Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The financial statements for fiscal years 2008 and 2007 have been audited by the Company's independent certified public accountants. All of the Company's operations were conducted through its wholly-owned subsidiaries, JOL, Contact and Ty- Breakers.

During 2008, the Company concentrated on concluding the Development Agreement with the Government of Oman with respect to the Omagine Project proposed by JOL.

Critical Accounting Policies

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The policies discussed below are considered by management to be critical to an understanding of our financial statements because their application places the most significant demands on management's judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

Revenue Recognition. Revenue was recognized at Contact and Ty- Breakers when goods were shipped to customers from an outside warehouse. The method of revenue recognition at JOL will be determined by management when and if it becomes likely that JOL will begin generating revenue.

Valuation Allowance for Deferred Tax Assets. The carrying value of deferred tax assets assumes that the Company will not be able to generate sufficient future taxable income to realize the deferred tax assets, based on management's estimates and assumptions.

General Statement: Factors that may affect future results

With the exception of historical information, the matters discussed in Management's Discussion and Analysis of Financial Condition and Results of Operations contain "forward-looking statements" (as that term is understood under the 1995 Private Securities Litigation Reform Act) that involve various risks and

uncertainties. Typically, these forward-looking statements are indicated by words such as "anticipates", "expects", "believes", "plans", "could", and similar words and phrases. Factors that could cause the Company's actual results to differ materially from management's projections, forecasts, estimates and expectations include, but are not limited to, the following:

* Failure of the Project Company to sign the Development Agreement with the Government of Oman.

* Failure of the Project Company to obtain the necessary Construction Financing required to design, build and operate the Omagine Project.

* Inability of the Company to secure additional financing;

* Unexpected economic or political changes in the United States or abroad; and

* The imposition of new restrictions or regulations by government agencies in the U.S or abroad that affect the Company's business activities.

The following discussion highlights the Company's business activities during fiscal years 2008 and 2007.

Results of Operations:

Fiscal Year Ended December 31, 2008 Compared to Fiscal Year Ended December 31, 2007

The present nature of JOL's business is such that it is not expected to generate revenue until after the occurrence of an event - the development of the Omagine Project - which, as of the date hereof, is not certain to occur. (See: " Business - Products, Services - The Omagine Project").

The Company's total revenue in 2008 was $-0- a decrease

of $20,590 (100%) from fiscal year 2007. This decrease was attributable to the absence of apparel net sales in 2008 versus apparel net sales of $20,590 in 2007. The Company discontinued its Contact and Ty-Breakers apparel business in March 2008. The Company is now focusing all of its efforts on JOL's real estate development and entertainment business.

The cost of sales for apparel was 111% in fiscal 2007. The Company will hereafter rely on its JOL subsidiary's operations for future revenue generation. Management is presently examining other possible sources of revenue for JOL which, subject to the Development Agreement being executed, may be added to JOL's operations.

Selling and marketing expenses were $24,917 during 2008, compared to $36,107 in 2007. This decrease in 2008 of $11,190 (31%) was primarily due to the discontinuation of Contact's apparel business. Assuming a positive outcome of the current discussions regarding the Omagine Project, the Company is expected to incur significant expenses related to marketing, public relations and promotional expenditures in the future.

General and administrative expenses of $1,283,086 in fiscal 2008 were $306,807 (31%) higher than the $976,279 incurred in fiscal 2007. This increase was primarily attributable to the increases in 2008 of: salaries, payroll taxes, fringe benefits and pension expense ($229,254); stock option expense ($40,442); legal fees ($140,293); professional/consulting fees ($105,495) offset by decreases in insurance ($6,013); printing and stationary (35,129); rent ($33,207); stockholder relations ($106,132); travel ($6,938); and other expenses ($21,258).

The Company sustained a net loss of $1,307,630 during 2008 as compared to a net loss of $1,043,190 during 2007. This increase of $264,440 in the Company's loss was due primarily to the increased General and Administrative expenses mentioned above.

No expenses related to capital expenditures were incurred during fiscal year 2008. Depending upon the outcome of current negotiations and the availability of resources, the Company may incur significant expenses related to capital expenditures during fiscal 2009.

The Company may accept future Ty-Breaker orders subject to time constraints and ability to fill such orders.

Liquidity and Capital Resources

In 2008 the Company experienced a negative cash flow of $663,634. This was due to the Company's negative cash flow from operating activities of $898,262 offset by its positive cash flow from financing activities of $234,628 consisting of the $235,200 proceeds from the sale by the Company of shares of its Common Stock less the $572 decrease in loans to the Company from Officers and Directors.

The Company incurred net losses of $1,307,630; $1,043,190 and $767,951 in fiscal years 2008, 2007 and 2006, respectively.

At December 31, 2008, the Company had a working capital deficit of ($609,991), compared to working capital of $181,078 at December 31, 2007. This $791,069 decrease in the Company's working capital is attributable to the following:

(a) $663,634 decrease in cash and equivalents primarily due to the net loss for 2008;

(b) $238,728 increase in convertible notes payable with accrued interest;

(c) $57,738 increase in accounts payable;

(d) $30,601 increase in prepaid expenses and other current assets;

(e) $572 decrease in loans to the Company from officers and directors;

(f) $107,536 decrease in accrued officer payroll;

(g) $30,322 decrease in accrued expense and other current liabilities

At December 31, 2008, the Company had $90,285 in current assets, consisting of $49,511 in cash and $40,774 of prepaid rent.

The Company's current liabilities at December 31, 2008 totaled $700,276, consisting of $238,728 convertible notes payable and accrued interest, $362,713 of accounts payable and accrued expenses, $26,335 due to officers and directors and $72,500 in accrued payroll. Of the $700,276 of current liabilities at December 31, 2008, $337,563 or 48% represents amounts which are due to officers and/or directors.

The $898,262 of funds used by operating activities during 2008 were used primarily to fund the net loss of $1,307,630 [less the non-cash charges totaling $281,361] plus the increases in prepaid expenses and other current assets ($30,601) and the decreases in accrued officers' payroll ($107,536) and accrued expenses and other current liabilities ($30,322). Operating funds were primarily provided by increases in convertible notes payable with accrued interest ($238,728) and accounts payable ($57,738).

Funds totaling $234,628 were provided by financing activities during 2008 from proceeds realized from the sale of Common Stock to investors ($225,000); proceeds from the sale of Common Stock pursuant the exercise of Common Stock options ($10,200) offset by a decrease of loans and advances to the Company from officers and directors ($572).

As a result of the foregoing, the Company had a cash balance at December 31, 2008 of $49,511 as compared to a cash balance of $713,145 at December 31, 2007.

The Company will rely upon the business of its JOL subsidiary for revenue growth.

The continuation of JOL's efforts to organize Omagine SAOC and to sign the Development Agreement is also contingent upon the receipt by the Company of the necessary financing to fund the Company's operations.

On December 22, 2008, Omagine entered into a Standby Equity Distribution Agreement (the "SEDA") with YA Global Investments, L.P. ("YA"). The term of the SEDA is for two years and pursuant to its terms Omagine may, at its discretion, periodically sell to YA shares of Omagine's Common Stock in up to $200,000 tranches of equity for a total purchase price over the term of

the SEDA of up to five million dollars ($5,000,000). For each share of Common Stock purchased under the SEDA, YA will pay to Omagine ninety-five percent (95%) of the lowest daily volume weighted average price of Omagine's Common Stock as quoted by Bloomberg, LP, during the five (5) consecutive Trading Days after the date Omagine provides an Advance Notice to YA (as such terms are defined in the SEDA). YA's obligation to purchase shares of Common Stock under the SEDA is subject to certain conditions, including (i) Omagine obtaining an effective registration statement for shares of Common Stock sold under the SEDA and (ii) the amount for each equity tranche designated by Omagine not exceeding two hundred thousand dollars ($200,000).

Prior to the date hereof, the Company has to a great extent relied on the net proceeds from private placement sales of its Debentures and equity securities to fund its operations. The Company intends to utilize the SEDA to fund its operations as necessary and to fund the Company's capital contribution to the Project Company. The Company also intends to utilize the SEDA to fund advances to the Project Company during the Project Company's initial start-up phase. All such advances, together with other Omagine Project development expenses incurred by the Company over the past several years are expected to be re-paid to the Company by the Project Company on or before the Financial Closing Date.

The Company cannot sell shares of its Common Stock under the SEDA to YA until the SEC declares effective the registration statement filed recently by the Company. There can be no assurance given at this time that such registration statement will be declared effective or that the Company will be able to raise or secure the significant amounts of financing necessary for it to execute its presently conceived business plan. The Company's inability to secure or arrange additional funding to implement JOL's business plan will significantly affect the Company's ability to continue operations.

All unexercised Common Stock purchase warrants held by the holders of Series B Preferred Stock expired on July 31, 2007. As of December 31, 2008, Omagine had no warrants outstanding.

In June of 2008 the Company issued 6,148 shares of its Common Stock at $1.22 per share in a private placement to an individual

in payment of account payable to this individual in the amount of $7,500.56.

In August of 2008 the Company sold 125,000 shares of the Company's Common Stock at $.40 per share to Salvatore J. Bucchere, a director of the Company in a private placement and received proceeds of $50,000.

In September of 2008 the Company sold 62,500 shares of the Company's Common Stock at $.40 per share to Robert Goldstine in a private placement and received proceeds of $25,000.

In December of 2008 the Company sold 300,000 shares of the Company's Common Stock at $.50 per share to Mohammed K. Al-Sada in a private placement and received proceeds of $150,000.

In December of 2008 the Company issued 100,960 shares of its Common Stock to all eligible employees of the Omagine, Inc.
401(k) Plan.

In December of 2008 the Company issued 30,000 shares of its Common Stock to Salvatore J. Bucchere, a director, upon his exercise of 30,000 stock options at an exercise price of $0.17 per share. The Company received proceeds of $5,100 from Mr. Bucchere.

In December of 2008 the Company issued 30,000 shares of its Common Stock to Kevin O'C. Green, a director, upon his exercise of 30,000 stock options at an exercise price of $0.17 per share. The Company received proceeds of $5,100 from Mr. Green.

In December of 2008 the Company issued 229,148 shares of its Common Stock to YA as a fee.

Impact of Inflation

The general level of inflation both in the U.S and Oman has been relatively low during the last several fiscal years and has not had a significant impact on the Company.

Forward Looking Statements

As discussed just prior to Item 1, "Business", certain statements made in this report on Form 10-K are "forward- looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results implied by such forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company's actual results could materially differ from those set forth in the forward-looking statements. Certain factors that could cause such differences include but are not limited to: the uncertainty of success associated with JOL's ongoing efforts to sign the Development Agreement with the Government of the Sultanate of Oman relating to the Omagine Project; the uncertainty associated with political events in the Middle East in general and with the continuing worldwide financial crisis in particular; and the success or failure of Omagine's and the Project Company's efforts to secure additional financing.