As filed with the
Securities and Exchange Commission on July 17, 2017
Registration
No. 333-199383
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
D.C. 20549
Post-Effective
Amendment No. 6 To
FORM
S-1/A
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
OMAGINE,
INC.
(Exact
name of Registrant as specified in its charter)
Delaware
|
|
9995
|
|
20-2876380
|
(State
or other Jurisdiction of
Incorporation or Organization)
|
|
(Primary
Standard Industrial
Classification
Code Number)
|
|
(I.R.S.
Employer
Identification
No.)
|
136
Madison Avenue, 5th Floor
New
York, New York 10016
(212)
563-4141
(Address,
including zip code, and telephone number including area code, of Registrant’s principal executive offices)
Frank
J. Drohan, Chief Executive Officer and Chief Financial Officer
Omagine,
Inc.
136
Madison Avenue, 5th Floor
New
York, New York 10016
(212)
563-4141
(Name,
address, including zip code, and telephone number, including area code, of agent for service)
with
copies to:
Michael
Ference, Esq.
David
Manno, Esq.
Sichenzia
Ross Ference Kesner LLP
61
Broadway, 32nd Floor
New
York, New York 10006
(212)
930-9700
(212)
930-9725 (fax)
APPROXIMATE
DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From
time to time after this Registration Statement becomes effective.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, as amended (the “Securities Act”) check the following box: ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate
by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting
company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting
company” in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”):
Large
accelerated filer ☐
|
Accelerated
filer ☐
|
Non-accelerated
filer ☐
|
Smaller
reporting company ☒
|
(Do
not check if a smaller reporting company)
|
|
The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act or until this Registration Statement shall become effective on
such date as the United States Securities & Exchange Commission, acting pursuant to said Section 8(a), may determine.
The
information in this prospectus (“Prospectus”) is not complete and may be changed. The Selling Stockholder may not
sell these securities until the Registration Statement filed with the United States Securities and Exchange Commission is effective.
This Prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state
or jurisdiction where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS, SUBJECT TO COMPLETION, DATED July 17, 2017
OMAGINE,
INC.
3,085,822
Shares of Common Stock
This
Prospectus relates to the public offering of up to 3,085,822 shares of Omagine, Inc.’s $0.001 par value per share common
stock (the “Common Stock” or “Common Shares”) by YA II PN, Ltd. (p/k/a YA Global Master SPV Ltd.) (“YA”)
or any of YA’s pledgees, assignees or successors-in-interest (each a “Selling Stockholder”). The United States
Securities and Exchange Commission (“SEC”) may take the view that, under certain circumstances, any broker-dealers
or agents that participate with the Selling Stockholder in the distribution of the Common Shares may be deemed to be “underwriters”
within the meaning of the Securities Act of 1933, as amended (the “Securities Act”). Commissions, discounts or concessions
received by any such broker-dealer or agent may be deemed to be underwriting commissions under the Securities Act. YA has informed
us that it is an “underwriter” within the meaning of the Securities Act. The Selling Stockholder may sell Common Shares
from time to time in the principal market on which the Registrant’s Common Stock is quoted and traded at the prevailing
market price or in negotiated transactions. We will not receive any of the proceeds from the sale of those Common Shares being
sold by the Selling Stockholder. We will pay the expenses of registering these Common Shares.
The Common Stock is quoted on
the over-the-counter market on the OTCQB and trades under the symbol “OMAG”. The last reported sale price of the Common
Stock on the OTCQB on June 30, 2017 was $0.1549 per Common Share.
The
Selling Stockholder is offering these Common Shares. The Selling Stockholder may sell all or a portion of these Common Shares
from time to time in market transactions through any market on which the Common Stock is then traded, in negotiated transactions
or otherwise, and at prices and on terms that will be determined by the then prevailing market price or at negotiated prices directly
or through a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale. The Selling
Stockholder will receive all proceeds from such sales of the Common Shares. For additional information on the methods of sale,
you should refer to the section entitled “Plan of Distribution.”
Ignoring any caps on the number
of Common Shares that the Selling Stockholder may own at any time and based on the $0.1549 closing market price for a Common Share
on June 30, 2017, the Selling Stockholder may sell 3,085,822 Common Shares offered under this Prospectus. We will file a new registration
statement to cover the resale of any additional shares in the event that the number of shares actually sold to YA under the 2014
SEDA exceeds 3,085,822 shares.
Investing
in these securities involves significant risks. See “Risk Factors” beginning on page 7.
The opinion of our independent
auditors in our fiscal year 2015 audited financial statements does not contain any expression of concern about our ability to
continue as a going concern. In their opinion on our fiscal year 2014 audited financial statements, our auditors expressed substantial
doubt about our ability to continue as a going concern but beginning in our September 30, 2015 unaudited quarterly financial statements
and continuing through all reporting periods up to and including our March 31, 2017 unaudited quarterly financial statements included
in this Prospectus, that expression of concern has been removed.
We may
amend or supplement this Prospectus from time to time by filing amendments or supplements as required. You should read the entire
Prospectus and any amendments or supplements carefully before you make your investment decision.
Neither
the SEC nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The
date of this Prospectus is July --, 2017.
TABLE
OF CONTENTS
ABOUT
THIS PROSPECTUS
You
should rely only on the information contained in this Prospectus or that we have referred you to via this Prospectus. We have
not authorized any dealer, salesperson or other person to provide you with information concerning us except for the information
contained in this Prospectus. The information contained in this Prospectus is complete and accurate only as of the date on the
front cover page of this Prospectus regardless of when the time of delivery of this Prospectus or the sale of any Common Stock
occurs. Neither the delivery of this Prospectus nor any sale made in connection with this Prospectus shall, under any circumstances,
create any implication that there has been no change in our affairs since the date of this Prospectus or that the information
contained herein this Prospectus by reference thereto is correct as of any time after its date.
The
Selling Stockholders may not sell the securities until the registration statement filed with the Securities and Exchange Commission
(“Registration Statement”) is effective. This Prospectus is not an offer to sell nor is it a solicitation of an offer
to buy Common Shares in any jurisdiction in which such offer or sale is not permitted.
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained in this Prospectus and in the documents incorporated by reference
into this Prospectus. This summary does not contain all the information you should consider before investing in the Common Stock.
Before making an investment decision, you should carefully read the entire Prospectus and the documents incorporated by reference
into this Prospectus, including the “RISK FACTORS” section, the financial statements and the notes to the financial
statements. As used throughout this Registration Statement and Prospectus, the term “Registrant” refers to Omagine,
Inc. and the terms “Company”, “we,” “us,” or “our” refer to Omagine, Inc. and its consolidated
subsidiaries unless the context otherwise requires.
General
Omagine, Inc. (“OMAG”
or the “Registrant”) was incorporated in Delaware in October 2004 and is a holding company which conducts substantially
all its operations through its majority owned subsidiary Omagine LLC, an Omani limited liability corporation (“LLC”)
and its wholly-owned subsidiary Journey of Light, Inc., a New York corporation (“JOL”). The Registrant and JOL are
sometimes collectively referred to herein as “OMAG” and the Registrant, JOL and LLC and are collectively referred
to herein as the “Company”.
The Company is focused on entertainment,
hospitality and real estate development opportunities in the Middle East and North Africa (the “MENA Region”) and
on the design and development of distinctive tourism destinations. The Company presently concentrates the majority of its efforts
on the business of LLC and specifically on the Omagine Project. Omagine, Inc. has 22,152,350 shares of its Common Stock issued
and outstanding as of June 30, 2017.
In November 2009, OMAG organized
LLC as a wholly owned subsidiary under the laws of the Sultanate of Oman (“Oman”) to design, develop, own and operate
our initial project – a mixed-use tourism and real estate project named the “Omagine Project” (See “The
Omagine Project” below). In October 2014, LLC and the Government of Oman (the “Government”) signed an agreement
(the “Development Agreement” or “DA”) for the development in Oman by LLC of the Omagine Project (See:
Exhibits 10.7 and 99.1 and “The Development Agreement and the Usufruct Agreement”, below). On July 2, 2015, after
the Usufruct Agreement (“UA”) was registered by the Government legally perfecting LLC’s ownership of the Land
Rights, the Government and LLC entered into an agreement (the “Operative Agreement”) making July 1, 2015 the “Operative
Date” from which all time periods for the execution by LLC of various tasks enumerated in the DA are to be measured.
OMAG initially capitalized LLC
at Omani Rials (“OMR”) 20,000 [$52,000] and in 2011 OMAG’s 100% ownership of LLC was reduced to 60% pursuant
to a shareholders’ agreement (the “Shareholder Agreement”) signed in May 2011 by Omagine, JOL, the Office of
Royal Court Affairs (“RCA”), an organization representing the personal interests of His Majesty Sultan Qaboos bin
Said, the ruler of Oman, and two subsidiaries of Consolidated Contractors International Company, SAL (“CCC”). The
two CCC subsidiaries which are parties to the Shareholder Agreement as LLC shareholders are: “CCC-Panama” and “CCC-Oman”
which are sometimes referred to collectively in this report together with their parent company as “CCC”. See: Exhibit
10.5 and “The Shareholder Agreement” below.
CCC has defaulted on its investment
obligation under the Shareholder Agreement and as previously disclosed, OMAG exercised its options under the Shareholder Agreement
(the “OMAG Options”) on April 3, 2017 to purchase all of the LLC shares owned by CCC. Subsequent to the closing of
this transaction CCC will no longer be a shareholder of LLC and the LLC registered shareholders at the Ministry of Commerce &
Industry will be so amended.
CCC’s default is a “CCC
Event” as defined in the Shareholder Agreement and the RCA Subscription Agreement and as such on July 2, 2016 (one year
after the Operative Date) it triggered the obligation of RCA to make its OR 7,640,625 [$19,865,625] Deferred Cash Investment into
LLC on or before July 17, 2016. RCA has not yet made its Deferred Cash Investment into LLC which was due by July 17, 2016 and,
pursuant to the Shareholder Agreement and the RCA Subscription Agreement, such non-payment by RCA has operated as a waiver of
RCA’s right to receive the 663,750 LLC Shares RCA would otherwise be entitled to receive in exchange for its investment
of the Land Rights into LLC.
As of the date hereof, OMAG
has fulfilled all of its obligations under the Shareholder Agreement; CCC has defaulted on its obligation to make its $50 million
USD Deferred Cash Investment into LLC; and RCA has not yet made its obligatory $20 million USD Deferred Cash Investment into LLC.
In all likelihood OMAG and RCA will agree to an Amended & Restated Shareholder Agreement pursuant to which RCA will make its
OR 7,640,625 [$19,865,625] Deferred Cash Investment into LLC and LLC will then issue all further LLC Shares to RCA as called for
in the Shareholder Agreement.
As previously disclosed, all our prior efforts to conclude the CCC-Contract and
CCC’s required investment under the Shareholder Agreement were unsuccessful. CCC is a Lebanese multi-national company headquartered
in Athens, Greece having worldwide operating subsidiaries in among other places, every country in the MENA Region. In its fiscal
years immediately prior to 2016, CCC had approximately five (5) billion U.S. dollars in annual revenue and one hundred thirty
thousand (130,000) employees but management’s best information at this time is that both CCC’s revenue and number
of employees have since been dramatically impacted and reduced as a result of adverse business conditions for CCC in the MENA
Region (See: “Market Conditions” below).
LLC has been attempting to close
an investment transaction with a new investor to replace the investment on which CCC has defaulted. As previously reported, management
has a signed written agreement (an “Investment Agreement”) with one such investor. The Investment Agreement is for
an amount in excess of the aggregate investment which was to be made by CCC-Oman and CCC-Panama. This binding Investment Agreement
was signed by LLC and the investor in November 2016 and contemplated the funding of the investment in January 2017. Subsequent
to entering into this Investment Agreement, the investor unfortunately and unexpectedly passed away.
The investor’s heirs have
acknowledged the validity of the Investment Agreement and have agreed to fulfil their father’s commitment pursuant to it
as soon as his estate (which we understand to be quite substantial and complicated) is settled. LLC management has been dealing
with the investor’s heirs since December 2016 and our understanding from them is that their father’s estate will be
settled “soon”. We have concluded that we can no longer rely on their assurances of an imminent conclusion as the
heirs have frequently indicated to us that the estate settlement was imminent – but delays have continued to date. No assurance
can be given to investors and shareholders that such investment transaction will actually occur until it actually does occur.
Management has not abandoned its efforts to close the investment transaction memorialized by the Investment Agreement but we no
longer believe it will occur within the time frame we or the Ministry of Tourism (“MOT”) require for the start of
development. We are no longer relying on the prompt conclusion of the estate settlement. When the estate does settle, we will
entertain an investment from the heirs.
Even before exercising the OMAG
Options, we had, as previously disclosed, accelerated our efforts with several investment funds including two European investment
funds with whom we are in final discussions. Several other European investment funds with whom we have been holding discussions
in parallel have also now expressed interest but those discussions are at an early stage.
LLC will not have the approximately
$20 to $25 million of funding sufficient to begin the serious design, masterplanning and initial site activities on the Omagine
Project until we close a transaction with a replacement investor for CCC. These Soft Costs are typically paid for by the developer
(LLC) out of equity as opposed to the much greater project finance costs which are typically paid for by the developer (LLC) via
bank loans arranged by the developer. Management has also been conducting parallel project finance discussions with a bank and
we expect a successful conclusion to that discussion to occur soon after we close an equity investment with a new investor.
Shareholders and investors are
again cautioned that until an equity investment transaction as generally described above actually closes LLC will not have the
funding sufficient to begin design, masterplanning and initial site work on the Omagine Project and no assurance can be given
at this time that any such investment transaction will be finally consummated.
As these matters unfold, management
will report all material developments and agreements to its shareholders in a timely manner.
Management
cautions that future events rarely develop exactly as forecast and the best estimates routinely require adjustment. Investors
and shareholders are cautioned not to place undue reliance on any such forward-looking statement or forecast, which speaks only
as of the date hereof.
The
Shareholder Agreement
Upon organizing Omagine LLC
in 2009, OMAG made an initial cash investment into LLC of OR 20,000 [$52,000] in consideration for the issuance to OMAG of 200,000
LLC Shares.
Pursuant
to the Shareholder Agreement:
i.
|
Before
the DA was signed and after the execution of the Shareholder Agreement, the LLC Shareholders purchased an aggregate of 1,300,000
LLC Shares for an aggregate cash investment of OR 130,000 [$338,000], as follows:
|
|
a)
|
OMAG purchased an additional 700,000
LLC Shares for OR 70,000 [$182,000] in cash, and
|
|
|
|
|
b)
|
RCA
purchased 375,000 LLC Shares for OR 37,500 [$97,500] in cash, and
|
|
|
|
|
c)
|
CCC-Panama
purchased 150,000 LLC Shares for OR 15,000 [$39,000] in cash, and CCC-Oman purchased 75,000 LLC Shares for OR 7,500 [$19,500]
in cash (collectively, the “225,000 Initial CCC Shares”).
|
ii.
|
After
the DA was signed on October 2, 2014, OMAG purchased an additional 2,100,000 LLC Shares for an additional investment by OMAG of
OR 210,000 [$546,000] in cash, and
|
iii.
|
On July 2, 2015,
RCA made its OR 276,666,667 ($718,614,000) non-cash PIK Investment of the Land Rights into LLC but has not made its OR
7,640,625 [$19,865,625] Deferred Cash Investment into LLC as required by the Shareholder Agreement. In all likelihood
OMAG and RCA will agree to an Amended & Restated Shareholder Agreement (including an Amended RCA Subscription Agreement)
pursuant to which LLC will issue a further 663,750 LLC Shares to RCA in exchange for the Land Rights (which right to receive
such 663,750 LLC Shares is waived by RCA pursuant to the present Shareholder Agreement because of RCA’s failure
to make its OR 7,640,625 [$19,865,625] Deferred Cash Investment into LLC as required by the Shareholder Agreement.
As of the date hereof,
CCC has defaulted on its obligation to make its Deferred Cash Investment into LLC and RCA has not yet made its Deferred
Cash Investment into LLC but is expected to do so pursuant to an Amended & Restated Shareholder Agreement which will
include an Amended & Restated RCA Subscription Agreement.
|
The construction contract with
CCC-OMAN was not signed and the investments required pursuant to the Shareholder Agreement from CCC-Oman and CCC-Panama were not
received by LLC. Pursuant to the terms and conditions of the Shareholder Agreement, Omagine, Inc. exercised the OMAG Options on
April 3, 2017 to purchase the 225,000 Initial CCC Shares from CCC for 22,500 Omani Rials ($58,500). (See: the Shareholder Agreement
attached hereto as Exhibit 10.6).
As of the date hereof the LLC
shareholders have made cash investments into LLC as indicated in the following Table A:
Table
A - LLC Shareholders’ Cash Equity Investments into Omagine LLC
|
|
Omagine,
Inc.
|
|
|
Royal
Court Affairs
|
|
|
Consolidated
Contractors
|
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
cash equity investment at inception
|
|
|
OR
20,000
|
|
|
$
|
52,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
cash equity investment at signing of Shareholder Agreement (the “SHA”)
|
|
|
OR
70,000
|
|
|
$
|
182,000
|
|
|
OR
|
37,500
|
|
|
$
|
97,500
|
|
|
OR
|
22,500
|
|
|
$
|
58,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
OMAG Deferred Cash Equity Investment due under the SHA before the first Financing Agreement Date **
|
|
|
OR
210,000
|
|
|
$
|
546,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
Cash Equity Investments made by each of the LLC Shareholders into LLC as of March 31, 2017 and the date
hereof.
|
|
|
OR 300,000
|
|
|
$
|
780,000
|
|
|
OR
|
37,500
|
|
|
$
|
97,500
|
|
|
|
OR
22,500
|
|
|
$
|
58,500
|
|
As of the date hereof
RCA
has made a non-cash payment-in-kind investment into LLC
as indicated in the following Table B:
Table
B - RCA’s Non-Cash Equity Investment into Omagine LLC
|
|
Omagine,
Inc.
|
|
|
Royal
Court Affairs
|
|
|
Consolidated
Contractors
|
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
non-cash equity investment of Land Rights on registration of the Usufruct Agreement*
|
|
|
0
|
|
|
|
0
|
|
|
|
OR 276,666,667
|
|
|
$
|
718,614,000
|
|
|
|
0
|
|
|
|
0
|
|
As of the date hereof
RCA
is obligated to make an additional Deferred Cash Investment into LLC
as indicated in the following Table C:
Table
C - RCA Deferred Cash Equity Investment into Omagine LLC
|
|
Omagine,
Inc.
|
|
|
Royal
Court Affairs
|
|
|
Consolidated
Contractors
|
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
RCA Deferred Cash Investment which is now due under the SHA
|
|
|
0
|
|
|
|
0
|
|
|
|
OR 7,640,625
|
|
|
$
|
19,865,625
|
|
|
|
0
|
|
|
|
0
|
|
CCC was obligated to make additional
Deferred Cash Investments into LLC as indicated in the following Table D, however that did not occur.
Table
D - CCC Deferred Cash Equity Investments into Omagine LLC
|
|
Omagine,
Inc.
|
|
|
Royal
Court Affairs
|
|
|
Consolidated
Contractors
|
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Deferred Cash Investments which may be due under the SHA
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
OR 18,987,500
|
|
|
$
|
49,367,500
|
|
*
|
All
conversions of Omani Rials to U.S. Dollars in this Report are calculated at an exchange rate of one (1) Omani Rial being equivalent
to $2.60 except for the land valuation which is calculated at an exchange rate of one (1) Omani Rial being equivalent to $2.5974.
See: “The Land Rights” and “Critical Accounting Policies”, below.
|
In order to bring the Omagine
Project to its present state, Omagine, Inc. (as of March 31, 2017), has:
|
(i)
|
invested
300,000 Omani Rials ($780,000) in cash into Omagine LLC, and
|
|
(ii)
|
expended
$17.9 million of Pre-Development Expenses on behalf of the Omagine Project through the October 2, 2014 DA signing date consisting
of both cash and non-cash expense items as Omagine, Inc. had promised to do pursuant to the SHA, and
|
|
(iii)
|
single-handedly
kept the Omagine Project and Omagine LLC financially afloat after the October 2, 2014 DA signing date by expending an additional
$12.2 million (as of March 31, 2017) on behalf of the Omagine Project via cash loans from Omagine, Inc. to Omagine LLC (“Loans”)
and the direct payment by Omagine, Inc. of Omagine LLC liabilities and accounts payable consisting of both cash and non-cash
items (“Advances”), neither of which Loans nor Advances Omagine, Inc. had any obligation whatsoever to do pursuant
to the SHA.
|
All such Loans and Advances
are liabilities of LLC to OMAG and are payable on demand. All such Pre-Development Expenses will be liabilities of LLC to OMAG
and reimbursable to Omagine, Inc. in accordance with the terms of the Shareholder Agreement (as may likely be amended; See: the
following Table E - Pre-Development Expenses, Loans and Advances from OMAG to LLC as of March 31, 2017).
Table E - Pre-Development
Expenses, Loans and Advances as of 3/31/2017
Pre-Development
Expenses, Loans and Advances
|
|
Cash
Items
|
|
|
Non-Cash
Items (Depreciation; Amortization; Stock Option Expense)
|
|
|
Total
|
|
Pre-Development
Expense Amount (incurred prior to the October 2, 2014 DA signing date)
|
|
$
|
13,611,951
|
|
|
$
|
4,308,163
|
|
|
$
|
17,920,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
& Advances as of 3/31/2017 (incurred on or after the October 2, 2014 DA signing date)
|
|
$
|
4,884,437
|
|
|
$
|
7,394,404
|
|
|
$
|
12,278,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
- (Due to OMAG from LLC)
|
|
$
|
18,496,388
|
|
|
$
|
11,702,567
|
|
|
$
|
30,198,955
|
|
The
foregoing summary of some of the terms of the Shareholder Agreement and does not purport to be complete and it is qualified in
its entirety by reference to the full text of the SHA. The full text of the SHA is attached hereto as Exhibit 10.6. RCA and Omagine,
Inc. are presently in negotiations with investors which may lead to an Amended and Restated Shareholder Agreement.
The
Standby Equity Distribution Agreement
The
2014 SEDA
On April 22, 2014, OMAG and
YA entered into a new Standby Equity Distribution Agreement which was amended on October 10, 2014 and again amended on September
20, 2016 (the “2014 SEDA”). The 2014 SEDA is generally on the same terms as the 2011 SEDA. Unless earlier terminated
in accordance with its terms, the 2014 SEDA shall automatically expire on the earlier of (i) February 1, 2019, or (ii) the date
on which YA shall have made payment of Advances pursuant to the 2014 SEDA in the aggregate amount of $5,000,000. In satisfaction
of a $150,000 commitment fee due pursuant to the 2014 SEDA, OMAG issued 85,822 restricted Common Shares (the “Commitment
Fee Shares”) in 2014 to YA Global II SPV, LLC which is an affiliate of YA (the “Affiliate”). In satisfaction
of an additional $150,000 commitment fee due pursuant to the September 2016 extension of the 2014 SEDA, OMAG issued an additional
161,290 restricted Common Shares (the “Extension Shares”) to the Affiliate. (See: Exhibit 10.41, SEDA 2
nd
Amendment Agreement).
Pursuant to the terms of the
2014 SEDA, OMAG may in its sole discretion, and upon giving written notice to YA (an “Advance Notice”), periodically
sell Common Shares to YA (“Shares”) at a per Share price (“Purchase Price”) equal to 95% of the lowest
daily volume weighted average price (the “VWAP”) for a Common Share as quoted by Bloomberg, L.P. during the five (5)
consecutive Trading Days (as such term is defined in the 2014 SEDA) immediately subsequent to the date of the relevant Advance
Notice (the “Pricing Period”).
OMAG is not obligated to sell
any Shares to YA but may, over the term of the 2014 SEDA and in its sole discretion, sell to YA that number of Shares valued at
the Purchase Price from time to time in effect that equals up to five million dollars ($5,000,000) in the aggregate. YA is obligated
under the 2014 SEDA to purchase such Shares from OMAG subject to certain conditions including (i) OMAG filing a registration statement
with the SEC to register the resale by YA of the Shares sold to YA under the 2014 SEDA (“Registration Statement”),
(ii) the SEC declaring such Registration Statement effective (the date of such declaration by the SEC being the “Registration
Effective Date”), (iii) OMAG certifying to YA at the time of each Advance Notice that OMAG has performed all covenants and
agreements to be performed and has complied with all obligations and conditions contained in the 2014 SEDA, (iv) periodic sales
of Shares to YA must be separated by a time period of at least five Trading Days, and (v) the dollar value of any individual periodic
sale of Shares designated by OMAG in any Advance Notice may not exceed the greater of (a) two hundred thousand dollars ($200,000),
or (b) the average of the “Daily Value Traded” for each of the five (5) Trading Days immediately preceding the date
of the relevant Advance Notice where Daily Value Traded is the product obtained by multiplying the number representing the daily
trading volume of Common Shares for such Trading Day by the VWAP for Common Share on such Trading Day.
Pursuant to the 2014 SEDA in
no event shall the number of Common Shares issuable to YA pursuant to an Advance cause the aggregate number of Common Shares beneficially
owned (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended), by YA and its affiliates to
exceed 9.99% of the then outstanding common stock of the Company. In addition this 9.99% ownership cap may not be waived by YA
or OMAG and since such ownership cap includes all Common Shares owned by any YA affiliate, such cap cannot be avoided by transferring
Common Shares to an affiliate of YA.
In connection with the 2014
SEDA, on October 15, 2014 OMAG filed the Registration Statement on Form S-1 to register the 3,085,822 Common Shares covered by
the 2014 SEDA and on January 8, 2015, OMAG filed an amendment to the Registration Statement and the Registration Statement was
declared effective by the SEC on January 22, 2015. Post-Effective Amendment No. 1 was filed with the SEC on December 21, 2015
and subsequently declared effective by the SEC. Post-Effective Amendment No. 1 and No. 2 to the Registration Statement were filed
with the SEC on December 21, 2015 and January 6, 2016, respectively, to maintain the effectiveness of the SEDA Registration. On
January 13, 2016, the SEC declared the SEDA Registration effective and such effectiveness expired. Post-Effective Amendment No.
3, No. 4 and No. 5 to the SEDA Registration Statement were filed with the SEC on January 10, 2017, February 6, 2017 and February
13, 2017, respectively, to maintain the effectiveness of the SEDA Registration and as of February 13, 2017, the SEC declared the
SEDA Registration effective. The Company is filing this Post-Effective Amendment No. 6 to maintain the effectiveness of the SEDA
Registration. As of the date hereof, OMAG has issued and sold a total of 267,082 of the Resale Shares to YA, of which 85,822 Shares
were the Commitment Fee Shares.
The foregoing summary of the terms of the
2014 SEDA does not purport to be complete and is qualified in its entirety by reference to the full texts of the 2014 SEDA and
the amendments thereto, copies of which are attached hereto as Exhibits 10.14, 10.15 and 10.18.
Omagine intends to utilize the 2014 SEDA
to fund its ongoing operations as and if necessary and as of the date of this Report, the Company has sold 181,260 shares of its
Common Shares pursuant to the 2014 SEDA for proceeds of $100,000.
About
This Offering
This
Prospectus relates to a total of up to 3,085,822 Common Shares (the “Resale Shares”) which may be offered by the Selling
Stockholder none of which Resale Shares are owned by the Selling Stockholder or its Affiliate as of the date hereof. As of the
date hereof, 2,818,740
Resale Shares may be purchased by
and issued to the Selling Stockholder under the terms of the 2014 SEDA.
Number
of Shares Outstanding After This Offering
As of June 30, 2017, we had
22,152,350 Common Shares issued and outstanding. Assuming OMAG is able to sell all 2,951,015 Common Shares to YA under the 2014
SEDA, then the number of Common Shares outstanding after this offering is expected to be 24,244,193.
Summary
of Offering
Common
Shares outstanding prior to the offering
|
|
22,152,350
(as of June 30, 2017)
|
|
|
|
Resale
Shares offered by the Selling Stockholder
|
|
Up
to 2,818,740
|
|
|
|
Common
Shares expected to be outstanding after the offering
|
|
24,971,090
*
|
|
|
|
Use
of proceeds
|
|
We
will not receive any proceeds from the resale by the Selling Stockholder of the Resale Shares hereunder. See “Use of
Proceeds” for a complete description.
|
*
|
Assumes
Omagine is able to sell all 2,818,740 Common Shares to YA under the 2014 SEDA.
|
RISK
FACTORS
You
should carefully consider the following risk factors and the other information included in this Prospectus as well as the information
included in other reports and filings made with the SEC before investing in our common stock. The following factors,
as well as other factors affecting our operating results and financial condition, could cause our actual future results and financial
condition to differ materially from those projected. The trading price of our common stock could decline due to any of these risks,
should they materialize, and you may lose part or all of your investment.
Risk
Factors Related to Our Company and Our Business
The failure of LLC’s
other shareholders to meet their investment obligations under the Shareholder Agreement has caused serious financial and operational
issues at Omagine LLC.
CCC has failed to invest the
$50 million of equity into LLC as contemplated by the Shareholder Agreement and has been removed as a shareholder of LLC. Now
that CCC has also failed to sign the construction contract, RCA is obliged to invest its $20 million of equity into LLC. Project
development delays and related expenses continue to be encountered by LLC as a result of a lack of equity capital. Since the DA
was signed in October 2014, LLC has relied exclusively on loans and advances from OMAG to carry on its limited operations and
to remain financially afloat. Unless RCA now invests its $20 million of cash equity into LLC and/or LLC succeeds in closing a
new investment to replace CCC’s defaulted upon investment, LLC may not be able to correct its missed milestones under the
DA, finance the costs of masterplanning and initial development activities, and/or develop the Omagine Project.
To fully develop our business plan we will
need additional financing including replacement equity investment (s) for CCC.
Omagine LLC will have to secure
substantial further equity financing in order to replace the now defaulted CCC investment into LLC and carry out its plans for
the phased development and construction of the Omagine Project and thereafter will have to secure approximately $350 million of
Project Finance over time to finance the construction of the Omagine Project. As of the date hereof, neither of these two issues
has been resolved. Management is presently holding discussions with the estate of a deceased investor with whom LLC has a signed
Investment Agreement and with several European investment funds. Bank liquidity and the availability of Project Finance in the
GCC have been negatively affected by the dramatic drop in the price of crude oil during 2014 and 2015 which resulted in a dramatic
drop in government deposits with local banks. This liquidity squeeze at the MENA Region Banks has been further exacerbated by
greatly increased government borrowings from such banks in order to finance large and often unexpected government budget deficits.
These increased government borrowing levels absorb large portions of the banks’ lending capacity; tending to crowd out lending
for private companies that the banks might otherwise undertake. As governments and banks adjust to the new realities of lower
priced oil, management expects to see an improvement in the liquidity levels of some banks. No assurance can be given at this
time therefore that the LLC equity investment and/or project financing requirements can or will be arranged.
Although
some of our Tempest Warrants (as hereinafter defined) have been exercised, it is impossible to predict if any of our remaining
outstanding Common Stock purchase warrants (“Warrants”) will ever be exercised. In the near term, we expect to continue
to rely principally upon financing received from proceeds of sales of Common Shares made pursuant to private placements, the 2014
SEDA and the possible exercise of Warrants. For the past several years we have relied on the proceeds from the YA Loans and from
sales of Common Shares made pursuant to the “Prior SEDAs” (as those terms are hereinafter defined) as well as from
sales of restricted Common Shares made pursuant to private placements and to the exercise of Tempest Warrants. We cannot guarantee
the success of this plan. (See: “Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Liquidity and Capital Resources”).
We will have to obtain additional
financing in order to conduct our business in a manner consistent with our proposed operations. There is no guaranty that additional
funds will be available when, and if, needed. If we are unable to obtain financing, or if its terms are too costly, we may be
forced to curtail expansion of operations until such time as alternative financing may be arranged, which could have a materially
adverse impact on our operations and our shareholders’ investment. It is impossible to predict if any more of our Warrants will
ever be exercised. OMAG believes that there is virtually no probability that any “Strategic Warrants” (as hereinafter
defined) will be exercised unless our Common Shares trade at a market price materially above the relevant exercise prices of the
Strategic Warrants. (See: “Description of Preferred Stock”, “Warrants” and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”).
We have no history of
profitability from the development of real estate and we have incurred significant losses and delays including delays caused by
CCC’s default and cannot assure you that we will be profitable in the near term or at all.
We have dedicated the vast majority
of our financial resources over the past many years toward the effort to conclude the DA with the Government of Oman. The DA is
now signed but we encountered numerous delays prior to its signing and as a result we have incurred significant losses over the
past few years, including net losses of $2,930,574 for the fiscal year ended December 31, 2016; ; $5,673,293 for the fiscal year
ended December 31, 2015 and $5,160,960 for the fiscal year ended December 31, 2014, primarily due to an absence of revenue due
to delays during those periods in the start of development of the Omagine Project and to incurring other expenses associated with
the design, development and promotion of the Omagine Project as well as significant non-cash expenses related to stock options.
(See: “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations
- Nine Months Ended September 30, 2016 vs. Nine Months Ended September 30, 2015 – Liquidity and Capital Resources”).
Moreover additional delays (and related expenses) were encountered as a result of a lack of equity capital at LLC after CCC defaulted
on its investment obligations under the Shareholder Agreement. We expect to continue to incur such losses and expenses over the
near term as a result of financing LLC’s operations and until LLC closes a transaction with one or more investors or banks.
Although the MOT has been patient with LLC in the past with respect to missed deadlines and milestones under the DA, there is
no assurance as to how much longer such patience will last. These further delays will adversely impact our overall financial performance
and results of operations. The Omagine Project may never result in a profit to OMAG. Sales of our proposed real estate development
properties, and income, if any, from the Omagine Project may never generate sufficient revenues to fund our continuing operations.
We cannot assure you that we will be profitable in the near term or at all.
Because
of our limited history and the potential for competition, an investment in our Company is inherently risky.
Because
we are a company with a limited history, our operations are subject to numerous risks similar to those of a start-up company.
We expect the real estate development business to be highly competitive because many developers have access to the same market.
Substantially all of them have greater financial resources and longer operating histories than we have and can be expected to
compete within the business in which we engage and intend to engage. We cannot assure you that we will have the necessary resources
to be competitive.
We
may not be able to conduct successful operations in the future.
The results of our operations will depend,
among other things, upon our ability to develop and market the Omagine Project. Furthermore, our proposed operations may not generate
income sufficient to meet operating expenses or may generate income and capital appreciation, if any, at rates lower than those
anticipated or necessary to sustain ourselves. Our operations may be affected by many factors, some known by us, some unknown,
and some which are beyond our control. We have experienced significant delays in getting the project started and are unable to
predict what, if any, actions the Government may take in the future in response to such delays. Any of these problems, or a combination
thereof, could have a materially adverse effect on our viability as an ongoing enterprise and might cause the investment of our
shareholders to be impaired or lost.
While our audited financial
statements included in this prospectus assume we will continue our operations on a going concern basis, the opinion of our independent
auditors in our 2014 financial statements contained an explanatory paragraph stating that there was substantial doubt about our
ability to continue as a going concern.
The opinion of our independent
auditors contained in our audited financial statements included in this Prospectus does not contain any expression of concern
about our ability to continue as a going concern. The opinion of our independent auditors contained in our 2014 audited financial
statements did contain a paragraph stating that as of the date of such opinion there was substantial doubt about our ability to
continue as a going concern. As discussed in Note 2 to such 2014 audited financial statements, OMAG’s then present financial situation
raised substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter were also
described in Note 2 and such 2014 audited financial statements were prepared under the assumption that we would continue our operations
on a going concern basis, which contemplated the realization of assets and the discharge of liabilities in the normal course of
business. Our 2014 audited financial statements did not include any adjustments that might have been necessary if we were unable
to continue as a going concern. (See: “Management’s Discussion and Analysis of Financial Condition and Results of Operations
– Overview”). Beginning in our September 30, 2015 unaudited quarterly financial statements and continuing through
all reporting periods up to and including our March 31, 2017 unaudited quarterly financial statements included in this Prospectus
that expression of concern has been removed. Notwithstanding the foregoing, if we sustain unanticipated losses or are unable to
raise the necessary capital for LLC and we cannot continue as a going concern, our shareholders may lose all of their investment
in OMAG.
Even
after entering into the 2014 SEDA, we lack capital.
Even
with the 2014 SEDA, we will require additional funds to sustain our operations as presently contemplated. There can be no guaranty
that such additional funds will be available in the future. If we or LLC are unable to obtain additional financing as required,
or if its terms are too costly, we may be forced to curtail the expansion of our operations until such time as alternative financing
may be arranged which could have a materially adverse impact on our operations and our shareholders’ investments. (See: “Financial
Adviser”, below).
We
may not have full access to or be able to fully utilize the 2014 SEDA.
Because the market for our Common Stock
has historically exhibited low liquidity levels and has been limited, sporadic and often volatile, we may not be able to take
full advantage of the 2014 SEDA. If the market for our Common Shares is exhibiting low liquidity levels at the time we give YA
an Advance Notice (a “Put”) and if YA sells Common Shares into the public market during the five Trading Day Pricing
Period subsequent to our Put (as is YA’s customary practice), it is likely that the price of our Common Shares will decline.
Any such price decline will immediately increase the number of Common Shares we would otherwise be required absent such price
decline to deliver to YA subsequent to the Pricing Period in satisfaction of such Put. If this pattern continued to happen with
subsequent Puts by us, it is likely that we would issue and sell to YA the maximum 2,818,740 shares presently available to be
sold to YA under the 2014 SEDA well before reaching the aggregate sales price of $5 million available under the 2014 SEDA.
Our
ultimate success will be dependent upon management.
Our
success is dependent upon the skill and decision making ability of our directors and executive officers, who are Frank J. Drohan,
Charles P. Kuczynski, Louis J. Lombardo, Jack A. Smith, Alan M. Matus, William Hanley and Sam Hamdan. The loss of any or all of
these individuals could have a material adverse impact on our operations. We do not presently have a written employment agreement
with any of our officers or directors (See: “Executive Compensation – Employment Agreements”). We have not obtained
key man life insurance on the lives of any of these individuals. Our success depends in large part on our ability to attract and
retain key people and consultants. If we are not able to retain and recruit qualified personnel, which we require now and will
require in the future to conduct our and LLC’s ongoing operations, our business and our ability to successfully implement
our business plan could be adversely affected.
We
will rely on dividends from LLC for most of our revenue.
Because
we are a holding company with no significant operations other than the operations of our 60% owned subsidiary, LLC, we will depend
upon dividends from LLC for a substantial portion of our future revenues. LLC has generated no revenue to date and we do not anticipate
that LLC will be in a position to pay dividends until after the development of the Omagine Project is well underway.
We
are subject to risks associated with investments in real estate.
The
value of our proposed properties and our projected income therefrom may decline due to developments that adversely affect real
estate generally and those that are specific to our proposed properties. General factors that may adversely affect our potential
real estate holdings include:
|
●
|
increases
in interest rates;
|
|
|
|
|
●
|
adverse
changes in foreign exchange rates;
|
|
|
|
|
●
|
a
decline in prevailing rental rates for the properties we intend to own and lease;
|
|
●
|
a general tightening of the availability of credit and project financing facilities;
|
|
|
|
|
●
|
adverse political
conditions in Oman or a decline in economic conditions in Oman;
|
|
|
|
|
●
|
an increase in competition for customers or a decrease in demand by customers for the residential and commercial properties we plan to develop and offer for sale;
|
|
|
|
|
●
|
a decline in prevailing sales prices for the properties we intend to develop and offer for sale;
|
|
|
|
|
●
|
an increase in supply in Oman of property types similar to those proposed to be developed by us;
|
|
|
|
|
●
|
declines in consumer spending during an economic recession or recovery from an economic recession that adversely affect our revenue; and
|
|
|
|
|
●
|
the adoption by the relevant government authorities in Oman of more restrictive laws and governmental regulations, including more restrictive zoning, labor, visa, licensing, land use, building or environmental regulations or increased real estate taxes.
|
Additional
factors may adversely affect the value of our proposed properties and our projected income therefrom, including:
|
●
|
adverse
changes in the perceptions of prospective purchasers or users of the attractiveness of the properties proposed to be developed
by us;
|
|
|
|
|
●
|
opposition
from local community or political groups with respect to development or construction at a particular site;
|
|
●
|
a
change in existing comprehensive zoning plans or zoning or environmental or business licensing regulations that impose additional
restrictions on use or requirements with respect to the properties proposed to be developed by us;
|
|
|
|
|
●
|
our
inability to provide adequate management and maintenance or to obtain adequate insurance for the properties proposed to be
developed by us;
|
|
|
|
|
●
|
an
increase in operating costs;
|
|
|
|
|
●
|
new
development of a competitor’s property in close proximity to the Omagine Project;
|
|
|
|
|
●
|
earthquakes,
floods or underinsured or uninsured natural disasters; and
|
|
|
|
|
●
|
terrorism,
political instability or civil unrest in Oman or the MENA Region.
|
The
occurrence or existence of one or more of the events or circumstances described above could result in significant delays or unexpected
expenses. If any of these events occur or circumstances come into existence, we may not achieve our projected returns on the Omagine
Project and we could lose some or all of our investment in LLC and in the Omagine Project.
We
are subject to risks associated with real estate development.
The
Omagine Project is subject to significant risks relating to LLC’s ability to complete it on time and within budget. Factors
that may result in the Omagine Project or any other development project we may undertake in Oman or elsewhere exceeding budget
or being prevented from completion include:
|
●
|
an
inability to obtain or delays in obtaining zoning, environmental, occupancy or other required governmental permits, approvals
and authorizations;
|
|
●
|
an
inability to secure sufficient financing on favorable terms, including an inability to obtain or refinance construction loans;
|
|
|
|
|
●
|
a
general tightening of the availability of credit and project financing facilities;
|
|
|
|
|
●
|
the
prices of housing and commercial properties in Oman and consumer and/or business confidence; any of which could affect LLC’s
ability to construct and/or sell homes and to construct, sell and/or lease commercial properties and/or to secure financing;
|
|
|
|
|
●
|
construction
delays or cost overruns, either of which may increase project development costs; and
|
|
|
|
|
●
|
an
increase in commodity costs.
|
If
any of the forgoing occurs or exists, we may not achieve our projected returns on the Omagine Project and we could lose some or
all of our investment in LLC and in the Omagine Project or in other properties we may then have under development.
We
are vulnerable to concentration risks because our operations are presently exclusively in Oman and our future operations are planned
to be exclusively in Oman and the MENA Region market. Our real estate activities are presently concentrated exclusively on the
Omagine Project to be located in Oman. Because of such geographic and project specific concentration, our operations are more
vulnerable to Oman and MENA Region economic downturns and adverse project-specific events than those of larger, more diversified
companies.
The performance of Oman’s
economy will greatly affect the values of the properties proposed to be developed by us and consequently our prospects for sales
and revenue growth. The Oman economy is heavily influenced by the prices of crude oil and natural gas which are Oman’s main
export products and sources of revenue. Fluctuations in the international price of crude oil directly affect Oman’s revenue
and budget considerations. The price of crude oil has fallen substantially since the last quarter of 2014 and through the date
hereof (from over $100 per barrel to around $40 per barrel) and this has put significant pressure on Oman’s (and MENA Region
countries’) budgetary and fiscal policies. A decrease in government supported projects and employment (which is presently
occurring) because of government budget cuts or otherwise could adversely affect the economy in Oman.
Our
results of operations and financial condition will be greatly affected by the performance of the real estate industry.
Our real estate activities are,
and will continue to be, subject to numerous factors beyond our control, including local real estate market conditions in Oman
and in areas where our potential customers reside, substantial existing and potential competition, general economic and political
conditions in Oman, the MENA Region and internationally, decreases in the price of crude oil exports by Oman, fluctuations in
interest rates and mortgage availability and changes in demographic conditions. Real estate markets have historically been subject
to strong periodic cycles driven by numerous factors beyond the control of market participants.
Real
estate investments often cannot easily be converted into cash and market values may be adversely affected by economic or political
circumstances, market fundamentals, competition or demographic conditions. Because of the effect these factors may have on real
estate values and because of the long length of the project development cycle, the future sales prices for our individual proposed
properties or the future level of our sales revenue from the operation, sales and/or leasing of our various proposed properties,
is impossible to predict with certainty and difficult to predict with accuracy.
Our
real estate operations will also be dependent upon the availability and cost of mortgage financing for our potential customers
to the extent they finance the purchase of the residences or commercial properties we intend to develop and offer for sale.
The
real estate business is very competitive and many of our competitors are larger and financially stronger than we are.
The
real estate business is highly competitive. We compete with a large number of companies and individuals, and most of them have
significantly greater financial, managerial and other resources than we have. Our competitors include local developers who are
committed primarily to the Oman market and also international developers who acquire properties throughout the MENA Region. Because
we are a company with a limited history, our operations are subject to numerous risks similar to those of a start-up company.
We cannot assure that we will have the necessary resources to be competitive.
Our
operations are subject to political risks.
The
ongoing civil and political unrest in parts of the MENA Region, the military unrest and interventions in Iraq, Afghanistan, Libya,
Syria and Yemen and the terrorist attacks in the U.S., Europe and the MENA Region, and the potential for additional future terrorist
acts and civil and/or political or military unrest have created economic, political and social uncertainties that could materially
and adversely affect our business. Further acts of civil and/or political unrest or terrorism could be directed against the U.S.
or Oman either domestically or abroad. These acts could be directed against properties and personnel of American companies that
work abroad, particularly companies such as ours that operate in the MENA Region. Civil and/or political unrest, terrorism, war,
political considerations, and/or military developments may materially and adversely affect our business and profitability and
the prices of our Common Stock in ways that we cannot predict at this time.
Our
operations are subject to natural risks.
Our
performance may be adversely affected by weather conditions that delay development or damage property.
We may have violated Section 5 of the
Securities Act.
A sale under this registration statement
for 31,289 shares of common stock occurred during a period when, based on interpretations of applicable Securities Act provisions
by the staff of the SEC, the registration statement did not include a valid Section 10(a) prospectus, because the audited financial
statements included therein were more than 16 months old, when the prospectus was used more than 9 months after the effective
date. Accordingly, we may have violated Section 5 of the Securities Act, and as a result, we may be subject to an enforcement
action by the SEC, or an action for rescission by the purchaser. If the SEC were to bring such an enforcement action against the
Company, or if the purchaser were to bring such an action for rescission, it may have a material adverse effect on our financial
position.
Risk
Factors Related to Our Common Stock
Our
stock price may be volatile and you may not be able to resell your Common Shares at or above your purchase price.
There
has been and continues to be a limited public market for our Common Stock. Although our Common Stock trades on the OTCQB, an active
trading market for our Common Shares has not developed and may never develop or be sustained. If you purchase Common Shares you
may not be able to resell them at or above the price you paid. The market price of our Common Shares may fluctuate significantly
in response to numerous factors, some of which are beyond our control, including the following:
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●
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the
exercise of Warrants;
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●
|
actual
or anticipated fluctuations in our operating results;
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●
|
changes
in financial estimates by securities analysts or our failure to perform in line with such estimates;
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●
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changes
in market valuations of other real estate companies, particularly those that sell products similar to ours;
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●
|
announcements
by us or our competitors of significant innovations, acquisitions, strategic investors or partnerships, joint ventures or
capital commitments;
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●
|
delays
to LLC’s ongoing operations by Government authorities; or
|
|
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|
|
●
|
departure
of key personnel.
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Much
of our issued and outstanding Common Stock is currently restricted. As restrictions on resale end, the market price of our Common
Shares could drop significantly if the holders of restricted Common Shares sell them or are perceived by the market as intending
to sell them. This could cause the market price of our Common Shares to drop significantly, even if our business is doing well.
Our
Common Shares have a limited public trading market.
While
our Common Stock currently trades on the OTCQB, the market for our Common Shares is limited and sporadic. We cannot assure that
such market will improve in the future, even if our Common Stock is ever listed on a national stock exchange. We cannot assure
that an investor will be able to liquidate his investment without considerable delay, if at all. If a more active market for our
Common Stock does develop, the price may be highly volatile. The factors discussed herein, including the history of project delays,
the sudden and sharp drop in crude oil prices and the unknown impact of MENA Region civil, political or military unrest may have
a significant impact on the market price of our Common Shares. The relatively low price of our Common Shares may keep many brokerage
firms from engaging in transactions in our Common Stock.
The
over-the-counter market for stock such as ours has had extreme price and volume fluctuations.
The
securities of companies such as ours have historically experienced extreme price and volume fluctuations during certain periods.
These broad market fluctuations and other factors, such as new product developments and trends in our industry and in the investment
markets generally, as well as economic conditions and annual variations in our operational results may have a negative effect
on the market price of our Common Shares.
Additional
stock offerings may dilute current stockholders.
Given
our plans and our expectation that we will need additional capital and personnel, we may need to issue additional shares of capital
stock or securities convertible into or exercisable for shares of capital stock, including preferred stock, options, warrants
or convertible notes. The issuance of additional shares of capital stock for any of these reasons or pursuant to the exercise
of Warrants may dilute the ownership of our current shareholders.
Our management collectively
beneficially owns approximately 30.2% of our Common Stock and this concentration of ownership may have the effect of preventing
a change in control.
Assuming their ownership of
the Common Shares underlying unexercised Stock Options and Strategic Warrants, our officers and directors collectively beneficially
own approximately thirty and two-tenths percent (30.2%) of our Common Shares, and if Common Shares underlying 1,440,000 Stock
Appreciation Rights held by officers and directors were presently “in the money” and calculable, the officer and director
collective beneficial ownership of our Common Shares would be greater than 30.2% (See: “Security Ownership of Certain Beneficial
Owners and Management”). As a result, if our officers and directors act in concert, they will have the ability by virtue
of their voting power to exercise substantial influence over our business with respect to the election of directors and all other
matters requiring action by stockholders. Such concentration of Common Share ownership may have the effect of discouraging, delaying
or preventing a change in control of OMAG.
Our
ability to issue preferred stock may adversely affect the rights of holders of our Common Stock and may make takeovers more difficult,
possibly preventing you from obtaining the optimal Common Share price.
Our
Certificate of Incorporation authorizes the issuance of shares of “blank check” preferred stock, which would have the
designations, rights and preferences as may be determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting
or other rights that could adversely affect the voting power or other rights of the holders of the Common Shares. The issuance
of preferred stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in
control of Omagine.
Our
Common Stock is subject to the “penny stock” rules of the SEC, which may make it more difficult for you to sell our
Common Shares.
The
SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as
any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that:
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the
broker or dealer approve a person’s account for transactions in penny stocks; and
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the
broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity
of the penny stock to be purchased.
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In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
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obtain
the financial information and investment experience and objectives of the person; and
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make
a reasonable determination that (a) transactions in penny stocks are suitable for that person, and (b) the person has sufficient
knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability determination; and
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states
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
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Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to
be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny
stocks. The regulations applicable to penny stocks may severely affect the market liquidity for the Common Shares owned by you
and could limit your ability to sell such Common Shares in the secondary market.
As
an issuer of “penny stock”, the protection provided by the federal securities laws relating to forward looking statements
does not apply to us.
Although
federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under
the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, we will not have the benefit
of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained
a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary
to make the statements not misleading. Such an action could hurt our financial condition.
Other than the distribution
of the rights and warrants in our 2012 rights offering and warrant distribution, we have not paid dividends in the past and do
not expect to pay dividends in the future unless and until dividends are paid to OMAG by LLC. Any return on your investment may
therefore be limited to the value of our Common Shares.
We have never paid cash dividends
on our Common Stock and do not anticipate paying cash dividends in the foreseeable future. Up until this time OMAG has utilized
all cash reserves for the operation of its business and OMAG plans to continue this policy for the foreseeable future. Any future
payment of dividends on our Common Stock will depend on the payment of dividends to OMAG by LLC and, as the Board of Directors
may consider relevant, our earnings, financial condition and other business and economic factors at such time. If we do not pay
cash dividends, our Common Stock may be less valuable because a return on your investment will only occur if the price of our
Common Shares appreciates above the price you paid for it.
There
are substantial risks associated with the 2014 SEDA with YA which could contribute to the decline of the price of our Common Shares
and have a dilutive impact on our existing stockholders.
In
order to obtain needed capital, we entered into the 2014 SEDA with YA. The sale of our Common Shares pursuant to the 2014 SEDA
will have a dilutive impact on our stockholders. We believe YA intends to promptly re-sell the Common Shares that we sell to it
under the 2014 SEDA. Such re-sales could cause the market price of our Common Shares to decline significantly. Any subsequent
sales by us to YA under the 2014 SEDA may, to the extent of any such decline, require us to issue a greater number of Common Shares
to YA in exchange for each dollar of such subsequent sale. Under these circumstances our existing stockholders would
experience greater dilution (See: “Management’s Discussion and Analysis of Financial Condition and Results of Operations”).
The sale of Common Shares under the 2014 SEDA could encourage short sales by third parties which could contribute to the further
decline of the price of our Common Stock.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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, notwithstanding that such statements are not specifically
identified as such. These forward-looking statements are based on current expectations and projections about future events. The
words “estimates”, “projects”, “plans”, “believes”, “expects”, “anticipates”,
“intends”, “targeted”, “continue”, “remain”, “will”, “should”, “may”
and other similar expressions, or the negative or other variations thereof, as well as discussions of strategy that involve risks
and uncertainties (such as the potential new investor or investors in LLC or the potential financing with MENA Region banks),
are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Examples of
forward-looking statements include but are not limited to statements about or relating to: (i) future revenues, expenses, income
or loss, cash flow, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial
items, (ii) plans, objectives and expectations of Omagine, Inc. or its management or Board of Directors, (iii) the Company’s
business plans, products or services, (iv) future economic or financial performance, and (v) assumptions underlying such statements.
We urge you to be cautious of the forward-looking statements and other similar forecasts and statements of expectations since
such statements (i) reflect our current beliefs with respect to future events, (ii) involve, and are subject to, known and unknown
risks, uncertainties and other factors affecting our operations and growth strategy, and (iii) could cause the Company’s actual
results, financial or operating performance or achievements to differ from future results, financial or operating performance,
or achievements expressed or implied by such forward-looking statements. Forecasts, projections and assumptions contained and
expressed herein were reasonably based on information available to the Company at the time so furnished and as of the date of
this Prospectus. All such forecasts, projections and assumptions are subject to significant uncertainties and contingencies, many
of which are beyond the Company’s control, and no assurance can be given that such forecasts, projections or assumptions will
be realized. No assurances can be given regarding the achievement of future results, as our actual results may differ materially
from our projected future results as a result of the risks we face, and actual future events may differ from anticipated 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:
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the
uncertainty associated with political events in the Middle East and North Africa (the “MENA Region”) in general,
including the ongoing civil disorder and military activities in the MENA Region;
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the
success or failure of OMAG’s efforts to secure additional financing, including project financing for the Omagine Project;
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oversupply of residential and/or commercial property inventory in the Oman real estate market or other adverse conditions in such market;
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the
impact of MENA Region or international economies and/or future events (including natural disasters) on the Oman economy, on
OMAG’s business or operations, on tourism within or into Oman, on the oil and natural gas businesses in Oman and on
other major industries operating within the Omani market;
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deterioration or malaise in economic conditions, including the continuing destabilizing factors associated with recent rapid decline in the price of crude oil on international markets;
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inflation, interest rates, movements in interest rates, securities market and monetary fluctuations;
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threatened and ongoing acts of war, civil or political unrest, terrorism or political instability in the MENA Region; or
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the ability to attract and retain skilled employees.
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Potential investors are cautioned
not to place undue reliance on any such forward-looking statements, which speak only as of the date hereof. OMAG undertakes no
obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
USE
OF PROCEEDS
We
will not receive any of the proceeds resulting from the sale of the Resale Shares by the Selling Stockholder.
SELLING
STOCKHOLDER
The following table sets forth the name
of each person who is offering the sale of Resale Shares by this Prospectus, the number of Common Shares beneficially owned by
each such person as of the date of this Prospectus, the number of Resale Shares that may be sold in this offering and the number
of Common Shares each such person is expected to beneficially own after this offering, assuming they sell all of the Resale Shares
offered. Neither the Selling Stockholder nor any of its affiliates have held any position or office with OMAG nor, other than
the Prior SEDAs, the YA Loans and the 2014 SEDA, have any of them ever had any other material relationship with us or any of our
predecessors or affiliates.
Name
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Common
Shares Owned Prior to the Offering (1)
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Percentage
of Ownership Before the Offering (1)
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Number
of Common Shares being Offered (4)
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Common
Shares Owned After the Offering (2)
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Percentage
of Ownership After the Offering (2)
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YA
II PN, Ltd. (p/k/a YA GLOBAL MASTER SPV LTD.) (3)
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47,383
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0.21
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%
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2,818,740
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0
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0
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YA
Global II SPV, LLC (5)
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161,290
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0.73
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%
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0
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0
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Total
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208,673
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0.95
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%
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2,818,740
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0
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0
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(1)
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Applicable
percentage ownership is based on 22,152,350 Common Shares issued and outstanding as of June 30, 2017 and on:
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a.
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161,290
Shares owned of record by YA Global II SPV, LLC, an affiliate of YA, as of April 26, 2017, which are the Extension Shares
and are “restricted securities” not included in this Prospectus or Registration Statement, plus
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b.
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31,289
Common Shares owned of record by YA as of April 26, 2017 which have been included in this Prospectus and are registered securities
under this Registration Statement, and 16,094 Common Shares with respect to which YA has the right to acquire beneficial ownership
as specified in Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended (the “Act”) and are unissued
Common Shares underlying (i) 8,047 Strategic Warrants exercisable at $5.00 per Common Share and (ii) 8,047 Strategic Warrants
exercisable at $10.00 per Common Share that are owned by YA as of April 26, 2017 and are currently exercisable.
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YA
acquired the Strategic Warrants in March 2012 pursuant to a “Rights Offering and Warrant Distribution” conducted
by OMAG in February and March of 2012 (the “Warrant Distribution”). Pursuant to the Warrant Distribution OMAG
distributed one-fourth (1/4) of a $5 Warrant and one-fourth (1/4) of a $10 Warrant to the Record Shareholders for each share
of Common Stock held by them at the Record Time. Each Record Shareholder received, automatically and at no charge, one $5
Warrant and one $10 Warrant for each four Common Shares held by such Record Shareholder at the Record Time. If the foregoing
calculation resulted in a fractional Strategic Warrant, the result was rounded up to the nearest whole Strategic Warrant.
YA was a Record Shareholder of 64,376 Common Shares at the Record Time and as a result the aforementioned 16,094 Strategic
Warrants were distributed to YA at such time. (See: “Results of Operations – Fiscal Year ended December 31, 2016
vs. Fiscal Year ended December 31, 2015 - Liquidity and Capital Resources – Rights Offering and Warrant Distribution”
below).
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Beneficial
ownership and Common Shares outstanding are determined in accordance with Rule 13d-3(d)(1) under the Act and generally includes
voting or investment power with respect to the relevant securities. For the purpose of computing YA’s percentage of
ownership therefore: (a) the 161,290 Common Shares owned by YA’s Affiliate as of April 26, 2017 are deemed to be owned
by YA as of such date, (b) the 31,289 Common Shares owned by YA are owned by YA as of such date, and (c) the 16,094 Common
Shares underlying the 16,094 Strategic Warrants owned by YA are deemed to be outstanding and beneficially owned by YA.
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(2)
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Assumes
(i) all Common Shares offered hereby are sold, (ii) the 161,290 Extension Shares are sold pursuant to Rule 144, (iii) the
31,289 registered Common Shares are sold, and (iv) the 16,094 Strategic Warrants either (a) expire unexercised, or (b) are
exercised and the underlying Common Shares are sold.
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(3)
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YA is the investor under the 2014 SEDA. Yorkville Advisors Global, LP (“Yorkville LP”) is YA’s investment manager and Yorkville Advisors Global, LLC (“Yorkville LLC”) is the General Partner of Yorkville LP. All investment decisions for YA are made by Yorkville LLC’s President and Managing Member, Mr. Mark Angelo. The address of YA is 1012 Springfield Avenue, Mountainside, NJ 07092, Attention: Mark Angelo, Portfolio Manager. YA has informed us that it is an “underwriter” within the meaning of the Securities Act, and to the best of our knowledge no other underwriter or person has been engaged to facilitate the sale of Resale Shares in this offering.
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(4)
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The
2,818,740 Resale Shares included in this Prospectus represent the Common Shares remaining issuable as of the date hereof under
the 2014 SEDA (See: “The Standby Equity Distribution Agreement”).
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(5)
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YA Global II SPV, LLC is an affiliate of YA. All investment decisions and control of for YA Global II SPV, LLC are made and held by its investment manager, Yorkville LP. Mr. Mark Angelo, the portfolio manager of Yorkville LP, makes the investment decisions on behalf of and controls Yorkville LP. The address of YA Global II SPV, LLC is 1012 Springfield Avenue, Mountainside, NJ 07092, Attention: Mark Angelo, Portfolio Manager.
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PLAN
OF DISTRIBUTION
A
Selling Stockholder may, from time to time, sell any or all of their Resale Shares on the OTCQB or any other stock exchange, market
or trading facility on which the Common Shares are traded or in private transactions. These sales may be at fixed or negotiated
prices. A Selling Stockholder may use any one or more of the following methods when selling Resale Shares:
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ordinary
brokerage transactions and transactions in which a broker-dealer solicits purchasers;
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block
trades in which a broker-dealer will attempt to sell Resale Shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
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privately
negotiated transactions;
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broker-dealers
may agree with the Selling Stockholder to sell a specified number of such Resale Shares at a stipulated price per share;
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a
combination of any such methods of sale; or
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any
other method permitted pursuant to applicable law.
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Broker-dealers
engaged by a Selling Stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from a Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of Resale Shares, from the purchaser)
in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction,
not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction
a markup or markdown in compliance with NASDR IM-2440.
In
connection with the sale of the Resale Shares or interests therein, a Selling Stockholder may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage in short sales of Common Shares in the course of
hedging the positions they assume. A Selling Stockholder may also enter into option or other transactions with broker-dealers
or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealers
or other financial institutions of Resale Shares offered by this Prospectus, which Resale Shares such broker-dealer or other financial
institution may resell pursuant to this Prospectus (as supplemented or amended to reflect such transaction).
YA is, and any other Selling
Stockholder, broker-dealer or agent that is involved in selling the Resale Shares may be deemed to be, an “underwriter”
within the meaning of the Securities Act in connection with such sales. Any commissions received by YA or such other Selling Stockholder,
broker-dealer or agent, and any profit on the sale of the Resale Shares purchased by them, may be deemed to be underwriting commissions
or discounts under the Securities Act. YA has informed OMAG that it does not have any written or oral agreement or understanding,
directly or indirectly, with any other Selling Stockholder or person to distribute Resale Shares. YA has informed OMAG that in
no event shall any broker-dealer receive fees, commissions or markups which, in the aggregate, would exceed eight percent (8%)
of the amount of the relevant sale.
OMAG is required to pay certain
fees and expenses incurred by OMAG incident to the registration of the Resale Shares. OMAG has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
Because YA is and any other
Selling Stockholder may be deemed to be an “underwriter” within the meaning of the Securities Act, they will be subject
to the Prospectus delivery requirements of the Securities Act including Rule 172 thereunder. YA has informed OMAG that there is
no underwriter or coordinating broker acting in connection with the proposed sale of the Resale Shares by the Selling Stockholders.
We agreed to keep this Prospectus
effective until the earlier of (i) the date on which the Resale Shares may be resold by the Selling Stockholders without registration
and without regard to any volume limitations by reason of Rule 144 under the Securities Act or any other rule of similar effect,
or (ii) all of the Resale Shares have been resold pursuant to this Prospectus or Rule 144 under the Securities Act or any other
rule of similar effect. YA has informed OMAG that the Resale Shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In certain states, the Resale Shares may not be sold unless they have
been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement
is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the Resale Shares may not simultaneously
engage in market making activities with respect to the Common Stock for the applicable restricted period, as defined in Regulation
M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases
and sales of Common Shares by the Selling Stockholders or any other person. We will make copies of this Prospectus available to
the Selling Stockholders and have informed them of the need to deliver a copy of this Prospectus to each purchaser of Resale Shares
at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
The obligations
of the parties under the 2014 SEDA are not transferrable.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
Common
Stock
The
following is a summary of the material provisions of our $0.001 par value Common Stock, restated Certificate of Incorporation
and our By-Laws, all as in effect as of the date of this Prospectus. You should also refer to the full text of our restated Certificate
of Incorporation and By-Laws which have been filed with the SEC as Exhibits 3(i) and 3(ii) to the Registration Statement of which
this Prospectus forms a part. Our total authorized capital stock is 50,850,000 shares of which 50,000,000 shares are Common Shares.
The
holders of our Common Shares are entitled to one vote per Common Share on all matters to be voted on by our stockholders including
the election of directors. Our stockholders are not entitled to cumulative voting rights and, accordingly the holders of a majority
of the Common Shares voting for the election of directors can elect the entire Board of Directors if they choose to do so and,
in that event, the holders of the remaining Common Shares will not be able to elect any person to our Board of Directors.
The holders of Common Shares
are entitled to receive ratably such dividends or distributions, if any, as may be declared from time to time by the Board of
Directors in its discretion from funds or securities legally available therefor and subject to prior dividend rights of holders
of any shares of our $.001 par value per share preferred stock (the “Preferred Stock” or “Preferred Shares”)
which may be outstanding. Upon OMAG’s liquidation, dissolution or winding up, subject to prior liquidation rights of the
holders of Preferred Shares if any, the holders of our Common Shares are entitled to receive on a pro rata basis our remaining
assets available for distribution (See: “Description of Preferred Stock and Warrants” below). Holders of Common Shares
have no preemptive or other subscription rights and there are no conversion rights or redemption or sinking fund provisions with
respect to such Common Shares. All outstanding Common Shares are, and all Common Shares being offered by this Prospectus will
be, fully paid and not liable to further calls or assessment by OMAG.
Dividends
and Dividend Policy
The
holders of our Common Stock share proportionately, on a per Common Share basis, in all dividends and other distributions declared
by our Board of Directors. Other than a 2012 non-cash dividend distribution of rights and warrants to our shareholders, we have
not declared any dividends on our Common Stock since inception and do not anticipate paying cash dividends in the foreseeable
future. We plan to retain any future earnings for use in our business operations. Any future decisions as to payment of cash or
non-cash dividends or distributions on our Common Stock will be at the discretion of the Board of Directors and will depend upon
our earnings and financial position at such time and on such other factors as the Board of Directors may then deem relevant.
Transfer
Agent
The
transfer agent for our Common Shares is Continental Stock Transfer and Trust Company, 17 Battery Place, New York, New York 10004.
Outstanding
Common Shares and Holders
At June 30, 2017 there were
22,152,350 Common Shares issued and outstanding and, based upon the number of record holders plus the number of individual participants
in security position listings at such date, there were approximately 1,119 holders of Common Shares.
DESCRIPTION
OF PREFERRED STOCK AND WARRANTS
The
following is a summary of the material provisions of our Preferred Stock, our Warrants, restated Certificate of Incorporation
and our By-Laws, all as in effect as of the date of this Prospectus. You should also refer to the full text of our restated Certificate
of Incorporation and By-Laws which have been filed with the SEC as Exhibits 3(i) and 3(ii) to the Registration Statement of which
this Prospectus forms a part. Our total authorized capital stock is 50,850,000 shares of which 850,000 are Preferred Shares.
Preferred
Stock
As of June 30, 2017 there were
no Preferred Shares issued or outstanding. Our Certificate of Incorporation authorizes the issuance of Preferred Shares in one
or more series. Our Board of Directors has the authority, without any vote or action by the shareholders, to create one or more
series of Preferred Shares up to the limit of our number of authorized but unissued Preferred Shares and to fix the number of
Preferred Shares constituting such series and the designation of such series, the voting powers (if any) of the Preferred Shares
of such series and the relative participating, option or other special rights (if any), and any qualifications, preferences, limitations
or restrictions pertaining to such series which may be fixed by the Board of Directors pursuant to a resolution or resolutions
adopted by the Board of Directors and providing for the issuance of such series of Preferred Shares. The transfer agent for our
Preferred Shares is OMAG.
Warrants
As of June 30, 2017, OMAG has
6,672,124 Warrants issued and outstanding, (a) 3,211,062 of which are exercisable for the purchase of one Common Share at a per
Common Share exercise price of $5.00 [the “$5 Warrants”]; (b) 3,211,062 of which are exercisable for the purchase
of one Common Share at a per Common Share exercise price of $10.00 [the “$10 Warrants”] (collectively (a) and (b)
being, the “Strategic Warrants”) and (c) 250,000 of which are exercisable for the purchase of one Common Share at
a per Common Share exercise price equal to the greater of: (i) $0.50, or (ii) eighty percent (80%) of the Market Price on the
Trading Day immediately preceding the relevant Exercise Date (the “Adjustable Warrants”).
As promptly as reasonably possible
after each exercise of the purchase rights represented by a Warrant, OMAG shall deliver to the relevant holder thereof (each,
a “Warrant Holder”) a certificate representing the Common Shares so purchased (or such will be electronically delivered
to the Warrant Holder if such Warrant is held in electronic form) and, unless such Warrant has been fully exercised, expired or
redeemed, a new Warrant Certificate (or such will be electronically delivered to the Warrant Holder if such Warrant is held in
electronic form) representing the balance of the Common Shares subject to such Warrant. Warrant Holders do not have any voting
or other rights as a stockholder of our Company by virtue of being a Warrant Holder. The person entitled to receive the Common
Shares issuable upon any exercise of the purchase rights represented by the Warrants, shall be treated for all purposes as the
holder of such Common Shares of record as of the close of business on the date of exercise. The Warrants may be exercised only
for whole Common Shares.
The Warrants are transferrable
and a Warrant Holder may transfer all or part of the Warrants (but no fractional Warrants) at any time on the books of OMAG upon
surrender of the Warrant Certificate(s), properly endorsed. Upon such surrender, OMAG shall issue and deliver to the transferee
a new Warrant Certificate representing the Warrants so transferred (or such will be electronically delivered to the Warrant Holder
if such Warrant is held in electronic form). Upon any partial transfer, OMAG shall issue and deliver to the Warrant Holder a new
Warrant Certificate representing the Warrants not so transferred.
During the period within which
the Warrants may be exercised, OMAG shall at all times have authorized and reserved for issuance enough Common Shares for the
full exercise of the purchase rights represented by the then unexercised Warrants. If OMAG dissolves, liquidates or winds up its
business before the exercise, expiration or redemption of the Warrants, any Warrant Holder shall be entitled, upon exercising
its Warrants, to receive in lieu of the Common Shares receivable upon such exercise, the same kind and amount of assets as would
have been issued, distributed or paid to such Warrant Holder upon any such dissolution, liquidation or winding up with respect
to such Common Shares, had such Warrant Holder been the holder of record on the record date for the determination of those entitled
to receive any such liquidating distribution or, if no record is taken, upon the date of such liquidating distribution. OMAG shall
pay all issue and other taxes that may be payable in respect of any issue or delivery of Common Shares upon the exercise of Warrants.
The Warrants are governed by and shall be construed and enforced in accordance with the laws of the State of New York in the United
States of America.
Strategic
Warrants
OMAG filed Post-Effective Amendment
No. 1 to its registration statement on Form S-1 (Commission File No. 333-183852) whereby the Strategic Warrants and the 6,422,124
Common Shares underlying the Strategic Warrants were registered by OMAG (the “Warrant Registration”). Post-Effective
Amendment No. 1 to the Warrant Registration was declared effective by the SEC and its effective status expired. OMAG filed Post-Effective
Amendments No. 2 and No. 3 to the Warrant Registration with the SEC on January 28, 2015 and February 11, 2015, respectively, in
order to further update the Warrant Registration and to re-instate its effective status. The SEC declared the Warrant Registration
effective February 13, 2015 and its effective status expired. On January 14, 2016, OMAG filed a Post-Effective Amendment on Form
S-1 to update the previous registration and to reinstate its effective status. The SEC declared the Warrant Registration effective
January 25, 2016. The effective status of the Warrant Registration expired on October 21, 2016 and OMAG presently plans to file
a further Post-Effective Amendment to the Warrant Registration to reinstate its effectiveness.
When originally issued in March
2012, the expiration date for all Strategic Warrants was December 31, 2012. Because of the extended delays encountered in signing
the DA with the Government, the Board of Directors subsequently resolved on multiple occasions to extend the expiration date of
the Strategic Warrants while keeping all other terms and conditions of the Strategic Warrants the same. The last such extension
was made pursuant to a Board of Directors resolution dated December 9, 2016. All Strategic Warrants now expire on December 31,
2017 unless redeemed earlier by OMAG upon 30 days prior written notice to the Strategic Warrant holders.
The Strategic Warrants are redeemable
at any time and at OMAG’s sole discretion at a price of $0.001 per Strategic Warrant (the “Redemption Price”).
Upon thirty days prior written notice to the holders of such Strategic Warrants (the “Strategic Warrant Holders”)
specifying the Strategic Warrants to be redeemed and the date at 5 p.m. Eastern Time in the United States for such redemption
by OMAG (the “Redemption Time”), OMAG may redeem all or a portion of such Strategic Warrants remaining unexercised
at the Redemption Time at a Strategic Warrant Redemption Price of $0.001 per Strategic Warrant. The Redemption Price shall be
paid in cash by OMAG to the relevant Strategic Warrant Holders and such Strategic Warrants shall not be deemed to be outstanding
for any purpose whatsoever after the Redemption Time. The Redemption Time shall be on a day at least thirty (30) days subsequent
to the aforesaid written notice to Strategic Warrant Holders and it shall also be the time at which a Strategic Warrant Holder’s
right to exercise such Strategic Warrants being redeemed shall terminate. The Strategic Warrants to be redeemed may be exercised
by Strategic Warrant Holders at any time prior to the Redemption Time.
All Strategic Warrants expire
at 5 p.m. Eastern Time in the United States on December 31, 2017 (the “Expiration Time”). The Strategic Warrants are
exercisable at the option of the Strategic Warrant Holder at any time up to the earlier of the (a) Expiration Time, or (b) Redemption
Time, provided that no person who owned (a) less than 4.99% or (b) between 4.99% and 9.99% of the Common Shares outstanding on
February 24, 2012 (the “Issuance Date”), may exercise a number of Strategic Warrants which would thereby cause such
person to acquire, together with its affiliates, beneficial ownership of, as the case may be, (a) 4.99% or more, or (b) 9.99%
or more of the Common Shares outstanding immediately prior to the time of such exercise. A Strategic Warrant Holder may exercise
the purchase rights represented by Strategic Warrants, in whole or in part, by surrendering the properly executed Strategic Warrant
Certificate(s) at the transfer agent’s office in New York City, New York or at the principal office of OMAG in New York
City, New York, and by paying OMAG, by certified or cashier’s check, an amount equal to the aggregate exercise price for
the Common Shares proposed to be purchased (the “Warrant Payment”).
Notwithstanding
the foregoing, no Strategic Warrants will be exercisable and we will not be obligated to issue any Common Shares issuable upon
the exercise of such Strategic Warrants unless (i) at the time the Strategic Warrant Holder thereof seeks to exercise such Strategic
Warrant, we have a registration statement under the Securities Act in effect covering the Common Shares issuable upon the exercise
of such Strategic Warrant and a current prospectus relating to our Common Stock, and (ii) the Common Shares issuable upon such
exercise have been registered or qualified or deemed to be exempt from registration under the securities laws of the state of
residence of such Strategic Warrant Holder. Furthermore, if a Strategic Warrant Holder, who on the Issuance Date owned (a) less
than 4.99% or (b) between 4.99% and 9.99% of the Common Shares outstanding on the Issuance Date, seeks to exercise Strategic Warrants,
and such proposed exercise would cause such Strategic Warrant Holder to acquire, together with its affiliates, beneficial ownership
of, as the case may be, (a) 4.99% or more, or (b) 9.99% or more of the Common Shares outstanding immediately prior to the time
of such exercise, then in such an event, such proposed exercise will be effected by Omagine for the maximum number of Strategic
Warrants resulting in the beneficial ownership by such Strategic Warrant Holder of the maximum number of whole Common Shares which
number fails to meet the above stated applicable limitation for such Strategic Warrant Holder and its affiliates, and any excess
Warrant Payment will be returned to such Strategic Warrant Holder.
The Strategic Warrants do not
contain any anti-dilution provisions and the exercise price and the number of Common Shares that OMAG must issue upon exercise
of Strategic Warrants shall not be subject to adjustment for any reason, including but not limited to a stock split, combination
or subdivision of the Common Stock or a dividend, reclassification, reorganization, or spinoff.
As of the date hereof there
is no active trading market for the Strategic Warrants and OMAG does not presently expect an active trading market for the Strategic
Warrants to develop in the near term. Our attempts to date to have the Strategic Warrants listed for quotation and trading on
the OTCQB have not been successful. We hope to have the Strategic Warrants trade on the OTCQB under symbols to be assigned by
FINRA and after the required application for such listing for quotation on the OTCQB is made by a market-maker on our behalf.
We cannot, however, give any assurance that the Strategic Warrants will be quoted or traded on the OTCQB or on any securities
exchange until such application is made on our behalf by a market-maker, such listing is approved and such symbols are assigned
by FINRA. Furthermore, if such application is made on our behalf by a market-maker and the Strategic Warrants are approved by
FINRA for listing and quotation on the OTCQB, we cannot give any assurance that a market for the Strategic Warrants will develop
or, if such a market does develop, whether it will be sustainable throughout the period within which the Strategic Warrants are
valid and transferable or at what prices such Strategic Warrants will trade. Strategic Warrant Holders may resell all or a portion
of such Strategic Warrants from time to time in market transactions through any market on which the Strategic Warrants are then
traded, in negotiated transactions or otherwise, and at prices and on terms determined by the then prevailing market price or
at negotiated prices directly or through a broker or brokers, who may act as agent or as principal or by a combination of such
methods of sale.
Tempest
Warrants
On June 24, 2014, OMAG issued
the 1,000,000 Tempest Warrants to an investor each of which were exercisable for the purchase of one restricted Common Share at
a per Common Share exercise price equal to the greater of: (a) $1.00 per Common Share, or (b) 80% of the closing sale price for
a Common Share on the Trading Day immediately preceding the relevant exercise date (See: Exhibit 4.4). Prior to their expiration
date, a total of 650,603 Tempest Warrants were exercised for aggregate proceeds to OMAG of $916,540. The remaining 349,397 Tempest
Warrants expired unexercised on June 23, 2016. As of the date of this report there were no Tempest Warrants issued or outstanding.
Adjustable Warrants
On October 14, 2016, in connection
with a non-interest bearing $75,000 convertible promissory note in favor of Rural Concepts LLC, a British corporation (“Rural
Concepts”), OMAG issued 150,000 Warrants to Rural Concepts, each of which was exercisable for the purchase of one restricted
Common Share at a per Common Share exercise price equal to the greater of (a) $0.50 per Common Share, or (b) 80% of the Market
Price on the Trading Day immediately preceding the relevant Exercise Date (the “Adjustable Warrants”). On April 13,
2017, in connection with a non-interest bearing $100,000 convertible promissory note in favor of an accredited investor, OMAG
issued 100,000 Adjustable Warrants to such accredited investor.
Transfer Agent for the Warrants
The transfer agent for our Strategic
Warrants is Continental Stock Transfer and Trust Company, 17 Battery Place, New York, New York 10004. The transfer agent for the
Adjustable Warrants is OMAG.
Outstanding Warrants
As of June 30, 2017 there were
6,422,124 Strategic Warrants issued and outstanding, 3,211,062 of which are $5 Warrants and 3,211,062 of which are $10 Warrants
and there are approximately 1,122 holders of our Strategic Warrants. As of June 30, 2017 there were 250,000 Adjustable Warrants
issued and outstanding and there are 2 holders of our Adjustable Warrants.
LEGAL
MATTERS
The
validity of our Common Shares offered hereby will be passed upon by Sichenzia Ross Friedman Ference LLP, New York, New York.
EXPERTS
Our
consolidated financial statements at December 31, 2016 and for the two years then ended appearing in this Prospectus have been
audited by Michael T. Studer, CPA P.C., independent registered public accounting firm, as set forth in their report thereon appearing
elsewhere in this Prospectus and are included in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
DESCRIPTION
OF BUSINESS
Summary
The
development of the Omagine Project has been delayed. Neither we nor RCA expected that a $5 Billion company like CCC would default
on their investment obligation – but they did. CCC has now been removed as an LLC shareholder and is being replaced by a
new financial investor.
In
addition to the written Investment Agreement from the estate of our proposed new local investor mentioned below, we have verbal
commitments from two European investment funds and are expecting a letter of intent shortly from third such fund which is active
in real-estate investments in the MENA Region. LLC accelerated its efforts with non-GCC investors (who are value-oriented and
less discount-oriented than local investors) and presently LLC is in final discussions with two European investment funds.
The
OMAG Common Stock is, and always has been, a proxy for the performance of LLC and the project delays to date have put downward
pressure on the OMAG Common Stock. When an investment transaction with one of LLC’s present investment prospects closes
(which we presently expect to occur at the end of July 2017), LLC will begin the masterplanning and development of the Omagine
Project. Management presently estimates that the total net positive cash flow from the development of the Omagine Project will
be approximately $3 billion and the net present value of that cash flow is approximately $1.55 billion.
The
financing and execution framework for real estate development projects are usually quite similar. They generally move from concept
design; to feasibility studies; to land acquisition; to masterplanning; to detailed design; to debt financing for construction;
to construction; and then finally to revenue generating sales and/or operations.
The
financial architecture of real estate projects generally requires that the developer (in our case, LLC) finance and pay for all
organizational costs (legal, accounting, administrative, etc.), concept design, land acquisition (i.e. purchasing the land for
the project), initial feasibility and market studies, masterplanning, detailed design, financial advisory fees and/or other engineering
& development consultancy costs (collectively, the “Soft Costs”). The Soft Costs are all financed from the developer’s
(in our case LLC’s) own cash resources provided by its shareholders (in our case OMAG, RCA and CCC). The cost of construction
(the “Hard Costs”) are financed via bank loans (“Project Finance”).
Most
Soft Costs are not capitalized as assets on the developer’s balance sheet but are written off as operating expenses. Land
however (like buildings, machinery or equipment) is a long-lived asset that is capitalized as an asset on the developer’s
balance sheet and recorded at the purchase price paid for it by the developer. Like any asset therefore, it becomes a component
of the developer’s shareholder equity.
As
specifically memorialized by the Shareholder Agreement, LLC did not purchase the land rights with cash – but with shares
of LLC stock. Therefore the consideration paid by RCA for the purchase of such shares of LLC stock was the approximately $720
million value of the land given in exchange for such stock. The acquisition of the land rights by LLC in exchange for LLC stock
resulted in a $720 million increase in LLC’s shareholder equity with no cash outlay by LLC.
After
the Soft Costs have been incurred by the developer, a project’s construction is then generally financed via a combination
of bank debt and the developer’s cash (from equity or property sales), Bank debt is typically restricted by the bank assuring
itself that there is an acceptable ratio of debt to equity on the developer’s balance sheet (a typical ratio being 70% debt
vs 30% equity) and requiring a portion of that equity to be cash equity.
For
example using the 70/30 ratio, a developer wishing to construct a $330 million project (or a $330 million phase of a project)
would need approximately $100 million of shareholder equity on its balance sheet in order to borrow the full $330 million. Such
borrowings may of course be further supported or reduced by the developer utilizing the receipt of deposits, installment payments
and final payments from property sales made by the developer during the construction of the project (or phase of the project)
or by utilizing a portion of its own cash reserves.
One
can readily see therefore the significant borrowing power advantage and financial leverage afforded to LLC by the aforementioned
$720 million addition to its shareholder equity. Only after the developer (LLC) completes the land acquisition, the necessary
engineering & development consultancy studies and the project masterplanning (all of which are Soft Cost tasks to be paid
for by LLC), can LLC approach banks to arrange the debt facilities needed to finance the Hard Costs of construction. In the case
of the Omagine Project, management estimates that such Soft Cost expenses will be approximately $25 million USD.
The
2011 LLC Shareholder Agreement among OMAG, RCA and CCC as well as OMAG’s 2012 Strategic Warrant distribution to its shareholders
and other capital raising activities (including the SEDA with YA and other private placement stock sales) foresaw, foreshadowed
and accommodated the various future Omagine Project’s development stages. Management had a clear-eyed pre-DA and Post-DA
view of its multiple strategic objectives.
OMAG
conceptualized the project and executed and financed all Pre-DA efforts including the following strategic objectives (i) signing
a Shareholder Agreement that assembled an unassailably credible and financially strong shareholder structure for LLC (RCA and
CCC); (ii) arranging a world-class construction contractor with proven capability & financial capacity (CCC); (iii) demonstrating
the project’s desirability and viability to the Government (getting the DA signed). Delays in signing the DA were longer
than expected but ultimately the foregoing Pre-DA strategic objectives were achieved.
OMAG
had financed its support of LLC and the Omagine Project during this Pre-DA time with private placement sales of its Common Stock,
the YA SEDA and via a rights offering to its shareholders. Management viewed its Post-DA tasks as more uncomplicated since the
financial and operational roadmap had been put in place. The Shareholder Agreement was specifically structured to, among other
things: (i) have LLC assume the ongoing financial burdens of carrying out the project in the Post-DA period, (ii) increase LLC’s
shareholder equity by $700 million to $1 billion via the land rights thereby greatly supporting LLC’s Project Finance bank
loan requirements, (iii) reimburse OMAG for its $18 million of Pre-DA expenses. Moreover, OMAG had put in place the 2012 Strategic
Warrant distribution to its shareholders as a back-up capital raising measure on the theory that the OMAG Common Stock would be
positively affected by success at LLC.
Per
the Shareholder Agreement which was purposefully structured to align the financial needs of the project’s development with
the financial resources required to execute it:
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1)
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Pre-DA,
OMAG financed the $18 million of pre-development expenses;
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2)
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Pre-DA,
the 3 shareholders made initial token investments totaling $390,000. ($234,000 by OMAG; $97,500 by RCA; $58,500 by CCC);
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3)
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Post-DA,
OMAG invested an additional $546,000;
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4)
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Post-DA,
RCA invested the land valued at $718 million;
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5)
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Post-DA
and after the 1
st
Financing Agreement Date & signing of the construction contract, CCC was obligated to invest
$50 million;
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6)
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Post-DA,
RCA would also be obligated to invest an additional $20 million.
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Up
until the DA was signed all LLC expenses were paid via OMAG’s $18 million of pre-development expenses and the above $390,000
of LLC cash equity.
After
the DA was signed, LLC’s shareholder equity was increased by OMAG’s additional investment of $546,000 and RCA’s
additional non-cash land investment of $718 million.
After
the 1
st
Financing Agreement Date and Contract Date, CCC would be obligated to invest $50 million and RCA would invest
$20 million – which investments would more than suffice to cover
the $25+ million of budgeted Soft Costs mentioned above,
the completion of which were a necessary precondition to any serious construction activities.
Unfortunately
CCC defaulted on its obligations under the Shareholder Agreement to invest its $50 million.
For
the next 17 months (Dec 2015 thru April 2017) - and although the 1
st
Financing Agreement Date had occurred on November
29, 2015 - and although CCC and LLC had agreed on several iterations of the construction contract, - CCC essentially strung LLC
along with multiple promises and agreements to invest and to sign the construction contract – all of which false promises
and agreements were ultimately dishonored by CCC.
Fortunately,
the Shareholder Agreement also granted OMAG an option to purchase CCC’s 15% ownership of LLC in the event of such a default
by CCC. OMAG exercised this option in April 2017 and OMAG now owns 75% of LLC and RCA owns 25% of LLC. The foregoing described
default by CCC (whether purposeful or otherwise) had several effects on LLC & OMAG:
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1)
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Valuable
time was lost in beginning the project development because the critical Soft Cost tasks of masterplanning and engineering
studies could not be undertaken absent funding for the approximately $25 million Soft Cost budget mentioned above;
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2)
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Someone
had to continue to finance LLC’s and the Omagine Project’s existence Post-DA until either
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a.
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the
CCC matter could be favorably resolved and CCC’s investment received, or
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b.
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until
CCC was replaced with an alternate investor.
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Only
OMAG stepped forward to do this. OMAG has incurred approximately $13 million in such Post -DA expenses to date. OMAG has in fact
single-handedly kept LLC and the Omagine Project viable for the past 18 months via its continued financing of LLC’s operations.
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3)
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The
OMAG Common Stock is, and always has been, a proxy for the performance of OMAG’S subsidiary, LLC. The aforementioned
delays and financial strains put downward pressure on the OMAG stock thus inhibiting management’s ability to utilize
the SEDA or to arrange private placements of its Common Stock without unduly diluting its shareholders.
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4)
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OMAG’s
continued financing of LLC’s Post-DA expenses severely strained OMAG’s resources and caused it to incur debt which
management of OMAG previously had studiously avoided.
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Nevertheless,
now that the long drama / spectacle with CCC is over, the only matter preventing forward progress on the Omagine Project is securing
an agreement with an investor to replace the CCC investment and/or having RCA invest its $20 million due under the Shareholder
Agreement. That process has been ongoing now for many months, is well advanced, and we presently expect to close a new LLC investment
in July 2017 after which the masterplanning and development of the Omagine Project will begin.
LLC
has a signed written agreement (an “Investment Agreement”) with one such local investor. This binding Investment Agreement
was signed by LLC and the investor in November 2016 and contemplated the funding of the investment in January 2017. Subsequent
to entering into this Investment Agreement, the investor unexpectedly passed away. The investor’s heirs have acknowledged
the validity of the Investment Agreement and we are awaiting the settlement of the investor’s estate (which we understand
to be quite substantial and complicated).
LLC
has accelerated its efforts with two European investment funds and presently is in final discussions with them.
Although
often beset by byzantine delays, the present state of affairs with respect to the Omagine Project is quite straightforward. When
any of the three new LLC investment prospects (1 local and 2 international) close (which we presently expect will occur in July
2017), LLC will begin the masterplanning and development of the Omagine Project.
Notwithstanding
the foregoing, shareholders and investors are again cautioned that until an equity investment transaction as generally described
above actually closes LLC will not have the funding sufficient to begin design, masterplanning and initial site work on the Omagine
Project and no assurance can be given at this time that any such investment transaction will be finally consummated. We have experienced
considerable delays to date.
Overview
Omagine, Inc. (“OMAG”
or the “Registrant”) was incorporated in Delaware in October 2004 and is a holding company which conducts substantially
all its operations through its majority owned subsidiary Omagine LLC, an Omani limited liability corporation (“LLC”)
and its wholly-owned subsidiary Journey of Light, Inc., a New York corporation (“JOL”). The Registrant and JOL are
sometimes collectively referred to herein as “OMAG” and the Registrant, JOL and LLC are collectively referred to herein
as the “Company”.
The Company is focused on entertainment,
hospitality and real estate development opportunities in the Middle East and North Africa (the “MENA Region”) and
on the design and development of distinctive tourism destinations. The Company presently concentrates the majority of its efforts
on the business of LLC and specifically on the Omagine Project. OMAG has 22,152,350 shares of its Common Stock issued and outstanding
as of June 30, 2017.
In November 2009, OMAG organized
LLC as a wholly owned subsidiary under the laws of the Sultanate of Oman (“Oman”) to design, develop, own and operate
our initial project – a mixed-use tourism and real estate project named the “Omagine Project” (See “The
Omagine Project” below). OMAG originally capitalized LLC at Omani Rials (“OR”) 20,000 [$52,000]. In October
2014, LLC and the Government of Oman (the “Government”) signed an agreement (the “Development Agreement”
or “DA”) for the development in Oman by LLC of the Omagine Project (See: Exhibits 10.7 and 99.1 and “The Development
Agreement and the Usufruct Agreement”, below). On July 2, 2015, after the Usufruct Agreement (“UA”) was registered
by the Government legally perfecting LLC’s ownership of the Land Rights, the Government and LLC agreed that July 1, 2015
(the “Operative Date”) was the date from which time periods for the execution by LLC of certain tasks enumerated in
the DA were to be measured.
In 2011 OMAG’s 100% ownership
of LLC was reduced to 60% pursuant to a shareholders’ agreement (the “Shareholder Agreement”) signed by OMAG,
JOL and three new LLC minority investors (See: Exhibit 10.6 and “The Shareholder Agreement” below).
As of the date hereof, the shareholders
of LLC as registered in Oman at the Ministry of Commerce & Industry (the “Registered Shareholders”) are:
i.
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Omagine, Inc. and
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ii.
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Royal Court Affairs (“RCA”), an organization representing the personal interests of His Majesty Sultan Qaboos bin Said, the ruler of Oman, and
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iii.
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Two
subsidiaries of Consolidated Contractors International Company, SAL (“CCIC”) which are:
|
|
a.
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Consolidated
Contracting Company S.A. (“CCC-Panama”), a wholly owned subsidiary of CCIC, and
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|
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b.
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Consolidated
Contractors Oman Company LLC (“CCC-Oman”), CCIC’s operating subsidiary in Oman.
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CCIC is a 65 year old Lebanese multi-national
company headquartered in Athens, Greece having worldwide and operating subsidiaries in among other places, every country in the
MENA Region. In its fiscal years immediately prior to 2016, CCIC had approximately five (5) billion U.S. dollars in annual revenue
and one hundred thirty thousand (130,000) employees but management’s best information at this time is that both CCIC’s
revenue and number of employees have since been dramatically reduced as a result of adverse economic and business conditions for
CCIC in the MENA Region (See: “Market Conditions” below). CCC-Panama and CCC-Oman are sometimes referred to collectively
in this report as “CCC”.
As previously disclosed, all
our prior efforts to conclude the CCC Contract and CCC’s required investment under the Shareholder Agreement were unsuccessful. On
April 3, 2017 OMAG exercised its option to purchase all of the shares of LLC owned by CCC-Oman and CCC-Panama, thereby leaving
OMAG and RCA as LLC’s two remaining shareholders. After the closing of the option purchase the Registered Shareholders at
the Ministry of Commerce & Industry in Oman will be amended to reflect the fact that CCC is no longer an LLC shareholder.
As previously reported, management
has a signed written agreement (an “Investment Agreement”) with one such investor.
The Investment Agreement is for an amount in excess of the aggregate
investment which was to be made by CCC-Oman and CCC-Panama. This binding Investment Agreement was signed by LLC and the investor
in November 2016 and contemplated the funding of the investment in January 2017. Subsequent to entering into this Investment Agreement,
the investor unfortunately and unexpectedly passed away.
The investor’s heirs have
acknowledged the validity of the Investment Agreement and have agreed to fulfil their father’s commitment pursuant to it
as soon as his estate (which we understand to be quite substantial and complicated) is settled. LLC management has been dealing
with the investor’s heirs since December 2016 and our understanding from them is that their father’s estate will be
settled “soon”. We have concluded however that we can no longer rely on their assurances of an imminent conclusion
as the heirs have frequently indicated to us that the estate settlement was imminent – but delays have continued to date.
Management has not abandoned
its efforts to close the investment transaction memorialized by the Investment Agreement but we have lost much valuable time and
no longer believe it will occur in the time frame we and the Ministry of Tourism require. No assurance can be given to investors
and shareholders that such investment transaction will actually occur until it actually does occur.
Since exercising the OMAG Options,
we have accelerated our efforts with the two European investment funds with whom we have, as previously disclosed, been holding
discussions in parallel. We are no longer relying on the prompt conclusion of the estate settlement mentioned above and we are
in final discussions with such two European investment funds. When the estate does settle, we will entertain an investment from
the heirs.
LLC will not have the approximately
$20 to $25 million of funding sufficient to begin the serious design, masterplanning and initial site activities on the Omagine
Project until we close a transaction with a replacement investor for CCC. These Soft Costs are typically paid for by the developer
(LLC) out of equity as opposed to the much greater project finance costs which are typically paid for by the developer (LLC) via
bank loans arranged by the developer. Management has also been conducting parallel project finance discussions with a bank and
we expect a successful conclusion to that discussion to occur soon after we close an equity investment with a new investor.
Notwithstanding the foregoing,
shareholders and investors are again cautioned that until an equity investment transaction as generally described above actually
closes LLC will not have the funding sufficient to begin design, masterplanning and initial site work on the Omagine Project and
no assurance can be given at this time that any such investment transaction will be finally consummated.
We intend to amend the Shareholder
Agreement as necessary to memorialize any such new investment by a new investor when and if it occurs (an “Amended and Restated
Shareholder Agreement”). Serious design, development and construction activities on the Omagine Project can begin only after
such investment transaction closes.
As these matters unfold, management
will report all material developments and agreements to its shareholders in a timely manner.
Management
cautions that future events rarely develop exactly as forecast and the best estimates routinely require adjustment. Investors
and shareholders are cautioned not to place undue reliance on any forward-looking statement or forecast, which speaks only as
of the date hereof.
The
Shareholder Agreement
Upon organizing Omagine LLC
in 2009, OMAG made an initial cash investment into LLC of OR 20,000 [$52,000] in consideration for the issuance to OMAG of 200,000
LLC Shares.
Pursuant
to the Shareholder Agreement:
i.
|
Before
the DA was signed and after the execution of the Shareholder Agreement, the LLC Shareholders purchased an aggregate of 1,300,000
LLC Shares for an aggregate cash investment of OR 130,000 [$338,000], as follows:
|
|
a)
|
OMAG purchased an additional 700,000 LLC
Shares for OR 70,000 [$182,000] in cash, and
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|
|
|
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b)
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RCA
purchased 375,000 LLC Shares for OR 37,500 [$97,500] in cash, and
|
|
|
|
|
c)
|
CCC-Panama
purchased 150,000 LLC Shares for OR 15,000 [$39,000] in cash, and CCC-Oman purchased 75,000 LLC Shares for OR 7,500 [$19,500]
in cash (collectively, the “225,000 Initial CCC Shares”).
|
ii.
|
After
the DA was signed on October 2, 2014, OMAG purchased an additional 2,100,000 LLC Shares for an additional investment by OMAG
of OR 210,000 [$546,000] in cash, and
|
iii.
|
On
July 2, 2015, RCA purchased an additional 663,750 LLC Shares in consideration for the non-cash investment by RCA of the Land Rights
valued at OR 276,666,667 [$718,614,000].
|
The construction contract with
CCC-OMAN was not signed and the investments required pursuant to the Shareholder Agreement from CCC-Oman and CCC-Panama were not
received by LLC. Pursuant to the terms and conditions of the Shareholder Agreement, OMAG was granted the OMAG Options to purchase
the 225,000 Initial CCC Shares from CCC for 22,500 Omani Rials ($58,500) in the event of a default by CCC. (See: the Shareholder
Agreement attached hereto as Exhibit 10.6). On April 3, 2017 OMAG exercised the OMAG Options to purchase all of the shares of
LLC owned by CCC.
As of March 31, 2017 and the
date hereof
the LLC shareholders have made cash investments
into LLC as indicated in the following Table A:
Table
A - LLC Shareholders’ Cash Equity Investments into Omagine LLC
|
|
Omagine,
Inc.
|
|
|
Royal
Court Affairs
|
|
|
Consolidated
Contractors
|
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
cash equity investment at inception
|
|
|
OR 20,000
|
|
|
$
|
52,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
cash equity investment at signing of Shareholder Agreement (the “SHA”)
|
|
|
OR 70,000
|
|
|
$
|
182,000
|
|
|
|
OR 37,500
|
|
|
$
|
97,500
|
|
|
|
OR 22,500
|
|
|
$
|
58,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
OMAG Deferred Cash Equity Investment due under the SHA before the first Financing Agreement Date **
|
|
|
OR 210,000
|
|
|
$
|
546,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cash Equity Investments made by each of the LLC Shareholders into LLC as of December 31, 2016 and the date hereof.
|
|
|
OR 300,000
|
|
|
$
|
780,000
|
|
|
|
OR 37,500
|
|
|
$
|
97,500
|
|
|
|
OR 22,500
|
|
|
$
|
58,500
|
|
As of March 31, 2017 and the
date hereof
RCA has made a non-cash payment-in-kind investment into LLC
as indicated in the following Table B:
Table
B - RCA’s Non-Cash Equity Investment into Omagine LLC
|
|
Omagine,
Inc.
|
|
|
Royal
Court Affairs
|
|
|
Consolidated
Contractors
|
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
non-cash equity investment of Land Rights on registration of the Usufruct Agreement
|
|
|
0
|
|
|
|
0
|
|
|
|
OR
276,666,667
|
|
|
$
|
718,614,000
|
|
|
|
0
|
|
|
|
0
|
|
As
of July 1, 2016 and the date hereof
RCA is obligated to make an additional Deferred Cash Investment into LLC
as indicated
in the following Table C:
Table
C - RCA Deferred Cash Equity Investment into Omagine LLC
|
|
Omagine,
Inc.
|
|
|
Royal
Court Affairs
|
|
|
Consolidated
Contractors
|
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
RCA Deferred Cash Investment which is now due under the SHA
|
|
|
0
|
|
|
|
0
|
|
|
|
OR
7,640,625
|
|
|
$
|
19,865,625
|
|
|
|
0
|
|
|
|
0
|
|
As of June 30, 2016 CCC was
obligated to make additional Deferred Cash Investments into LLC as indicated in the following Table D, however that did not occur:
Table
D - CCC Deferred Cash Equity Investments into Omagine LLC
|
|
Omagine,
Inc.
|
|
|
Royal
Court Affairs
|
|
|
Consolidated
Contractors
|
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
OR
|
|
|
USD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Deferred Cash Investments which may be due under the SHA
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
OR 18,987,500
|
|
|
$
|
49,367,500
|
|
*
|
All
conversions of Omani Rials to U.S. Dollars in this Report are calculated at an exchange rate of one (1) Omani Rial being equivalent
to $2.60 except for the land valuation which is calculated at an exchange rate of one (1) Omani Rial being equivalent to $2.5974.
See: “The Land Rights” and “Critical Accounting Policies”, below.
|
In order to bring the Omagine
Project to its present state, OMAG (as of March 31, 2017), has:
|
(i)
|
invested
300,000 Omani Rials ($780,000) in cash into LLC, and
|
|
(ii)
|
expended
$17.9 million of Pre-Development Expenses on behalf of the Omagine Project through the October 2, 2014 DA signing date consisting
of both cash and non-cash expense items as OMAG had promised to do pursuant to the SHA, and
|
|
(iii)
|
single-handedly kept the
Omagine Project and Omagine LLC financially afloat after the October 2, 2014 DA signing
date by expending an additional $11.7 million (as of December 31, 2016) on behalf of
the Omagine Project via cash loans from Omagine, Inc. to Omagine LLC (“Loans”)
and the direct payment by Omagine, Inc. of Omagine LLC liabilities and accounts payable
consisting of both cash and non-cash items (“Advances”), neither of which
Loans nor Advances Omagine, Inc. had any obligation whatsoever to do pursuant to the
SHA.
|
All such Loans and Advances
are liabilities of LLC to OMAG and due on demand. All such Pre-Development Expenses will be liabilities of LLC, reimbursable to
Omagine, Inc. in accordance with the terms of the Shareholder Agreement (as may be amended) See: the following Table E, and “Pre-Development
Expenses and Loans and Advances to LLC” as of March 31, 2017, below.
Table
E - Pre-Development Expenses, Loans and Advances
summary
|
|
Cash
Items
|
|
|
Non-Cash
Items (Depreciation; Amortization; Stock Option Expense)
|
|
|
Total
|
|
Pre-Development
Expense Amount (incurred prior to the October 2, 2014 DA signing date)
|
|
$
|
13,611,951
|
|
|
$
|
4,308,163
|
|
|
$
|
17,920,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
& Advances as of 3/31/2017 (incurred on or after the October 2, 2014 DA signing date)
|
|
$
|
4,884,437
|
|
|
$
|
7,394,404
|
|
|
$
|
12,278,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
- (Due to OMAG from LLC)
|
|
$
|
18,496,388
|
|
|
$
|
11,702,567
|
|
|
$
|
30,198,955
|
|
The foregoing summary of some
of the terms of the Shareholder Agreement and does not purport to be complete and it is qualified in its entirety by reference
to the full text of the SHA. The full text of the SHA is attached hereto as Exhibit 10.6. RCA and OMAG are presently in negotiations
with investors which may lead to an Amended and Restated Shareholder Agreement.
The
Omagine Project
The Omagine Project is a mixed-use
tourism and residential real estate project. Subject to normal and customary scheduling changes during its development and construction
the Omagine Project is expected to take approximately five years from the start date to complete. Due to CCC’s default on
its investment obligation pursuant to the Shareholder Agreement, the project’s start date has been significantly delayed
and has not yet occurred. The Omagine Project is being developed on one million square meters (equal to 100 hectares or approximately
245 acres) of beachfront land (the “Existing Land”) facing the Gulf of Oman just west of Oman’s capital city
of Muscat and approximately six miles from Muscat International Airport. Present development plans envision the creation of approximately
a net additional 106,000 square meters of “Reclaimed Land” which together with the Existing Land will comprise approximately
1,106,000 square meters of land (the “Project Land”). The Omagine Project will require substantial Project Finance
to complete (See: “The Shareholder Agreement”, above and “Financial Advisor”, below).
The
Omagine Project is planned to be an elegant integration of cultural, scientific, heritage, entertainment and residential components,
including seven pearl shaped (20 meter diameter) buildings (the “Pearls”) located along an open boardwalk with associated
entertainment exhibitions; an amphitheater and stage; green landscaped spaces; a canal; an enclosed harbor and marina; boat slips
and docking facilities; retail shops; a variety of restaurants, cafes and entertainment venues; a five-star resort hotel; a four-star
hotel; and possibly an additional three or four-star hotel; shopping and retail establishments integrated with the hotels; commercial
office buildings; and more than two thousand elegant residences to be developed for sale by LLC. The ethos of the project is elegant
but relaxed entertainment and the Company expects that the Pearls will become “the Landmark” for the Sultanate of
Oman.
Pursuant
to Omani Law, non-Omani persons are not permitted to purchase land in Oman unless such land is located within an Integrated Tourism
Project (“ITC”) such as the Omagine Project. The Government has designated the Omagine Project as an ITC and has issued
a license to LLC (an “ITC License”) thereby permitting the sale by LLC of the freehold title to the Project Land and
to properties developed on the Project Land to any person, including any non-Omani person. Since the Omagine Project will contain
significant hospitality (hotels), retail, commercial, and entertainment elements, LLC’s business operations are expected
over time to encompass real estate development, hospitality, entertainment and property management.
The
Development Agreement and the Usufruct Agreement
OMAG’s majority owned
subsidiary, LLC signed a Development Agreement (“DA”) with the Government of Oman in October 2014 for the development
in Oman by LLC of the Omagine Project. The legal effectiveness of the DA was conditional upon its ratification by Oman’s
Ministry of Finance which Ratification occurred in March 2015. On July 1, 2015, the Government and LLC entered into a Usufruct
Agreement (“UA”) with respect to the Land Rights over the Existing Land and the DA and UA extend such Land Rights
to all of the Project Land.
On July 2, 2015, after the UA
was registered by the Government legally perfecting LLC’s ownership of the Land Rights, the Ministry of Tourism (“MOT”)
of the Government and LLC agreed in writing that July 1, 2015 would be the “Operative Date” from which time periods
for the execution by LLC of certain tasks enumerated in the DA are to be measured. The MOT states in relevant part in writing
to LLC that:
“We ask you to receive the land and begin procedures for executing the project as per the development agreement
entered into with you, keeping in mind that the effective commencement date of the development agreement is 1 July 2015”.
(See Exhibits 10.8 and 99.2). The MOT has not further extended the Operative Date and assuming LLC succeeds in closing an
equity transaction with RCA per the Shareholder Agreement or to replace CCC in July as described herein, we expect the Operative
Date to be extended. No assurance however can be given that such an equity transaction will be closed or that the Operative Date
will actually be extended until such events actually occur.
The
DA and UA are the contracts that govern the design, development, construction, management and ownership of the Omagine Project,
the use and sale by LLC of the Project Land, and the Government’s and LLC’s rights and obligations with respect to
the Omagine Project. In the event of any conflict between the terms and conditions of the DA and the terms and conditions of the
UA, the terms and conditions of the DA control (See Exhibits 10.7, 99.1, 10.8 and 99.2). The term of the DA is 20 years and the
term of the UA is 50 years (renewable) commencing from the Operative Date. The UA and those DA provisions relevant to the UA survive
the expiration of the term of the DA.
The
Land Rights owned by LLC give it extensive rights over the Project Land including the right to sell such Project Land on a freehold
basis. LLC may use, control, develop, retain, operate and/or sell the approximately 1.1 million square meters of Project Land
to itself or to third parties. The DA obligates LLC to pay the Government twenty-five (25) Omani Rials ($65) for each square meter
of Project Land purchased directly by LLC or sold by LLC to any third party (the “Land Price”). The average valuation
for the Land Rights (net of such Land Price is OR 276,666,667 ($718,614,000) (See: “The Land Rights”, below).
The
five year period commencing on the Operative Date is a rent free period (the “Rent Free Period”) and thereafter LLC
will pay annual rent to the Government (the “Land Rent”) based on only the built but unsold commercial area (excluding
the residential area) of the Omagine Project (approximately 150,000 sq. meters) or approximately OR 45,000 ($117,000) per year
based on the current annual per square meter fee of OR 0.300 ($0.78). No Land Rent is due or owing during the Rent Free Period
and no Land Rent is ever due or owing with respect to plots of Project Land (i) on which there is a residential building, or (ii)
on which there is not a substantially completed non-residential building (i.e. Project Land that is open space, roads, non-residential
building work-in-progress, etc. are rent-free).
The continued legal effectiveness
of the DA subsequent to the Operative Date is dependent upon certain milestone dates being achieved (any or all of which may be
extended or waived by the Government), including: (1) LLC’s delivery to the Government by June 30, 2016 of a term sheet
with lenders for the financing of the first or any other phase of the Project, [this milestone date was achieved by the term sheet
and financing agreement which LLC received from the Qatari Bank in November 2015], (2) LLC’s submission to the Ministry
of Tourism of a social impact assessment by March 31, 2016 and the Government’s approval thereof by June 30, 2016, (3) the
Government’s approval by June 30, 2016 of the development control plan for the Omagine Project, and (4) the transformation
of LLC into a joint stock company by June 30, 2016 (these milestone dates 2, 3 and 4 are not yet achieved and are expected to
be extended as mentioned above if and when the Operative Date is extended). LLC has suffered many delays as a result of the CCC
default and we have been assured in the past by Government officials that the Operative Date will be extended by MOT provided
we are able to close the necessary investment with a replacement investor for CCC. We understand from these government officials
that MOT is losing patience with LLC with regard to the continued delays. No assurances can be given at this time however that
LLC’s failure to meet certain milestone achievement dates will continue to be waived by MOT or that the Operative Date will
be extended until these actions are actually done so in writing by MOT.
LLC management and RCA have
met with and spoken to the staff at the Ministry of Tourism and with the Minister several times during the period from December
2016 to the date hereof in regard to CCC’s default, RCA’s investment obligation, our efforts to finalize the Amended
and Restated Shareholder Agreement with the estate of our proposed new investor, our proposed European investment funds who may
be replacement investors for CCC, as well as in regard to the delays encountered to date by LLC in meeting certain DA milestone
dates as measured from the Operative Date. The MOT (and all Government Ministries) are also acutely aware of the unusual fiscal
strains imposed on the present banking and economic environments in the region. While no conclusive extension of the Operative
Date can be made until we close an investment transaction with a replacement investor for CCC and/or with RCA, as noted above
we understand from government officials that MOT is losing patience with LLC with regard to the continued delays and management
is highly focused on closing an equity investment for LLC in July and then getting the Operative Date extended and the development
of the Omagine Project started in earnest. No assurance can be given however to what extent, if any, that such an investment will
be closed by LLC and an investor or that the Operative Date will in fact be extended by MOT.
Pursuant to the DA, LLC must
substantially complete the construction of the seven Pearl buildings and one hotel (the “Minimum Build Obligation”
or “MBO”) by June 30, 2020 (the “MBO Completion Date”), as such date may be amended or extended per the
DA as indicated above. The DA imposes no performance timelines on LLC with respect to completing the development or construction
of elements of the Omagine Project other than the MBO but the completion of the MBO will require LLC to obtain the necessary Project
Finance to do so. Any material breach by LLC of its obligation to perform the MBO would constitute an event of default under the
DA. The DA specifies that the principal construction contract should be executed by June 30, 2016. This (i.e. the CCC Contract)
did not happen as indicated above. LLC is required to provide written notice to the Government in certain circumstances, such
as LLC’s change in an anticipated milestone date that would result in a substantial achievement of work to occur later than
60 days after such milestone date. Such notice has been communicated both verbally and in writing to the appropriate government
officials in recent communications with them. It will be necessary for MOT to extend the Operative Date (and in turn, the
MBO Completion Date) in order for LLC to be able to meet its present construction deadline for the Minimum Build Obligation.
OMAG undertook and financed
many development activities on behalf of LLC subsequent to the DA signing (the “Initial Activities”) in an effort
to fast-track the Omagine Project’s development. The fast-track advantages sought to be gained thereby however have not
materialized due to CCC’s default which resulted in LLC’s failure to utilize the $25 million Al-Rayan Loan to finance
the Initial Activities, and LLC’s ongoing operations in Oman (See: our previous disclosures in prior reports filed with
the SEC). The cause of such failure to utilize the $25 million Al-Rayan Loan was CCC’s failure to make its Deferred Cash
Investment into LLC as required after the November 2015 Financing Agreement Date after initially agreeing to do so and the extended
and much drawn out and ultimately futile negotiations with CCC relevant to the CCC-Oman construction contract (to which CCC often
initially agreed to various versions and later reneged on their prior agreements).
Because of these delays therefore,
the more serious and substantial design, masterplanning and construction activities for the Omagine Project did not begin in December
2015 as planned and as required for the fast-track development strategy and as management had planned and they have not yet begun.
(See: “Initial Activities” and “Pre-Development Expenses and Loans and Advances to LLC”, below). The design,
development and construction of the Omagine Project may still benefit from these Initial Activities having been undertaken but
certainly not to the extent envisioned by our planned fast-track development approach.
Non-Omani
persons (such as expatriates living and working in Oman) are not permitted by Omani law to purchase land or residences in Oman
outside of an ITC. The Government’s designation and licensing of the Omagine Project as an ITC therefore permits LLC to
sell the freehold title to Project Land and properties which are developed on Project Land to any Omani or non-Omani individual
or juristic person worldwide. Properties within an ITC enjoy a premium price relative to properties not in an ITC. Any Project
Land or buildings remaining unsold at the expiration of the 50 year Usufruct Term will revert to the Government. LLC does not
anticipate that there will be any such unsold properties at the expiration of the 50 year Usufruct Term.
The
foregoing summary of some of the terms of the DA and of the UA does not purport to be complete and it is qualified in its entirety
by reference to the full texts of such agreements. The full text of the Development Agreement is attached hereto as Exhibits 10.7
and 99.1. The full text of the Usufruct Agreement is attached hereto as Exhibits 10.8 and 99.2 and also contained in Schedule
2A of the Development Agreement.
The
Land Rights
The value of the Project Land
has been determined in 2015 by three highly experienced professional valuation firms in accordance with the requirements and procedures
specified for such a valuation by (i) the Royal Institution of Chartered Surveyors (“RICS”) of London, England, and
(ii) International Financial Reporting Standards (“IFRS”). Each of the three firms has a worldwide brand in the real
estate valuation business.
|
●
|
In November 2014, LLC engaged the Oman office of Savills (http://www.savills.com/ (“Savills”) operating as Arabian Real Estate LLC (http://www.savills.om). Savills provides real estate services from over 600 offices worldwide, is listed on the London Stock Exchange, and is a FTSE 250 Index company.
|
|
|
|
|
●
|
In
December 2014, LLC engaged DTZ International Ltd., a Dubai, UAE firm (now: Cushman & Wakefield International Limited)
with extensive experience in Oman (http://www.cushmanwakefield.com) (“C&W”). C&W is one of the top global
commercial real estate service companies.
|
|
|
|
|
●
|
In January 2015, LLC engaged Jones Lang LaSalle, UAE Limited, Dubai Branch (http://www.jll-mena.com/mena/en-gb/locations/Our-locations-in-MENA/dubai) (“JLL”). JLL has 53,000 employees operating across more than 230 offices in 80 countries.
|
The Savills and C&W final
valuation reports were received by LLC in January 2015. The JLL final valuation report was received by LLC in July 2015. The Company
is of the opinion that JLL’s valuation is flawed and most probably represents a statistical outlier. In an abundance of
caution however, management has nevertheless determined to include the JLL valuation in its calculation of the average value of
LLC’s
Land Rights. The Land Rights valuations by the three aforementioned
firms are summarized in the table below:
Land
Rights Valuation
|
Valuation
Firm
|
|
Omani
Rials
|
Savills
|
|
OR
295,000,000
|
C&W
|
|
OR
385,000,000
|
JLL
|
|
OR
150,000,000
|
|
|
|
Average
|
|
OR
276,666,667
|
In
view of the changing economic conditions in the MENA Region due to the fall in oil prices, LLC may commission an updated land
valuation in the coming months.
The
Accounting Treatment for the Land Rights
OMAG and JOL prepare their financial statements
in accordance with accounting principles generally accepted in the United States (“US GAAP”) and the Company prepares
its consolidated financial statements in accordance with US GAAP. LLC’s financial statements are prepared in accordance
with International Financial Reporting Standards (“IFRS”).
LLC
has land under development valued at 276,666,667 Omani Rials. Based on a $2.5974 per 1 Omani Rial exchange rate, the Company recorded
this land under development in its financial statements at $718,614,000 and the Company has allocated this amount as follows:
188,963,334 Omani Rials ($490,813,363 based on a $2.5974 per 1 Omani Rial exchange rate) to inventory; and 87,703,333 Omani Rials
($227,800,637 based on a $2.5974 per 1 Omani Rial exchange rate) to property. This land under development was purchased by LLC
on July 2, 2015 pursuant to the terms of the Shareholder Agreement whereby an LLC shareholder subscribed for 663,750 LLC Shares
at a purchase price equal to the value of the Land Rights. Since the Land Rights represented a non-cash payment-in-kind for the
LLC Shares, it was necessary to value the Land Rights.
Three
expert real estate valuation companies were engaged by LLC to independently value the Land Rights in accordance with the professional
standards specified by RICS and IFRS. The average of the three Land Rights valuations was OR 276,666,667. (See: “The Land
Rights”, above and Exhibits 99.4, 99.5 and 99.6).
Since the 276,666,667 Omani
Rial value of the Land Rights is substantial, LLC retained the services of PricewaterhouseCoopers LLP (“PwC”) to provide
its written analysis and report to LLC with respect to the correct IFRS accounting method LLC should use to record the 276,666,667
Omani Rial Land Rights value in its IFRS compliant financial statements. PwC did not advise on the valuation of the Land Rights
(as determined by Savills, C&W and JLL), but only on the correct accounting LLC should use to record such Land Rights valuation
in LLC’s financial statements in accordance with IFRS. PwC’s written report was received by LLC in August 2015. Promptly
thereafter, LLC consulted with its independent auditor, Deloitte & Touche (M.E.) & Co. LLC (“Deloitte”) with
respect to the matter, and Deloitte’s written technical analysis report (which agreed with PwC’s analysis) was received
by LLC in November 2015.
The Land Rights over the Project Land
are extensive, are closely akin to ownership rights and include the right to sell such land on a freehold basis. The Land Rights
are virtually equivalent to ownership rights and like any asset, if its value were to become impaired for any reason (including
any contractual reason pursuant to the DA requirements), a reserve for such impairment would need to be established at such time.
Although it is not required to do so, in view of the unsettled economic environment in Oman and the greater MENA Region and because
of the inordinate delays in resolving the CCC matters and obtaining a replacement investor for CCC, LLC plans to update its land
valuation when it has the resources to do so to verify if any material changes in the value of the Project Land may have occurred
since the above three valuation reports were completed. Consideration of the foregoing concerns may possibly require the establishment
of such a reserve for impairment. Management’s decision as to whether or not to undertake such updated reports and/or whether
or not to establish such a reserve will depend to a large extent upon management’s assessment at the time of the likelihood
of securing a replacement investor for CCC and the economic conditions in Oman. Both PwC and Deloitte independently concluded
that the Land Rights should be recorded as capital and as tangible assets (work-in-process inventory and land) on LLC’s
financial statements.
With respect to the Company’s
consolidated financial statements, the Company’s independent auditor in the U.S. has likewise concurred that pursuant to
US GAAP, the Land Rights should be recorded as capital, inventory and land.
Also
pursuant to US GAAP
l
ong-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable
market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change
that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets such as
the Land Rights to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable
through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and the
estimated fair value.
In determining the proper amounts
to be allocated to inventory and to land, LLC calculated the percentage (x) by dividing (y) the area of the land LLC presently
plans definitively to sell, by (z) the total area of the Project Land, and then multiplying that percentage (x) by 276,666,667
Omani Rials to get the number (N) for inventory. The amount to be allocated to property was then calculated by subtracting N from
276,666,667 Omani Rials. Using its detailed internal financial model, management calculated (x) to be equal to 68.3%, thereby making
the inventory number (N) equal to 188,963,334 Omani Rials ($490,813,363 based on a $2.5974 per 1 Omani Rial exchange rate) and
the property number equal to 87,703,333 Omani Rials ($227,800,637 based on a $2.5974 per 1 Omani Rial exchange rate). In its consolidated
financial statements therefore, the Company has allocated the value of the Land Rights between (i) land under development which
is held for sale (inventory), and (ii) land under development which is held for investment (PP&E). As more precise land use
percentages emerge during and after the masterplanning and construction of the Omagine Project, the percentage allocations for
the value of the Land Rights may be reclassified to distinguish between the land underlying properties that we will own and operate
and those which we will own and lease.
Pre-Development
Expenses and Loans and Advances to LLC
Prior to the DA being signed,
OMAG incurred significant costs related to marketing, planning, concept design, re-design, feasibility studies, engineering, financing,
promotions, capital raising, travel, legal fees, consulting and professional fees, other general and administrative activities
and similar such activities including preparing and making presentations to the Government and to potential investors and all
other activities and matters associated with the negotiation and conclusion of the DA with the Government (collectively, the “Pre-Development
Expenses”). The Shareholder Agreement defines the “Pre-Development Expense Amount” as the total amount of such
Pre-Development Expenses incurred before the DA was signed by the Government and LLC on October 2, 2014.
OMAG expended $17,920,114 to
pay for 100% of the Pre-Development Expense Amount.
Subsequent to the October 2, 2014 DA signing
date OMAG has voluntarily - and without any obligation to do so - single-handedly kept LLC and the Omagine Project financially
afloat by expending (as of March 31, 2017) an additional $12,278,841 million on behalf of LLC and the Omagine Project via Loans
and Advances from OMAG to LLC.
A
summary of the Pre-Development Expense Amount and of the Loans and Advances is detailed in the following table:
Pre-Development
Expenses, Loans and Advances
|
|
Cash
Items
|
|
|
Non-Cash Items
|
|
|
Total
|
|
Pre-Development Expense Amount (incurred prior to the October 2, 2014 DA signing date)
|
|
$
|
13,611,951
|
|
|
$
|
4,308,163
|
|
|
$
|
17,920,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans & Advances (incurred on or after the October 2, 2014 DA signing date)
|
|
$
|
4,884,437
|
|
|
$
|
7,394,404
|
|
|
$
|
12,278,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Due to OMAG from LLC
|
|
$
|
18,496,388
|
|
|
$
|
11,702,567
|
|
|
$
|
30,198,955
|
|
All such Loans and Advances are liabilities
of LLC to OMAG and are payable on demand. All such Pre-Development Expenses will be liabilities of LLC to OMAG and reimbursable
to OMAG in accordance with the terms of the Shareholder Agreement. The terms and conditions of an Amended and Restated Shareholder
Agreement may change the presently existing terms and conditions of the existing Shareholder Agreement.
The Pre-Development Expense Amount
Pursuant to the Shareholder
Agreement as presently in effect, the date subsequent to the first Financing Agreement Date when LLC draws down the first amount
of debt financing is defined as the “Draw Date”.
The first Financing Agreement
Date occurred on November 29, 2015 when LLC and Masraf Al Rayan signed a Financing Agreement. A Draw Date pursuant to that Financing
Agreement never occurred however because CCC, after first agreeing in December 2015 to promptly (i) finalize the negotiation of
the CCC-Oman construction contract (“CCC-Contract”) which in December 2015 was in an advanced stage of completion,
(ii) sign the CCC-Contract, and (iii) invest their Deferred Cash Investments immediately after the CCC-Contract was signed –
subsequently – and on several different occasions defaulted on all of these commitments and on its obligations under the
Shareholder Agreement. Consequently, these matters were the subject matter of numerous and virtually continuous discussions, negotiations
and agreed changes (subsequently defaulted on by CCC) from December 2015 through March 2017 with many and varied interim “agreed
agreements”, all of which were “agreed” and then later forsaken by CCC. The CCC-Contract negotiations were ultimately
abandoned by management (See: “The CCC-Contract”, below) and the OMAG Options were exercised by OMAG in April 2017.
Further
pursuant to the Shareholder Agreement as presently in effect:
|
1)
|
the
liability for the Pre-Development Expense Amount shall be recorded on LLC’s financial records on the Draw Date and in
accordance with International Financial Reporting Standards (“IFRS”), and
|
|
2)
|
fifty
percent (50%) of the Pre-Development Expense Amount will be paid to OMAG on or within ten (10) days after the Draw Date, and
|
|
3)
|
the
remaining fifty percent (50%) of the Pre-Development Expense Amount will be paid to OMAG in five equal annual installments
beginning on the first anniversary of the Draw Date.
|
The
Loans and Advances to LLC
The $12,278,841 of Loans and
Advances (as of March 31, 2017) are payable to Omagine, Inc. by LLC on demand (but as a practical matter, not until LLC has the
financial capacity to do so and Omagine has no intention of demanding immediate payment of the Loans and Advances until LLC has
such financial capacity).
The
Success Fee
The
Shareholder Agreement defines the Success Fee as being equal to ten (10) million dollars. Pursuant to the terms of the Shareholder
Agreement as presently in effect:
|
1)
|
the
liability for the Success Fee shall be recorded on LLC’s financial records on the Draw Date and in accordance with the
IFRS, and
|
|
2)
|
the
Success Fee will be paid to Omagine, Inc. in five annual two (2) million dollar installments beginning on or within ten (10)
days after the Draw Date.
|
OMAG, may at its sole option,
not enforce the aforementioned payment schedules for the Pre-Development Expense Amount and/or the Success Fee as agreed in the
Shareholder Agreement and may agree to a different schedule for such payments and OMAG may likewise, at its sole option, refrain
from demanding payment of the Loans and Advances until LLC is in a financial position to make such payment.
As of the date hereof, OMAG
continues to make Loans and Advances to and on behalf of LLC for the activities being undertaken by or on behalf of LLC for the
Omagine Project and expects to do so for only a short time further or until the closing of an equity investment into LLC occurs.
In light of the First Financing
Agreement Date having already occurred with no associated Draw Date, an Amended and Restated Shareholder Agreement (assuming it
is agreed and executed) is expected among other things, to address, restate and formalize more precisely the terms of repayment
by LLC to OMAG of the Pre-Development Expense Amount and the Success Fee but the manner, terms and conditions to be agreed relative
thereto is uncertain at this time. As stated above however, the Loans and Advances are current liabilities of LLC and are payable
by LLC to OMAG upon OMAG’s first simple demand. Management’s primary goal continues to be the launch of serious design
and construction activities for the Omagine Project and management does not object to any reasonable resolution of these and other
matters preventing that goal from being accomplished. Notwithstanding the foregoing, if and when LLC closes an equity investment
as or similar to the equity investment mentioned above and herein with respect to the Investment Agreement or with one or both
of the European investment funds (or other investor), it is OMAG management’s present intention to demand repayment from
LLC of all or a large part of the Loans & Advances then due and owing from LLC to OMAG.
LLC
Capital Structure
As of the date hereof the Registered Shareholders
have made:
|
(i)
|
cash
investments totaling OR 360,000 [$936,000] (of which OR 300,000 [$780,000] was invested by OMAG), and
|
|
|
|
|
(ii)
|
a
non-cash investment of the Land Rights valued at OR 276,666,667 ($718,614,000), for a total investment to date of OR 277,026,667
($720,269,334).
|
LLC is
presently capitalized as follows:
Shareholder
|
|
Omani
Rials
|
|
|
US
Dollars
|
|
OMAG
|
|
|
OR
300,000
|
|
|
$
|
780,000
|
|
RCA
|
|
|
OR 276,704,167
|
|
|
$
|
718,711,500
|
|
CCC-Panama
|
|
|
OR
15,000
|
|
|
$
|
39,000
|
|
CCC-Oman
|
|
|
OR
7,500
|
|
|
$
|
19,500
|
|
Total
|
|
|
OR
77,026,667
|
|
|
$
|
719,550,000
|
|
As of the date hereof, as a
result of OMAG having made its OR 210,000 ($560,000) Deferred Cash Investment into LLC, LLC is presently obligated to issue and
register a further 2,100,000 LLC Shares to OMAG.
RCA has made its OR 276,666,667
($718,614,000) non-cash PIK Investment of the Land Rights into LLC but has not yet made its OR 7,640,625 [$19,865,625] Deferred
Cash Investment into LLC as required by the Shareholder Agreement. In all likelihood OMAG and RCA will agree to an Amended &
Restated Shareholder Agreement (including an Amended RCA Subscription Agreement) pursuant to which LLC will issue a further 663,750
LLC Shares to RCA in exchange for the Land Rights (which right to receive such 663,750 LLC Shares is waived by RCA pursuant to
the present Shareholder Agreement because of RCA’s failure to make its OR 7,640,625 [$19,865,625] Deferred Cash Investment
into LLC as required by the Shareholder Agreement.
As of the date hereof, CCC has
defaulted on its obligation to make its Deferred Cash Investment into LLC and RCA has not yet made its Deferred Cash Investment
into LLC but is expected to do so pursuant to an Amended & Restated Shareholder Agreement which will include an Amended &
Restated RCA Subscription Agreement.
As of the date hereof, the ownership
percentages of LLC
as registered
at the Oman Ministry of Commerce & Industry are as follows:
LLC Shareholder
|
|
% Ownership
|
|
OMAG
|
|
|
60
|
%
|
RCA
|
|
|
25
|
%
|
CCC-Panama
|
|
|
10
|
%
|
CCC-Oman
|
|
|
5
|
%
|
Total:
|
|
|
100
|
%
|
On April 3, 2017 OMAG exercised
the OMAG Options to purchase all of the shares of LLC owned by CCC-Oman and CCC-Panama. RCA continues to be obligated to make
its further cash investment into LLC in the aggregate amount of OR 7,640,625 [$19,865,625] but the timing and payment of such
RCA Deferred Cash Investment may change from that memorialized in the Shareholder Agreement presently in effect to that which
may be agreed in an Amended and Restated Shareholder Agreement. CCC has indicated to management that it will default and not make
its Deferred Cash Investment into LLC in the aggregate amount of OR 18,987,500 [$49,367,500].
The
Transformation
At
some time subsequent to the execution of the Amended and Restated Shareholder Agreement, LLC intends to transform its corporate
structure from a limited liability company into a joint-stock company (the “Transformation”).
The Shareholder Agreement also
specifies, among other things, the corporate governance and management policies of LLC and it provides for the LLC shares presently
owned by JOL to be transferred to OMAG subsequent to the signing of the DA. We presently expect this share transfer to occur at
the time of the Transformation of LLC into a joint stock company or at the time of the execution of the Amended and Restated Shareholder
Agreement.
The
foregoing summary of the terms of the Shareholder Agreement does not purport to be complete and is qualified in its entirety by
reference to the full text of the Shareholder Agreement attached hereto as Exhibit 10.6.
Banks,
Investors and Contractors
The
Al Rayan Bank
As previously reported, on November
29, 2015, LLC executed a Murabaha Facility Agreement” with Masraf Al Rayan Bank (Qatar) for a $25 million loan (the “Al
Rayan Bank Loan”) to finance the first phase of the Omagine Project (the “Al Rayan Loan Agreement”) consisting
of design, development and initial construction activities. The loan, which is subject to satisfaction of certain conditions precedent
to closing, would bear interest at an annual rate equal to the 12 month LIBOR rate plus 1% and would be payable one year from
the closing date. One condition precedent to closing is that the loan be secured by a $25,000,000 cash deposit in an LLC account
at Masraf Al Rayan Bank (Qatar). Such security deposit was expected (and agreed by CCC) to be provided by CCC pursuant to the
terms pf the Shareholder Agreement but this did not occur. The Al Rayan Loan Agreement and the Al Rayan Bank Loan will not be
utilized by LLC due to CCC’s default under the Shareholder Agreement and its failure to make its required OR 18,987,500
[$49,367,500] Deferred Investment into LLC.
Management remains optimistic
that its ongoing discussions with an alternative bank can be concluded when and if our new investor to replace CCC becomes an
LLC shareholder.
Other
Investors and Contractors
During 2015, 2016 and to date,
management has conducted a multitude of investor presentations across the MENA Region, Europe and Asia with potential LLC equity
investors and high net-worth individuals. Several of these investors expressed interest in becoming shareholders of LLC and LLC
management is presently focused on the estate of the abovementioned investor with whom it has a written Investment Agreement and
on two European investment funds as investors.
Given the present liquidity
issues at local banks, the matter of construction debt financing (“Project Finance”) is an issue at the top of all
developer’s and contractor’s agendas. As mentioned above, the required Project Finance for the Omagine Project –
or any project – is not really needed until after the masterplanning and design phase is complete or near complete.
Design,
Development & Construction:
The design, development and construction of
the Omagine Project will be divided into various phases (each, a “Phase”). Since the CCC Contract has not and will
not be signed, neither CCC nor any other contractor is presently expected to be the General Contractor for the entire Omagine
Project. The various construction Phases are now expected to be put out to bid to various contractors and this competitive bidding
process (especially given the present economic environment for contractors in the MENA Region) is expected to garner substantial
cost savings for LLC.
Initial
Activities
The Post-DA Period is the time
period between the DA signing and the date hereof. The execution of many initial activities during this period by LLC required
the parallel launching by LLC management of many diverse efforts and processes on multiple fronts immediately after the DA Execution
Date of October 2, 2014 and continuing through the date hereof. This early initiative fast track strategy which was financed entirely
by OMAG included:
1.
|
the
DA was Ratified by the Government;
|
|
|
2.
|
the
UA was signed and registered with the Government;
|
|
|
3.
|
the
Operative Date of July 1, 2015 replaced both the Execution Date of October 2, 2014 and the Effective Date of March 11, 2015
referenced in the DA;
|
4.
|
three separate valuation studies and reports were commissioned and the valuation of the Land Rights was completed;
|
|
|
5.
|
expert accounting analyses and reports were received from PwC, Deloitte and the Company’s independent auditor regarding LLC’s purchase of the Land Rights and the recording thereof in LLC’s and the Company’s financial statements;
|
|
|
6.
|
LLC booked 276,666,667 Omani Rials of new equity which is also reflected in the Company’s consolidated financial statements;
|
|
|
7.
|
a cost accounting budgetary framework to be used during the development, construction and marketing of the Omagine Project was created by an independent accounting and finance consultant;
|
|
|
8.
|
an expert IT consultant was selected to architect and install the IT framework and solutions we intend to implement across LLC and the Company and across the Omagine Project’s “smart city” environment;
|
|
|
9.
|
an independent third party update to our feasibility study was commissioned and completed;
|
|
|
10.
|
an update of LLC’s internal financial model by specialist real estate investment bankers and advisers was commissioned and completed;
|
|
|
11.
|
confirmation from banks in Oman (but not from banks outside of Oman) that the value of the Land Rights can be used as collateral to support the Syndicated Bank Financing was received;
|
|
|
12.
|
the “Brand Identity” and associated brand pillar components and uniform brand messaging platform we intend to implement for Omagine, LLC and the Omagine Project were created;
|
|
|
13.
|
LLC’s strategic plan was completed;
|
|
|
14.
|
multiple meetings with, and multiple iterations of proposals and presentations from major mission-critical project consultants (architects, designers, master planners, engineers, program managers, quantity surveyors, real estate advisers, hospitality advisers, hotel management companies, financial advisers and others) have been received, reviewed and analyzed by management and selections of many consultants have been made by management;
|
|
|
15.
|
candidates for senior LLC executive positions have been recruited, interviewed and selected;
|
|
|
16.
|
extensive
and multiple presentations and meetings with potential LLC equity investors in six MENA Region countries, Europe, Asia and
the U.S. were conducted and while most offers were declined by LLC, negotiations with several selected strategic investors
are still ongoing with a present focus on three such investors;
|
|
|
17.
|
extensive and multiple presentations and meetings with local, regional and international banks in Oman, the MENA Region and Europe with respect to the provision of Syndicated Bank Financing have occurred with a present focus on one such bank;
|
|
|
18.
|
Multiple drafts of the CCC Contract were created (most recently in May 2016) but the final attempt to close this transaction ended unsuccessfully after many delays, and
|
|
|
19.
|
several other initial
drafts of contracts for mission-critical consultants were prepared,
|
The CCC Contract / The CCC Phases
The CCC-Contract was not and
will not be signed with CCC-Oman. Management was previously optimistic and positively inclined to believe that a beneficial conclusion
for all parties concerned would be forthcoming but no conclusion occurred and management concluded that no amount of further negotiations
would result in a definitive conclusion of these matters with CCC.
The Omagine Project will however
still be developed in Phases but the previously described and disclosed description of phases will be altered as we go forward.
Discussions with CCC have ceased and OMAG has exercised its option to purchase all of the shares of LLC owned by CCC-Oman and
CCC-Panama.
It is presently expected that several building
contractors will be involved in the project as the various Phases of the work is designed and specified and then put out to bid
by local contractors after the design is substantially completed. As part of the masterplanning, we will develop a phasing program
for the entire project and as the design and/or specifications of any Phase is sufficiently completed such that LLC can tender
it for competitive bidding it will do so. CCC-Oman will be welcome to bid on any such Phase if it so desires.
Any new construction contracts
with potential contractors will be modeled after the early draft CCC-Contract as envisioned by LLC and will be based on internationally
accepted contracting standards promulgated by the International Federation of Consulting Engineers (“FIDIC”) and will
contain a set of industry standard performance parameters, incentives and penalties to ensure LLC’s interests are protected
and that value is delivered.
LLC will manage the bidding and competitive
process by which the various contractors will be chosen. There is an ample supply of qualified contractors in Oman and the MENA
region.
The contractor will only commence
construction activities on a Phase or section of a Phase after the design therefore is substantially completed and after the competitive
bids therefore are examined and a contract award is made by LLC.
It
is anticipated that several Phases will be under construction simultaneously in an overlapping manner as the various designs and
specifications for the various Phases are sequentially completed. Construction on Phases will continue until the conclusion of
all Permanent Works constituting the Omagine Project are completed.
LLC
plans to maintain a robust control of the design of the entire project and of each Phase through to completion.
Development
Phases / Construction Phases / Project Financing / Masterplanning
It is anticipated that the Omagine Project
will be developed in several phases and each such phase will likely include one or more Sections of construction. It is expected
therefore that several tranches of project financing from banks or other financial institutions will occur and several Financing
Agreements will likely be executed during the course of the project’s phased development and construction. The first Financing
Agreement Date occurred on November 29, 2015 with the signing of the Al Rayan Loan agreement but as stated above, because of CCC’s
default, it was never utilized. Until other Financing Agreements are actually executed by the relevant parties however, no assurance
can be given that they actually will be so executed or that Project Financing will be available to LLC. Each such further Financing
Agreement, if any, is expected to coincide approximately with the beginning of a new development and construction phase, all of
which phases will include design, marketing and one or more new Sections of construction activities. The closing of a tranche
of Project Finance whether from banks, investors, financial institutions or from Syndicated Bank Financing will each be memorialized
by a separate Financing Agreement.
The November 29, 2015 execution date of the
first such Financing Agreement with Masraf Al Rayan is defined in the Shareholder Agreement as the “Financing Agreement
Date”. The earlier that the Financing Agreement Date occurred, the better it was expected to be for LLC, the Omagine Project,
and all concerned for a variety of reasons but this was ultimately complicated by the CCC-Contract delays described herein. The
present liquidity squeeze in GCC banks may continue to have a negative impact on our Project Finance efforts. Notwithstanding
the foregoing sentence, the bank with which we are presently negotiating a project finance package does not have such liquidity
issues.
No
assurance however can be given at this time as to whether the Company will be successful in arranging either Equity Sales or Debt
Facilities or in closing the financing facility for the Omagine Project until such events actually happen.
Any
reference in this report to a term or condition of the Development Agreement, the Usufruct Agreement and/or the Shareholders Agreement
does not purport to be complete and is qualified in its entirety by reference to the full texts of such agreements. The full text
of the Development Agreement is attached hereto as Exhibits 10.7 and 99.1. The full text of the Usufruct Agreement is attached
hereto as Exhibits 10.8 and 99.2. The full text of the Shareholder Agreement is attached hereto as Exhibit 10.6.
The masterplanning of the Omagine
Project will not begin until a new investor to replace CCC is secured. No further feasibility study is presently required or planned
for the project as our financial model adequately demonstrates the project’s financial feasibility. We may however commission
a further feasibility study or an update to the present one depending on future circumstances and/or requirements of lenders.
It is presently planned that in parallel with the masterplanning effort we will engage the hospitality, real estate, insurance
and marketing consultants to execute various professional studies which will inform the masterplanning process and our business
plan. These consultants and advisers all contribute to and inform the masterplanning and final design process for the Omagine
Project.
The
preliminary master plan along with the various studies and our fleshed-out business plan (which in turn is informed by our now
completed Strategic Plan) is expected to be utilized by the financial adviser to drive the Syndicated Bank Financing effort.
During
the masterplanning process, exact sizes, shapes and placement of the various project elements (residential, hotels, entertainment,
landscape, etc.) are determined and as the master plan evolves and takes shape, the various follow-on Phases of development and
construction will also naturally evolve. Simultaneously with these processes, the Financial Adviser will be updating the Omagine
Project’s financial model to reflect the precise and final constituent project elements along with their projected costs
and associated projected revenue streams. Finally, all of the foregoing data and other marketing, sales and strategic planning
studies created by or on behalf of LLC are assembled into an “LLC Business Plan”. With the LLC Business Plan in hand
and with the LLC Financial Adviser in the lead, LLC and the Financial Adviser and other select consultants set about the business
of making final presentations to the various banks, with which we are now and will continue to be in touch, with the objective
of arranging the Syndicated Bank Financing.
Notwithstanding anything contained
in this report regarding possible, proposed or planned (i) sales of equity by OMAG and/or LLC (“Equity Sales”), or
(ii) debt facilities with banks, financial institutions or other persons or sale of debt securities by LLC (collectively, “Debt
Facilities”), or (iii) Syndicated Bank Financing or Project Finance, no assurance can be given at this time as to whether
the Company or LLC will be able to obtain the significant amount of financing and Project Finance necessary over time to execute
the development of the Omagine Project.
Over the
past many months, we have conducted, and continue to conduct, numerous meetings:
i.
|
with
respect to LLC Equity Sales, with several potential equity investors interested in becoming shareholders of LLC, including
investment funds and high net-worth individuals from Europe and several MENA Region countries, and
|
|
|
ii.
|
with
respect to OMAG Equity Sales, with investment funds and high net-worth investors in the U.S., Europe and the MENA Region interested
in becoming shareholders of OMAG, and
|
|
|
iii.
|
with respect to Debt Facilities for LLC other than Syndicated Bank Financing, with several banks and other potential investors in the U.S., Europe, the GCC countries and Oman, and
|
|
|
iv.
|
with
respect to major local, regional and international banks in Oman and the GCC there appeared
to be a significant amount of banking liquidity in 2015, but presently the banking liquidity
levels are modestly rebounding after being under severe pressure in 2016 primarily as
a result of the worldwide drop in the price of crude oil and resulting decrease in deposits
into these banks by governments. The large appetite we witnessed in 2015 at such banks
for providing Syndicated Bank Financing and Debt Facilities to LLC cooled in 2016 but
appear to be easing in 2017. Notwithstanding the foregoing, the bank with which we are
presently negotiating a project finance package does not have such liquidity issues.
|
LLC management and financial executives
have held numerous meetings and discussions over the past numerous months with many major local and international banks, the purpose
of which, among other things, was to discuss the prospects for such banks providing the Syndicated Bank Financing which is expected
to be composed primarily of debt financing from banks. This is a crucial matter to address and accomplish in order to make the
Omagine Project a reality. Based on present assumptions, we estimate that LLC’s peak Syndicated Bank Financing requirements
will be approximately $350 to $400 million during the multi-year development cycle of the Omagine Project.
The process of obtaining project
financing is not a trivial exercise. It is a time-consuming and complicated process which, when successful, culminates in an event
known as a “Financial Close” – usually several Financial Close events - as projects of the size and scope of
the Omagine Project are almost always developed in phases. With respect to any proposed Syndicated Bank Financing requirements,
the question of whether or not LLC’s Land Rights can or will be used by the various banks as collateral to support such
Syndicated Bank Financing is therefore of considerable importance. At present LLC management is confident that banks within Oman
will use LLC’s Land Rights as collateral for bank debt facilities for LLC but we are unclear as to the position of many
of the regional and international banks outside of Oman in this regard. We will fully engage in this project financing process
after the masterplanning effort is well underway.
The
DA addresses this matter in considerable length and clearly contemplates that LLC - as the registered owner of the Land Rights
will be granting a security interest in its Land Rights to banks and lenders to the project. The DA further obliges the Government
- as the registered owner of the land - to consent to any such grant of a security interest by LLC. (See: Exhibits 10.7 and 99.1,
and Clause 22 of the DA - Lenders Security Interests). The DA states in relevant part:
“…
the Government shall enter into Direct Agreements with Lenders acknowledging their rights by way of Security Interests over certain
assets of the Project Company including an assignment to the Lenders of the Development Agreement, the Usufruct Agreement, other
related agreements, and the Project Assets …”
(See: Exhibits 10.7 and 99.1, Schedule 20 to the DA - Principles
of Direct Agreement).
The major Omani banks with which LLC management
has met - and with whom we continue to meet and update - have indicated that LLC’s Land Rights will be considered by such
Omani banks as collateral to support bank financing debt facilities for the Project Finance for the Omagine Project but other
non-Omani regional and international banks (including their branches in Oman) have been less forthcoming with definitive answers
until they see more details about the nature and extent of LLC’s Land Rights.
LLC
management is presently confident that the OR 276,666,667 ($718,614,000) value of its Land Rights will be considered by the Omani
banks as collateral for the Syndicated Bank Financing for the Omagine Project but it remains unclear at this stage whether or
not banks other than Omani banks will do likewise. Notwithstanding the foregoing statement however, it is not possible at this
time to predict with certainty what future events may alter LLC’s present assessment of its ability to use its Land Rights
to collateralize any bank debt financing including any Syndicated Bank Financing.
Updated
Studies
In
addition to the valuation studies and reports with respect to the Land Rights (See: “The Land Rights”, above), management
also commissioned:
(i)
|
an
updated feasibility study of the Omagine Project by an independent third party which is a professional real estate, tourism
and marketing consultant, and
|
|
|
(ii)
|
an
updated LLC internal financial model for the Omagine Project by unaffiliated third parties who are expert financial, investment
banking and real estate consultants.
|
Both the updated feasibility
study and the financial model have been completed (and may be further updated as and if required) and they will be utilized by
LLC to fine tune its development plans, and ultimately by LLC’s designated Financial Adviser for the balance of the project
in arranging the Syndicated Bank Financing and other financing for LLC as may be required.
LLC’s internal financial
model is updated, modified and adjusted from time to time in order to capture what management believes are the then present market
realities and projected trends. The financial model is organized to show best case, worst case and probable case scenarios. The
most recently updated probable case scenario forecasts substantial net positive cash flows for LLC over the seven year period
subsequent to the signing of the DA and a net present value (“NPV”) of the Omagine Project of approximately $1.5 billion
dollars. Management believes its financial model assumptions are reasonable but cautions that they may change as new facts and
information become available, as the development program and design process unfolds and as market conditions require. It is virtually
certain that the various components of the financial model - and therefore the estimates of total cash flow and NPV - will change
from time to time in line with market fluctuations and as the project unfolds.
The sale of residential and
commercial properties is a large revenue driver supporting LLC’s internal financial projections. The OR 276,666,667 average
valuation of the Land Rights has had a positive effect on projected revenue at LLC.
Management cautions that investors
should not place undue reliance on the aforementioned financial model projections or on estimates by market participants mentioned
herein as all such projections, estimates and forecasts are subject to significant uncertainties and contingencies, many of which
are beyond the Company’s control, and no assurance can be given that the projections will be realized or that the estimates
or forecasts will prove to be accurate. Potential investors are cautioned not to place undue reliance on any such forward-looking
statement or forecast, which, unless otherwise noted to the contrary, speaks only as of the date hereof.
Off
Plan Sales and Land Price Payments
As
is present practice in Oman, LLC anticipates that sales contracts with third party purchasers of residential or commercial properties
that are purchased “off plan” (i.e. purchased before the construction thereof), will stipulate the payment to LLC
by such purchasers of (i) a deposit on signing of such sales contract, and (ii) progress payments during the construction period
of the relevant property covered by such sales contract. Since the aggregate of such deposit and progress payments before and
during the construction of the relevant property is expected to be approximately 85% of the sales price of the relevant property
stipulated in such sales contract, LLC anticipates that (i) the construction costs for properties that are sold “off plan”
will be substantially “owner-financed” by the relevant purchaser, and (ii) it will likely be unnecessary therefore
for LLC to utilize any or very much Syndicated Bank Financing in order to pay for the construction costs of properties which are
sold pursuant to “off plan” sales contracts. Management expects that this commonly accepted sales contract and payment
process will significantly benefit LLC by reducing its aggregate requirements for Syndicated Bank Financing from its banks. The
consumer appetite for such “off plan” sales is less today than it was in recent years. (See “Market Conditions”
below).
Furthermore,
Land Price Payments to the Government are not due or owing from LLC until such time as LLC legally transfers the freehold title
to land to a purchaser at the time of the closing of the sale of such land. Such closings will only occur after LLC has received
final payment of the relevant sales contract amount from the purchaser. LLC’s financing profile is therefore further enhanced
since it is not obligated to make any Land Price Payments to the Government until after it has already received 100% of the contracted
sales price amount from the relevant purchaser at the closing when the freehold title to such land and property is transferred
to the purchaser.
Consolidated
Results
The financial results of LLC
are included in the consolidated financial results of the Company in accordance with accounting principles generally accepted
in the United States. The Company experienced a substantial increase in capital on July 2, 2015 when the Land Rights were registered
in LLC’s name and later recorded in LLC’s and the Company’s financial statements. The Company will experience
another substantial increase in capital, if and when further capital increases from RCA and a new investor occur at LLC and the
then appropriate percentage representing OMAG’s ownership interest in LLC is recorded in the Company’s consolidated
financial statements. LLC’s ongoing financial results will be included in the consolidated financial statements of the Company
as appropriate for as long as OMAG remains a shareholder of LLC.
In
addition to the activities mentioned above, the Company’s preparations for its future business activities also include,
but are not limited to: (i) negotiating various agreements with other major vendors, contractors, consultants and employees proposed
to be involved in the Omagine Project, (ii) arranging the appropriate and required legal, accounting, tax and other professional
services both in Oman and the U.S., (iii) reviewing and complying (to the extent we are presently able) with the listing requirements
of various stock exchanges so we may be prepared to apply for such listing(s) as soon as we are eligible, (iv) examining various
other matters we believe will enhance shareholder value, and (v) examining other potential Company revenue streams which are ancillary
to, and derivative of, the Omagine Project.
The
Company plans to enter businesses other than real estate development - and ancillary to, and derivative of, the Omagine Project
- and the Company presently expects to generate ongoing revenue streams from such businesses, but no projections of the amount
of such revenue, if any, can be made at this time.
Although the Company had expected
to generate revenue in the medium term as LLC (i) began reimbursing OMAG for its Pre-Development Expenses, and (ii) begins paying
the Success Fee installments to OMAG, such reimbursements for its Pre-Development Expenses are now likely to be delayed and/or
possibly altered by the terms of an Amended and Restated Shareholder Agreement (which will not affect the on-demand repayment
terms of the Loans and Advances) [See: “Pre-Development Expenses and Loans and Advances to LLC” and “Success
Fee” above]. The Company is not expected to generate revenue from sales or operations of properties within the Omagine Project
until the development and construction of the Omagine Project is substantially underway. The masterplanning, development and construction
of the Omagine Project is not expected to begin in earnest until the matter of a replacement investor for CCC is settled.
Financial
Adviser
LLC’s financial adviser (“Financial
Adviser”) for the Omagine Project is expected to be a bank or other professional financial consulting company. As such the
Financial Adviser will arrange the syndication among several banks of the debt financing (“Syndicated Bank Financing”)
for the Omagine Project.
We
are
presently in discussions with a bank which has already given LLC a “soft commitment” with respect to the provision
by it of the debt financing required for the Omagine Project.
Importantly, given the present liquidity issues at local and MENA Region banks, the
matter of Project Finance is an issue that has now moved to the forefront of LLC’s agenda. While the required Project Finance
for the Omagine Project (estimated at approximately $400 million) – or any project – is not usually needed until after
the masterplanning and design phase is complete or near complete, given present economic strains both developers and contractors
are well advised to seek to lock up a Project Finance commitment early on rather than waiting to start a syndication at a later
date.
LLC’s
Financial Adviser will advise on capital structure and lead the arrangement and placement of the Syndicated Bank Financing. LLC
will then work together with its Financial Advisor to appoint lead arrangers for such Syndicated Bank Financing which may include
the Financial Advisor itself.
The amount of Syndicated Bank
Financing owed at any one time by LLC to its Lenders is expected to fluctuate over the development and construction cycle of the
Omagine Project and will be greatly influenced by (i) any additional Equity Sales at LLC, and (ii) the pace and tempo of LLC’s
receipt of proceeds from its planned sales of real estate to third parties. The capital of LLC, proceeds from Equity Sales if
any, Syndicated Bank Financing and the proceeds from sales of its residential and commercial properties, are expected to be utilized
by LLC to develop the Omagine Project.
The
maximum amount of such Syndicated Bank Financing presently expected to be outstanding at any one time during the development and
construction cycle of the Omagine Project is presently estimated by management to be between $350 million and $400 million.
We have had extensive discussions with
a number of MENA Region financial institutions with respect to such Syndicated Bank Financing and while they remain interested
in discussing the Project Finance for the Omagine Project, almost all such banks confirmed the tightening of bank liquidity due
to the current economic climate resulting from the sharply reduced price for crude oil. We are presently in discussions with a
bank which is not experiencing such liquidity issues and which has already given LLC a “soft commitment” with respect
to the provision by it of the debt financing required for the Omagine Project. With LLC’s Financial Adviser leading this
effort, management remains hopeful with respect to LLC’s prospects for arranging the Syndicated Bank Financing for the Omagine
Project but recognizes that given present economic and market conditions, it is not a trivial task and will be challenging. These
discussions are ongoing and cannot be concluded until after the masterplanning of the Omagine Project is well underway and no
assurances can be given at this time regarding the outcome, if any, from such discussions. The DA recognizes and addresses this
issue when it states, in relevant part:
“The
Government recognizes that the Project Company intends to raise limited recourse financing in relation to the Project and that
Lenders may expect to be afforded certain rights in relation to it. Accordingly, the Project Company will by or before the completion
of twelve (12) months from the Execution Date
[now the Operative Date of July 1, 2015; see Exhibits 10.7, 99.1, 10.8 and 99.2]
enter into a written term sheet with the Lenders for the financing of the First Phase, any other phase or all of the Project
(a “Term Sheet”). If the Project Company has not delivered a copy of such Term Sheet to the Government by or before
the expiry of the twelve (12) month period referred to above, this Development Agreement then shall have no further effect.”
(See Exhibits 10.7 and 99.1).
The condition referred to above was fulfilled
on November 9, 2015 when LLC entered into a written term sheet with Masraf Al Rayan with respect to the financing of the then
planned first phase of the Omagine Project. Unfortunately due to CCC’s failure to fulfil its investment obligations under
the Shareholder Agreement such financing was never utilized.
MENA
Region banks and financial institutions continue to maintain adequate levels of liquidity but the rapid fall in world oil prices
is a challenge to those banks whose liquidity relies to a great deal on government deposits resulting from the sale of crude oil.
Such new and large government borrowings from commercial banking institutions tend to crowd out commercial borrowing capacity
for private companies. The largest banks of course are weathering this storm more handily then the mid-size or smaller banks.
The project financing environment in Oman
and the MENA Region continues to remain cautious after the rapid decline of worldwide oil prices which led to the rapid decline
of bank deposits being received from governments. LLC management regularly meets with several internationally recognized Financial
Advisers, all of whom have deep and wide-ranging expertise in the MENA Region project financing markets and as part of their normal
business activities are in regular contact with MENA Region banks and international financial institutions regarding the status
of and conditions prevailing in the project finance marketplace. The Company is now cautiously optimistic (but less confident
then it had been before the 2015 sudden drop in oil prices) that LLC and its yet to be designated Financial Adviser will be able
to arrange the necessary project financing for the Omagine Project. Management believes that all the Financial Advisers and banks
with whom it has recently met concur that there is currently still a reasonable degree of liquidity and appetite among MENA Region
banks and financial institutions for lending to, and investing in, sound development projects in the MENA Region. Most such persons
and institutions however are more cautious than they were over a year ago because of the recent rapid fall in oil prices and the
continuation of the unsettled military activities ongoing in Syria, Iraq, Yemen and Libya.
Notwithstanding the fact that LLC has already
received a “soft commitment” with respect to the provision of the debt financing required for the Omagine Project
from a bank without the aforementioned liquidity issues, no assurance can be given at this time that LLC will be able to obtain
any, or a sufficient amount of, the project financing required to develop, build and complete the Omagine Project. If such a circumstance
were to occur, it would have a material adverse effect on our business and operations.
Market
Conditions
As
previously disclosed and as has been and continues to be widely reported by local and international media and press, the worldwide
price of crude oil fell very suddenly and dramatically in 2014 and 2015 (from over $100 per barrel to about $25/$30 per barrel)
as robust production in the U.S. and elsewhere created a global glut of crude oil. Presently the price of crude oil is about $45/bbl.
Almost all countries in the MENA Region are dependent on the sale of crude oil to support their economies and their government
spending programs.
Although MENA Region governments
had 100s of billions of dollars of savings in sovereign reserve funds, this oil price shock ushered in an extremely challenging
environment for the MENA Region governments and for the companies of all types – including developers and contractors –
operating in the MENA region. In reaction to the large, rapid and unexpected drop in crude oil prices, government budgets were
slashed across the region; contractors’ payments were delayed; and many government sponsored projects were postponed, delayed
or cancelled. Payment delays and stalled government projects off the back of the decline in oil prices have severely impacted
the entire construction industry in the MENA Region – including in Oman. The Omagine Project however is not a government
sponsored project and LLC is a private company.
Crude
oil prices “seem” to have recently stabilized around the mid-$40s per barrel price and a rebalancing of the market
“seems to be” is in progress but the knock-on effects of the lower government spending and the delayed payments by
MENA Region governments to contractors has had a severe economic impact on local economies and contractors.
Almost all local banking institutions in
the MENA Region are dependent on large deposits from oil and gas sales by governments in order to provide the normally excess
liquidity apparent in the local banking system prior to this recent dramatic worldwide drop in oil prices. With the sudden fall
in deposits from oil sales, bank liquidity at local banking institutions in the GCC and wider MENA Region were under immense pressure
as deposits fell dramatically while simultaneously governments became large borrowers where they were not before. Even now some
of the largest contractors are experiencing difficulties.
We expect that this sudden business cycle
change will eventually right itself as all market participants adapt to the new realities but we are of the present opinion, provided
our Investment Agreement with our proposed new investor or with one of the European funds with which we are presently in discussions
results in the closing of an investment transaction to replace CCC, that the Company will succeed in creatively making a path
where none had apparently previously existed. Because of the significant delays in developing the Omagine Project to date however,
tensions are high both in the local market and the Government and no assurance can presently be given that our present plans will
succeed. Also, should the current negative economic conditions caused by the GCC-wide liquidity squeeze at banks continue unabated,
a knock-on effect in the real estate markets resulting in slower or fewer sales and lower selling prices could occur.
The market intelligence garnered
by management indicates that local bankers and market participants believe that both transaction volume and pricing in the Omani
real estate market are stable and are expected to improve during 2017 relative to performance in 2015 and 2016. We are presently
unsure what the impact on transaction volume and pricing will be from the fall in crude oil prices but we expect some softness
in the market as all participants adjust to the “new normal” of $40 to $50 crude oil prices. From a timing perspective,
LLC plans to now launch residential and commercial sales at the Omagine Project within the first 12 months after we close an investment
transaction to replace CCC’s now defaulted investment.
Trends
in the Omani market during the past few years have indicated a reduced presence of speculative buyers and a reduced consumer appetite
for pre-sales of residence units (“off-plan” sales) as buyers now frequently demand a finished product before entering
into sales contracts with developers. Although, many societal disorders, military activities and terrorism continue in other parts
of the MENA Region, as long as the politically stable and quite safe conditions existing at present in Oman persist then, market
conditions should favorably impact LLC’s future operations.
Nearby
Dubai is experiencing softness in its residential sales and leasing market but in general Dubai’s economy (a regional barometer)
remains relatively strong and, in certain areas, quite robust. Raw material and labor prices remain somewhat volatile in Oman
having recently experienced both downward and upward swings over the past year – but overall construction costs are sharply
down due to the severe competition presently in the market among building contractors.
In
Iraq, Syria, Yemen and Libya, among other countries, daily violent military clashes and terrorism are now commonplace. Other Arab
countries in the MENA Region have experienced and are experiencing demonstrations of discontent with the rule of their heads of
state and in some cases these demonstrations are being met with violent pushback by some MENA Region governments but this was
not and is not the case in politically and economically stable Oman. Anxiety over the health of His Majesty, the much beloved
Sultan Qaboos, and what effect, if any, that will have on Oman’s political stability and leadership succession seems to
have abated and His Majesty seen to be actively managing state affairs.
Construction
material costs and property selling prices in Oman and the surrounding region remain somewhat volatile and undue reliance on present
forecasts should be avoided. Management cautions that future events rarely develop exactly as forecast and the best estimates
routinely require adjustment. Management fully expects that its cost estimates for the Omagine Project (and therefore, its financial
model) will require adjustment – possibly significant adjustment – as future events unfold. Investors and shareholders
are cautioned not to place undue reliance on any such forward-looking statement or forecast, which speaks only as of the date
hereof.
Nearby
Dubai leads the way for the Gulf tourism market and this is likely to be the case for the foreseeable future, given its existing
visitor market, attractions, its impressive future capital development and marketing investment programs, and especially given
its recent selection as the host for EXPO 2020 which is expected to attract over 25 million visitors.
Sales
and Marketing
After it closes an investment transaction
to replace CCC as an investor and shareholder, LLC plans to undertake several wide ranging and continuous marketing, advertising,
branding and public relations campaigns to establish its brand identity prior to LLC’s launch of residential and commercial
properties for sale and to advertise and promote its forthcoming entertainment, hospitality and retail offerings.
As we move forward we plan to construct
and operate a sales showroom at the Omagine Site. The sales office/showroom will be staffed with experienced real estate sales
personnel and will contain large scale models of the Omagine Project and its various components as well as associated collateral
sales and marketing materials.
The anticipated launch date for residential
and commercial sales was previously planned to be in the first or second quarter of 2018 but the unexpected death of our proposed
new investor in LLC has now delayed this launch date further and it is now contingent on closing the aforementioned investment
transaction. Management expects that the continuing stability of local real estate markets as well as the Government’s continuing
improvements to Oman’s infrastructure (Muscat International Airport, roads, regional airports, etc.) will contribute positively
to LLC’s future sales prospects. The impact of the recent fall in crude oil prices and the knock-on economic effects on
consumers and government projects is unknown and difficult to predict at this time.
Management expects the Omagine Project to
benefit from Dubai’s hosting of EXPO 2020, and similarly from nearby Qatar’s hosting of the World Cup Games in 2022.
Both of these events are expected to attract a huge amount of visitors and tourists. The Omagine Project will be conveniently
located one hour from Dubai and Qatar by air and is easily accessible by a fine roadway system in both Oman and the U.A.E. A visit
to the Omagine Project will be a natural and logical addition to a Dubai or Qatar visit.
Sale prices and rental rates
for housing in other integrated tourism projects in the Muscat area of Oman have remained relatively stable during 2016 and 2017
and as of the date of this report. The inventory of unsold housing in the secondary (re-sale) market (both outside of and within
ITCs) has diminished due to recent, albeit quite price-sensitive, sales activity. New housing inventory, especially smaller apartments
designed to hit perceived market price-points, has continued to come onto the local Muscat area market and the market absorption
rates (number of market transactions) for such new residential housing is strong. The DA allows for sales and pre-sales of any
of the residential or commercial buildings that will be developed and built on the Omagine Site.
The
DA stipulates the obligation of the Government to issue such Licenses and Permits as may be required for the development of the
Omagine Project, including but not limited to issuing an Integrated Tourism Complex License (“ITC License”) designating
the Omagine Project as an ITC. On June 26, 2014, the Government issued an ITC License to LLC designating the Omagine Project as
an ITC.
Non-Omani persons (including expatriates
living and working in Oman) are forbidden by Omani law to purchase land, residences or commercial properties in Oman
unless
such land, residences or commercial properties are located within an ITC
. Because it is now licensed as an ITC, the land,
residences and commercial properties within the Omagine Project may be sold to any buyer worldwide - including any non-Omani buyer
- and the freehold title to such land, residences and commercial properties may be transferred to such buyers. Residences in ITCs
are viewed to be highly desirable by purchasers (by both investors and owner-occupiers) and ITC residences therefore enjoy a premium
selling price relative to non-ITC residences. Purchasers of residences within the Omagine Project (or any ITC) are entitled by
Omani Law to be issued a resident visa (for themselves and their immediate family).
The
excellent location of the Omagine Site is recognized by local market participants and the significance of the provision of the
Omagine Site to LLC is substantial. The increase in the value over the last several years of the land constituting the Omagine
Site has had a positive effect on the valuation of the Land Rights and is expected to have a positive effect on LLC’s revenue
from the sale of residential and commercial properties. The value of the land constituting the Omagine Site is expected to be
a primary driver of future LLC and Company revenue and the benefits accruing to LLC and the Company pursuant to LLC’s Land
Rights over the Project Land is expected to be material and significant.
Pursuant
to the DA and UA, LLC will pay the Government OR 25 ($65) per square meter for the Project Land it sells to third party purchasers.
The average valuation for the Land Rights (net of such Land Price) is OR 276,666,667 ($718,614,000) (See: “The Land Rights”,
above).
Design,
Engineering, Construction, Program Management, Content Development
The Company does not presently
own or directly operate any design, engineering, content development or construction companies or facilities. With assistance
from OMAG via the Loans and Advances, LLC has undertaken many critical tasks as indicated above, but for LLC to fully accomplish
its objectives and undertake and finance the Omagine Project, it will have to close an Equity Sale transaction. The failure to
date to accomplish these matters with CCC has delayed the Omagine Project and the masterplanning process.
Subject to the approval of its shareholders
and to negotiating and agreeing to a contract, LLC intends to hire a design firm, an engineering firm, a program management firm,
a construction management firm and a quantity surveying/cost consultant firm.
The interpretive design, entertainment
content, and visitor experience design candidates to be hired by LLC have been narrowed to a short list of professional companies.
One or more of such companies (“Content Developers”) will be engaged by LLC to design the transformation of the Omagine
Project’s high level strategic vision for the content of the Pearl structures and surrounding areas into physical places
offering emotional, intellectual and physical experiences and interactions. Each of the prospective Content Developers has serviced
a diverse client base, including theme parks, museums, zoos, aquariums and other such complex entertainment centers around the
world, including in the MENA Region, and each continues to regularly produce world class attractions globally of the size and
scope of the Omagine Project.
LLC
presently intends to hire various local Omani contractors for the construction of the Omagine Project.
To date, OMAG has generally
conceived the development concepts and defined the “scope of work” and then, as required, contracted with various
designers, architects, contractors and consultants in the United States, Europe and the Middle East to perform those tasks. LLC
will engage various firms as its consultants (master planner, engineers, real estate and hospitality consultants, etc.) who will
together with management finalize the design for the entire Omagine Project. There are many such consultants available with competitive
pricing and the Company does not believe that the loss or inability to perform of any such consultant which it has selected would
have a material, adverse impact on its business or operations. The Company believes it maintains a good working business relationship
with its consultants. As presently planned, all copyrights to all material documents, designs and drawings executed by such independent
designers, architects, contractors and consultants are, or will be, the property of either LLC or OMAG.
DESCRIPTION
OF PROPERTY
OMAG maintains its corporate
offices at 136 Madison Avenue, 5th Floor, New York, NY 10016. The premises are leased by OMAG under a month to month lease. LLC
leases premises in Muscat, Oman from an unaffiliated third party under a one year lease which commenced in January 2017 which
provides for an annual rental of $35,880.
LEGAL
PROCEEDINGS
The
Company is not a party to any legal proceedings which would have a material adverse effect on it or its operations.
MARKET
FOR COMMON SHARES AND RELATED STOCKHOLDER MATTERS
Common
Stock
Although our Common Stock is
quoted and traded on the OTCQB under the symbol “OMAG”, there is presently a limited amount of trading in our Common
Stock and it is uncertain if such limited trading constitutes an “established public trading market”. The following
table sets forth the high and low sales price quotations for our Common Shares as reported by the OTCQB on the quarterly ending
dates indicated and as of the most recent practicable date. The table reflects inter-dealer prices without retail mark-up, markdown
or commission and may not represent actual transactions. The last reported sale price of our Common Stock on the OTCQB on June
30, 2017 was $0.1549 per Common Share.
Quarter Ended
|
|
High
|
|
|
Low
|
|
3/31/2014
|
|
$
|
2.90
|
|
|
$
|
0.61
|
|
6/30/2014
|
|
$
|
2.25
|
|
|
$
|
1.20
|
|
9/30/2014
|
|
$
|
2.43
|
|
|
$
|
1.20
|
|
12/31/2014
|
|
$
|
3.94
|
|
|
$
|
1.55
|
|
|
|
|
|
|
|
|
|
|
3/31/2015
|
|
$
|
2.99
|
|
|
$
|
1.65
|
|
6/30/2015
|
|
$
|
2.50
|
|
|
$
|
1.20
|
|
9/30/2015
|
|
$
|
3.09
|
|
|
$
|
1.45
|
|
12/31/2015
|
|
$
|
1.88
|
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
3/31/2016
|
|
$
|
1.40
|
|
|
$
|
0.95
|
|
6/30/2016
|
|
$
|
1.28
|
|
|
$
|
0.605
|
|
9/30/2016
|
|
$
|
1.12
|
|
|
$
|
0.85
|
|
12/30/2016
|
|
$
|
0.95
|
|
|
$
|
0.616
|
|
06/30/2017
|
|
$
|
0.1549
|
|
|
$
|
0.109
|
|
As of the date hereof OMAG has
issued and outstanding:
|
i
|
3,107,000
Stock Options exercisable at various per Common Share exercise prices for the purchase of an aggregate of 3,107,000 Common
Shares (See: “Executive Compensation - Equity Compensation Plan Information”), and
|
|
|
|
|
ii
|
1,455,000 Stock Appreciation Rights (“SARs”) with a grant price of $2.00, all vested on the grant date of August 31, 2015 and expiring on December 31, 2017, payable only in Common Shares (See: “Executive Compensation - Equity Compensation Plan Information”), and
|
|
|
|
|
iii
|
6,422,124 Strategic Warrants exercisable for the purchase of an aggregate of 6,422,124 Common Shares, 3,211,062 of which are $5 Warrants and the remaining 3,211,062 of which are $10 Warrants (See: “Description of Preferred Stock and Warrants – Strategic Warrants”), and
|
|
|
|
|
iv
|
250,000
Adjustable Warrants exercisable for the purchase of an aggregate of 250,000 Common Shares at an exercise price equal to the
greater of (a) $0.50, or (b) 80% of the Market Price on the Trading Day immediately preceding the relevant Exercise Date (See:
“Description of Preferred Stock and Warrants”), and
|
|
|
|
|
v
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a
convertible promissory note in the aggregate principal amount of $100,000 issued to a company controlled by two Independent
Directors, which note and accrued interest in the aggregate amount of $104,260 (at June 30, 2017) is convertible at $0.75
per Common Share into approximately 139,013 Common Shares (See: “Certain Relationships and Related Transactions and
Director Independence - Related Party Payables”), and
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vi
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two
convertible promissory notes issued to an Independent Director in the aggregate principal amount of $150,000, with accrued
interest thereon at June 30, 2017 of $101,206, which two notes and accrued interest in the aggregate amount of $251,206 (at
June 30, 2017) are convertible at $2.50 per Common Share into approximately 100,482 Common Shares (See: “Certain Relationships
and Related Transactions and Director Independence - Related Party Payables”), and
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vii
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a promissory note in the amount of $185,000 to an unaffiliated third party which, under certain circumstances may be convertible into Common Shares pursuant to a formula contained in the Note Purchase Agreement associated with such promissory note (See: “The St. George Investments LLC Loan Agreement”),
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viii
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a promissory note in the amount of $100,000 to an unaffiliated third
party, which under certain circumstances may be convertible into Common Shares pursuant to a formula containing in the Note
purchase Agreement associated with such promissory note (See: “The JSJ Loan Agreement”).
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In addition, the Registration
Statement of which this Prospectus forms a part, covers the registration by OMAG of up to 3,085,822 Common Shares of which up
to 2,818,740 may be sold by the Selling Stockholder or its affiliate (See: “Selling Stockholder”).
At June 30, 2017, OMAG had 22,152,350
Common Shares issued and outstanding and based upon the number of record holders plus the number of individual participants in
security position listings at such date, there were approximately 1,119 holders of such Common Shares.
Dividends
and Dividend Policy
The
holders of Common Stock share proportionately, on a per Common Share basis, in all dividends and other distributions declared
by our Board of Directors. Other than a 2012 non-cash dividend distribution of rights and warrants to our shareholders, we have
not declared any dividends on our Common Stock since inception and do not anticipate paying cash dividends in the foreseeable
future. We plan to retain any future earnings for use in our business operations. Any future decisions as to payment of cash or
non-cash dividends or distributions on our Common Stock will be at the discretion of the Board of Directors and will depend upon
our earnings and financial position at such time and on such other factors as the Board of Directors may then deem relevant.
Performance
graph
A performance graph is not required for OMAG since
it is a smaller reporting company.
Selected
Financial Data and Supplementary Financial Information
Selected financial data and
supplementary financial information are not required for OMAG since it is a smaller reporting company.
FINANCIAL
STATEMENTS
The response
to this Item, commencing on Page F-1, is submitted as a separate section to this Prospectus.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights
OMAG’s business activities during the three month period ended March 31, 2017 and during its 2016 and 2015 fiscal years.
Overview
The Company is expected to generate
revenue as LLC begins reimbursing OMAG for its Pre-Development Expenses and Loans and Advances and begins paying the Success Fee
installments (See: “Pre-Development Expenses and Loans and Advances to LLC” and “The Success Fee”, above)
but is not expected to generate revenue from operations in the near term until the development of the Omagine Project is substantially
underway. The Company will need to generate sustainable operating revenue in order to attain its objectives and sustain its operations
going forward.
As
the development program for the Omagine Project becomes more detailed and as the planning and design processes progress, the estimates
of construction and development costs have and will become proportionately more accurate. LLC presently expects, based on the
current assumptions underlying its updated development program, that the development costs (including the costs for design, construction,
program management and construction management) for the Omagine Project will be between $2.1 and $2.5 billion dollars.
The
costs of labor and materials as well as the selling prices and market absorption rates of new residential and commercial properties
remain somewhat volatile in Oman and accurate forecasts for such future costs, selling prices or market absorption rates cannot
be made at this time. (See “Market Conditions” and “Sales and Marketing”, above).
LLC nevertheless presently expects, based
on current assumptions and market activity that such residential selling prices during the Omagine Project’s planned multiple
sales releases will be at least equal to the prices that are presently budgeted by LLC and that total construction costs will
be somewhat lower.
Beginning in the Company’s
September 30, 2015 consolidated financial statements and continuing to date, the Company’s consolidated financial statements
reflect a substantial increase in capital resulting from the inclusion therein as of July 2, 2015 of the value of the Land Rights
purchased by LLC. The opinion of our independent auditors in our fiscal year 2016 audited financial statements included in this
Prospectus does not contain any expression of concern about our ability to continue as a going concern. In their opinion on our
fiscal year 2014 audited financial statements, our auditors expressed substantial doubt about our ability to continue as a going
concern but beginning in our September 30, 2015 unaudited quarterly financial statements and continuing through to our March 31,
2017 unaudited quarterly financial statements included in this Prospectus, that expression of concern has been removed.
In the first quarter of 2017,
OMAG sold (a) an aggregate of 263,051 restricted Common Shares to a investor for aggregate proceeds to OMAG of $132,500 and (b)
an aggregate of 330,190 restricted Common Shares to the Company’s president, vice president and three independent directors
for aggregate proceeds to OMAG of $226,000. In November and December 2016, OMAG sold an aggregate of 370,000 restricted Common
Shares to investors for aggregate proceeds to OMAG of $185,000.
The Development Agreement was
signed by LLC and the Government of Oman on October 2, 2014. Thereafter the DA was ratified by the Government, the UA was signed
by and registered with the Government and LLC’s Land Rights were valued by three outside independent experts at an average
valuation of seven hundred eighteen million six hundred fourteen thousand dollars ($718,614,000).
LLC
was organized in late 2009 for the sole purpose of developing the Omagine Project. By definition therefore, it was designed to
be relatively inactive until the Development Agreement was signed and to become fully operational only after the DA was signed.
At the time the Shareholder Agreement was signed in late 2011, the LLC Shareholders were expecting the imminent signing of the
DA but as previously reported the DA signing was continually delayed (the Arab Spring; four different Ministers of Tourism; the
worldwide financial crisis; etc.) for a variety of reasons. (See our previous SEC reports for a detailed narrative on these delays).
The DA was ultimately signed on October 2, 2014.
LLC was initially capitalized
by OMAG in 2009 at $52,000. Two years later pursuant to the Shareholder Agreement the LLC Shareholders made modest initial cash
investments into LLC totaling $338,000 (of which OMAG invested 60% or $182,000) and simultaneously the LLC Shareholders obligated
themselves to make further more substantial investments into LLC ($70 million plus Land Rights) after the DA was signed and the
Financing Agreement Date was achieved. This structure of initial and deferred investment stages memorialized in the Shareholder
Agreement was a cumbersome but eminently sensible arrangement given the numerous DA signing delays experienced (and continued
to experience through October 2014). This investment structure had the added advantage of facilitating the low risk entry into
LLC of our strategic partners RCA and CCC.
As
previously reported it was also foreseeable, and foreseen by management, that this multi-stage investment structure had a built
in disadvantage. It left a future financing gap to be addressed after the DA was signed, namely -- the time period between the
DA signing and the first Financing Agreement Date (the “Immediate Post-DA Period”) would be a challenging period to
finance.
A fast track development schedule
during the Immediate Post-DA Period - followed by the First Phase was always planned and desirable. Since it was clear that such
a fast track schedule would need significant financing, management planned accordingly and sought to address this predictable
coming financing gap in a variety of ways, including the following: (i) we structured the Shareholder Agreement investments such
that although the initial investments into LLC by RCA, CCC and OMAG were minimized, LLC would receive a $546,000 additional cash
investment from OMAG promptly after the DA was signed; (ii) anticipating that the value of the Land Rights would be substantial
(whether on balance sheet or off ), beginning in 2011 we expanded our investor outreach with respect to post-DA LLC equity sales;
(iii) in our 2012 rights offering, we included 6,773,896 Strategic Warrants (3,211,062 of which are exercisable at $5.00 and 3,211,062
exercisable at $10) which we distributed to our shareholders as a dividend (See: “Strategic Warrants”, below); (iv)
we registered both the Strategic Warrants and the Common Stock underlying the Strategic Warrants with the SEC in order to make
them “freely trading”.
Management realized that financing
for the Immediate Post-DA Period would be scarce because of the way the Shareholder Agreement was structured but we were hopeful
that the aforesaid plans would yield the desired results. They didn’t. In order to sustain LLC during the pre-DA delays,
OMAG had trickled out its additional $546,000 investment into LLC over time and mostly before the DA was signed. No post-DA “immediate
$546,000 cash infusion into LLC” was therefore forthcoming; it was already mostly used up pre-DA.
Shortly
after the DA was signed management undertook a series of MENA Region trips (many of which were arranged for us by CCC senior management)
to make many investor presentations to wealthy investors and investment funds in the MENA Region – all were interested –
some offered to invest – but none of the proposed investment offers were acceptable to LLC management.
As previously disclosed, we
had planned to finance the activities required to be executed during the Immediate Post-DA Period via equity sales at LLC or debt
financing (including possibly a loan from OMAG to LLC if the financial resources were available to OMAG at such time); which debt
financing would also (assuming the CCC Contract was signed) be the first Financing Agreement Date; which in turn would satisfy
the Conditions Precedent to RCA’s and CCC’s obligations pursuant to the Shareholder Agreement to make their Deferred
Cash Investments into LLC in the aggregate amount of approximately $69 million; which in turn we planned to follow (at a later
time) with additional sales of LLC equity at a stepped-up LLC valuation, followed next by the syndicated bank financing. The Immediate
Post-DA Period activities, the First Phase, and all follow-on phases (and construction Sections) were planned therefore to be
tracked in parallel with the appropriate and necessary financing phases. It was a reasonable plan but events didn’t evolve
as expected and the plan didn’t work as intended.
It was fortunate that we (i) had developed
a good working relationship with YA over the years and we had renewed the SEDA and also arranged several working capital loans
from them over time (See: “Results of Operations - Standby Equity Distribution Agreements” and “The YA Loan
Agreements”, below); (ii) had accelerated our outreach and relationship management with banks and financial institutions
in Oman, the UAE and Qatar, and (iii) had made some significant private placement sales of our Common Stock. While judicious in
our use of the foregoing financing mechanisms, in order to finance the pre-DA delays (and the Immediate Post-DA Period tasks and
activities), the sale and issuance by the Company over the years of many additional shares of Common Stock was required. It is
a mark of the Company’s judiciousness and frugality however that as of the date hereof we still have only approximately
22 million Common Shares outstanding. Absent the Pre-DA delays, much of even this dilution could have been avoided; but the alternative
was not attractive.
The Immediate Post-DA Period
consisted essentially of activities required prior to engaging the masterplanner, engineering and other consultants and in preparation
for the start of construction and serious syndicated debt discussions with banks. These initial activities included: land valuation
reports, updating of feasibility studies & financial models; strategic planning, marketing plans; construction planning; vendor
identification and selection (master-planner, specialty architects [residential, landscape, hotels, lighting, IT]; engineers,
and several specialty consultants, etc.), and initial financial, banking and investor activities. As we continued executing various
tasks during the Immediate Post-DA Period, we also held discussions with senior CCC management regarding a short term loan to
LLC from CCC to help finance the ongoing Immediate Post-DA Period activities required for our fast track development model, but
these discussions became extended and were ultimately inconclusive. The Immediate Post-DA Period is now concluded and it was financed
in its entirety on behalf of LLC by OMAG.
The first Phase of the development
and construction of the Omagine Project was budgeted at approximately $24 million and such first Phase as contemplated consisted
mainly of the execution over 10 to 12 months of the masterplanning, design, engineering and construction work necessary for vertical
construction to begin and the administrative, financial and marketing activities necessary for the implementation of our business
plan. This first Phase was planned to be financed via the Al-Rayan Bank loan and from the Deferred Cash Investments from CCC and
RCA (which failed to occur).
LLC is attempting to arrange
an equity investment into LLC to replace CCC as an investor followed by bank debt financing to finance masterplanning, design
and engineering and development activities. Architectural, design and engineering activities are planned to continue over the
next several years spanning many follow-on phases (the second, third, fourth, etc. phases) as the development and construction
of the Omagine Project unfolds.
Before 2009 when LLC was organized,
100% of the Pre-Development Expenses associated with the Omagine Project were paid by OMAG. From its inception in 2009 through
the date hereof approximately 3% of all expenses associated with the Omagine Project were paid by LLC and 97% of all such expenses
continued to be paid by OMAG. LLC was capitalized at $390,000 pre-DA; 60% of which ($234,000) was invested by OMAG. Instead of
making one lump sum investment of $546,000 after the DA was signed as the Shareholder Agreement had contemplated, OMAG made a
series of earlier advance investments into LLC over the years totaling $546,000 both before and after the DA was signed.
As the DA negotiations and signing
dragged on, LLC bled cash which OMAG financed. The ambitious vision and scope for the Omagine Project required substantial cash
to sustain it and this very quickly exhausted LLC’s already meager initial capital from the LLC Shareholders’ $390,000
minimal initial investments. OMAG continued to solely finance and pay LLC’s ongoing expenses while simultaneously advancing
cash directly into LLC to keep it viable and functioning. As of March 31, 2017 OMAG has incurred expenses totaling approximately
$30.1 million to bring the Omagine Project and LLC to their present state (See: “Pre-Development Expenses and Loans and
Advances to LLC). No one expected at the time that it would take an additional four years after the Shareholder Agreement was
signed to get the DA signed. But it did. Ninety-seven percent (97%) of the financing for that four year effort and 99.2% of all
financing of pre-development expenses for the Omagine Project to date on behalf of LLC, was financed by OMAG.
LLC
has booked the 276,666,667 Omani Rials value of the Land Rights as capital and as hard assets (inventory & land) on its financial
statements and the Company has likewise booked the appropriate consolidating entries (based on a $2.5974 per 1 Omani Rial exchange
rate) for the Land Rights on its consolidated balance sheet included in its audited financial statements for the year ended December
31, 2015.
The Company is presently holding discussions
with the estate of a deceased investor with whom LLC has a signed Investment Agreement and with two European investment funds
with respect to equity sales at LLC at equity valuations which management considers to be reasonable.
Investors and shareholders should be aware
that the execution of the Omagine Project over the multi-year schedule contemplated by the Company will require significant amounts
of project financing which is planned to be arranged in several tranches in parallel with the development cycles of the project
and no assurance can be given that any or all of such required project financing, including the proposed debt financing with a
regional bank, will be able to be obtained by LLC.
Forecasts,
projections and assumptions contained and expressed herein were reasonably based on information available to the Company at the
time so furnished and as of the date hereof. All such forecasts, projections and assumptions are subject to significant uncertainties
and contingencies, many of which are beyond the Company’s control, and no assurance can be given that such forecasts, projections
or assumptions will be realized. No assurances can be given regarding the achievement of future results, as our actual results
may differ materially from our projected future results as a result of the risks we face, and actual future events may differ
from anticipated future events because of the assumptions underlying the statements that have been made regarding such anticipated
events.
Warrant
Distribution
In 2012 OMAG distributed 6,422,124
Strategic Warrants at no charge to its shareholders. All such Strategic Warrants presently expire on December 31, 2017.
Critical
Accounting Policies
Our
financial statements attached hereto have been prepared in accordance with accounting principles generally accepted in the United
States (“US GAAP”). The preparation of these financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting period. The policies discussed
below are considered by management to be critical to an understanding of our financial statements because their application places
the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect
of matters that are inherently uncertain. Actual results as determined at a later date could differ from those estimates. In recording
276,666,667 Omani Rials ($718,614,000 based on a $2.5974 per 1 Omani Rial exchange rate) in the Company’s consolidated financial
statements as the non-cash value of Land Rights (as defined below) purchased by LLC from an LLC Shareholder in consideration for
the issuance to such shareholder of 663,750 Omagine LLC shares (“LLC Shares”), management has relied to a great extent
upon the written valuation reports of three expert land valuation firms engaged by LLC to value such Land Rights. Furthermore,
in allocating such non-cash value to inventory and land under development, management has relied to a great extent upon the written
report of an expert independent accounting firm engaged by LLC to advise it on the proper accounting to be used to record such
non-cash value in LLC’s financial statements. Specific risks for these critical accounting policies are described in the
following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and
the best estimates routinely require adjustment.
Land Rights
- The Company’s
consolidated 2015 and 2016 audited financial statements reflect 276,666,667 Omani Rials ($718,614,000 based on a $2.5974 per 1
Omani Rial exchange rate) of land under development which the Company has allocated as follows: 188,963,334 Omani Rials ($490,813,363
based on a $2.5974 per 1 Omani Rial exchange rate) to inventory; and 87,703,333 Omani Rials ($227,800,637 based on a $2.5974 per
1 Omani Rial exchange rate) to property. This land under development was purchased by LLC on July 2, 2015 pursuant to the terms
of the Shareholder Agreement whereby an LLC shareholder subscribed for 663,750 LLC Shares at a purchase price equal to that amount
of Omani Rials determined to be the value of the usufruct rights over one million square meters of beachfront land (the “Land
Rights”). The Land Rights are extensive and they include the right to sell such land on a freehold basis (See: Exhibits
10.7 and 99.1). Since the Land Rights represented a non-cash payment-in-kind for the LLC Shares, it was necessary to value the
Land Rights.
Three
expert real estate valuation companies were engaged by LLC to independently value the Land Rights in accordance with the professional
standards specified by the Royal Institution of Chartered Surveyors (“RICS”) and International Financial Reporting
Standards (“IFRS”). The average of the three Land Rights valuations was OMR 276,666,667. See: Exhibits 99.4, 99.5
and 99.6.
LLC
engaged the services of an expert IFRS accounting consultant, PricewaterhouseCoopers LLP (“PwC”), to definitively
determine the correct method of recording the OMR 276,666,667 average value of its Land Rights in its IFRS compliant financial
statements. After receiving PwC’s written report, LLC then consulted with its independent auditor, Deloitte & Touche
(M.E.) & Co. LLC (“Deloitte”) and received Deloitte’s written report agreeing with the PwC analysis. Both
PwC and Deloitte have concluded that the Land Rights are to be recorded as capital, work-in-process (inventory) and land on LLC’s
financial statements. The Company’s independent auditor in the U.S. has likewise concurred that with respect to the Company’s
consolidated financial statements prepared pursuant to US GAAP, that the Land Rights should be recorded as capital, inventory
and land.
In
determining the proper amounts to be allocated to inventory and to land, LLC calculated the percentage (x) by dividing (y) the
area of the land LLC presently plans definitively to sell, by (z) the total area of the Project Land, and then multiplying that
percentage (x) by 276,666,667 Omani Rials to get the number (N) for inventory. The amount to be allocated to property was then
calculated by subtracting N from 276,666,667 Omani Rials. Using its detailed internal financial model, management calculated (x)
to be equal to 68.3%, thereby making the inventory number (N) equal to 188,963,334 Omani Rials ($490,813,363 based on based on
a $2.5974 per 1 Omani Rial exchange rate) and the property number equal to 87,703,333 Omani Rials ($227,800,637 based on a $2.5974
per 1 Omani Rial exchange rate). In its consolidated financial statements therefore, the Company has allocated the value of the
Land Rights between (i) land under development which is held for sale (inventory), and (ii) land under development which is held
for investment (PP&E). As more precise land use percentages emerge during and after the masterplanning and construction of
the Omagine Project, the percentage allocations for the value of the Land Rights may be reclassified to distinguish between the
land underlying properties that we will own and operate and those which we will own and lease.
Inventory
– Inventory is stated at cost. At June 30, 2016 and December 31, 2015, inventory consists of the land under development
acquired on July 2, 2015 (valued using the fair value of the Land Rights at the date of acquisition). The Company’s consolidated
financial statements for the year ended December 31, 2015 reflect an increase of $490,813,363 in inventory resulting from LLC’s
July 2, 2015 acquisition of the Land Rights.
Property,
Plant and Equipment
– Property, plant and equipment (“PP&E”) are stated at cost. PP&E consists of
land under development which is held for investment; furniture and fixtures; and office machinery and equipment. PP&E (including
buildings and structures after they are completed and put into service) are depreciated on a straight-line basis over their respective
useful service life. The Company’s consolidated financial statements for the year ended December 31, 2015 reflect an increase
of $227,800,637 in PP&E resulting from LLC’s July 2, 2015 acquisition of the Land Rights.
Revenue
Recognition -
The Company follows the guidelines of SEC Staff Accounting Bulletin No. 101,“Revenue Recognition in Financial
Statements”. LLC will recognize revenue ratably over the development period of the Omagine Project measured by methods appropriate
to the services or products provided.
Valuation Allowance for Deferred
U.S. Tax Assets
- The carrying value of deferred U.S. tax assets assumed that OMAG would not be able to generate sufficient
future taxable income to realize the deferred tax assets, based on management’s prior estimates and assumptions. Now that LLC
has signed the Development Agreement for the Omagine Project and has purchased the Land Rights, management expects to re-evaluate
such estimates and assumptions within the Company’s next fiscal year.
Foreign
Exchange Rates
– The Omani Rial is pegged to the U.S. Dollar and as such its value relative to the U.S. Dollar normally
exhibits very minimal fluctuation between approximately $2.597 and $2.60 U.S. Dollars to 1 Omani Rial. In its initial recording
of the Land Rights in its September 30, 2015 consolidated financial statement, the Company utilized the exchange rate of $2.5974
U.S. Dollars to 1 Omani Rial which was based on the July 7, 2015 XE Currency Converter. For presentation purposes subsequent to
September 30, 2015, the Company utilizes an exchange rate of $2.60 to 1 Omani Rial. Adjustments required, if any, will be reflected
in the Company’s fiscal year-end audited financial statements.
The
Company plans to continue its focus on real estate development, entertainment and hospitality ventures and on developing, building,
owning and operating tourism and residential real estate development projects, primarily in the MENA Region. The Company presently
concentrates the majority of its efforts on the tourism and real estate development business of LLC in Oman and in particular
on the Omagine Project.
Results
of Operations
:
THREE MONTHS ENDED MARCH 31, 2017 vs.
THREE MONTHS ENDED MARCH 31, 2016
The Company did not generate
any revenue or incur any cost of sales during the three month periods ended March 31, 2017 and 2016. The Company is relying on
LLC’s operations for the Company’s future revenue generation. Management is presently examining other possible sources
of revenue for the Company which may be added to the Company’s operations.
Total SG&A Expenses were
$525,229 during the three month period ended March 31, 2017 compared to $706,554 for the period ended March 31, 2016. This $181,325
(26%) decrease was attributable to decreases in the following expense categories: officers and directors’ compensation including
stock based compensation ($11,833), professional fees ($41,031), consulting fees ($51,086), travel ($73,847) occupancy ($110)
and other selling general and administrative costs including stock-based compensation ($3,418).
The Company sustained a net
loss of $589,202 for the period ended March 31, 2017 compared to a net loss of $721,100 for the period ended March 31, 2016. This
$131,898 (18%) decrease in the Company’s net loss for the period ended March 31, 2017 compared to the prior period was principally
attributable to the $181,325 decrease in SG&A Expenses mentioned above and an increase in amortization of debt discounts ($22,566),
increase in interest expense ($9,550) and a decrease in net loss attributable to non-controlling interests in LLC ($17,311).
Liquidity
and Capital Resources
The Company incurred net losses
of $589,202 and $721,100 during the periods ended March 31, 2017 and 2016, respectively. During the three month period ended March
31, 2017, the Company had a decrease in cash of $224,544 resulting from the negative cash flow of $17,500 from financing activities
and by a negative cash flow of $207,044 from operating activities. Financing activities for the year three month period March
31, 2017 consisted of proceeds from the sale of Common Stock of $132,500 offset by two payments totaling $150,000 against the
YA II PN, Ltd. (December 2016 YA Loan).
The Company had $0 in capital
expenditures for the period ended March 31, 2017.
At March 31, 2017, the Company
had $490,887,017 in current assets, consisting of $490,813,363 of land under development held for sale (See: Note 2 to the Company’s
audited consolidated financial statements), $4,684 of cash and $68,970 in prepaid expenses and other current assets. The Company’s
current liabilities at December 31, 2016 totaled $2,459,214 consisting of $546,596 of convertible notes payable and accrued interest,
$478,452 of notes payable and accrued interest, $177,500 note payable net of unamortized original issue discount, $847,139 of
accounts payable and accrued expenses and $409,527 of accrued officers’ payroll. At March 31, 2017, the Company had working
capital of $488,427,803 compared to working capital of $488,376,460 at March 31, 2017. Twenty nine percent (29%) of the $2,659,214
of current liabilities at March 31, 2017 ($783,628) is due and owing to officers and/or directors of OMAG.
The $51,343 increase in the
Company’s working capital at March 31, 2017 compared to December 31, 2016 is attributable to the decrease in current liabilities
($208,776) and a decrease in cash ($224,544) offset by an increase in prepaid expenses and other current assets ($67,111). The
Company’s liabilities at March 31, 2017 decreased compared to December 31, 2016 due to decreases in notes payable and accrued
interest ($207,935), accrued officers’ payroll ($10,099), accounts payable, accrued expenses and other current liabilities
($25,966) offset by increases to note payable ($15,000), convertible notes payable and accrued interest ($20,224).
Warrants
As of March 31, 2017, OMAG has
6,572,124 Common Stock purchase warrants (“Warrants”) issued and outstanding, (a) 3,211,062 of which are exercisable
for the purchase of one Common Share at a per Common Share exercise price of $5.00 [the “$5 Warrants”]; (b) 3,211,062
of which are exercisable for the purchase of one Common Share at a per Common Share exercise price of $10.00 [the “10 Warrants”]
(collectively (a) and (b) being the “Strategic Warrants”) and (c) 150,000 of which are exercisable for the purchase
of one Common Share at a per Common Share exercise price equal to the greater of: (i) $0.50, or (ii) eighty percent (80%) of the
Market Price on the Trading Day immediately preceding the relevant Exercise Date [(c) being, 150,000 “Adjustable Warrants”].
Management is hopeful that the
6,572,124 outstanding Warrants will eventually become “in the money” and will be exercised which will provide a future
source of additional financing for OMAG.
Strategic
Warrants
Of the 6,422,124 Strategic Warrants
distributed, 3,211,062 are exercisable at $5 per Common Share and 3,211,062 are exercisable at $10 per Common Share. On January
14, 2016, OMAG filed a Post-Effective Amendment on Form S-1 (Commission File No. 333-183852) to update the previous registration
of all 6,422,124 then issued and outstanding Strategic Warrants and the 6,422,124 Common Shares underlying such Strategic Warrants
(the “Updated Warrant Registration”). The SEC declared the Updated Warrant Registration effective January 25, 2016.
The effective status of the Updated Warrant Registration expired on October 21, 2016 and the Company intends to file an updated
post-effective amendment to maintain the warrants effective status of such registration statement. Pursuant to a Board of Directors
resolution dated August 12, 2015, the expiration date of all Strategic Warrants was extended from December 31, 2015 to December
31, 2016 and pursuant to a Board of Directors resolution dated December 9, 2016, the Strategic Warrants were again extended from
December 31, 2016 to December 31, 2017. All other terms and conditions of the Strategic Warrants remained unchanged.
Tempest
Warrants
On June 24, 2014, OMAG issued
the 1,000,000 Tempest Warrants to an investor each of which were exercisable for the purchase of one restricted Common Share at
a per Common Share exercise price equal to the greater of: (a) $1.00 per Common Share, or (b) 80% of the closing sale price for
a Common Share on the Trading Day immediately preceding the relevant exercise date (See: Exhibit 4.4). Prior to their expiration
date, a total of 650,603 Tempest Warrants were exercised for aggregate proceeds to OMAG of $916,540. The remaining 349,397 Tempest
Warrants expired unexercised on June 23, 2016. As of May 9, 2017 there were no Tempest Warrants issued or outstanding.
Adjustable Warrants
On October 14, 2016, in connection
with a non-interest bearing $75,000 convertible promissory note in favor of Rural Concepts LLC, a British corporation (“Rural
Concepts”), OMAG issued 150,000 Warrants to Rural Concepts, each of which was exercisable for the purchase of one restricted
Common Share at a per Common Share exercise price equal to the greater of (a) $0.50 per Common Share, or (b) 80% of the Market
Price on the Trading Day immediately preceding the relevant Exercise Date.
JSJ Investments
On May 8, 2017, the Company
entered into a Convertible Promissory Note with JSJ Investments, an accredited investor, for the principal amount of $100,000
with interest at 12% per annum, due February 7, 2018 and convertible into the Company’s Common Stock after 180 days from
the Issuance Date at a conversion price equal to 60% of the lowest trading price of the Common Stock during the twenty day period
prior to the conversion. The Company may prepay the Note in full together with any accrued interest before the Prepayment Date
which occurs 180 days after the Issuance Date with a premium sliding cash redemption scale: the Company may prepay the Note in
full until the 90
th
day after the Issuance Date at a cash redemption premium of 125% in addition to outstanding interest;
from the 91
st
day to the 120
th
day after the Issuance Date, the prepayment premium is 135%, and from the
121
st
day to the Prepayment Date of November 7, 2017, the prepayment premium is 140%. (See: Exhibit 10.49, the Convertible
Promissory Note).
Standby
Equity Distribution Agreements
Between 2009 and 2011, OMAG
had a Stand-By Equity Distribution Agreement with an affiliate of YA (the “2009 SEDA”). OMAG and YA were parties to
a second Stand-By Equity Distribution Agreement (the “2011 SEDA”) which was terminated on July 21, 2014. The 2009
SEDA and the 2011 SEDA are collectively referred to herein as the “Prior SEDAs”.
On April 22, 2014, OMAG and
YA entered into a new Standby Equity Distribution Agreement which was amended on October 10, 2014 (the “2014 SEDA”).
The 2014 SEDA is generally on the same terms as the 2011 SEDA.
Any use by OMAG of the 2014
SEDA will be guided by several factors, including but not limited to: (i) the availability and cost of alternative financing,
(ii) our ability to rapidly access required financing, (iii) the liquidity and market price of our Common Stock, (iv) the exercise,
if any, of Warrants, (v) the likelihood (or actuality) of the success of our present efforts to arrange (a) new equity investments
into OMAG and (b) new debt and/or equity investments into LLC, (vi) the likelihood (or actuality) of LLC having the financial
capacity to pay OMAG the $10 million Success Fee and the Pre-Development Expense Amount and Loans and Advances in excess of $30
million. (See: “Financial Advisor”, and “The Shareholder Agreement”, “LLC Capital Structure”,
“Pre-Development Expenses / Post-DA Pre-Development Expenses”, above), and (vii) our then current cash requirements.
Because
the market for our Common Stock has historically exhibited low liquidity levels, we may not be able to take full advantage of
the 2014 SEDA if such liquidity levels do not improve. If the market for our Common Shares is exhibiting low liquidity levels
at the time we give YA an Advance Notice (a “Put”) and if YA sells Common Shares into the public market during the
five Trading Day Pricing Period subsequent to our Put (as is YA’s customary practice), it is likely that the price of our
Common Shares will decline. Any such price decline will immediately increase the number of Common Shares we would otherwise be
required absent such price decline to deliver to YA subsequent to the Pricing Period in satisfaction of such Put. If this pattern
continued to happen with subsequent Puts by us, it is likely that we would issue and sell to YA the maximum 3,000,000 shares available
under the 2014 SEDA before reaching the aggregate sales price of $5 million available under the 2014 SEDA.
LLC
is now obligated to design, develop and construct the $2.5 billion Omagine Project. Given the size and scope of the Omagine Project,
it is expected that LLC will require a minimum of $300 million (possibly up to $500 million) of debt financing / project financing
(including the Construction Financing) over various times during the next 4 to 5 years. This Construction Financing requirement
will not be addressed by utilizing the 2014 SEDA. Notwithstanding that fact, the Company expects to have substantial and rapidly
forthcoming working capital requirements other than the Construction Financing for a portion of which it plans to utilize the
2014 SEDA but no assurance can be given that the Company will be able to obtain the necessary working capital.
Given
the considerable resources we will be required to bring to bear to execute the Omagine Project, we presently expect that we will
fully utilize the entire $5 million amount available to us under the 2014 SEDA. Such use of the 2014 SEDA will of course be guided
by the price, liquidity and volatility of our Common Stock as we move forward. We cannot presently predict what other future sources
of financing might become available to us to cause us to utilize less than the full $5 million available under the 2014 SEDA and
our present assessment is that, we will surely need the full $5 million available under the 2014 SEDA. The Prior SEDAs indisputably
provided the Company the lifeline needed to achieve the DA signing and the 2014 SEDA will likely provide some of the supplementary
working capital the Company will need going forward.
Prior
SEDAs
The
2009 SEDA expired in 2011. The 2011 SEDA was due to expire on September 1, 2014 but was terminated on July 21, 2014 by the mutual
consent of the parties (See: Exhibit 10.19).
In connection with the 2011
SEDA, OMAG filed with the SEC a registration statement (the “2011 SEDA Registration Statement”) on Form S-1 (Commission
File No. 333-175168) pursuant to which 3,244,216 Common Shares were registered (including 244,216 Common Shares issued to YA in
May and June 2011 in satisfaction of the $300,000 commitment fees due under the 2011 SEDA). Between August 24, 2011 and May 6,
2014, YA purchased 561,690 Common Shares from OMAG under the 2011 SEDA for an aggregate Purchase Price of $835,000 and YA
did not thereafter purchase any Common Shares from OMAG under the 2011 SEDA. On July 21, 2014 OMAG filed a post-effective
amendment to the 2011 SEDA Registration Statement de-registering the previously registered 2,438,310 Common Shares which were
not issued or sold to YA pursuant to the 2011 SEDA. Such post-effective amendment to the 2011 SEDA Registration Statement was
declared effective by the SEC on July 25, 2014.
The
2014 SEDA
On April 22, 2014, OMAG and
YA entered into a new Standby Equity Distribution Agreement which was amended on October 10, 2014 and thereafter amended again
on September 20, 2016 to extend the term of the SEDA (the “2014 SEDA”). The 2014 SEDA is generally on the same terms
as the 2011 SEDA. Unless earlier terminated in accordance with its terms, the 2014 SEDA shall automatically expire on the earlier
of (i) February 1, 2019, or (ii) the date on which YA shall have made payment of Advances pursuant to the 2014 SEDA in the aggregate
amount of $5,000,000. In satisfaction of a $150,000 commitment fee due pursuant to the 2014 SEDA, OMAG issued 85,822 restricted
Common Shares (the “Commitment Fee Shares”) to YA Global II SPV, LLC which is an affiliate of YA (the “Affiliate”).
In satisfaction of a $150,000 commitment fee pursuant to the “Second SEDA Amendment” in September 2016, the Company
issued 161,290 restricted shares to the Affiliate.
Pursuant to the terms of the
2014 SEDA, OMAG may in its sole discretion, and upon giving written notice to YA (an “Advance Notice”), periodically
sell Common Shares to YA (“Shares”) at a per Share price (“Purchase Price”) equal to 95% of the lowest
daily volume weighted average price (the “VWAP”) for a Common Share as quoted by Bloomberg, L.P. during the five (5)
consecutive Trading Days (as such term is defined in the 2014 SEDA) immediately subsequent to the date of the relevant Advance
Notice (the “Pricing Period”).
OMAG is not obligated to sell
any Shares to YA but may, over the term of the 2014 SEDA and in its sole discretion, sell to YA that number of Shares valued at
the Purchase Price from time to time in effect that equals up to five million dollars ($5,000,000) in the aggregate. YA is obligated
under the 2014 SEDA to purchase such Shares from OMAG subject to certain conditions including (i) OMAG filing a registration statement
with the SEC to register the resale by YA of the Shares sold to YA under the 2014 SEDA (“Registration Statement”),
(ii) the SEC declaring such Registration Statement effective (the date of such declaration by the SEC being the “Registration
Effective Date”), (iii) OMAG certifying to YA at the time of each Advance Notice that OMAG has performed all covenants and
agreements to be performed and has complied with all obligations and conditions contained in the 2014 SEDA, (iv) periodic sales
of Shares to YA must be separated by a time period of at least five Trading Days, and (v) the dollar value of any individual periodic
sale of Shares designated by OMAG in any Advance Notice may not exceed the greater of (a) two hundred thousand dollars ($200,000),
or (b) the average of the “Daily Value Traded” for each of the five (5) Trading Days immediately preceding the date
of the relevant Advance Notice where Daily Value Traded is the product obtained by multiplying the number representing the daily
trading volume of Common Shares for such Trading Day by the VWAP for Common Share on such Trading Day.
Pursuant to the 2014 SEDA in
no event shall the number of Common Shares issuable to YA pursuant to an Advance cause the aggregate number of Common Shares beneficially
owned (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended), by YA and its affiliates to
exceed 9.99% of the then outstanding common stock of the Company. In addition this 9.99% ownership cap may not be waived by YA
or OMAG and since such ownership cap includes all Common Shares owned by any YA affiliate, such cap cannot be avoided by transferring
Common Shares to an affiliate of YA.
In connection with the 2014
SEDA, on October 15, 2014 OMAG filed the Registration Statement on Form S-1 to register the 3,085,822 Common Shares covered by
the 2014 SEDA. On January 8, 2015, OMAG filed an amendment to that Registration Statement and such amendment to the 2014 SEDA
Registration Statement was declared effective by the SEC on January 22, 2015. Post-Effective Amendments No. 1 and No. 2 to the
SEDA Registration Statement were filed with the SEC on December 21, 2015 and January 6, 2016, respectively, to maintain the effectiveness
of the SEDA Registration. On January 13, 2016, the SEC declared the SEDA Registration effective. The Company plans to file a post-effective
amendment with the SEC to reinstate the effectiveness of the SEDA Registration which expired on October 9, 2016. Post-Effective
Amendment No. 3, No. 4 and No. 5 to the SEDA Registration Statement were filed with the SEC on January 10, 2017, February 6, 2017
and February 13, 2017, respectively, to maintain the effectiveness of the SEDA Registration and as of February 13, 2017, the SEC
declared the SEDA Registration effective and such effectiveness expired on April 30, 2017. The Company is filing this Post-Effective
Amendment No. 6 to maintain the effectiveness of the SEDA Registration.
The
foregoing summaries of the terms of the Prior SEDAs and of the 2014 SEDA do not purport to be complete and are qualified in their
entirety by reference to the full texts of the Prior SEDAs and the 2014 SEDA, copies of which are attached hereto as Exhibits
10.14, 10.15 and 10.18.
Sales of Common Shares to YA
pursuant to the Prior SEDAs totaled 561,690 Common Shares for an aggregate Purchase Price of $835,000. Management believes that
it has been judicious and conservative in its use to date of the Prior SEDAs, but nonetheless our periodic sales of Common Shares
to YA or its affiliate pursuant to the Prior SEDAs have been dilutive to all shareholders and the subsequent resales by YA of
such Common Shares into the public market have from time to time inflicted downward pressure on our stock price. OMAG intends
to utilize the 2014 SEDA to fund its ongoing operations as and if necessary and as of the date of this Report, the Company has
sold 181,260 shares of its Common Shares pursuant to the 2014 SEDA for proceeds of $100,000.
The
YA Loan Agreements
OMAG and YA, the investment
fund which is a party with OMAG to the 2014 SEDA, entered into an unsecured loan agreement dated July 26, 2013 (the “2013
YA Loan Agreement”). Pursuant to the 2013 YA Loan Agreement, OMAG borrowed two hundred thousand dollars ($200,000) from
YA (the “2013 YA Loan”) for a term of one year at an annual interest rate of 10%. The 2013 YA Loan Agreement called
for a 10% monitoring and management fee equal to $20,000 to be escrowed and paid to Yorkville Advisors thereby making the net
proceeds from the 2013 YA Loan to OMAG equal to $180,000. Such $180,000 of proceeds was received by OMAG on September 3, 2013.
The 2013 YA Loan Agreement also extended the expiration date of the 2011 SEDA. The foregoing summary of the terms of the 2013
YA Loan does not purport to be complete and is qualified in its entirety by reference to the full text of the 2013 YA Loan Agreement
attached hereto as Exhibit 10.21.
On April 22, 2014, OMAG and
YA entered into another unsecured loan agreement (the “2014 YA Loan Agreement”) whereby OMAG borrowed five hundred
thousand dollars ($500,000) from YA (the “2014 YA Loan”) for a term of one year at an annual interest rate of 10%.
Pursuant to the 2014 YA Loan Agreement, on April 22, 2014, through deduction from the $500,000 principal balance of the 2014 YA
Loan, OMAG (i) paid the $110,680 balance then due under the 2013 YA Loan Agreement, (ii) paid a $39,000 commitment fee with respect
to the 2014 YA Loan, and (iii) prepaid the $1,096 of interest due on the 2014 YA Loan for the period April 23, 2014 through April
30, 2014. The $349,224 net proceeds of the 2014 YA Loan was received by OMAG on April 23, 2014. The foregoing summary of the terms
of the 2014 YA Loan does not purport to be complete and is qualified in its entirety by reference to the full text of the YA Note
Purchase Agreement, the YA Note and the YA Closing Statement attached hereto as Exhibits 10.22; 10.23; and 10.24 respectively.
OMAG repaid the 2014 YA Loan pursuant to its terms.
On
May 20, 2015, the Company and YA entered into a third loan agreement (the “2015 YA Loan Agreement”). Pursuant to the
2015 YA Loan Agreement, the Company borrowed five hundred thousand dollars ($500,000) from YA (the “2015 YA Loan”)
for a term of one year at an annual interest rate of 10%. Pursuant to the 2015 YA Loan Agreement the Company agreed to pay a $50,000
commitment fee with respect to the 2015 YA Loan to YA Global II SPV LLC, an affiliate of YA (the “Affiliate”). The
$500,000 proceeds of the 2015 YA Loan was received by the Company on May 21, 2015 and the $50,000 commitment fee was paid to the
Affiliate. The foregoing summary of the terms of the 2015 YA Loan does not purport to be complete and is qualified in its entirety
by reference to the full text of the YA Note Purchase Agreement, the YA Note and the YA Closing Statement attached hereto as Exhibits
10.25; 10.26; and 10.27 respectively.
In
2016, the Company and YA entered into two additional loans. On March 15, 2016, the Company and YA entered into a loan agreement
(the “March 2016 YA Loan Agreement”). Pursuant to the March 2016 YA Loan Agreement, the Company borrowed six hundred
thousand dollars ($600,000) from YA (now named YA II PN, Ltd.) (the “March 2016 YA Loan”) for a term of one year at
an annual interest rate of 10%. Pursuant to the March 2016 YA Loan Agreement the Company agreed to pay off the $150,575 balance
due as of March 15, 2016 under the 2015 YA Loan Agreement and to pay a $60,000 commitment fee with respect to the March 2016 YA
Loan to YA Global II SPV LLC, the Affiliate. At the closing on March 15, 2016 of the March 2016 YA Loan, the appropriate amounts
representing the balance due under the 2015 YA Loan Agreement and the commitment fee for the March 2016 YA Loan were deducted
from the $600,000 principal balance of the March 2016 YA Loan and paid to YA and the Affiliate. The $349,425 proceeds of the March
2016 YA Loan were received by the Company on March 15, 2016. The foregoing summary of the terms of the March 2016 YA Loan does
not purport to be complete and is qualified in its entirety by reference to the full text of the YA Note Purchase Agreement, the
YA Note and the YA Closing Statement attached hereto as Exhibits 10.28; 10.29; and 10.30 respectively.
On June 22, 2016, the Company
and YA entered into another loan agreement (the “June 2016 YA Loan Agreement”). Pursuant to the June 2016 YA Loan
Agreement, the Company borrowed four hundred thousand dollars ($400,000) from YA (the “June 2016 YA Loan”) for a term
of one year at an annual interest rate of 10%. Pursuant to the June 2016 YA Loan Agreement the Company agreed to pay a $40,000
commitment fee with respect to the June 2016 YA Loan to the Affiliate. At the closing on June 22, 2016 of the June 2016 YA Loan,
the commitment fee for the June 2016 YA Loan was deducted from the $400,000 principal balance of the June 2016 YA Loan and paid
to the Affiliate. The $360,000 proceeds of the June 2016 YA Loan was received by the Company on June 22, 2016. The foregoing summary
of the terms of the June 2016 YA Loan does not purport to be complete and is qualified in its entirety by reference to the full
text of the YA Note Purchase Agreement, the YA Note and the YA Closing Statement attached hereto as Exhibits 10.38; 10.39; and
10.40 respectively.
On December 7, 2016, the Company and YA entered
into another loan agreement (the “December 2016 YA Loan Agreement”). Pursuant to the December 2016 YA Loan Agreement,
the Company borrowed seven hundred fifty thousand dollars ($750,000) from YA (the “December 2016 YA Loan”) for a term
of one year at an annual interest rate of 10%. Pursuant to the December 2016 YA Loan Agreement the Company agreed to pay off the
aggregate of the $432,710 balance due as of December 7, 2016 under the March 2016 Loan Agreement and the June 2016 Loan Agreement
and to pay a $75,000 commitment fee with respect to the December 2016 YA Loan to YA Global II SPV LLC, an affiliate of YA (the
“Affiliate”). At the closing on December 7, 2016 of the December 2016 YA Loan, the appropriate amounts representing
the balances due under the March 2016 YA Loan and the June 2016 YA Loan and the commitment fee for the December 2016 YA Loan were
deducted from the $750,000 principal balance of the December 2016 YA Loan and paid to YA and the Affiliate. The $242,290 proceeds
of the December 2016 YA Loan were received by the Company on December 7, 2016.
The foregoing summary of the
terms of the December 2016 YA Loan does not purport to be complete and is qualified in its entirety by reference to the full text
of the YA Note Purchase Agreement, the YA Note and the YA Closing Statement attached hereto as Exhibits 10.45; 10.46; and 10.47
respectively. OMAG presently anticipates that the March 2016 YA Loan and the June 2016 YA Loan will be repaid from proceeds of
sales of Common Shares made pursuant to (a) private placement transactions, (b) the exercise of Warrants, or (c) the 2014 SEDA,
or a combination thereof.
There can be no assurance given
that OMAG will be able to successfully utilize the Warrants or the 2014 SEDA to secure the interim financing necessary for it
to execute its business plan as presently conceived or that we will be able to repay the December 2016 YA Loan.
The
St. George Investments LLC Loan Agreement
On November 14, 2016, the Company
entered into an interest free Convertible Promissory Note with St. George Investments LLC for the principal amount of $185,000
due on May 16, 2017, six months from the funding date of November 16, 2016, convertible into the Company’s Common Stock
only in the case of non-payment or in the Event of Default at a Conversion Price equal to 60% of the three lowest daily Volume
Weighted Average Prices for the Company’s Common Stock during the twenty trading days immediately preceding the Conversion.
The Company may prepay the Note in whole or in part at any time without penalty. After deduction of a $30,000 original issue discount
(OID) and legal fees of $5,000, the Company received net proceeds of $150,000 on November 16, 2016. (See: Exhibits 10.42 and 10.43,
the Note Purchase Agreement and the Securities Purchase Agreement). On May 10, 2017, the Company and St. George Investments LLC
executed an amendment to the $185,000 Convertible Promissory Note dated November 14, 2016 extending the May 16, 2017 Maturity
Date to July 17, 2017. In consideration of the extension, the Company paid $10,000 to St. George Investments LLC. (See: Exhibit
10.50, Amendment to Convertible Promissory Note). In July 2017, the Company and St. George Investments LLC again extended the
Maturity Date of the Note to August 17, 2017.
Omagine
LLC
LLC
presently has limited and strained resources.
OMAG invested the OMR 20,000
cash [$52,000] OMAG Initial Equity Investment into LLC upon its organization and pursuant to the Shareholder Agreement the following
additional investments have been made to date into LLC:
i.
|
a
further OMR 130,000 [$338,000] cash investment was made by the LLC Shareholders, and
|
ii.
|
a
further OMR 210,000 [$546,000] cash investment was made by OMAG, and
|
iii.
|
a
further OMR 276,666,667 [$718,614,000] non-cash investment was made by RCA.
|
LLC
is presently capitalized at OMR 277,026,667 [$719,550,000]. Notwithstanding the foregoing, LLC presently has limited cash resources
because expenses incurred to date have depleted LLC’s limited cash capital.
As of the date hereof OMAG has
satisfied in full its obligation pursuant to the Shareholder Agreement.
RCA
is presently obligated to make its Deferred Cash Investment into LLC in the aggregate amount of OR 7,640,625 [$19,865,625]. However
it is possible that the Amended and Restated Shareholder Agreement will modify when such Deferred Cash Investment will be made
by RCA.
The
OMR 276,666,667 [$718,614,000] investment of the Land Rights into LLC by RCA was perfected on July 2, 2015 concurrent with the
registration of the Usufruct Agreement with the Oman Ministry of Housing (See: “The Land Rights”, above).
The continuation of LLC’s
business to date has been financed by OMAG.
LLC
will have to arrange a significant amount of project financing, including most probably Syndicated Bank Financing, in order to
execute its plan to develop the Omagine Project.
Until Financing Agreements with respect to such additional financing are
actually executed by the parties, no assurance can be given that they actually will be so executed or that such project financing
will be available to LLC
. (See “Financial Advisor”, above). The Company is relying for revenue growth upon
the future business of LLC.
Omagine
Inc.
In order to generate the cash
needed to sustain the Company’s ongoing operations, OMAG has over the past many years relied on the proceeds from the YA
Loans and from sales of Common Shares made pursuant to the Prior SEDAs and the 2012 rights offering as well as from sales of restricted
Common Shares and notes made pursuant to private placements. Management is hopeful that the Warrants will provide a future source
of additional financing but it is not possible to predict if any of our Warrants will ever be exercised.
Subject to the necessary financial
resources being available to it, OMAG may make a secured loan to LLC in order to finance its operations. Such a loan from OMAG,
if it were to be made, would be memorialized by a Financing Agreement like any other Debt Facility.
Investors
and shareholders should be aware that we have had no revenue for the past several years and we do not expect to generate any revenue
until after the development of the Omagine Project is well underway.
The
failure to ultimately secure project financing via the closing of a Financing Agreement would have a materially significant adverse
effect on the Company’s ability to continue operations.
Capital
Expenditures and Construction Financing
The Company did not incur any
capital expenditures in the first three months of 2017. We expect, assuming we are able to close one or more of the debt or equity
facilities we are presently working on, that in the near term (i) the Company will incur significant expenses related to capital
expenditures, and (ii) LLC will incur substantial debt associated with project financing for the Omagine Project.
We presently expect that such
capital expenditures will be largely concentrated at LLC and will largely comprise the purchase by LLC and OMAG of the quantities
of office equipment, furniture, vehicles, computer hardware and software and telecommunications equipment which will be necessary
to service the expanded staff and offices required at both LLC and OMAG to manage the ramping up of our business operations in
Oman and the U.S.
We
presently expect that such capital expenditures will be financed:
i.
|
at
OMAG via the proceeds from sales of Common Shares via the 2014 SEDA, the exercise of Warrants, private placement sales of
restricted Common Shares, and the payments received from LLC with respect to the Success Fee, the Pre-Development Expense
Amount and the Advances and Loans, and
|
|
|
ii.
|
at
LLC through a combination of invested capital, Equity Sales, bank loans and project finance Debt Facilities (See: “Business
- The Shareholder Agreement / LLC Capital Structure,” and “Master planning/Equity Sales/Debt Facilities/Project
Financing”).
|
No assurance can be given that
such financing will be available to the Company at either OMAG or LLC.
We
presently expect that any future project financing requirements (including any Syndicated Bank Financing) for LLC will be placed
with regional and international banks as arranged by LLC with the assistance of its Financial Adviser. LLC’s requirement
for project financing is expected to be reduced by its ability to pre-sell residence and commercial units by entering into sales
contracts with third party purchasers and receiving deposits and progress payments during the construction of such units. Recent
trends in the Omani market however have indicated a reduced consumer appetite for pre-sales of residence units as many more buyers
are now demanding a finished product before entering into sales contracts with developers. (See: “Financial Advisor”
and “Market Conditions” and “Sales & Marketing”).
Off-Balance
Sheet Arrangements
We
have not entered into and have no present intention of entering into any off-balance sheet financing arrangements. We have not
formed and have no present intention of forming any special purpose entities.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required under this caption is not required
for OMAG since it is a smaller reporting company.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our
directors are elected at the annual meeting of shareholders to hold office until the annual meeting of shareholders for the ensuing
year or until their successors have been duly elected and qualified. Officers are appointed by the Board of Directors and serve
at the discretion of the Board of Directors. The directors and executive officers of the Registrant as of the date hereof are
as follows:
Name
|
|
Age
|
|
Current
Position
|
Frank
J. Drohan
|
|
72
|
|
Chairman
of the Board, President, Chief Executive and Financial Officer and Director
|
Charles
P. Kuczynski
|
|
63
|
|
Vice
President, Secretary and Director
|
Louis
J. Lombardo (1) (2)
|
|
73
|
|
Director
|
Jack
A. Smith (1) (2)
|
|
81
|
|
Director
|
Alan
M. Matus (1) (2)
|
|
72
|
|
Director
|
(1)
|
Member
of the Audit Committee
|
|
|
(2)
|
Member
of the Compensation Committee
|
Directors
Frank J. Drohan has served as
a director, Chairman of the Board of Directors, President and CEO of the Registrant since 1991. Mr. Drohan is also the Managing
Director and Chief Executive Officer of LLC and he serves as a director and the chairman of JOL. He was chairman of the board
of directors, president and sole shareholder of Rif International Corp., a privately held company active in the construction and
real estate development business and which had extensive overseas activities in the MENA Region between 1977 and 1986 and which
was acquired by OMAG in 1997. Mr. Drohan holds a Bachelor of Science degree in Economics and Political Science from Manhattan
College in New York City. He has over 35 years of experience doing business across most of the MENA Region, has many long-standing
business and personal relationships in the region and is familiar with the region’s cultural and business environment.
Charles P. Kuczynski has served
as a director, Secretary and a Vice-President of the Registrant since 1996 and previously served as a director and Secretary of
the Registrant from 1988 to 1993. Mr. Kuczynski is a director and the secretary of JOL. Prior to joining OMAG, Mr. Kuczynski was
a sales executive with Hillenbrand Industries. Mr. Kuczynski holds a Bachelor of Arts degree from Merrimack College in Massachusetts.
Mr. Kuczynski has over 30 years of diverse business experience in marketing, sales, public relations and administration.
Louis
J. Lombardo has served as a non-employee independent director (“Independent Director”) of the Registrant since 2005.
Mr. Lombardo retired after 35 years at American Express Company where he was Executive Vice President - Travel Related Services.
In this capacity he led an organization of worldwide operating centers employing over 14,000 people and managed a $1.3 billion
operating budget and a $600 million capital budget. Mr. Lombardo holds an MBA degree from New York University. Mr. Lombardo’s
years of experience as a senior executive of American Express Company brings a unique perspective and added value to his role
as an Independent Director on our Board of Directors. He lives in New York City where he owns and operates two privately held
businesses and a consulting company.
Jack A. Smith has served as
a non-employee Independent Director of OMAG since September 1, 2015. Mr. Smith founded and was the chief executive officer of
a NYSE company - The Sports Authority, Inc. (“TSA”) - a national sporting goods chain. He was the Chairman of TSA until
it was sold in 1999. Previously Mr. Smith served in executive management positions at W.R. Grace & Co. and with other major
companies including Herman’s Sporting Goods, Sears & Roebuck and Montgomery Ward. In 2006 Mr. Smith joined the board of I-Trax,
an AMEX listed health care provider and Carrols, Inc., a NASDAQ listed firm in the restaurant industry, whose public company spinoff,
Fiesta, Inc., appointed him in 2012 as Non-Executive Chairman of the Board. Mr. Smith recently rotated off the Board of NYSE-listed
Darden Restaurants after 15 years of service, last serving as chairman of the audit committee. Mr. Smith is a globally recognized
and respected corporate and community leader. His lifetime experience in both financial and management roles for publicly traded
companies and his experience in financing early stage companies (TSA was financed by Bain & Co., among others) will provide
a wealth of knowledge, business acumen and public company experience to the Board’s deliberations.
Alan M. Matus has served as
a non-employee Independent Director of OMAG since September 1, 2015. Mr. Matus has five decades of residential, hospitality and
commercial real estate development experience. He is a seasoned real estate industry executive and owner who has personally directed
the development, planning, architectural design, financing, construction and marketing of many public and private developments
both internationally and in the U.S. Mr. Matus graduated as a Chartered Accountant (a CPA equivalency) from the University of
Witwatersrand, Johannesburg, South Africa. Mr. Matus is an owner and operator of Acqualina Residences and Resort, a beachfront
luxury resort near Miami, Florida which he developed and opened in 2006. Mr. Matus joined Williams Island as its President and
CEO in the 1980’s to conceive, develop, build and manage this two billion dollar landmark residential and resort community
in Aventura, Florida. This renowned 80-acre community has been heralded worldwide. Mr. Matus brings a highly diverse skill set
to the Board and to our business with his development, ownership and operational expertise, finance experience and other relevant
real estate development skills.
Directors are elected to serve
for one-year terms or until their successors are duly elected and qualified. The Board of Directors is authorized to fill Board
vacancies by appointment for a term lasting until OMAG’s next annual meeting of shareholders or until such appointed person’s
successor has been duly elected and qualified. Directors who are Company employees receive no fees for acting as such. Independent
Directors receive stock options, an annual cash stipend and are entitled to reimbursement of reasonable out-of-pocket expenses
incurred by them in attending such meetings.
The Board of Directors filled
the prior two board vacancies effective September 1, 2015 with the appointments of Jack A. Smith and Alan M. Matus as Independent
Directors bringing the number of independent directors to a majority on the Board of Directors. As of the date hereof, OMAG has
an Audit Committee and a Compensation Committee (which also recommends grants of stock options to officers, directors and consultants)
each designated by the Board of Directors. There is no nominating committee but future nominations and related nomination activities
will be made by a majority vote of the Independent Directors of the Board. The committees of the Board may, in their sole discretion,
retain professional outside independent search and/or advisory firms if deemed advisable.
The
Audit Committee has 3 members who are independent directors and is chaired by Mr. Matus who is the audit committee financial expert.
The Compensation Committee which also has 3 members who are independent directors is chaired by Mr. Smith.
Officers
Officers are appointed by the
Board of Directors and serve at the discretion of the Board of Directors. Mr. Drohan and Mr. Kuczynski are both officers of OMAG
as described above. William Hanley has served as the Controller and Principal Accounting Officer of the Registrant since January
2008. Mr. Hanley served as the controller of Mittal Steel from 1986 to 2007 and as the Controller and Chief Financial Officer
of Rif International Corp. from 1980 to 1986. From 1973 to 1980 he served as the controller at two Wall Street brokerage firms
and from 1968 to 1972 as a senior accountant at the public accounting firm Main LaFrentz & Company. Mr. Hanley holds a Bachelor
of Business Administration degree in Accounting from St. Francis College in New York.
Code
of Ethics
OMAG has adopted and its Board
of Directors has approved a Code of Ethics and Business Conduct (“Code”). The Code applies to all directors, officers
and employees of OMAG. OMAG believes that the policies and procedures contained in the Code are consistent with the requirements
for a Code of Ethics as required by the SEC. A copy of the Code is attached hereto as Exhibit 14 and is available on OMAG’s website,
www.omagine.com.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who own more than 10% of the
Company’s stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and changes
in ownership of the Company’s Common Stock. Reporting Persons are required by SEC regulations to furnish the Company with
copies of all Section 16(a) reports they file. Other than as disclosed below, and based solely on a review of the reports furnished
to us or written representations from reporting persons that all reportable transaction were reported, we believe that our officers,
directors and greater than ten percent stockholders timely filed all reports they were required to file under Section 16(a), other
than as disclosed below.
W
illiam
Hanley, our Controller, filed two late Form 4s: one reporting one transaction in 2014, and another reporting one other 2014 transaction.
Louis J. Lombardo, an independent director, filed
two late Form 4s: one reporting two transactions in 2014, and another reporting one other 2014 transaction.
Charles P. Kuczynski, our Vice President and Secretary,
filed two late Form 4s: one reporting two transactions in 2014, and another reporting one other 2014 transaction.
Frank
J. Drohan, our President and CEO, filed two late Form 4s: one reporting two transactions in 2014, and another reporting one other
2014 transaction.
Jack A. Smith our independent director filed one
late Form 4 reporting two transactions in 2017.
EXECUTIVE
COMPENSATION
Officer
Compensation
The following table sets forth
information relating to the aggregate compensation received by the then current executive officers of the Company for services
in all capacities during the Company’s last three fiscal years and for the first six months of 2017 as indicated for (i)
OMAG’s Chief Executive and Financial Officer, and (ii) each then current executive officer of OMAG and/or LLC whose total
compensation exceeded $100,000 (the foregoing (i) and (ii) being collectively, the “Named Executive Officers”).
Summary
Compensation Table
(a)
|
|
(b)
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(g)
|
|
|
(h)
|
|
Name and Principal Position
|
|
Year
|
|
Salary
(1)
|
|
|
Bonus
|
|
|
Stock
Awards (1)
|
|
|
Option
Awards (2)
|
|
|
All
Other Comp.
|
|
|
Total
|
|
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Frank J. Drohan,
|
|
2017*
|
|
$
|
62,500
|
|
|
$
|
0
|
|
|
$
|
31,194
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
93,694
|
|
Chief Executive and
|
|
2016
|
|
$
|
125,000
|
|
|
$
|
0
|
|
|
$
|
31,193
|
|
|
$
|
120,050
|
|
|
$
|
0
|
|
|
$
|
276,243
|
|
Financial Officer
|
|
2015
|
|
$
|
125,000
|
|
|
$
|
0
|
|
|
$
|
31,976
|
|
|
$
|
1,401,817
|
|
|
$
|
0
|
|
|
$
|
1,558,793
|
|
|
|
2014
|
|
$
|
125,000
|
|
|
$
|
0
|
|
|
$
|
33,443
|
|
|
$
|
1,495,595
|
|
|
$
|
0
|
|
|
$
|
1,654,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles P. Kuczynski,
|
|
2017*
|
|
$
|
50,000
|
|
|
$
|
0
|
|
|
$
|
32,348
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
82,348
|
|
Vice-President and Secretary
|
|
2016
|
|
$
|
100,000
|
|
|
$
|
0
|
|
|
$
|
32,348
|
|
|
$
|
34,260
|
|
|
$
|
0
|
|
|
$
|
166,608
|
|
|
|
2015
|
|
$
|
100,000
|
|
|
$
|
0
|
|
|
$
|
33,205
|
|
|
$
|
227,428
|
|
|
$
|
0
|
|
|
$
|
360,633
|
|
|
|
2014
|
|
$
|
100,000
|
|
|
$
|
0
|
|
|
$
|
34,781
|
|
|
$
|
375,277
|
|
|
$
|
0
|
|
|
$
|
510,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Hanley,
|
|
2017*
|
|
$
|
40,000
|
|
|
$
|
0
|
|
|
$
|
9,242
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
49,242
|
|
Controller and
|
|
2016
|
|
$
|
80,000
|
|
|
$
|
0
|
|
|
$
|
9,242
|
|
|
$
|
10,232
|
|
|
$
|
0
|
|
|
$
|
99,474
|
|
Principal Accounting Officer
|
|
2015
|
|
$
|
80,000
|
|
|
$
|
0
|
|
|
$
|
8,609
|
|
|
$
|
73,496
|
|
|
$
|
0
|
|
|
$
|
162,105
|
|
|
|
2014
|
|
$
|
80,000
|
|
|
$
|
0
|
|
|
$
|
8,026
|
|
|
$
|
146,937
|
|
|
$
|
0
|
|
|
$
|
234,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sam Hamdan,
|
|
2017*
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,466
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,466
|
|
Deputy Managing Director,
|
|
2016
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
3,466
|
|
|
$
|
104,350
|
|
|
$
|
0
|
|
|
$
|
107,816
|
|
Omagine LLC (3)
|
|
2015
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
2,460
|
|
|
$
|
1,259,392
|
|
|
$
|
0
|
|
|
$
|
1,261,852
|
|
|
|
2014
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,159,445
|
|
|
$
|
0
|
|
|
$
|
1,159,445
|
|
*
|
for
the period ended June 30, 2017
|
1.
|
Amounts
included under Column (e) represent contributions of the Registrant’s Common Stock made in the year indicated to the
401(k) Plan account of the Named Executive Officer, valued at the closing market price of the Common Stock on the dates of
such contributions.
|
2.
|
Amounts
included under Column (f) represent the dollar amount recognized as compensation expense for financial statement reporting
purposes for the year indicated under ASC 718 and not an amount paid to or realized by the Named Executive Officers. There
can be no assurance that the amounts determined by ASC 718 will ever be realized. In December 2012, the Company extended the
expiration date of all Strategic Options from December 31, 2012 to December 31, 2013 and the Company again extended the expiration
date of such Strategic Options four more times, to December 31, 2014, to December 31, 2015, to December 31, 2016, and in December
2016 the Company last extended the expiration date of all such Strategic Options to December 31, 2017. Assumptions used in
the calculation of the amounts specified in Column (f) for 2014 and 2015 are included in Note 1- STOCK-BASED COMPENSATION
and Note 7 – STOCK OPTIONS to the Company’s audited financial statements for the fiscal year ended December 31, 2016.
(Also see: “Equity Compensation Plan Information” below).
|
|
|
3.
|
In
addition to the 750,000 Strategic Options exercisable at $1.70 per share awarded to Mr. Hamdan in 2012, the 250,000
Strategic Options exercisable at $2.55 awarded to him in 2014 and the 675,000 SARs with a grant price of $2.00 awarded to
him in 2015.
|
Management
has concluded that the aggregate amount of personal benefits does not exceed 10% of the total compensation reported in column
(h) of the foregoing table for the year indicated as to any Named Executive Officer named in the above table.
Table
of Accrued Unpaid Salary Used to Purchase Common Shares
The
following table indicates the amounts of previously accrued but unpaid salary payable utilized in the year indicated by the Named
Executive Officer to purchase Common Shares via a direct purchase from OMAG.
|
|
|
|
|
December
31,
|
|
Name
|
|
June
30, 2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Frank J. Drohan (1)
|
|
$
|
51,000
|
|
|
$
|
50,400
|
|
|
$
|
120,000
|
|
|
$
|
0
|
|
Charles P. Kuczynski (2)
|
|
$
|
25,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
(1)
|
On
February 1, 2017, $51,000 of unpaid salary owed to Mr. Drohan was offset and utilized by him for the purchase of 100,000 restricted
Common Shares at $0.51 per share which is equal to the $0.62 January 31, 2017 closing sale price of the Common Shares less
an 18% Finnerty restricted stock discount; on April 5, 2016, $50,400 of unpaid salary owed to Mr. Drohan was offset and utilized
by him for the purchase of 56,000 restricted Common Shares at the market price of $0.90 per share. On May 16, 2015, $120,000
of unpaid salary owed to Mr. Drohan was offset and utilized by him for the purchase of 100,000 restricted Common Shares at
the market price of $1.20 per share. At June 30, 2017, December 31, 2016, 2015 and 2014, unpaid salary
payable due to Mr. Drohan was $99,905, $88,405, $115,131 and $310,464 respectively.
|
|
|
(2)
|
On
February 2, 2017, $25,000 of unpaid salary owed to Mr. Kuczynski was offset and utilized by him for the purchase of 47,170
restricted Common Shares at $0.53 per share which is equal to the $0.64 February 1, 2017 closing sale price of the Common
Shares less an 18% Finnerty restricted stock discount. At June 30, 2017, December 31, 2016, 2015 and 2014, unpaid salary payable
due to Mr. Kuczynski was $146,072, $149,121, $137,905 and $171,575 respectively.
|
Director
Compensation
Directors of OMAG who are employees
of the Company do not receive additional compensation for their services as directors. Independent Directors are compensated for
their services as directors of OMAG. The following table sets forth information relating to the aggregate compensation received
by Independent Directors of the Registrant for services in all capacities during the Registrant’s fiscal year ended December 31,
2016 and for the period ended June 30, 2017.
Director
Compensation Table
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
Name
|
|
Fees
Earned or Paid in Cash ($)(2)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards (1)($)
|
|
|
All
Other Compensation ($)
|
|
|
Total
($)
|
|
Estate of Salvatore Bucchere (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
5,910
|
|
|
$
|
0
|
|
|
$
|
5,910
|
|
June 30, 2017
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louis Lombardo (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
51,500
|
|
|
$
|
50,000
|
|
|
$
|
8,020
|
|
|
$
|
0
|
|
|
$
|
109,520
|
|
June 30, 2017
|
|
$
|
25,000
|
|
|
$
|
50,000
|
|
|
$
|
270
|
|
|
$
|
0
|
|
|
$
|
75,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jack Smith (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
51,500
|
|
|
$
|
50,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
101,500
|
|
June 30, 2017
|
|
$
|
25,000
|
|
|
$
|
50,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan Matus (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
$
|
51,500
|
|
|
$
|
50,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
101,500
|
|
June 30, 2017
|
|
$
|
25,000
|
|
|
$
|
50,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
75,000
|
|
(1)
|
Column
(d) represents the dollar amount recognized as compensation expense for financial statement reporting purposes for the year
indicated under ASC 718, and not an amount paid to or realized by the named director. There can be no assurance that the amounts
determined by ASC 718 will ever be realized by the named director. Assumptions used in the calculation of the amounts specified
in Column (d) are included in Note 1 – STOCK BASED COMPENSATION and Note 7 – STOCK OPTIONS to the Company’s
unaudited financial statements for the period ended December 31, 2016.
|
|
|
(2)
|
Messrs. Lombardo,
Smith and Matus each accrued quarterly director fees totaling $50,000 in 2016 ($12,500 accrued on January 1, 2016, April 1,
2016, July 1, 2016 and October 1, 2016). On April 6, 2016, each of them purchased 27,778 restricted shares of the
Company’s Common Stock at the $0.90 per share closing price of the Company’s Common Stock on April 5, 2016 in
exchange for $25,000 of accrued but unpaid director’s fees due to each of them from the Company. On February 2,
2017, each of Lombardo, Smith and Matus purchased 94,340 restricted shares of the Company’s Common Stock at the $0.6414
per share closing price of the Company’s Common Stock on February 1, 2017 less an 18% Finnerty discount for restricted
shares for a $0.53 purchase price per share in exchange for accrued quarterly director fees of $50,000 ($12,500 accrued on
July 1, 2016, October 1, 2016, January 1, 2017 and April 1, 2017),
|
|
|
(3)
|
In payment of
the 50% non-cash payment of the $100,000 annual retainer paid to all independent directors, Messrs. Lombardo, Smith and Matus
were each issued (a) 38,462 restricted shares of the Company’s Common Stock on January 15, 2016 valued at the last sale
price of $1.30 of the Company’s Common Stock on December 31, 2015, the last trading day of the prior fiscal year, and
(b) 81,169 restricted shares of the Company’s Common Stock on January 4, 2017 valued at the last sale price of $0.616
of the Company’s Common Stock on December 31, 2016, the last trading day of the prior fiscal year.
|
|
|
(4)
|
Mr. Bucchere died in April
2012.
|
Independent
Directors are compensated for their services as directors as follows:
Effective
September 1, 2015, two additional Independent Directors, Mr. Jack Smith and Mr. Alan Matus, were appointed to the Board of Directors.
Mr. Smith and Mr. Matus were each issued 25,000 restricted Common Shares in compensation for their services as directors for the
period beginning September 1, 2015 and ending December 31, 2015.
Pursuant
to a resolution of the Board of Directors, effective January 1, 2016 Independent Directors will be reimbursed for their travel
expenses associated with attendance at Board, Committee and Annual meetings and will be compensated on an annual basis for their
services as directors as shown in the chart below:
Independent
Director Annual Compensation and Fees
(Effective
for annual periods beginning on January 1, 2016)
Compensation Item
|
|
Amount
|
|
Annual Retainer (1/2 cash - 1/2 Common Shares):
|
|
|
|
(i) Cash (1)
|
|
$
|
50,000
|
|
(ii) Restricted Common Shares (2)
|
|
$
|
50,000
|
|
|
|
|
|
|
Attendance Fees:
|
|
|
|
|
Annual Meeting in person
|
|
$
|
750
|
|
Per Board Meeting (in person or via teleconference)
|
|
$
|
500
|
|
Per Committee Meeting (in person or via teleconference)
|
|
$
|
500
|
|
(1)
|
Payable
quarterly; $12,500 on the first business day of each fiscal quarter.
|
|
|
(2)
|
Issued
on the first business day of each fiscal year and valued at the last sale price of the Common Stock on the final trading day
of the fiscal year immediately preceding issuance.
|
Compensation
Discussion and Analysis
As
previously disclosed, the Company plans to contract with a recognized executive compensation consulting firm (the “Compensation
Consultant”) for the purpose of creating and implementing a comprehensive performance based compensation plan for its executives
and senior staff. This compensation plan will be designed to align executive compensation with the achievement by the Company
of its long-term goals and objectives.
Prior
to the date hereof and in order to successfully implement its business plan, the Company sought to retain and strategically incentivize
certain executives, directors and consultants (collectively, the “Company Executives”) on an ad hoc basis via the
issuance to them of the Strategic Options and payment to them of a one-time cash bonus in compensation for the extraordinary efforts
and personal and professional risks, both financial and otherwise, that they undertook for many years in order to pursue the Company’s
then primary strategic objective of signing the DA with the Government.
The
Board recognizes the extraordinary advances made in the Company’s prospects but at the same time is aware that the Company’s
shareholders have not yet seen the benefit of any significant share price appreciation. In light of this and the continued delays
in development of the Omagine Project, the Directors examined alternative ways to align the award of the previously proposed cash
bonus payments more directly with the financial interests of its shareholders.
Such
cash bonuses were only to be awarded if the DA was signed. The Board was and is of the opinion that such cash bonuses were well
deserved but is also cognizant of the ongoing project delays. Alternative plans were explored to align such cash bonus awards
not only with the Company Executives’ efforts through the DA signing date but also with the actual results of such efforts.
The Board views the price of the Company’s publicly traded Common Shares as the most accurate indicator of such results.
Moreover, the Directors believe that continuing efforts by such Company Executives are required to attain a share price that more
closely aligns with the Board’s expectations.
The
Board explored methodologies to structure such cash bonus payments in a manner more closely aligned with our shareholders’
interests so that the financial benefits from events at the Company are experienced not only by the Company Executives but by
all our shareholders as well. Accordingly, pursuant to a resolution of the Board on August 31, 2015 an incentive compensation
arrangement was implemented with respect to six Company Executives, not as fixed cash payments as previously contemplated, but
in the form of stock appreciation rights (“Stock Appreciation Rights” or “SARs”) as outlined in the following
grant schedule:
Stock Appreciation Rights
(SARs)
|
Name
|
|
Number of SARs
|
|
|
Grant Price
|
|
|
Date of Grant
|
|
Expiration Date
|
Frank Drohan
|
|
|
675,000
|
|
|
$
|
2.00
|
|
|
8/31/2015
|
|
12/31/2017
|
Charles Kuczynski
|
|
|
60,000
|
|
|
$
|
2.00
|
|
|
8/31/2015
|
|
12/31/2017
|
Louis Lombardo
|
|
|
15,000
|
|
|
$
|
2.00
|
|
|
8/31/2015
|
|
12/31/2017
|
William Hanley
|
|
|
15,000
|
|
|
$
|
2.00
|
|
|
8/31/2015
|
|
12/31/2017
|
Agron Telaku
|
|
|
15,000
|
|
|
$
|
2.00
|
|
|
8/31/2015
|
|
12/31/2017
|
Sam Hamdan
|
|
|
675,000
|
|
|
$
|
2.00
|
|
|
8/31/2015
|
|
12/31/2017
|
SARs
provide for financial gain to the holder derived from appreciation in the price of the Company’s Common Stock above the
exercise price of the SAR from the date that SARs are granted until the date that SARs are exercised. All 1,455,000 SARs granted
to six Company Executives in the above table (i) vested on the date of grant, (ii) holders are not required to be employees of
or consultants to the Company at the time if exercise, (iii) have an exercise price of $2.00 per SAR (which was $0.40 greater
than the closing stock price on the date of grant) and (iv) upon exercise SAR’s are payable only in the Company’s
Common Shares. No cash settlement is permissible for these 1,455,000 SARs. SARs holders are not required to pay an exercise price.
Upon exercise the holder receives an amount of Common Shares equivalent to the increase in the stock price of the Common Shares.
SARs may be exercised at any time prior
to 5 P.M. Eastern Time in the United States on December 31, 2017 in whole or in part by the holder thereof by delivery of a written
notice to OMAG (the “Notice of Exercise”) of such holder’s election to exercise such SARs, which Notice of Exercise
shall:
1)
|
i.
specify the number of SARs (in whole SARs only) to be exercised and the Grant Price,
|
|
|
|
ii.
include the surrender of the relevant certificate representing such SARs (or an indemnification undertaking
with respect to such SARs in the case of the loss, theft or destruction of such certificate).
|
|
|
|
Such
documentation shall be delivered by such holder to a common carrier for overnight delivery to OMAG as soon as practicable
following the date of such Notice of Exercise, but in no event later than December 30, 2017.
|
2)
|
By
delivering a Notice of Exercise the holder is not required to pay any exercise price for the SARs and upon exercise will receive
the “Net Number” of Common Shares determined according to the following formula:
|
|
|
|
Net
Number of Common Shares = C * [(A-B)/A]
|
|
|
|
For
purposes of the foregoing formula:
|
|
|
|
A
= market price of Common Shares at exercise date
|
|
|
|
B
= the Grant Price of $2.00
|
|
|
|
C
= the number of SARs exercised at any one time
|
|
|
|
N
= the number of Common Shares issuable upon any one exercise
|
Equity
Compensation Plan Information
The
2003 Plan and the 2014 Plan
OMAG’s shareholders approved
the reservation by OMAG of 2,500,000 Common Shares for issuance under the 2003 Omagine Inc. Stock Option Plan (the “2003
Plan”). The 2003 Plan expired on August 31, 2013. (See: Exhibit 10.19).
On March 6, 2014, the Board of Directors
approved the adoption of the 2014 Omagine Inc. Stock Option Plan (the “2014 Plan”). Pursuant to the 2014 Plan, 3,000,000
Common Shares were reserved for issuance (See: Exhibit 10.33). The 2014 Plan was amended to increase the reservation of 3,000,000
Common Shares for issuance to 5,000,000 Common Shares and to permit issuance of stock appreciation rights (“SARs”).
The Amended Omagine, Inc. 2014 Stock Option Plan (“Amended 2014 Plan”) is attached as Exhibit 10.34. OMAG intends
to seek its shareholders’ ratification of the adoption by OMAG of the Amended 2014 Plan.
Both the 2003 Plan and the 2014 Plan
are designed to attract, retain and motivate employees, directors, consultants and other professional advisors of OMAG and its
subsidiaries (collectively, the “Recipients”) by giving such Recipients the opportunity to acquire stock ownership
in OMAG through the issuance of stock options (“Stock Options”) to purchase Common Shares.
OMAG has registered for resale the
2.5 million Common Shares reserved for issuance under the 2003 Plan by filing a registration statement with the SEC on Form S-8
(the “S-8 Registration”) and on September 12, 2012, OMAG filed a post-effective amendment to the S-8 Registration.
At June 30, 2017 there were
2,117,000 unexpired Stock Options issued and unexercised under the 2003 Plan and all such Stock Options remain valid until
the earlier of their exercise or expiration date. Under the Amended 2014 Plan, there were 990,000 Stock Options of which
950,000 are Strategic Options and 1,455,000 SARs issued, outstanding and unexercised at June 30, 2017.
A total of 3,107,000 Stock Options
were issued, outstanding and unexercised as of June 30, 2017 of which 2,915,000 are Strategic Options. A total of 1,455,000 SARs
were issued, outstanding and unexercised at June 30, 2017 and as of the date hereof.
The
Strategic Options
In January and April 2012, pursuant
to the 2003 Plan and a resolution of the Board of Directors, fourteen individuals who were either employees, directors or consultants
to OMAG at such time and whose continued service was deemed by the Board of Directors to be particularly crucial to attaining
LLC’s then primary strategic goal of signing the DA with the Government of Oman were granted an aggregate of 2,015,000 Strategic
Options each of which is exercisable at $1.70 per Common Share. The subsequent resignation of a then independent director resulted
in the cancellation of 50,000 of such Strategic Options.
On
December 29, 2014, pursuant to the 2014 Plan and a resolution of the Board of Directors, six of the aforementioned fourteen individuals
were granted an aggregate of 950,000 additional Strategic Options each of which is exercisable at $2.55 per Common Share.
To
maintain the incentive for the retention and sustained service to the Company of its mission-critical employees and consultants
in the face of the previously and presently reported continued delays, the Board of Directors authorized multiple extensions of
the expiration date of the Strategic Options. All Strategic Options presently expire at 5 pm in New York on December 31, 2017.
1,965,000 Strategic Options are exercisable
at $1.70 per Common Share and 950,000 Strategic Options are exercisable at $2.55 per Common Share (such exercise prices are collectively
referred to herein as the “Exercise Price”). Of the 2,915,000 Strategic Options issued and outstanding as of the date
hereof, an aggregate of 2,685,000 have been granted to OMAG and LLC officers and 125,000 have been granted to OMAG independent
directors.
All Strategic Options are fully vested,
provide for a cashless exercise feature, expire on December 31, 2017 and (except with respect to Strategic Options held by the
estate of a deceased former director) require the holder thereof to be an employee or director of, or a consultant to, the Company
at the time of exercise.
Strategic Options may be exercised
at any time prior to 5 P.M. Eastern Time in the United States on December 31, 2017 by either: (1) paying the Exercise Price in
cash to OMAG, or (2) electing to pay the Exercise Price via the cashless exercise feature of the Strategic Options, as follows:
1)
|
Strategic
Options may be exercised in whole or in part by the holder thereof by delivery of a written notice to OMAG (the “Exercise
Notice”), of such holder’s election to exercise such Strategic Options, which Exercise Notice shall:
|
|
i.
|
specify
the number of Common Shares (“Option Shares”) to be purchased,
|
|
ii.
|
be
accompanied by payment to OMAG of an amount equal to the Exercise Price multiplied by the number of Option Shares for which
the Strategic Options are being exercised (the “Aggregate Option Exercise Price”) in cash or wire transfer of
immediately available funds, and
|
|
iii.
|
include
the surrender of the relevant certificate representing such Strategic Options (or an indemnification undertaking with respect
to such Strategic Options in the case of the loss, theft or destruction of such certificate).
|
Such documentation and payment shall
be delivered by such holder to a common carrier for overnight delivery to OMAG as soon as practicable following the date of such
Exercise Notice, but in no event later than December 30, 2017 (“Cash Basis”),
or
2)
|
by
delivering an Exercise Notice and in lieu of making payment of the Aggregate Option Exercise Price in cash or wire transfer,
elect instead to receive upon such exercise the “Net Number” of Common Shares determined according to the following
formula (the “Cashless Exercise”):
|
|
Net
Number =
|
(A
x B) – (A x C)
|
|
|
|
|
B
|
|
|
|
For
purposes of the foregoing formula:
|
|
A
=
|
the
total number of Option Shares with respect to which the relevant Strategic Options are then being exercised.
|
|
|
|
|
B
=
|
the
closing bid price of a Common Share on the date of exercise of the relevant Strategic Options.
|
|
|
|
|
C
=
|
the
Exercise Price in United States currency.
|
Stock
Options Other Than Strategic Options
On April 13, 2012, pursuant to the
2003 Plan, an OMAG independent director was granted 2,000 Stock Options exercisable at $1.70 per Common Share and all 2,000 of
such Stock Options expired unexercised on April 12, 2017.
On January 15, 2013, pursuant to the
2003 Plan, an OMAG independent director was granted 2,000 Stock Options exercisable at $1.38 per Common Share and expiring on
January 14, 2018.
On April 8, 2013, the estate of a former
OMAG director exercised 4,000 Stock Options; 2,000 at $0.51 per Common Share and 2,000 at $0.85 per Common Share.
On March 28, 2014, pursuant to the
2014 Plan, four persons were granted an aggregate of 40,000 Stock Options exercisable at $1.80 per Common Share and expiring on
March 27, 2019. One such person is an OMAG independent director and one is an OMAG officer.
On June 30, 2015, a former OMAG director
exercised 2,000 Stock Options at $0.51 per Common Share.
On May 16, 2016, an OMAG independent
director exercised 2,000 Stock Options at $0.85 per Common Share.
On May 16, 2016, a former OMAG director
had 2,000 unexercised Stock Options exercisable at $0.85 per Common Share expire.
Stock
Options Granted to the Named Executive Officers
The following table shows the number
of Common Shares covered by exercisable and un-exercisable Stock Options issued pursuant to the 2003 Plan and held by the Named
Executive Officers on June 30, 2017. There can be no assurance that the Grant Date Fair Value of Stock Option awards will ever
be realized by such Named Executive Officers.
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
Name
|
|
Number of Common Shares Underlying Unexercised
Options (#) Exercisable
|
|
|
Number of Common Shares Underlying Unexercised
Options (#)
Un-exercisable
|
|
|
Option Exercise
Price
|
|
|
Option
Expiration
Date
|
Frank Drohan (1)
|
|
|
750,000
|
|
|
|
0
|
|
|
$
|
1.70
|
|
|
December 31, 2017
|
|
|
|
100,000
|
|
|
|
0
|
|
|
$
|
2.60
|
|
|
September 22, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Kuczynski (2)
|
|
|
250,000
|
|
|
|
0
|
|
|
$
|
1.70
|
|
|
December 31, 2017
|
|
|
|
50,000
|
|
|
|
0
|
|
|
$
|
2.60
|
|
|
September 22, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Hanley (3)
|
|
|
60,000
|
|
|
|
0
|
|
|
$
|
1.70
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sam Hamdan (4)
|
|
|
750,000
|
|
|
|
0
|
|
|
$
|
1.70
|
|
|
December 31, 2017
|
(1)
|
In September
2008, 100,000 Stock Options, vesting ratably over five years, expiring after ten years and exercisable at $2.60 per Common
Share, were granted to OMAG’s President & Chief Executive Officer. In January and April of 2012, an aggregate of 750,000
Strategic Options, vesting 50% upon grant and 50% on July 1, 2012, now expiring on December 31, 2017 and exercisable at $1.70
per Common Share were granted to OMAG’s President & Chief Executive Officer. On December 30, 2014, 500,000 Strategic Options,
vesting upon grant, now expiring on December 31, 2017 and exercisable at $2.55 per Common Share were granted to OMAG’s President
& Chief Executive Officer.
|
|
|
(2)
|
In September
2008, 50,000 Stock Options, vesting ratably over five years, expiring after ten years and exercisable at $2.60 per Common
Share, were granted to OMAG’s Vice-President & Secretary. In January 2012, 250,000 Strategic Options, vesting 50% upon
grant and 50% on July 1, 2012, now expiring on December 31, 2017 and exercisable at $1.70 per Common Share were granted to
OMAG’s Vice-President & Secretary. On December 30, 2014, 75,000 Strategic Options, vesting upon grant, now expiring on
December 31, 2017 and exercisable at $2.55 per Common Share were granted to OMAG’s Vice-President & Secretary.
|
|
|
(3)
|
In January 2012,
60,000 Strategic Options, vesting 50% upon grant and 50% on July 1, 2012, now expiring on December 31, 2017 and exercisable
at $1.70 per Common Share were granted to OMAG’s Controller & Principal Accounting Officer. On March 28, 2014, 10,000
Stock Options, vesting upon grant, expiring on March 27, 2019 and exercisable at $1.80 per Common Share, were granted to OMAG’s
Controller & Principal Accounting Officer. On December 30, 2014, 50,000 Strategic Options, vesting upon grant, now expiring
on December 31, 2017 and exercisable at $2.55 per Common Share were granted to OMAG’s Controller & Principal Accounting
Officer.
|
|
|
(4)
|
In March 2007,
160,000 Stock Options, vesting ratably over five years, expiring after ten years and exercisable at $1.25 per Common Share,
were granted to a consultant to OMAG who is also the Deputy Managing Director of LLC; all such 160,000 Stock Options expired
unexercised on March 30, 2017. In January 2012, 750,000 Strategic Options, vesting 50% upon grant and 50% on July 1, 2012,
now expiring on December 31, 2017 and exercisable at $1.70 per Common Share were granted to the Deputy Managing Director of
LLC. On December 30, 2014, 250,000 Strategic Options, vesting upon grant, now expiring on December 31, 2017 and exercisable
at $2.55 per Common Share were granted to the Deputy Managing Director of LLC.
|
The following table shows the number
of Common Shares covered by unexpired non-qualified Stock Options issued to the Named Executive Officers under the 2003 Plan and
the Amended 2014 Amended Plan and unexercised on June 30, 2017.
Name
|
|
Number of Options
|
|
|
Exercise
Price
|
|
|
Date of
Grant
|
|
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
Frank Drohan
|
|
|
100,000
|
|
|
$
|
2.60
|
|
|
9/23/2008
|
|
9/22/2018
|
Frank Drohan
|
|
|
739,000
|
|
|
$
|
1.70
|
|
|
1/2/2012
|
|
12/31/2017
|
Frank Drohan
|
|
|
11,000
|
|
|
$
|
1.70
|
|
|
4/13/2012
|
|
12/31/2017
|
Frank Drohan
|
|
|
500,000
|
|
|
$
|
2.55
|
|
|
12/29/2014
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles Kuczynski
|
|
|
50,000
|
|
|
$
|
2.60
|
|
|
9/23/2008
|
|
9/22/2018
|
Charles Kuczynski
|
|
|
250,000
|
|
|
$
|
1.70
|
|
|
1/2/2012
|
|
12/31/2017
|
Charles Kuczynski
|
|
|
75,000
|
|
|
$
|
2.55
|
|
|
12/30/2014
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Hanley
|
|
|
60,000
|
|
|
$
|
1.70
|
|
|
1/2/2012
|
|
12/31/2017
|
William Hanley
|
|
|
10,000
|
|
|
$
|
1.80
|
|
|
3/28/2014
|
|
3/27/2019
|
William Hanley
|
|
|
50,000
|
|
|
$
|
2.55
|
|
|
12/30/2014
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sam Hamdan
|
|
|
750,000
|
|
|
$
|
1.70
|
|
|
1/2/2012
|
|
12/31/2017
|
Sam Hamdan
|
|
|
250,000
|
|
|
$
|
2.55
|
|
|
12/30/2014
|
|
12/31/2017
|
Stock
Options Granted to Independent Directors
The following table shows the number
of Common Shares covered by unexpired non-qualified Stock Options issued to Independent Directors of Omagine under the 2003 Plan
and the Amended 2014 Plan and unexercised as of June 30, 2017.
Name
|
|
Number of Options
|
|
|
Exercise
Price
|
|
|
Date of
Grant
|
|
Expiration
Date
|
Louis Lombardo
|
|
|
50,000
|
|
|
$
|
1.70
|
|
|
1/2/2012
|
|
12/31/2017
|
Louis Lombardo
|
|
|
2,000
|
|
|
$
|
1.38
|
|
|
1/15/2013
|
|
1/14/2018
|
Louis Lombardo
|
|
|
10,000
|
|
|
$
|
1.80
|
|
|
3/28/2014
|
|
3/27/2019
|
Louis Lombardo
|
|
|
25,000
|
|
|
$
|
2.55
|
|
|
12/30/2014
|
|
12/31/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estate of Salvatore Bucchere
|
|
|
50,000
|
|
|
$
|
1.70
|
|
|
1/2/2012
|
|
12/31/2017
|
On
December 30, 2014, 25,000 Strategic Options, vesting upon grant, now expiring on December 31, 2017 and exercisable at $2.55 per
Common Share were granted to Louis Lombardo.
Mr. Lombardo presently holds 87,000
fully vested Stock Options 2,000 exercisable at $1.38 expiring on January 14, 2018; 10,000 exercisable at $1.80 expiring on March
27, 2019; 50,000 Strategic Options exercisable at $1.70 expiring on December 31, 2017 and 25,000 Strategic Options exercisable
at $2.55 expiring on December 31, 2017). Mr. Lombardo’s 2,000 Stock Options granted April 13, 2012 expired unexercised on
April 12, 2017. Mr. Lombardo’s 75,000 Strategic Options require him to be a Director of OMAG at the time of the exercise
of any Strategic Options.
Mr.
Bucchere was an Independent Director at the time of his death on April 9, 2012. Pursuant to the 2003 Plan, all Stock Options then
held by Mr. Bucchere immediately vested and were assigned an expiration date of April 8, 2013. Subsequently pursuant to resolutions
of the Board of Directors, the expiration date for all Strategic Options (including the 50,000 Strategic Options held by the estate
of Mr. Bucchere) was extended to December 31, 2017. Mr. Bucchere’s estate presently holds 50,000 fully vested Strategic
Options exercisable at $1.70 per Common Share and expiring on December 31, 2017.
Report
on the Re-pricing of Any Options or Stock Appreciation Rights
There was no re-pricing of any Stock
Options or Stock Appreciation Rights during fiscal year 2016 or during any subsequent period through the date hereof. In December
2013, OMAG extended the expiration date of all Strategic Options from December 31, 2013 to December 31, 2014. (See: “Equity
Compensation Plan Information – The Strategic Options” above and “Note 7 – Stock Options” to OMAG’s
audited financial statements for the fiscal year ended December 31, 2016). In December 2014, OMAG extended the expiration date
of all Strategic Options from December 31, 2014 to December 31, 2015 and again on August 12, 2015, OMAG extended the expiration
date of all Strategic Options from December 31, 2015 to December 31, 2016 and again in December 2016, OMAG extended the expiration
date of all Strategic Options from December 31, 2016 to December 31, 2017.
Employment
Agreements
The Company
presently has no employment agreements with any person.
Pursuant to a prior employment agreement
with OMAG (the “Drohan Agreement”), OMAG was obligated to employ its President and Chief Executive Officer, Mr. Frank
J. Drohan, at an annual base salary of $125,000 plus an additional amount based on a combination of OMAG’s net sales and
earnings before taxes. By mutual agreement between OMAG and Mr. Drohan, the Drohan Agreement was modified to provide that OMAG
could from time to time suspend salary payments to Mr. Drohan and Mr. Drohan would continue to provide services to OMAG pursuant
to the Drohan Agreement and OMAG would accrue Mr. Drohan’s unpaid salary. OMAG has from time to time fully or partially
suspended and accrued salary payments due to Mr. Drohan. For the years ended December 31, 2016 and 2015, OMAG had continued to
accrue salary payable to its President on the basis of an annual salary of $125,000. On April 24, 2014, OMAG paid $187,691 of
unpaid salary payable to Mr. Drohan. At December 31, 2016 December 31, 2015 and December 31, 2014, unpaid accrued officer’s
compensation due to Mr. Drohan was $88,405, $115,131 and $310,464 respectively. On April 5, 2016, $50,400 of accrued but unpaid
officer’s compensation due to Mr. Drohan by OMAG by the Company was offset and utilized by Mr. Drohan for the purchase of
56,000 restricted Common Shares at the then market price of $0.90. During 2015, $120,000 of accrued but unpaid officer’s
compensation due to Mr. Drohan by OMAG was offset and utilized by Mr. Drohan for the purchase of 100,000 restricted Common Shares
at the then market price of $1.20 per Common Share. OMAG has agreed to pay any remaining unpaid and accrued salary to Mr. Drohan
without interest when and if OMAG has the financial resources to do so. On September 23, 2008 the Board of Directors granted 100,000
non-qualified Stock Options to Mr. Drohan which vested ratably over the five years after the grant date and which are exercisable
at $2.60 per Common Share. All 100,000 of such Stock Options are fully vested as of the date hereof. Expiration of all such Stock
Options is ten years from the date of grant. In January and April 2012 the Board of Directors authorized the grant to Mr. Drohan
of an aggregate of 750,000 Strategic Options exercisable at $1.70 per Common Share. On December 30, 2014 pursuant to a resolution
of the Board of Directors, OMAG granted Mr. Drohan an additional 500,000 Strategic Options exercisable at $2.55 per Common Share.
Mr. Drohan’s Strategic Options are fully vested as of the date hereof and require him to be an employee of OMAG at the time
of the exercise of any Strategic Options. All Strategic Options have a cashless exercise feature and may be exercised in whole
or in part at any time before their expiry date of December 31, 2017. All unexercised Strategic Options will expire on December
31, 2017. The Board of Directors determined in 2012 that when and if the Development Agreement for the Omagine Project was signed
by LLC and the Government, OMAG would award a substantial cash bonus to Mr. Drohan. The Development Agreement for the Omagine
Project was signed by LLC and the Government on October 2, 2014 and, in lieu of such cash bonus, the Board of Directors, in a
resolution dated August 31, 2015, granted Mr. Drohan 675,000 Stock Appreciation Rights (“SARs”) at a grant price of
$2.00 and all such SARs were fully vested as of the grant date. All SARs expire on December 31, 2017 and there is no requirement
for Mr. Drohan to be an employee of OMAG at the time of exercise of any SARs. OMAG presently plans to enter into a new employment
agreement with Mr. Drohan although the terms of such employment agreement have not yet been determined.
Pursuant to a prior employment agreement
with OMAG (the “Kuczynski Agreement”), OMAG was obligated to employ its Vice-President & Secretary, Mr. Charles
P. Kuczynski, at an annual base salary of $75,000, plus an additional bonus based on a combination of OMAG’s net sales and
earnings before taxes. Mr. Kuczynski is presently employed by OMAG at an annual salary of $100,000 and OMAG has from time to time
fully or partially suspended salary payments to Mr. Kuczynski and Mr. Kuczynski has continued to provide services to OMAG. For
the years ended December 31, 2016 and 2015, OMAG partially paid and partially accrued officer’s compensation of $100,000
due in each such year to Mr. Kuczynski. At December 31, 2016, December 31, 2015 and December 31, 2014, unpaid accrued officer’s
compensation due to Mr. Kuczynski was $149,121, 137,905 and $171,575 respectively. OMAG has agreed to pay any remaining unpaid
and accrued salary to Mr. Kuczynski without interest when and if OMAG has the financial resources to do so. On September 23, 2008
the Board of Directors granted 50,000 non-qualified Stock Options to Mr. Kuczynski which vested ratably over the five years after
the grant date and which are exercisable at $2.60 per Common Share. All 50,000 of such Stock Options are fully vested as of the
date hereof. Expiration of all such Stock Options is ten years from the date of grant. Pursuant to a January 2012 resolution of
the Board of Directors, OMAG granted 250,000 Strategic Options exercisable at $1.70 per Common Share to Mr. Kuczynski. On December
30, 2014 pursuant to a resolution of the Board of Directors, OMAG granted Mr. Kuczynski an additional 75,000 Strategic Options
exercisable at $2.55 per Common Share. Mr. Kuczynski’s Strategic Options are fully vested as of the date hereof and require
him to be an employee of OMAG at the time of the exercise of any Strategic Options. All Strategic Options have a cashless exercise
feature and may be exercised in whole or in part at any time before their expiry date of December 31, 2017. All unexercised Strategic
Options will expire on December 31, 2017. The Board of Directors determined in 2012 that when and if the Development Agreement
for the Omagine Project was signed by LLC and the Government, OMAG would award a substantial cash bonus to Mr. Kuczynski. The
Development Agreement for the Omagine Project was signed by LLC and the Government on October 2, 2014 and, in lieu of such cash
bonus, the Board of Directors, in a resolution dated August 31, 2015, granted Mr. Kuczynski 60,000 SARs at a grant price of $2.00
and all such SARs were fully vested as of the grant date. All SARs expire on December 31, 2017 and there is no requirement for
Mr. Kuczynski to be an employee of OMAG at the time of exercise of any SARs. OMAG presently plans to enter into a new employment
agreement with Mr. Kuczynski although the terms of such employment agreement have not yet been determined.
Employment
Benefits
OMAG sponsors a 401(k) retirement plan
for all eligible employees and provides and pays for group medical insurance for all employees choosing to participate in its
group medical insurance plan.
The Registrant adopted the Omagine
401(k) Plan DTD 10-01-2008 (the “401(k) Plan”) which is qualified under Section 401(k) of the Internal Revenue Code
as a pre-tax plan for eligible employees of OMAG. OMAG does not presently match any employee contributions made to the 401(k)
Plan. The Registrant made the maximum allowable discretionary contribution to all eligible employees participating in the 401(k)
Plan in 2016, 2015 and 2014 in the form of 61,001, 36,483 and 73,315 Common Shares respectively. Future discretionary contributions
and/or matching of employee contributions by the Registrant, if any, will be made pursuant to the recommendation of OMAG’s Board
of Directors.
OMAG entered into an annual consulting
agreement in 2007 with Mr. Sam Hamdan originally set to expire on December 31, 2007 but which now expires on December 31, 2017
(the “Hamdan Agreement”) (See: Exhibit 10.48). Pursuant to the Hamdan Agreement: (i) Mr. Hamdan provides consulting
services to OMAG, (ii) under certain circumstances and conditions precedent, Mr. Hamdan may become the President of OMAG, and
(iii) OMAG issued Mr. Hamdan Stock Options to purchase up to 160,000 Common Shares at $1.25 per Common Share (the “Hamdan
Options”). The Hamdan Options vested ratably over the 5 year period beginning on April 1, 2007 and they expired unexercised
on March 30, 2017. The Hamdan Options were exercisable only if at the time of such exercise: (i) the Hamdan Agreement is in effect,
or (ii) Mr. Hamdan is an employee of the Company. The Hamdan Agreement was annually renewed four times without further compensation
to Mr. Hamdan. Upon the fifth annual renewal of the Hamdan Agreement in 2012 and pursuant to a resolution of the Board of Directors,
Mr. Hamdan was granted 750,000 Strategic Options (See: Exhibit 10.3). Upon the eighth annual renewal of the Hamdan Agreement in
2015 and pursuant to a resolution of the Board of Directors, Mr. Hamdan was granted an additional 250,000 Strategic Options (See:
Exhibit 10.4). Mr. Hamdan’s Strategic Options are fully vested and require him to be an employee of or a consultant to the
Company at the time of the exercise of any of his Strategic Options. All unexercised Strategic Options will expire on December
31, 2017. Mr. Hamdan also serves without compensation as the Deputy Managing Director of the Company’s 60% owned subsidiary,
Omagine LLC. The Board of Directors determined in 2012 that when and if the Development Agreement for the Omagine Project was
signed by LLC and the Government, OMAG would award a substantial cash bonus to Mr. Hamdan. The Development Agreement for the Omagine
Project was signed by LLC and the Government on October 2, 2014 and the Board of Directors, in a resolution dated August 31, 2015,
granted Mr. Hamdan 675,000 SARs at a grant price of $2.00 and all such SARs were fully vested as of the grant date. All SARs expire
on December 31, 2017 and there is no requirement for Mr. Hamdan to be an employee or consultant of OMAG at the time of exercise
of any SARs. As of the date hereof, Mr. Hamdan continues to serve without any cash compensation and is presently leading a crucial
mission-critical assignment for LLC and the Company to finalize with the estate of a recently deceased investor the transaction
memorialized in the Investment Agreement between LLC and such investor. The Board is considering further non-cash alternatives
in order to retain and compensate Mr. Hamdan for his past and ongoing efforts.
In determining its compensation policies and decisions subsequent hereto, OMAG shall seek a shareholder
advisory vote on its executive compensation policy as required by Section 14A of the Exchange Act.
Compensation
Committee Interlocks and Insider Participation
No person who was a member of the compensation
committee during 2016 and through the date hereof was an officer or employee of the Registrant or a former officer or employee
of the Registrant. Other than the $150,000 loan to OMAG made by Mr. Lombardo and the $100,000 loan to OMAG made by an entity controlled
by Mr. Smith and Mr. Matus, no person who was a member of the compensation committee during 2016 and through the date hereof is
a party to any related party transaction with the Registrant (See: “Certain Relationships and Related Transactions and Director
Independence”).
During the fiscal year ended December 31, 2016
and through the date hereof, no executive officer of the Registrant served as a:
|
i.
|
member
of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee,
the entire board of directors) of another entity, one of whose executive officers served on the compensation committee or
board of directors of the Registrant, or
|
|
|
|
|
ii.
|
director
of another entity, one of whose executive officers served on the compensation committee of the Registrant, or
|
|
|
|
|
iii.
|
member
of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee,
the entire board of directors) of another entity, one of whose executive officers served as a director of the Registrant.
|
On
September 1, 2015, the Board of Directors appointed Jack A. Smith and Alan M. Matus as Independent Directors. The current members
of the Compensation Committee - Louis J. Lombardo, Alan M. Matus and Jack A. Smith – are all Independent Directors. Mr.
Smith chairs the Compensation Committee.
Board
leadership structure and role in risk oversight.
The Board of Directors filled board
vacancies effective September 1, 2015 with the appointments of Jack A. Smith and Alan M. Matus as Independent Directors. Three
of the five members of the Board are now independent directors. Mr. Smith is the lead Independent Director who serves as the non-exclusive
intermediary between independent directors and management. Mr. Smith is the Chairman of the Compensation Committee and a member
of the Audit Committee. Mr. Matus is the Chairman of the Audit Committee and an audit committee financial expert. Mr. Kuczynski,
an employee, director and Vice-President of OMAG, facilitates the internal communications between the Company’s President
and CEO (who is often located overseas in Oman) and the three Independent Directors to keep them informed of current Company issues,
events and risks. The Board continues as in the past to exercise its oversight function, including its risk oversight, on both
a formal and informal basis between and among its directors. OMAG’s Board of Directors has determined that this board structure
is appropriate and effective in carrying out its oversight tasks relevant to the Company’s activities and the risks it faces.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of
June 30, 2017: (i) the number of Common Shares beneficially owned by (a) owners of more than five percent of outstanding Common
Shares who are known to OMAG, (b) the officers of OMAG and LLC individually, (c) the directors of OMAG individually, (d) the officers
and directors of OMAG and LLC as a group, and (ii) the percentage ownership of the outstanding Common Shares represented by the
foregoing.
(a)
|
|
(b)
|
|
|
(c)
|
|
Name and
Address
|
|
Beneficial
Ownership (1)(11)
|
|
|
Percent
(1)
|
|
Frank J. Drohan
(2)(4)
|
|
|
4,222,029
|
|
|
|
17.5
|
%
|
Charles P. Kuczynski (2)(5)
|
|
|
1,113,847
|
|
|
|
4.9
|
%
|
Louis J. Lombardo (2)(6)
|
|
|
526,748
|
|
|
|
2.4
|
%
|
Jack A. Smith (2)
|
|
|
372,227
|
|
|
|
1.7
|
%
|
Alan M. Matus (2)
|
|
|
336,256
|
|
|
|
1.5
|
%
|
Mohammed K. Al-Sada (3)(7)
|
|
|
1,891,034
|
|
|
|
8.4
|
%
|
William Hanley (3)(8)
|
|
|
307,551
|
|
|
|
1.4
|
%
|
Sam Hamdan (3)(9)
|
|
|
1,009,576
|
|
|
|
4.4
|
%
|
Roger Tempest (10)
|
|
|
1,729,578
|
|
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
All officers
and Directors as a Group of 7 Persons
|
|
|
7,888,234
|
|
|
|
30.2
|
%
|
(1)
|
Applicable
percentage ownership in column (c) is based on 22,152,350 Common Shares outstanding as
of June 30, 2017 and on Common Shares owned by the named individual including Common
Shares underlying Stock Options, Warrants, SARs and convertible notes owned by the named
individual that are exercisable for Common Shares within 60 days of June 30, 2017. Beneficial
ownership and Common Shares outstanding are determined in accordance with Rule 13d-3(d)(1)
under the Securities Exchange Act of 1934, as amended (the “Act”). Common
Shares underlying Stock Options, Warrants or convertible notes that are currently exercisable
or convertible or exercisable or convertible within 60 days of June 30, 2017 are deemed
to be outstanding and beneficially owned by the person holding such Stock Options, Warrants,
SARs or convertible notes for the purpose of computing the percentage of outstanding
Common Shares owned by such person, but are not deemed to be outstanding for the purpose
of computing the percentage of outstanding Common Shares owned by any other person.
|
(2)
|
The
address for each of these individuals is c/o OMAG and each is a director of OMAG. Mr. Drohan
and Mr. Kuczynski are officers of OMAG.
|
(3)
|
The
address for each of these individuals is c/o OMAG. Mr. Hanley is an officer of OMAG and Mr.
Hamdan is an officer of LLC.
|
(4)
|
Amount
in column (b) for Mr. Drohan includes 2,226,569 Common Shares owned of record as of June 30,
2017 by Mr. Drohan plus 1,995,460 Common Shares with respect to which Mr. Drohan has the right
to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Act and are unissued
Common Shares underlying (i) 100,000 Stock Options exercisable at $2.60 per Common Share,
(ii) 750,000 Strategic Options exercisable at $1.70 per Common Share, (iii) 500,000 Strategic
Options exercisable at $2.55 per Common Share, (iv) 322,730 Strategic Warrants exercisable
at $5.00 per Common Share, (v) 322,730 Strategic Warrants exercisable at $10.00 per Common
Share, and (vi) excludes 675,000 Common Shares issuable upon exercise of SARs because all
such SARs exercisable at $2.00 per Common Share are out-of-the-money based on the Company’s
closing stock price as of June 30, 2017.
|
(5)
|
Amount in column
(b) for Mr. Kuczynski includes 637,907 Common Shares owned of record as of June 30, 2017 by Mr. Kuczynski plus 475,940 Common
Shares with respect to which Mr. Kuczynski has the right to acquire beneficial ownership as specified in Rule 13d-3(d)(1)
under the Act and are unissued Common Shares underlying (i) 50,000 Stock Options exercisable at $2.60 per Common Share, (ii)
250,000 Strategic Options exercisable at $1.70 per Common Share, (iii) 75,000 Strategic Options exercisable at $2.55 per Common
Share, (iv) 50,470 Strategic Warrants exercisable at $5.00 per Common Share, (v) 50,470 Strategic Warrants exercisable at
$10.00 per Common Share, and (vi) excludes 60,000 Common Shares issuable upon exercise of SARs because all such SARs exercisable
at $2.00 per Common Share are out-of-the-money based on the Company’s closing stock price as of June 30, 2017.
|
(6)
|
Amount
in column (b) for Mr. Lombardo includes 312,806 Common Shares owned of record as of June
30, 2017 by Mr. Lombardo plus 210,967 Common Shares with respect to which Mr. Lombardo
has the right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under
the Act and are unissued Common Shares underlying (i) 2,000 Stock Options exercisable
at $1.38 per Common Share, (ii) 10,000 Stock Options exercisable at $1.80 per Common
Share, (iii) 50,000 Strategic Options exercisable at $1.70 per Common Share, (iv) 25,000
Strategic Options exercisable at $2.55 per Common Share, (v) 13,230 Strategic Warrants
exercisable at $5.00 per Common Share, (vi) 13,230 Strategic Warrants exercisable at
$10.00 per Common Share, and (vii) a convertible promissory note in the principal amount
of $150,000 which together with $93,768 of accrued interest thereon (as of December 31,
2016) which is convertible at $2.50 per share into 97,507 Common Shares, and (viii) excludes
15,000 Common Shares issuable upon exercise of SARs because all such SARs exercisable
at $2.00 per Common Share are out-of-the-money based on the Company’s closing stock price
as of June 30, 2017.
|
(7)
|
Amount
in column (b) for Mr. Al-Sada includes 1,436,134 Common Shares owned of record as of June
30, 2017 by Mr. Al-Sada plus 454,900 Common Shares with respect to which Mr. Al-Sada has the
right to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Act and are
unissued Common Shares underlying (i) 227,450 Strategic Warrants exercisable at $5.00 per
Common Share, and (ii) 227,450 Strategic Warrants exercisable at $10.00 per Common Share.
|
(8)
|
Amount
in column (b) for Mr. Hanley includes 137,551 Common Shares owned of record as of June 30,
2017 by Mr. Hanley plus 170,000 Common Shares with respect to which Mr. Hanley has the right
to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Act and are unissued
Common Shares underlying (i) 10,000 Stock Options exercisable at $1.80 per Common Share, (ii)
60,000 Strategic Options exercisable at $1.70 per Common Share, (iii) 50,000 Strategic Options
exercisable at $2.55 per Common Share, (iv) 25,000 Strategic Warrants exercisable at $5.00
per Common Share, (v) 25,000 Strategic Warrants exercisable at $10.00 per Common Share, and
(vi) excludes 15,000 Common Shares issuable upon exercise of SARs because all such SARs exercisable
at $2.00 per Common Share are out-of-the-money based on the Company’s closing stock price
as of June 30, 2017.
|
(9)
|
Amount
in column (b) for Mr. Hamdan includes 9,576 Common Shares owned of record as of June 30, 2017
by Mr. Hamdan plus 1,000,000 Common Shares with respect to which Mr. Hamdan has the right
to acquire beneficial ownership as specified in Rule 13d-3(d)(1) under the Act and are unissued
Common Shares underlying (i) 750,000 Strategic Options exercisable at $1.70 per Common Share,
(ii) 250,000 Strategic Options exercisable at $2.55 per Common Share, and (iii) excludes 675,000
Common Shares issuable upon exercise of SARs because all such SARs exercisable at $2.00 per
Common Share are out-of-the-money based on the Company’s closing stock price as of June 30,
2017.
|
(10)
|
Amount
in column (b) for Mr. Tempest includes 1,579,578 Common Shares owned of record or beneficially
as of June 30, 2017 by Mr. Tempest (of which 1,059,042 shares are owned of record by two affiliates
of Mr. Tempest and deemed to be beneficially owned by Mr. Tempest).
|
(11)
|
Subject to community
property laws where applicable, each beneficial owner named in column (a) has sole voting and investment power over the Common
Shares beneficially owned by him listed in column (b).
|
Change
in Control Arrangements
No change in control arrangements existed at June 30, 2017
or as of the date hereof.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions
with related persons
There were no transactions during the
Registrant’s 2016 or 2015 fiscal years or through the date hereof, nor is there any currently proposed transaction, in which the
Registrant or any of its subsidiaries was or is to be a participant and in which any related person had or will have a direct
or indirect material interest, except as follows:
Effective January 1, 2015 the son of
OMAG’s President was hired as a full time Company employee for website design and similar technology consulting services
which employment ended December 31, 2015.
Tranzishen LLC is an entity owned by
Mr. Sam Hamdan who is a consultant to OMAG and the Deputy Managing Director of our 60% owned subsidiary Omagine LLC. In April
2016, the Company paid a $300,000 sponsorship fee to Tranzishen LLC for OMAG to serve as the Title Sponsor of the 2016 World Summit
on Innovation and Entrepreneurship hosted by the United Nations at UN headquarters in New York City from May 19 to May 23, 2016.
Mr. Hamdan and Mr. Drohan intend to
form a new corporation to be owned by them (“Newco”) which will not compete with OMAG.
Related Party Payables
At June 30, 2017, December 31, 2016,
2015 and 2014 OMAG has included $842,999, $861,922; $640,693 and $863,831 respectively of related party payables in its balance
sheet. These amounts consisted of:
|
(i)
|
convertible
notes payable (“Notes”) and accrued interest in the aggregate amounts of $355,466, $345,549; $228,726; and $213,726
respectively, and
|
|
(ii)
|
unpaid
salary and unreimbursed expenses due to OMAG officers and directors in the aggregate amounts of $487,533, $516,373; $411,967;
and $650,105 respectively.
|
The Notes are attached hereto as Exhibits
10.12, 10.13 and 10.44. Such Notes, unpaid salary and unreimbursed expenses are due and owing as follows:
Notes and accrued interest
payable to officers and directors of OMAG:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Due to Louis J. Lombardo,
a director of OMAG, interest at 10%, due on demand, convertible into common stock at a conversion price of $2.50 per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
Accrued interest
|
|
|
101,206
|
|
|
|
93,768
|
|
|
|
78,726
|
|
|
|
63,726
|
|
Due to
SMAT, Corp., a Florida corporation controlled by Jack A. Smith and Alan M. Matus, directors of OMAG, interest at 5%, due on
demand, convertible into common stock at a conversion price of $0.75 per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
0
|
|
|
|
0
|
|
Accrued Interest
|
|
|
4,260
|
|
|
|
1,781
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
$
|
355,466
|
|
|
$
|
345,549
|
|
|
$
|
228,726
|
|
|
$
|
213,726
|
|
Unpaid
salary and unreimbursed expenses due to officers and directors of OMAG:
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Due to Frank J. Drohan, President/CEO
and director of OMAG
|
|
$
|
105,561
|
|
|
$
|
96,352
|
|
|
$
|
125,132
|
|
|
$
|
315,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to Charles P. Kuczynski, VP, Secretary and
director of OMAG
|
|
|
146,072
|
|
|
|
149,121
|
|
|
|
137,905
|
|
|
|
171,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to William Hanley, Controller of OMAG
|
|
|
222,100
|
|
|
|
182,100
|
|
|
|
137,930
|
|
|
|
158,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to Louis J. Lombardo, director of OMAG
|
|
|
9,300
|
|
|
|
34,300
|
|
|
|
9,500
|
|
|
|
5,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to Alan M. Matus, director of OMAG
|
|
|
2,250
|
|
|
|
27,250
|
|
|
|
750
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to Jack A. Smith, director of OMAG
|
|
|
2,250
|
|
|
|
27,250
|
|
|
|
750
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
487,533
|
|
|
$
|
516,373
|
|
|
$
|
411,967
|
|
|
$
|
650,105
|
|
Total
Related Party Payables
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Notes Payable
|
|
$
|
355,466
|
|
|
$
|
345,549
|
|
|
$
|
228,726
|
|
|
$
|
213,726
|
|
Salary & Expenses Payable
|
|
|
487,533
|
|
|
|
516,373
|
|
|
|
411,967
|
|
|
|
650,105
|
|
Totals
|
|
$
|
842,999
|
|
|
$
|
861,922
|
|
|
$
|
640,693
|
|
|
$
|
863,831
|
|
Director
Independence
OMAG complies with the standards of
“independence” under the NASDAQ Marketplace Rules. Accordingly, a director will only qualify as an “independent
director” if, in the opinion of our Board of Directors, that person does not have a material relationship with our Company
which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. A director
who is, or at any time during the past three years, was employed by OMAG or by any parent or subsidiary of OMAG, shall not be
considered independent. Accordingly Louis J. Lombardo, Jack Smith and Alan Matus meet the definition of an “independent director”
under NASDAQ Marketplace Rule 5605(a)(2). As of the date hereof three of the Registrant’s five directors, Mr. Lombardo,
Mr. Smith and Mr. Matus are independent.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under
our Certificate of Incorporation, our directors will not be personally liable to us or to our shareholders for monetary damages
for any breach of their fiduciary duty as a director, except liability for the following:
|
●
|
Any
breach of their duty of loyalty to our Company or to our stockholders.
|
|
|
|
|
●
|
Acts
or omissions not in good faith or which involve intentional misconduct or a knowing violation of law.
|
|
|
|
|
●
|
Unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation
Law.
|
|
|
|
|
●
|
Any
transaction from which the director derived an improper personal benefit.
|
We
believe that these limitation of liability provisions are necessary to attract and retain qualified persons as directors and officers.
The
limitation of liability provisions in our Certificate of Incorporation may discourage shareholders from bringing a lawsuit against
our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors
and officers, even though an action, if successful, might benefit us and other stockholders.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
WHERE
YOU CAN FIND MORE INFORMATION
We
are filing with the SEC a Post-Effective Amendment No. 6 to a Registration Statement on Form S-1/A under the Securities Act, of
which this Prospectus is a part, covering the securities being offered. As permitted by the SEC, this Prospectus does not contain
all of the information set forth in the Registration Statement or the exhibits and schedules filed therewith. For further information
with respect to us and the securities covered by this Prospectus, please see the Registration Statement and the exhibits filed
with the Registration Statement. A copy of the Registration Statement and the exhibits filed with the Registration Statement may
be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at 1-800-732-0330 for more information about the operation of the public reference room. The SEC also
maintains an internet website that contains reports, proxy and information statements and other information regarding registrants
that file electronically with the SEC. The address of the website is www.sec.gov.
We
are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, and, in accordance
therewith, we file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements
and other information are available for inspection and copying at the public reference room and website of the SEC referred to
above. Such periodic reports, proxy statements and other information are also available for inspection and copying at our Company
website. The address of our website is www.omagine.com.
July___, 2017
OMAGINE,
INC.
3,085,822 Shares of Common
Stock
PROSPECTUS
We
have not authorized any dealer, salesperson or other person to give you written information other than this Prospectus or to make
representations as to matters not stated in this Prospectus. You must not rely on unauthorized information. This Prospectus is
not an offer to sell these securities or our solicitation of your offer to buy these securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this Prospectus nor any sales made hereunder after the date of this Prospectus
shall create an implication that the information contained herein or the affairs of OMAG have not changed since the date of this
Prospectus.
OMAGINE,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash
|
|
$
|
4,684
|
|
|
$
|
229,228
|
|
Inventory (Note 2)
|
|
|
|
|
|
|
|
|
Land under development
|
|
|
490,813,363
|
|
|
|
490,813,363
|
|
Total inventory held for sale
|
|
|
490,813,363
|
|
|
|
490,813,363
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
68,970
|
|
|
|
1,859
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
490,887,017
|
|
|
|
491,044,450
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
Real estate held for investment (Note 2)
|
|
|
|
|
|
|
|
|
Total investment in real estate
|
|
|
227,800,637
|
|
|
|
227,800,637
|
|
Office and computer equipment
|
|
|
160,002
|
|
|
|
160,002
|
|
Less accumulated depreciation and amortization
|
|
|
(154,534
|
)
|
|
|
(153,738
|
)
|
Total Property and Equipment
|
|
|
227,806,105
|
|
|
|
227,806,901
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
4,057
|
|
|
|
4,057
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
718,697,179
|
|
|
$
|
718,855,408
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable and accrued interest (less
unamortized discount of $1,755 and $13,904, respectively)
|
|
$
|
546,596
|
|
|
$
|
526,372
|
|
Note payable and accrued interest - YA II PN, Ltd.
(less unamortized discount of $50,000 and $68,750, respectively)
|
|
|
558,055
|
|
|
|
686,387
|
|
Note payable - St. George Investments LLC (less unamortized
Original Issue Discount of $7,500 and $22,500 respectively)
|
|
|
177,500
|
|
|
|
162,500
|
|
Accounts payable
|
|
|
589,987
|
|
|
|
663,913
|
|
Accrued officers’ payroll
|
|
|
409,527
|
|
|
|
419,626
|
|
Accrued expenses and other current liabilities
|
|
|
177,549
|
|
|
|
209,192
|
|
Total Current Liabilities
|
|
|
2,459,214
|
|
|
|
2,667,990
|
|
Long Term Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
2,459,214
|
|
|
|
2,667,990
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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: 21,643,178 shares in 2017 and 20,432,648 in 2016
|
|
|
21,643
|
|
|
|
20,432
|
|
Capital in excess of par value
|
|
|
470,994,489
|
|
|
|
470,350,815
|
|
Deficit
|
|
|
(41,862,468
|
)
|
|
|
(41,273,266
|
)
|
Total Omagine, Inc. stockholders’ equity
|
|
|
429,153,664
|
|
|
|
429,097,981
|
|
Noncontrolling interests in Omagine LLC
|
|
|
287,084,301
|
|
|
|
287,089,437
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
716,237,965
|
|
|
|
716,187,418
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
718,697,179
|
|
|
$
|
718,855,408
|
|
See
accompanying notes to consolidated financial statements.
OMAGINE,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
REVENUE:
|
|
|
|
|
|
|
Total revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
and directors’ compensation (including stock-based compensation of $263,885
and $226,385, respectively)
|
|
|
340,135
|
|
|
|
351,968
|
|
Professional fees
|
|
|
3,575
|
|
|
|
44,606
|
|
Consulting fees
|
|
|
26,750
|
|
|
|
77,836
|
|
Travel
|
|
|
75,988
|
|
|
|
149,835
|
|
Occupancy
|
|
|
16,406
|
|
|
|
16,516
|
|
Other selling general and administrative
(including stock-based compensation of $7,500 and $0 respectively)
|
|
|
62,375
|
|
|
|
65,793
|
|
Total Costs and Expenses
|
|
|
525,229
|
|
|
|
706,554
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(525,229
|
)
|
|
|
(706,554
|
)
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE
|
|
|
|
|
|
|
|
|
Amortization of debt discounts
|
|
|
(45,899
|
)
|
|
|
(23,333
|
)
|
Interest expense
|
|
|
(23,210
|
)
|
|
|
(13,660
|
)
|
Total Other Expense
|
|
|
(69,109
|
)
|
|
|
(36,993
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(594,338
|
)
|
|
|
(743,547
|
)
|
|
|
|
|
|
|
|
|
|
Add net loss attributable to noncontrolling interests in Omagine LLC
|
|
|
5,136
|
|
|
|
22,447
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO OMAGINE, INC.
|
|
$
|
(589,202
|
)
|
|
$
|
(721,100
|
)
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARE - BASIC AND DILUTED
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
- BASIC AND DILUTED
|
|
|
21,207,550
|
|
|
|
18,875,626
|
|
See
accompanying notes to consolidated financial statements.
OMAGINE,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
and Outstanding
|
|
|
Capital
in
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
|
|
|
$0.001
Par
|
|
|
Excess
of
|
|
|
|
|
|
Interests
in
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Par
Value
|
|
|
Deficit
|
|
|
Omagine
LLC
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2014
|
|
|
16,878,119
|
|
|
$
|
16,878
|
|
|
$
|
32,252,954
|
|
|
$
|
(32,669,399
|
)
|
|
$
|
(79,621
|
)
|
|
$
|
(479,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for 401(k) Plan contribution
|
|
|
36,483
|
|
|
|
37
|
|
|
|
76,213
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
grant to consultant for services rendered
|
|
|
5,000
|
|
|
|
5
|
|
|
|
9,445
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for cash
|
|
|
206,281
|
|
|
|
206
|
|
|
|
219,794
|
|
|
|
-
|
|
|
|
-
|
|
|
|
220,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock to an Executive Officer in payment of salaries payable
|
|
|
100,000
|
|
|
|
100
|
|
|
|
119,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options exercised by former Director
|
|
|
2,000
|
|
|
|
2
|
|
|
|
1,018
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of Tempest Warrants
|
|
|
160,603
|
|
|
|
161
|
|
|
|
252,879
|
|
|
|
-
|
|
|
|
-
|
|
|
|
253,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for finders’ fees on restricted Common Stock sales
|
|
|
41,245
|
|
|
|
41
|
|
|
|
72,459
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for Directors’ Compensation for services September 1, 2015 to December 31, 2015
|
|
|
50,000
|
|
|
|
50
|
|
|
|
99,950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock under SEDA
|
|
|
17,696
|
|
|
|
18
|
|
|
|
24,982
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of restricted Common Stock for cash
|
|
|
1,230,886
|
|
|
|
1,230
|
|
|
|
1,238,470
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,239,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
4,001
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option expense - Extension of 1,965,000 Strategic Options to December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
915,493
|
|
|
|
-
|
|
|
|
-
|
|
|
|
915,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option expense - Extension of 950,000 Strategic Options to December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
541,215
|
|
|
|
-
|
|
|
|
-
|
|
|
|
541,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option expense - Stock Appreciation Rights (1,455,000 expiring December 31, 2017)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,654,481
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,654,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment-in-Kind
capital contribution of land by noncontrolling interest in Omagine LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
431,168,400
|
|
|
|
-
|
|
|
|
287,445,600
|
|
|
|
718,614,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to noncontrolling interests in Omagine LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(195,879
|
)
|
|
|
(195,879
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,673,293
|
)
|
|
|
-
|
|
|
|
(5,673,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2015
|
|
|
18,728,313
|
|
|
|
18,728
|
|
|
|
468,651,654
|
|
|
|
(38,342,692
|
)
|
|
|
287,170,100
|
|
|
|
717,497,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for 401(k) Plan contribution
|
|
|
61,001
|
|
|
|
61
|
|
|
|
76,189
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for Directors’ Stock Compensation for services January 1, 2016 to December 31, 2016
|
|
|
115,386
|
|
|
|
116
|
|
|
|
149,884
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
540
|
|
|
|
-
|
|
|
|
-
|
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock to an Executive Officer in payment of salaries payable
|
|
|
56,000
|
|
|
|
56
|
|
|
|
50,344
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for Directors’ Cash Compensation for services January 1, 2016 to June 30, 2016
|
|
|
83,334
|
|
|
|
83
|
|
|
|
74,917
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of restricted Common Stock for cash
|
|
|
1,139,488
|
|
|
|
1,140
|
|
|
|
742,860
|
|
|
|
-
|
|
|
|
-
|
|
|
|
744,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Convertible Note payable liability into Common Stock
|
|
|
24,207
|
|
|
|
24
|
|
|
|
30,960
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock to a Director for the exercise of Stock Options
|
|
|
2,000
|
|
|
|
2
|
|
|
|
1,698
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock under SEDA
|
|
|
31,289
|
|
|
|
31
|
|
|
|
24,969
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock to consultant for services
|
|
|
30,340
|
|
|
|
30
|
|
|
|
24,970
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for SEDA commitment fees
|
|
|
161,290
|
|
|
|
161
|
|
|
|
149,839
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option expense - Extension of 1,965,000 Strategic Options to December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
232,263
|
|
|
|
-
|
|
|
|
-
|
|
|
|
232,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option expense - Extension of 950,000 Strategic Options to December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
59,660
|
|
|
|
-
|
|
|
|
-
|
|
|
|
59,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of 150,000 warrants issued to lender in connection with $75,000 loan
|
|
|
-
|
|
|
|
-
|
|
|
|
61,530
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature of convertible note issued to lender in connection with $50,000 loan
|
|
|
-
|
|
|
|
-
|
|
|
|
18,538
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to noncontrolling interests in Omagine LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(80,663
|
)
|
|
|
(80,663
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,930,574
|
)
|
|
|
-
|
|
|
|
(2,930,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2016
|
|
|
20,432,648
|
|
|
|
20,432
|
|
|
|
470,350,815
|
|
|
|
(41,273,266
|
)
|
|
|
287,089,437
|
|
|
|
716,187,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for 401(k) Plan contribution
|
|
|
123,782
|
|
|
|
124
|
|
|
|
76,126
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for Directors’ Stock Compensation for services January 1, 2017 to December 31, 2017
|
|
|
243,507
|
|
|
|
244
|
|
|
|
149,756
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of restricted Common Stock for cash
|
|
|
263,051
|
|
|
|
263
|
|
|
|
132,237
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock to two Executive Officers in payment of salaries payable
|
|
|
147,170
|
|
|
|
147
|
|
|
|
75,853
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock for 3 Directors’ Cash Compensation for services from July 1, 2016 to June 30, 2017
|
|
|
283,020
|
|
|
$
|
283
|
|
|
$
|
149,717
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Restricted Common Stock to Stockholder relations Agent for Services rendered from January 1, 2016 to March 31, 2017
|
|
|
93,750
|
|
|
$
|
94
|
|
|
$
|
37,406
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Restricted Common Stock to Stockholder relations Agent in advance for services to be rendered April 1, 2017
to December 31, 2017
|
|
|
56,250
|
|
|
|
56
|
|
|
|
22,444
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Option expense
|
|
|
-
|
|
|
|
0
|
|
|
|
135
|
|
|
|
-
|
|
|
|
-
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to noncontrolling interests in Omagine LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,136
|
)
|
|
|
(5,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(589,202
|
)
|
|
|
-
|
|
|
|
(589,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at March 31, 2017 (Unaudited)
|
|
|
21,643,178
|
|
|
$
|
21,643
|
|
|
$
|
470,994,489
|
|
|
$
|
(41,862,468
|
)
|
|
$
|
287,084,301
|
|
|
$
|
716,237,965
|
|
See
accompanying notes to consolidated financial statements.
OMAGINE,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Omagine, Inc.
|
|
$
|
(589,202
|
)
|
|
$
|
(721,100
|
)
|
Adjustments to reconcile net loss to net cash flows used by operating activities:
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests in Omagine LLC
|
|
|
(5,136
|
)
|
|
|
(22,447
|
)
|
Depreciation and amortization of property and equipment
|
|
|
796
|
|
|
|
1,211
|
|
Stock-based compensation related to stock options
|
|
|
135
|
|
|
|
135
|
|
Issuance of Common Stock for Stockholder Relations Agent
|
|
|
7,500
|
|
|
|
-
|
|
Issuance of Common Stock for 401(k) Plan contributions
|
|
|
76,250
|
|
|
|
76,250
|
|
Issuance of Common Stock for Directors’ fees
|
|
|
187,500
|
|
|
|
150,000
|
|
Amortization of debt discounts
|
|
|
45,899
|
|
|
|
23,333
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets and other assets
|
|
|
(7,111
|
)
|
|
|
20,930
|
|
Accrued interest on notes payable
|
|
|
10,992
|
|
|
|
4,651
|
|
Accounts payable
|
|
|
31,075
|
|
|
|
133,870
|
|
Accrued officers’ payroll
|
|
|
65,901
|
|
|
|
16,442
|
|
Accrued expenses and other current liabilities
|
|
|
(31,643
|
)
|
|
|
(1,081
|
)
|
Net cash flows used by operating activities
|
|
|
(207,044
|
)
|
|
|
(317,806
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
-
|
|
|
|
-
|
|
Net cash flows used by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from the sale of Common Stock
|
|
|
132,500
|
|
|
|
-
|
|
Principal payments on 2015 note payable to YA II PN, Ltd.
|
|
|
-
|
|
|
|
(225,000
|
)
|
Proceeds of issuance of 2016 note payable to YA II PN, Ltd. net of
$60,000 commitment fee
|
|
|
-
|
|
|
|
540,000
|
|
Principal payments on 2016 note payable to YA II
PN, Ltd.
|
|
|
(150,000
|
)
|
|
|
-
|
|
Net cash flows provided by (used by) financing
activities
|
|
|
(17,500
|
)
|
|
|
315,000
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(224,544
|
)
|
|
|
(2,806
|
)
|
|
|
|
|
|
|
|
|
|
CASH BEGINNING OF PERIOD
|
|
|
229,228
|
|
|
|
324,703
|
|
|
|
|
|
|
|
|
|
|
CASH END OF PERIOD
|
|
$
|
4,684
|
|
|
$
|
321,897
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
300
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
14,103
|
|
|
$
|
8,996
|
|
|
|
|
|
|
|
|
|
|
NON - CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock to two Executive Officers
in payment of salaries payable
|
|
$
|
76,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock to Directors in payment of
accounts payable ($75,000) and prepaid fees for services for the quarter ended June 30, 2017 ($37,500)
|
|
$
|
112,500
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock to Stockholders Relations
Agent in payment of accounts payable ($30,000) and prepaid fees for the period April 1, 2017 to December 31, 2017 ($22,500)
|
|
$
|
52,500
|
|
|
$
|
-
|
|
See
accompanying notes to consolidated financial statements.
OMAGINE,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of the Business
Omagine, Inc. (“OMAG”)
is a holding company incorporated in Delaware in October 2004 which operates through its wholly owned subsidiary, Journey of Light,
Inc., a New York corporation (“JOL”) and its 60% owned subsidiary Omagine LLC, a limited liability company incorporated
under the laws of the Sultanate of Oman (“LLC”). OMAG, JOL and LLC are collectively referred to herein as the “Company”.
JOL was acquired by OMAG in October 2005. LLC is the Omani real estate development company organized by OMAG to do business in
Oman.
The Company is focused on entertainment,
hospitality and real-estate development opportunities in the Middle East and North Africa (the “MENA Region”). On
October 2, 2014, LLC signed a Development Agreement with the Government of Oman (the “Government”) for the development
of the Omagine Project. On July 2, 2015, a usufruct over one million square meters of beachfront land (the “Land Rights”)
was registered in LLC’s name with the Government. On November 29, 2015, LLC executed a Murabaha Facility Agreement with
Masraf Al Rayan Bank (Qatar) for a $25 million loan to finance the first phase of the Omagine Project consisting of design, development
and initial construction activities. The loan, which is subject to satisfaction of certain conditions precedent to closing, would
bear interest at an annual rate equal to the 12 month LIBOR rate plus 1% and would be payable one year from the closing date.
One condition precedent to closing is that the loan be secured by a $25,000,000 cash deposit in an LLC account at the Qatari bank.
Such security deposit was expected to be provided by CCC pursuant to the terms of the Shareholder Agreement but this did not occur
and it is presently unlikely that this loan facility will be utilized. Contingent upon the closing of such loan and/or contingent
upon the conclusion of final discussions with several potential LLC investors, including one such investor with whom LLC has a
preliminary written investment agreement, commencement of these first phase activities is expected to begin promptly thereafter.
(See Note 9 – “Omagine Project”).
Interim Financial Statements
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 annual report on Form 10-K for the fiscal year ended December 31, 2016 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 are not necessarily indicative of the operating
results for the respective full years.
Certain footnote disclosures
normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United
States (“US GAAP”) have been omitted in accordance with the published rules and regulations of the Securities and
Exchange Commission (“SEC”). These financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2016 filed
with the SEC on April 14, 2017.
Summary
of Significant Accounting Policies
Principles
of Consolidation
- The consolidated financial statements include the accounts of OMAG, JOL and LLC. LLC is an Omani limited
liability company organized under the laws of the Sultanate of Oman. All inter-company transactions have been eliminated in consolidation.
Financial
Instruments
- Financial instruments include cash, convertible notes payable and accrued interest, notes payable and accrued
interest, accounts payable, accrued officers’ payroll and accrued expenses and other current liabilities. The amounts reported
for financial instruments are considered to be reasonable approximations of their fair values, based on market information available
to management.
Cash
and Cash Equivalents
– The Company considers all highly liquid instruments with a maturity of three months or less at
the time of issuance to be cash equivalents. At March 31, 2017 and December 31, 2016, cash included approximately $1,600 and $2,100
respectively in an Oman bank account not covered by FDIC insurance.
Inventory
– Inventory is stated at cost. At March 31, 2017 and December 31, 2016, inventory consists only of the land under development
acquired on July 2, 2015 (which was costed at the fair value of the property at the date of acquisition). (See: Note 2 –
“Inventory and Property”).
Property,
Plant and Equipment
- Property, plant and equipment (“PP&E”) are stated at cost. PP&E consists of land
under development which is held for investment; furniture and fixtures; and office machinery and equipment. PP&E (including
buildings and structures after they are completed and put into service) are depreciated on a straight-line basis over their respective
useful service lives. (See: Note 2 – “Inventory and Property”).
Impairment of Long-Lived Assets
-
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable
market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change
that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held
and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash
flows and measures the impairment loss based on the difference between the carrying amount and the estimated fair value.
Stockholders’
Equity
- Stockholders’ equity consists of common stock, capital in excess of par value, deficit, and non-controlling
interests in LLC. The Company’s consolidated financial statements for the year ended December 31, 2015 reflect an increase
of $718,614,000 in stockholders’ equity resulting from LLC’s July 2, 2015 acquisition of the Land Rights (a $431,168,400
increase in OMAG stockholders’ equity and a $287,445,600 increase in non-controlling interests in LLC). (See: Note 2 –
“Inventory and Property”).
Estimates
and Uncertainties
- The preparation of financial statements in conformity with accounting principles generally accepted in
the United States (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results as determined at a later date could differ
from those estimates. In recording $718,614,000 in the accompanying consolidated financial statements for the year ended December
31, 2015 as the value of the non-cash consideration received by LLC as Land Rights, management relied to a great extent upon the
written opinions of three expert valuation firms engaged by LLC to value such Land Rights. Furthermore, in allocating such Land
Value to inventory and land under development, management relied to a great extent upon the written opinion of an expert independent
accounting firm engaged by LLC to advise it on the proper accounting to record the Land Value in LLC’s financial statements.
Both LLC’s independent auditor and the Company’s independent auditor are in agreement with and have consented to the
accounting indicated in the accompanying consolidated financial statements for the year ended December 31, 2015. (See: Note 2
– “Inventory and Property”).
Revenue
Recognition
- The Company follows the guidelines of SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial
Statements” (SAB101). LLC signed a development agreement for the Omagine Project with the Government of Oman in October
2014, and will recognize revenue ratably over the development period of the Omagine Project measured by methods appropriate to
the services or products provided.
Income
Taxes
- OMAG and JOL are subject to United States (“U.S.”) income taxes at both the federal and state level and
LLC is subject to income taxes in Oman. Separate state income tax returns are filed with each state in the U.S. in which OMAG
or any subsidiary of OMAG is incorporated or qualified as a foreign corporation. LLC files an income tax return in Oman. Other
than with respect to LLC, 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 U.S.
income taxes by applying the provisions of the applicable enacted tax laws to taxable income, if any, for the relevant 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
718, “Compensation – Stock Compensation” (“ASC 718”). For stock options granted, OMAG has recognized
compensation expense based on the estimated grant date fair value method using the Black-Scholes valuation model. For such stock
option awards, OMAG has recognized compensation expense using a straight-line amortization method over the requisite service period.
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, 2017 and 2016 were $135 and $135, respectively. (See Note 8).
Earnings
(Loss) Per Share
- Basic earnings (loss) per share of OMAG’s $0.001 par value common stock (“Common Stock”)
is based upon the weighted-average number of shares of Common Stock (“Common Shares”) outstanding during the relevant
period. Diluted earnings (loss) per share is based upon the weighted-average number of Common Shares and dilutive securities (stock
options, warrants, stock appreciation rights and convertible notes) outstanding during the relevant period. Dilutive securities
having an anti-dilutive effect on diluted earnings (loss) per share are excluded from the calculation.
For
the three month period ended March 31, 2017 and 2016, the Common Shares underlying the following dilutive securities were excluded
from the calculation of diluted shares outstanding as the effect of their inclusion would be anti-dilutive:
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Convertible Notes
|
|
|
373,728
|
|
|
|
159,913
|
|
Stock Options
|
|
|
3,109,000
|
|
|
|
3,273,000
|
|
Stock Appreciation Rights
|
|
|
1,455,000
|
|
|
|
1,455,000
|
|
Warrants
|
|
|
6,572,124
|
|
|
|
6,771,521
|
|
Total Common Shares Issuable
|
|
|
11,509,852
|
|
|
|
11,659,434
|
|
Non-controlling
Interests in Omagine LLC
- In May 2011, OMAG, JOL and three new investors (the “New Investors”) entered into a
shareholders’ agreement (the “Shareholder Agreement”) pursuant to which OMAG’s 100% ownership of LLC was
reduced to 60%.
The
New Investors were:
i.
|
The
Office of Royal Court Affairs (“RCA”), an Omani organization, and
|
|
|
ii.
|
Two
subsidiaries of Consolidated Contractors International Company, SAL (“CCIC”).
CCIC is a 65 year old Lebanese multi-national company headquartered in Athens, Greece
having worldwide, and operating subsidiaries in among other places, every country in
the Middle East. The two CCIC subsidiaries which are LLC shareholders are:
|
|
|
|
1.
|
Consolidated Contracting
Company S.A. (“CCC-Panama”), a wholly owned subsidiary of CCIC and is its investment arm, and
|
|
|
|
|
2.
|
Consolidated Contractors
(Oman) Company LLC, CCIC’s operating subsidiary in Oman which is a construction company.
|
As
of the date hereof, the shareholders of LLC and their associated ownership percentages as registered with the Government of Oman
are as follows:
LLC
Shareholder
|
|
Percent
|
|
OMAG*
|
|
|
60
|
%
|
RCA
|
|
|
25
|
%
|
CCC-Panama
|
|
|
10
|
%
|
CCC-Oman
|
|
|
5
|
%
|
Total:
|
|
|
100
|
%
|
* In April 2017, OMAG exercised its options
to purchase all of the LLC shares owned by both CCC-Oman and CCC-Panama. See Note 11 – Subsequent Events.
Recent
Accounting Pronouncements
On
August 27, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 provides guidance on
determining when and how reporting entities must disclose going concern uncertainties in their financial statements. The new standard
requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one
year of the date of issuance of the entity’s financial statements (or within one year after the date on which the financial statements
are available to be issued, when applicable). Further, an entity must provide certain disclosures if there is “substantial
doubt about the entity’s ability to continue as a going concern.” The FASB believes that requiring management to perform
the assessment will enhance the timeliness, clarity and consistency of related disclosures and improve convergence with IFRS (which
emphasize management’s responsibility for performing the going concern assessment). However, the time horizon for the assessment
(look-forward period) and the disclosure thresholds under U.S. GAAP and IFRS will continue to differ. This ASU 2014-15 is effective
for annual periods ending after December 16, 2016, and interim periods thereafter. The Company does not believe that this
pronouncement has had or will have a material impact on our financial statement disclosures.
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 – INVENTORY AND PROPERTY
The
Company’s consolidated financial statements for the three months ended March 31, 2017 reflect $718,614,000 of land under
development which the Company has allocated to inventory ($490,813,363) and property ($227,800,637). This $718,614,000 of land
under development was purchased by LLC on July 2, 2015 pursuant to the terms of the Shareholder Agreement whereby an LLC shareholder
agreed to transfer the Land Rights over one million square meters of beachfront land (the “Omagine Site”) to LLC in
exchange for the issuance to such shareholder of 663,750 Omagine LLC shares (the “LLC Shares”). Since the Land Rights
represented a non-cash payment for the LLC Shares, it was necessary to value the Land Rights.
Three
expert real estate valuation companies were engaged by LLC to independently value the Land Rights in accordance with the professional
standards specified by the Royal Institution of Chartered Surveyors (“RICS”) and International Financial Reporting
Standards (“IFRS”). The average of the three Land Rights valuations was 276,666,667 Omani Rials ($718,614,000).
LLC
engaged the services of PricewaterhouseCoopers LLP (“PwC”) as its IFRS accounting consultant to definitively determine
the correct method of recording the $718,614,000 average value of its Land Rights in its IFRS compliant financial statements.
After receiving PwC’s written opinion, LLC then consulted with its independent auditor, Deloitte & Touche (M.E.) &
Co. LLC (“Deloitte”) with respect to the matter and received Deloitte’s written opinion agreeing with the PwC
opinion. Both PwC and Deloitte independently concluded that the Land Rights should be recorded as capital, work-in-process (inventory)
and land on LLC’s financial statements. With respect to the Company’s consolidated financial statements, the Company’s
independent auditor in the U.S. has likewise concurred that, pursuant to US GAAP, the Land Rights should also be recorded as capital,
inventory and land.
In
determining the allocations to inventory and to land, LLC followed the advice of Deloitte by computing the percentage (x) calculated
by dividing (y) the area of the land LLC definitively knew it intended to sell, by (z) the total area of land constituting the
Omagine Site, and then multiplying that percentage (x) by $718,614,000 to get the correct number (N) for inventory. The correct
number for land was then calculated by subtracting N from $718,614,000. Using its detailed internal financial model, management
calculated (x) to be equal to 68.3%, thereby making the inventory number $490,813,363 and the land number $227,800,637. In its
consolidated financial statements therefore, the Company has divided the Land Rights between land under development which is held
for sale (inventory) and land under development which is held for investment (PP&E). These percentage allocations may be modified
over time as the more precise land uses become apparent during and after the master planning and construction processes.
As
more fully described in Note 1 and in Note 9 (See: “the Omagine LLC Shareholder Agreement section of Note 9), financing
for the Omagine Project has not yet been secured. If such financing is not obtained, LLC may not be able to complete the Omagine
Project and may not be able to recover the $718,614,000 value of the land under development described above.
NOTE
3 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consist of:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Prepaid rent (New York office)
|
|
$
|
-
|
|
|
$
|
1,859
|
|
|
|
|
|
|
|
|
|
|
Prepaid rent (Muscat, Oman office)
|
|
|
8,970
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common Stock issued to three independent directors
for services to be rendered from April 1, 2017 to June 30, 2017
|
|
|
37,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common Stock issued to investor relations vendor
for services to be rendered from April 1, 2017 to December 31, 2017
|
|
|
22,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,970
|
|
|
$
|
1,859
|
|
NOTE
4 – CONVERTIBLE NOTES PAYABLE AND ACCRUED INTEREST
Convertible
notes payable and accrued interest thereon consist of:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Due to a director of OMAG, interest at 10% per annum, due on demand,
convertible into Common Stock at a conversion price of $2.50 per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
97,466
|
|
|
|
93,768
|
|
|
|
|
|
|
|
|
|
|
Due to investors, interest at 15% per annum, due on demand, convertible
into Common Stock at a conversion price of $2.50 per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
42,460
|
|
|
|
41,165
|
|
|
|
|
|
|
|
|
|
|
Due to investors, interest at 10% per annum, due on demand, convertible
into Common Stock at a conversion price of $2.50 per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
19,253
|
|
|
|
18,021
|
|
|
|
|
|
|
|
|
|
|
Due to entity owned by two directors of OMAG, interest at 5% per annum,
due on December 24, 2016, convertible into Common Stock at a conversion price of $0.75 per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
3,014
|
|
|
|
1,781
|
|
|
|
|
|
|
|
|
|
|
Due to an investor, interest at 5% per annum, due on April 13, 2017,
convertible into Common Stock at a conversion price of $0.65 per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Unamortized Debt Discount
|
|
|
(1,755
|
)
|
|
|
(13,904
|
)
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
1,158
|
|
|
|
541
|
|
Total
|
|
$
|
546,596
|
|
|
$
|
526,372
|
|
NOTE
5 – NOTES PAYABLE AND ACCRUED INTEREST – YA II PN, LTD. (p/k/a YA GLOBAL MASTER SPV, LTD
.)
In July 2013, OMAG borrowed $200,000 from
YA II PN, Ltd. (“YA”) (p/k/a YA Global Master SPV, Ltd.) via an unsecured loan (the “2013 YA Loan”) and
on April 23, 2014 OMAG paid the 2013 YA Loan balance and accrued interest thereon due at April 23, 2014 in full and borrowed an
additional $500,000 from YA via a second unsecured loan (the “2014 YA Loan”) and on April 22, 2015 OMAG paid the 2014
YA Loan balance and the accrued interest thereon in full. On May 20, 2015, OMAG borrowed an additional $500,000 from YA via a
third unsecured loan (the “2015 YA Loan”). On March 15, 2016 OMAG paid the 2015 Loan balance and the accrued interest
thereon in full and borrowed an additional $600,000 from YA via a fourth unsecured loan (the “March 2016 YA Loan”)
and on June 22, 2016, OMAG borrowed an additional $400,000 from YA via a fifth unsecured loan (the “June 2016 YA Loan”).
OMAG paid both the March 2016 Loan and the June 2016 Loan balances and accrued interest thereon in full. On December 7, 2016 OMAG
borrowed an additional $750,000 from YA via a sixth unsecured loan (the “December 2016 YA Loan”).
Notes
payable and accrued interest thereon due to YA consist of:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
December 2016 YA Loan - interest at 10% per annum, due
in 12 monthly installments of principal ($75,000 monthly January 2017 to March 2017, $65,000 monthly April 2017 to June 2017,
$55,000 monthly July 2017 to October 2017, $50,000 in November 2017 and $60,000 in December 2017.)
|
|
|
600,000
|
|
|
|
750,000
|
|
Less: Unamortized debt discount at March 31, 2017
and December 31, 2016
|
|
|
(50,000
|
)
|
|
|
(68,750
|
)
|
Principal, net
|
|
|
550,000
|
|
|
|
681,250
|
|
Accrued interest
|
|
|
8,055
|
|
|
|
5,137
|
|
Total
|
|
$
|
558,055
|
|
|
$
|
686,387
|
|
NOTE
6 – NOTE PAYABLE – ST. GEORGE INVESTMENTS LLC
On
November 14, 2016, the Company entered into an interest free six month Convertible Promissory Note with an accredited investor
for the principal amount of $185,000 due on May 13, 2017, convertible into the Company’s Common Stock only in the case of
an Event of Default at a Conversion Price equal to 60% of the three lowest daily Volume Weighted Average Prices for the Company’s
Common Stock during the twenty trading days immediately preceding the Conversion. The Company may prepay the Note in whole or
in part at any time without penalty. After deduction of a $30,000 original issue discount (OID) and legal fees of $5,000, the
Company received net proceeds of $150,000 on November 16, 2016. (See: Exhibits 10.42 and 10.43, the Note Purchase Agreement and
the Securities Purchase Agreement). See Note 11 – Subsequent Events.
NOTE
7 – COMMON STOCK
With
respect to the issuances of the Common Shares listed below:
|
1.
|
see
Note 9 under “Equity Finance Agreements” with respect to sales of Common Shares made to YA II PN, Ltd. (p/n/a
YA Global Master SPV, Ltd.) (“YA”) pursuant to the Standby Equity Distribution Agreement (“2014 SEDA”).
|
|
|
|
|
2.
|
where
issuances of restricted Common Shares occurred at non-discounted valuations, it is so noted and all such non-discounted valuations
were based on the closing price of a Common Share on the relevant date.
|
|
|
|
|
3.
|
where
issuances of restricted Common Shares occurred at discounted valuations, it is so noted and all such discounted valuations
were calculated using the Finnerty Method based on the closing price of a Common Share on the relevant date less a restricted
stock discount.
|
|
|
|
|
4.
|
where
issuances of restricted Common Shares occurred at agreed upon negotiated prices, the sale proceeds or value of services rendered
are so noted.
|
On
January 4, 2017, OMAG contributed 123,782 restricted Common Shares at a non-discounted valuation of $76,250 to all eligible employees
of Omagine Inc. 401(k) Plan.
On
January 4, 2017, OMAG issued 81,169 restricted Common Shares at a non-discounted valuation of $50,000 to each of the Corporation’s
three independent directors based on the $0.616 closing price of the Corporation’s Common Stock on December 30, 2016 for
the 50% non-cash payment of the $100,000 annual retainer due them.
On
January 13, 2017, OMAG sold 18,051 restricted Common Shares to an accredited investor for proceeds of $10,000.
On
January 20, 2017, OMAG sold 25,000 restricted Common Shares to an accredited investor for proceeds of $12,500.
On
January 25, 2017, OMAG sold 20,000 restricted Common Shares to an accredited investor for proceeds of $10,000.
On
February 1, 2017, the President of the Company purchased 100,000 restricted Common Shares based on the $0.62 closing price of
OMAG’s Common Stock on January 31, 2017 minus the Finnerty discount of 18% for proceeds of $51,000.
On
February 2, 2017, the three independent Company directors each purchased 94,340 restricted Common Shares and the Company’s
Vice President purchased 47,170 restricted Common Shares based on the $0.6414 closing price of OMAG’s Common Shares on February
1, 2017 minus the Finnerty discount of 18% for aggregate proceeds of $175,000.
On
February 21, 2017, OMAG sold 200,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds
of $100,000.
On
March 31, 2017, the Company issued 93,750 restricted shares of Common Stock to its investor relations vendor as payment in full
for $37,500 of services rendered for the period January 1, 2016 through March 31, 2017, and issued an additional 56,250 restricted
shares of Common Stock to the same vendor as payment in full for $22,500 of services to be rendered for the period April 1, 2017
through December 31, 2017.
On
January 16, 2016, OMAG contributed an aggregate of 61,001 restricted Common Shares at the non-discounted valuation of $76,250
to all eligible employees of the Omagine, Inc. 401(k) Plan.
On
January 16, 2016, OMAG issued 38,462 restricted Common Shares to each of three independent directors for services to be rendered
from January 1, 2016 to December 31, 2016 for an aggregate value of $150,000.
On
April 5, 2016, the president of the Company purchased 56,000 restricted Common Shares based on the $0.90 closing price of OMAG’s
Common Stock on such date of purchase. The total purchase price of $50,400 was paid to the Company by the $50,400 reduction in
the accrued salary and expenses owed by the Company to the president.
On
April 6, 2016, the three independent directors of the Company each purchased 27,778 restricted Common Shares based on the $0.90
closing price of OMAG’s Common Stock on April 5, 2016 for an aggregate of 83,334 Common Shares purchased. The aggregate
purchase price of $75,000 was paid to the Company by the $25,000 reduction in accrued director’s fees owed by the Company
to each of the independent directors.
On
April 12, 2016, the Company sold 700,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds
of $504,000.
On
April 22, 2016, the holders of a Convertible Note converted $30,984 of principal and accrued interest into 24,207 shares of Common
Stock.
On
May 17, 2016, an Independent Director exercised Stock Options at $0.85 to purchase 2,000 shares of Common Stock.
On
June 15, 2016, pursuant to the SEDA, OMAG sold 31,289 Common Shares to YA for proceeds of $25,000.
On
July 29, 2016, OMAG sold 10,684 restricted Common shares to an accredited investor for proceeds of $10,000.
On
August 19, 2016, OMAG sold 13,245 restricted Common Shares to an accredited investor for proceeds of $10,000.
On
August 30, 2016, OMAG sold 11,312 restricted Common Shares to an accredited investor for proceeds of $10,000.
On
September 16, 2016, OMAG sold 34,247 restricted Common Shares to an accredited investor for proceeds of $25,000.
On
September 19, 2016 OMAG paid a consultant 30,340 restricted Common Shares at a value of $25,000.
On
September 21, 2016, OMAG issued 161,290 restricted Common Shares to YA in satisfaction of a $150,000 commitment fee due in connection
with the extension of the 2014 SEDA to February 1, 2019.
On
October 14, 2016, the Company entered into a Convertible Promissory Note with an accredited investor for the principal amount
of $50,000 with interest at 5% per annum, due on April 14, 2017 and convertible into the Company’s Common Stock at a conversion
price of $0.65 per Common Share.
On
October 17, 2016, the Company entered into an Interest Free Promissory Note with an accredited investor for the principal amount
of $75,000, due on December 13, 2016, and in lieu of any interest due and payable on the principal amount of the Note, the Company
issued to the Note Holder 150,000 Common Stock Purchase Warrants exercisable at the greater of (a) $0.50, or (b) 80% of the Market
Price on the Trading Day immediately preceding the relevant Exercise Date. On December 5, 2016, the $75,000 note was satisfied
(see sixth succeeding paragraph below).
On
November 1, 2016, OMAG sold 20,000 restricted Common Shares to an accredited investor for proceeds of $10,000 and also sold 10,000
restricted Common Shares to an independent director who is also an accredited investor for proceeds of $5,000.
On
November 4, 2016, OMAG sold 10,000 restricted Common Shares to an accredited investor for proceeds of $5,000.
On
November 8, 2016, OMAG sold an aggregate of 20,000 restricted Common Shares to two accredited investors for aggregate proceeds
of 10,000.
On
November 14, 2016, OMAG sold 10,000 restricted Common Shares to an accredited investor for proceeds of $5,000.
On
November 14, 2016, the Company entered into an interest free Convertible Promissory Note with St. George Investments LLC, an accredited
investor, for the principal amount of $185,000 due on May 15, 2017, six months from the funding date of November 16, 2016, convertible
into the Company’s Common Stock only in the case of non-payment or in the Event of Default at a Conversion Price equal to
60% of the three lowest daily Volume Weighted Average Prices for the Company’s Common Stock during the twenty trading days
immediately preceding the Conversion. The Company may prepay the Note in whole or in part at any time without penalty. After deduction
of a $30,000 original issue discount (OID) and legal fees of $5,000, the Company received net proceeds of $150,000 on November
16, 2016.
On
December 5, 2016, OMAG sold 300,000 restricted Common Shares to an accredited investor for proceeds of $150,000 which was paid
to the Company by the cancellation and payment in full of the Company’s $75,000 Promissory Note dated October 17, 2016 (see
sixth preceding paragraph above) and the remaining $75,000 of the purchase price was paid to the Company in cash.
On
January 5, 2015, OMAG contributed an aggregate of 36,483 restricted Common Shares at the discounted valuation of $76,250 to all
eligible employees of the Omagine, Inc. 401(k) Plan.
On
February 23, 2015, OMAG paid a consultant 5,000 restricted Common Shares at the discounted valuation of $9,450.
On
March 26, 2015, OMAG sold 6,281 restricted Common Shares to an accredited investor for proceeds of $10,000.
On
March 26, 2015, OMAG sold 200,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds of
$210,000.
On
May 16, 2015, OMAG sold 100,000 restricted Common Shares to an officer and director for proceeds of $120,000.
On
June 29, 2015, the Non-US investor (described below in connection with a June 24, 2014 transaction) exercised 158,228 Tempest
Warrants at an exercise price of $1.58 for proceeds of $250,000.
On
June 29, 2015, OMAG paid a finder’s fee to a non-U.S. Finder in connection with the aforementioned sale of 158,228 restricted
Common Shares. Such finder’s fee was satisfied by issuing such non-U.S. Finder 7,911 restricted Common Shares valued at
$12,500.
On
June 30, 2015, a former director exercised 2,000 stock options for proceeds of $1,020.
On September 1, 2015, two new Directors
were each issued 25,000 restricted Common Shares at a value of $50,000 each for services to be rendered from September 1 to December
31, 2015.
On September 3, 2015, pursuant to
the SEDA, OMAG sold 17,696 Common Shares to YA for proceeds of $25,000.
On September 14, 2015, OMAG sold
10,000 restricted Common Shares to an accredited investor for proceeds of $14,700.
On October 8, 2015, 2,375 Tempest
Warrants were transferred to an affiliate of the Non-U.S. Investor, a “Non-U.S. Affiliate”. On October 8, 2015, such
Non-U.S. Affiliate exercised such 2,375 Tempest Warrants at an exercise price of $1.28 per Common Share for proceeds to OMAG of
$3,040.
On October 26, 2015, OMAG sold an
aggregate of 1,200,000 restricted Common Shares to three non-U.S. persons who are accredited investors (500,000 restricted Common
Shares each to two investors and 200,000 restricted Common Shares to one investor) for aggregate proceeds to OMAG of $1,200,000.
On November 16, 2015, OMAG paid
a finder’s fee to a non-U.S. Finder in connection with the October 26, 2015 aforementioned sale of 1,200,000 restricted
Common Shares. Such finder’s fee was satisfied by issuing such non-U.S. Finder 33,334 restricted Common Shares valued at
the discounted valuation of $60,000.
On November 16, 2015, OMAG sold
20,886 restricted Common Shares to an accredited investor for proceeds to OMAG of $25,000.
NOTE
8 – STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS
Stock
Options/Stock Appreciation Rights
OMAG’s shareholders approved
the reservation by OMAG of 2,500,000 Common Shares for issuance under the 2003 Omagine, Inc. Stock Option Plan (the “2003
Plan”). The 2003 Plan expired on August 31, 2013. On March 6, 2014, the Board of Directors approved the adoption of the
2014 Omagine, Inc. Stock Option Plan (the “2014 Plan”).
Both the 2003 Plan and the 2014
Plan are designed to attract, retain and motivate employees, directors, consultants and other professional advisors of OMAG and
its subsidiaries (collectively, the “Recipients”) by giving such Recipients the opportunity to acquire stock ownership
in OMAG through the issuance of stock options (“Stock Options”) to purchase Common Shares.
OMAG has registered for resale the
2.5 million Common Shares reserved for issuance under the 2003 Plan by filing a registration statement with the SEC on Form S-8.
At March 31, 2017, there were 2,119,000 unexpired Stock Options issued but unexercised under the 2003 Plan and all such Stock
Options remain valid until the earlier of their exercise date or expiration date.
Pursuant to the 2014 Plan, 3,000,000
Common Shares were reserved for issuance. The 2014 Plan was amended to increase the reservation of 3,000,000 Common Shares for
issuance to 5,000,000 Common Shares and to permit issuance of stock appreciation rights (“The Amended 2014 Plan”).
OMAG intends to seek its shareholders’ ratification of the adoption by OMAG of the Amended 2014 Plan. At March 31, 2017,
there were 990,000 unexpired Stock Options and 1,455,000 Stock Appreciation Rights (“SARs”) issued but unexercised
under the Amended 2014 Plan.
A
summary of Stock Option and SARs activity for the periods ended March 31, 2017 and 2016 pursuant to both the 2003 Plan and the
Amended 2014 Plan is as follows:
|
|
Number of Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted Average
Remaining Contractual Term (in years)
|
|
|
Aggregate Intrinsic
Value
|
|
Outstanding at January 1, 2016
|
|
|
4,728,000
|
|
|
$
|
1.98
|
|
|
|
1.41
|
|
|
$
|
26,240
|
|
Outstanding March 31, 2016
|
|
|
4,728,000
|
|
|
$
|
1.98
|
|
|
|
1.16
|
|
|
$
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2016
|
|
|
4,728,000
|
|
|
$
|
1.98
|
|
|
|
1.16
|
|
|
$
|
560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2017
|
|
|
4,724,000
|
|
|
$
|
1.98
|
|
|
|
1.02
|
|
|
$
|
-
|
|
Expired Q1 2017
|
|
|
(160,000
|
)
|
|
$
|
1.25
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding March 31, 2017
|
|
|
4,564,000
|
|
|
$
|
2.00
|
|
|
|
0.80
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2017
|
|
|
4,564,000
|
|
|
$
|
2.00
|
|
|
|
0.80
|
|
|
$
|
-
|
|
Of the 4,564,000
Stock Options outstanding at March 31, 2017, 2,915,000 of such Stock Options were issued by OMAG in January 2012 and December
2014 as “Strategic Options” to officers, directors and consultants of OMAG whose continued service was deemed by the
Board of Directors to be particularly crucial to attaining LLC’s then strategic goal of signing the Development Agreement
(“DA”) with the Government of Oman and in recognition of those efforts during 2014 and beyond. The Strategic Options
are fully vested, provide for a cashless exercise feature and currently expire on December 31, 2017; 1,965,000 of the Strategic
Options are exercisable at $1.70 and 950,000 are exercisable at $2.55. To continue to incentivize the retention and sustained
service to the Company of its mission-critical employees and consultants, the expiration date of the 1,965,000 Strategic Options
issued in January 2012 was extended by OMAG in December 2012 to December 31, 2013 (the “First Extension”) and in December
2013 to December 31, 2014 (the “Second Extension”) and in December 2014 to December 31, 2015 (the “Third Extension”)
and on August 12, 2015 to December 31, 2016 (the “Fourth Extension”) and on December 9, 2016 to December 31, 2017
(the “Fifth Extension”). The December 31, 2015 expiration date of the 950,000 Strategic Options issued December 29,
2014 was extended on August 12, 2015 to December 31, 2016 (“First Extension”) and on December 9, 2016 to December
31, 2017 (the “Second Extension”).
Of the 2,915,000 Strategic Options,
an aggregate of 1,685,000 were granted to OMAG’s three officers, an aggregate of 125,000 were granted to OMAG’s independent
directors and 1,000,000 were granted to the Deputy Managing Director of LLC who, pursuant to a March 2007 consulting agreement
expiring on December 31, 2017, is also a consultant to the Company.
Of the 1,455,000 Stock Appreciation
Rights, an aggregate of 750,000 were granted to three officers of OMAG, 15,000 were granted to one independent director and 675,000
were granted to the Deputy Managing Director of LLC.
On August 12, 2015, the expiration
date of the 1,965,000 Strategic Options issued in January 2012 was extended from December 31, 2015 to December 31, 2016 (the “Fourth
Extension”). The $915,493 estimated fair value of the Fourth Extension was calculated using the Black Scholes option pricing
model and the following assumptions: (i) $1.91 share price, (ii) 507 day term, (iii) 147% expected volatility, (iv) 0.32% (507
day term) risk free interest rate and was expensed in full in the quarterly period ended September 30, 2015.
On August 12, 2015, the expiration
date of the 950,000 Strategic Options issued in December of 2014 was extended from December 31, 2015 to December 31, 2016 (the
“First Extension”). The $541,215 estimated fair value of the First Extension was calculated using the Black Scholes
option pricing model and the following assumptions: (i) $1.91 share price, (ii) 507 day term, (iii) 147% expected volatility,
(iv) 0.32% (507 day term) risk free interest rate and was expensed in full in the quarterly period ended September 30, 2015.
On June 30, 2015, a former OMAG
director exercised 2,000 stock options at $0.51 per share.
On August 31, 2015, OMAG granted
an aggregate of 1,455,000 Stock Appreciation Rights (“SARs”) to six persons exercisable at $2.00 per share and expiring
on December 31, 2017. Of the 1,455,000 SARs, an aggregate of 750,000 were granted to three officers of OMAG, 15,000 were granted
to one independent director and 675,000 were granted to the Deputy Managing Director of LLC. The $1,654,481 estimated fair value
of the SARs was calculated using the Black Scholes option pricing model and the following assumptions: (i) $1.60 share price,
(ii) 854 day term, (iii) 147% expected volatility, (iv) 0.28% (854 day term) risk free interest rate and was expensed in full
in the quarterly period ended September 30, 2015.
On December 9, 2016, the expiration
date of the 1,965,000 Strategic Options issued in January of 2012 was extended from December 31, 2016 to December 31, 2017 (the
“Fifth Extension”). The $232,263 estimated value of the Fifth Extension was calculated using the Black Scholes option
pricing model and the following assumptions: (i) $0.78 share price, (ii) 387 day term, (iii) 91.45% expected volatility, (iv)
0.85% (387 day term) risk free interest rate and was expensed in full in the quarterly period ended December 31, 2016.
On December 9, 2016, the expiration
date of the 950,000 Strategic options issued in December 31, 2014 from December 31, 2016 to December 31, 2017 (the “Second
Extension”). The $59,660 estimated value of the Second Extension was calculated using the Black Scholes option pricing model
and the following assumptions: (i) $0.78 share price, (ii) 387 day term, (iii) 91.45% expected volatility, (iv) 0.85% (387 day
term) risk free interest rate and was expensed in full in the quarterly period ended December 31, 2016.
Issued
and outstanding Stock Options and SAR’s (all non-qualified) as of March 31, 2017 are as follows:
Year Granted
|
|
|
Number Outstanding
|
|
|
Number Exercisable
|
|
|
Exercise Price
|
|
|
Expiration Date
|
2008
|
|
|
|
150,000
|
|
|
|
150,000
|
|
|
$
|
2.60
|
|
|
September 23, 2018
|
2012
|
|
|
|
1,965,000
|
|
|
|
1,965,000
|
|
|
$
|
1.70
|
|
|
December 31, 2017
|
2012
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
$
|
1.70
|
|
|
April 12, 2017
|
2013
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
$
|
1.38
|
|
|
January 14, 2018
|
2014
|
|
|
|
40,000
|
|
|
|
40,000
|
|
|
$
|
1.80
|
|
|
March 27, 2019
|
2014
|
|
|
|
950,000
|
|
|
|
950,000
|
|
|
$
|
2.55
|
|
|
December 31, 2017
|
2015
|
|
|
|
1,455,000
|
|
|
|
1,455,000
|
|
|
$
|
2.00
|
|
|
December 31, 2017
|
Totals
|
|
|
|
4,564,000
|
|
|
|
4,564,000
|
|
|
|
|
|
|
|
A
summary of information about Stock Options and SARs outstanding at March 31, 2017 is as follows:
|
|
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
|
|
$ 1.01 - $2.00
|
|
|
3,464,000
|
|
|
|
1.83
|
|
|
|
0.78
|
|
|
|
3,464,000
|
|
|
|
1.83
|
|
$ 2.01 - $3.00
|
|
|
1,100,000
|
|
|
|
2.56
|
|
|
|
0.86
|
|
|
|
1,100,000
|
|
|
|
2.56
|
|
Totals
|
|
|
4,564,000
|
|
|
$
|
2.00
|
|
|
|
1.02
|
|
|
|
4,564,000
|
|
|
$
|
2.00
|
|
As
of March 31, 2017, there was $405 of unrecognized compensation costs relating to unexpired Stock Options, that is expected to
be recognized in 2017.
Warrants
As
of March 31, 2017, OMAG had 6,572,124 Common Stock purchase warrants (“Warrants”) issued and outstanding. The Warrants
do not contain any price protection provisions that would require them to be classified as liabilities (subject to re-measurement
at fair value each time a balance sheet is presented) rather than presented as a component of stockholders’ equity.
The
Tempest Warrants
On
June 24, 2014, in connection with the sale of 362,308 restricted Common Shares to an investor, OMAG issued 1,000,000 Warrants
to such investor, each of which were exercisable for the purchase of one restricted Common Share at a per Common Share exercise
price equal to the greater of: (a) $1.00 per Common Share, or (b) 80% of the closing sale price for a Common Share on the trading
day immediately preceding the relevant exercise date (the “Tempest Warrants”). Prior to their expiration, a total
of 650,603 Tempest Warrants were exercised for aggregate proceeds to OMAG of $916,540. The remaining 349,397 Tempest Warrants
expired unexercised on June 23, 2016. As of the date of this report there were no Tempest Warrants issued or outstanding.
Rural
Concepts Warrants
On
October 14, 2016, in connection with a non-interest bearing convertible promissory note in favor of Rural Concepts LLC, a British
corporation (“Rural Concepts”), OMAG issued 150,000 Warrants to Rural Concepts, each of which is exercisable for the
purchase of one restricted Common Share at a per Common Share purchase price equal to the greater of (a) $0.50 per Common Share,
or (b) 80% of the Market Price on the Trading Day immediately preceding the relevant Exercise Date (the “Rural Concepts
Warrants”). The Warrants expire on December 31, 2017.
The
Strategic Warrants
OMAG
has 6,422,124 Warrants outstanding, 3,211,062 of which are exercisable for the purchase of one Common Share at a per Common Share
exercise price of $5.00 and 3,211,062 of which are exercisable for the purchase of one Common Share at a per Common Share exercise
price of $10.00 (collectively, the “Strategic Warrants”).
OMAG filed a post-effective amendment
to its registration statement on Form S-1 (Commission File No. 333-183852) whereby the Strategic Warrants and the 6,422,124 Common
Shares underlying the Strategic Warrants were registered by OMAG (the “Warrant Registration”). The Warrant Registration
was declared effective by the SEC and its effective status expired. OMAG filed another post-effective amendment to the Warrant
Registration on February 11, 2015 which was declared effective by the SEC on February 13, 2015 and its effective status expired.
OMAG filed another post-effective amendment to the Warrant Registration on January 14, 2016 which was declared effective by the
SEC on January 25, 2016 (the “Updated Warrant Registration”). As of the date hereof, the effective status of the Updated
Warrant Registration expired and the Company intends to file a post-effective amendment to such Registration Statement with the
SEC in order to again register the Common Shares issuable upon the exercise of the Strategic Warrants. Neither the exercise prices
of the Strategic Warrants nor the number of Common Shares issuable upon exercise of the Strategic Warrants are subject to adjustment
in the event of a stock split, combination or subdivision of the Common Stock, or a dividend, reclassification, reorganization,
or spinoff.
On August 18, 2014, pursuant to
a resolution of the Board of Directors, the expiration date for all Strategic Warrants was extended for a third time to June 30,
2015 and again on January 5, 2015, pursuant to a resolution of the Board of Directors, the expiration date for all Strategic Warrants
was extended to December 31, 2015. On August 12, 2015, pursuant to a resolution of the Board of Directors, the expiration date
for all Strategic Warrants was again extended to December 31, 2016 and on December 9, 2016, pursuant to a resolution of the Board
of Directors, the expiration date for all Strategic Warrants was again extended to December 31, 2017. All other terms and conditions
of the Strategic Warrants remained the same. All Strategic Warrants expire on December 31, 2017 unless redeemed earlier by OMAG
upon 30 days prior written notice to the Strategic Warrant holders.
NOTE
9 – U.S. INCOME TAXES
Deferred
U.S. tax assets are comprised of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2015
|
|
|
|
|
|
|
|
|
U.S. federal net operating loss carry forwards
|
|
$
|
6,431,000
|
|
|
$
|
6,333,000
|
|
U.S. state and city net operating loss carry forwards, net of
U.S. federal tax benefit
|
|
|
2,042,000
|
|
|
|
2,011,000
|
|
|
|
|
8,473,000
|
|
|
|
8,344,000
|
|
Less: Valuation allowance
|
|
|
(8,473,000
|
)
|
|
|
(8,344,000
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
Management
has determined, based on the Company’s current condition, that a full valuation allowance is appropriate at March 31, 2017.
At March 31, 2017, the Company had U.S. federal net operating loss carry forwards of approximately $20,416,000 expiring
in various amounts from fiscal year 2017 to fiscal year 2037.
Current
U.S. income tax law limits the amount of loss available to offset against future taxable income when a substantial change in ownership
occurs.
The
Company believes that it has no uncertain tax positions and no unrecognized tax benefits at March 31, 2017 and December 31, 2016.
NOTE
9 – COMMITMENTS
Leases
OMAG
maintains its corporate offices at 136 Madison Avenue, 5th Floor, New York, NY 10016. The premises are leased by OMAG under a
month to month lease from an unaffiliated third party. LLC leases premises in Muscat, Oman from an unaffiliated third party under
a one year lease which commenced in January 2017 which provides for an annual rental of $35,880. The Company’s rent expense
for the three month periods ended March 31, 2017 and 2016 was $16,406 and $16,516, respectively
Employment
Agreements
The
Company presently has no employment agreements with any person.
Pursuant to a prior employment agreement,
OMAG was obligated to employ its President and Chief Executive Officer at an annual base salary of $125,000 plus an additional
amount based on a combination of net sales and earnings before taxes. OMAG plans to enter into a new employment agreement with
its President although the terms of such employment agreement have not yet been determined. OMAG has from time to time fully or
partially suspended and accrued salary payments due to its President. For the years ended December 31, 2015 and 2016 the Company
continued to accrue salary payable to Mr. Drohan on the basis of an annual salary of $125,000. On May 1, 2015 the Company paid
its President $87,781 of accrued officer’s payroll and on May 16, 2015 the Company applied $120,000 of accrued officer’s
payroll in exchange for the purchase of 100,000 restricted Common Shares of Omagine, Inc. stock at a purchase price of $1.20 per
share. On April 5, 2016 the Company applied $50,400 of accrued officer’s payroll in exchange for the purchase of 56,000
restricted Common Shares of Omagine Inc. stock at a purchase price of $0.90 per share. On June 14, 2016 the Company paid its President
$55,601 of accrued officer’s payroll. On February 1, 2017 the Company applied $51,000 of accrued officer’s payroll
in exchange for the purchase of 100,000 restricted Common Shares of Omagine, Inc. stock at a purchase price of $0.51 per share.
At March 31, 2017 and December 31, 2016, OMAG had unpaid accrued officer’s compensation due to its President of $68,655
and $88,405, respectively.
Pursuant to a prior employment agreement,
OMAG was obligated to employ its Vice-President and Secretary at an annual base salary of $100,000. OMAG plans to enter into a
new employment agreement with its Vice-President although the terms of such employment agreement have not yet been determined.
OMAG has from time to time fully or partially suspended and accrued salary payments due to its Vice-President on the basis of
an annual salary of $100,000. During 2015 the Company paid Mr. Kuczynski accrued officer’s payroll of $33,000 on March 26,
$2,000 on September 9, $3,200 on October 2, and $2,500 on December 7, 2015. During 2016 the Company paid its Vice President accrued
officer’s payroll of $32,000 on June 23, $2,700 on July 28, $1,000 on October 20, $6,000 on November 4, and $10,000 on December
9, 2016. On February 2, 2017 the Company applied $25,000 of accrued officer’s payroll in exchange for the purchase of 47,170
restricted Common Shares of Omagine, Inc. stock at a purchase price of $0.53 per share. At March 31, 2017 and December 31, 2016,
OMAG had unpaid accrued officer’s compensation due to its Vice-President of $138,772 and $149,121, respectively.
OMAG has from time to time fully
or partially suspended and accrued salary payments due to its Controller on the basis of an annual salary of $80,000. On January
14, 2015 the Company paid its Controller $25,000 of accrued officer’s payroll. On December 9, 2016 the Company paid the
Controller $7,500 of accrued officer’s payroll. At March 31, 2017 and December 31, 2016, OMAG had unpaid accrued officer’s
compensation due to its Controller of $202,100 and $182,100, respectively.
Equity Financing Agreements
OMAG and YA were parties to a Stand-By
Equity Distribution Agreement (the “2011 SEDA”) which was due to expire on September 1, 2014. On July 21, 2014, the
2011 SEDA was terminated by the mutual consent of OMAG and YA.
On April 22, 2014, OMAG and YA entered
into a new Standby Equity Distribution Agreement on generally the same terms and conditions as the 2011 SEDA (the “2014
SEDA”). Unless earlier terminated in accordance with its terms, the 2014 SEDA was to terminate automatically on the earlier
of (i) the first day of the month next following the 24-month anniversary of the “Effective Date” (as hereinafter
defined) (i.e. February 1, 2017), or (ii) the date on which YA shall have made payment to OMAG of Advances pursuant to the 2014
SEDA in the aggregate amount of $5,000,000. On September 20, 2016, the Company and YA entered into an agreement amending the SEDA
extending the term of the 2014 SEDA to February 1, 2019 or to such date on which YA shall have made payment to OMAG of Advances
pursuant to the 2014 SEDA in the aggregate amount of $5,000,000 (the “Second SEDA Amendment”). On April 22, 2014,
in satisfaction of a $150,000 commitment fee due pursuant to the 2014 SEDA, OMAG issued 85,822 restricted Common Shares to YA
Global II SPV, LLC, which is an affiliate of YA (the “Affiliate”). On September 21, 2016 in satisfaction of a $150,000
commitment fee due pursuant to the Second SEDA Amendment, OMAG issued 161,290 restricted Common shares to the YA Affiliate. (See
Note 7).
Pursuant to the terms of the 2014
SEDA, OMAG may in its sole discretion, and upon giving written notice to YA (an “Advance Notice”), periodically sell
Common Shares to YA (“Shares”) at a per Share price (“Purchase Price”) equal to 95% of the lowest daily
volume weighted average price (the “VWAP”) for a Common Share as quoted by Bloomberg, L.P. during the five (5) consecutive
Trading Days (as such term is defined in the 2014 SEDA) immediately subsequent to the date of the relevant Advance Notice (the
“Pricing Period”).
OMAG is not obligated to sell any
Shares to YA but may, over the term of the 2014 SEDA and in its sole discretion, sell to YA that number of Shares valued at the
Purchase Price from time to time in effect that equals up to five million dollars ($5,000,000) in the aggregate. YA is obligated
under the 2014 SEDA to purchase such Shares from OMAG subject to certain conditions including (i) OMAG filing a registration statement
with the SEC to register the resale by YA of the Shares sold to YA under the 2014 SEDA (“Registration Statement”),
(ii) the SEC declaring such Registration Statement effective (the date of such declaration by the SEC being the “Effective
Date”), (iii) OMAG certifying to YA at the time of each Advance Notice that OMAG has performed all covenants and agreements
to be performed and has complied with all obligations and conditions contained in the 2014 SEDA, (iv) periodic sales of Shares
to YA must be separated by a time period of at least five Trading Days, and (v) the dollar value of any individual periodic sale
of Shares designated by OMAG in any Advance Notice may not exceed the greater of (a) two hundred thousand dollars ($200,000),
or (b) the average of the “Daily Value Traded” for each of the five (5) Trading Days immediately preceding the date
of the relevant Advance Notice, where Daily Value Traded is the product obtained by multiplying the number representing the daily
trading volume of Common Shares for such Trading Day by the VWAP for a Common Share on such Trading Day.
Omagine
Project
The
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 just west of the capital city of Muscat and nearby Muscat International Airport (the “Omagine Site”).
LLC has signed a Development Agreement (“DA”) and a Usufruct Agreement (“UA”) for the Omagine Project
with the Government of Oman. (See “Development Agreement and Usufruct Agreement” below). The Omagine Project is planned
to be an integration of cultural, heritage, entertainment and residential components including a high-culture theme park and associated
buildings, shopping and retail establishments, restaurants and approximately 2,100 residences.
Development
Agreement and Usufruct Agreement
OMAG’s
60% owned subsidiary, LLC, signed a DA with the Government of Oman in October 2014 for the development in Oman by LLC of the Omagine
Project. The legal effectiveness of the DA was conditional upon its ratification by Oman’s Ministry of Finance, which Ratification
occurred in March 2015. On July 1, 2015 (the “Operative Date”), the Government and LLC entered into the UA with respect
to the land constituting the Omagine Site.
The
Land Rights give LLC extensive rights over the land constituting the Omagine Site including the right to sell such land on a freehold
basis. On July 2, 2015, the UA was registered by the Government and a Land Rights registration fee of 20,250 Omani Rials ($52,650)
was paid by LLC to the Government (and expensed in the consolidated statements of operations for the three months ended September
30, 2015), which registration legally perfected LLC’s ownership of the Land Rights.
The
five year period commencing on the Operative Date is a rent free period and thereafter LLC will pay annual rent to the Government
based on only the built but unsold commercial area of the Omagine Project (approximately 150,000 square meters) or approximately
45,000 Omani Rials ($117,000) per year based on the current annual per square meter fee of 0.300 Omani Rials ($0.78). The term
of the DA is 20 years and the term of the UA is 50 years (renewable) commencing from the Operative Date. The UA and the DA provisions
relevant to the UA survive the expiration of the term of the DA.
The
Operative Date of July 1, 2015 is the date from which all time periods for the execution by LLC of various tasks enumerated in
the DA are to be measured. The continued legal effectiveness of the DA subsequent to the Operative Date is dependent upon the
following milestone dates being achieved (any or all of which may be extended or waived by the Government): (1) LLC’s delivery
to the Government within twelve months from the Operative Date of a term sheet with lenders for the financing of the first phase,
any other phase or all of the Project, (2) LLC’s submission to the Ministry of Tourism of a social impact assessment within
8 months of the Operative Date and the Government’s approval thereof within 12 months of the Operative Date, (3) the Government’s
approval within 12 months of the Operative Date of the development control plan for the Omagine Project, and (4) the transformation
of LLC into a joint stock company within 12 months of the Operative Date. Company management has had informal discussions with
the concerned government officials and management is confident that given the present economic conditions in the region (of which
the Government is keenly aware), the Company will be granted an extension of time on many of such due dates similar to the extension
of the Operative Date to July 1. 2015 already previously granted by the Government.
Pursuant
to the DA, LLC must substantially complete the construction of the seven Pearl buildings and one hotel (the “Minimum Build
Obligation” or “MBO”) within 5 years of the Operative Date. Any material breach by LLC of its obligation to
perform the MBO would constitute an event of default under the DA. The DA specifies that the principal construction contracts
should be executed within one year of the Operative Date. LLC is required to provide written notice to the Government in certain
circumstances, such as LLC’s change in an anticipated milestone date that would result in a substantial achievement of work
to occur later than 60 days after such milestone date. The DA provides that the Government is required to grant reasonable requests
for the extension of the terms of the DA in such circumstances.
The
foregoing discussion of the terms of the DA and UA is not meant to be definitive or complete and is qualified in its entirety
by reference to the complete texts of the DA and UA as filed by the Company with the SEC.
Omagine
LLC Shareholder Agreement
OMAG and JOL organized LLC in Oman and
capitalized it with an initial investment of twenty thousand (20,000) Omani Rials ($52,000). On April 20, 2011, OMAG, JOL and
the New Investors entered into a shareholder agreement relating to LLC (the “Shareholder Agreement”).
Pursuant to the Shareholder Agreement,
OMAG invested an additional 70,000 Omani Rials ($182,000) into LLC and agreed to make a further additional investment into LLC
of 210,000 Omani Rials ($546,000) after the execution of the DA (the “OMAG Final Equity Investment”). As of December
31, 2015, OMAG had invested 300,000 Omani Rials ($780,000) into LLC. Pursuant to the Shareholder Agreement, RCA invested the value
of the Land Rights as a non-cash “payment-in-kind” capital contribution to LLC on July 2, 2015.
Further
pursuant to the Shareholder Agreement, the New Investors invested an aggregate of 60,000 Omani Rials ($156,000) into LLC and agreed,
subject to certain conditions precedent, to make further additional investments into LLC in the aggregate amount of 26,628,125
Omani Rials ($69,233,125).
The
CCC Deferred Investment Obligation and the OMAG Options
The conditions precedent to CCC
and RCA being required to make their agreed $69,233,125 aggregate additional investments (their “Deferred Equity Investments”)
into LLC include (1) the execution of a construction contract on or before July 1, 2016 between LLC and CCC-Oman (the “CCC-Contract”)
and (2) execution of a legally binding agreement between LLC and a lender pursuant to which such lender agrees to provide Debt
Financing for the first phase or any or all phases of the Omagine Project in an amount sufficient to finance the first phase of
the Omagine Project’s construction plus the installment payments due to OMAG for its Success Fee and Pre-Development Expense
Amount.(the “First Financing Agreement Date”).
The First Financing Agreement Date
occurred on November 29, 2015 but the CCC-Contract was not executed on or before July 1, 2016 nor will it be executed and RCA
and Omagine, Inc. are presently in negotiations with investors which may lead to an “Amended and Restated Shareholder Agreement”.
The failure to execute the CCC-Contract
by July 1, 2016 does not relieve RCA of its continuing obligation under the Shareholder Agreement (irrespective of such CCC-Contract
failure) to make RCA’s approximately $20 million Deferred Investment into LLC; but it may (under certain conditions) relieve
CCC of its obligation under the Shareholder Agreement to make its approximately $49 million Deferred Investment into LLC.
Additionally pursuant to the Shareholder
Agreement, such failure of the CCC-Contract to occur on or before July 1, 2016 automatically and without any further action required
by any party, triggered and activated on July 2, 2016 two options in favor of OMAG (the “OMAG Options”) to purchase
all LLC Shares presently owned by CCC-Oman and CCC-Panama at any time of OMAG’s choosing prior to July 1, 2017 at a price
equal to the aggregate original purchase price of 22,500 Omani Rials ($58,500). Furthermore pursuant to the Shareholder Agreement,
neither CCC-Oman nor CCC-Panama is permitted to sell any of such LLC Shares presently owned by them prior to July 2, 2017 to any
Person other than OMAG, or to a purchaser designated by OMAG, in a sale made pursuant to the exercise of the OMAG Options.
See
Note 11 – Subsequent Events.
Although the LLC Shareholders are
presently negotiating an Amended and Restated Shareholder Agreement, there is no assurance that it will happen. If agreement is
not reached by the LLC Shareholders on the matters presently under discussion, or if alternative financing is not obtained, or
if alternative shareholder arrangements are not agreed, LLC may not be able to complete the Omagine Project and may not be able
to recover the $718,614,000 value of the Land Rights included in the Company’s Consolidated Balance Sheet at March 31, 2017
and December 31, 2016 (See Note 2).
Further
pursuant to the Shareholder Agreement, LLC is required to pay OMAG a Success Fee of $10,000,000 in five equal annual installments
beginning on or within 10 days after the Draw Date and a Pre-Development Expense Amount to be determined (presently estimated
at $17,920,114) payable 50% on or within 10 days after the Draw Date and 50% in five equal annual installments beginning on the
first anniversary of the Draw Date. The Draw Date is defined as “the date upon which LLC draws and receives the first amount
of Debt Financing pursuant to a Financing Agreement”. It is possible that the payment terms for the Pre-Development Expense
Amount and the Success Fee may be modified if and only if the LLC Shareholders agree to an Amended and Restated Shareholder Agreement.
NOTE
10 – RELATED PARTY TRANSACTIONS
At
March 31, 2017 and December 31, 2016, respectively, OMAG’s accounts payable included $15,675 and $42,800 due to its officers
and directors.
For
the three months ended March 31, 2017 and 2016, the Company expensed a total of $0 and $84,000, respectively, for consulting fees
paid to an entity controlled by the Deputy Managing Director of LLC.
In
April 2016, the Company paid a $300,000 sponsorship fee to the same such entity controlled by the Deputy Managing Director of
Omagine LLC for the Company to serve as the Title Sponsor Partner of the 2016 World Summit on Innovation and Entrepreneurship
hosted by the United Nations at UN headquarters in New York City from May 19 to May 23, 2016.
NOTE
11 – SUBSEQUENT EVENT
S
On April 3, 2017, OMAG exercised
its OMAG Options to purchase all of the shares of LLC owned by CCC-Oman and CCC-Panama thereby leaving OMAG and RCA as LLC’s
two remaining shareholders. After the closing of the option purchase, the registered shareholders at the Ministry of Commerce
& Industry in Oman will be amended to reflect the fact that CCC is no longer an LLC shareholder.
On
April 4, 2017, the Company sold 266,667 restricted Common Shares to an accredited investor for proceeds of $80,000.
On
April 11, 2017, the Company sold 132,275 Common Shares pursuant to the 2014 SEDA for proceeds of $50,000.
On April 13, 2017, the Company issued a
non-interest bearing $100,000 convertible promissory note to an accredited investor due October 12, 2017 in exchange for cash
of $50,000 and for the cancellation of a $50,000 convertible promissory note due April 13, 2017 and accrued interest (See Note
4). The Conversion Price of the convertible promissory note is $0.40 per share. In connection with the six month Note the Company
issued 100,000 Warrants to the accredited investor, each of which is exercisable for the purchase of one restricted Common Share
at the greater of (a) $0.50 or (b) eighty percent (80%) of the Market Price on the Trading Day immediately preceding the relevant
Exercise Date. The Warrants expire on December 31, 2017.
On May 8, 2017, the Company issued a convertible
promissory note to an accredited investor for the principal amount of $100,000 with interest at 12% per annum, due February 7,
2018 and convertible into the Company’s Common Stock after 180 days from the Note Issuan
ce
Date at a conversion price equal to 60% of the lowest trading price of the Common Stock during the twenty day period prior to
the conversion.
On
May 10, 2017, the Company and St. George Investments LLC executed an amendment to the $185,000 Convertible Promissory Note dated
November 14, 2016 extending the May 16, 2017 Maturity Date to July 17, 2017. In consideration of the extension, the Company paid
$10,000 to St. George Investments LLC.
On
May 26, 2017, the Company sold 25,253 restricted Common Shares to an accredited investor for proceeds of $7,500.
On
June 6, 2017, the Company sold 64,977 restricted Common Shares to an accredited investor for proceeds of $10,000.
On
June 7, 2017, the Company sold 20,000 restricted Common Shares to an accredited investor for proceeds of $3,078.
On
July 3, 2017, the Company issued a non-interest bearing $25,000 convertible promissory note to an accredited investor due January
2, 2018. The Conversion Price of the convertible promissory note is $0.15 per Common Share.
On
July 7, 2017, the Company granted the aggregate of 1,950,000 stock options to three employees, three independent directors and
two consultants pursuant to a Board of Directors resolution (the “July Strategic Options”). All such July Strategic
Options are exercisable for the purchase of one share of the Company’s Common Stock at fifteen cents ($0.15) in cash or
via a “cashless exercise feature”. All such July Strategic Options were granted as of July 7, 2017 (the “Grant
Date”) which exercise price is in excess of 115% of the $0.13 closing sale price for a share of the Company’s Common
Stock on July 6, 2017, All July Strategic Options are fully vested and are exercisable as of the Grant Date and all shall expire
at 5pm Eastern Time on June 30, 2018. Eight individuals receiving grants of the July Strategic Options are: Frank J. Drohan, President,
500,000; Charles P. Kuczynski, VP and Secretary, 200,000; William Hanley, Controller, 100,000; 50,000 to each of three independent
directors, Louis J. Lombardo, Jack A. Smith, and Alan M. Matus; Sam Hamdan, Consultant and Deputy Managing Director of Omagine
LLC, 500,000 and Agron Telaku, consultant, 500,000.
On July 12, 2017, the Company and St.
George Investments LLC executed a second amendment to the $185,000 Convertible Promissory Note dated November 14, 2016 extending
the Maturity Date to August 17, 2017. In consideration of the extension, the Company paid $8,000 to St. George Investments LLC.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of Omagine, Inc.
I have audited the accompanying consolidated
balance sheets of Omagine, Inc. and subsidiaries (the “Company”) as of December 31, 2016 and 2015 and the related consolidated
statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended. These financial
statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements
based on my audits.
I
conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Omagine, Inc. and subsidiaries
as of December 31, 2016 and 2015 and the results of their operations and cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
/s/
Michael T. Studer CPA P.C.
|
|
April
14, 2017
Freeport,
New York
|
|
OMAGINE,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash
|
|
$
|
229,228
|
|
|
$
|
324,703
|
|
Inventory (Note 2)
|
|
|
|
|
|
|
|
|
Land under development
|
|
|
490,813,363
|
|
|
|
490,813,363
|
|
Total inventory held for sale
|
|
|
490,813,363
|
|
|
|
490,813,363
|
|
Prepaid expenses
and other current assets
|
|
|
1,859
|
|
|
|
1,767
|
|
|
|
|
|
|
|
|
|
|
Total Current
Assets
|
|
|
491,044,450
|
|
|
|
491,139,833
|
|
|
|
|
|
|
|
|
|
|
PROPERTY AND EQUIPMENT:
|
|
|
|
|
|
|
|
|
Real estate held for investment (Note
2)
|
|
|
|
|
|
|
|
|
Total investment in real estate
|
|
|
227,800,637
|
|
|
|
227,800,637
|
|
Office and computer equipment
|
|
|
160,002
|
|
|
|
160,002
|
|
Less accumulated
depreciation and amortization
|
|
|
(153,738
|
)
|
|
|
(148,894
|
)
|
Total Property
and Equipment
|
|
|
227,806,901
|
|
|
|
227,811,745
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
4,057
|
|
|
|
33,762
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
718,855,408
|
|
|
$
|
718,985,340
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Convertible notes
payable and accrued interest (less unamortized discount of $13,904 and $0, respectively)
|
|
$
|
526,372
|
|
|
$
|
397,929
|
|
Note payable and
accrued interest - YA II PN, Ltd. (less unamortized discount of $68,750 and $20,833, respectively)
|
|
|
686,387
|
|
|
|
204,167
|
|
Note payable - St.
George Investments LLC (less unamortized Original Issue Discount of $22,500)
|
|
|
162,500
|
|
|
|
-
|
|
Accounts payable
|
|
|
663,913
|
|
|
|
340,290
|
|
Accrued officers payroll
|
|
|
419,626
|
|
|
|
389,834
|
|
Accrued expenses
and other current liabilities
|
|
|
209,192
|
|
|
|
155,330
|
|
Total Current Liabilities
|
|
|
2,667,990
|
|
|
|
1,487,550
|
|
Long Term Liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
2,667,990
|
|
|
|
1,487,550
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY ( DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
20,432,648 shares in 2016 and 18,728,313
in 2015
|
|
|
20,432
|
|
|
|
18,728
|
|
Capital in excess of par value
|
|
|
470,350,815
|
|
|
|
468,651,654
|
|
Deficit
|
|
|
(41,273,266
|
)
|
|
|
(38,342,692
|
)
|
Total Omagine, Inc. stockholders’
equity
|
|
|
429,097,981
|
|
|
|
430,327,690
|
|
Noncontrolling
interests in Omagine LLC
|
|
|
287,089,437
|
|
|
|
287,170,100
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
716,187,418
|
|
|
|
717,497,790
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
$
|
718,855,408
|
|
|
$
|
718,985,340
|
|
See
accompanying notes to consolidated financial statements.
OMAGINE,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
REVENUE:
|
|
|
|
|
|
|
Total revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
and directors compensation (including stock-based compensation of $479,722 and $1,957,420, respectively)
|
|
|
870,055
|
|
|
|
2,336,670
|
|
Professional fees
|
|
|
200,358
|
|
|
|
355,816
|
|
Consulting fees
(including stock-based compensation of $138,991 and $1,415,971, respectively)
|
|
|
627,269
|
|
|
|
2,024,553
|
|
Commitment fees ( all stock-based compensation)
|
|
|
150,000
|
|
|
|
-
|
|
Travel
|
|
|
562,316
|
|
|
|
526,080
|
|
Occupancy
|
|
|
60,204
|
|
|
|
167,113
|
|
Other selling
general and administrative
|
|
|
256,737
|
|
|
|
357,969
|
|
Total Costs and
Expenses
|
|
|
2,726,939
|
|
|
|
5,768,201
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(2,726,939
|
)
|
|
|
(5,768,201
|
)
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE
|
|
|
|
|
|
|
|
|
Amortization of debt discounts
|
|
|
(200,748
|
)
|
|
|
(41,300
|
)
|
Interest expense
|
|
|
(83,550
|
)
|
|
|
(59,671
|
)
|
Total Other Expense
|
|
|
(284,298
|
)
|
|
|
(100,971
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(3,011,237
|
)
|
|
|
(5,869,172
|
)
|
|
|
|
|
|
|
|
|
|
Add net loss attributable to noncontrolling
interests in Omagine LLC
|
|
|
80,663
|
|
|
|
195,879
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO OMAGINE, INC.
|
|
$
|
(2,930,574
|
)
|
|
$
|
(5,673,293
|
)
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARE - BASIC AND DILUTED
|
|
$
|
(0.15
|
)
|
|
$
|
(0.32
|
)
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
|
|
|
19,649,219
|
|
|
|
17,485,927
|
|
See
accompanying notes to consolidated financial statements.
OMAGINE,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and Outstanding
|
|
|
Capital in
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
|
|
|
$0.001 Par
|
|
|
Excess of
|
|
|
|
|
|
Interests in
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Par Value
|
|
|
Deficit
|
|
|
Omagine LLC
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2014
|
|
|
16,878,119
|
|
|
$
|
16,878
|
|
|
$
|
32,252,954
|
|
|
$
|
(32,669,399
|
)
|
|
$
|
(79,621
|
)
|
|
$
|
(479,188
|
)
|
Issuance of Common Stock
for 401(k) Plan contribution
|
|
|
36,483
|
|
|
|
37
|
|
|
|
76,213
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76,250
|
|
Stock grant to consultant
for services rendered
|
|
|
5,000
|
|
|
|
5
|
|
|
|
9,445
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,450
|
|
Issuance of Common Stock
for cash
|
|
|
206,281
|
|
|
|
206
|
|
|
|
219,794
|
|
|
|
-
|
|
|
|
-
|
|
|
|
220,000
|
|
Issuance of Common Stock
to an Executive Officer in payment of salaries payable
|
|
|
100,000
|
|
|
|
100
|
|
|
|
119,900
|
|
|
|
-
|
|
|
|
-
|
|
|
|
120,000
|
|
Stock Options exercised
by former Director
|
|
|
2,000
|
|
|
|
2
|
|
|
|
1,018
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,020
|
|
Exercise of Tempest Warrants
|
|
|
160,603
|
|
|
|
161
|
|
|
|
252,879
|
|
|
|
-
|
|
|
|
-
|
|
|
|
253,040
|
|
Issuance of Common Stock
for finders’ fees on restricted Common Stock sales
|
|
|
41,245
|
|
|
|
41
|
|
|
|
72,459
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,500
|
|
Issuance of Common Stock
for Directors’ Compensation for services September 1, 2015 to December 31, 2015
|
|
|
50,000
|
|
|
|
50
|
|
|
|
99,950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
Issuance of Common Stock
under SEDA
|
|
|
17,696
|
|
|
|
18
|
|
|
|
24,982
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
Issuance of restricted
Common Stock for cash
|
|
|
1,230,886
|
|
|
|
1,230
|
|
|
|
1,238,470
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,239,700
|
|
Stock Option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
4,001
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,001
|
|
Stock Option expense
- Extension of 1,965,000 Strategic Options to December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
915,493
|
|
|
|
-
|
|
|
|
-
|
|
|
|
915,493
|
|
Stock Option expense
- Extension of 950,000 Strategic Options to December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
541,215
|
|
|
|
-
|
|
|
|
-
|
|
|
|
541,215
|
|
Stock Option expense
- Stock Appreciation Rights (1,455,000 expiring December 31, 2017)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,654,481
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,654,481
|
|
Payment-in-Kind
capital contribution of land by noncontrolling interest - in Omagine LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
431,168,400
|
|
|
|
-
|
|
|
|
287,445,600
|
|
|
|
718,614,000
|
|
Adjustments
to noncontrolling interests in Omagine LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(195,879
|
)
|
|
|
(195,879
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,673,293
|
)
|
|
|
-
|
|
|
|
(5,673,293
|
)
|
Balances at December
31, 2015
|
|
|
18,728,313
|
|
|
|
18,728
|
|
|
|
468,651,654
|
|
|
|
(38,342,692
|
)
|
|
|
287,170,100
|
|
|
|
717,497,790
|
|
Issuance of Common Stock
for 401(k) Plan contribution
|
|
|
61,001
|
|
|
|
61
|
|
|
|
76,189
|
|
|
|
-
|
|
|
|
-
|
|
|
|
76,250
|
|
Issuance of Common Stock
for Directors’ Stock Compensation for services January 1, 2016 to December 31, 2016
|
|
|
115,386
|
|
|
|
116
|
|
|
|
149,884
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
Stock Option expense
|
|
|
-
|
|
|
|
-
|
|
|
|
540
|
|
|
|
-
|
|
|
|
-
|
|
|
|
540
|
|
Issuance of Common Stock
to an Executive Officer in payment of salaries payable
|
|
|
56,000
|
|
|
|
56
|
|
|
|
50,344
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,400
|
|
Issuance
of Common Stock for Directors’ Cash Compensation for services January 1 2016 to June 30, 2016
|
|
|
83,334
|
|
|
|
83
|
|
|
|
74,917
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
Issuance of restricted
Common Stock for cash
|
|
|
1,139,488
|
|
|
|
1,140
|
|
|
|
742,860
|
|
|
|
-
|
|
|
|
-
|
|
|
|
744,000
|
|
Conversion of Convertible
Note payable liability into Common Stock
|
|
|
24,207
|
|
|
|
24
|
|
|
|
30,960
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,984
|
|
Issuance
of Common Stock to a Director for the exercise of Stock Options
|
|
|
2,000
|
|
|
|
2
|
|
|
|
1,698
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,700
|
|
Issuance of Common Stock
under SEDA
|
|
|
31,289
|
|
|
|
31
|
|
|
|
24,969
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
Issuance of Common Stock
to consultant for services
|
|
|
30,340
|
|
|
|
30
|
|
|
|
24,970
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
Issuance of Common Stock
for SEDA commitment fees
|
|
|
161,290
|
|
|
|
161
|
|
|
|
149,839
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
Stock Option expense
- Extension of 1,965,000 Strategic Options to December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
232,263
|
|
|
|
-
|
|
|
|
-
|
|
|
|
232,263
|
|
Stock Option expense
- Extension of 950,000 Strategic Options to December 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
59,660
|
|
|
|
-
|
|
|
|
-
|
|
|
|
59,660
|
|
Fair value of 150,000
warrants issued to lender in connection with $75,000 loan
|
|
|
-
|
|
|
|
-
|
|
|
|
61,530
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,530
|
|
Beneficial conversion
feature of convertible note issued to lender in connection with $50,000 loan
|
|
|
-
|
|
|
|
-
|
|
|
|
18,538
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,538
|
|
Adjustments to noncontrolling
interests in Omagine LLC
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(80,663
|
)
|
|
|
(80,663
|
)
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,930,574
|
)
|
|
|
-
|
|
|
|
(2,930,574
|
)
|
Balances at December
31, 2016
|
|
|
20,432,648
|
|
|
$
|
20,432
|
|
|
$
|
470,350,815
|
|
|
$
|
(41,273,266
|
)
|
|
$
|
287,089,437
|
|
|
$
|
716,187,418
|
|
See
accompanying notes to consolidated financial statements.
OMAGINE,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to Omagine, Inc.
|
|
$
|
(2,930,574
|
)
|
|
$
|
(5,673,293
|
)
|
Adjustments
to reconcile net loss to net cash flows used by operating activities:
|
|
|
|
|
|
|
|
|
Net
loss attributable to noncontrolling interests in Omagine LLC
|
|
|
(80,663
|
)
|
|
|
(195,879
|
)
|
Depreciation
and amortization of property and equipment
|
|
|
4,844
|
|
|
|
4,858
|
|
Stock-based
compensation related to stock options
|
|
|
292,463
|
|
|
|
3,115,190
|
|
Issuance
of Common Stock for finders’ fees on restricted Common Stock sales
|
|
|
-
|
|
|
|
72,500
|
|
Issuance
of Common Stock for consulting fees
|
|
|
25,000
|
|
|
|
9,450
|
|
Issuance
of Common Stock for 401(k) Plan contributions
|
|
|
76,250
|
|
|
|
76,250
|
|
Issuance
of Common Stock in satisfaction of SEDA commitment fees
|
|
|
150,000
|
|
|
|
-
|
|
Issuance
of Common Stock for Directors’ fees
|
|
|
225,000
|
|
|
|
100,000
|
|
Amortization
of debt discounts
|
|
|
200,748
|
|
|
|
41,300
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets and other assets
|
|
|
29,613
|
|
|
|
2,233
|
|
Accrued
interest on notes payable
|
|
|
28,467
|
|
|
|
25,589
|
|
Accounts
payable
|
|
|
323,623
|
|
|
|
82,554
|
|
Accrued
officers’ payroll
|
|
|
80,192
|
|
|
|
(128,088
|
)
|
Accrued
expenses and other current liabilities
|
|
|
53,862
|
|
|
|
(4,002
|
)
|
Net
cash flows used by operating activities
|
|
|
(1,521,175
|
)
|
|
|
(2,471,338
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
-
|
|
|
|
(6,398
|
)
|
Net
cash flows used by investing activities
|
|
|
-
|
|
|
|
(6,398
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Principal
payments on 2014 note payable to YA II PN, Ltd. (f/n/a YA Global Master SPV, Ltd.)
|
|
|
-
|
|
|
|
(225,000
|
)
|
Proceeds
from the sale of Common Stock
|
|
|
769,000
|
|
|
|
1,484,700
|
|
Proceeds
of issuance of 2015 note payable to YA II PN, Ltd. net of $50,000 commitment fee
|
|
|
-
|
|
|
|
450,000
|
|
Proceeds
from exercise of stock options
|
|
|
1,700
|
|
|
|
1,020
|
|
Principal
payments on 2015 note payable to YA II PN, Ltd.
|
|
|
(225,000
|
)
|
|
|
(275,000
|
)
|
Proceeds
from the exercise of Common Stock Warrants
|
|
|
-
|
|
|
|
253,040
|
|
Proceeds
of issuance of 2016 note payable to YA II PN, Ltd. net of $60,000 commitment fee
|
|
|
540,000
|
|
|
|
-
|
|
Principal
payments on 2016 $600,000 note payable to YA II PN, Ltd.
|
|
|
(600,000
|
)
|
|
|
-
|
|
Proceeds
of issuance of an additional 2016 note payable to YA II PN, Ltd. net of $40,000 commitment fee
|
|
|
360,000
|
|
|
|
-
|
|
Principal
payments on 2016 $400,000 note payable to YA II PN, Ltd.
|
|
|
(400,000
|
)
|
|
|
-
|
|
Proceeds
from the issuance of convertible notes payable
|
|
|
150,000
|
|
|
|
-
|
|
Proceeds
of issuance of 2016 $185,000 note payable to St. George Investments LLC less an original issue discount of $30,000
|
|
|
155,000
|
|
|
|
-
|
|
Proceeds
on 2016 $750,000 note payable to YA II PN, Ltd. net of $75,000 commitment fee
|
|
|
675,000
|
|
|
|
-
|
|
Net
cash flows provided by financing activities
|
|
|
1,425,700
|
|
|
|
1,688,760
|
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH
|
|
|
(95,475
|
)
|
|
|
(788,976
|
)
|
|
|
|
|
|
|
|
|
|
CASH
BEGINNING OF PERIOD
|
|
|
324,703
|
|
|
|
1,113,679
|
|
|
|
|
|
|
|
|
|
|
CASH
END OF PERIOD
|
|
$
|
229,228
|
|
|
$
|
324,703
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$
|
600
|
|
|
$
|
2,197
|
|
Interest
paid
|
|
$
|
63,093
|
|
|
$
|
29,565
|
|
|
|
|
|
|
|
|
|
|
NON
- CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common stock to an Executive Officer in payment of salaries payable
|
|
$
|
50,400
|
|
|
$
|
120,000
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock in satisfaction of convertible note payable ($15,000) and accrued interest ($15,984)
|
|
$
|
30,984
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Payment-in-Kind
capital contribution of land by noncontrolling interest in Omagine LLC pursuant to Omagine LLC Stockholder Agreement
|
|
$
|
-
|
|
|
$
|
718,614,000
|
|
See
accompanying notes to consolidated financial statements.
OMAGINE,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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., a New York corporation (“JOL”) and its 60% owned subsidiary Omagine LLC, a limited
liability company incorporated under the laws of the Sultanate of Oman (“LLC”). Omagine, JOL and LLC are collectively
referred to herein as the “Company”. JOL was acquired by Omagine in October 2005. LLC is the Omani real estate development
company organized by Omagine to do business in Oman.
The
Company is focused on entertainment, hospitality and real-estate development opportunities in the Middle East and North Africa
(the “MENA Region”). On October 2, 2014, LLC signed a Development Agreement with the Government of Oman (the “Government”)
for the development of the Omagine Project. On July 2, 2015, a usufruct over one million square meters of beachfront land (the
“Land Rights”) was registered in LLC’s name with the Government. On November 29, 2015, LLC executed a Murabaha
Facility Agreement with Masraf Al Rayan Bank (Qatar) for a $25 million loan to finance the first phase of the Omagine Project
consisting of design, development and initial construction activities. The loan, which is subject to satisfaction of certain conditions
precedent to closing, would bear interest at an annual rate equal to the 12 month LIBOR rate plus 1% and would be payable one
year from the closing date. One condition precedent to closing is that the loan be secured by a $25,000,000 cash deposit in an
LLC account at the Qatari bank. Contingent upon the closing of such loan and/or contingent upon the conclusion of final discussions
with several potential LLC investors, including one such investor with whom LLC has a preliminary written investment agreement,
commencement of these first phase activities is expected to begin promptly thereafter. (See Note 9 – “Omagine Project”).
Summary
of Significant Accounting Policies
Principles
of Consolidation
- The consolidated financial statements include the accounts of Omagine, JOL and LLC. LLC is an Omani limited
liability company organized under the laws of the Sultanate of Oman. All inter-company transactions have been eliminated in consolidation.
Financial
Instruments
- Financial instruments include cash, convertible notes payable and accrued interest, notes payable and accrued
interest, accounts payable, accrued officers’ payroll and accrued expenses and other current liabilities. The amounts reported
for financial instruments are considered to be reasonable approximations of their fair values, based on market information available
to management.
Cash
and Cash Equivalents
- The Company considers all highly liquid instruments with a maturity of three months or less at the
time of issuance to be cash equivalents. At December 31, 2016 and 2015, cash included approximately $2,100 and $36,000 respectively
in an Oman bank account not covered by FDIC insurance.
Inventory
- Inventory is stated at cost. At December 31, 2016 and 2015, inventory consists only of the land under development acquired
on July 2, 2015 (which was costed at the fair value of the property at the date of acquisition). (See: Note 2 – “Inventory
and Property”).
Property,
Plant and Equipment
- Property, plant and equipment (“PP&E”) are stated at cost. PP&E consists of land
under development which is held for investment; furniture and fixtures; and office machinery and equipment. PP&E (including
buildings and structures after they are completed and put into service) are depreciated on a straight-line basis over their respective
useful service lives. . (See: Note 2 – “Inventory and Property”).
Impairment
of Long-Lived Assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets
might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable
market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change
that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held
and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash
flows and measures the impairment loss based on the difference between the carrying amount and the estimated fair value.
Stockholders’
Equity
- Stockholders’ equity consists of common stock, capital in excess of par value, deficit, and non-controlling
interests in LLC. The Company’s consolidated financial statements for the year ended December 31, 2015 reflect an increase
of $718,614,000 in stockholders’ equity resulting from LLC’s July 2, 2015 acquisition of the Land Rights (a $431,168,400
increase in Omagine stockholders’ equity and a $287,445,600 increase in non-controlling interests in LLC). (See: Note 2
– “Inventory and Property”).
Estimates
and Uncertainties
- The preparation of financial statements in conformity with accounting principles generally accepted in
the United States (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual results as determined at a later date could differ
from those estimates. In recording $718,614,000 in the accompanying consolidated financial statements for the year ended December
31, 2015 as the value of the non-cash consideration received by LLC as Land Rights, management relied to a great extent upon the
written opinions of three expert valuation firms engaged by LLC to value such Land Rights. Furthermore, in allocating such Land
Value to inventory and land under development, management relied to a great extent upon the written opinion of an expert independent
accounting firm engaged by LLC to advise it on the proper accounting to record the Land Value in LLC’s financial statements.
Both LLC’s independent auditor and the Company’s independent auditor are in agreement with and have consented to the
accounting indicated in the accompanying consolidated financial statements for the year ended December 31, 2015. (See: Note 2
– “Inventory and Property”).
Revenue
Recognition
- The Company follows the guidelines of SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial
Statements” (SAB101). LLC signed a development agreement for the Omagine Project with the Government of Oman in October
2014, and will recognize revenue ratably over the development period of the Omagine Project measured by methods appropriate to
the services or products provided.
Income
Taxes
- Omagine and JOL are subject to United States (“U.S.”) income taxes at both the federal and state level
and LLC is subject to income taxes in Oman. Separate state income tax returns are filed with each state in the U.S. in which Omagine
or any subsidiary of Omagine is incorporated or qualified as a foreign corporation. LLC files an income tax return in Oman. Other
than with respect to LLC, 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 U.S.
income taxes by applying the provisions of the applicable enacted tax laws to taxable income, if any, for the relevant 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
718, “Compensation – Stock Compensation” (“ASC 718”). For stock options granted, Omagine has recognized
compensation expense based on the estimated grant date fair value method using the Black-Scholes valuation model. For such stock
option awards, Omagine has recognized compensation expense using a straight-line amortization method over the requisite service
period. ASC 718 requires that stock-based compensation expense be based on awards that are ultimately expected to vest. Stock
option expense for the years ended December 31, 2016 and 2015 were $292,463 and $3,115,190, respectively. (See Note 7).
Earnings
(Loss) Per Share
- Basic earnings (loss) per share of Omagine’s $0.001 par value common stock (“Common Stock”)
is based upon the weighted-average number of shares of Common Stock (“Common Shares”) outstanding during the relevant
period. Diluted earnings (loss) per share is based upon the weighted-average number of Common Shares and dilutive securities (stock
options, warrants, stock appreciation rights and convertible notes) outstanding during the relevant period. Dilutive securities
having an anti-dilutive effect on diluted earnings (loss) per share are excluded from the calculation.
For
the years ended December 31, 2016 and 2015, the Common Shares underlying the following dilutive securities were excluded from
the calculation of diluted shares outstanding as the effect of their inclusion would be anti-dilutive:
|
|
2016
|
|
|
2015
|
|
Convertible Notes
|
|
|
368,645
|
|
|
|
159,171
|
|
Stock Options
|
|
|
3,269,000
|
|
|
|
3,273,000
|
|
Stock Appreciation Rights
|
|
|
1,455,000
|
|
|
|
1,455,000
|
|
Warrants
|
|
|
6,572,124
|
|
|
|
6,771,521
|
|
Total Common Shares Issuable
|
|
|
11,664,769
|
|
|
|
11,658,692
|
|
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 (the “New Investors”) entered into a shareholders’ agreement (the “Shareholder Agreement”)
pursuant to which Omagine’s 100% ownership of LLC was reduced to 60%.
The
New Investors are:
i.
|
The
Office of Royal Court Affairs (“RCA”), an Omani organization, and
|
|
|
ii.
|
Two
subsidiaries of Consolidated Contractors International Company, SAL (“CCIC”). CCIC is a 65 year old Lebanese multi-national
company headquartered in Athens, Greece having worldwide, and operating subsidiaries in among other places, every country
in the Middle East. The two CCIC subsidiaries which are LLC shareholders are:
|
|
1.
|
Consolidated
Contracting Company S.A. (“CCC-Panama”), a wholly owned subsidiary of CCIC and is its investment arm, and
|
|
|
|
|
2.
|
Consolidated
Contractors (Oman) Company LLC, CCIC’s operating subsidiary in Oman which is a
construction company with approximately 13,000 employees.
|
As
of the date hereof, the shareholders of LLC and their associated ownership percentages as registered with the Government of Oman
are as follows:
LLC Shareholder
|
|
Percent Ownership
|
|
Omagine
|
|
|
60
|
%
|
RCA
|
|
|
25
|
%
|
CCC-Panama
|
|
|
10
|
%
|
CCC-Oman
|
|
|
5
|
%
|
Total:
|
|
|
100
|
%
|
Recent
Accounting Pronouncements
On
August 27, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 provides guidance on
determining when and how reporting entities must disclose going concern uncertainties in their financial statements. The new standard
requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within
one year of the date of issuance of the entity’s financial statements (or within one year after the date on which the financial
statements are available to be issued, when applicable). Further, an entity must provide certain disclosures if there is “substantial
doubt about the entity’s ability to continue as a going concern.” The FASB believes that requiring management to perform
the assessment will enhance the timeliness, clarity and consistency of related disclosures and improve convergence with IFRS (which
emphasize management’s responsibility for performing the going concern assessment). However, the time horizon for the assessment
(look-forward period) and the disclosure thresholds under U.S. GAAP and IFRS will continue to differ. This ASU 2014-15 is effective
for annual periods ending after December 16, 2016, and interim periods thereafter; early adoption is permitted. The Company
does not believe that this pronouncement has had or will have a material impact on our financial statement disclosures.
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 – INVENTORY AND PROPERTY
The
Company’s consolidated financial statements for the year ended December 31, 2016 reflect $718,614,000 of land under development
which the Company has allocated to inventory ($490,813,363) and property ($227,800,637). This $718,614,000 of land under development
was purchased by LLC on July 2, 2015 pursuant to the terms of the Shareholder Agreement whereby an LLC shareholder agreed to transfer
the Land Rights over one million square meters of beachfront land to LLC in exchange for the issuance to such shareholder of 663,750
Omagine LLC shares (the “LLC Shares”). Since the Land Rights represented a non-cash payment for the LLC Shares, it
was necessary to value the Land Rights.
Three
expert real estate valuation companies were engaged by LLC to independently value the Land Rights in accordance with the professional
standards specified by the Royal Institution of Chartered Surveyors (“RICS”) and International Financial Reporting
Standards (“IFRS”). The average of the three Land Rights valuations was 276,666,667 Omani Rials ($718,614,000).
LLC
engaged the services of PricewaterhouseCoopers LLP (“PwC”) as its IFRS accounting consultant to definitively determine
the correct method of recording the $718,614,000 average value of its Land Rights in its IFRS compliant financial statements.
After receiving PwC’s written opinion, LLC then consulted with its independent auditor, Deloitte & Touche (M.E.) &
Co. LLC (“Deloitte”) with respect to the matter and received Deloitte’s written opinion agreeing with the PwC
opinion. Both PwC and Deloitte independently concluded that the Land Rights should be recorded as capital, work-in-process (inventory)
and land on LLC’s financial statements. With respect to the Company’s consolidated financial statements, the Company’s
independent auditor in the U.S. has likewise concurred that, pursuant to US GAAP, the Land Rights should also be recorded as capital,
inventory and land.
In
determining the allocations to inventory and to land, LLC followed the advice of Deloitte by computing the percentage (x) calculated
by dividing (y) the area of the land LLC definitively knew it intended to sell, by (z) the total area of land constituting the
Omagine Site, and then multiplying that percentage (x) by $718,614,000 to get the correct number (N) for inventory. The correct
number for land was then calculated by subtracting N from $718,614,000. Using its detailed internal financial model, management
calculated (x) to be equal to 68.3%, thereby making the inventory number $490,813,363 and the land number $227,800,637. In its
consolidated financial statements therefore, the Company has divided the Land Rights between land under development which is held
for sale (inventory) and land under development which is held for investment (PP&E). These percentage allocations may be modified
over time as the more precise land uses become apparent during and after the master planning and construction processes.
As
more fully described in Note 1 and in Note 9 (See: “the Omagine LLC Shareholder Agreement section of Note 9), financing
for the Omagine Project has not yet been secured. If such financing is not obtained, LLC may not be able to complete the Omagine
Project and may not be able to recover the $718,614,000 value of the land under development described above.
NOTE
3 – CONVERTIBLE NOTES PAYABLE AND ACCRUED INTEREST
Convertible
notes payable and accrued interest thereon consist of:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Due to a director of Omagine, interest at 10% per annum, due on demand,
convertible into Common Stock at a conversion price of $2.50 per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
93,768
|
|
|
|
78,727
|
|
|
|
|
|
|
|
|
|
|
Due to investors, interest at 15% per annum, due on
demand, convertible into Common Stock at a conversion price of $2.50 per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
35,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
41,165
|
|
|
|
51,195
|
|
|
|
|
|
|
|
|
|
|
Due to investors, interest at 10% per annum, due on
demand, convertible into Common Stock at a conversion price of $2.50 per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
18,021
|
|
|
|
18,007
|
|
|
|
|
|
|
|
|
|
|
Due to entity owned by two Directors of Omagine, interest
at 5% per annum, due on December 24, 2016, convertible into Common Stock at a conversion price of $0.75 per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
100,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
1,781
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Due to an investor, interest at 5% per annum, due
on April 13, 2017, convertible into Common Stock at a conversion price of $0.65 per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
50,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Unamortized Debt Discount
|
|
|
(13,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
541
|
|
|
|
-
|
|
Total
|
|
$
|
526,372
|
|
|
$
|
397,929
|
|
NOTE
4 – NOTES PAYABLE AND ACCRUED INTEREST – YA II PN, LTD. (p/k/a YA GLOBAL MASTER SPV, LTD
.)
In
July 2013, Omagine borrowed $200,000 from YA II PN, Ltd. (“YA”) (p/k/a YA Global Master SPV, Ltd.) via an unsecured
loan (the “2013 YA Loan”) and on April 23, 2014 Omagine paid the 2013 YA Loan balance and accrued interest thereon
due at April 23, 2014 in full and borrowed an additional $500,000 from YA via a second unsecured loan (the “2014 YA Loan”)
and on April 22, 2015 Omagine paid the 2014 YA Loan balance and the accrued interest thereon in full. On May 20, 2015, Omagine
borrowed an additional $500,000 from YA via a third unsecured loan (the “2015 YA Loan”). On March 15, 2016 Omagine
paid the 2015 Loan balance and the accrued interest thereon in full and borrowed an additional $600,000 from YA via a fourth unsecured
loan (the “March 2016 YA Loan”) and on June 22, 2016, Omagine borrowed an additional $400,000 from YA via a fifth
unsecured loan (the “June 2016 YA Loan”). Omagine paid both the March 2016 Loan and the June 2016 Loan balances and
accrued interest thereon in full. On December 7, 2016 Omagine borrowed an additional $750,000 from YA via a sixth unsecured loan
(the “December 2016 YA Loan”).
Notes
payable and accrued interest thereon due to YA consist of:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
2015 YA Loan - interest at 10% per
annum, due in 12 monthly installments of principal ($50,000 in July 2015, $40,000 monthly August 2015 to October 2015, $35,000
monthly November 2015 to February 2016, $40,000 monthly March 2016 to May 2016 and $70,000 on June 1, 2016)
|
|
$
|
-
|
|
|
$
|
225,000
|
|
|
|
|
|
|
|
|
|
|
December 2016 YA Loan - interest at 10% per annum,
due in 12 monthly installments of principal ($75,000 in January 2017 to March 2017, $65,000 monthly April to June 2017, $55,000
monthly July 2017 to October 2017, $50,000 in November 2017 and $60,000 in December 2017.)
|
|
|
750,000
|
|
|
|
-
|
|
Less: Unamortized debt discount
at December 31, 2016 and December 31, 2015
|
|
|
(68,750
|
)
|
|
|
(20,833
|
)
|
Principal, net
|
|
|
681,250
|
|
|
|
204,167
|
|
Accrued interest
|
|
|
5,137
|
|
|
|
-
|
|
Total
|
|
$
|
686,387
|
|
|
$
|
204,167
|
|
NOTE
5 – NOTE PAYABLE – ST. GEORGE INVESTMENTS LLC
On
November 14, 2016, the Company entered into an interest free Convertible Promissory Note with an accredited investor for the principal
amount of $185,000 due on May 15, 2017, six months from the funding date of November 16, 2016, convertible into the Company’s
Common Stock only in the case of an Event of Default at a Conversion Price equal to 60% of the three lowest daily Volume Weighted
Average Prices for the Company’s Common Stock during the twenty trading days immediately preceding the Conversion. The Company
may prepay the Note in whole or in part at any time without penalty. After deduction of a $30,000 original issue discount (OID)
and legal fees of $5,000, the Company received net proceeds of $150,000 on November 16, 2016. (See: Exhibits 10.42 and 10.43,
the Note Purchase Agreement and the Securities Purchase Agreement).
NOTE
6 – COMMON STOCK
With
respect to the issuances of the Common Shares listed below:
|
1.
|
see
Note 9 under “Equity Finance Agreements” with respect to sales of Common Shares made to YA II PN, Ltd. (p/n/a
YA Global Master SPV, Ltd.) (“YA”) pursuant to the Standby Equity Distribution Agreement (“2014 SEDA”).
|
|
|
|
|
2.
|
where
issuances of restricted Common Shares occurred at non-discounted valuations, it is so noted and all such non-discounted valuations
were based on the closing price of a Common Share on the relevant date.
|
|
|
|
|
3.
|
where
issuances of restricted Common Shares occurred at discounted valuations, it is so noted and all such discounted valuations
were calculated using the Finnerty Method based on the closing price of a Common Share on the relevant date less a restricted
stock discount.
|
|
|
|
|
4.
|
where
issuances of restricted Common Shares occurred at agreed upon negotiated prices, the sale proceeds or value of services rendered
are so noted.
|
On
January 16, 2016, Omagine contributed an aggregate of 61,001 restricted Common Shares at the non-discounted valuation of $76,250
to all eligible employees of the Omagine, Inc. 401(k) Plan.
On
January 16, 2016, Omagine issued 38,462 restricted Common Shares to each of three independent directors for services to be rendered
from January 1, 2016 to December 31, 2016 for an aggregate value of $150,000.
On
April 5, 2016, the president of the Company purchased 56,000 restricted Common Shares based on the $0.90 closing price of Omagine’s
Common Stock on such date of purchase. The total purchase price of $50,400 was paid to the Company by the $50,400 reduction in
the accrued salary and expenses owed by the Company to the president.
On
April 6, 2016, the three independent directors of the Company each purchased 27,778 restricted Common Shares based on the $0.90
closing price of Omagine’s Common Stock on April 5, 2016 for an aggregate of 83,334 Common Shares purchased. The aggregate
purchase price of $75,000 was paid to the Company by the $25,000 reduction in accrued director’s fees owed by the Company
to each of the independent directors.
On
April 12, 2016, the Company sold 700,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds
of $504,000.
On
April 22, 2016, the holders of a Convertible Note converted $30,984 of principal and accrued interest into 24,207 shares of Common
Stock.
On
May 17, 2016, an Independent Director exercised Stock Options at $0.85 to purchase 2,000 shares of Common Stock.
On
June 15, 2016, pursuant to the SEDA, Omagine sold 31,289 Common Shares to YA for proceeds of $25,000.
On
July 29, 2016, Omagine sold 10,684 restricted Common shares to an accredited investor for proceeds of $10,000.
On
August 19, 2016, Omagine sold 13,245 restricted Common Shares to an accredited investor for proceeds of $10,000.
On
August 30, 2016, Omagine sold 11,312 restricted Common Shares to an accredited investor for proceeds of $10,000.
On
September 16, 2016, Omagine sold 34,247 restricted Common Shares to an accredited investor for proceeds of $25,000.
On
September 19, 2016 Omagine paid a consultant 30,340 restricted Common Shares at a value of $25,000.
On
September 21, 2016, Omagine issued 161,290 restricted Common Shares to YA in satisfaction of a $150,000 commitment fee due in
connection with the extension of the 2014 SEDA to February 1, 2019.
On
October 14, 2016, the Company entered into a Convertible Promissory Note with an accredited investor for the principal amount
of $50,000 with interest at 5% per annum, due on April 14, 2017 and convertible into the Company’s Common Stock at a conversion
price of $0.65 per Common Share.
On
October 17, 2016, the Company entered into an Interest Free Promissory Note with an accredited investor for the principal amount
of $75,000, due on December 13, 2016, and in lieu of any interest due and payable on the principal amount of the Note, the Company
issued to the Note Holder 150,000 Common Stock Purchase Warrants exercisable at the greater of (a) $0.50, or (b) 80% of the Market
Price on the Trading Day immediately preceding the relevant Exercise Date. On December 5, 2016, the $75,000 note was satisfied
(see sixth succeeding paragraph below).
On
November 1, 2016, Omagine sold 20,000 restricted Common Shares to an accredited investor for proceeds of $10,000 and also sold
10,000 restricted Common Shares to an independent director who is also an accredited investor for proceeds of $5,000.
On
November 4, 2016, Omagine sold 10,000 restricted Common Shares to an accredited investor for proceeds of $5,000.
On
November 8, 2016, Omagine sold an aggregate of 20,000 restricted Common Shares to two accredited investors for aggregate proceeds
of 10,000.
On
November 14, 2016, Omagine sold 10,000 restricted Common Shares to an accredited investor for proceeds of $5,000.
On
November 14, 2016, the Company entered into an interest free Convertible Promissory Note with St. George Investments LLC, an accredited
investor, for the principal amount of $185,000 due on May 15, 2017, six months from the funding date of November 16, 2016, convertible
into the Company’s Common Stock only in the case of non-payment or in the Event of Default at a Conversion Price equal to
60% of the three lowest daily Volume Weighted Average Prices for the Company’s Common Stock during the twenty trading days
immediately preceding the Conversion. The Company may prepay the Note in whole or in part at any time without penalty. After deduction
of a $30,000 original issue discount (OID) and legal fees of $5,000, the Company received net proceeds of $150,000 on November
16, 2016.
On
December 5, 2016, Omagine sold 300,000 restricted Common Shares to an accredited investor for proceeds of $150,000 which was paid
to the Company by the cancellation and payment in full of the Company’s $75,000 Promissory Note dated October 17, 2016 (see
sixth preceding paragraph above) and the remaining $75,000 of the purchase price was paid to the Company in cash.
On
January 5, 2015, Omagine contributed an aggregate of 36,483 restricted Common Shares at the discounted valuation of $76,250 to
all eligible employees of the Omagine, Inc. 401(k) Plan.
On
February 23, 2015, Omagine paid a consultant 5,000 restricted Common Shares at the discounted valuation of $9,450.
On
March 26, 2015, Omagine sold 6,281 restricted Common Shares to an accredited investor for proceeds of $10,000.
On
March 26, 2015, Omagine sold 200,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds
of $210,000.
On
May 16, 2015, Omagine sold 100,000 restricted Common Shares to an officer and director for proceeds of $120,000.
On
June 29, 2015, the Non-US investor (described below in connection with a June 24, 2014 transaction) exercised 158,228 Tempest
Warrants at an exercise price of $1.58 for proceeds of $250,000.
On
June 29, 2015, Omagine paid a finder’s fee to a non-U.S. Finder in connection with the aforementioned sale of 158,228 restricted
Common Shares. Such finder’s fee was satisfied by issuing such non-U.S. Finder 7,911 restricted Common Shares valued at
$12,500.
On
June 30, 2015, a former director exercised 2,000 stock options for proceeds of $1,020.
On
September 1, 2015, two new Directors were each issued 25,000 restricted Common Shares at a value of $50,000 each for services
to be rendered from September 1 to December 31, 2015.
On
September 3, 2015, pursuant to the SEDA, Omagine sold 17,696 Common Shares to YA for proceeds of $25,000.
On
September 14, 2015, Omagine sold 10,000 restricted Common Shares to an accredited investor for proceeds of $14,700.
On
October 8, 2015, 2,375 Tempest Warrants were transferred to an affiliate of the Non-U.S. Investor, a “Non-U.S. Affiliate”.
On October 8, 2015, such Non-U.S. Affiliate exercised such 2,375 Tempest Warrants at an exercise price of $1.28 per Common Share
for proceeds to Omagine of $3,040.
On
October 26, 2015, Omagine sold an aggregate of 1,200,000 restricted Common Shares to three non-U.S. persons who are accredited
investors (500,000 restricted Common Shares each to two investors and 200,000 restricted Common Shares to one investor) for aggregate
proceeds to Omagine of $1,200,000.
On
November 16, 2015, Omagine paid a finder’s fee to a non-U.S. Finder in connection with the October 26, 2015 aforementioned
sale of 1,200,000 restricted Common Shares. Such finder’s fee was satisfied by issuing such non-U.S. Finder 33,334 restricted
Common Shares valued at the discounted valuation of $60,000.
On
November 16, 2015, Omagine sold 20,886 restricted Common Shares to an accredited investor for proceeds to Omagine of $25,000.
NOTE
7 – STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS
Stock
Options/Stock Appreciation Rights
Omagine’s
shareholders approved the reservation by Omagine of 2,500,000 Common Shares for issuance under the 2003 Omagine, Inc. Stock Option
Plan (the “2003 Plan”). The 2003 Plan expired on August 31, 2013. On March 6, 2014, the Board of Directors approved
the adoption of the 2014 Omagine, Inc. Stock Option Plan (the “2014 Plan”).
Both
the 2003 Plan and the 2014 Plan are designed to attract, retain and motivate employees, directors, consultants and other professional
advisors of Omagine and its subsidiaries (collectively, the “Recipients”) by giving such Recipients the opportunity
to acquire stock ownership in Omagine through the issuance of stock options (“Stock Options”) to purchase Common Shares.
Omagine
has registered for resale the 2.5 million Common Shares reserved for issuance under the 2003 Plan by filing a registration statement
with the SEC on Form S-8. At December 31, 2016, there were 2,279,000 unexpired Stock Options issued but unexercised under the
2003 Plan and all such Stock Options remain valid until the earlier of their exercise date or expiration date.
Pursuant
to the 2014 Plan, 3,000,000 Common Shares were reserved for issuance. The 2014 Plan was amended to increase the reservation of
3,000,000 Common Shares for issuance to 5,000,000 Common Shares and to permit issuance of stock appreciation rights (“The
Amended 2014 Plan”). Omagine intends to seek its shareholders’ ratification of the adoption by Omagine of the Amended
2014 Plan. At December 31, 2016, there were 990,000 unexpired Stock Options and 1,455,000 Stock Appreciation Rights (“SARs”)
issued but unexercised under the Amended 2014 Plan.
A
summary of Stock Option and SARs activity for the years ended December 31, 2016 and 2015 pursuant to both the 2003 Plan and the
Amended 2014 Plan is as follows:
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
(in years)
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding at January 1, 2015
|
|
|
3,275,000
|
|
|
$
|
1.97
|
|
|
|
1.24
|
|
|
$
|
1,923,170
|
|
Exercised in Q2 2015
|
|
|
(2,000
|
)
|
|
$
|
0.51
|
|
|
|
-
|
|
|
|
-
|
|
Granted in Q3 2015
|
|
|
1,455,000
|
|
|
$
|
2.00
|
|
|
|
2.03
|
|
|
|
-
|
|
Outstanding December 31, 2015
|
|
|
4,728,000
|
|
|
$
|
1.98
|
|
|
|
1.41
|
|
|
$
|
26,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2015
|
|
|
4,728,000
|
|
|
$
|
1.98
|
|
|
|
1.41
|
|
|
$
|
26,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2016
|
|
|
4,728,000
|
|
|
$
|
1.98
|
|
|
|
1.41
|
|
|
$
|
26,240
|
|
Exercised in Q2 2016
|
|
|
(2,000
|
)
|
|
$
|
0.85
|
|
|
|
-
|
|
|
|
-
|
|
Expired Q2 2016
|
|
|
(2,000
|
)
|
|
$
|
0.85
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding December 31, 2016
|
|
|
4,724,000
|
|
|
$
|
1.98
|
|
|
|
1.02
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2016
|
|
|
4,724,000
|
|
|
$
|
1.98
|
|
|
|
1.02
|
|
|
$
|
-
|
|
Of
the 4,724,000 Stock Options outstanding at December 31, 2016, 2,915,000 of such Stock Options were issued by Omagine in January
2012 and December 2014 as “Strategic Options” to officers, directors and consultants of Omagine whose continued service
was deemed by the Board of Directors to be particularly crucial to attaining LLC’s then strategic goal of signing the Development
Agreement (“DA”) with the Government of Oman and in recognition of those efforts during 2014 and beyond. The Strategic
Options are fully vested, provide for a cashless exercise feature and currently expire on December 31, 2017; 1,965,000 of the
Strategic Options are exercisable at $1.70 and 950,000 are exercisable at $2.55. To continue to incentivize the retention and
sustained service to the Company of its mission-critical employees and consultants, the expiration date of the 1,965,000 Strategic
Options issued in January 2012 was extended by Omagine in December 2012 to December 31, 2013 (the “First Extension”)
and in December 2013 to December 31, 2014 (the “Second Extension”) and in December 2014 to December 31, 2015 (the
“Third Extension”) and on August 12, 2015 to December 31, 2016 (the “Fourth Extension”) and on December
9, 2016 to December 31, 2017 (the “Fifth Extension”). The December 31, 2015 expiration date of the 950,000 Strategic
Options issued December 29, 2014 was extended on August 12, 2015 to December 31, 2016 (“First Extension”) and on December
9, 2016 to December 31, 2017 (the “Second Extension”).
Of
the 2,915,000 Strategic Options, an aggregate of 1,685,000 were granted to Omagine’s three officers, an aggregate of 125,000
were granted to Omagine’s independent directors and 1,000,000 were granted to the Deputy Managing Director of LLC who, pursuant
to a March 2007 consulting agreement expiring on December 31, 2017, is also a consultant to the Company. The Deputy Managing Director
of LLC also holds 160,000 Stock Options granted pursuant to his consulting agreement which are not Strategic Options, exercisable
at $1.25 per share and expiring on March 31, 2017.
Of
the 1,455,000 Stock Appreciation Rights, an aggregate of 750,000 were granted to three officers of Omagine, 15,000 were granted
to one independent director and 675,000 were granted to the Deputy Managing Director of LLC.
On
August 12, 2015, the expiration date of the 1,965,000 Strategic Options issued in January 2012 was extended from December 31,
2015 to December 31, 2016 (the “Fourth Extension”). The $915,493 estimated fair value of the Fourth Extension was
calculated using the Black Scholes option pricing model and the following assumptions: (i) $1.91 share price, (ii) 507 day term,
(iii) 147% expected volatility, (iv) 0.32% (507 day term) risk free interest rate and was expensed in full in the quarterly period
ended September 30, 2015.
On
August 12, 2015, the expiration date of the 950,000 Strategic Options issued in December of 2014 was extended from December 31,
2015 to December 31, 2016 (the “First Extension”). The $541,215 estimated fair value of the First Extension was calculated
using the Black Scholes option pricing model and the following assumptions: (i) $1.91 share price, (ii) 507 day term, (iii) 147%
expected volatility, (iv) 0.32% (507 day term) risk free interest rate and was expensed in full in the quarterly period ended
September 30, 2015.
On
June 30, 2015, a former Omagine director exercised 2,000 stock options at $0.51 per share.
On
August 31, 2015, Omagine granted an aggregate of 1,455,000 Stock Appreciation Rights (“SARs”) to six persons exercisable
at $2.00 per share and expiring on December 31, 2017. Of the 1,455,000 SARs, an aggregate of 750,000 were granted to three officers
of Omagine, 15,000 were granted to one independent director and 675,000 were granted to the Deputy Managing Director of LLC. The
$1,654,481 estimated fair value of the SARs was calculated using the Black Scholes option pricing model and the following assumptions:
(i) $1.60 share price, (ii) 854 day term, (iii) 147% expected volatility, (iv) 0.28% (854 day term) risk free interest rate and
was expensed in full in the quarterly period ended September 30, 2015.
On
December 9, 2016, the expiration date of the 1,965,000 Strategic Options issued in January of 2012 was extended from December
31, 2016 to December 31, 2017 (the “Fifth Extension”). The $232,263 estimated value of the Fifth Extension was calculated
using the Black Scholes option pricing model and the following assumptions: (i) $0.78 share price, (ii) 387 day term, (iii) 91.45%
expected volatility, (iv) 0.85% (387 day term) risk free interest rate and was expensed in full in the quarterly period ended
December 31, 2016.
On
December 9, 2016, the expiration date of the 950,000 Strategic options issued in December 31, 2014 from December 31, 2016 to December
31, 2017 (the “Second Extension”). The $59,660 estimated value of the Second Extension was calculated using the Black
Scholes option pricing model and the following assumptions: (i) $0.78 share price, (ii) 387 day term, (iii) 91.45% expected volatility,
(iv) 0.85% (387 day term) risk free interest rate and was expensed in full in the quarterly period ended December 31, 2016.
A
summary of non-vested Stock Options and the Common Shares underlying such Stock Options for the years ended December 31, 2016
and 2015 is as follows:
|
|
Number of Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares at January 1, 2015
|
|
|
10,000
|
|
|
$
|
1.80
|
|
|
|
4.30
|
|
Vested in Q1 2015
|
|
|
(10,000
|
)
|
|
$
|
1.80
|
|
|
|
4.30
|
|
Non-vested shares at December 31, 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested shares at January 1, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-vested shares at December 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issued
and outstanding Stock Options and SAR’s (all non-qualified) as of December 31, 2016 are as follows:
Year Granted
|
|
Number Outstanding
|
|
|
Number Exercisable
|
|
|
Exercise
Price
|
|
|
Expiration Date
|
2007
|
|
|
160,000
|
|
|
|
160,000
|
|
|
$
|
1.25
|
|
|
March 31, 2017
|
2008
|
|
|
150,000
|
|
|
|
150,000
|
|
|
$
|
2.60
|
|
|
September 23, 2018
|
2012
|
|
|
1,965,000
|
|
|
|
1,965,000
|
|
|
$
|
1.70
|
|
|
December 31, 2017
|
2012
|
|
|
2,000
|
|
|
|
2,000
|
|
|
$
|
1.70
|
|
|
April 12, 2017
|
2013
|
|
|
2,000
|
|
|
|
2,000
|
|
|
$
|
1.38
|
|
|
January 14, 2018
|
2014
|
|
|
40,000
|
|
|
|
40,000
|
|
|
$
|
1.80
|
|
|
March 27, 2019
|
2014
|
|
|
950,000
|
|
|
|
950,000
|
|
|
$
|
2.55
|
|
|
December 31, 2017
|
2015
|
|
|
1,455,000
|
|
|
|
1,455,000
|
|
|
$
|
2.00
|
|
|
December 31, 2017
|
Totals
|
|
|
4,724,000
|
|
|
|
4,724,000
|
|
|
|
|
|
|
|
A
summary of information about Stock Options and SARs outstanding at December 31, 2016 is as follows:
|
|
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
|
|
$ 1.01 - $2.00
|
|
|
3,624,000
|
|
|
$
|
1.80
|
|
|
|
0.99
|
|
|
|
3,624,000
|
|
|
$
|
1.80
|
|
$ 2.01 - $3.00
|
|
|
1,100,000
|
|
|
$
|
2.56
|
|
|
|
1.11
|
|
|
|
1,100,000
|
|
|
$
|
2.56
|
|
Totals
|
|
|
4,724,000
|
|
|
$
|
1.98
|
|
|
|
1.02
|
|
|
|
4,724,000
|
|
|
$
|
1.98
|
|
For
the years ended December 31, 2016 and 2015, total stock option expense was $292,463 and $3,115,190, respectively.
As
of December 31, 2016, there was $540 of unrecognized compensation costs relating to unexpired Stock Options, that is expected
to be recognized in 2017.
Warrants
As
of December 31, 2016, Omagine had 6,572,124 Common Stock purchase warrants (“Warrants”) issued and outstanding. The
Warrants do not contain any price protection provisions that would require them to be classified as liabilities (subject to re-measurement
at fair value each time a balance sheet is presented) rather than presented as a component of stockholders’ equity.
The
Tempest Warrants
On
June 24, 2014, in connection with the sale of 362,308 restricted Common Shares to an investor (See Note 6), Omagine issued 1,000,000
Warrants to such investor, each of which were exercisable for the purchase of one restricted Common Share at a per Common Share
exercise price equal to the greater of: (a) $1.00 per Common Share, or (b) 80% of the closing sale price for a Common Share on
the trading day immediately preceding the relevant exercise date (the “Tempest Warrants”). Prior to their expiration,
a total of 650,603 Tempest Warrants were exercised for aggregate proceeds to Omagine of $916,540. The remaining 349,397 Tempest
Warrants expired unexercised on June 23, 2016. As of the date of this report there were no Tempest Warrants issued or outstanding.
Rural
Concepts Warrants
On
October 14, 2016, in connection with a non-interest bearing convertible promissory note in favor of Rural Concepts LLC, a British
corporation (“Rural Concepts”), Omagine issued 150,000 Warrants to Rural Concepts, each of which is exercisable for
the purchase of one restricted Common Share at a per Common Share purchase price equal to the greater of (a) $0.50 per Common
Share, or (b) 80% of the Market Price on the Trading Day immediately preceding the relevant Exercise Date (the “Rural Concepts
Warrants”). The Warrants expire on December 31, 2017.
The
Strategic Warrants
Omagine
has 6,422,124 Warrants outstanding, 3,211,062 of which are exercisable for the purchase of one Common Share at a per Common Share
exercise price of $5.00 and 3,211,062 of which are exercisable for the purchase of one Common Share at a per Common Share exercise
price of $10.00 (collectively, the “Strategic Warrants”).
Omagine
filed a post-effective amendment to its registration statement on Form S-1 (Commission File No. 333-183852) whereby the Strategic
Warrants and the 6,422,124 Common Shares underlying the Strategic Warrants were registered by Omagine (the “Warrant Registration”).
The Warrant Registration was declared effective by the SEC and its effective status expired. Omagine filed another post-effective
amendment to the Warrant Registration on February 11, 2015 which was declared effective by the SEC on February 13, 2015 and its
effective status expired. Omagine filed another post-effective amendment to the Warrant Registration on January 14, 2016 which
was declared effective by the SEC on January 25, 2016 (the “Updated Warrant Registration”). As of the date hereof,
the effective status of the Updated Warrant Registration expired and the Company intends to file a post-effective amendment to
such Registration Statement with the SEC in order to again register the Common Shares issuable upon the exercise of the Strategic
Warrants. Neither the exercise prices of the Strategic Warrants nor the number of Common Shares issuable upon exercise of the
Strategic Warrants are subject to adjustment in the event of a stock split, combination or subdivision of the Common Stock, or
a dividend, reclassification, reorganization, or spinoff.
On
August 18, 2014, pursuant to a resolution of the Board of Directors, the expiration date for all Strategic Warrants was extended
for a third time to June 30, 2015 and again on January 5, 2015, pursuant to a resolution of the Board of Directors, the expiration
date for all Strategic Warrants was extended to December 31, 2015. On August 12, 2015, pursuant to a resolution of the Board of
Directors, the expiration date for all Strategic Warrants was again extended to December 31, 2016 and on December 9 ,2016, pursuant
to a resolution of the Board of Directors, the expiration date for all Strategic Warrants was again extended to December 31, 2017.
All other terms and conditions of the Strategic Warrants remained the same. All Strategic Warrants expire on December 31, 2017
unless redeemed earlier by Omagine upon 30 days prior written notice to the Strategic Warrant holders.
NOTE
8 – U.S. INCOME TAXES
Deferred
U.S. tax assets are comprised of the following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
U.S. federal net operating loss carry forwards
|
|
$
|
6,333,000
|
|
|
$
|
6,375,000
|
|
U.S. state and city net operating
loss carry forwards, net of U.S. federal tax benefit
|
|
|
2,011,000
|
|
|
|
1,822,000
|
|
|
|
|
8,344,000
|
|
|
|
8,197,000
|
|
Less: Valuation allowance
|
|
|
(8,344,000
|
)
|
|
|
(8,197,000
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
Management has determined, based on the
Company’s current condition, that a full valuation allowance is appropriate at December 31, 2016. At December 31, 2016,
the Company had U.S. federal net operating loss carry forwards of approximately $20,106,000 expiring in various amounts from fiscal
year 2017 to fiscal year 2036.
Current
U.S. income tax law limits the amount of loss available to offset against future taxable income when a substantial change in ownership
occurs.
The
Company believes that it has no uncertain tax positions and no unrecognized tax benefits at December 31, 2016 and December 31,
2015.
NOTE
9 – COMMITMENTS
Leases
Omagine
maintains its corporate offices at 136 Madison Avenue, 5th Floor, New York, NY 10016. The premises are leased by Omagine under
a month to month lease from an unaffiliated third party. LLC leases premises in Muscat, Oman from an unaffiliated third party
under a one year lease which commenced in January 2017 which provides for an annual rental of $35,880. The Company’s rent
expense for the years ended December 31, 2016 and 2015 was $60,204 and $167,113, respectively.
Employment
Agreements
The
Company presently has no employment agreements with any person.
Pursuant
to a prior employment agreement, Omagine was obligated to employ its President and Chief Executive Officer at an annual base salary
of $125,000 plus an additional amount based on a combination of net sales and earnings before taxes. Omagine plans to enter into
a new employment agreement with its President although the terms of such employment agreement have not yet been determined. Omagine
has from time to time fully or partially suspended and accrued salary payments due to its President. For the years ended December
31, 2015 and 2016 the Company continued to accrue salary payable to Mr. Drohan on the basis of an annual salary of $125,000. On
May 1, 2015 the Company paid its President $87,781 of accrued officer’s payroll and on May 16, 2015 the Company applied
$120,000 of accrued officer’s payroll in exchange for the purchase of 100,000 restricted Common Shares of Omagine, Inc.
stock at a purchase price of $1.20 per share. On April 5, 2016 the Company applied $50,400 of accrued officer’s payroll
in exchange for the purchase of 56,000 restricted Common Shares of Omagine Inc. stock at a purchase price of $0.90 per share.
On June 14, 2016 the Company paid its President $55,601 of accrued officer’s payroll. At December 31, 2016 and December
31, 2015, Omagine had unpaid accrued officer’s compensation due to its President of $88,405 and $115,131, respectively.
Pursuant
to a prior employment agreement, Omagine was obligated to employ its Vice-President and Secretary at an annual base salary of
$100,000. Omagine plans to enter into a new employment agreement with its Vice-President although the terms of such employment
agreement have not yet been determined. Omagine has from time to time fully or partially suspended and accrued salary payments
due to its Vice-President on the basis of an annual salary of $100,000. During 2015 the Company paid Mr. Kuczynski accrued officer’s
payroll of $33,000 on March 26, $2,000 on September 9, $3,200 on October 2, and $2,500 on December 7, 2015. During 2016 the Company
paid its Vice President accrued officer’s payroll of $32,000 on June 23, $2,700 on July 28, $1,000 on October 20, $6,000
on November 4, and $10,000 on December 9, 2016. At December 31, 2016 and December 31, 2015, Omagine had unpaid accrued officer’s
compensation due to its Vice-President of $149,121 and $137,905, respectively.
Omagine
has from time to time fully or partially suspended and accrued salary payments due to its Controller on the basis of an annual
salary of $80,000. On January 14, 2015 the Company paid its Controller $25,000 of accrued officer’s payroll. On December
9, 2016 the Company paid the Controller $7,500 of accrued officer’s payroll. At December 31, 2016 and December 31, 2015,
Omagine had unpaid accrued officer’s compensation due to its Controller of $182,100 and $136,798, respectively.
Equity
Financing Agreements
Omagine,
Inc. and YA were parties to a Stand-By Equity Distribution Agreement (the “2011 SEDA”) which was due to expire on
September 1, 2014. On July 21, 2014, the 2011 SEDA was terminated by the mutual consent of Omagine and YA.
On
April 22, 2014, Omagine and YA entered into a new Standby Equity Distribution Agreement on generally the same terms and conditions
as the 2011 SEDA (the”2014 SEDA”). Unless earlier terminated in accordance with its terms, the 2014 SEDA was to terminate
automatically on the earlier of (i) the first day of the month next following the 24-month anniversary of the “Effective
Date” (as hereinafter defined) (i.e. February 1, 2017), or (ii) the date on which YA shall have made payment to Omagine
of Advances pursuant to the 2014 SEDA in the aggregate amount of $5,000,000. On September 20, 2016, the Company and YA entered
into an agreement amending the SEDA extending the term of the 2014 SEDA to February 1, 2019 or to such date on which YA shall
have made payment to Omagine of Advances pursuant to the 2014 SEDA in the aggregate amount of $5,000,000 (the “Second SEDA
Amendment”). On April 22, 2014, in satisfaction of a $150,000 commitment fee due pursuant to the 2014 SEDA, Omagine issued
85,822 restricted Common Shares to YA Global II SPV, LLC, which is an affiliate of YA (the “Affiliate”). On September
21, 2016 in satisfaction of a $150,000 commitment fee due pursuant to the Second SEDA Amendment, Omagine issued 161,290 restricted
Common shares to the YA Affiliate. (See Note 6)
Pursuant
to the terms of the 2014 SEDA, Omagine may in its sole discretion, and upon giving written notice to YA (an “Advance Notice”),
periodically sell Common Shares to YA (“Shares”) at a per Share price (“Purchase Price”) equal to 95%
of the lowest daily volume weighted average price (the “VWAP”) for a Common Share as quoted by Bloomberg, L.P. during
the five (5) consecutive Trading Days (as such term is defined in the 2014 SEDA) immediately subsequent to the date of the relevant
Advance Notice (the “Pricing Period”).
Omagine
is not obligated to sell any Shares to YA but may, over the term of the 2014 SEDA and in its sole discretion, sell to YA that
number of Shares valued at the Purchase Price from time to time in effect that equals up to five million dollars ($5,000,000)
in the aggregate. YA is obligated under the 2014 SEDA to purchase such Shares from Omagine subject to certain conditions including
(i) Omagine filing a registration statement with the SEC to register the resale by YA of the Shares sold to YA under the 2014
SEDA (“Registration Statement”), (ii) the SEC declaring such Registration Statement effective (the date of such declaration
by the SEC being the “Effective Date”), (iii) Omagine certifying to YA at the time of each Advance Notice that Omagine
has performed all covenants and agreements to be performed and has complied with all obligations and conditions contained in the
2014 SEDA, (iv) periodic sales of Shares to YA must be separated by a time period of at least five Trading Days, and (v) the dollar
value of any individual periodic sale of Shares designated by Omagine in any Advance Notice may not exceed the greater of (a)
two hundred thousand dollars ($200,000), or (b) the average of the “Daily Value Traded” for each of the five (5) Trading
Days immediately preceding the date of the relevant Advance Notice, where Daily Value Traded is the product obtained by multiplying
the number representing the daily trading volume of Common Shares for such Trading Day by the VWAP for a Common Share on such
Trading Day.
Omagine
Project
The
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 just west of the capital city of Muscat and nearby Muscat International Airport (the “Omagine Site”).
LLC has signed a Development Agreement (“DA”) and a Usufruct Agreement (“UA”) for the Omagine Project
with the Government of Oman. (See “Development Agreement and Usufruct Agreement” below). The Omagine Project is planned
to be an integration of cultural, heritage, entertainment and residential components including a high-culture theme park and associated
buildings, shopping and retail establishments, restaurants and approximately 2,100 residences.
Development
Agreement and Usufruct Agreement
Omagine’s
60% owned subsidiary, LLC, signed a DA with the Government of Oman in October 2014 for the development in Oman by LLC of the Omagine
Project. The legal effectiveness of the DA was conditional upon its ratification by Oman’s Ministry of Finance, which Ratification
occurred in March 2015. On July 1, 2015 (the “Operative Date”), the Government and LLC entered into the UA with respect
to the land constituting the Omagine Site.
The
Land Rights give LLC extensive rights over the land constituting the Omagine Site including the right to sell such land on a freehold
basis. On July 2, 2015, the UA was registered by the Government and a Land Rights registration fee of 20,250 Omani Rials ($52,650)
was paid by LLC to the Government (and expensed in the consolidated statements of operations for the three months ended September
30, 2015), which registration legally perfected LLC’s ownership of the Land Rights.
The
five year period commencing on the Operative Date is a rent free period and thereafter LLC will pay annual rent to the Government
based on only the built but unsold commercial area of the Omagine Project (approximately 150,000 square meters) or approximately
45,000 Omani Rials ($117,000) per year based on the current annual per square meter fee of 0.300 Omani Rials ($0.78). The term
of the DA is 20 years and the term of the UA is 50 years (renewable) commencing from the Operative Date. The UA and the DA provisions
relevant to the UA survive the expiration of the term of the DA.
The
Operative Date of July 1, 2015 is the date from which all time periods for the execution by LLC of various tasks enumerated in
the DA are to be measured. The continued legal effectiveness of the DA subsequent to the Operative Date is dependent upon the
following milestone dates being achieved (any or all of which may be extended or waived by the Government): (1) LLC’s delivery
to the Government within twelve months from the Operative Date of a term sheet with lenders for the financing of the first phase,
any other phase or all of the Project, (2) LLC’s submission to the Ministry of Tourism of a social impact assessment within
8 months of the Operative Date and the Government’s approval thereof within 12 months of the Operative Date, (3) the Government’s
approval within 12 months of the Operative Date of the development control plan for the Omagine Project, and (4) the transformation
of LLC into a joint stock company within 12 months of the Operative Date. Company management has had informal discussions with
the concerned government officials and management is confident that given the present economic conditions in the region (of which
the Government is keenly aware), the Company will be granted an extension of time on many of such due dates similar to the extension
of the Operative Date to July 1. 2015 already previously granted by the Government.
Pursuant
to the DA, LLC must substantially complete the construction of the seven Pearl buildings and one hotel (the “Minimum Build
Obligation” or “MBO”) within 5 years of the Operative Date. Any material breach by LLC of its obligation to
perform the MBO would constitute an event of default under the DA. The DA specifies that the principal construction contracts
should be executed within one year of the Operative Date. LLC is required to provide written notice to the Government in certain
circumstances, such as LLC’s change in an anticipated milestone date that would result in a substantial achievement of work
to occur later than 60 days after such milestone date. The DA provides that the Government is required to grant reasonable requests
for the extension of the terms of the DA in such circumstances.
The
foregoing discussion of the terms of the DA and UA is not meant to be definitive or complete and is qualified in its entirety
by reference to the complete texts of the DA and UA as filed by the Company with the SEC.
Omagine
LLC Shareholder Agreement
Omagine
and JOL organized LLC in Oman and capitalized it with an initial investment of twenty thousand (20,000) Omani Rials ($52,000).
On April 20, 2011, Omagine, JOL and the New Investors entered into a shareholder agreement relating to LLC (the “Shareholder
Agreement”).
Pursuant
to the Shareholder Agreement, Omagine invested an additional 70,000 Omani Rials ($182,000) into LLC and agreed to make a further
additional investment into LLC of 210,000 Omani Rials ($546,000) after the execution of the DA (the “OMAG Final Equity Investment”).
As of December 31, 2015, Omagine had invested 300,000 Omani Rials ($780,000) into LLC. Pursuant to the Shareholder Agreement,
RCA invested the value of the Land Rights as a non-cash “payment-in-kind” capital contribution to LLC on July 2, 2015.
Further
pursuant to the Shareholder Agreement, the New Investors invested an aggregate of 60,000 Omani Rials ($156,000) into LLC and agreed,
subject to certain conditions precedent, to make further additional investments into LLC in the aggregate amount of 26,628,125
Omani Rials ($69,233,125).
The
CCC Deferred Investment Obligation and the OMAG Option
The
conditions precedent to CCC and RCA being required to make their agreed $69,233,125 aggregate additional investments (their “Deferred
Equity Investments”) into LLC include (1) the execution of a construction contract on or before July 1, 2016 between LLC
and CCC-Oman (the “CCC-Contract”) and (2) execution of a legally binding agreement between LLC and a lender pursuant
to which such lender agrees to provide Debt Financing for the first phase or any or all phases of the Omagine Project in an amount
sufficient to finance the first phase of the Omagine Project’s construction plus the installment payments due to Omagine
for its Success Fee and Pre-Development Expense Amount.(the “First Financing Agreement Date”).
The
First Financing Agreement Date occurred on November 29, 2015 but the CCC-Contract was not executed on or before July 1, 2016 nor
will it be executed and RCA and Omagine, Inc. are presently in negotiations with investors which may lead to an “Amended
and Restated Shareholder Agreement”.
The
failure to execute the CCC-Contract by July 1, 2016 does not relieve RCA of its continuing obligation under the Shareholder Agreement
(irrespective of such CCC-Contract failure) to make RCA’s approximately $20 million Deferred Investment into LLC; but it
may (under certain conditions) relieve CCC of its obligation under the Shareholder Agreement to make its approximately $49 million
Deferred Investment into LLC.
Additionally pursuant to the Shareholder
Agreement, such failure of the CCC-Contract to occur on or before July 1, 2016 automatically and without any further action required
by any party, triggered and activated on July 2, 2016 an option in favor of Omagine, Inc. (the “OMAG Option”) to purchase
all LLC Shares presently owned by CCC at any time of OMAG’s choosing prior to July 1, 2017 at a price equal to CCC’s
original purchase price of 22,500 Omani Rials ($58,500). Furthermore pursuant to the Shareholder Agreement, neither CCC-Oman nor
CCC-Panama is permitted to sell any of such LLC Shares presently owned by them prior to July 2, 2017 to any Person other than
Omagine, Inc., or to a purchaser designated by Omagine, Inc., in a sale made pursuant to the exercise of the OMAG Option. (See
Note 11 – Subsequent Events).
Although
the LLC Shareholders are presently negotiating an Amended and Restated Shareholder Agreement, there is no assurance that it will
happen. If agreement is not reached by the LLC Shareholders on the matters presently under discussion, or if alternative financing
is not obtained, or if alternative shareholder arrangements are not agreed, LLC may not be able to complete the Omagine Project
and may not be able to recover the $718,614,000 value of the Land Rights included in the Company’s Consolidated Balance
Sheet at December 31, 2016 (See Note 2).
Further
pursuant to the Shareholder Agreement, LLC is required to pay Omagine a Success Fee of $10,000,000 in five equal annual installments
beginning on or within 10 days after the Draw Date and a Pre-Development Expense Amount to be determined (presently estimated
at $17,920,114) payable 50% on or within 10 days after the Draw Date and 50% in five equal annual installments beginning on the
first anniversary of the Draw Date. The Draw Date is defined as “the date upon which LLC draws and receives the first amount
of Debt Financing pursuant to a Financing Agreement”. It is possible that the payment terms for the Pre-Development Expense
Amount and the Success Fee may be modified if and only if the LLC Shareholders agree to an Amended and Restated Shareholder Agreement.
NOTE
10 – RELATED PARTY TRANSACTIONS
At
December 31, 2016 and December 31, 2015, respectively, Omagine’s accounts payable included $88,800 and $32,148 due to its
officers and directors.
For
the years ended December 31, 2016 and 2015, the Company expensed a total of $84,000 and $223,000, respectively, for consulting
fees paid to an entity controlled by the Deputy Managing Director of LLC.
In
April 2016, the Company paid a $300,000 sponsorship fee to the same such entity controlled by the Deputy Managing Director of
Omagine LLC for the Company to serve as the Title Sponsor Partner of the 2016 World Summit on Innovation and Entrepreneurship
hosted by the United Nations at UN headquarters in New York City from May 19 to May 23, 2016. The total fees of $384,000 and $223,000
paid to this entity in 2016 and 2015 respectively, have been included in “Consulting Fees” in the accompanying Consolidated
Statements of Operations.
NOTE
11 – SUBSEQUENT EVENTS
On
January 4, 2017, Omagine contributed 123,782 restricted Common Shares at a non-discounted valuation of $76,250 to all eligible
employees of Omagine Inc. 401(k) Plan.
On
January 4, 2017, Omagine issued 81,169 restricted Common Shares at a non-discounted valuation of $50,000 to each of the Corporation’s
three independent directors based on the $0.616 closing price of the Corporation’s Common Stock on December 30, 2016 for
the 50% non-cash payment of the $100,000 annual retainer due them.
On
January 13, 2017, Omagine sold 18,051 restricted Common Shares to an accredited investor for proceeds of $10,000.
On
January 20, 2017, Omagine sold 25,000 restricted Common Shares to an accredited investor for proceeds of $12,500.
On
January 25,2017, Omagine sold 20,000 restricted Common Shares to an accredited investor for proceeds of $10,000.
On
February 1, 2017, the President of the Company purchased 100,000 restricted Common Shares based on the $0.62 closing price of
Omagine’s Common Stock on January 31, 2017 minus the Finnerty discount of 18% for proceeds of $51,000.
On
February 2, 2017, the three independent Company directors each purchased 94,340 restricted Common Shares and the Company’s
Vice President purchased 47,170 restricted Common Shares based on the $0.6414 closing price of Omagine’s Common Shares on
February 1, 2017 minus the Finnerty discount of 18% for aggregate proceeds of $175,000.
On
February 21, 2017, Omagine sold 200,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds
of $100,000.
On March 31, 2017, the Company issued
93,750 restricted shares of Common Stock to its investor relations vendor as payment in full for $37,500 of services rendered
for the period January 1, 2016 through March 31, 2017, and issued an additional 56,250 restricted shares of Common Stock to the
same vendor as payment in full for $22,500 of services to be rendered for the period April 1, 2017 through December 31, 2017.
On April 3, 2017 Omagine exercised its option
to purchase all of the shares of LLC owned by CCC-Oman and CCC-Panama. After the closing of the option purchase LLC will than
have only two shareholders – Omagine and RCA.
On April 4, 2017, the Company sold
266,667 restricted Common Shares to an accredited investor for proceeds of $80,000.
On April 11, 2017, pursuant to the SEDA,
Omagine sold 132,275 Common Shares to YA for proceeds of $50,000.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. - Other Expenses of Issuance and Distribution
The following table sets forth an itemization of all
estimated expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered:
Nature of Expense:
|
|
Amount
|
|
|
|
|
|
SEC Registration Fee
|
|
$
|
1,101
|
|
Accounting fees and expenses
|
|
$
|
1,000
|
|
Legal fees and expenses
|
|
$
|
2,000
|
|
Miscellaneous
|
|
$
|
250
|
|
Total*
|
|
$
|
4,351
|
|
* Estimated
Item 14. - Indemnification of Directors and Officers
Under our Certificate of Incorporation, our directors
will not be personally liable to us or our shareholders for monetary damages for any breach of fiduciary duties as directors,
except liability for the following:
|
●
|
Any breach of
their duty of loyalty to our Company or our stockholders.
|
|
|
|
|
●
|
Acts
or omissions not in good faith or which involve intentional misconduct or a knowing violation of law.
|
|
|
|
|
●
|
Unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation
Law.
|
|
|
|
|
●
|
Any
transaction from which the director derived an improper personal benefit.
|
We believe that these limitation of liability provisions
are necessary to attract and retain qualified persons as directors and officers.
The limitation of liability provisions in our Certificate
of Incorporation may discourage shareholders from bringing a lawsuit against our directors for breach of their fiduciary duty.
They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful,
might benefit us and other stockholders.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
Item 15. - Recent Sales of Unregistered Securities
In connection with the Prior SEDAs
and with the issuance by us of the Adjustable Warrants and the Common Shares listed below, we relied upon the exemption from securities
registration afforded by Section 4(2) of the Securities Act. No advertising or general solicitation was employed in offering the
securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business
associates of our Company or executive officers or directors of our Company and transfer was restricted by our Company in accordance
with the requirements of the Securities Act. In addition to representations by the below-referenced persons, we made independent
determinations that all of the below-referenced persons were accredited or sophisticated investors, that they were capable of
analyzing the merits and risks of their investment and that they understood the speculative nature of their investment. Furthermore,
all of the below-referenced persons were provided with access to our SEC filings. (See: Note 6 to OMAG’s unaudited financial
statements for the quarterly period ended September 30, 2016 included in this Prospectus).
On January 4, 2017, OMAG contributed
123,782 restricted Common Shares at the non-discounted valuation of $76,250 to all eligible employees of the Omagine, Inc. 401(k)
Plan.
On January 4, 2017, OMAG issued 81,169
restricted Common Shares valued at $50,000 to each of the Corporation’s three independent directors based on the $0.616
closing price of the Corporation’s Common Stock on December 30, 2016.
On January 13, 2017, OMAG sold 18,051
restricted Common Shares to an accredited investor for proceeds of $10,000
On January 20, 2017, OMAG sold 25,000
restricted Common Shares to an accredited investor for proceeds of $12,500.
On January 25, 2017, OMAG sold 20,000
restricted Common Shares to an accredited investor for proceeds of $10,000
On February 1, 2017, the president
of the Company purchased 100,000 restricted Common Shares based on the $0.62 closing price of OMAG’s Common Stock on January
31, 2017 minus the Finnerty discount of 18% for proceeds of $51,000.
On February 2, 2017, three independent
Company directors each purchased 94,340 restricted Common Shares and the Company’s vice president purchased 47,170 restricted
Common Shares based on the $$0.6414 closing price of Omagine’s Common Shares on February 1, 2017 minus the Finnerty discount
of 18% for aggregate proceeds of $175,000.
On February 21, 2017, OMAG sold 200,000
restricted Common Shares to an accredited investor for proceeds of $100,000.
On March 31, 2017, the Company
issued 93,750 restricted shares of Common Stock to its investor relations vendor as payment in full for $37,500 of services rendered
for the period January 1, 2016 through March 31, 2017, and issued an additional 56,250 restricted shares of Common Stock to the
same vendor as payment in full for $22,500 of services to be rendered for the period April 1, 2017 through December 31, 2017.
On April 4, 2017, the Company sold
266,667 restricted Common Shares to an accredited investor for proceeds of $80,000.
On April 11, 2017, pursuant to the
SEDA, OMAG sold 132,275 Common Shares to YA for proceeds of $50,000.
On May 30, 2017, the Company sold
25,253 restricted Common Shares to an accredited investor for proceeds of $7,500.
On June 6, 2017, the Company sold
64,977 restricted Common Shares to an accredited investor for proceeds of $10,000.
On June 7, 2017, the Company sold
20,000 restricted Common Shares to an accredited investor for proceeds of $3,078.
On April 5, 2016, the president of
the Company purchased 56,000 restricted Common Shares based on the $0.90 closing price of OMAG’s Common Stock on April 5,
2016 for proceeds of $50,400.
On April 6, 2016, three independent
directors of the Company each purchased 27,778 restricted Common Shares based on the $0.90 closing price of OMAG’s Common
Stock on April 5, 2016 for an aggregate of 83,334 Common Shares purchased for aggregate proceeds of $75,000.
On April 12, 2016, the Company sold
700,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds of $504,000.
On April 22, 2016, the holders of
a Convertible Note converted $30,984 of principal and accrued interest into 24,207 shares of Common Stock.
On July 29, 2016, the Company sold
10,684 restricted Common Shares to an accredited investor for proceeds of $10,000.
On August 19, 2016, the Company sold
13,245 restricted Common Shares to an accredited investor for proceeds of $10,000.
On August 31, 2016, the Company sold
11,312 restricted Common Shares to an accredited investor for proceeds of $10,000.
On September 21, 2016, the Company
issued 161,290 restricted Common Shares to YA Global SPV, Ltd., an affiliate of YA II PN, Ltd. (formerly YA Global Master SPV
Ltd.) in satisfaction of a $150,000 SEDA commitment fee in consideration for the two year extension of the 2014 SEDA.
On November 1, 2016, OMAG sold 20,000
restricted Common Shares to an accredited investor for proceeds of $10,000, and also sold 10,000 restricted Common Shares to an
independent director who is also an accredited investor for proceeds of $5,000.
On November 4, 2016, OMAG sold 10,000
restricted Common Shares to an accredited investor for proceeds of $5,000.
On November 8, 2016, OMAG sold an
aggregate of 20,000 restricted Common Shares to two accredited investors for aggregate proceeds of $10,000.
On November 14, 2016, OMAG sold 10,000
restricted Common Shares to an accredited investor for proceeds of $5,000.
On December 5, 2016, OMAG sold 300,000
restricted Common Shares to an accredited investor for proceeds of $150,000.
On December 5, 2016, OMAG sold 300,000
restricted Common Shares to an accredited investor for proceeds of $150,000.
On January 5, 2015, OMAG contributed
an aggregate of 36,483 restricted Common Shares valued at $76,250 to all eligible employees of the Omagine, Inc. 401(k) Plan.
On February 23, 2015, OMAG paid a
consultant 5,000 restricted Common Shares at the discounted valuation of $9,450.
On March 26, 2015, OMAG sold 6,281
restricted Common Shares to an accredited investor for proceeds of $10,000.
On March 26, 2015, OMAG sold 200,000
restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds of $210,000.
On May 16, 2015, OMAG sold 100,000 Common Shares to an
officer and director for proceeds of $120,000.
On June 29, 2015, the Non-US investor
(described below in connection with a June 24, 2014 transaction) exercised 158,228 Tempest Warrants at an exercise price of $1.58
for proceeds of $250,000 (which was collected July 2, 2015).
On June 29, 2015, OMAG paid a finder’s
fee to a non-U.S. Finder in connection with the aforementioned sale of 158,228 restricted Common Shares. Such finder’s fee
was satisfied by issuing such non-U.S. Finder 7,911 restricted Common Shares valued at $12,500.
On September 2, 2015 pursuant to
the SEDA, OMAG sold 17,696 Common Shares to YA for proceeds of $25,000.
On September 22, 2015, OMAG sold
10,000 restricted Common Shares to an accredited investor for proceeds of $14,700.
On October 8, 2015, pursuant to the
exercise of 2,375 Tempest Warrants which were transferred to an affiliate of Tempest, OMAG sold 2,375 restricted Common Shares
to such affiliate at $1.28 per Common Share for proceeds of $3,040.
On October 26, 2015,
OMAG sold an aggregate of 1,200,000 restricted Common Shares to three non-U.S. persons who are accredited investors (500,000 restricted
Common Shares each to two investors and 200,000 restricted Common Shares to one investor) for aggregate proceeds to OMAG of $1,200,000.
On November 16, 2015,
in connection with the aforementioned sale of 1,200,000 restricted Common Shares to three non-U.S. persons, OMAG paid a finder’s
fee to another non-U.S. person. This finder’s fee was satisfied by issuing such other non-U.S. person 33,334 restricted
Common Shares valued at $60,000 (based on the November 16, 2015 market price of $1.80 per share).
On November 16, 2015,
OMAG sold 20,886 restricted Common Shares to an accredited investor for proceeds to Omagine of $25,000.
On January 8, 2014
pursuant to the SEDA, OMAG sold 29,687 Common Shares to YA for proceeds of $25,000.
On January 10, 2014,
OMAG paid a law firm for legal services rendered by issuing such law firm 34,374 restricted Common Shares valued at $26,248, which
value was $10,346 in excess of the $15,812 owed by Omagine to such law firm at that date.
On January 17, 2014
pursuant to the SEDA, OMAG sold 24,912 Common Shares to YA for proceeds of $20,000.
On January 24, 2014
pursuant to the SEDA, OMAG sold 31,705 Common Shares to YA for proceeds of $25,000.
On February 13, 2014,
OMAG contributed an aggregate of 73,315 restricted Common Shares valued at $76,250 to all eligible employees of the Omagine Inc.
401(k) Plan.
On February 14, 2014
pursuant to the SEDA, OMAG sold 68,493 Common Shares to YA for proceeds of $150,000.
On March 14, 2014,
OMAG sold 70,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds of $70,000.
On March 14, 2014,
OMAG paid a finder’s fee to a non-U.S. person (a “non-U.S. Finder”) in connection with the aforementioned sale
of 70,000 restricted Common Shares. Such finder’s fee was satisfied by issuing such non-U.S. Finder 3,500 restricted Common
Shares valued at $6,101.
On March 21, 2014
pursuant to the SEDA, OMAG sold 13,597 Common Shares to YA for proceeds of $25,000.
On April 11, 2014,
OMAG sold 150,000 restricted Common Shares to a non-U.S. person who is an accredited investor for proceeds of $150,000. At June
30, 2014, such non-U.S. person owned 1,195,300 Common Shares or approximately 7.5% of the Common Shares then outstanding and 441,120
Strategic Warrants.
On April 11, 2014,
OMAG paid a finder’s fee to a non-U.S. Finder in connection with the aforementioned sale of 150,000 restricted Common Shares.
Such finder’s fee was satisfied by issuing such non-U.S. Finder 7,500 restricted Common Shares valued at $10,147.
On April 22, 2014,
OMAG issued 85,822 restricted Common Shares to an affiliate of YA in satisfaction of a $150,000 commitment fee due in connection
with the 2014 SEDA.
On May 6, 2014 pursuant
to the SEDA, OMAG sold 32,270 Common Shares to YA for proceeds of $50,000.
On June 24, 2014,
OMAG sold 362,308 restricted Common Shares and issued 1,000,000 Tempest Warrants to a non-U.S. person who is an accredited investor
for proceeds $422,100.
On June 24, 2014,
OMAG paid a finder’s fee to a non-U.S. Finder in connection with the aforementioned sale of 362,308 restricted Common Shares
and issuance of 1,000,000 Tempest Warrants. Such finder’s fee was satisfied by paying such non-U.S. Finder $20,000 in cash
and issuing such non-U.S. Finder 15,000 restricted Common Shares valued at $19,920.
On August 15, 2014,
pursuant to the exercise of 240,000 Tempest Warrants at $1.40 per share, OMAG sold 240,000 restricted Common Shares to a non-U.S.
person who is an accredited investor for proceeds $336,000.
On October 2, 2014,
pursuant to the exercise of 250,000 Tempest Warrants at $1.31 per share, OMAG sold 250,000 restricted Common Shares to a non-U.S.
person who is an accredited investor for proceeds $327,500.
On November 20, 2014,
OMAG sold an aggregate of 400,000 restricted Common Shares to two non-U.S. persons who are accredited investors (150,000 shares
to one investor and 250,000 shares to the other investor) for aggregate proceeds $800,000.
On November 21, 2014,
OMAG paid a finder’s fee to a non-U.S. Finder in connection with the aforementioned sale of 400,000 restricted Common Shares.
Such finder’s fee was satisfied by issuing such non-U.S. Finder 20,000 restricted Common Shares valued at $40,000.
On December 18, 2013 pursuant
to the SEDA, OMAG sold 18,277 Common Shares to YA for proceeds of $15,000.
On December 24, 2013, OMAG
paid a consultant for services rendered by issuing such consultant 19,988 restricted Common Shares valued at $18,189.
Item 16. - Exhibits and Financial Statement Schedules
The exhibits and financial statement schedules filed
as part of this Registration Statement are as follows:
See the Exhibit List below
|
(b)
|
Financial Statement
Schedules
|
No financial statement schedules are filed because
the required information is not applicable or is included in the consolidated financial statements or related notes.
The following exhibits are included as part of this Form S-1. References
to “Omagine” in this Exhibit List mean Omagine, Inc., a Delaware U.S. corporation.
Exhibit
|
|
|
Numbers
|
|
Description
|
3(i)
|
|
Restated
Certificate of Incorporation of OMAG dated June 2, 2010 (7)
|
3(ii)
|
|
By-laws
of OMAG (1)
|
4.1
|
|
The
Subscription and Warrant Agent Agreement dated January 31, 2012 between OMAG and Continental Stock Transfer & Trust Company
(11)
|
4.2
|
|
Specimen
of $5 Warrant Certificate (11)
|
4.3
|
|
Specimen
of $10 Warrant Certificate (11)
|
4.4
|
|
The
Tempest Warrants (17)
|
5.1
|
|
Legal
Opinion of Sichenzia Ross Ference Kesner LLP **
|
10.1
|
|
The
December 9, 2007 CCIC and CCC Agreement (3)
|
10.2
|
|
The
March 19, 2007 Hamdan Agreement (2)
|
10.3
|
|
The
December 2013 amendment extending the March 19, 2007 Hamdan Agreement (19)
|
10.4
|
|
The
December 2014 amendment extending the March 19, 2007 Hamdan Agreement (22)
|
10.5
|
|
The December 2015 amendment extending the March 19, 2007 Hamdan Agreement (34)
|
10.6
|
|
The
April 20, 2011 Shareholder Agreement (9)
|
10.7
|
|
The
Development Agreement dated October 2, 2014 (20)
|
10.8
|
|
The
Usufruct Agreement Dated July 1, 2015 (23)
|
10.9
|
|
An
English Translation of the Letter Dated July 2, 2015 (23)
|
10.10
|
|
Convertible
Promissory Note payable to Frank J. Drohan (14)
|
10.11
|
|
Convertible
Promissory Note payable to Charles P. Kuczynski (14)
|
10.12
|
|
Convertible
Promissory Note No. 1 payable to Louis Lombardo (14)
|
10.13
|
|
Convertible
Promissory Note No. 2 payable to Louis Lombardo (14)
|
10.14
|
|
The
December 8, 2008 SEDA Agreement between OMAG and YA (4)
|
10.15
|
|
The
May 4, 2011 SEDA Agreement between OMAG and YA (8)
|
10.16
|
|
The
June 21, 2011 Amendment Agreement to the May 4, 2011 SEDA Agreement (10)
|
10.17
|
|
The
May 22, 2012 Waiver Letter dated re: the May 4, 2011 SEDA Agreement (13)
|
Exhibit
|
|
|
Numbers
|
|
Description
|
10.18
|
|
The
April 22, 2014 SEDA Agreement between OMAG and YA (18)
|
10.19
|
|
The
July 16, 2014 Termination Agreement terminating the May 4, 2011 SEDA Agreement (17)
|
10.20
|
|
The
October 10, 2014 SEDA Amendment (21)
|
10.21
|
|
The
2013 YA Note Purchase Agreement and Amended Schedule III thereto (16)
|
10.22
|
|
The
2014 YA Note Purchase Agreement dated April 22, 2014 (18)
|
10.23
|
|
The
April 22, 2014 OMAG $500,000 Promissory Note in favor of YA (18)
|
10.24
|
|
The
April 22, 2014 Closing Statement signed by OMAG and YA (18)
|
10.25
|
|
The
2015 YA Note Purchase Agreement dated May 20, 2015 (24)
|
10.26
|
|
The
May 20, 2015 OMAG $500,000 Promissory Note in favor of YA (24)
|
10.27
|
|
The
May 20, 2015 Closing Statement signed by OMAG and YA (24)
|
10.28
|
|
The
March 2016 YA Note Purchase Agreement dated March 15, 2016 (26)
|
10.29
|
|
The
March 15, 2016 OMAG $600,000 Promissory Note in favor of YA (26)
|
10.30
|
|
The
March 15, 2016 Closing Statement signed by OMAG and YA (26)
|
10.31
|
|
The
Omagine Inc. 401(k) Adoption Agreement (5)
|
10.32
|
|
The
Amended Omagine Inc. 2003 Stock Option Plan (6)
|
10.33
|
|
The
Omagine Inc. 2014 Stock Option Plan (19)
|
10.34
|
|
The
Amended Omagine Inc. 2014 Stock Option Plan (25)
|
10.35
|
|
Lease
expiring December 31, 2015 between OMAG and the Empire State Building LLC (15)
|
10.36
|
|
The
Masraf Al Rayan Term Sheet (27)
|
10.37
|
|
The
Murabaha Facility Agreement between LLC and Masraf Al Rayan Bank (27)
|
10.38
|
|
The
June 2016 YA Note Purchase Agreement dated June 22, 2016 (28)
|
10.39
|
|
The
June 22, 2016 OMAG $400,000 Promissory Note in favor of YA (28)
|
10.40
|
|
The
June 22, 2016 Closing Statement signed by OMAG and YA (28)
|
10.41
|
|
The
September 20, 2016 SEDA Amendment Agreement between OMAG and YA (29)
|
10.42
|
|
The
November 14, 2016 Convertible Promissory Note between OMAG and St. George Investments LLC (30)
|
10.43
|
|
The
November 14, 2016 Note Purchase Agreement between OMAG and St. George Investments LLC (30)
|
10.44
|
|
Convertible
Promissory Note payable to SMAT Inc. (32)
|
10.45
|
|
Note
Purchase Agreement dated December 7, 2016 by and between OMAG and YA II PN, Ltd. (31)
|
10.46
|
|
Promissory
Note in the principal amount of $750,000 dated December 7, 2016 and issued by OMAG in favor of YA II PN, Ltd. (31)
|
10.47
|
|
Closing
Statement dated December 7, 2016 signed by Omagine, Inc. and YA II PN, Ltd. (31)
|
10.48
|
|
The December 2016 amendment extending the March 19, 2007 Hamdan Agreement (33)
|
10.49
|
|
The
May 8, 2017 Convertible Promissory Note between OMAG and JSJ Investments Inc. (34)
|
10.50
|
|
The
May 10, 2017 Amendment to Convertible Promissory Note between OMAG and St. George Investments LLC (34)
|
10.51
|
|
The July 3, 2017 Convertible Promissory Note payable to Jeffrey A. Grossman *
|
10.52
|
|
The July 12, 2017 Amendment to Convertible Promissory Note between OMAG and St. George Investments LLC*
|
14
|
|
The
Code of Ethics (3)
|
21
|
|
Subsidiaries
of the Registrant (14)
|
23.1
|
|
Consent of Michael T. Studer, CPA, P.C.*
|
23.3
|
|
Consent
of Sichenzia Ross Ference Kesner LLP (Included in Exhibit 5.1)
|
24
|
|
Power
of Attorney **
|
99.1
|
|
A
PDF Reference Copy of Exhibit 10.7, Development Agreement (20)
|
99.2
|
|
A
PDF Reference Copy of Exhibit 10.8, Usufruct Agreement (23)
|
99.3
|
|
A
PDF Reference Copy of the Original Arabic Version of Exhibit 10.9 (23)
|
99.4
|
|
The
Savills Final Valuation Report (23)
|
99.5
|
|
The
C&W Final Evaluation Report (23)
|
99.6
|
|
The
JLL Final Valuation Report (23)
|
|
|
|
EX-101.INS
|
|
XBRL
INSTANCE DOCUMENT*
|
EX-101.SCH
|
|
XBRL
TAXONOMY EXTENSION SCHEMA DOCUMENT*
|
EX-101.CAL
|
|
XBRL
TAXONOMY EXTENSION CALCULATION DOCUMENT*
|
EX-101.DEF
|
|
XBRL
TAXONOMY EXTENSION DEFINITION DOCUMENT*
|
EX-101.LAB
|
|
XBRL
TAXONOMY EXTENSION LABELS DOCUMENT*
|
EX-101.PRE
|
|
XBRL
TAXONOMY EXTENSION PRESENTATION DOCUMENT*
|
*
Filed herewith
|
**
Previously filed
|
(1)
|
Previously filed with the SEC on November 18, 2005 as an exhibit to Omagine’s quarterly Report on Form 10-QSB for the period ended September 30, 2005 and incorporated herein by reference thereto.
|
(2)
|
Previously filed with the SEC on April 17, 2007 as an exhibit to the Company’s Report on Form 10-KSB for the fiscal year ended December 31, 2006 and incorporated herein by reference thereto.
|
(3)
|
Previously filed with the SEC on April 14, 2008 as an exhibit to Omagine’s Report on Form 10-KSB for the fiscal year ended December 31, 2007 and incorporated herein by reference thereto.
|
(4)
|
Previously filed with the SEC on December 31, 2008 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
|
(5)
|
Previously filed with the SEC on February 25, 2009 as an exhibit to Omagine’s Report on Form 10-K for the fiscal year ended December 31, 2008 and incorporated herein by reference thereto.
|
(6)
|
Previously filed with the SEC on April 14, 2010 as an exhibit to Omagine’s Report on Form 10-K for the fiscal year ended December 31, 2009 and incorporated herein by reference thereto.
|
(7)
|
Previously filed with the SEC on July 20, 2010 as an exhibit to Omagine’s Report on Form 10-Q for the period ended June 30, 2010 and incorporated herein by reference thereto.
|
(8)
|
Previously filed with the SEC on May 5, 2011 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
|
(9)
|
Previously filed with the SEC on November 8, 2011 as an exhibit to Omagine’s quarterly Report on Form 10-Q for the period ended September 30, 2011 and incorporated herein by reference thereto and a reference copy was filed as an exhibit to Omagine’s current Report on Form 8-K filed with the SEC on May 31, 2011.
|
(10)
|
Previously filed with the SEC on June 21, 2011 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
|
(11)
|
Previously filed with the SEC on February 7, 2012 as an exhibit to Omagine’s registration statement on Form S-1/A (File No. 333-179040) and incorporated herein by reference thereto.
|
(12)
|
Previously filed with the SEC on January 17, 2012 as an exhibit to Omagine’s registration statement on Form S-1 (Commission File No. 333-179040) and incorporated herein by reference thereto.
|
(13)
|
Previously filed with the SEC on September 12, 2012 as an exhibit to Omagine’s Post-Effective Amendment No. 2 to its registration statement on Form S-1 (File No. 333-175168) and incorporated herein by reference thereto.
|
(14)
|
Previously filed with the SEC on January 22, 2013 as an exhibit to Omagine’s Amendment Number 2 on Form 10-K/A amending (a) Omagine’s Report on Form 10-K filed with the SEC on April 16, 2012 for the fiscal year ended December 31, 2011 (the “Original Filing”), and (b) Amendment No. 1 to the Original Filing filed on Form 10-K/A with the SEC on May 17, 2012, and incorporated herein by reference thereto.
|
(15)
|
Previously filed with the SEC on April 1, 2013 as an exhibit to Omagine’s Report on Form 10-K for the fiscal year ended December 31, 2012 and incorporated herein by reference thereto.
|
(16)
|
Previously filed the 2013 YA Note Purchase Agreement with the SEC on August 5, 2013 as an exhibit to the Company’s quarterly Report on Form 10-Q for the period ended June 30, 2013 and it is incorporated herein by reference thereto; and previously filed the Amended Schedule III to the 2013 YA Note Purchase Agreement with the SEC on November 19, 2013 as an exhibit to the Company’s quarterly Report on Form 10-Q for the period ended September 30, 2013 and it is incorporated herein by reference thereto.
|
(17)
|
Previously filed with the SEC on July 31, 2014 as an exhibit to Omagine’s quarterly Report on Form 10-Q for the period ended June 30, 2014 and incorporated herein by reference thereto.
|
(18)
|
Previously filed with the SEC on April 28, 2014 as an exhibit to the Company’s current Report on Form 8-K and incorporated herein by reference thereto.
|
(19)
|
Previously filed with the SEC on April 15, 2014 as an exhibit to the Company’s Report on Form 10-K for the fiscal year ended December 31, 2013 and incorporated herein by reference thereto.
|
(20)
|
Previously filed with the SEC on October 2, 2014 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
|
(21)
|
Previously filed with the SEC on October 10, 2014 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
|
(22)
|
Previously filed with the SEC on January 8, 2015 as an exhibit to Omagine’s registration statement on Form S-1/A (File No. 333-199383) and incorporated herein by reference thereto.
|
(23)
|
Previously filed with the SEC on July 9, 2015 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
|
(24)
|
Previously filed with the SEC on May 21, 2015 as an exhibit to Omagine’s current Report on Form 8-K and incorporated herein by reference thereto.
|
(25)
|
Previously filed with the SEC on November 23, 2015 as an exhibit to the Company’s Report on Form 10-Q for the period ended September 30, 2015 and incorporated by reference thereto.
|
(26)
|
Previously filed with the SEC on March 16, 2016 as an exhibit to the Company’s current Report on Form 8-K and incorporated herein by reference thereto.
|
(27)
|
Previously filed with the SEC on April 14, 2016 as an exhibit to the Company’s Report on Form 10-K for the fiscal year ended December 31, 2015 and incorporated herein by reference thereto.
|
(28)
|
Previously filed with the SEC on June 23, 2016 as an exhibit to the Company’s current report on Form 8-K and incorporated herein by reference thereto.
|
(29)
|
Previously filed with the SEC on September 21, 2016 as an exhibit to the Company’s current report on Form 8-K and incorporated herein by reference thereto.
|
(30)
|
Previously filed with the SEC on November 21, 2016 as an exhibit to the Company’s Report on Form 10-Q for the period ended September 30, 2016 and incorporated by reference thereto.
|
(31)
|
Previously filed with the SEC on December 8, 2016 as an exhibit to the Company’s current report on Form 8-K and incorporated herein by reference thereto.
|
(32)
|
Previously filed with the SEC on January 10, 2017 as an exhibit to Omagine’s registration statement on Form S-1/A (File No. 333-199383) and incorporated herein by reference thereto.
|
(33)
|
Previously filed with the SEC on February 6, 2017 as an exhibit to Omagine’s registration statement on Form S-1/A (File No. 333-199383) and incorporated herein by reference thereto.
|
(34)
|
Previously filed
with the SEC on May 22, 2017 as an exhibit to the Company’s report on Form 10-Q for the period ended March 31, 2017 and incorporated
herein by reference thereto.
|
Item 17. - Undertakings
The undersigned Registrant hereby undertakes to:
1)
|
File,
during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement to:
|
|
|
|
i.
|
Include any
Prospectus required by Section 10(a)(3) of the Securities Act;
|
|
|
|
|
ii.
|
Reflect
in the Prospectus any facts or events which, individually or together, represent a fundamental change in the information in
the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of the securities offered would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of Prospectus filed with the Commission pursuant
to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the
effective Registration Statement; and
|
|
|
|
|
iii.
|
Include any
additional or changed material information on the plan of distribution.
|
|
|
|
2)
|
For
determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the initial bona fide offering.
|
|
|
3)
|
File
a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
|
|
|
4)
|
For
purposes of determining any liability under the Securities Act, treat the information omitted from the form of Prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this Registration Statement as
of the time it was declared effective.
|
|
|
5)
|
For
the purpose of determining liability of the Registrant under the Securities Act to any purchaser in the initial distribution
of the securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant
pursuant to this Registration Statement, regardless of the underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant
will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
|
|
i.
|
Any
preliminary Prospectus or Prospectus of the undersigned Registrant relating to the offering required to be filed pursuant
to the Rule 424;
|
|
|
|
|
ii.
|
Any
free writing Prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred
to by the undersigned Registrant;
|
|
|
|
|
iii.
|
The
portion of any other free writing Prospectus relating to the offering containing material information about the undersigned
Registrant or its securities provided by or on behalf of the undersigned Registrant; and
|
|
|
|
|
iv.
|
Any
other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
|
|
|
|
6)
|
For
determining any liability under the Securities Act, treat each post-effective amendment that contains a form of Prospectus
as a new registration statement for the securities offered in the Registration Statement, and that offering of the securities
at that time as the initial bona fide offering of those securities.
|
|
|
7)
|
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
|
|
|
8)
|
Each
Prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering shall be deemed to be
part of and included in the Registration Statement as of the date it is first used after effectiveness. Provided, however,
that no statement made in a registration statement or Prospectus that is part of the Registration Statement or made in a document
incorporated or deemed incorporated by reference into the Registration Statement or Prospectus that is part of the Registration
Statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement
that was made in the Registration Statement or Prospectus that was part of the registration statement or made in any document
immediately prior to such date of first use.
|
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the Registrant has duly caused this post-effective amendment to this Registration Statement on Form S-1/A to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on July 17, 2017.
|
OMAGINE,
INC.
|
|
A
Delaware corporation
|
|
|
|
|
By:
|
/s/
Frank J. Drohan
|
|
|
Frank J. Drohan
|
|
|
Chief Executive
Officer,
Chief Financial Officer and Chairman
(Principal Executive Officer and
Principal Financial Officer)
|
Signature
|
|
|
|
Date
|
|
|
|
|
|
/s/
Frank J. Drohan
|
|
Chief Executive
Officer, Chief Financial Officer and
|
|
July
17, 2017
|
Frank
J. Drohan
|
|
Chairman (Principal Executive Officer and
Principal Financial Officer)
|
|
|
|
|
|
|
|
/s/
Charles P. Kuczynski
|
|
Vice-President,
Secretary and Director
|
|
July
17, 2017
|
Charles P. Kuczynski
|
|
|
|
|
|
|
|
|
|
/s/
Louis J. Lombardo
|
|
Director
|
|
July
17, 2017
|
Louis J. Lombardo
|
|
|
|
|
|
|
|
|
|
/s/
Jack A. Smith
|
|
Director
|
|
July
17, 2017
|
Jack A. Smith
|
|
|
|
|
|
|
|
|
|
/s/
Alan M. Matus
|
|
Director
|
|
July
17, 2017
|
Alan M. Matus
|
|
|
|
|
|
|
|
|
|
/s/
William Hanley
|
|
Controller;
Principal Accounting Officer
|
|
July
17, 2017
|
William Hanley
|
|
|
|
|
II-8