Overview
Omagine, Inc. (the "Registrant") was incorporated in Delaware in October 2004 and is a holding company which conducts substantially all of its operations through its 60% owned subsidiary Omagine LLC and its wholly-owned subsidiary Journey of Light, Inc., a New York corporation (“JOL”).
Omagine, Inc., JOL and Omagine LLC are sometimes referred to herein collectively as the "Company". The Company is a development stage entity (“DSE”) as defined in ASC 915 issued by the Financial Accounting Standards Board. The Company is focused on entertainment, hospitality and real-estate development opportunities in the Middle East & North Africa (the “MENA Region”) and on the design and development of unique tourism destinations.
In November 2009, Omagine, Inc. and JOL formed Omagine LLC, a limited liability company organized under the laws of the Sultanate of Oman ("Oman"). Omagine LLC is engaged in the business of real estate development in Oman and was organized to design, develop, own and operate a mixed-use real-estate and tourism project in Oman named the “Omagine Project”.
Omagine, Inc. and JOL initially owned 100% of Omagine LLC and capitalized it at 20,000 Omani Rials which is equivalent to approximately $52,000 (the “OMAG Initial Equity Investment”). In May 2011, Omagine LLC sold a 40% equity stake in itself to 3 new Omagine LLC minority investors thereby reducing Omagine, Inc.’s ownership from 100% to 60%. (See: “Description of Business – The Shareholder Agreement”).
The Company presently concentrates the majority of its efforts on the business of Omagine LLC and specifically on the Omagine Project.
Critical Accounting Policies
Our financial statements attached hereto are development stage entity financial statements and have been prepared in accordance with accounting principles generally accepted in the United States for development stage entities and pursuant to the guidance contained in ASC 915 issued by the Financial Accounting Standards Board. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.
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Revenue Recognition
. The method of revenue recognition at Omagine LLC will be determined by management when and if it becomes likely that Omagine LLC will begin generating revenue.
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Valuation Allowance for Deferred Tax Assets
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The carrying value of deferred tax assets assumes that the Company will not be able to generate sufficient future taxable income to realize the deferred tax assets, based on management's estimates and assumptions.
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The Omagine Project
The Company has proposed to the Government of Oman (the “Government”) the development of a tourism and real estate project (the “Omagine Project”) to be developed by Omagine LLC in Oman. Omagine LLC was formed in Oman for the purpose of designing, developing, owning and operating our initial project - the 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 just west of the capital city of Muscat and approximately six miles from Muscat International Airport (the “Omagine Site”). It is planned to be an integration of cultural, heritage, educational, entertainment and residential components, including: hotels, commercial buildings, retail establishments and more than two thousand residences to be developed for sale.
Pursuant to the Development Agreement as presently agreed, the Government will issue a license to Omagine LLC designating the Omagine Project as an Integrated Tourism Complex and as such, Omagine LLC will be permitted to sell the freehold title to land and properties which are developed on the Omagine Site to any person.
The Development Agreement
The contract between the Government and Omagine LLC which will govern the design, development, construction, management and ownership of the Omagine Project and the Government’s and Omagine LLC’s rights and obligations with respect to the Omagine Project, is the “Development Agreement” (the “DA”). In order to begin the development of the Omagine Project, it is first necessary that Omagine LLC and the Ministry of Tourism of Oman (“MOT”) sign the DA.
Background
Although the DA has been approved by all the required Ministries of the Government of Oman, the Company has to date experienced numerous DA signing delays with the MOT. For a detailed description of these delays, please see the Registrant’s prior reports filed with the SEC.
Readers of local and international press accounts over the past few years and of our prior SEC reports are aware of the fiasco and public controversy surrounding the ill-fated, poorly conceived, badly located and mismanaged multi-billion dollar Blue City project approved by MOT around six years ago. Just as Oman had begun its tourism drive with the newly created and inexperienced Ministry of Tourism, the predictable financial and public relations disaster that was the Blue City project began to unfold in full public view. And it continued to play out over the next several years. This was followed on closely by the worldwide financial crisis which triggered another high-profile failure in Oman. An OMRAN/MOT project backed by Sama-Dubai, an overly aggressive and now defunct Dubai real estate company, failed – again very publicly. Subsequently the Eurozone sovereign debt crises emerged with its attendant knock-on effects on financial and other markets in the MENA Region and beyond.
Looking back on these events, it is definitively not an overstatement to say that their occurrence - and the long and painful public witnessing of them by MOT and others - literally froze the decision making capacity of MOT and many other Omani Government agencies. Fear of being blamed for failure flourished rapidly throughout the already creaky Government bureaucracy and avoiding responsibility for any decision (by continually delaying or not making them) was raised to a high art. This effect from these two high profile project failures has only recently begun to dissipate.
In the case of MOT, this frozen decision-making process was further exacerbated by the long illness and unfortunate demise in February 2011 of Her Excellency Rajha Ali, Oman’s first Minister of Tourism, with whom the Company had conducted the majority of its DA negotiations, and with whom it had concluded an approved Development Agreement just prior to her untimely passing.
A new Minister of Tourism was appointed in March 2011 and was replaced 2 months later in May 2011 by a third Minister of Tourism who in turn was replaced 9 months later by a fourth Minister of Tourism - the present Minister of Tourism, His Excellency Ahmad bin Nasser Al Mehrzi, who has been in that office for the past year and one-half since March 1, 2012.
Since January 2011, the historic and tumultuous rush of events surrounding the Arab Spring uprisings in the MENA Region have seized the world’s (and the MENA Region’s) attention. While no significant turmoil occurred in politically stable Oman, these events did result in an almost complete replacement of His Majesty’s government. During 2011 and 2012, a major ministry was abolished and many new ministers (including several Ministers of Tourism) were appointed resulting predictably in slowdowns as new people took time to get up to speed.
Our informal communications over the past several years with other business people in Oman, with ambassadors at the U.S. and other embassies in Oman, and with Omani Government officials themselves, unmistakably validate this conclusion with respect to the frozen decision making capacity of the Government. All have indicated that they have experienced similar difficulties with MOT and with several other Government ministries and governmental authorities.
While MOT has undertaken a few inconsequential (and therefore easy to approve) projects over the last few years, management is reliably informed that over 70 projects (including Omagine) have been languishing at MOT for several years now. Despite the frequent re-cycling of old press releases and local news accounts hailing pre-2008 tourism projects (the Oman Convention Center being a prime example), no project of any consequence or significance – none - zero – has been undertaken by MOT for the past many years. We believe however, that this is now finally changing.
The more ordinary, normal and usual business rivalries and difficulties we expected to and did encounter in Oman along the way have all been overcome, and management now believes that the negative effects emanating from the aforementioned extraordinary, abnormal and unusual events are dissipating.
While all difficulties have not fully vanished, the new Minister of Tourism is quite supportive of the Omagine Project and engaged in the DA signing process (See: “Recent Events” below). The business environment in Oman is now more clear and settled. As the worldwide financial crisis has eased, land and real estate prices have recovered and project financing is much more readily available. The Omani economy has improved and, as the path of local development has migrated towards the airport/ Seeb area as we expected, the location and value of the Omagine Site has only become more exceptional. The Omagine Project concept is admired by important Ministers and Government officials and Omagine LLC has superb world-class shareholder partners, consultants and financial advisers.
We think it is instructive to recall where the Company was - as well as where it intends on going. While we have been nimble in handling the delays encountered to date, often finding or making a path forward (See: “Liquidity and Capital Resources” below), management is not unmindful of the opportunities created by the Company’s reorientation of its business activities toward the Omagine Project and away from past activities. While the rewards for the Company and its shareholders are likely to be quite substantial if the DA is signed, management is also not unmindful of the risks, uncertainties and sacrifices endured by its loyal shareholders and employees as they have steadfastly soldiered-on through it all in order to make the present state of affairs possible. Our loyal shareholders and employees have boldly seized the potential for a remarkable victory from the ashes of bitter setbacks and have thereby created the present reality of possibilities. Without doubt they are to be applauded for such confidence, courage, foresight and tenacity - and if the DA is signed – the victory will be theirs. Our Company’s present business plan does not envision slow and steady incremental improvements – we seek dynamic, sudden and rapid growth. Although we believe our business plan is well conceived, careful and as conservative as possible given our circumstances, and that our partners, financial advisers, consultants and the Omagine Project itself are all first rate – our business plan is not and has never been for the faint of heart. The Company marches to the drumbeat of the ancient Roman slogan “Amat victoria curam” (Victory favors those who take pains), and, although the road is not without its difficulties and victory is not yet certain, we fully expect to prevail.
Subject always to its cautionary affirmation that it cannot predict future events, management believes its present assessments as detailed in this report of the Omagine Project’s prospects, its value to the Company and its shareholders and, in spite of past reversals, the likelihood of signing the DA, are cold-eyed, clear-headed and reasonable assessments.
Between January and April 2013, discussions were held between and among the Minister of Tourism - His Excellency Ahmed Al-Mahrizi, the Under-Secretary of Tourism - Her Excellency Maitha Al Mahrouqi, the MOT staff, other interested parties, and the shareholders of and attorneys for Omagine LLC. The Omagine LLC shareholders are (i) Omagine, Inc.; (ii) The Office of Royal Court Affairs ("RCA"); (iii) Consolidated Contracting Company S.A. (“CCC-Panama”) and (iv) Consolidated Contractors (Oman) Company LLC (“CCC-Oman”).
On April 23, 2013, the Company’s president - Frank Drohan - telephoned the Minister of Tourism, His Excellency Ahmed Al-Mahrizi to determine the status of the Omagine Project and of the DA. During that conversation, the Minister again confirmed to Mr. Drohan that MOT was delighted with the Omagine Project and that “we would be going forward very soon”. He also acknowledged the many delays in the DA signing but said that he had wanted to make certain that the proper planning for the surrounding government provided infrastructure (roads, utilities, etc.) was being undertaken by the Municipality of Muscat before he “gave us the green light”. When pressed, the Minister said that “we will be signing the DA shortly after your return to Oman in May”.
On April 25, 2013, Mr. Drohan wrote a letter to His Excellency confirming their conversation and on May 8, 2013 our attorneys delivered two printed and bound copies the final DA to His Excellency the Minister of Tourism for his review and approval.
R
ecent Events
On May 22, 2013, management returned to Oman.
On May 26, 2013, Mr. Drohan, Mr. Sam Hamdan, Mr. Suleiman Al-Yahyai and our attorney, Mr. Sean Angle met with the most senior executive at Royal Court Affairs - His Excellency Nasser Al-Kindi, the Secretary General (a Ministerial level position) of Royal Court Affairs. At the meeting, we briefed H.E. Al-Kindi on the foregoing dialogue with the Minister of Tourism and advised him of the numerous previous delays we had experienced (of which he was aware). Expressing our concern that such delays might again be encountered, Mr. Drohan requested that H.E. Al-Kindi speak with H.E. Al-Mahrizi in order to avoid the previous pattern of delays.
His Excellency Al-Kindi informed us that he had already spoken to the Minister of Tourism “in the past 2 weeks” and that H.E. Al-Mahrizi had told him essentially the same thing regarding the DA that he had told Mr. Drohan in April, i.e. “that MOT very much wanted the Omagine project and MOT would conclude and sign the DA with Omagine very soon”. H.E. Al-Kindi further stated that he requested of H.E. Mahrizi that if there were any “small points” that H.E. Mahrizi wanted to discuss with us, that he should meet with Omagine management and resolve them with us. H.E. Al-Kindi stated that both he and H.E. Al-Mahrizi are in complete agreement regarding the desirability of beginning the development of the Omagine Project as soon as possible, and both praised the project concept and agreed it would be a wonderful project for the Sultanate.
We informed H.E. Al-Kindi about the “government infrastructure planning issue” raised by the Minister of Tourism (which we all agreed was an Oman Government issue, not an Omagine LLC issue) - and he indicated that he knew about it and understood that it was being handled and resolved.
The meeting lasted about an hour and was extremely friendly, up-beat and positive. In concluding, His Excellency confirmed that he would be speaking with the Minister of Tourism again within a week or 10 days to follow up. His Excellency Al-Kindi went on to inform Mr. Drohan on behalf of Royal Court Affairs: “we are with you” and “we will support you”.
In May the Minister of Tourism wrote a letter to the Supreme Council for Planning regarding the infrastructure & utilities for the Omagine project (and several other projects) and requesting the SC to approve and provide the budget for such infrastructure and utilities.
On June 10, the Minister of Tourism called Mr. Drohan and informed him that the MOT had not yet heard from the Supreme Council for Planning regarding the government provided infrastructure.
The Chairman of the Supreme Council for Planning is His Majesty, Sultan Qaboos and H.E. Sultan Al-Habsi, the Secretary General of the Supreme Council is effectively its chief operating officer.
On June 25, 2013 management spoke to H.E. Sultan Al-Habsi (who was outside of Oman at the time) and we were informed that the matter of the Omagine Project (and other MOT projects) had been brought before the Supreme Council and that the Supreme Council had:
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(i)
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agreed and communicated to the Minister of Tourism that he (the Minister of Tourism, not the SC) must approve or disapprove MOT projects, and
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(ii)
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approved the provision of all necessary and required infrastructure and utilities for the Omagine Project and other projects approved by the Minister of Tourism (the “SC Approval”), and
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(iii)
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agreed that the Supreme Council would verify this SC Approval in writing to the Minister of Tourism (the “SC Approval Letter”).
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On June 25, 2013, Mr. Drohan wrote a note to the Minister of Tourism which stated in relevant part: “…….
We were so pleased to hear today that the Supreme Council for Planning has approved the provision of the infrastructure for the Omagine Project. I look forward to your guidance on when the DA can be signed so our work developing Oman’s best tourism project may begin ….”.
On June 27, the Minister of Tourism, H.E. Mahrizi, called Mr. Drohan and informed him that we will sign the Omagine DA promptly after he receives the SC Approval Letter, and he mentioned that he had spoken recently with both the Minister of Finance, (H.E. Darwish Al-Balushi) and with the minister of Royal Court Affairs (H.E. Nasser Al-Kindi), both of whom are great supporters of the Omagine Project. Given H.E. Al-Kindi’s statement during the May 26
th
meeting mentioned above that -
“if there were any “small points” that H.E. Mahrizi wants to discuss with us, that he should meet with Omagine management and resolve them with us” –
Mr. Drohan took this opportunity to clarify this issue by asking H.E. Mahrizi if, in fact, there were any such “small points” which needed to be discussed. H.E. Mahrizi stated that “there are no other issues outstanding and we will be signing the DA in the coming days”.
On July 15, 2013 management spoke to H.E. Al-Balushi, the Minister of Finance and a member of the Supreme Council for Planning, who advised us that it is certain that the Government will provide the necessary infrastructure for the Omagine Project after the DA is signed. The Minister of Finance indicated that he would communicate this to the Minister of Tourism. Management scheduled a meeting with H.E. Al-Habsi soon after his recent return to Oman to determine the status of the SC Approval Letter.
On July 21, 2013, the Investment Adviser at Royal Court Affairs advised us that he had recently spoken to H.E. Al-Kindi and was informed by him that all the relevant ministers (Tourism, Finance, Royal Court Affairs and Supreme Council) had all spoken to each other regarding this issue and all were informed that the Supreme Council had approved the relevant government infrastructure and that the SC Approval Letter would be sent to MOT in due course by the Supreme Council.
In a July 25, 2013 note to the Minister of Tourism, Mr. Drohan mentioned this news saying “it would be a blessing for our patient shareholders if we sign the DA during Ramadan”.
On July 27, 2013, the Minister of Tourism, H. E, Al-Mahrizi responded in a note to Mr. Drohan saying: “Good Afternoon – we are still waiting to hear from the SC. It is a pleasure for me to sign as soon as possible. Regards”
On July 28, 2013 we met with H.E. Sultan Al-Habsi, the Secretary General of the Supreme Council for Planning who informed us that, after returning to Oman in July, he wrote to the head of Muscat Municipality and to the heads of the government owned utility providers (water, electricity, etc.) advising them of the MOT projects (including the Omagine Project) and requesting them to confirm their commitments in writing to the Supreme Council (the “I&U Confirmation Letters”) to provide and include in their current plans the necessary infrastructure & utilities for the MOT projects. His Excellency Habsi informed us that after he receives the I&U Confirmation Letters, he will send the SC Approval Letter to H. E. Mahrizi, the Minister of Tourism.
On August 1, 2013, Mr. Drohan wrote a letter to the Minister of Tourism on behalf of Omagine LLC confirming the MOT’s possession for the past several years of all the necessary and required details with respect to the requirements for Government provided infrastructure and utilities for the Omagine Project.
Management is optimistic that the DA will be signed soon but given our past experience, we will not be surprised to encounter some “small points” yet to be discussed (notwithstanding MOT’s avowal to the contrary). So therefore, although we believe it to be imminent, we are reluctant to forecast any target date for the DA signing other than that we expect it to be signed before the end of 2013.
The matter of transforming the corporate structure of Omagine LLC from a limited liability company into a joint-stock company (the “Transformation”) prior to signing the DA appears to have been resolved. Although it has not been (and probably will not be) confirmed to us, management believes that the Transformation is now a settled issue and will be done as originally planned and agreed subsequent to the DA signing.
Past experience indicates that great caution should be exercised in making any assumptions until the DA is actually signed. Management has no reason to believe any other issues presently exist and is confident that we are nearing a successful conclusion of the long delayed DA signing process. Other matters however, unknown to management at this time, may yet cause further delays. We strongly caution investors that we cannot give any assurance whatsoever that the DA will be signed by MOT and Omagine LLC until it is actually signed by them.
The Shareholder Agreement
Omagine, Inc., JOL, RCA, CCC-Panama and CCC-Oman are the shareholders of Omagine LLC and each of them is a party to a shareholders’ agreement with respect to Omagine LLC dated as of April 20, 2011 (the “Shareholder Agreement”). The Shareholder Agreement is Exhibit 10.4 hereto.
The Office of Royal Court Affairs ("RCA") is an Omani organization representing the personal interests of His Majesty, Sultan Qaboos bin Said, the ruler of Oman.
Consolidated Contractors International Company, SAL, (“CCIC”) is a 60 year old Lebanese multi-national company headquartered in Athens, Greece. CCIC has approximately five and one-half (5.5) billion dollars in annual revenue and one hundred twenty thousand (120,000) employees worldwide. It has operating subsidiaries in, among other places, every country in the MENA Region. CCC-Panama is a subsidiary of CCIC and is its investment arm. CCC-Oman is an Omani construction company with approximately 13,000 employees in Oman and is CCIC’s operating subsidiary in Oman.
Prior to the signing of the Shareholder Agreement Omagine LLC was capitalized at 20,000 Omani Rials (the “OMAG Initial Equity Investment”) and was wholly owned by Omagine, Inc. and JOL. Pursuant to the provisions of the Shareholder Agreement, Omagine, Inc. reduced its 100% ownership of Omagine LLC to sixty percent (60%) and Omagine LLC sold newly issued shares of its capital stock to RCA, CCC-Panama and CCC-Oman (collectively, the “New Shareholders”) and to Omagine, Inc. for an aggregate cash investment amount of 26,968,125 Omani Rials ($70,117,125) plus, an as yet undetermined non-cash “payment-in-kind” investment by RCA (the “PIK”), representing the value of the land constituting the Omagine Site.
Pursuant to the terms of the Shareholder Agreement, the 20,000 Omani Rial ($52,000) OMAG Initial Equity Investment made in 2009 by Omagine, Inc. was acknowledged by the New Shareholders and the 26,968,125 Omani Rials (the “$70 million Cash Investment”) to be made into Omagine LLC by Omagine, Inc. and the New Shareholders will be invested as follows:
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1.
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Omagine, Inc. and the New Shareholders invested 130,000 Omani Rials ($338,000) immediately subsequent to the signing of the Shareholder Agreement.
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2.
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Omagine, Inc. will make an additional 210,000 Omani Rial ($546,000) investment (the “OMAG Final Equity Investment”) subsequent to the signing of the DA but prior to the Financing Agreement Date (as hereinafter defined).
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3.
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The final 26,628,125 Omani Rial ($69,233,125) portion (the “Deferred Cash Investment”) will be invested by the New Shareholders on or immediately subsequent to the Financing Agreement Date.
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The value of the PIK investment by RCA will be added to Omagine LLC’s capital after such value is determined subsequent to the signing of the DA. As of the date hereof 12,000 Omani Rials ($31,200) of the OMAG Final Equity Investment has been advanced by Omagine, Inc. to Omagine LLC.
If however, Omagine LLC is required to do the Transformation before signing the DA (a requirement which as of the date hereof is unlikely but still possible), then the Omagine LLC shareholders will have to increase the capital of Omagine LLC by 350,000 Omani Rials (equivalent to approximately $910,000) before the DA is signed and the timing and amounts of the aforesaid i
nvestments by Omagine, Inc. and the New Shareholders
will be adjusted accordingly. In such an event, Omagine, Inc. would be then required to make the OMAG Final Equity Investment of 210,000 Omani Rials (equivalent to approximately $546,000) into Omagine LLC before the DA is signed.
As of the date hereof, the ownership percentage of each Omagine LLC shareholder and the total investment made into and cash advances made to Omagine LLC by each such shareholder is as follows:
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Omagine LLC
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Shareholder
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Percent Ownership
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Investment (Omani Rials)
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Investment (US Dollars)
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Cash Advances (Omani Rials)
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Omagine, Inc.
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60
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%
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90,000
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$
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234,000
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12,000
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RCA
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25
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%
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37,500
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$
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97,500
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CCC-Panama
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10
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%
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15,000
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$
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39,000
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CCC-Oman
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5
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%
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7,500
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$
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19,500
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Total Capital:
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100
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%
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150,000
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$
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390,000
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Subsequent to the Transformation and to the shareholder investments contemplated by the Shareholder Agreement being made, the ownership percentage of each Omagine SAOC shareholder and the total investment by each such shareholder into Omagine LLC/Omagine SAOC will be as follows:
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Percent
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Investment
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Investment
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Shareholder
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Ownership
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(Omani Rials)
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(US Dollars)
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Omagine, Inc.
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60%
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300,000
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$
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780,000
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RCA
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25%
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7,678,125
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$
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19,963,125
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+ PIK
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CCC-Panama
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10%
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12,673,333
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$
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32,950,666
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CCC-Oman
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5%
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6,336,667
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$
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16,475,334
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Total Capital:
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100%
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26,988,125
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$
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70,169,125
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+ PIK
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The Shareholder Agreement defines the “Financing Agreement Date” as the day upon which Omagine LLC and an investment fund, lender or other person first execute and deliver a legally binding agreement pursuant to which such investment fund, lender or other person agrees to provide debt financing for the first phase or for any or all phases of the Omagine Project.
Omagine, Inc. and JOL made the 20,000 Omani Rial ($52,000) OMAG Initial Equity Investment into Omagine LLC in 2009.
Omagine, Inc. and the New Shareholders invested a further 130,000 Omani Rials ($338,000) into Omagine LLC pursuant to the Shareholder Agreement. Omagine LLC is presently capitalized at 150,000 Omani Rials ($390,000).
Omagine, Inc. will make the 210,000 Omani Rial ($546,000) OMAG Final Investment into Omagine LLC after the DA is signed and Omagine LLC will then be capitalized at 360,000 Omani Rials ($936,000).
Omagine, Inc. as of the date hereof has advanced 12,000 Omani Rials ($31,200) of the OMAG Final Equity Investment to Omagine LLC in order to maintain Omagine LLC’s liquidity.
The New Shareholders will make an additional 26,628,125 Omani Rial ($69,233,125) investment (the “Deferred Cash Investment”) into Omagine LLC after the Financing Agreement Date occurs and Omagine LLC will then be capitalized at 26,988,125 Omani Rials ($70,169,125).
The capital of Omagine LLC will likely be increased further at a later date if and when the non-cash valuation of the PIK is recorded as a capital investment into Omagine LLC.
The Shareholder Agreement also memorializes the PIK capital contribution being made into Omagine LLC by RCA. The PIK represents a portion of RCA’s payment to Omagine LLC for its 25% ownership of Omagine LLC. The value of the PIK will equal the value to Omagine LLC that is ultimately assigned to the provision to Omagine LLC of the approximately 245 acres of beachfront land constituting the Omagine Site which His Majesty the Sultan owned and transferred to the MOT for the specific purpose of having Omagine LLC develop it into the Omagine Project. After the DA is signed, the value of the PIK will be determined by a professional valuation expert in accordance with Omani law and with the concurrence of Omagine LLC’s independent auditor, Deloitte & Touche, (M.E.) & Co. LLC.
The Shareholder Agreement defines the “Pre-Development Expense Amount” as the total amount of Omagine Project related expenses incurred by Omagine, Inc. and JOL prior to the signing of the DA. Such Pre-Development Expense Amount expenses were heretofore incurred by Omagine, Inc. and JOL and continue to be incurred by Omagine, Inc. with respect to the planning, concept design, re-design, engineering, financing, capital raising costs and promotion of the Omagine Project and the negotiation and conclusion of the DA with the Government.
The Shareholder Agreement (i) estimates that, as of the date of the Shareholder Agreement (April 20, 2011), the Pre-Development Expense Amount was approximately nine (9) million U.S. dollars, and (ii) defines the Success Fee as being equal to ten (10) million dollars.
As provided for in the Shareholder Agreement, Omagine, Inc. will receive payment in full from Omagine LLC of:
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(i)
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the Pre-Development Expense Amount and,
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(ii)
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the $10 million Success Fee.
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The Shareholder Agreement also defines the date subsequent to the Financing Agreement Date when Omagine LLC draws down the first amount of debt financing as the “Draw Date”.
The ten (10) million dollar Success Fee will be paid to Omagine, Inc. in five annual two (2) million dollar installments beginning on or within ten (10) days after the Draw Date.
Fifty percent (50%) of the Pre-Development Expense Amount will be paid to Omagine, Inc. on or within ten (10) days after the Draw Date and the remaining fifty percent (50%) will be paid to Omagine, Inc. in five equal annual installments beginning on the first anniversary of the Draw Date.
The Shareholder Agreement also specifies, among other things, the corporate governance and management policies of Omagine LLC and it provides for the Omagine LLC shares presently owned by JOL to be transferred to Omagine, Inc. subsequent to the signing of the DA.
The foregoing summary of the terms of the Shareholder Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Shareholder Agreement. The Shareholder Agreement is Exhibit 10.4 hereto.
Financial Adviser
BNP Paribas S.A. (“BNPP”) is a French global banking group headquartered in Paris, France with its second global headquarters located in London, England. In 2012, BNPP was ranked by Bloomberg and Forbes as the third largest bank in the world as measured by total assets. BNPP was named the 2012 Bank of the Year by
The International Financing Review
, a leading financial industry publication published by Thomson Reuters.
On January 2, 2013, Omagine LLC signed a letter of intent (“LOI”) with BNP Paribas, Wholesale Banking, Bahrain through its Corporate & Investment Banking department (“BNP Paribas CIB”) and BNP Paribas Real Estate Property and Management LLC (“BNP Paribas Real Estate”).
The LOI memorializes the parties’ discussions and proposals with regards to the Omagine Project as follows:
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(a)
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Omagine LLC intends to appoint BNP Paribas CIB as Omagine LLC’s financial advisor to arrange the financing for the Omagine Project, including evaluating various funding, capital and debt structures available to Omagine LLC; and
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(b)
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Omagine LLC intends to appoint BNP Paribas Real Estate to provide real estate advisory services to Omagine LLC and to assist Omagine LLC by, among other things, providing a full financial feasibility assessment and a market feasibility study for the Omagine Project. This study will be utilized by BNP Paribas CIB in arranging the project financing.
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The LOI is non-binding and subject to the execution of a definitive agreement between the parties which is expected to occur subsequent to the DA signing.
As previously disclosed (i) Omagine LLC has held discussions with and received letters of interest and “comfort letters” in support of the Omagine Project from some of the largest banks in the MENA Region including three banks in Oman, and (ii) the Company and Omagine LLC have a longstanding relationship with Bank Muscat SAOG ("BankMuscat") which is 30% owned by RCA and is the largest financial institution in Oman. After the DA is signed, Omagine LLC plans to nominate an Omani bank to be a joint-venture partner with BNP Paribas CIB with respect to the syndication of the debt financing for the Omagine Project ("Construction Financing").
Engineering, Design and Content Development
Subject to the approval of its shareholders and to negotiating and agreeing to a contract, Omagine LLC presently intends to hire Michael Baker Corp. ("Baker") as its Program Manager and Project Manager. Baker is a publicly traded U.S. firm (AMEX: BKR) in the business of providing program management, engineering, design and construction management services to a wide variety of clients including the U.S. Department of Defense and many state governments and commercial clients.
On July 29, 2013, Baker announced that it had agreed to be acquired by Integrated Mission Solutions LLC. What effect, if any, this acquisition will have on the Company’s plan to engage Baker as its Program Manager and Project Manager is unknown at this time.
The interpretive design, entertainment content, and visitor experience design candidates to be hired by Omagine LLC have been narrowed to a short list of professional companies. It is presently anticipated that subsequent to the signing of the DA, one or more of such companies ("Content Developers") will be engaged by Omagine LLC to transform the Company’s high level strategic vision for the content of the Pearl structures and surrounding areas into physical places offering emotional, intellectual and physical interactions.
In order to move into the actual design and development stage of the Omagine Project, Omagine LLC and the Government must first memorialize their agreement to the DA in a signed written document. All of management’s past estimates regarding the timing of the signing of the DA have been incorrect. Because of management’s recent discussions mentioned above with the Minister of Tourism and other ministers of the Oman Government however, we are now cautiously optimistic that the DA will be signed in the near future.
Although the timing of the Transformation or the provision of the government infrastructure as mentioned above appear to be resolved, in view of the long history of delays by the Government, matters unknown to management at this time, may yet cause further delays. No assurance can therefore be given at this time when or if the DA will be signed.
The Company is a development stage entity and is not expected to generate revenue until after the occurrence of an event - the signing of the Development Agreement for the Omagine Project - which, as of the date hereof, has not yet occurred. Moreover, revenue from real estate development associated with the Omagine Project is not expected to occur until subsequent to the Financing Agreement Date. Pursuant to the terms of the Shareholder Agreement, Omagine, Inc. will derive revenue on and subsequent to the Financing Agreement Date from the payment to it by Omagine LLC of (i) the $10 million Success Fee, and (ii) the Pre-Development Expense Amount.
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 forecasts for them as expressed or implied by such forward-looking statements. Forecasts and assumptions contained and expressed herein are based on information available to the Company at the time so furnished and such forecasts and assumptions are as of the date hereof and are, in the opinion of management, reasonable. All such forecasts 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 forecasts will be realized or that the assumptions are correct. Potential investors are cautioned not to place undue reliance on any such forward-looking statements which speak only as of the date hereof.
Notwithstanding anything to the contrary contained in this report, 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.
Results of Operations
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The Company is a development stage entity and 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. The Company will need to generate revenue in order to attain profitability.
The Company is focusing all of its efforts on Omagine LLC's real estate development and entertainment business and will rely on Omagine LLC's future operations for the Company's future revenue generation.
Management is presently examining other possible sources of revenue for the Company which, subject to the Development Agreement being executed by Omagine LLC and the Government of Oman, may be added to the Company’s operations.
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.
In order to conserve its cash resources, the Company has frequently deferred salary payments to its executive officers, utilized stock options to incentivize its employees and consultants and utilized its Common Stock in lieu of cash to pay various professional fees. This policy continues as of the date hereof.
THREE MONTHS ENDED JUNE 30, 2013 vs.
THREE MONTHS ENDED JUNE 30, 2012
The Company did not generate any revenue or incur any cost of sales for the three month periods ended June 30, 2013 and 2012 respectively. Total selling, marketing, general and administrative operating expenses (“SG&A Expenses”) were $617,934 during the three month period ended June 30, 2013 compared to $704,564 during the three month period ended June 30, 2012. This $86,630 (12.3%) decrease in SG&A Expenses was attributable to decreases in the following expense categories: stock option expense ($85,883), 401(k) contributions ($76,250), travel ($25,923) and other SG&A Expenses ($3,171); offset by increases in the following expense categories: professional fees ($62,387), consulting fees ($18,187) and rent ($24,023).
The Company sustained a net loss of $612,026 for the three month period ended June 30, 2013 compared to a net loss of $705,441 for the three month period ended June 30, 2012. This $93,415 (13.2%) decrease in the Company's net loss during the first six months of 2013 compared to its net loss during the first six months of 2012 was principally attributable to the $86,630 decrease in SG&A Expenses mentioned above, plus a $1,580 decrease in interest expense and a $5,205 increase in net loss attributable to minority shareholders of Omagine LLC.
SIX MONTHS ENDED JUNE 30, 2013 vs.
SIX MONTHS ENDED JUNE 30, 2012
The Company had no revenue during the six month periods ended June 30, 2013 or June 30, 2012.
SG&A Expenses were $1,403,768 during the six month period ended June 30, 2013 compared to $1,421,686 during the six month period ended June 30, 2012.This $17,918 (1.2%) decrease in SG&A Expenses was attributable to decreases in the following expense categories: stock option expense ($167,072), travel ($10,117), stockholder relations expense ($18,161) and other SG&A Expenses ($18,444); offset by increases in the following expense categories: consulting fees ($135,425) and professional fees ($60,451).
The Company sustained a net loss of $1,398,069 for the six month period ended June 30, 2013 compared to a net loss of $1,423,858 for the six month period ended June 30, 2012. This $25,789 (1.8%) decrease in the Company’s loss during the first six months of 2013 compared to its net loss during the first six months of 2012 was primarily attributable to the $17,918 decrease in SG&A Expenses referred to above, a $8,853 decrease in interest expense and a $982 decrease in net loss attributable to minority shareholders of Omagine LLC.
Liquidity and Capital Resources
The Company incurred net losses of $1,398,069 and $1,423,858 respectively in the six month periods ended June 30, 2013 and 2012. During the six month period ended June 30, 2013, the Company had net positive cash flow of $11,595 resulting from the positive cash flow of $307,720 from its financing activities being offset by the negative cash flow of $296,125 from its operating activities. Financing activities during the six month period ended June 30, 2013 consisted of sales by Omagine, Inc. of shares of its Common Stock.
The Company had no capital expenditures during the first six months of 2013. Assuming Omagine LLC and the Government of Oman sign the Development Agreement for the Omagine Project in 2013 as expected, the Company anticipates that it will incur significant expenses related to capital expenditures, marketing, public relations and promotional activities in fiscal year 2013 and beyond.
At June 30, 2013, the Company had $85,100 in current assets, consisting of $73,722 of cash and $11,378 of prepaid expenses. The Company's current liabilities at June 30, 2013 totaled $1,289,419 consisting of $334,072 of convertible notes payable and accrued interest, $310,235 of accounts payable and accrued expenses and $645,112 in accrued officers’ payroll. At June 30, 2013, the Company had a working capital deficit of $1,204,319 compared to a working capital deficit of $867,822 at December 31, 2012. Sixty-six percent (66%) of the $1,289,419 of current liabilities at June 30, 2013 ($845,414) is due and owing to officers and/or directors.
The $336,497 increase in the Company's working capital deficit at June 30, 2013 compared to December 31, 2012 is attributable to (i) a $152,761 reduction in prepaid items offset by an $11,595 increase in cash, and (ii) a $195,331 increase in current liabilities. The Company’s liabilities at June 30, 2013 increased compared to December 31, 2012 due to increases in accounts payable and accrued expenses of $57,944, accrued officers’ payroll of $123,750 and accrued interest on convertible notes payable of $13,637.
The consolidated financial statements contained in this report have been prepared for the Company as a development stage entity and assuming that the Company will continue as a going concern. As discussed in Note 2 to such consolidated financial statements, the Company's present financial condition raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 2. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts or classification of liabilities that might be necessary in the event the Company cannot continue in existence. The continued existence of the Company is dependent upon its ability to obtain additional financing, execute its business plan and attain profitable operations.
Omagine LLC
Omagine LLC presently has limited resources.
Omagine, Inc. and JOL made the 20,000 Omani Rial ($52,000) OMAG Initial Equity Investment into Omagine LLC in 2009.
Omagine, Inc. and the New Shareholders invested a further 130,000 Omani Rials ($338,000) into Omagine LLC pursuant to the Shareholder Agreement. Omagine LLC is presently capitalized at 150,000 Omani Rials ($390,000).
Omagine, Inc. will make the 210,000 Omani Rial ($546,000) OMAG Final Investment into Omagine LLC after the DA is signed and Omagine LLC will then be capitalized at 360,000 Omani Rials ($936,000).
Expenses incurred during the many extended delays in signing the DA have depleted Omagine LLC’s resources and Omagine, Inc. as of the date hereof has advanced 12,000 Omani Rials ($31,200) of the OMAG Final Equity Investment to Omagine LLC in order to maintain Omagine LLC’s liquidity.
The New Shareholders will make an additional 26,628,125 Omani Rial ($69,233,125) investment (the “Deferred Cash Investment”) into Omagine LLC after the Financing Agreement Date occurs and Omagine LLC will then be capitalized at 26,988,125 Omani Rials ($70,169,125).
The capital of Omagine LLC will likely be increased further at a later date if and when the non-cash valuation of the PIK is recorded as a capital investment into Omagine LLC.
If however, Omagine LLC is required to do the Transformation before signing the DA (which presently appears unlikely), then the Omagine LLC shareholders will have to increase the capital of Omagine LLC by 350,000 Omani Rials ($910,000) before the DA is signed, and the timing and amounts of the aforesaid investments will be adjusted accordingly. In such an event, Omagine, Inc. would be required to make the OMAG Final Equity Investment of 210,000 Omani Rials ($546,000) into Omagine LLC before the DA is signed.
The value of the non-cash “payment-in-kind” investment by RCA will be added to Omagine LLC’s capital after such value is determined subsequent to the signing of the Development Agreement.
The continuation of Omagine LLC’s business and its efforts to sign the Development Agreement have to a large extent been financed to date by Omagine, Inc. and it is planned that such activities will, to a large extent, continue to be financed by Omagine, Inc. until the DA is signed. The Company is relying for revenue growth upon the future business of its 60% owned subsidiary Omagine LLC.
Omagine Inc.
The continuation of the Company’s operations is dependent upon Omagine, Inc.’s ability to secure financing for its and Omagine LLC’s operations until such time as the DA is signed, the Financing Agreement Date occurs and Omagine LLC begins paying Omagine, Inc. the $10 million Success Fee and the approximately $9 million of Pre-Development Expenses.
In order to provide financing for its recent activities, the Company has relied on the proceeds from sales of its Common Stock pursuant to (i) private placement sales, (ii) the Standby Equity Distribution Agreement discussed below, and (iii) the Rights Offering discussed below. In addition the Company has entered into a loan agreement dated as of July 26, 2013 (the “YA Loan Agreement”) as discussed below. Investors and Shareholders should be aware that as a Development Stage Entity we have had no revenue for the past several years and do not expect to generate any revenue until after the DA is signed and the Financing Agreement Date is achieved.
The significant expenses incurred during the many extended delays by the Government of Oman in signing the DA have strained and continue to strain the Company’s resources. Because the Company financed such expenses and its continuing operations during such delays via sales of new shares of its Common Stock, these delays by the Government of Oman have resulted in a material increase in the number of issued and outstanding shares of the Company’s Common Stock. This point is illustrated by the fact that between January 1, 2008 and the date hereof the Company has issued and sold 4,821,288 shares of its Common Stock to investors, vendors, officers and consultants. All or most of such shares would likely not have been issued and sold had the DA been signed in a timely manner as promised frequently by the MOT.
Either the failure of Omagine LLC to sign the Development Agreement with the Government of Oman or, if signed, the failure thereafter of the Financing Agreement Date to occur, will have a materially significant effect on the Company’s ability to continue operations.
Rights Offering and Warrant Distribution
Rights Offering
The Company conducted a “Rights Offering” between February 24, 2012 and March 30, 2012 for the sole benefit of the Record Shareholders pursuant to which the Company distributed a total of 3,181,837 “Rights” to Record Shareholders. The Company withheld the issuance of exercisable Rights to its Record Shareholders who were residents of California (the “California Shareholders”) because the registration and/or qualification in California of the Rights and the Common Stock underlying the Rights had not yet been approved by the California Department of Corporations (the “California Approval”). The California Shareholders were excluded from participating in the Rights Offering because the California Approval was not received prior to the March 24, 2012 expiration date of the Rights Offering.
1,014,032 Common Shares were subscribed for in the Rights Offering at a subscription price of $1.25 per Common Share. Proceeds to the Company from the Rights Offering were $1,267,540 of which $731,639 was paid in cash and $535,901 was paid via the satisfaction of debt owed by the Company to Record Shareholders exercising such Rights. Of the 1,014,032 new shares issued pursuant to the Rights Offering, 585,311 of such shares were issued in exchange for the aforementioned $731,639 in cash and 428,721 of such shares were issued in exchange for the aforementioned satisfaction of $535,901 of Company debt constituting promissory notes for loans to the Company and accrued but unpaid salaries and expenses. Of the $535,901 of Company debt which was satisfied in the Rights Offering, $506,750 of such debt represented unpaid salaries, expenses and loans to the Company which were due and owing by the Company to officers and directors of the Company.
The Rights and the Common Shares underlying the Rights were registered in a registration statement filed by the Company on Form S-1 (Commission File No. 333-179040), which was declared effective by the SEC on February 13, 2012 (the “Original Registration”).
Warrant Distribution
In February 2012, the Company distributed 6,363,674 Common Stock purchase warrants (“Warrants”) to the Record Shareholders and after receiving the California Approval, the Company distributed an additional 58,450 Warrants (the “California Warrants”) to the California Shareholders in May 2013.
Of the 6,422,124 Warrants issued and outstanding, 3,211,062 are $5 Warrants and 3,211,062 are $10 Warrants. Pursuant to a resolution of the Board of Directors dated July 16, 2013, the original December 31, 2013 expiration date for the Warrants was extended for one year. All Warrants now expire on December 31, 2014 unless, upon a 30 day prior notice from the Company to the Warrant Holders, they are redeemed earlier by the Company.
Management is hopeful that, when and if the Omagine Development Agreement is signed, that all or many of the 6,422,124 outstanding Warrants will thereafter become “in the money” and will be exercised. Management is hopeful that the Warrants will provide a future source of additional financing for the Company. Such an exercise of Warrants would provide the significant amount of capital necessary to fund (i) the OMAG Final Equity Investment into Omagine LLC, and should it be desirable at the time, (ii) a secured loan to Omagine LLC which would in turn trigger the first Financing Agreement Date. There can be no assurance given that the Company will be able to successfully utilize the Warrants to secure the significant amount of financing necessary for it to execute its business plan as presently conceived.
The Warrants and Common Shares underlying the Warrants were registered in the Original Registration and in a registration statement covering the California Warrants filed by the Company on Form S-1 (Commission File No. 333-183852), declared effective by the SEC on April 25, 2013 (the “California Registration”). The effectiveness of the Original Registration expired on November 12, 2012. As of the date hereof the California Registration remains effective. The Company intends to file a post-effective amendment to the California Registration with the SEC covering the registration of all 6,422,124 issued and outstanding Warrants and the 6,422,124 Common Shares underlying such Warrants.
Standby Equity Distribution Agreement
On May 4, 2011, Omagine, Inc. and an investment fund, YA Global Master SPV Ltd. (“YA”), entered into a two year Stand-By Equity Distribution Agreement which was amended on June 21, 2011 (the “SEDA”). Omagine, Inc. issued 244,216 restricted shares of Common Stock to YA in satisfaction of $300,000 of commitment fees due to YA pursuant to the SEDA. From April 24, 2012 to May 17, 2012, the Company was in breach of one of the covenants it made in the SEDA but that breach was waived by YA and the breach was cured on May 17, 2012 (See: Exhibit 10.2 hereto).
The SEDA was originally scheduled to expire on September 1, 2013 but, as of July 26, 2013, it was amended by the parties without any further commitment fee to extend it for one year. The SEDA now expires on September 1, 2014.
Pursuant to the terms of the SEDA, Omagine, Inc. may in its sole discretion, and upon giving written notice to YA (an “Advance Notice”), periodically sell shares of its Common Stock to YA (“Shares”) at a per Share price (“Purchase Price”) equal to 95% of the lowest daily volume weighted average price for a share of Common Stock as quoted by Bloomberg, L.P. during the five (5) consecutive Trading Days (as such term is defined in the SEDA) immediately subsequent to the date of the relevant Advance Notice (the “Pricing Period”). Omagine, Inc. is not obligated to sell any Shares to YA but may, over the term of the 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 $10,000,000 in the aggregate. YA is obligated under the SEDA to purchase such Shares from Omagine, Inc. subject to certain conditions including (i) Omagine, Inc. filing a registration statement with the Securities and Exchange Commission (the “SEC”) to register the resale by YA of the Shares sold to YA under the SEDA (“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 five Trading Days, and (iv) the dollar value of any individual periodic sale of Shares designated by Omagine, Inc. 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 shares of the Common Stock for such Trading Day by the closing bid price for a share of Common Stock on such Trading Day.
The Registration Statement filed by the Company was declared effective by the SEC as of August 24, 2011 (Commission File No. 333-175168) and its effective status expired on May 25, 2012. The Company filed an amendment to that Registration Statement with the SEC to continue to make sales of Shares to YA available to it pursuant to the SEDA and on April 25, 2013 the SEC declared such Registration Statement to be effective.
The Company has over the past many years relied on the proceeds from sales of Omagine, Inc.'s equity securities made in private placements, the Rights Offering and pursuant to the SEDA to generate the necessary cash needed to sustain our ongoing operations. Management believes that it has been quite judicious and conservative in its use to date of the SEDA in this regard, but nonetheless our periodic sales of Common Stock to YA pursuant to the SEDA have been dilutive to all shareholders and YA’s resales of such shares of Common Stock in the public market has from time to time inflicted downward pressure on our stock price. The Company intends to continue to utilize the SEDA to fund its ongoing operations, as and if necessary. There can be no assurance given that the Company will be able to successfully utilize the SEDA to secure the significant amount of financing necessary for it to execute its business plan as presently conceived.
The YA Loan Agreement
The Company and YA, the investment fund which is a party to the SEDA with the Company, entered into a loan agreement dated July 26, 2013 (the “YA Loan Agreement”). Pursuant to the YA Loan Agreement, Omagine, Inc. will borrow two hundred thousand dollars ($200,000) from YA (the “YA Loan”) for a term of one year at an annual interest rate of 10%. The YA Loan Agreement calls for a 10% monitoring and management fee equal to $20,000 to be escrowed and paid to Yorkville Advisors, LLC thereby making the net proceeds from the YA Loan to the Company equal to $180,000. Such $180,000 of proceeds will only be received by the Company after a post-effective amendment updating the currently effective SEDA registration statement is declared effective by the SEC. The Company intends to file such post-effective amendment with the SEC as soon as practicable after the date hereof. The YA Loan Agreement also extends the expiration date of the SEDA to September 1, 2014. The foregoing summary of the terms of the YA Loan does not purport to be complete and is qualified in its entirety by reference to the full text of the YA Loan Agreement attached hereto as Exhibit 10.16.
Although it is not a condition of the YA Loan Agreement, the Company anticipates that, absent a DA signing, the YA Loan will be repaid from proceeds of sales of Common Stock made pursuant to the SEDA. Depending on future circumstances and events, and in particular on further delays in signing the DA, the same dilution and downward pressure on our stock price mentioned above could occur as a result of the use of the SEDA to service the YA Loan. It is management’s opinion however that if and after the DA is signed, such dilution and downward pressure on our stock price will be substantially alleviated with respect to sales of Common Shares made pursuant to the SEDA. Management’s original intent with respect to the SEDA was to use it only after the DA was signed. The continued delays by the Omani Government in signing the DA however have necessitated that we utilize the SEDA (and now the YA Loan) to finance our current operations.
Management believes that the various financing mechanisms the Company has employed to date have been judiciously utilized, but the longer the Government of Oman delays the DA signing, the longer the Company’s human and financial resources will be strained, and the greater will be the amount of shareholder dilution and downward pressure on our stock price from the utilization of these various financing mechanisms.
Capital Expenditures and Construction Financing
The Company did not incur any expense for capital expenditures during the first six months of 2013. Assuming Omagine LLC signs the DA with the Government as anticipated, we expect that in the periods subsequent to such DA signing (i) the Company will incur significant expenses related to capital expenditures, and (ii) Omagine LLC will incur substantial debt associated with the Construction Financing for the Omagine Project. We anticipate that such capital expenditures and Construction Financing will be financed through a combination of invested capital, bank financing and possibly a sale of up to an additional 5% of Omagine LLC’s equity (See: “Financial Advisor”).
Omagine LLC's requirement for Construction 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 subsequent to the recent worldwide financial crisis however have indicated a reduced presence of speculative buyers and a reduced consumer appetite for pre-sales of residence units as many more buyers are now demanding a finished product before entering into sales contracts with developers.
Off-Balance Sheet Arrangements
We have 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.