OMTK 10-Q
Omnitek Engineering Corp (OMTK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: |
Commission File Number
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices, Zip Code)
(
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbols(s) | Name of each exchange on which registered |
N/A |
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As of November 19, 2021, the Registrant had
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TABLE OF CONTENTS | ||
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PART I - FINANCIAL INFORMATION |
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Condensed Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020 | 4 | |
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Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations | 18 | |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk | 22 | |
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PART II - OTHER INFORMATION | ||
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 23 | |
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMNITEK ENGINEERING CORP. | |||||||
Condensed Balance Sheets | |||||||
September 30, |
| December 31, | |||||
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ASSETS | |||||||
CURRENT ASSETS |
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| Cash | $ | |
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| Accounts receivable, net |
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| Accounts receivable - related parties |
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| Inventory, net |
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| Contract assets |
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| Deposits |
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| Total Current Assets |
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Property and equipment, net |
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OTHER ASSETS |
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| Operating lease right-of-use asset |
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| Other noncurrent Assets |
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| Total Other Assets |
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| TOTAL ASSETS | $ | |
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LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||
CURRENT LIABILITIES |
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| Accounts payable and accrued expenses | $ | |
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| Accrued management compensation |
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| Accounts payable - related parties |
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| Note payable - related party |
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| Convertible notes payable – related party |
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| Contract liabilities |
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| Current portion, long-term debt |
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| Operating lease liabilities |
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| Customer deposits |
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| Total Current Liabilities |
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LONG-TERM LIABILITIES |
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Convertible notes payable - related party, net of current portion |
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Operating lease liabilities – long-term |
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Loans payable – SBA, net of current portion |
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Total Long-term Liabilities |
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Total Liabilities |
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STOCKHOLDERS' DEFICIT |
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| Common stock, |
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| Additional paid-in capital |
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| Accumulated deficit |
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| Total Stockholders' Deficit |
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| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | |
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The accompanying notes are an integral part of these condensed unaudited financial statements. | |||||||
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OMNITEK ENGINEERING CORP. | ||||||||||||||
Condensed Statements of Operations (unaudited) | ||||||||||||||
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| For the Three |
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| For the Nine |
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| Months Ended |
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| September 30, 2021 |
| September 30, 2020 |
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| September 30, 2020 | |||||
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REVENUES |
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COST OF GOODS SOLD |
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GROSS MARGIN |
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OPERATING EXPENSES |
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| General and administrative |
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| Research and development |
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| Depreciation and amortization |
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| Total Operating Expenses |
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LOSS FROM OPERATIONS |
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OTHER INCOME (EXPENSE) |
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| Other income |
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| Loss on abandoned asset |
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| Extinguishment of liability |
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| Interest expense |
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| Total Other Income (Expense) |
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LOSS BEFORE INCOME TAXES |
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INCOME TAX EXPENSE |
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NET LOSS |
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BASIC AND DILUTED LOSS PER SHARE |
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WEIGHTED AVERAGE NUMBER |
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OF COMMON SHARES OUTSTANDING |
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-BASIC AND DILUTED |
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The accompanying notes are an integral part of these condensed unaudited financial statements. | ||||||||||||||
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Page 5
OMNITEK ENGINEERING CORP. | ||||||||
Condensed Statements of Cash Flows (unaudited) | ||||||||
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| For the Nine |
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Months Ended |
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| September 30, 2021 |
| September 30, 2020 | |||||
OPERATING ACTIVITIES |
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| Net loss | $ | ( |
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| Adjustments to reconcile net loss to |
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| net cash used in operating activities: |
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| Amortization and depreciation expense |
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| Loss on abandoned asset |
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| Options and warrants issued for services |
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| Extinguishment of liability |
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| Amortization of ROU asset |
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| Inventory reserve |
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| Changes in operating assets and liabilities: |
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| Accounts receivable |
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| Contract assets |
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| Deposits |
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| Inventory |
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| Customer deposits |
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| Other noncurrent assets |
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| Accrued management compensation |
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| Operating lease liability |
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| Net Cash Used in Operating Activities |
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INVESTING ACTIVITIES |
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| Purchase of fixed assets |
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| Net Cash Used in Investing Activities |
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FINANCING ACTIVITIES |
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| Proceeds from loans payable - SBA |
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| Proceeds from convertible notes payable - related party |
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| Payments on related party note payable |
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| Proceeds from stock subscription |
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| Payments on convertible note payable |
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| Net Cash Provided by Financing Activities |
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| NET CHANGE IN CASH |
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| CASH AT END OF PERIOD | $ |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOWS |
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| CASH PAID FOR: |
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| Interest | $ |
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NON CASH FINANCING ACTIVITIES: |
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| Common stock issued for stock subscription | $ |
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| Adoption of ASC 842 – ROU Asset | $ |
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| Adoption of ASC 842 – ROU Liability | $ | ( |
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The accompanying notes are an integral part of these condensed unaudited financial statements.
Page 6
OMNITEK ENGINEERING CORP.
Condensed Statements of Stockholders’ Deficit (unaudited)
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| Common | Additional |
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| Accumulated |
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Shares |
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Balance, December 31, 2020 |
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Value of options and warrants |
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issued for services |
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Deposit – stock purchase agreement |
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Net loss for the three months ended March 31, 2021 |
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Balance, March 31, 2021 |
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Value of options issued for services | |
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Net loss for three months ended June 30, 2021 | |
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Balance, June 30, 2021 |
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Value of options issued for services | |
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Net loss for three months ended September 30, 2021 | |
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Balance, September 30, 2021 | |
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| Common | Additional |
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Balance, December 31, 2019 |
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Value of options issued for services |
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Deposit – stock purchase agreement |
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Net loss for the three months ended |
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March 31, 2020 |
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Balance, March 31, 2020 |
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Value of options issued for services |
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Net loss for the three months ended |
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June 30, 2020 |
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Balance, June 30, 2020 |
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Value of options issued for services |
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Common stock issued for subscription |
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Net loss for the three months ended September 30, 2020 |
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Balance, September 30, 2020 |
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The accompanying notes are an integral part of these condensed unaudited financial statements.
Page 7
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2021
(unaudited)
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements have been prepared by the Company without audit. 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 at September 30, 2021 and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2020 audited financial statements. The results of operations for the periods ended September 30, 2021 and September 30, 2020 are not necessarily indicative of the operating results for the full years.
In December 2019, a novel strain of coronavirus disease (“COVID-19”) was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The extent of COVID-19’s impact on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company’s business. However, if the pandemic continues to evolve into a severe worldwide health crisis, the disease could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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 could differ from those estimates.
Revenue Recognition
In general, revenue is recognized when control of the promised goods is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for the goods or services. In order to achieve that core principle, a five-step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue allocated to each performance obligation when we satisfy the performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue recognition.
We recognize revenue on various products and services as follows:
Products - The Company recognizes revenue from the sale of products (e.g., filters and engine components) as performance obligations are satisfied. This type of revenue is primarily generated from the sale of finished product to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks and rewards transfer (i.e., the performance obligation has been satisfied).
Contracts – Revenues are recognized as performance obligations are satisfied over time (also known as percentage-of-completion method), measured by either achievement of milestones or the ratio of costs incurred up to a given date to estimated total costs for each contract. Contract costs include all direct material, labor, subcontract and other costs.
Page 8
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2021
(unaudited)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and associated change orders and claims, including those changes arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of Omnitek’s contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.
Performance Obligations Satisfied Over Time
Revenues for Omnitek’s long-term contracts that satisfy the criteria for over time recognition (formerly known as percentage-of-completion method) is recognized as the work progresses. The majority of the revenue is derived from long-term engine development agreements that typically span between 12 to 24 months. Omnitek’s long-term contracts will continue to be recognized over time because our typical contract is for a customized asset with no alternative use and generally the Company has a right to payment for work completed to date. Under the new revenue standard, the cost-to-cost measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as the Company incurs costs. Contract costs include labor and material. Revenue from products and services transferred to customers over time accounted for
Performance Obligations Satisfied at a Point in Time
Revenue from product sales is recognized at a point in time. These sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risk and rewards transfer. Upon fulfilment of the performance obligation, the customer is provided an invoice demonstrating transfer of control to the customer. Revenue from goods and services transferred to customers at a point in time accounted for
Assurance-type warranties are the only warranties provided by the Company and, as such, Omnitek does not recognize revenue on warranty-related work. Omnitek generally provides a one-year warranty for products that it sells. Warranty claims historically have been insignificant.
Pre-contract costs are generally not incurred by the Company
Contract Estimates
Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, Omnitek estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognizes that profit over the life of the contract.
Variable Consideration
The transaction price for contracts may include variable consideration, which includes increases to transaction price for approved and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. Variable consideration historically has been insignificant.
Page 9
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2021
(unaudited)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Disaggregation of Revenue
The following table presents Omnitek’s revenues disaggregated by region and product type for the three months ended September 30, 2021 and September 30, 2020:
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| Consumer | Long-term |
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| Consumer | Long-term |
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Domestic |
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International |
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The following table presents Omnitek’s revenues disaggregated by region and product type for the nine months ended September 30, 2021 and September 30, 2020:
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| Consumer | Long-term |
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| Consumer | Long-term |
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Page 10
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2021
(unaudited)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventory
Inventory is stated at the lower of cost or market. The Company’s inventory consists of finished goods and raw material and is located in Vista, California, consisting of the following:
| September 30, |
| December 31, | ||
Location : Vista, CA | 2021 |
| 2020 | ||
Raw materials |
| $ |
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| $ |
Finished goods |
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Allowance for obsolete inventory |
| ( |
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| ( |
Total |
| $ |
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| $ |
The Company has established an allowance for obsolete inventory. Expense for obsolete inventory was $
Property and Equipment
Property and equipment at September 30, 2021 and December 31, 2020 consisted of the following:
| September 30, |
| December 31, | ||
2021 |
| 2020 | |||
Production equipment | $ |
| $ | ||
Computers/Office equipment |
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Tooling equipment |
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Leasehold Improvements |
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Less: accumulated depreciation |
| ( |
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| ( |
Total | $ |
| $ | ||
Depreciation expense for the periods ended September 30, 2021 and September 30, 2020 was $
Basic and Diluted Loss per Share
The computation of basic earnings per share of common stock is based on the weighted average number of shares outstanding during the periods presented. The computation of fully diluted earnings per share includes common stock equivalents outstanding at the balance sheet date. The Company had
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 740, Income Taxes ("Topic 740"), which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized.
Page 11
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2021
(unaudited)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company's financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of September 30, 2021 and December 31, 2020 the Company had no accrued interest or penalties related to uncertain tax positions. The Company files an income tax return in the U.S. federal jurisdiction and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2012.
Operating Lease Right-of-Use Assets and Liabilities
Operating lease right-of-use asset represents the Company’s right to use an underlying asset for the lease term and operating lease liability represents its obliation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized when the Company takes possession of the leased property (the Commencement Date) based on the present value of lease payments over the lease term. Rent expense on noncancellable leases containing known future scheduled rent increases is recorded on a straight-line basis over the term of the lease beginning on the Commencement Day.
Liquidity and Going Concern
Historically, the Company has incurred net losses and negative cash flows from operations. As of September 30, 2021, the Company had an accumulated deficit of $
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.
NOTE 3 – CONTRACT ASSETS AND LIABILITIES
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) on the balance sheet. For Omnitek’s long-term contracts, amounts are generally billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, Omnitek sometimes receives advances or deposits from its customers, before revenue is recognized, resulting in billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities).
Page 12
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2021
(unaudited)
NOTE 3 – CONTRACT ASSETS AND LIABILITIES (Continued)
The table below reconciles the net excess billings to the amounts included in the balance sheets at those dates:
| September 30, |
| December 31, | ||
2021 |
| 2020 | |||
Contract assets | $ |
| $ | ||
Contract liabilities | $ | ( |
| $ | ( |
Net amount of contract liabilities in excess of contract assets | $ | ( |
| $ | ( |
NOTE 4 – LEASES
The Company’s leases consist of an operating lease for general office space and warehouse facilities. The Company recognizes rent expense for this lease on a straight-line basis over the lease term. Because the lease does not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the lease Commencement Date in determining the present value of future lease payments.
On June 3, 2021, the Company entered into a lease for the premises located at 1345 Specialty Drive #E, Vista, CA, containing approximately 11,751 square feet of rentable area. The lease commenced on July 1, 2021 and expires on June 30, 2026. The monthly base rent under the lease is $9,988 per month and monthly operating expenses during the term of the lease, subject to adjustment under the lease, is $1,175 per month. On Commencement Date the Company recognized a ROU asset of $
In agreement with the Company’s former landlord, the Company vacated the previous leasehold effective July 15, 2021. As of September 30, 2021 the outstanding balance of back rent, included in accounts payable, was $
As of September 30, 2021, maturities of operating lease liabilities were as follows:
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Thereafter |
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Total lease payments |
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Less: imputed interest |
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Total lease liability |
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Less: current lease liability |
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Long-term lease liability |
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NOTE 5 - RELATED PARTY TRANSACTIONS
Accounts Receivable – Related Parties
As of September 30, 2021 and December 31, 2020, the Company was owed $
Accounts Payable – Related Parties
The Company regularly incurs expenses that are paid to related parties and purchases goods and services from related parties. As of September 30, 2021 and December 31, 2020, the Company owed a board member’s company for such expenses, goods and services in the amounts of $
Page 13
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2021
(unaudited)
NOTE 5 - RELATED PARTY TRANSACTIONS (Continued)
Accrued Management Compensation
For the periods ended September 30, 2021 and December 31, 2020, the Company’s president was due amounts for services performed for the Company.
As of September 30, 2021 and December 31, 2020 the accrued management fees consisted of the following:
| September 30, |
| December 31, |
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| 2021 |
| 2020 |
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Amounts due to the president |
| $ |
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| $ |
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Total |
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| $ |
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NOTE 6 – NOTES PAYABLE - RELATED PARTY
Convertible Notes – Related Parties
On June 4, 2021 the Company issued a convertible promissory note for $
On June 4, 2021 the Company issued a convertible promissory note for $
| September 30, |
| December 31, | ||||
2021 |
| 2020 | |||||
Convertible Note payable, related parties |
| $ |
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| $ | ||
Less current portion |
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| ( |
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Total |
| $ |
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| $ | | |
Page 14
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2021
(unaudited)
NOTE 6 – NOTES PAYABLE - RELATED PARTY (Continued)
Notes Payable – Related Party
On January 19, 2017 the Company issued a promissory note for $
| September 30, |
| December 31, | ||||
| 2021 |
| 2020 | ||||
Note payable, related party |
| $ |
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| $ | ||
Total |
| $ |
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| $ | ||
NOTE 7 – DEBT
Loans payable – SBA
Economic Injury Disaster Loan
On April 21, 2020, the Company obtained a loan (the “SBA EIDL Loan”) under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) adminitstered by the U.S. Small Business Administration. The Company received total proceeds of $
The SBA EIDL Loan is evidenced by a Loan Authorization and Agreement, a Secured Promissory Note (the “Note” and Security Agreement. Interest on the unpaid principal balance of the Note shall accrue at the rate of three and 75/100 percent (
Payroll Protection Program
On May 28, 2020, the Company received funds pursuant to a Paycheck Protection Program loan (the “SBA PPP Loan”) from Riverview Bank, under recently enacted CARES Act administered by U.S. Small Business Administration. The Company received total proceeds of $
requirements of the CARES Act, the Company will use proceeds from the SBA PPP Loan primarily for payroll costs. The SBA PPP Loan was scheduled to mature on
On March 3, 2021 the Company received funds pursuant to a Paycheck Protection Program loan (the “PPP loan”) from LIBERTY CP2, SPV, LP, under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the SBA. The Company received total proceeds of $
Page 15
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2021
(unaudited)
As of September 30, 2021, and December 31, 2020 Debt consisted of the following:
| September 30, |
| December 31, | ||||
| 2021 |
| 2020 | ||||
Loan payable – SBA EIDL |
| $ |
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| $ | ||
Loan payable – SBA PPP |
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Less current portion |
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| ( | |
Total |
| $ |
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| $ | ||
NOTE 8 - STOCK OPTIONS AND WARRANTS
During the nine months ended September 30, 2021 and 2020, the Company granted
On August 3, 2011 the Board of Directors adopted the Omnitek Engineering Corp. 2011 Long-term Incentive Plan (the “2011 Plan”), under which
The Company recognizes compensation expense for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value. The Company estimates the fair value of stock options using a Black-Scholes option pricing model which requires management to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock. When determining expected volatility, the Company considers the historical performance of the Company’s stock, as well as implied volatility. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant, based on the options’ expected term. The expected term of the options is based on the Company’s evaluation of option holders’ exercise patterns and represents the period of time that options are expected to remain unexercised. The Company uses historical data to estimate the timing and amount of forfeitures.
The following table presents the assumptions used to estimate the fair values of the stock options granted:
September 30, 2021 |
| September 30, 2020 | |
Expected volatility |
| ||
Expected dividends |
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Expected term |
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Risk-free interest rate |
|
Page 16
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2021
(unaudited)
NOTE 8 - STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of the status of the options and warrants granted at September 30, 2021 and December 31, 2020 and changes during the periods then ended is presented below:
| September 30, |
| December 31, | ||||||
| 2021 |
| 2020 | ||||||
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|
| Weighted-Average |
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| Weighted-Average |
| Shares |
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| Exercise Price |
| Shares |
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| Exercise Price |
Outstanding at beginning of year |
| $ | |
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| $ | | |
Granted |
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Exercised |
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Expired or cancelled |
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| ( |
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Outstanding at end of period |
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Exercisable |
| $ | |
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| $ | | |
A summary of the status of the options and warrants outstanding at September 30, 2021 is presented below:
Range of Exercise Prices |
| Number Outstanding |
| Weighted-Average Remaining Contractual Life |
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| Number Exercisable |
| Weighted-Average Exercise Price |
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NOTE 9 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the dates of these financial statements were used. The Company confirms non-occurrence of any subsequent agreement or events.
Page 17
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the condensed financial statements and related notes to the condensed financial statements included elsewhere in this periodic report. Some of the statements under “Management’s Discussion and Analysis,” “Description of Business” and elsewhere herein may include forward-looking statements which reflect our current views with respect to future events and financial performance. These statements include forward-looking statements both with respect to us specifically and the alternative fuels engines industry in general. Statements which include the words “expect,” “intend,” “plan,” “believe,” “project,” “anticipate,” “will,” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise. The safe harbor provisions of the federal securities laws do not apply to any forward-looking statements contained in this registration statement.
All forward-looking statements address such matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise.
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements you read herein reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our written and oral forward-looking statements attributable to us or individuals acting on our behalf and such statements are expressly qualified in their entirety by this paragraph.
Results of Operations
For the three months ended September 30, 2021 and September 30, 2020
Revenues were $311,909 for the three months ended September 30, 2021 compared with $215,867 for the three months ended September 30, 2020, an increase of $96,042. The increase in revenues for the period relates primarily to increased international sales. Sales further benefited from a one-time gain due to the liquidation of certain obsolete inventory sold during the company’s relocation to another facility with less warehouse space during the third quarter.
Cost of sales was $165,286 for the three months ended September 30, 2021 compared with $122,624 for the three months ended September 30, 2020, an increase of $42,662. Our gross margin percentage was 47% for the three months ended September 30, 2021 compared with 43% in the same period in 2020. The higher margin for the three months ended September 30, 2021 relates primarily to product mix.
Operating expenses for the three months ended September 30, 2021 were $161,715 compared with $182,220 in the same period in 2020, a decrease of $20,505 or 11%. General and administrative expense for the three months ended September 30, 2021 was $145,811 compared with $164,549 for the three months ended September 30, 2020. Major components of general and administrative expenses for the three months ended September 30, 2021 were professional fees of $16,100, rent expense of $33,097, and salary and wages of $54,698 This compares to professional fees of $11,757, rent expense of $22,240 and salaries and wages of $55,532 for the three months ended September 30, 2020. For the three months ended September 30, 2021 research and development outlays decreased to $15,555 compared with $17,535 for the three months ended September 30, 2020.
Our net loss for the three months ended September 30, 2021 was $5,128, or ($0.00) per share, compared with a net loss of $94,169, or ($0.00) per share, for the three months ended September 30, 2020. The decreased net loss during the three months ended September 30, 2021 over the same period a year earlier, was primarily due to higher revenues and a one-time gain due to the liquidation of certain obsolete inventory sold during the company’s relocation to another facility with less warehouse space. For the three months ended September 30, 2021 Other income was $17,918 compared to $0 for the three months ended September 30, 2020. This was due to a one-time sale that was not in the ordinary course of business.
Page 18
Results for the three months ended September 30, 2021 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $2,619 and depreciation and amortization of $349. For the three-month period a year earlier non-cash expenses included options and warrants granted in the amount of $1,689 and depreciation and amortization of $136.
For the nine months ended September 30, 2021 and September 30, 2020
Revenues increased to $758,329 for the nine months ended September 30, 2021 from $650,771 for the nine months ended September 30, 2020, an increase of $107,558 or 17%. The increase in revenues for the period relates primarily to increased international sales. Sales further benefited from a one-time gain due to the liquidation of certain obsolete inventory sold during the company’s relocation to another facility with less warehouse space during the third quarter.
Our cost of sales increased to $456,169 for the nine months ended September 30, 2021 from $402,604 for the nine months ended September 30, 2020, an increase of $53,565. Our gross margin was 40% for the nine months ended September 30, 2021 compared with 38% in 2020.
Our operating expenses for the nine months ended September 30, 2021 were $494,418 compared to $586,927 in 2020, a decrease of $92,509 or 16%. General and administrative expense for the nine months ended September 30, 2021 was $444,688 as compared to $519,300 for the nine months ended September 30, 2020. Major components of general and administrative expenses for the nine months ended September 30, 2021 were professional fees of $46,727, rent expense of $87,255 and salary and wages of $159,846. This compares with professional fees of $62,290, rent expense of 104,519, and salary and wages of $172,073 for the nine months ended September 30, 2020. Research and development outlays were decreased to $49,110 for the nine months ended September 30, 2021 compared with $67,221 for the nine months ended September 30, 2020.
Our net loss for the nine months ended September 30, 2021 was $94,704, or ($0.00) per share, compared to a net loss of $353,371, or ($0.02) per share, for the nine months ended September 30, 2020. The decreased net loss over the same period a year earlier was primarily due to higher revenues and a one-time gain due to the liquidation of certain obsolete inventory during the nine months ended September 30, 2021.
Results for the nine months ended September 30, 2021 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $16,493, depreciation and amortization of $620 and the inventory reserve adjustment of $(121,572). For the nine-month period a year earlier, non-cash expenses included the value of options and warrants granted of $13,767, depreciation and amortization of $407 and inventory reserve adjustment of $49,681. For the nine months ended September 30, 2021 Other income was $17,985 compared to $874 for the nine months ended September 30, 2020. This was due to a one-time sale that was not in the ordinary course of business.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash provided by financing activities and available working capital. Additionally, from time to time we may raise funds from the equity capital markets to fund our research and development programs, expansion of our business and general operations.
At September 30, 2021, our current liabilities totaled $1,566,714 and our current assets totaled $813,615, resulting in negative working capital of $753,099.
We have no firm commitments or obligations for capital expenditures. However, substantial discretionary expenditures may be required to enable us to conduct existing and planned product research, design, development, manufacturing, marketing and distribution of our products. We may need to raise additional capital to facilitate growth and support our long-term product development, manufacturing, and marketing programs. The Company has no established bank-financing arrangements. Therefore, it is possible that we need to seek additional financing through subsequent future public or private sales of our securities, including equity securities. We may also seek
Page 19
funding for the development, manufacturing, and marketing of our products through strategic partnerships and other arrangements with corporate partners. There can be no assurance, however, that such collaborative arrangements or additional funds will be available when needed, or on terms acceptable to us, if at all. If adequate funds are not available, we may be required to curtail one or more of our research and development programs.
We have historically incurred significant losses, which have resulted in a total accumulated deficit of $21,560,345 at September 30, 2021, of which $5,604,135 is a direct result of derivative expense and change in fair value of derivative liability and is unrelated to our operations or cash flow.
Operating Activities
We realized a negative cash flow from operations of $181,989 for the nine months ended September 30, 2021 compared with a negative cash flow of $269,694 during the nine months ended September 30, 2020.
Included in the operating loss of $94,704 for the nine months ended September 30, 2021 are non-cash expenses, which are not a drain on our capital resources. During the period, these non-cash expenses include the value of options and warrants granted in the amount of $16,493, depreciation and amortization of $620 and the inventory reserve adjustment of $(121,572).
Financing Activities
We realized a positive cash flow from financing activities of $146,223 for the nine months ended September 30, 2021 compared with positive cash flow of $288,000 for the nine months ended September 30, 2020. The positive cash flow for the nine months ended September 30, 2021 relates primarily to proceeds from long-term debt. The positive cash flow for the nine months ended September 30, 2020 relates to proceeds from long-term debt.
Investing Activities
We realized a negative cash flow from investing activities of $10,840 for the nine months ended September 30, 2021 compared with zero cash flows from investing activities for the nine months ended September 30, 2020. The negative cash flow for the nine months ended September 30, 2021 relates to expenditures for leasehold improvements and equipment.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies and Estimates
Accounting Method and Use of Estimates
The Company's financial statements are prepared using the accrual method of accounting. The preparation of financial statements in conformity with generally accepted accounting principles 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 could differ from those estimates. Areas where significant estimates are required include the following:
Accounts Receivable
Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts.
Page 20
Inventory
Inventory is stated at the lower of cost or market. The Company’s inventory consists of finished goods and raw materials. The Company identifies items in its inventory that have not been sold in a timely manner. Accordingly, the Company has established an allowance for the cost of such obsolete inventory.
Long-lived assets
The Company assesses the recoverability of its long lived assets annually and whenever circumstances would indicate that there may be an impairment. The Company compares the estimated undiscounted future cash flows to the carrying value of the long-lived assets to determine if an impairment has occurred. In the event that an impairment has occurred, the Company recognizes the impairment immediately.
Contract assets and liabilities
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) on the balance sheet. For Omnitek’s long-term contracts, amounts are generally billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, Omnitek sometimes receives advances or deposits from its customers, before revenue is recognized, resulting in billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities).
Revenue Recognition
In general, revenue is recognized when control of the promised goods is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for the goods or services. In order to achieve that core principle, a five-step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue allocated to each performance obligation when we satisfy the performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue recognition.
We recognize revenue on various products and services as follows:
Products - The Company recognizes revenue from the sale of products (e.g., filters and engine components) as performance obligations are satisfied. This type of revenue is primarily generated from the sale of finished product to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks and rewards transfer (i.e., the performance obligation has been satisfied).
Contracts – Revenues are recognized as performance obligations are satisfied over time (also known as percentage-of-completion method), measured by either achievement of milestones or the ratio of costs incurred up to a given date to estimated total costs for each contract. Contract costs include all direct material, labor, subcontract and other costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and associated change orders and claims, including those changes arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of Omnitek’s contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.
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Performance Obligations Satisfied Over Time
Revenues for Omnitek’s long-term contracts that satisfy the criteria for over time recognition (formerly known as percentage-of-completion method) is recognized as the work progresses. The majority of the revenue is derived from long-term engine development agreements that typically span between 12 to 24 months. Omnitek’s long-term contracts will continue to be recognized over time because our typical contract is for a customized asset with no alternative use and generally the Company has a right to payment for work completed to date. Under the new revenue standard, the cost-to-cost measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as the Company incurs costs. Contract costs include labor and material. Revenue from products and services transferred to customers over time accounted for 0% and 0% of revenue for the periods ended September 30, 2021 and September 30, 2020, respectively.
Performance Obligations Satisfied at a Point in Time
Revenue from product sales is recognized at a point in time. These sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risk and rewards transfer. Upon fulfilment of the performance obligation, the customer is provided an invoice demonstrating transfer of control to the customer. Revenue from goods and services transferred to customers at a point in time accounted for 100% and 100% of revenue for the periods ended September 30, 2021 and September 30, 2020, respectively.
Assurance-type warranties are the only warranties provided by the Company and, as such, Omnitek does not recognize revenue on warranty-related work. Omnitek generally provides a one-year warranty for products that it sells. Warranty claims historically have been insignificant.
Pre-contract costs are generally not incurred by the Company.
Contract Estimates
Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, Omnitek estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognizes that profit over the life of the contract.
Variable Consideration
The transaction price for contracts may include variable consideration, which includes increases to transaction price for approved and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. Variable consideration historically has been insignificant.
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our
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management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as a result of the material weaknesses described below, our disclosure controls and procedures were not effective as of September 30, 2021. The material weakness, which relates to internal control over financial reporting, that was identified is: due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis.
Changes in Internal Controls
There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
We are not a party to any pending legal proceeding. No federal, state or local governmental agency is presently contemplating any proceeding against the Company. No director, executive officer or affiliate of the Company or owner of record or beneficially of more than five percent of the Company's common stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2.UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 5. OTHER INFORMATION
In December 2019, a novel strain of coronavirus disease (“COVID-19”) was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The extent of COVID-19’s impact on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company’s business. However, if the pandemic continues to evolve into a severe worldwide health crisis, the disease could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.
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ITEM 6. EXHIBITS
(a)Documents filed as part of this Report.
1. Financial Statements. The condensed unaudited Balance Sheet of Omnitek Engineering Corp. as of September 30, 2021 and the audited balance sheet as of December 31, 2020, the condensed unaudited Statements of Operations for the three month periods ended September 30, 2021 and 2020, the condensed unaudited Statements of Cash Flows for the nine month periods ended September 30, 2021 and 2020, and the condensed unaudited Statements of Stockholders’ Equity (Deficit) as of September 30, 2021 and 2020, together with the notes thereto, are included in this Quarterly Report on Form 10-Q.
3. Exhibits. The following exhibits are either filed as a part hereof or are incorporated by reference. Exhibit numbers correspond to the numbering system in Item 601 of Regulation S-K.
Exhibit |
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| Description of Exhibit |
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3.1 |
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3.2 |
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31.1 |
| CEO certification pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 (3) |
31.2 |
| CFO certification pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 (3) |
32.1 |
| CEO and CFO certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3) |
101 |
| The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 formatted in Extensible Business Reporting Language ("XBRL"): (i) the balance sheets (unaudited); (ii) the statements of operations (unaudited); (iii) the statements of cash flows (unaudited); and, (iv) related notes. |
(1)Previously filed on Form on Form 10 on April 27, 2010
(2)Previously filed on Form 8-K on August 2, 2012
(3)Filed herewith
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Dated: November 22, 2021 |
| /s/ Werner Funk |
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| By: Werner Funk |
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| Its: Chief Executive Officer Principal Executive Officer |
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Dated: November 22, 2021 |
| /s/ Werner Funk |
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| By: Werner Funk |
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