10-K 1 f10k2016_omagineinc.htm ANNUAL REPORT

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2016

 

Commission File Number 0-17264

 

Omagine, Inc.

(Exact name of Registrant as specified in its charter)

 

Delaware   20-2876380
(State of incorporation)   (I.R.S. Employer Identification Number)

 

136 Madison Avenue, 5th Floor, New York, NY 10016

(Address of Principal Executive Offices)

 

Registrant’s telephone number and area code: (212) 563-4141

 

Securities registered pursuant to Section 12(b) of the Act:

 

None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $.001 par value

(Title of Class)

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933, as amended (“Securities Act”). ☐ Yes   ☒ No

 

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the “Act”). ☐ Yes   ☒ No

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes   ☐ No

 

Indicate by a check mark whether the Registrant has submitted electronically and posted on its corporate Website every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). ☒ Yes   ☐ No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Large accelerated filer ☐  Accelerated filer
Non-accelerated filer ☐  Smaller reporting company

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes   ☒ No

 

The aggregate market value of the 13,434,225 shares of voting stock held by non-affiliates of the Registrant (based upon the average of the high and low bid prices) on June 30, 2016, the last day of the Registrant’s most recently completed second quarter, was $14,508,963. (SEE Item 5: “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”).

 

As of April 13, 2017, the Registrant had outstanding 22,042,120 shares of Common Stock, par value $.001 per share (“Common Stock”).

 

Documents Incorporated By Reference

 

None

 

 

 

 

 

Omagine, Inc.

 

Table of Contents to the Annual Report on Form 10-K

Fiscal Year Ended December 31, 2016

 

    Page
     
  Forward Looking Statements 3
     
  Part I  
     
Item 1. Business 4
     
Item 1A. Risk Factors 28
     
Item 1B. Unresolved Staff Comments 37
     
Item 2. Properties 37
     
Item 3. Legal Proceedings 37
     
Item 4. Mine Safety Disclosures 37
     
  Part II  
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 38
     
Item 6. Selected Financial Data 44
     
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44
     
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 54
     
Item 8. Financial Statements and Supplementary Data 54
     
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 54
     
Item 9A. Controls and Procedures 54
     
Item 9B. Other Information 55
     
  Part III  
     
Item 10. Directors, Executive Officers and Corporate Governance 56
     
Item 11. Executive Compensation 58
     
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 70
     
Item 13. Certain Relationships and Related Transactions, and Director Independence 73
     
Item 14. Principal Accounting Fees and Services 75
     
  Part IV  
     
Item 15. Exhibits, Financial Statement Schedules 76
     
  Signatures 80

 

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Forward-Looking Statements

 

Some of the statements contained in this report 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 (such as the potential new investor or investors in LLC or the potential financing with MENA region banks), 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 share, the payment or nonpayment of dividends, capital structure and other financial items, (ii) plans, objectives and expectations of Omagine, Inc. or its subsidiary Omagine LLC or the managements or Boards of Directors, (iii) the Company’s business plans, products or services, (iv) future economic or financial performance, and (v) 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 the Company’s actual results, financial or operating performance or achievements to differ from future results, financial or operating performance, or achievements expressed or implied by such forward-looking statements. Forecasts, projections and assumptions contained and expressed herein were reasonably based on information available to the Company at the time so furnished and as of the date of this Prospectus. All such forecasts, projections and assumptions are subject to significant uncertainties and contingencies, many of which are beyond the Company’s control, and no assurance can be given that such forecasts, projections or assumptions will be realized. No assurances 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 future 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 political events in the Middle East and North Africa (the “MENA Region”) in general, including the ongoing civil disorder and military activities in the MENA Region;
   
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 associated with the recent rapid decline in the price of crude oil on international markets;
   
inflation, interest rates, movements in interest rates, securities market and monetary fluctuations;
   
threatened and ongoing acts of war, civil or political unrest, terrorism or political instability in the MENA Region; 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.

 

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PART I

 

Item 1. Business.

 

Introduction

 

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 and JOL are collectively referred to herein as “OMAG” and Omagine, JOL and LLC are collectively referred to herein as the “Company”.

 

The Company 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 distinctive tourism destinations. The Company presently concentrates the majority of its efforts on the business of LLC and specifically on the Omagine Project. Omagine, Inc. has 22,042,120 shares of its Common Stock issued and outstanding as of April 13, 2017.

 

In November 2009, Omagine organized LLC as a wholly owned subsidiary 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 project named the “Omagine Project” (See “The Omagine Project” below). In October 2014, LLC and the Government of Oman (the “Government”) signed an agreement (the “Development Agreement” or “DA”) for the development in Oman by LLC of the Omagine Project (See: Exhibits 10.7 and 99.1 and “The Development Agreement and the Usufruct Agreement”, below). On July 2, 2015, after the Usufruct Agreement (“UA”) was registered by the Government legally perfecting LLC’s ownership of the Land Rights, the Government and LLC entered into an agreement (the “Operative Agreement”) making July 1, 2015 the “Operative Date” from which all time periods for the execution by LLC of various tasks enumerated in the DA are to be measured.

 

Omagine initially capitalized LLC at Omani Rials (“OR”) 20,000 [$52,000] and in 2011 Omagine’s 100% ownership of LLC was reduced to 60% pursuant to a shareholders’ agreement (the “Shareholder Agreement”) signed in May 2011 by Omagine, JOL and three new LLC minority investors (See: Exhibit 10.6 and “The Shareholder Agreement” below).

 

As of the date hereof, the shareholders of Omagine LLC (the “LLC Shareholders”) are:

 

i. Omagine, Inc. and
   
ii. Royal Court Affairs (“RCA”), an organization representing the personal interests of His Majesty Sultan Qaboos bin Said, the ruler of Oman, and
   
iii. Two subsidiaries of Consolidated Contractors International Company, SAL (“CCIC”). CCIC is a 65 year old Lebanese multi-national company headquartered in Athens, Greece having worldwide and operating subsidiaries in among other places, every country in the MENA Region. In its fiscal years immediately prior to 2016, CCIC had approximately five (5) billion U.S. dollars in annual revenue and one hundred thirty thousand (130,000) employees but management’s best information at this time is that both CCIC’s revenue and number of employees have since been dramatically reduced as a result of adverse economic conditions in the MENA Region (See: “Market Conditions” below).  The two CCIC subsidiaries which are LLC shareholders are:

 

  a. Consolidated Contracting Company S.A. (“CCC-Panama”), a wholly owned subsidiary of CCIC, and
     
  b. Consolidated Contractors Oman Company LLC (“CCC-Oman”), CCIC’s operating subsidiary in Oman.

 

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CCC-Panama and CCC-Oman are sometimes referred to collectively in this report as “CCC”.

All efforts to date to conclude the CCC-Contract and CCC’s required investment were fruitless. On April 3, 2017 Omagine exercised its option to purchase all of the shares of LLC owned by CCC-Oman and CCC-Panama. After the closing of the option purchase LLC will then have only two shareholders – Omagine and RCA.

The only matter preventing forward progress on the Omagine Project is securing an agreement with an investor to replace the CCC investment. As previously reported, management has a signed written agreement (an “Investment Agreement”) with one such investor.

The Investment Agreement is for an amount in excess of the aggregate investment which was to be made by CCC-Oman and CCC-Panama. This binding Investment Agreement was signed by LLC and the investor in November 2016 and contemplated the funding of the investment in January 2017. Subsequent to entering into this Investment Agreement, the investor unfortunately and unexpectedly passed away.

The investor’s heirs have acknowledged the validity of the Investment Agreement and have agreed to fulfil their father’s commitment pursuant to it as soon as his estate (which we understand to be quite substantial and complicated) is settled. LLC management has been dealing with the investor’s heirs since December 2016 and our understanding from them is that their father’s estate will be settled “soon”. Management cannot say with certainty what the term “soon” means in this case as the heirs have frequently indicated to us that the estate settlement was imminent – but delays have ensued. Management is continuing its efforts to close the investment transaction memorialized by the Investment Agreement but no assurance can be given to investors and shareholders that such investment transaction will actually occur until it actually does occur.

Also as previously disclosed, management has been holding discussions in parallel with several other potential LLC investors. As of the date hereof, we are awaiting the conclusion of the estate settlement mentioned above and we are in final discussions with two European investment funds. Notwithstanding the foregoing, shareholders and investors are again cautioned that until an investment transaction as generally described above actually closes LLC will not have the funding sufficient to begin work on the Omagine Project and no assurance can be given at this time that any such investment transaction will be finally consummated.

RCA and Omagine intend to amend the Shareholder Agreement as necessary to memorialize any such new investment by a new investor when and if it occurs (an “Amended and Restated Shareholder Agreement”). Serious design, development and construction activities on the Omagine Project can begin only after such Amended and Restated Shareholder Agreement is signed by the parties. 

Management has also been conducting parallel project finance discussions with a bank and we expect a successful conclusion to that discussion to occur soon after we close an investment with a new investor and the Amended and Restated Shareholder Agreement is executed. 

As these matters unfold, management will report all material developments and agreements to its shareholders in a timely manner. 

Management cautions that future events rarely develop exactly as forecast and the best estimates routinely require adjustment. Investors and shareholders are cautioned not to place undue reliance on any forward-looking statement or forecast, which speaks only as of the date hereof. 

The Shareholder Agreement  

Upon organizing Omagine LLC in 2009, Omagine made an initial cash investment into LLC of OR 20,000 [$52,000] in consideration for the issuance to Omagine of 200,000 LLC Shares. 

Pursuant to the Shareholder Agreement: 

i. Before the DA was signed and after the execution of the Shareholder Agreement, the LLC Shareholders purchased an aggregate of 1,300,000 LLC Shares for an aggregate cash investment of OR 130,000 [$338,000], as follows:

 

  a) Omagine purchased an additional 700,000 LLC Shares for OR 70,000 [$182,000] in cash, and
     
  b) RCA purchased 375,000 LLC Shares for OR 37,500 [$97,500] in cash, and
     
  c) CCC-Panama purchased 150,000 LLC Shares for OR 15,000 [$39,000] in cash, and CCC-Oman purchased 75,000 LLC Shares for OR 7,500 [$19,500] in cash (collectively, the “225,000 Initial CCC Shares”).

 

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ii. After the DA was signed on October 2, 2014, Omagine purchased an additional 2,100,000 LLC Shares for an additional investment by Omagine of OR 210,000 [$546,000] in cash, and

 

iii. On July 2, 2015, RCA purchased an additional 663,750 LLC Shares in consideration for the non-cash investment by RCA of the Land Rights valued at OR 276,666,667 [$718,614,000].

 

The construction contract with CCC-OMAN was not signed and the investments required pursuant to the Shareholder Agreement from CCC-Oman and CCC-Panama were not received by LLC. Pursuant to the terms and conditions of the Shareholder Agreement, Omagine, Inc. has the option (the “OMAG Option”) to purchase the 225,000 Initial CCC Shares from CCC for 22,500 Omani Rials ($58,500). (See: the Shareholder Agreement attached hereto as Exhibit 10.6). On April 3, 2017 Omagine exercised its option to purchase all of the shares of LLC owned by CCC-Oman and CCC-Panama.

 

As of December 31, 2016 and the date hereof the LLC shareholders have made cash investments into LLC as indicated in the following Table A:

 

Table A  -  LLC Shareholders’ Cash Equity Investments into Omagine LLC

 

   Omagine, Inc.  Royal Court Affairs   Consolidated Contractors 
   OR  USD   OR   USD   OR   USD 
                        
Initial cash equity investment at inception 

OR 20,000

  $52,000    0    0    0    0 
                             
Additional cash equity investment at signing of Shareholder Agreement (the “SHA”) 

OR 70,000

  $182,000    

OR 37,500

   $97,500    

OR 22,500

   $58,500 
                             
Additional OMAG Deferred Cash Equity Investment due under the SHA before the first Financing Agreement Date **  OR 210,000  $546,000    0    0    0    0 
                             
Total Cash Equity Investments made by each of the LLC Shareholders into LLC as of December 31, 2016 and the date hereof.  OR 300,000  $780,000    OR 37,500   $97,500    OR 22,500   $58,500 

 

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As of December 31, 2016 and the date hereof RCA has made a non-cash payment-in-kind investment into LLC as indicated in the following Table B:

 

Table B  -  RCA’s Non-Cash Equity Investment into Omagine LLC

 

   Omagine, Inc.   Royal Court Affairs  Consolidated Contractors 
   OR   USD   OR  USD   OR   USD 
                             
Additional non-cash equity investment of Land Rights on registration of the Usufruct Agreement   0    0   OR 276,666,667  $718,614,000    0    0 

 

As of July 1, 2016 and the date hereof RCA is obligated to make an additional Deferred Cash Investment into LLC as indicated in the following Table C:

 

Table C  -  RCA Deferred Cash Equity Investment into Omagine LLC

 

   Omagine, Inc.   Royal Court Affairs  Consolidated Contractors 
   OR   USD   OR  USD   OR   USD 
                             
Additional RCA Deferred Cash Investment which is now due under the SHA    0    0  

OR 7,640,625

  $19,865,625    0    0 

 

As of June 30, 2016 and the date hereof CCC was obligated to make additional Deferred Cash Investments into LLC as indicated in the following Table D, however that did not occur:

 

Table D  -  CCC Deferred Cash Equity Investments into Omagine LLC

 

    Omagine, Inc.     Royal Court Affairs     Consolidated Contractors  
    OR     USD     OR     USD     OR     USD  
                                                 
Additional Deferred Cash Investments which may be due under the SHA     0       0       0       0       OR 18,987,500     $ 49,367,500  

 

* All conversions of Omani Rials to U.S. Dollars in this Report are calculated at an exchange rate of one (1) Omani Rial being equivalent to $2.60 except for the land valuation which is calculated at an exchange rate of one (1) Omani Rial being equivalent to $2.5974. See: “The Land Rights” and “Critical Accounting Policies”, below.

 

In order to bring the Omagine Project to its present state, Omagine, Inc. (as of December 31, 2016), has:

 

  (i) invested 300,000 Omani Rials ($780,000) in cash into Omagine LLC, and

 

  (ii) expended $17.9 million of Pre-Development Expenses on behalf of the Omagine Project through the October 2, 2014 DA signing date consisting of both cash and non-cash expense items as Omagine, Inc. had promised to do pursuant to the SHA, and

 

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  (iii) single-handedly kept the Omagine Project and Omagine LLC financially afloat after the October 2, 2014 DA signing date by expending an additional $11.7 million (as of December 31, 2016) on behalf of the Omagine Project via cash loans from Omagine, Inc. to Omagine LLC (“Loans”) and the direct payment by Omagine, Inc. of Omagine LLC liabilities and accounts payable consisting of both cash and non-cash items (“Advances”), neither of which Loans nor Advances Omagine, Inc. had any obligation whatsoever to do pursuant to the SHA.

 

All such Pre-Development Expenses, Loans and Advances are or will be liabilities of LLC; reimbursable to Omagine, Inc. in accordance with the terms of the Shareholder Agreement (as may likely be amended; See: the following Table E, and “Pre-Development Expenses and Loans and Advances to LLC” as of December 31, 2016, below).

 

Table E - Pre-Development Expenses, Loans and Advances

 

Pre-Development Expenses, Loans and Advances  Cash Items   Non-Cash Items (Depreciation; Amortization; Stock Option Expense)   Total 
Pre-Development Expense Amount (incurred prior to the October 2, 2014 DA signing date)  $13,611,951   $4,308,163   $17,920,114 
                
Loans & Advances as of 12/31/2016 (incurred on or after the October 2, 2014 DA signing date)  $4,303,869   $7,393,473   $11,697,342 
                
Total  -  (Due to Omagine, Inc. from Omagine LLC)  $17,915,820   $11,701,636   $29,617,456 

 

The foregoing summary of some of the terms of the Shareholder Agreement and does not purport to be complete and it is qualified in its entirety by reference to the full text of the SHA. The full text of the SHA is attached hereto as Exhibit 10.6. RCA and Omagine are presently in negotiations with investors which may lead to an Amended and Restated Shareholder Agreement.

 

The Omagine Project

 

The Omagine Project is a mixed-use tourism and residential real estate project. Subject to normal and customary scheduling changes during its development and construction and to the current delays encountered in getting the CCC-Contract signed, the Omagine Project is now planned to be completed in late 2022. It is being developed on one million square meters (equal to 100 hectares or approximately 245 acres) of beachfront land (the “Existing Land”) facing the Gulf of Oman just west of Oman’s capital city of Muscat and approximately six miles from Muscat International Airport. Present development plans envision the creation of approximately a net additional 106,000 square meters of “Reclaimed Land” which together with the Existing Land will comprise approximately 1,106,000 square meters of land (the “Project Land”). The Omagine Project will require substantial Project Finance to complete (See: “The Shareholder Agreement”, above and “Financial Advisor”, below).

 

The Omagine Project is planned to be an elegant integration of cultural, scientific, heritage, entertainment and residential components, including seven pearl shaped (20 meter diameter) buildings (the “Pearls”) located along an open boardwalk with associated entertainment exhibitions; an amphitheater and stage; green landscaped spaces; a canal; an enclosed harbor and marina; boat slips and docking facilities; retail shops; a variety of restaurants, cafes and entertainment venues; 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 elegant residences to be developed for sale by LLC. The ethos of the project is elegant but relaxed entertainment and the Company expects that the Pearls will become “the Landmark” for the Sultanate of Oman.

 

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Pursuant to Omani Law, non-Omani persons are not permitted to purchase land in Oman unless such land is located within an Integrated Tourism Project (“ITC”) such as the Omagine Project. The Government has designated the Omagine Project as an ITC and has issued a license to LLC (an “ITC License”) thereby permitting the sale by LLC of the freehold title to the Project Land and to properties developed on the Project Land to any person, including any non-Omani person. Since the Omagine Project will contain significant hospitality (hotels), retail, commercial, and entertainment elements, LLC’s business operations are expected over time to encompass real estate development, hospitality, entertainment and property management.

 

The Development Agreement and the Usufruct Agreement

 

Omagine’s 60% (75% after the closing of the CCC Option transaction) owned subsidiary, LLC, signed a Development Agreement (“DA”) with the Government of Oman in October 2014 for the development in Oman by LLC of the Omagine Project. The legal effectiveness of the DA was conditional upon its ratification by Oman’s Ministry of Finance which Ratification occurred in March 2015. On July 1, 2015 (the “Operative Date”), the Government and LLC entered into a Usufruct Agreement (“UA”) with respect to the Land Rights over the Existing Land and the DA and UA extend such Land Rights to all of the Project Land.

 

On July 2, 2015, after the UA was registered by the Government legally perfecting LLC’s ownership of the Land Rights, the Ministry of Tourism (“MOT”) of the Government and LLC entered into an agreement (the “Operative Agreement”) making July 1, 2015 the “Operative Date” from which all time periods for the execution by LLC of various tasks enumerated in the DA are to be measured. In the Operative Agreement MOT states in relevant part: “We ask you to receive the land and begin procedures for executing the project as per the development agreement entered into with you, keeping in mind that the effective commencement date of the development agreement is 1 July 2015”. The Operative Date is the date from which all time periods for the execution by LLC of various tasks enumerated in the DA are to be measured (See Exhibits 10.8 and 99.2).

 

The DA and UA are the contracts that govern the design, development, construction, management and ownership of the Omagine Project, the use and sale by LLC of the Project Land, and the Government’s and LLC’s rights and obligations with respect to the Omagine Project. 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 control (See Exhibits 10.7, 99.1, 10.8 and 99.2). The term of the DA is 20 years and the term of the UA is 50 years (renewable) commencing from the Operative Date. The UA and those DA provisions relevant to the UA survive the expiration of the term of the DA.

 

The Land Rights owned by LLC give it extensive rights over the Project Land including the right to sell such Project Land on a freehold basis. LLC may use, control, develop, retain, operate and/or sell the approximately 1.1 million square meters of Project Land to itself or to third parties. The DA obligates LLC to pay the Government twenty-five (25) Omani Rials ($65) for each square meter of Project Land purchased directly by LLC or sold by LLC to any third party (the “Land Price”). The average valuation for the Land Rights (net of such Land Price is OR 276,666,667 ($718,614,000) (See: “The Land Rights”, below).

 

The five year period commencing on the Operative Date is a rent free period (the “Rent Free Period”) and thereafter LLC will pay annual rent to the Government (the “Land Rent”) based on only the built but unsold commercial area (excluding the residential area) of the Omagine Project (approximately 150,000 sq. meters) or approximately OR 45,000 ($117,000) per year based on the current annual per square meter fee of OR 0.300 ($0.78). No Land Rent is due or owing during the Rent Free Period and no Land Rent is ever due or owing 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. Project Land that is open space, roads, non-residential building work-in-progress, etc. are rent-free).

 

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The continued legal effectiveness of the DA subsequent to the Operative Date is dependent upon certain milestone dates being achieved (any or all of which may be extended or waived by the Government), including: (1) LLC’s delivery to the Government by June 30, 2016 of a term sheet with lenders for the financing of the first or any other phase of the Project, [this milestone date was achieved by the term sheet and financing agreement which LLC received from the Qatari Bank in November 2015], (2) LLC’s submission to the Ministry of Tourism of a social impact assessment by March 31, 2016 and the Government’s approval thereof by June 30, 2016, (3) the Government’s approval by June 30, 2016 of the development control plan for the Omagine Project, and (4) the transformation of LLC into a joint stock company by June 30, 2016 (these milestone dates 2, 3 and 4 are not yet achieved and are expected to be extended as mentioned above if and when the Operative Date is extended). LLC has suffered many delays as a result of the CCC matters and we are presently assured by Government officials that the Operative Date will be extended by MOT provided we are able to close the necessary investment with a replacement investor for CCC. No assurance can be given at this time however that the Operative Date will be so extended.

 

LLC management and RCA have met with and spoken to the staff at the Ministry of Tourism and with the Minister several times during the period from December 2016 to the date hereof in regard to our efforts to finalize the Amended and Restated Shareholder Agreement with the estate of our proposed new investor as well as in regard to the delays encountered to date by LLC in meeting certain DA milestone dates as measured from the Operative Date. The MOT (and all Government Ministries) are also acutely aware of the unusual fiscal strains imposed on the present banking and economic environments in the region. While no conclusive extension of the Operative Date has yet been made, as noted above we have continued to keep both the Minister and the staff updated and LLC management and RCA presently expect that the Operative Date will be extended once we finalize our ongoing negotiations and agreements with our proposed new investor. No assurance can be given however to what extent, if any, that the Operative Date will in fact be extended by MOT. 

 

Pursuant to the DA, LLC must substantially complete the construction of the seven Pearl buildings and one hotel (the “Minimum Build Obligation” or “MBO”) by June 30, 2020 (the “MBO Completion Date”), as such date may be amended or extended per the DA as indicated above. The DA imposes no performance timelines on LLC with respect to completing the development or construction of elements of the Omagine Project other than the MBO but the completion of the MBO will require LLC to obtain the necessary Project Finance to do so. Any material breach by LLC of its obligation to perform the MBO would constitute an event of default under the DA. The DA specifies that the principal construction contract (i.e. the CCC Contract) should be executed by June 30, 2016. This did not happen as indicated above. LLC is required to provide written notice to the Government in certain circumstances, such as LLC’s change in an anticipated milestone date that would result in a substantial achievement of work to occur later than 60 days after such milestone date. Such notice has been communicated both verbally and in writing to the appropriate government officials in recent communications with them. 

 

The Company undertook and financed many development activities on behalf of LLC subsequent to the DA signing (the “Initial Activities”) in an effort to fast-track the Omagine Project’s development. The fast-track advantages sought to be gained thereby however have not materialized due to LLC’s failure to utilize the $25 million Al-Rayan Loan to finance the Initial Activities, LLC’s ongoing operations in Oman, and LLC’s previously disclosed Phase One design and construction activities (See: our previous disclosures in prior reports filed with the SEC). The cause of such failure was CCC’s failure to make its Deferred Cash Investment into LLC as required after the November 2015 Financing Agreement Date after initially agreeing to do so and the extended and drawn out and ultimately futile negotiations with CCC relevant to the CCC-Oman construction contract (to which CCC often initially agreed and later changed its mind).

 

Because of these delays therefore, the more serious and substantial design, masterplanning and construction activities for the Omagine Project did not begin in December 2015 as required for the fast-track development strategy and as management had planned. (See: “Initial Activities” and “Pre-Development Expenses and Loans and Advances to LLC”, below). The design, development and construction of the Omagine Project will still benefit from these Initial Activities having been undertaken but not to the extent envisioned by our planned fast-track development approach.

 

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 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 properties which are developed on Project Land to any Omani or non-Omani individual or juristic person worldwide. Properties within an ITC enjoy a premium price relative to properties not in an ITC. Any Project Land or buildings remaining unsold at the expiration of the 50 year Usufruct Term will revert to the Government. LLC does not anticipate that there will be any such unsold properties at the expiration of the 50 year Usufruct Term.

 

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The foregoing summary of some of the terms of the DA and of the UA does not purport to be complete and it is qualified in its entirety by reference to the full texts of such agreements. The full text of the Development Agreement is attached hereto as Exhibits 10.7 and 99.1. The full text of the Usufruct Agreement is attached hereto as Exhibits 10.8 and 99.2 and also contained in Schedule 2A of the Development Agreement.

 

The Land Rights

 

The value of the Project Land has been determined by three highly experienced professional valuation firms in accordance with the requirements and procedures specified for such a valuation by (i) the Royal Institution of Chartered Surveyors (“RICS”) of London, England, and (ii) International Financial Reporting Standards (“IFRS”). Each of the three firms has a worldwide brand in the real estate valuation business.

 

  In November 2014, LLC engaged the Oman office of Savills (http://www.savills.com/ (“Savills”) operating as Arabian Real Estate LLC (http://www.savills.om). Savills provides real estate services from over 600 offices worldwide, is listed on the London Stock Exchange, and is a FTSE 250 Index company.
     
  In December 2014, LLC engaged DTZ International Ltd., a Dubai, UAE firm with extensive experience in Oman (http://www.dtzglobal.com) (“DTZ”). DTZ is one of the top three global commercial real estate service companies, with more than 28,000 employees operating across more than 260 offices in 50 countries and $63 billion in transaction volume.
     
  In January 2015, LLC engaged Jones Lang LaSalle, UAE Limited, Dubai Branch (http://www.jll-mena.com/mena/en-gb/locations/Our-locations-in-MENA/dubai) (“JLL”). JLL has 53,000 employees operating across more than 230 offices in 80 countries.

 

The Savills and DTZ final valuation reports were received by LLC in January 2015. The JLL final valuation report was received by LLC in July 2015. The Company is of the opinion that JLL’s valuation is flawed and most probably represents a statistical outlier. In an abundance of caution however, management has nevertheless determined to include the JLL valuation in its calculation of the average value of LLC’s Land Rights. The Land Rights valuations by the three aforementioned firms are summarized in the table below:

 

Land Rights Valuation
Valuation Firm   Omani Rials
Savills   OR 295,000,000
DTZ   OR 385,000,000
JLL   OR 150,000,000
     
Average   OR 276,666,667

 

In view of the changing economic conditions in the MENA Region due to the fall in oil prices, LLC may commission an updated land valuation in the coming months.

 

The Accounting Treatment for the Land Rights

 

Omagine and JOL prepare their financial statements in accordance with accounting principles generally accepted in the United States (“US GAAP”) and the Company prepares its consolidated financial statements in accordance with US GAAP. LLC’s financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”).

 

LLC has land under development valued at 276,666,667 Omani Rials. Based on a $2.5974 per 1 Omani Rial exchange rate, the Company recorded this land under development in its financial statements at $718,614,000 and the Company has allocated this amount as follows: 188,963,334 Omani Rials ($490,813,363 based on a $2.5974 per 1 Omani Rial exchange rate) to inventory; and 87,703,333 Omani Rials ($227,800,637 based on a $2.5974 per 1 Omani Rial exchange rate) to property. This land under development was purchased by LLC on July 2, 2015 pursuant to the terms of the Shareholder Agreement whereby an LLC shareholder subscribed for 663,750 LLC Shares at a purchase price equal to the value of the Land Rights. Since the Land Rights represented a non-cash payment-in-kind for the LLC Shares, it was necessary to value the Land Rights.

 

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Three expert real estate valuation companies were engaged by LLC to independently value the Land Rights in accordance with the professional standards specified by RICS and IFRS. The average of the three Land Rights valuations was OR 276,666,667. (See: “The Land Rights”, above and Exhibits 99.4, 99.5 and 99.6).

 

Since the 276,666,667 Omani Rial value of the Land Rights is substantial, LLC retained the services of PricewaterhouseCoopers LLP (“PwC”) to provide its written analysis and report to LLC with respect to the correct IFRS accounting method LLC should use to record the 276,666,667 Omani Rial Land Rights value in its IFRS compliant financial statements. PwC did not advise on the valuation of the Land Rights (as determined by Savills, DTZ and JLL), but only on the correct accounting LLC should use to record such Land Rights valuation in LLC’s financial statements in accordance with IFRS. PwC’s written report was received by LLC in August 2015. Promptly thereafter, LLC consulted with its independent auditor, Deloitte & Touche (M.E.) & Co. LLC (“Deloitte”) with respect to the matter, and Deloitte’s written technical analysis report (which agreed with PwC’s analysis) was received by LLC in November 2015.

 

The Land Rights over the Project Land are extensive, are closely akin to ownership rights and include the right to sell such land on a freehold basis. The Land Rights are virtually equivalent to ownership rights and like any asset, if its value were to become impaired for any reason (including any contractual reason pursuant to the DA requirements), a reserve for such impairment would need to be established at such time. Although it is not required to do so, in view of the unsettled economic environment in Oman and the greater MENA Region and because of the inordinate delays in resolving the CCC matters and obtaining a replacement investor for CCC, LLC plans to update its land valuation when it has the resources to do so to verify if any material changes in the value of the Project Land may have occurred since the above three valuation reports were completed. Consideration of the foregoing concerns may possibly require the establishment of such a reserve for impairment. Management’s decision as to whether or not to undertake such updated reports and/or whether or not to establish such a reserve will depend to a large extent upon management’s assessment at the time of the likelihood of securing a replacement investor for CCC and the economic conditions in Oman. Both PwC and Deloitte independently concluded that the Land Rights should be recorded as capital and as tangible assets (work-in-process inventory and land) on LLC’s financial statements. With respect to the Company’s consolidated financial statements, the Company’s independent auditor in the U.S. has likewise concurred that pursuant to US GAAP, the Land Rights should be recorded as capital, inventory and land. 

 

In determining the proper amounts to be allocated to inventory and to land, LLC calculated the percentage (x) by dividing (y) the area of the land LLC presently plans definitively to sell, by (z) the total area of the Project Land, and then multiplying that percentage (x) by 276,666,667 Omani Rials to get the number (N) for inventory. The amount to be allocated to property was then calculated by subtracting N from 276,666,667 Omani Rials. Using its detailed internal financial model, management calculated (x) to be equal to 68.3%, thereby making the inventory number (N) equal to 188,963,334 Omani Rials ($490,813,363 based on a $2.5974 per 1 Omani Rial exchange rate) and the property number equal to 87,703,333 Omani Rials ($227,800,637 based on a $2.5974 per 1 Omani Rial exchange rate). In its consolidated financial statements therefore, the Company has allocated the value of the Land Rights between (i) land under development which is held for sale (inventory), and (ii) land under development which is held for investment (PP&E). As more precise land use percentages emerge during and after the masterplanning and construction of the Omagine Project, the percentage allocations for the value of the Land Rights may be reclassified to distinguish between the land underlying properties that we will own and operate and those which we will own and lease.

 

Pre-Development Expenses and Loans and Advances to LLC

 

Prior to the DA being signed, Omagine incurred significant costs related to marketing, planning, concept design, re-design, feasibility studies, engineering, financing, promotions, capital raising, travel, legal fees, consulting and professional fees, other general and administrative activities and similar such activities including preparing and making presentations to the Government and to potential investors and all other activities and matters associated with the negotiation and conclusion of the DA with the Government (collectively, the “Pre-Development Expenses”). The Shareholder Agreement defines the “Pre-Development Expense Amount” as the total amount of such Pre-Development Expenses incurred before the DA was signed by the Government and LLC on October 2, 2014.

 

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Omagine, Inc. expended $17,920,114 to pay for 100% of the Pre-Development Expense Amount.

 

Subsequent to the October 2, 2014 DA signing date and as of December 31, 2016, Omagine, Inc. has voluntarily - and without any obligation to do so - single-handedly kept the Omagine Project and Omagine LLC financially afloat by expending an additional $11.7 million on behalf of the Omagine Project via Loans and Advances to LLC.

 

A summary of the Pre-Development Expense Amount and of the Loans and Advances is detailed in the following table:

 

Pre-Development Expenses, Loans and Advances

 

   Cash
Items
   Non-Cash Items   Total 
Pre-Development Expense Amount (incurred prior to the October 2, 2014 DA signing date)  $13,611,951   $4,308,163   $17,920,114 
                
Loans & Advances (incurred on or after the October 2, 2014 DA signing date)  $4,303,869   $7,393,473   $11,697,342 
                
Total Due to Omagine, Inc. from Omagine LLC  $17,915,820   $11,701,636   $29,617,456 

 

The Pre-Development Expense Amount and the Loans and Advances are, or will be, liabilities of LLC; reimbursable to Omagine, Inc. in accordance with the terms of the Shareholder Agreement. The terms and conditions of the Amended and Restated Shareholder Agreement now being negotiated may change the presently existing terms and conditions of the existing Shareholder Agreement with respect to the payment of the Pre-Development Expense Amount and the Loans and Advances. 

 

The Pre-Development Expense Amount

 

Pursuant to the Shareholder Agreement as presently in effect, the date subsequent to the first Financing Agreement Date when LLC draws down the first amount of debt financing is defined as the “Draw Date”.

 

The first Financing Agreement Date occurred on November 29, 2015 when LLC and Masraf Al Rayan signed a Financing Agreement. A Draw Date pursuant to that Financing Agreement never occurred however because CCC (represented by CCIC executive management), after first agreeing in December 2015 to promptly (i) finalize the negotiation of the CCC-Oman construction contract (“CCC-Contract”) which in December 2015 was in an advanced stage of completion, (ii) sign the CCC-Contract, and (iii) invest their Deferred Cash Investments immediately after the CCC-Contract was signed – subsequently – and on several different occasions - changed its mind. Consequently, these matters have been the subject matter of numerous and virtually continuous discussions and negotiations since December 2015 with many and varied interim “agreed agreements”, all of which to date were “agreed” and then later forsaken by CCC. The CCC-Contract negotiations were ultimately abandoned by management (See: “The CCC-Contract”, below).

 

Further pursuant to the Shareholder Agreement as presently in effect:

 

  1) the liability for the Pre-Development Expense Amount shall be recorded on LLC’s financial records on the Draw Date and in accordance with the International Financial Reporting Standards (“IFRS”), and

 

  2) fifty percent (50%) of the Pre-Development Expense Amount will be paid to Omagine, Inc. on or within ten (10) days after the Draw Date, and

 

  3) the remaining fifty percent (50%) of the Pre-Development Expense Amount will be paid to Omagine, Inc. in five equal annual installments beginning on the first anniversary of the Draw Date.

 

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The Loans and Advances to LLC

 

The $11,697,342 of Loans and Advances (as of December 31, 2016) are payable to Omagine, Inc. by LLC on demand (but as a practical matter, not until LLC has the financial capacity to do so and Omagine has no present intention of demanding immediate payment of the Loans and Advances). 

 

The Success Fee

 

The Shareholder Agreement defines the Success Fee as being equal to ten (10) million dollars. Pursuant to the terms of the Shareholder Agreement as presently in effect:

 

  1) the liability for the Success Fee shall be recorded on LLC’s financial records on the Draw Date and in accordance with the IFRS, and

 

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

 

Omagine, may at its option, not enforce the aforementioned payment schedules for the Pre-Development Expense Amount and/or the Success Fee as agreed in the Shareholder Agreement and may agree to a different schedule for such payments and Omagine may likewise, at its option, refrain from demanding payment of the Loans and Advances until LLC is in a financial position to make such payment.

 

As of the date hereof, Omagine continues to make Loans and Advances to and on behalf of LLC for the activities being undertaken by or on behalf of LLC for the Omagine Project and expects to do so until the Amended and Restated Shareholder Agreement is agreed and signed. 

 

The Amended and Restated Shareholder Agreement (assuming it is agreed and executed) is expected to, among other things, address, restate and formalize the terms of repayment by LLC to Omagine, Inc. of the Pre-Development Expense Amount, the Loans and Advances and the Success Fee but the manner, terms and conditions to be agreed relative thereto is uncertain at this time. Management’s primary goal continues to be the launch of serious design and construction activities for the Omagine Project and management does not object to any reasonable resolution of these and other matters preventing that goal from being accomplished.

 

LLC Capital Structure

 

As of the date hereof the LLC Shareholders have made:

 

  (i) cash investments totaling OR 360,000 [$936,000] (of which OR 300,000 [$780,000] was invested by Omagine), and
     
  (ii) a non-cash investment of the Land Rights valued at OR 276,666,667 ($718,614,000), for a total investment to date of OR 277,026,667 ($720,269,334).

 

LLC is presently capitalized as follows:

 

Shareholder   Omani Rials  US Dollars 
Omagine   OR 300,000  $780,000 
RCA    OR 276,704,167  $718,711,500 
CCC-Panama   OR 15,000  $39,000 
CCC-Oman   OR 7,500  $19,500 
Total   OR  77,026,667  $719,550,000 

 

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As of the date hereof, as a result of (i) Omagine having made its OR 210,000 ($560,000) Deferred Cash Investment into LLC, and (ii) RCA having made its OR 276,666,667 ($718,614,000) non-cash PIK Investment of the Land Rights into LLC, LLC is presently obligated to issue a further 2,100,000 LLC Shares to Omagine and a further 663,750 LLC Shares to RCA. As of the date hereof, neither CCC nor RCA have made their respective Deferred Cash Investments into LLC.

 

As of the date hereof, the ownership percentages of LLC as registered at Oman Ministry of Commerce & Industry are as follows:

 

LLC Shareholder  % Ownership 
Omagine   60%
RCA   25%
CCC-Panama   10%
CCC-Oman   5%
Total:   100%

 

On April 3, 2017 Omagine exercised its option to purchase all of the shares of LLC owned by CCC-Oman and CCC-Panama. RCA continues to be obligated to make further cash investments into LLC in the aggregate amount of OR 7,640,625 [$19,865,625] but the timing and payment of such RCA Deferred Cash Investment may change from that memorialized in the Shareholder Agreement presently in effect to what may be agreed in the Amended and Restated Shareholder Agreement.

 

The Transformation

 

At some time subsequent to the execution of the Amended and Restated Shareholder Agreement, LLC intends to transform its corporate structure from a limited liability company into a joint-stock company (the “Transformation”).

 

The Shareholder Agreement also specifies, among other things, the corporate governance and management policies of LLC and it provides for the LLC shares presently owned by JOL to be transferred to Omagine subsequent to the signing of the DA. We presently expect this share transfer to occur at the time of the Transformation of LLC into a joint stock company or at the time of the execution of the Amended and Restated Shareholder Agreement.

 

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 attached hereto as Exhibit 10.6.

 

Banks, Investors and Contractors

 

The Al Rayan Bank

 

As previously reported, in November 2015, LLC signed an agreement (the “Al Rayan Loan Agreement”) and arranged a $25 million loan (the “Al Rayan Bank Loan”) with Masraf Al Rayan, a substantial Qatari bank. The Al Rayan Loan Agreement and the Al Rayan Bank Loan will not be utilized by LLC due to CCC’s failure to make its required Deferred Investment into LLC. 

 

The Omani Bank with whom CCC has a business relationship

 

Extended meetings and discussions with CCC and with the Omani Bank with whom CCC has a business relationship resulted in changing, confusing and often contradictory paths being followed before ending unsuccessfully. It was planned by all the LLC Shareholders that CCC and RCA would inject into LLC a portion (an aggregate of approximately $26 million USD) of their “Deferred Equity Investments” (as such term is defined in the Shareholder Agreement); that LLC would hire the Omani Bank as its financial adviser and lender; that LLC would execute a Phase One valued at approximately $220 million and consisting of one hotel, 250 residences and one Pearl; that LLC and CCC-Oman would enter into the CCC-Contract; and that an Amended and Restated Shareholder Agreement would be executed, however all such plans were apparently based on CCC providing the adequate corporate guarantee to the Omani bank – which to the best of management’s knowledge – did not happen. Discussions with the Omani bank and with CCC on this matter are now ended. 

 

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Management however remains optimistic that its ongoing discussions with an alternative bank can be concluded when and if our new investor to replace CCC becomes an LLC shareholder.

  

Other Investors and Contractors

 

During 2015 and 2016 management has conducted a multitude of investor presentations across the MENA Region with potential LLC equity investors including sovereign funds, investment funds and high net-worth individuals. Several of these investors expressed interest in becoming shareholders of LLC but in all such cases to date except one, management concluded that the percentage of LLC equity required by such investors was excessive and much too dilutive to the LLC Shareholders (and indirectly dilutive to our Omagine shareholders via their 60% ownership of LLC). LLC management is presently focused on the estate of the abovementioned investor with whom it has a written Investment Agreement) and on two European investment funds as back-up investors in the event such is needed.

 

Given the present liquidity issues at local banks, the matter of construction debt financing (“Project Finance”) is an issue at the top of all developer’s and contractor’s agendas. The required Project Finance for the Omagine Project – or any project – is not really needed until after the masterplanning and design phase is complete or near complete.

 

Design, Development & Construction:

 

The design, development and construction of the Omagine Project will be divided into various phases (each, a “Phase”). Since the CCC Contract has not and will not be signed, neither CCC nor any other contractor is presently expected to be the General Contractor for the entire Omagine Project. The various construction Phases are now expected to be put out to bid to various contractors and this competitive bidding process (especially given the present economic environment for contractors in the MENA Region) is expected to garner substantial cost savings for LLC.

 

Initial Activities

 

The Immediate Post-DA Period is the time period between the DA signing and the first Financing Agreement Date. The execution of many initial activities during this period by LLC required the parallel launching by LLC management of many diverse efforts and processes on multiple fronts immediately after the DA Execution Date of October 2, 2014 and continuing through the date hereof. This early initiative fast track strategy (financed entirely by Omagine) greatly benefited LLC to date in many ways, among which are:

 

1. the DA was Ratified by the Government;
   
2. the UA was signed and registered with the Government;
   
3. the Operative Date of July 1, 2015 replaced both the Execution Date of October 2, 2014 and the Effective Date of March 11, 2015 referenced in the DA;

 

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4. three separate valuation studies and reports were commissioned and the valuation of the Land Rights was completed;
   
5. expert accounting analyses and reports were received from PwC, Deloitte and the Company’s independent auditor regarding LLC’s purchase of the Land Rights and the recording thereof in LLC’s and the Company’s financial statements;
   
6. LLC booked 276,666,667 Omani Rials of new equity which is also reflected in the Company’s consolidated financial statements;
   
7. a cost accounting budgetary framework to be used during the development, construction and marketing of the Omagine Project was created by an independent accounting and finance consultant;
   
8. an expert IT consultant was selected to architect and install the IT framework and solutions we intend to implement across LLC and the Company and across the Omagine Project’s “smart city” environment;
   
9. an independent third party update to our feasibility study was commissioned and completed;
   
10. an update of LLC’s internal financial model by specialist real estate investment bankers and advisers was commissioned and completed;
   
11. confirmation from banks in Oman (but not from banks outside of Oman) that the value of the Land Rights can be used as collateral to support the Syndicated Bank Financing was received;
   
12. the “Brand Identity” and associated brand pillar components and uniform brand messaging platform we intend to implement for Omagine, LLC and the Omagine Project were created;
   
13. LLC’s strategic plan was completed;
   
14. multiple meetings with, and multiple iterations of proposals and presentations from major mission-critical project consultants (architects, designers, master planners, engineers, program managers, quantity surveyors, real estate advisers, hospitality advisers, hotel management companies, financial advisers and others) have been received, reviewed and analyzed by management and selections of many consultants have been made by management;
   
15. candidates for senior LLC executive positions have been recruited, interviewed and selected;
   
16. extensive and multiple presentations and meetings with potential LLC equity investors in six MENA Region countries, Europe, Asia and the U.S. were conducted and while most offers were declined by LLC, negotiations with several selected strategic investors are still ongoing with a present focus on one such investor;
   
17. extensive and multiple presentations and meetings with local, regional and international banks in Oman, the MENA Region and Europe with respect to the provision of Syndicated Bank Financing have occurred with a present focus on one such bank;
   
18. Multiple drafts of the CCC Contract were created (most recently in May 2016) but the final attempt to close this transaction ended unsuccessfully after many delays, and
   
19. several other contracts for mission-critical consultants are presently being prepared,

 

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The CCC Contract / The CCC Phases

 

In August 2016, management was optimistic and positively inclined to believe that a beneficial conclusion for all parties concerned would be forthcoming in a matter of several weeks but no conclusion occurred and management concluded that no amount of further negotiations would result in a definitive conclusion of these matters with CCC.

 

All prior disclosures and discussion of the CCC-Contract and to prior descriptions of Phase One or other phases contemplated under the CCC-Contract are now inoperative, void and of no consequence since the CCC-Contract was not and will not be signed with CCC-Oman. The Omagine Project will however still be developed in Phases but the previously described and disclosed description of phases will be altered as we go forward. Discussions with CCC have ceased and Omagine exercised its option to purchase all of the shares of LLC owned by CCC-Oman and CCC-Panama.

 

It is presently expected that several building contractors will be involved in the project as the various Phases of the work is designed and specified and then put out to bid by local contractors after the design is substantially completed. As part of the masterplanning, we will develop a phasing program for the entire project and as the design and/or specifications of any Phase is sufficiently completed such that LLC can tender it for competitive bidding it will do so. CCC-Oman will be welcome to bid on any such Phase if it so desires.

 

Any new construction contracts with potential contractors will be modeled after the early draft CCC-Contract as envisioned by Omagine and will be based on internationally accepted contracting standards promulgated by the International Federation of Consulting Engineers (“FIDIC”) and will contain a set of industry standard performance parameters, incentives and penalties to ensure Omagine LLC’s interests are protected and that value is delivered.

 

LLC will manage the bidding and competitive process by which the various contractors will be chosen. There is an ample supply of qualified contractors in Oman and the MENA region.

 

The contractor will only commence construction activities on a Phase or section of a Phase after the competitive bids therefore are examined and a contract award is made by LLC.

 

It is anticipated that several Phases will be under construction simultaneously in an overlapping manner as the various designs and specifications for the various Phases are sequentially completed. Construction on Phases will continue until the conclusion of all Permanent Works constituting the Omagine Project are completed.

 

LLC plans to maintain a robust control of the design of the entire project and of each Phase through to completion.

 

Development Phases / Construction Phases / Project Financing / Masterplanning 

 

It is anticipated that the Omagine Project will be developed in several phases and each such phase will likely include one or more Sections of construction. It is expected therefore that several tranches of project financing from banks or other financial institutions will occur and several Financing Agreements will likely be executed during the course of the project’s phased development and construction. The first Financing Agreement Date occurred on November 29, 2015 with the signing of the Al Rayan Loan agreement but as stated above it was never utilized. Until other Financing Agreements are actually executed by the relevant parties however, no assurance can be given that they actually will be so executed or that Project Financing will be available to LLC. Each such further Financing Agreement, if any, is expected to coincide approximately with the beginning of a new development and construction phase, all of which phases will include design, marketing and one or more new Sections of construction activities. The closing of a tranche of Project Finance whether from banks, investors, financial institutions or from Syndicated Bank Financing will each be memorialized by a separate Financing Agreement. 

 

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The November 29, 2015 execution date of the first such Financing Agreement with Masraf Al Rayan is defined in the Shareholder Agreement as the “Financing Agreement Date”. The earlier that the Financing Agreement Date occurred, the better it was expected to be for LLC, the Omagine Project, and all concerned for a variety of reasons but this was ultimately complicated by the CCC-Contract delays described herein. The present liquidity squeeze in GCC banks may continue to have a negative impact on our Project Finance efforts. Notwithstanding the foregoing sentence, the bank with which we are presently negotiating a project finance package does not have such liquidity issues. 

 

No assurance however can be given at this time as to whether the Company will be successful in arranging either Equity Sales or Debt Facilities or in closing the financing facility for the Omagine Project until such events actually happen.

 

Any reference in this report to a term or condition of the Development Agreement, the Usufruct Agreement and/or the Shareholders Agreement does not purport to be complete and is qualified in its entirety by reference to the full texts of such agreements. The full text of the Development Agreement is attached hereto as Exhibits 10.7 and 99.1. The full text of the Usufruct Agreement is attached hereto as Exhibits 10.8 and 99.2. The full text of the Shareholder Agreement is attached hereto as Exhibit 10.6.

 

The masterplanning of the Omagine Project will not begin until a new investor to replace CCC is secured and an Amended and Restated Shareholder Agreement is signed. No further feasibility study is presently required or planned for the project as our financial model adequately demonstrates the project’s financial feasibility. It is presently planned that in parallel with the masterplanning effort we will engage the hospitality, real estate, insurance and marketing consultants to execute various professional studies which will inform the masterplanning process and our business plan. These consultants and advisers all contribute to and inform the masterplanning and final design process for the Omagine Project.

 

The preliminary master plan along with the various studies and our fleshed-out business plan (which in turn is informed by our now completed Strategic Plan) is expected to be utilized by the financial adviser to drive the Syndicated Bank Financing effort.

 

During the masterplanning process, exact sizes, shapes and placement of the various project elements (residential, hotels, entertainment, landscape, etc.) are determined and as the master plan evolves and takes shape, the various follow-on Phases of development and construction will also naturally evolve. Simultaneously with these processes, the Financial Adviser will be updating the Omagine Project’s financial model to reflect the precise and final constituent project elements along with their projected costs and associated projected revenue streams. Finally, all of the foregoing data and other marketing, sales and strategic planning studies created by or on behalf of LLC are assembled into an “LLC Business Plan”. With the LLC Business Plan in hand and with the LLC Financial Adviser in the lead, LLC and the Financial Adviser and other select consultants set about the business of making final presentations to the various banks, with which we are now and will continue to be in touch, with the objective of arranging the Syndicated Bank Financing.

 

Notwithstanding anything contained in this report regarding possible, proposed or planned (i) sales of equity by Omagine and/or LLC (“Equity Sales”), or (ii) debt facilities with banks, financial institutions or other persons or sale of debt securities by LLC (collectively, “Debt Facilities”), or (iii) Syndicated Bank Financing or Project Finance, no assurance can be given at this time as to whether the Company or LLC will be able to obtain the significant amount of financing and Project Finance necessary over time to execute the development of the Omagine Project.

 

Over the past many months, we have conducted, and continue to conduct, numerous meetings:

 

i. with respect to LLC Equity Sales, with several potential equity investors interested in becoming shareholders of LLC, including sovereign funds, investment funds and high net-worth individuals from Europe, China, and several MENA Region countries, and
   
ii. with respect to Omagine Equity Sales, with investment funds and high net-worth investors in the U.S., Europe and the MENA Region interested in becoming shareholders of Omagine, and
   
iii. with respect to Debt Facilities for LLC other than Syndicated Bank Financing, with several banks and other potential investors in the U.S., Europe, the GCC countries and Oman, and

 

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iv. with respect to major local, regional and international banks in Oman and the GCC there appeared to be a significant amount of banking liquidity in 2015, but presently the banking liquidity levels are modestly rebounding after being under severe pressure in 2016 primarily as a result of the worldwide drop in the price of crude oil and resulting decrease in deposits into these banks by governments. The large appetite we witnessed in 2015 at such banks for providing Syndicated Bank Financing and Debt Facilities to LLC cooled in 2016 but appear to be easing in 2017. Notwithstanding the foregoing, the bank with which we are presently negotiating a project finance package does not have such liquidity issues.

 

LLC management and financial executives have held numerous meetings and discussions over the past numerous months with many major local and international banks, the purpose of which, among other things, was to discuss the prospects for such banks providing the Syndicated Bank Financing which is expected to be composed primarily of debt financing from banks. This is a crucial matter to address and accomplish in order to make the Omagine Project a reality. Based on present assumptions, we estimate that LLC’s peak Syndicated Bank Financing requirements will be approximately $350 to $400 million during the multi-year development cycle of the Omagine Project.

 

The process of obtaining project financing is not a trivial exercise. It is a time-consuming and complicated process which, when successful, culminates in an event known as a “Financial Close” – usually several Financial Close events - as projects of the size and scope of the Omagine Project are almost always developed in phases. With respect to any proposed Syndicated Bank Financing requirements, the question of whether or not LLC’s Land Rights can or will be used by the various banks as collateral to support such Syndicated Bank Financing is therefore of considerable importance. At present LLC management is confident that banks within Oman will use LLC’s Land Rights as collateral for bank debt facilities for LLC but we are unclear as to the position of many of the regional and international banks outside of Oman in this regard.

 

The DA addresses this matter in considerable length and clearly contemplates that LLC - as the registered owner of the Land Rights will be granting a security interest in its Land Rights to banks and lenders to the project. The DA further obliges the Government - as the registered owner of the land - to consent to any such grant of a security interest by LLC. (See: Exhibits 10.7 and 99.1, and Clause 22 of the DA - Lenders Security Interests). The DA states in relevant part:

 

“… the Government shall enter into Direct Agreements with Lenders acknowledging their rights by way of Security Interests over certain assets of the Project Company including an assignment to the Lenders of the Development Agreement, the Usufruct Agreement, other related agreements, and the Project Assets …” (See: Exhibits 10.7 and 99.1, Schedule 20 to the DA - Principles of Direct Agreement).

 

The major Omani banks with which LLC management has met - and with whom we continue to meet and update - have indicated that LLC’s Land Rights will be considered by such Omani banks as collateral to support bank financing debt facilities for the Project Finance for the Omagine Project but other non-Omani regional and international banks (including their branches in Oman) have been less forthcoming with definitive answers until they see more details about the nature and extent of LLC’s Land Rights. 

 

LLC management is presently confident that the OR 276,666,667 ($718,614,000) value of its Land Rights will be considered by the Omani banks as collateral for the Syndicated Bank Financing for the Omagine Project but it remains unclear at this stage whether or not banks other than Omani banks will do likewise. Notwithstanding the foregoing statement however, it is not possible at this time to predict with certainty what future events may alter LLC’s present assessment of its ability to use its Land Rights to collateralize any bank debt financing including any Syndicated Bank Financing.

 

Updated Studies

 

In addition to the valuation studies and reports with respect to the Land Rights (See: “The Land Rights”, above), management also commissioned:

 

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(i) an updated feasibility study of the Omagine Project by an independent third party which is a professional real estate, tourism and marketing consultant, and
   
(ii) an updated LLC internal financial model for the Omagine Project by unaffiliated third parties who are expert financial, investment banking and real estate consultants.

 

Both the updated feasibility study and the financial model have been completed and they will be utilized by LLC to fine tune its development plans, and ultimately by LLC’s designated Financial Adviser for the balance of the project in arranging the Syndicated Bank Financing and other financing for LLC as may be required.

 

Omagine LLC’s internal financial model is updated, modified and adjusted from time to time in order to capture what management believes are the then present market realities and projected trends. The financial model is organized to show best case, worst case and probable case scenarios. The most recently updated probable case scenario forecasts substantial net positive cash flows for Omagine LLC over the seven year period subsequent to the signing of the DA and a net present value (“NPV”) of the Omagine Project of approximately $1.4 billion dollars. Management believes its financial model assumptions are reasonable but cautions that they may change as new facts and information become available, as the development program and design process unfolds and as market conditions require. It is virtually certain that the various components of the financial model - and therefore the estimates of total cash flow and NPV - will change from time to time in line with market fluctuations and as the project unfolds.

 

The sale of residential and commercial properties is a large revenue driver supporting Omagine LLC’s internal financial projections. The OR 276,666,667 average valuation of the Land Rights has had a positive effect on projected revenue at LLC.

 

Management cautions that investors should not place undue reliance on the aforementioned financial model projections or on estimates by market participants mentioned herein as all such projections, estimates and forecasts are subject to significant uncertainties and contingencies, many of which are beyond the Company’s control, and no assurance can be given that the projections will be realized or that the estimates or forecasts will prove to be accurate. Potential investors are cautioned not to place undue reliance on any such forward-looking statement or forecast, which, unless otherwise noted to the contrary, speaks only as of the date hereof.

 

Off Plan Sales and Land Price Payments

 

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 the 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 properties that are sold “off plan” will be substantially “owner-financed” by the relevant purchaser, and (ii) it will likely be unnecessary therefore for LLC to utilize any or very much Syndicated Bank Financing 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 Syndicated Bank Financing from its banks. The consumer appetite for such “off plan” sales is less today than it was in recent years. (See “Market Conditions” below).

 

Furthermore, Land Price Payments to the Government are not due or owing from LLC until such time as LLC legally transfers the freehold title to land to a purchaser at the time of the closing of the sale of such land. Such closings will only occur after LLC has received final payment of the relevant sales contract amount from the purchaser. 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.

 

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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. The Company experienced a substantial increase in capital on July 2, 2015 when the Land Rights were registered in LLC’s name and later recorded in LLC’s and the Company’s financial statements. The Company will experience another substantial increase in capital, if and when further capital increases from RCA and a new investor occur at LLC and the then appropriate percentage representing Omagine’s ownership interest in LLC is recorded in 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.

 

In addition to the activities mentioned above, the Company’s preparations for its future business activities also include, but are not limited to: (i) negotiating various agreements with other major vendors, contractors, consultants and employees proposed to be involved in the Omagine Project, (ii) arranging the appropriate and required legal, accounting, tax and other professional services both in Oman and the U.S., (iii) 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, (iv) examining various other matters we believe will enhance shareholder value, and (v) examining other potential Company revenue streams which are ancillary to, and derivative of, the Omagine Project.

 

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.

 

Although the Company had expected to generate revenue in the medium term as LLC (i) began reimbursing Omagine for its Pre-Development Expenses, and (ii) begins paying the Success Fee installments to Omagine, such reimbursements are now likely to be delayed and/or possibly altered by the terms of an Amended and Restated Shareholder Agreement (See: “Pre-Development Expenses and Loans and Advances to LLC” and “Success Fee” above). The Company is not expected to generate revenue from sales or operations of properties within the Omagine Project until the development and construction of the Omagine Project is substantially underway. The masterplanning, development and construction of the Omagine Project is not expected to begin in earnest until the matter of a replacement investor for CCC is settled.

 

Financial Adviser

 

LLC’s financial adviser (“Financial Adviser”) for the Omagine Project is expected to be a bank or other professional financial consulting company. As such the Financial Adviser will arrange the syndication among several banks of the debt financing (“Syndicated Bank Financing”) for the Omagine Project.

 

We are presently in discussions with a bank which has already given LLC a “soft commitment” with respect to the provision by it of the debt financing required for the Omagine Project.

 

Importantly, given the present liquidity issues at local and MENA Region banks, the matter of Project Finance is an issue that has now moved to the forefront of LLC’s agenda. While the required Project Finance for the Omagine Project (estimated at approximately $400 million) – or any project – is not usually needed until after the masterplanning and design phase is complete or near complete, given present economic strains both developers and contractors are well advised to seek to lock up a Project Finance commitment early on rather than waiting to start a syndication at a later date.

 

LLC’s Financial Adviser will advise on capital structure and lead the arrangement and placement of the Syndicated Bank Financing. LLC will then work together with its Financial Advisor to appoint lead arrangers for such Syndicated Bank Financing which may include the Financial Advisor itself.

 

The amount of Syndicated Bank Financing 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 additional Equity Sales, and (ii) the pace and tempo of LLC’s receipt of proceeds from its planned sales of real estate to third parties. The capital of LLC, proceeds from Equity Sales if any, Syndicated Bank Financing and the proceeds from sales of its residential and commercial properties, are expected to be utilized by LLC to develop the Omagine Project.

 

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The maximum amount of such Syndicated Bank Financing presently 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 $350 million and $400 million.

 

We have had extensive discussions with a number of MENA Region financial institutions with respect to such Syndicated Bank Financing and while they remain interested in discussing the Project Finance for the Omagine Project, almost all such banks confirmed the tightening of bank liquidity due to the current economic climate resulting from the sharply reduced price for crude oil. We are presently in discussions with a bank which is not experiencing such liquidity issues and which has already given LLC a “soft commitment” with respect to the provision by it of the debt financing required for the Omagine Project. With LLC’s Financial Adviser leading this effort, management remains hopeful with respect to LLC’s prospects for arranging the Syndicated Bank Financing for the Omagine Project but recognizes that given present economic and market conditions, it is not a trivial task and will be challenging. These discussions are ongoing and no assurances can be given at this time regarding the outcome, if any, from such discussions. The DA recognizes and addresses this issue when it states, in relevant part:

 

“The Government recognizes 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 [now the Operative Date of July 1, 2015; see Exhibits 10.7, 99.1, 10.8 and 99.2] 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.” (See Exhibits 10.7 and 99.1).

 

The condition referred to above was fulfilled on November 9, 2015 when LLC entered into a written term sheet with Masraf Al Rayan with respect to the financing of the then planned first phase of the Omagine Project. Unfortunately due to CCC’s failure to fulfil its investment obligations under the Shareholder Agreement such financing was never utilized.

 

MENA Region banks and financial institutions continue to maintain adequate levels of liquidity but the rapid fall in world oil prices is a challenge to those banks whose liquidity relies to a great deal on government deposits resulting from the sale of crude oil. Such new and large government borrowings from commercial banking institutions tend to crowd out commercial borrowing capacity for private companies. The largest banks of course are weathering this storm more handily then the mid-size or smaller banks.

 

The project financing environment in Oman and the MENA Region continues to remain cautious after the rapid decline of worldwide oil prices which led to the rapid decline of bank deposits being received from governments. LLC management regularly meets with several internationally recognized Financial Advisers, all of whom have deep and wide-ranging expertise in the MENA Region project financing markets and as part of their normal business activities are 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 now cautiously optimistic (but less confident then it had been before the 2015 sudden drop in oil prices) that LLC and its yet to be designated Financial Adviser will be able to arrange the necessary project financing for the Omagine Project. Management believes that all the Financial Advisers and banks with whom it has recently met concur that there is currently still a reasonable degree of liquidity and appetite among MENA Region banks and financial institutions for lending to, and investing in, sound development projects in the MENA Region. Most such persons and institutions however are more cautious than they were over a year ago because of the recent rapid fall in oil prices and the continuation of the unsettled military activities ongoing in Syria, Iraq, Yemen and Libya.

 

Notwithstanding the fact that LLC has already received a “soft commitment” with respect to the provision of the debt financing required for the Omagine Project from a bank without the aforementioned liquidity issues, no assurance can be given at this time that LLC will be able to obtain any, or a sufficient amount of, the project financing required to develop, build and complete the Omagine Project. If such a circumstance were to occur, it would have a material adverse effect on our business and operations.

 

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Market Conditions

 

As previously disclosed and as has been and continues to be widely reported by local and international media and press, the worldwide price of crude oil fell very suddenly and dramatically in 2014 and 2015 (from over $100 per barrel to about $25/$30 per barrel) as robust production in the U.S. and elsewhere created a global glut of crude oil. Presently the price of crude oil is about $45/bbl. Almost all countries in the MENA Region are dependent on the sale of crude oil to support their economies and their government spending programs.  

 

Although MENA Region governments had 100s of billions of dollars of savings in sovereign reserve funds, this oil price shock ushered in an extremely challenging environment for the MENA Region governments and for the companies of all types – including developers and contractors – operating in the MENA region. In reaction to the large, rapid and unexpected drop in crude oil prices, government budgets were slashed across the region; contractors’ payments were delayed; and many government sponsored projects were postponed, delayed or cancelled. Payment delays and stalled government projects off the back of the decline in oil prices have severely impacted the entire construction industry in the MENA Region – including in Oman. The Omagine Project however is not a government sponsored project and Omagine LLC is a private company.

 

Crude oil prices “seem” to have recently stabilized around the mid-$40s per barrel price and a rebalancing of the market “seems to be” is in progress but the knock-on effects of the lower government spending and the delayed payments by MENA Region governments to contractors has had a severe economic impact on local economies and contractors.

 

Almost all local banking institutions in the MENA Region are dependent on large deposits from oil and gas sales by governments in order to provide the normally excess liquidity apparent in the local banking system prior to this recent dramatic worldwide drop in oil prices. With the sudden fall in deposits from oil sales, bank liquidity at local banking institutions in the GCC and wider MENA Region were under immense pressure as deposits fell dramatically while simultaneously governments became large borrowers where they were not before. Even now some of the largest contractors are experiencing difficulties.

 

We expect that this sudden business cycle change will eventually right itself as all market participants adapt to the new realities but we are of the present opinion, provided our Investment Agreement with our proposed new investor or with one of the European funds with which we are presently in discussions results in the closing of an investment transaction to replace CCC, that the Company will succeed in creatively making a path where none had apparently previously existed. Because of the significant delays in developing the Omagine Project to date however, tensions are high both in the local market and the Government and no assurance can presently be given that our present plans will succeed. Also, should the current negative economic conditions caused by the GCC-wide liquidity squeeze at banks continue unabated, a knock-on effect in the real estate markets resulting in slower or fewer sales and lower selling prices could occur.

 

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 stable and are expected to improve during 2017 relative to expected performance in 2015 and 2016. We are presently unsure what the impact on transaction volume and pricing will be from the fall in crude oil prices but we expect some softness in the market as all participants adjust to the “new normal” of $40 to $50 crude oil prices. From a timing perspective, LLC plans to now launch residential and commercial sales at the Omagine Project within the first 12 months after we close an investment transaction to replace CCC’s now defaulted investment.

 

Trends in the Omani market during the past few years have indicated a reduced presence of speculative buyers and a reduced consumer appetite for pre-sales of residence units (“off-plan” sales) as buyers now frequently demand a finished product before entering into sales contracts with developers. Although, many societal disorders, military activities and terrorism continue in other parts of the MENA Region, as long as the politically stable and quite safe conditions existing at present in Oman persist then, market conditions should favorably impact LLC’s future operations.

 

Nearby Dubai is experiencing softness in its residential sales and leasing market but in general Dubai’s economy (a regional barometer) remains relatively strong and, in certain areas, quite robust. Raw material and labor prices remain somewhat volatile in Oman having recently experienced both downward and upward swings over the past year – but overall construction costs are sharply down due to the severe competition presently in the market among building contractors.

 

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In Iraq, Syria, Yemen and Libya, among other countries, daily violent military clashes and terrorism are now commonplace. 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. Anxiety over the health of His Majesty, the much beloved Sultan Qaboos, and what effect, if any, that will have on Oman’s political stability and leadership succession seems to have abated and His Majesty seen to be actively managing state affairs.

 

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 (and therefore, its financial model) 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.

 

Nearby 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, 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.

 

Sales and Marketing

 

After it closes an investment transaction to replace CCC as an investor and shareholder, LLC plans to undertake several wide ranging and continuous marketing, advertising, branding and public relations campaigns to establish its brand identity prior to LLC’s launch of residential and commercial properties for sale and to advertise and promote its forthcoming entertainment, hospitality and retail offerings.

 

As we move forward we plan to construct and operate a sales showroom at the Omagine Site. The sales office/showroom will be staffed with experienced real estate sales personnel and will contain large scale models of the Omagine Project and its various components as well as associated collateral sales and marketing materials.

 

The anticipated launch date for residential and commercial sales was previously planned to be in the first or second quarter of 2018 but the unexpected death of our proposed new investor in LLC has now delayed this launch date further and it is now contingent on closing the aforementioned investment transaction. Management expects that the continuing stability of local real estate markets as well as the Government’s continuing improvements to Oman’s infrastructure (Muscat International Airport, roads, regional airports, etc.) will contribute positively to LLC’s future sales prospects. The impact of the recent fall in crude oil prices and the knock-on economic effects on consumers and government projects is unknown and difficult to predict at this time.

 

Management expects the Omagine Project to benefit from Dubai’s hosting of EXPO 2020, and similarly from nearby Qatar’s hosting of the World Cup Games in 2022. Both of these events are expected to attract a huge amount of visitors and tourists. The Omagine Project will be conveniently located one hour from Dubai and Qatar by air and is easily accessible by a fine roadway system in both Oman and the U.A.E. A visit to the Omagine Project will be a natural and logical addition to a Dubai or Qatar visit.

 

Sale prices and rental rates for housing in other integrated tourism projects in the Muscat area of Oman have remained relatively stable during 2016 and as of the date of this report. The inventory of unsold housing in the secondary (re-sale) market (both outside of and within ITCs) has diminished due to recent, 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 strong. The 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.

 

The 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.

 

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Non-Omani persons (including 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. Because it is now licensed as an ITC, the land, residences and commercial properties within the Omagine Project may 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. Residences in ITCs are viewed to be highly desirable by purchasers (by both investors and owner-occupiers) and ITC residences therefore enjoy a premium selling price relative to non-ITC residences. Purchasers of residences within Omagine (or any ITC) are entitled by Omani Law to be issued a resident visa (for themselves and their immediate family).

 

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

 

Pursuant to the DA and UA, LLC will pay the Government OR 25 ($65) per square meter for the Project Land it sells to third party purchasers. The average valuation for the Land Rights (net of such Land Price) is OR 276,666,667 ($718,614,000) (See: “The Land Rights”, above).

 

Design, Engineering, Construction, Program Management, Content Development

 

The Company does not presently own or directly operate any design, engineering, content development or construction companies or facilities. With assistance from Omagine via the Loans and Advances, LLC has undertaken many critical tasks as indicated above, but for LLC to fully accomplish its objectives and undertake and finance the Omagine Project, it will have to close an Equity Sale transaction and execute an Amended and Restated Shareholder Agreement. The failure to date to accomplish these matters with CCC has delayed the Omagine Project and the masterplanning process.

 

Subject to the approval of its shareholders and to negotiating and agreeing to a contract, LLC intends to hire a design firm, an engineering firm, a program management firm, a construction management firm and a quantity surveying/cost consultant firm.

 

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. One or more of such companies (“Content Developers”) will be engaged by LLC to design the transformation of Omagine’s high level strategic vision for the content of the Pearl structures and surrounding areas into physical places offering emotional, intellectual and physical experiences and 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.

 

LLC presently intends to hire various local Omani contractors for the construction 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. LLC will engage various firms as its consultants (master planner, engineers, real estate and hospitality consultants, etc.) who will together with management finalize the design for the entire Omagine Project. There are many such consultants available with competitive pricing and the Company does not believe that the loss or inability to perform of any such consultant which it has selected would have a material, adverse impact on its business or operations. The Company believes it maintains a good working business relationship with its 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 LLC or Omagine.

 

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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 as a strategic shareholder 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, several of whom will 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.

 

Management has identified several key personnel whom we plan to appoint to executive positions with Omagine LLC in Oman subsequent to the closing of suitable financial arrangements for Omagine LLC. Frank Drohan, who is Omagine’s president and the Managing Director of LLC, 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. In addition, 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. Both Mr. Drohan and Mr. Hamdan reside in Oman and Dubai respectively and are leading and directing the Company’s ongoing negotiations in Oman with investors and the Government.

 

Although several of LLC’s competitors have well established businesses and brand reputations, management believes that LLC’s advantages are (i) the DA has been signed by LLC and signed and ratified by the Government of Oman, (ii) the uniqueness of the Omagine Project is particularly attractive to the Government, (iii) Omagine’s and LLC’s senior management have established strong and trusting relationships with the relevant Government officials and with LLC’s partner RCA, (iv) LLC’s intention to engage world class architects, designers, real estate advisers and Financial Advisers; and (v) the Shareholder Agreement, which strongly demonstrates the serious investors and professionals that have been recruited to assist in the development of the Omagine Project (although the default by CCC and present economic conditions in the MENA Region cut against this advantage). Company management believes LLC can successfully compete in this marketplace through a combination of unique development concepts, the recruitment of experienced and capable executive management for Omagine LLC in Oman, 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.

 

Manufacturing and Production

 

The Company does not engage in any manufacturing activities.

 

LLC has land under development valued at 276,666,667 Omani Rials. The Company has recorded this land under development in its financial statements at $718,614,000 (based on a $2.5974 per 1 Omani Rial exchange rate) and the Company has allocated this amount as follows: 188,963,334 Omani Rials ($490,813,363) to inventory; and 87,703,333 Omani Rials ($227,800,637) to property. As the Omagine Project unfolds we presently expect that LLC will develop such land into an inventory of residential properties held for sale to third parties and into commercial properties which LLC will own, operate and/or lease.

 

Patents, Copyrights and Trademarks

 

It is presently intended that either 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 “Registered Marks”).

 

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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.

 

Under USPTO rules continuous commercial use of the Registered Marks over the previous five year period were required to maintain valid registrations for such Registered Marks. The Registered Marks were not continuously used and therefore such Registered Marks will not be maintained by the USPTO. Ownership in the Registered Marks remain of interest to Omagine and, depending on future circumstances, the Company may file new trademark applications for the Marks to again become Registered Marks.

 

Trademark applications for the OMAGINE Mark and eight related Marks were filed in Oman and all were issued Certificates of Registration in Oman. As of the date hereof all registrations for the Oman Marks remain valid and in force. The Mark OMAGINE has been issued a Registration Certificate from the Patent and Trademark Department of the Ministry of Commerce & Industry in Kuwait and such Kuwait registration remains valid and in force as of the date hereof.

 

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 (See: Exhibits 10.7 and 99.1). The Government of Oman has issued an ITC License to LLC for its Omagine Project (See: “Business - Sales and Marketing”, above).

 

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 ten consultants. We presently plan to hire seven of such consultants as full time employees of Omagine or LLC subsequent to the closing of a transaction with one or more investors or banks. 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 closing of suitable financial arrangements by Omagine LLC, Omagine intends to significantly increase the number of its full time employees. (See: “Executive Compensation” – “Employment Benefits”).

 

Notwithstanding anything to the contrary contained herein, no assurances can be given at this time that the equity investments from interested potential third party investors or any debt financing from MENA Region banks will be closed; or the anticipated revenues from the Omagine Project will actually occur.

 

Item 1A. Risk Factors.

 

You should carefully consider the following risk factors and the other information included herein as well as the information included in other reports and filings made with the SEC before investing in our common stock.   The following factors, as well as other factors affecting our operating results and financial condition, could cause our actual future results and financial condition to differ materially from those projected. The trading price of our common stock could decline due to any of these risks, should they materialize, and you may lose part or all of your investment.

 

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Risk Factors Related to Our Company and Our Business

 

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

 

Omagine LLC will have to secure substantial further equity financing in order to replace the now defaulted CCC investment into LLC and carry out its plans for the phased development and construction of the Omagine Project and thereafter will have to secure approximately $350 million of Project Finance over time to finance the construction of the Omagine Project. As of the date hereof, neither of these two issues have been resolved. Management is presently holding discussions with the estate of a deceased investor with whom LLC has a signed Investment Agreement and with two European investment funds. Bank liquidity and the availability of Project Finance in the GCC have been negatively affected by the dramatic drop in the price of crude oil during 2014 and 2015 which resulted in a dramatic drop in government deposits with local banks. This liquidity squeeze at the MENA Region Banks has been further exacerbated by greatly increased government borrowings from such banks in order to finance large and often unexpected government budget deficits. These increased government borrowing levels absorb large portions of the banks’ lending capacity; tending to crowd out lending for private companies that the banks might otherwise undertake. As government and banks adjust to the new realities of lower priced oil, management expects to see an improvement in the liquidity levels of some banks. No assurance can be given at this time therefore that the LLC equity investment and/or project financing requirements can or will be arranged.

 

Although some of our Tempest Warrants (as hereinafter defined) have been 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) 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”, “Warrants” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”).

 

We have 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.

 

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. The DA is now signed but we encountered numerous delays prior to its signing and as a result we have incurred significant losses over the past few years, including net losses of $2,930,574 for the fiscal year ended December 31, 2016, $5,673,293 for the fiscal year ended December 31, 2015 and $5,160,960 for the fiscal year ended December 31, 2014, primarily due to an absence of revenue due to delays during those periods in the start of development of the Omagine Project 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 – Liquidity and Capital Resources”). We expect to continue to incur such losses and expenses over the near term as a result of financing LLC’s operations and until LLC closes a transaction with one or more investors or banks. This will adversely impact our overall financial performance and results of operations. The Omagine Project 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.

 

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

 

Because we are a 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. We have experienced significant delays in getting the project started and are unable to predict what, if any, actions the Government may take in the future in response to such delays. 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 2015 and 2016 audited financial statements assume we will continue our operations on a going concern basis, the opinion of our independent auditors in our 2014 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 contained in our 2015 and 2016 audited financial statements included in this report does not contain any expression of concern about our ability to continue as a going concern. The opinion of our independent auditors contained in our 2014 audited financial statements did contain a paragraph stating that as of the date of such opinion there was substantial doubt about our ability to continue as a going concern. As discussed in Note 2 to such 2014 audited financial statements, Omagine’s then present financial situation raised substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter were also described in Note 2 and such 2014 audited financial statements were prepared under the assumption that we would continue our operations on a going concern basis, which contemplated the realization of assets and the discharge of liabilities in the normal course of business. Our 2014 audited financial statements did not include any adjustments that might have been necessary if we are unable to continue as a going concern. (See: “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview”). Beginning in our September 30, 2015 unaudited quarterly financial statements and continuing through all reporting periods up to and including this report for the year ended December 31, 2016 that expression of concern has been removed. If we sustain unanticipated losses and we cannot continue as a going concern, our shareholders may lose all of their investment in Omagine.

 

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: “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 2,951,015 shares presently available to be sold to YA under the 2014 SEDA well before reaching the aggregate sales price of $5 million available under the 2014 SEDA.

 

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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, Jack A. Smith, Alan M. Matus, 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 in the future to conduct our and LLC’s ongoing operations, 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 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.

 

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:

 

a further decline in the world price for crude oil;
   
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;
   
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.

 

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

 

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.

 

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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.

 

We are vulnerable to concentration risks because our 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. The price of crude oil has fallen substantially since the last quarter of 2014 and through the date hereof (from over $100 per barrel to around $40 per barrel) and this has put significant pressure on Oman’s (and MENA Region countries’) budgetary and fiscal policies. 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, decreases in the price of crude oil exports by Oman, 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 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.

 

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Our operations are subject to political risks.

 

The ongoing civil and political unrest in parts of the MENA Region, the military unrest and interventions in Iraq, Afghanistan, Libya, Syria and Yemen and 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 or military 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 could be directed against properties and personnel of American companies that work abroad, particularly companies such as ours that operate in the MENA Region. 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.

 

Our operations are subject to natural risks.

 

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

 

We may have violated Section 5 of the Securities Act.

 

A sale under a registration statement for 31,289 shares of common stock occurred during a period when, based on interpretations of applicable Securities Act provisions by the staff of the SEC, the registration statement did not include a valid Section 10(a) prospectus, because the audited financial statements included therein were more than 16 months old, when the prospectus was used more than 9 months after the effective date. Accordingly, we may have violated Section 5 of the Securities Act, and as a result, we may be subject to an enforcement action by the SEC, or an action for rescission by the purchaser. If the SEC were to bring such an enforcement action against the Company, or if the purchaser were to bring such an action for rescission, it may have a material adverse effect on our financial position.

 

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:

 

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;
   
delays to LLC’s ongoing operations by Government authorities; 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.

 

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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 discussed herein, including the history of project delays, , the sudden and sharp drop in crude oil prices and the unknown impact of MENA Region civil, political and military unrest 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, warrants or convertible notes. 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.

 

Our management collectively beneficially owns approximately 30.3% 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 thirty and three-tenths percent (30.3%) of our Common Shares, and if Common Shares underlying 1,440,000 Stock Appreciation Rights held by officers and directors were presently “in the money” and calculable, the officer and director collective beneficial ownership of our Common Shares would be greater than 30.3%. (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.

 

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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.

 

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.

 

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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”). 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.

 

Item 1B. Unresolved Staff Comments.

 

Not applicable.

 

Item 2. Properties.

 

The Company maintains its corporate office at 136 Madison Avenue, 5th Floor, New York, NY 10016. The premises are leased by the Company under a month to month lease. Omagine LLC leases office space in Muscat, Oman under a renewable lease expiring June 30, 2017.

  

Item 3. Legal Proceedings.

 

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

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Common Stock

 

Our Common Stock is quoted and traded on the OTCQB under the symbol “OMAG”. The following table sets forth the range of high and low information for the Common Stock as reported by the OTCQB during the quarterly periods indicated. The table reflects inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.

 

Quarter Ended  High   Low 
3/31/2014  $2.90   $0.61 
6/30/2014  $2.25   $1.20 
9/30/2014  $2.43   $1.20 
12/31/2014  $3.94   $1.55 
           
3/31/2015  $2.99   $1.65 
6/30/2015  $2.50   $1.20 
9/30/2015  $3.09   $1.45 
12/31/2015  $1.88   $1.21 
           
3/31/2016  $1.40   $0.95 
6/30/2016  $1.28   $0.605 
9/30/2016  $1.12   $0.85 
12/30/2016  $0.95   $0.616 

 

At April 13, 2017, Omagine, Inc. had 22,042,120 shares of its Common Stock issued and outstanding, and there were approximately 1,119 holders of such Common Stock.

 

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.

 

Securities authorized for issuance under equity compensation plans

 

The Company’s shareholders approved the reservation by the Company of two million five hundred thousand (2,500,000) shares of Common Stock for issuance under the 2003 Omagine Inc. Stock Option Plan (the “2003 Plan”). The Company 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 and on September 12, 2012, Omagine filed a post-effective amendment to the S-8 Registration. At December 31, 2016, there were 2,279,000 unexpired options (“Stock Options”) issued but unexercised under the 2003 Plan. The 2003 Plan expired on August 31, 2013 and all of the then outstanding Stock Options issued under the 2003 Plan remain valid until the earlier of their exercise or expiration date.

 

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The following table summarizes information as of the close of business on December 31, 2016 with respect to unexpired and unexercised Stock Options issued under the 2003 Plan.

 

Equity Compensation 2003 Plan Information

 

Plan Category  Number of shares of Common Stock to be issued upon the exercise of outstanding Stock Options   Weighted average exercise price of outstanding Stock Options   Number of shares of Common Stock remaining available for future issuance under equity compensation plans [excluding shares reflected in column (a)] 
   (a)   (b)   (c) 
Equity compensation plans approved by shareholders (the 2003 Plan)   2,279,000   $1.73    -0- 
                
Equity compensation plans not approved by shareholders   -0-    -0-    -0- 
                
Total   2,279,000   $1.73    -0- 

 

On March 6, 2014, the Board of Directors approved the adoption of the 2014 Omagine Inc. Stock Option Plan (the “2014 Plan”) pursuant to which three million (3,000,000) shares of Common Stock were reserved for issuance thereunder. (See: Exhibit 10.33). The 2014 Plan was amended to increase the reservation of 3,000,000 Common Shares for issuance to 5,000,000 Common Shares and to permit issuance of stock appreciation rights (“SARs”). The Amended Omagine, Inc. 2014 Stock Option Plan (“Amended 2014 Plan”) is attached hereto as Exhibit 10.34.

 

The Company intends to seek its shareholders’ ratification of the adoption by the Company of the Amended 2014 Plan. The Amended 2014 Plan is explained further below in Part III, Item II of this report under the heading “Equity Compensation Plan Information” and in Note 7 to the accompanying consolidated financial statements for the fiscal year ended December 31, 2016. As of the date hereof, 990,000 Stock Options have been issued under the 2014 Plan.

 

Equity Compensation Amended 2014 Plan Information

 

Plan Category  Number of shares of Common Stock to be issued upon the exercise of outstanding Stock Options   Weighted average exercise price of outstanding Stock Options   Number of shares of Common Stock remaining available for future issuance under equity compensation plans [excluding shares reflected in column (a)] 
   (a)   (b)   (c) 
Equity compensation plans approved by shareholders (the 2014 Plan)   0   $-    -0- 
                
Equity compensation plans not approved by shareholders   990,000    2.52    -0- 
                
Total   990,000   $2.52    -0- 

 

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

 

At December 31, 2016, there were 2,279,000 unexpired Stock Options issued but unexercised under the 2003 Plan and all such Stock Options remain valid until the earlier of their exercise or expiration date. At December 31, 2016, there were 990,000 unexpired Stock Options and 1,455,000 SARs issued but unexercised under the Amended 2014 Plan of which 950,000 are Strategic Options. As of December 31, 2016, an aggregate of 3,269,000 Stock Options are issued and outstanding among the 2003 Plan and the Amended 2014 Plan of which 2,915,000 are Strategic Options.

 

Performance graph

 

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

 

Recent sales of unregistered securities

 

In connection with the Prior SEDAs and with the issuance by us of the Tempest Warrant and the Common Shares listed below, we relied upon the exemption from securities registration afforded by Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of our Company or executive officers or directors of our Company and transfer was restricted by our Company in accordance with the requirements of the Securities Act. In addition to representations by the below-referenced persons, we made independent determinations that all of the below-referenced persons were accredited or sophisticated investors, that they were capable of analyzing the merits and risks of their investment and that they understood the speculative nature of their investment. Furthermore, all of the below-referenced persons were provided with access to our SEC filings.

 

On January 4, 2017, Omagine contributed 123,782 restricted Common Shares at the non-discounted valuation of $76,250 to all eligible employees of the Omagine, Inc. 401(k) Plan.

 

On January 4, 2017, Omagine issued 81,169 restricted Common Shares valued at $50,000 to each of the Corporation’s three independent directors based on the $0.616 closing price of the Corporation’s Common Stock on December 30, 2016.

 

On January 13, 2017, Omagine sold 18,051 restricted Common Shares to an accredited investor for proceeds of $10,000 

 

On January 20, 2017, Omagine sold 25,000 restricted Common Shares to an accredited investor for proceeds of $12,500.

 

On January 25, 2017, Omagine sold 20,000 restricted Common Shares to an accredited investor for proceeds of $10,000 

 

On February 1, 2017, the president of the Company purchased 100,000 restricted Common Shares based on the $0.62 closing price of Omagine’s Common Stock on January 31, 2017 minus the Finnerty discount of 18% for proceeds of $51,000.

 

On February 2, 2017, three independent Company directors each purchased 94,340 restricted Common Shares and the Company’s vice president purchased 47,170 restricted Common Shares based on the $$0.6414 closing price of Omagine’s Common Shares on February 1, 2017 minus the Finnerty discount of 18% for aggregate proceeds of $175,000.

 

On February 21, 2017, Omagine sold 200,000 restricted Common Shares to an accredited investor for proceeds of $100,000.

 

On March 31, 2017, the Company issued 93,750 restricted shares of Common Stock to its investor relations vendor as payment in full for $37,500 of services rendered for the period January 1, 2016 through March 31, 2017, and issued an additional 56,250 restricted shares of Common Stock to the same vendor as payment in full for $22,500 of services to be rendered for the period April 1, 2017 through December 31, 2017.

 

On April 4, 2017, the Company sold 266,667 restricted Common Shares to an accredited investor for proceeds of $80,000. 

 

On April 11, 2017, pursuant to the SEDA, Omagine sold 132,275 Common Shares to YA for proceeds of $50,000.

 

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On January 15, 2016, Omagine contributed 61,001 restricted Common Shares at the non-discounted valuation of $76,250 to all eligible employees of the Omagine, Inc. 401(k) Plan.

 

On January 15, 2016, Omagine issued 38,462 restricted Common Shares valued at $50,000 to each of the Corporation’s three independent directors based on the $1.30 closing price of the Corporation’s Common Stock on December 31, 2015.

 

On April 5, 2016, the president of the Company purchased 56,000 restricted Common Shares based on the $0.90 closing price of Omagine’s Common Stock on April 5, 2016.

 

On April 6, 2016, three independent directors of the Company each purchased 27,778 restricted Common Shares based on the $0.90 closing price of Omagine’s Common Stock on April 5, 2016 for an aggregate of 83,334 Common Shares purchased. The aggregate purchase price was $75,000.

 

On April 12, 2016, the Company sold 700,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds of $504,000.

 

On April 22, 2016, the holders of a Convertible Note converted $30,984 of principal and accrued interest into 24,207 shares of Common Stock.

 

On May 17, 2016, an Independent Director exercised Stock Options at $0.85 to purchase 2,000 shares of Common Stock.

 

On June 15, 2016, pursuant to the SEDA, Omagine sold 31,289 Common Shares to YA for proceeds of $25,000.

 

On July 29, 2016, Omagine sold 10,684 restricted Common shares to an accredited investor for proceeds of $10,000.

 

On August 19, 2016, Omagine sold 13,245 restricted Common Shares to an accredited investor for proceeds of $10,000.

 

On August 30, 2016, Omagine sold 11,312 restricted Common Shares to an accredited investor for proceeds of $10,000.

 

On September 16, 2016, Omagine sold 34,247 restricted Common Shares to an accredited investor for proceeds of $25,000.

 

On September 19, 2016 Omagine paid a consultant 30,340 restricted Common Shares at a value of $25,000.

 

On September 21, 2016, Omagine issued 161,290 restricted Common Shares to YA in satisfaction of a $150,000 commitment fee due in connection with the extension of the 2014 SEDA to February 1, 2019.

 

On October 14, 2016, the Company entered into a Convertible Promissory Note with an accredited investor for the principal amount of $50,000 with interest at 5% per annum, due on April 14, 2017 and convertible into the Company’s Common Stock at a conversion price of $0.65 per Common Share.

 

On October 17, 2016, the Company entered into an Interest Free Promissory Note with an accredited investor for the principal amount of $75,000, due on December 13, 2016, and in lieu of any interest due and payable on the principal amount of the Note, the Company issued to the Note Holder 150,000 Common Stock Purchase Warrants exercisable at the greater of (a) $0.50, or (b) 80% of the Market Price on the Trading Day immediately preceding the relevant Exercise Date. On December 5, 2016, the $75,000 note was satisfied (see sixth succeeding paragraph below).

 

On November 1, 2016, Omagine sold 20,000 restricted Common Shares to an accredited investor for proceeds of $10,000 and also sold 10,000 restricted Common Shares to an independent director who is also an accredited investor for proceeds of $5,000.

 

On November 4, 2016, Omagine sold 10,000 restricted Common Shares to an accredited investor for proceeds of $5,000.

On November 8, 2016, Omagine sold an aggregate of 20,000 restricted Common Shares to two accredited investors for aggregate proceeds of 10,000.

 

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On November 14, 2016, Omagine sold 10,000 restricted Common Shares to an accredited investor for proceeds of $5,000.

 

On November 14, 2016, the Company entered into an interest free Convertible Promissory Note with St. George Investments LLC, an accredited investor, for the principal amount of $185,000 due on May 15, 2017, six months from the funding date of November 16, 2016, convertible into the Company’s Common Stock only in the case of non-payment or in the Event of Default at a Conversion Price equal to 60% of the three lowest daily Volume Weighted Average Prices for the Company’s Common Stock during the twenty trading days immediately preceding the Conversion. The Company may prepay the Note in whole or in part at any time without penalty. After deduction of a $30,000 original issue discount (OID) and legal fees of $5,000, the Company received net proceeds of $150,000 on November 16, 2016.

 

On December 5, 2016, Omagine sold 300,000 restricted Common Shares to an accredited investor for proceeds of $150,000 which was paid to the Company by the cancellation and payment in full of the Company’s $75,000 Promissory Note dated October 17, 2016 (see sixth preceding paragraph above) and the remaining $75,000 of the purchase price was paid to the Company in cash.

 

On January 5, 2015, Omagine contributed an aggregate of 36,483 restricted Common Shares valued at $76,250 to all eligible employees of the Omagine, Inc. 401(k) Plan.

 

On February 23, 2015, Omagine paid a consultant 5,000 restricted Common Shares at the discounted valuation of $9,450.

 

On March 26, 2015, Omagine sold 6,281 restricted Common Shares to an accredited investor for proceeds of $10,000.

 

On March 26, 2015, Omagine sold 200,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds of $210,000.

 

On May 16, 2015, Omagine sold 100,000 Common Shares to an officer and director for proceeds of $120,000.

 

On June 29, 2015, the Non-US investor (described below in connection with a June 24, 2014 transaction) exercised 158,228 Tempest Warrants at an exercise price of $1.58 for proceeds of $250,000 (which was collected July 2, 2015).

 

On June 29, 2015, Omagine paid a finder’s fee to a non-U.S. Finder in connection with the aforementioned sale of 158,228 restricted Common Shares. Such finder’s fee was satisfied by issuing such non-U.S. Finder 7,911 restricted Common Shares valued at $12,500.

 

On September 2, 2015 pursuant to the SEDA, Omagine sold 17,696 Common Shares to YA for proceeds of $25,000.

 

On September 22, 2015, Omagine sold 10,000 restricted Common Shares to an accredited investor for proceeds of $14,700.

 

On October 8, 2015, pursuant to the exercise of 2,375 Tempest Warrants which were transferred to an affiliate of Tempest, Omagine sold 2,375 restricted Common Shares to such affiliate at $1.28 per Common Share for proceeds of $3,040.

 

 

On October 26, 2015, Omagine sold an aggregate of 1,200,000 restricted Common Shares to three non-U.S. persons who are accredited investors (500,000 restricted Common Shares each to two investors and 200,000 restricted Common Shares to one investor) for aggregate proceeds to Omagine of $1,200,000.

 

On November 16, 2015, in connection with the aforementioned sale of 1,200,000 restricted Common Shares to three non-U.S. persons, Omagine paid a finder’s fee to another non-U.S. person. This finder’s fee was satisfied by issuing such other non-U.S. person 33,334 restricted Common Shares valued at $60,000 (based on the November 16, 2015 market price of $1.80 per share).

 

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On November 16, 2015, Omagine sold 20,886 restricted Common Shares to an accredited investor for proceeds to Omagine of $25,000.

 

On January 8, 2014 pursuant to the SEDA, Omagine sold 29,687 Common Shares to YA for proceeds of $25,000.

 

On January 10, 2014, Omagine paid a law firm for legal services rendered by issuing such law firm 34,374 restricted Common Shares valued at $26,248, which value was $10,346 in excess of the $15,812 owed by Omagine to such law firm at that date.

 

On January 17, 2014 pursuant to the SEDA, Omagine sold 24,912 Common Shares to YA for proceeds of $20,000.

 

On January 24, 2014 pursuant to the SEDA, Omagine sold 31,705 Common Shares to YA for proceeds of $25,000.

 

On February 13, 2014, Omagine contributed an aggregate of 73,315 restricted Common Shares valued at $76,250 to all eligible employees of the Omagine Inc. 401(k) Plan.

 

On February 14, 2014 pursuant to the SEDA, Omagine sold 68,493 Common Shares to YA for proceeds of $150,000.

 

On March 14, 2014, Omagine sold 70,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds of $70,000.

 

On March 14, 2014, Omagine paid a finder’s fee to a non-U.S. person (a “non-U.S. Finder”) in connection with the aforementioned sale of 70,000 restricted Common Shares. Such finder’s fee was satisfied by issuing such non-U.S. Finder 3,500 restricted Common Shares valued at $6,101.

 

On March 21, 2014 pursuant to the SEDA, Omagine sold 13,597 Common Shares to YA for proceeds of $25,000.

 

On April 11, 2014, Omagine sold 150,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds of $150,000. At June 30, 2014, such non-U.S. person owned 1,195,300 Common Shares or approximately 7.5% of the Common Shares then outstanding and 441,120 Strategic Warrants.

 

On April 11, 2014, Omagine paid a finder’s fee to a non-U.S. Finder in connection with the aforementioned sale of 150,000 restricted Common Shares. Such finder’s fee was satisfied by issuing such non-U.S. Finder 7,500 restricted Common Shares valued at $10,147.

 

On April 22, 2014, Omagine issued 85,822 restricted Common Shares to an affiliate of YA in satisfaction of a $150,000 commitment fee due in connection with the 2014 SEDA.

 

On May 6, 2014 pursuant to the SEDA, Omagine sold 32,270 Common Shares to YA for proceeds of $50,000.

 

On June 24, 2014, Omagine sold 362,308 restricted Common Shares and issued 1,000,000 Tempest Warrants to a non-U.S. person who is an accredited investor for proceeds $422,100.

 

On June 24, 2014, Omagine paid a finder’s fee to a non-U.S. Finder in connection with the aforementioned sale of 362,308 restricted Common Shares and issuance of 1,000,000 Tempest Warrants. Such finder’s fee was satisfied by paying such non-U.S. Finder $20,000 in cash and issuing such non-U.S. Finder 15,000 restricted Common Shares valued at $19,920.

 

On August 15, 2014, pursuant to the exercise of 240,000 Tempest Warrants at $1.40 per share, Omagine sold 240,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds $336,000.

 

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On October 2, 2014, pursuant to the exercise of 250,000 Tempest Warrants at $1.31 per share, Omagine sold 250,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds $327,500.

 

On November 20, 2014, Omagine sold an aggregate of 400,000 restricted Common Shares to two non-U.S. persons who are accredited investors (150,000 shares to one investor and 250,000 shares to the other investor) for aggregate proceeds $800,000.

 

On November 21, 2014, Omagine paid a finder’s fee to a non-U.S. Finder in connection with the aforementioned sale of 400,000 restricted Common Shares. Such finder’s fee was satisfied by issuing such non-U.S. Finder 20,000 restricted Common Shares valued at $40,000.

 

Issuer Purchases of Equity Securities

 

The Company did not purchase any of its issued and outstanding shares of Common Stock during the fiscal year ended December 31, 2016.

 

Transfer Agent

 

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

 

Item 6. Selected Financial Data.

 

Information required by this Item is not required for the Company since it is a smaller reporting company.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion highlights the Company’s business activities during fiscal years 2016 and 2015.

 

Overview

 

The Company is expected to generate revenue as LLC begins reimbursing Omagine for its Pre-Development Expenses and Loans and Advances (although this may and begins paying the Success Fee installments (See: “Pre-Development Expenses and Loans and Advances to LLC” and “The Success Fee”, above) but is not expected to generate revenue from operations in the near term until after the development of the Omagine Project in Oman is substantially underway. The Company will need to generate sustainable operating revenue in order to attain its objectives and sustain its operations going forward.

 

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 and 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 will be at least equal to the prices that are presently budgeted by LLC and that total construction costs will be somewhat lower.

 

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Critical Accounting Policies

 

Our financial statements attached hereto for the fiscal years 2016 and 2015 have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The fiscal year 2016 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. Actual results as determined at a later date could differ from those estimates. In recording 276,666,667 Omani Rials ($718,614,000 based on a $2.5974 per 1 Omani Rial exchange rate) in the Company’s consolidated financial statements as the non-cash value of Land Rights (as defined below) purchased by LLC from an LLC Shareholder in consideration for the issuance to such shareholder of 663,750 Omagine LLC shares (“LLC Shares”), management has relied to a great extent upon the written valuation reports of three expert land valuation firms engaged by LLC to value such Land Rights. Furthermore, in allocating such non-cash value to inventory and land under development, management has relied to a great extent upon the written report of an expert independent accounting firm engaged by LLC to advise it on the proper accounting to be used to record such non-cash value in LLC’s financial statements. 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.

 

Land Rights - The Company’s consolidated financial statement for the years ended December 31, 2016 and 2015 reflects 276,666,667 Omani Rials ($718,614,000 based on a $2.5974 per 1 Omani Rial exchange rate) of land under development which the Company has allocated as follows: 188,963,334 Omani Rials ($490,813,363 based on a $2.5974 per 1 Omani Rial exchange rate) to inventory; and 87,703,333 Omani Rials ($227,800,637 based on a $2.5974 per 1 Omani Rial exchange rate) to property. This land under development was purchased by LLC on July 2, 2015 pursuant to the terms of the Shareholder Agreement whereby an LLC shareholder subscribed for 663,750 LLC Shares at a purchase price equal to that amount of Omani Rials determined to be the value of the usufruct rights over one million square meters of beachfront land (the “Land Rights”). The Land Rights are extensive and they include the right to sell such land on a freehold basis (See: Exhibit 10.7 and 99.1). Since the Land Rights represented a non-cash payment-in-kind for the LLC Shares, it was necessary to value the Land Rights.

 

Three expert real estate valuation companies were engaged by LLC to independently value the Land Rights in accordance with the professional standards specified by the Royal Institution of Chartered Surveyors (“RICS”) and International Financial Reporting Standards (“IFRS”). The average of the three Land Rights valuations was OMR 276,666,667. See: Exhibits 99.4, 99.5 and 99.6.

 

LLC engaged the services of an expert IFRS accounting consultant, PricewaterhouseCoopers LLP (“PwC”), to definitively determine the correct method of recording the OMR 276,666,667 average value of its Land Rights in its IFRS compliant financial statements. After receiving PwC’s written report, LLC then consulted with its independent auditor, Deloitte & Touche (M.E.) & Co. LLC (“Deloitte”) and received Deloitte’s written report agreeing with the PwC analysis. Both PwC and Deloitte have concluded that the Land Rights are to be recorded as capital, work-in-process (inventory) and land on LLC’s financial statements. The Company’s independent auditor in the U.S. has likewise concurred that with respect to the Company’s consolidated financial statements prepared pursuant to US GAAP, that the Land Rights should be recorded as capital, inventory and land.

 

In determining the proper amounts to be allocated to inventory and to land, LLC calculated the percentage (x) by dividing (y) the area of the land LLC presently plans definitively to sell, by (z) the total area of the Project Land, and then multiplying that percentage (x) by 276,666,667 Omani Rials to get the number (N) for inventory. The amount to be allocated to property was then calculated by subtracting N from 276,666,667 Omani Rials. Using its detailed internal financial model, management calculated (x) to be equal to 68.3%, thereby making the inventory number (N) equal to 188,963,334 Omani Rials ($490,813,363 based on based on a $2.5974 per 1 Omani Rial exchange rate) and the property number equal to 87,703,333 Omani Rials ($227,800,637 based on a $2.5974 per 1 Omani Rial exchange rate). In its consolidated financial statements therefore, the Company has allocated the value of the Land Rights between (i) land under development which is held for sale (inventory), and (ii) land under development which is held for investment (PP&E). As more precise land use percentages emerge during and after the masterplanning and construction of the Omagine Project, the percentage allocations for the value of the Land Rights may be reclassified to distinguish between the land underlying properties that we will own and operate and those which we will own and lease.

 

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Inventory – Inventory is stated at cost. At December 31, 2016, inventory consists of the land under development acquired on July 2, 2015 (valued using the fair value of the Land Rights at the date of acquisition). The Company’s consolidated financial statements for the year ended December 31, 2015 reflect an increase of $490,813,363 in inventory resulting from LLC’s July 2, 2015 acquisition of the Land Rights.

 

Property, Plant and Equipment – Property, plant and equipment (“PP&E”) are stated at cost. PP&E consists of land under development which is held for investment; furniture and fixtures; and office machinery and equipment. PP&E (including buildings and structures after they are completed and put into service) are depreciated on a straight-line basis over their respective useful service life. The Company’s consolidated financial statements for the year ended December 31, 2015 reflect an increase of $227,800,637 in PP&E resulting from LLC’s July 2, 2015 acquisition of the Land Rights.

 

Revenue Recognition - The Company follows the guidelines of SEC Staff Accounting Bulletin No. 101,“Revenue Recognition in Financial Statements”. LLC will recognize revenue ratably over the development period of the Omagine Project measured by methods appropriate to the services or products provided.

 

Valuation Allowance for Deferred U.S. Tax Assets - The carrying value of deferred U.S. tax assets assumed that Omagine would not be able to generate sufficient future taxable income to realize the deferred tax assets, based on management’s prior estimates and assumptions. Now that LLC has signed the Development Agreement for the Omagine Project and has purchased the Land Rights, management expects to re-evaluate such estimates and assumptions within the Company’s next fiscal year.

 

Foreign Exchange Rates – The Omani Rial is pegged to the U.S. Dollar and as such its value relative to the U.S. Dollar normally exhibits very minimal fluctuation between approximately $2.597 and $2.60 U.S. Dollars to 1 Omani Rial. In its initial recording of the Land Rights in its September 30, 2015 consolidated financial statement, the Company utilized the exchange rate of $2.5974 U.S. Dollars to 1 Omani Rial which was based on the July 7, 2015 XE Currency Converter. For presentation purposes subsequent to September 30, 2015, the Company utilizes an exchange rate of $2.60 to 1 Omani Rial. Adjustments required, if any, will be reflected in the Company’s fiscal year-end audited financial statements.

 

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:

 

YEAR ENDED DECEMBER 31, 2016 vs.

YEAR ENDED DECEMBER 31, 2015

 

The Company did not generate any revenue or incur any cost of sales during the years ended December 31, 2016 and 2015. The Company is relying on Omagine LLC’s operations for the Company’s future revenue generation. Management is presently examining other possible sources of revenue for the Company which may be added to the Company’s operations.

 

Total SG&A Expenses were $2,726,939 during the year ended December 31, 2016 compared to $5,768,201 for the year ended December 31, 2015. This $3,041,262 (53%) decrease was attributable to decreases in the following expense categories: officers and directors’ compensation including stock based compensation ($1,466,615), professional fees ($155,458), consulting fees including stock based compensation ($1.397,284), occupancy ($106,909) and other selling general and administrative costs ($101,232) offset by increases in Travel ($36,236) and commitment fees ($150,000).

 

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The Company sustained a net loss of $2,930,574 for the year ended December 31, 2016 compared to a net loss of $5,673,293 for the year ended December 31, 2015. This $2,742,719 (48%) decrease in the Company’s net loss for the year ended December 31, 2016 compared to the prior year was principally attributable to the $3,041,262 decrease in SG&A Expenses mentioned above and an increase in amortization of debt discounts ($159,448), increase in interest expense ($23,879) and a decrease in net loss attributable to non-controlling interests in LLC ($115,216).

 

Liquidity and Capital Resources

 

The Company incurred net losses of $2,930,574 and $5,673,293 during the years ended December 31, 2016 and 2015, respectively. During the year ended December 31, 2016, the Company had a decrease in cash of $95,475 resulting from the positive cash flow of $1,425,700 from financing activities offset by a negative cash flow of $1,521,175 from operating activities. Financing activities for the year ended December 31, 2016 consisted of proceeds from the sale of Common Stock of $769,000, proceeds of $540,000 from a note payable to YA II PN, Ltd. (p/k/a YA Global Master SPV, Ltd.) (“YA”) (the March 2016 YA Loan), proceeds of $360,000 from a note payable to YA (the June 2016 YA Loan), proceeds of $675,000 from a note payable to YA (the December 2016 YA Loan), $1,700 from the exercise of stock options, proceeds of $150,000 from the issuance of two notes, a $100,000 convertible note payable to an entity owned by two Independent Directors of Omagine, Inc. and a $50,000 note payable to an accredited investor, and proceeds of $155,000 from a promissory note payable net of an original issue discount of $30,000 to an accredited investor offset by payment of five monthly installments totaling $225,000 for the 2015 YA Loan, full payment of $600,000 for the March 2016 YA Loan and full payment of $400,000 for the June 2016 YA Loan.

 

The Company had $0 in capital expenditures for the year ended December 31, 2016.

 

At December 31, 2016, the Company had $491,044,450 in current assets, consisting of $490,813,363 of land under development held for sale (See: Note 2 to the Company’s audited consolidated financial statements), $229,228 of cash and $1,859 in prepaid expenses and other current assets. The Company’s current liabilities at December 31, 2016 totaled $2,667,990 consisting of $526,372 of convertible notes payable and accrued interest, $686,387 of notes payable and accrued interest, $162,500 note payable net of unamortized original issue discount, $873,105 of accounts payable and accrued expenses and $419,626 of accrued officers’ payroll. At December 31, 2016, the Company had working capital of $488,376,460 compared to working capital of $489,652,283 at December 31, 2015. Thirty two percent (32%) of the $2,667,990 of current liabilities at December 31, 2016 ($861,921) is due and owing to officers and/or directors of Omagine.

 

The $1,275,823 decrease in the Company’s working capital at December 31, 2016 compared to December 31, 2015 is attributable to the increase in current liabilities ($1,180,440) and a decrease in cash ($95,475) offset by an increase in prepaid expenses and other current assets ($92). The Company’s liabilities at December 31, 2016 increased compared to December 31, 2015 due to increases in notes payable and accrued interest ($482,220), accounts payable, accrued expenses and other current liabilities ($377,485), note payable ($162,500), convertible notes payable and accrued interest ($128,443) and accrued officers’ payroll ($29,792).

 

Omagine LLC

 

LLC presently has limited and strained resources.

 

Omagine invested the OMR 20,000 cash [$52,000] OMAG Initial Equity Investment into LLC upon its organization and pursuant to the Shareholder Agreement the following additional investments have been made to date into LLC:

 

  i. a further OMR 130,000 [$338,000] cash investment was made by the LLC Shareholders, and

 

  ii. a further OMR 210,000 [$546,000] cash investment was made by Omagine, and

 

  iii. a further OMR 276,666,667 [$718,614,000] non-cash investment was made by RCA.

 

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LLC is presently capitalized at OMR 277,026,667 [$719,550,000]. Notwithstanding the foregoing, LLC presently has limited cash resources because expenses incurred to date have depleted LLC’s limited cash capital.

 

As of the date hereof Omagine has invested OMR 210,000 [$546,000] in advance of when Omagine was obligated to do so in order to maintain LLC’s liquidity and has satisfied in full its obligation pursuant to the Shareholder Agreement as presently in effect to make the OMAG Deferred Investment into LLC.

 

RCA is obligated to make its Deferred Cash Investment into LLC in the aggregate amount of OMR 7,640,625 [$19,865,625]. However it is possible that the Amended and Restated Shareholder Agreement will modify when such Deferred Cash Investments will be made by RCA.

 

The OMR 276,666,667 [$718,614,000] investment of the Land Rights into LLC by RCA was perfected on July 2, 2015 concurrent with the registration of the Usufruct Agreement with the Oman Ministry of Housing (See: “The Land Rights”, above).

 

CCC was obligated – but failed to make its Deferred Cash Investment into LLC in the aggregate amount of OMR 18,987,500 [$49,367,500]. On April 3, 2017 Omagine exercised its option to purchase all of the shares of LLC owned by CCC-Oman and CCC-Panama. After the closing of the option purchase LLC will than have only two shareholders – Omagine and RCA. LLC is presently attempting to close an investment transaction with a replacement investor for CCC.

 

The continuation of LLC’s business to date has to a large extent been financed by Omagine.

 

LLC will have to arrange a for a replacement investor for CCC as well as a significant amount of project financing, including most probably Syndicated Bank Financing, in order to execute its plan to develop the Omagine Project. Until an Amended and Restated Shareholder Agreement is signed with a new equity investor and until Financing Agreements with respect to such project financing are actually executed by the parties however, no assurance can be given that they actually will be so executed or that such equity investment or project financing will be available to LLC. (See “Financial Advisor”, above). The Company is relying for revenue growth upon the future business of LLC.

 

The failure to ultimately secure a new equity investor or to secure project financing via the closing of a Financing Agreement will have a materially significant adverse effect on LLC’s and the Company’s ability to continue operations.

  

Omagine Inc.

 

In order to generate the cash needed to sustain the Company’s ongoing operations, Omagine has over the past many years relied on – and continues to rely 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 and notes. Management is hopeful that the Warrants will provide a future source of additional financing but it is not possible to predict if any of our Warrants will ever be exercised.

 

Subject to the necessary financial resources being available to it, Omagine may make a secured loan to LLC in order to finance its operations. Such a loan from Omagine, if it were to be made, would be memorialized by a Financing Agreement like any other Debt Facility.

 

Investors and shareholders should be aware that we have had no revenue for the past several years and we do not expect to generate any revenue until after the development of the Omagine Project is well underway and therefore the Company’s usual state is one where it is seeking capital to continue its operations.

 

Warrants

 

As of the date of this report, the Company has 6,572,124 Warrants issued and outstanding, (a) 6,422,124 of which are exercisable for the purchase of one Common Share, and (b) 150,000 of which are exercisable for the purchase of one Common Share.

 

The Strategic Warrants

 

Omagine has 6,422,124 Warrants outstanding, 3,211,062 of which are exercisable at $5 per Common Share and 3,211,062 of which are exercisable at $10 per Common Share exercise price of $10.00 (collectively, the “Strategic Warrants”). On January 14, 2016, Omagine filed a Post-Effective Amendment on Form S-1 (Commission File No. 333-183852) to update the previous registration of 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 SEC declared the Updated Warrant Registration effective January 25, 2016. The effective status of the Updated Warrant Registration expired on October 21, 2016 and the Company intends to file an updated post-effective amendment to maintain the warrants effective status of such registration statement. Pursuant to a Board of Directors resolution dated August 12, 2015, the expiration date of all Strategic Warrants was extended from December 31, 2015 to December 31, 2016 and pursuant to a Board of Directors resolution dated December 9, 2016, the Strategic Warrants were again extended from December 31, 2016 to December 31, 2017. All other terms and conditions of the Strategic Warrants remained unchanged.

 

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Tempest Warrants

 

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 exercised 240,000 Tempest Warrants on August 15, 2014 at $1.40 per share for the purchase of 240,000 restricted Common Shares. On October 2, 2014, such investor transferred an additional 250,000 Tempest Warrants to such affiliate and such affiliate exercised 250,000 Tempest Warrants on October 2, 2014 at $1.31 per share for the purchase of 250,000 restricted Common Shares. On June 29, 2015, the investor exercised 158,228 of the Tempest Warrants at an exercise price of $1.58 per Common Share for proceeds of $250,000. Subsequently on October 8, 2015, such investor transferred an additional 2,375 Tempest Warrants to an affiliate and such affiliate exercised 2,375 Tempest Warrants on October 8, 2015 at $1.28 per share for the purchase of 2,375 restricted Common Shares. All 349,397 remaining Tempest Warrants expired on June 23, 2016 and are no longer exercisable.

 

Rural Concepts Warrants

 

On October 14, 2016, in connection with a non-interest bearing convertible promissory note in favor of Rural Concepts LLC, a British corporation (“Rural Concepts”), Omagine issued 150,000 Warrants to Rural Concepts, each of which is exercisable for the purchase of one restricted Common Share at a per Common Share purchase price equal to the greater of (a) $0.50 per Common Share, or (b) 80% of the Market Price on the Trading Day immediately preceding the relevant Exercise Date ([the “Rural Concepts Warrants”].”). The Rural Concepts Warrants expire on December 31, 2017.

 

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 “2011 SEDA”) which was terminated on July 21, 2014. The 2009 SEDA and the 2011 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 which was amended on October 10, 2014 (the “2014 SEDA”). The 2014 SEDA is generally on the same terms as the 2011 SEDA.

 

Any use by Omagine of the 2014 SEDA 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 (a) new equity investments into Omagine and (b) new debt and/or equity investments into LLC, (vi) the likelihood (or actuality) of LLC having the financial capacity to pay Omagine the $10 million Success Fee and the Pre-Development Expense Amount and Loans and Advances in excess of $29.6 million as of December 31, 2016. (See: “Financial Advisor, and Business - The Shareholder Agreement / LLC Capital Structure - Pre-Development Expenses / Success Fee”, above), and (vii) our then current cash requirements.

 

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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 such liquidity levels do not improve. 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 2,951,015 shares available under the 2014 SEDA before reaching the aggregate sales price of $5 million available under the 2014 SEDA.

 

LLC is now 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 / project financing (including the Construction Financing) over various times during the next 4 to 5 years. This Construction Financing requirement will not be addressed by utilizing the 2014 SEDA (See: “Financial Advisor”, above). Notwithstanding that fact, the Company expects to have substantial and rapidly forthcoming working capital requirements other than the Construction Financing for a portion of which it plans to utilize the 2014 SEDA but no assurance can be given that the Company will be able to obtain the necessary working capital.

 

Given the considerable resources we will be required to bring to bear to execute the Omagine Project, we presently expect that we will fully utilize the entire $5 million amount available to us under the 2014 SEDA. Such use of the 2014 SEDA 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, we will surely need the full $5 million available under the 2014 SEDA. The Prior SEDAs indisputably provided the Company the lifeline needed to achieve the DA signing and the 2014 SEDA will likely provide some of the supplementary working capital the Company will need going forward.

 

Prior SEDAs

 

The 2009 SEDA expired in 2011. The 2011 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 10.19).

 

In connection with the 2011 SEDA, Omagine filed with the SEC a registration statement (the “2011 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 2011 SEDA). Between August 24, 2011 and May 6, 2014, YA purchased 561,690 Common Shares from Omagine under the 2011 SEDA for an aggregate Purchase Price of $835,000 and YA did not thereafter purchase any Common Shares from Omagine under the 2011 SEDA. On July 21, 2014 Omagine filed a post-effective amendment to the 2011 SEDA Registration Statement de-registering the previously registered 2,438,310 Common Shares which were not issued or sold to YA pursuant to the 2011 SEDA. Such post-effective amendment to the 2011 SEDA Registration Statement was declared effective by the SEC on July 25, 2014.

 

The 2014 SEDA

 

On April 22, 2014, Omagine and YA entered into a new Standby Equity Distribution Agreement which was amended on October 10, 2014 and thereafter amended again on September 20, 2016 to extend the term of the SEDA (the “2014 SEDA”). The 2014 SEDA is generally on the same terms as the 2011 SEDA. Unless earlier terminated in accordance with its terms, the 2014 SEDA shall automatically expire on the earlier of (i) February 1, 2019, 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 (the “Commitment Fee Shares”) to YA Global II SPV, LLC which is an affiliate of YA (the “Affiliate”). In satisfaction of a $150,000 commitment fee pursuant to the “Second SEDA Amendment” in September 2016, the Company issued 161,290 restricted shares to the Affiliate.

 

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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 “Registration 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.

 

In connection with the 2014 SEDA, on October 15, 2014 Omagine filed the Registration Statement on Form S-1 to register the 3,085,822 Common Shares covered by the 2014 SEDA. On January 8, 2015, Omagine filed an amendment to that Registration Statement and such amendment to the 2014 SEDA Registration Statement was declared effective by the SEC on January 22, 2015. Post-Effective Amendments No. 1 and No. 2 to the SEDA Registration Statement were filed with the SEC on December 21, 2015 and January 6, 2016, respectively, to maintain the effectiveness of the SEDA Registration. On January 13, 2016, the SEC declared the SEDA Registration effective and such effectiveness expired. Post-Effective Amendments No. 3, No. 4 and No. 5 to the SEDA Registration Statement were filed with the SEC on January 10, 2017, February 6, 2017 and February 13, 2017, respectively, to maintain the effectiveness of the SEDA Registration and on February 13, 2017, the SEC declared the SEDA Registration effective. The Company intends to update the SEDA Registration by April 30, 2017 to maintain its effectiveness.

 

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 10.14, 10.15, and 10.18.

 

Sales of Common Shares to YA pursuant to the Prior SEDAs 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. Omagine intends to utilize the 2014 SEDA to fund its ongoing operations as and if necessary and as of the date hereof, the Company has sold 48,985 of its Common Shares pursuant to the 2014 SEDA for proceeds of $50,000. The 2014 SEDA expires February 1, 2019.

 

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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 2011 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 10.21.

 

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 were 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 10.22; 10.23; and 10.24 respectively.

 

On May 20, 2015, the Company and YA entered into a third loan agreement (the “2015 YA Loan Agreement”). Pursuant to the 2015 YA Loan Agreement, the Company borrowed five hundred thousand dollars ($500,000) from YA (the “2015 YA Loan”) for a term of one year at an annual interest rate of 10%. Pursuant to the 2015 YA Loan Agreement the Company agreed to pay a $50,000 commitment fee with respect to the 2015 YA Loan to YA Global II SPV LLC, an affiliate of YA (the “Affiliate”). The $500,000 proceeds of the 2015 YA Loan were received by the Company on May 21, 2015 and the $50,000 commitment fee was paid to the Affiliate. The foregoing summary of the terms of the 2015 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 10.31; 10.32; and 10.33 respectively. Omagine repaid the 2014 YA Loan pursuant to its terms.

 

On March 15, 2016, the Company and YA entered into another loan agreement (the “March 2016 YA Loan Agreement”). Pursuant to the March 2016 YA Loan Agreement, the Company borrowed six hundred thousand dollars ($600,000) from YA (now named YA II PN, Ltd.) (the “March 2016 YA Loan”) for a term of one year at an annual interest rate of 10%. Pursuant to the March 2016 YA Loan Agreement the Company agreed to pay off the $150,575 balance due as of March 15, 2016 under the 2015 YA Loan Agreement and to pay a $60,000 commitment fee with respect to the March 2016 YA Loan to YA Global II SPV LLC, the Affiliate. At the closing on March 15, 2016 of the March 2016 YA Loan, the appropriate amounts representing the balance due under the 2015 YA Loan Agreement and the commitment fee for the 2016 YA Loan were deducted from the $600,000 principal balance of the March 2016 YA Loan and paid to YA and the Affiliate. The $349,425 proceeds of the 2016 YA Loan were received by the Company on March 15, 2016. The foregoing summary of the terms of the March 2016 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 10.28; 10.29; and 10.30 respectively.

 

On June 22, 2016, the Company and YA entered into another loan agreement (the “June 2016 YA Loan Agreement”). Pursuant to the June 2016 YA Loan Agreement, the Company borrowed four hundred thousand dollars ($400,000) from YA (the “June 2016 YA Loan”) for a term of one year at an annual interest rate of 10%. Pursuant to the June 2016 YA Loan Agreement the Company agreed to pay a $40,000 commitment fee with respect to the June 2016 YA Loan to the Affiliate. At the closing on June 22, 2016 of the June 2016 YA Loan, the commitment fee for the June 2016 YA Loan was deducted from the $400,000 principal balance of the June 2016 YA Loan and paid to the Affiliate. The $360,000 proceeds of the June 2016 YA Loan was received by the Company on June 22, 2016. The foregoing summary of the terms of the June 2016 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 10.38; 10.39; and 10.40 respectively.

 

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On December 7, 2016, the Company and YA entered into another loan agreement (the “December 2016 YA Loan Agreement”). Pursuant to the December 2016 YA Loan Agreement, the Company borrowed seven hundred fifty thousand dollars ($750,000) from YA (the “December 2016 YA Loan”) for a term of one year at an annual interest rate of 10%. Pursuant to the December 2016 YA Loan Agreement the Company agreed to pay off the aggregate of the $432,710 balance due as of December 7, 2016 under the March 2016 Loan Agreement and the June 2016 Loan Agreement and to pay a $75,000 commitment fee with respect to the December 2016 YA Loan to the Affiliate. At the closing on December 7, 2016 of the December 2016 YA Loan, the appropriate amounts representing the balances due under the March 2016 YA Loan and the June 2016 YA Loan and the commitment fee for the December 2016 YA Loan were deducted from the $750,000 principal balance of the December 2016 YA Loan and paid to YA and the Affiliate. The $242,290 proceeds of the December 2016 YA Loan were received by the Company on December 7, 2016. The foregoing summary of the terms of the December 2016 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 10.45; 10.46; and 10.47 respectively. Omagine presently anticipates that the December 2016 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.

 

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 or that it will be able to repay the December 2016 YA Loan.

 

The St. George Investments LLC Loan Agreement

 

On November 14, 2016, the Company entered into an interest free Convertible Promissory Note with St. George Investments LLC for the principal amount of $185,000 due on May 15, 2017, six months from the funding date of November 16, 2016, convertible into the Company’s Common Stock only in the case of non-payment or in the Event of Default at a Conversion Price equal to 60% of the three lowest daily Volume Weighted Average Prices for the Company’s Common Stock during the twenty trading days immediately preceding the Conversion. The Company may prepay the Note in whole or in part at any time without penalty. After deduction of a $30,000 original issue discount (OID) and legal fees of $5,000, the Company received net proceeds of $150,000 on November 16, 2016. (See: Exhibits 10.42 and 10.43, the Note Purchase Agreement and the Securities Purchase Agreement).

 

Capital Expenditures and Construction Financing

 

The Company did not incur any capital expenditures in fiscal year 2016. We expect, assuming we are able to close one or more of the debt facilities we are presently working on, that in the near term (i) the Company will incur significant expenses related to capital expenditures, and (ii) LLC will incur substantial debt associated with project financing for the Omagine Project.

 

We presently expect that such capital expenditures will be largely concentrated at LLC and will largely comprise the purchase by LLC and Omagine of the quantities of office equipment, furniture, vehicles, computer hardware and software and telecommunications equipment which will be necessary to service the expanded staff and offices required at both LLC and Omagine to manage the ramping up of our business operations in Oman and the U.S.

 

We presently expect that such capital expenditures will be financed:

 

i. at Omagine via the proceeds from sales of Common Shares via the 2014 SEDA, the exercise of Warrants, private placement sales of restricted Common Shares, and the payments received from LLC with respect to the Success Fee, the Pre-Development Expense Amount, and the Advances and Loans, and

 

ii. at LLC through a combination of invested capital, Equity Sales, bank loans and project finance Debt Facilities  (See: “Business - The Shareholder Agreement / LLC Capital Structure,” “The First Phase” and “Masterplanning/Equity Sales/Debt Facilities/Project Financing”).

 

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No assurance can be given that such financing will be available to the Company at either Omagine or LLC.

 

We presently expect that any future project financing requirements (including any Syndicated Bank Financing) for LLC will be placed with regional and international banks as arranged by LLC with the assistance of its Financial Adviser. LLC’s requirement for project financing is 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 however have indicated 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. (See: “Financial Advisor” and “Market Conditions” and “Sales & Marketing”).

 

Off-Balance Sheet Arrangements

 

We have not 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.

 

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.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

 

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

  

Item 8. Financial Statements and Supplementary Data.

  

The response to this Item, commencing on Page F-1, is submitted as a separate section to this report on Form 10-K.

  

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

  

None

 

Item 9A. Controls and Procedures.

 

(a) Management’s Evaluation of Disclosure Controls and Procedures

  

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in this report is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Such controls also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

 

Under the supervision and with the participation of management, including the Company’s chief executive and financial officer, the Company carried out an evaluation of the effectiveness of the design and operation of such disclosure controls and procedures as of the end of the period covered by this report (the “DCP Evaluation”).

 

Based on this DCP Evaluation, the Company’s chief executive and financial officer has concluded that our disclosure controls and procedures were effective as of December 31, 2016.

 

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(b) Management’s Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;

 

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and

 

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements.

 

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016 (the “ICFR Evaluation”). The ICFR Evaluation was conducted in accordance with the interpretative guidance issued by the SEC in Release No. 34-55929 and management has used a framework set forth in the report entitled “Internal Control -- Integrated Framework (2013)” published by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting.   

 

Management’s Assessment

  

Based upon the ICFR Evaluation, management’s assessment and conclusion is that (i) the Company’s internal control over financial reporting as of December 31, 2016 was effective, (ii) the Company’s internal control over financial reporting continues to be effective, and (iii) there were no material weaknesses in either the design or operation of Omagine’s disclosure controls and procedures as of the end of the period covered by this report. The ICFR Evaluation did not identify the occurrence during the fourth fiscal quarter of 2015 any change in the Company’s internal control over financial reporting that materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting. These conclusions were communicated to the Audit Committee.

 

Attestation Report of the Registered Public Accounting Firm


Omagine, Inc. is a non-accelerated filer and is required to comply with the internal control reporting and disclosure requirements of Sections 404 and 302 of the Sarbanes-Oxley Act.  This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permanently exempt smaller reporting companies from such attestation requirement.

  

(c) Changes in Internal Control Over Financial Reporting

  

There were no changes during the Company’s fourth fiscal quarter of 2016 that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B. Other Information.

 

None. 

 

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PART III

 

Item 10. 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 Company as of the date hereof are as follows:

 

Name   Age   Current Position
         
Frank J. Drohan   72   Chairman of the Board, President, Chief Executive and Financial Officer and Director
Charles P. Kuczynski   63   Vice President, Secretary and Director
Louis J. Lombardo (1) (2)   73   Director
Jack A. Smith (1) (2)   81   Director
Alan M. Matus (1) (2)   72   Director

 

(1) Member of the Audit Committee
   
(2) Member of the Compensation Committee

 

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 Omagine 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, Inc. 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 the Company, Mr. Kuczynski was a sales executive with Hillenbrand Industries. Mr. Kuczynski holds a Bachelor of Arts degree from Merrimack College in Massachusetts and he 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 and his years of experience as a senior executive of American Express Company bring 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.

 

Jack A. Smith has served as a non-employee Independent Director of Omagine since September 1, 2015. Mr. Smith founded and was the chief executive officer of a NYSE company - The Sports Authority, Inc. (“TSA”) - a national sporting goods chain. He was the Chairman of TSA until it was sold in 1999. Previously Mr. Smith served in executive management positions at W.R. Grace & Co. and with other major companies including Herman’s Sporting Goods, Sears & Roebuck and Montgomery Ward. In 2006 Mr. Smith joined the board of I-Trax, an AMEX listed health care provider and Carrols, Inc., a NASDAQ listed firm in the restaurant industry, whose public company spinoff, Fiesta, Inc., appointed him in 2012 as Non-Executive Chairman of the Board. Mr. Smith recently rotated off the Board of NYSE-listed Darden Restaurants after 15 years of service, last serving as chairman of the audit committee. Mr. Smith is a globally recognized and respected corporate and community leader. His lifetime experience in both financial and management roles for publicly traded companies and his experience in financing early stage companies (TSA was financed by Bain & Co., among others) will provide a wealth of knowledge, business acumen and public company experience to the Board’s deliberations.

 

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Alan M. Matus has served as a non-employee Independent Director of Omagine since September 1, 2015. Mr. Matus has five decades of residential, hospitality and commercial real estate development experience. He is a seasoned real estate industry executive and owner who has personally directed the development, planning, architectural design, financing, construction and marketing of many public and private developments both internationally and in the U.S. Mr. Matus graduated as a Chartered Accountant (a CPA equivalency) from the University of Witwatersrand, Johannesburg, South Africa. Mr. Matus is an owner and operator of Acqualina Residences and Resort, a beachfront luxury resort near Miami, Florida which he developed and opened in 2006. Mr. Matus joined Williams Island as its President and CEO in the 1980’s to conceive, develop, build and manage this two billion dollar landmark residential and resort community in Aventura, Florida. This renowned 80-acre community has been heralded worldwide. Mr. Matus brings a highly diverse skill set to the Board and to our business with his development, ownership and operational expertise, finance experience and other relevant real estate development skills.

 

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 the Company’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 and annual retainer paid in stock and cash and receive a fee for attendance at board meetings and the Company’s annual meeting and are entitled to reimbursement of reasonable out-of-pocket expenses incurred by them in attending such meetings (See; “Director Compensation” below).

 

The Board of Directors filled the prior two board vacancies effective September 1, 2015 with the appointments of Jack A. Smith and Alan M. Matus as Independent Directors bringing the number of independent directors to a majority on the Board of Directors.

 

Board Committees

 

As of the date hereof, Omagine has an Audit Committee and a Compensation Committee (which also recommends grants of stock options to officers, directors and consultants) each designated by the Board of Directors. There is no nominating committee but future nominations and related nomination activities will be made by a majority vote of the Independent Directors of the Board. The committees of the Board may, in their sole discretion, retain professional outside independent search and/or advisory firms if deemed advisable.

 

The Audit Committee has three members who are independent directors and is chaired by Mr. Alan M. Matus who is the audit committee financial expert. The Compensation Committee which also has three members who are independent directors is chaired by Mr. Jack A. Smith.

 

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 the Company as described above. William Hanley has served as the Controller and Principal Accounting Officer of the Company 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 Main LaFrentz & Company. Mr. Hanley holds a Bachelor of Business Administration degree in Accounting from St. Francis College in New York. Mr. Sam Hamdan is the Deputy Managing Director of the Company’s subsidiary, Omagine LLC, and he has been and continues to serve in a crucial capacity leading LLC’s ongoing negotiations in Oman with investors and the Government.

 

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Code of Ethics

 

The Company 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 the Company. The Company 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 the Company’s website, www.omagine.com.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who own more than 10% of the Company’s stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and changes in ownership of the Company’s Common Stock. Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file. Other than as disclosed below, and based solely on a review of the reports furnished to us or written representations from reporting persons that all reportable transaction were reported, we believe that during the fiscal year ended December 31, 2016, our officers, directors and greater than ten percent stockholders timely filed all reports they were required to file under Section 16(a), other than as disclosed below.

 

None 

 

Item 11. 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 Registrant’s three fiscal years indicated for (i) the Chief Executive and Financial Officer, and (ii) each then current executive officer of the Company whose total compensation exceeded $100,000 (the foregoing (i) and (ii) being collectively, the “Named Executive Officers”).

 

Summary Compensation Table
 
(a)  (b)   (c)   (d)   (e)   (f)   (g)   (h) 
Name and Principal Position  Year   Salary (1)   Bonus   Stock Awards (1)   Option Awards (2)   All Other Comp.   Total 
       ($)   ($)   ($)   ($)   ($)   ($) 
Frank J. Drohan,   2016   $125,000   $        0   $31,194   $120,050   $0   $276,244 
Chief Executive and   2015   $125,000   $0   $31,976   $1,401,817   $0   $1,558,793 
Financial Officer   2014   $125,000   $0   $33,443   $1,495,595   $0   $1,654,038 
                                    
Charles P. Kuczynski,   2016   $100,000   $0   $32,348   $34,260   $0   $166,608 
Vice-President and Secretary   2015   $100,000   $0   $33,205   $227,428   $0   $360,633 
    2014   $100,000   $0   $34,781   $375,277   $0   $510,058 
                                    
William Hanley,   2016   $80,000   $0   $9,242   $10,232   $0   $99,474 
Controller and   2015   $80,000   $0   $8,609   $73,496   $0   $162,105 
Principal Accounting Officer   2014   $80,000   $0   $8,026   $146,937   $0   $234,963 
                                    
Sam Hamdan,   2016   $0   $0   $3,466   $104,350   $0   $107,816 
Deputy Managing Director,   2015   $0   $0   $2,460   $1,259,392   $0   $1,261,852 
Omagine LLC (3)   2014   $0   $0   $0   $1,159,445   $0   $1,159,445 

 

1.

Amounts included under Column (e) represent contributions of the Registrant’s Common Stock made in the year indicated to the 401(k) Plan account of the Named Executive Officer, valued at the closing market price of the Common Stock on the dates of such contributions.

 

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2. Amounts included under Column (f) represent 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 Executive Officers. There can be no assurance that the amounts determined by ASC 718 will ever be realized. In December 2012, the Company extended the expiration date of all January 2012 Options from December 31, 2012 to December 31, 2013, in December 2013 the Company again extended the expiration date of such January 2012 Options to December 31, 2014 and in December 2014 the Company extended the expiration date of such January 2012 Options for a third time to December 31, 2015. On August 12, 2015, Omagine again extended that expiration date of all Strategic Options from December 31, 2015 to December 31, 2016. On December 9, 2016 Omagine extended the expiration date of all Strategic Options from December 31, 2016 to December 31, 2017. 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 the Company’s audited financial statements for the fiscal year ended December 31, 2015. (Also see: “Equity Compensation Plan Information” in this Item 11 below).
   
3. In addition to the 750,000 January 2012 Stock Options exercisable at $1.70 per share awarded to Mr. Hamdan in 2012 and 250,000 Stock Options exercisable at $2.55 awarded to him in 2014. As of December 31, 2016 Mr. Hamdan held 160,000 Stock Options exercisable at $1.25 per share which were awarded to him in March 2007 but all 160,000 of such Stock Options have expired unexercised on March 31, 2017.

 

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. On August 12, 2015, Omagine again extended that expiration date of all Strategic Options from December 31, 2016 to December 31, 2017.

 

Accrued Unpaid Salary Used to Purchase Common Stock

 

On May 16, 2015, $120,000 of unpaid salary owed to Frank J. Drohan, the Company’s president, was offset and utilized by him for the purchase of 100,000 restricted Common Shares at the market price of $1.20 per share.

 

On April 5, 2016, $50,400 of unpaid salary owed to Mr. Drohan was offset and utilized by him for the purchase of 56,000 restricted Common Shares at the market price of $0.90 per share.

 

At December 31, 2016, 2015 and 2014, unpaid salary payable due to Mr. Drohan was $88,405, $115,131 and $310,464, respectively. (See: Note 11: Subsequent Events”).

 

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

 

The following table sets forth information relating to the aggregate compensation received by Independent Directors of the Registrant for services in all capacities during the Registrant’s fiscal year ended December 31, 2016.

 

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 (4)  $0   $0   $5,910   $      0   $5,910 
Louis Lombardo (3)  $51,500   $50,000   $8,020   $0   $109,520 
Jack Smith (3)  $51,500   $50,000   $0   $0   $101,500 
Alan Matus (3)  $51,500   $50,000   $0   $0   $101,500 

 

(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 the Company’s unaudited financial statements for the period ended December 31, 2016.
   
(2) Messrs. Lombardo, Smith and Matus each accrued quarterly director fees totaling $50,000 ($12,500 accrued on January 1, 2016, April 1, 2016, July 1, 2016 and October 1, 2016).  On April 6, 2016 each of them purchased 27,778 restricted shares of the Company’s Common Stock at the $0.90 per share closing price of the Company’s Common Stock on April 5, 2016 in exchange for $25,000 of accrued but unpaid director’s fees due to each of them from the Company.  
   
(3) Messrs. Lombardo, Smith and Matus were each issued 38,462 restricted shares of the Company’s Common Stock on January 15, 2016 in payment of the 50% non-cash payment of the $100,000 annual retainer paid to all independent directors valued at the last sale price of $1.30 of the Company’s Common Stock on December 31, 2015, the last trading day of the prior fiscal year.
   
(4) Mr. Bucchere died in April 2012.

 

Effective September 1, 2015, two additional Independent Directors, Mr. Jack Smith and Mr. Alan Matus, were appointed to the Board of Directors. Mr. Smith and Mr. Matus were each issued 25,000 restricted Common Shares in compensation for their services as directors for the period beginning September 1, 2015 and ending December 31, 2015.

 

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Pursuant to a resolution of the Board of Directors, effective January 1, 2016 Independent Directors will be reimbursed for their travel expenses associated with attendance at Board, Committee and Annual meetings and will be compensated on an annual basis for their services as directors as shown in the chart below:

 

Independent Director Annual Compensation and Fees

(Effective for annual periods beginning on January 1, 2016)

 

Compensation Item  Amount 
Annual Retainer (1/2 cash - 1/2 Common Shares):    
(i) Cash (1)  $50,000 
(ii) Restricted Common Shares (2)  $50,000 
Attendance Fees:     
Annual Meeting in person  $750 
Per Board Meeting (in person or via teleconference)  $500 
Per Committee Meeting (in person or via teleconference)  $500 

 

(1) Payable quarterly; $12,500 on the first business day of each fiscal quarter.
   
(2) Issued on the first business day of each fiscal year and valued at the last sale price of the Common Stock on the final trading day of the fiscal year immediately preceding issuance.

 

Compensation Discussion and Analysis

 

As previously disclosed, the Company plans to contract with a recognized executive compensation consulting firm (the “Compensation Consultant”) for the purpose of creating and implementing a comprehensive performance based compensation plan for its executives and senior staff. This compensation plan will be designed to align executive compensation with the achievement by the Company of its long-term goals and objectives.

 

Prior to the date hereof and in order to successfully implement its business plan, the Company sought to retain and strategically incentivize certain executives, directors and consultants (collectively, the “Company Executives”) on an ad hoc basis via the issuance to them of the Strategic Options and payment to them of a one-time cash bonus in compensation for the extraordinary efforts and personal and professional risks, both financial and otherwise, that they undertook for many years in order to pursue the Company’s then primary strategic objective of signing the DA with the Government.

 

The Board recognizes the extraordinary advances made in the Company’s prospects but at the same time is aware that the Company’s shareholders have not yet seen the benefit of any significant share price appreciation. In light of this and the continued delays in development of the Omagine Project, the Directors examined alternative ways to align the award of the previously proposed cash bonus payments more directly with the financial interests of its shareholders.

 

Such cash bonuses were only to be awarded if the DA was signed. The Board was and is of the opinion that such cash bonuses were well deserved but is also cognizant of the ongoing project delays. Alternative plans were explored to align such cash bonus awards not only with the Company Executives’ efforts through the DA signing date but also with the actual results of such efforts. The Board views the price of the Company’s publicly traded Common Shares as the most accurate indicator of such results. Moreover, the Directors believe that continuing efforts by such Company Executives are required to attain a share price that more closely aligns with the Board’s expectations.

 

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The Board explored methodologies to structure such cash bonus payments in a manner more closely aligned with our shareholders’ interests so that the financial benefits from events at the Company are experienced not only by the Company Executives but by all our shareholders as well. Accordingly, pursuant to a resolution of the Board on August 31, 2015 an incentive compensation arrangement was implemented with respect to six Company Executives, not as fixed cash payments as previously contemplated, but in the form of stock appreciation rights (“Stock Appreciation Rights” or “SARs”) as outlined in the following grant schedule:

 

Stock Appreciation Rights (SARs)
Name  Number of SARs   Grant
Price
   Date of
Grant
  Expiration Date
Frank Drohan   675,000   $2.00   8/31/2015  12/31/2017
Charles Kuczynski   60,000   $2.00   8/31/2015  12/31/2017
Louis Lombardo   15,000   $2.00   8/31/2015  12/31/2017
William Hanley   15,000   $2.00   8/31/2015  12/31/2017
Agron Telaku   15,000   $2.00   8/31/2015  12/31/2017
Sam Hamdan   675,000   $2.00   8/31/2015  12/31/2017

 

SARs provide for financial gain to the holder derived from appreciation in the price of the Company’s Common Stock from the date that SARs are granted until the date that SARs are exercised. All 1,455,000 SARs granted to six Company Executives in the above table (i) vested on the date of grant, (ii) holders are not required to be employees or directors of, or consultants to the Company at the time of exercise, (iii) have an exercise price of $2.00 per SAR (which was $0.40 greater than the closing stock price on the date of grant) and (iv) upon exercise SAR’s are payable only in the Company’s Common Shares. No cash settlement is permissible for these 1,455,000 SARs. SARs holders are not required to pay an exercise price. Upon exercise the holder receives an amount of Common Shares equivalent to the increase in the stock price of the Common Shares.

 

SARs may be exercised at any time prior to 5 P.M. Eastern Time in the United States on December 31, 2017 in whole or in part by the holder thereof by delivery of a written notice to Omagine (the “Notice of Exercise”) of such holder’s election to exercise such SARs, which Notice of Exercise shall:

 

1) i.       specify the number of SARs (in whole SARs only) to be exercised and the Grant Price,
   
  ii.      include the surrender of the relevant certificate representing such SARs (or an indemnification undertaking with respect to such SARs in the case of the loss, theft or destruction of such certificate).
   
  Such documentation shall be delivered by such holder to a common carrier for overnight delivery to Omagine as soon as practicable following the date of such Notice of Exercise, but in no event later than December 30, 2017.

 

2) By delivering a Notice of Exercise the holder is not required to pay any exercise price for the SARs and upon exercise will receive the “Net Number” of Common Shares determined according to the following formula:
   
  Net Number of Common Shares = C * [(A-B)/A]
   
  For purposes of the foregoing formula:
   
  A = market price of Common Shares at exercise date
   
  B = the Grant Price of $2.00
   
  C = the number of SARs exercised at any one time
   
  N = the number of Common Shares issuable upon any one exercise

 

Given the Company’s scarce cash resources the Board is considering further non-cash alternatives in order to retain and compensate its present mission critical employees.

 

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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 10.32).

 

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 (See: Exhibit 10.33). The 2014 Plan was amended to increase the reservation of 3,000,000 Common Shares for issuance to 5,000,000 Common Shares and to permit issuance of stock appreciation rights (“SARs”). The Amended Omagine, Inc. 2014 Stock Option Plan (“Amended 2014 Plan”) is attached as Exhibit 10.34. Omagine intends to seek its shareholders’ ratification of the adoption by Omagine of the Amended 2014 Plan.

 

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.

 

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 December 31, 2016, there were 2,279,000 unexpired Stock Options issued but unexercised under the 2003 Plan and all such Stock Options remain valid until the earlier of their exercise or expiration date. At December 31, 2016, there were 990,000 unexpired Stock Options issued but unexercised under the Amended 2014 Plan of which 950,000 are Strategic Options. As of December 31, 2016 a total of 4,724,000 Stock Options are issued and outstanding of which 2,915,000 are Strategic Options. As of December 31, 2016 there were 1,455,000 issued, outstanding and unexercised Stock Appreciation Rights under the Amended 2014 Plan.

 

The Strategic Options

 

In January and April 2012, pursuant to the 2003 Plan and a resolution of the Board of Directors, fourteen 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 then primary strategic goal of signing the DA with the Government of Oman were granted an aggregate of 2,015,000 Strategic Options each of which is exercisable at $1.70 per Common Share. The subsequent resignation of a then independent director resulted in the cancellation of 50,000 of such Strategic Options.

 

On December 29, 2014, pursuant to the 2014 Plan and a resolution of the Board of Directors, six of the aforementioned fourteen individuals were granted an aggregate of 950,000 additional Strategic Options each of which is exercisable at $2.55 per Common Share.

 

To maintain the incentive for the retention and sustained service to the Company of its mission-critical employees and consultants in the face of the previously and presently reported continued delays, the Board of Directors authorized multiple extensions of the expiration date of the Strategic Options. All Strategic Options presently expire at 5 pm in New York on December 31, 2017. 

 

1,965,000 Strategic Options are exercisable at $1.70 per Common Share and 950,000 Strategic Options are exercisable at $2.55 per Common Share (such exercise prices are collectively referred to herein as the “Exercise Price”). Of the 2,915,000 Strategic Options issued and outstanding as of the date hereof, an aggregate of 2,685,000 have been granted to Omagine and LLC officers and 125,000 have been granted to Omagine independent directors.

 

All Strategic Options are fully vested, provide for a cashless exercise feature, expire on December 31, 2017 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.

 

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Strategic Options may be exercised at any time prior to 5 P.M. Eastern Time in the United States on December 31, 2017 by either: (1) paying the Exercise Price in cash to Omagine, or (2) electing to pay the 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: or
   
  a. specify the number of Common Shares (“Option Shares”) to be purchased,
     
  b. be accompanied by payment to Omagine of an amount equal to $1.70 or $2.55 (as the case may be) 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
     
  c. 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 31, 2017 (“Cash Basis”),
     
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

 

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 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.

 

On June 30, 2015, a former Omagine director exercised 2,000 Stock Options at $0.51 per Common Share.

 

On May 16, 2016, an Omagine independent director exercised 2,000 Stock Options at $0.85 per Common Share.

 

On May 16, 2016, a former Omagine independent director had 2,000 unexercised Stock Options exercisable at $0.85 per Common Share expire.

 

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Outstanding Equity Awards at Fiscal Year-End.

 

The following table shows the number of Common Shares covered by exercisable Stock Options issued pursuant to the 2003 Plan and held by the Named Executive Officers on December 31, 2016. All Stock Options issued pursuant to the 2003 Plan have vested as of the date hereof. There can be no assurance that the Grant Date Fair Value of Stock Option awards will ever be realized by such Named Executive Officers.

  

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

  

(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 2012, an aggregate of 750,000 Strategic Options, vesting 50% upon grant and 50% on July 1, 2012, expiring on December 31, 2017 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, 2017 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, 2017 and exercisable at $1.70 per Common Share were granted to Omagine’s Controller & Principal Accounting Officer.
   
(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 and all such Stock Options expired unexercised on March 31, 2017. In January 2012, 750,000 Strategic Options, vesting 50% upon grant and 50% on July 1, 2012, expiring on December 31, 2017 and exercisable at $1.70 per Common Share were granted to the Deputy Managing Director of LLC.

 

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The following table shows the number of Common Shares covered by exercisable Stock Options and Stock Appreciation Rights issued pursuant to the 2014 Plan and held by the Named Executive Officers on December 31, 2016. All Stock Options issued pursuant to the 2014 Plan have vested as of the date hereof. There can be no assurance that the Grant Date Fair Value of Stock Option awards will ever be realized by such Named Executive Officers.

  

Name  Number of Options   Exercise
Price
   Date of
Grant
  Expiration
Date
               
Frank Drohan (1)   500,000   $2.55   12/30/2014  12/31/2017
    675,000   $2.00   8/31/2015  12/31/2017
Charles Kuczynski (2)   75,000   $2.55   12/30/2014  12/31/2017
    60,000   $2.00   8/31/2015  12/31/2017
William Hanley (3)   10,000   $1.80   3/28/2014  3/27/2019
    50,000   $2.55   12/30/2014  12/31/2017
    15,000   $2.00   8/31/2015  12/31/2017
Sam Hamdan (4)   250,000   $2.55   12/30/2014  12/31/2017
    675,000   $2.00   8/31/2015  12/31/2017

 

(1) In December 2014, 500,000 Strategic Stock Options vesting on the grant date, exercisable at $2.55 per Common Share and now expiring on December 31, 2017 were granted to Omagine’s President and Chief Executive Officer.  In August 2015, 675,000 Stock Appreciation Rights (“SARs”) with a grant price of $2.00, vesting on the grant date and expiring on December 31, 2017 were granted to Omagine’s President and Chief Executive Officer.
   
(2) In December 2014, 75,000 Strategic Stock Options vesting on the grant date, exercisable at $2.55 per Common Share and now expiring on December 31, 2017 were granted to Omagine’s Vice President.  In August 2015, 60,000 SARs with a grant price of $2.00, vesting on the grant date and expiring on December 31, 2017 were granted to Omagine’s Vice President.
   
(3) In March 2014, 10,000 Stock Options vesting on the grant date, exercisable at $1.80 per Common Share and expiring on March 27, 2019 were granted to Omagine’s Controller and Principal Accounting Officer. In December 2014, 50,000 Strategic Stock Options vesting on the grant date, exercisable at $2.55 per Common Share and now expiring on December 31, 2017 were granted to Omagine’s Controller and Principal Accounting Officer.  In August 2015, 15,000 SARs with a grant price of $2.00, vesting on the grant date and expiring on December 31, 2017 were granted to Omagine’s Controller and Principal Accounting Officer.
   
(4) In December 2014, 250,000 Strategic Stock Options vesting on the grant date, exercisable at $2.55 per Common Share and now expiring on December 31, 2017 were granted to a consultant to Omagine who is also the Deputy Managing Director of LLC.  In August 2015, 675,000 SARs with a grant price of $2.00, vesting on the grant date and expiring on December 31, 2017 were granted to a consultant to Omagine who is also 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 December 31, 2016.

.

Name  Number of Options   Exercise
Price
   Date of
Grant
  Expiration Date
               
Frank Drohan   100,000   $2.60   9/23/2008  9/22/2018
    739,000   $1.70   1/2/2012  12/31/2017
    11,000   $1.70   4/13/2012  12/31/20157
    500,000   $2.55   12/30/2014  12/31/20157
    675,000   $2.00   8/31/2015  12/31/2017
Charles Kuczynski   50,000   $2.60   9/23/2008  9/22/2018
    250,000   $1.70   1/2/2012  12/31/2017
    75,000   $2.55   12/30/2014  12/31/2017
    60,000   $2.00   8/31/2015  12/31/2017
William Hanley   60,000   $1.70   1/2/2012  12/31/2017
    10,000   $1.80   3/28/2014  3/27/2019
    50,000   $2.55   12/30/2014  12/31/2017
    15,000   $2.00   8/31/2015  12/31/2017
Sam Hamdan   160,000   $1.25   3/19/2007  3/31/2017
    750,000   $1.70   1/2/2012  12/31/2017
    250,000   $2.55   12/30/2014  12/31/2017
    675,000   $2.00   8/31/2015  12/31/2017

 

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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 December 31, 2016.

 

Name  Number of Options   Exercise
Price
   Date of
Grant
  Expiration
Date
Louis Lombardo   50,000   $1.70   1/2/2012  12/31/2017
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
Louis Lombardo   25,000   $2.55   12/30/2014  12/31/2017
                 
Estate of Salvatore Bucchere   50,000   $1.70   1/2/2012  12/31/2017

 

On December 29, 2014, 25,000 Strategic Options, vesting upon grant, expiring on December 31, 2017 and exercisable at $2.55 per Common Share were granted to Louis Lombardo.

 

Mr. Lombardo presently holds 89,000 fully vested Stock Options (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; 50,000 Strategic Options exercisable at $1.70 expiring on December 31, 2017, 25,000 Strategic Options exercisable at $2.55 expiring on December 31, 2017 and 15,000 Stock Appreciation Rights with a grant price of $2.00 expiring on December 31, 2017. Mr. Lombardo’s 75,000 Strategic Options require him to be an Independent Director of Omagine at the time of the exercise of any Strategic Options but he is not required to be a Director of the Company at the time of exercise of his 15,000 Stock Appreciation Rights.

 

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, 2017. Mr. Bucchere’s estate presently holds 50,000 fully vested Strategic Options exercisable at $1.70 per Common Share and expiring on December 31, 2017.

 

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

 

There was no re-pricing of any Stock Options or Stock Appreciation Rights during fiscal year 2016 or during any subsequent period through the date hereof. Omagine extended the expiration date of all Strategic Options multiple times. In December 2013 all Strategic Options were extended from December 31, 2013 to December 31, 2014; in December 2014, the expiration date of all Strategic Options was extended from December 31, 2014 to December 31, 2015; in August 2015, Omagine extended the expiration date of all Strategic Options from December 31, 2015 to December 31, 2016, and again on December 9, 2016, the expiration date of all Strategic Options was extended from December 31, 2016 to December 31, 2017.

 

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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. 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. Omagine has from time to time fully or partially suspended salary payments to Mr. Drohan For the years ended December 31, 2016 and 2015, Omagine had 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 December 31, 2016, December 31 and 2015, December 31, 2014, unpaid accrued officer’s compensation due to Mr. Drohan was $88,405, $115,131 and $310,464, respectively. On April 5, 2016, $50,400 of accrued but unpaid officer’s compensation due to Mr. Drohan by Omagine by the Company was offset and utilized by Mr. Drohan for the purchase of 56,000 restricted Common Shares at the then market price of $0.90. During 2015, $120,000 of accrued but unpaid officer’s compensation due to Mr. Drohan by Omagine was offset and utilized by Mr. Drohan for the purchase of 100,000 restricted Common Shares at the then market price of $1.20 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. In January and April 2012, the Board of Directors authorized the grant to Mr. Drohan the aggregate of 750,000 Strategic Options exercisable at $1.70 per Common Share. On December 30, 2014 pursuant to a resolution of the Board of Directors, Omagine granted Mr. Drohan an additional 500,000 Strategic Options exercisable at $2.55 per Common Share. 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 have a cashless exercise feature and may be exercised in whole or in part at any time before their expiry date of December 31, 2017. All unexercised Strategic Options will expire on December 31, 2017. 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 cash bonus to Mr. Drohan. The Development Agreement for the Omagine Project was signed by LLC and the Government on October 2, 2014 and, in lieu of a cash bonus, the Board of Directors, in a resolution dated August 31, 2015, granted Mr. Drohan 675,000 Stock Appreciation Rights (“SARs”) at a grant price of $2.00 and all such SARs were fully vested as of the grant date. All SARs expire on December 31, 2017 and there is no requirement for Mr. Drohan to be an employee of Omagine at the time of exercise of any SARs. Omagine presently plans to enter into a new employment agreement with Mr. Drohan 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. Mr. Kuczynski is presently employed by Omagine at an annual salary of $100,000 and from time to time fully or partially suspended salary payments to Mr. Kuczynski and Mr. Kuczynski has continued to provide services to Omagine. For the years ended December 31, 2016 and 2015, Omagine partially paid and partially accrued officer’s compensation of $100,000 due in each such year to Mr. Kuczynski. At December 31, 2016, December 31, 2015 and December 31, 2014, unpaid accrued officer’s compensation due to Mr. Kuczynski was $149,121, $137,905 and $171,575, respectively. 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 January 2012 resolution of the Board of Directors, Omagine granted 250,000 Strategic Options exercisable at $1.70 per Common Share to Mr. Kuczynski. On December 30, 2014 pursuant to a resolution of the Board of Directors, Omagine granted Mr. Kuczynski an additional 75,000 Strategic Options exercisable at $2.55 per Common Share. 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 have a cashless exercise feature and may be exercised in whole or in part at any time before their expiry date of December 31, 2017. All unexercised Strategic Options will expire on December 31, 2017. 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 cash bonus to Mr. Kuczynski. The Development Agreement for the Omagine Project was signed by LLC and the Government on October 2, 2014 and, in lieu of a cash bonus, the Board of Directors, in a resolution dated August 31, 2015, granted Mr. Kuczynski 60,000 SARs at a grant price of $2.00 and all such SARs were fully vested as of the grant date. All SARs expire on December 31, 2017 and there is no requirement for Mr. Kuczynski to be an employee of Omagine at the time of exercise of any SARs. Omagine presently plans to enter into a new employment agreement with Mr. Kuczynski 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 2016, 2015 and 2014 in the form of 61,001, 36,483 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.

 

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, 2017 (the “Hamdan Agreement”) (See: Exhibit 10.48). 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 expired on March 31, 2017. The Hamdan Options were 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 for 2012 and pursuant to a resolution of the Board of Directors, Mr. Hamdan was granted 750,000 Strategic Options (See: Exhibit 10.3). Upon the eighth annual renewal of the Hamdan Agreement for 2015 and pursuant to a resolution of the Board of Directors, Mr. Hamdan was granted an additional 250,000 Strategic Options (See: Exhibit 10.4). 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, 2017. 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 cash bonus to Mr. Hamdan. The Development Agreement for the Omagine Project was signed by LLC and the Government on October 2, 2014 and the Board of Directors, in a resolution dated August 31, 2015, granted Mr. Hamdan 675,000 SARs at a grant price of $2.00 and all such SARs were fully vested as of the grant date. All SARs expire on December 31, 2017 and there is no requirement for Mr. Hamdan to be an employee or consultant of Omagine at the time of exercise of any SARs. As of the date hereof, Mr. Hamdan continues to serve without any cash compensation and is presently leading a crucial mission-critical assignment for LLC and the Company to finalize with the estate of a recently deceased investor the transaction memorialized in the Investment Agreement between LLC and such investor. The Board is considering further non-cash alternatives in order to retain and compensate Mr. Hamdan for his past and ongoing efforts.

 

In determining its compensation policies and decisions subsequent hereto, Omagine shall seek a shareholder advisory vote on its executive compensation policy as required by section 14A of the Exchange Act.

 

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Compensation Committee Interlocks and Insider Participation

 

No person who was a member of the compensation committee during 2016 and through the date hereof 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 and the $100,000 loan to Omagine made by an entity controlled by Mr. Smith and Mr. Matus, no person who was a member of the compensation committee during 2016 and through the date hereof 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, 2016 and through the date hereof, 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.

 

On September 1, 2015, the Board of Directors appointed Jack A. Smith and Alan M. Matus as Independent Directors. The current members of the Compensation Committee - Louis J. Lombardo, Alan M. Matus and Jack A. Smith – are all Independent Directors. Mr. Smith chairs the Compensation Committee.

 

Compensation Committee Report

 

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

 

Board leadership structure and role in risk oversight

 

The Board of Directors filled board vacancies effective September 1, 2015 with the appointments of Jack A. Smith and Alan M. Matus as Independent Directors. Three of the five members of the Board are now independent directors. Mr. Smith is the lead Independent Director who serves as the non-exclusive intermediary between independent directors and management. Mr. Smith is the Chairman of the Compensation Committee and a member of the Audit Committee. Mr. Matus is the Chairman of the Audit Committee and an audit committee financial expert. Mr. Kuczynski, an employee, director and Vice-President of Omagine, facilitates the internal communications between the Company’s President and CEO (who is presently located overseas in Oman) and the three Independent Directors to keep them informed of current Company issues, events and risks. 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. Omagine’s Board of Directors has determined that this board structure is appropriate and effective in carrying out its oversight tasks relevant to the Company’s activities and the risks it faces.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

Securities authorized for issuance under equity compensation plans

 

The Company’s shareholders approved the reservation by the Company of two million five hundred thousand (2,500,000) shares of Common Stock for issuance under the Omagine, Inc. 2003 Stock Option Plan (the “2003 Plan”). At December 31, 2016, there were 2,279,000 unexpired Stock Options issued but unexercised under the 2003 Plan. The 2003 Plan expired on August 31, 2013 and all of the then outstanding Stock Options issued under the 2003 Plan remain valid until the earlier of their exercise or expiration date. The 2003 Plan and the 2014 Plan are explained further in Note 7 to the accompanying consolidated financial statements for the fiscal year ended December 31, 2016.

 

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On March 6, 2014, the Board of Directors approved the adoption of the 2014 Omagine Inc. Stock Option Plan (the “2014 Plan”) pursuant to which three million (3,000,000) shares of Common Stock were reserved for issuance thereunder. The 2014 Plan was amended to increase the reservation of 3,000,000 Common Shares for issuance to 5,000,000 Common Shares and to permit issuance of stock appreciation rights (“SARs”). The Company intends to seek its shareholders’ ratification of the adoption by the Company of the Amended Omagine, Inc. 2014 Stock Option Plan (“Amended 2014 Plan”). As of the date hereof, 990,000 Stock Options and 1,455,000 SARs have been issued under the Amended 2014 Plan.

 

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

 

The following table sets forth as of April 13, 2017: (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)   4,222,029    17.6%
Charles P. Kuczynski (2)(5)   1,113,847    4.9%
Louis J. Lombardo (2)(6)   525,773    2.4%
Jack A. Smith (2)   370,574    1.7%
Alan M. Matus (2)   334,603    1.5%
Mohammed K. Al-Sada (3)(7)   1,891,034    8.4%
William Hanley (3)(8)   307,551    1.4%
Sam Hamdan (3)(9)   1,009,576    4.4%
Roger Tempest (10)   1,729,578    7.8%
           
All officers and Directors as a Group of 7 Persons   7,883,953    30.3%

 

(1) Applicable percentage ownership in column (c) is based on 22,042,120 Common Shares outstanding as of April 13, 2017 and on Common Shares owned by the named individual including Common Shares underlying Stock Options, Warrants, SARs and convertible notes owned by the named individual that are exercisable for Common Shares within 60 days of April 13, 2017. 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 April 13, 2017 are deemed to be outstanding and beneficially owned by the person holding such Stock Options, Warrants, SARs 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.

 

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(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 2,226,569 Common Shares owned of record as of April 13, 2017 by Mr. Drohan plus 1,995,460 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) 500,000 Strategic Options exercisable at $2.55 per Common Share, (iv) 322,730 Strategic Warrants exercisable at $5.00 per Common Share, (v) 322,730 Strategic Warrants exercisable at $10.00 per Common Share, and (vi) excludes 675,000 Common Shares issuable upon exercise of SARs because all such SARs exercisable at $2.00 per Common Share are out-of-the-money based on the Company’s closing stock price as of April 13, 2017.
   
(5) Amount in column (b) for Mr. Kuczynski includes 637,907 Common Shares owned of record as of April 13, 2017 by Mr. Kuczynski plus 475,940 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) 75,000 Strategic Options exercisable at $2.55 per Common Share, (iv) 50,470 Strategic Warrants exercisable at $5.00 per Common Share, (v) 50,470 Strategic Warrants exercisable at $10.00 per Common Share, and (vi) excludes 60,000 Common Shares issuable upon exercise of SARs because all such SARs exercisable at $2.00 per Common Share are out-of-the-money based on the Company’s closing stock price as of April 13, 2017.
   
(6) Amount in column (b) for Mr. Lombardo includes 312,806 Common Shares owned of record as of April 13, 2017 by Mr. Lombardo plus 212,967 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 $1.70 per Common Share, (ii) 2,000 Stock Options exercisable at $1.38 per Common Share, (iii) 10,000 Stock Options exercisable at $1.80 per Common Share, (iv) 50,000 Strategic Options exercisable at $1.70 per Common Share, (v) 25,000 Strategic Options exercisable at $2.55 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 $93,768 of accrued interest thereon (as of December 31, 2016) which is convertible at $2.50 per share into 97,507 Common Shares, and (ix) excludes 15,000 Common Shares issuable upon exercise of SARs because all such SARs exercisable at $2.00 per Common Share are out-of-the-money based on the Company’s closing stock price as of April 13, 2017.
   
(7) Amount in column (b) for Mr. Al-Sada includes 1,436,134 Common Shares owned of record as of April 13, 2017 by Mr. Al-Sada plus 454,900 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) 227,450 Strategic Warrants exercisable at $5.00 per Common Share, and (ii) 227,450 Strategic Warrants exercisable at $10.00 per Common Share.
   
(8) Amount in column (b) for Mr. Hanley includes 137,551 Common Shares owned of record as of April 13, 2017 by Mr. Hanley plus 170,000 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) 50,000 Strategic Options exercisable at $2.55 per Common Share, (iv) 25,000 Strategic Warrants exercisable at $5.00 per Common Share, (v) 25,000 Strategic Warrants exercisable at $10.00 per Common Share, and (vi) excludes 15,000 Common Shares issuable upon exercise of SARs because all such SARs exercisable at $2.00 per Common Share are out-of-the-money based on the Company’s closing stock price as of April 13, 2017.

 

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(9) Amount in column (b) for Mr. Hamdan includes 9,576 Common Shares owned of record as of April 13, 2017 by Mr. Hamdan plus 1,000,000 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) 750,000 Strategic Options exercisable at $1.70 per Common Share, (ii) 250,000 Strategic Options exercisable at $2.55 per Common Share, and (iii) excludes 675,000 Common Shares issuable upon exercise of SARs because all such SARs exercisable at $2.00 per Common Share are out-of-the-money based on the Company’s closing stock price as of April 13, 2017.
   
(10) Amount in column (b) for Mr. Tempest includes 1,579,578 Common Shares owned of record or beneficially as of April 13, 2017 by Mr. Tempest (of which 1,059,042 shares are owned of record by two affiliates of Mr. Tempest and deemed to be beneficially owned by Mr. Tempest).
   
(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, 2016.

  

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Transactions with related persons

  

There were no transactions during the Registrant’s 2016 or 2015 fiscal years or 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:

 

Effective January 1, 2015 the son of Omagine’s President was hired as a full time Company employee for website design and similar technology consulting services which employment ended December 31, 2015.

 

Tranzishen LLC is an entity owned by Mr. Sam Hamdan who is a consultant to Omagine and the Deputy Managing Director of our 60% owned subsidiary Omagine LLC. In April 2016, the Company paid a $300,000 sponsorship fee to Tranzishen LLC for Omagine to serve as the Title Sponsor of the 2016 World Summit on Innovation and Entrepreneurship hosted by the United Nations at UN headquarters in New York City from May 19 to May 23, 2016.

 

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

 

Related Party Payables

  

At December 31, 2016, 2015, 2014 and 2013 Omagine has included $861,922, $640,693, $863,831 and $933,837, respectively, of related party payables in its balance sheet. These amounts consisted of:

 

  (i) convertible notes payable (“Notes”) and accrued interest in the aggregate amounts of $345,549; $228,726; $213,726 and $ 198,726, respectively, and

 

  (ii) unpaid salary and unreimbursed expenses due to Omagine officers and directors in the aggregate amounts of $516,373; $401,962; $650,105; and $735,111, respectively.

 

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The Notes are attached hereto as Exhibits 10.12, 10.13 and 10.44. Such Notes, unpaid salary and unreimbursed expenses are due and owing as follows:

 

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

 

   December 31, 
   2016   2015   2014   2013 
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   93,768    78,726    63,726    48,726 
Due to SMAT, Corp., a Florida corporation controlled by Jack A. Smith and Alan M. Matus, directors of Omagine, interest at 5%, due on demand, convertible into common stock at a conversion price of $0.75 per share:                    
Principal   100,000    0    0    0 
Accrued Interest   1,781    0    0    0 
                     
Grand Total  $345,549   $228,726   $213,726   $198,726 

 

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

 

   December 31 
   2016   2015   2014   2013 
Due to Frank J. Drohan, a director and the president of Omagine  $96,352   $125,132   $315,133   $399,329 
                     
Due to Charles P. Kuczynski, a director and the secretary of Omagine   149,121    137,905    171,575   $163,575 
                     
Due to William Hanley, the controller of Omagine   182,100    137,930    158,147    168,207 
                     
Due to Louis J. Lombardo, a director of Omagine   34,300    9,500    5,250    4,000 
                     
Due to Alan M. Matus, a director of Omagine   27,250    750    0    0 
                     
Due to Jack A. Smith, a director of Omagine   27,250    750    0    0 
                     
Totals  $516,373   $411,967   $650,105   $735,111 

 

Total Related Party Payables

 

   December 31 
   2016   2015   2014   2013 
                 
Notes Payable   345,549    228,726    213,726    198,726 
Salary & Expenses Payable   516,373    411,967    650,105    735,111 
                     
Totals  $861,922   $640,693   $863,831   $933,837 

 

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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, Jack A. Smith and Alan M. Matus meet the definition of an “independent director” under NASDAQ Marketplace Rule 5605(a)(2). As of the date hereof three of the Registrant’s five directors, Mr. Lombardo, Mr. Smith and Mr. Matus are 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.

 

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.

 

Item 14. Principal Accountant Fees and Services.

 

Audit Fees

 

The Company was billed by its independent registered public accounting firm $54,500 in 2015 and $49,000 in 2016 for all auditing and review services performed by such firm for the Company in connection with the Company’s regulatory filings during such fiscal years.

 

Audit Related Fees:

 

None 

 

Tax Fees:

 

None

 

All Other Fees:

 

None

 

On behalf of the Company and in his capacity as Chairman of the Audit Committee, Mr. Alan M. Matus hired the Company’s registered public accounting firm to perform the audit of the Company’s financial statements for the fiscal year ended 2016.

 

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PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

Index to Financial Statements Required by Article 8 of Regulation S-X:

 

F-1 Report of Independent Registered Public Accounting Firm;
   
F-2 Consolidated Balance Sheets as of the fiscal years ended December 31, 2016 and December 31, 2015;
   
F-3 Consolidated Statements of Operations for fiscal years ended December 31, 2016 and December 31, 2015;
   
F-4 Consolidated Statements of Changes in Stockholders’ Deficit for fiscal years ended December 31, 2016 and December 31, 2015;
   
F-5 Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2016 and December 31, 2015;
   
F-6 Notes to the Financial Statements.

 

Exhibit    
Numbers   Description
3(i)   Restated Certificate of Incorporation of Omagine dated June 2, 2010 (7)
3(ii)   By-laws of Omagine (1)
4.1   The Subscription and Warrant Agent Agreement dated January 31, 2012 between Omagine and Continental Stock Transfer & Trust Company (11)
4.2   Specimen of $5 Warrant Certificate (11)
4.3   Specimen of $10 Warrant Certificate (11)
4.4   The Tempest Warrants (17)
10.1   The December 9, 2007 CCIC and CCC Agreement (3)
10.2   The March 19, 2007 Hamdan Agreement (2)
10.3   The December 2013 amendment extending the March 19, 2007 Hamdan Agreement (19)
10.4   The December 2014 amendment extending the March 19, 2007 Hamdan Agreement (22)
10.5   The December 2015 amendment extending the March 19, 2007 Hamdan Agreement (27)
10.6   The April 20, 2011 Shareholder Agreement (9)
10.7   The Development Agreement dated October 2, 2014 (20)
10.8   The Usufruct Agreement Dated July 1, 2015 (23)
10.9   An English Translation of the Letter Dated July 2, 2015 (24)
10.10   Convertible Promissory Note payable to Frank J. Drohan (14)
10.11   Convertible Promissory Note payable to Charles P. Kuczynski (14)

 

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Exhibit    
Numbers   Description
10.12   Convertible Promissory Note No. 1 payable to Louis Lombardo (14)
10.13   Convertible Promissory Note No. 2 payable to Louis Lombardo (14)
10.14   The December 8, 2008 SEDA Agreement between Omagine and YA (4)
10.15   The May 4, 2011 SEDA Agreement between Omagine and YA (8)
10.16   The June 21, 2011 Amendment Agreement to the May 4, 2011 SEDA Agreement (10)
10.17   The May 22, 2012 Waiver Letter dated re: the May 4, 2011 SEDA Agreement (13)
10.18   The April 22, 2014 SEDA Agreement between Omagine and YA (18)
10.19   The July 16, 2014 Termination Agreement terminating the May 4, 2011 SEDA Agreement (17)
10.20   The October 10, 2014 SEDA Amendment (21)
10.21   The 2013 YA Note Purchase Agreement and Amended Schedule III thereto (16)
10.22   The 2014 YA Note Purchase Agreement dated April 22, 2014 (18)
10.23   The April 22, 2014 Omagine $500,000 Promissory Note in favor of YA (18)
10.24   The April 22, 2014 Closing Statement signed by Omagine and YA (18)
10.25   The 2015 YA Note Purchase Agreement dated May 20, 2015 (24)
10.26   The May 20, 2015 Omagine $500,000 Promissory Note in favor of YA (24)
10.27   The May 20, 2015 Closing Statement signed by Omagine and YA (24)
10.28   The March 2016 YA Note Purchase Agreement dated March 15, 2016 (26)
10.29   The March 15, 2016 Omagine $600,000 Promissory Note in favor of YA (26)
10.30   The March 15, 2016 Closing Statement signed by Omagine and YA (26)
10.31   The Omagine Inc. 401(k) Adoption Agreement (5)
10.32   The Amended Omagine Inc. 2003 Stock Option Plan (6)
10.33   The Omagine Inc. 2014 Stock Option Plan (19)
10.34   The Amended Omagine Inc. 2014 Stock Option Plan (25)
10.35   Lease expiring December 31, 2015 between Omagine and the Empire State Building LLC (15)
10.36   The Masraf Al Rayan Term Sheet (27)
10.37   The Murabaha Facility Agreement between Omagine LLC and Masraf Al Rayan Bank (27)
10.38   The June 2016 YA Note Purchase Agreement dated June 22, 2016 (28)
10.39   The June 22, 2016 Omagine $400,000 Promissory Note in favor of YA (28)
10.40   The June 22, 2016 Closing Statement signed by Omagine and YA (28)
10.41   The September 20, 2016 SEDA Amendment Agreement between Omagine and YA (29)
10.42   The November 14, 2016 Convertible Promissory Note between Omagine and St. George Investments LLC (30)
10.43   The November 14, 2016 Note Purchase Agreement between Omagine and St. George Investments LLC (30)
10.44   Convertible Promissory Note payable to SMAT Inc.  (32)
10.45   Note Purchase Agreement dated December 7, 2016 by and between Omagine, Inc. and YA II PN, Ltd. (31)
10.46   Promissory Note in the principal amount of $750,000 dated December 7, 2016 and issued by Omagine, Inc. in favor of YA II PN, Ltd. (31)
10.47   Closing Statement dated December 7, 2016 signed by Omagine, Inc. and YA II PN, Ltd. (31)
10.48   The December 2016 amendment extending the March 19, 2007 Hamdan Agreement (33)
14   The Code of Ethics (3)
21   Subsidiaries of the Registrant (14)
31   Sarbanes-Oxley 302 Certification *
32   Sarbanes-Oxley 1350 Certification *
99.1   A PDF Reference Copy of Exhibit 10.7, Development Agreement (20)
99.2   A PDF Reference Copy of Exhibit 10.8, Usufruct Agreement (24)
99.3   A PDF Reference Copy of the Original Arabic Version of Exhibit 10.10 (24)
99.4   The Savills Final Valuation Report (24)
99.5   The DTZ Final Evaluation Report (24)
99.6   The JLL Final Valuation Report (24)

EX-101.INS   XBRL INSTANCE DOCUMENT*
EX-101.SCH   XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT*
EX-101.CAL   XBRL TAXONOMY EXTENSION CALCULATION DOCUMENT*
EX-101.DEF   XBRL TAXONOMY EXTENSION DEFINITION DOCUMENT*
EX-101.LAB   XBRL TAXONOMY EXTENSION LABELS DOCUMENT*
EX-101.PRE   XBRL TAXONOMY EXTENSION PRESENTATION DOCUMENT*

  

* Filed herewith

 

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(1) Previously filed with the SEC on November 18, 2005 as an exhibit to Omagine’s quarterly Report on Form 10-QSB for the period ended September 30, 2005 and incorporated herein by reference thereto.
(2) Previously filed with the SEC on April 17, 2007 as an exhibit to the Company’s Report on Form 10-KSB for the fiscal year ended December 31, 2006 and incorporated herein by reference thereto.
(3) Previously filed with the SEC on April 14, 2008 as an exhibit to Omagine’s Report on Form 10-KSB for the fiscal year ended December 31, 2007 and incorporated herein by reference thereto.
(4) Previously filed with the SEC on December 31, 2008 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
(5) Previously filed with the SEC on February 25, 2009 as an exhibit to Omagine’s Report on Form 10-K for the fiscal year ended December 31, 2008 and incorporated herein by reference thereto.
(6) Previously filed with the SEC on April 14, 2010 as an exhibit to Omagine’s Report on Form 10-K for the fiscal year ended December 31, 2009 and incorporated herein by reference thereto.
(7) Previously filed with the SEC on July 20, 2010 as an exhibit to Omagine’s Report on Form 10-Q for the period ended June 30, 2010 and incorporated herein by reference thereto.
(8) Previously filed with the SEC on May 5, 2011 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
(9) Previously filed with the SEC on November 8, 2011 as an exhibit to Omagine’s quarterly Report on Form 10-Q for the period ended September 30, 2011 and incorporated herein by reference thereto and a reference copy was filed as an exhibit to Omagine’s current Report on Form 8-K filed with the SEC on May 31, 2011.
(10) Previously filed with the SEC on June 21, 2011 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
(11) Previously filed with the SEC on February 7, 2012 as an exhibit to Omagine’s registration statement on Form S-1/A (File No. 333-179040) and incorporated herein by reference thereto.
(12) Previously filed with the SEC on January 17, 2012 as an exhibit to Omagine’s registration statement on Form S-1 (Commission File No. 333-179040) and incorporated herein by reference thereto.
(13) Previously filed with the SEC on September 12, 2012 as an exhibit to Omagine’s Post-Effective Amendment No. 2 to its registration statement on Form S-1 (File No. 333-175168) and incorporated herein by reference thereto.
(14) Previously filed with the SEC on January 22, 2013 as an exhibit to Omagine’s Amendment Number 2 on Form 10-K/A amending (a) Omagine’s Report on Form 10-K filed with the SEC on April 16, 2012 for the fiscal year ended December 31, 2011 (the “Original Filing”), and (b) Amendment No. 1 to the Original Filing filed on Form 10-K/A with the SEC on May 17, 2012, and incorporated herein by reference thereto.
(15) Previously filed with the SEC on April 1, 2013 as an exhibit to Omagine’s Report on Form 10-K for the fiscal year ended December 31, 2012 and incorporated herein by reference thereto.
(16) Previously filed the 2013 YA Note Purchase Agreement with the SEC on August 5, 2013 as an exhibit to the Company’s quarterly Report on Form 10-Q for the period ended June 30, 2013 and it is incorporated herein by reference thereto; and previously filed the Amended Schedule III to the 2013 YA Note Purchase Agreement with the SEC on November 19, 2013 as an exhibit to the Company’s quarterly Report on Form 10-Q for the period ended September 30, 2013 and it is incorporated herein by reference thereto.
(17) Previously filed with the SEC on July 31, 2014 as an exhibit to Omagine’s quarterly Report on Form 10-Q for the period ended June 30, 2014 and incorporated herein by reference thereto.

 

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(18) Previously filed with the SEC on April 28, 2014 as an exhibit to the Company’s current Report on Form 8-K and incorporated herein by reference thereto.
(19) Previously filed with the SEC on April 15, 2014 as an exhibit to the Company’s Report on Form 10-K for the fiscal year ended December 31, 2013 and incorporated herein by reference thereto.
(20) Previously filed with the SEC on October 2, 2014 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
(21) Previously filed with the SEC on October 10, 2014 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
(22) Previously filed with the SEC on January 8, 2015 as an exhibit to Omagine’s registration statement on Form S-1/A (File No. 333-199383) and incorporated herein by reference thereto.
(23) Previously filed with the SEC on July 9, 2015 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
(24) Previously filed with the SEC on May 21, 2015 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
(25) Previously filed with the SEC on November 23, 2015 as an exhibit to the Company’s Report on Form 10-Q for the period ended September 30, 2015 and incorporated by reference thereto.
(26) Previously filed with the SEC on March 16, 2016 as an exhibit to the Company’s current Report on Form 8-K and incorporated herein by reference thereto.