S-1/A 1 fs12014a1_omagine.htm AMENDMENT 1 TO REGISTRATION STATEMENT

As filed with the Securities and Exchange Commission on September 23, 2014

Registration No. 333-198008

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 


 

Amendment No. 1 To

FORM S-1

 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 


 

OMAGINE, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware   9995   20-2876380

(State or other Jurisdiction

of Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

 

350 Fifth Avenue, Suite 4815-17

New York, New York 10118

(212) 563-4141

 

(Address, including zip code, and telephone number including area code, of Registrant’s principal executive offices)

 


 

Frank J. Drohan, Chief Executive Officer and Chief Financial Officer

Omagine, Inc.

350 Fifth Avenue, Suite 4815-17

New York, New York 10118

(212) 563-4141

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 


 

with copies to:

Michael Ference, Esq.

David Manno, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Floor

New York, New York 10006

(212) 930-9700

(212) 930-9725 (fax)

 

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

From time to time after this Registration Statement becomes effective.

 

 
 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”) check the following box: ☐

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”):

 

 Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☒
(Do not check if a smaller reporting company)  

  

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered  Amount to be registered   Proposed Maximum Offering Price per Share    Proposed Maximum Aggregate Offering Price       Amount of Registration Fee 
Common Stock, $.001 par value   3,085,822(1)  $2.04(2)  $6,295,077   $811 *

  

(1) Represents Common Shares offered by the Selling Stockholder. Includes an indeterminable number of additional Common Shares, pursuant to Rule 416 under the Securities Act, that may be issued to prevent dilution from stock splits, stock dividends or similar transaction that could affect the Common Shares to be offered by Selling Stockholder.

 

(2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended, using the average of the high and low prices as reported on the OTCQB  marketplace on August 7, 2014.

* Previously paid.  

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until this Registration Statement shall become effective on such date as the Securities & Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

ii
 

 

The information in this prospectus (“Prospectus”) is not complete and may be changed. The Selling Stockholder may not sell these securities until the Registration Statement filed with the United States Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 2014

 

OMAGINE, INC.

 

3,085,822 Shares of Common Stock

 

This Prospectus relates to the public offering of up to 3,085,822 shares of Omagine, Inc.’s $0.001 par value per share common stock (the "Common Stock" or “Common Shares”) by YA Global Master SPV Ltd (“YA”) or any of YA’s pledgees, assignees or successors-in-interest (each a “Selling Stockholder”). The Securities and Exchange Commission (“SEC”) may take the view that, under certain circumstances, any broker-dealers or agents that participate with the Selling Stockholder in the distribution of the Common Shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). Commissions, discounts or concessions received by any such broker-dealer or agent may be deemed to be underwriting commissions under the Securities Act. YA has informed us that it is an “underwriter” within the meaning of the Securities Act. The Selling Stockholder may sell Common Shares from time to time in the principal market on which the Registrant’s Common Stock is quoted and traded at the prevailing market price or in negotiated transactions. We will not receive any of the proceeds from the sale of those Common Shares being sold by the Selling Stockholder. We will pay the expenses of registering these Common Shares.

 

The Common Stock is quoted on the over-the-counter market on the OTCQB and trades under the symbol “OMAG”.  The last reported sale price of the Common Stock on the OTCQB on September 19, 2014 was $1.49 per Common Share.

 

The Selling Stockholder is offering these Common Shares. The Selling Stockholder may sell all or a portion of these Common Shares from time to time in market transactions through any market on which the Common Stock is then traded, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the then prevailing market price or at negotiated prices directly or through a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale. The Selling Stockholder will receive all proceeds from such sales of the Common Shares. For additional information on the methods of sale, you should refer to the section entitled "Plan of Distribution."

 

Ignoring any caps on the number of Common Shares that the Selling Stockholder may own at any time and based on the $1.49 market price for a Common Share on September 19, 2014 and applying the 5% discount as provided for in the 2014 SEDA and adding the 85,822 Common Shares beneficially owned by YA prior to the date of this Prospectus, the Selling Stockholder may sell all 3,085,822 Common Shares under this Prospectus. We will file a new registration statement to cover the resale of any additional shares in the event that the number of shares actually sold to YA under the 2014 SEDA exceeds 3,000,000 shares.

 Investing in these securities involves significant risks. See "Risk Factors" beginning on page 3.

 

In their opinion on our 2013 audited financial statements contained in this Prospectus, our auditors have expressed substantial doubt about our ability to continue as a going concern. Although we have entered into the 2014 SEDA and have recently raised additional capital via private placements of restricted Common Shares, we estimate that, absent our obtaining any additional working capital, we can continue as a going concern for approximately nine months from the date of this Prospectus (See: “Risk Factors, and Management's Discussion and Analysis of Financial Condition and Results of Operations”).

 

We may amend or supplement this Prospectus from time to time by filing amendments or supplements as required. You should read the entire Prospectus and any amendments or supplements carefully before you make your investment decision.

 

Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this Prospectus is September     , 2014.

 

iii
 

 

TABLE OF CONTENTS

 

About This Prospectus iv
Prospectus Summary 1
Risk Factors 3
Special Note Regarding Forward-Looking Statements 10
Use Of Proceeds 11
Selling Stockholder 11
Plan of Distribution 13
Description Of Securities To Be Registered 14
Description Of Preferred Stock And Warrants 14
Legal Matters 18
Experts 18
Description of Business 18
Description of Property 30
Legal Proceedings 30
Market for  Common Shares and Related Stockholder Matters 30
Financial Statements 31
Selected Financial Data and Supplementary Financial Information 31
Management's Discussion and Analysis of Financial Condition and Results of Operations 31
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 41
Quantitative and Qualitative Disclosures about Market Risk 41
Directors and Executive Officers 42
Executive Compensation 44
Security Ownership of Certain Beneficial Owners and Management 56
Certain Relationships and Related Transactions and Director Independence 59
Disclosure of Commission Position on Indemnification for Securities Act Liabilities 59
Where You Can Find More Information 60

  

ABOUT THIS PROSPECTUS

  

You should rely only on the information contained in this Prospectus or that we have referred you to via this Prospectus. We have not authorized any dealer, salesperson or other person to provide you with information concerning us except for the information contained in this Prospectus. The information contained in this Prospectus is complete and accurate only as of the date on the front cover page of this Prospectus regardless of when the time of delivery of this Prospectus or the sale of any Common Stock occurs. Neither the delivery of this Prospectus nor any sale made in connection with this Prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this Prospectus or that the information contained herein this Prospectus by reference thereto is correct as of any time after its date.

 

The Selling Stockholders may not sell the securities until the registration statement filed with the Securities and Exchange Commission (“Registration Statement”) is effective. This Prospectus is not an offer to sell nor is it a solicitation of an offer to buy Common Shares in any jurisdiction in which such offer or sale is not permitted.

 

iv

 

PROSPECTUS SUMMARY

 

The following summary highlights selected information contained in this Prospectus and in the documents incorporated by reference into this Prospectus. This summary does not contain all the information you should consider before investing in the Common Stock. Before making an investment decision, you should carefully read the entire Prospectus and the documents incorporated by reference into this Prospectus, including the "RISK FACTORS" section, the financial statements and the notes to the financial statements. As used throughout this Registration Statement and Prospectus, the term "Registrant" refers to Omagine, Inc. and the terms "Company", "we," "us," or "our" refer to Omagine, Inc. and its consolidated subsidiaries unless the context otherwise requires.

 

General

 

Omagine, Inc. (“Omagine” or the “Registrant”) was incorporated in Delaware in October 2004 and is a holding company which conducts substantially all its operations through its 60% owned subsidiary Omagine LLC, an Omani limited liability corporation (“LLC”) and its wholly-owned subsidiary Journey of Light, Inc., a New York corporation (“JOL”). Omagine, JOL and LLC are collectively referred to herein as the "Company".

 

JOL was acquired by Omagine in October 2005. In November 2009, Omagine and JOL organized LLC as a limited liability company under the laws of the Sultanate of Oman ("Oman") to design, develop, own and operate our initial project – a mixed-use tourism and real-estate development project in Oman named the “Omagine Project”.

 

The Company is a development stage entity (“DSE”) as defined in ASC 915 issued by the Financial Accounting Standards Board (“FASB”) and is focused on entertainment, hospitality and real-estate development opportunities in the Middle East and North Africa (the “MENA Region”) and on the design and development of unique tourism destinations.

 

Omagine and JOL initially capitalized LLC at 20,000 Omani Rials [$52,000] (the “OMAG Initial Equity Investment”) and Omagine’s 100% ownership of LLC was later reduced to 60% pursuant to a shareholders’ agreement (the “Shareholder Agreement”) signed in May 2011 by Omagine, JOL and three new LLC minority investors (the “New Shareholders”).

 

Pursuant to the provisions of the Shareholder Agreement, LLC sold newly issued shares of its capital stock to Omagine and the New Shareholders for an aggregate cash investment amount of 26,968,125 Omani Rials [$70,117,125] (the “New Investment”), plus a non-cash payment-in-kind investment (the “PIK”) equal to the value to LLC of the land on which the Omagine Project is to be developed.

 

The New Investment will be invested in two stages – one stage before the development contract with the Government of Oman is signed and the other stage after it is signed. As of the date hereof the first stage investments into LLC have been made by Omagine and the New Shareholders as follows:

 

i.Omagine invested an additional 70,000 Omani Rials [$182,000] into LLC, and
   
ii.The New Shareholders invested an aggregate of 60,000 Omani Rials [$156,000] into LLC.

 

LLC is presently capitalized at 150,000 Omani Rials [$390,000] and, as of the date hereof, Omagine has also advanced LLC an additional 70,000 Omani Rials [$182,000].

The second and final stage of the New Investment consisting of (i) the PIK, and (ii) a 26,838,125 Omani Rial ($69,779,125) aggregate cash investment will be invested after the DA is signed and subject to certain conditions precedent specified in the Shareholder Agreement (See: “Description of Business – The Shareholder Agreement / LLC Capital Structure” and Exhibit 10.5).

 

We anticipate that, the Omagine Project, will be developed on one million square meters (equal to approximately 245 acres) of beachfront land facing the Gulf of Oman just west of the capital city of Muscat and approximately six miles from Muscat International Airport (the "Omagine Site"). The PIK investment amount represents the value to LLC of the land constituting the Omagine Site.

 

The Omagine Project is planned to be an integration of cultural, heritage, educational, entertainment and residential components, including: hotels, commercial buildings, retail establishments and more than two thousand residences to be developed for sale.

 

1

 

The legally binding development contract between the Oman Government and LLC which will govern the design, development, construction, management and ownership of the Omagine Project, and the Government’s and LLC’s rights and obligations with respect thereto, is the “Development Agreement” (or, the “DA”).The DA has been approved by all the required Ministries of the Government of Oman but has not yet been signed and we have to date experienced numerous delays by the Government in the signing of the DA. To the best knowledge and belief of Omagine and its attorneys no barrier to signing the DA exists as of the date hereof and, although we expected the DA to be signed in August 2014, we presently anticipate that LLC and the Government will sign the DA in September or October 2014 (See: “Description of Business – The Development Agreement”).

The Company presently focuses the majority of its efforts on the business of LLC and specifically on the Omagine Project. Our website address is www.omagine.com. Our website and the information contained on our website are not incorporated into this Prospectus or the Registration Statement of which this Prospectus forms a part. Further, our references to the URL for our website are intended to be inactive textual references only.

 

Our principal executive offices are located at 350 Fifth Avenue, Suite 4815-17, New York, N.Y., 10118. Our telephone number is (212) 563-4141.

  

The Standby Equity Distribution Agreement

 

On April 22, 2014, Omagine and YA entered into a two year Standby Equity Distribution Agreement (the "2014 SEDA"). Omagine issued 85,822 restricted Common Shares to an affiliate of YA in satisfaction of a $150,000 commitment fee due under the 2014 SEDA. Unless earlier terminated in accordance with its terms, the 2014 SEDA shall terminate automatically on the earlier of (i) the first day of the month next following the 24-month anniversary of the “Effective Date” (as hereinafter defined), or (ii) the date on which YA shall have made payment of Advances pursuant to the 2014 SEDA in the aggregate amount of $5,000,000.

 

Pursuant to the terms of the 2014 SEDA, Omagine may in its sole discretion, and upon giving written notice to YA (an “Advance Notice”), periodically sell Common Shares to YA (“Shares”) at a per Share price (“Purchase Price”) equal to ninety-five percent (95%) of the lowest daily volume weighted average price (the “VWAP”) for a Common Share as quoted by Bloomberg, L.P. during the five (5) consecutive “Trading Days” (as such term is defined in the 2014 SEDA) immediately subsequent to the date of the relevant Advance Notice (the “Pricing Period”).

 

Omagine is not obligated to sell any Shares to YA but may, over the term of the 2014 SEDA and in its sole discretion, sell to YA that number of Shares valued at the Purchase Price from time to time in effect that equals up to five million dollars ($5,000,000) in the aggregate. YA is obligated under the 2014 SEDA to purchase such Shares from Omagine subject to certain conditions including: (i) Omagine filing a registration statement with the SEC to register the resale by YA of the Shares sold to YA under the 2014 SEDA (“Registration Statement”), (ii) the SEC declaring such Registration Statement effective (the date of such declaration by the SEC being the “Effective Date”), (iii) Omagine certifying to YA at the time of each Advance Notice that Omagine has performed all covenants and agreements to be performed and has complied with all obligations and conditions contained in the 2014 SEDA, (iv) periodic sales of Shares to YA must be separated by a time period of at least five Trading Days, and (v) the dollar value of any individual periodic sale of Shares designated by Omagine in any Advance Notice may not exceed the greater of (a) two hundred thousand dollars, or (b) the average of the “Daily Value Traded” for each of the five Trading Days immediately preceding the date of the relevant Advance Notice, where Daily Value Traded is the product obtained by multiplying the number representing the daily trading volume of Common Shares for such Trading Day by the VWAP for a Common Share on such Trading Day.

 

About This Offering

 

This Prospectus relates to a total of up to 3,085,822 Common Shares which may be offered by the Selling Stockholder (the “Resale Shares”). An affiliate of the Selling Stockholder owns 85,822 of these Resale Shares as of the date hereof. Up to an additional 3,000,000 Resale Shares may be purchased by and issued to the Selling Stockholder under the terms of the 2014 SEDA.

 

Number of Shares Outstanding After This Offering

 

As of September 19, 2014, we had 16,185,798 Common Shares issued and outstanding. Assuming Omagine is able to sell all 3,000,000 Common Shares under the 2014 SEDA to YA, then the number of Common Shares outstanding after this offering is expected to be 19,185,798.

 

2

 

Summary of Offering

 

Common Shares outstanding prior to the offering   16,185,798   (as of September 19, 2014)
Resale Shares offered by the Selling Stockholder  Up to 3,085,822
Common Shares expected to be outstanding after the offering   19,185,798 *  
Use of proceeds  We will not receive any proceeds from the resale by the Selling Stockholder of the Resale Shares hereunder. See “Use of Proceeds” for a complete description.

 

* Assuming Omagine is able to sell all 3,000,000 Common Shares under the 2014 SEDA to YA.

 

RISK FACTORS

 

An investment in our Common Shares is subject to risks inherent to our development stage business. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included in this Prospectus including information in the section of this document entitled “Information Regarding Forward Looking Statements”. This Prospectus is qualified in its entirety by these risk factors.

 

If one or more, or a combination of any of the following risks actually materialize into a negative event or circumstance, our business, financial condition and/or our results of operations could be materially and adversely affected. If this were to happen, the value of our Common Shares could decline significantly and you could lose all or part of your investment.

 

Risk Factors Related to Our Company and Our Business

 

We have experienced extraordinary delays in getting the DA with the Government of Oman signed.

 

As of the date hereof, the Development Agreement with respect to the Omagine Project (“DA”) governing the development and ownership of the Omagine Project has not yet been signed by our 60% owned subsidiary and the Government of Oman. We have been negotiating this DA with the Government for many years now and have experienced many delays in the process. To the best knowledge and belief of Omagine and its attorneys no further barrier to signing the DA exists as of the date hereof and both we and the Government now agree that all matters with respect to the DA have been resolved. We have however been at similar points with the Government in the past. Although there have been extraordinary delays to date by the Government, Omagine believes, based on continued assurances from the Ministry of Tourism (“MOT”), that the MOT is now eager to conclude and sign the DA. No date for the DA signing has been set, although we presently anticipate that LLC and the Government will sign the DA in September or October 2014. However, there is no assurance that the DA will actually be signed at this time. (See: “Description of Business - The Development Agreement”).

 

We are a development stage entity with no history of profitability from the development of real estate and we have incurred significant losses and cannot assure you that we will be profitable in the near term or at all.

 

The Company is a development stage entity (“DSE”) as defined in ASC 915 issued by the Financial Accounting Standards Board. We have dedicated the vast majority of our financial resources over the past many years toward the effort to conclude the DA with the Government of Oman. We have encountered numerous delays and as a result we have incurred significant losses over the past few years, including net losses of $1,173,426 for the six month period ended June 30, 2014; $2,640,590 for the fiscal year ended December 31, 2013; and $2,789,976 for the fiscal year ended December 31, 2012, primarily due to an absence of revenue due to delays in the start of development of the Omagine Project, our being a DSE, and to incurring other expenses associated with the design, development and promotion of the Omagine Project as well as significant non-cash expenses related to stock options. (See: “Management's Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations - Six Months Ended June 30, 2014 vs. Six Months Ended June 30, 2013 – Liquidity and Capital Resources - Dilution / MOT Delays”). We expect to continue to incur such losses and expenses over the near term and this will adversely impact our overall financial performance and results of operations. The Omagine Project may never come to fruition, and if it does it still may never result in a profit to Omagine. Sales of our proposed real estate development properties, and income, if any, from the Omagine Project may never generate sufficient revenues to fund our continuing operations. We cannot assure you that we will be profitable in the near term or at all.

 

3

 

Because of our status as a DSE and our limited history and the potential for competition, an investment in our Company is inherently risky.

 

Because we are a development stage company with a limited history, our operations are subject to numerous risks similar to those of a start-up company. We expect the real estate development business to be highly competitive because many developers have access to the same market. Substantially all of them have greater financial resources and longer operating histories than we have and can be expected to compete within the business in which we engage and intend to engage. We cannot assure you that we will have the necessary resources to be competitive.

 

We may not be able to conduct successful operations in the future.

 

The results of our operations will depend, among other things, upon our ability to develop and market the Omagine Project. Furthermore, our proposed operations may not generate income sufficient to meet operating expenses or may generate income and capital appreciation, if any, at rates lower than those anticipated or necessary to sustain ourselves. Our operations may be affected by many factors, some known by us, some unknown, and some which are beyond our control. Any of these problems, or a combination thereof, could have a materially adverse effect on our viability as an ongoing enterprise and might cause the investment of our shareholders to be impaired or lost.

 

While our 2013 audited financial statements and our June 30, 2014 un-audited financial statements assume we will continue our operations on a going concern basis, the opinion of our independent auditors on those financial statements contained an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.

 

The opinion of our independent auditors on our 2013 audited financial statements states that the presentation of Omagine’s financial statements is in accordance with the guidance contained in ASC 915 for financial statements of development stage entities and such opinion also contained a paragraph stating that there is substantial doubt about our ability to continue as a going concern. As discussed in Note 2 to such audited financial statements (and in Note 2 to our unaudited financial statements as of June 30, 2014), Omagine's present financial situation raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. Such financial statements were prepared under the assumption that we will continue our operations on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business. Our financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Although we have entered into the 2014 SEDA and have recently raised additional capital via private placements of restricted Common Shares, we estimate that, absent our obtaining any additional working capital, we can continue as a going concern for approximately nine months from the date of this Prospectus. (See: “Management's Discussion and Analysis of Financial Condition and Results of Operations – Overview”). If we sustain unanticipated losses and we cannot continue as a going concern, our shareholders may lose all of their investment in Omagine.

 

To fully develop our business plan we will need additional financing.

 

Although some of our Tempest Warrants (as hereinafter defined) were recently exercised, it is impossible to predict if any of our remaining outstanding Common Stock purchase warrants (“Warrants”) will ever be exercised. In the near term, we expect to continue to rely principally upon financing received from proceeds of sales of Common Shares made pursuant to private placements, the 2014 SEDA and the possible exercise of Warrants. For the past several years we have relied on the proceeds from the YA Loans and from sales of Common Shares made pursuant to the “Prior SEDAs” (as those terms are hereinafter defined) and the 2012 rights offering as well as from sales of restricted Common Shares made pursuant to private placements and to the exercise of Tempest Warrants. We cannot guarantee the success of this plan. (See: “Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”).

 

We will have to obtain additional financing in order to conduct our business in a manner consistent with our proposed operations. There is no guaranty that additional funds will be available when, and if, needed. If we are unable to obtain financing, or if its terms are too costly, we may be forced to curtail expansion of operations until such time as alternative financing may be arranged, which could have a materially adverse impact on our operations and our shareholders' investment. It is impossible to predict if any more of our Warrants will ever be exercised. Omagine believes that there is virtually no probability that any “Strategic Warrants” (as hereinafter defined) will be exercised unless our Common Shares trade at a market price materially above the relevant exercise prices of the Strategic Warrants. (See: “Description of Preferred Stock and Warrants – Warrants” and “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity - Warrants”).

 

4

 

We anticipate that we will be subject to intense competition.

 

We will face intense competition in the development of real estate in Oman. Other developers have started developing real estate in nearby areas with similar residential developments.

 

Even after entering into the 2014 SEDA, we lack capital.

 

Even with the 2014 SEDA, we will require additional funds to sustain our operations as presently contemplated. There can be no guaranty that such additional funds will be available in the future. If we or LLC are unable to obtain additional financing as required, or if its terms are too costly, we may be forced to curtail the expansion of our operations until such time as alternative financing may be arranged which could have a materially adverse impact on our operations and our shareholders' investments. (See: “Description of Business - Financial Adviser”).

 

We may not have full access to or be able to fully utilize the 2014 SEDA .

 

Because the market for our Common Stock has historically exhibited low liquidity levels and has been limited, sporadic and often volatile, we may not be able to take full advantage of the 2014 SEDA. If the market for our Common Shares is exhibiting low liquidity levels at the time we give YA an Advance Notice (a “Put”) and if YA sells Common Shares into the public market during the five Trading Day Pricing Period subsequent to our Put (as is YA’s customary practice), it is likely that the price of our Common Shares will decline. Any such price decline will immediately increase the number of Common Shares we would otherwise be required absent such price decline to deliver to YA subsequent to the Pricing Period in satisfaction of such Put. If this pattern continued to happen with subsequent Puts by us, it is likely that we would issue and sell to YA the maximum 3,000,000 shares available under the 2014 SEDA well before reaching the aggregate sales price of $5 million available under the 2014 SEDA.

 

Our ultimate success will be dependent upon management.

 

Our success is dependent upon the skill and decision making ability of our directors and executive officers, who are Frank J. Drohan, Charles P. Kuczynski, Louis J. Lombardo, William Hanley and Sam Hamdan. The loss of any or all of these individuals could have a material adverse impact on our operations. We do not presently have a written employment agreement with any of our officers or directors (See: “Executive Compensation – Employment Agreements”). We have not obtained key man life insurance on the lives of any of these individuals. Our success depends in large part on our ability to attract and retain key people and consultants. If we are not able to retain and recruit qualified personnel, which we require now and will require to conduct our operations after the DA is signed, our business and our ability to successfully implement our business plan could be adversely affected.

 

We will rely on dividends from LLC for most of our revenue.

 

Because we are a holding company with no significant operations other than the proposed operations of our 60% owned subsidiary, LLC, we will depend upon dividends from LLC for a substantial portion of our future revenues. LLC has generated no revenue to date and we do not anticipate that LLC will be in a position to pay dividends until after the development of the Omagine Project is well underway, an event that, as of the date hereof, is uncertain to occur.

 

We are subject to risks associated with investments in real estate.

 

The value of our proposed properties and our projected income therefrom may decline due to developments that adversely affect real estate generally and those that are specific to our proposed properties. General factors that may adversely affect our potential real estate holdings include:

 

increases in interest rates;
adverse changes in foreign exchange rates;
a decline in prevailing rental rates for the properties we intend to own and lease;
a general tightening of the availability of credit and project financing facilities;
a decline in economic conditions in Oman;
an increase in competition for customers or a decrease in demand by customers for the residential and commercial properties we plan to develop and offer for sale;

 

5

 

a decline in prevailing sales prices for the properties we intend to develop and offer for sale;
an increase in supply in Oman of property types similar to those proposed to be developed by us;
declines in consumer spending during an economic recession or recovery from an economic recession that adversely affect our revenue; and
the adoption by the relevant government authorities in Oman of more restrictive laws and governmental regulations, including more restrictive zoning, labor, visa, licensing, land use, building or environmental regulations or increased real estate taxes.

 

Additional factors may adversely affect the value of our proposed properties and our projected income therefrom, including:

 

failure to sign a development agreement with the Government of Oman;
adverse changes in the perceptions of prospective purchasers or users of the attractiveness of the properties proposed to be developed by us;
opposition from local community or political groups with respect to development or construction at a particular site;
a change in existing comprehensive zoning plans or zoning or environmental or business licensing regulations that impose additional restrictions on use or requirements with respect to the properties proposed to be developed by us;
our inability to provide adequate management and maintenance or to obtain adequate insurance for the properties proposed to be developed by us;
an increase in operating costs;
new development of a competitor's property in close proximity to the Omagine Project;
earthquakes, floods or underinsured or uninsured natural disasters; and
terrorism, political instability or civil unrest in Oman or the MENA Region.

 

The occurrence or existence of one or more of the events or circumstances described above could result in significant delays or unexpected expenses. If any of these events occur or circumstances come into existence, we may not achieve our projected returns on the Omagine Project and we could lose some or all of our investment in LLC and in the Omagine Project.

 

We are subject to risks associated with real estate development.

 

The Omagine Project is subject to significant risks relating to LLC’s ability to complete it on time and within budget. Factors that may result in the Omagine Project or any other development project we may undertake in Oman or elsewhere exceeding budget or being prevented from completion include:

 

an inability to obtain or delays in obtaining zoning, environmental, occupancy or other required governmental permits, approvals and authorizations;
an inability to secure sufficient financing on favorable terms, including an inability to obtain or refinance construction loans;
a general tightening of the availability of credit and project financing facilities;
the prices of housing and commercial properties in Oman and consumer and/or business confidence; any of which could affect LLC’s ability to construct and/or sell homes and to construct, sell and/or lease commercial properties and/or to secure financing;
construction delays or cost overruns, either of which may increase project development costs; and
an increase in commodity costs.

 

If any of the forgoing occurs or exists, we may not achieve our projected returns on the Omagine Project and we could lose some or all of our investment in LLC and in the Omagine Project or in other properties we may then have under development.

 

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We are vulnerable to concentration risks because our proposed operations are presently exclusively in Oman and our future operations are planned to be exclusively in Oman and the MENA Region market. Our real estate activities are presently concentrated exclusively on the Omagine Project to be located in Oman. Because of such geographic and project specific concentration, our operations are more vulnerable to Oman and MENA Region economic downturns and adverse project-specific events than those of larger, more diversified companies.

 

The performance of Oman’s economy will greatly affect the values of the properties proposed to be developed by us and consequently our prospects for sales and revenue growth. The Oman economy is heavily influenced by the prices of crude oil and natural gas which are Oman’s main export products and sources of revenue. Fluctuations in the international price of crude oil directly affect Oman’s revenue and budget considerations and a decrease in government supported projects and employment because of budget cuts or otherwise, could adversely affect the economy in Oman.

 

Our results of operations and financial condition will be greatly affected by the performance of the real estate industry.

 

Our real estate activities are, and will continue to be, subject to numerous factors beyond our control, including local real estate market conditions in Oman and in areas where our potential customers reside, substantial existing and potential competition, general economic conditions in Oman, the MENA Region and internationally, fluctuations in interest rates and mortgage availability and changes in demographic conditions. Real estate markets have historically been subject to strong periodic cycles driven by numerous factors beyond the control of market participants.

 

Real estate investments often cannot easily be converted into cash and market values may be adversely affected by economic or political circumstances, market fundamentals, competition or demographic conditions. Because of the effect these factors may have on real estate values and because of the long length of the project development cycle, the future sales prices for our individual proposed properties or the future level of our sales revenue from the operation, sales and/or leasing of our various proposed properties, is impossible to predict with certainty and difficult to predict with accuracy.

 

Our real estate operations will also be dependent upon the availability and cost of mortgage financing for our potential customers to the extent they finance the purchase of the residences or commercial properties we intend to develop and offer for sale.

 

The real estate business is very competitive and many of our competitors are larger and financially stronger than we are.

 

The real estate business is highly competitive. We compete with a large number of companies and individuals, and most of them have significantly greater financial, managerial and other resources than we have. Our competitors include local developers who are committed primarily to the Oman market and also international developers who acquire properties throughout the MENA Region. Because we are a development stage company with a limited history, our operations are subject to numerous risks similar to those of a start-up company. We cannot assure that we will have the necessary resources to be competitive.

 

Our operations are subject to political risks.

 

The recent and ongoing civil and political unrest in the MENA Region, the U.S. and NATO military intervention in Iraq, Afghanistan and Libya, the terrorist attacks in the U.S., Europe and the MENA Region, and the potential for additional future terrorist acts and civil and/or political unrest have created economic, political and social uncertainties that could materially and adversely affect our business. Further acts of civil and/or political unrest or terrorism could be directed against the U,S. or Oman either domestically or abroad. These acts of terrorism or civil unrest could be directed against properties and personnel of American companies that work abroad, particularly companies such as ours that operate in the MENA Region. Recent and ongoing anti-corruption trials in Oman involving alleged bribery involved in contract administration and awards (mainly in the oil sector) involving dozens of government officials and private individuals, including two senior executives of CCC-Oman, have been ongoing in Muscat’s Courts. Results of these trials are now regularly reported in the local newspapers and to date, the trials have returned verdicts against several high-profile government officials and business people, including a senior CCC-Oman executive. Omagine is not involved in any way and we do not foresee any impact on our business or that of LLC as a result of the ongoing anti-corruption campaign or as a result of any present or future outcome therefrom. CCC-Oman is a shareholder of LLC and it is therefore possible, though quite unlikely, that the aforementioned involvement of an executive at CCC-Oman may, for political considerations unknown to us, adversely affect LLC’s reputation in Oman. Significantly however, we have not experienced any such effect to date. Civil and/or political unrest, terrorism, war, political considerations, and/or military developments may materially and adversely affect our business and profitability and the prices of our Common Stock in ways that we cannot predict at this time.

 

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Our operations are subject to natural risks.

 

Our performance may be adversely affected by weather conditions that delay development or damage property.

 

Risk Factors Related to Our Common Stock

 

Our stock price may be volatile and you may not be able to resell your Common Shares at or above your purchase price.

 

There has been and continues to be a limited public market for our Common Stock. Although our Common Stock trades on the OTCQB, an active trading market for our Common Shares has not developed and may never develop or be sustained. If you purchase Common Shares you may not be able to resell them at or above the price you paid. The market price of our Common Shares may fluctuate significantly in response to numerous factors, some of which are beyond our control, including the following:

 

failure to sign the DA with the Government of Oman;
the exercise of Warrants;
actual or anticipated fluctuations in our operating results;
changes in financial estimates by securities analysts or our failure to perform in line with such estimates;
changes in market valuations of other real estate companies, particularly those that sell products similar to ours;
announcements by us or our competitors of significant innovations, acquisitions, strategic investors or partnerships, joint ventures or capital commitments; or
departure of key personnel.

 

Much of our issued and outstanding Common Stock is currently restricted. As restrictions on resale end, the market price of our Common Shares could drop significantly if the holders of restricted Common Shares sell them or are perceived by the market as intending to sell them. This could cause the market price of our Common Shares to drop significantly, even if our business is doing well.

 

Our Common Shares have a limited public trading market.

 

While our Common Stock currently trades on the OTCQB, the market for our Common Shares is limited and sporadic. We cannot assure that such market will improve in the future, even if our Common Stock is ever listed on a national stock exchange. We cannot assure that an investor will be able to liquidate his investment without considerable delay, if at all. If a more active market for our Common Stock does develop, the price may be highly volatile. The factors which we have discussed in this document may have a significant impact on the market price of our Common Shares. The relatively low price of our Common Shares may keep many brokerage firms from engaging in transactions in our Common Stock.

 

The over-the-counter market for stock such as ours has had extreme price and volume fluctuations.

 

The securities of companies such as ours have historically experienced extreme price and volume fluctuations during certain periods. These broad market fluctuations and other factors, such as new product developments and trends in our industry and in the investment markets generally, as well as economic conditions and annual variations in our operational results may have a negative effect on the market price of our Common Shares.

 

Additional stock offerings may dilute current stockholders.

 

Given our plans and our expectation that we will need additional capital and personnel, we may need to issue additional shares of capital stock or securities convertible into or exercisable for shares of capital stock, including preferred stock, options or warrants. The issuance of additional shares of capital stock for any of these reasons or pursuant to the exercise of Warrants may dilute the ownership of our current shareholders.

 

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Our management collectively beneficially owns approximately 29.5% of our Common Stock and this concentration of ownership may have the effect of preventing a change in control.

 

Assuming their ownership of the Common Shares underlying unexercised Stock Options and Strategic Warrants, our officers and directors collectively beneficially own approximately twenty nine and five-tenths percent (29.5%) of our Common Shares (See: “Security Ownership of Certain Beneficial Owners and Management”). As a result, if our officers and directors act in concert, they will have the ability by virtue of their voting power to exercise substantial influence over our business with respect to the election of directors and all other matters requiring action by stockholders. Such concentration of Common Share ownership may have the effect of discouraging, delaying or preventing a change in control of Omagine.

 

Our ability to issue preferred stock may adversely affect the rights of holders of our Common Stock and may make takeovers more difficult, possibly preventing you from obtaining the optimal Common Share price.

 

Our Certificate of Incorporation authorizes the issuance of shares of "blank check" preferred stock, which would have the designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board of Directors is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of the Common Shares. The issuance of preferred stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of Omagine.

 

Our Common Stock is subject to the “penny stock” rules of the SEC, which may make it more difficult for you to sell our Common Shares.

 

The SEC has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that:

 

the broker or dealer approve a person's account for transactions in penny stocks; and
the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

 

obtain the financial information and investment experience and objectives of the person; and
make a reasonable determination that (a) transactions in penny stocks are suitable for that person, and (b) the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

 

sets forth the basis on which the broker or dealer made the suitability determination; and
states that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The regulations applicable to penny stocks may severely affect the market liquidity for the Common Shares owned by you and could limit your ability to sell such Common Shares in the secondary market.

 

As an issuer of “penny stock”, the protection provided by the federal securities laws relating to forward looking statements does not apply to us.

 

Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.

 

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Other than the distribution of the rights and warrants in our 2012 rights offering and warrant distribution, we have not paid dividends in the past and do not expect to pay dividends in the future unless and until dividends are paid to Omagine by LLC. Any return on your investment may therefore be limited to the value of our Common Shares.

 

We have never paid cash dividends on our Common Stock and do not anticipate paying cash dividends in the foreseeable future. Up until this time Omagine has utilized all cash reserves for the operation of its business and Omagine plans to continue this policy for the foreseeable future. Any future payment of dividends on our Common Stock will depend on the payment of dividends to Omagine by LLC and, as the Board of Directors may consider relevant, our earnings, financial condition and other business and economic factors at such time. If we do not pay cash dividends, our Common Stock may be less valuable because a return on your investment will only occur if the price of our Common Shares appreciates above the price you paid for it.

 

There are substantial risks associated with the 2014 SEDA with YA which could contribute to the decline of the price of our Common Shares and have a dilutive impact on our existing stockholders.

 

In order to obtain needed capital, we entered into the 2014 SEDA with YA. The sale of our Common Shares pursuant to the 2014 SEDA will have a dilutive impact on our stockholders. We believe YA intends to promptly re-sell the Common Shares that we sell to it under the 2014 SEDA. Such re-sales could cause the market price of our Common Shares to decline significantly. Any subsequent sales by us to YA under the 2014 SEDA may, to the extent of any such decline, require us to issue a greater number of Common Shares to YA in exchange for each dollar of such subsequent sale.  Under these circumstances our existing stockholders would experience greater dilution (See: “Management's Discussion and Analysis of Financial Condition and Results of Operations” – “Liquidity - Dilution / Delays”). The sale of Common Shares under the 2014 SEDA could encourage short sales by third parties which could contribute to the further decline of the price of our Common Stock.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Some of the statements contained in this Prospectus that are not statements of historical facts constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, notwithstanding that such statements are not specifically identified as such. These forward-looking statements are based on current expectations and projections about future events. The words "estimates", "projects", "plans", "believes", "expects", "anticipates", "intends", "targeted", "continue", "remain", "will", "should", "may" and other similar expressions, or the negative or other variations thereof, as well as discussions of strategy that involve risks and uncertainties, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Examples of forward-looking statements include but are not limited to statements about or relating to: (i) future revenues, expenses, income or loss, cash flow, earnings or loss per Common Share, the payment or nonpayment of dividends, capital structure and other financial items, (ii) plans, objectives and expectations of Omagine or its management or Board of Directors, (iii) Omagine’s business plans, products or services, (iv) the probability of LLC signing the DA with the Government, (v) future economic or financial performance, and (vi) assumptions underlying such statements. We urge you to be cautious of the forward-looking statements and other similar forecasts and statements of expectations since such statements (i) reflect our current beliefs with respect to future events, ( ii) involve, and are subject to, known and unknown risks, uncertainties and other factors affecting our operations and growth strategy, and (iii) could cause Omagine'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. Forecasts, projections and assumptions contained and expressed herein were reasonably based on information available to Omagine at the time so furnished and as of the date of this Prospectus. All such forecasts, projections and assumptions are subject to significant uncertainties and contingencies, many of which are beyond Omagine's control, and no assurance can be given that such forecasts, projections or assumptions will be realized. No assurance can be given regarding the achievement of future results, as our actual results may differ materially from our projected future results as a result of the risks we face, and actual future events may differ from anticipated events because of the assumptions underlying the forward-looking statements that have been made regarding such anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

 

the uncertainty associated with whether or not the Government of the Sultanate of Oman will honor its commitment with respect to its intention to sign the agreed DA with LLC;

 

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the uncertainty associated with political events in the MENA Region in general;
the success or failure of Omagine’s efforts to secure additional financing, including project financing for the Omagine Project;
oversupply of residential and/ or commercial property inventory in the Oman real estate market or other adverse conditions in such market;
the impact of MENA Region or international economies and/or future events (including natural disasters) on the Oman economy, on Omagine’s business or operations, on tourism within or into Oman, on the oil and natural gas businesses in Oman and on other major industries operating within the Omani market;
deterioration or malaise in economic conditions, including the continuing destabilizing factors in, and continuing slow recovery of, the Omani, MENA Region and international real estate markets, as well as the impact of continuing depressed levels of consumer and business confidence in the state of the Oman economy and other international economies;
inflation, interest rates, movements in interest rates, securities market and monetary fluctuations;
acts of war, civil or political unrest, terrorism or political instability; or
the ability to attract and retain skilled employees.

 

Potential investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date hereof. Omagine 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.

 

USE OF PROCEEDS

 

We will not receive any of the proceeds resulting from the sale of the Resale Shares by the Selling Stockholder.

 

SELLING STOCKHOLDER

 

The following table sets forth the name of each person who is offering the sale of Resale Shares by this Prospectus, the number of Common Shares beneficially owned by each such person as of the date of this Prospectus, the number of Resale Shares that may be sold in this offering and the number of Common Shares each such person is expected to beneficially own after this offering, assuming they sell all of the Resale Shares offered. Neither the Selling Stockholder nor any of its affiliates have held any position or office with Omagine nor, other than the Prior SEDAs, the YA Loans and the 2014 SEDA, have any of them ever had any other material relationship with us or any of our predecessors or affiliates.

 

Name   Common Shares Owned Prior to the Offering (1)     Percentage of Ownership Before the Offering (1)     Number of Common Shares being Offered (4)     Common Shares Owned After the Offering (2)     Percentage of Ownership After the Offering (2)  
YA GLOBAL MASTER SPV LTD. (3)     16,094       0.10 %     3,000,000       0       0  
                                         
YA Global II SPV, LLC (5)     85,822       0.53 %     85,822       0       0  
                                         
Total     101,916       0.63 %     3,085,822       0       0  

 

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(1) Applicable percentage ownership is based on 16,185,798 Common Shares issued and outstanding as of September 19, 2014 and on:  
   
  a. 85,822 Common Shares owned of record by YA Global II SPV, LLC, an affiliate of YA, as of September 19, 2014, plus
     
  b.

16,094 Common Shares with respect to which YA has the right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended (the “Act”) and are unissued Common Shares underlying (i) 8,047 Strategic Warrants exercisable at $5.00 per Common Share and (ii) 8,047 Strategic Warrants exercisable at $10.00 per Common Share that are owned by YA as of September 19, 2014 and are currently exercisable.

 

  YA acquired the Strategic Warrants in March 2012 pursuant to a “Rights Offering and Warrant Distribution” conducted by Omagine in February and March of 2012 (the “Warrant Distribution”). Pursuant to the Warrant Distribution Omagine distributed one-fourth (1/4) of a $5 Warrant and one-fourth (1/4) of a $10 Warrant to the Record Shareholders for each share of Common Stock held by them at the Record Time. Each Record Shareholder received, automatically and at no charge, one $5 Warrant and one $10 Warrant for each four Common Shares held by such Record Shareholder at the Record Time. If the foregoing calculation resulted in a fractional Strategic Warrant, the result was rounded up to the nearest whole Strategic Warrant. YA was a Record Shareholder of 64,376 Common Shares at the Record Time and as a result the aforementioned 16,094 Strategic Warrants were distributed to YA at such time. (See: “Results of Operations – Fiscal Year ended December 31, 2013 vs. Fiscal Year ended December 31, 2012 - Liquidity and Capital Resources – Rights Offering and Warrant Distribution” below).  
   
  Beneficial ownership and Common Shares outstanding are determined in accordance with Rule 13d-3(d)(1) under the Act and generally includes voting or investment power with respect to the relevant securities. For the purpose of computing YA’s percentage of ownership therefore: (a) the 85,822 Common Shares owned by YA’s affiliate, YA Global II SPV, LLC, are deemed to be owned by YA, and (b) the 16,094 Common Shares underlying the 16,094 Strategic Warrants owned by YA are deemed to be outstanding and beneficially owned by YA.
   
(2) Assumes (i) all Common Shares offered hereby are sold, and (ii) the 16,094 Strategic Warrants either (a) expire unexercised, or (b) are exercised and the underlying Common Shares are sold.
   
(3) YA is the investor under the 2014 SEDA. Yorkville Advisors Global, LP (“Yorkville LP”) is YA’s investment manager and Yorkville Advisors Global, LLC (“Yorkville LLC”) is the General Partner of Yorkville LP. All investment decisions for YA are made by Yorkville LLC’s President and Managing Member, Mr. Mark Angelo. The address of YA is 1012 Springfield Avenue, Mountainside, NJ 07092, Attention: Mark Angelo, Portfolio Manager. YA has informed us that it is an “underwriter” within the meaning of the Securities Act, and to the best of our knowledge no other underwriter or person has been engaged to facilitate the sale of Resale Shares in this offering.
   
(4) The 3,085,822 Resale Shares included in this Prospectus represent the 85,822 Common Shares issued prior to the date hereof to a YA’s affiliate, YA Global II SPV, LLC, in satisfaction of a commitment fee under the 2014 SEDA and the 3,000,000 Common Shares issuable under the 2014 SEDA.
   
(5) YA Global II SPV, LLC is an affiliate of YA. All investment decisions and control of for YA Global II SPV, LLC are made and held by its investment manager, Yorkville LP. Mr. Mark Angelo, the portfolio manager of Yorkville LP, makes the investment decisions on behalf of and controls Yorkville LP. The address of YA Global II SPV, LLC is 1012 Springfield Avenue, Mountainside, NJ 07092, Attention: Mark Angelo, Portfolio Manager.

  

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PLAN OF DISTRIBUTION

 

A Selling Stockholder may, from time to time, sell any or all of their Resale Shares on the OTCQB or any other stock exchange, market or trading facility on which the Common Shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling Resale Shares:

 

ordinary brokerage transactions and transactions in which a broker-dealer solicits purchasers;
block trades in which a broker-dealer will attempt to sell Resale Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
privately negotiated transactions;
broker-dealers may agree with the Selling Stockholder to sell a specified number of such Resale Shares at a stipulated price per share;
a combination of any such methods of sale; or
any other method permitted pursuant to applicable law.

 

Broker-dealers engaged by a Selling Stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from a Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of Resale Shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction, not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.

 

In connection with the sale of the Resale Shares or interests therein, a Selling Stockholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of Common Shares in the course of hedging the positions they assume. A Selling Stockholder may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealers or other financial institutions of Resale Shares offered by this Prospectus, which Resale Shares such broker-dealer or other financial institution may resell pursuant to this Prospectus (as supplemented or amended to reflect such transaction).

 

YA is, and any other Selling Stockholder, broker-dealer or agent that is involved in selling the Resale Shares may be deemed to be, an “underwriter” within the meaning of the Securities Act in connection with such sales. Any commissions received by YA or such other Selling Stockholder, broker-dealer or agent, and any profit on the sale of the Resale Shares purchased by them, may be deemed to be underwriting commissions or discounts under the Securities Act. YA has informed Omagine that it does not have any written or oral agreement or understanding, directly or indirectly, with any other Selling Stockholder or person to distribute Resale Shares. YA has informed Omagine that in no event shall any broker-dealer receive fees, commissions or markups which, in the aggregate, would exceed eight percent (8%) of the amount of the relevant sale.

 

Omagine is required to pay certain fees and expenses incurred by Omagine incident to the registration of the Resale Shares. Omagine has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

Because YA is and any other Selling Stockholder may be deemed to be an “underwriter” within the meaning of the Securities Act, they will be subject to the Prospectus delivery requirements of the Securities Act including Rule 172 thereunder. YA has informed Omagine that there is no underwriter or coordinating broker acting in connection with the proposed sale of the Resale Shares by the Selling Stockholders.

 

We agreed to keep this Prospectus effective until the earlier of (i) the date on which the Resale Shares may be resold by the Selling Stockholders without registration and without regard to any volume limitations by reason of Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the Resale Shares have been resold pursuant to this Prospectus or Rule 144 under the Securities Act or any other rule of similar effect. YA has informed Omagine that the Resale Shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In certain states, the Resale Shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

 

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the Resale Shares may not simultaneously engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of Common Shares by the Selling Stockholders or any other person. We will make copies of this Prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this Prospectus to each purchaser of Resale Shares at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

 

The obligations of the parties under the 2014 SEDA are not transferrable.

 

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DESCRIPTION OF SECURITIES TO BE REGISTERED

 

Common Stock

 

The following is a summary of the material provisions of our $0.001 par value Common Stock, restated Certificate of Incorporation and our By-Laws, all as in effect as of the date of this Prospectus. You should also refer to the full text of our restated Certificate of Incorporation and By-Laws which have been filed with the SEC as Exhibits 3(i) and 3(ii) to the Registration Statement of which this Prospectus forms a part. Our total authorized capital stock is 50,850,000 shares of which 50,000,000 shares are Common Shares.

 

The holders of our Common Shares are entitled to one vote per Common Share on all matters to be voted on by our stockholders including the election of directors. Our stockholders are not entitled to cumulative voting rights and, accordingly the holders of a majority of the Common Shares voting for the election of directors can elect the entire Board of Directors if they choose to do so and, in that event, the holders of the remaining Common Shares will not be able to elect any person to our Board of Directors.

 

The holders of Common Shares are entitled to receive ratably such dividends or distributions, if any, as may be declared from time to time by the Board of Directors in its discretion from funds or securities legally available therefor and subject to prior dividend rights of holders of any shares of our $.001 par value per share preferred stock (the “Preferred Stock” or “Preferred Shares”) which may be outstanding. Upon Omagine’s liquidation, dissolution or winding up, subject to prior liquidation rights of the holders of Preferred Shares if any, the holders of our Common Shares are entitled to receive on a pro rata basis our remaining assets available for distribution (See: “Description of Preferred Stock and Warrants” below). Holders of Common Shares have no preemptive or other subscription rights and there are no conversion rights or redemption or sinking fund provisions with respect to such Common Shares. All outstanding Common Shares are, and all Common Shares being offered by this Prospectus will be, fully paid and not liable to further calls or assessment by Omagine.

 

Dividends and Dividend Policy

 

The holders of our Common Stock share proportionately, on a per Common Share basis, in all dividends and other distributions declared by our Board of Directors. Other than a 2012 non-cash dividend distribution of rights and warrants to our shareholders, we have not declared any dividends on our Common Stock since inception and do not anticipate paying cash dividends in the foreseeable future. We plan to retain any future earnings for use in our business operations. Any future decisions as to payment of cash or non-cash dividends or distributions on our Common Stock will be at the discretion of the Board of Directors and will depend upon our earnings and financial position at such time and on such other factors as the Board of Directors may then deem relevant.

 

Transfer Agent

 

The transfer agent for our Common Shares is Continental Stock Transfer and Trust Company, 17 Battery Place, New York, New York 10004.

 

Outstanding Common Shares and Holders

 

At September 19, 2014 there were 16,185,798 Common Shares issued and outstanding and, based upon the number of record holders plus the number of individual participants in security position listings at such date, there were approximately 1,074 holders of Common Shares.

 

DESCRIPTION OF PREFERRED STOCK AND WARRANTS

 

The following is a summary of the material provisions of our Preferred Stock, our Warrants, restated Certificate of Incorporation and our By-Laws, all as in effect as of the date of this Prospectus. You should also refer to the full text of our restated Certificate of Incorporation and By-Laws which have been filed with the SEC as Exhibits 3(i) and 3(ii) to the Registration Statement of which this Prospectus forms a part. Our total authorized capital stock is 50,850,000 shares of which 850,000 are Preferred Shares.

 

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Preferred Stock

 

As of September 19, 2014 there were no Preferred Shares issued or outstanding. Our Certificate of Incorporation authorizes the issuance of Preferred Shares in one or more series. Our Board of Directors has the authority, without any vote or action by the shareholders, to create one or more series of Preferred Shares up to the limit of our number of authorized but unissued Preferred Shares and to fix the number of Preferred Shares constituting such series and the designation of such series, the voting powers (if any) of the Preferred Shares of such series and the relative participating, option or other special rights (if any), and any qualifications, preferences, limitations or restrictions pertaining to such series which may be fixed by the Board of Directors pursuant to a resolution or resolutions adopted by the Board of Directors and providing for the issuance of such series of Preferred Shares. The transfer agent for our Preferred Shares is Omagine.

 

Warrants

 

As of September 19, 2014, Omagine has 7,182,124 Warrants issued and outstanding, as follows:

 

i.6,422,124 Warrants, 3,211,062 of which are exercisable for the purchase of one Common Share at a per Common Share exercise price of $5.00 and 3,211,062 of which are exercisable for the purchase of one Common Share at a per Common Share exercise price of $10.00 (collectively, the “Strategic Warrants”), and
   
ii. 760,000 Warrants each of which are exercisable for the purchase of one restricted Common Share at a per Common Share exercise price equal to the greater of (a) $1.00 per Common Share, or (b) eighty percent (80%) of the closing sale price for a Common Share on the Trading Day immediately preceding the relevant exercise date (the “Tempest Warrants”).

 

As promptly as reasonably possible after each exercise of the purchase rights represented by a Warrant, Omagine shall deliver to the relevant holder thereof (each, a “Warrant Holder”) a certificate representing the Common Shares so purchased (or such will be electronically delivered to the Warrant Holder if such Warrant is held in electronic form) and, unless such Warrant has been fully exercised, expired or redeemed, a new Warrant Certificate (or such will be electronically delivered to the Warrant Holder if such Warrant is held in electronic form) representing the balance of the Common Shares subject to such Warrant. Warrant Holders do not have any voting or other rights as a stockholder of our Company by virtue of being a Warrant Holder. The person entitled to receive the Common Shares issuable upon any exercise of the purchase rights represented by the Warrants, shall be treated for all purposes as the holder of such Common Shares of record as of the close of business on the date of exercise. The Warrants may be exercised only for whole Common Shares.

 

The Warrants are transferrable and a Warrant Holder may transfer all or part of the Warrants (but no fractional Warrants) at any time on the books of Omagine upon surrender of the Warrant Certificate(s), properly endorsed. Upon such surrender, Omagine shall issue and deliver to the transferee a new Warrant Certificate representing the Warrants so transferred (or such will be electronically delivered to the Warrant Holder if such Warrant is held in electronic form). Upon any partial transfer, Omagine shall issue and deliver to the Warrant Holder a new Warrant Certificate representing the Warrants not so transferred.

 

During the period within which the Warrants may be exercised, Omagine shall at all times have authorized and reserved for issuance enough Common Shares for the full exercise of the purchase rights represented by the then unexercised Warrants. If Omagine dissolves, liquidates or winds up its business before the exercise, expiration or redemption of the Warrants, any Warrant Holder shall be entitled, upon exercising its Warrants, to receive in lieu of the Common Shares receivable upon such exercise, the same kind and amount of assets as would have been issued, distributed or paid to such Warrant Holder upon any such dissolution, liquidation or winding up with respect to such Common Shares, had such Warrant Holder been the holder of record on the record date for the determination of those entitled to receive any such liquidating distribution or, if no record is taken, upon the date of such liquidating distribution. Omagine shall pay all issue and other taxes that may be payable in respect of any issue or delivery of Common Shares upon the exercise of Warrants. The Warrants are governed by and shall be construed and enforced in accordance with the laws of the State of New York.

 

Strategic Warrants

 

Omagine filed Post-Effective Amendment No. 1 to its registration statement on Form S-1 (Commission File No. 333-183852) whereby the Strategic Warrants and the 6,422,124 Common Shares underlying the Strategic Warrants were registered by Omagine (the “Warrant Registration”). Post-Effective Amendment No. 1 to the Warrant Registration was declared effective by the SEC and its effective status has now expired. Omagine intends to file another post-effective amendment to the Warrant Registration in order to update the Warrant Registration and re-instate its effectiveness.

 

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When originally issued in March 2012, the expiration date for all Strategic Warrants was December 31, 2012. Because of the extended delays encountered in signing the DA with the Government, the Board of Directors subsequently resolved on two separate occasions to extend the expiration date of the Strategic Warrants, first to December 31, 2013 and then again to December 31, 2014. On August 18, 2014, pursuant to a resolution of the Board of Directors, the expiration date for all Strategic Warrants was extended for a third time to June 30, 2015. All other terms and conditions of the Strategic Warrants remained the same. All Strategic Warrants expire on June 30, 2015 unless redeemed earlier by Omagine upon 30 days prior written notice to the Strategic Warrant holders.

 

The Strategic Warrants are redeemable at any time and at Omagine’s sole discretion at a price of $0.001 per Strategic Warrant (the “Redemption Price”). Upon thirty days prior written notice to the holders of such Strategic Warrants (the “Strategic Warrant Holders”) specifying the Strategic Warrants to be redeemed and the date at 5 p.m. Eastern Time in the United States for such redemption by Omagine (the “Redemption Time”), Omagine may redeem all or a portion of such Strategic Warrants remaining unexercised at the Redemption Time at a Strategic Warrant Redemption Price of $0.001 per Strategic Warrant. The Redemption Price shall be paid in cash by Omagine to the relevant Strategic Warrant Holders and such Strategic Warrants shall not be deemed to be outstanding for any purpose whatsoever after the Redemption Time. The Redemption Time shall be on a day at least thirty (30) days subsequent to the aforesaid written notice to Strategic Warrant Holders and it shall also be the time at which a Strategic Warrant Holder's right to exercise such Strategic Warrants being redeemed shall terminate. The Strategic Warrants to be redeemed may be exercised by Strategic Warrant Holders at any time prior to the Redemption Time.

 

All Strategic Warrants expire at 5 p.m. Eastern Time in the United States on June 30, 2015 (the “Expiration Time”). The Strategic Warrants are exercisable at the option of the Strategic Warrant Holder at any time up to the earlier of the (a) Expiration Time, or (b) Redemption Time, provided that no person who owned (a) less than 4.99% or (b) between 4.99% and 9.99% of the Common Shares outstanding on February 24, 2012 (the “Issuance Date”), may exercise a number of Strategic Warrants which would thereby cause such person to acquire, together with its affiliates, beneficial ownership of, as the case may be, (a) 4.99% or more, or (b) 9.99% or more of the Common Shares outstanding immediately prior to the time of such exercise. A Strategic Warrant Holder may exercise the purchase rights represented by Strategic Warrants, in whole or in part, by surrendering the properly executed Strategic Warrant Certificate(s) at the transfer agent’s office in New York City, New York or at the principal office of Omagine in New York City, New York, and by paying Omagine, by certified or cashier’s check, an amount equal to the aggregate exercise price for the Common Shares proposed to be purchased (the “Warrant Payment”).

 

Notwithstanding the foregoing, no Strategic Warrants will be exercisable and we will not be obligated to issue any Common Shares issuable upon the exercise of such Strategic Warrants unless (i) at the time the Strategic Warrant Holder thereof seeks to exercise such Strategic Warrant, we have a registration statement under the Securities Act in effect covering the Common Shares issuable upon the exercise of such Strategic Warrant and a current prospectus relating to our Common Stock, and (ii) the Common Shares issuable upon such exercise have been registered or qualified or deemed to be exempt from registration under the securities laws of the state of residence of such Strategic Warrant Holder. Furthermore, if a Strategic Warrant Holder, who on the Issuance Date owned (a) less than 4.99% or (b) between 4.99% and 9.99% of the Common Shares outstanding on the Issuance Date, seeks to exercise Strategic Warrants, and such proposed exercise would cause such Strategic Warrant Holder to acquire, together with its affiliates, beneficial ownership of, as the case may be, (a) 4.99% or more, or (b) 9.99% or more of the Common Shares outstanding immediately prior to the time of such exercise, then in such an event, such proposed exercise will be effected by Omagine for the maximum number of Strategic Warrants resulting in the beneficial ownership of the maximum number of whole Common Shares by such Strategic Warrant Holder which fails to meet the above stated applicable limitation for such Strategic Warrant Holder and its affiliates and any excess Warrant Payment will be returned to such Strategic Warrant Holder.

 

The Strategic Warrants do not contain any anti-dilution provisions and the exercise price and the number of Common Shares that Omagine must issue upon exercise of Strategic Warrants shall not be subject to adjustment for any reason, including but not limited to a stock split, combination or subdivision of the Common Stock or a dividend, reclassification, reorganization, or spinoff.

 

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As of the date hereof there is no active trading market for the Strategic Warrants and Omagine does not presently expect an active trading market for the Strategic Warrants to develop in the near term. Our attempts to date to have the Strategic Warrants listed for quotation and trading on the OTCQB have not been successful. We hope to have the Strategic Warrants trade on the OTCQB under symbols to be assigned by FINRA and after the required application for such listing for quotation on the OTCQB is made by a market-maker on our behalf. We cannot, however, give any assurance that the Strategic Warrants will be quoted or traded on the OTCQB or on any securities exchange until such application is made on our behalf by a market-maker, such listing is approved and such symbols are assigned by FINRA. Furthermore, if such application is made on our behalf by a market-maker and the Strategic Warrants are approved by FINRA for listing and quotation on the OTCQB, we cannot give any assurance that a market for the Strategic Warrants will develop or, if such a market does develop, whether it will be sustainable throughout the period within which the Strategic Warrants are valid and transferable or at what prices such Strategic Warrants will trade. Strategic Warrant Holders may resell all or a portion of such Strategic Warrants from time to time in market transactions through any market on which the Strategic Warrants are then traded, in negotiated transactions or otherwise, and at prices and on terms determined by the then prevailing market price or at negotiated prices directly or through a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale.

 

Transfer Agent for Strategic Warrants

 

The transfer agent for our Strategic Warrants is Continental Stock Transfer and Trust Company, 17 Battery Place, New York, New York 10004.

 

Outstanding Strategic Warrants and Holders

 

As of September 19, 2014 there were 6,422,124 Strategic Warrants issued and outstanding, 3,211,062 of which are exercisable at $5.00 per Common Share and 3,211,062 of which are exercisable at $10.00 per Common Share and, based upon the number of Record Shareholders on January 17, 2012, there are approximately 1,122 holders of our Strategic Warrants.

 

Tempest Warrants

 


As of September 19, 2014 there are 760,000 Tempest Warrants issued and outstanding.

 

On June 24, 2014, Omagine issued the 1,000,000 Tempest Warrants to an investor each of which are exercisable for the purchase of one restricted Common Share at a per Common Share exercise price equal to the greater of: (a) $1.00 per Common Share, or (b) 80% of the closing sale price for a Common Share on the Trading Day immediately preceding the relevant exercise date (See: Exhibit 4.4). On August 15, 2014, such investor transferred 240,000 Tempest Warrants to an affiliate and such affiliate of such investor exercised 240,000 Tempest Warrants on August 15, 2014 at $1.40 per share for the purchase of 240,000 restricted Common Shares.

 

Both the Tempest Warrants and the Common Shares issuable upon exercise of the Tempest Warrants are “restricted securities” as that term is defined in the Securities Law. Omagine has no obligation nor present intention to register with the SEC either the Tempest Warrants or the Common Shares underlying the Tempest Warrants.

 

The Tempest Warrants are subject to adjustment in the event of a stock split, combination or subdivision of the Common Stock or a dividend, reclassification, reorganization, or spin off. The Tempest Warrants may be exercised in whole or in part but only for whole shares of restricted Common Stock and the Tempest Warrants are not redeemable by Omagine.

 

The Tempest Warrants are exercisable at the option of the Tempest Warrant Holder at any time up until their expiration on June 23, 2016 at 5 p.m. Eastern Time in the United States.

 

Transfer Agent for the Tempest Warrants

 

The transfer agent for the Tempest Warrants is Omagine.

 

Outstanding Tempest Warrants and Holders

 

As of September 19, 2014 there were 760,000 Tempest Warrants issued and outstanding and there is 1 holder of our Tempest Warrants.

 

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LEGAL MATTERS

 

The validity of our Common Shares offered hereby will be passed upon by Sichenzia Ross Friedman Ference LLP, New York, New York. As of the date of this Prospectus, Sichenzia Ross Friedman Ference LLP is the beneficial holder of 34,374 shares of our Common Stock.

 

EXPERTS

 

Our consolidated financial statements at December 31, 2013 and for the two years then ended appearing in this Prospectus have been audited by Michael T. Studer, CPA P.C., independent registered public accounting firm, as set forth in their report thereon appearing elsewhere in this Prospectus and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing.

 

DESCRIPTION OF BUSINESS

 

Overview

 

Omagine is the successor to Alfa International Corp. and is a holding company which conducts substantially all its operations through its 60% owned subsidiary LLC and its wholly-owned subsidiary JOL. Omagine and JOL organized LLC in Oman and initially capitalized it at 20,000 Omani Rials [$52,000] (the “OMAG Initial Equity Investment”).

 

We are a DSE as defined in ASC 915 issued by the FASB and we are focused on entertainment, hospitality and real estate development opportunities in the MENA Region and on the design and development of unique tourism destinations.

 

Our mission is to develop, own and operate innovative projects in the MENA Region which have tourism components that are thematically imbued with culturally aware, historically faithful, and scientifically accurate entertainment experiences. We design the tourism elements to be modern and stylish while emphasizing the world’s great art, music, culture, science and philosophy.

 

LLC was organized to design, develop, own and operate the Omagine Project which we expect to be our archetype for future projects in the MENA Region.  (See “The Omagine Project” below in this section).

 

Omagine’s 100% ownership of LLC was reduced to 60% in May 2011 pursuant to the Shareholder Agreement among Omagine, JOL and the New Shareholders. (See: “The Shareholder Agreement” below in this section).

 

The Company presently concentrates the majority of its efforts on the business of LLC and specifically on the Omagine Project.

 

Omagine's executive office is located at The Empire State Building, 350 Fifth Avenue, 48th Floor, New York, NY 10118, and its telephone number is 212-563-4141. LLC leases an office in Muscat, Oman. Our website address is www.omagine.com.

 

The Omagine Project

 

The Company has proposed to the Government of Oman (the "Government") the development in Oman by LLC of the Omagine Project - a mixed-use tourism and residential real estate project which is expected to take more than five years to complete.

 

We anticipate that the Omagine Project will be developed on one million square meters (equal to approximately 245 acres) of beachfront land facing the Gulf of Oman just west of the capital city of Muscat and approximately six miles from Muscat International Airport (the "Omagine Site").

 

The Omagine Project 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; an open air boardwalk, amphitheater and stage; open space green landscaped areas; a canal and enclosed harbor and marina area; retail shops and restaurants; entertainment venues; boat slips and docking facilities; a five-star resort hotel; a four-star hotel; and possibly an additional three or four-star hotel; shopping and retail establishments integrated with the hotels; commercial office buildings; and more than two thousand residences to be developed by LLC for sale.

 

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The Government has issued a license to Omagine LLC designating the Omagine Project as an Integrated Tourism Project (“ITC License”) thereby permitting the sale by Omagine LLC of land within the Omagine Project (the “Project Land”) and properties which are developed within the Omagine Project to any person, including any non-Omani person.

 

Significant commercial, retail, entertainment and hotel elements are included in the Omagine Project and LLC therefore plans to also ultimately be in the property management, hospitality and entertainment businesses.

 

The Development Agreement

 

The contract between the Government and LLC which will govern the design, development, construction, management and ownership of the Omagine Project and the Government’s and LLC’s rights and obligations with respect to the Omagine Project, is the “Development Agreement” (the “DA”).

In order to begin the development of the Omagine Project, it is first necessary that LLC and the MOT sign the DA. For a detailed description MOT’s numerous DA signing delays to date, please see the Registrant’s prior reports filed with the SEC.

From October 2013 through August 2014, an intensified series of meetings and discussions were held between and among various members of LLC’s management, shareholders and lawyers, and the Minister of Tourism, His Excellency Ahmed Al-Mahrizi, (the “Minister”) and senior staff members of the MOT (“MOT Staff”).

These meetings and discussions resulted in an agreed DA which has been printed and prepared for signature by the parties. Based on MOT’s representations, management expected that the DA would be signed in August 2014 but for apparently bureaucratic reasons at MOT, this did not happen.

On September 21, 2014 at MOT’s request, management met with and advised the tourism consulting firm engaged by MOT to do a tourism strategy study for Oman.

On September 21, 2014 we received a letter from the MOT’s legal adviser requesting two minor changes to the DA.

On September 21, 2014 the Company’s president, Mr. Drohan, spoke to the Minister of Tourism and explained that the requested changes were not advisable since one of them was probably contrary to existing Omani regulations and the other was simply an unwise change to make. Mr. Drohan said he would meet with the MOT legal adviser the following day (September 22nd) to discuss the matter and would then update the Minister. The Minister thanked Mr. Drohan and repeatedly assured him that he was “ready to sign the DA” at any time.

On September 22, 2014 Mr. Drohan met with the legal adviser at MOT and discussed the requested changes in detail.

On September 22, 2014 Mr. Drohan sent a detailed explanatory email to the legal adviser and to the Minister recounting the reasons why the two requested changes to the DA were neither required nor advisable.

We are awaiting a reply from MOT but do not presently expect that any further changes to the DA will be required.

Management has recently been approached by several local business people, contractors and suppliers who have been referred to us by MOT as possible suppliers or contractors for the Omagine Project.

We presently anticipate that LLC and the Government will sign the DA in September or October 2014. No date for the DA signing has been set as of the date hereof but management continues to expect that the DA signing is imminent.

Past experience indicates that caution should be exercised in making any assumptions until the DA and UA are actually signed by the parties. In light of such past experience, we caution investors that we cannot give any assurance that the DA and UA will be signed by the parties until they are actually signed by them.

The Usufruct Agreement

 

The Usufruct Agreement (the “UA”) is the contract between the Government and LLC which will govern the use, development and sale of the land constituting the Omagine Site (the “Project Land”). With respect to how such Project Land may be used or developed, the UA goes into no detail and merely states that the Omagine Site will be developed in accordance with the DA. Although the UA is a separate agreement from the DA, the DA and UA are dependent upon each other and the UA is part of and is incorporated by reference into the DA. Both the UA and the DA stipulate that in the event of any conflict between the terms and conditions of the DA and the terms and conditions of the UA, the terms and conditions of the DA will control. The term of the Usufruct Agreement is for fifty (50) years and it is renewable for an additional fifty years upon the agreement of the parties (the “Term”).

 

The UA grants LLC the absolute right during the Term to use, control, develop and sell (to itself or others) the Project Land pursuant to the terms of the DA. The UA obligates LLC, beginning on the fifth anniversary of the signing of the UA, to pay the Government an annual fee equal to three hundred Omani Baisa (equivalent to approximately $0.78) for each square meter of Project Land within any legally delineated plot of Project Land upon which plot there is a substantially completed non-residential building (the “Usufruct Rent”). No Usufruct Rent is due or owing during the first five years after signing the UA and no Usufruct Rent is ever due or owing during the Term with respect to plots of Project Land (i) on which there is a residential building, or (ii) on which there is not a substantially completed non-residential building (i.e. open space, roads, building work-in-progress, etc.).

 

As is present practice in Oman, LLC anticipates that sales contracts with third party purchasers of residential or commercial properties that are purchased “off plan” (i.e. purchased before construction thereof), will stipulate the payment to LLC by such purchasers of (i) a deposit on signing of such sales contract, and (ii) progress payments during the construction period of the relevant property covered by such sales contract. Since the aggregate of such deposit and progress payments before and during the construction of the relevant property is expected to be approximately 85% of the sales price of the relevant property stipulated in such sales contract, LLC anticipates that (i) the construction costs for most, possibly a majority, of properties will be “owner-financed” by the relevant purchaser, and (ii) it will therefore not be necessary for LLC to utilize any Construction Financing from its banks in order to pay for the construction costs of properties which are sold pursuant to “off plan” sales contracts. Management expects that this commonly accepted sales contract and payment process will significantly benefit LLC by reducing its aggregate requirements for Construction Financing from its banks.

 

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The UA and DA also obligate LLC to pay the Government twenty-five (25) Omani Rials (equivalent to approximately $65) for each square meter of Project Land purchased directly by LLC or sold by LLC to any third party during the Term (the “Land Price Payments”). Such Land Price Payments are not due or owing to the Government from LLC until such time as LLC legally transfers the freehold title to such land to such purchasers, which time will coincide with the closing of the sale of such properties. Such closings will only occur after LLC has received final payment from the purchaser of the relevant sales contract amount for such properties. LLC’s financing profile is therefore further enhanced since it is not obligated to make any Land Price Payments to the Government until after it has already received 100% of the contracted sales price amount from the relevant purchaser at the closing when the freehold title to such land and property is transferred to the purchaser. At the present time, the average selling price for land at the Omagine Site is conservatively estimated by local real estate agents to be at least 250 Omani Rials (approximately $650) per square meter.

 

At the expiration of the Term, any Project Land, or buildings situated on Project Land, remaining unsold - if any - will revert to the ownership of the Government. Since the UA and DA grant LLC the right to sell the freehold title to all Project Land and buildings in the Omagine Project, LLC does not anticipate that there will be any unsold Project Land or buildings at the expiration of the 50 year Term. The foregoing summary of the terms of the Usufruct Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Usufruct Agreement which the Company will file as an exhibit to its SEC filing subsequent to the signing of the Usufruct Agreement by LLC.

 

Non-Omani persons (such as expatriates living and working in Oman) are not permitted by Omani law to purchase land or residences in Oman outside of an Integrated Tourism Complex (“ITC”). The Government’s designation and licensing of the Omagine Project as an ITC therefore permits LLC to sell the freehold title to Project Land and residential properties which are developed on the Omagine Site to any individual or juristic person - Omani or non-Omani.

 

The Shareholder Agreement / LLC Capital Structure

 

In May 2011, Omagine, JOL and three new investors (the “New Shareholders”) entered into the Shareholder Agreement pursuant to which, among other things, Omagine’s 100% ownership of LLC was reduced to 60%. The Shareholder Agreement is attached hereto as Exhibit 10.5.

 

The New Shareholders are:

 

i. The office of Royal Court Affairs (“RCA”), an Omani organization representing the personal interests of His Majesty Sultan Qaboos bin Said, the ruler of Oman, and
ii.Two subsidiaries of Consolidated Contractors International Company, SAL (“CCIC”). CCIC is a 60 year old Lebanese multi-national company headquartered in Athens, Greece having approximately five and one-half (5.5) billion dollars in annual revenue, one hundred twenty thousand (120,000) employees worldwide, and operating subsidiaries in among other places, every country in the MENA Region. The two CCIC subsidiaries which are LLC shareholders are:
1.Consolidated Contracting Company S.A. (“CCC-Panama”), a wholly owned subsidiary of CCIC and is its investment arm, and
2.Consolidated Contractors (Oman) Company LLC, CCIC’s operating subsidiary in Oman which is a construction company with approximately 13,000 employees.

 

Pursuant to the provisions of the Shareholder Agreement, LLC acknowledged the 20,000 Omani Rial ($52,000) OMAG Initial Equity Investment from Omagine and sold newly issued shares of its capital stock to Omagine and to the New Shareholders for an aggregate cash investment amount of 26,968,125 Omani Rials ($70,117,125) (the “New Investment”).

 

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The New Investment will be invested in two stages and as of the date hereof the first stage investments into LLC have been made by Omagine and the New Shareholders as follows:

 

i.Omagine invested an additional 70,000 Omani Rials ($182,000) into LLC, and
ii.CCIC (through its 2 subsidiaries) invested 22,500 Omani Rials ($58,500) into LLC, and
iii.RCA invested 37,500 Omani Rials ($97,500) into LLC.

 

LLC is presently capitalized at 150,000 Omani Rials ($390,000) and, as of the date hereof, Omagine has also advanced it an additional 70,000 Omani Rials (the “Cash Advance”). A summary of LLC’s capital structure as of the date hereof is as follows:

 

Omagine LLC
Shareholder   Percent Ownership    

Investment

(Omani Rials)

    Investment (US Dollars)    Cash Advance (Omani Rials) 
Omagine   60%   90,000   $234,000    70,000 
RCA   25%   37,500   $97,500    0 
CCC-Panama   10%   15,000   $39,000    0 
CCC-Oman   5%   7,500   $19,500    0 
Total Capital   100%   150,000   $390,000    70,000 

  

The Shareholder Agreement defines the “Financing Agreement Date” as the day upon which LLC and an investment fund, lender or other person first execute and deliver a legally binding agreement pursuant to which such investment fund, lender or other person agrees to provide debt financing for the first phase or for any or all phases of the Omagine Project.

 

The second and final stage investments into LLC to be made by Omagine and the New Shareholders (the “Deferred Investments”) are contingent upon the following:

 

i.Omagine’s Deferred Investment is contingent upon the Development Agreement being signed, and
ii.CCIC’s two subsidiaries’ Deferred Investments are contingent upon the appointment of CCC-Oman by LLC as the general contractor for the Omagine Project and the occurrence of the Financing Agreement Date.
iii.RCA’s Deferred Investment is contingent upon the occurrence of the Financing Agreement Date.

 

The amounts of the Deferred Investments are as follows:

 

i. Omagine will invest an additional 140,000 Omani Rials ($364,000) plus its Cash Advance of 70,000 Omani Rials ($182,000) for a total Deferred Investment by Omagine of 210,000 Omani Rials ($546,000).
ii.CCIC (through its 2 subsidiaries) will invest an additional 18,987,500 Omani Rials ($49,367,500).
iii.RCA will invest an additional 7,640,625 Omani Rials ($19,865,625).

RCA will also invest the Omagine Site as a non-cash “payment-in-kind” capital contribution to LLC (the “PIK”). The PIK represents the value of the land previously owned by His Majesty Sultan Qaboos bin Said, the ruler of Oman, which His Majesty transferred to MOT on condition it be used for development of the Omagine Project. The value of the PIK will be determined by appraisal after the DA is signed.

 

Management believes that the PIK and the New Investment are the most important parts of LLC’s capital structure and that they were the most difficult to arrange since they are the highest risk portion of such equity capital structure. As of the date hereof, both the PIK and the New Investment are memorialized in the legally binding Shareholder Agreement.

 

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After the DA is signed LLC plans to transform its corporate structure from a limited liability company into a joint-stock company (“Omagine SAOC”). Subsequent to the Deferred Investments being made, Omagine SAOC (formerly LLC) will then be capitalized at 26,988,125 Omani Rials ($70,169,125). A summary of Omagine SAOC’s capital structure after such Deferred Investments are made is as follows:

 

Omagine SAOC
Shareholder  Percent Ownership   Investment (Omani Rials)   Investment (US Dollars)     
                 
Omagine   60%   300,000   $780,000      
RCA   25%   7,678,125   $19,963,125    + PIK * 
CCC-Panama   10%   12,673,333   $32,950,666      
CCC-Oman   5%   6,336,667   $16,475,334      
Total Capital:   100%   26,988,125   $70,169,125    + PIK * 

 

* The capital of LLC will likely be increased further at a later date when and if the non-cash valuation of the PIK is recorded as a capital investment into LLC.

 

The PIK represents a portion of RCA’s payment to LLC for its 25% ownership of LLC. The value of the PIK will equal the value to LLC that is ultimately assigned to the provision to LLC of the approximately 245 acres of beachfront land constituting the Omagine Site. After the DA is signed, the value of the PIK will be determined by a professional valuation expert in accordance with Omani law and with the concurrence of LLC’s independent auditor.

 

Although Omagine and the New Shareholders will have invested an aggregate of 360,000 Omani Rials (equivalent to approximately $936,000) before the Financing Agreement Date, 26,628,125 Omani Rials ($69,233,125) of the Deferred Investments will not be invested by the New Shareholders or received by LLC until the Financing Agreement Date.

 

The Financing Agreement Date is presently projected by management to occur within twelve months after the signing of the DA. If however the financial resources are available to Omagine, then Omagine and LLC may at their option, choose to trigger the Financing Agreement Date earlier by having Omagine make a secured loan to LLC (and thereby, pursuant to the provisions of the Shareholder Agreement, trigger the $69,233,125 Deferred Investment by the New Shareholders into LLC) to finance the first phase of the development of the Omagine Project. Pursuant to the provisions of the Shareholder Agreement, such a loan would constitute a Financing Agreement Date and management is exploring additional financing mechanisms that will facilitate the early initiation of the development and design process of the Omagine Project. (See: “Design, Engineering, Content Development and Construction” below).

 

Management presently intends to pursue the sale of a further percentage of LLC’s equity to one or more investors as soon as reasonably possible subsequent to the signing of the DA and management presently believes it can maintain Omagine’s majority control of LLC while successfully selling such LLC equity to new investors for an amount in excess of the average cash investment amount paid by the New Shareholders.

 

Consolidated Results

 

The financial results of LLC are included in the consolidated financial results of the Company in accordance with accounting principles generally accepted in the United States. If and when the Financing Agreement Date occurs, the Company will experience a substantial increase in capital when 60% of the approximately $70 million of cash capital investments into LLC are recorded in the Company’s consolidated financial statements as Omagine’s ownership interest in LLC. At or about that same time the Company may experience an additional substantial increase in its capital when 60% of the valuation of the PIK may also be recorded as capital on the Company’s consolidated financial statements. LLC's ongoing financial results will be included in the consolidated financial statements of the Company as appropriate for as long as Omagine remains a shareholder of LLC.

 

22

 

The Company continues the preparation for its anticipated future business activities in various ways including but not limited to: (i) recruiting various executive level personnel for both Omagine and LLC that will be required to ramp up organizationally for the Omagine Project, (ii) examining various methods of raising additional capital for both Omagine and LLC, (iii) negotiating and concluding the legally binding definitive agreement with BNP Paribas CIB and BNP Paribas Real Estate based upon the terms and conditions outlined in the LOI; (iv) negotiating the outlines of initial contracts with CCC-Oman and the other major vendors, contractors, consultants and employees proposed to be involved in the Omagine Project, (v) arranging the appropriate and required legal, accounting, tax and other professional services both in Oman and the U.S., (vi) examining various tax structures for JOL and LLC, (vii) reviewing and complying (to the extent we are presently able) with the listing requirements of various stock exchanges so we may be prepared to apply for such listing(s) as soon as we are eligible, (viii) examining various other matters we believe will enhance shareholder value, and (ix) examining other potential Company revenue streams which are ancillary to, and derivative of, the Omagine Project.

 

Subsequent to signing the Development Agreement, the Company plans to enter businesses other than real estate development - and ancillary to, and derivative of, the Omagine Project - and the Company presently expects to generate ongoing revenue streams from such businesses, but no projections of the amount of such revenue, if any, can be made at this time.

 

The Company is a development stage entity and is not expected to generate revenue until after the occurrence of an event - the signing of the Development Agreement for the Omagine Project - which, as of the date hereof, has not yet occurred. Moreover, revenue from real estate development associated with the Omagine Project is not expected to occur until subsequent to the Financing Agreement Date.

 

Pre-Development Expenses / Success Fee

 

The Shareholder Agreement defines the “Pre-Development Expense Amount” as the total amount of Omagine Project related expenses incurred by Omagine and JOL prior to the signing of the DA. Such Pre-Development Expense Amount expenses were heretofore incurred by Omagine and JOL and continue to be incurred by Omagine with respect to the planning, concept design, re-design, engineering, financing, capital raising costs and promotion of the Omagine Project and the negotiation and conclusion of the DA with the Government.

 

The Shareholder Agreement (i) estimates that, as of the date of the Shareholder Agreement (April 20, 2011), the Pre-Development Expense Amount was approximately nine (9) million U.S. dollars, and (ii) defines the Success Fee as being equal to ten (10) million dollars.

 

As provided for in the Shareholder Agreement, Omagine will receive payment in full from LLC of:

 

  (i) the Pre-Development Expense Amount and,
  (ii) the $10 million Success Fee.

 

The Shareholder Agreement also defines the date subsequent to the Financing Agreement Date when LLC draws down the first amount of debt financing as the “Draw Date”.

 

The ten (10) million dollar Success Fee will be paid to Omagine in five annual two (2) million dollar installments beginning on or within ten (10) days after the Draw Date.

 

Fifty percent (50%) of the Pre-Development Expense Amount will be paid to Omagine on or within ten (10) days after the Draw Date and the remaining fifty percent (50%) will be paid to Omagine in five equal annual installments beginning on the first anniversary of the Draw Date.

 

All of the aforementioned investment amounts, ownership percentages and other terms and conditions of the Shareholder Agreement were negotiated by Omagine management on behalf of LLC in arms-length transactions between LLC and the New Shareholders. Other than their present ownership positions in LLC, none of the New Shareholders are affiliates of Omagine. The Shareholder Agreement also specifies, among other things, the corporate governance and management policies of LLC.

 

The foregoing summary of the terms of the Shareholder Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Shareholder Agreement. The Shareholder Agreement is Exhibit 10.5 hereto.

 

23

 

Financial Adviser

 

BNP Paribas S.A. (“BNPP”) is a French global banking group headquartered in Paris, France with its second global headquarters located in London, England.

 

On January 2, 2013, LLC signed a letter of intent (“LOI”) with BNP Paribas, Wholesale Banking, Bahrain through its Corporate and Investment Banking department (“BNP Paribas CIB”) and BNP Paribas Real Estate Property and Management LLC (“BNP Paribas Real Estate”).

 

The LOI memorializes the parties’ discussions and proposals with regards to the Omagine Project as follows:

 

  (a) LLC intends to appoint BNP Paribas CIB as the financial advisor to LLC and to arrange the financing for the Omagine Project, including evaluating various funding, capital and debt structures available to LLC; and
  (b) LLC intends to appoint BNP Paribas Real Estate for real estate advisory services to LLC and to assist LLC by, among other things, providing a full financial feasibility assessment and a market feasibility study for the Omagine Project. This study will be utilized by BNP Paribas CIB in arranging the project financing.

 

The LOI is non-binding and subject to the execution of a definitive agreement between the parties which is expected to occur subsequent to the DA signing.

 

As previously disclosed (i) LLC has held discussions with and received letters of interest and “comfort letters” in support of the Omagine Project from some of the largest banks in the MENA Region including three banks in Oman, and (ii) LLC has a longstanding relationship with Bank Muscat SAOG ("BankMuscat") which is 30% owned by RCA and is the largest financial institution in Oman. After the DA is signed, LLC plans to nominate an Omani bank to be a joint-venture partner with BNP Paribas CIB with respect to the syndication by BNP Paribas CIB with various banks and financial institutions (the “Lenders”) of the debt financing (the "Construction Financing") that Omagine LLC will require for the development and construction of the Omagine Project. The amount of Construction Financing debt owed at any one time by LLC to its Lenders is expected to fluctuate over the development and construction cycle of the Omagine Project and will be greatly influenced by (i) any sales of additional capital stock by LLC, and (ii) the pace and tempo of LLC’s receipt of proceeds from its planned sales of real-estate to third parties. The maximum amount of such Construction Financing debt expected to be outstanding at any one time during the development and construction cycle of the Omagine Project is presently estimated by management to be between $300 million and $500 million.

 

As presently contemplated by the LOI, BNP Paribas CIB (and an Omani bank as its joint-venture partner) will be engaged by LLC as its financial advisor to assist LLC in arranging the necessary Construction Financing for the Omagine Project and other financing for LLC as may be required. The capital of LLC, proceeds from the sales, if any, by LLC of additional equity stakes, bank borrowings and the proceeds from sales of its residential and commercial properties, are expected to be utilized by LLC to develop the Omagine Project.

 

We have had extensive discussions with a number of MENA Region financial institutions with respect to such Construction Financing and we are presently in receipt of six “bank comfort letters” in support of the Omagine Project from some of the largest banks in the MENA Region – including three banks in Oman. These discussions will be advanced further and continued by BNP Paribas CIB on our behalf. With BNP Paribas CIB leading this effort, management is optimistic with respect to LLC’s prospects for arranging the Construction Financing for the Omagine Project but recognizes that given present economic and market conditions, it is not a trivial task and will be challenging. The DA, which is presently agreed and approved (but not yet signed), recognizes and addresses this issue when it states, in relevant part:

 

“The Government recognises that the Project Company intends to raise limited recourse financing in relation to the Project and that Lenders may expect to be afforded certain rights in relation to it. Accordingly, the Project Company will by or before the completion of twelve (12) months from the Execution Date enter into a written term sheet with the Lenders for the financing of the first phase, any other phase or all of the Project (a “Term Sheet”). If the Project Company has not delivered a copy of such Term Sheet to the Government by or before the expiry of the twelve (12) month period referred to above, this Development Agreement then shall have no further effect.”

 

MENA Region banks and financial institutions continue to maintain high levels of liquidity but the project financing environment in Oman and the MENA Region remains cautious after the recent worldwide bank liquidity problems and Eurozone debt crisis. BNP Paribas CIB has deep and wide-ranging expertise in the MENA Region project financing markets and as part of its normal business activities it is in regular contact with MENA Region banks and international financial institutions regarding the status of and conditions prevailing in the project finance marketplace. The Company is optimistic that BNP Paribas CIB will be able to arrange the necessary project financing for the Omagine Project. Management believes and BNP Paribas CIB concurs, that there is currently a high degree of liquidity and a strong appetite among MENA Region banks and financial institutions for lending to, and investing in, sound development projects in the MENA Region. The banks and other financial institutions and advisers with which we have discussed the Omagine Project (including BNP Paribas CIB and BNP Paribas Real Estate) have been uniformly impressed with the quality of the LLC shareholders.

 

24

 

Subsequent to the signing of the Development Agreement, the value of the Omagine Site will be definitively determined by a qualified independent real-estate appraiser and such valuation will be utilized to determine the value of the PIK. Such appraisal and PIK valuation will be utilized by BNP Paribas CIB in their discussions with banks and other financial institutions in order to arrange the Construction Financing.

 

Market Conditions

 

Notwithstanding the foregoing, we continue to be of the opinion that the project finance market in Oman remains challenging. The market intelligence garnered by management indicates that local bankers and market participants believe that both transaction volume and pricing in the Omani real estate market are steadily improving. Management plans to obtain third party verification of its assumptions and beliefs by engaging BNP Paribas Real Estate promptly after the DA is signed to update and assess LLC’s market feasibility study for the Omagine Project. BNP Paribas Real Estate will also perform a full third-party financial feasibility assessment to update LLC’s underlying assumptions in its financial model for the Omagine Project. These studies and assessments will then be utilized by LLC to fine tune its development plans, and by BNP Paribas CIB in arranging the necessary Construction Financing and other financing for LLC as may be required.

 

Assuming the DA is signed in 2014, LLC should be well positioned to benefit from the ongoing and improving market conditions in both the real-estate and project financing sectors since, from a timing perspective, LLC plans to begin a year or more of intensive design and planning activities after the DA is signed, followed by the launch of residential and commercial sales at the Omagine Project.

 

The worldwide financial crisis, the “Arab Spring” uprisings, the Eurozone financial crisis - and the plethora of their poisonous knock-on effects - had deep and deleterious banking, economic, market and political consequences. It is indisputable that in the immediate and near-term aftermath of these crises, real estate and financial markets worldwide (including the Oman markets) were vastly more troubled and challenging than they are at present. Trends in the Omani market subsequent to the recent worldwide financial crisis however have indicated a reduced presence of speculative buyers and a reduced consumer appetite for pre-sales of residence units (“off-plan” sales) as many more buyers are now demanding a finished product before entering into sales contracts with developers.

 

It is clear that operating in today’s recovering market environment is preferable to having to operate in the prior years’ toxic environment characterized by tumultuous and severely adverse economic, political, financial and societal disorders. It is noteworthy that these various crises coincided with a succession of four different Ministers of Tourism in Oman since February of 2011. Management is of the opinion that, other than the immensely damaging expense, liquidity and dilution issues inflicted to date on Omagine and its shareholders by the MOT’s continuing DA signing delays (See: “Liquidity – Dilution / MOT Delays” below), the Company has emerged from this turbulent event tunnel, not just unscathed - but strengthened. Present market conditions should favorably impact LLC’s future operations.

 

Although the Oman economy and markets were not nearly as severely affected by the aforementioned crises as nearby Dubai or other countries, it did experience negative effects, slowdowns and volatility in both residential and commercial selling prices and market absorption rates during the past several years. Raw material and labor prices initially dropped dramatically but have now recovered and stabilized.

 

Other Arab countries in the MENA Region have experienced and are experiencing demonstrations of discontent with the rule of their heads of state and in some cases these demonstrations are being met with violent pushback by some MENA Region governments but this was not and is not the case in politically and economically stable Oman. Notwithstanding the foregoing, Oman has experienced several low-intensity demonstrations against government corruption and with respect to job opportunities and wages for Omanis (a very few of which involved violent behavior) and these have been met by His Majesty and the Government with pro-active positive measures and economic and political initiatives (including an aggressive anti-corruption campaign and widely acclaimed elections) to address the expressed concerns of the citizens of Oman. Short term work stoppages and strikes with respect to labor matters accompanied by non-violent demonstrations now occur occasionally in Oman but these events, as well as several newly organized and legally allowed labor unions and the aforementioned anti-corruption campaign, are now regarded as a normal part of the emerging democratic fabric of Omani society.

 

25

 

Construction material costs and property selling prices in Oman and the surrounding region remain somewhat volatile and undue reliance on present forecasts should be avoided. Management cautions that future events rarely develop exactly as forecast and the best estimates routinely require adjustment. Management fully expects that its cost estimates for the Omagine Project will require adjustment – possibly significant adjustment – as future events unfold. Investors and shareholders are cautioned not to place undue reliance on any such forward-looking statement or forecast, which speaks only as of the date hereof.

 

At present, both the economy and real estate sector of nearby Dubai are experiencing a very robust recovery. Dubai leads the way for the Gulf tourism market and this is likely to be the case for the foreseeable future, given its existing visitor market (over 10 million visitors in 2012), attractions, its impressive future capital development and marketing investment programs, and especially given its recent selection as the host for EXPO 2020 which is expected to attract over 25 million visitors. All of the foregoing will ensure that Dubai’s appeal is maintained and management expects this to have a positive knock-on effect on nearby Oman’s economy and real-estate market. (See: “Sales and Marketing” below).

 

Sales and Marketing

 

LLC plans to undertake several wide ranging and continuous marketing and public relations campaigns subsequent to the DA signing in anticipation of its launch of residential and commercial properties for sale and to advertise and promote its forthcoming entertainment, hospitality and retail offerings.

 

Assuming the DA is signed in 2014, the launch date for residential and commercial sales would be planned to occur in late 2015. While management views most of the past delays by the Government as being adverse to the Company’s best interests, it recognizes that, if the DA is signed in 2014, the continuing recovery of the project finance and local real estate markets will contribute positively to LLC’s future prospects. Management expects LLC to benefit from Dubai’s hosting of EXPO 2020, and similarly from nearby Qatar’s hosting of the World Cup Games in 2022. The Omagine Project will be conveniently located one hour from Dubai by air and is easily accessible by a fine roadway system in both Oman and the U.A.E. It is a natural and logical addition to a Dubai visit.

 

Sale prices and rental rates for housing in other integrated tourism projects in the Muscat area of Oman have recovered and are increasingly strengthening. The inventory of unsold housing in the secondary (re-sale) market (both outside of and within ITCs) has diminished due to recent robust, albeit quite price-sensitive, sales activity. New housing inventory, especially smaller apartments designed to hit perceived market price-points, has continued to come onto the local Muscat area market and the market absorption rates (number of market transactions) for such new residential housing is brisk and continues to improve.

 

The DA as presently agreed but not yet signed (the “Final DA”) allows for sales and pre-sales of any of the residential or commercial buildings that will be developed and built on the Omagine Site.

 

Non-Omani persons (including but not limited to expatriates living and working in Oman) are forbidden by Omani law to purchase land, residences or commercial properties in Oman unless such land, residences or commercial properties are located within an ITC.

 

The Final DA stipulates the obligation of the Government to issue such Licenses and Permits as may be required for the development of the Omagine Project, including but not limited to issuing an Integrated Tourism Complex License (“ITC License”) designating the Omagine Project as an ITC. On June 26, 2014, the Government issued an ITC License to LLC designating the Omagine Project as an ITC.

 

Because it is now licensed as an ITC, the land, residences and commercial properties within the Omagine Project may (after the DA is signed) be sold to any buyer worldwide - including any non-Omani buyer - and the freehold title to such land, residences and commercial properties may be transferred to such buyers.

 

The excellent location of the Omagine Site is universally recognized by local market participants and the significance of the provision of the Omagine Site via the Usufruct Agreement to LLC is enormous. The increase in the value over the last several years of the land constituting the Omagine Site is expected to have a positive effect on the valuation of the PIK and on revenue from the sale of residential and commercial properties. The value of the Omagine Site will be a primary driver of future LLC and Company revenue and the benefits accruing to LLC and the Company pursuant to LLC’s Usufruct Rights over the Omagine Site will be material and significant.

 

26

 

Pursuant to the DA and UA, LLC will pay the Government 25 Omani Rials (approximately $65) per square meter for the Project Land it sells to third party purchasers. At the present time, the average selling price for land at the Omagine Site is conservatively estimated by local real estate agents to be at least 250 Omani Rials (approximately $650) per square meter. (See: “Description of Business  -  “The Usufruct Agreement”  above).

 

Omagine and JOL have engaged in significant marketing, design, engineering, promotional and other activities with respect to the Omagine Project and have to date incurred a significant amount of costs associated with these and other general and administrative activities (collectively, the "Pre-Development Expense Amount"). The Pre-Development Expense Amount is associated with, among other things, travel, consulting and professional fees, planning and feasibility studies, design, engineering, and with similar such activities including preparing and making presentations to the Government of Oman. Pursuant to the provisions of the Shareholder Agreement the Pre-Development Expense Amount (estimated to be approximately nine million U.S. dollars as of the April 20, 2011 date of the Shareholder Agreement) will be reimbursed to Omagine by LLC. (See: “Pre-Development Expenses / Success Fee” above).

 

Design, Engineering, Content Development and Construction

 

The Company does not presently own or directly operate any design, engineering, content development or construction companies or facilities. Because of our strategic emphasis on design however, the Company or LLC may, depending upon circumstances, establish its own design and/or design supervision entity and/or contract with or enter into joint ventures with firms providing such design and design supervision services. The first phase of the development of the Omagine Project is expected to constitute primarily initial design work and its scope and budgeted cost will be decided upon by LLC shortly after the DA is signed.

 

Subsequent to the OMAG Final Equity Investment of 210,000 Omani Rials ($546,000) being made after the DA is signed, LLC will have the financial capacity to undertake certain limited initial planning and design activities, but for LLC to begin more extensive design and development activities shortly after the DA is signed, it will have to accelerate the timing of the first Financing Agreement Date or sell additional equity or raise additional alternative financing (or a combination of some or all of the foregoing). Otherwise LLC will have to wait until the debt financing and Deferred Investments are received from the New Shareholders after the first Financing Agreement Date occurs in order to perform such extensive design and development activities. Management is presently exploring additional financing mechanisms that will facilitate the early initiation of the development and design process of the Omagine Project.

 

Subject to the approval of its shareholders and to negotiating and agreeing to a contract, LLC presently intends to hire Michael Baker Corporation ("Baker") as its Program Manager and Project Manager. Baker is in the business of providing program management, engineering, design and construction management services to a wide variety of clients including the U.S. Department of Defense and many state governments and commercial clients. Omagine has employed Baker through the feasibility and engineering study phases of the Omagine Project and presently anticipates that, subject to the approval of the LLC shareholders, LLC will execute an agreement with Baker after the signing of the Development Agreement. Omagine presently has a contingent obligation to pay Baker an additional fee of $72,000 for past services, but this fee is only payable if the DA is signed by the Government and LLC. Baker is headquartered in Pittsburgh, PA, with offices throughout the U.S. and in Abu Dhabi in the United Arab Emirates and is experienced in all aspects of design, program management and construction management for large scale construction and development projects of the magnitude of the Omagine Project. Baker has significant program management and construction management contracts with the United States military worldwide, including in the MENA Region. The Company believes it maintains a good working business relationship with Baker but recognizes that there are presently many such highly reputable program and project management companies available and operating in Oman. Baker was recently acquired by Integrated Mission Solutions LLC. What effect this acquisition will have on LLC’s or Baker’s plans to engage Baker as LLC’s Program Manager and Project Manager is unknown at this time. The Company is confident that Baker’s inability or unwillingness to perform or the loss of Baker’s services altogether, (none of which circumstances are presently anticipated by or known to the Company), would not have any adverse impact whatsoever on its or LLC’s business or operations.

 

The interpretive design, entertainment content, and visitor experience design candidates to be hired by LLC have been narrowed to a short list of professional companies. It is presently anticipated that subsequent to the signing of the DA, one or more of such companies ("Content Developers") will be engaged by LLC to transform Omagine’s high level strategic vision for the content of the Pearl structures and surrounding areas into physical places offering emotional, intellectual and physical interactions. Each of the prospective Content Developers has serviced a diverse client base, including theme parks, museums, zoos, aquariums and other such complex entertainment centers around the world, including in the MENA Region, and each continues to regularly produce world class attractions globally of the size and scope of the Omagine Project.

 

27

 

Subject to the approval of its shareholders and to negotiating and agreeing to a contract, LLC presently intends to hire CCC-Oman as the General Contractor for the construction of the Omagine Project. CCC-Oman is an LLC shareholder and one of the largest construction companies in Oman where it currently employs approximately 13,000 construction personnel. CCC-Oman is experienced in all aspects of the construction business and regularly constructs large scale projects of the magnitude of the Omagine Project.

 

To date, Omagine has generally conceived the development concepts and defined the "scope of work" and then, as required, contracted with various designers, architects, contractors and consultants in the United States, Europe and the Middle East to perform those tasks. There are many such designers, architects, contractors and consultants available with competitive pricing and the Company does not believe that the loss or inability to perform of any such designer, architect, contractor or consultant would have a material, adverse impact on its business or operations. The Company believes it maintains a good working business relationship with its designers, architects, contractors and consultants. As presently planned, all copyrights to all material documents, designs and drawings executed by such independent designers, architects, contractors and consultants are, or will be, the property of either JOL, LLC or Omagine (See: "Patents, Copyrights and Trademarks").

 

Final design and engineering as well as the development and construction phases of the Omagine Project can only begin after the DA is signed. All of management’s past estimates regarding the timing of the DA signing have been incorrect. All negotiations with the Government with respect to the DA are now concluded. The Final DA has been agreed by all parties and we are presently awaiting notice from the MOT of the DA signing date.

 

Competition

 

The real-estate development business in Oman is a competitive business populated by companies with substantially greater financial, managerial and personnel resources than LLC presently possesses. Management believes that Omagine's ability to attract RCA and CCIC as strategic shareholders for LLC and to assemble and coordinate a team of experienced American, European and Middle Eastern consultants in a wide variety of specialized fields was crucial to its advancing the Omagine Project to its present status. Each of these consultants, some of whom, depending upon future events may become employees of Omagine and/or LLC, are highly experienced in their respective fields. These fields of expertise include the following: strategic planning; visioning; branding; marketing; Islamic scholarship and research; master planning; architecture; city planning; conceptual design; project management; construction management; general contracting; quantity surveying and costing; interior design; landscape design; art; public policy; engineering (structural, civil, mechanical, electrical, marine); Omani law; cultural and exhibition design; interpretative design; tourism; visitor experience design; recreational operations planning and management; investment banking; structured finance; motion based ride technology; film technology; and training and hotel management.

 

In addition Omagine's president, Frank J. Drohan, has over 30 years of experience doing business across most of the MENA Region and is familiar with the cultural and business environment of the MENA Region. Mr. Sam Hamdan, who is Omagine’s primary strategic consultant and the Deputy Managing Director of LLC has over 25 years of experience in the MENA Region. Mr. Hamdan is fluent in Arabic and English and, depending on future circumstances, may become Omagine's President subsequent to the Financing Agreement Date.

 

Although several of LLC's competitors have well established businesses and brand reputations, management believes that LLC's advantages are (i) the uniqueness of the Omagine Project is particularly attractive to the Government, (ii) Omagine's and LLC's senior management have established strong and trusting relationships with the relevant Government officials and with its partners RCA and CCIC, (iii) LLC’s intention to engage BNP Paribas CIB to be its financial adviser and BNP Paribas Real Estate to be its real estate adviser; and (iv) the Shareholder Agreement, which strongly demonstrates the serious investors and professionals that have been recruited to assist in the development of the Omagine Project. Company management believes LLC can successfully compete in this marketplace through a combination of unique development concepts, effective relationship management, highly experienced and well regarded financial and real estate advisers, and the utilization of highly professional, competent and experienced contractors, sub-contractors and consultants who are well known to the Government.

 

28

 

Manufacturing and Production

 

The Company does not engage in any manufacturing activities and as such does not maintain any inventory. In the future, LLC may maintain an inventory of residential and/or commercial properties held for sale to third parties.

 

Patents, Copyrights and Trademarks

 

It is presently intended that either JOL, LLC or Omagine will own (either outright or by assignment) the copyrights to all the material documents, designs and drawings produced and/or executed in relation to the Omagine Project by its employees and/or independent designers, architects and consultants.

 

Omagine has filed trademark applications with the United States Patent and Trademark Office ("USPTO") for the mark OMAGINE and six related marks (collectively, the "Marks"). Omagine has also filed trademark applications for the Marks in Oman and Kuwait within the applicable time periods required.

 

The Mark OMAGINE and three of the six related Marks have each been issued a Certificate of Registration from the USPTO and are now officially registered Marks in the United States.

 

The USPTO has issued a "Notice of Allowance" with respect to each of the remaining three related Marks (the “Expired Marks”) and the applications for such Expired Marks could have been approved for registration upon the filing of a valid "Statement of Use" attesting that each such Expired Mark was in commercial use. Due to the delays encountered by Omagine in signing the DA, the Expired Marks were not put into commercial use by the “Final Statement of Use Deadline” and all three applications for the Expired Marks have expired. The Expired Marks remain of interest to Omagine and, depending upon future circumstances, we may file new trademark applications for the Expired Marks with the USPTO.

 

Trademark applications for the OMAGINE Mark and eight related Marks were filed in Oman and all have now been issued Certificates of Registration in Oman. The Mark OMAGINE has been issued a Registration Certificate from the Patent and Trademark Department of the Ministry of Commerce & Industry in Kuwait.

 

Governmental Regulation

 

LLC expects that it will require several Omani governmental licenses, permits and approvals for its services and products during the development, construction and operation of the Omagine Project (collectively, “Licenses and Permits”). The obligation of the Government of Oman to issue all such Licenses and Permits as may be required is specifically detailed in the DA. On June 26, 2014 the Government of Oman issued an Integrated Tourism Complex License (“ITC License”) to LLC for its Omagine Project.

 

The Company does not anticipate any negative effects on its or LLC's business from any existing or probable Omani government laws or regulations. LLC will incur certain costs and sustain certain effects on its operations as a consequence of its compliance with Omani laws and regulations, including environmental laws and regulations, and all such costs and effects are expected to be incurred or sustained as part of the normal course of its business.

 

The Company does not require any U.S. governmental approval of its properties, services, products or activities in Oman nor does the Company anticipate any negative effects on its business from any existing or probable United States or Oman government laws or regulations. Both the government of the United States and the government of the Sultanate of Oman have ratified the United States-Oman Free Trade Agreement.

 

Employees, Consultants and Employment Benefits

 

As of the date hereof, we have five employees and eleven consultants. We presently plan to hire eight of such consultants as full time employees of Omagine or LLC subsequent to the signing of the DA. None of our employees are represented by a labor union for purposes of collective bargaining. We consider our relations with our employees and consultants to be good. Subsequent to the signing of the Development Agreement Omagine intends to significantly increase the number of its full time employees. (See: "Executive Compensation" – “Employment Agreements and Consulting Agreement”).

 

Notwithstanding anything to the contrary contained herein, no assurances can be given at this time that the Development Agreement will actually be signed or that the Financing Agreement Date or the anticipated revenues from the Omagine Project will actually occur.

 

29

 

DESCRIPTION OF PROPERTY

 

Omagine maintains its corporate offices at The Empire State Building, Suite 4815-17, 350 Fifth Avenue, New York, N.Y., 10118. The premises are leased by Omagine under a lease expiring December 31, 2015. LLC leases premises in Muscat, Oman under a lease expiring December 31, 2014.

 

LEGAL PROCEEDINGS

 

The Company is not a party to any legal proceedings which would have a material adverse effect on it or its operations.

 

MARKET FOR COMMON SHARES AND RELATED STOCKHOLDER MATTERS

 

Common Stock

 

Although our Common Stock is quoted and traded on the OTCQB under the symbol "OMAG", there is presently a limited amount of trading in our Common Stock and it is uncertain if such limited trading constitutes an “established public trading market”. The following table sets forth the high and low sales price quotations for our Common Shares as reported by the OTCQB on the quarterly ending dates indicated and as of the most recent practicable date. The table reflects inter-dealer prices without retail mark-up, markdown or commission and may not represent actual transactions. The last reported sale price of our Common Stock on the OTCQB on September 19, 2014 was $1.49 per Common Share.

 

Quarter Ended     High     Low  
3/30/12     $ 1.40    

$

1.15  
6/29/12     $ 1.59    

$

1.25  
9/28/12     $ 1.85    

$

1.65  
12/31/12     $ 1.80    

$

1.60  
                 
3/29/13    

$

1.70    

$

1.70  
6/28/13    

$

1.55    

$

1.46  
9/30/13    

$

1.03    

$

0.68  
12/31/13    

$

0.92    

$

0.81  
                   
3/31/14    

$

1.80    

$

1.75  
6/30/14    

$

1.95    

$

1.77  
                   
9/17/14    

$

1.49    

$

1.40  

  

At September 19, 2014 Omagine had issued and outstanding:

 

i.2,325,000 Stock Options exercisable at various per Common Share exercise prices for the purchase of an aggregate of 2,325,000 Common Shares (See: “Executive Compensation - Equity Compensation Plan Information”), and
   
ii. 6,422,124 Strategic Warrants, 3,211,062 of which are exercisable at $5.00 per Common Share and the other 3,211,062 of which are exercisable at $10.00 per Common Share for the purchase of an aggregate of 6,422,124 Common Shares (See: “Description of Preferred Stock and Warrants – Strategic Warrants”), and
   
iii. 760,000 Tempest Warrants exercisable at a per Common Share exercise price equal to the greater of: (a) $1.00 per Common Share, or (b) eighty percent (80%) of the closing market price for a Common Share on the Trading Day immediately preceding the relevant exercise date (See: “Description of Preferred Stock and Warrants – Tempest Warrants”), and
   
iv.2 convertible promissory notes issued to an Independent Director in the aggregate principal amount of $150,000, with accrued interest thereon at June 30, 2014 of $56,165, which 2 notes and accrued interest in the aggregate amount of $206,165 (at June 30, 2014) are convertible at $2.50 per Common Share into approximately 82,466 Common Shares (See: “Certain Relationships and Related Transactions and Director Independence - Related Party Payables”).

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In addition, the Registration Statement of which this Prospectus forms a part, covers the registration by Omagine of up to 3,085,822 Common Shares that may be sold by the Selling Stockholder or its affiliate (See: “Selling Stockholder”).

 

At September 19, 2014, Omagine had 16,185,798 Common Shares issued and outstanding and, based upon the number of record holders plus the number of individual participants in security position listings at such date, there were approximately 1,074 holders of such Common Shares.

 

Dividends and Dividend Policy

 

The holders of Common Stock share proportionately, on a per Common Share basis, in all dividends and other distributions declared by our Board of Directors. Other than a 2012 non-cash dividend distribution of rights and warrants to our shareholders, we have not declared any dividends on our Common Stock since inception and do not anticipate paying cash dividends in the foreseeable future. We plan to retain any future earnings for use in our business operations. Any future decisions as to payment of cash or non-cash dividends or distributions on our Common Stock will be at the discretion of the Board of Directors and will depend upon our earnings and financial position at such time and on such other factors as the Board of Directors may then deem relevant.

 

Performance graph

 

A performance graph is not required for Omagine since it is a smaller reporting company.

 

FINANCIAL STATEMENTS

 

The response to this Item, commencing on Page F-1, is submitted as a separate section to this Prospectus.

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINACIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion highlights Omagine's business activities during the six month period ended June 30, 2014 and during its 2013 and 2012 fiscal years.

 

Overview

 

The Company is a DSE and is not expected to generate revenue until after the occurrence of an event - the development of the Omagine Project in Oman - which as of the date hereof is not certain to occur. The Company will need to generate revenue in order to attain profitability.

 

As the development program for the Omagine Project becomes more detailed and as the planning and design processes progress, the estimates of construction and development costs have and will become proportionately more accurate. LLC presently expects, based on the current assumptions underlying its updated development program, that the development costs (including the costs for design, construction, program management and construction management) for the Omagine Project will be between $2.1 and $2.5 billion dollars.

 

The costs of labor and materials as well as the selling prices and market absorption rates of new residential and commercial properties remain somewhat volatile in Oman and accurate forecasts for such future costs, selling prices or market absorption rates cannot be made at this time. (See: “Market Conditions” and “Sales & Marketing”, above)

 

LLC nevertheless presently expects, based on current assumptions and market activity, that such residential selling prices during the Omagine Project’s planned multiple sales releases during 2015 and beyond will be at least equal to the prices that are presently budgeted by LLC.

  

In their opinion on our 2013 audited financial statements contained in this Prospectus, our auditors have expressed substantial doubt about our ability to continue as a going concern. Although we have entered into the 2014 SEDA and have recently raised additional capital via private placements of restricted Common Shares, we estimate that, absent our obtaining any additional working capital, we can continue as a going concern for approximately nine months from the date of this Prospectus. On August 15, 2014, 240,000 Tempest Warrants were exercised for proceeds to Omagine of $336,000. Our foregoing nine month estimate is based on (i) our current cash balances, (ii) assuming no sales of Common Stock pursuant to the 2014 SEDA, private placements, or exercise of Warrants, and (iii) our extensive prior experience in carefully managing our cash outlays. Although we have never failed over the past ten years to obtain the cash resources sufficient to fund our ongoing operations, we cannot guarantee that such financing for our continuing operations will be available in the future.

 

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Rights Offering and Warrant Distribution

 

In 2012 Omagine conducted a Rights Offering and Warrant Distribution pursuant to which Omagine (i) sold 1,014,032 Common Shares for aggregate proceeds of $1,267,540 of which $731,639 was paid in cash and $535,901 was paid via the satisfaction of debt, and (ii) distributed 6,422,124 Strategic Warrants at no charge to its shareholders. (See: “Results of Operations – Fiscal Year ended December 31, 2013 vs. Fiscal Year ended December 31, 2012 - Liquidity and Capital Resources – Rights Offering and Warrant Distribution” below).

 

Critical Accounting Policies

 

Our financial statements attached hereto for the fiscal year 2013 and for the six month period ended June 30, 2014 are development stage entity financial statements and have been prepared in accordance with accounting principles generally accepted in the United States for development stage entities and pursuant to the guidance contained in ASC 915 issued by the Financial Accounting Standards Board. The fiscal year 2013 financial statements have been audited by Omagine's independent certified public accountants. 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. The method of revenue recognition at LLC will be determined by management when and if it becomes likely that LLC will begin generating revenue.
Valuation Allowance for Deferred U.S. Tax Assets. The carrying value of deferred U.S. tax assets assumes that Omagine will not be able to generate sufficient future taxable income to realize such deferred tax assets, based on management's estimates and assumptions.

 

The Company plans to continue its focus on real-estate development, entertainment and hospitality ventures and on developing, building, owning and operating tourism and residential real-estate development projects, primarily in the MENA Region. The Company presently concentrates the majority of its efforts on the tourism and real estate development business of LLC in Oman and in particular on the Omagine Project.

 

Results of Operations:

 

THREE MONTHS ENDED JUNE 30, 2014 vs.

THREE MONTHS ENDED JUNE 30, 2013

 

The Company did not generate any revenue or incur any cost of sales during the three month periods ended June 30, 2014 and 2013 respectively. Total selling, marketing, general and administrative operating expenses (“SG&A Expenses”) were $665,899 during the three month period ended June 30, 2014 compared to $617,934 during the three month period ended June 30, 2013. This $47,965 (8%) increase in SG&A Expenses for the three month period ended June 30 2014 compared to the prior period was attributable to increases in the following expense categories: commitment fees, which were paid for with Common Shares ($150,000), professional fees, some of which were paid for with Common Shares ($12,841), travel ($14,085),occupancy costs ($344) and other selling, general and administrative costs ($6,933) offset by decreases in the following expense categories: officers and directors’ compensation, some of which was stock based compensation ($118,379) and consulting fees, some of which were paid with Common Shares ($17,859).

 

The Company sustained a net loss of $678,284 for the three month period ended June 30, 2014 compared to a net loss of $612,026 for the three month period ended June 30, 2013. This $66,258 (11%) increase in the Company's net loss for the three month period ended June 30 2014 compared to the prior period was principally attributable to the $47,965 increase in SG&A Expenses mentioned above, offset by increases in: interest expense ($10,771), amortization of debt discount ($18,367) and net loss attributable to minority shareholders of LLC ($10,845).

 

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SIX MONTHS ENDED JUNE 30, 2014 vs.

SIX MONTHS ENDED JUNE 30, 2013

 

The Company did not generate any revenue or incur any cost of sales for the six month periods ended June 30, 2014 and 2013 respectively. Total SG&A Expenses were $1,152,344 during the six month period ended June 30, 2014 compared to $1,403,768 during the six month period ended June 30, 2013. This $251,424 (18%) decrease in SG&A Expenses for the six month period ended June 30 2014 compared to the prior period was attributable to decreases in the following expense categories: officers and directors’ compensation, some of which was stock based compensation ($210,320), consulting fees, some of which were paid with Common Shares ($196,807), travel ($3,718) and other SG&A costs ($20,777); offset by increases in the following expense categories: commitment fees, paid with Common Shares ($150,000), professional fees, some of which were paid with Common Shares ($21,421) and occupancy costs ($8,777).

 

The Company sustained a net loss of $1,173,426 for the six month period ended June 30, 2014 compared to a net loss of $1,398,069 for the six month period ended June 30, 2013. This $224,643 (16%) decrease in the Company's net loss for the six month period ended June 30 2014 compared to the prior period was principally attributable to the $251,424 decrease in SG&A Expenses mentioned above, offset by increases in: interest expense ($15,748), amortization of debt discount ($20,699) and net loss attributable to minority shareholders of LLC ($9,666).

 

Liquidity and Capital Resources

 

The Company incurred net losses of $1,173,426 and $1,398,069 during the six month periods ended June 30, 2014 and 2013 respectively. During the six month period ended June 30, 2014, the Company had net positive cash flow of $467,086 resulting from the $1,188,100 of positive cash flow from its financing activities being offset by the $721,014 of negative cash flow from its operating activities.

 

In July 2013 Omagine borrowed $200,000 from YA Global Master SPV, Ltd. (“YA”) via an unsecured loan (the “2013 YA Loan”) and on April 23, 2014 Omagine paid off the 2013 YA Loan balance due at April 23, 2014 and borrowed an additional $500,000 from YA via a second unsecured loan (the “2014 YA Loan”). (See: “The YA Loans” below).

 

Omagine’s financing activities during the six month period ended June 30, 2014 consisted of:

 

i.sales of Common Shares for aggregate proceeds of $952,100,
ii.re-payment of $175,000 representing the entire remaining principal balance of the 2013 YA Loan,
iii.proceeds of $500,000 from the 2014 YA Loan,
iv.payment of a $39,000 commitment fee with respect to the 2014 YA Loan, and
v.payment of $50,000 of the principal balance of the 2014 YA Loan.

 

The Company had no capital expenditures for the six month period ended June 30, 2014. Assuming LLC and the Government of Oman sign the Development Agreement for the Omagine Project in 2014 as expected, the Company anticipates that it will incur significant expenses related to capital expenditures, marketing, public relations and promotional activities during the periods subsequent to such signing.

 

At June 30, 2014, the Company had $504,749 in current assets, consisting of $486,809 of cash and $17,940 of prepaid expenses. The Company's current liabilities at June 30, 2014 totaled $1,665,618 consisting of $356,565 of convertible notes payable and accrued interest, $422,066 of notes payable and accrued interest, $301,565 of accounts payable and accrued expenses and $585,422 of accrued officers’ payroll. At June 30, 2014, the Company had a working capital deficit of $1,160,869 compared to a working capital deficit of $1,572,905 at December 31, 2013. Forty-seven percent (47%) of the $1,665,618 of current liabilities at June 30, 2014 ($785,795) is due and owing to officers and/or directors of Omagine.

 

The $412,036 decrease in the Company's working capital deficit at June 30, 2014 compared to December 31, 2013 is attributable to increases in cash ($467,086) and prepaid expenses ($7,665); offset by a $62,715 increase in, current liabilities. The Company’s liabilities at June 30, 2014 increased compared to December 31, 2013 due to increases in: notes payable and accrued interest ($258,940) and accrued interest on convertible notes payable ($8,630); offset by decreases in: accrued officers’ payroll ($142,190),and accounts payable, accrued expenses and other current liabilities ( $62,665).

 

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The consolidated financial statements contained in this report have been prepared for the Company as a development stage entity and assuming that the Company will continue as a going concern. As discussed in Note 2 to such consolidated financial statements, the Company's present financial condition raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts or classification of liabilities that might be necessary in the event the Company cannot continue in existence. The continued existence of the Company is dependent upon its ability to obtain additional financing, execute its business plan and attain profitable operations.

 

Warrants

 

As of the date hereof, Omagine has 7,182,124 Warrants issued and outstanding. (See: “Description of Preferred Stock and Warrants” – “Strategic Warrants” – “Tempest Warrants” above).

 

Management is hopeful that, when and if the Omagine Development Agreement is signed, that the 6,422,124 outstanding Strategic Warrants will thereafter become “in the money” and will be exercised.

 

In accordance with their terms, the Tempest Warrants are by definition always “in the money”. On August 15, 2014, 240,000 Tempest Warrants were exercised at $1.40 per share but Omagine cannot be certain when or if any of the remaining 740,000 unexercised Tempest Warrants might be exercised.

 

Management is hopeful that the Warrants will provide a future source of additional financing for Omagine.

 

Standby Equity Distribution Agreements:

 

Between 2009 and 2011, Omagine had a Stand-By Equity Distribution Agreement with an affiliate of YA (the “2009 SEDA”). Omagine and YA were parties to a second Stand-By Equity Distribution Agreement (the “SEDA”) which was terminated on July 21, 2014. The SEDA and the 2009 SEDA are collectively referred to herein as the “Prior SEDAs”.

 

On April 22, 2014, Omagine and YA entered into a new Standby Equity Distribution Agreement (the "2014 SEDA").

 

As discussed herein we have experienced inordinate delays with the Government of Oman in getting the DA signed. The primary question for Omagine with respect to the utilization of the Prior SEDAs and the 2014 SEDA was always the timing of such utilization. As previously disclosed, it was our original intent to utilize the Prior SEDAs only after the DA was signed by LLC and the Government (“Post-DA Use”). Because of the MOT Delays (See: “Dilution / MOT Delays” below), this was not possible, and it became necessary for Omagine to utilize the Prior SEDAs before the DA was signed (“Pre-DA Use”) in order to finance the Company’s continuing operations.

 

The Government has repeatedly approved various DA versions over the past many years and promised on several different occasions to sign the DA. As of the date hereof, none of these promises have been kept. During all these delays (See; “Market Conditions”, above), we are continuing to carry on in the belief that we will ultimately succeed in getting the DA signed.

 

As previously disclosed, we viewed our proposed Post-DA Use of the 2014 SEDA (and of the Prior SEDAs) as a necessary and integral part of what we expect to be the required post DA efforts to secure the significant new financing we will require after the DA is signed. This effort will be required to be undertaken without delay after the DA is signed in order to finance the rapid ramping up of our operations both in the U.S. and in Oman. Also we expect, but of course cannot be certain, that there will eventually be greater liquidity in our Common Stock after the DA is signed thereby most probably making any such Post-DA Use less dilutive to our shareholders than has otherwise been the case to date. To the extent we have exercised the Prior SEDAs to date, we did so as sparingly and judiciously as we deemed reasonable and necessary at the time.

 

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The historical case (past 6 years or so) has been that we were many, many times expecting to sign the DA and therefore were frequently expecting both Pre-DA Use and imminent Post-DA Use - sparing use in the first instance and more aggressive use in the second instance. As stated above, we theorized that there would be greater liquidity in our Common Stock after the DA was signed. Based upon our information at the time the future was inherently difficult to predict and events unfolded differently then we often thought they would. None of the multiple promised DA signings ever occurred and we were always in the pre-DA “sparingly mode” with respect to the Prior SEDAs. Primarily because we never got into post-DA “aggressive utilization” mode with the Prior SEDAs for the reasons stated, we therefore filed post-effective amendments to de-register any unsold shares when they expired or were terminated.

 

At the time that we entered into the 2014 SEDA (April 2014) and as of the date hereof, the DA still is not signed but we still expect the “imminent” signing of the DA (as communicated to us by MOT officials). Not knowing how much of the 2014 SEDA will be utilized pre and post DA, we view our responsibility now, as it was in the past, to be prepared for a DA signing and for aggressive Post-DA Use.

 

To the extent we intend to exercise Pre-DA Use of the 2014 SEDA, we will be guided by several factors, including but not limited to: (i) the availability and cost of alternative financing, (ii) our ability to rapidly access required financing, (iii) the liquidity and market price of our Common Stock, (iv) the exercise, if any, of Warrants, (v) the likelihood (or actuality) of the success of our present efforts to arrange new equity investments into Omagine and into LLC, and (vi) our then current cash requirements.

 

Because the market for our Common Stock has historically exhibited low liquidity levels, we may not be able to take full advantage of the 2014 SEDA if the DA is not signed and such liquidity levels do not improve as a result of such signing.. If the market for our Common Shares is exhibiting low liquidity levels at the time we give YA an Advance Notice (a “Put”) and if YA sells Common Shares into the public market during the five Trading Day Pricing Period subsequent to our Put (as is YA’s customary practice), it is likely that the price of our Common Shares will decline. Any such price decline will immediately increase the number of Common Shares we would otherwise be required absent such price decline to deliver to YA subsequent to the Pricing Period in satisfaction of such Put. If this pattern continued to happen with subsequent Puts by us, it is likely that we would issue and sell to YA the maximum 3,000,000 shares available under the 2014 SEDA before reaching the aggregate sales price of $5 million available under the 2014 SEDA.

 

Once the DA is signed, LLC will be obligated to design, develop and construct the $2.5 billion Omagine Project. Given the size and scope of the Omagine Project, it is expected that LLC will require a minimum of $300 million (possibly up to $500 million) of debt financing - the Construction Financing - over various times during the 4 to 5 year period subsequent to signing the DA. This Construction Financing requirement will not be addressed by utilizing the 2014 SEDA (See: Financial Advisor”, above). Notwithstanding that fact, the Company will have substantial working capital requirements other than the Construction Financing.

 

Given the considerable resources we will be required to bring to bear to execute the Omagine Project, we presently expect that, if the DA is signed in the near future as we believe will happen, we will fully utilize the entire $5 million amount available to us under the 2014 SEDA. Such Post-DA Use will of course be guided by the price, liquidity and volatility of our Common Stock as we move forward. We cannot presently predict what other future sources of financing might become available to us to cause us to utilize less than the full $5 million available under the 2014 SEDA and our present assessment is that, should the DA be signed, we will surely need and will ultimately receive the full $5 million available under the 2014 SEDA. The 2014 SEDA will likely provide some of the supplementary working capital the Company will need going forward, both before and after the DA is signed.

 

Prior SEDAs

 

The 2009 SEDA expired in 2011. The SEDA was due to expire on September 1, 2014 but was terminated on July 21, 2014 by the mutual consent of the parties (See: Exhibit 10.11).

 

In connection with the SEDA, Omagine filed with the SEC a registration statement (the “SEDA Registration Statement”) on Form S-1 (Commission File No. 333-175168) pursuant to which 3,244,216 Common Shares were registered (including 244,216 Common Shares issued to YA in May and June 2011 in satisfaction of the $300,000 commitment fees due under the SEDA). Between August 24, 2011 and May 6, 2014, YA purchased 561,690 Common Shares from Omagine under the SEDA for an aggregate Purchase Price of $835,000 and YA did not thereafter purchase any Common Shares from Omagine under the SEDA. On July 21, 2014 Omagine filed a post-effective amendment to the SEDA Registration Statement de-registering the previously registered 2,438,310 Common Shares which were not issued or sold to YA pursuant to the SEDA. Such post-effective amendment to the SEDA was declared effective by the SEC on July 25, 2014.

 

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The 2014 SEDA

 

Unless earlier terminated in accordance with its terms, the 2014 SEDA shall automatically expire on the earlier of (i) the first day of the month next following the 24-month anniversary of the “Effective Date” (as hereinafter defined), or (ii) the date on which YA shall have made payment of Advances pursuant to the 2014 SEDA in the aggregate amount of $5,000,000. In satisfaction of a $150,000 commitment fee due pursuant to the 2014 SEDA, Omagine issued 85,822 restricted Common Shares to YA Global II SPV, LLC which is an affiliate of YA.

 

Pursuant to the terms of the 2014 SEDA, Omagine may in its sole discretion, and upon giving written notice to YA (an "Advance Notice"), periodically sell Common Shares to YA (“Shares”) at a per Share price (“Purchase Price”) equal to 95% of the lowest daily volume weighted average price (the “VWAP”) for a Common Share as quoted by Bloomberg, L.P. during the five (5) consecutive Trading Days (as such term is defined in the 2014 SEDA) immediately subsequent to the date of the relevant Advance Notice (the “Pricing Period”).

 

Omagine is not obligated to sell any Shares to YA but may, over the term of the 2014 SEDA and in its sole discretion, sell to YA that number of Shares valued at the Purchase Price from time to time in effect that equals up to five million dollars ($5,000,000) in the aggregate. YA is obligated under the 2014 SEDA to purchase such Shares from Omagine subject to certain conditions including (i) Omagine filing a registration statement with the SEC to register the resale by YA of the Shares sold to YA under the 2014 SEDA (“Registration Statement”), (ii) the SEC declaring such Registration Statement effective (the date of such declaration by the SEC being the “Effective Date”), (iii) Omagine certifying to YA at the time of each Advance Notice that Omagine has performed all covenants and agreements to be performed and has complied with all obligations and conditions contained in the 2014 SEDA, (iv) periodic sales of Shares to YA must be separated by a time period of at least five Trading Days, and (v) the dollar value of any individual periodic sale of Shares designated by Omagine in any Advance Notice may not exceed the greater of (a) two hundred thousand dollars ($200,000), or (b) the average of the "Daily Value Traded" for each of the five (5) Trading Days immediately preceding the date of the relevant Advance Notice where Daily Value Traded is the product obtained by multiplying the number representing the daily trading volume of Common Shares for such Trading Day by the VWAP for Common Share on such Trading Day.

 

Pursuant to the 2014 SEDA in no event shall the number of Common Shares issuable to YA pursuant to an Advance cause the aggregate number of Common Shares beneficially owned (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended), by YA and its affiliates to exceed 9.99% of the then outstanding common stock of the Company. In addition this 9.99% ownership cap may not be waived by YA or Omagine and since such ownership cap includes all Common Shares owned by any YA affiliate, such cap cannot be avoided by transferring Common Shares to an affiliate of YA.

 

The foregoing summaries of the terms of the Prior SEDAs and of the 2014 SEDA do not purport to be complete and are qualified in their entirety by reference to the full texts of the Prior SEDAs and the 2014 SEDA, copies of which are attached hereto as Exhibits 10.6, 10.7, and 10.10.

 

Sales of Common Shares to YA pursuant to the SEDA totaled 561,690 Common Shares for an aggregate Purchase Price of $835,000. Management believes that it has been judicious and conservative in its use to date of the Prior SEDAs, but nonetheless our periodic sales of Common Shares to YA or its affiliate pursuant to the Prior SEDAs have been dilutive to all shareholders and the subsequent resales by YA of such Common Shares into the public market have from time to time inflicted downward pressure on our stock price. Subject to the Registration Statement of which this Prospectus forms a part being declared effective by the SEC, Omagine intends to utilize the 2014 SEDA to fund its ongoing operations as and if necessary. (See: “Dilution / MOT Delays” below).

 

The YA Loan Agreements

 

Omagine and YA, the investment fund which is a party with Omagine to the 2014 SEDA, entered into an unsecured loan agreement dated July 26, 2013 (the “2013 YA Loan Agreement”). Pursuant to the 2013 YA Loan Agreement, Omagine borrowed two hundred thousand dollars ($200,000) from YA (the “2013 YA Loan”) for a term of one year at an annual interest rate of 10%. The 2013 YA Loan Agreement called for a 10% monitoring and management fee equal to $20,000 to be escrowed and paid to Yorkville Advisors thereby making the net proceeds from the 2013 YA Loan to Omagine equal to $180,000. Such $180,000 of proceeds was received by Omagine on September 3, 2013. The 2013 YA Loan Agreement also extended the expiration date of the SEDA. The foregoing summary of the terms of the 2013 YA Loan does not purport to be complete and is qualified in its entirety by reference to the full text of the 2013 YA Loan Agreement attached hereto as Exhibit 10.12.

 

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On April 22, 2014, Omagine and YA entered into another unsecured loan agreement (the “2014 YA Loan Agreement”) whereby Omagine borrowed five hundred thousand dollars ($500,000) from YA (the “2014 YA Loan”) for a term of one year at an annual interest rate of 10%. Pursuant to the 2014 YA Loan Agreement, on April 22, 2014, through deduction from the $500,000 principal balance of the 2014 YA Loan, Omagine (i) paid the $110,680 balance then due under the 2013 YA Loan Agreement, (ii) paid a $39,000 commitment fee with respect to the 2014 YA Loan, and (iii) prepaid the $1,096 of interest due on the 2014 YA Loan for the period April 23, 2014 through April 30, 2014. The $349,224 net proceeds of the 2014 YA Loan was received by Omagine on April 23, 2014. The foregoing summary of the terms of the 2014 YA Loan does not purport to be complete and is qualified in its entirety by reference to the full text of the YA Note Purchase Agreement, the YA Note and the YA Closing Statement attached hereto as Exhibits 10.13; 10.14; and 10.15 respectively.

 

Omagine presently anticipates that the 2014 YA Loan will be repaid from proceeds of sales of Common Shares made pursuant to (a) private placement transactions, (b) the exercise of Warrants, or (c) the 2014 SEDA, or a combination thereof.

 

Management’s original intent was to use the Prior SEDAs only after the DA was signed. The continued delays by the Omani Government in signing the DA however have necessitated our utilization of the Prior SEDAs and YA Loans to finance our current operations (See “Dilution / MOT Delays” below).

 

There can be no assurance given that Omagine will be able to successfully utilize the Warrants or the 2014 SEDA to secure the significant amount of financing necessary for it to execute its business plan as presently conceived.

 

Omagine LLC

 

LLC presently has limited and strained resources.

 

Omagine and JOL invested the 20,000 Omani Rial ($52,000) OMAG Initial Equity Investment into LLC in 2009. A further 130,000 Omani Rial ($338,000) aggregate investment was made into LLC by Omagine and the New Shareholders pursuant to the Shareholder Agreement and LLC is presently capitalized at 150,000 Omani Rials ($390,000). Expenses incurred during the many extended delays in signing the DA have depleted LLC’s resources and as of the date hereof Omagine has advanced to LLC 70,000 Omani Rials ($182,000) of the OMAG Final Equity Investment in order to maintain LLC’s liquidity.

 

Omagine will make the 210,000 Omani Rial ($546,000) OMAG Final Investment into LLC after the DA is signed and LLC will then be capitalized at 360,000 Omani Rials ($936,000).

 

The New Shareholders will make an additional 26,628,125 Omani Rial ($69,233,125) investment into LLC after the Financing Agreement Date occurs and LLC will then be capitalized at 26,988,125 Omani Rials ($70,169,125).

 

The capital of LLC will likely be increased further at a later date if and when the non-cash valuation of the PIK is recorded as a capital investment into LLC.

 

The continuation of LLC’s business and its efforts to sign the Development Agreement have to a large extent been financed to date by Omagine and it is planned that such activities will, to a large extent, continue to be financed by Omagine until the DA is signed. The Company is relying for revenue growth upon the future business LLC.

 

Omagine Inc.

 

The continuation of Omagine’s operations is dependent upon Omagine’s ability to secure financing for its and LLC’s operations until such time as the DA is signed, the Financing Agreement Date occurs and LLC begins paying Omagine the $10 million Success Fee and the approximately $9 million of Pre-Development Expenses. (See: “Pre-Development Expenses / Success Fee” above)

 

In order to generate the cash needed to sustain the Company’s ongoing operations, Omagine has over the past many years relied on the proceeds from the YA Loans and from sales of Common Shares made pursuant to the Prior SEDAs and the 2012 rights offering as well as from sales of restricted Common Shares made pursuant to private placements. If the DA is signed, management is hopeful that the Warrants will provide a future source of additional financing. After the DA is signed, Omagine may, if it has the necessary financial resources available to it, make a secured loan to LLC in order to trigger the first Financing Agreement Date, thereby also triggering the investment into LLC by the New Shareholders of their Deferred Investments in the aggregate amount of 26,628,125 Omani Rials ($69,233,125).

 

Investors and shareholders should be aware that as a DSE we have had no revenue for the past several years and do not expect to generate any revenue until after the DA is signed and the Financing Agreement Date is achieved. Either the failure of LLC to sign the Development Agreement with the Government of Oman or, if signed, the failure thereafter of the Financing Agreement Date to occur, will have a materially significant negative effect on the Company’s ability to continue operations.

 

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Dilution / MOT Delays

 

The Company has to date endured countless DA signing delays by the Ministry of Tourism of Oman (the “MOT Delays”) and Omagine has to date incurred many millions of dollars of expenses (the “Delay Expenses”) which, if not for the MOT Delays, would not have been incurred. The Delay Expenses were, and are, materially significant. They have severely strained and continue to strain the Company’s resources and are a direct result of the MOT Delays. Absent such MOT Delays, the Delay Expenses would not have occurred and the Company’s anticipated normal and customary expenses would have been much more easily manageable.

 

In order to finance the Delay Expenses and to address the perilous liquidity issues produced by the MOT Delays, management employed and continues to employ various financing mechanisms including but not limited to: the Prior SEDAs, a Rights Offering & Warrant Distribution, the 2014 SEDA, the YA Loans, salary suspensions, vendor, consultant and professional fee payments made with Common Shares in lieu of cash and private placement sales of restricted Common Shares (collectively, the “Financing Mechanisms”).

 

Furthermore, to incentivize and encourage the continued services of mission-critical employees and consultants, Omagine issued the Strategic Options to officers, directors and consultants of the Company whose continued service was deemed by the Board of Directors to be particularly crucial to attaining LLC’s strategic goal of signing the DA with the Government of Oman. The Strategic Options are fully vested, exercisable at $1.70 per share, provide for a cashless exercise feature and currently expire on December 31, 2014. (See: “Equity Compensation Plan Information”, below)

 

From 2007 onward and up until the date hereof, the MOT has issued several written and verbal DA approvals (as agreed at those various times). Notwithstanding those several MOT approvals and the indisputable meeting of the minds between MOT and the Company with respect to the DA wording at such times, the MOT Delays continued apace. It is noteworthy that despite the multitude of circular negotiations over the past many years, the Final DA as approved by the MOT (but not yet signed) as of the date of this Prospectus is virtually indistinguishable from the various previously approved DAs since 2007.

Throughout the MOT Delays Omagine utilized the Financing Mechanisms to finance the Delay Expenses and the Company’s continuing operations. This resulted in the number of Common Shares presently issued and outstanding (16,185,798 ) being a materially larger number than would otherwise have been the case absent the MOT Delays which necessitated the use of the Financing Mechanisms and the issuance of the Strategic Options.

 

Between January 1, 2008 and the date of this Prospectus, 6,319,415 newly issued Common Shares were sold to various investors, vendors, officers and consultants pursuant to the Financing Mechanisms. These Common Shares represent 39% of the Common Shares issued and outstanding as of the date of this Prospectus. It is likely that all or most of such 6,319,415 Common Shares would not be issued or outstanding if the MOT Delays had not occurred and if the DA had been signed by the Government as previously promised and frequently agreed by the MOT.

 

The MOT Delays have had a material adverse effect on the Company and they are directly responsible for: (i) Omagine’s employment of the Financing Mechanisms, (ii) the aforementioned substantial dilution of our shareholders’ ownership interests, and (iii) Omagine’s issuance of the Strategic Options which may contribute to further future shareholder dilution.

 

Although management believes the Strategic Options and Financing Mechanisms have been judiciously utilized to date, it is self-evident that the longer the Government of Oman delays the DA signing, the longer the Company’s human and financial resources will be strained and the greater will be the amount of shareholder dilution and downward pressure on our stock price resulting from the necessary and continued use of the Financing Mechanisms.

 

Capital Expenditures and Construction Financing

 

The Company did not incur any expense for capital expenditures during the first six months of 2014. In the periods after the DA is signed between the Government and LLC, we expect that (i) the Company will incur significant expenses related to capital expenditures, and (ii) LLC will incur substantial debt associated with the Construction Financing for the Omagine Project. We anticipate that such capital expenditures and Construction Financing will be financed through a combination of invested capital, bank financing and possibly from the exercise of Warrants and/or from an additional sale or sales of LLC’s equity (See: “Financial Advisor”).

 

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LLC's Construction Financing requirements are expected to be reduced by its ability to pre-sell residence and commercial units by entering into sales contracts with third party purchasers and receiving deposits and progress payments during the construction of such units. Recent trends in the Omani market subsequent to the recent worldwide financial crisis however have indicated a reduced presence of speculative buyers and a reduced consumer appetite for pre-sales of residence units as many more buyers are now demanding a finished product before entering into sales contracts with developers.

 

Off-Balance Sheet Arrangements

 

We have never entered into and have no present intention of entering into any off-balance sheet financing arrangements. We have not formed and have no present intention of forming any special purpose entities.

 

FISCAL YEAR ENDED DECEMBER 31, 2013 vs.

FISCAL YEAR ENDED DECEMBER 31, 2012

 

The Company did not generate any revenue or incur any cost of sales for the years ending 2013 and 2012.

 

Total selling, marketing, general and administrative operating expenses (“SG&A Expenses”) were $2,630,555 in fiscal year 2013 compared to $2,789,975 in fiscal year 2012, a decrease of $159,420 (5.7%).

 

During our 2013 fiscal year the following SG&A Expenses decreased by a total of $304,835: Officers & Directors compensation ($190,781); Travel and other SG&A Expenses ($114,054); and such decreases were partially offset by increases totaling $145,415 in the following SG&A Expenses: Professional Fees ($54,110); Consulting Fees ($68,386); and Rent / Occupancy costs ($22,919).

 

During 2013 and 2012 Omagine has utilized (i) awards of Stock Options to retain the services of personnel deemed critical to its ongoing operations (See: “Executive Compensation” and “Employment Agreements and Consulting Agreement”), and (ii) issuances of restricted Common Shares in lieu of cash payments in order to conserve its cash resources.

 

During the 2013 and 2012 fiscal years Omagine has frequently deferred making payments of salary to its executives, utilized (or extended) Stock Options to incentivize its employees and consultants and utilized Common Shares in lieu of cash to pay various professional fees. Omagine therefore incurred significant SG&A Expenses in both 2013 and 2012 that did not require Omagine to expend cash to compensate such employees and consultants or to pay such professional fees. Such SG&A Expenses incurred by Omagine in 2013 and 2012 totaled $1,931,728 and $2,186,653 respectively, and consisted of: (i) deferred salary amounts which were expensed (but not paid) and which were then accrued as salaries payable, (ii) Stock Option expense (including the calculated expense of extending the expiration date of the Strategic Options); (iii) Common Shares contributed to employee 401(k) Plans, and (iv) Common Shares utilized to pay vendors, as detailed below:

 

$206,250 in 2013 and $168,000 in 2012 of unpaid but accrued salaries payable to Company executives, and
$1,445,744 in 2013 and $1,761,076 in 2012 representing the fair value of Stock Option awards and/or the extension of the expiration date of the Strategic Options as calculated using the Black-Scholes option pricing model, and
$76,250 in 2013 and $76,250 in 2012 representing the value of the Common Shares contributed to employees 401(k) plan accounts, and
$203,484 in 2013 and $181,327 in 2012 representing the value of the Common Shares used by Omagine to pay various consulting and professional fees.

 

The Company sustained a net loss of $2,640,590 during 2013 compared to a net loss of $2,789,976 during 2012. The $149,386 (5.4%) decrease in Omagine's 2013 net loss compared to 2012 was principally attributable to the $159,420 decrease in SG&A Expenses in 2013 compared to 2012 as described above.

 

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Liquidity and Capital Resources

 

The Company incurred net losses of $2,640,590 and $2,789,976 respectively in fiscal years 2013 and 2012. In 2013 Omagine had net negative cash flow of $42,404 resulting from the negative cash flows of $596,917 from Omagine’s operating activities and $8,207from Omagine’s investing activities being partially offset by the positive cash flow of $562,720 from its financing activities. Financing activities during the fiscal year ended December 31, 2013 consisted of sales by Omagine of Common Shares for proceeds of $407,720 and the issuance of a note payable pursuant to the YA Loan, the net proceeds of which to Omagine was $180,000.

 

The Company had $8,207 of capital expenditures in fiscal year 2013. Assuming LLC and the Government sign the Development Agreement for the Omagine Project in 2014 as expected, Omagine anticipates that it will incur significant expenses related to capital expenditures, marketing, public relations and promotional activities in fiscal year 2014 and beyond.

 

At December 31, 2013, Omagine had $29,998 in current assets, consisting of $19,723 of cash and $10,275 of prepaid expenses (representing prepaid expense for investor relations services which were amortized in 2014).

 

The Company's current liabilities at December 31, 2013 totaled $1,602,903 consisting of $347,935 of convertible notes payable and accrued interest, the $163,126 YA Loan note payable balance and accrued interest, $364,230 of accounts payable and accrued expenses and $727,612 of accrued officers’ payroll.

 

At December 31, 2013, Omagine had a working capital deficit of $1,572,905 compared to a working capital deficit of $867,822 at December 31, 2012. Fifty-eight percent (58%) of the $1,602,903 of current liabilities at December 31, 2013 ($933,837) was due and owing to officers and/or directors.

 

The $705,083 increase in Omagine's working capital deficit at December 31, 2013 compared to December 31, 2012 was attributable to the decreases during 2013 in: cash ($42,404) and pre-paid expenses ($153,864) plus the increases during 2013 in: convertible notes payable and accrued interest ($27,500); the YA Note payable and accrued interest ($163,126); accounts payable and accrued expenses ($111,939); and accrued officers payroll ($206,250).

 

As indicated in the report of the independent registered public accounting firm, the consolidated financial statements referred to above have been prepared for Omagine as a development stage entity and assuming that Omagine will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, Omagine's present financial situation raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts or classification of liabilities that might be necessary in the event Omagine cannot continue in existence. The continued existence of Omagine is dependent upon its ability to execute its business plan and attain profitable operations or obtain additional financing.

 

LLC’s business and its efforts to sign the Development Agreement have to a large extent been financed to date by Omagine and it is planned that such activities will, to a large extent, continue to be financed by Omagine until the DA is signed. The continuation of the Company’s business and operations is dependent upon Omagine’s ability to secure financing for its and LLC’s operations until such time as the DA is signed, the Financing Agreement Date occurs and LLC begins paying Omagine the $10 million Success Fee and the approximately $9 million of Pre-Development Expenses. (See: “Description of Business - The Shareholder Agreement / LLC Capital Structure – Pre-Development Expenses / Success Fee”).

 

In order to provide financing for its activities, Omagine has relied on the proceeds from sales of Common Shares pursuant to (i) private placement sales, (ii) the Prior SEDAs, and (iii) the 2012 Rights Offering discussed below. In addition Omagine has entered into the unsecured YA Loan Agreements as discussed above.

 

Rights Offering and Warrant Distribution

 

Omagine conducted a “Rights Offering and Warrant Distribution” in 2012 for the sole benefit of its shareholders at the time (the “Record Shareholders”) pursuant to which Omagine distributed “Rights” and Strategic Warrants to the Record Shareholders. The Rights, the Strategic Warrants and the Common Shares underlying the Rights and Strategic Warrants were registered in a registration statement filed by Omagine on Form S-1 (Commission File No. 333-179040), which was declared effective by the SEC on February 13, 2012 and in a separate registration statement filed by Omagine on Form S-1 (Commission File No. 333-183852), which was declared effective by the SEC on April 25, 2013 (the “Warrant Registration”).

 

A total of 1,014,032 Common Shares were subscribed for in the Rights Offering at a subscription price of $1.25 per Common Share. Total proceeds to Omagine from the Rights Offering was $1,267,540 of which $731,639 was paid in cash and $535,901 was paid via the satisfaction of debt owed by Omagine to Record Shareholders exercising such Rights. Of the 1,014,032 Common Shares issued pursuant to the Rights Offering, 585,311 were issued in exchange for $731,639 in cash and 428,721 were issued in satisfaction of $535,901 of debt constituting promissory notes for loans to Omagine and accrued but unpaid salaries and expenses. Of the $535,901 of debt which was satisfied in the Rights Offering, $506,750 represented unpaid salaries, expenses and loans which were due and owing by Omagine to Omagine officers and directors.

 

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Of the 6,422,124 Strategic Warrants distributed, 3,211,062 are exercisable at $5 per Common Share and 3,211,062 are exercisable at $10 per Common Share. On August 13, 2013, Omagine filed a Post-Effective Amendment on Form S-1 to the Warrant Registration (Commission File No. 333-183852) to update the Warrant Registration to include all 6,422,124 then issued and outstanding Strategic Warrants and the 6,422,124 Common Shares underlying such Strategic Warrants (the “Updated Warrant Registration”). The SEC declared the Updated Warrant Registration to be effective as of August 26, 2013 and as of the date of this Prospectus its effective status has expired. Omagine intends to file another Post-Effective Amendment to the Warrant Registration in order to further update the Warrant Registration and to re-instate its effective status. All Strategic Warrants expire on June 30, 2015 unless redeemed earlier by Omagine

 

Standby Equity Distribution Agreements

 

Omagine and YA had been parties to the SEDA which was due to expire on September 1, 2014 but which was terminated on July 16, 2014 by the mutual consent of the parties (See: Exhibit 10.11).

 

Sales of Common Shares to YA in 2013 pursuant to the SEDA totaled 163,094 Common Shares for aggregate proceeds to Omagine of $205,000 and in 2012 such sales totaled 68,480 Common Shares for aggregate proceeds to Omagine of $90,000.

 

Omagine and YA are now parties to the 2014 SEDA and the Registration Statement of which this Prospectus forms a part is the Registration Statement for the 2014 SEDA. (See: “Results of Operations – Six Months ended June 30, 2014 vs. Six Months ended June 30, 2013 - Liquidity and Capital Resources – Standby Equity Distribution Agreements” above).

 

Unsecured Loans

 

On July 26, 2013 Omagine and YA entered into the 2013 YA Loan Agreement whereby YA made an unsecured loan of $200,000 to Omagine and on April 22, 2014, Omagine and YA entered into the 2014 YA Loan Agreement whereby YA made a second unsecured loan of $500,000 to Omagine. (See: “Results of Operations – Six Months ended June 30, 2014 vs. Six Months ended June 30, 2013 - Liquidity and Capital Resources – The YA Loan Agreements” above, and Exhibits 10.12 and 10.13).

 

Capital Expenditures and Construction Financing

 

The Company incurred $8,207 of capital expenditures in fiscal year 2013.

 

Impact of Inflation

 

The level of inflation in the U.S. has been relatively low during the last several fiscal years and has not had a significant impact on Omagine. Although inflation in Oman has also been relatively low during the last several fiscal years, the Oman economy has recently been experiencing volatility in its inflation rate (including in the prices of construction materials and labor) which volatility may have an impact on LLC's proposed future operations in Oman.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Information required under this caption is not required for Omagine since it is a smaller reporting company. 

 

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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Our directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing year or until their successors have been duly elected and qualified. Officers are appointed by the Board of Directors and serve at the discretion of the Board of Directors. The directors and executive officers of the Registrant as of the date hereof are as follows:

 

Name   Age   Position
Frank J. Drohan   69   Chairman of the Board of Directors, President, Chief Executive & Financial Officer
Charles P. Kuczynski   60   Vice-President, Secretary and Director
William Hanley   72   Controller & Principal Accounting Officer
Louis J. Lombardo   70   Director

 

Directors

 

Frank J. Drohan has served as a director, Chairman of the Board of Directors, President and CEO of the Registrant since 1991. Mr. Drohan is also the Managing Director and Chief Executive Officer of LLC and he serves as a director and the chairman of JOL. He was chairman of the board of directors, president and sole shareholder of Rif International Corp., a privately held company active in the construction and real estate development business and which had extensive overseas activities in the MENA Region between 1977 and 1986 and which was acquired by Omagine in 1997. Mr. Drohan holds a Bachelor of Science degree in Economics and Political Science from Manhattan College in New York City. Mr. Drohan, has over 35 years of experience doing business across most of the MENA Region, has many long-standing business and personal relationships in the region and is familiar with the region’s cultural and business environment.

 

Charles P. Kuczynski has served as a director, Secretary and a Vice-President of the Registrant since 1996 and previously served as a director and Secretary of the Registrant from 1988 to 1993. Mr. Kuczynski is a director and the secretary of JOL. Prior to joining Omagine, Mr. Kuczynski was a sales executive with Hillenbrand Industries. Mr. Kuczynski holds a Bachelor of Arts degree from Merrimack College in Massachusetts. Mr. Kuczynski has over 30 years of diverse business experience in marketing, sales, public relations and administration.

 

Louis J. Lombardo has served as a non-employee independent director (“Independent Director”) of the Registrant since 2005. Mr. Lombardo retired after 35 years at American Express Company where he was Executive Vice President - Travel Related Services. In this capacity he led an organization of worldwide operating centers employing over 14,000 people and managed a $1.3 billion operating budget and a $600 million capital budget. Mr. Lombardo holds an MBA degree from New York University. Mr. Lombardo’s years of experience as a senior executive of American Express Company brings a unique perspective and added value to his role as an Independent Director on our Board of Directors. He lives in New York City where he owns and operates two privately held businesses and a consulting company.

 

Directors are elected to serve for one-year terms or until their successors are duly elected and qualified. The Board of Directors is authorized to fill vacancies on the Board of Directors by appointment for a term lasting until Omagine’s next annual meeting of shareholders or until such appointed person’s successor has been duly elected and qualified. Directors who are Company employees receive no fees for acting as such. Independent Directors receive stock options and receive a minimal fee for attendance at board meetings and Omagine's annual meeting and are entitled to reimbursement of reasonable out-of-pocket expenses incurred by them in attending such meetings.

 

Kevin O'C. Green is an attorney and had served as an Independent Director of the Registrant from 2001 until January 2012. Due to the demands of his law practice and other business commitments, Mr. Green resigned as a director of Omagine effective January 31, 2012. His resignation was not the result of any disagreements with Omagine on any matters relating to Omagine’s operations, policies or practices. Salvatore J. Bucchere, an accountant and businessman, had served as an Independent Director of the Registrant from 2001 until his sudden and unexpected death on April 9, 2012. The Board of Directors has undertaken a search to identify two persons who are qualified and willing to serve as Independent Directors to fill the vacancies resulting from Mr. Green’s resignation and Mr. Bucchere’s untimely passing. At December 31, 2013 and as of the date hereof, the three member Board of Directors of Omagine consisted of two employee directors: Frank J. Drohan and Charles P. Kuczynski and one Independent Director: Louis J. Lombardo.

 

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Board Committees

 

Omagine has an audit committee, a compensation committee, a nominating committee and a stock option committee each designated by the Board of Directors.

 

At December 31, 2013 and as of the date hereof, the sole member of the Audit Committee was Mr. Drohan and the audit committee did not have an audit committee financial expert as a member as of December 31, 2013 or as of the date hereof. At January 1, 2012 the members of the Audit Committee were Mr. Bucchere, Mr. Green (both of whom were Independent Directors) and Mr. Drohan. Until his unexpected death on April 9, 2012, Mr. Bucchere was the Chairman of the Audit Committee and was an audit committee financial expert.

 

At December 31, 2013 and as of the date hereof, the sole member of the compensation committee and of the nominating committee was Mr. Lombardo who is an Independent Director. At January 1, 2012, the three Independent Directors, Mr. Lombardo, Mr. Bucchere and Mr. Green comprised the entire membership of the compensation committee and of the nominating committee.

 

At December 31, 2013 and as of the date hereof, the sole member of the Stock Option Committee was Mr. Drohan. At January 1, 2012, the Stock Option Committee was chaired by Mr. Green, and both Mr. Bucchere and Mr. Drohan were committee members.

 

In view of the ongoing vacancies on its Board of Directors, Omagine’s limited resources and the limited number of Company employees available to address currently pressing business requirements, the Board of Directors resolved on March 15, 2013 to temporarily suspend the activities of the audit committee, the compensation committee, the nominating committee and the stock option committee until the two new Independent Directors were appointed or elected, and to have responsibility for all such committee activities assumed by the full Board of Directors.

 

The Board of Directors does not expect to fill the two board vacancies for Independent Directors until after the Development Agreement for the Omagine Project is signed with the Government of Oman. The Board intends that one such vacancy will be filled with a person who will chair the audit committee and will be an audit committee financial expert. Upon the appointment or election of such two new Independent Directors, they will also both be appointed to the compensation committee and to the nominating committee.

 

Officers

 

Officers are appointed by the Board of Directors and serve at the discretion of the Board of Directors.

 

Mr. Drohan and Mr. Kuczynski are both officers of Omagine as described above.

 

William Hanley has served as the Controller and Principal Accounting Officer of the Registrant since January 2008. Mr. Hanley served as the controller of Mittal Steel from 1986 to 2007 and as the Controller and Chief Financial Officer of Rif International Corp. from 1980 to 1986. From 1973 to 1980 he served as the controller at two Wall Street brokerage firms and from 1968 to 1972 as a senior accountant at the public accounting firm Main LaFrentz & Company. Mr. Hanley holds a Bachelor of Business Administration degree in Accounting from St. Francis College in New York.

 

Sam Hamdan has served as Omagine’s primary strategic consultant since 2007 and as Deputy Managing Director of Omagine LLC since 2009. Mr. Hamdan has over 25 years of wide ranging business experience, having owned and operated several companies while also serving as a strategic consultant to high ranking government officials, Fortune 500 companies and technology ventures across the U.S., Europe and the MENA Region. Mr. Hamdan is fluent in Arabic and English, has many long-standing business and personal relationships in the U.S., Europe and the MENA Region and is familiar with the MENA Region’s cultural and business environment.

 

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Code of Ethics

 

Omagine has adopted and its Board of Directors has approved a Code of Ethics and Business Conduct ("Code"). The Code applies to all directors, officers and employees of Omagine. Omagine believes that the policies and procedures contained in the Code are consistent with the requirements for a Code of Ethics as required by the SEC. A copy of the Code is attached hereto as Exhibit 14 and is available on Omagine's website, www.omagine.com.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

As of the date hereof, the Registrant’s officers and directors are in compliance with the requirement to file ownership reports as required by Section 16(a) of the Act. During 2013 the Registrant’s President, Vice President and Controller did not timely file Form 4 for Common Shares gifted by each of them. All such required forms have been filed as of the date of this Prospectus.

 

EXECUTIVE COMPENSATION

 

Officer Compensation

 

The following table sets forth information relating to the aggregate compensation received by the then current executive officers of the Company for services in all capacities during the Company’s three fiscal years indicated for (i) Omagine’s Chief Executive and Financial Officer, and (ii) each then current executive officer of Omagine and/or LLC whose total compensation exceeded $100,000 (the foregoing (i) and (ii) being collectively, the “Named Executive Officers”).

 

Summary Compensation Table

 

(a)   (b)     (c-1)     (c-2)     (d)     (e)     (f)     (g)     (h)  
Name and Principal Position   Year     Unpaid Salary Accrued (1)     Salary Payments (2)     Bonus     Stock Awards (3)     Option Awards (4)     All Other Comp.     Total  
          ($)     ($)     ($)     ($)     ($)     ($)     ($)  
                                                 
Frank J.     2013     $ 125,000     $ 0   $ 0     $ 33,889     $ 566,727     $ 0     $ 725,616  
Drohan, Chief     2012     $ 125,000     $ 0     $ 0     $ 34,388     $ 691,874     $ 0     $ 851,262  
Executive and Financial Officer     2011     $ 125,000     $ 0     $ 0     $ 33,834     $ 47,170     $ 0     $ 206,004  
                                                                 
Charles P.     2013     $ 17,917     $ 82,083     $ 0     $ 35,301     $ 194,805     $ 0     $ 330,186  
Kuczynski,     2012     $ 18,000     $ 82,000     $ 0     $ 35,882     $ 236,847     $ 0     $ 372,729  
Vice-President and Secretary     2011     $ 69,500     $ 30,500     $ 0     $ 35,444     $ 23,585     $ 0     $ 159,029  
                                                                 
William     2013     $ 63,333     $ 16,667     $ 0     $ 7,060     $ 42,508     $ 0     $ 129,568  
Hanley,     2012     $ 25,000     $ 55,000     $ 0     $ 5,980     $ 51,183     $ 0     $ 137,163  
Controller and Principal Accounting Officer     2011     $ 65,000     $ 15,000     $ 0     $ 3,222     $ 2,975     $ 0     $ 86,197  
                                                                 
Sam Hamdan,     2013     $ 0     $ 0     $ 0     $ 0     $ 531,350     $ 0     $ 531,350  
Deputy     2012     $ 0     $ 0     $ 0     $ 0     $ 644,479     $ 0     $ 644,479  
Managing Director, Omagine LLC (5)     2011     $ 0     $ 0     $ 0     $ 0     $ 18,768     $ 0     $ 18,768  

 

1 Amounts included under Column (c-1) represent amounts recognized as compensation expense for financial statement reporting purposes and not an amount paid to the Named Executive Officers in the year indicated. Such amounts represent salary due to the Named Executive Officer for the year indicated that was not paid to such Named Executive Officer and was accrued as salaries payable.
   
2 Amounts included under Column (c-2) represent amounts recognized as compensation expense for financial statement reporting purposes which were paid to the Named Executive Officers in the year indicated. Such amounts represent the portion of salary due to the Named Executive Officer for the year indicated that was paid to such Named Executive Officer in the year indicated.

 

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3 Amounts included under Column (e) represent contributions of Common Shares made in the year indicated to the 401(k) Plan account of the Named Executive Officer, valued at the closing market price for a Common Share on the dates of such contributions.
   
4 Amounts included under Column (f) represent the amount recognized as compensation expense for financial statement reporting purposes for the year indicated under ASC 718 and not an amount paid to or realized by the Named Executive Officers. There can be no assurance that the amounts determined by ASC 718 will ever be realized by the Named Executive Officers. In December 2012, Omagine extended the expiration date of all Strategic Options from December 31, 2012 to December 31, 2013 (the “First Extension”) and in December 2013 Omagine again extended that expiration date from December 31, 2013 to December 31, 2014 (the “Second Extension”). Assumptions used in the calculation of the amounts specified in Column (f) are included in Note 1 - Stock Based Compensation and Note 7 – Stock Options to Omagine's audited financial statements for the fiscal year ended December 31, 2013. (See also: “Equity Compensation Plan Information” below).
   
5 In addition to the 750,000 Strategic Options exercisable at $1.70 per Common Share awarded to Mr. Hamdan in 2012, Mr. Hamdan also holds 160,000 Stock Options exercisable at $1.25 per Common Share which were awarded to him in March 2007and which are not Strategic Options.

 

Management has concluded that the aggregate amount of personal benefits does not exceed 10% of the total compensation reported in column (h) of the foregoing table as to any Named Executive Officer named in the above table.

 

Table of Accrued Unpaid Salary Used to Purchase Common Shares

 

The following table indicates the amounts of previously accrued but unpaid salary payable utilized in the year indicated by the Named Executive Officer to purchase Common Shares via a direct purchase from Omagine, an exercise of Stock Options or an exercise of Rights in the Rights Offering.

 

Name  2013   2012   2011   2010 
Frank J. Drohan (1)  $0   $155,921   $125,000   $0 
Charles P. Kuczynski (2)  $0   $11,591   $62,500   $0 
William Hanley (3)  $0   $31,250   $0   $100,000 

 

1. During the year ended December 31, 2012, $155,921 of unpaid salary owed to Mr. Drohan and $247,492 of principal and interest owed by Omagine to Mr. Drohan pursuant to a promissory note was offset and utilized by him for the exercise of 322,730 Rights to purchase 322,730 Common Shares at $1.25 per Common Share. During the year ended December 31, 2011, $125,000 of unpaid salary owed to Mr. Drohan was offset and utilized by him for the exercise of 100,000 Stock Options at $1.25 per Common Share. At June 30, 2014, December 31, 2013, 2012 and 2011, unpaid salary payable due to Mr. Drohan was $247,964; $398,154; $273,154; and $281,250 respectively.
   
2. During the year ended December 31, 2012, $11,591 of unpaid salary owed to Mr. Kuczynski and $51,497 of principal and interest owed by Omagine to Mr. Kuczynski pursuant to a promissory note was offset and utilized by him for the exercise of 50,470 Rights to purchase 50,470 Common Shares at $1.25 per Common Share. During the year ended December 31, 2011, $62,500 of unpaid salary owed to Mr. Kuczynski was offset and utilized by him for the exercise of 50,000 Stock Options at $1.25 per Common Share. At June 30, 2014, December 31, 2013, 2012 and 2011, unpaid salary payable due to Mr. Kuczynski was $171,575; $163,575; $145,658; and $139,249 respectively.
   
3.

During the year ended December 31, 2012, $31,250 of unpaid salary owed to Mr. Hanley was offset and utilized by him for the exercise of 25,000 Rights to purchase 25,000 Common Shares at $1.25 per Common Share. During the year ended December 31, 2010, $100,000 of unpaid salary owed to Mr. Hanley was offset and utilized by him for the purchase of 82,305 Common Shares at $1.215 per Common Share. At June 30, 2014, December 31, 2013, 2012, 2011 and 2010, unpaid accrued officer’s compensation due to Mr. Hanley was $165,883; $165,883; $102,550; $108,800; and $43,799 respectively.

 

 

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Director Compensation

 

Directors of Omagine who are employees of the Company do not receive additional compensation for their services as directors. Independent Directors are compensated for their services as directors of Omagine.

 

The following table sets forth information relating to the aggregate compensation received by the then current Independent Directors of the Registrant for services in all capacities during the Registrant's fiscal year ended December 31, 2013. 

 

Director Compensation Table

 

(a)  (b)   (c)   (d)   (e)   (f) 
Name  Fees Earned or Paid in Cash ($)   Stock
Awards
($)
   Option Awards
(1)(2) ($)
   All Other Compensation ($)   Total
($)
 
Estate of Salvatore Bucchere (3)  $0   $0   $35,423   $0   $35,423 
Kevin Green (3)  $0   $0   $0   $0   $0 
Louis Lombardo  $2,500   $0   $35,963   $0   $38,463 

 

(1) Column (d) represents the dollar amount recognized as compensation expense for financial statement reporting purposes for the year indicated under ASC 718, and not an amount paid to or realized by the named director. There can be no assurance that the amounts determined by ASC 718 will ever be realized by the named director. Assumptions used in the calculation of the amounts specified in Column (d) are included in Note 1 - Stock Based Compensation and Note 7 – Stock Options to Omagine's audited financial statements for the fiscal year ended December 31, 2013.
   
(2) All Strategic Options presently expire on December 31, 2014. As of December 31, 2013, (a) each of Mr. Lombardo and the estate of Mr. Bucchere had 50,000 fully vested Strategic Options and Mr. Green had no Strategic Options. In addition as of December 31, 2013, Mr. Lombardo held Stock Options that are not Strategic Options as follows: (i) 2,000 fully vested Stock Options exercisable at $0. 85 per Common Share, (ii) 2,000 fully vested Stock Options exercisable at $1.38 per Common Share, and (iii) 2,000 fully vested Stock Options exercisable at $1.70 per Common Share; and Mr. Green held Stock Options that are not Strategic Options as follows: (i) 2,000 fully vested Stock Options exercisable at $0.85 per Common Share and (ii) 2,000 fully vested Stock Options exercisable at $0.51 per Common Share (See: “Equity Compensation Plan Information” - “Stock Options Granted to Independent Directors” below).
   
(3) Mr. Green resigned in January 2012 and Mr. Bucchere died in April 2012.

 

Independent Directors are compensated for their services as directors as shown in the chart below:

 

Schedule of Independent Director Fees December 31, 2013

 

Compensation Item  Amount 
     
Annual Retainer  $0 
Attendance at Annual Meeting   500 
Per Board Meeting Fee (attendance in person)   500 
Per Board Meeting Fee (attendance by teleconference)   250 
Per Committee Meeting Fee (in person or by teleconference)   0 
Appointment Fee Upon Election to Board of Directors   0 
Non-qualified stock options   (1)(2)

 

(1) On the date of appointment to the Board of Directors, new Independent Directors are entitled to a one-time grant of 6,000 non-qualified Stock Options exercisable at the closing price for a Common Share on the date of grant, vesting 2,000 on the date of grant and 2,000 on the first business day of January in each of the two years next following the date of grant.

 

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(2) For Independent Directors that have served on the Board for at least 3 years, 2,000 Stock Options (or such other number of Stock Options as determined by the Board of Directors in its discretion) will be granted on the first business day of January in each fiscal year next following such 3 year period, at the closing price for a Common Share on the date of such grant, and vesting immediately upon grant. (See: “Stock Options Granted to Independent Directors” below).

 

Compensation Discussion and Analysis

 

The Board of Directors has long recognized that the Named Executive Officers and Omagine’s Independent Director (collectively, the “Company Executives”) have been substantially underpaid for years relative to their talents and to the efforts they expend on the Company’s behalf. The previously disclosed history of the long and frequent delays by the Government of Oman relative to the timely signing the DA have caused hardship for both the Company and the Company Executives. In order to conserve its cash resources, Omagine has frequently suspended the already inadequate compensation arrangements it has with the Company Executives by not paying or partially paying such compensation and accruing the unpaid portions of such compensation on its books as compensation payable. The Company Executives have nevertheless exhibited remarkable resiliency, loyalty to the Company and dedication to their work and have labored diligently, often with little or no compensation, in order to accomplish the Company’s single most important strategic objective of signing the DA with the Government. Also, Omagine’s president, its vice-president and its Independent Director have each made loans to Omagine during the past few years.

 

As soon as practicable after LLC signs the DA with the Government, the Company plans to institute a formal plan for performance based compensation for all its executives and senior staff, including the Company Executives. This intended compensation plan will be designed to align executive compensation with the achievement by the Company of its long-term goals and objectives. Until such time as such plan is implemented however, and given Omagine’s current cash restraints, Omagine has attempted to incentivize the Company Executives on an ad hoc basis.

 

Beginning in 2007 and continuing to date, Omagine has frequently suspended and accrued salary payments due to the Company Executives who are officers of Omagine. By way of example, from 2011 through 2013, Omagine failed, to pay in accordance with its normal payroll procedures a total of $375,000 of salary due to its president & chief executive officer; a total of $105,417 of salary due to its vice-president & secretary; and a total of $153,333 of salary due to its controller & principal accounting officer. Consistent with Omagine’s practice in periods prior to 2011, such unpaid salaries were accrued on Omagine’s books as salaries payable and portions thereof were sometimes paid at later dates, as and when Omagine’s financial circumstances permitted. Significantly, and in a further demonstration of their support of Omagine, the Company Executives who are officers of Omagine also, from time to time, exchanged portions of the accrued but unpaid salary due them for restricted Common Shares. None of such Common Share purchases by the Company Executives were executed at preferential prices. In this regard:

 

·In August 2011, Omagine’s president exchanged $125,000 of accrued unpaid salary due to him from Omagine in order to exercise 100,000 Stock Options at $1.25 per Common Share and in March 2012 he exchanged an aggregate of $403,413 due to him from Omagine consisting of (a) accrued unpaid salary, and (b) principal and accrued interest due under an Omagine promissory note, in order to exercise 322,730 Rights in the Rights Offering to purchase 322,730 Common Shares at $1.25 per Common Share, and
  
·In August 2011, Omagine’s vice-president exchanged $62,500 of accrued unpaid salary due to him from Omagine in order to exercise 50,000 Stock Options at $1.25 per Common Share and in March 2012, he exchanged an aggregate of $63,088 due to him from Omagine consisting of (a) accrued unpaid salary, and (b) principal and accrued interest due under an Omagine promissory note, in order to exercise 50,470 Rights in the Rights Offering to purchase 50,470 Common Shares at $1.25 per Common Share, and
  
·In July 2010, Omagine’s controller exchanged $100,000 of accrued unpaid salary due to him from Omagine in order to purchase 82,305 Common Shares at $1.215 per Common Share and in March 2012 he exchanged $31,250 of accrued unpaid salary due to him from Omagine in order to exercise 25,000 Rights in the Rights Offering to purchase 25,000 Common Shares at $1.25 per Common Share.
  
·An Omagine Independent Director has made loans to Omagine in the aggregate amount of $150,000 which are memorialized by Omagine convertible promissory notes.

 

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In an effort to retain the services of the Company Executives (and other Company consultants) which Omagine deems critical to its ongoing operations, Omagine issued Stock Options to the Company Executives and to other Company consultants (See: “Equity Compensation Plan Information” and “Employment Agreements and Consulting Agreement” below). In December 2013 Omagine extended (for the second time) the expiration date of the Strategic Options held by the Company Executives.

 

The Company Executives recognize the extraordinary advance in the Company’s prospects expected to occur if the DA is signed with the Government and the implementation of the Omagine Project as presently conceived is undertaken by LLC. While they also recognize the extraordinary personal and professional risks, both financial and otherwise, they have undertaken in order to pursue this Company goal, The Company Executives have nevertheless been greatly shocked at the excessive length of the Government’s decision making process and the attendant additional risk incurred by them as a result of the MOT’s delays.

 

Should LLC ultimately fail to sign the DA and move forward with the development of the Omagine Project in Oman, (i) the past many years of under-compensation to the Company Executives will have been wasted years for them, (ii) the accrued unpaid compensation payable to them will likely be lost, (iii) the Common Shares purchased by them will likely decline in value, and (iv) the Stock Options held by them will likely expire worthless.

 

If, on the other hand, the efforts by the Company Executives are successful and the DA is ultimately signed by LLC and the Government, it is likely that the past years of under-compensation to the Company Executives will have been a worthwhile sacrifice, that the accrued unpaid salary payable to them will be paid to them and the Common Shares and Stock Options held by them will become valuable.

 

In view of the inordinate delays by the Government to date, and the extraordinary efforts, risks and sacrifices undertaken on behalf of the Company by the Company Executives, the Board of Directors has determined that if, and only if, the DA is signed by LLC and the Government, Omagine will then award a one-time cash bonus (a ”DA Success Bonus”) to each of the Company Executives in compensation for the aforesaid efforts, risks and sacrifices so undertaken by them which resulted in the realization of the Company’s primary and long delayed strategic objective of LLC and the Government signing the DA. The amount of each such DA Success Bonus has not yet been determined by the Board of Directors but each such amount is expected to be substantial and commensurate with (a) the value added to the Company as a result of the contribution made by each such Company Executive to the Company’s success in achieving its primary strategic objective, and (b) the efforts expended by each such Company Executive in attaining that objective.

 

If LLC signs the DA with the Government, then in determining its compensation policies and decisions subsequent thereto, Omagine shall seek a shareholder advisory vote on its executive compensation policy (including any proposed DA Success Bonus awards) as required by section 14A of the Exchange Act. The Company does not presently have written employment agreements with any of its executive officers (See: “Employment Agreements and Consulting Agreement” below).

 

Equity Compensation Plan Information

 

The 2003 Plan and the 2014 Plan

 

Omagine’s shareholders approved the reservation by Omagine of 2,500,000 Common Shares for issuance under the 2003 Omagine Inc. Stock Option Plan (the ”2003 Plan”). The 2003 Plan expired on August 31, 2013. (See: Exhibit 10.19).

 

On March 6, 2014, the Board of Directors approved the adoption of the 2014 Omagine Inc. Stock Option Plan (the “2014 Plan”). Pursuant to the 2014 Plan, 3,000,000 Common Shares were reserved for issuance. Omagine intends to seek its shareholders’ ratification of the adoption by Omagine of the 2014 Plan. (See: Exhibit 10.20).

 

Both the 2003 Plan and the 2014 Plan are designed to attract, retain and motivate employees, directors, consultants and other professional advisors of Omagine and its subsidiaries (collectively, the “Recipients”) by giving such Recipients the opportunity to acquire stock ownership in Omagine through the issuance of stock options (“Stock Options”) to purchase Common Shares.

 

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Omagine has registered for resale the 2.5 million Common Shares reserved for issuance under the 2003 Plan by filing a registration statement with the SEC on Form S-8 (the “S-8 Registration”) and on September 12, 2012, Omagine filed a post-effective amendment to the S-8 Registration.

 

At June 30, 2014 and December 31, 2013, there were 2,285,000 unexpired Stock Options issued but unexercised under the 2003 Plan and all such Stock Options remain valid until the earlier of their exercise date or expiration date. At June 30, 2014, there were 40,000 unexpired Stock Options issued but unexercised under the 2014 Plan. A total of 2,325,000 Stock Options were issued and outstanding at June 30, 2014 of which 1,965,000 were Strategic Options.

 

The Strategic Options

 

On January 2, 2012, pursuant to the 2003 Plan and a resolution of the Board of Directors, thirteen individuals who were either employees, directors or consultants to Omagine at such time and whose continued service was deemed by the Board of Directors to be particularly crucial to attaining LLC’s strategic goal of signing the DA with the Government of Oman were granted an aggregate of 1,994,000 Strategic Options. On January 31, 2012, an Independent Director resigned and the 50,000 Strategic Options previously granted to him were cancelled in accordance with their terms. On April 13, 2012 pursuant to a resolution of the Board of Directors, an aggregate of 21,000 additional Strategic Options (intended to be granted on January 2, 2012 but not available under the 2003 Plan at such time) were granted to two individuals.

 

To continue to incentivize the retention and sustained service to the Company of its mission-critical employees and consultants in the face of the continued DA signing delays, the Board of Directors authorized the First Extension of the expiration date of all Strategic Options to December 31, 2013 and subsequently the Second Extension of such expiration date to December 31, 2014.

 

Of the 1,965,000 Strategic Options issued, an aggregate of 1,049,000 were granted to Omagine’s three officers, an aggregate of 150,000 were granted to Omagine’s then three independent directors and 750,000 were granted to the Deputy Managing Director of LLC.

 

All Strategic Options are fully vested, exercisable at $1.70 per Common Share, provide for a cashless exercise feature, currently expire on December 31, 2014 and (except with respect to Strategic Options held by the estate of a deceased former director) require the holder thereof to be an employee of or a consultant to the Company at the time of exercise.

 

Strategic Options may be exercised at any time prior to 5 P.M. Eastern Time in the United States on December 31, 2014 by either: (1) paying the $1.70 exercise price in cash to Omagine, or (2) electing to pay the $1.70 exercise price via the cashless exercise feature of the Strategic Options, as follows:

 

1)

Strategic Options may be exercised in whole or in part by the holder thereof by delivery of a written notice to Omagine (the “Exercise Notice”), of such holder’s election to exercise such Strategic Options, which Exercise Notice shall:

 

  1. specify the number of Common Shares (“Option Shares”) to be purchased,
  2. be accompanied by payment to Omagine of an amount equal to $1.70 multiplied by the number of Option Shares for which the Strategic Options are being exercised (the “Aggregate Option Exercise Price”) in cash or wire transfer of immediately available funds, and
  3. include the surrender of the relevant certificate representing such Strategic Options (or an indemnification undertaking with respect to such Strategic Options in the case of the loss, theft or destruction of such certificate).

Such documentation and payment shall be delivered by such holder to a common carrier for overnight delivery to Omagine as soon as practicable following the date of such Exercise Notice, but in no event later than December 30, 2014 (“Cash Basis”),

or

2) by delivering an Exercise Notice and in lieu of making payment of the Aggregate Option Exercise Price in cash or wire transfer, elect instead to receive upon such exercise the “Net Number” of Common Shares determined according to the following formula (the “Cashless Exercise”):
  Net Number = (A x B) – (A x C)  
    B  

 

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For purposes of the foregoing formula:

 

  A = the total number of Option Shares with respect to which the relevant Strategic Options are then being exercised.
  B = the closing bid price of a Common Share on the date of exercise of the relevant Strategic Options.
  C = the exercise price of one dollar and seventy cents ($1.70) in United States currency.

 

Stock Options Other Than Strategic Options

 

On April 13, 2012 pursuant to the 2003 Plan, an Omagine independent director was granted 2,000 Stock Options exercisable at $1.70 per Common Share and expiring on April 18, 2017.

 

On January 15, 2013 pursuant to the 2003 Plan, an Omagine independent director was granted 2,000 Stock Options exercisable at $1.38 per Common Share and expiring on January 14, 2018.

 

On April 8, 2013, the estate of a former Omagine director exercised 4,000 Stock Options; 2,000 at $0.51 per Common Share and 2,000 at $0.85 per Common Share.

 

On March 28, 2014 pursuant to the 2014 Plan, four persons were granted an aggregate of 40,000 Stock Options exercisable at $1.80 per Common Share and expiring on March 27, 2019. One such person is an Omagine independent director and one is an Omagine officer.

 

Stock Options Granted to the Named Executive Officers

 

The following table shows the number of Common Shares covered by exercisable and un-exercisable Stock Options issued pursuant to the 2003 Plan and held by the Named Executive Officers on December 31, 2013. There can be no assurance that the Grant Date Fair Value of Stock Option awards will ever be realized by such Named Executive Officers. 

 

(a)  (b)   (c)   (d)   (e)
Name  Number of Common Shares Underlying Unexercised Options (#) Exercisable   Number of Common Shares Underlying Unexercised Options (#) Un-exercisable   Option Exercise
Price
   Option
Expiration Date
Frank Drohan (1)   750,000    0   $1.70   December 31, 2014
    100,000    0   $2.60   September 22, 2018
                   
Charles Kuczynski (2)   250,000    0   $1.70   December 31, 2014
    50,000    0   $2.60   September 22, 2018
                   
William Hanley (3)   60,000    0   $1.70   December 31, 2014
                   
Sam Hamdan (4)   750,000    0   $1.70   December 31, 2014
    160,000    0   $1.25   March 30, 2017

 

(1)

In September 2008, 100,000 Stock Options, vesting ratably over five years, expiring after ten years and exercisable at $2.60 per Common Share, were granted to Omagine's President & Chief Executive Officer. In January and April of 2012, an aggregate of 750,000 Strategic Options, vesting 50% upon grant and 50% on July 1, 2012, expiring on December 31, 2014 and exercisable at $1.70 per Common Share were granted to Omagine's President & Chief Executive Officer.

(2) In September 2008, 50,000 Stock Options, vesting ratably over five years, expiring after ten years and exercisable at $2.60 per Common Share, were granted to Omagine's Vice-President & Secretary. In January 2012, 250,000 Strategic Options, vesting 50% upon grant and 50% on July 1, 2012, expiring on December 31, 2014 and exercisable at $1.70 per Common Share were granted to Omagine's Vice-President & Secretary.
(3) In January 2012, 60,000 Strategic Options, vesting 50% upon grant and 50% on July 1, 2012, expiring on December 31, 2014 and exercisable at $1.70 per Common Share were granted to Omagine's Controller & Principal Accounting Officer.

 

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(4)

In March 2007, 160,000 Stock Options, vesting ratably over five years, expiring after ten years and exercisable at $1.25 per Common Share, were granted to a consultant to Omagine who is also the Deputy Managing Director of LLC. In January 2012, 750,000 Strategic Options, vesting 50% upon grant and 50% on July 1, 2012, expiring on December 31, 2014 and exercisable at $1.70 per Common Share were granted to the Deputy Managing Director of LLC.

 

The following table shows the number of Common Shares covered by unexpired non-qualified Stock Options issued to the Named Executive Officers under the 2003 Plan and the 2014 Plan and unexercised as of September 19, 2014.

 

Name  Number of Options   Exercise
Price
   Date of Grant  Expiration Date
                 
Frank Drohan   100,000   $2.60   9/23/2008  9/22/2018
Frank Drohan   739,000   $1.70   1/2/2012  12/31/2014
Frank Drohan   11,000   $1.70   4/13/2012  12/31/2014
                 
Charles Kuczynski   50,000   $2.60   9/23/2008  9/22/2018
Charles Kuczynski   250,000   $1.70   1/2/2012  12/31/2014
                 
William Hanley   10,000   $1.80   3/28/2014  3/27/2019
William Hanley   60,000   $1.70   1/2/2012  12/31/2014
                 
Sam Hamdan   160,000   $1.25   3/19/2007  3/31/2017
Sam Hamdan   750,000   $1.70   1/2/2012  12/31/2014

 

Stock Options Granted to Independent Directors

 

The following table shows the number of Common Shares covered by unexpired non-qualified Stock Options issued to Independent Directors of Omagine under the 2003 Plan and the 2014 Plan and unexercised as of September 19, 2014.

 

Name  Number of Options   Exercise Price   Date of Grant  Expiration Date
               
Louis Lombardo   2,000   $0.85   5/17/2011  5/16/2016
Louis Lombardo   50,000   $1.70   1/2/2012  12/31/2014
Louis Lombardo   2,000   $1.70   4/13/2012  4/12/2017
Louis Lombardo   2,000   $1.38   1/15/2013  1/14/2018
Louis Lombardo   10,000   $1.80   3/28/2014  3/27/2019
                 
Salvatore Bucchere   50,000   $1.70   1/2/2012  12/31/2014
                 
Kevin Green   2,000   $0.51   7/1/2010  6/30/2015
Kevin Green   2,000   $0.85   5/17/2011  5/16/2016

 

On the date of appointment to the Board of Directors, new Independent Directors are entitled to a one-time grant of 6,000 non-qualified Stock Options (or such other number of Stock Options as determined by the Board in its discretion). The exercise price of such Stock Options is the closing price for a Common Share on the date of grant and the Stock Options vest ratably over the three year period subsequent to such date of appointment provided such Independent Director continues to hold office on the date of such vesting. Independent Directors who have served on the Board of Directors for at least 3 years may be granted 2,000 Stock Options (or such other number of Stock Options as determined by the Board of Directors in its discretion) on the first business day of each fiscal year subsequent to such three years of service (or on such other day subsequent thereto as determined by the Board of Directors in its discretion) at an exercise price equal to the closing price for a Common Share on the date of grant and such Stock Options shall vest immediately upon grant.

 

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Mr. Lombardo presently holds 66,000 fully vested Stock Options (2,000 exercisable at $0.85 expiring on May 16, 2016; 2,000 exercisable at $1.70 expiring on April 12, 2017; 2,000 exercisable at $1.38 expiring on January 14, 2018; 10,000 exercisable at $1.80 expiring on March 27, 2019; and 50,000 Strategic Options exercisable at $1.70 expiring on December 31, 2014). Mr. Lombardo’s 50,000 Strategic Options require him to be an Independent Director of Omagine at the time of the exercise of any Strategic Options.

 

Mr. Bucchere was an Independent Director at the time of his death on April 9, 2012. Pursuant to the 2003 Plan, all Stock Options then held by Mr. Bucchere immediately vested and were assigned an expiration date of April 8, 2013. Subsequently pursuant to resolutions of the Board of Directors, the expiration date for all Strategic Options (including the 50,000 Strategic Options held by the estate of Mr. Bucchere) was extended to December 31, 2014. On April 8, 2013, the estate of Salvatore J. Bucchere exercised 4,000 Stock Options to purchase 4,000 Common Shares. 2,000 of such Stock Options were exercised at $0.51 per Common Share and the other 2,000 were exercised at $0.85 per Common Share. Mr. Bucchere’s estate presently holds 50,000 fully vested Strategic Options exercisable at $1.70 per Common Share and expiring on December 31, 2014.

 

Mr. Green was an Independent Director until his resignation on January 31, 2012. Pursuant to their terms, Mr. Green’s 50,000 Strategic Options were cancelled concurrently with his resignation. Mr. Green presently holds 4,000 fully vested Stock Options (2,000 exercisable at $0.51 per Common Share expiring on June 30, 2015 and 2,000 exercisable at $0.85 per Common Share expiring on May 16, 2016).

 

Report on the Re-pricing of Any Options or Stock Appreciation Rights

 

There was no re-pricing of any Stock Options during fiscal year 2013 or during any subsequent period through the date hereof. The Company has never issued any stock appreciation rights. In December 2013, Omagine extended the expiration date of all Strategic Options from December 31, 2013 to December 31, 2014. (See: “Equity Compensation Plan Information – The Strategic Options” above and “Note 7 – Stock Options” to Omagine's audited financial statements for the fiscal year ended December 31, 2013).

 

Employment Agreements

 

The Company presently has no employment agreements with any person.

 

Pursuant to a prior employment agreement with Omagine (the “Drohan Agreement”), Omagine was obligated to employ its President and Chief Executive Officer, Mr. Frank J. Drohan, at an annual base salary of $125,000 plus an additional amount based on a combination of Omagine’s net sales and earnings before taxes. The Drohan Agreement also provided for an option to purchase 100,000 Common Shares at $1.25 per Common Share (the “Drohan Options”) and payment by Omagine of certain life and disability insurance premiums on Mr. Drohan's behalf. The Drohan Options were exercised by Mr. Drohan in August 2011. By mutual agreement between Omagine and Mr. Drohan, the Drohan Agreement was modified to provide that Omagine could from time to time suspend salary payments to Mr. Drohan and Mr. Drohan would continue to provide services to Omagine pursuant to the Drohan Agreement and Omagine would accrue Mr. Drohan’s unpaid salary. From 2007 through the date hereof, Omagine has from time to time fully or partially suspended salary payments to Mr. Drohan and Omagine has accrued Mr. Drohan’s unpaid salary which was not paid to him in a timely manner in accordance with Omagine’s normal payroll practices. For the years ended December 31, 2013 and 2012 and through the date hereof, Omagine has continued to accrue salary payable to its President on the basis of an annual salary of $125,000. On April 24, 2014, Omagine paid $187,691 of unpaid salary payable to Mr. Drohan. At June 30, 2014, December 31, 2013 and December 31, 2012, unpaid accrued officer’s compensation due to Mr. Drohan was $247,964, $398,154 and $273,154 respectively. During 2012, an aggregate of $403,413 ($155,921 of accrued but unpaid officer’s compensation due to Mr. Drohan and $247,492 of principal and interest owed by Omagine to Mr. Drohan pursuant to a promissory note) was offset and utilized by Mr. Drohan for the exercise of 322,730 Rights to purchase 322,730 Common Shares at $1.25 per Common Share. Omagine has agreed to pay any remaining unpaid and accrued salary to Mr. Drohan without interest when and if Omagine has the financial resources to do so. On September 23, 2008 the Board of Directors granted 100,000 non-qualified Stock Options to Mr. Drohan which vested ratably over the five years after the grant date and which are exercisable at $2.60 per Common Share. All 100,000 of such Stock Options are fully vested as of the date hereof. Expiration of all such Stock Options is ten years from the date of grant. The Board of Directors had determined in January 2012 to grant Mr. Drohan 750,000 Strategic Options. Because a sufficient number of options were not available under the 2003 Plan at the time however, pursuant to a resolution of the Board of Directors, Omagine granted 739,000 Strategic Options to Mr. Drohan on January 2, 2012. On April 13, 2012 pursuant to a further resolution of the Board of Directors, Omagine granted Mr. Drohan an additional 11,000 Strategic Options. Mr. Drohan’s Strategic Options are fully vested as of the date hereof and require him to be an employee of Omagine at the time of the exercise of any Strategic Options. All Strategic Options are exercisable at $1.70 per Common Share, have a cashless exercise feature and may be exercised in whole or in part at any time before their expiry date of December 31, 2014. All unexercised Strategic Options will expire on December 31, 2014. The Board of Directors has determined that when and if the Development Agreement for the Omagine Project is signed by LLC and the Government, Omagine will award a substantial DA Success Bonus to Mr. Drohan in an amount that has yet to be determined. If LLC signs the DA with the Government, then in determining its compensation policies and decisions subsequent thereto, Omagine shall seek a shareholder advisory vote on its executive compensation policy (including any proposed DA Success Bonus awards) as required by section 14A of the Exchange Act. Omagine presently plans to enter into a new employment agreement with Mr. Drohan at some time during 2014 although the terms of such employment agreement have not yet been determined.

 

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Pursuant to a prior employment agreement with Omagine (the “Kuczynski Agreement”), Omagine was obligated to employ its Vice-President & Secretary, Mr. Charles P. Kuczynski, at an annual base salary of $75,000, plus an additional bonus based on a combination of Omagine’s net sales and earnings before taxes. The Kuczynski Agreement provided for an option to purchase 50,000 Common Shares at $1.25 per Common Share (the “Kuczynski Options”). By mutual agreement between Omagine and Mr. Kuczynski, the Kuczynski Agreement was ended but the Kuczynski Options were maintained in effect and the Kuczynski Options were thereafter exercised by Mr. Kuczynski in August 2011. Mr. Kuczynski is presently employed by Omagine at an annual salary of $100,000 and from 2007 through the date hereof, Omagine has from time to time fully or partially suspended salary payments to Mr. Kuczynski and Mr. Kuczynski has continued to provide services to Omagine and Omagine has accrued Mr. Kuczynski’s unpaid salary which was not paid to him in a timely manner in accordance with Omagine’s normal payroll practices. For the years ended December 31, 2013 and 2012, and through the date hereof Omagine partially paid and partially accrued officer’s compensation of $100,000 due in each such year to Mr. Kuczynski. At June 30, 2014, December 31, 2013 and 2012, unpaid accrued officer’s compensation due to Mr. Kuczynski was $171,575, $163,575 and $145,658 respectively. During the year ended December 31, 2012, an aggregate of $63,088 ($11,591 of accrued but unpaid officer’s compensation due to Mr. Kuczynski and $51,497 of principal and interest owed by Omagine to Mr. Kuczynski pursuant to a promissory note) was offset and utilized by Mr. Kuczynski for the exercise of 50,470 Rights to purchase 50,470 Common Shares at $1.25 per Common Share. Omagine has agreed to pay any remaining unpaid and accrued salary to Mr. Kuczynski without interest when and if Omagine has the financial resources to do so. On September 23, 2008 the Board of Directors granted 50,000 non-qualified Stock Options to Mr. Kuczynski which vested ratably over the five years after the grant date and which are exercisable at $2.60 per Common Share. All 50,000 of such Stock Options are fully vested as of the date hereof. Expiration of all such Stock Options is ten years from the date of grant. Pursuant to a resolution of the Board of Directors, Omagine granted 250,000 Strategic Options to Mr. Kuczynski. Mr. Kuczynski’s Strategic Options are fully vested as of the date hereof and require him to be an employee of Omagine at the time of the exercise of any Strategic Options. All Strategic Options are exercisable at $1.70 per Common Share, have a cashless exercise feature and may be exercised in whole or in part at any time before their expiry date of December 31, 2014. All unexercised Strategic Options will expire on December 31, 2014. The Board of Directors has determined that when and if the Development Agreement for the Omagine Project is signed by LLC and the Government, Omagine will award a substantial DA Success Bonus to Mr. Kuczynski in an amount that has yet to be determined. If LLC signs the DA with the Government, then in determining its compensation policies and decisions subsequent thereto, Omagine shall seek a shareholder advisory vote on its executive compensation policy (including any proposed DA Success Bonus awards) as required by section 14A of the Exchange Act. Omagine presently plans to enter into a new employment agreement with Mr. Kuczynski at some time during 2014 although the terms of such employment agreement have not yet been determined.

 

Employment Benefits

 

Omagine sponsors a 401(k) retirement plan for all eligible employees and provides and pays for group medical insurance for all employees choosing to participate in its group medical insurance plan.

 

The Registrant adopted the Omagine 401(k) Plan DTD 10-01-2008 (the "401(k) Plan") which is qualified under Section 401(k) of the Internal Revenue Code as a pre-tax plan for eligible employees of Omagine. Omagine does not presently match any employee contributions made to the 401(k) Plan. The Registrant made the maximum allowable discretionary contribution to all eligible employees participating in the 401(k) Plan in 2012, 2013 and 2014 in the form of 50,834, 55,253 and 73,315 Common Shares respectively. Future discretionary contributions and/or matching of employee contributions by the Registrant, if any, will be made pursuant to the recommendation of Omagine's Board of Directors.

 

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The Hamdan Consulting Agreement

 

Effective March 19, 2007 Omagine entered into a consulting agreement with Mr. Sam Hamdan originally set to expire on December 31, 2007 but which now expires on December 31, 2014 (the “Hamdan Agreement”). Pursuant to the Hamdan Agreement: (i) Mr. Hamdan provides consulting services to Omagine, (ii) under certain circumstances and conditions precedent, Mr. Hamdan may become the President of Omagine, and (iii) Omagine issued Mr. Hamdan Stock Options to purchase up to 160,000 Common Shares at $1.25 per Common Share (the “Hamdan Options”). The Hamdan Options vested ratably over the 5 year period beginning on April 1, 2007 and they expire on March 30, 2017. The Hamdan Options are exercisable only if at the time of such exercise: (i) the Hamdan Agreement is in effect, or (ii) Mr. Hamdan is an employee of the Company. The Hamdan Agreement was annually renewed four times without further compensation to Mr. Hamdan. Upon the fifth annual renewal of the Hamdan Agreement and pursuant to a resolution of the Board of Directors, Mr. Hamdan was granted 750,000 Strategic Options (See: Exhibit 10.3). Mr. Hamdan’s Strategic Options are fully vested and require him to be an employee of or a consultant to the Company at the time of the exercise of any of his Strategic Options. All unexercised Strategic Options will expire on December 31, 2014. Mr. Hamdan also serves without compensation as the Deputy Managing Director of our 60% owned subsidiary, LLC. The Board of Directors determined in 2012 that when and if the Development Agreement for the Omagine Project was signed by LLC and the Government, Omagine would award a substantial DA Success Bonus to Mr. Hamdan in an amount that has yet to be determined. Other than the issuance to Mr. Hamdan of the aforementioned Strategic Options, the Hamdan Agreement has continuously been renewed annually since 2007 without further compensation to Mr. Hamdan. The Hamdan Agreement presently expires on December 31, 2014 (See: Exhibit 10.4).

 

Compensation Committee Interlocks and Insider Participation

 

Although the information required under this caption is not required for Omagine since it is a smaller reporting company, the Registrant nevertheless is choosing to include the following information in order to provide clarity regarding its present circumstances, the structure and membership of its compensation committee, and its future plans regarding membership of its compensation committee.

 

At January 1, 2012, the then three Independent Directors who were members of the Board of Directors, Mr. Lombardo, Mr. Bucchere and Mr. Green comprised the entire membership of the compensation committee. Mr. Green resigned on January 31, 2012 and Mr. Bucchere died on April 9, 2012. Mr. Green was a member of the compensation committee from January 1, 2012 until his resignation on January 31, 2012. Mr. Bucchere was a member of the compensation committee from January 1, 2012 until his sudden and unexpected death on April 9, 2012. Mr. Lombardo was a member of the compensation committee and its chairman during all of 2012, and at December 31, 2012, Mr. Lombardo, who is an Independent Director, was the sole member of the compensation committee.

 

No person who was a member of the compensation committee during 2012 was an officer or employee of the Registrant or a former officer or employee of the Registrant. Other than the $150,000 loan to Omagine made by Mr. Lombardo, no person who was a member of the compensation committee during 2012 is a party to any related party transaction with the Registrant (See: “Certain Relationships and Related Transactions and Director Independence”).

 

During the fiscal year ended December 31, 2013, no executive officer of the Registrant served as a:

 

i.member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on the compensation committee or board of directors of the Registrant, or
   
ii.director of another entity, one of whose executive officers served on the compensation committee of the Registrant, or
   
iii.member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as a director of the Registrant.

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In view of the ongoing vacancies on its Board of Directors, Omagine’s limited resources, and the limited number of Company employees available to address currently pressing business requirements, the Board of Directors resolved on March 15, 2013 to temporarily suspend the activities of the compensation committee and to have responsibility for all such activities assumed by the full Board of Directors. (See: “Compensation Discussion and Analysis” above).

 

The Board of Directors does not expect to fill the two board vacancies for Independent Directors until after the Development Agreement for the Omagine Project is signed with the Government of Oman. Upon the filling of the aforesaid Board of Directors vacancies, two additional Independent Directors will be appointed to the compensation committee.

 

Board leadership structure and role in risk oversight.

 

Mr. Frank J. Drohan is the President and Chief Executive Officer of the Registrant and is also the Chairman of the Board of Directors of Omagine. Mr. Salvatore Bucchere was the lead Independent Director on the Board of Directors until his sudden and unexpected death on April 9, 2012. In this capacity, he consulted frequently (at least bi-weekly) with Mr. Drohan (who is often located overseas in Oman) and with Mr. Kuczynski who is a non-independent director and the Vice-President of Omagine. Mr. Bucchere, in turn, communicated frequently with Omagine’s other two Independent Directors, Mr. Lombardo and Mr. Green (who resigned in January 2012) in order to keep them informed of current Company issues, events and risks. Mr. Bucchere was an accountant and an audit committee financial expert. Mr. Green is a practicing attorney. Mr. Lombardo is a retired Fortune 500 company senior executive with extensive experience in risk management.

 

In view of the Company’s limited human and financial resources and its almost singular focus on signing the DA, Omagine determined that this board structure was appropriate and effective in carrying out its oversight tasks relevant to the Company’s activities and to the risks it faced. Omagine greatly regrets the loss of the services of Mr. Green and Mr. Bucchere, both of whom were valued advisers. Given its present resource constraints however, and what it perceives as the almost completed process leading to a signed DA with the Government, Omagine has determined to focus the majority of its limited amount of human and financial resources on signing the DA with MOT and to therefore postpone active recruitment of replacements for its two former Independent Directors until after the DA signing is achieved.

 

Although he is not an Independent Director, Mr. Kuczynski, an employee, director and Vice-President of Omagine, has assumed the internal communications role formerly carried out by Mr. Bucchere. The Board continues as in the past to exercise its oversight function, including its risk oversight, on both a formal and informal basis between and among its directors. Subsequent to signing the DA, the Board will recruit at least two new members as Independent Directors and will at that time review and revise its policies and procedures as deemed necessary to accommodate the expected rapid growth in Omagine’s activities.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth as of September 19, 2014: (i) the number of Common Shares beneficially owned by (a) owners of more than five percent of outstanding Common Shares who are known to Omagine, (b) the officers of Omagine and LLC individually, (c) the directors of Omagine individually, (d) the officers and directors of Omagine and LLC as a group, and (ii) the percentage ownership of the outstanding Common Shares represented by the foregoing.

 

(a)   (b)     (c)  
Name and Address   Beneficial Ownership (1)(11)     Percent (1)  
             
Frank J. Drohan (2)(4)     3,375,137       19.1 %
Charles P. Kuczynski (2)(5)     931,163       5.6 %
Louis J. Lombardo (2)(6)     233,983       1.4 %
Mohammed K. Al-Sada (3)(7)     1,636,420       9.8 %
William Hanley (3)(8)     246,034       1.5 %
Sam Hamdan (3)(9)     910,000       5.3 %
Roger Tempest (3)(10)     1,362,308       8.0 %
                 
All officers and Directors as a Group of 5 Persons     5,696,317       29.5 %

  

  (1) Applicable percentage ownership in column (c) is based on 16,185,798 Common Shares outstanding as of September 19, 2014 and on Common Shares owned by the named individual including Common Shares underlying Stock Options, Warrants and convertible notes owned by the named individual that are exercisable for Common Shares within 60 days of September 19, 2014. Beneficial ownership and Common Shares outstanding are determined in accordance with Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended (the “Act”). Common Shares underlying Stock Options, Warrants or convertible notes that are currently exercisable or convertible or exercisable or convertible within 60 days of September 19, 2014 are deemed to be outstanding and beneficially owned by the person holding such Stock Options, Warrants or convertible notes for the purpose of computing the percentage of outstanding Common Shares owned by such person, but are not deemed to be outstanding for the purpose of computing the percentage of outstanding Common Shares owned by any other person.
     
  (2) The address for each of these individuals is c/o Omagine and each is a director of Omagine Mr. Drohan and Mr. Kuczynski are officers of Omagine.
     
  (3) The address for each of these individuals is c/o Omagine Mr. Hanley is an officer of Omagine and Mr. Hamdan is an officer of LLC.
     
  (4) Amount in column (b) for Mr. Drohan includes 1,879,677 Common Shares owned of record as of September 19, 2014 by Mr. Drohan plus 1,495,460 Common Shares with respect to which Mr. Drohan has the right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Act and are unissued Common Shares underlying (i) 100,000 Stock Options exercisable at $2.60 per Common Share, (ii) 750,000 Strategic Options exercisable at $1.70 per Common Share, (iii) 322,730 Strategic Warrants exercisable at $5.00 per Common Share and (iv) 322,730 Strategic Warrants exercisable at $10.00 per Common Share.
     
  (5) Amount in column (b) for Mr. Kuczynski includes 530,223 Common Shares owned of record as of September 19, 2014 by Mr. Kuczynski plus 400,940 Common Shares with respect to which Mr. Kuczynski has the right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Act and are unissued Common Shares underlying (i) 50,000 Stock Options exercisable at $2.60 per Common Share, (ii) 250,000 Strategic Options exercisable at $1.70 per Common Share, (iii) 50,470 Strategic Warrants exercisable at $5.00 per Common Share and (iv) 50,470 Strategic Warrants exercisable at $10.00 per Common Share.
     
  (6) Amount in column (b) for Mr. Lombardo includes 59,057 Common Shares owned of record as of September 19, 2014 by Mr. Lombardo plus 174,926 Common Shares with respect to which Mr. Lombardo has the right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Act and are unissued Common Shares underlying (i) 2,000 Stock Options exercisable at $0.85 per Common Share, (ii) 2,000 Stock Options exercisable at $1.70 per Common Share, (iii) 2,000 Stock Options exercisable at $1.38 per Common Share, (iv) 10,000 Stock Options exercisable at $1.80 per Common Share, (v) 50,000 Strategic Options exercisable at $1.70 per Common Share, (vi) 13,230 Strategic Warrants exercisable at $5.00 per Common Share, (vii) 13,230 Strategic Warrants exercisable at $10.00 per Common Share, and (viii) a convertible promissory note in the principal amount of $150,000 which together with $56,165 of accrued interest thereon (as of June 30, 2014) is convertible at $2.50 per Common Share into 82,466 Common Shares.
     
  (7) Amount in column (b) for Mr. Al-Sada includes 1,195,300 Common Shares owned of record as of September 19, 2014 by Mr. Al-Sada plus 441,120 Common Shares with respect to which Mr. Al-Sada has the right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Act and are unissued Common Shares underlying (i) 220,560 Strategic Warrants exercisable at $5.00 per Common Share and (ii) 220,560 Strategic Warrants exercisable at $10.00 per Common Share.

 

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  (8) Amount in column (b) for Mr. Hanley includes 126,034 Common Shares owned of record as of September 19, 2014 by Mr. Hanley plus 120,000 Common Shares with respect to which Mr. Hanley has the right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Act and are unissued Common Shares underlying (i) 10,000 Stock Options exercisable at $1.80 per Common Share, (ii) 60,000 Strategic Options exercisable at $1.70 per Common Share, (iii) 25,000 Strategic Warrants exercisable at $5.00 per Common Share and (iv) 25,000 Strategic Warrants exercisable at $10.00 per Common Share.
     
  (9) All 910,000 Common Shares included in column (b) for Mr. Hamdan are Common Shares with respect to which Mr. Hamdan has the right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Act and are unissued Common Shares underlying (i) 160,000 Stock Options exercisable at $1.25 per Common Share and (ii) 750,000 Strategic Options exercisable at $1.70 per Common Share.
     
  (10) Amount in column (b) for Mr. Tempest includes 602,308 Common Shares owned of record or beneficially as of September 19, 2014 by Mr. Tempest (of which 240,000 shares are owned of record by an affiliate of Mr. Tempest and deemed to be beneficially owned by Mr. Tempest) plus 760,000 Common Shares with respect to which Mr. Tempest has the right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Act and are unissued Common Shares underlying 760,000 Tempest Warrants exercisable at an exercise price equal to the greater of (a) $1.00 per Common Share, or (b) eighty percent (80%) of the closing price for a Common Share on the Trading Day immediately preceding the relevant exercise date.
     
  (11) Subject to community property laws where applicable, each beneficial owner named in column (a) has sole voting and investment power over the Common Shares beneficially owned by him listed in column (b). 

 

Change in Control Arrangements

 

No change in control arrangements existed at December 31, 2013 or as of the date hereof. 

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Transactions with related persons.

 

There were no transactions during the Registrant's 2013 or 2012 fiscal years or during the period of 2014 through the date hereof, nor is there any currently proposed transaction, in which the Registrant or any of its subsidiaries was or is to be a participant and in which any related person had or will have a direct or indirect material interest, except as follows:

 

LLC plans to engage one of its shareholders, CCC-Oman, as the general contractor for the Omagine Project after the DA is signed.

 

During 2012 Omagine engaged the son of Omagine’s President to perform website design services and paid him $1,000 plus 5,000 Strategic Options for services rendered.

 

The Company incurred a marketing and promotional expense of $30,220 during 2012 for a sponsorship fee related to the World Conference on Innovation & Entrepreneurship (“WSIE”) which was held in Boston, Massachusetts in December 2012. The WSIE conference is owned by Tranzishen, LLC which is an entity owned by Mr. Sam Hamdan who is the Deputy Managing Director of our 60% owned subsidiary LLC and a consultant to Omagine.

 

Mr. Hamdan and Mr. Drohan may form a new corporation to be owned by them (“Newco”) which will not compete with Omagine.

  

Related Party Payables

 

At June 30, 2014 and at December 31, 2013, 2012 and 2011 Omagine has included $785,795, $933,837, $707,088 and $1,024,802 respectively, of related party payables in its balance sheet. These amounts consisted of convertible notes payable (“Notes”) and accrued interest in the aggregate amounts of $206,165, $198,726, $183,726 and $463,096 respectively, and unpaid salary and unreimbursed expenses due to Omagine officers and directors in the aggregate amount of $579,630, $735,111, $523,362 and $561,706 respectively. The Notes are attached hereto as Exhibits 10.17, 10.18, 10.22 and 10.23.

 

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Such $785,795, $933,837, $707,088 and $1,024,802 of related party payables at June 30, 2014 and at December 31, 2013, 2012 and 2011, respectively, are due and owing as follows: 

 

1. Notes and accrued interest payable to officers and directors of Omagine:

 

   June 30   December 31 
   2014   2013   2012   2011 
Due to Frank J. Drohan, a director and the president of Omagine, interest at 8%, due on demand, convertible into common stock at a conversion price of $2.00 per share:                
        Principal  $0   $0   $0   $192,054 
        Accrued interest   0    0    0    51,649 
                     
Due to Charles P. Kuczynski, a director and the secretary of Omagine, interest at 8%, due on demand, convertible into common stock at a conversion price of $2.00 per share:                    
        Principal   0    0    0    39,961 
        Accrued interest   0    0    0    10,747 
                     
Due to Louis J. Lombardo, a director of Omagine, interest at 10%, due on demand, convertible into common stock at a conversion price of $2.50 per share:                    
        Principal   150,000    150,000    150,000    150,000 
        Accrued interest   56,165    48,726    33,726    18,685 
                     
Totals  $206,165   $198,726   $183,726   $463,096 

 

  (a) On March 30, 2012 a total of $298,988 representing the entire principal amount and accrued interest on two Notes which were satisfied in March 2012 ($247,492 on a note that was due to Mr. Drohan and $51,496 on a note that was due to Mr. Kuczynski), both as of March 30, 2012, were offset against the payment due from Messrs. Drohan and Kuczynski to the Company for the shares of Common Stock purchased by them pursuant to the exercise of their Rights in the Rights Offering.
     
  (b) Other than as mentioned in note (a) above, the amounts provided in the above chart reflect the largest aggregate amount of principal outstanding during the periods for which disclosures are provided.

 

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2. Unpaid salary and unreimbursed expenses due to officers and directors of Omagine:

 

    June 30     December 31  
    2014     2013     2012     2011  
Due to Frank J. Drohan, a director and the president of Omagine   $ 236,922     $ 399,329     $ 273,154     $ 298,114  
                                 
Due to Charles P. Kuczynski, a director and the secretary of Omagine     171,575     $ 163,575       145,658       139,250  
                                 
Due to William Hanley, the controller of Omagine     168,883       168,207       102,550       110,592  
                                 
Due to Louis J. Lombardo, a director of Omagine     5,250       4,000       1,500       4,750  
                                 
Due to Kevin O'C. Green, a director of Omagine     0       0       0       8,500  
                                 
Due to Salvatore J. Bucchere, a director of Omagine     0       0       500       500  
                                 
Totals   $ 579,630     $ 735,111     $ 523,362     $ 561,706  

 

Director Independence

 

Omagine complies with the standards of "independence" under the NASDAQ Marketplace Rules. Accordingly, a director will only qualify as an "independent director" if, in the opinion of our Board of Directors, that person does not have a material relationship with our Company which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. A director who is, or at any time during the past three years, was employed by Omagine or by any parent or subsidiary of Omagine, shall not be considered independent. Accordingly Louis J. Lombardo meets the definition of an "independent director" under NASDAQ Marketplace Rule 5605(a)(2). At December 31, 2013 and as of the date hereof one of the Registrant’s three directors, Mr. Lombardo, is independent. 

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

 

Under our Certificate of Incorporation, our directors will not be personally liable to us or to our shareholders for monetary damages for any breach of their fiduciary duty as a director, except liability for the following:

 

●  Any breach of their duty of loyalty to our Company or to our stockholders.
Acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law.
Unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law.
Any transaction from which the director derived an improper personal benefit.

 

We believe that these limitation of liability provisions are necessary to attract and retain qualified persons as directors and officers.

 

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The limitation of liability provisions in our Certificate of Incorporation may discourage shareholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 

 

WHERE YOU CAN FIND MORE INFORMATION

 

We are filing with the SEC a Registration Statement on Form S-1 under the Securities Act, of which this Prospectus is a part, covering the securities being offered. As permitted by the SEC, this Prospectus does not contain all of the information set forth in the Registration Statement or the exhibits and schedules filed therewith. For further information with respect to us and the securities covered by this Prospectus, please see the Registration Statement and the exhibits filed with the Registration Statement. A copy of the Registration Statement and the exhibits filed with the Registration Statement may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for more information about the operation of the public reference room. The SEC also maintains an internet website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.

 

We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and, in accordance therewith, we file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information are available for inspection and copying at the public reference room and website of the SEC referred to above. Such periodic reports, proxy statements and other information are also available for inspection and copying at our Company website. The address of our website is www.omagine.com.

 

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September     , 2014 

 

 

 

OMAGINE, INC.

 

3,085,822 Shares of Common Stock

 

 


 

 PROSPECTUS

 


 

 

We have not authorized any dealer, salesperson or other person to give you written information other than this Prospectus or to make representations as to matters not stated in this Prospectus. You must not rely on unauthorized information. This Prospectus is not an offer to sell these securities or our solicitation of your offer to buy these securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this Prospectus nor any sales made hereunder after the date of this Prospectus shall create an implication that the information contained herein or the affairs of Omagine have not changed since the date of this Prospectus.

 

 

 

OMAGINE, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE ENTITY)

CONSOLIDATED BALANCE SHEETS

 

   June 30,   December 31, 
   2014   2013 
   (Unaudited)     
ASSETS          
           
CURRENT ASSETS:          
Cash  $486,809   $19,723 
Prepaid expenses and other current assets   17,940    10,275 
Total Current Assets   504,749    29,998 
           
PROPERTY AND EQUIPMENT:          
Office and computer equipment   150,170    150,170 
Less accumulated depreciation and amortization   (141,274)   (138,908)
    8,896    11,262 
           
Other assets   29,982    29,982 
           
TOTAL ASSETS  $543,627   $71,242 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
CURRENT LIABILITIES:          
Convertible notes payable and accrued interest  $356,565   $347,935 
Note payable and accrued interest - YA Global Master SPV, Ltd. (less unamortized discount of $31,633 and $13,332, respectively)   422,066    163,126 
Accounts payable   185,315    246,857 
Accrued officers payroll   585,422    727,612 
Accrued expenses and other current liabilities   116,250    117,373 
Total Current Liabilities   1,665,618    1,602,903 
Long Term Liabilities   -    - 
           
TOTAL LIABILITIES   1,665,618    1,602,903 
           
           
STOCKHOLDERS' DEFICIT          
           
Preferred stock:          
$0.001 par value          
Authorized:  850,000 shares          
Issued and outstanding: - none   -    - 
           
Common stock:          
$0.001 par value          
Authorized: 50,000,000 shares          
Issued and outstanding:
15,955,798 shares in 2014 and 14,935,038 in 2013
   15,956    14,935 
     Capital in excess of par value   27,599,193    25,987,795 
Deficit accumulated prior to development stage 
commencing on October 11, 2005
   (9,201,144)   (9,201,144)
Deficit accumulated during the development stage 
commencing October 11, 2005
   (19,480,721)   (18,307,295)
    Total Omagine, Inc. stockholders' deficit   (1,066,716)   (1,505,709)
    Noncontrolling interests in Omagine LLC   (55,275)   (25,952)
           
Total Stockholders' Deficit   (1,121,991)   (1,531,661)
           
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT  $543,627   $71,242 

 

See accompanying notes to consolidated financial statements.

 

F-1

 

OMAGINE, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE ENTITY )

CONSOLIDATED STATEMENTS OF OPERATIONS 

   Three Months Ended 
June 30,
   Six Months Ended
June 30,
   From the Period
October 11, 2005 (Inception of Development Stage) to 
June 30,
 
   2014   2013   2014   2013   2014 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                     
REVENUE:                    
Total revenue  $-   $-   $-   $-   $- 
                          
OPERATING EXPENSES:                         
Officers and directors compensation (including stock-based compensation of  $96,452, $216,081, $296,842, $508,412, and $3,324,878, respectively)   173,952    292,331    450,592    660,912    5,447,795 
Professional fees(including stock-based compensation of $0, $0, $10,436, $0 and $10,436, respectively)   78,563    65,722    96,234    74,813    1,571,174 
Consulting fees (including stock-based compensation of $100,330, $146,341, $197,504, $421,627, and $1,715,461, respectively)   129,245    147,104    232,892    429,699    2,997,926 
Commitment fees (all stock-based compensation)   150,000    -    150,000    -    450,000 
Travel   41,318    27,233    57,640    61,358    1,155,162 
Occupancy   37,636    37,292    76,989    68,212    1,088,326 
Other selling general and administrative   55,185    48,252    87,997    108,774    2,017,539 
Total Costs and Expenses   665,899    617,934    1,152,344    1,403,768    14,727,922 
                          
OPERATING LOSS   (665,899)   (617,934)   (1,152,344)   (1,403,768)   (14,727,922)
                          
OTHER (EXPENSE) INCOME                         
Settlement of Qatar Real Estate development dispute   -    -    -    -    1,004,666 
Impairment of goodwill   -    -    -    -    (5,079,919)
Amortization of Debt discount   (18,367)   -    (20,699)   -    (123,777)
Interest income   -    -    -    -    8,805 
Interest expense   (17,948)   (7,177)   (29,706)   (13,958)   (309,653)
Other (Expense) - Net   (36,315)   (7,177)   (50,405)   (13,958)   (4,499,878)
                          
NET LOSS FROM DEVELOPMENT STAGE ENTITY - CONTINUING OPERATIONS DEVELOPMENT   (702,214)   (625,111)   (1,202,749)   (1,417,726)   

(19,227,800

)
                          
Add net loss attributable to noncontrolling interests in Omagine LLC   23,930    13,085    29,323    19,657    120,847 
                          
NET LOSS ATTRIBUTABLE TO OMAGINE, INC.   (678,284)   (612,026)   (1,173,426)   (1,398,069)   (19,106,953)
                          
LOSS FROM DISCONTINUED OPERATIONS - SPORTS                         
      APPAREL   -    -    -    -    (345,990)
                          
NET LOSS ACCUMULATED DURING DEVELOPMENT STAGE   (678,284)   (612,026)   (1,173,426)   (1,398,069)   (19,452,943)
                          
Net preferred stock dividends   -    -    -    -    (27,778)
                          
LOSS APPLICABLE TO COMMON SHAREHOLDERS  $(678,284)  $(612,026)  $(1,173,426)  $(1,398,069)  $(19,480,721)
                          
LOSS PER SHARE - BASIC AND DILUTED  $(0.04)  $(0.05)  $(0.08)  $(0.10)  $(1.95)
LOSS PER SHARE - CONTINUING OPERATIONS - REAL ESTATE
     DEVELOPMENT
 
 
 
$
 
(0.04
 
)
 
 
 
$
 
(0.05
 
)
 
 
 
$
 
(0.08
 
)
 
 
 
$
 
(0.10
 
)
 
 
 
$
 
(1.91
 
)
LOSS PER SHARE DISCONTINUED OPERATIONS - SPORTS APPAREL  $-   $-   $-   $-   $(0.04)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING                         
- BASIC AND DILUTED   16,239,569    14,684,472    15,660,180    14,522,943    9,990,113 

 See accompanying notes to consolidated financial statements. 

F-2

 

OMAGINE, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE ENTITY)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

 

                               Deficit   Deficit         
                               Accumulated   Accumulated         
           Common Stock       Prior to   During the         
      Issued and   Committed to      Development   Development        
   Preferred Stock   Outstanding   be issued      Stage   Stage        
         $0.001 Par       $0.001 Par           $0.001 Par   Capital in
Excess of
   Commencing
October 11,
   Commencing
October 11,
   NoncontrollingInterests in     
   Shares   Value   Shares   Value   Shares   Value   Par Value   2005   2005   Omagine LLC   Total 
                                             
Balances at October 11, 2005 (inception of development stage)   108,350   $108    5,667,569   $5,668    -    -   $13,797,424   $(9,201,144)   -    -   $4,602,056 
                                                        
Conversion of preferred stock for common stock   (1,250)   (1)   10,000    10    -    -    (9)   -    -    -    - 
                                                        
Issuance of preferred stock dividends in common stock   -    -    348    -    -    -    1,457    -    -    -    1,457 
                                                        
Beneficial conversion feature of Convertible Debenture   -    -    -    -    -    -    132,208    -    -    -    132,208 
                                                        
Value of warrant attached to Convertible Debenture   -    -    -    -    -    -    69,421    -    -    -    69,421 
                                                        
Reduction of preferred stock dividends accrual   -    -    -    -    -    -    -    -    116,705    -    116,705 
                                                        
Net loss   -    -    -    -    -    -    -    -    (5,534,319)   -    (5,534,319)
                                                        
Balances at December 31, 2005   107,100    107    5,677,917    5,678    -    -    14,000,501    (9,201,144)   (5,417,614)   -    (612,472)
                                                        
Issuance of common stock for cash   -    -    10,000    10    -    -    19,990    -    -    -    20,000 
                                                        
Issuance of common stock upon conversion of debentures   -    -    495,032    495    -    -    196,882    -    -    -    197,377 
                                                        
Conversion of preferred stock for common stock   (20,163)   (20)   161,300    161    -    -    (141)   -    -    -    - 
                                                        
Issuance of preferred stock dividends in common stock   -    -    78,343    78    -    -    63,946    -    -    -    64,024 
                                                        
Stock option expense   -    -    -    -    -    -    56,791    -    -    -    56,791 
                                                        
Beneficial conversion feature of Convertible Debenture   -    -    -    -    -    -    52,778    -    -    -    52,778 
                                                        
Preferred stock dividends   -    -    -    -    -    -    -    -    (21,042)   -    (21,042)
                                                        
Net loss   -    -    -    -    -    -    -    -    (767,951)   -    (767,951)
                                                        
Balances at December 31, 2006   86,937    87    6,422,592    6,422    -    -    14,390,747    (9,201,144)   (6,206,607)   -    (1,010,495)
                                                        
Issuance of common stock for consulting services   -    -    1,250    1    -    -    749    -    -    -    750 
                                                        
Issuance of common stock for cash   -    -    570,000    570    -    -    754,430    -    -    -    755,000 
                                                        
Purchase of common stock for cash   -    -    (2)   -    -    -    (3)   -    -    -    (3)
                                                        
Issuance of common stock upon conversion of debentures   -    -    547,526    548    -    -    126,396    -    -    -    126,944 
                                                        
Issuance of common stock in payment of accounts payable   -    -    560,067    560    -    -    341,470    -    -    -    342,030 
                                                        
Issuance of common stock upon exercise of warrants   -    -    295,866    296    -    -    1,038,829    -    -    -    1,039,125 

 

See accompanying notes to consolidated financial statements.

F-3

 

OMAGINE, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE ENTITY)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)

  

Preferred stock and dividends converted to common stock   (86,937)   (87)   720,188    720    -    -    122,808    -    -    -    123,441 
                                                        
Cancellation of common stock issued for consulting services   -    -    (9,000)   (9)   -    -    (10,942)   -    -    -    (10,951)
                                                        
Stock option expense   -    -    -    -    -    -    20,187    -    -    -    20,187 
                                                        
Preferred stock dividends   -    -    -    -    -    -    -    -    (123,441)   -    (123,441)
                                                        
Net loss   -    -    -    -    -    -    -    -    (1,043,190)   -    (1,043,190)
                                                        
Balances at December 31, 2007   -    -    9,108,487    9,108    -    -    16,784,671    (9,201,144)   (7,373,238)   -    219,397 
                                                        
Issuance of common stock for consulting services   -    -    2,230    3    -    -    7,498    -    -    -    7,501 
                                                        
Issuance of common stock for cash   -    -    109,500    110    -    -    235,090    -    -    -    235,200 
                                                        
Contribution of common stock to 401(k) Plan   -    -    20,192    20    -    -    52,480    -    -    -    52,500 
                                                        
Issuance of common stock for SEDA commitment fees   -    -    45,830    46    -    -    149,954    -    -    -    150,000 
                                                        
Cancellation of common stock   -    -    (8,712)   (9)   -    -    9    -    -    -    - 
                                                        
Stock option expense   -    -    -    -    -    -    60,629    -    -    -    60,629 
                                                        
Net loss   -    -    -    -    -    -    -    -    (1,307,630)   -    (1,307,630)
                                                        
Balances at December 31, 2008   -    -    9,277,527    9,278    -    -    17,290,331    (9,201,144)   (8,680,868)   -    (582,403)
                                                        
Issuance of common stock for cash   -    -    2,000    2    -    -    1,398    -    -    -    1,400 
                                                        
Contribution of common stock to 401(k) Plan   -    -    72,500    72    -    -    72,428    -    -    -    72,500 
                                                        
Stock option expense   -    -    -    -    -    -    112,328    -    -    -    112,328 
                                                        
Sale of common stock under Standby Equity Distribution Agreement   -    -    1,308,877    1,309    -    -    553,691    -    -    -    555,000 
                                                        
Net loss   -    -    -    -    -    -    -    -    (1,114,409)   -    (1,114,409)
                                                        
Balances at December 31, 2009   -    -    10,660,904    10,661    -    -    18,030,176    (9,201,144)   (9,795,277)   -    (955,584)
                                                        
Adjustment for stock splits   -    -    22    -    -    -    -    -    -    -    - 
                                                        
Issuance of common stock for cash   -    -    336,972    337    -    -    304,163    -    -    -    304,500 
                                                        
Contribution of common stock to 401(k) Plan   -    -    289,996    290    -    -    72,210    -    -    -    72,500 
                                                        
Issuance of common stock in payment of salaries payable   -    -    82,305    82    -    -    99,918    -    -    -    100,000 
                                                        
Issuance of common stock for stockholder investor relations   -    -    118,750    119    -    -    47,381    -    -    -    47,500 
                                                        
Stock option expense   -    -    -    -    -    -    110,040    -    -    -    110,040 

 

See accompanying notes to consolidated financial statements.

 

F-4

  

OMAGINE, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE ENTITY)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)

 

Sale of
common stock

under Standby

Equity Distribution Agreement

   -    -    618,697    619    -    -    249,381    -    -    -    250,000 
                                                        
Net loss   -    -    -    -    -    -    -    -    (1,277,001)   -    (1,277,001)
                                                        
Balances at December 31, 2010   -    -    12,107,646    12,108    -    -    18,913,269    (9,201,144)   (11,072,278)   -    (1,348,045)
                                                        
Issuance of common stock for cash   -    -    130,438    131    -    -    264,869    -    -    -    265,000 
                                                        
Contribution of common stock to 401(k) Plan   -    -    51,784    52    -    -    72,448    -    -    -    72,500 
                                                        
Issuance of common stock for SEDA commitment fees   -    -    244,216    244    -    -    299,756    -    -    -    300,000 
                                                        
Stock option expense   -    -    -    -    -    -    92,498    -    -    -    92,498 
                                                        
Sale of common stock under Standby Equity Distribution Agreement (Old)   -    -    193,442    193    -    -    164,807    -    -    -    165,000 
                                                        
Sale of common stock under Standby Equity Distribution Agreement (New)   -    -    111,175    111    -    -    229,889    -    -    -    230,000 
                                                        
Stock grant to consultant   -    -    15,000    15    -    -    6,735    -    -    -    6,750 
                                                        
Stock options exercised by officers   -    -    -    -    150,000    150