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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q /A


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. 1)


For the Quarterly Period Ended: March 31, 2012

Commission File Number: 0-17264

Omagine, Inc.
(Exact name of registrant as specified in its charter)


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

350 Fifth Avenue, Suite 4815-17, New York, N.Y. 10118
(Address of principal executive offices)

(212) 563-4141
(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes   [ ] No

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

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

Large accelerated filer
[ ]
Accelerated filer
[  ]
 
Non accelerated filer
[ ]
Smaller reporting company
[X]
 

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes[X] No

As of May 17, 2012, the registrant had outstanding 14,369,041 shares of common stock, par value $.001 per share.



 
OMAGINE, INC.
 
 
PART I - FINANCIAL INFORMATION
 
   
Page
 
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32
     
PART II - OTHER INFORMATION
 
     
32
     
33
     
 
34



 
Omagine, Inc. (the “Company”) is filing this amendment No. 1 on Form 10-Q/A (the “Amended Filing”) to amend its report on Form 10-Q for the three month period ended March 31, 2012 filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 21, 2012 (the “Original Filing”).
 
In order to properly reflect the requirements of Regulation S-K and of ASC 915 as well as to reflect the consequences of the delays encountered by the Company in beginning its operations in Oman, this Amended Filing amends the Original Filing by:
 
 
(i)
re-formatting the presentation of our financial statements to reflect our present status as a Development Stage Entity (“DSE”), as such term is defined in ASC 915 as issued by the Financial Accounting Standards Board, and
     
 
(ii)
removing, to comply with the guidance provided in Item 10(b) of Regulation S-K, our previously disclosed projection of future cash flows in recognition of our limited operating history, existing business conditions and the difficulty of making an accurate projection for a period which is seven years from an indeterminate future date; and removing any corresponding discussions related to such projection, and
     
  (iii)  amending and restating “Item 4 - Controls and Procedures” of the Original Filing.
                
This Amended Filing (a) includes the Company’s consolidated financial statements for the three month period ended March 31, 2012 formatted as a DSE pursuant to the guidance contained in ASC 915 (the “DSE Financial Statements”), (b) speaks as of the date hereof, (c) updates information contained in the Original Filing to reflect the inclusion of data and information required by Regulation S-K and by ASC 915, (d) removes our previously reported cash flow projection for a 7 year period beginning on an indeterminate future date, and (e) amends and restates “Item 4 - Controls and Procedures” of the Original Filing.
 
Other than the foregoing, this Amended Filing does not update information contained in the Original Filing to reflect information, facts or events that may have occurred subsequent to the date of the Original Filing or subsequent to any periods for which disclosure was otherwise provided in the Original Filing nor does it modify or update those disclosures affected by subsequent events. Information not affected by this Amended Filing is unchanged and reflects disclosure made at the time of the Original Filing.
 
The DSE Financial Statements do not change any numbers previously reported in our financial statements contained in the Original Filing but the DSE Financial Statements do change the presentation format of our financial statements to reflect the Company’s present status as a DSE and the DSE Financial Statements include the additional information required pursuant to ASC 915 to be presented in DSE Financial Statements.
 
This Amended Filing should be read in conjunction with the Original Filing, the Company’s Second Amended Filing on Form 10K/A for the fiscal year ended December 31, 2011 filed with the SEC on January 22, 2013, and the filings made with the SEC subsequent to the Original Filing, including any amendments to such filings.
 
 

 
 
Some of the statements contained in this Prospectus that are not statements of historical facts constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements are not specifically identified as such. Examples of forward-looking statements include but are not limited to: (i) projections of revenues, expenses, income or loss, cash flow, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of Omagine, Inc. or its management or Board of Directors, including those relating to business plans, products, services or to Omagine LLC and the probability of Omagine LLC signing the DA with the Government; (iii) statements of future economic or financial performance; and (iv) statements of assumptions underlying such statements. Words such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," “targeted,” “continue,” “remain,” “will,” “should,” “may” and other similar expressions, or the negative or other variations thereof, as well as discussions of strategy that involve risks and uncertainties, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. We urge you to be cautious of the forward-looking statements and other similar forecasts and statements of expectations which are contained in this Prospectus since such statements reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations and growth strategy. No assurances can be given regarding the achievement of future results, as our actual results may differ materially from our projected future results as a result of the risks we face, and actual future events may differ from anticipated future events because of the assumptions underlying the forward-looking statements that have been made regarding such anticipated future events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:
 
the uncertainty associated with whether or not the Government of the Sultanate of Oman will honor its commitment with respect to the agreed Final DA and its intention to sign the Development Agreement with Omagine LLC;
the uncertainty associated with political events in the MENA Region in general;
the success or failure of the Company’s efforts to secure additional financing;
oversupply of inventory and adverse conditions in the Oman real estate markets;
the impact of future events (including natural disasters) on the local Oman and international economies, on the Company’s business and operations, on tourism, on the oil and natural gas businesses, and on other major industries operating within the Omani market;
deterioration or malaise in economic conditions, including the continued destabilizing factors in, and continued deterioration of, the local, regional and international real estate markets, as well as the impact of declining levels of consumer and business confidence in the state of the Oman and international economy;
inflation, interest rates and movements in interest rates, securities market and monetary fluctuations;
acts of war, civil or political unrest, terrorism or political instability; or
the ability to attract and retain skilled employees.
 
Forward-looking statements speak only as of the date on which such statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such a statement is made, or to reflect the occurrence of unanticipated events.
 

 

 

ITEM 1: FINANCIAL STATEMENTS

OMAGINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTITY - As Restated - Note 9)
 
             
   
March 31,
   
December 31,
 
   
2012
   
2011
 
ASSETS
 
(Unaudited)
       
             
CURRENT ASSETS:
           
     Cash
  $ 114,113     $ 235,381  
     Subscriptions Receivable - Rights Offering
  $ 731,639     $ -  
     Prepaid expenses and other current assets
    19,826       19,826  
Total Current Assets
    865,578       255,207  
                 
PROPERTY AND EQUIPMENT:
               
     Office and computer equipment
    136,004       132,570  
     General plant
    -       17,800  
     Furniture and fixtures
    -       15,951  
     Leasehold improvements
    -       866  
      136,004       167,187  
     Less accumulated depreciation and amortization
    (131,157 )     (164,730 )
      4,847       2,457  
                 
Other assets
    12,161       12,161  
                 
TOTAL ASSETS
  $ 882,586     $ 269,825  
                 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES:
               
     Convertible notes payable and accrued interest
  $ 380,406     $ 647,949  
     Accounts payable
    376,074       386,294  
     Accrued officers' payroll
    363,615       529,300  
     Due officers and directors
    -       16,864  
     Accrued expenses and other current liabilities
    77,648       87,111  
  Total  Current Liabilities
    1,197,743       1,667,518  
                                         Long Term Liabilities
    -       -  
TOTAL LIABILITIES
    1,197,743       1,667,518  
                 
STOCKHOLDERS' DEFICIT: (As Restated - Note 9)
         
                 
     Preferred stock:
               
     $0.001 par value,
               
     Authorized:  850,000 shares,
               
     Issued and outstanding:   none
    -       -  
                 
     Common Stock:
               
     $0.001 par value,
               
     Authorized: 50,000,000 shares,
               
     Issued and outstanding:
               
       13,304,175 shares in 2012 and 12,853,701 shares in 2011
    13,304       12,854  
     Committed to be issued:
               
        1,014,032 shares in 2012 and 365,000 shares in 2011
    1,014       365  
     Capital in excess of par value
    22,434,158       20,621,545  
Deficit accumulated prior to development stage
         
        commencing on October 11, 2005 ( As Restated - Note 9)
    (9,201,144 )     (9,201,144 )
Deficit accumulated during the development stage
         
        commencing October 11, 2005 ( As Restated - Note 9)
    (13,595,146 )     (12,876,729 )
     Total Omagine, Inc. stockholders' deficit
    (347,814 )     (1,443,109 )
     Noncontrolling interests in Omagine LLC
    32,657       45,416  
                 
Total Stockholders' Deficit
    (315,157 )     (1,397,693 )
                 
                 
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 882,586     $ 269,825  
                 
                 

See accompanying notes to consolidated financial statements.
 
 
 
OMAGINE, INC. AND  SUBSIDIARIES
(A DEVELOPMENT STAGE ENTITY - As Restated  - Note 9)
 
   
Three Months Ended March 31,
   
From the Period October 11, 2005 (Inception of Development Stage) to March 31, 2012
 
   
2012
   
2011
   
(As Restated -
 
   
(Unaudited)
   
(Unaudited)
   
Note 9)
 
                   
REVENUE:
                 
Total revenue
  $ -     $ -     $ -  
                         
OPERATING EXPENSES:
                       
                         
                         
Officers and directors compensation (including stock-based
                 
           compensation of $265,073, $90,933 and $1,199,974
                       
           and $1,543,755, respectively)
    342,823       163,433       2,630,891  
     Professional fees
    11,027       42,390       1,308,681  
     Consulting fees (including stock-based compensation
                       
          of $172,849, $4,692 and $217,886 respectively)
    197,554       35,942       1,421,204  
     Commitment fees
    -       -       300,000  
     Travel
    18,319       15,486       876,457  
     Occupancy
    45,406       32,418       785,868  
     Other selling general and administrative
    101,993       42,646       1,549,069  
     Total Costs and Expenses
    717,122       332,315       8,872,170  
                         
OPERATING LOSS
    (717,122 )     (332,315 )     (8,872,170 )
                         
  OTHER (EXPENSE) INCOME (As Restated - Note 9)
                       
     Settlement of Qatar Real Estate development dispute
    -       -       1,004,666  
     Impairment of goodwill
    -       -       (5,079,919 )
     Interest expense
    (14,054 )     (13,327 )     (221,765 )
     Amortization of Debt discount
    -       -       (93,910 )
     Interest income
    -       -       8,805  
     Other (Expense) - Net
    (14,054 )     (13,327 )     (4,382,123 )
                         
                         
NET LOSS FROM DEVELOPMENT STAGE ENTITY - CONTINUING
                 
     OPERATIONS DEVELOPMENT ( As Restated - Note 9)
    (731,176 )     (345,642 )     (13,254,293 )
                         
Add net loss attributable to noncontrolling interests in Omagine LLC
    12,759       -       32,915  
                         
NET LOSS ATTRIBUTABLE TO OMAGINE, INC. (As Restated - Note 9)
    (718,417 )     (345,642 )     (13,221,378 )
                         
LOSS FROM DISCONTINUED OPERATIONS - SPORTS
                       
      APPAREL
    -       -       (345,990 )
                         
NET LOSS ACCUMULATED DURING DEVELOPMENT STAGE
    (718,417 )     (345,642 )     (13,567,368 )
                         
Net preferred stock dividends
    -       -       (27,778 )
                         
LOSS APPLICABLE TO COMMON SHAREHOLDERS
  $ (718,417 )   $ (345,642 )   $ (13,595,146 )
                         
                         
LOSS PER SHARE - BASIC AND DILUTED
  $ (0.05 )   $ (0.03 )   $ (1.48 )
LOSS PER SHARE - CONTINUING OPERATIONS - REAL ESTATE
                 
     DEVELOPMENT
                  $ (1.44 )
LOSS PER SHARE DISCONTINUED OPERATIONS - SPORTS APPAREL
            $ (0.04 )
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
                       
     - BASIC AND DILUTED
    13,293,369       12,240,373       9,198,707  
                         
                         
 
See accompanying notes to consolidated financial statements.
 
 
OMAGINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTITY -  As Restated - Note 9)
 
                                                                 
                                           
Deficit
   
Deficit
             
                                           
Accumulated
    Accumulated          
                                           
Prior to
   
During the
             
                                           
Development Stage
   
Development
Stage
         
                Common Stock          
Commencing
    Commencing            
 
Preferred Stock .
   
Issued and Outstanding .
   
Committed to be issued .
   
Capital in
   
October 11, 2005
   
October 11, 2005
    Noncontrolling    
        $0.001 Par         $0.001 Par          
$0.001 Par
   
Excess of
   
(As Restated
   
(As Restated
    Interests in    
 
Shares
   
Value
   
Shares
   
Value
   
Shares
   
Value
   
Par Value
   
 -Note 9)
   
 - Note 9)
   
Omagine LLC
   
Total
 
                                                                 
Balances at October 11, 2005
                                                               
(inception of development stage)
  108,350     $ 108       5,667,569     $ 5,668       -     $ -     $ 13,797,424     $ (9,201,144 )   $ -     $ -     $ 4,602,056  
                                                                                       
Conversion of preferred stock for common stock
  (1,250 )     (1 )     10,000       10       -       -       (9 )     -       -       -       -  
                                                                                       
Issuance of preferred stock dividends in common stock
  -       -       348       -       -       -       1,457       -       -       -       1,457  
                                                                                       
Beneficial conversion feature of Convertible Debenture
  -       -       -       -       -       -       132,208       -       -       -       132,208  
                                                                                       
Value of warrant attached to Convertible Debenture
  -       -       -       -       -       -       69,421       -       -       -       69,421  
                                                                                       
Reduction of preferred stock dividends accrual
  -       -       -       -       -       -       -       -       116,705       -       116,705  
                                                                                       
Net loss
  -       -       -       -       -       -       -       -       (5,534,319 )     -       (5,534,319 )
                                                                                       
Balances at December 31, 2005
  107,100       107       5,677,917       5,678       -       -       14,000,501       (9,201,144 )     (5,417,614 )     -       (612,472 )
                                                                                       
Issuance of common stock for cash
  -       -       10,000       10.00       -       -       19,990       -       -       -       20,000  
                                                                                       
Issuance of common stock upon conversion of debentures
  -       -       495,032       495       -       -       196,882       -       -       -       197,377  
                                                                                       
Conversion of preferred stock for common stock
  (20,163 )     (20 )     161,300       161       -       -       (141 )     -       -       -       -  
                                                                                       
Issuance of preferred stock dividends in common stock
  -       -       78,343       78       -       -       63,946       -       -       -       64,024  
                                                                                       
Stock option expense
  -       -       -       -       -       -       56,791       -       -       -       56,791  
                                                                                       
Beneficial conversion feature of Convertible Debenture
  -       -       -       -       -       -       52,778       -       -       -       52,778  
                                                                                       
Preferred stock dividends
  -       -       -       -       -       -       -       -       (21,042 )     -       (21,042 )
                                                                                       
Net loss
  -       -       -       -       -       -       -       -       (767,951 )     -       (767,951 )
                                                                                       
Balances at December 31, 2006
  86,937       87       6,422,592       6,422       -       -       14,390,747       (9,201,144 )     (6,206,607 )     -       (1,017,004 )
                                                                                       
Issuance of common stock for consulting services
  -       -       1,250       1       -       -       749       -       -       -       750  
                                                                                       
Issuance of common stock for cash
  -       -       570,000       570       -       -       754,430       -       -       -       755,000  
                                                                                       
Purchase of common stock for cash
  -       -       (2 )     -       -       -       (3 )     -       -       -       (3 )
                                                                                       
Issuance of common stock upon conversion of debentures
  -       -       547,526       548       -       -       126,396       -       -       -       126,944  
                                                                                       
Issuance of common stock in payment of accounts payable
  -       -       560,067       560       -       -       341,470       -       -       -       342,030  
                                                                                       
Issuance of common stock upon exercise of warrants
  -       -       295,866       296       -       -       1,038,829       -       -       -       1,039,125  
                                                                                       
Preferred stock and dividends converted to common stock
  (86,937 )     (87 )     720,188       720       -       -       122,808       -       -       -       123,441  
                                                                                       
Cancellation of common stock issued for consulting services
  -       -       (9,000 )     (9 )     -       -       (10,942 )     -       -       -       (10,951 )
                                                                                       
Stock option expense
  -       -       -       -       -       -       20,187       -       -       -       20,187  
                                                                                       
Preferred stock dividends
  -       -       -       -       -       -       -       -       (123,441 )     -       (123,441 )
                                                                                       
Net loss
  -       -       -       -       -       -       -       -       (1,043,190 )     -       (1,043,190 )
                                                                                       
Balances at December 31, 2007
  -       -       9,108,487       9,108       -       -       16,784,671       (9,201,144 )     (7,373,238 )     -       212,888  
                                                                                       
Issuance of common stock for consulting services
  -       -       2,230       3       -       -       7,498       -       -       -       7,501  
                                                                                       
Issuance of common stock for cash
  -       -       109,500       110       -       -       235,090       -       -       -       235,200  
                                                                                       
Contribution of common stock to 401(k) Plan
  -       -       20,192       20       -       -       52,480       -       -       -       52,500  
                                                                                       
Issuance of common stock for SEDA commitment fees
  -       -       45,830       46       -       -       149,954       -       -       -       150,000  
                                                                                       
Cancellation of common stock
  -       -       (8,712 )     (9 )     -       -       9       -       -       -       -  
                                                                                       
Stock option expense
  -       -       -       -       -       -       60,629       -       -       -       60,629  
                                                                                       
Net loss
  -       -       -       -       -       -       -       -       (1,307,630 )     -       (1,307,630 )
                                                                                       
Balances at December 31, 2008
  -       -       9,277,527       9,278       -       -       17,290,331       (9,201,144 )     (8,680,868 )     -       (588,912 )
                                                                                       
Issuance of common stock for cash
  -       -       2,000       2       -       -       1,398       -       -       -       1,400  
                                                                                       
Contribution of common stock to 401(k) Plan
  -       -       72,500       72       -       -       72,428       -       -       -       72,500  
                                                                                       
Stock option expense
  -       -       -       -       -       -       112,328       -       -       -       112,328  
                                                                                       
Sale of stock under Stock Equity Distribution Agreement
  -       -       1,308,877       1,309       -       -       553,691       -       -       -       555,000  
                                                                                       
Net loss
  -       -       -       -       -       -       -       -       (1,114,409 )     -       (1,114,409 )
                                                                                       
Balances at December 31, 2009
  -       -       10,660,904       10,661       -       -       18,030,176       (9,201,144 )     (9,795,277 )     -       (955,584 )
                                                                                       
Adjustment for stock splits
  -       -       22       -       -       -       -       -       -       -       -  
                                                                                       
Issuance of common stock for cash
  -       -       336,972       337       -       -       304,163       -       -       -       304,500  
                                                                                       
Contribution of common stock to 401(k) Plan
  -       -       289,996       290       -       -       72,210       -       -       -       72,500  
                                                                                       
Issuance of common stock in payment of salaries payable
  -       -       82,305       82       -       -       99,918       -       -       -       100,000  
                                                                                       
Issuance of common stock for stockholder investor relations
  -       -       118,750       119       -       -       47,381       -       -       -       47,500  
                                                                                       
Stock option expense
  -       -       -       -       -       -       110,040       -       -       -       110,040  
                                                                                       
Sale of stock under Stock Equity Distribution Agreement
  -       -       618,697       619       -       -       249,381       -       -       -       250,000  
                                                                                       
Net loss
  -       -       -       -       -       -       -       -       (1,277,001 )     -       (1,277,001 )
                                                                                       
Balances at December 31, 2010
  -       -       12,107,646       12,108       -       -       18,913,269       (9,201,144 )     (11,072,278 )     -       (1,348,045 )
                                                                                       
Issuance of common stock for cash
  -       -       130,438       131       -       -       264,869       -       -       -       265,000  
                                                                                       
Contribution of common stock to 401(k) Plan
  -       -       51,784       52       -       -       72,448       -       -       -       72,500  
                                                                                       
Issuance of common stock for SEDA commitment fees
  -       -       244,216       244       -       -       299,756       -       -       -       300,000  
                                                                                       
Stock option expense
  -       -       -       -       -       -       92,498       -       -       -       92,498  
                                                                                       
Sale of stock under Stock Equity Distribution Agreement (Old)
  -       -       193,442       193       -       -       164,807       -       -       -       165,000  
                                                                                       
Sale of stock under Stock Equity Distribution Agreement (New)
  -       -       111,175       111       -       -       229,889       -       -       -       230,000  
                                                                                       
Stock grant to consultant
  -       -       15,000       15       -       -       6,735       -       -       -       6,750  
                                                                                       
Stock options exercised by officers
  -       -       -       -       150,000       150       187,350       -       -       -       187,500  
                                                                                       
Stock grants to foreign consultants
  -       -       -       -       215,000       215       299,495       -       -       -       299,710  
                                                                                       
Adjustments for noncontrolling interests in Omagine LLC
  -       -       -       -       -       -       90,429       -       -       45,416       135,845  
                                                                                       
Net loss
  -       -       -       -       -       -       -       -       (1,804,451 )     -       (1,804,451 )
                                                                                       
Balances at December 31, 2011
  -       -       12,853,701       12,854       365,000       365       20,621,545       (9,201,144 )     (12,876,729 )     45,416       (1,397,693 )
                                                                                       
Issuance of Common Stock
                                                                 
committed for stock
options exercised by
officers
  -       -       150,000       150       (150,000 )     (150 )     -       -       -       -       -  
                                                                                       
Stock grants to foreign consultants
  -       -       215,000       215       (215,000 )     (215 )     -       -       -       -       -  
                                                                                       
Stock Grant to Consultant for services rendered
  -       -       1,994       2       -       -       3,248       -               -       3,250  
                                                                                       
Stock Option Expense
  -       -       -       -       -       -       437,922       -       -       -       437,922  
                                                                                       
Issuance of Common Stock
under New Standby Equity
                                                                         
Distribution Agreement
(New SEDA)
  -       -       68,480       68       -       -       89,932       -       -       -       90,000  
                                                                                       
Stock Grant to a stockholder relations agent for fees
  -       -       15,000       15       -       -       14,985       -       -       -       15,000  
                                                                                       
Issuance of Common Stock for Rights Offering
  -       -       -       -       1,014,032       1,014       1,266,526       -       -       -       1,267,540  
                                                                                       
Adjustments for noncontrolling
                                                                                 
interests in Omagine LLC
  -       -       -       -       -       -       -       -       -       (12,759 )     (12,759 )
                                                                                       
Net Loss attributable to
Omagine, Inc.
  -       -       -       -       -       -       -       -       (718,417 )     -       (718,417 )
                                                                                       
Balances at March 31, 2012
  -     $ -       13,304,175     $ 13,304       1,014,032     $ 1,014     $ 22,434,158     $ (9,201,144 )   $ (13,595,146 )   $ 32,657     $ (315,157 )
                                                                                       
                                                                                       
 
See accompanying notes to consolidated financial statements.
 
 
  
OMAGINE, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTITY - As Restated - Note 9)
 
 
                   
   
Three Months Ended March 31,
   
From the Period October 11, 2005 (Inception of Development Stage) to March 31, 2012
 
   
2012
   
2011
   
( As Restated -
 
   
(Unaudited)
   
(Unaudited)
   
Note 9)
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
                   
Net loss attributable to Omagine, Inc.
  $ (718,417 )   $ (345,642 )   $ (13,221,378 )
Adjustments to  reconcile net loss to net cash flows
                       
   used by operating activities:
                       
     Loss from discontinued operations - Sports Apparel
    -       -       (345,990 )
     Net loss attributable to noncontrolling interests in
                       
       Omagine LLC
    (12,759 )     -       (32,915 )
     Depreciation and amortization
    1,044       935       158,497  
     Impairment of Goodwill
    -       -       5,079,919  
     Stock based compensation related to stock options
    437,922       23,125       890,395  
     Issuance of Common Stock for Consulting fees
    3,250       6,750       18,251  
     Issuance of Common Stock for 401(k) Plan contributions
    -       72,500       270,000  
     Issuance of Common Stock for stockholder investor relations
    15,000       -       62,500  
     Issuance of Common Stock to foreign consultants
    -       -       299,710  
     Cancellation of Common Stock issued for consulting services
    -       -       (10,951 )
Issuance of Common Stock in satisfaction of the New
                 
        SEDA commitment fees
    -       -       450,000  
Changes in operating assets and liabilities:
                       
     Prepaid expenses, other current assets and other assets
    -       (10,587 )     (18,228 )
     Accounts receivable
    -       -       86,665  
     Inventories
    -       -       65,401  
     Other assets
    -       -       (235 )
     Accounts payable
    (1,220 )     (38,566 )     404,515  
     Customer deposits
    -       -       (43,212 )
     Accrued expenses and other current liabilities
    (9,463 )     4,980       27,776  
     Accrued interest payable on convertible debentures
    9,100       12,591       167,685  
     Accrued officers' payroll
    61,749       52,500       1,007,384  
Net cash flows used by operating activities
    (213,794 )     (221,414 )     (4,684,211 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
      Purchase of equipment
    (3,434 )     -       (35,607 )
                           Net cash flows used by investing activities
    (3,434 )     -       (35,607 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
     Loans from officers and directors
    5,960       (160 )     (24,923 )
     Proceeds from the issuance of Convertible Debentures
    -       -       790,000  
     Proceeds from sale of Common Stock
    90,000       175,000       2,871,100  
     Proceeds from exercise of common stock options and warrants
    -       -       1,039,125  
     Purchase of Common Stock
    -       -       (3 )
     Capital contributions from noncontrolling interests in Omagine LLC
    -       -       156,000  
Net cash flows provided by financing activities
    95,960       174,840       4,831,299  
                         
NET INCREASE  ( DECREASE) IN CASH
    (121,268 )     (46,574 )     111,481  
CASH BEGINNING OF PERIOD
    235,381       148,217       2,632  
                         
CASH END OF PERIOD
  $ 114,113     $ 101,643     $ 114,113  
                         
SUPPLEMENTAL CASH FLOW INFORMATION:
                       
                         
     Income taxes paid
  $ 1,000     $ 1,143     $ 5,320  
                         
     Interest paid
  $ 4,953     $ 736     $ 30,632  
                         
NON - CASH FINANCING ACTIVITIES:
                       
                         
Acquisition of Journey of Light, Inc. through issuance of
                 
     common stock and warrants:
                       
        Fair value of assets acquired
  $ -     $ -     $ 49,146  
        Goodwill acquired
    -       -       5,079,919  
        Fair value of liabilities assumed
    -       -       (243,782 )
    $ -     $ -     $ 4,885,283  
Issuance of convertible notes in satisfaction of accrued officer payroll
  $ -     $ -     $ 182,015  
Issuance of Common Stock on conversion of Debentures and accrued interest
  $ -     $ -     $ 126,944  
Issuance of Common Stock in payment of accounts payable
  $ -     $ -     $ 342,030  
Preferred stock dividends paid in Common Stock
  $ -     $ -     $ 102,399  
Issuance of Common Stock to two officers, pursuant to exercise of stock options
 
     granted, satisfied by the reduction of salaries payable to them
  $ -     $ -     $ 187,500  
Issuance of Common Stock in satisfaction of salaries payable
  $ -     $ -     $ 100,000  
                         
   Stock subscriptions from rights offering concluded March 30, 2012
  $ 1,267,540     $ -     $ 1,267,540  
Less stock subscriptions satisfied through reduction of debt:
                 
     Convertible notes payable and accrued interest
    (276,643 )     -       (276,643 )
     Accounts payable
    (9,000 )     -       (9,000 )
     Accrued officers' payroll
    (227,434 )     -       (227,434 )
     Due officers and directors
    (22,824 )     -       (22,824 )
Total
    (535,901 )     -       (535,901 )
Stock subscriptions satisfied through payment to Stock Transfer
         
          Agent agency account (collected by the Company on April 5, 2012)
  $ 731,639     $ -     $ 731,639  
                         
                   
 
See accompanying notes to consolidated financial statements.
 
 
 
OMAGINE, INC. AND SUBSIDIARIES
 
NOTE 1 - NATURE OF THE BUSINESS AND BASIS OF PRESENTATION
 
Nature of the Business
 
Omagine, Inc. (“Omagine”) is a holding company incorporated in Delaware in October 2004 which operates through its wholly owned subsidiary, Journey of Light, Inc. (“JOL”) and its 60% owned subsidiary Omagine LLC (“LLC”). Omagine, JOL and LLC are collectively referred to as the “Company”. Both JOL and LLC are in the real estate development business. LLC is a limited liability Omani real estate development company which was organized on November 23, 2009 under the laws of the Sultanate of Oman. Journey of Light Inc. (“JOL”) was acquired by the Company in October 2005.
 
During 2005, 2006 and 2007 the Company had minimal operations and revenue from its other two then wholly-owned subsidiaries - Ty-Breakers Corp. (“Ty-Breakers”) and Contact Sports, Inc. (“Contact”). The businesses of both Ty-Breakers and Contact were discontinued during 2007 and Ty-Breakers and Contact were merged with and into their parent company in March 2008. On May 1, 2006 a contract dispute between JOL and the State of Qatar regarding the proposed development of a real-estate project in Doha, Qatar was settled by the State of Qatar paying JOL $1 million.
 
The Company is a development stage entity (DSE) focused on entertainment, hospitality and real-estate development opportunities in the Middle East & North Africa (the “MENA Region”).
 
Basis of Presentation
 
The Company’s financial statements are presented herein in accordance with the guidance provided by ASC 915 promulgated by the Financial Accounting Standards Board for DSE financial statements.
 
The Company has experienced long delays in the start of its operations in Oman and its planned activities have not yet generated revenue. The Company has funded its operating losses to date primarily through the sale of its common stock via private placements, a rights offering to its shareholders and pursuant to a standby equity distribution agreement with an investment fund. Accordingly, its financial statements have been presented in DSE format since the date of the acquisition of JOL on October 11, 2005, the date of inception of the DSE period, to March 31, 2012.
 
Principles of Consolidation - The consolidated financial statements include the accounts of Omagine, JOL and LLC. All inter-company transactions have been eliminated in consolidation.
 
The consolidated balance sheet for the Company at the end of the preceding fiscal year has been derived from the audited balance sheet and notes thereto contained in the Company’s second amended annual report on Form 10-K/A for the Company’s  fiscal year ended December 31, 2011 filed with the Securities & Exchange Commission (“SEC”) on January 22, 2013 (the “2nd Amended 10-K/A”) and is presented herein for comparative purposes. All other financial statements are unaudited. In the opinion of management, all adjustments, which include only normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for all periods presented, have been made. The results of operations for the interim periods presented herein are not necessarily indicative of operating results for the respective full years.
 
Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted in accordance with the published rules and regulations of the SEC. These financial statements should be read in conjunction with the financial statements and notes thereto included in the 2nd Amended 10-K/A.
 
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.
 
The Company reports interest and penalties as income tax expense.
 
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 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 three months ended March 31, 2012 and 2011 were $437,922 and $23,125, respectively. See Note 5.
 
Loss Per Share –Basic loss per share is based upon the weighted-average number of common shares outstanding during the period. Diluted loss per share is based upon the weighted-average number of common shares and dilutive securities (such as stock options and convertible securities) outstanding during the period. Dilutive securities having an anti-dilutive effect on diluted loss per share are excluded from the calculation.
 
For the three months ended March 31, 2012 and 2011, diluted shares outstanding excluded the following dilutive securities as the effect of their inclusion would be anti-dilutive.
 
 
Shares Issuable
 
 
Three Months Ended
 
March 31,
 
 
2012
 
2011
 
Convertible Notes
   
157,312
     
271,835
 
Stock Options
   
1,256,000
     
404,000
 
Warrants
   
6,404,400
     
0
 
Total Shares of Common Stock Issuable
   
7,817,712
     
675,835
 

Non-controlling Interests in Omagine LLC - As of the date of this report LLC is owned 60% by Omagine. In May 2011, Omagine, JOL and three new investors entered into a shareholders’ agreement (the “Shareholder Agreement”) pursuant to which Omagine’s 100% ownership of LLC was reduced to 60%. As of the date hereof the shareholders of Omagine LLC and their associated ownership percentages as registered with the Government of Oman are as follows::
 
Omagine, Inc.
60
%
Office of Royal Court Affairs
25
%
Consolidated Contracting Company S.A.
10
%
Consolidated Contractors (Oman) Company LLC
5
%
 
The Office of Royal Court Affairs (“RCA”) is an organization representing the personal interests of His Majesty Sultan Qaboos bin Said, the ruler of Oman.
 
Consolidated Contractors International Company, SAL, (“CCIC”) is a 60 year old Lebanese multi-national company headquartered in Athens, Greece. In 2010 CCIC had approximately five and one-half (5.5) billion dollars in annual revenue, one hundred twenty thousand (120,000) employees worldwide, and operating subsidiaries in among other places, every country in the Middle East.
 
Consolidated Contracting Company S.A. is a wholly owned subsidiary of CCIC and is its investment arm.
 
Consolidated Contractors (Oman) Company LLC, is a construction company with approximately 13,000 employees in Oman.
 
Reclassifications – Certain 2011 account balances have been reclassified to conform to the current year’s presentation.
 
Recent Accounting Pronouncements
 
In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”). ASU 2011-04 expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company anticipates that the adoption of this standard will not materially affect its consolidated financial statements.
 
 
 
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,”(“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied retrospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company anticipates that the adoption of this standard will not change the presentation of its consolidated financial statements.
 
In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, “Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment”(“ASU 2011-08”). This ASU is intended to simplify how entities test goodwill for impairment and permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We do not expect this ASU will have an impact on our Consolidated Financial Statements.
 
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). The update requires entities to disclose information about offsetting and related arrangements of financial instruments and derivative instruments. The ASU is effective for annual periods beginning on or after January 1, 2013 and interim periods therein. The Company is currently evaluating the impact this update will have on our consolidated financial statements.
 
In December 2011, FASB issued ASU No. 2011−12, “Comprehensive Income - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011−12”). Among the new provisions in ASU 2011-05 was a requirement for entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented (for both interim and annual financial statements); however this reclassification requirement is indefinitely deferred by ASU 2011-12 and will be further deliberated by the FASB at a future date.
 
Certain other accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and therefore have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from adoption of these standards is not expected to be material.
 
NOTE 2 - GOING CONCERN AND LIQUIDITY
 
At March 31, 2012, the Company had negative working capital of $332,165. The Company incurred net losses of $718,417 and $1,804,451 for the three months ended March 31, 2012 and for the year ended December 31, 2011, respectively. These factors raise substantial doubt about the Company’s 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.
 
 
 
NOTE 3 - CONVERTIBLE NOTES PAYABLE AND ACCRUED INTEREST
 
Convertible notes payable and accrued interest thereon consist of:
 
   
March 31,
   
December 31,
 
   
2012
   
2011
 
Due to the president of the Company, interest at 8% per annum, due on demand, convertible into common stock at a conversion price of $2.00 per share:
           
             
Principal
 
$
-
   
$
192,054
 
Accrued Interest
   
-
     
51,649
 
                 
Due to the secretary of the Company, interest at 8% per annum, due on demand, convertible into common stock at a conversion price of $2.00 per share:
               
                 
Principal
   
39,961
     
39,961
 
Accrued Interest
   
11,544
     
10,747
 
                 
Due to a director of the Company, interest at 10% per annum, due on demand, convertible into common stock at a conversion price of $2.50 per share:
               
                 
Principal
   
150,000
     
150,000
 
Accrued Interest
   
22,425
     
18,685
 
                 
Due to investors, interest at 15% per annum, due on demand, convertible into common stock at a conversion price of $2.50 per share:
               
                 
Principal
   
50,000
     
50,000
 
Accrued Interest
   
23,045
     
21,175
 
                 
Due to investors, interest at 10% per annum, due on demand, convertible into common stock at a conversion price of $2.50 per share:
               
                 
Principal
   
75,000
     
100,000
 
Accrued Interest
   
8,431
     
13,678
 
                 
Totals
 
$
380,406
     
647,949
 

NOTE 4 – COMMON STOCK
 
In January 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 directors of the Company and all three are officers of the Company). The $72,500 valuation is based on the $1.40 closing trading price of the free trading Common Stock on the date of contribution.
 
From January 2011 to June 2011 the Company issued and sold a total of 193,442 shares of Common Stock for proceeds of $165,000 under the SEDA with YA. (See Note 7 under “Equity Financing Agreements”).
 
From January to September of 2011, the Company issued and sold to accredited investors a total of 130,438 shares of Common Stock for proceeds of $265,000.
 
On March 4, 2011, the Company issued 15,000 shares of Common Stock to a consultant for services rendered valued at $6,750.
 
In May and June 2011, the Company issued a total of 244,216 shares of Common Stock to YA Ltd. in satisfaction of $300,000 of commitment fees due in connection with the New SEDA (See Note 7 under “Equity Financing Agreements”).
 
From August to December 2011, the Company issued and sold a total of 111,175 shares of Common Stock for proceeds of $230,000 under the New SEDA with YA Ltd. (See Note 7 under “Equity Financing Agreements”).
 
On August 29, 2011, as discussed in Note 7 under “Employment Agreements”, the Company issued an aggregate of 150,000 shares of Common Stock to its president and secretary pursuant to the exercise by them at $1.25 per share of an aggregate of 150,000 stock options granted to them in 2001. The $187,500 aggregate exercise amount was satisfied by a $187,500 reduction in accrued payroll due to these two officers.
 
On December 8, 2011, the Company issued a total of 215,000 restricted shares of Common Stock to six foreign consultants for services rendered valued at a total of $299,710. The $299,710 valuation is based on the $1.70 closing trading price of the free trading Common Stock on the December 8, 2011 date of grant less an 18% restricted stock discount (which was calculated using the Finnerty Method).
 
 
 
In January 2012, the Company issued and sold a total of 25,063 shares of Common Stock for proceeds of $40,000 under the New SEDA with YA Ltd. (See Note 7 under “Equity Financing Agreements”).
 
In January 2012, the Company issued 1,994 shares of Common Stock to a consultant for services rendered valued at $3,250.
 
In January 2012, the Company issued 15,000 shares of Common Stock to an investor relations consultant for services rendered valued at $15,000.
 
In February 2012, the Company issued and sold a total of 17,705 shares of Common Stock for proceeds of $25,000 under the New SEDA with YA Ltd. (See Note 7 under “Equity Financing Agreements”).
 
In March 2012, the Company issued and sold a total of 25,712 shares of Common Stock for proceeds of $25,000 under the New SEDA with YA Ltd. (See Note 7 under “Equity Financing Agreements”).
 
In March 2012, pursuant to a rights offering, the Company issued and sold 1,014,032 shares of Common Stock to its shareholders for proceeds of $1,267,540. Of the $1,267,540 total proceeds from the rights offering, $731,639 of such proceeds (representing 585,311 shares) was collected in cash and $535,901 of such proceeds (representing 428,721 shares) was satisfied through the reduction of debt (including $506,750 of such debt due to Company officers and directors).
 
NOTE 5 – STOCK OPTIONS AND WARRANTS
 
Stock Options
 
On December 30, 2009, shareholders authorized the Board of Directors to reserve 2,500,000 shares of Common Stock for issuance under the Omagine, Inc. 2003 Stock Option Plan (the “Plan”). On October 14, 2011, the Company registered for resale the 2.5 million shares of its Common Stock reserved for issuance under the Plan by filing a registration statement with the SEC on Form S-8. The S-8 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 and on October 14, 2011. The Plan expires August 31, 2013.
 
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.
 
The following is a summary of stock option activity under the Omagine, Inc. 2003 Stock Option Plan (the “Plan”) for the three months ended March 31, 2012 and 2011:
   
Number of Shares
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Term (in years)
   
Aggregate Intrinsic Value
 
                         
Outstanding at January 1, 2011
   
528,000
   
$
1.96
     
4.58
   
$
207,060
 
                                 
Granted in Q1 2011
   
-
     
-
     
-
     
-
 
Exercised in Q1 2011
   
-
     
-
     
-
     
-
 
Forfeited / Expired in Q1 2011
   
-
     
-
     
-
     
-
 
Outstanding at March 31, 2011
   
528,000
   
$
1.96
     
4.33
   
$
1,560
 
Exercisable at March 31, 2011
   
404,000
   
$
1.88
     
3.42
   
$
1,560
 
                                 
Outstanding at January 1, 2012
   
344,000
   
$
2.01
     
5.67
   
$
13,860
 
                                 
Granted in Q1 2012
   
1,994,000
   
$
1.70
     
-
     
-
 
Exercised in Q1 2012
   
-
     
-
                 
Forfeited / Expired in Q1 2012
   
(50,000
   
$
1.70
     
-
     
-
 
Outstanding at March 31, 2012
   
2,288,000
     
1.75
     
1.50
   
$
30,860
 
Exercisable at March 31, 2012
   
1,256,000
   
$
1.74
     
1.75
   
$
30,860
 
 
 

 
On January 2, 2012, pursuant to a resolution of the Board of Directors dated December 8, 2011, the Company granted a total of 1,994,000 stock options (the “One Year Options”) to 13 individuals. Such grants of One Year Options included the grant of: (i) an aggregate of 1,049,000 One Year Options to the Company’s three Officers; (ii) an aggregate of 150,000 One Year Options to the Company’s then three independent Directors; (iii) a grant of 750,000 One Year Options to the Deputy Managing Director of Omagine LLC who is also a consultant to Omagine and who also holds 160,000 stock options presently exercisable at $1.25 per share and expiring March 31, 2017 which were granted pursuant to a March 2007 consulting agreement expiring on December 31, 2012; (iv) a grant of 10,000 One Year Options to a consultant to whom the Company paid $2,000 per month consulting fees totaling $24,000 and $20,000 during the years ended December 31, 2011 and 2010 respectively (and $6,000 for the three months ended March 31, 2012) ; and (v) a grant of 5,000 One Year Options to the son of the Company’s President for website design services rendered. All One Year Options vest 50% on the date of issuance, 50% on July 1, 2012, provide for a cashless exercise feature, are exercisable at an exercise price of $1.70 per share and expire on December 31, 2012.
 
On January 31, 2012, 50,000 One Year Options previously issued to an independent Director were cancelled in accordance with their terms upon such Director’s resignation. On April 9, 2012 an independent Director died and, pursuant to the Plan, all 50,000 One Year Options previously granted to him immediately vested and the expiration date of his One Year Options was extended to April 8, 2013. On April 13, 2012, pursuant to a resolution of the Board of Directors, the Company granted a total of 21,000 additional One Year Options to 2 individuals (11,000 of which were granted to an individual who is an officer and director) for services rendered.
 
The approximately $1,701,000 estimated fair value of the 1,994,000 One Year Options (using the Black-Scholes option pricing model and the following assumptions: (i) $1.70 share price, (ii) 1 year and 6 month terms (365 days and 184 days), (iii) 161% expected volatility, (iv) 0.10% ( 1 year term) and 0.04% (6 month term) risk free interest rates) is being expensed evenly over the one year 2012 requisite service period of the One Year Options.
 
A summary of the status of the Company’s nonvested shares as of the three months ended March 31, 2012 and 2011, and changes during the periods then ended is as presented below:
 
 
   
Number of Shares
   
Weighted Average
Exercise Price
   
Weighted Average Remaining Contractual Terms (in years)
 
Nonvested shares at January 1, 2011
    124,000     $ 2.25       7.33  
Granted in Q1 2011
    -       -       -  
Vested in Q1 2011
    -       -       -  
Nonvested shares at March 31, 2011
    124,000     $ 2.25       7.08  
                         
Nonvested shares at January 1, 2012
    60,000     $ 2.60       6.75  
Granted in Q1 2012
    1,994,000     $ 1.70       1.00  
Forfeited in Q1 2012
    (50,000 )   $ 1.70       0.92  
Vested in Q1 2012
    972,000     $ 1.70       1.00  
Nonvested shares at March 31, 2012
    1,032,000     $ 1.75       1.08  

Stock options outstanding at March 31, 2012 (all non-qualified) consist of:
 
Year Granted
 
Number Outstanding
   
Number Exercisable
   
Exercise Price
 
Expiration Date
2007
     
160,000
     
160,000
    $
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
(A)
   
150,000
     
90,000
    $
2.60
 
September 23, 2018
2008
     
6,000
     
6,000
    $
2.60
 
September 23, 2013
2010
     
4,000
     
4,000
    $
0.51
 
June 30, 2015
2011
     
6,000
     
6,000
    $
0.85
 
May 16, 2016
2012
(B)
   
1,944,000
     
972,000
    $
1.70
 
December 31, 2012
                             
Totals
     
2,288,000
     
1,256,000
           

(A)
The 60,000 unvested options relating to the 2008 grant are scheduled to vest 30,000 each on September 24, 2012 and 2013.
                     
(B)
Of the 972,000 unvested options relating to the 2012 grant, 25,000 of such options vested on April 9, 2012 and the remaining 947,000 of such options are scheduled to vest on July 1, 2012.
                     
 
 
 

 
The following table summarizes information about stock options outstanding at March 31, 2012:

     
Stock Options Outstanding
   
Exercisable
 
Range of Exercise Prices
   
Number of Shares
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Term (in years)
   
Number of Shares
   
Weighted Average Exercise Price
 
$
0.50 - $1.00
     
10,000
   
$
0.71
     
3.80
     
10,000
   
$
0.71
 
$
1.01 - $2.00
     
2,104,000
     
1.67
     
1.08
     
1,132,000
     
1.64
 
$
2.00 - $3.00
     
156,000
     
2.60
     
6.31
     
96,000
     
2.60
 
$
4.00 - $5.00
     
18,000
     
4.33
     
0.64
     
18,000
     
4.33
 
Totals
     
2,288,000
   
$
1.75
     
1.50
     
1,256,000
   
$
1.74
 

As of March 31, 2012, there was $1,366,833 of total unrecognized compensation cost relating to unexpired stock options. That cost is expected to be recognized $1,313,767 in 2012 and $53,066 in 2013.
 
Warrants
 
The Company commenced a rights offering for its shareholders on February 24, 2012 and such rights offering expired on March 30, 2012. The rights offering entitled shareholders to subscribe for an aggregate of up to 3,202,200 shares of the Company’s common stock at a subscription price of $1.25 per share. A total of 1,014,032 shares were subscribed for in the rights offering of which 48,119 shares were subscribed for pursuant to the over-subscription privilege. Of the $1,267,540 total proceeds from the rights offering, $731,639 of such proceeds (representing 585,311 shares) was collected in cash and $535,901 of such proceeds (representing 428,721 shares) was satisfied through the reduction of debt (including $506,750 of such debt due to Company officers and directors). A total of 14,318,207 shares of Common Stock are presently outstanding after delivery of all 1,014,032 shares subscribed for in the rights offering.
 
Simultaneously with the rights offering the Company also distributed a total of 6,404,400 common stock purchase warrants (“Warrants”) to common stockholders of record on February 24, 2012. 3,202,200 Warrants are exercisable into common stock at an exercise price of $5.00 per share and 3,202,200 Warrants are exercisable into common stock at an exercise price of $10.00 per share. The $5.00 Warrants and the $10.00 Warrants expire on December 31, 2013 unless, upon a 30 day prior notice to the Warrant holders, they are redeemed earlier by the Company. The Warrants do not contain any anti-dilution provisions and may be exercised only for whole shares of Common Stock. The Warrant Exercise Prices and the number of shares of Common Stock that the Company must issue upon exercise of Warrants shall not be subject to adjustment for any reason, including but not limited to, any combinations or subdivisions of Common Stock or any dividend, reclassification, reorganization, merger or spin off.
 
 
 
NOTE 6 - INCOME TAXES
 
Deferred tax assets are comprised of the following:
 
   
March 31, 2012
   
December 31, 2011
 
             
Federal net operating loss carry forwards
 
$
4,625,000
   
$
4,455,000
 
State and city net operating loss carry forwards,
               
net of federal tax benefit
   
1,321,000
     
1,272,000
 
     
5,946,000
     
5,727,000
 
Less: Valuation allowance
   
5,946,000
     
5,727,000
 
Total
 
$
-
   
$
-
 

Management has determined, based on the Company's current condition that a full valuation allowance is appropriate at March 31, 2012 and December 31, 2011.
 
At March 31, 2012, the Company had federal net operating loss carry forwards of approximately $13,214,000, expiring in various amounts from fiscal year 2012 to fiscal year 2032.
 
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
 
Leases
 
The Company leases its executive office in New York, New York under a ten-year lease entered into in February 2003. The Company also leases office space in Muscat, Oman under a lease expiring June 30, 2012. Rent expense for the three months ended March 31, 2012 and 2011 was $45,406 and $32,418 respectively.
 
At March 31, 2012, the future minimum lease payments under non-cancelable operating leases are as follows:
 
2012
 
$
42,600
 
2013
   
9,466
 
Total
 
$
52,066
 
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. Such employment agreement expired on December 31, 2010 and provided Omagine LLC signs the Development Agreement with the Government of Oman for the Omagine Project, the Company plans to enter into a new employment agreement with this individual, although the terms of such employment agreement have not yet been determined. For the three months ended March 31, 2012, the Company has continued to accrue salary payable to its President on the basis of an annual salary of $125,000. At March 31, 2012, unpaid accrued officer’s compensation due to this Company officer was $179,404.
 
Omagine had been obligated to employ its Vice-President and Secretary under an employment agreement which was cancelled by mutual agreement. Provided Omagine LLC signs the Development Agreement with the Government of Oman for the Omagine Project, the Company plans to enter into a new employment agreement with this individual although the terms of such employment agreement have not yet been determined. For the three months ended March 31, 2012, the Company accrued officer’s compensation due to its Vice President and Secretary on the basis of an annual salary of $100,000. At March 31, 2012, unpaid accrued officer’s compensation due to this Company officer was $ 86,662.
 
Omagine is not obligated under an employment agreement with its Controller and Principal Accounting Officer. For the three months ended March 31, 2012, the Company accrued officer’s compensation due to its Controller on the basis of an annual salary of $80,000. At March 31, 2012, unpaid accrued officer’s compensation due to this Company officer was $ 97,550.
 
Equity Financing Agreements
 
On December 22, 2008, Omagine entered into a Standby Equity Distribution Agreement (the “SEDA”) with YA Global Investments, L.P. (“YA”). The SEDA expired on April 30, 2011. Pursuant to the terms of the SEDA, Omagine could, at its sole option and upon giving written notice to YA (a “Purchase Notice”), sell shares of its Common Stock (the “Shares”) to YA at a per Share “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, Omagine was not obligated to sell any Shares to YA but could, in its sole discretion, sell that number of Shares valued at the Purchase Price from time to time in effect that equaled up to $5,000,000 in the aggregate. YA was obligated to purchase such Shares from Omagine 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 had to be separated by a time period equal to the Pricing Period, and (iv) the amount of any such individual periodic sale of Shares could not exceed $200,000. All sales of Shares pursuant to the SEDA were made at the sole discretion of Omagine. The Registration Statement filed by Omagine with the SEC was declared effective by the SEC as of May 1, 2009 and its effective status expired on April 30, 2010. Omagine 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 expired on April 30, 2011.
 
 
 
On May 4, 2011, Omagine entered into a new two year SEDA (the “New SEDA”) with YA Global Master SPV Ltd. (“YA Ltd”) on substantially the same terms and conditions as the SEDA executed between YA and Omagine in December 2008. Pursuant to the New SEDA, Omagine issued 176,471 restricted shares of Common Stock to YA Ltd in satisfaction of a $150,000 commitment fee due to YA Ltd pursuant to the New SEDA. In June 2011, Omagine and YA Ltd amended the New SEDA to increase the commitment amount under the New SEDA from $5 million to $10 million and Omagine issued an additional 67,745 restricted shares of its Common Stock to YA Ltd in satisfaction of the additional $150,000 commitment fee due pursuant to such amendment.
 
Omagine Project
 
Omagine LLC’s proposed Omagine Project is planned to be developed on one million square meters (equal to approximately 245 acres) of beachfront land facing the Gulf of Oman (the “Omagine Site”) just west of the capital city of Muscat and nearby Muscat International Airport. The Company is awaiting the signing of a Development Agreement between Omagine LLC and 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.
 
Omagine LLC Shareholder Agreement
 
In May 2011, Omagine, Inc., JOL and three new investors (the “New Investors”) entered into an agreement relating to Omagine LLC (the “Shareholder Agreement”). Pursuant to the Shareholder Agreement, Omagine, Inc. made an Omani Rial (“OMR”) 7,500 (approximately $19,500) capital contribution to Omagine LLC on June 9, 2011 and agreed to make an additional capital contribution to Omagine LLC of OMR 210,000 (approximately $546,000) after the execution of the Development Agreement between the Government of Oman and Omagine LLC and before the “Financing Agreement Date” (as that term is defined in the Shareholder Agreement).  In exchange for a 40% share ownership of Omagine LLC, the New Investors made cash capital contributions to Omagine LLC totaling OMR 60,000 (approximately $156,000) and agreed to make additional cash capital contributions to Omagine LLC totaling OMR 26,628,125 (approximately $69,233,125) at the Financing Agreement Date. In addition one of the New Investors agreed to make a non-cash capital contribution to Omagine LLC. The amount of such “payment-in-kind” non-cash capital contribution is yet to be determined and will represent the value of the land constituting the Omagine Site which such investor previously owned and has made available to Omagine LLC for development of the Omagine Project.
 
NOTE 8 – RELATED PARTY TRANSACTIONS
 
At March 31, 2012 and 2011, accounts payable includes $6,382 and $5,198, respectively, due to various officers and directors of the Company.
 
NOTE 9 – SUBSEQUENT EVENTS
 
On April 9, 2012 an independent Director of the Company died and, pursuant to the Plan, all stock options then held by him immediately vested and the expiration date of all such stock options was fixed at April 8, 2013.
 
On April 13, 2012, pursuant to a resolution of the Board of Directors, the Company granted a total of 21,000 stock options (“One Year Options”) to 2 individuals (11,000 of which were granted to an individual who is an officer and director) for services rendered. All One Year Options vest 50% on the date of issuance, 50% on July 1, 2012, provide for a cashless exercise feature, are exercisable at an exercise price of $1.70 per share and expire on December 31, 2012.
 
 
 
The approximately $27,302 estimated fair value of such One Year Options (using the Black-Scholes option pricing model and the following assumptions: (i) $1.70 share price, (ii) 9 month and 6 month, (iii) 161% expected volatility, (iv) 0.10% (9 month term) and 0.04% (6 month term) risk free interest rates) will be expensed evenly over the requisite 2012 service period of the One Year Options.
 
In May 2012, the Company issued and contributed a total of 50,834 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). The $76,250 valuation is based on the $1.50 closing trading price of the free trading Common Stock on the date of contribution.
 
NOTE 10 - RESTATEMENT OF FINANCIAL STATEMENTS
 
To reflect the requirements of ASC 915 and the consequences of the delays encountered by the Company in beginning its operations in Oman, the Company has restated its financial statements for the year ended December 31, 2011 and for the three month periods ended March 31, 2012 and 2011 (collectively, the “Financial Statements”) as originally issued by re-formatting the presentation of the Financial Statements to reflect the Company’s present status as a Development Stage Entity (“DSE”) as such term is defined in ASC 915 issued by the Financial Accounting Standards Board.
 
The principal impact of the restatement is to reflect an additional column in both the Consolidated Statement of Operations and the Consolidated Statement of Cash Flows which are part of the Financial Statements showing the cumulative results of operations and cumulative cash flows of the Company as a DSE from October 11, 2005 (the “Inception Date”) to March 31, 2012. In addition, the Consolidated Balance Sheets contained in the Financial Statements now include two separate rows in the Stockholders’ Deficit sections to distinguish the deficits accumulated from the Inception Date to: (i) December 31, 2011, and (ii) March 31, 2012, from the deficit accumulated in periods prior to the Inception Date. Finally, the Consolidated Statement of Changes in Stockholders’ Deficit now includes cumulative information for: (i) the “short” period from October 11, 2005 (inception) to December 31, 2005, (ii) the years ended December 31, 2006 through December 31, 2011, and (iii) the three month period ended March 31, 2012.
 
Captions have been added to the Financial Statements indicating that the Company is a Development Stage Entity and the Financial Statements now include amounts segregated for the Company’s apparel operations which had been in operation prior to the Inception Date but which were discontinued in 2007.
 
The Nature of Business and Basis of Presentation contained in Note 1 to the Financial Statements have been augmented to describe the acquisition of JOL, the Inception Date of the DSE period, the  Company’s receipt of a $1,000,000 legal settlement from the State of Qatar and the discontinuance of the Company’s apparel operations. The Basis of Presentation also now describes DSE accounting as required by FASB ASC 915.
 
The restatement to conform the presentation of the Company's Financial Statements to the format that is in accordance with the guidance contained in ASC 915 for financial statements of a DSE has not changed numbers reported by the Company for its consolidated financial position, results of operations and cash flows in its originally issued Financial Statements at December 31, 2011 and for the year then ended nor in its originally issued Financial Statements at March 31, 2012 and 2011 and for the three month periods then ended.
 

 
 
We are a development stage company focused on entertainment, hospitality and real-estate development opportunities in the MENA Region and we focus on the design and development of unique tourism destinations.

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

Our initial project -  the “Omagine Project” -  is planned to be developed in the Sultanate of Oman and is planned to be an archetype for our future projects in the MENA Region.  For a description of the Omagine Project, see “The Omagine Project” in this Item 2 below.

Omagine, Inc. (the "Registrant" or "Omagine, Inc.") is a development stage entity (“DSE”) as defined in ASC 915 issued by the Financial Accounting Standards Board. The Registrant is a holding company which was incorporated in Delaware in October 2004.

The Registrant conducts substantially all of its operations through its 60% owned subsidiary Omagine LLC and its wholly-owned subsidiary Journey of Light, Inc. (“JOL”). Omagine, Inc., JOL and Omagine LLC are sometimes referred to herein collectively as the "Company".

In November 2009, Omagine, Inc. and JOL formed Omagine LLC, an Omani limited liability company in the Sultanate of Oman ("Oman"). Omagine LLC is engaged in the business of real estate development in Oman.

In May 2011, Omagine LLC sold newly issued shares of its capital stock to Omagine Inc. and three investors thereby reducing the Omagine, Inc. ownership of Omagine LLC from 100% to 60%.

The Company plans to continue its focus on real-estate development, entertainment and hospitality ventures and on developing, building, owning and operating tourism and residential real-estate development projects, primarily in the MENA Region.
 
Critical Accounting Policies
 
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States for development stage entities and pursuant to the guidance contained in ASC 915 issued by the Financial Accounting Standards Board. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.
 
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 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 by the Government of Oman to keep its commitment regarding the agreed Final DA and its intention to sign the Development Agreement with Omagine LLC.
*
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 Company is a development stage entity and it is not expected to generate revenue until after the occurrence of an event – the development of the Omagine Project - which, as of the date hereof, is not certain to occur. Management is presently examining other possible sources of revenue which, subject to the Development Agreement being executed, may be added to the Company’s operations.
 
The Omagine Project
 
The Company has proposed to the Government of Oman (the "Government") the development of a tourism and real estate project (the "Omagine Project") to be developed by Omagine LLC in Oman. Omagine LLC was formed in Oman for the purpose of designing, developing, owning and operating the Omagine Project.
 
We anticipate that the Omagine Project will be developed on one million square meters (equal to approximately 245 acres) of beachfront land facing the Gulf of Oman just west of the capital city of Muscat and approximately six miles from Muscat International Airport (the "Omagine Site"). The Omagine Project is planned to be an integration of cultural, heritage, educational, entertainment and residential components, including: a "high culture" theme park containing seven pearl shaped buildings, each approximately 60 feet in diameter; associated exhibition buildings; a boardwalk; an open air amphitheater and stage; open space green areas; a canal and enclosed harbor and marina area; associated retail shops and restaurants; entertainment venues; boat slips and docking facilities; a five-star resort hotel; a four-star resort hotel; and possibly an additional three or four-star hotel; shopping and retail establishments integrated with the hotels; commercial office buildings; and more than two thousand residences to be developed for sale.
 
Significant commercial, retail, entertainment and hospitality elements are 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 agreed, 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 properties which are developed on the Omagine Site to any person, including any non-Omani person.
 
The Development Agreement
 
The contract between the Government and Omagine LLC which will govern the design, development, construction, management and ownership of the Omagine Project and the Government’s and Omagine LLC’s rights and obligations with respect to the Omagine Project, is the “Development Agreement” (the “DA”). The Development Agreement has been approved by all the required Ministries of the Government of Oman.
 
The Omagine Project and the Omagine DA have received multiple Government approvals over the past several years including at least three (3) written approvals of the project from the Government. In July 2011, after many drafts and several years of negotiations, the Omagine Development Agreement was agreed by Omagine LLC and all required ministries of the Government the (“Final DA”). In September 2011, as requested by the Ministry of Tourism (“MOT”), Omagine LLC registered its new shareholders (see “Shareholder Agreement” below) with the Ministry of Commerce & Industry and, to the best knowledge and belief of the Company and its attorneys, no further barrier to signing the Final DA then existed.
 
 
 
In February 2011, the former Minister of Tourism, with whom the Company had the majority of its dealings regarding the DA, passed away. A new Minister of Tourism was appointed in March 2011 and was replaced in May 2011 by a third Minister of Tourism, His Excellency Abdulmalik Al-Khalili. In March 2012, H.E. Abdulmalik was appointed as the Minister of Justice and he was in turn replaced at MOT on March 1, 2012 by the present Minister of Tourism, His Excellency Ahmad bin Nasser Al Mehrzi.
 
The MOT legal staff had asked us in June 2011 to provide a written history and background of the Omagine Project (the “Omagine DA Report”) for use by them in updating and briefing the then newly appointed Minister, H.E. Abdulmalik Al-Khalili. This was done, and in July 2011 the MOT legal staff informed the Company’s attorneys that the then Minister of Tourism, H.E. Abdulmalik Al-Khalili, had approved the Final DA for the Omagine Project and that all matters regarding the Final DA were resolved, agreed and accepted by the Government.
 
The MOT legal staff then asked us to undertake and complete the registration with the Government of Oman of the names and ownership positions of the Omagine LLC shareholders (the “Registration”). The Registration was the last remaining condition precedent necessary to be accomplished in order to sign the DA. The Registration was accomplished on September 13, 2011 and the final Registration documents were delivered to MOT on September 19, 2011.
 
From September to November 2011, our employees and attorneys attempted numerous times - but to no avail - to schedule a meeting between H.E. Abdulmalik Al-Khalili and the Company’s president, Mr. Frank J. Drohan, for the purpose of scheduling a signing date for the DA.
 
A meeting between Omagine and MOT senior staff was finally scheduled and on December 10, 2011, we met with the Director General for Planning at MOT, Mr. Mohamed Sinani, (who was the primary MOT negotiator of the Omagine DA over the years), an MOT lawyer also heavily involved in the Omagine DA negotiations over the years, an adviser to the Minister, and the head of the Minister’s office.
 
Both Mr. Sinani and the MOT lawyer were completely and entirely familiar with all the details of the Omagine Project, the years of DA negotiations, and with the Final DA. The head of the Minister’s office asked for a briefing on the Omagine Project and we referred him to Mr. Sinani, the MOT lawyer and to the aforementioned Omagine DA Report which we had sent to the Minister 6 months earlier in June 2011. The MOT attendees at the meeting stated that they had not seen or read the Omagine DA Report so we again sent it to the head of the Minister’s office the following day (December 11, 2011).
 
At this December 10th meeting (i) Mr. Sinani confirmed to all in attendance that the “Final DA” was indeed agreed in its entirety by the Government and by Omagine LLC, and (ii) the MOT lawyer stated that the Government and Omagine LLC would be signing the DA in a few weeks. The meeting was otherwise uneventful and we were asked to return to Oman in mid-January (later postponed by MOT to late January) in order to meet with H.E. Abdulmalik Al-Khalili and conclude. After several unsuccessful attempts to schedule a meeting, our attorneys wrote to H.E. Abdulmalik Al-Khalili on January 23, 2012. Our attorneys letter to the Minister of Tourism stated in relevant part; “The Final DA combined with the numerous “approval letters” from the Government and other written and oral communications with and from the Government clearly and unequivocally demonstrate that a meeting of the minds has occurred between MOT and Omagine LLC with respect to the terms and conditions of the Final DA and we are concerned about the continued internal delays at MOT”.
 
Neither H.E. Abdulmalik Al-Khalili (the former Chairman of Bank Muscat and now the Minister of Justice) nor anyone from the Oman Government disputed this fact or objected to the fact that such an agreement and meeting of the minds regarding the Final DA had occurred. As of the date hereof (5 months after our attorney’s January letter and 11 months after the Final DA was agreed), other than with respect to the MOLA Comments mentioned below, the complete agreement to all the terms and conditions of the Final DA by all parties remains uncontested by the Government.
 
From January through March 2012, our employees and attorneys made numerous attempts to schedule a meeting between H.E. Abdulmalik Al-Khalili and Mr. Drohan – again, to no avail.
 
In early March 2012 H.E. Abdulmalik was appointed Minister of Justice and he was replaced at MOT by the present Minister of Tourism, His Excellency Ahmad bin Nasser Al Mehrzi.
 
During March 2012 and continuing through to the date of this report, we, our lawyers, and now a representative of Royal Court Affairs (“RCA”) have been in touch with the Under-Secretary of Tourism, Her Excellency Maitha Al Mahrouqi in order to arrange a meeting with Her Excellency, the Under-Secretary and the Omagine LLC shareholders. The purpose of the meeting is to determine the status of the Omagine DA, to update the Under-Secretary and to arrange a follow-on meeting with the new Minister, H.E. Ahmad bin Nasser Al Mehrzi with a view to determining a signing date for the DA. Management has also been actively engaged with high level persons in both the Oman Government and the U.S. Government over the past many months in an effort to break the communications logjam with the MOT.
 
On April 11, 2012, a representative of Royal Court Affairs informed us that he had a telephone conversation that day with Her Excellency Maitha wherein Her Excellency informed the Royal Court Affairs’ representative: (i) that she has reviewed the Omagine DA and the Omagine Project; (ii) that MOT very much likes the project and believes it will be a good project for the Sultanate; and (iii) that there is no material problem and the only issue outstanding is that MOT wants to amend certain DA clauses in order to make the DA conform with new Government regulations including the new regulations regarding investor and consumer protection for home buyers. Her Excellency Maitha informed the RCA representative that MOT had drafted the changes to the affected DA clauses and sent them to the Ministry of Legal Affairs (“MOLA”) for a legal opinion and that MOT was awaiting a response from MOLA (the “MOLA Response”). When asked by the RCA representative when such MOLA Response was expected, Her Excellency informed the RCA representative that she would continue to follow up with MOLA and that she was instructed by the new Minister of Tourism, His Excellency Ahmed Al Mahrizi, to prioritize and finalize the Omagine Project and DA. On April 29, 2012 we were informed by the RCA representative that he had spoken to Her Excellency and she stated that she had received the MOLA Response and had written a report to His Excellency Ahmed Al Mahrizi seeking his approval and that as soon as she received that approval she would contact the RCA representative to arrange a meeting with him and the Omagine staff to discuss the MOLA Response, finalize the DA, and arrange for a DA signing date. Once again the RCA representative again asked Her Excellency if there were any other issues outstanding other than the modification of the DA clauses pursuant to the MOLA Response to which she had referred. Her Excellency responded that no, there were no other issues outstanding; that Omagine is a good project for the country; that the new minister is urging her to finalize the Omagine DA; and that now that she had the MOLA Response about the modified DA clauses, she only had to get His Excellency Ahmed Al Mahrizi’s approval before meeting with us to finalize the DA. As of the date of this report we are waiting to hear from Her Excellency Maitha Al Mahrouqi.
 
 
 
On May 18, 2012, we, RCA and CCC received an email communication from Her Excellency Maitha Al Mahrouqi, the Under-Secretary of Tourism, wherein Her Excellency Maitha informed us that she was traveling outside of Oman and that she looked forward to meeting with us shortly after her return to Oman on May 29, 2012.
 
We have also received a copy of a letter to Omagine LLC from the Minister of Tourism, His Excellency Ahmed Al Mahrizi (the “Minister’s Letter”). The Minister’s Letter requested Omagine LLC to provide certain information which in management’s opinion has either already (i) been previously provided by us to MOT, or (ii) covered by the agreed terms of the Final DA. In view of our many similar prior experiences with MOT, we do not find this to be unusual. As has frequently been the case in the past, full clarity is only expected to emerge after detailed in person discussions with MOT. At the present time however, it is unclear to us if the Minister’s Letter represents the MOLA Response or if it represents requests by MOT in addition to the MOLA Response, or both. The Minister’s Letter, which requested documentation on 4 items, is attached hereto as Exhibit 99.5 . As of the date hereof management does not anticipate any difficulty in providing (a) the documentation required by items (ii) and (iii) of the Minister’s Letter, or (b) the explanatory documentation indicating the parties prior written agreement with respect to items (i) and (iv) of the Minister’s letter. Management presently expects that all 4 matters raised by the Minister’s Letter will be resolved and agreed by MOT and Omagine LLC.
 
The Minister’s Letter seems to indicate MOT’s anticipated “approval of the Omagine project” and its willingness to “enter into a development agreement for the project”. Notwithstanding the foregoing however, it will be necessary for management and the New Shareholders to meet with Her Excellency Maitha and possibly other MOT staff in person in order to attain absolute clarity in written form before we are able to state with certainty that this process is completed and agreed by all parties. Subsequent to such meeting with Her Excellency Maitha, management will respond in writing to the Minister’s Letter and to the matters, if any, that may be raised by Her Excellency Maitha.
 
Management views the upcoming meeting with Her Excellency Maitha and the Minister’s Letter as positive indicators of MOT’s desire to conclude the DA process but nevertheless we caution investors that we are unable at this time to give any assurances whatsoever that the DA will actually be concluded or signed by the parties.
 
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. Although there have been extraordinary delays to date by the Government, now that the Final DA has been agreed and MOT has informed RCA that it has received the MOLA Response regarding the changes to certain clauses in the Final DA, management continues to be cautiously optimistic that the Government will soon memorialize its agreement to the DA in a signed written document so that progress in the development of the Omagine Project may be facilitated.
 
Notwithstanding the foregoing however, management is unable at this time to definitively confirm that MOT’s proposed changes to certain DA clauses are indeed “minor and immaterial” as has been indicated to RCA by MOT, nor can we confirm that such proposed changes will or can be accepted by Omagine LLC. Indeed, past experience indicates that caution should be exercised in making any such assumptions until we meet with MOT and receive the written documents proposing the modified DA clauses.
 
The Shareholder Agreement
 
In May 2011, Omagine, Inc., JOL and three (3) investors (the “New Shareholders”) signed a shareholders’ agreement dated as of April 20, 2011 with respect to Omagine LLC (the “Shareholder Agreement”). Prior to the signing of the Shareholder Agreement, Omagine LLC was wholly owned by Omagine, Inc. and JOL. The Shareholder Agreement is Exhibit 10.4 hereto.
 
Pursuant to the terms of the Shareholder Agreement, the Cash Investment will be invested in three stages.
 
1.
   
As of the date hereof the initial portion of the Cash Investment equal to approximately $390,000 has been received by Omagine LLC from the New Shareholders and Omagine, Inc.
       
2.
   
Subsequent to the signing of the DA but prior to the Financing Agreement Date (as hereinafter defined), an additional portion of the Cash Investment equal to approximately $546,000 (the “OMAG Final Equity 
 Investment”) will be received by Omagine LLC from Omagine, Inc.
       
3.
   
On or immediately subsequent to the Financing Agreement Date, the final portion of the Cash Investment equal to approximately $69,233,125 will be received by Omagine LLC from the New Shareholders.
 
 
The value of the non-cash “payment-in-kind” investment by RCA will be added to Omagine LLC’s capital after such value is determined subsequent to the signing of the Development Agreement.
 
The Office of Royal Court Affairs ("RCA"), is an Omani organization representing the personal interests of His Majesty, Sultan Qaboos bin Said, the ruler of Oman. Consolidated Contractors International Company, SAL, (“CCIC”) is a 60 year old Lebanese multi-national company headquartered in Athens, Greece. CCIC has approximately five and one-half (5.5) billion dollars in annual revenue and one hundred twenty thousand (120,000) employees worldwide. It has operating subsidiaries in, among other places, every country in the MENA Region. Consolidated Contracting Company S.A. (“CCC-Panama”) is a subsidiary of CCIC and is its investment arm. Consolidated Contractors (Oman) Company LLC, (“CCC-Oman”) is a construction company with approximately 13,000 employees in Oman and is CCIC’s operating subsidiary in Oman.
 
The New Shareholders are (i) RCA, (ii) CCC-Panama and (iii) CCC-Oman. The parties to the Shareholder Agreement are Omagine, Inc., JOL and the New Shareholders.
 
The Shareholder Agreement defines the “Pre-Development Expense Amount” as the total amount of Omagine Project related expenses incurred by Omagine, Inc. and JOL prior to the signing of the DA. Such Pre-Development Expense Amount expenses were heretofore incurred by Omagine, Inc. and JOL and continue to be incurred by Omagine, Inc. with respect to the planning, concept design, re-design, engineering, financing, capital raising costs and promotion of the Omagine Project and the negotiation and conclusion of the Development Agreement with the Government.
 
The Shareholder Agreement (i) estimates that, as of the date of the Shareholder Agreement, the Pre-Development Expense Amount is approximately nine (9) million U.S. dollars, and (ii) defines the Success Fee as being equal to ten (10) million dollars.
 
As provided for in the Shareholder Agreement, Omagine, Inc. will receive payment in full from Omagine LLC of:
 
(i) the Pre-Development Expense Amount and,
 
(ii) the $10 million Success Fee.
 
 
 
The Shareholder Agreement defines the “Financing Agreement Date” as the day upon which Omagine LLC and an investment fund, lender or other person first execute and deliver a legally binding agreement pursuant to which such investment fund, lender or other person agrees to provide debt financing for the first phase or for any or all phases of the Omagine Project. The Shareholder Agreement also defines the date subsequent to the Financing Agreement Date when Omagine LLC draws down the first amount of debt financing as the “Draw Date”.
 
The ten (10) million dollar Success Fee will be paid to Omagine, Inc. in five annual two (2) million dollar installments beginning on or within ten (10) days after the Draw Date.
 
Fifty percent (50%) of the Pre-Development Expense Amount will be paid to Omagine, Inc. on or within ten (10) days after the Draw Date and the remaining fifty percent (50%) will be paid to Omagine, Inc. in five equal annual installments beginning on the first anniversary of the Draw Date.
 
Pursuant to the Shareholder Agreement:
 
1.
CCIC’s two subsidiaries will invest an aggregate of 19,010,000 Omani Rials in cash (equivalent to approximately $49,426,000) into Omagine LLC. CCC-Panama will invest 12,673,333 Omani Rials (equivalent to approximately $32,950,666) and CCC-Oman will invest 6,336,667 Omani Rials in cash (equivalent to approximately $16,475,334), as follows:
 
   
(i)
As of the date hereof, CCC-Panama has invested 15,000 Omani Rials (equivalent to approximately $39,000) into Omagine LLC and CCC-Panama will invest an additional 12,658,333 Omani Rials (equivalent to approximately $32,911,666) on the Financing Agreement Date.
   
(ii)
As of the date hereof, CCC-Oman has invested 7,500 Omani Rials (equivalent to approximately $19,500) into Omagine LLC and CCC-Oman will invest an additional 6,329,167 Omani Rials (equivalent to approximately $16,455,834) on the Financing Agreement Date.
   
(iii)
The CCC-Panama and CCC-Oman initial combined investments of 22,500 Omani Rials (equivalent to approximately $58,500) have been received by Omagine LLC as of the date hereof and payment of the CCC-Panama and CCC-Oman combined investment balance of approximately $49,367,500 is contingent upon (i) the signing of a contract between Omagine LLC and CCC-Oman appointing CCC-Oman as the general contractor for the Omagine Project, and (ii) the occurrence of the Financing Agreement Date.
   
(iv)
The result of the foregoing is that CCC-Panama presently owns ten percent (10%) of Omagine LLC and CCC-Oman presently owns five percent (5%) of Omagine LLC. Absent any further Omagine LLC equity sales, CCC-Panama will continue to own ten percent (10%) of Omagine LLC and CCC-Oman will continue to own five percent (5%) of Omagine LLC.
 
2.
RCA will invest an aggregate of 7,678,125 Omani Rials in cash (equivalent to approximately $19,963,125) plus RCA will also invest the value of the payment-in-kind (the “PIK”) into Omagine LLC as follows:
 
   
(i)
As of the date hereof, RCA has invested 37,500 Omani Rials (equivalent to approximately $97,500) into Omagine LLC and RCA will invest an additional 7,640,625 Omani Rials (equivalent to approximately $19,865,625) on the Financing Agreement Date.
   
(ii)
Concurrent with Omagine LLC acquiring its rights over the Omagine Site pursuant to the terms of the Development Agreement, the PIK will be valued and such value will be booked as an additional capital investment by RCA into Omagine LLC.
   
(iii)
RCA’s initial cash investment of 37,500 Omani Rials in cash (equivalent to approximately $97,500) has been received by Omagine LLC as of the date hereof and payment of the RCA cash investment balance of approximately $19,865,625 is contingent upon the occurrence of the Financing Agreement Date.
   
(iv)
The result of the foregoing is that RCA presently owns twenty-five percent (25%) of Omagine LLC. Absent any further Omagine LLC equity sales, RCA will continue to own twenty-five percent (25%) of Omagine LLC.
 
3.
Omagine, Inc. will invest an aggregate of 300,000 Omani Rials in cash (equivalent to approximately $780,000) into Omagine LLC as follows:
 
   
(i)
As of the date hereof Omagine, Inc. has invested an aggregate of 90,000 Omani Rials (equivalent to approximately $234,000) into Omagine LLC.
   
(ii)
Omagine Inc. will invest an additional 210,000 Omani Rials (equivalent to approximately $546,000) into Omagine LLC (the “OMAG Final Equity Investment”) after the DA is signed but before the Financing Agreement Date.
   
(iii)
The result of the foregoing is that Omagine, Inc. presently owns sixty percent (60%) of Omagine LLC. Absent any further Omagine LLC equity sales, Omagine, Inc. will continue to own sixty percent (60%) of Omagine LLC.
 
 
 
The percentage ownership of Omagine LLC by each of its shareholders presently is:
 
Omagine, Inc.
   
60
%
RCA
   
25
%
CCC-Panama
   
10
%
CCC-Oman
   
5
%
 
Management presently intends to pursue the sale of a percentage of Omagine LLC’s equity to one or more investors as soon as reasonably possible subsequent to the signing of the DA and management presently believes it can maintain Omagine, Inc.’s majority control of Omagine LLC while successfully selling such Omagine LLC equity to new investors. Although present market conditions remain somewhat unsettled, management remains optimistic that subsequent to the signing of the DA, Omagine LLC will be able to sell a percentage of its equity to one or more investors for an amount in excess of the average cash investment amount paid by the New Shareholders.
 
As specified above, pursuant to the provisions of the Shareholder Agreement, the total amount of the Cash Investment into Omagine LLC by Omagine, Inc. and the New Shareholders will be 26,988,125 Omani Rials (equivalent to approximately $70,169,125) and although Omagine, Inc. and the New Shareholders will invest an aggregate of $936,000 of that $70,169,125 before the Financing Agreement Date, 98.7% of such $70,169,125 equal to $69,233,125 (the “Deferred Cash Investment”) will not be invested by the New Shareholders or received by Omagine LLC until the Financing Agreement Date.
 
The Financing Agreement Date is presently projected by management to occur within twelve months after the signing of the DA. If however the financial resources are available to Omagine, Inc., Omagine, Inc. and Omagine LLC may, at their option, choose to trigger the Financing Agreement Date earlier (and thereby trigger the $69,233,125 Deferred Cash Investment into Omagine LLC) by having Omagine, Inc. make a secured loan to Omagine LLC to finance the first phase of the development of the Omagine Project. The first phase of the development of the Omagine Project is expected to constitute primarily initial design work and its scope and budgeted cost will be decided upon by Omagine LLC shortly after the DA is signed. Pursuant to the provisions of the Shareholder Agreement, the date on which such a loan from Omagine, Inc. to Omagine LLC is made, if it is made, would constitute a Financing Agreement Date and would therefore trigger the injection into Omagine LLC of the $69,233,125 Deferred Cash Investment.
 
While it will have the financial capacity to undertake certain limited initial planning and design activities immediately after the DA is signed, if Omagine LLC wishes to immediately begin extensive design and development activities it will have to sell additional equity or raise additional alternative financing. Otherwise, Omagine LLC will have to wait until the first Financing Agreement Date occurs and the debt financing and Deferred Cash Investment are received in order to perform such extensive design and development activities.
 
The Shareholder Agreement also memorializes the PIK capital contribution being made to Omagine LLC by RCA. The PIK represents a portion of RCA’s payment to Omagine LLC for its 25% ownership of Omagine LLC. The value of the PIK will equal the value to Omagine LLC that is ultimately assigned to the provision to Omagine LLC of the approximately 245 acres of beachfront land constituting the Omagine Site which His Majesty the Sultan owned and transferred to the Government for the specific purpose of having Omagine LLC develop it into the Omagine Project. After the DA is signed, the value of the PIK will be determined by a professional valuation expert in accordance with Omani law and with the concurrence of Omagine LLC’s independent auditor, Deloitte & Touche, (M.E.) & Co. LLC.
 
Subsequent to the above Cash Investment into Omagine LLC being made by the New Shareholders and Omagine, Inc., the capital of Omagine LLC after the Financing Agreement Date will be 26,988,125 Omani Rials (equivalent to $70,169,125). The capital of Omagine LLC will likely be increased further at a later date by the non-cash capital increase resulting from the valuation of the PIK.
 
The extraordinary location of the Omagine Site is universally recognized by local market participants and the significance to the Company of the provision of the Omagine Site to Omagine LLC is enormous. Irrespective of its future PIK valuation as an Omagine LLC capital investment (which valuation management expects to be substantial), the Omagine Site will be a primary driver of future Company revenue and the benefits to the Company derived from the PIK will be significant.
 
 
 
Management believes that the PIK and the Cash Investment which are memorialized by the legally binding Shareholder Agreement are the most important portions of Omagine LLC’s capital structure. The PIK and the $70 million Cash Investment are the most difficult to arrange and highest risk portion of Omagine LLC’s equity capital structure. They are both in place as of the date hereof.
 
All of the aforementioned investment amounts, ownership percentages and other terms and conditions of the Shareholder Agreement were negotiated by Omagine, Inc. management on behalf of Omagine LLC in arms-length transactions between Omagine LLC and the New Shareholders. Other than their present ownership positions in Omagine LLC, none of the New Shareholders are affiliates of the Company.
 
Among other things, the Shareholder Agreement also specifies the corporate governance and management policies of Omagine LLC and it provides for the Omagine LLC shares presently owned by JOL to be transferred to Omagine, Inc. subsequent to the signing of the DA. The foregoing summary of the terms of the Shareholder Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Shareholder Agreement. The Shareholder Agreement is Exhibit 10.4 hereto.
 
In December 2007 the Company signed a one year agreement (the "Bank Muscat MOU") with Bank Muscat SAOG ("BankMuscat" or the "Bank"). BankMuscat is the largest financial institution in Oman and is 30% owned by RCA. The Bank Muscat MOU memorialized the agreement between the Company and the Bank regarding, among other things, the Company appointing the Bank as its financial advisor immediately subsequent to the signing of the Development Agreement. The Bank Muscat MOU also contemplated that the Bank would negotiate with financial institutions and potential investors on behalf of Omagine LLC and act as placement agent for Omagine LLC’s future debt and capital requirements. The Oman Integrated Tourism Projects Fund (the “Fund”) is an investment fund managed by BankMuscat. The Bank Muscat MOU also memorialized the Fund’s proposed investment of up to twenty-five percent of the capital of Omagine LLC after the DA was signed. As of the date hereof the DA has not been signed and the Bank Muscat MOU has expired.
 
The Company, the Fund, BankMuscat and Omagine LLC have held many discussions and meetings since 2007 and in August 2010 BankMuscat informed the Company that since the Fund’s authority to make investments would expire in November 2010, the Fund therefore required a guaranteed earlier exit date for its proposed equity investment. The other proposed Omagine LLC shareholders (Omagine, Inc., RCA and CCC) would not be guaranteed any such early exit date and the Company and the Fund never came to terms on this matter. In October 2010 the Fund informed us that it did not wish to be an equity investor in Omagine LLC but that it did wish to provide subordinate debt financing (“Mezzanine Financing”) to Omagine LLC after the DA was signed and subject to its usual due diligence at such time.
 
It is management’s understanding that the Fund’s authority to make investments was extended in November 2010 for an additional year until November 2011. As of November 2011 the DA had still not been signed and management is of the belief that, in view of the inordinate delays encountered in getting the DA signed, it is now unlikely that the Fund will be an investor or a source of such Mezzanine Financing. Subsequent to the signing of the DA, it is our present intention to have Omagine LLC hire Bank Muscat as its non-exclusive financial advisor to provide Omagine LLC with financial advisory services with respect to its project financing requirements, including any requirements Omagine LLC may have for further equity investments and/or Mezzanine Financing.
 
Subject to the approval of its shareholders and to negotiating and agreeing to a contract, Omagine LLC presently intends to hire Michael Baker Corp. ("Baker") as its Program Manager and Project Manager. Baker is a publicly traded U.S. firm (AMEX: BKR) in the business of providing program management, engineering, design and construction management services to a wide variety of clients including the U.S. Department of Defense and many state governments and commercial clients. The Company has employed Baker through the feasibility and engineering study phases of the Omagine Project and presently 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 met with the Company’s president in Oman and indicated that Baker would open an office in Oman if it was awarded a contract for the Omagine Project. Baker is headquartered in Pittsburgh, PA, with offices throughout the U.S. and in Abu Dhabi in the United Arab Emirates and is experienced in all aspects of design, program management and construction management for large scale construction and development projects of the magnitude of the Omagine Project. Baker has significant program management and construction management contracts with the United States military worldwide - including in the MENA Region.
 
 
 
The interpretive design, entertainment content, and visitor experience design candidates to be hired by Omagine LLC have been narrowed to a short list of professional companies. It is presently anticipated that subsequent to the signing of the DA, one or more of such companies ("Content Developers") will be engaged by Omagine LLC to transform the Company’s high level strategic vision for the content of the Pearl structures and surrounding areas into physical places offering emotional, intellectual and physical interactions. Each of the prospective Content Developers has serviced a diverse client base, including theme parks, museums, zoos, aquariums and other such complex entertainment centers around the world, including in the 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 LLC and the Government must memorialize their agreement to the Final DA in a signed written document (as possibly modified by the MOLA Response referred to above). All of management’s past estimates regarding the timing of the signing of the DA have been confounded by the often inexplicable delays on the Government’s part, and even though as of the date hereof and for the past many months the Government has explicitly agreed to all the terms and conditions of the Final DA (as possibly modified by the MOLA Response referred to above), it is not possible at this time to predict a precise DA signing date until after we meet with MOT with respect to the MOLA Response. While this process has experienced numerous delays, management believes its patience will be rewarded and that the Development Agreement will be signed in 2012. Notwithstanding the foregoing, and in view of the long and continuing history of delays by the Government, no assurance can be given at this time that the long since agreed to Final DA will be signed soon, or at all.
 
The financial results of Omagine LLC are included in the consolidated financial results of the Company in accordance with accounting principles generally accepted in the United States. The Company experienced a moderate increase in capital in the third quarter of 2011 as a result of the initial capital contributions of the New Shareholders to Omagine LLC. If and when the Financing Agreement Date occurs, the Company will experience another more substantial increase in capital of approximately $42 million which is 60% of the approximately $70 million of cash capital investments which will be recorded at such time as capital on Omagine LLC’s financial statements and reflected in the Company’s consolidated financial statements. At or about that same time the Company may experience an additional substantial, but as yet undetermined, increase in its capital, which increase will be equal to 60% of the valuation of the PIK, provided that the value of the PIK is recorded as capital on Omagine LLC’s financial statements.
 
The capital of Omagine LLC, proceeds from the sales, if any, by Omagine LLC of additional equity stakes, bank borrowings, Mezzanine Financing, if any, and the proceeds from sales of its 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 included in the consolidated financial statements of the Company 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, along with other financial institutions, 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. We have had extensive discussions with a number of financial institutions with respect to such Construction Financing as well as mezzanine and senior debt for Omagine LLC but these discussions cannot be advanced further or concluded until the agreed DA is actually signed by the parties. All the contractual terms and conditions of the DA are well known and agreed by all parties. Notwithstanding that fact, banks and financial institutions insist on having a signed contract document in place before moving further along or concluding these Construction Financing discussions. Management is cautiously optimistic with respect to Omagine LLC’s prospects for arranging the Construction Financing for the Omagine Project but recognizes that given present economic and market conditions, it is not a trivial task and will be challenging. The Final DA, which is presently agreed and approved (but not yet signed and which may or may not be modified by the MOLA Response), recognizes and addresses this issue when it states, in relevant part:
 
“The Government recognises that the Project Company intends to raise limited recourse financing in relation to the Project and that Lenders may expect to be afforded certain rights in relation to it. Accordingly, the Project Company will by or before the completion of twelve (12) months from the Execution Date enter into a written term sheet with the Lenders for the financing of the first phase, any other phase or all of the Project (a “Term Sheet”). If the Project Company has not delivered a copy of such Term Sheet to the Government by or before the expiry of the twelve (12) month period referred to above, this Development Agreement then shall have no further effect.”
 
 
 
While the worldwide bank liquidity issues resulting from the 2008-2009 financial crisis have eased, the European sovereign debt crisis has come into full view and the project financing environment in Oman and the MENA Region remains more cautious and challenging than before these crises. Management is in contact on a regular basis with MENA Region banks and international financial institutions regarding the financing of the Omagine Project and remains 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 slowdowns 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 believe that price stabilization and a recovery in both transaction volume and pricing is now occurring. Should this recovery in fact be occurring, and continue to 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 plans contemplate beginning a year or more of intensive design and planning activities once the DA is signed followed by the launch of residential and commercial sales at the Omagine Project. Given the continued delays in getting the DA signed, the Company presently expects that planned launch date for residential and commercial sales to be pushed into 2013 or beyond. While management views most of the past delays by the Government as being adverse to the Company’s best interests, it recognizes that, at the present moment, the continued gradual recovery of the project finance and local real estate markets are positive indicators for the Company’s future prospects.
 
As the development program becomes more detailed and as the planning and design processes progress, the estimates of construction and development costs have and will become proportionately more accurate. The Company presently expects, based on current 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 signing the DA in 2012 and on current 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 during the Omagine Project’s planned 2013 or beyond sales launch will be at least equal to the prices that are presently budgeted by Omagine LLC.
 
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 forecasts should be avoided. Management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Management fully expects that its cost estimates for the Omagine Project will require adjustment – possibly significant adjustment – as future events unfold.
 
Although the Oman economy has not been as severely affected by the 2008-2009 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 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. Significant new housing inventory, especially apartments, have recently come onto the local Muscat area market. The market absorption rates (number of market transactions) for new residential housing remains weak but has picked up in recent months and some market observers and real estate agents expect a continued gradual resurgence as existing pent-up demand is unleashed and buyers become less fearful. The ongoing sovereign debt crisis in Europe however only adds to buyers’ unease and the outcome of that crisis and its effect on buyers’ behavior is unknown at this time. Omagine LLC is not expected to begin offering residential units for sale until at least one year after the DA is signed.
 
 
 
The Government’s delays in signing the DA from Q1 2006 through Q2 2008 inflicted a very large opportunity cost on the Company (i.e. the lost value to the Company because of Government delays in signing the Omagine DA). The lost opportunity cost during the period from Q2 2008 to Q3 2010 however was significantly less.
 
The lost opportunity cost to the Company caused by the Government’s continued delays in signing the DA from Q3 2010 to the present time is less than it was in the 2006/2008 period but it is still quite large; and it is growing.
 
Management is of the opinion therefore that some of the Q2 2008 to Q3 2010 delays we have experienced have in some instances worked to the benefit of the Company. Had we been successful in signing the DA during this period, it now seems in hindsight that we may have been negatively affected by the then ongoing worldwide financial crisis. The prospects for the Company and its shareholders were severely injured by the Q1 2006 through Q2 2008 delays by the Government and are continuing to be severely injured by the ongoing Government delays from Q3 2010 to the present time. It seems probable however that some of the 2008/2010 delays may have prevented the Company from having to operate in a more challenging real estate and project finance environment than would otherwise have been the case either before or after that 2008/2010 period.
 
In early 2011 His Majesty, the Sultan made changes in various ministries in the Government, including appointing a new Minister of Tourism to fill the vacancy caused by the passing in early 2011 after a long illness of the first Minister of Tourism. That second Minister of Tourism was replaced by a third Minister of Tourism two months later in May 2011 and that third Minister of Tourism was replaced by a fourth Minister of Tourism - the present Minister - in March 2012. Since the Final DA was approved by all parties in mid-2011, management is presently of the opinion that these multiple ministerial changes at the Ministry of Tourism undoubtedly had a delaying impact on the signing of the DA. Now that the MOLA Response has been received by MOT, management is hopeful that the allegedly minor changes to certain DA clauses will be resolved shortly. Management believes that the Company’s prospects will be well served if the DA is signed in 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 to determine the value of the PIK and 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 such financing is expected to be reduced by its ability to pre-sell residence and commercial units by entering into sales contracts with third party purchasers and receiving deposits and progress payments during the construction of such units. Trends in the local market subsequent to the recent financial crises mentioned above however have indicated a much reduced presence of speculative buyers and a reduced consumer appetite for pre-sales of residence units as many more buyers are now demanding a finished product before entering into sales contracts with developers.
 
The Final DA 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 land within the Omagine Site underlying such residences or commercial properties may be sold to the buyer of such residences or commercial properties and the freehold title to such land and properties may be transferred to such buyers at the closing of such sales transactions. The increase over the last several years in the value of the land constituting the Omagine Site is expected to have a positive effect on revenue and on the valuation of the PIK. Pursuant to the Final DA, Omagine LLC will pay the Government 25 Omani Rials (approximately $65) per square meter for the land it sells to third parties. Such payment is only made to the Government by Omagine LLC after the closing of the sale of such land and the receipt of payment by Omagine LLC from such third parties. At the present time, the average selling price for land at the Omagine Site is conservatively estimated by local real estate agents to be at least 250 Omani Rials (approximately $650) per square meter.
 
Rights Offering and Warrant Distribution
 
In January 2012, the Board of Directors authorized the Company to conduct a “Rights Offering and Warrant Distribution”. Between February 24, 2012 and March 30, 2012 the Company conducted a Rights Offering exclusively for the benefit of its stockholders. Pursuant to the Rights Offering the Company distributed at no charge to all holders of its Common Stock on February 24, 2012 (the “Record Date”), 3,202,200 non-transferable subscription Rights. Shareholders who owned Common Shares on the Record Date (the “Record Shareholders”) received one Right for each four Common Shares held by them on the Record Date. Fractional Rights attributable to any Record Shareholder were eliminated by rounding up to the nearest whole number of Rights.
 
 
 
Each Right entitled the Record Shareholder to purchase one (1) Common Share at a subscription price (“Subscription Price”) of $1.25 per share (the “Basic Subscription Right”). An over-subscription privilege, which was subject to availability and allocation, was available to each Record Shareholder at the same Subscription Price per share, provided that such Record Shareholder fully exercised its Basic Subscription Right with respect to all the Rights it held.
 
The Rights Offering expired on March 30, 2012 and all unexercised Rights have expired. Record Shareholders exercised 1,014,032 Rights to purchase 1,014,032 Common Shares in the Rights Offering, including 48,119 Rights that were exercised pursuant to the over-subscription privilege. Total proceeds to the Company from the Rights Offering was $1,267,540 of which $731,639 was paid in cash and $535,901 was paid via the satisfaction of debt owed by the Company to Record Shareholders exercising such Rights. Of the 1,014,032 new shares issued pursuant to the Rights Offering, 585,311 of such shares were issued in exchange for the aforementioned $731,639 in cash and 428,721 of such shares were issued in exchange for the aforementioned satisfaction of $535,901 of Company debt constituting promissory notes for loans to the Company and accrued but unpaid salaries and expenses. Of the $535,901 of Company debt which was satisfied in the Rights Offering, $506,750 of such debt represented unpaid salaries, expenses and loans to the Company which were due and owing by the Company to officers and directors of the Company.
 
Simultaneously with the Rights Offering the Company also distributed a total of 6,404,400 common stock purchase warrants (“Warrants “) to common stockholders of record on February 24, 2012.  3,202,200 Warrants are exercisable into common stock at an exercise price of $5.00 per share and 3,202,200 Warrants are exercisable into common stock at an exercise price of $10.00 per share. The $5.00 Warrants and the $10.00 Warrants expire on December 31, 2013 unless, upon a 30 day prior notice to the Warrant holders, they are redeemed earlier by the Company. The Warrants do not contain any anti-dilution provisions and may be exercised only for whole shares of Common Stock. The Warrant Exercise Prices and the number of shares of Common Stock that the Company must issue upon exercise of Warrants shall not be subject to adjustment for any reason, including but not limited to, any combinations or subdivisions of Common Stock or any dividend, reclassification, reorganization, merger or spin off.
 
The Company filed a registration statement with the Securities and Exchange Commission (“SEC”) to register the Common Stock underlying the Rights and Warrants and the SEC declared such registration statement effective as of February 13, 2012.
 
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) examining various methods of raising additional capital for Omagine LLC; (iii) negotiating the outlines of initial contracts with the major vendors, contractors, consultants, employees and financial institutions proposed to be involved in the Omagine Project, (iv) arranging the appropriate and required legal, accounting, tax and other professional services both in Oman and the U.S., (v) examining various tax structures, (vi) reviewing and complying (to the extent we are presently able) with the listing requirements of various stock exchanges so we may be prepared to apply for such listing(s) as soon as we are eligible, (vii) examining various other matters we believe will enhance shareholder value, and (viii) examining other potential Company revenue streams which are ancillary to, and derivative of, the Omagine Project.
 
The Company is a development stage entity and is not expected to generate revenue until after the occurrence of an event - the signing of the Development Agreement for the Omagine Project - which, as of the date hereof, has not yet occurred. Moreover, revenue from real estate development associated with the Omagine Project is not expected to occur until subsequent to the Financing Agreement Date. Pursuant to the terms of the Shareholder Agreement, Omagine, Inc. will derive revenue, on and subsequent to the Financing Agreement Date, from (i) the payment to it by Omagine LLC of the $10 million Success Fee, and (ii) the reimbursement to it by Omagine LLC of the Pre-Development Expense Amount. The Company is presently planning to enter businesses other than real estate development - and ancillary to, and derivative of, the Omagine Project - subsequent to signing the Development Agreement and the Company presently expects to generate ongoing revenue streams from such businesses, but no projections of the amount of such revenue, if any, can be made at this time.
 
Several Omagine, Inc. shareholders had previously expressed their concern that the tension and unrest in the MENA region in 2011 and 2012, both external and internal to Oman, had a negative effect on the Omagine Project or had caused a delay in the closing process for the Omagine DA. Management was and is of the opinion that at least up until mid to late 2011 this was not the case. During the period of Middle East headline news about the Arab Spring and unrest in the MENA region, Omagine LLC was fully engaged in (i) revising, concluding and signing the Shareholder Agreement with the New Shareholders, and (ii) concluding the final DA and the Registration. As noted above, the several ministerial changes at MOT, as well as recent tension surrounding Iran, Israel and the U.S., have probably distracted the Government and contributed to the recent delays in the signing process for the DA.
 
 
 
Other Arab countries in the MENA region have experienced and are experiencing demonstrations of discontent with the rule of their heads of state and in some cases these demonstrations were and are being met with violent pushback by some MENA Region governments but this was not and is not the case in politically and economically stable Oman. Notwithstanding the foregoing, in the first half of 2011 Oman experienced several low-key, low-turnout, low-intensity demonstrations with respect to job opportunities and wages for Omanis (a very few of which involved violent behavior) and these have been met by His Majesty and the Government with pro-active positive measures and economic and political initiatives (including widely acclaimed elections) to address the expressed concerns of the citizens of Oman.
 
Notwithstanding the foregoing "forward looking statements", no assurances can be given at this time that the Development Agreement will actually be signed or that the Financing Agreement Date or the anticipated revenues from the Omagine Project will actually occur.
 
All "forward looking statements" contained herein are subject to, known and unknown risks, uncertainties and other factors which could cause Omagine LLC's and therefore the Company's actual results, financial or operating performance or achievements to differ from management's forecasts for them as expressed or implied by such forward-looking statements. Forecasts and assumptions contained and expressed herein are based on information available to the Company at the time so furnished and, unless otherwise indicated to the contrary, such forecasts and assumptions are as of the date hereof and are, in the opinion of management, reasonable. All such forecasts and assumptions are subject to significant uncertainties and contingencies, many of which are beyond the Company's control, and no assurances can be given that the forecasts will be realized or that the assumptions are correct. Potential investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date hereof.
 
On January 2, 2012, pursuant to a resolution of the Board of Directors dated December 8, 2011, the Company granted a total of 1,994,000 stock options (the “One Year Options”) to 13 individuals. Such grants of One Year Options were all for services rendered and included the grant of: (i) an aggregate of 1,049,000 One Year Options to the Company’s three Officers; (ii) an aggregate of 150,000 One Year Options to the Company’s then three independent Directors; (iii) a grant of 750,000 One Year Options to the Deputy Managing Director of Omagine LLC who is also a consultant to Omagine and who also holds 160,000 stock options presently exercisable at $1.25 per share and expiring March 31, 2017 which were granted pursuant to a March 2007 consulting agreement expiring on December 31, 2012; (iv) a grant of 10,000 One Year Options to a consultant to whom the Company paid $2,000 per month consulting fees totaling $24,000 and $20,000 during the years ended December 31, 2011 and 2010 respectively; and (v) a grant of 5,000 One Year Options to the son of the Company’s President for website design services rendered. All One Year Options vest 50% on the date of issuance, 50% on July 1, 2012, provide for a cashless exercise feature, are exercisable at an exercise price of $1.70 per share and expire on December 31, 2012. On January 31, 2012, 50,000 One Year Options previously issued to an independent Director were cancelled in accordance with their terms upon such Director’s resignation.
 
RESULTS OF OPERATIONS:
 
THREE MONTHS ENDED MARCH 31, 2012 vs.
THREE MONTHS ENDEDMARCH 31, 2011
 
The Company is a development stage entity and did not generate any revenue or incur any cost of sales in the first quarter of 2012 or 2011.
 
Selling, general and administrative (“SG&A”) expenses were $717,122 in the first quarter of 2012, compared to $332,315 in the first quarter of 2011. This increase of $384,807 (116%) was primarily attributable to increased non-cash charges of $437,922 for stock option expense associated with the One Year Options awarded in January 2012 as well as an overall net decrease in SG&A expenses of $53,115. Absent the non-cash increase in stock option expense during the first quarter of 2012, the SG&A expenses for the first quarter of 2012 would have been $29,990 less than the SG&A expenses during the comparable first quarter period in 2011.
 
 
 
The Company experienced an operating loss of $718,417 during the first quarter of 2012 as compared to an operating loss of $345,642 during the same period in the previous fiscal year. This $372,775 (108%) increase in the Company’s operating loss is primarily attributable to the fact that it is a DSE and generated no revenue, as well as to the increased non-cash charges of $437,922 for stock option expense associated with the One Year Options and to the other net decreases in SG&A costs discussed in the preceding paragraph.
 
Total proceeds to the Company from the Rights Offering was $1,267,540 of which $731,639 was paid in cash and $535,901 was paid via the satisfaction of debt owed by the Company to Record Shareholders exercising such Rights. At March 31, 2012 the Company had recorded $731,639 as a subscriptions receivable representing the aforementioned cash subscriptions from the Rights Offering. Such $731,639 was paid to the Company by the Subscription Agent in April 2012. (See: “Rights Offering and Warrant Distribution”).
 
The Company will need to generate revenue in order to attain profitability. The Company is a development stage entity and is not expected to generate revenue until after the development of the Omagine Project is significantly underway, an event which, as of the date hereof, is not certain to occur.
 
The Company will need to raise additional capital and/or secure additional financing in order to execute its presently conceived business plan with respect to the Omagine Project.
 
The Company incurred $3,434 of capital expenditures during the quarterly period ended March 31, 2012. 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 2012.
 
LIQUIDITY AND CAPITAL RESOURCES:
 
The Company’s net loss for the three months ended March 31, 2012 was $718,417. During the three months ended March 31, 2012, the Company experienced a decrease in cash of $121,268. At March 31, 2012, the Company had a working capital deficit of $332,165, compared to working capital deficit of $1,412,311 at December 31, 2011. The $1,080,146 decreased deficit in working capital is attributable primarily to the $731,639 of cash proceeds from the Rights Offering. Of the $1,197,743 of current liabilities at March 31, 2011, $593,927 (50%) represent amounts due to officers and directors.
 
The failure of the Company to secure additional funding to implement its business plan, or the failure to sign the Development Agreement for the Omagine Project will significantly affect the Company’s ability to continue operations. The Company will rely upon the future business of its majority owned subsidiary Omagine LLC for revenue growth.
 
Omagine LLC presently has limited resources resulting from the initial capital investments into it by Omagine, Inc. and the New Shareholders. Shortly after the Shareholder Agreement was signed in May 2011, Omagine LLC’s resources increased as a result of the nominal initial investments made pursuant to the terms of the Shareholder Agreement (see Exhibit 10.4). The initial portion of the Cash Investment equal to approximately $390,000 has been received by Omagine LLC. Omagine LLC’s resources will again increase when the OMAG Final Equity Investment of 210,000 Omani Rials (equivalent to approximately $546,000) is made by Omagine, Inc. after the DA is signed and prior to the Financing Agreement Date. Not until on or immediately subsequent to the Financing Agreement Date however, will the final portion of the Cash Investment equal to approximately $69,233,125 be received by Omagine LLC from the New Shareholders. The value of the non-cash “payment-in-kind” investment by RCA will be added to Omagine LLC’s capital after such value is determined subsequent to the signing of the Development Agreement.
 
The continuation of Omagine LLC’s business and its efforts to sign the Development Agreement have to a large extent been financed to date by Omagine, Inc. and it is planned that such activities will, to a large extent, continue to be financed by Omagine, Inc. until the DA is signed.
 
The continuation of the Company’s operations is dependent upon its ability to secure financing for its operations until such time as the DA is signed, the Financing Agreement Date occurs, and Omagine LLC begins paying Omagine, Inc. the $10 million Success Fee and the approximately $9 million of Pre-Development Expenses. The Company’s consolidated financial statements contained in this report have been prepared for the Company as a development stage entity and assuming that the Company will continue as a going concern (see Note 2 to the consolidated financial statements).
 
 
 
The Company has relied to a great extent on the Standby Equity Distribution Agreements discussed below and on the proceeds from its recent Rights Offering and Warrant Distribution to provide financing for its previous and current activities. If the DA is signed, management is hopeful that the Warrants will provide a future source of additional financing.
 
The failure to sign the Development Agreement or the failure of the Financing Agreement Date to occur will significantly affect the Company’s ability to continue operations. Omagine, Inc. may, if it has the necessary financial resources available to it, make a secured loan to Omagine LLC in order to trigger the first Financing Agreement Date.
 
Total proceeds received in April 2012 by the Company from its recent Rights Offering was $1,267,540 of which $731,639 was received in cash and $535,901 was paid via the satisfaction of debt owed by the Company to Record Shareholders exercising such Rights.
 
On December 22, 2008, the Company signed a two year Standby Equity Distribution Agreement (the “First SEDA”) with YA Global Investments, L.P. (“YA”). The First SEDA expired on April 30, 2011. Pursuant to the First SEDA Omagine could, at its sole option and upon giving written notice to YA (a “Purchase Notice”), sell shares of its Common Stock (“Shares”) to YA (“Sales”) at the Purchase Price (as determined pursuant to the terms of the First SEDA). The Company was not obligated to sell any Shares to YA but could, in its sole discretion, sell that number of Shares valued at the Purchase Price from time to time in effect that equaled five million dollars ($5,000,000) in the aggregate. YA was obligated to purchase such Shares from the Company subject to certain conditions including (i) the Company filing a registration statement with the SEC to register the Shares, (ii) the SEC declaring such registration statement effective, (iii) periodic Sales had to be separated by a time period equal to five trading days, and (iv) the amount of any such individual Sale could not exceed two hundred thousand dollars ($200,000). The registration statement filed by the Company was declared effective by the SEC as of May 1, 2009 and its effective status expired on April 30, 2010. The Company filed a new registration statement with the SEC to continue to make Sales available to it pursuant to the First SEDA and the SEC declared such new registration statement to be effective as of June 7, 2010. The effective status of the registration statement has expired.
 
On May 4, 2011, the Company executed a new two year Standby Equity Distribution Agreement (the “May SEDA”) with YA Global Master SPV Ltd (“YA Master”) under substantially the same terms and conditions as the First SEDA executed between YA and the Company in December 2008. On June 21, 2011, the Company and YA Master entered into an agreement amending the May SEDA (the “Amendment Agreement”). The May SEDA and the Amendment Agreement are collectively referred to herein as the “Second SEDA”. Omagine, Inc. issued 244,216 restricted shares of Common Stock to YA Master in satisfaction of a $300,000 commitment fee due under the Second SEDA. Pursuant to the Second SEDA the Company, at its sole discretion and upon giving written notice to YA Master (an “Advance Notice”), may periodically sell shares of its Common Stock to YA Master. For each share of Common Stock purchased under the Second SEDA, YA Master will pay to the Company ninety-five percent (95%) of the lowest daily volume weighted average price of the Common Stock as quoted by Bloomberg, LP, during the five (5) consecutive Trading Days (as such term is defined in the Second SEDA) immediately subsequent to the date of the relevant Advance Notice (the “Purchase Price”). The Company is not obligated to sell any shares of Common Stock to YA Master but may, over the term of the Second SEDA and in its sole discretion, sell to YA Master that number of shares of Common Stock valued at the Purchase Price from time to time in effect that equals up to ten million dollars ($10,000,000) in the aggregate. YA Master's obligation to purchase shares of Common Stock under the Second SEDA is subject to certain conditions, including (i) the Company obtaining an effective registration statement for the shares of Common Stock sold under the Second SEDA (“Registration Statement”) and (ii) periodic sales of shares of Common Stock to YA Master must be separated by a time period equal to five Trading Days, and (iii) the amount of any individual periodic sale designated by the Company in any Advance Notice shall not exceed the greater of (i) two hundred thousand dollars ($200,000), or (ii) the average of the “Daily Value Traded” for each of the five (5) Trading Days prior to the relevant Advance Notice where Daily Value Traded is the product obtained by multiplying the daily trading volume of the Common Stock for such Trading Day by the closing bid price of the Common Stock for such Trading Day. The Registration Statement filed by the Company in connection with the Second SEDA was declared effective by the SEC as of August 24, 2011.
 
 
 
The Company has utilized the First SEDA, the Second SEDA and the proceeds from its recent Rights Offering to fund its operations to date and intends to continue to utilize the Second SEDA to fund its ongoing operations, as and if necessary. Management is hopeful that, when and if the Omagine Development Agreement is signed, that the 6,404,400 Warrants distributed in its recent Rights Offering and Warrant Distribution will thereafter become “in the money” and will be exercised, thereby providing the significant amount of capital necessary to fund the OMAG Final Equity Investment into Omagine LLC and a secured loan to Omagine LLC, should that be desirable at the time, which will trigger the first Financing Agreement Date. There can be no assurance given that the Company will be able to successfully utilize the Warrants or the Second SEDA to secure the significant amounts of financing necessary for it to execute its business plan as presently conceived.
 
The Company has relied on the net proceeds from sales of Omagine, Inc.'s equity securities made in private placements and in the Rights Offering and pursuant to the First and Second SEDA to fund its operations during the past three years through the date hereof.
 
 
Management’s Evaluation of Disclosure Controls and Procedures
 
The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in this report is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Such controls also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
 
Under the supervision and with the participation of management, including the Company's chief executive and financial officer, the Company carried out an evaluation of the effectiveness of the design and operation of such disclosure controls and procedures as of the end of the period covered by this report (the “DCP Evaluation”).
 
On November 15, 2012, the Company concluded that as of March 31, 2012, it was a development stage entity (“DSE”) as that term is defined in ASC 915 as issued by the Financial Accounting Standards Board. At March 31, 2012 the Company had concluded that it was not a DSE. Based on this DCP Evaluation, the Company’s chief executive and financial officer has concluded that our disclosure controls and procedures were ineffective as of March 31, 2012.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes during the Company’s last fiscal quarter that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
 

 
PART II - OTHER INFORMATION
 
 
In January 2012, the Company issued and sold a total of 25,063 shares of Common Stock for proceeds of $40,000 under the Second SEDA with YA Master.
 
In January 2012, the Company issued 1,994 shares of Common Stock to a consultant for services rendered valued at $3,250.
 
In January 2012, the Company issued 15,000 shares of Common Stock to an investor relations consultant for services rendered valued at $15,000.
 
In February 2012, the Company issued and sold a total of 17,705 shares of Common Stock for proceeds of $25,000 under the Second SEDA with YA Master.
 
In March 2012, the Company issued and sold a total of 25,712 shares of Common Stock for proceeds of $25,000 under the Second SEDA with YA Master.
 
The above sales of shares of our restricted Common Stock were made in reliance upon the exemption from registration contained in Section 4(2) under the Securities Act of 1933 as amended (the "Act"), and under similar exemptions afforded under the laws of various states only to "accredited investors" as that term is defined in Rule 501 of Regulation D promulgated by the SEC under the Act. The Company obtained representations and warranties from each purchaser to support the Company's reliance on this exemption. The Company intends to use the proceeds from the abovementioned sales of restricted stock for working capital, operating expenses and general corporate purposes.
 

 
 
Exhibits numbered in accordance with Item 601(a) of Regulation S-K
 
Exhibit
   
Numbers
 
Description
3(i)
 
Restated Certificate of Incorporation of the Company dated June 2, 2010 (1)
3(ii)
 
By-laws of the Company (2)
3.2
 
Certificate of Ownership and Merger (3)
4.1
 
Form of Subscription and Warrant Agent Agreement, dated January 31, 2012 between the Company and Continental Stock Transfer & Trust Company (13)
10.1
 
The CCIC and CCC Agreement (3)
10.2
 
The December 8, 2008 Standby Equity Distribution Agreement (4)
10.3
 
The May 4, 2011 Standby Equity Distribution Agreement (10)
10.4
 
The Shareholder Agreement dated as of April 20, 2011 (11)
10.5
 
The amended Hamdan Amendment Agreement (14)
10.6
 
Lease agreement expiring February 28, 2013 between Contact Sports, Inc. and the Empire State Building LLC (9)
10.7
 
Employment Agreement between the Company and Frank Drohan dated as of September 1, 2001 (7)
10.8
 
Employment Agreement between the Company and Charles Kuczynski dated as of September 1, 2001(7)
10.9
 
Amendment Agreement to the May 4, 2011 SEDA, dated June 21, 2011 (12)
10.10
 
Lease modification agreement expiring February 28, 2013 between Omagine, Inc. and the Empire State Building (14)
10.11
 
Convertible Promissory Note payable to Frank J. Drohan (16)
10.12
 
Convertible Promissory Note payable to Charles P. Kuczynski (16)
10.13
 
Convertible Promissory Note No. 1 payable to Louis Lombardo (16)
10.14
 
Convertible Promissory Note No. 2 payable to Louis Lombardo (16)
 
 
99.1
 
The Omagine Inc. 401(k) Adoption Agreement (6)
99.2
 
The Approval Letter dated April 30, 2008 (English Translation) (5)
99.3
 
The Acceptance Letter dated May 31, 2008 (5)
99.4
 
Amended Omagine Inc. 2003 Stock Option Plan (8)
99.5
 
Letter dated May 9, 2012 from the Minister of Tourism to Omagine LLC (15)
EX-101.INS
 
XBRL INSTANCE DOCUMENT
EX-101.SCH
 
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
EX-101.CAL
 
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EX-101.DEF
 
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
EX-101.LAB
 
XBRL TAXONOMY EXTENSION LABELS LINKBASE
EX-101.PRE
 
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
* Filed herewith
 
(1)
Previously filed with the SEC on July 20, 2010 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.
(2)
Previously filed with the SEC 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.
(3)
Previously filed with the SEC 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.
(4)
Previously filed with the SEC on December 31, 2008 as an exhibit to the Company’s current Report on Form 8-K and incorporated herein by reference thereto.
(5)
Previously filed with the SEC on March 3, 2009 as exhibits to the Company’s registration statement on Form S-1/A (File No. 333-156928) and incorporated herein by reference thereto.
(6)
Previously filed with the SEC on February 25, 2009 as an exhibit to the Company’s Report on Form 10-K for the fiscal year ended December 31, 2008 and incorporated herein by reference thereto.
(7)
Previously filed with the SEC 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.
(8)
Previously filed with the SEC on April 14, 2010 as an exhibit to the Company’s Report on Form 10-K for the fiscal year ended December 31, 2009 and incorporated herein by reference thereto.
(9)
Previously filed with the SEC on November 9, 2009 as an exhibit to the Company’s Report on Form 10-K/A amending the Company’s Report on Form 10-K for the fiscal year ended December 31, 2008 filed with the SEC on February 25, 2009, and incorporated herein by reference thereto.
(10)
Previously filed with the SEC on May 5, 2011 as an exhibit to the Company’s current Report on Form 8-K and incorporated herein by reference thereto.
(11)
Previously filed with the SEC on November 8, 2011 as an exhibit to the Company’s quarterly Report on Form 10-Q for the period ended September 30, 2011and incorporated herein by reference thereto and a reference copy was filed as an exhibit to the Company’s current Report on Form 8-K filed with the SEC on May 31, 2011.
(12)
Previously filed with the SEC on June 21, 2011 as an exhibit to the Company’s current Report on Form 8-K and incorporated herein by reference thereto.
(13)
Previously filed with the SEC on February 7, 2012 as an exhibit to the Company’s registration statement on Form S-1/A (Registration No. 333-179040) and incorporated herein by reference thereto.
(14)
Previously filed with the SEC on January 17, 2012 as an exhibit to the Company’s registration statement on Form S-1 (Registration No. 333-179040) and incorporated herein by reference thereto.
( 15)
Previously filed with the SEC on May 21, 2012 as an exhibit to the Company’s Report on Form 10-Q for the period ended March 31, 2012 and incorporated herein by reference thereto.
(16)
Previously filed with the SEC on January 22, 2013 as an exhibit to the Company’s Amendment Number 2 on Form 10-K/A amending (a) the Company’s Report on Form 10-K filed with the SEC on April 16, 2012 for the fiscal year ended December 31, 2011 (the “Original Filing”), and (b) Amendment No. 1 to the Original Filing filed on Form 10-K/A with the SEC on May 17, 2012, and incorporated herein by reference thereto.
 
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 on Form 10-Q/A to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
OMAGINE, INC.
(Registrant)
 
       
DATED: February 28, 2013
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
 
 
 
 
 
36