Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
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Commission File Number 0-17264
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Omagine, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 20-2876380
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(State of incorporation) (I.R.S. Employer
Identification Number)
350 Fifth Avenue, Suite 1103, New York, N.Y. 10118
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(Address of Principal Executive Offices)
Registrant's telephone number and area code: (212) 563-4141
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
(1)
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act of
1933, as amended ("Securities Act"). [ ] Yes [x] No
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes [x] 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 (the "Act") during the preceding
12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this chapter)
is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [x]
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 Act). [ ] Yes [x] No
On December 30, 2009, as previously disclosed, the Registrant
effected a 100-for-1 reverse split of its Common Stock
immediately followed by a 1-for-20 forward split (the "Stock
Splits"). The financial statements contained herein give
retroactive effect to the Stock Splits.
The aggregate market value of the 8,428,804 shares of voting
stock held by non-affiliates of the Registrant (based upon the
average of the high and low bid prices) on June 30, 2010, the
last day of the Registrant's most recently completed second
quarter, was $4,846,562. (SEE: "Market for Registrants' Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities").
As of April 15, 2011, the Registrant had outstanding 12,401,950
shares of Common Stock, par value $.001 per share ("Common
Stock").
(2)
Documents Incorporated By Reference
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The Index to Exhibits appears on page 63.
Omagine, Inc.
Table of Contents to Annual Report on Form 10-K
Fiscal Year Ended December 31, 2010
Page
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Forward-Looking Statements 4
Part I
Item 1. Business 5
Item 2. Properties 29
Item 3. Legal Proceedings 29
Item 4. Submission of Matters to a Vote
of Security Holders 29
Part II
Item 5. Market for Registrant's Common Equity,
Related Stockholder Matters and
Issuer Purchases of Equity Securities 29
Item 6. Selected Financial Data 34
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 34
Item 8. Financial Statements and Supplementary
Data 42
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 42
Item 9A. Controls and Procedures 42
(3)
Item 9B. Other Information 43
Part III
Item 10. Directors, Executive Officers and
Corporate Governance 43
Item 11. Executive Compensation 48
Item 12. Security Ownership of Certain
Beneficial Owners and Management
and Related Stockholder Matters 59
Item 13. Certain Relationships and Related
Transactions and Director
Independence 60
Item 14. Principal Accountant Fees and Services 62
PART IV
Item 15. Exhibits, Financial Statement Schedules 63
Forward-Looking Statements
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Some of the information contained in this Report may constitute
forward-looking statements or statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on current expectations and
projections about future events. The words "estimate", "plan",
"intend", "expect", "anticipate" and similar expressions are
intended to identify forward-looking statements which involve,
and are subject to, known and unknown risks, uncertainties and
other factors which could cause the Company's actual results,
financial or operating performance or achievements to differ
from future results, financial or operating performance, or
achievements expressed or implied by such forward-looking
statements. Projections and assumptions contained and expressed
(4)
herein were reasonably based on information available to the
Company at the time so furnished and as of the date of this
filing. All such projections and assumptions are subject to
significant uncertainties and contingencies, many of which are
beyond the Company's control and no assurance can be given that
the projections will be realized. Potential investors are
cautioned not to place undue reliance on any such forward-
looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release any
revisions to these forward-looking statements to reflect events
or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
PART I
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Item 1. Business.
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Introduction
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Omagine, Inc. ("Registrant" or "Omagine, Inc.") is the
successor to Alfa International Corp. which was incorporated in
New Jersey in 1978. In October 2004 the Registrant changed its
corporate domicile from New Jersey to Delaware and in June 2007
the Registrant changed its corporate name to Omagine, Inc.
In November 2009 Omagine, Inc. formed Omagine LLC, an Omani
limited liability company, as its wholly owned subsidiary in
Oman.
Omagine, Inc. is a holding company which conducts substantially
all its operations through its wholly-owned subsidiaries,
Journey of Light, Inc., a New York corporation ("JOL") and
Omagine LLC, an Omani corporation ("Omagine LLC"). JOL and
Omagine LLC are engaged primarily in the business of real estate
development in the Sultanate of Oman ("Oman"). Omagine, Inc.,
JOL and Omagine LLC are sometimes collectively referred to
herein as the "Company".
(5)
The Company plans to continue its focus on real estate
development, entertainment and hospitality ventures and on
developing, building, owning and operating tourism and
residential real estate development projects, primarily in the
Middle East and North Africa (the "MENA Region").
Omagine, Inc. presently concentrates its efforts on the
development of the business of Omagine LLC. (See: "Management's
Discussion and Analysis of Financial Condition and Results of
Operations").
The Company's executive office is located at The Empire State
Building, 350 Fifth Avenue, Suite 1103, New York, NY 10118,
and its telephone number is 212-563-4141. The Company also
leases a warehouse in Jersey City, New Jersey. Omagine LLC
leases an office in Muscat, Oman. All facilities are leased from
unaffiliated third parties.
Products, Services, Marketing and Distribution
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The Omagine Project
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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 by Omagine LLC
in Oman. Omagine LLC was formed in Oman as a limited liability
company on November 23, 2009 for the purpose of designing,
developing, owning and operating 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 (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
(6)
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 more than two thousand residences to be
developed for sale.
Significant commercial, retail, entertainment and hospitality
elements are also included in the Omagine Project which is
expected to take more than five years to complete. The Company
plans, over time, to also be in the property management,
hospitality and entertainment businesses.
Non-Omani persons (such as expatriates living and working in
Oman) are not permitted by Omani law to purchase land or
residences in Oman outside of an Integrated Tourism Complex
("ITC"). Pursuant to the Development Agreement as presently
contemplated, the Government will issue a license to Omagine
LLC designating the Omagine Project as an ITC and as such,
Omagine LLC will be permitted to sell the freehold title to land
and residential properties which are developed on the Omagine
Site to any person, including any non-Omani person.
The Development Agreement
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The contract between the Government and Omagine LLC which will
govern the Government's and Omagine LLC's rights and obligations
with respect to the Omagine Project is the "Development
Agreement" (the "DA").
On June 9, 2010 the Ministry of Tourism of the Sultanate of Oman
("MOT") approved the proposed Development Agreement between the
Government and Omagine LLC. In October 2010 the proposed
Development Agreement was approved by the Ministry of Finance of
the Sultanate of Oman ("MOF").
The final step in the Government approval process is the review
of the DA by the Ministry of Legal Affairs ("MOLA"). Omagine LLC
and its attorneys have now received from the MOT the comments
made by MOLA to MOT on the DA. Omagine LLC has responded to MOT
regarding the MOLA comments. MOT has now informed Omagine LLC in
writing (the "MOT Transmittal") that all matters are now
finalized and has requested that we provide MOT with a final
(7)
version of the DA so that MOT and Omagine LLC may proceed with
the execution of the DA. On March 30, 2011 in response to the
MOT Transmittal, Omagine LLC's attorneys sent the final version
of the DA (the "Final DA") to the MOT.
While, management presently expects that the Final DA will in
fact be final, management cautions that (i) some of the language
in the MOT Transmittal was vague, and (ii) the MOT Transmittal
sought at the last minute to reopen long-ago agreed and approved
matters and the reopening of these previously agreed and
approved matters was rejected by Omagine LLC.
The Company's prior quarterly, annual and current reports filed
with the SEC have exhaustively detailed the many delays
experienced to date in our efforts to get the DA signed with the
Government of Oman. The narrative of those delays is available
in such reports and need not be repeated here. Ironically
however, a sober assessment of those delays now indicates that,
although the delays were not of our making - they have most
probably worked to the benefit of Omagine LLC and the Company.
Had Omagine LLC signed the DA in 2008 or 2009, in hindsight it
now seems clear that the downturn in the local real-estate
market resulting from the worldwide financial crisis would most
probably have had a negative effect on Omagine LLC's projected
sales revenue. Currently, the real estate market in the Muscat
area is experiencing a slow but steady recovery. Although we did
not plan it this way, management is presently of the opinion
that paradoxically, the prospects for Omagine LLC and the
Company, as well as for the Omagine Project and all of the
Company's shareholders, have been enhanced by the delays
encountered in signing the DA.
The date of signing the Development Agreement is entirely in the
hands of the Government but management anticipates that the DA
will be signed shortly after the registration with the Ministry
of Commerce of Oman of the ownership positions of the Omagine
LLC shareholders (the "Registration"). The Registration is a
necessary condition precedent to the signing of the DA.
In spite of the extraordinary delays to date, the Company
believes that the Government is now eager to conclude and sign
the DA as soon as possible. We are presently awaiting the MOT's
response to the Final DA.
(8)
The Shareholder Agreement
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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 Lebanese
multi-national company headquartered in Athens, Greece. CCIC has
five (5) billion dollars in annual revenue, one hundred fifty
thousand (150,000) employees worldwide, and operating
subsidiaries in, among other places, every country in the MENA
Region. Consolidated Contracting Company S.A. ("CCC-Panama") is
a wholly owned subsidiary of CCIC and is its investment arm.
Consolidated Contractors (Oman) Company LLC, ("CCC-Oman") is an
Omani limited liability company and is CCIC's operating
subsidiary in Oman.
As previously reported, CCC-Panama and Omagine, Inc. each signed
a subscription agreement and a shareholder agreement with
respect to Omagine LLC on December 18, 2010 (the "December 2010
Agreements"). Pursuant to the terms of the December 2010
Agreements, CCC-Panama agreed to invest 19,010,000 Omani Rials
(approximately $49.5 million U.S. Dollars) into Omagine LLC in
exchange for fifteen percent (15%) of the capital stock of
Omagine LLC and Omagine, Inc. agreed to invest 275,000 Omani
Rials (approximately $715 thousand U.S. Dollars) into Omagine
LLC in exchange for fifty-five percent (55%) of the capital
stock of Omagine LLC.
The December 2010 Agreements also contemplated that RCA would
provide the land for the Omagine Site to Omagine LLC and invest
7,678,125 Omani Rials (approximately $20 million U.S. Dollars)
into Omagine LLC in exchange for twenty five percent (25%) of
the capital stock of Omagine LLC and that another Omani limited
liability company (the "Second Omani Investor") would invest
3,071,250 Omani Rials (approximately $8 million U.S. Dollars)
[the "Second Omani Investment Amount"] into Omagine LLC in
exchange for five percent (5%) of the capital stock of Omagine
LLC.
Pursuant to Omani law and as previously reported, an Omani
company having a majority foreign ownership (such as Omagine
LLC) must have a minimum of 30% Omani ownership. The
(9)
abovementioned 5% was offered to the Second Omani Investor
solely to insure that Omagine LLC met this legal requirement.
However, since the passage and ratification of the U.S. Oman
Free Trade Agreement ("FTA"), this 30% Omani ownership rule no
longer applies to majority foreign owned Omani companies where
the foreign owner is a U.S. person (such as Omagine LLC).
In our discussions and negotiations subsequent to the December
2010 Agreements it was agreed that the Second Omani Investor
would not be a shareholder of Omagine LLC. Although the FTA
obviated the need for a Second Omani Investor, management - in
an abundance of caution and to eliminate any further discussion
or delay with the Government - requested CCIC (and CCIC agreed)
to divide their 15% ownership in Omagine LLC as follows: 10% for
CCC-Panama and 5% for CCC-Oman (which is an Omani corporate
person) thereby continuing to meet the Omani legal requirement
for 30% Omani ownership even though such requirement no longer
existed for Omagine LLC.
Management presently believes that subsequent to the signing of
the DA Omagine LLC will be able to sell a percentage of its
equity to one or more third party investors for an amount in
excess of the per share investment amount represented by the
Second Omani Investment Amount.
Extensive discussions and negotiations among the 3 new Omagine
LLC investors (the "New Shareholders") and their respective
attorneys and Omagine, Inc. and its attorneys took place between
January 2011 and the date of this report. The New Shareholders
are (i) RCA, (ii) CCC-Panama and (iii) CCC-Oman. A written
agreement (the "Shareholder Agreement") has now been verbally
agreed by the New Shareholders and Omagine, Inc. The parties to
the Shareholder Agreement are the New Shareholders and Omagine,
Inc.
The Shareholder Agreement is not a legally binding agreement
until it is signed by all the parties and management presently
expects that the Shareholder Agreement will be signed by it and
the New Shareholders shortly after the date of this report. The
following discussion and all references in this report to "the
Shareholder Agreement" assumes that the Shareholder Agreement
will be signed by all the parties thereto. Notwithstanding the
foregoing sentence or any reference in this report to the
Shareholder Agreement, no assurance can be given at the present
(10)
time that the Shareholder Agreement will actually be signed by
the parties thereto.
The Shareholder Agreement modifies the December 2010 Agreements
and, after it is signed by the parties, it will supersede and
replace both the December 2010 Agreements and all other prior
agreements or memoranda of understanding between or among any
party and Omagine LLC or the Company with respect to investment
in and ownership of Omagine LLC.
Pursuant to the provisions of the Shareholder Agreement,
Omagine, Inc. will reduce its 100% ownership of Omagine LLC to
sixty percent (60%) and Omagine LLC will sell newly issued
shares of its capital stock to the New Shareholders and to
Omagine, Inc.
The December 2010 Agreements and previous disclosures by the
Registrant had defined the "Financing Agreement Date" as the day
upon which Bank Muscat and/or other lenders deliver to Omagine
LLC a written term sheet. The Shareholder Agreement now 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 financing agreement. The Financing
Agreement Date is presently projected by management to occur
within twelve months after the signing of the DA.
The December 2010 Agreements and previous disclosures by the
Registrant indicated that (i) CCIC would fund the bulk of its
investment amount on or shortly after the Financing Agreement
Date, and (ii) RCA and the Second Omani Investor would fund the
bulk of their respective investment amounts by subscribing for
convertible notes to be issued by Omagine LLC and that 75% of
the principal amount of such notes would be paid to Omagine LLC
prior to the Financing Agreement Date. The Shareholder Agreement
will eliminate the Second Omani Investor and the notes and
specifies that RCA will fund the bulk of its investment on or
shortly after the Financing Agreement Date in an identical
manner as CCC-Panama and CCC-Oman will fund their respective
investments.
The December 2010 Agreements and previous disclosures by the
Registrant indicated that Omagine, Inc. and JOL would ultimately
invest a total of 275,000 Omani Rials (approximately $715
thousand U.S. Dollars) into Omagine LLC in 3 tranches, the
(11)
result of which would be that Omagine, Inc. would reduce its
100% ownership of the capital stock of Omagine LLC to 55%. The
Shareholder Agreement now specifies that Omagine, Inc. and JOL
will ultimately invest a total of 300,000 Omani Rials
(approximately $780 thousand U.S. Dollars) into Omagine LLC in 3
tranches, the result of which will be that Omagine, Inc. will
reduce its 100% ownership of the capital stock of Omagine LLC to
60%. The Shareholder Agreement also specifies that the Omagine
LLC shares presently owned by JOL will be transferred to
Omagine, Inc.
The cash investment amounts by RCA and CCIC as specified in the
Shareholder Agreement remain the same as specified in the
December 2010 Agreements and previous disclosures except that
the CCIC investment amount is now divided between CCC-Panama and
CCC-Oman. The Shareholder Agreement also recognizes the payment-
in-kind ("PIK") capital contribution to be made by RCA to
Omagine LLC represented by the approximately 245 acres of
beachfront land constituting the Omagine Site which His Majesty
the Sultan owned and transferred to the Government for the
specific purpose of developing it into the Omagine Project. The
value of the PIK will be determined at a later date by a
professional valuation expert and in accordance with Omani law
and with the concurrence of Omagine LLC's independent auditor.
The Pre-Development Expense Amount (estimated at approximately
nine (9) million U.S. dollars) is the amount of expenses
incurred by the Company prior to the signing of the DA with
respect to the planning, concept design, re-design, engineering,
financing, capital raising costs and promotion of the Omagine
Project, and with respect to the negotiation and conclusion of
the Development Agreement with the Government.
The Shareholder Agreement now defines the "Draw Date" as the
date upon which Omagine LLC receives the first amount of debt
financing pursuant to a legally binding financing agreement. The
December 2010 Agreements and previous disclosures by the
Registrant indicated that a portion of the Pre-Development
Expense Amount equal to Omagine, Inc.'s required 3rd tranche
investment into Omagine LLC (the "OMAG Final Investment") would
be paid to Omagine, Inc. prior to the Financing Agreement Date
(the "Partial Payment") and that such Partial Payment would be
immediately re-invested by Omagine, Inc. into Omagine LLC to
(12)
make the OMAG Final Investment. The Shareholder Agreement now
specifies that the Pre-Development Expense Amount will be paid
to Omagine, Inc. as follows: (i) 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 (ii) the remaining
fifty percent (50%) of the Pre-Development Expense Amount will
be paid to Omagine, Inc. in five equal annual installments
beginning on the first anniversary of the Draw Date.
The Shareholder Agreement further specifies that in addition to
the Pre-Development Expense Amount, a "success fee" of ten (10)
million U.S. dollars 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.
The final percentage ownership result as specified in the
Shareholder Agreement is as follows:
Omagine, Inc. 60%
RCA 25%
CCC-Panama 10%
CCC-Oman 5%
and subsequent to the cash investments into Omagine LLC being
made by the above shareholders, the capital of Omagine LLC
(exclusive of any capital increase resulting from the valuation
of the PIK) will be 26,988,125 Omani Rials (approximately $70
million U.S. dollars).
All proceeds from the sales of capital stock to the New
Shareholders and to Omagine, Inc. will belong to Omagine LLC.
None of the New Shareholders are affiliates of the Company. The
Shareholder Agreement also specifies, among other things, the
corporate governance and management policies of Omagine LLC.
As required by Omani law, Omagine LLC will complete the
Registration as promptly as possible after the Shareholder
Agreement is signed by all the parties. The Registration is a
straightforward non-controversial process and is expected to be
completed in a timely manner.
Pursuant to the terms of the Shareholder Agreement as presently
agreed:
(13)
1. the New Shareholders (RCA, CCC-Panama and CCC-Oman) will
subscribe for and purchase an aggregate of 40% of the capital
stock of Omagine LLC for an aggregate cash investment into
Omagine LLC of 26,688,125 Omani Rials (approximately (69,389,125
U.S. dollars) of which 60,000 Omani Rials (approximately
(156,000 U.S. dollars) will be invested before the DA is signed
and 26,628,125 Omani Rials (approximately (69,233,125 U.S.
dollars) will be invested on shortly after the Financing
Agreement Date, and
2. Omagine, Inc. will own 60% of Omagine LLC and Omagine,
Inc.'s aggregate cash investment into Omagine LLC will be
300,000 Omani Rials (approximately 780,000 U.S. dollars) of
which:
(i) 20,000 Omani Rials (approximately 52,000 U.S. dollars) was
invested by Omagine, Inc. in November 2009 to organize Omagine
LLC; and
(ii) 70,000 Omani Rials (approximately 182,000 U.S. dollars)
will be invested by Omagine, Inc. before the DA is signed.
$162,500 of the foregoing $182,000 was invested by Omagine, Inc.
during the fourth quarter of 2010 leaving a balance of 7,500
Omani Rials or $19,500 to be invested by Omagine, Inc. before
the DA is signed; and
(iii) the OMAG Final Investment of 210,000 Omani Rials
(approximately 546,000 U.S. dollars) will be invested by
Omagine, Inc. after the DA is signed but before the Financing
Agreement Date.
All of the aforementioned investment amounts and ownership
percentages were negotiated in arms-length transactions between
Omagine LLC and the New Shareholders by Omagine, Inc. management
on behalf of Omagine LLC.
The Shareholders' Agreement specifies that Omagine LLC will
have approximately $70 million of capital represented by
cash investments by Omagine, Inc. and the New Shareholders.
Although it remains uncertain as of the date hereof Omagine LLC
may also have a yet to be determined amount of additional
capital resulting from RCA's payment-in-kind to Omagine LLC.
(14)
The Oman Integrated Tourism Projects Fund (the "Fund") is an
investment fund managed by Bank Muscat. Omagine LLC has held
discussions with the Fund and Bank Muscat and may enter into an
agreement subsequent to the signing of the DA whereby the Fund
provides subordinate debt financing ("Mezzanine Financing") to
Omagine LLC. Bank Muscat has informed Omagine LLC that the Fund
will deliver a term sheet with respect to the provision of such
Mezzanine Financing to Omagine LLC. The term sheet is expected
to be received subsequent to the signing of the DA.
As mentioned above, pursuant to the provisions of the
Shareholder Agreement, the total amount of cash investment into
Omagine LLC by Omagine, Inc. and the New Shareholders will be
approximately $70 million (the "Capital Infusion") and although
Omagine, Inc. will invest $546,000 of that Capital Infusion
before the Financing Agreement Date, the vast proportion of such
Capital Infusion ($69,233,125) will not be invested by the New
Shareholders until the Financing Agreement Date.
As a result of this change from the December 2010 Agreements
therefore it is no longer accurate to state, as previously
disclosed by the Registrant, that Omagine LLC will have the
immediate financial capacity to begin the design and development
activities for the Omagine Project immediately after the
Development Agreement is signed. While Omagine LLC will continue
to have the financial capacity to undertake certain limited
initial planning and design activities immediately after the DA
is signed, if it wishes to begin the extensive design and
development activities previously planned and disclosed it will
now have to sell additional equity or raise additional
alternative financing. Otherwise it will have to postpone such
extensive design and development activities until the Financing
Agreement Date occurs.
Management presently intends to pursue the sale of a percentage
of Omagine LLC's equity to one or more third party investors as
soon as reasonably possible subsequent to the signing of the DA.
With the Shareholder Agreement and the Development Agreement
signed, management presently believes it can maintain Omagine,
Inc.'s majority control of Omagine LLC while successfully
selling such Omagine LLC equity to new investors.
(15)
Consolidated Contractors International Company, S.A.L. ("CCIC")
is a 50 year old Lebanese multi-national corporation
headquartered in Athens, Greece whose main activities involve
general building and contracting services. CCIC employs
approximately 150,000 people worldwide, has annual revenue of
approximately $5 billion and operations in, among other places,
all the countries in the MENA Region.
Consolidated Contracting Company S.A., a Panamanian corporation
("CCC-Panama") is a wholly owned subsidiary of CCIC and is the
investment arm of CCIC.
Consolidated Contractors Company (Oman), LLC, an Omani limited
liability company ("CCC-Oman") is a construction company with
approximately 13,000 employees in Oman and is CCIC's operating
subsidiary in Oman.
Pursuant to the Shareholders Agreement, CCC-Panama and CCC-Oman
will invest an aggregate of 19,010,000 Omani Rials (equivalent
to $49.4 million) into Omagine LLC and CCC-Oman will (subject to
the approval of all the shareholders of Omagine LLC) be
appointed as the general contractor for the construction of the
Omagine Project. The investments by CCC-Panama and CCC-Oman will
be contingent only upon the signing of a contract between
Omagine LLC and CCC-Oman appointing CCC-Oman as such general
contractor.
Omagine, Inc. invested 20,000 Omani Rials, (equivalent to
$52,000) into Omagine LLC at its formation in November 2009 and
an additional 62,500 Omani Rials (equivalent to $162,385) during
the fourth quarter of 2010. Pursuant to the Shareholder
Agreement, Omagine, Inc. will make additional capital
investments into Omagine LLC of (i) 7,500 Omani Rials
(equivalent to $19,500) prior to the signing of the DA and (ii)
210,000 Omani Rials (equivalent to $546,000) [the "OMAG Final
Investment"] prior to the Financing Agreement Date. As
previously disclosed by the Registrant, the December 2010
Agreements provided that a portion of the Pre-Development
Expense Amount equal to the OMAG Final Investment would be paid
to Omagine, Inc. by Omagine LLC before Omagine, Inc. would be
required to make the OMAG Final Investment. This provision has
now been eliminated in the Shareholder Agreement and the prior
disclosure is no longer an accurate statement. As a result of
(16)
this change from the December 2010 Agreements therefore,
Omagine, Inc. will not receive any advance partial payment of
the Pre-Development Expense Amount before it is required to make
the OMAG Final Investment of 210,000 Omani Rials (equivalent to
$546,000). Omagine, Inc. will however, as provided for in the
Shareholder Agreement, receive payment in full of the Pre-
Development Expense Amount and the "success fee" as noted above.
The Shareholder Agreement provides that Omagine LLC shall,
subject to the approval of the Omagine LLC shareholders hire
Michael Baker Corp. ("Baker") as its Program 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 Department of Defense and several state
governments. The Company has employed Baker through the
feasibility and engineering study phases of the Omagine Project
and anticipates that Omagine LLC will execute an agreement with
Baker soon after the signing of the Development Agreement.
Several Baker representatives and senior executives have made
several trips to Oman to visit with management, examine the
Omagine Site and plan for Baker's future involvement with
Omagine LLC. In March 2011 the President and CEO of Baker and a
Vice-President met with the Company's president in Oman.
Baker (www.mbakercorp.com) is headquartered in Pittsburgh, PA,
with offices throughout the U.S. and abroad and is experienced
in all aspects of design, program management and construction
management for large scale construction and development projects
of the magnitude of the Omagine Project. Baker has significant
program management and construction management contracts with
the United States military worldwide - including in the Middle
East.
The Company is in the final selection process for interpretive
designers and entertainment content and visitor experience
designers to be hired by Omagine LLC. The candidates have been
narrowed to a short list of professional companies. 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 physical, emotional and
intellectual interactions. Each of the prospective candidates
has serviced a diverse client base, including theme parks,
(17)
museums, zoos, aquariums and other such complex entertainment
centers around the world, including in the Middle East, and each
continues to regularly produce world class attractions globally
of the size and scope of the Omagine Project.
In order to move into the actual design and development stage of
the Omagine Project, Omagine, Inc. and the New Shareholders must
first sign the Shareholder Agreement and Omagine LLC and the
Government must then sign the Development Agreement. While this
process has been delayed to date, management remains confident
that the Shareholder Agreement will be signed by it and the New
Shareholders shortly after the date of this report and although
the precise date for the signing of the DA is not possible to
predict at this time, management presently believes that
attainment of the ultimate objective of signing the Development
Agreement with the Government is imminent.
Notwithstanding the foregoing, no assurance can be given at this
time that either the Shareholder Agreement or the Development
Agreement actually will be signed.
Some of the Omagine, Inc. shareholders have contacted us and
expressed the concern that the current tension and unrest in the
MENA Region, both external and internal to Oman, have had a
negative effect on the Omagine Project or have caused a delay in
the closing process for the Omagine Project. Management is very
firmly of the opinion that this has not been the case, nor does
it believe that moving forward, it will be the case. During the
past 60 days of Middle East headline news about unrest in the
MENA Region, Omagine LLC has been fully engaged in (i) revising
and concluding the Shareholder Agreement with RCA and the New
Shareholders, and (ii) concluding the MOLA comments on the DA
with MOT. As of the date of this report, management believes
that the only remaining tasks before signing the DA are (i)
signing the Shareholder Agreement, and (ii) the Registration.
Other Arab countries are experiencing mass discontent with the
rule of their heads of state, in some cases being met with
violent pushback to the demonstrations in those countries. Oman,
on the contrary, is one of the most progressive Arab states in
the region. It is politically and economically stable and is
ruled by a man - Sultan Qaboos - who is loved and admired by his
people, the majority of whom from all reports, view him as very
wise and benevolent. The Sultan and Oman are greatly respected
(18)
and appreciated by foreign governments, including, notably - the
U.S. and the U.K. - for Oman's moderation and peace-loving
foreign policy. Management has decades of experience in the
Middle East and while we are not experts in these matters, it is
management's opinion that the Company could not find a more
politically stable, economically diverse, welcoming, and free
country in which to do business in the Middle East.
His Majesty, the Sultan has recently made changes in various
ministries in the Government, including appointing a new
Minister of Tourism to fill the vacancy caused by the recent
passing of the former Minister of Tourism. Management does
not believe that such changes will have an adverse effect on
Omagine LLC or on the Omagine Project.
The financial results of Omagine LLC will be consolidated into
the financial results of the Company in accordance with
accounting principles generally accepted in the United States.
As a result of its proposed 60% ownership of Omagine LLC, the
Company is therefore expected to experience an increase in net
worth on a consolidated basis of approximately $42 million on or
shortly after the Financing Agreement Date when, pursuant to the
terms of the Shareholder Agreement, the approximately $70
million investment by the New Shareholders will be recorded as
capital on Omagine LLC's financial statements.
The capital of Omagine LLC as well as bank borrowings and
Mezzanine Financing, if any, and proceeds from the sales by
Omagine LLC of (i) additional equity stakes and (ii) residential
and commercial properties, are expected to be utilized by
Omagine LLC to develop the Omagine Project. Omagine LLC's
ongoing financial results will be consolidated with the
Company's results as appropriate for as long as Omagine, Inc.
remains a shareholder of Omagine LLC.
As presently contemplated, Bank Muscat (which is 30% owned by
RCA and is Oman's largest financial institution) will be engaged
by Omagine LLC as a non-exclusive financial advisor to assist
Omagine LLC in arranging the necessary construction financing
for the Omagine Project ("Construction Financing") and other
financing for Omagine LLC as may be required.
While the worldwide bank liquidity issues resulting from the
2008-2009 financial crisis have eased, the project financing
(19)
environment in Oman remains more cautious and challenging than
before the crisis. Management is in contact on a regular basis
with Bank Muscat and other MENA Region and international
financial institutions regarding the financing of the Omagine
Project and presently management is cautiously optimistic that
it will be able to arrange the necessary project financing for
the Omagine Project. Omagine LLC's prospective Omani and
international bankers are presently of the opinion that the
project finance market in Oman remains in the recovery phase due
to the slowdown and price decreases experienced in the local
residential and commercial real estate markets during the last
few years. The market intelligence garnered by management
indicates that local bankers and market participants expect that
price stabilization followed by a recovery in both transaction
volume and pricing is expected to occur during 2011 and 2012.
Should this recovery in fact occur (and management presently
believes that it will), Omagine LLC should be well positioned to
benefit from such a recovery since, from a timing perspective,
Omagine LLC's present plans contemplate a year of intensive
design and planning activities followed by the launch in the
second half of 2012 of residential and commercial sales at the
Omagine Project.
As the development program becomes more detailed and as the
planning and design processes progress, the estimates of
construction costs have and will become proportionately more
accurate. The Company presently expects, based on present
assumptions of Omagine LLC's 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
$2.1 and $2.5 billion dollars. As noted below however, the costs
of labor and materials as well as the selling prices and market
absorption rates of new residential housing and commercial
properties remain somewhat volatile and accurate projections for
such future costs, selling prices or market absorption rates
cannot be made at this time. The Company nevertheless presently
expects, based on present assumptions and market activity, that
although the selling prices of residential housing in Oman have
fallen from their overheated 2007/2008 peaks, such residential
prices will be greater during the Omagine Project's 2012 sales
launch than that which is presently budgeted in Omagine LLC's
financial model.
(20)
As noted herein, costs and selling prices remain somewhat
volatile as the economy in Oman and the surrounding region
recovers and 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.
Omagine LLC's financial model is frequently updated, modified
and adjusted in order to capture what management believes are
present market realities and projected trends. The financial
model is organized to show best case, worst case and probable
case scenarios. The most recent probable case scenario forecasts
net positive cash flows for Omagine LLC in excess of $1 billion
dollars over the seven year period subsequent to the signing of
the Development Agreement with a net present value of the
Omagine Project in excess of $500 million dollars. Management
believes this is a conservative forecast. Omagine LLC will
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.
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 Omagine LLC's financial projections.
Management cautions that investors should not place undue
reliance on the aforementioned financial model projections or on
estimates by market participants mentioned herein as all such
projections, estimates and forecasts are subject to significant
uncertainties and contingencies, many of which are beyond the
Company's control, and no assurance can be given that the
projections will be realized or that the estimates or forecasts
will prove to be accurate. Potential investors are cautioned not
to place undue reliance on any such forward-looking statement or
forecast, which speaks only as of the date hereof.
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 negative effects, slowdowns and
volatility in both prices and market absorption rates. Raw
material and labor prices initially dropped dramatically and
have now recovered somewhat and stabilized. Recent sales prices
for housing in other integrated tourism projects in the Muscat
(21)
area of Oman appear to have stabilized below their 2007/2008
peaks but above the 2006 levels, and the inventory of unsold
housing in the secondary (re-sale) market has diminished which
some market observers see as an important indicator of pent-up
future demand. The market absorption rates (number of market
transactions) for new residential housing is presently tepid but
some market observers and real estate agents expect a resurgence
during 2011 with others expecting it in 2012 as existing pent-up
demand is unleashed and buyers' caution ameliorates. Assuming
the DA is signed in the first half of 2011, Omagine LLC would
not begin offering residential units for sale until
approximately the second half of 2012.
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 Omagine LLC's financial advisors in their
discussions with banks and other financial institutions in order
to arrange the Construction Financing. Omagine LLC's requirement
for Construction Financing 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.
Recent trends in the local market however have indicated a
reduced consumer appetite for such pre-sales as some buyers are
demanding a finished product before entering into sales
contracts with developers.
The Development Agreement 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 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 Company continues the preparation for its anticipated future
business activities in various ways including but not limited
to: (i) recruiting various executive level personnel that will
be required to ramp up organizationally for the Omagine Project,
(ii) negotiating the outlines of initial contracts with the
major vendors, contractors and financial institutions proposed
to be involved in the Omagine Project, (iii) arranging the
appropriate and required legal, accounting, tax and other
(22)
professional services both in Oman and the U.S., (iv) examining
various tax structures, (v) reviewing and complying (to the
extent we are presently able) with the listing requirements of
various stock exchanges so we may be prepared to apply for such
listing(s) subsequent to the Financial Closing Date, (vi)
examining various other matters we believe will enhance
shareholder value subsequent to the Financial Closing Date
(including but not limited to hiring an in-house Investor
Relations manager to enhance our presently modest shareholder
relations efforts), and (vii) examining other potential Company
revenue streams which are ancillary to, and derivative of, the
Omagine Project.
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.
Notwithstanding the positive nature of the foregoing "forward
looking statements", no assurances can be given at this time
that the Shareholder Agreement or 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
(23)
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.
The Company's website is www.omagine.com and a dedicated
investor relations hub for Omagine, Inc. may be found at
www.agoracom.com/IR/Omagine.
Competition:
------------
The real-estate development business in Oman is a competitive
business populated by companies with substantially greater
financial, managerial and personnel resources than Omagine LLC
presently possesses. Management believes that the Company's
ability to assemble and coordinate a team of experienced
American, European and Middle Eastern consultants in a wide
variety of specialized fields was crucial to its success to
date in advancing the Omagine Project to its present status.
Each of these consultants, some of whom depending upon future
events may become employees of Omagine, Inc. and/or Omagine LLC,
are highly experienced in their respective fields. These fields
of expertise include the following: strategic planning;
visioning; branding; marketing; Islamic scholarship and
research; master planning; architecture; conceptual design;
project management; construction management; general
contracting; quantity surveying and costing; interior design;
landscape design; art; public policy; engineering (structural,
civil, mechanical, electrical, marine); Omani law; cultural and
exhibition design; interpretative design; tourism experience
designers; recreational operations planning and management;
investment banking; structured finance; motion based ride
technology; film technology; training and hotel management. In
addition the Company's president, Frank J. Drohan, has over 30
years of experience doing business across most of the Middle
East and is familiar with the cultural and business environment
of the MENA Region.
Although several of Omagine LLC's competitors have well
established businesses and brand reputations, management
believes that Omagine LLC's advantages are (i) the uniqueness
(24)
of the Omagine Project is particularly attractive to the
Government (ii) the Company's and Omagine LLC's senior
management have established strong and trusting relationships
with the relevant Government officials, and (iii) the
Shareholder Agreement will demonstrate the serious investors and
professionals that have been recruited to assist in the
development of the Omagine Project. Company management believes
Omagine LLC can successfully compete in this marketplace through
a combination of unique development concepts, effective
relationship management and the utilization of highly
professional, competent and experienced sub-contractors and
consultants who are well known to the Government.
Engineering, Design and Construction
------------------------------------
The Company does not presently own or directly operate any
engineering, design or construction companies or facilities but
the Company or Omagine LLC may, depending upon events, set up
its own in-house design supervision team and/or enter into joint
ventures with firms providing such services. To date, the
Company has generally conceived the development concepts and
defined the "scope of work" and then, as required, contracted
with various designers, architects, contractors and consultants
in the United States, Europe and the Middle East to perform
those tasks. There are many such designers, architects,
contractors and consultants available with competitive pricing
and the Company does not believe that the loss or inability to
perform of any such designer, architect, contractor or
consultant would have a material adverse impact on its business
or operations. The Company believes it maintains a good working
business relationship with its designers, architects,
contractors and consultants. As presently planned, all
copyrights to documents, designs and drawings executed by such
independent designers, architects, contractors and consultants
are or will be the property of either Omagine, LLC or Omagine,
Inc. (See: "Patents, Copyrights and Trademarks").
Marketing
---------
The Company has engaged in significant marketing, design,
promotional and other activities with respect to the Omagine
Project and has to date incurred a significant amount of costs
associated with these activities (the "Pre-Development Expense
Amount"). The Pre-Development Expense Amount is generally
(25)
associated with travel, consulting and professional fees,
planning and feasibility studies, design, engineering and with
similar such activities including preparing and making
presentations to the Government of Oman.
Pursuant to the provisions of the Shareholder Agreement the Pre-
Development Expense Amount (presently estimated to be
approximately nine million U.S. dollars ($9,000,000) will be
reimbursed to Omagine, Inc. by Omagine LLC.
Manufacturing and Production
----------------------------
The Company does not engage in any manufacturing activities and
as such does not maintain any inventory and has no present plans
to do so.
Patents, Copyrights and Trademarks
----------------------------------
Omagine, Inc. has filed trademark applications with the United
States Patent and Trademark Office ("USPTO") for the mark
OMAGINE and six related marks (collectively, the "Marks").
Omagine, Inc. has also filed trademark applications for the
Marks in Oman and Kuwait within the applicable time periods
required.
The mark OMAGINE and three of the six related Marks have been
issued Certificates of Registration from the USPTO and are now
officially registered Marks in the United States.
The USPTO has issued a "Notice of Allowance" with respect to
each of the remaining three related Marks and those applications
will now be approved for registration upon the filing of a valid
"Statement of Use" attesting that the respective Marks are in
commercial use. Following acceptance of each Statement of Use by
the USPTO each respective application will mature to full
registration and will become a registered Mark in the United
States.
Trademark applications for the OMAGINE Mark and eight related
Marks were filed in Oman and all have now been issued
Certificates of Registration in Oman. A trademark application
for the OMAGINE Mark filed in Kuwait has been examined by the
trademark office in that jurisdiction and no bar to its
(26)
registration there has been found. Omagine, Inc. awaits notice
of the registration of the OMAGINE Mark in Kuwait. The Company's
trademark attorneys continue to monitor the process which
remains ongoing.
Government Regulation
---------------------
The Company expects that Omagine LLC will require several Omani
governmental licenses, permits and approvals for its services
and products during the development, construction and operation
of the Omagine Project (collectively, "Licenses and Permits").
The obligation of the Government of Oman to issue all such
Licenses and Permits as may be required is specifically detailed
in the Development Agreement.
The Company does not anticipate any negative effects on its or
Omagine LLC's business from any existing or probable Omani
government laws or regulations. Omagine LLC will incur certain
costs and sustain certain effects on its operations as a
consequence of its compliance with Omani laws, including
environmental laws, and regulations and all such costs and
effects are expected to occur as part of the normal course of
its business.
The Company does not require any U.S. government approval of its
services, products or activities in Oman nor does the Company
anticipate any negative effects on its business from any
existing or probable U.S. government laws or regulations.
Employees and Consultants
-------------------------
The Company presently has three full time employees. None of our
employees is represented by a labor union for purposes of
collective bargaining. We consider our relations with our
employees to be good. Subsequent to the signing of the
Development Agreement the Company intends to significantly
increase the number of its employees.
Omagine, Inc. was obligated under an employment agreement which
expired on December 31, 2010 to pay its President and Chief
Executive Officer an annual base salary of $125,000 plus an
additional amount based on a combination of net sales and
(27)
earnings before taxes. The majority of salary payments due to
this individual for the period between October 2004 and August
2007 and for the past two years was deferred and accrued. If the
Development Agreement is signed Omagine, Inc. plans to enter
into a new employment agreement with this individual in 2011,
although the terms of such employment agreement have not yet
been determined. (See "Directors, Executive Officers and
Corporate Governance" and "Executive Compensation")
Omagine, Inc. was obligated to employ its Vice-President and
Secretary under an employment agreement which has ended. A
portion of the salary payments due to this individual for prior
years and for the past two years was deferred and accrued. If
the Development Agreement is signed Omagine, Inc. plans to enter
into a new employment agreement with this individual. Although
the terms of such employment agreement have not yet been
determined such agreement is expected to recognize this
individual's loyal service to the Company. (See "Directors,
Executive Officers and Corporate Governance" and "Executive
Compensation")
Consulting Agreement
--------------------
On March 19, 2007, Omagine, Inc. and Mr. Sam Hamdan ("Hamdan")
executed a consulting agreement (the "Hamdan Agreement") wherein
Hamdan agreed that (i) he will provide ongoing consulting
services to the Company up until the Financing Agreement Date,
and (ii) under certain circumstances and conditions precedent,
Mr. Hamdan may become Omagine, Inc.'s President and Chief
Operating Officer subsequent to the Financing Agreement Date.
Pursuant to the Hamdan Agreement, Omagine, Inc. issued Hamdan
options to purchase up to 160,000 shares of its Common Stock at
$1.25 per share (the "Hamdan Option"), exercisable ratably at
32,000 shares per year during the 5 year period beginning April
1, 2007.
The Hamdan Option is exercisable only if (i) the Hamdan
Agreement is in effect, or (ii) Hamdan is an employee of the
Company. The Hamdan Agreement has been amended to expire on
December 31, 2011.
Mr. Hamdan is currently the Chairman and Chief Executive of The
Global Leadership Team, Inc. ("GLT") (www.gltweb.com) which is
(28)
headquartered in Birmingham, MI, with a branch office in Beirut,
Lebanon. GLT is a professional services organization comprised
of highly skilled visionaries, branding strategists, management
consultants and thought leaders and it consults for many U.S.
and Arab client companies. (See: Item 13. Certain Relationships
and Related Transactions)
Mr. Hamdan was the chief strategist and founder of the U.S. Arab
Economic Forum and of the World Summit on Innovation and
Entrepreneurship and has an extensive network of business,
diplomatic and government contacts in the U.S., Europe and
throughout the Arab world.
Item 2. Properties.
------- -----------
The Company maintains its corporate office at The Empire State
Building, Suite 1103, 350 Fifth Avenue, New York, N.Y. 10118.
The premises are leased by the Company under a lease expiring
February 28, 2013 and the Company also leases warehouse space in
Jersey City, N.J. on a month to month basis. Omagine LLC leases
office space in Muscat, Oman under a six month lease expiring
June 30, 2011.
Item 3. Legal Proceedings.
------- ------------------
The Company is not a party to any legal proceedings which would
have a material adverse effect on it or its operations.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
None.
PART II
-------
Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of
Equity Securities.
------- -----------------------------------------------
(29)
Common Stock
------------
The stock ticker symbol for the Registrant's Common Stock is
"OMAG". On December 29, 2009, the shareholders of Omagine, Inc.
voted to amend the Certificate of Incorporation of Omagine, Inc.
to (i) effect a 1-for-100 reverse split ("Reverse Split"), and
(ii) immediately thereafter, effect a 20-for-1 forward split
("Forward Split") (collectively, the "Stock Splits"), (iii)
establish 50 million as the number of shares of Common Stock
that Omagine, Inc. shall be authorized to issue subsequent to
the Forward Split, and (iv) authorize a rights offering. On
February 9, 2010, Omagine, Inc. was notified by the Financial
Industry Regulatory Authority that the necessary changes to
reflect the Stock Splits would be effected in the market
reporting of Omagine, Inc.'s Common Stock at the start of
trading on February 10, 2010. For a period of twenty trading
days beginning on February 10, 2010, Omagine, Inc.'s Common
Stock traded under the symbol "OMAG", with the letter "D" added
to the end of the trading symbol to indicate that the Stock
Splits were reflected in the market reporting of Omagine, Inc.'s
Common Stock. As of March 11, 2010 the symbol for the Omagine,
Inc. Common Stock reverted to its previous symbol of "OMAG".
On September 17, 2009 the Board of Directors of Omagine, Inc.
authorized and directed Omagine, Inc., subject to shareholder
approval, (i) to execute the Reverse Split of the Omagine, Inc.
Common Stock by issuing one (1) new share of Common Stock (a
"Reversed Share") in exchange for each one hundred (100) shares
of Common Stock held by any shareholder on the record date for
such Reverse Split, (ii) to execute the Forward Split by issuing
twenty (20) new shares of Common Stock in exchange for each one
(1) Reversed Share held by any shareholder on the record date
for such Forward Split, (iii) not to issue any fractional shares
of Common Stock ("Fractional Shares") which might be otherwise
issuable pursuant to the Reverse Split, and (iv) in lieu of
issuing any such Fractional Shares, to make a cash payment
("Payment") for such Fractional Shares to any shareholder who,
but for the elimination of such Fractional Shares, would have
held such Fractional Shares immediately subsequent to the
Reverse Split. The Payment was equal to the number derived for
any shareholder by multiplying (x) the fraction representing
such shareholder's Fractional Shares, by (y) one hundred (100),
(30)
and then by (z) the average of the daily closing bid prices for
a share of Common Stock for the five consecutive trading days
immediately prior to the record date for the Reverse Split; (v)
to amend its Certificate of Incorporation amending Article
"Fourth" in compliance with Delaware Corporation Law to reflect
(a) the Reverse Split, (b) the Forward Split, and (c) that the
total number of shares of Common Stock that the Corporation is
authorized to issue is fifty million (50,000,000) shares; and
(vi) authorized Omagine, Inc., at the discretion of the Board of
Directors, to conduct a rights offering of "Units" consisting of
Common Stock and warrants and further authorized Omagine, Inc.
to (a) establish an exercise period for the rights offering not
to exceed six (6) weeks from its record date, (b) establish the
exercise period for the warrants not to exceed one (1) year from
their issuance, and (c) file a registration statement with the
Securities and Exchange Commission to register the shares of
Common Stock underlying the Units. Omagine, Inc. included a
proposal in its definitive Proxy Statement filed with the SEC on
November 30, 2009 seeking stockholder approval for the Stock
Splits, the amending of the Omagine, Inc. Certificate of
Incorporation and for the rights offering. Omagine, Inc.'s
proposal was approved by the stockholders at Omagine, Inc.'s
Annual Meeting held on December 29, 2009 and the appropriate
Amendment of the Certificate of Incorporation was filed with the
Secretary of State of Delaware. The Amendment was effective as
of December 30, 2009, the day that such Amendment was so filed.
The Omagine, Inc. Board of Directors presently has the
authority, at its sole discretion, to conduct the rights
offering at any time exclusively for the benefit of its
stockholders. All stockholders of Omagine, Inc. on the record
date for such rights offering shall, for each one (1) share of
Common Stock held by any such stockholder on such record date,
be entitled to purchase one (1) ("Unit") at a purchase price of
twenty-five cents ($0.25) per Unit, each Unit consisting of (a)
one (1) share of Common Stock and (b) one (1) warrant to
purchase one (1) share of Common Stock from Omagine, Inc. at a
warrant exercise price of $6.00. As of the date of this report,
the Board of Directors has not determined whether or not to
conduct the rights offering.
Omagine, Inc.'s total authorized capital stock is 50,850,000
shares of which 50,000,000 shares are common stock, par value
$.001 per share ("Common Stock") and 850,000 shares are
(31)
preferred stock, par value $.001 per share. As of April 15,
2011, there are 12,401,950 shares of Common Stock issued and
outstanding and no shares of preferred stock issued or
outstanding.
The holders of our Common Stock are entitled to one vote per
share on all matters to be voted on by our stockholders,
including the election of directors. Our stockholders are not
entitled to cumulative voting rights, and, accordingly, the
holders of a majority of the shares voting for the election of
directors can elect the entire Board of Directors if they choose
to do so and, in that event, the holders of the remaining shares
will not be able to elect any person to our Board of Directors.
The holders of the Omagine, Inc. Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors, in its discretion, from
funds legally available therefore and subject to prior dividend
rights of holders of any shares of our preferred stock which may
be outstanding. Upon Omagine, Inc.'s liquidation, dissolution or
winding up, subject to prior liquidation rights of the holders
of our preferred stock, if any, the holders of our Common Stock
are entitled to receive on a pro rata basis our remaining assets
available for distribution. Holders of the Omagine, Inc. Common
Stock have no preemptive or other subscription rights, and there
are no conversion rights or redemption or sinking fund
provisions with respect to such shares. All outstanding shares
of the Omagine, Inc. Common Stock are fully paid and not liable
to further calls or assessment by Omagine, Inc.
The following table sets forth the range of the high and low
prices for the Common Stock for the four quarters in 2009 and
2010. The table reflects inter-dealer prices, without retail
mark-up, markdown or commission and may not represent actual
transactions. For comparative purposes these prices give
retroactive effect to the Stock Splits effected on December 30,
2009.
(32)
Common Stock
------------
Quarter Ended High Low
------------- ---- ---
3/31/09 1.25 1.25
6/30/09 0.50 0.50
9/30/09 0.60 0.50
12/31/09 0.70 0.65
3/31/10 0.55 0.55
6/30/10 0.60 0.55
9/30/10 1.63 1.63
12/31/10 2.00 1.65
At December 31, 2010, Omagine, Inc. had 12,107,646 shares of its
Common Stock issued and outstanding, and there were
approximately 1,057 holders of record of such Common Stock.
Omagine, Inc. has never declared any dividends on its Common
Stock, and it is anticipated that any earnings in the
foreseeable future will be retained for use in the Company's
business. Any declaration in the future of any cash or stock
dividends on the Common Stock will be at the discretion of the
Board of Directors and will depend upon, among other things,
earnings, the operating and financial condition of the Company,
capital requirements and general business conditions.
The Company did not purchase any of its issued and outstanding
shares of Common Stock during the fiscal year ended December 31,
2010.
Omagine, Inc. adopted the Omagine, Inc. 401(k) Plan DTD 10-01-
2008 (the "401(k) Plan"), qualified under Section 401(k) of the
Internal Revenue Code, which is a pre-tax plan for eligible
employees of the Company. Omagine, Inc. does not presently match
any employee contributions made to the 401(k) Plan. Omagine,
Inc. made the maximum allowable discretionary contribution to
all eligible employees participating in the 401(k) Plan in 2009
and 2010 in the form of 72,480 and 289,996 shares of Common
Stock respectively. Future matching of employee contributions
and/or discretionary contributions by Omagine. Inc., if any,
will be made at the recommendation of Omagine, Inc.'s Board of
Directors.
(33)
The transfer agent for Omagine, Inc.'s Common Stock is
Continental Stock Transfer and Trust Company, 17 Battery Place,
New York, New York 10004.
Item 6. Selected Financial Data.
------- ------------------------
Information required by this Item is not required for the
Company since it is a smaller reporting company.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
------- -------------------------------------------------
The financial statements for fiscal years 2010 and 2009 have
been audited by the Company's independent certified public
accountants. All of the Company's operations were conducted
through its wholly-owned subsidiaries, JOL and Omagine LLC.
During 2010, the Company concentrated on concluding the
proposed Development Agreement between its Omagine LLC
subsidiary and the Government of Oman with respect to the
Omagine Project. All negotiations with respect to the
Development Agreement were successfully concluded with the
Ministry of Tourism ("MOT") in June 2010. In October 2010 the
proposed Development Agreement was approved by the Ministry of
Finance. The final step in the Government approval process is
the approval of the DA by the Ministry of Legal Affairs
("MOLA").
In March 2011, MOT informed Omagine LLC in writing (the "MOT
Transmittal") that all matters with respect to the MOLA comments
and the DA are now finalized and requested that we provide MOT
with a final version of the DA so that MOT and Omagine LLC may
proceed with the execution of the DA. On March 30, 2011 in
response to the MOT Transmittal, Omagine LLC's attorneys sent
the final version of the DA (the "Final DA") to the MOT.
While, management presently expects that the Final DA will in
fact be final, management cautions that (i) some of the language
in the MOT Transmittal was vague, and (ii) the MOT Transmittal
sought at the last minute to reopen long-ago agreed and approved
matters and the reopening of these previously agreed and
approved matters was rejected by Omagine LLC.
(34)
Omagine LLC is presently awaiting the MOT's response to the
Final DA which incorporates MOLA's comments and which the
Company believes represents MOLA's approval.
Critical Accounting Policies
----------------------------
Our financial statements have been prepared in accordance
with accounting principles generally accepted in the United
States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. The policies discussed below are
considered by management to be critical to an understanding of
our financial statements because their application places the
most significant demands on management's judgment, with
financial reporting results relying on estimation about the
effect of matters that are inherently uncertain. Specific risks
for these critical accounting policies are described in the
following paragraphs. For all of these policies, management
cautions that future events rarely develop exactly as forecast,
and the best estimates routinely require adjustment.
Revenue Recognition. 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.
Valuation Allowance for Deferred Tax Assets. 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.
General Statement: Factors that may affect future results
---------------------------------------------------------
With the exception of historical information, the matters
discussed in Management's Discussion and Analysis of Financial
Condition and Results of Operations constitute "forward-looking
statements" (as that term is understood under the 1995 Private
Securities Litigation Reform Act) that involve various risks and
(35)
uncertainties. Typically, these forward-looking statements are
indicated by words such as "anticipates", "expects", "believes",
"plans", "will", "could", and similar words and phrases. Factors
that could cause the Company's actual results to differ
materially from management's projections, forecasts, estimates
and expectations include, but are not limited to, the following:
* Failure of Omagine LLC to sign the Development Agreement with
the Government of Oman.
* Failure of Omagine Inc. and the New Shareholders to sign the
Shareholder Agreement.
* Failure of Omagine LLC to obtain the necessary Construction
Financing required to design, build and operate the Omagine
Project.
* Inability of the Company to secure additional financing.
* Unexpected economic or political changes or political
instability or civil unrest in Oman or in the MENA Region.
* The imposition of new restrictions or regulations by
government agencies in the U.S. or the MENA Region that affect
the Company's business activities.
The following discussion highlights the Company's business
activities during fiscal years 2010 and 2009.
Results of Operations:
Fiscal Year Ended December 31, 2010 Compared to
Fiscal Year Ended December 31, 2009
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. (See: "Business -
Products, Services - The Omagine Project").
The Company did not generate any revenue nor incur any cost of
sales for the years ending 2010 and 2009. The Company is
focusing all of its efforts on Omagine LLC's real estate
development and entertainment business. The Company is relying
on Omagine LLC's future operations for the Company's future
revenue generation.
(36)
Management is presently examining other possible sources of
revenue for its JOL subsidiary which, subject to the Development
Agreement being executed by Omagine LLC and the Government of
Oman, may be added to JOL's operations.
Selling and marketing expenses were $34,014 during 2010,
compared to $36,616 in 2009. This decrease in 2010 of $2,602
(7%) was primarily due to a decrease in automobile costs of
$11,139 offset by increase in telephone expense of $8,517.
Assuming Omagine LLC signs the Development Agreement for the
Omagine Project with the Government of Oman, the Company is
expected to incur significant expenses related to marketing,
public relations and promotional expenditures in the future.
General and administrative expenses of $1,204,262 in fiscal 2010
were $157,188 (15%) higher than the $1,047,074 incurred in
fiscal 2009. This increase was primarily attributable to the
increases in 2010 of: fringe benefit expense ($9,698);
consulting fees ($31,814); travel expense ($120,903);
stockholder relations expense ($13,692), offset by decreases in
directors' fees ($10,500); rent ($4,909) and the net of various
other expenses ($3,510).
The Company sustained a net loss of $1,277,001 during 2010 as
compared to a net loss of $1,114,409 during 2009. This increase
of $162,592 in the Company's net loss was due primarily to the
increased general and administrative expenses mentioned above
($157,188) and increased interest expense ($7,884), net of
decreases in selling and marketing expenses ($2,602) and
decreased interest income ($124).
The Company incurred $1,158 in capital expenditures during
fiscal year 2010. Assuming Omagine LLC signs the Development
Agreement for the Omagine Project with the Government of Oman as
expected, the Company expects to incur significant expenses
related to capital expenditures during fiscal year 2011.
Liquidity and Capital Resources
In 2010 the Company experienced a $7,604 negative cash flow.
This resulted from its negative cash flows of $808,998 and
$1,158 from operating and investing activities respectively
being partially offset by the $802,552 positive cash flow from
its financing activities.
(37)
The Company's financing activities in 2010 consisted of $554,500
in proceeds from the sale by Omagine, Inc. of shares of its
Common Stock; $250,000 in proceeds from the issuance by it of
convertible notes payable; and a $1,948 decrease in loans to
the Company from officers and directors.
The Company incurred net losses of $1,277,001 and $1,114,409
in fiscal years 2010 and 2009 respectively.
At December 31, 2010, the Company had a working capital deficit
of $1,367,603 compared to working capital deficit of $978,251 at
December 31, 2009. This $389,352 increase in the Company's
working capital deficit is attributable to the following: (a)
$7,604 decrease in cash and equivalents; (b) $283,424 increase
in convertible notes payable and accrued interest; (c) $52,629
decrease in accounts payable; (d) $95 increase in prepaid
expenses and other current assets; (e) $1,948 decrease in loans
to the Company from officers and directors; (f) $130,299
increase in accrued officer payroll; and (g) $22,752 increase in
accrued expense and other current liabilities.
At December 31, 2010, the Company had $148,367 in current
assets, consisting of cash ($148,217) and prepaid expenses and
other current assets ($150).
The Company's current liabilities at December 31, 2010 totaled
$1,515,970 consisting of $596,888 convertible notes payable and
accrued interest, $453,578 of accounts payable and accrued
expenses, $8,205 due to officers and directors and $457,299 in
accrued payroll. Of the $1,515,970 of current liabilities at
December 31, 2010, $856,001 or 57% represents amounts which
are due to officers and/or directors.
The $808,998 of funds used by operating activities during 2010
were used primarily to fund the net loss of $1,277,001 [less the
non-cash charges totaling $334,062]. Such non-cash charges
consisted primarily of $110,040 of stock based compensation
related to stock options and issuances of Common Stock (a) for
401(k) contributions of $72,500, (b) in payment of $100,000 of
accrued compensation to an employee, and (c) in payment of an
account payable of $47,500 owed by the Company to a vendor.
As a result of the foregoing, the Company had a cash balance at
December 31, 2010 of $148,217 as compared to a cash balance of
$155,821 at December 31, 2009.
(38)
The Company will rely upon the future business of its Omagine
LLC subsidiary for revenue growth. Omagine LLC presently has
limited resources resulting from the initial capital investments
into it by Omagine, Inc. Assuming that the Shareholder Agreement
is signed, Omagine LLC's resources will be then increased by
approximately $175,000. Omagine LLC's resources will again
increase when the OMAG Final Investment of $546,000 is made
prior to the Financing Agreement Date. Not until on or shortly
after the Financing Agreement Date however, will Omagine LLC
receive the bulk of the investment amounts (approximately
$69,233,000) being made by the New Shareholders pursuant to the
Shareholder Agreement. The continuation of Omagine LLC's
business and its efforts to sign the Development Agreement have
been financed to date by Omagine, Inc. and it is planned that
such activities will be financed by Omagine LLC subsequent to
the signing of the Shareholder Agreement. The additional
investment by Omagine, Inc. of 210,000 Omani Rials (equivalent
to approximately $546,000) as required pursuant to the
Shareholder Agreement (the "OMAG Final Investment") and the
continuation of the Company's operations is contingent upon the
receipt by the Company of additional financing.
On December 22, 2008, Omagine, Inc. signed a two year Standby
Equity Distribution Agreement (the "SEDA") with YA Global
Investments, L.P. ("YA"). Pursuant to the SEDA, Omagine, Inc.
may, at its sole option and upon giving written notice to YA (a
"Purchase Notice"), periodically sell shares of its Common Stock
("Shares") to YA ("Sales") at the "Purchase Price" (as
determined pursuant to the terms of the SEDA). Omagine, Inc. is
not obligated to sell any Shares to YA but may, in Omagine,
Inc.'s 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 Omagine, Inc. subject to certain
conditions including (i) Omagine, Inc. filing a registration
statement with the SEC to register the Shares ("Registration
Statement"), (ii) the SEC declaring such Registration Statement
effective, (iii) periodic Sales must be separated by a time
period equal to five trading days, and (iv) the amount of any
individual Sale 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
(39)
make Sales available to it pursuant to the SEDA and the SEC
declared such new Registration Statement to be effective as of
June 7, 2010. The SEDA expires on April 30, 2011.
In March 2011, Omagine, Inc. and YA executed a term sheet ("Term
Sheet") for a new SEDA on substantially the same terms and
conditions as the existing SEDA. The Term Sheet is not legally
binding and Omagine, Inc. and YA are presently negotiating the
final new SEDA documents. Although the Company presently sees no
barrier to the successful negotiation and conclusion of the new
SEDA, no assurance can be given at this time that Omagine, Inc.
and YA will actually conclude the new SEDA.
The Company has relied on the net proceeds from sales of
Omagine, Inc.'s equity securities in private placements and in
Sales made pursuant to the SEDA to fund its operations during
the past two years. The Company is presently exploring several
financing alternatives, including but not limited to the new
SEDA, to continue to fund its operations including but not
limited to (a) the OMAG Final Investment into Omagine LLC of
approximately $546,000 which Omagine, Inc. is required to make
prior to the Financing Agreement Date, and (b) if the need
arises, to fund advances to Omagine LLC after the DA is signed
and prior to the Financing Agreement Date.
In March 2010 Omagine, Inc. issued an aggregate of 289,996
restricted shares of its Common stock to eligible employees
participating in the Omagine, Inc. 401(k) Plan.
Between March and June 2010, Omagine, Inc. sold an aggregate of
618,697 shares of its Common Stock to YA pursuant to the SEDA
for aggregate proceeds of $250,000.
In June 2010 Omagine, Inc. issued 118,750 restricted shares of
its Common Stock to an unaffiliated vendor in payment of an
account payable of $47,500 owed by the Company to such vendor.
In July 2010 Omagine, Inc. issued 82,305 restricted shares of
its Common Stock to an employee in payment of $100,001 of
unpaid accrued compensation owed by Omagine, Inc. to such
employee.
Between July and November 2010, Omagine, Inc. sold an aggregate
of 336,972 restricted shares of its Common Stock to seven
(40)
accredited investors for aggregate proceeds of $304,500.
In March 2009 Omagine, Inc. issued an aggregate of 72,480
restricted shares of its Common Stock to eligible employees
participating in the Omagine, Inc. 401(k) Plan.
Between May and December 2009, Omagine, Inc. sold an aggregate
of 1,308,877 shares of its Common Stock to YA pursuant to the
SEDA for aggregate proceeds of $555,000.
In August 2009 Omagine, Inc. sold 2,000 restricted shares of its
Common Stock to a Director for proceeds of $1,400.
Impact of Inflation
-------------------
The level of inflation in the U.S. has been relatively low
during the last several fiscal years and has not had a
significant impact on the Company. While the level of inflation
in Oman has also been relatively low during the last several
fiscal years, the Oman economy has recently been experiencing
volatility in its inflation rate (including in the prices of
construction materials and labor) which volatility may have an
impact on Omagine LLC's proposed future operations in Oman.
Forward Looking Statements
--------------------------
As discussed above just prior to Part I of this report, certain
statements made in this report on Form 10-K are "forward-
looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve known and unknown
risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be
materially different from the future results implied by such
forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements -
including the statements regarding management's present belief
that the Shareholder Agreement will be signed by the New
Shareholders and the Development Agreement will be signed by
Omagine LLC and the Government - are based on reasonable
assumptions, the Company's actual results could differ
materially from those set forth or implied in such forward-
looking statements. Factors that could cause such differences
include but are not limited to: the uncertainty of success
(41)
associated with Omagine Inc.'s ongoing efforts to sign the
Shareholder Agreement with the New Shareholders; the uncertainty
of success associated with Omagine LLC's ongoing efforts to sign
the Development Agreement with the Government of the Sultanate
of Oman; the uncertainty associated with political events in the
Middle East in general and with the continuing unrest in Oman
and in the MENA Region in particular; the lingering effects on
consumer confidence and on the availability of project finance
resulting from the recent worldwide financial crisis; and the
success or failure of Omagine LLC's and the Company's efforts to
secure additional financing.
Item 8. Financial Statements and Supplementary Data.
------- --------------------------------------------
The response to this Item is submitted as a separate section to
this report commencing on Page F-1.
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.
------- -------------------------------------------------
None
Item 9A. 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 (the "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.
(42)
Based upon the Evaluation, the Company's chief executive and
financial officer concluded that the Company's disclosure
controls and procedures are effective as of December 31, 2010.
The Evaluation did not identify the occurrence during the fourth
fiscal quarter of 2010 any change in the Company's internal
control over financial reporting that materially affected or is
reasonably likely to materially affect, the Company's internal
control over financial reporting.
Omagine, Inc. is a non-accelerated filer and is required to
comply with the internal control reporting and disclosure
requirements of Sections 404 and 302 of the Sarbanes-Oxley Act.
The Company has adopted a web-based software solution to
automate and streamline its Sarbanes-Oxley compliance program
and to enable the Company to document and assess the design of
controls, track the testing of their effectiveness and locate
and remedy any deficiencies.
Item 9B. Other Information.
------- ------------------
None
PART III
--------
Item 10. Directors, Executive Officers and Corporate
Governance.
-------- -------------------------------------------
The present directors and executive officers of Omagine, Inc.
are as follows:
Name Age Position
---- --- --------
Frank J. Drohan 66 Chairman of the Board of
Directors, President, Chief
Executive & Financial Officer
Charles P. Kuczynski 57 Vice-President, Secretary and
Director
(43)
William Hanley 69 Controller & Principal
Accounting Officer
Salvatore J. Bucchere 68 Director
Kevin O'C. Green 62 Director
Louis J. Lombardo 67 Director
Frank J. Drohan has served as a director, Chairman of the Board
and President and CEO of the Registrant since 1991. Mr. Drohan
is also the Managing Director and Chief Executive Officer of
Omagine LLC. He was Chairman of the Board, President and sole
shareholder of Rif International Corp., a privately held company
which had extensive overseas activities in the Middle East
between 1977 and 1986. Rif was acquired by Omagine, Inc. in
1997. Mr. Drohan serves as a director and the Chairman of JOL.
He is also a director and the Chairman of The Renaissance Team,
Inc. ("TRT") which is a privately held company offering a wide
variety of services including: branding, marketing, management,
political and strategic visioning, and development management
consulting services. Mr. Drohan holds a Bachelor of Science
degree in Economics and Political Science from Manhattan College
in New York City.
Charles P. Kuczynski has served as a director, Secretary and a
Vice-President of the Registrant since 1996 and previously
served as a director and Secretary of the Registrant from 1988
to 1993. Mr. Kuczynski is a director and Secretary of JOL and
also serves as the Secretary of TRT. Prior to joining the
Company Mr. Kuczynski was a sales executive with Hillenbrand
Industries. Mr. Kuczynski holds a Bachelor of Arts degree from
Merrimack College, Massachusetts.
Salvatore J. Bucchere has served as an independent director of
the Registrant since 2001. Mr. Bucchere holds a Bachelor of
Business Administration degree in Accounting from St. Johns
University in New York and presently lives in Broken Arrow,
Oklahoma. From 1965 to 1968 he was employed as a management
consultant with Arthur Young & Co. and Main LaFrentz & Co. in
New York and from 1968 to 1971, he taught accounting and law.
From 1971 to 1977, he served as the Secretary and Vice President
of Centennial Industries. During this time, he was one of the
(44)
founders, with Mr. Drohan, of Biddle International Sales Co.
From 1977 to 1979, he was a Vice President and director of Rif
International Corp. From 1979 to 2003 he held various executive
management and ownership positions in privately held automotive
parts distribution companies.
Kevin O'C. Green has served as an independent director of the
Registrant since 2001. Mr. Green graduated from the College of
St. Thomas, St. Paul in Minnesota with majors in Geology and
Philosophy and from the University of Minnesota Law School. He
lives in Mankato, Minnesota where he practices law and he has
extensive experience in business and securities law litigation.
Mr. Green also has business interests in Honduras where he is
the owner of a mining company.
Louis J. Lombardo has served as an independent director of the
Registrant since 2005. Mr. Lombardo retired after 35 years at
American Express Company where he was Executive Vice President -
Travel Related Services. In this capacity he led an organization
of worldwide operating centers employing over 14,000 people and
managed a $1.3 billion operating budget and a $600 million
capital budget. Mr. Lombardo holds an MBA degree from New York
University. He lives in New York City where he owns and operates
two privately held businesses and a consulting company.
At December 31, 2010, the Board of Directors of Omagine, Inc.
consisted of two employee directors: Frank J. Drohan and Charles
P. Kuczynski and three independent non-employee directors:
Salvatore J. Bucchere, Kevin O'C. Green and Louis J. Lombardo.
Directors are elected to serve for one-year terms or until their
successors are duly elected and qualified. Officers serve at the
discretion of the Board of Directors. Employee directors receive
no fees for acting as such. Independent non-employee directors
receive stock options and receive a minimal fee for attendance
at the Company's annual meeting and are entitled to
reimbursement of reasonable out-of-pocket expenses incurred in
attending meetings.
The Company has an audit committee, a compensation committee, a
nominating committee and a stock option committee each
designated by the Board of Directors. The members of the Audit
Committee are Mr. Bucchere, Mr. Green and Mr. Drohan. Mr.
Bucchere, who is an independent director, is the Chairman of the
Audit Committee and is an audit committee financial expert.
(See: "Item 10 - Salvatore J. Bucchere"). The three independent
(45)
members of the Board of Directors, Mr. Lombardo, Mr. Bucchere
and Mr. Green comprise the compensation committee and the
nominating committee. Mr. Lombardo is the Chairman of the
Compensation Committee. Mr. Bucchere is the Chairman of the
Nominating Committee. The Stock Option Committee is chaired by
Mr. Green, and both Mr. Bucchere and Mr. Drohan are committee
members.
The Company has adopted and its Board of Directors has approved
a Code of Ethics and Business Conduct ("Code"). The Code applies
to all directors, officers and employees of the Company. The
Company believes that the policies and procedures contained
in the Code are consistent with the requirements for a Code of
Ethics as required by the SEC. A copy of the Code is available
on the Company's website, www.omagine.com.
The Company's primary strategic consultant, Mr. Sam Hamdan
("Hamdan"), is President and Chief Strategist of the Michigan
based Global Leadership Team. Mr. Hamdan is a native of Lebanon,
a citizen of the U.S., and widely known across the MENA Region
for his work in organizing and directing various high level
conferences dealing with leadership, strategic planning,
entrepreneurship, innovation and economic matters. Mr. Hamdan,
who has two Masters Degrees and is fluent in both Arabic and
English, is the visionary who created the first "U.S. - Arab
Economic Forum" held in the United States in cooperation with,
among others, the U.S. Departments of State and Commerce. In
2006 Mr. Hamdan and GLT also organized and delivered the World
Summit on Innovation and Entrepreneurship in Muscat, Oman, and
duplicated the event in April 2008 in Dubai, United Arab
Emirates (www.wsie.org).
Mr. Hamdan and his branding experts at GLT were the developers
of the Omagine brand for the Company. On March 19, 2007 Omagine,
Inc. and Hamdan signed a consulting agreement (the "Hamdan
Agreement") (see: "Employees and Consultants"). The Hamdan
Agreement does not obligate the Company to pay any cash
compensation to Hamdan for his continuing consulting services to
the Company but does grant Hamdan options to purchase up to
160,000 shares of Omagine, Inc.'s Common Stock at a purchase
price of $1.25 per share, exercisable ratably over the five (5)
year period beginning April 1, 2007. (the "Hamdan Options"). The
Hamdan Options are exercisable only during periods which (i) the
Hamdan Agreement remains in effect, or (ii) Mr. Hamdan is an
(46)
employee of the Company. In addition the Hamdan Agreement
contemplates that, subsequent to the Financing Agreement Date,
Hamdan may become an employee of the Company and the President
and Chief Operating Officer of Omagine, Inc. Mr. Hamdan is
presently the Deputy Managing Director, President and Chief
Innovation Officer of Omagine LLC. The Hamdan Agreement has been
amended to expire on December 31, 2011.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
As of the date hereof, the Company's officers and directors are
in compliance with the requirements to file ownership reports as
required by Section 16(a) of the Act.
(47)
Item 11. Executive Compensation
-------- ----------------------
The following table sets forth information relating to the aggregate
compensation received by the then current executive officers of the
Registrant for services in all capacities during the Registrant's three
fiscal years indicated for (i) the Chief Executive and Financial Officer,
and (ii) each then current executive officer whose total compensation
exceeded $100,000.
SUMMARY COMPENSATION TABLE
(a) (b) (c) (d) (e) (f) (g)
Stock Accrued Salary Option
Name and Principal Salary(1) Awards(2) Payable(1) Awards(3) Total
Position Year ($) ($) ($) ($) ($)
------------------- ---- --------- --------- ------------- ------ ----------
Frank J. Drohan
Chief Executive and
Financial Officer 2010 $ 0 $ 33,834 $ 125,000 $ 47,170 $ 206,004
2009 $ 0 $ 34,524 $ 125,000 $ 47,170 $ 206,694
2008 $ 93,750 $ 31,500 $ 31,250 $ 11,793 $ 168,293
Charles P. Kuczynski
Vice-President &
Secretary 2010 $ 40,000 $ 35,444 $ 45,000 $ 23,585 $ 144,029
2009 $ 19,000 $ 36,250 $ 66,000 $ 23,585 $ 144,835
2008 $ 64,750 $ 21,000 $ 21,250 $ 5,896 $ 112,896
(1) Amounts included under Column (c) represent cash salary payments and
amounts included under Column (e) represent unpaid salary which has
been accrued on Registrant's books.
(2) Column (d) represents contributions of the Registrant's Common Stock
to the accounts of eligible employees of its 401(k) Plan, valued at
the closing bid price on the dates of such contributions.
(3) Column (f) represents the dollar amount recognized as compensation
expense for financial statement reporting purposes for the year
indicated under ASC 718, and not an amount paid to or realized by the
named executive officer. There can be no assurance that the amounts
determined by ASC 718 will ever be realized. Assumptions used in the
calculation of these amounts are included in Note 1 - STOCK-BASED
COMPENSATION - to the Company's audited financial statements for the
fiscal year ended December 31, 2010.
Management has concluded that the aggregate amount of personal benefits
does not exceed 10% of the total compensation reported in column (g) of
the foregoing table as to any person specifically named in such table.
(48)
The following table shows the number of shares of Common Stock covered by
exercisable and un-exercisable options held by the Company's Chief
Executive Officer on December 31, 2010.
OMAGINE, INC.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
DECEMBER 31, 2010
(b) (c)
Number of Number of
Securities Securities
Underlying Underlying (d)
Unexercised Unexercised Option Exercise (e)
(a) Options (#) Options (#) Price Option Expiration
Name Exercisable Un-exercisable ($) Date
---- ---------- ------------- ------------- -----------------
Frank J. Drohan 100,000 0 $1.25 August 31, 2011
40,000 60,000 $2.60 September 23, 2018
100,000 stock options were granted in 2008 to the Company's Chief Executive
Officer. There can be no assurance that the grant date fair value of Stock
Option awards will ever be realized.
(49)
The following table summarizes information as of the close of business on
December 31, 2010 regarding options under the Omagine, Inc. 2003 Stock
Option Plan (the "Plan") as adjusted for the Stock Splits effected as of
December 30, 2009.
Equity Compensation Plan Information
------------------------------------
Number of securities
remaining available
for future issuance
Number of securities Weighted-average under equity
to be issued upon exercise price of compensation plans
exercise of outstanding (excluding securities
outstanding options options in column (a)
(a) (b) (c)
--------------- ----------------- --------------------
The Plan 528,000 $1.96 1,972,000
-----------------------------------------------------------------------------------------
160,000 Stock Options previously not included in the Plan have now been
included and no stock options currently exist outside of the Plan.
(50)
The Plan is explained below under the heading "Stock Options" and in Note 5
to the consolidated financial statements.
The following chart summarizes the annual compensation for Omagine, Inc.'s
non-employee independent directors during 2010.
Director Compensation
---------------------
(b) (c) (e)
Fees Stock (d) All Other (f)
(a) Earned Awards Option Awards Compensation Total
Name ($) ($) ($) (1) ($) ($)
------------------------ ------ ------- ------------- ------------ -----
Salvatore Bucchere $ 0 0 5,721 0 5,721
Kevin Green $ 0 0 5,721 0 5,721
Louis Lombardo $ 0 0 5,108 0 5,108
(51)
(1) Column (d) represents the dollar amount recognized as
compensation expense for financial statement reporting
purposes for the year indicated under ASC 718, and not an
amount paid to or realized by the named director. There can
be no assurance that the amounts determined by ASC 718 will
ever be realized. Assumptions used in the calculation of
these amounts are included in Note 1 - STOCK-BASED
COMPENSATION - to the Company's audited financial
statements for the fiscal year ended December 31, 2010.
Directors who are not Company employees are compensated for
their services as a director as shown in the chart below:
Schedule of Independent Director Fees
December 31, 2010
Compensation Item Amount ($)
-------------------------------------------- ----------
Annual Retainer $ 0
Attendance at Annual Meeting 500
Per Board Meeting Fee (attendance in person) 500
Per Board Meeting Fee (attendance by teleconference) 250
Per Committee Meeting Fee (in person or by teleconference) 0
Appointment Fee Upon Election to Board of Directors 0
Non-qualified stock options (1)(2)
(1) On the date of appointment to the Board of Directors, new
non-employee independent directors are entitled to a one-
time grant of 6,000 non-qualified stock options at the
closing price on the date of grant, vested ratably over
three years.
(2) For non-employee independent directors that have served on
the Board for at least 3 years, 2,000 options (or such
other number of options as determined by the Board in its
discretion) will be granted on the first business day of
each fiscal year, at the closing price on the date of grant,
vesting ratably over three years (or such other grant date
or vesting period as may be determined by the Board).
(52)
Stock Options Granted to Independent Directors
----------------------------------------------
On the date of appointment to the Board of Directors ("Board"),
new non-employee independent directors are entitled to a one-
time grant of 6,000 non-qualified stock options (or such other
number of options as determined by the Board in its discretion).
The price of the Common Stock underlying such options is the
closing bid price on the date of grant and the options vest over
three years provided such independent director continues to hold
office.
Non-employee independent directors that have served on the
Board for at least 3 years will be granted 2,000 options (or
such other number of options as determined by the Board of
Directors in its discretion) at an exercise price equal to the
closing bid price on the date of grant and vesting immediately
upon grant. The date of grant shall be the first business day of
each fiscal year, or such other date as may be determined by the
Board, next following completion of such three years of service.
On October 30, 2007, Omagine, Inc. awarded options to purchase
6,000 shares of its Common Stock to each of Messrs. Bucchere and
Green at an exercise price $4.50 per share. The options are
fully vested and expire five years after the date of grant.
On January 1, 2008, Omagine, Inc. awarded options to purchase
6,000 shares of its Common Stock to Mr. Lombardo at an exercise
price of $4.00 per share. The options are fully vested and
expire five years after the date of grant.
On July 1, 2010, Omagine, Inc. awarded options to purchase 2000
shares of its Common Stock to each of Salvatore Bucchere and
Kevin Green at an exercise price of $0.51 per share. The options
are fully vested and expire five years after the date of grant.
Directors of Omagine, Inc. who are employees of the Company do
not receive additional compensation for their services as
Directors.
Report on the Repricing of Any Options or Stock Appreciation
Rights
------------------------------------------------------------
There was no repricing of any options during fiscal year 2010.
The Company has never issued any stock appreciation rights.
(53)
Employment Agreements and Consulting Agreements
-----------------------------------------------
The Company presently has no employment agreements with any of
its employees.
In September 2001, Omagine, Inc. entered into an employment
agreement (the "Drohan Agreement") with Mr. Frank J. Drohan,
Chief Executive Officer of the Company. Pursuant to the Drohan
Agreement, Omagine, Inc. was obligated through December 31, 2010
to pay its President and Chief Executive Officer, Mr. Frank J.
Drohan, an annual base salary of $125,000, plus an additional
amount based on a combination of the Company's net sales and
earnings before taxes. Mr. Drohan's employment agreement
provided for an option to purchase 20,000 shares of Common Stock
at $1.25 per share during each of the first five years of the
employment term, and payment by the Company of certain life and
disability insurance premiums on Mr. Drohan's behalf. By mutual
agreement between the Company and Mr. Drohan, the Drohan
Agreement was modified to provide that the Company could from
time to time suspend salary payments to Mr. Drohan and Mr.
Drohan would continue to provide services to the Company
pursuant to the Drohan Agreement and the Company would accrue
Mr. Drohan's unpaid salary. No salary payments were made to Mr.
Drohan in 2010, 2009 and part of 2008. The Company, has agreed
to pay all such unpaid and accrued salary to Mr. Drohan without
interest when and if the Company has the financial resources
to do so. On September 23, 2008 the Board of Directors granted
100,000 non-qualified stock options to Mr. Drohan which vest
ratably over five years from the grant date. 20,000 of such
options vested on each September 24 of 2009 and 2010 and an
additional 20,000 of such options shall vest on each September
24 of 2011, 2012 and 2013. Expiration of all such options is ten
years from the date of grant. Provided the Company is successful
in signing the Development Agreement with the Government of
Oman, the Company plans to enter into a new employment agreement
with Mr. Drohan, although the terms of such employment
agreement have not yet been determined.
Pursuant to a written employment agreement effective September
1, 2001 (the "Kuczynski Agreement"), Omagine, Inc. was obligated
through December 31, 2010 to pay its Vice-President & Secretary,
Mr. Kuczynski, an annual base salary of $75,000, plus an
additional bonus based on a combination of the Company's net
sales and earnings before taxes. The Kuczynski Agreement
(54)
provided for an option to purchase 10,000 shares of Common Stock
at $1.25 per share during each of the first five years of the
employment term (the "Kuczynski Options"). By mutual agreement
between the Company and Mr. Kuczynski, the Kuczynski Agreement
was ended but the Kuczynski Options were maintained in effect.
Mr. Kuczynski is presently employed by the Company at an annual
salary of $85,000 and Omagine, Inc. has from time to time
suspended salary payments to Mr. Kuczynski and Mr. Kuczynski
continued to provide services to the Company and the Company has
accrued Mr. Kuczynski's unpaid salary. Omagine, Inc. has agreed
to keep the Kuczynski Options in effect and to pay such unpaid
and accrued salary to Mr. Kuczynski without interest when and if
the Company has the financial resources to do so. Provided the
Company is successful in signing the Development Agreement with
the Government of Oman, Omagine, Inc. plans to enter into a new
employment agreement with Mr. Kuczynski, although the terms of
such employment agreement have not yet been determined. On
September 23, 2008 the Board of Directors granted 50,000 non-
qualified stock options to Mr. Kuczynski which vest ratably over
five years from the grant date. 10,000 of such options vested on
each September 24 of 2009 and 2010 and an additional 10,000 of
such options shall vest on each September 24 of 2011, 2012 and
2013. Expiration of all such options is ten years from the date
of grant.
CONSULTING AGREEMENT
---------------------
The Hamdan Agreement:
Effective March 19, 2007 Omagine, Inc. entered into a consulting
agreement with Mr. Sam Hamdan (the "Hamdan Agreement") which has
since been amended to expire on December 31, 2011 (See:
"Employees and Consultants"). Pursuant to the Hamdan Agreement
as amended, (i) Mr. Hamdan will continue to provide ongoing
consulting services to the Company, and (ii) under certain
circumstances and conditions precedent, Mr. Hamdan may become
the President and Chief Operating Officer of Omagine, Inc., and
(iii) Omagine, Inc. issued Hamdan options to purchase up to
160,000 shares of Omagine, Inc.'s Common Stock at $1.25 per
share (the "Hamdan Option"), exercisable ratably over the 5 year
period beginning on April 1, 2007. The Hamdan Option is
exercisable only if, at the time of such exercise: (i) the
Hamdan Agreement is in effect, or (ii) Hamdan is an employee of
the Company.
(55)
Employment Benefits:
Omagine, Inc. provides and pays for group medical insurance for
all employees choosing to participate in its group medical
insurance plan and Omagine, Inc. sponsors a 401(k) retirement
plan for all eligible employees.
Stock Options:
The Omagine, Inc. stockholders have ratified the "2003 Omagine
Inc. Stock Option Plan" (the "Plan") and the reservation for
issuance under the Plan of two million five hundred thousand
(2,500,000) shares of Common Stock.
The Plan is designed to attract, retain and motivate employees,
directors, consultants and other professional advisors of the
Company (collectively, the "Recipients") by giving such
Recipients the opportunity to acquire stock ownership in
Omagine, Inc. through the granting of incentive stock options
and non-qualified stock options (collectively, "Stock
Options") to purchase Omagine, Inc.'s Common Stock.
Pursuant to the Plan, Stock Options may be granted at an
exercise price equal to at least the fair market value of a
share of Common Stock on the date of grant.
Exercise prices for incentive Stock Options for holders of more
than 10% of the outstanding Common Stock must be at least 110%
of the fair market value on the date of grant. Incentive Stock
Options are exercisable in 20% increments commencing one year
after the date of grant and generally expire five years after
the date of grant. The Plan expires on August 31, 2013.
In September 2001 in connection with his employment agreement,
Omagine, Inc. issued a non-qualified Stock Option to purchase up
to 100,000 shares of Common Stock at a purchase price of $1.25
per share to Mr. Frank J. Drohan who is an officer and director
of Omagine, Inc. As of the date of this report, all 100,000
shares constituting this Stock Option are vested and
exercisable. This Stock Option expires on August 31, 2011.
In September 2001 in connection with his employment agreement,
Omagine, Inc. issued a non-qualified Stock Option to purchase up
to 50,000 shares of Common Stock at a purchase price of $1.25
(56)
per share to Mr. Charles P. Kuczynski who is an officer and
director of Omagine, Inc. As of the date of this report, all
50,000 shares constituting this Stock Option are vested and
exercisable. This Stock Option expires on August 31, 2011.
On March 19, 2007, pursuant to the Hamdan Agreement, Omagine,
Inc. issued Hamdan non-qualified Stock Options to purchase up to
160,000 shares of Common Stock at $1.25 per share (the "Hamdan
Option"), exercisable ratably at 32,000 shares per year over the
5 year period beginning on April 1, 2007. The Hamdan Option is
exercisable only if, at the time of such exercise: (i) the
Hamdan Agreement is effect, or (ii) Hamdan is an employee of the
Company. As of the date of this report all 160,000 shares
constituting the Hamdan Option are vested and exercisable.
Provided the Hamdan Option does not expire or terminate earlier
pursuant to the terms and conditions of the Hamdan Agreement,
any unexercised portion of the Hamdan Option will expire and
terminate on March 31, 2017.
Pursuant to an agreement dated August 27, 2007, Omagine, Inc.
issued Agora International Enterprises Corp. ("Agora") a non-
qualified Stock Option to purchase up to 40,000 shares of Common
Stock at a purchase price of $4.10 per share (the "Agora
Option"). The Agora Option is fully vested as of the date of
this report and may be exercised in whole or in part at any time
before December 31, 2011 on which date any unexercised portion
of the Agora Option will terminate.
In October 2007, Omagine, Inc. issued 2 non-qualified Stock
Options, each to purchase up to 6,000 shares of Common Stock at
a purchase price of $4.50 per share. One of such Stock Options
was issued to Mr. Salvatore J. Bucchere and the other of such
Stock Options was issued to Mr. Kevin O'C. Green, each of whom
are independent directors. As of the date of this report, all
12,000 shares constituting these 2 Stock Options are vested and
exercisable. Each of these 2 Stock Options expire five years
after the date of grant.
In January 2008, Omagine, Inc. issued a non-qualified Stock
Option to purchase up to 6,000 shares of Common Stock at a
purchase price of $4.00 per share to Mr. Louis J. Lombardo, an
independent director. As of the date of this report, all 6,000
shares constituting this Stock Option are vested and
exercisable. This Stock Option expires five years after the date
of grant.
(57)
In September 2008, Omagine, Inc. issued a non-qualified Stock
Option to purchase up to 100,000 shares of Common Stock at a
purchase price of $2.60 per share to Mr. Frank J. Drohan who is
an officer and director of Omagine, Inc. This Stock Option vests
ratably over five years from the date of grant and expires ten
years after the date of grant. As of the date of this report,
40,000 shares of Common Stock covered by this Stock Option are
vested and exercisable. On each September 24 of 2011, 2012 and
2013 an additional 20,000 shares of Common Stock covered by this
Stock Option will vest and become exercisable.
In September 2008, Omagine, Inc. issued a non-qualified Stock
Option to purchase up to 50,000 shares of Common Stock at a
purchase price of $2.60 per share to Mr. Charles P. Kuczynski
who is an officer and director of Omagine, Inc. This Stock
Option vests ratably over five years from the date of grant and
expires ten years after the date of grant. As of the date of
this report, 20,000 shares of Common Stock covered by this Stock
Option are vested and exercisable. On each September 24 of 2011,
2012 and 2013 an additional 10,000 shares of Common Stock
covered by this Stock Option will vest and become exercisable.
As of December 31, 2010, there were 528,000 Stock Options
outstanding under the Plan.
Following is a listing of all non-qualified Stock Options issued
and outstanding as of December 31, 2010: (These Stock Options
have been adjusted for the Stock Splits effected December 30,
2009).
Name No. of options Exercise Price Date of
Grant
--------------- -------------- ------------ -----------
Frank Drohan 100,000 $1.25 9/l/2001
Charles Kuczynski 50,000 $1.25 9/l/2001
Agora 40,000 $4.10 12/16/2005
Sam Hamdan 160,000 $1.25 3/31/2007
Salvatore Bucchere 6,000 $4.50 10/30/2007
Kevin Green 6,000 $4.50 10/30/2007
Louis Lombardo 6,000 $4.00 1/01/2008
Frank Drohan 100,000 $2.60 9/23/2008
Charles Kuczynski 50,000 $2.60 9/23/2008
William Hanley 6,000 $2.60 9/23/2008
Salvatore Bucchere 2,000 $0.51 7/1/2010
Kevin Green 2,000 $0.51 7/1/2010
(58)
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.
-------- ------------------------------------------------
The following table sets forth as of December 31, 2010: (i) the
number of shares of Omagine, Inc.'s Common Stock beneficially
owned by (a) owners of more than five percent of Omagine, Inc.'s
outstanding Common Stock who are known to the Company, and (b)
the directors of Omagine, Inc., individually, and the officers
and directors of Omagine, Inc. as a group, and (ii) the
percentage of ownership of the outstanding Common Stock
represented by such shares.
Beneficial
Name and Address Ownership (9) Percent
---------------- -------------- -------
Frank J. Drohan (1)(3) 1,358,192 11.2%
Charles P. Kuczynski (l)(4) 337,976 2.8%
Salvatore S. Bucchere (1)(6)(7) 57,980 0.5%
Louis J. Lombardo (1)(5) 59,177 0.5%
Kevin O. Green (1)(6)(7) 21,940 0.2%
Muftah Benomran (2) 640,886 5.3%
Mohammed K. Al-Sada (2) 909,800 7.5%
William Hanley (2)(8) 96,913 0.8%
All officers and Directors
As a Group of 5 Persons 1,932,178 16.0%
----------------------------------------------------------------
(1) The address for each of these individuals is c/o Omagine,
Inc. and each is a director of Omagine, Inc. Messrs. Drohan and
Kuczynski are officers of the Company.
(2) The address for each of these individuals is c/o Omagine,
Inc. Mr. Hanley is an officer of Omagine, Inc.
(59)
(3) Does not include Mr. Drohan's (i) 100,000 Stock Options
currently exercisable at $1.25 per share, or (ii) 40,000
currently exercisable and 60,000 un-exercisable Stock Options
at $2.60 per share.
(4) Does not include Mr. Kuczynski's (i) 50,000 Stock Options
currently exercisable at $1.25 per share, or (ii) 20,000
currently exercisable and 30,000 un-exercisable Stock Options
at $2.60 per share.
(5) Does not include Mr. Lombardo's 6,000 Stock Options
currently exercisable at $4.00 per share.
(6) Does not include the 12,000 Stock Options currently
exercisable at $4.50 per share (6,000 held by Mr. Bucchere and
6,000 held by Mr. Green).
(7) Does not include 4,000 Stock Options currently exercisable
at $0.51 per share (2,000 held by Mr. Bucchere and 2,000 held by
Mr. Green).
(8) Does not include Mr. Hanley's 4,000 Stock Options currently
exercisable at $2.60 per share.
(9) None of these shares are subject to rights to acquire
beneficial ownership, as specified in Rule 13d-3 (d)(1) under
the Securities Exchange Act of 1934, as amended, and the
beneficial owner has sole voting and investment power, subject
to community property laws where applicable.
Changes in Control Arrangements
-------------------------------
No change in control arrangements existed at December 31, 2010.
Item 13. Certain Relationships and Related Transactions,
and Director Independence.
-------- -----------------------------------------------
The Renaissance Team, Inc.
--------------------------
Mr. Sam Hamdan, who has a consulting agreement with the Company
(the "Hamdan Agreement") and who, under certain circumstances,
(60)
may become Omagine, Inc.'s president (See: "EMPLOYEES and
CONSULTANTS" and "CONSULTING AGREEMENTS") is also the president
of The Renaissance Team, Inc., a privately held company ("TRT").
Frank J. Drohan ("Drohan"), the Company's President and Chief
Executive Officer, is the Chairman of TRT and Charles P.
Kuczynski, the Company's Vice President and Secretary, is the
Secretary of TRT. TRT's business is not in competition with that
of the Company. Mr. Drohan's employment agreement with the
Company which expired on December 31, 2010 permitted him to be
involved in any other business enterprise that does not compete
with the Company. Each of Mr. Hamdan and Mr. Drohan own 50% of
TRT's equity and TRT intends to acquire the business and certain
assets of The Global Leadership Team, Inc. ("GLT"). Mr. Hamdan
is currently the president and sole shareholder of GLT
(www.gltweb.com). Prior to the organization of TRT, Mr. Hamdan
and GLT had performed significant services, including branding,
strategic consulting, strategic visioning, marketing, financial
and project finance planning, public relations, event management
and management consulting services for JOL with respect to the
proposed Qutopia Project in Qatar and the Omagine Project in
Oman. The unpaid account payable of $245,449 due to GLT from JOL
for such services was extinguished and exchanged for 490,880
shares of Omagine, Inc.'s Common Stock. There have been no
transactions between TRT and the Company to date, but based upon
the Company's use of GLT's services in the past - and assuming
TRT's ultimate acquisition of GLT's business - the Company
anticipates that such transactions will occur in the future.
Hamdan, Drohan and TRT have agreed with respect to any such
possible future transaction(s) between TRT and the Company (a
"Related Party Transaction") that they will exercise their best
efforts to assure that any such Related Party Transaction will
be structured such that it provides substantially better terms
and conditions to the Company than would otherwise be available
to the Company if the Company were to negotiate and conclude
such Related Party Transaction on an "arms-length" basis with a
company with which Mr. Hamdan and/or Mr. Drohan were not
associated. Furthermore, any such Related Party Transaction will
be in compliance with the Company's Code of Ethics.
Director Independence
---------------------
Three of the five directors of Omagine, Inc. are independent.
(61)
Related Party Payables
----------------------
At December 31, 2010, the Company has included $856,001 of
related party payables in its balance sheet. This amount
consists of notes and accrued interest payable, unpaid salary
and unreimbursed expenses due to officers and directors of the
Company.
Item 14. Principal Accountant Fees and Services.
------- ---------------------------------------
Audit Fees:
-----------
The Company was billed by its independent registered public
accounting firm $27,500 in 2009 and $27,500 in 2010 for all
auditing and review services performed by such firm for the
Company in connection with the Company's regulatory filings
during such fiscal years.
Audit Related Fees:
-------------------
None
Tax Fees:
---------
None
All Other Fees:
---------------
None
On behalf of the Company and in his capacity as Chairman of the
Audit Committee, Mr. Salvatore J. Bucchere hired the Company's
registered public accounting firm to perform the audit of the
Company's financial statements for the fiscal year ended 2010.
(62)
PART IV
Item 15. Exhibits, Financial Statement Schedules.
-------- ----------------------------------------
Index to Financial Statements Required by Article 8 of
Regulation S-X:
F-1 Report of Independent Registered Public Accounting Firm;
F-2 Consolidated Balance Sheets as of the fiscal years ended
December 31, 2010 and December 31, 2009;
F-3 Consolidated Statements of Operations for fiscal years
ended December 31, 2010 and December 31, 2009;
F-4 Consolidated Statements of Changes in Stockholders' Equity;
F-5 Consolidated Statements of Cash Flows for the fiscal years
ended December 31, 2010 and December 31, 2009;
F-6 Notes to the Financial Statements.
Exhibit
Numbers Description
------- -------------
3(i) Restated Certificate of Incorporation
of Omagine, Inc. dated June 2, 2010 (6)
3(ii) By-laws of Omagine, Inc. (1)
3.2 Certificate of Ownership and Merger (2)
10.1 The CCIC and CCC Agreement (2)
10.2 The Standby Equity Distribution Agreement (3)
10.3 The Memorandum of Understanding by and between
Omagine, Inc., Journey of Light, Inc.,
Consolidated Contractors International
Company, S.A. and Royal Court Affairs dated
June 26, 2008 (4)
(63)
10.4 The amended Hamdan Agreement *
10.5 Lease agreement expiring February 28, 2013
between Contact Sports, Inc. and the Empire
State Building LLC (8)
10.6 Employment Agreement between Omagine Inc.
and Frank J. Drohan dated as of September 1,
2001 (9)
10.7 Employment Agreement between Omagine Inc.
and Charles Kuczynski dated as of September 1,
2001 (9)
14 The Code of Ethics (2)
21 Subsidiaries of the registrant *
31.1 Sarbanes-Oxley 302 certification *
32.1 Sarbanes-Oxley 1350 certification *
99.1 The Omagine Inc. 401(k) Adoption Agreement (5)
99.2 The Approval Letter dated April 30, 2008
(English Translation) (4)
99.3 The Acceptance Letter dated May 31, 2008 (4)
99.4 Omagine Inc. 2003 Stock Option Plan (7)
* 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.
(2) Previously filed with the Securities and Exchange
Commission on April 14, 2008 as an exhibit to the Company's
Report on Form 10-KSB for the fiscal year ended December 31,
2007 and incorporated herein by reference thereto.
(64)
(3) Previously filed with the Securities and Exchange
Commission on December 31, 2008 as an exhibit to the Company's
current Report on Form 8-K and incorporated herein by reference
thereto.
(4) Previously filed as exhibits to Alfa's Registration
Statement on Form S-1 (File No. 333-156928) filed with the
Securities and Exchange Commission and incorporated herein by
reference thereto.
(5) Previously filed with the Securities and Exchange
Commission on February 25, 2009 as an exhibit to the Company's
Report on Form 10-KSB for the fiscal year ended December 31,
2008 and incorporated herein by reference thereto.
(6) Previously filed as an exhibit to the Company's Report on
Form 10-Q for the period ended June 30, 2010 and incorporated
herein by reference thereto.
(7) Previously filed as an exhibit to the Company's Report on
Form 10-K for the period ended December 31, 2009 and
incorporated herein by reference.
(8) Previously filed as an exhibit to the Company's Report on
Form 10-K/A filed on November 11, 2009 for the period ended
December 31, 2008 and incorporated herein by reference.
(9) Previously filed with the Securities and Exchange
Commission on April 15, 2002 as an exhibit to the Company's
Report on Form 10-KSB for the fiscal year ended December 31,
2001 and incorporated herein by reference thereto.
SIGNATURES
In accordance with Sections 13 or 15 (d) 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 on this 15th day of April 2011.
(65)
Omagine, Inc.
By: /s/ Frank J. Drohan
FRANK J. DROHAN, Chairman
of the Board of Directors,
President and Chief
Executive and Financial Officer
(Principal Executive Officer and
Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed below by the following
persons on April 15, 2011 on behalf of the Registrant and in the
capacity indicated.
By: /s/ Frank J. Drohan
FRANK J. DROHAN, Chairman
of the Board of Directors,
President and Chief
Executive and Financial Officer
(Principal Executive Officer and
Principal Financial Officer)
By: /s/ William Hanley
WILLIAM HANLEY, Controller and
Principal Accounting Officer
By: /s/ Charles P. Kuczynski
CHARLES P. KUCZYNSKI,
Vice President, Secretary and
Director
By: /s/ Salvatore J. Bucchere
SALVATORE J. BUCCHERE,
Director
By: /s/ Kevin O'C. Green
KEVIN O'C. GREEN,
Director
By: /s/ Louis J. Lombardo
LOUIS J. LOMBARDO,
Director
(66)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Omagine, Inc.
I have audited the accompanying consolidated balance sheets of
Omagine, Inc. and subsidiaries (the "Company") as of December
31, 2010 and 2009 and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for
the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is
to express an opinion on these financial statements based on my
audits.
I conducted my audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. I believe that my audits provide a
reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Omagine, Inc. and subsidiaries as of December 31,
2010 and 2009 and the results of their operations and cash flows
for the years then ended, in conformity with accounting
principles generally accepted in the United States.
The accompanying consolidated financial statements referred to
above have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 2 to the consolidated
financial statements, the Company's present financial situation
raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to this matter are
also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
/s/ Michael T. Studer CPA P.C.
April 15, 2011 ----------------------------
Freeport, New York
F-1
OMAGINE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 2010 2009
-------- -------
CURRENT ASSETS:
Cash $148,217 $155,821
Prepaid expenses and other current assets 150 -
-------- --------
Total Current Assets 148,367 155,821
-------- --------
PROPERTY AND EQUIPMENT:
Office and computer equipment 132,570 131,412
General plant 17,800 17,800
Furniture and fixtures 15,951 15,951
Leasehold improvements 866 866
-------- --------
Total 167,187 166,029
Less: Accumulated depreciation and amortization (160,990) (156,968)
-------- --------
Property and Equipment 6,197 9,061
-------- --------
OTHER ASSETS:
Other assets 13,361 13,606
-------- --------
TOTAL ASSETS: $167,925 $178,488
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Convertible notes payable and accrued
interest $596,888 $313,464
Accounts payable 403,095 455,724
Accrued officer payroll 457,299 327,000
Due officers and directors 8,205 10,153
Accrued expenses and other current liabilities 50,483 27,731
-------- --------
Total Current Liabilities 1,515,970 1,134,072
LONG-TERM LIABILITIES - -
-------- --------
TOTAL LIABILITIES 1,515,970 1,134,072
-------- --------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock:
$0.001 par value
Authorized: 850,000 shares,
Issued and outstanding: - 0 shares - -
Common stock:
$0.001 par value
Authorized: 50,000,000 shares
Issued and outstanding
12,107,646 and 10,660,904
shares respectively 12,108 10,661
Capital in excess of par value 18,913,269 18,030,176
Retained earnings (deficit) (20,273,422) (18,996,421)
----------- -----------
Total Stockholders' Equity (Deficit) (1,348,045) (955,584)
----------- -----------
Total Liabilities and Stockholders'
Equity $ 167,925 $ 178,488
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
OMAGINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
------------------------
2010 2009
----------- -----------
REVENUES:
Net sales $ - $ -
----------- -----------
Total revenues $ - $ -
----------- -----------
COSTS AND EXPENSES:
Cost of sales - -
Officers and directors compensation
(including stock-based compensation
Of $263,772 and $166,060 respectively) 453,772 466,560
Professional fees 228,170 227,010
Travel 180,418 59,515
Occupancy 136,067 140,976
Other general and administrative 239,848 189,631
---------- -----------
Total Costs and Expenses 1,238,275 1,083,692
---------- -----------
OPERATING LOSS (1,238,275) (1,083,692)
Interest income - 124
Interest expense (38,726) (30,841)
---------- -----------
NET LOSS $(1,277,001) $ (1,114,409)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (.11) $ (.12)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -
BASIC AND DILUTED 11,828,511 9,686,101
=========== ============
See accompanying notes to consolidated financial statements.
F-3
OMAGINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Capital in Retained
Par Excess of Earnings
Shares Value Par Value Deficit)
------- ----- --------- --------
Balances at December 31, 2008 9,277,527 $ 9,278 $17,290,331 $(17,882,012)
Contribution of Common Stock
to 401K Plan 72,500 72 72,428 -
Stock Option Expense - - 112,328 -
Issuance of Common Stock
for cash 2,000 2 1,398 -
Sale of Stock Under Stock
Equity Distribution
Agreement 1,308,877 1,309 553,691 -
Net Loss - - - (1,114,409)
---------- ------- ----------- ----------
Balances at December 31, 2009 10,660,904 $10,661 $18,030,176 $(18,996,421)
Adjustment for Stock Splits 22
Contribution of Common Stock
To 401K Plan 289,996 290 72,210
Stock Option Expense 110,040
Sale of Common Stock for
Cash 336,972 337 304,163
Issuance of Common Stock in
Payment of salaries payable 82,305 82 99,918
Issuance of Common Stock for
Stockholder Investor
relations 118,750 119 47,381
Sale of Stock Under Stock
Equity Distribution
Agreement 618,697 619 249,381
Net Loss - - - (1,277,001)
------- ---- -------- ----------
Balance At December 31, 2010 12,107,646 12,108 18,913,269 (20,273,422)
See accompanying notes to consolidated financial statements.
F-4
OMAGINE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
2010 2009
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,277,001) $(1,114,409)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 4,022 6,249
Stock based compensation related to stock options 110,040 112,328
Issuance of Common Stock for 401K contribution 72,500 72,500
Issuance of Common Stock for stockholder investor
Relations 47,500 -
Issuance of Common Stock in payment of salaries payable 100,000 -
Changes in operating assets and liabilities:
Prepaid expenses and other current assets and other assets 95 40,917
Accrued interest on convertible notes payable 33,424 24,736
Accounts payable (52,629) 99,356
Accrued expenses and other current liabilities 22,752 21,386
Accrued officers payroll 130,299 254,500
---------- ----------
Net cash flows used by operating activities ( 808,998) ( 482,437)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,158) (1,471)
---------- -----------
Net cash flows used by investing activities (1,158) (1,471)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans from officers and directors ( 1,948) (16,182)
Proceeds from sales of common stock 554,500 556,400
Issuance of convertible notes payable 250,000 50,000
---------- ----------
Net cash flows from financing activities 802,552 590,218
---------- ----------
NET CHANGE IN CASH (7,604) 106,310
CASH BEGINNING OF YEAR 155,821 49,511
----------- ----------
CASH END OF YEAR $ 148,217 $ 155,821
=========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid $ - $ -
=========== ==========
Interest Paid 5,301 6,105
=========== ==========
See accompanying notes to consolidated financial statements.
F-5
OMAGINE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Principles of Consolidation - The consolidated financial
statements include the accounts of Omagine, Inc. ("Omagine") and
its wholly owned subsidiaries, Journey of Light, Inc. ("JOL")
and Omagine LLC ("LLC"), collectively referred to as the
"Company"). LLC, a foreign corporation, was organized in the
Sultanate of Oman on November 23, 2009. All inter-company
transactions have been eliminated in consolidation.
Nature of the Business - Omagine is a holding company which
operates through its subsidiaries, JOL and LLC. Both JOL and LLC
are in the real estate development business. LLC is the local
real estate development company established to do business in
Oman.
Financial Instruments - Financial instruments include cash,
convertible notes payable and accrued interest, accounts
payable, accrued officer payroll, due officers and directors,
and accrued expenses and other current liabilities. The amounts
reported for financial instruments are considered to be
reasonable approximations of their fair values, based on market
information available to management.
Cash and Cash Equivalents - The Company considers all
highly liquid instruments with a maturity of three months or
less at the time of issuance to be cash equivalents. At December
31, 2010, cash includes approximately $106,000 in an Oman bank
account not covered by FDIC insurance.
Estimates and Uncertainties - The preparation of financial
statements in conformity with accounting principles generally
F-6
accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and 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. Actual results, as determined at a later date, could
differ from those estimates.
Revenue Recognition - The Company follows the guidelines of
SEC Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" (SAB101). In the event that a subsidiary
of the Company signs a development agreement with the Government
of Oman, such subsidiary will recognize revenue ratably over the
development period, measured by methods appropriate to the
services or products provided.
Property and Equipment - Property and equipment are stated
at cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the respective assets.
Income Taxes - The Company is subject to income taxes at
both the federal and state level. Separate state income tax
returns are filed with each state in which the Company is
incorporated or qualified as a foreign corporation. Other than
LLC which is subject to income taxes in Oman, the Company is not
presently subject to income taxes in any foreign country.
Deferred tax assets and liabilities are recognized based on
differences between the book and tax bases of assets and
liabilities using presently enacted income tax rates. The
Company establishes a provision for income taxes by applying
the provisions of the applicable enacted tax laws to taxable
income, if any, for that period. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Stock-based Compensation - Stock-based compensation is
accounted for at fair value in accordance with Accounting
Standards Codification ("ASC") 718, "Compensation - Stock
Compensation".
For stock options granted, we have recognized compensation
expense based on the estimated grant date fair value method
F-7
using the Black-Scholes valuation model. For these awards, we
have recognized compensation expense using a straight-line
amortization method. ASC 718 requires that stock-based
compensation expense be based on awards that are ultimately
expected to vest. Stock option expense for the years ended
December 31, 2010 and 2009 were $110,040 and $112,328,
respectively. See Note 5.
Earnings (Loss) Per Share - Basic earnings (loss) per share is
based upon the weighted-average number of common shares
outstanding during that 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 years ended December 31, 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
------------------------
Year Ended December 31,
------------------------
2010 2009
---- ----
Convertible Notes 266,341 151,115
Stock Options 404,000 340,000
------- -------
Total Shares 670,341 491,115
======= =======
NOTE 2 - GOING CONCERN AND LIQUIDITY:
At December 31, 2010, the negative working capital of the
Company was $1,367,603. Further, the Company incurred net losses
of $1,277,001 and $1,114,409 for the years ended December 31,
2010 and 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.
F-8
NOTE 3 - CONVERTIBLE NOTES PAYABLE AND ACCRUED INTEREST:
Convertible notes payable and accrued interest consist of:
December 31, December 31,
2010 2009
------------ ------------
Due to the president of the Company,
interest at 8%, originally due
February 28, 2009 and now are due
on demand, convertible into common
stock at a conversion price of
$2.00 per share:
Principal $ 192,054 $ 192,054
Accrued interest 36,285 20,921
Due to the secretary of the Company,
interest at 8%, originally due
February 28, 2009 and now are due
on demand, convertible into common
stock at a conversion price of
$2.00 per share:
Principal 39,961 39,961
Accrued interest 7,550 4,353
Due to a director of the Company,
interest at 10%, due on September
16, 2011 ($100,000) and November
4, 2011 ($50,000), convertible
into common stock at a conversion
price of $2.50 per share:
Principal 150,000 -
Interest 3,685 -
Due to investors, interest at 15%,
originally due from February 28, 2010
to March 16, 2010 and now are due on
demand, convertible into common stock
at a conversion price of $2.50 per
share:
Principal 50,000 50,000
Accrued interest 13,675 6,175
F-9
Due to investors, interest at 10%,
due from July 27, 2011 to October
19, 2011, convertible into common
stock at a conversion price of
$2.50 per share:
Principal 100,000 -
Interest 3,678 -
--------- ---------
Totals $ 596,888 $ 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 (two of the three employees are
directors of the Company and all three are officers of the
Company).
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 2009 to December 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 7).
On December 30, 2009, Omagine's stockholders authorized the
Board of Directors to effect a 1-for-100 reverse stock split
immediately followed by a 20-for-1 forward stock split of the
Company's Common Stock (collectively, the "Stock Splits"). The
Stock Splits resulted in a net reduction of 42,643,614 shares of
Common Stock leaving 10,660,904 shares of Common Stock
outstanding as of December 31, 2009. The shareholders also
authorized the Board of Directors to reduce the Common Stock
authorized from 75,000,000 to 50,000,000 shares. The
accompanying financial statements have been retroactively
adjusted to reflect the Stock Splits.
F-10
From March 2010 to June 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 7).
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 (two of the three employees are
directors of the Company and all three are officers of the
Company).
On June 2, 2010, the Company issued 118,750 shares of Common
Stock to an investor relations firm in payment of debt totaling
$47,500.
On July 23, 2010, the Company issued 82,305 shares of Common
Stock to the Company's Controller in payment of accrued payroll
of $100,000.
From July 2010 to November 2010, the Company sold a total of
336,972 shares of Common Stock for proceeds of $304,500.
Note 5 - STOCK OPTIONS
On September 20, 2007, the Company registered 2.5 million
shares of its Common Stock reserved for issuance under the Alfa
International Corp. 2003 Stock Option Plan, renamed the Omagine,
Inc. 2003 Stock Option Plan by ratification of shareholders on
December 30, 2009 (the "Plan") for resale by filing a
registration statement with the SEC on Form S-8. This
registration statement did not increase either the total number
of shares outstanding or the number of shares reserved for
issuance under the Plan. The adoption of the Plan was approved
by the Board of Directors in March 2004 and ratified by the
Company's shareholders on September 1, 2004.
F-11
The Plan is designed to attract, retain and motivate
employees, directors, consultants and other professional
advisors of the Company and its subsidiaries (collectively,
the "Recipients") by giving such Recipients the opportunity
to acquire stock ownership in the Company through the
issuance of stock options to purchase shares of the Company's
Common Stock.
A summary of stock option activity, adjusted for the effect
of Stock Splits, is as follows:
Year Ended December 31,
-----------------------------------
2010 2009
---------- ----------
Outstanding at January 1 530,000 530,000
Granted and Issued 4,000 -
Exercised - -
Forfeited/expired/cancelled (6,000) -
---------- ----------
Outstanding at December 31 528,000 530,000
---------- ----------
Exercisable at December 31 404,000 340,000
---------- ----------
F-12
Stock options outstanding at December 31, 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 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 60,000 $2.60 September 23, 2018
2008 (C) 6,000 4,000 $2.60 September 23, 2013
2010 4,000 4,000 $0.51 June 30, 2015
--------- ----------
Totals 528,000 404,000
========= =========
(A) The 32,000 unvested options relating to the 2007 grant
are scheduled to vest on April 1, 2011.
(B) The 90,000 unvested options relating to the 2008 grant
are scheduled to vest 30,000 on each September 24 in 2011,
2012, and 2013.
(C) The 2,000 unvested options relating to the 2008 grant are
scheduled to vest on September 24, 2011.
As of December 31, 2010, there was $221,011 of total
unrecognized compensation cost relating to unexpired stock
options. That cost is expected to be recognized $92,498
in 2011, $75,447 in 2012, and $53,066 in 2013.
F-13
NOTE 6 - INCOME TAXES:
Deferred tax assets are comprised of the following:
December 31,
----------------------
2010 2009
---------- ----------
Federal net operating loss
carry forwards $3,995,000 $3,670,000
State and city net operating loss
carry forwards, net of
federal tax benefit 1,168,000 1,040,000
---------- ----------
5,163,000 4,710,000
Less: Valuation allowance 5,163,000 4,710,000
----------- -----------
Total $ - $ -
========== ==========
The Company's effective tax rate differs from the expected
federal income tax rate due to changes in the valuation
allowance at December 31, 2010 and 2009.
Management has determined, based on the Company's current
condition, that a full valuation allowance is appropriate at
December 31, 2010.
At December 31, 2010, the Company had federal net operating
loss carry forwards of approximately $11,414,000, expiring in
various amounts from fiscal year 2011 to fiscal year 2030.
Current United States income tax law limits the amount of loss
available to offset against future taxable income when a
substantial change in ownership occurs.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Leases
------
The Company leases its executive office in New York, New York
under a ten-year lease entered into in February 2003. Rent
F-14
expense for the Company's executive offices for 2010 and 2009
was $88,607 and $88,127 respectively. The Company also rents
warehouse space in Jersey City, New Jersey under a month to
month lease. Rent expense for the warehouse space for 2010 and
2009 was $6,900 and $12,075 respectively. The Company also
leases office space in Muscat, Oman under a lease expiring June
30, 2011. Rent expense for the Company's Oman office for 2010
and 2009 was $40,560 and $40,774, respectively.
At December 31, 2010, the future minimum lease payments under
non-cancelable operating leases are as follows:
2011 $ 56,800
2012 56,800
2013 9,466
----------
Total $ 123,066
==========
Employment Agreements
---------------------
Pursuant to an employment agreement dated September 1, 2001,
Omagine was 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. The Company's Compensation
Committee will decide terms of a new employment agreement in the
second quarter of 2011.
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
F-15
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 declared Omagine's
Registration Statement to be effective 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 declared
such new Registration Statement to be effective as of June 7,
2010. the SEDA expires on April 30, 2011 and the effectiveness
of the Company's Registration Statement expires subsequent to
April 30, 2011. All sales of Shares pursuant to the SEDA are
made at the sole discretion of the Company.
The Company has executed a new term sheet ("Term Sheet") with YA
for a new SEDA under substantially the same terms and conditions
as the SEDA executed between YA and the Company in December
2008. The Company is currently reviewing the new SEDA documents
and plans to conclude any discussions with YA and enter into the
new SEDA during the second quarter of 2011.
Omagine Project
---------------
The Company's proposed Omagine Project is planned to be
developed on one million square meters (equal to approximately
F-16
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 Company is awaiting the
signing of a Development Agreement with the Government of Oman
for the Omagine Project.
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 9 - SUBSEQUENT EVENTS
From January 2, 2011 to April 15, 2011, the Company issued a
total of 170,502 shares of Common Stock for proceeds of $150,000
under the Standby Equity Distribution Agreement with YA Global
Investments, L.P.
On January 19, 2011, the Company issued and contributed a total
of 51,784 shares of Common Stock to all eligible employees of
the Omagine, Inc. 401(k) Plan (two of the three employees are
officers of the Company).
On February 11 and 22, 2011, the Company sold a total of 57,018
shares of Common Stock to one accredited investor for total
proceeds of $50,000.
On March 3, 2011, the Company issued 15,000 shares of Common
Stock to a third party vendor for services rendered to the
Company.
F-1