UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Delaware 20-2876380
----------------- -------------------
State or other jurisdiction (IRS Employer
of incorporation or organization) Identification 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 Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [x] Yes [ ] No
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter)
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 whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer[ ] Accelerated filer[ ]
Non-accelerated filer [ ] Smaller reporting company[x]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [x] No
As of July 9, 2010, the Registrant had outstanding 11,877,026 shares of Common Stock, par value $.001 per share.
OMAGINE, INC.
INDEX
FORWARD-LOOKING STATEMENTS
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS:
JUNE 30, 2010 AND DECEMBER 31, 2009
|
CONSOLIDATED STATEMENTS OF OPERATIONS:
THREE MONTHS ENDED JUNE 30, 2010 AND JUNE 30, 2009
SIX MONTHS ENDED JUNE 30, 2010 AND JUNE 30, 2009
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY:
SIX MONTHS ENDED JUNE 30, 2010
CONSOLIDATED STATEMENTS OF CASH FLOWS:
SIX MONTHS ENDED JUNE 30, 2010 AND JUNE 30, 2009
NOTES TO FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 4: CONTROLS AND PROCEDURES
ITEM 4T: CONTROLS AND PROCEDURES
PART II - OTHER INFORMATION
ITEM 5: OTHER INFORMATION
ITEM 6: EXHIBITS
SIGNATURES
Forward-Looking Statements
Some of the information contained in this report may constitute forward-looking statements or statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations and projections about future events. The words "estimate", "plan", "intend", "expect", "anticipate" and similar expressions are intended to identify forward-looking statements which involve, and are subject to, known and unknown risks, uncertainties and other factors which could cause the Company's actual results, financial or operating performance or achievements to differ from the future results, financial or operating performance or achievements expressed or implied by such forward-looking statements. Projections and assumptions contained and expressed herein were reasonably based on information available to the Company at the time so furnished and as of the date of this filing. All such projections and assumptions are subject to significant uncertainties and contingencies, many of which are beyond the Company's control and no assurance can be given that the assumptions are correct or the projections will be realized. Potential investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
ITEM 1: FINANCIAL STATEMENTS
OMAGINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
------------------------------
June 30, December 31,
2010 2009
ASSETS --------- ----------
(Unaudited) Note 1
CURRENT ASSETS:
Cash $ 142,221 $ 155,821
Prepaid expenses and other
current assets 1,000 -
-------- --------
Total Current Assets 143,221 155,821
-------- --------
PROPERTY AND EQUIPMENT:
Office and computer equipment 131,412 131,412
General plant 17,800 17,800
Furniture and fixtures 15,951 15,951
Leasehold improvements 866 866
-------- --------
166,029 166,029
Less: Accumulated depreciation
and amortization (158,863) (156,968)
-------- --------
7,166 9,061
-------- --------
OTHER ASSETS:
Other assets 13,361 13,606
-------- --------
Total Assets $ 163,748 $ 178,488
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Convertible notes payable and accrued
interest $ 326,388 $ 313,464
Accounts payable 490,067 $ 455,724
Accrued payroll 447,000 327,000
Due officers and directors 7,658 10,153
Accrued expenses and other
current liabilities 38,824 27,731
--------- --------
Total Current Liabilities 1,309,937 1,134,072
--------- --------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock:
$0.001 par value
Authorized - 850,000 shares
Issued and outstanding - none - -
Common stock:
$ 0.001 par value
Authorized: 50,000,000 shares
Issued and outstanding:
11,688,347 shares in 2010
10,660,904 shares in 2009 11,688 10,661
Capital in excess of par value 18,454,169 18,030,176
Retained earnings (deficit) (19,612,046) (18,996,421)
---------- ----------
Total Stockholders' Equity (Deficit) (1,146,189) (955,584)
---------- ---------
Total Liabilities and Stockholders'
Equity $ 163,748 $ 178,488
========= ========
See accompanying notes to consolidated financial statements.
|
OMAGINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2010 2009 2010 2009
---- ---- ---- ----
REVENUES:
Net sales $ - $ - $ - $ -
-------- --------- ---------- ---------
Total revenues - - - -
-------- --------- ---------- ---------
COSTS AND EXPENSES:
Cost of sales - - - -
Selling, general and administrative 293,837 189,728 599,989 548,488
--------- --------- ---------- ---------
Total costs and expenses 293,837 189,728 599,989 548,488
--------- --------- ---------- ---------
Operating income (loss) (293,837) (189,728) (599,989) (548,488)
Interest Income - - - 32
Interest Expense (7,835) (8,067) (15,636) (14,696)
---------- ---------- ---------- ---------
NET INCOME (LOSS) $ (301,672) $ (197,795) $ (615,625) $(563,152)
--------- --------- --------- ---------
NET LOSS PER SHARE, BASIC AND DILUTED $ (.03) $ (.02) $ (.05) $ (.06)
------- ------- -------- -------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING, BASIC AND DILUTED 11,671,326 9,396,015 11,221,023 9,347,646
---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements.
|
OMAGINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(UNAUDITED)
Common Stock Capital in Retained
Par Excess of Earnings
Shares Value Par Value (Deficit)
--------------------------------------------------
Balances At December 31, 2009 10,660,904 $ 10,661 $ 18,030,176 $(18,996,421)
Contribution of Common Stock
To 401K Plan 289,996 290 72,210 -
Stock option expense - - 55,020 -
Issuance of Common Stock for
Stockholder Investor Relations 118,750 118 47,382
Sale of Stock Under Stock
Equity Distribution
Agreement 618,697 619 249,381 -
Net loss - - - (615,625)
---------- -------- ---------- -----------
Balances At June 30, 2010 11,688,347 $ 11,688 $ 18,454,169 $(19,612,046)
========== ====== ========== ==========
See accompanying notes to consolidated financial statements.
|
OMAGINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
Six Months Ended
June 30,
------------------
2010 2009
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (615,625) $(563,152)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization 1,895 2,977
Stock based compensation related to stock options 55,020 56,164
Issuance of Common Stock for 401K contribution 72,500 72,500
Issuance of common stock for stockholder investor
relations 47,500 -
Changes in operating assets and liabilities:
Prepaid expenses, other current assets and other assets ( 755) 20,530
Accounts payable 34,343 79,885
Accrued expenses and other current liabilities 11,093 10,294
Accrued payroll 120,000 137,000
Accrued interest on convertible notes payable 12,924 11,597
-------- --------
(261,105) (172,205)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from officers and directors (2,495) 7,874
Proceeds from issuance of common stock 250,000 65,000
Issuance of convertible notes payable - 50,000
-------- --------
Net cash flows from financing activities 247,505 122,874
-------- --------
NET CHANGE IN CASH AND EQUIVALENTS (13,600) ( 49,331)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 155,821 49,511
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 142,221 $ 180
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ 910 $ -
======== ========
Interest paid $ - $ 1,621
======== ========
See accompanying notes to consolidated financial statements.
|
OMAGINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED (UNAUDITED) INTERIM
FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated balance sheet for Omagine, Inc. ("Omagine" or the "Company") at the end of the preceding fiscal year has been derived from the audited balance sheet and notes thereto contained in the Company's annual report on Form 10-K for the Company's fiscal year ended December 31, 2009 and is presented herein for comparative purposes. All other financial statements are unaudited. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for all periods presented, have been made.
The results of operations for the interim periods presented herein are not necessarily indicative of operating results for the respective full years. As of the date of this report the Company has two wholly-owned subsidiaries, Journey of Light, Inc. and Omagine LLC through which it conducts all operations. All inter-company transactions have been eliminated in the consolidated financial statements.
Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted in accordance with the published rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2009.
Earnings(Loss)Per Share - Basic earnings (loss) per share is based upon the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is based upon the weighted-average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding. Dilutive securities having an anti- dilutive effect on diluted earnings (loss) per share are excluded from the calculation.
For the six months ended June 30, 2010 and 2009 diluted shares
outstanding excluded the following dilutive securities as the effect of their inclusion on diluted earnings (loss) per share would be anti-dilutive.
Shares Issuable
Six Months Ended
June 30,
------------------
2010 2009
---- ----
Convertible Notes 116,008 116,008
Convertible Promissory Notes 20,000 20,000
Stock Options 374,000 276,000
------- -------
Total Shares 510,008 412,008
------- -------
|
Principles of Consolidation - The consolidated financial statements include the accounts of Omagine and its two wholly- owned subsidiaries, Journey of Light, Inc. ("JOL") and Omagine LLC ("LLC"), a foreign corporation which was organized by the Company in the Sultanate of Oman. LLC is presently owned 95% by Omagine and 5% by JOL. LLC's ownership is expected to be reduced to a 50.5% majority ownership by Omagine via the sale of newly issued LLC common stock to four minority investors who are expected to purchase an aggregate of 49.5% of LLC for a total aggregate investment of $109.3 million. All intercompany transactions have been eliminated in consolidation.
NOTE 2 - GOING CONCERN AND LIQUIDITY
At June 30, 2010, the negative working capital of the Company was $1,166,716. Further, the Company incurred net losses of $615,625 and $1,114,409 for the six months ended June 30, 2010 and for the year ended December 31, 2009 respectively. These factors raise substantial doubt about its ability to continue as a going concern. The continued existence of the Company is dependent upon its ability to execute its business plan and attain profitable operations, or obtain additional financing.
NOTE 3 - CONVERTIBLE NOTES PAYABLE AND ACCRUED INTEREST
Convertible notes payable and accrued interest consist of:
June 30, December 31,
2010 2009
--------- ------------
Due to the president of the Company,
interest at 8%, due on demand,
convertible into common stock at
a conversion price of $2.00 per
share:
Principal $ 192,054 $ 192,054
Accrued interest 28,540 20,921
Due to the secretary of the Company,
interest at 8%, due on demand,
convertible into common stock at
a conversion price of $2.00 per
share:
Principal 39,961 39,961
Accrued interest 5,938 4,353
Due to investors, interest at 15%,
due on demand, convertible into
common stock at a conversion price
of $2.50 per share:
Principal 50,000 50,000
Accrued interest 9,894 6,175
Totals $ 326,387 $ 313,464
|
NOTE 4 - COMMON STOCK
In March 2009, the Company issued and contributed a total of 72,500 shares of Common Stock to all eligible employees of the Omagine, Inc. 401(k) Plan.
In August 2009, the Company sold 2,000 shares of Common Stock to a Director of the Company at a price of $0.70 per share for proceeds of $1,400.
From May through December of 2009 the Company issued a total of 1,308,877 shares of Common Stock for proceeds of $555,000 under the Standby Equity Distribution Agreement with YA Global Investments, L.P. (See Note 6).
In March 2010, the Company issued and contributed a total of 289,996 shares of Common Stock to all eligible employees of the Omagine, Inc. 401(k) Plan.
In March 2010 through June of 2010, the Company issued a total of 618,697 shares of Common Stock for proceeds of $250,000 under the Standby Equity Distribution Agreement with YA Global Investments L.P. (See Note 6).
In June 2010, the Company issued a total of 118,750 shares of Common Stock in payment of debts totaling $47,500.
On December 29, 2009 Omagine's stockholders authorized the Company to effect a 1-for-100 reverse split of the number of shares of the Company's Common Stock followed immediately by a 20-for-1 forward split of the number of shares of the Company's Common Stock (collectively, the "Stock Splits"). The Stock Splits were effected on December 30, 2009 and resulted in a reduction of 42,643,614 in the number of shares of Common Stock issued and outstanding immediately prior to the Stock Splits. The result of the foregoing was that as of December 31, 2009 the Company had 10,660,904 shares of its Common Stock issued and outstanding. The shareholders also authorized the Company to set the number of shares of Common Stock it shall be authorized to issue at 50,000,000 shares. The accompanying financial statements have been retroactively adjusted to reflect the Stock Splits.
NOTE 5 - STOCK OPTIONS
The following is a summary of stock option activity for the six months ended June 30, 2010:
Outstanding at January 1, 2010 530,000
Granted and Issued -
Exercised -
Forfeited/expired/cancelled -
---------
Outstanding at June 30, 2010 530,000
---------
Exercisable at June 30, 2010 374,000
---------
|
Stock options outstanding at June 30, 2010 (all non-qualified) consist of:
Year Number Number Exercise Expiration
Granted Outstanding Exercisable Price Date
------- ----------- ----------- -------- ----------
2001 150,000 150,000 $1.25 August 31, 2011
2005 6,000 6,000 $5.00 June 30, 2010
2005 40,000 40,000 $4.10 December 31, 2011
2007(A) 160,000 128,000 $1.25 March 31, 2017
2007 12,000 12,000 $4.50 October 29, 2012
2008 6,000 6,000 $4.00 December 31, 2012
2008(B) 150,000 30,000 $2.60 September 23, 2018
2008(C) 6,000 2,000 $2.60 September 23, 2013
-------- --------
Totals 530,000 374,000
========= =========
|
(A) The 32,000 unvested options relating to the 2007 grant are
scheduled to vest on April 1, 2011.
(B) The 120,000 unvested options relating to the 2008 grant are
scheduled to vest 30,000 on September 24, 2010 and then
30,000 on each September 24 in 2011, 2012 and 2013.
(C) The 4,000 unvested options relating to the 2008 grant are
scheduled to vest 2,000 on September 24, 2010 and
2,000 on September 24, 2011.
As of June 30, 2010 there was $276,031 of total unrecognized compensation cost relating to unexpired stock options. That cost is expected to be recognized $55,020 in 2010, $92,498 in 2011, $75,447 in 2012 and $53,066 in 2013.
NOTE 6 - COMMITMENTS
Leases
The Company leases its executive office in New York, N.Y. under a ten-year lease entered into in February 2003. The Company also rents warehouse space in Jersey City, New Jersey under a month- to-month lease. The Company also leases office space in Muscat, Oman under a one year lease expiring December 31, 2010. Rent expense for the six months ended June 30, 2010 and 2009 was $64,820 and $69,822 respectively.
At June 30, 2010, the minimum future lease payments are as follows:
2010 $ 28,400
2011 56,800
2012 56,800
2013 9,466
----------
Total $ 151,466
==========
|
Employment Agreements
Omagine is obligated to pay its President and Chief Executive Officer an annual base salary of $125,000 through December 31, 2010 plus an additional amount based on a combination of net sales and earnings before taxes.
Omagine had been obligated to employ its Vice-President and Secretary under an employment agreement which was cancelled. Provided the Company is successful in signing the Development Agreement with the Government of Oman for the Omagine Project, the Company intends to enter into a new employment agreement with this individual.
Equity Financing Agreement
On December 22, 2008, Omagine entered into a Standby Equity Distribution Agreement (the "SEDA") with YA Global Investments, L.P. ("YA"). Pursuant to the terms of the SEDA Omagine may, at its sole option and upon giving written notice to YA (a "Purchase Notice"), sell shares of its Common Stock to YA (the "Shares") at a "Purchase Price" equal to 95% of the lowest daily volume weighted average price for a share of Omagine's Common Stock as quoted by Bloomberg, L.P. during the five (5) consecutive trading days following such Purchase Notice (the "Pricing Period"). During the term of the SEDA, the Company is not obligated to sell any Shares to YA but may, at its sole discretion, sell that number of Shares, valued at the Purchase Price from time to time in effect, that equals five million dollars ($5,000,000). YA is obligated to purchase such Shares from the Company subject to certain conditions including (i) Omagine filing a registration statement with the Securities and Exchange Commission (the "SEC") to register the Shares
("Registration Statement"), (ii) the SEC declaring such Registration Statement effective, (iii) periodic sales of Shares to YA must be separated by a time period equal to the Pricing Period, and (iv) the amount of any such individual periodic sale of Shares may not exceed two hundred thousand dollars ($200,000). The Company has filed the Registration Statement with the SEC and the SEC has declared such Registration Statement to be effective as of May 1, 2009. The SEDA expires on April 30, 2011. All sales of Shares pursuant to the SEDA shall be made at the sole discretion of the Company.
Omagine Project
The Company's proposed Omagine Project is planned to be developed on one million square meters (equal to approximately 245 acres) of beachfront land facing the Gulf of Oman (the "Omagine Site") just west of the capital city of Muscat and nearby Muscat International Airport. The Project Company has concluded negotiations with the Government of Oman with respect to the Omagine Project and is awaiting the signing of a Development Agreement with the Government.
The Omagine Project contemplates the integration of cultural, heritage, educational, entertainment and residential components, including a theme park and associated exhibition buildings, shopping and retail establishments, restaurants and several million square feet of residential development.
NOTE 7 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the filing date of this Form 10-Q and has determined that there were no additional subsequent events to recognize or disclose in these financial statements.
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
As of the date of this report all of the Company's operations are conducted through its wholly-owned subsidiaries, Journey of Light, Inc. ("JOL") and Omagine LLC ("LLC").
Revenue Recognition. In the event the Company signs a Development Agreement with the Government of Oman, the Company will recognize revenue ratably over the development period, measured by methods appropriate to the services and products provided.
With the exception of historical information, the matters discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking
statements within the meaning of the 1995 Private Securities Litigation Reform Act that involve various risks and uncertainties. Typically, these statements are indicated by words such as "anticipates", "expects", "believes", "plans", "could", and similar words and phrases. Factors that could cause the Company's actual results to differ materially from management's projections, forecasts, estimates and expectations include, but are not limited to, the following:
* Failure of the Company's Oman based subsidiary, Omagine LLC (the "Project Company"), to sign the Development Agreement with the Government of Oman;
* Failure of the Project Company to obtain the necessary financing required to design, build and operate the Omagine Project;
* Inability of the Company to secure additional financing;
* Unexpected economic or political changes in the United States or abroad;
* The imposition of new restrictions or regulations by government agencies in the U.S. or abroad that affect the Company's business activities.
The present nature of the Company's business is such that it is not expected to generate revenue until after the occurrence of an event - the development of the Omagine Project - which, as of the date hereof, is not certain to occur. Management is presently examining other possible sources of revenue for the Company which, subject to the Development Agreement being executed by the Project Company, may be added to Company's operations.
The Company is engaged primarily in the business of real estate development in the country of the Sultanate of Oman ("Oman").
The Company has proposed to the Government of Oman (the "Government") the development of a real-estate and tourism project (the "Omagine Project") to be developed in Oman by Omagine LLC (the "Project Company"). The Project Company will design, develop, own and operate the entire Omagine Project.
We anticipate that the Omagine Project will be developed on one million square meters (equal to approximately 245 acres) of beachfront land facing the Gulf of Oman (the "Omagine Site") just west of the capital city of Muscat and nearby Muscat International Airport. It is planned to be an integration of cultural, heritage, educational, entertainment and residential components, including: a "high culture" theme park containing seven pearl shaped buildings, each approximately 60 feet in diameter, associated exhibition buildings, a boardwalk; an open air amphitheater and stage; open space green areas; a canal and enclosed harbor and marina area; associated retail shops and restaurants, entertainment venues, boat slips, and docking facilities; a five-star resort hotel, a four star resort hotel and possibly an additional three or four star hotel; commercial office buildings; shopping and retail establishments integrated with the hotels, and approximately two thousand residences to be developed for sale.
The agreement between the Government and Omagine LLC which will govern the design, development, construction, management and ownership of the Omagine Project is the "Development Agreement" ("DA"). As of the date of this report, no date has yet been established for the signing of the Development Agreement.
Pursuant to the Development Agreement as presently contemplated, the Government will issue a license to the Project Company designating the Omagine Project as an Integrated Tourism Complex ("ITC") and as such, the Project Company will be allowed to sell the freehold title to residential properties developed on the Omagine Site to any person, including any non-Omani person. Non-Omani persons (such as expatriates living and working in
Oman) are not permitted by Omani law to purchase any land in Oman outside of an ITC.
Significant commercial, retail, entertainment and hospitality elements are also included in the Omagine Project and the Company plans over time to also be in the property management, hospitality and entertainment businesses. The Omagine Project is expected to take about 5 years to complete.
The Development Agreement consists of two (2) parts: (i) the "Main Agreement" and (ii) the "Schedules" to the Main Agreement. On June 9, 2010 the Ministry of Tourism of the Sultanate of Oman ("MOT") approved all the terms and conditions of the draft Development Agreement for the Omagine Project. The DA will be the contract between the Government of Oman and the Company's presently wholly owned Omani subsidiary, Omagine LLC. As previously disclosed, the Company and Omagine LLC had been awaiting the approval by the MOT of the final schedule to the DA ("Schedule 24") and Schedule 24 and the rest of the DA and all schedules thereto have now been approved by the MOT and all negotiations with respect to the DA are now concluded. Printed and bound copies of the DA were delivered by Omagine LLC to the MOT on June 9, 2010.
On June 28, 2010, under the signature of the Minister of Tourism, the MOT officially transmitted the DA to the Ministry of Finance ("MOF") for approval prior to forwarding the DA to the Ministry of Legal Affairs ("MOLA") for its official approval. A copy of the Minister's "Transmittal Letter" to MOF, (translated from Arabic to English), is attached hereto as Exhibit 99.5. Since representatives of both MOF and MOLA have been involved in every step of the negotiation process to date, the official approvals from MOF and MOLA are viewed by management as simply procedural in nature and such approvals are expected to be forthcoming.
In accordance with Omani law, Omagine LLC was legally formed in Oman as a limited liability company on November 23, 2009, the date of formal approval by the Ministry of Commerce and Industry ("MOCI"). Omagine LLC is presently 100% owned by the Company.
The Company plans to reduce its 100% ownership of Omagine LLC in the near future by causing Omagine LLC to sell newly issued shares of its capital stock to investors. The proposed investors
are Consolidated Contractors International Company, S.A.L. ("CCIC") and three Omani investors (the "Omani Shareholders"). All proceeds from such sales of its capital stock will belong to Omagine LLC. The three presently proposed Omani Shareholders are: (i) the Office of Royal Court Affairs, an Omani organization representing the interests of His Majesty, Sultan Qaboos bin Said, the ruler of Oman, ("RCA"), (ii) Al-Mabkharah LLC, an Omani limited liability company ("ALM"), and (iii) the Oman Integrated Tourism Projects Fund (the "OITP Fund"). None of the Omani Shareholders are affiliates of the Company.
The OITP Fund is an investment fund managed by Bank Muscat, its designated fund manager. Because Omagine LLC presently plans to appoint Bank Muscat as its financial advisor, the Company views the participation of the OITP Fund as an equity investor in Omagine LLC as a positive event that aligns the interests of a major investor in Omagine LLC with the interests of the bank that will be responsible for arranging the project financing that Omagine LLC will, in all likelihood, ultimately require.
Prior to the signing of the Development Agreement, the Omani Shareholders and CCIC (collectively, the "New Shareholders") and the Company will enter into a written "Shareholders' Agreement" with respect to, among other things, their respective investments in Omagine LLC and the corporate governance and management of Omagine LLC. The review of the final draft Development Agreement by attorneys for the New Shareholders was a necessary condition precedent to the signing of the Shareholders' Agreement by the New Shareholders, and such review is now finished. No changes to the draft Development Agreement were recommended by the attorneys for the New Shareholders.
The Shareholders' Agreement has been reviewed by attorneys for the New Shareholders with minor comment. The OITP Fund has informed the Company that the Fund's corporate charter requires an exit for its proposed investment by November 2014. The Company is presently discussing various options with the OITP Fund and, in order to accommodate the Fund's early exit requirement, the Company intends to make an alternative proposal to the Fund with respect to the terms of the Fund's proposed investment. Any changes to the terms of the OITP Fund's investment in Omagine LLC are not expected to change the Company's majority ownership position of Omagine LLC (except for
a possible percentage increase in such ownership) nor are any such changes expected to affect the investment amounts or the timings of the investments for the New Shareholders.
The Shareholders' Agreement is presently expected to be executed in early August and promptly thereafter the New Shareholders will be formally registered as such with the Ministry of Commerce and Industry in Oman. Subsequent to such registration and to the official approvals of MOF and MOLA, the Development Agreement will be signed by Omagine LLC and the Government.
As of the date of this report, no date has yet been established for the signing of the Development Agreement but the Company presently anticipates that the Development Agreement will be signed by Omagine LLC and the Government shortly after the execution of the Shareholders Agreement, both of which events are presently anticipated to happen in August 2010.
Without giving effect to any changes that may ultimately be made to accommodate the OITP Fund's early exit requirement, the Shareholders' Agreement presently contemplates that the Company's 100% ownership of Omagine LLC will be reduced to 50.5% in the following manner:
1. The New Shareholders (CCIC, RCA, ALM, and the OITP Fund) will subscribe for and purchase an aggregate of 49.5% of the capital stock of Omagine LLC for an aggregate cash investment into Omagine LLC of forty two million forty four thousand three hundred seventy five Omani Rials ("OMR") (42,044,375 OMR) equivalent to approximately one hundred nine million three hundred fifteen thousand three hundred seventy five U.S. dollars ($109,315,375), and
2. In addition to the twenty thousand Omani Rials (20,000 OMR) equivalent to approximately fifty two thousand U.S. dollars ($52,000) of initial capital invested by the Company to organize Omagine LLC in November 2009, the Company will, prior to the date the Development Agreement is signed (the "Execution Date"), invest an additional fifty five thousand seven hundred fifty Omani Rials (55,750 OMR) equivalent to approximately one hundred forty four thousand nine hundred fifty U.S. dollars ($144,950), and, subsequent to the Execution Date, invest a further additional one hundred seventy six thousand seven hundred fifty
Omani Rials (176,750 OMR) equivalent to approximately four hundred fifty nine thousand five hundred fifty U.S. dollars ($459,550), for a total aggregate investment by the Company into Omagine LLC of two hundred fifty two thousand five hundred Omani Rials (252,500 OMR) equivalent to approximately six hundred fifty six thousand five hundred U.S. dollars ($656,500).
The foregoing investments into Omagine LLC are presently planned to be made in the following manner and in accordance with the following schedule:
1. Prior to the Execution Date the New Shareholders will invest seventy four thousand two hundred fifty Omani Rials (74,250 OMR) equivalent to approximately one hundred ninety three thousand fifty U.S. dollars ($193,050) and the Company will invest the aforementioned additional fifty five thousand seven hundred fifty Omani Rials (55,750 OMR) equivalent to approximately one hundred forty four thousand nine hundred fifty U.S. dollars ($144,950), and the Omani Shareholders will purchase variable convertible promissory notes from Omagine LLC ("Notes"), which Notes when fully funded will be in the aggregate principal amount of twenty two million nine hundred seventy eight thousand one hundred twenty five Omani Rials (22,978,125 OMR) equivalent to approximately fifty nine million seven hundred forty three thousand one hundred twenty five U.S. dollars ($59,743,125) (the "Aggregate Principal"), and
2. During the six month period subsequent to the Execution Date:
2.1 the Omani Shareholders will fund approximately seventy-five percent (75%) of the Aggregate Principal of the Notes by paying Omagine LLC an aggregate of seventeen million two hundred thirty three thousand five hundred ninety three Omani Rials (17,233,593 OMR) equivalent to approximately forty four million eight hundred seven thousand three hundred forty two U.S. dollars ($44,807,342), and
2.2 Omagine LLC will pay the Company one hundred seventy six thousand seven hundred fifty Omani Rials (176,750 OMR) equivalent to approximately four hundred fifty nine thousand five hundred fifty U.S. dollars ($459,550) which Omagine LLC will owe to the Company after the Shareholders' Agreement is signed (the "Exchange Amount"), and promptly after receiving the
Exchange Amount from Omagine LLC, the Company will invest the Exchange Amount into Omagine LLC, and
3. The "Financing Agreement Date" is the day subsequent to the
Execution Date upon which Bank Muscat and/or other lenders
execute and deliver to Omagine LLC a written term sheet with
respect to, and describing the terms and conditions of, a
proposed financing agreement for the Omagine Project. The
Financing Agreement Date is projected by management to occur
approximately six months after the Execution Date. Within ten
(10) days after the Financing Agreement Date the Omani
Shareholders will fund the remaining approximately twenty-five
percent (25%) of the Aggregate Principal of the Notes by paying
Omagine LLC an aggregate of five million seven hundred forty
four thousand five hundred thirty two Omani Rials (5,744,532
OMR) equivalent to approximately fourteen million nine hundred
thirty five thousand seven hundred eighty three U.S. dollars
($14,935,783), and the Aggregate Principal will immediately
thereafter be automatically converted into the right to receive
shares of Omagine LLC in accordance with the terms of the Notes,
and CCIC will invest an additional eighteen million nine hundred
ninety two thousand Omani Rials (18,992,000 OMR) equivalent to
approximately forty nine million three hundred seventy nine
thousand two hundred U.S. dollars ($49,379,200).
Each Note includes a provision requiring its immediate mandatory conversion into the right to receive shares of Omagine LLC after such Note has been fully funded by the relevant Omani Shareholder. In the event that any Note is not fully funded in accordance with the funding schedule in the Note (a "Default"), which in the opinion of management is an unlikely event, then Omagine LLC is not obligated to accept further funding installments from the relevant Note holder and the outstanding principal balance of such Note at the date of such Default, if any, becomes due and payable by Omagine LLC one (1) year from the date of such Default (the "Payment Date") and without interest, and the Company (Omagine, Inc.) then has the option exercisable at any time prior to the Payment Date, but not the obligation, to purchase any shares of Omagine LLC owned by such Note holder as of the date of such Default.
The Company and the New Shareholders are referred to herein and in the draft Development Agreement as the "Founder Shareholders"
of Omagine LLC. The Company capitalized Omagine LLC at formation by depositing 20,000 Omani Rials, equal to approximately USD $52,000, (the "Company Capital Contribution") into a bank account opened in Bank Muscat in the name of Omagine LLC and the Company was subsequently issued all 200,000 of the presently issued and outstanding shares of Omagine LLC.
Pursuant to the proposed Shareholders' Agreement, after the issuance of the Omagine LLC shares purchased by the New Shareholders and the Company, and the purchase by CCIC of the Omagine LLC shares as described above, and assuming the conversion of the Aggregate Principal of the Notes into shares of Omagine LLC, Omagine LLC will have 5,000,000 shares issued and outstanding and such shares will be owned as follows: the Company will own 2,525,000 shares (50.5%); the OITP Fund will own 1,000,000 shares (20%); RCA will own 625,000 shares (12.5%); CCIC will own 600,000 shares (12.0%); and ALM will own 250,000 shares (5%).
All of the aforementioned investment amounts and ownership percentages were negotiated by Company management on behalf of Omagine LLC in arms-length transactions between the Project Company and the New Shareholders. No New Shareholder is an affiliate of the Company.
The presently ongoing discussion with Bank Muscat regarding the modification of the OITP Fund investment structure in order to accommodate the early exit by the Fund is not expected to delay the signing of the Shareholders' Agreement beyond early August, nor is it expected to materially change the above described investment structure.
The negotiation of the DA with the Government is concluded. The DA has now been officially transmitted to the Ministry of Finance for its approval after which it will be officially transmitted to the Ministry of Legal Affairs for its approval. During the estimated one month time period it takes for the Government to accomplish this routine process, the Company plans to finalize and sign the Shareholders' Agreement with the New Shareholders and to register them with the Ministry of Commerce & Industry in Oman. The afore-described MOF and MOLA approvals and registration of the New Shareholders are the only remaining tasks to be accomplished before the DA can be signed by Omagine
LLC and the Government of Oman. These remaining tasks are presently expected to be completed in early August 2010.
The date of signing the Development Agreement is entirely in the hands of the Government. The Company understands that the Government is anxious to conclude this matter swiftly. Subsequent to the signing of the Development Agreement, it must be ratified by the Ministry of Finance ("MOF") on behalf of the Government. The Company anticipates receiving notice from the Government within the next several weeks of the signing date for the Omagine Development Agreement.
Consolidated Contractors Group S.A.L. (www.ccc.gr) is a Lebanese multi-national corporation ("CCG") whose main activities involve general building contracting services in the Middle East. CCG employs approximately 125,000 people worldwide and has annual revenue of approximately $5 billion. Consolidated Contractors International Company, S.A.L., a Panamanian corporation ("CCIC") is the investment arm of CCG. Consolidated Contractors Company (Oman), LLC, an Omani limited liability corporation ("CCC") is a construction company with approximately 13,000 employees in Oman and is CCG's operating subsidiary in Oman. Neither CCG, CCIC, CCC nor any of the Omani Shareholders is an affiliate of the Company.
As of the date hereof, the Company has arranged approximately $110 million of equity capital (the "Minority Equity") for the Project Company via the proposed sales of equity interests totaling 49.5% of the Project Company to: CCIC (12%); the OITP Fund (20%); RCA (12.5%); and ALM (5%), for a total of $109.3 million. The Company's agreements with the New Shareholders have now been reduced to writings and they constitute the subscription agreements with each New Shareholder and with the Company ("Subscription Agreements") and the Shareholders' Agreement as generally described above. Although the Company expects the definitive versions of such agreements (including the definitive version of the OITP Fund agreement, modified as mentioned above) to be executed in the next few weeks, until they actually are executed, no assurance can be given that they will be executed.
The Company invested approximately $52,000 (the "Company Capital Contribution") into the Project Company at its formation in
November 2009. Additional cash investments of approximately $144,950 and $459,550 are planned to be made by the Company into Omagine LLC as described above bringing the Company's total aggregate investment into Omagine LLC to approximately $656,500. If the Company's percentage ownership of Omagine LLC is increased as a result of the ongoing discussions with Bank Muscat regarding modification of the OITP Fund's investment structure, then the Company's total aggregate investment into Omagine LLC is expected to increase proportionately.
The Company has agreed with CCIC regarding (i) its approximately $49.4 million investment in Omagine LLC, and (ii) the appointment of CCC as the general contractor for the construction of the Omagine Project and these agreements are memorialized in CCIC's proposed Subscription Agreement with Omagine LLC. The proposed Shareholders' Agreement among the Founder Shareholders and the proposed Subscription Agreements have been reviewed by the New Shareholders and their legal counsel and the Company plans to complete its final review of the modified Subscription Agreements shortly. The Subscription Agreements may be modified but management presently understands from discussions with its attorneys that the proposed modifications are minor and do not alter the Company's majority ownership position of Omagine LLC.
As presently planned, the Shareholders' Agreement and Subscription Agreements will provide that the funding installments of the Notes will be paid by the Omani Shareholders to Omagine LLC in monthly installments during the period beginning immediately after the Execution Date of the Development Agreement and ending on the Financing Agreement Date. The Subscription Agreement with CCIC provides that, other than its nominal initial investment of approximately $46,800 prior to the Execution Date, its investment into the Project Company will be paid to Omagine LLC on or before the Financing Agreement Date. Therefore, as presently contemplated by the terms of the proposed Subscription Agreements, Omagine LLC will not have to wait for the Financing Agreement Date to begin development and design of the Omagine Project as it will have the financial capacity to begin such design and development activities immediately after the Development Agreement is signed.
In order to move into the actual development stage of the
Omagine Project, Omagine LLC and the Government must first sign the Development Agreement. The Company and the New Shareholders are closely following this matter, and although this process has often been delayed to date, the fact that the DA has now been approved by the Ministry of Tourism is a watershed event in this process and management and the Founder Shareholders remain confident that attainment of the ultimate objective of signing the Development Agreement with the Government is now imminent - although the precise date for such signing is not possible to predict at this time. Notwithstanding the foregoing, no assurance can be given at this time that the Development Agreement actually will be signed.
As presently contemplated the Company will ultimately own at least 50.5% of Omagine LLC and the financial results of Omagine LLC will be consolidated with the financial results of the Company in such manner as to reflect the Company's presently anticipated 50.5% or greater majority ownership. Previously, it was expected that beginning after the Execution Date the Company would - on a consolidated basis - experience a monthly increase in net worth culminating in an aggregate increase in net worth of approximately $55 million on the Financing Agreement Date as a result of the approximately $110 million capitalization of Omagine LLC. Since the methodology of funding Omagine LLC has now been re-structured as a series of funding installments on the Notes, this increase in net worth on a consolidated basis is not now expected to occur gradually over the aforementioned six month period as previously anticipated and disclosed, but instead it is now expected to occur as a single aggregate increase of approximately $55 million in the Company's net worth on or shortly after the Financing Agreement Date when the Aggregate Principal of the Notes is converted into shares of Omagine LLC stock and the CCIC investment is made. The timing and amounts of the OITP Fund's investment is expected to remain as indicated above but possibly may be affected as a result of the ongoing discussions with Bank Muscat in regard to accommodating the Fund's request for a November 2014 exit date for its investment.
The capital of Omagine LLC as well as bank borrowings and proceeds from sales of residential units by Omagine LLC will be utilized by it to develop the Omagine Project. Omagine LLC's ongoing financial results will continue to be consolidated with the Company's results as appropriate.
As presently contemplated, Bank Muscat, Oman's largest financial institution, will be engaged by Omagine LLC as its exclusive financial advisor to arrange the necessary construction financing for the Omagine Project ("Construction Financing") and other financing for Omagine LLC as may be required. The Shareholders' Agreement contemplates the approval by the Omagine LLC shareholders of a draft agreement with Bank Muscat regarding project financing and financial advisory services (the "Mandate Agreement"). The Mandate Agreement provides for Bank Muscat to be the financial advisor for Omagine LLC and to, among other things, arrange for the Construction Financing.
While the worldwide bank liquidity issues resulting from the 2008 financial crisis have eased somewhat, the project financing environment in Oman remains more cautious and challenging than before the crisis. Since Bank Muscat is the manager of the OITP Fund, one of Omagine LLC's proposed equity investors, management is in close contact with Bank Muscat on a regular basis regarding the financing of the Omagine Project and Bank Muscat has continued to indicate that it expects to be able to arrange the necessary project financing for the Omagine Project. Management and the Project Company's prospective Omani bankers and shareholders are of the opinion that the recent financial market turmoil is expected to increase the Project Company's cost of borrowing but otherwise have no material effect or impact on the Omagine Project. As noted below however, the costs of labor and material as well as the selling prices of housing remain somewhat volatile and no completely accurate projections can be made at this time. The Company views Bank Muscat's decision to have the OITP Fund become an equity investor in Omagine LLC as a positive indicator of Bank Muscat's opinion with respect to the likely availability to Omagine LLC of the necessary Construction Financing.
As the development program becomes more solidified and as the planning process and design process progress, the estimates of construction costs become proportionately more accurate. The Company presently expects, based on present assumptions of its updated development program that the development costs (including the costs for design, construction management, program management and construction) for the entire Omagine Project will be between approximately $1.9 and $2.3 billion dollars. The Company also presently expects, based on present
assumptions and market activity, that although the selling prices of housing in Oman have fallen from their 2007/2008 peaks, they will still be greater than that which the Company had previously budgeted in 2006.
As presently contemplated by the proposed Shareholders' Agreement:
1. The Company and the New Shareholders will have representation on the Board of Directors of Omagine LLC but the Company's representatives will at all times have a majority of the votes on such Board of Directors.
2. The Government is not a shareholder of Omagine LLC.
3. The current Managing Director and chief executive officer of Omagine LLC, Frank J. Drohan, will continue in that position.
4. The Chairman, who shall have no day to day operating role in the management or operation of the business of Omagine LLC but shall be the primary spokesman and advocate in Oman for the Project Company, shall be a representative of the office of Royal Court Affairs.
5. The Deputy Managing Director shall be Mr. Sam Hamdan.
The Company's updated financial model presently forecasts net positive cash flows for Omagine LLC in excess of 900 million dollars over the five year period subsequent to the signing of the Development Agreement with a net present value of the project of approximately 400 million dollars. The Company intends to continually update this model at regular intervals as new facts and information become available, as the development program and design process unfolds and as market conditions require. Although the Oman economy has not been as severely affected by the recent worldwide financial crisis as nearby Dubai or other countries, it did experience some negative effects, slowdowns and volatility. Raw material and labor prices initially dropped dramatically and are now experiencing a recovery. Recent sales prices for housing in other integrated tourism projects are stabilizing and, in the Muscat area of Oman, the inventory of unsold housing in the secondary (re-sale) market has dropped dramatically in recent months which some
market observers see as an important indicator of pent-up future demand. Management cautions however that investors should not place undue reliance on the aforementioned financial model projections as all such projections 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. Potential investors are cautioned not to place undue reliance on any such forward- looking statement or forecast, which speaks only as of the date hereof.
As noted herein, costs and selling prices remain somewhat volatile as the economy in Oman and the surrounding region improves, and undue reliance on present projections should be avoided. Management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.
Subsequent to the signing of the Development Agreement, the Omagine Site's value will be definitively determined by a qualified independent real-estate appraiser and such appraisal will be utilized by Bank Muscat in its discussions internally and with other financial institutions in order to arrange the Construction Financing. Omagine LLC's requirements for bank financing of the Construction Costs is expected to be reduced by its ability to pre-sell residence units by entering into sales contracts with third party purchasers and receiving deposits and progress payments during the construction of such residences.
The sale of residential and commercial properties combined with the increase over the last several years in the value of the land constituting the Omagine Site, are the main revenue drivers supporting the Project Company's financial projections. The Development Agreement has evolved over the years and as presently contemplated and agreed allows for sales and pre-sales of any of the residential or commercial buildings that will be developed and built on approximately three hundred thousand square meters (approximately 75 acres) of land within the Omagine Site. The freehold title to the land within the Omagine Site underlying such residences or commercial properties shall be transferred to the buyer at the closing of such sales transactions. The balance of the Omagine Site will consist of open areas consisting of, among other things, roads, walkways, beaches, recreational areas and green areas.
The present nature of the Company's business is such that it is
not expected to generate revenue until after the occurrence of
an event - the signing of the Development Agreement for the
Omagine Project - which, as of the date hereof, has not yet
occurred. Moreover, revenue from real estate development
associated with the Omagine Project is not expected to occur
until subsequent to the Financing Agreement Date. The Company is
planning to enter businesses other than real estate development
- and ancillary to the Omagine Project - subsequent to signing
the Development Agreement and 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.
Subject to the Development Agreement being signed, the Company may, subsequent to the Financing Agreement Date, recover all or a portion of the development expenses incurred by it in the conceptualization and promotion of the Omagine Project and may also be paid a "success fee" of one half of one percent (0.5%) of the construction costs.
Notwithstanding the positive nature of the foregoing "forward looking statements", no assurances can be given at this time that the Development Agreement will actually be signed or that the Financing Agreement Date or the anticipated revenues from the Omagine Project will actually occur.
All "forward looking statements" contained herein are subject to, known and unknown risks, uncertainties and other factors which could cause Omagine LLC's, and therefore the Company's, actual results, financial or operating performance or achievements to differ from management's projections for them as expressed or implied by such forward-looking statements. Projections and assumptions contained and expressed herein are based on information available to the Company at the time so furnished and as of the date hereof and are, in the opinion of management, reasonable. All such projections and assumptions are subject to significant uncertainties and contingencies, many of which are beyond the Company's control, and no assurances can be given that the projections will be realized. Potential investors are cautioned not to place undue reliance on any such forward- looking statements, which speak only as of the date hereof.
Omagine's website is www.omagine.com and a dedicated investor
relations hub for Omagine and the Omagine Project may be found
at www.agoracom.com/IR/Omagine.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED JUNE 30, 2010 vs.
THREE MONTHS ENDED JUNE 30, 2009
The Company had no revenue in the second quarters of 2010 and 2009.
Selling, general and administrative expenses were $293,837 in the second quarter of 2010,compared to $189,728 in the second quarter of 2009. This increase of $104,109 (55%) was primarily attributable to increased legal fees of $79,803 and increased accounting fees of $20,000 plus other net increases in expenses of $4,306.
The Company incurred an operating loss of $293,837 during the second quarter of 2010 as compared to an operating loss of $189,728 during the same period in the previous fiscal year. This $104,109 (55%) increase in the Company's operating loss is attributable to the increases in general and administrative costs mentioned above.
The Company will need to generate revenue in order to attain profitability. The present nature of the Company's business is such that it is not expected to generate revenue until after the development of the Omagine Project is significantly underway, an event which, as of the date hereof, is not certain to occur.
The Company will need to raise additional capital and/or secure additional financing in order to execute its presently conceived business plan with respect to the Omagine Project.
No capital expenditures were incurred during the quarterly period ended June 30, 2010. Depending upon the outcome of current negotiations and the availability of resources, the Company may incur significant expenses related to capital expenditures in the future.
SIX MONTHS ENDED JUNE 30, 2010 vs.
SIX MONTHS ENDED JUNE 30, 2009
The Company had no revenue for the six month periods ended June 30, 2010 and June 30, 2009.
Selling, General and Administrative expenses were $599,989 during the first six months of 2010 compared to $548,488 in the first six months of 2009. This increase of $51,501 (9%) was primarily attributable to increases in legal fees of $26,774, stockholder relations expenses of $15,891, travel expense of $7,617 and other net increases in expenses of $1,219.
The Company incurred a loss from operations of $599,989 during the first six months of 2010 as compared to $548,488 in the first six months of 2009. This $51,501 (9%) increase in the Company's operating loss was attributable to the increased Selling, General and Administrative expenses mentioned above.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's net loss for the six months ended June 30, 2010 was $615,625. During the six months ended June 30, 2010, the Company experienced a decrease in cash of $13,600. At June 30, 2010, the Company had a working capital deficit of $1,166,716, compared to a working capital deficit of $978,251 at December 31, 2009. The $188,465 increased deficit in working capital is attributable primarily to the $13,600 decrease in cash, an increase in notes payable and accrued interest of $12,924, an increase in accounts payable of $34,343, an increase in accrued payroll of $120,000 and an increase in accrued expenses and other current liabilities of $11,093. Of the $1,309,937 of current liabilities at June 30, 2010, $742,117 (57%) represents amounts due to officers and directors.
The failure of the Company to sign the Development Agreement for the Omagine Project will significantly affect the Company's ability to continue operations.
On December 22, 2008, the Company signed a two year Standby Equity Distribution Agreement (the "SEDA") with YA Global Investments, L.P. ("YA"). Pursuant to the SEDA Omagine may, at its sole option and upon giving written notice to YA (a "Purchase Notice"), sell shares of its Common Stock ("Shares") to YA ("Sales") at the Purchase Price (as determined pursuant to the terms of the SEDA). The Company is not obligated to sell any Shares to YA but may, in its sole discretion, sell that number of Shares valued at the Purchase Price from time to time in
effect that equals five million dollars ($5,000,000)in the aggregate. YA is obligated to purchase such Shares from the Company subject to certain conditions including (i) Omagine filing a Registration Statement with the SEC to register the Shares, (ii) the SEC declaring such Registration Statement effective, (iii) periodic sales of Shares to YA must be separated by a time period equal to five trading days, and (iv) the amount of any such individual periodic sale of Shares may not exceed two hundred thousand dollars ($200,000). The Registration Statement filed by the Company with the SEC was declared effective by the SEC as of May 1, 2009 and its effective status expired on April 30, 2010. The Company filed a new Registration Statement with the SEC to continue to make Sales available to it pursuant to the SEDA and the SEC has declared such Registration Statement to be effective as of June 7, 2010. An aggregate of $4,195,000 remains available under the SEDA. The SEDA expires on April 30, 2011. All sales of Shares pursuant to the SEDA shall be made at the sole discretion of the Company.
ITEM 4: DISCLOSURE CONTROLS AND PROCEDURES
The Company carried out an evaluation under the supervision and participation of management, including the Company's chief executive and financial officer, of the effectiveness as of the end of the period covered by this report of the design and operation of the Company's disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in this report is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms (an "Evaluation"). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in this report is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based upon that Evaluation, the Company's chief executive and financial officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2010.
The Evaluation did not identify the occurrence of any change in the Company's internal control over financial reporting during the second quarter of fiscal 2010 that materially affected or is reasonably likely to materially affect, the Company's internal control over financial reporting.
The Company is a non-accelerated filer and is required to comply with the internal control reporting and disclosure requirements of Sections 404 and 302 of the Sarbanes-Oxley Act for fiscal years ending on or after December 15, 2007.
The Company adopted and is presently utilizing a web-based software solution provided by an unaffiliated third party to automate and streamline its Sarbanes-Oxley compliance program.
The product enables the Company to document and assess the design of controls, track the testing of their effectiveness and easily locate and remedy any deficiencies. The Company pays an annual fee for unlimited access to the web-based platform (the "Agreement"). The Agreement automatically renews each February for subsequent one year periods, unless the Company notifies the software supplier of its intention not to renew such Agreement.
There have been no significant changes in the Company's internal controls or other factors which could significantly affect internal controls subsequent to the date of the Evaluation.
ITEM 4T: CONTROLS AND PROCEDURES
This 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 temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this report.
PART II - OTHER INFORMATION
ITEM 5. Other Information
The Board of Directors of the Company adopted resolutions pursuant to Section 245 of the General Corporation Law of the State of Delaware to restate and integrate into a single instrument, but not further amend, all of the provisions of its Certificate of Incorporation which were then in effect and operative as theretofore amended or supplemented. On June 3, 2010, the Company filed with the Delaware Secretary of State a Restated Certificate of Incorporation of Omagine, Inc., a copy of which is attached hereto as Exhibit 3(i)a (the "Restated Certificate of Incorporation") and is incorporated herein by reference.
ITEM 6. Exhibits
Exhibits numbered in accordance with Item 601 of
Regulation S-K
Exhibit
Numbers Description
------- -----------
3 (i) a Restated Certificate of Incorporation of
the Company *
3 (ii) By-Laws of the Company (1)
31.1 Sarbannes-Oxley 302 certification *
32.2 Sarbannes-Oxley 1350 certification *
99.5 Ministry of Tourism Transmittal Letter
dated June 28, 2010 *
|
* Filed herewith.
(1) Previously filed with the Securities and Exchange Commission on November 18, 2005 as an exhibit to the Company's quarterly report on Form 10-QSB for the period ended September 30, 2005 and incorporated herein by reference thereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATED: July 20, 2010 OMAGINE, INC.
(Registrant)
By: /s/ Frank J. Drohan
-------------------------
Frank J. Drohan
Chief Executive Officer
and Chief Financial Officer
By: /s/ William Hanley
-------------------------
William Hanley
Controller and Principal
Accounting Officer
|
State of Delaware
Secretary of State
Division of Corporations
Delivered 12:00 PM 06/03/2010
FILED 12:00 PM 06/03/2010
SRV 100627877 - 3863714 FILE
RESTATED CERTIFICATE OF INCORPORATION
of
OMAGINE, INC.
Omagine, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify under the seal of the Corporation as follows:
1. The name of the Corporation is Omagine, Inc. The Corporation was originally incorporated as Alfa International Holdings Corp.
2. The Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on the 8th day of October, 2004.
3. The Corporation has filed four Certificates of Amendment to its Certificate of Incorporation with the Secretary of State of Delaware on the following dates:
(a) May 19, 2005
(b) June 13, 2007
(c) January 22, 2008
(d) December 30, 2009
4. This Restated Certificate of Incorporation was duly adopted by the Corporation's Board of Directors in accordance with Section 245 of the General Corporation Law of the State of Delaware and only restates and integrates, but does not further amend the provisions of the Corporation's Certificate of Incorporation as such Certificate of Incorporation has been amended or supplemented.
5. The text of the Certificate of Incorporation of the Corporation is hereby restated to read in full, as follows:
FIRST: The name of the Corporation is OMAGINE, INC.
SECOND: Its principal place of business in the State of Delaware is to be located at 2711 Centerville Road, Wilmington,
County of New Castle, State of Delaware, 19808. The registered agent in charge thereof is The Company Corporation at the same address as above.
THIRD: The nature of the business and the objects and purposes proposed to be transacted, promoted and carried on, are to do any and all things herein mentioned, as fully and to the same extent as natural persons might or could do, and in any part of the world, viz:
"The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware."
FOURTH: The Corporation shall be authorized to issue two
(2) classes of stock. One class shall be designated as Common
Stock and shall be the voting stock of the Corporation. The
total number of Shares of Common Stock that the Corporation is
authorized to issue is fifty million (50,000,000) shares, with a
par value of one-tenth of one cent ($0.001) each. The other
class of stock the Corporation shall have authority to issue
shall be designated as Preferred Stock, and shall be non-voting
stock of the Corporation. The total number of Shares of
Preferred Stock that the Corporation shall have authority to
issue shall be eight hundred fifty thousand (850,000) Shares
which shall have a par value of one-tenth of one cent ($0.001)
each and which may be issued in series by the Board of Directors
from time to time. The terms, conditions and character of the
Shares of Preferred Stock shall be fixed by the Board of
Directors of the Corporation prior to the time of any such
Preferred Stock Shares are issued by the Corporation.
FIFTH: The Directors shall have the power to make and to alter or amend the by-laws; to fix the amount to be reserved as working capital and to authorize and to cause to be executed mortgages and liens without limit as to the amount upon the property and franchise of the Corporation.
With the consent in writing and pursuant to a vote of the holders of a majority of the capital stock issued and outstanding, the Directors shall have the authority to dispose, in any manner, of the whole property of this Corporation.
The by-laws shall determine whether and to what extent the accounts and books of this Corporation, or any of them shall be open to the inspection of the stockholders; and no stockholder
shall have any right of inspecting any account, or book or document of the Corporation, except as conferred by the laws or by-laws or by resolution of the stockholders.
The stockholders and Directors shall have power to hold their meetings and keep books and records outside of the State of Delaware, at such places as may be from time to time designated by the by-laws or by resolution of the stockholders or Directors, except as otherwise required by the laws of Delaware.
It is the intention that the objects, purposes and powers specified in the third paragraph hereof shall, except where otherwise specified in said paragraph be nowise limited or restricted by reference to or inference from the terms of any other clause or paragraph in this certificate of incorporation, but that the objects purposes and powers specified in the third paragraph and in each of the clauses or paragraphs of this charter shall be regarded as independent objects, purposes and powers.
SIXTH: No Director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such Director as a director, except for (i) for breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) pursuant to Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the Director derived an improper personal benefit. No amendment or repeal of this Article Sixth shall apply to or have any effect on the liability or alleged liability of any Director of the Corporation for or with respect to any acts or omissions of such Director occurring prior to such amendment or repeal.
IN WITNESS WHEREOF, this certificate has been subscribed this 2nd day of June, 2010 by the undersigned who affirms the statements made herein are true and correct.
/s/ Charles P. Kuczynski
--------------------------
CHARLES P. KUCZYNSKI
Corporate Secretary
|
EXHIBIT 31.1
CERTIFICATION PURSUANT TO EXCHANGE ACT RULE 13a-14
AND 15d-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Frank J. Drohan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Omagine, Inc. ("the Registrant") for the period ended June 30, 2010;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act rules 13a-15(f) and 15d-
15(f)) for the Registrant and I have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared; and
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, 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;
c) evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors:
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
Date: July 20, 2010 /s/ Frank J. Drohan ------------------- Frank J. Drohan Chairman of the Board of Directors, President and Chief Executive & Financial Officer (Principal Executive Officer and Principal Financial Officer) |
The originally executed copy of this certification will be maintained at the Registrant's offices and will be made available for inspection upon request.
EXHIBIT 32.1
CERTIFICATION PURSUANT TO:
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Omagine, Inc. on Form 10-Q for the period ended June 30, 2010 (the "Report"), as filed with the Securities and Exchange Commission on the date hereof, the undersigned certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Omagine, Inc.
/s/Frank J. Drohan ------------------ Frank J. Drohan Chairman of the Board of Directors, President and Chief Executive & Financial Officer (Principal Executive Officer and Principal Financial Officer) July 20, 2010 |
The originally executed copy of this certification will be maintained at the Registrant's offices and will be made available for inspection upon request.
Sultanate of Oman
Ministry of Tourism
Muscat
Minister's Office
No : 17/1/1/37/2010
Date : 28 June 2010
H.E. Ahmed bin Abdul Nabi Makki
Minister of National Economy
Deputy Chairman of Financial Affairs & Energy Resources Council
Your Excellency,
Enclosed herein please find a copy of the Draft Agreement and the appendices attached thereto in respect of developing OMAGINE Project.
You are kindly requested to instruct the concerned parties in your Ministry to conduct a final review of the draft agreement and provide us with any comments thereon, if any, in order to have it forwarded to the Ministry of Legal Affairs to express their opinion in the related legal aspects prior to signing and approving it.
Thanking you for your continued cooperation.
Sincerely yours,
//Signed & Stamped//
Rajiha bint Abdul Amir bin Ali
Minister of Tourism