by decreased expenses for fringe benefits of $14,795 and travel of $44,301. The Company experienced an operating loss of $358,668 during the first quarter of 2009 as compared to an operating loss of $252,478 during the same period in the previous fiscal year. This $106,190 (42%) increase in the Company's operating loss is attributable to increases in general and administrative costs. (26) The Company will need to generate revenue in order to attain profitability. The present nature of the Company's business is such that it is not expected to generate revenue until after the development of the Omagine Project is significantly underway, an event which, as of the date hereof, is not certain to occur. The Company will need to raise additional capital and/or secure additional financing in order to execute its presently conceived business plan with respect to JOL and the Omagine Project. No capital expenditures were incurred during the quarterly period ended March 31, 2009. Depending upon the outcome of current negotiations and the availability of resources, the Company may incur significant expenses related to capital expenditures in the future. LIQUIDITY AND CAPITAL RESOURCES: Although the Company experienced net positive cash flow during its 2007 fiscal year, it has experienced negative cash flows from operating activities during the past several years. The Company incurred net losses of $1,307,630, $1,043,190 and $767,951 in its fiscal years 2008, 2007 and 2006, respectively. The Company's net loss for the three months ended March 31, 2009 was $365,357. During the three months ended March 31, 2009, the Company experienced a decrease in cash of $24,825. At March 31, 2009, the Company had a working capital deficit of $873,135, compared to working capital deficit of $609,991 at December 31, 2008. The $263,144 increased deficit in working capital is attributable primarily to the $24,825 decrease in cash partially offset by a $95,633 increase in accounts payable, a $72,500 increase in Pension Expense and a $72,500 increase in Accrued Payroll. Of the $936,197 of current liabilities at March 31, 2009, $422,579 (56%) represent amounts due to officers and directors. The failure of the Company to secure additional funding to implement its business plan, or the failure to sign the Development Agreement for the Omagine Project will significantly affect the Company's ability to continue operations. On December 22, 2008, the Company signed a two year Standby Equity Distribution Agreement (the "SEDA") with YA Global Investments, L.P. ("YA"). Omagine may, at its sole option and (27) upon giving a Purchase Notice, sell Shares to YA at the Purchase Price (as determined by the SEDA). The Company is not obligated to sell any Shares to YA but may, in its sole discretion, sell that number of Shares valued at the Purchase Price from time to time in effect that equals five million dollars ($5,000,000). YA is obligated to purchase such Shares from the Company subject to certain conditions including (i) Omagine filing the Registration Statement with the SEC to register the Shares, (ii) the SEC declaring such Registration Statement effective, (iii) periodic sales of Shares to YA must be separated by a time period equal to five trading days, and (iv) the amount of any such individual periodic sale of Shares may not exceed two hundred thousand dollars ($200,000). The Company has filed the Registration Statement with the SEC and the SEC has declared such Registration Statement to be effective as of May 1, 2009. As of the date hereof, the Company may make sales of Shares to YA pursuant to the SEDA. ITEM 4: DISCLOSURE CONTROLS AND PROCEDURES The Company carried out an evaluation under the supervision and participation of management, including the Company's chief executive and financial officer, of the effectiveness as of the end of the period covered by this report of the design and operation of the Company's disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in this report is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms (an "Evaluation"). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in this report is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon that Evaluation, the Company's chief executive and financial officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2009. The Evaluation did not identify the occurrence of any change in the Company's internal control over financial reporting during (28) the first quarter of fiscal 2009 that materially affected or is reasonably likely to materially affect, the Company's internal control over financial reporting. The Company is a non-accelerated filer and is required to comply with the internal control reporting and disclosure requirements of Sections 404 and 302 of the Sarbanes-Oxley Act for fiscal years ending on or after December 15, 2007. The Company adopted and is presently utilizing a web-based software solution provided by an unaffiliated third party to automate and streamline its Sarbanes-Oxley compliance program. The product enables the Company to document and assess the design of controls, track the testing of their effectiveness and easily locate and remedy any deficiencies. The Company pays an annual fee for unlimited access to the web-based Platform (the "Agreement"). The Agreement automatically renews each February for subsequent one year periods, unless the Company notifies the software supplier of its intention not to renew such Agreement. There have been no significant changes in the Company's internal controls or other factors which could significantly affect internal controls subsequent to the date of the Evaluation. PART II - OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits numbered in accordance with Item 601(a) of Regulation S-K Exhibit Numbers Description ------- ----------- 31.1 Sarbannes-Oxley 302 certification * 32.2 Sarbannes-Oxley 1350 certification * * Filed herewith. (29) (b) Reports on Form 8-K On January 7, 2009 the Company filed a report on Form 8-K disclosing that it had issued a press release announcing the signing of a $5 million Standby Equity Distribution Agreement ("SEDA") with YA Global Investments L.P. ("YA"). On March 25, 2009 the Company filed a report on Form 8-K which provided an update to its shareholders regarding the status of the proposed Omagine Project in Oman. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED: May 11, 2009 OMAGINE, INC. (Registrant) By: /s/ Frank J. Drohan ------------------------- Frank J. Drohan Chief Executive Officer and Chief Financial Officer By: /s/ William Hanley ------------------------- William Hanley Controller and Principal Accounting Officer (30)