OMNITEK ENGINEERING CORP
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
June 30, 2012
|
Commission File Number 000-53955
OMNITEK ENGINEERING CORP.
(Exact name of Registrant as specified in its charter)
|
California
|
33-0984450
|
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
1945 S. Rancho Santa Fe Road, San Marcos, California 92078
(Address of principal executive offices, Zip Code)
(760) 591-0089
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) 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. Yes
x
No
o
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 (§ 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). Yes
x
No
o
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
|
o
|
Accelerated filer
|
o
|
|
Non-accelerated filer
|
o
|
Smaller reporting company
|
x
|
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
x
As of August 6, 2012, the Registrant had 19,749,582 shares of its no par value Common Stock outstanding.
TABLE OF CONTENTS
|
Page
|
||
|
PART I - FINANCIAL INFORMATION
|
||
|
Item 1.
|
Financial Statements
|
|
|
Condensed Balance Sheets as of June 30, 2012 and December 31, 2011
|
1
|
|
|
Condensed Statements of Operations for the three months and six months ended
|
||
|
June 30, 2012 and June 30, 2011
|
2
|
|
|
Condensed Statements of Cash Flows for the six months ended
|
||
|
June 30, 2012 and June 30, 2011
|
3
|
|
|
Notes to the Condensed Financial Statements
|
4
|
|
|
Item 2.
|
Management’s Discussion and Analysis of the Financial Condition and Results of Operations
|
9
|
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
13
|
|
Item 4.
|
Controls and Procedures
|
13
|
| PART II - OTHER INFORMATION | ||
|
Item 1.
|
Legal Proceedings
|
14
|
|
Item 1A.
|
Risk Factors |
14
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
14
|
|
Item 3.
|
Defaults Upon Senior Securities
|
15
|
|
Item 4.
|
[Removed and Reserved]
|
15
|
|
Item 5.
|
Other Information
|
15
|
|
Item 6.
|
Exhibits |
16
|
FINANCIAL INFORMATION
|
OMNITEK ENGINEERING CORP.
|
||||||||
|
Condensed Balance Sheets
|
||||||||
|
ASSETS
|
||||||||
|
June 30,
|
December 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
(unaudited)
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash
|
$ | 3,524,094 | $ | 31,196 | ||||
|
Accounts receivable, net
|
86,124 | 13,506 | ||||||
|
Accounts receivable -related party
|
26,847 | 16,715 | ||||||
|
Inventory
|
922,677 | 1,020,117 | ||||||
|
Prepaid expense
|
837 | 2,512 | ||||||
|
Deposits
|
176,001 | 41,943 | ||||||
|
Total Current Assets
|
4,736,580 | 1,125,989 | ||||||
|
FIXED ASSETS, net
|
11,777 | 13,249 | ||||||
|
OTHER ASSETS
|
||||||||
|
Long-term investments, net
|
1,222,019 | - | ||||||
|
Intellectual property, net
|
6,737 | 8,256 | ||||||
|
Total Other Assets
|
1,228,756 | 8,256 | ||||||
|
TOTAL ASSETS
|
$ | 5,977,113 | $ | 1,147,494 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Accounts payable and accrued expenses
|
$ | 65,154 | $ | 57,828 | ||||
|
Accrued expenses - related parties
|
292,517 | 351,580 | ||||||
|
Accounts payable - related parties
|
2,624 | 2,568 | ||||||
|
Customer deposits
|
291,736 | 286,608 | ||||||
|
Total Current Liabilities
|
652,031 | 698,584 | ||||||
|
Total Liabilities
|
652,031 | 698,584 | ||||||
|
STOCKHOLDERS' EQUITY
|
||||||||
|
Common stock, 125,000,000 shares authorized no par value
|
||||||||
|
19,749,590 and 17,137,812 shares issued and outstanding,
|
||||||||
|
respectively
|
8,196,061 | 2,659,299 | ||||||
|
Additional paid-in capital
|
4,731,728 | 4,213,313 | ||||||
|
Accumulated deficit
|
(7,602,707 | ) | (6,423,702 | ) | ||||
|
Total Stockholders' Equity
|
5,325,082 | 448,910 | ||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 5,977,113 | $ | 1,147,494 | ||||
|
The accompanying notes are an integral part of these condensed financial statements.
|
||||||||
Page 1
|
OMNITEK ENGINEERING CORP.
|
||||||||||||||||
|
Condensed Statements of Operations
|
||||||||||||||||
|
(unaudited)
|
||||||||||||||||
|
For the Three
|
For the Three
|
For the Six
|
For the Six
|
|||||||||||||
|
Months Ended
|
Months Ended
|
Months Ended
|
Months Ended
|
|||||||||||||
|
June 30
|
June 30
|
June 30
|
June 30
|
|||||||||||||
|
2012
|
2011
|
2012
|
2011
|
|||||||||||||
|
REVENUES
|
$ | 380,531 | $ | 374,490 | $ | 686,900 | $ | 989,746 | ||||||||
|
COST OF GOODS SOLD
|
149,449 | 202,738 | 350,061 | 485,368 | ||||||||||||
|
GROSS MARGIN
|
231,082 | 171,752 | 336,839 | 504,378 | ||||||||||||
|
OPERATING EXPENSES
|
||||||||||||||||
|
General and administrative
|
1,198,267 | 243,232 | 1,435,590 | 509,089 | ||||||||||||
|
Research and development expense
|
48,254 | 32,481 | 77,148 | 59,946 | ||||||||||||
|
Depreciation and amortization expense
|
1,533 | 20,848 | 2,990 | 41,241 | ||||||||||||
|
Total Operating Expenses
|
1,248,054 | 296,561 | 1,515,728 | 610,276 | ||||||||||||
|
LOSS FROM OPERATIONS
|
(1,016,972 | ) | (124,809 | ) | (1,178,889 | ) | (105,898 | ) | ||||||||
|
OTHER INCOME (EXPENSE)
|
||||||||||||||||
|
Interest expense
|
(82 | ) | - | (490 | ) | - | ||||||||||
|
Interest income
|
1,174 | 1 | 1,174 | 1 | ||||||||||||
|
Total Other Income (Expense)
|
1,092 | 1 | 684 | 1 | ||||||||||||
|
LOSS BEFORE INCOME TAXES
|
(1,015,880 | ) | (124,808 | ) | (1,178,205 | ) | (105,897 | ) | ||||||||
|
INCOME TAX EXPENSE
|
- | 800 | 800 | |||||||||||||
|
NET LOSS
|
$ | (1,015,880 | ) | $ | (124,808 | ) | $ | (1,179,005 | ) | $ | (106,697 | ) | ||||
|
BASIC AND DILUTED LOSS PER SHARE
|
$ | (0.05 | ) | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.01 | ) | ||||
|
BASIC AND DILUTED WEIGHTED AVERAGE
|
||||||||||||||||
|
NUMBER OF COMMON SHARES OUTSTANDING
|
19,661,571 | 16,471,747 | 18,429,153 | 16,068,031 | ||||||||||||
|
The accompanying notes are an integral part of these condensed financial statements.
|
||||||||||||||||
Page 2
|
OMNITEK ENGINEERING CORP.
|
||||||||
|
Condensed Statements of Cash Flows
|
||||||||
|
(unaudited)
|
||||||||
|
For the Six
|
For the Six
|
|||||||
|
Months Ended
|
Months Ended
|
|||||||
|
June 30,
|
June 30,
|
|||||||
|
2012
|
2011
|
|||||||
|
OPERATING ACTIVITIES
|
|
|||||||
|
Net loss
|
$ | (1,179,005 | ) | $ | (106,697 | ) | ||
|
Adjustments to reconcile net loss to
|
||||||||
|
net cash used by operating activities:
|
||||||||
|
Amortization and depreciation expense
|
9,195 | 41,241 | ||||||
|
Options and warrants granted
|
518,415 | 126,534 | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(72,618 | ) | 8,684 | |||||
|
Accounts receivable–related parties
|
(10,132 | ) | (18,357 | ) | ||||
|
Deposits
|
(134,058 | ) | 7,569 | |||||
|
Prepaid expense
|
1,675 | - | ||||||
|
Inventory
|
97,440 | (40,719 | ) | |||||
|
Accounts payable and accrued expenses
|
7,326 | (76,006 | ) | |||||
|
Customer deposits
|
5,128 | (58,004 | ) | |||||
|
Accounts payable-related parties
|
56 | - | ||||||
|
Accrued expenses-related parties
|
(59,063 | ) | (27,500 | ) | ||||
|
Net Cash Used in Operating Activities
|
(815,641 | ) | (143,255 | ) | ||||
|
INVESTING ACTIVITIES
|
||||||||
|
Purchase of long-term investments
|
(1,228,223 | ) | - | |||||
|
Purchase of property and equipment
|
- | (15,472 | ) | |||||
|
Net Cash Used in Investing Activities
|
(1,228,223 | ) | (15,472 | ) | ||||
|
FINANCING ACTIVITIES
|
||||||||
|
Issuance of common stock for cash
|
5,536,762 | 150,000 | ||||||
|
Repayment of note payable
|
(40,000 | ) | - | |||||
|
Exercise of warrants and options for cash
|
- | 87,500 | ||||||
|
Proceeds of note payable
|
40,000 | - | ||||||
|
Net Cash Provided by Financing Activities
|
5,536,762 | 237,500 | ||||||
|
NET INCREASE IN CASH
|
3,492,898 | 78,773 | ||||||
|
CASH AT BEGINNING OF PERIOD
|
31,196 | 34,944 | ||||||
|
CASH AT END OF PERIOD
|
$ | 3,524,094 | $ | 113,717 | ||||
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
|
||||||||
|
CASH PAID FOR:
|
||||||||
|
Interest
|
$ | 490 | $ | - | ||||
|
Income taxes
|
$ | 800 | $ | 800 | ||||
|
The accompanying notes are an integral part of these condensed financial statements.
|
||||||||
Page 3
OMNITEK ENGINEERING CORP.
Condensed Notes to Financial Statements
June 30, 2012
(unaudited)
The accompanying 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 June 30, 2012, 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, 2011 audited financial statements. The results of operations for the periods ended June 30, 2012 and 2011 are not necessarily indicative of the operating results for the full years.
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.
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.
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 San Marcos, California at June 30, 2012 and December 31, 2011 consisted of the following:
|
June 30, 2012
|
December 31, 2011
|
||||||||
|
Raw materials
|
$ | 1,026,971 | $ | 946,762 | |||||
|
Finished goods
|
504,781 | 674,198 | |||||||
|
Peru (finished goods)
|
18,454 | 18,454 | |||||||
|
In transit
|
- | 8,232 | |||||||
|
Allowance for obsolete inventory
|
(627,529 | ) | (627,529 | ) | |||||
|
Total
|
$ | 922,677 | $ | 1,020,117 | |||||
The Company has established an allowance for obsolete inventory. Expense for obsolete inventory was $-0- and $-0-, for the periods ended June 30, 2012 and December 31, 2011, respectively.
Page 4
OMNITEK ENGINEERING CORP.
Condensed Notes to Financial Statements
June 30, 2012
(unaudited)
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.
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.
At the adoption date of November 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized. 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 June 30, 2012 and December 31, 2011 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 2007.
Held to Maturity Investments
During the three months ended June 30, 2012, the Company purchased various corporate bonds. The Company intends to hold the bonds to maturity. Accordingly, the Company has recorded and is amortizing the discount on the bonds over the remaining life.
|
June 30, 2012
|
December 31, 2011
|
|||||
|
Amortized cost basis
|
$ | 1,222,019 | $ | - | ||
|
Aggregate fair value
|
1,205,510 | - | ||||
|
Gross unrecognized holding (gains) losses
|
16,509 | - | ||||
|
Other than temporary impairment recognized in other
comprehensive income
|
- | - | ||||
|
|
||||||
|
Net carrying amount
|
$ | 1,222,019 | $ | - | ||
Future maturities of held to maturity investments:
|
2013
|
$250,000
|
|
2014
|
900,000
|
|
Total
|
$1,150,000
|
Page 5
OMNITEK ENGINEERING CORP.
Condensed Notes to Financial Statements
June 30, 2012
(unaudited)
Accounts Receivable – Related Parties
During the years ended December 31, 2007 through 2010, the Company a minority interest in various distributors in exchange for use of the Company’s name and logo. As of December 31, 2011, the Company owned a 15% interest in Omnitek Engineering Thailand Co. Ltd., a 20% interest in Omnitek Peru S.A.C., and a 5% interest in Omnitek Stationary, Inc. As of June 30, 2012 and December 31, 2011, the Company was owed $26,847 and $16,715, respectively, by these related parties for the purchase of products.
Accounts Payable – Related Parties
The Company regularly incurs expenses that are paid for by related parties and purchases goods and services from related parties. As of June 30, 2012 and December 31, 2011, the Company owed related parties for such expenses, goods and services in the amounts of $2,624 and $2,568, respectively.
Accrued Expenses – Related Parties
During the periods ended June 30, 2012 and December 31, 2011, related parties were due amounts for services performed for the Company. As of June 30, 2012 and December 31, 2011 the related parties’ payables consisted of the following:
|
June 30,
|
December 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Amounts due to the president
|
$
|
229,397
|
$
|
271,253
|
||||
|
Amounts due to other officers of the company
|
63,120
|
80,327
|
||||||
|
Total
|
$
|
292,517
|
$
|
351,580
|
||||
Line of Credit Payable
On February 15, 2012 the Company entered into a revolving line of credit agreement with a shareholder for $50,000 for an initial period of 6 months. During the six months ended June 30, 2012, the Company borrowed a total of $40,000, and accrued interest expense of $490. As of June 30, 2012 the Company has repaid all of the outstanding debt and now owes $-0- under the revolving line of credit. The Company granted 5,000 stock purchase warrants as consideration for the funding of the revolving line of credit resulting in an expense of $15,450.
In April 2007, the Company’s shareholders approved its 2006 Long-Term Incentive Plan (“the Plan”). Under the plan, the Company may issue up to 10,000,000 shares of both Incentive Stock Options to employees only and Non-Qualified Stock Options to employees and consultants at its discretion. As of June 30, 2012 the Company has a total of 5,545,313 options and warrants issued under the plan. During the six months ended June 30, 2012 the Company issued an additional amount of 2,725,313 warrants.
During the six months ended June 30, 2012 and 2011, the Company recognized expense of $518,415 and $126,534, respectively, for options and warrants that vested during the periods pursuant to ASC Topic 718.
Page 6
OMNITEK ENGINEERING CORP.
Condensed Notes to Financial Statements
June 30, 2012
(unaudited)
A summary of the status of the options and warrants granted at June 30, 2012 and December 31, 2011 and changes during the periods then ended is presented below:
|
2012
|
2011
|
|||||||||||||||
|
Shares
|
Weighted Average Exercise Price
|
Shares
|
Weighted Average Exercise Price
|
|||||||||||||
|
Outstanding at beginning of period
|
2,820,000 | $ | 0.73 | 5,870,000 | $ | 0.52 | ||||||||||
|
Granted
|
2,725,313 | 3.88 | - | - | ||||||||||||
|
Exercised
|
- | - | (1,177,983 | ) | 0.15 | |||||||||||
|
Expired or canceled
|
- | - | (1,872,017 | ) | 0.43 | |||||||||||
|
Outstanding at end of period
|
5,545,313 | 2.28 | 2,820,000 | 0.73 | ||||||||||||
|
Exercisable
|
5,545,313 | $ | 2.28 | 2,820,000 | $ | 0.73 | ||||||||||
A summary of the status of the options and warrants outstanding at June 30, 2012 is presented below:
|
Total Outstanding
|
Total Exercisable
|
||||||||||||||
|
Average
|
Weighted
|
||||||||||||||
|
Number
|
Remaining
|
Number
|
Average
|
||||||||||||
|
Range
|
O/S |
Life (Yrs)
|
Exercisable
|
Exercisable
|
|||||||||||
| $ | 0.01 - 0.50 | 200,000 | 2.28 | 200,000 | $ | 0.38 | |||||||||
| $ | 0.51 - 0.75 | 1,580,000 | 2.35 | 1,580,000 | $ | 0.63 | |||||||||
| $ | 0.76 - 1.00 | 1,040,000 | 2.36 | 1,040,000 | $ | 0.94 | |||||||||
| $ | 1.01 – 3.00 | 5,000 | 4.62 | 5,000 | $ | 2.68 | |||||||||
| $ | 3.01 – 4.00 | 2,720,313 | 4.78 | 2,720,313 | $ | 3.88 | |||||||||
| $ | 0.01 – 4.00 | 5,545,313 | 3.54 | 5,545,313 | $ | 2.28 | |||||||||
On April 9, 2012, the Company closed a private placement (the “Private Placement”) with select accredited investors (the “Investors”) related to the sale and issuance of an aggregate of 2,602,246 shares of common stock (the “Common Stock”) of the Company (the “Shares”) and warrants to purchase an aggregate of 2,602,246 shares of Common Stock (the “Warrants”). The aggregate gross proceeds raised by the Company was $5,516,762 million. Each Share was be sold to the Investors at $2.12 per Share. The Warrants will expire five (5) years from the date of issue and may be exercised at $3.88 per Share, subject to adjustment in certain circumstances.
Page 7
OMNITEK ENGINEERING CORP.
Condensed Notes to Financial Statements
June 30, 2012
(unaudited)
In connection with the Private Placement, the Company paid its placement agents (the “Placement Agents”) an aggregate cash commission equal to $386,173. In addition, the Company will reimburse the Placement Agents $23,632 for costs and expenses incurred in connection with the Private Placement, and issue to the Placement Agents five-year warrants to purchase an aggregate of 78,067 shares of common stock, at an exercise price of $3.88 per share, subject to adjustment in certain circumstances (the “Placement Agent Warrants”). The Company also issued to two consultants, five-year warrants to purchase an aggregate of 40,000 shares of common stock, at an exercise price of $3.88 per share. The Company recognized $502,965 of compensation expense for the warrants issued.
On July 26, 2012, the Company granted an officer a stock option pursuant to the 2011 Long-Term Incentive Plan, to purchase 400,000 shares of common stock, at an exercise price of $2.56 per share representing 110% of the average of the closing price of the common stock as reported on the OTCBB for the prior 30 day period. One-sixtieth (1/60) of the total number of shares subject to the Options shall vest and become exercisable at the end of each month following November 1, 2012 on the same day of each month, so that all shares subject to the Options will be fully vested on the fourth anniversary. The Options will be exercisable for a period of seven years from November 1, 2012.
Additionally on July 26, 2012, the Company granted an officer a stock option pursuant to the 2011 Long-Term Incentive Plan, to purchase 50,000 shares of common stock, at an exercise price of $2.56 per share representing 110% of the average of the closing price of the common stock as reported on the OTCBB for the prior 30 day period. One-twenty-fourth (1/24) of the total number of shares subject to the Options shall vest and become exercisable at the end of each month following November 1, 2012 on the same day of each month, so that all shares subject to the Options will be fully vested on the second anniversary. The Options will be exercisable for a period of seven years from November 1, 2012.
On August 3, 2012, the Board of Directors of the Company appointed two new outside Directors to the Board. In conjunction with their appointment the Company granted each a non-qualified stock option to purchase twenty-five thousand (25,000) shares of the Company’s common stock at an exercise price of $1.79 per share (i.e. eighty-five percent (85%) of the closing price of the Company’s common stock as of August 3, 2012). Such Options shall be exercisable for a period of five years. The Option shall vest and be exercisable immediately.
Additionally, on August 3, 2012, the Company granted a non-qualified stock option grant to the Company’s engineering group manager, to purchase forty thousand (40,000) shares of the Company’s common stock at an exercise price of $1.79 per share (i.e. eighty-five percent (85%) of the closing price of the Company’s common stock as of August 3, 2012). Such Options shall be exercisable for a period of five years. The Option shall vest and be exercisable with regard to 25% of the total shares subject to the Option, at the end of each year following the Date of Grant, so that all shares subject to the Options will be fully vested on the fourth anniversary of the Date of Grant.
Page 8
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes to the 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.
A. Results of Operations
For the three months ended June 30, 2012 and 2011
Revenues increased to $380,531 for the three months ended June 30, 2012 from $374,490 for the three months ended June 30, 2011, an increase of $6,041 or 2%. We expect the sales for the remainder of 2012 to be on a par with or somewhat higher than 2011 while we complete our product improvements.
Our cost of sales decreased to $149,449 for the three months ended June 30, 2012 from $202,738 for the three months ended June 30, 2011, a decrease of $53,289. Our gross margin was 61% for the three months ended June 30, 2012 compared to 46% in 2011. This was mainly due to the higher volume of filters in the mix of product that was shipped during the quarter. We anticipate our gross margin to be between 38% to 42% for the remainder of the year.
Our operating expenses for the three months ended June 30, 2012 were $1,248,054 compared to $296,561 in 2011, an increase of $951,493 or 420%. General and administrative expense for the three months ended June 30, 2012 was $1,198,267 as compared to $243,232 for the three months ended June 30, 2011. The increase is due primarily to the cash expenses associated with the private placement of $413,306 and non-cash option issued expense of $502,965 for the three months ended June 30, 2012 as compared to $-0- and $-0-, respectively, for the three months ended June 30, 2011. Major components of general and administrative expenses for the three months ended June 30, 2012 were professional fees of $77,285, rent expense of $33,376, and salary and wages of $58,909. This compares to professional fees of $10,880, rent expense of $31,298 and salaries and wages of $52,173 for the three months ended June 30, 2011. In the three months ended June 30, 2012 professional fees were higher by approximately $66,405 due to legal expenses incurred in connection with the private placement which closed on April 9, 2012. Research and development outlays were increased to $48,254 for the three months ended June 30, 2012 compared to $32,481 for the three months ended June 30, 2011 as we work to improve our products.
Our net loss for the three months ended June 30, 2012 was $1,015,880, ($0.05 per share) compared to a net less of $124,808 ($0.01 per share) for the three months ended June 30, 2011. The increased loss was the result of higher general and administrative expense in the three months ended June 30, 2012 compared to the three months ended June 30, 2011.
Page 9
Results for the three months ended June 30, 2012 reflect the impact of one-time cash private placement expenses of $413,306 and non-cash expenses, including the value of options and warrants granted in the amount of $502,965 and depreciation and amortization of $9,195. For the three month period a year earlier, non-cash expenses for the value of options and warrants granted were $69,452 and depreciation and amortization of $20,848.
For the six months ended June 30, 2012 and 2011
Revenues decreased to $686,900 for the six months ended June 30, 2012 from $989,746 for the six months ended June 30, 2011, a decrease of $302,846 or 31%. Revenues for the period ended June 30, 2011 were exceptionally high due to due rescheduling of orders by certain customers. We expect our sales for the remainder of 2012 to be on a par with or slightly higher than 2011.
Our cost of sales decreased to $350,061 for the six months ended June 30, 2012 from $485,368 for the six months ended June 30, 2011, a decrease of $135,307. Our gross margin was 46% for the six months ended June 30, 2012 compared to 49% in 2011. This was mainly due to the volume and lower overall mix of filters in our products that were shipped during the six months. We anticipate our margin to be between 38% and 42% for the remainder of the year.
Our operating expenses for the six months ended June 30, 2012 were $1,515,728 compared to $610,276 in 2011, an increase of $905,452 or 249%. General and administrative expense for the six months ended June 30, 2012 was $1,435,590 as compared to $509,089 for the six months ended June 30, 2011. The increase is due primarily to the increase in expenses related to the private placement expenses of $413,306 and options issued of $518,415 for the six months ended June 30, 2012 as compared to $-0- and $69,452, respectively, for the six months ended June 30, 2011. Major components of general and administrative expenses for the six months ended June 30, 2012 were professional fees of $125,438, rent expense of $66,751, and salary and wages of $122,128. This compares to professional fees of $38,441, rent expense of $62,296 and salaries and wages of $102,477 for the six months ended June 30, 2011. In the six months ended June 30, 2012 professional fees were higher by approximately $86,997 due to legal costs incurred in connection with the private placement which closed on April 9, 2012. Research and development outlays were increased to $77,148 for the six months ended June 30, 2012 compared to $59,946 for the six months ended June 30, 2012 as we worked to improve our products.
Our net loss for the six months ended June 30, 2012 was $1,179,005, ($0.06 per share) compared to a net loss of $106,697 ($0.01 per share) for the six months ended June 30, 2011. The increased loss was the result of higher General and administrative expenses associated with the private placement in the six months ended June 30, 2012.
Results for the six months ended June 30, 2012 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $518,415 and depreciation and amortization of $9,195. For the six month period a year earlier, non-cash expenses for the value of options and warrants granted were $126,534 and depreciation and amortization of $41,241.
B. Management’s Discussion and Analysis of Financial Condition and Results of Operatio
ns.
Cash Requirements
We believe that we will have sufficient cash from operations to meet our operating requirements for the proximate 12 months.
Liquidity and Capital Resources
Overview
For the six months ended June 30, 2012 and 2011
At June 30, 2012, our current liabilities totaled $652,031 and our current assets totaled $4,736,580, resulting in positive working capital of $4,084,549 and a current ratio of 6 to1. During the six months ended June 30, 2012, we received $5,536,762 of cash from the issuance of common stock and $40,000 from the borrowing of funds .We believe that through the collection of accounts receivable and the sale of inventory, in the normal course of business, we will meet our obligations on a timely basis and that our liquidity is sufficient for at least the next twelve months.
Page 10
We have no firm commitments or obligations for capital expenditures. However, substantial discretionary expenditures will be required to enable us to conduct existing and planned product research, design, development, manufacturing, marketing and distribution of our products and Intellectual Property. 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 and until we have sufficient assets, capital, and inventory or accounts receivable, it is not anticipated that we will secure any bank financing in the near future. Therefore, it is likely that we may need to seek additional financing through subsequent future public or private sales of our securities, including equity securities. We may also seek 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 $7,602,707 at June 30, 2012.
Operating Activities
We have realized a negative cash flow from operations of $815,641 for the six months ended June 30, 2012 compared to a negative cash flow of $143,255 during the six months ended June 30, 2011.
Included in the net loss of $1,179,005 for the six months ended June 30, 2012 are one-time cash expenses of $413,306 for the private placement and non-cash expenses which are not a drain on our capital resources. During the six months ended June 30, 2012, these non-cash expenses include the value of options and warrants granted in the amount of $518,415 and depreciation and amortization of $9,195. Excluding these non-cash amounts, our EBITDA for the six months ended June 30, 2012 would have been a loss of $651,395.
Financing Activities
During the six months ended June 30, 2012, we received $5,536,762 of cash from a prviate placement offering and $40,000 from the borrowing of funds. We repaid the $40,000 during the six months ended June 30, 2012.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
and 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:
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 11
Inventory is stated at the lower of cost or market. The Company’s inventory consists of finished goods and raw material. 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.
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.
The Company accounts for income taxes in accordance with Accounting Standards Codification 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. The Company uses historical experience to determine the likely-hood of realization of deferred tax liabilities and assets.
Revenue Recognition
The Company recognizes revenue from the sale of new natural gas engines and components to convert existing diesel engines to natural gas engines. Revenue is recognized upon shipment of the products, and when collection is reasonably assured.
Accounting for 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.
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.
At the adoption date of November 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.
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 June 30, 2012, 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 2006.
At June 30, 2012, the Company had net operating loss carry forwards of approximately $685,000 through 2032. No tax benefit has been reported in the June 30, 2012 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
Page 12
Recently Issued 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.
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.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officer), as appropriate to allow timely decisions regarding required disclosure.
Our management evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures as of June 30, 2012, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of June 30, 2012, our disclosure controls and procedures were effective.
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 June 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Page 13
To the best of our knowledge, 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.
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.
On April 9, 2012, pursuant to a Securities Purchase Agreement, we issued to 32 Investors, an aggregate of 2,602,246 shares of our common stock and Warrants exercisable into 2,602,246 shares of our common stock for total subscription proceeds of $5,516,762. The Warrants have an exercise price of $3.88 per share and are exercisable for a period of five years expiring on April 8, 2017. The number of shares of common stock to be received upon the exercise of the Warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the common stock that occur after the Closing Date.
Pursuant to the terms of the Engagement Agreement, the Company also issued to the Placement Agent at the Closing Date warrants to purchase 78,067 shares of common stock of the Company, which is equal to 3% of the aggregate number of shares sold to Investors, which shall have the same terms, including exercise price and registration rights, as the Investor Warrants issued in the private placement. We also paid a cash placement fee of $386,173, which is equal to 7% of the aggregate purchase price paid by Investors that were sold in the private placement.
The issuance of securities to the Investors and the Placement Agent were not registered under the Securities Act. Such issuance of securities was exempt from registration under the safe harbor provided by Regulation D Rule 506 and Section 4(2) of the Securities Act. We made this determination in part based on the representations of Investors, which included, in pertinent part, that such Investors were an “accredited investor” as defined in Rule 501(a) under the Securities Act, and upon such further representations from the Investors that (a) the Investor is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the Investor agrees not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the Investor either alone or together with its representatives has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, and (d) the Investor has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Our determination is made based further upon our action of (a) making written disclosure to each Investor in the Securities Purchase Agreement prior to the closing of sale that the securities have not been registered under the Securities Act and therefore cannot be resold unless they are registered or unless an exemption from registration is available, (b) making written descriptions of the securities being offered, the use of the proceeds from the offering and any material changes in the Company’s affairs that are not disclosed in the documents furnished, and (c) placement of a legend on the certificate that evidences the securities stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability and sale of the securities, and upon such inaction of the Company of any general solicitation or advertising for securities herein issued in reliance upon Regulation D Rule 506 and Section 4(2) of the Securities Act.
Additionally, on April 9, 2011, the Company issued warrants to purchase 40,000 shares of common stock of the Company to two accredited investors for consulting services provided to the Company. The Warrants have an exercise price of $3.88 per share and are exercisable for a period of five years expiring on April 8, 2017. The number of shares of common stock to be received upon the exercise of the Warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the common stock that occur after the Closing Date. The issuance of the Warrants was exempt from registration under the safe harbor provided by Regulation D Rule 506 and Section 4(2) of the Securities Act. The consultants receiving the Warrants were accredited investors, were acquainted with the Company’s business plan and proposed activities at the time of issuance, and possessed information on the Company necessary to make an informed investment decision. No underwriters were used in the issuance of the securities.
Subsequent to the period covered by this report, on July 26, 2012, the Company granted its CEO, President and Secretary, Werner Funk, a Stock Option pursuant to the 2011 Long-Term Incentive Plan, to purchase 400,000 shares of common stock, at an exercise price of $2.56 per share representing 110% of the average of the closing price of the common stock as reported on the OTCBB for the prior 30 day period. One-sixtieth (1/60) of the total number of shares subject to the Options shall vest and become exercisable at the end of each month following the Effective Date on the same day of each month as the Effective Date, so that all shares subject to the Options will be fully vested on the fourth anniversary of the Effective Date. The Options will be exercisable for a period of seven years from the Effective Date.
Additionally on July 26, 2012, the Company granted its CFO and Vice President, Janice M. Quigley, a Stock Option pursuant to the 2011 Long-Term Incentive Plan, to purchase 50,000 shares of common stock, at an exercise price of $2.56 per share representing 110% of the average of the closing price of the common stock as reported on the OTCBB for the prior 30 day period. One-twenty-fourth (1/24) of the total number of shares subject to the Options shall vest and become exercisable at the end of each month following the Effective Date on the same day of each month as the Effective Date, so that all shares subject to the Options will be fully vested on the second anniversary of the Effective Date. The Options will be exercisable for a period of seven years from the Effective Date.
On August 3, 2012, the
Board of Directors of the Company appointed Gary S. Maier and George G. Chachas to serve as outside Directors of the Company. In conjunction with their appointment
the Company granted to Mr. Maier and Mr. Chachas, each, a non-qualified stock option grant to purchase twenty-five thousand (25,000) shares of the Company’s common stock at an exercise price of $1.79 per share (i.e. eighty-five percent (85%) of the closing price of the Company’s common stock as of August 3, 2012). Such Options shall be exercisable for a period of five years. The Option shall vest and be exercisable immediately.
Additionally, on August 3, 2012, the Company granted a non-qualified stock option grant to the Company’s engineering group manager, to purchase forty thousand (40,000) shares of the Company’s common stock at an exercise price of $1.79 per share (i.e. eighty-five percent (85%) of the closing price of the Company’s common stock as of August 3, 2012). Such Options shall be exercisable for a period of five years. The Option shall vest and be exercisable with regard to 25% of the total shares subject to the Option, at the end of each year following the Date of Grant, so that all shares subject to the Options will be fully vested on the fourth anniversary of the Date of Grant.
No underwriters were used. The securities were issued pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933. The individuals receiving the options were intimately acquainted with the Company’s business plan and proposed activities at the time of issuance, and possessed information on the Company necessary to make an informed investment decision.
None
None
Page 14
(a) Documents filed as part of this Report.
1.
Financial Statements.
The condensed unaudited Balance Sheet of Omnitek Engineering Corp. as of June 30, 2012 and the audited balance sheet as of December 31, 2011, the condensed unaudited Statements of Operations for the three and six month periods ended June 30, 2012 and 2011, and the condensed unaudited Statements of Cash Flows for the six month periods ended June 30, 2012 and 2011, 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
|
|
|
Number
|
Description of Exhibit
|
|
3.1
|
Amended and Restated Articles of Incorporation
(1)
|
|
3.2
|
Amended and Restated By-Laws Adopted July 12, 2012
(2)
|
|
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 S, 2011 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.
(3)
|
|
(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
|
|
(4)
|
Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files submitted under Exhibit 101 are not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
|
Page 15
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.
|
Omnitek Engineering Corp.
|
||
|
||
|
Dated: August 9, 2012
|
||
|
By: Werner Funk
|
||
|
Its: Chief Executive Officer President and Secretary
|
||
|
Dated: August 9, 2012
|
/s/ Janice M. Quigley
|
|
|
By: Janice M. Quigley
|
||
|
Its: Chief Financial Officer
|
||
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
|
|
||
|
Dated: August 9, 2012
|
||
|
By: Werner Funk, Director
|
||
|
Dated: August 9, 2012
|
/s/ Janice M. Quigley
|
|
|
Janice M. Quigley, Director
|
||
Page 16
TABLE OF CONTENTS
Part IItem 1. Financial StatementsNote 1 - Condensed Financial StatementsNote 2 Significant Accounting PoliciesNote 2 Significant Accounting Policies (continued)Note 3 - Related Party TransactionsNote 4 - Notes PayableNote 5 - Stock Options and WarrantsNote 5 - Stock Options and Warrants (continued)Note 6 - Significant EventsNote 6 - Significant Events (continued)Note 7 - Subsequent EventsItem 2 - Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sale Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. [removed and Reserved]Item 5. Other InformationItem 6. Exhibits