OMNITEK ENGINEERING CORP
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
SEPTEMBER 30, 2013
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Commission File Number
000-53955
OMNITEK ENGINEERING CORP.
(Exact name of Registrant as specified in its charter)
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California
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33-0984450
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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1333 Keystone Way, #101, Vista, California 92081
(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) 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. 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.
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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x
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
As of November 7, 2013, the Registrant had 19,749,582 shares of its no par value Common Stock outstanding.
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Page
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PART I - FINANCIAL INFORMATION
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| Signatures | 14 |
FINANCIAL INFORMATION
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Condensed Balance Sheets
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ASSETS
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September 30,
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December 31,
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|||||||
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2013
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2012
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(unaudited)
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CURRENT ASSETS
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Cash
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$ | 1,373,841 | $ | 3,192,761 | ||||
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Accounts receivable, net
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43,180 | 120,547 | ||||||
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Accounts receivable - related parties
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12,594 | 26,455 | ||||||
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Inventory
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2,231,873 | 1,133,595 | ||||||
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Prepaid expense
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22,942 | 7,440 | ||||||
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Deposits
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60,582 | 331,760 | ||||||
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Short-term investments, net
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1,024,130 | - | ||||||
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Total Current Assets
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4,769,142 | 4,812,558 | ||||||
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FIXED ASSETS, net
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113,756 | 14,560 | ||||||
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OTHER ASSETS
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Long-term investments, net
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- | 1,201,671 | ||||||
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Intellectual property, net
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3,403 | 5,218 | ||||||
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Total Other Assets
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3,403 | 1,206,889 | ||||||
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TOTAL ASSETS
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$ | 4,886,301 | $ | 6,034,007 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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CURRENT LIABILITIES
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Accounts payable and accrued expenses
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$ | 105,070 | $ | 317,106 | ||||
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Accrued management compensation
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215,447 | 264,717 | ||||||
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Customer deposits
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185,277 | 184,109 | ||||||
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Total Current Liabilities
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505,794 | 765,932 | ||||||
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Total Liabilities
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505,794 | 765,932 | ||||||
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STOCKHOLDERS' EQUITY
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Common stock, 125,000,000 shares authorized no par value
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19,749,582 and 19,749,582 shares issued and outstanding,
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respectively
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8,196,061 | 8,196,061 | ||||||
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Additional paid-in capital
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5,067,310 | 4,867,169 | ||||||
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Accumulated deficit
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(8,882,864 | ) | (7,795,155 | ) | ||||
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Total Stockholders' Equity
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4,380,507 | 5,268,075 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$ | 4,886,301 | $ | 6,034,007 | ||||
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The accompanying notes are an integral part of these condensed financial statements.
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OMNITEK ENGINEERING
CORP.
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Condensed Statements of Operations (unaudited)
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For the Three
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For the Three
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For the Nine
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For the Nine
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|||||||||||||
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Months Ended
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Months Ended
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Months Ended
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Months Ended
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September 30
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September 30
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September 30
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September 30
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2013
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2012
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2013
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2012
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REVENUES
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$ | 280,921 | $ | 562,367 | $ | 827,460 | $ | 1,249,267 | ||||||||
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COST OF GOODS SOLD
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180,103 | 281,633 | 528,035 | 631,694 | ||||||||||||
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GROSS MARGIN
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100,818 | 280,734 | 299,425 | 617,573 | ||||||||||||
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OPERATING EXPENSES
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General and administrative
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470,258 | 353,438 | 1,193,132 | 1,789,028 | ||||||||||||
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Research and development expense
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104,991 | 88,922 | 207,127 | 166,070 | ||||||||||||
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Depreciation and amortization expense
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14,503 | 1,606 | 41,839 | 4,596 | ||||||||||||
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Total Operating Expenses
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589,752 | 443,966 | 1,442,098 | 1,959,694 | ||||||||||||
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LOSS FROM OPERATIONS
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(488,934 | ) | (163,232 | ) | (1,142,673 | ) | (1,342,121 | ) | ||||||||
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OTHER INCOME (EXPENSE)
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Interest expense
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- | - | (13 | ) | (490 | ) | ||||||||||
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Interest income
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21,039 | 21,082 | 55,777 | 22,256 | ||||||||||||
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Total Other Income (Expense)
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21,039 | 21,082 | 55,764 | 21,766 | ||||||||||||
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LOSS BEFORE INCOME TAXES
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(467,895 | ) | (142,150 | ) | (1,086,909 | ) | (1,320,355 | ) | ||||||||
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INCOME TAX EXPENSE
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- | - | 800 | 800 | ||||||||||||
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NET LOSS
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$ | (467,895 | ) | $ | (142,150 | ) | $ | (1,087,709 | ) | $ | (1,321,155 | ) | ||||
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BASIC AND DILUTED LOSS PER SHARE
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$ | (0.02 | ) | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.07 | ) | ||||
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WEIGHTED AVERAGE NUMBER
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OF COMMON SHARES OUTSTANDING BASIC AND DILUTED
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19,749,582 | 19,749,582 | 19,749,582 | 18,872,509 | ||||||||||||
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The accompanying notes are an integral part of these condensed financial statements.
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OMNITEK
ENGINEERING CORP.
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Condensed Statements of Cash Flows (unaudited)
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For the Nine
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For the Nine
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Months Ended
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Months Ended
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September 30,
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September 30,
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2013
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2012
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OPERATING ACTIVITIES
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Net loss
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$ | (1,087,709 | ) | $ | (1,321,155 | ) | ||
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Adjustments to reconcile net loss to
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net cash used by operating activities:
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Amortization and depreciation expense
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14,296 | 4,596 | ||||||
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Amortization of premium on investments
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27,541 | 16,378 | ||||||
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Options and warrants granted
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200,141 | 626,915 | ||||||
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Stock issued for services
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Changes in operating assets and liabilities:
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Accounts receivable
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77,367 | (204,559 | ) | |||||
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Accounts receivable–related parties
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16,069 | (14,161 | ) | |||||
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Deposits
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271,178 | (209,093 | ) | |||||
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Prepaid Expense
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(15,502 | ) | (8,116 | ) | ||||
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Inventory
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(1,098,278 | ) | 107,733 | |||||
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Accounts payable and accrued expenses
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(212,036 | ) | 12,583 | |||||
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Customer deposits
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1,168 | (29,611 | ) | |||||
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Accounts payable-related parties
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(2,208 | ) | (2,543 | ) | ||||
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Accrued management compensation
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(49,270 | ) | (74,237 | ) | ||||
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Net Cash Used in Operating Activities
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(1,857,243 | ) | (1,095,270 | ) | ||||
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INVESTING ACTIVITIES
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Purchase of long-term investments
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(1,228,223 | ) | ||||||
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Maturity of long-term investments
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150,000 | |||||||
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Purchase of property and equipment
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(111,677 | ) | (4,408 | ) | ||||
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Net Cash Provided by (Used in) Investing Activities
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38,323 | (1,232,631 | ) | |||||
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FINANCING ACTIVITIES
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Issuance of common stock for cash
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- | 5,536,762 | ||||||
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Repayment of note payable
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- | (40,000 | ) | |||||
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Exercise of warrants and options for cash
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- | - | ||||||
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Proceeds of Note Payable
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- | 40,000 | ||||||
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Net Cash Provided by Financing Activities
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- | 5,536,762 | ||||||
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NET INCREASE (DECREASE) IN CASH
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(1,818,920 | ) | 3,208,861 | |||||
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CASH AT BEGINNING OF YEAR
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3,192,761 | 31,196 | ||||||
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CASH AT END OF PERIOD
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$ | 1,373,841 | $ | 3,240,057 | ||||
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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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$ | - | $ | 490 | ||||
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Income taxes
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$ | 800 | $ | 800 | ||||
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The accompanying notes are an integral part of these condensed financial statements.
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Page 3
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2013
(unaudited)
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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 September 30, 2013, 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, 2012 audited financial statements. The results of operations for the periods ended September 30, 2013 and 2012 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 Vista, California at September 30, 2013 and San Marcos, California at December 31, 2012 consisted of the following:
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September 30,
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December 31,
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Location : Vista and San Marcos, CA respectively
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2013
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2012
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Raw materials
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$ | 1,081,807 | $ | 806,700 | ||||
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Finished goods
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1,777,595 | 684,273 | ||||||
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In transit
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- | 270,151 | ||||||
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Allowance for obsolete inventory
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(627,529 | ) | (627,529 | ) | ||||
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Total
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$ | 2,231,873 | $ | 1,133,595 | ||||
The Company has established an allowance for obsolete inventory. Expense for obsolete inventory was $-0- and $-0-, for the periods ended September 30, 2013 and December 31, 2012, respectively.
Page 4
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2013
(unaudited)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment at September 30, 2013 and December 31, 2012 consisted of the following:
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September 30,
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December 31,
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2013
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2012
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Production equipment
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$ | 60,501 | $ | 14,814 | ||||
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Computers/Office equipment
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23,281 | - | ||||||
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Tooling equipment
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12,380 | 5,300 | ||||||
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Leasehold Improvements
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35,629 | |||||||
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Less: accumulated depreciation
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(18,035 | ) | (5,554 | ) | ||||
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Total
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$ | 113,756 | $ | 14,560 | ||||
Depreciation expense for the periods ended September 30, 2013 and December 31, 2012 was $12,481 and $3,250, respectively.
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 2,087,942 and 2,169,855 stock options and warrants that would have been included in the fully diluted earnings per share as of September 30, 2013 and December 31, 2012, respectively. However, the common stock equivalents were not included in the computation of the loss per share computation because they are anti dilutive.
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 September 30, 2013 and December 31, 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 2007.
Page 5
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2013
(unaudited)
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Held to Maturity Investments
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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 premium on the bonds over the remaining life. As of September 30, 2013, the Company has amortized $46,943 of the premium leaving amortized cost basis remaining of $1,024,130. During the nine months ended September 30, 2013 and 2012 the Company had correlating amortization expense of $27,541 and $16,378, respectively.
Accounts Receivable – Related Parties
The Company holds a non-controlling interest in various distributors in exchange for use of the Company’s name and logo. As of December 31, 2012, 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 September 30, 2013 and December 31, 2012, the Company was owed $12,594 and $26,455, respectively, by related parties for the purchase of products.
Accrued Management Expenses
During the periods ended September 30, 2013 and December 31, 2012, the Company’s president and vice president were due amounts for services performed for the Company. As of September 30, 2013 and December 31, 2012 the accrued management fees consisted of the following:
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September 30,
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December 31,
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2013
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2012
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Amounts due to the president
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$
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150,628
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$
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197,398
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Amounts due to other officers of the company
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64,819
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67,319
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Total
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$
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215,447
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$
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264,717
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In April 2007, the Company’s shareholders approved its 2006 Long-Term Incentive Plan (“the 2006 Plan”). Under the 2006 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 September 30, 2013 the Company has a total of 2,620,000 options issued under the plan. On August 3, 2011 the Board of Directors adopted the Omnitek Engineering Corp. 2011 Long-term Incentive Plan (the “2011 Plan”), under which 1,000,000 shares of Company’s Common Stock were reserved for issuance of both Incentive Stock Options to employees only and and Non-Qualified Stock Options to employees and consultants at its discretion. As of September 30, 2013 the Company has a total of 690,000 options issued under the plan. During the nine months ended September 30, 2013 the Company issued 150,000 options and -0- warrants.
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During the nine months ended September 30, 2013 and 2012, the Company recognized expense of $200,141 and $626,915, respectively, for options and warrants that vested during the periods pursuant to ASC Topic 718. Total remaining amount of compensation expense to be recognized in future periods is $692,506.
Page 6
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
September 30, 2013
(unaudited)
A summary of the status of the options and warrants granted at September 30, 2013 and December 31, 2012 and changes during the periods then ended is presented below:
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September 30,
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December 31,
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2013
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2012
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Weighted-Average
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Weighted-Average
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Shares
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Exercise Price
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Shares
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Exercise Price
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Outstanding at beginning of year
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6,085,313 | $ | 2.29 | 2,820,000 | $ | 0.73 | ||||||||||
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Granted
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150,000 | 2.43 | 3,265,313 | 3.64 | ||||||||||||
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Exercised
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- | - | - | - | ||||||||||||
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Expired or cancelled
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- | - | - | - | ||||||||||||
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Outstanding at end of year
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6,235,313 | 2.29 | 6,085,313 | 2.29 | ||||||||||||
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Exercisable
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5,751,563 | $ | 2.10 | 5,612,813 | $ | 2.09 | ||||||||||
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Range of Exercise Prices
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Number Outstanding
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Weighted-Average Remaining Contractual Life
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Number Exercisable
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Weighted-Average Exercise Price
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| $ | 0.01-0.50 | 200,000 | 1.03 years | 200,000 | $ | 0.38 | |||||||
| $ | 0.51-0.75 | 1,580,000 | 1.10 years | 1,580,000 | 0.63 | ||||||||
| $ | 0.76-1.00 | 1,040,000 | 1.10 years | 1,040,000 | 0.94 | ||||||||
| $ | 1.01-2.00 | 140,000 | 4.77 years | 110,000 | 1.80 | ||||||||
| $ | 2.01-3.00 | 555,000 | 6.22 years | 102,250 | 2.57 | ||||||||
| $ | 3.01-4.00 | 2,720,313 | 3.52 years | 2,720,313 | 3.88 | ||||||||
| $ | 0.01-4.00 | 6,235,313 | 2.69 years | 5,751,563 | $ | 2.27 | |||||||
In accordance with ASC 855-10, Company management reviewed all material events through the date of this report. There are no material subsequent events to report.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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 September 30, 2013 and 2012
Revenues decreased to $280,921 for the three months ended September 30, 2013 from $562,367 for the three months ended September 30, 2012, a decrease of $281,446, or 50%. Revenues were negatively impacted by the appreciation of the U.S. Dollar against the local currencies in certain international markets, as well as lower sales during the quarter from certain foreign customers who delayed or cancelled orders due to increases in local natural gas prices. In addition, revenues derived from OE customers were impacted by model-year changeovers, which delayed order shipments. The company is focused on increasing domestic sales and expanding its EPA-approved engine model offerings, which is expected to more than offset the impact of the factors noted above in foreign markets and enable Omnitek to accelerate its growth.
Our cost of sales decreased to $180,103 for the three months ended September 30, 2013 from $281,633 for the three months ended September 30, 2012, a decrease of $101,530. Our gross margin was 36% for the three months ended September 30, 2013 compared with 50% for the three months ended 2012. Gross margin for the quarter was impacted by lower sales volume and product mix, as well as fixed overhead and labor costs that could not be absorbed due to the revenue decrease.
Our operating expenses for the three months ended September 30, 2013 were $589,752 compared with $443,966 in 2012, an increase of $145,786 or 33%. General and administrative expense for the three months ended September 30, 2013 was $470,258 compared with $353,438 for the three months ended September 30, 2012. The increase is primarily due to wages and option expense of $262,299 for the three months ended September 30, 2013 as compared to $186,556, for the three months ended September 30, 2012. Major components of general and administrative expenses for the three months ended September 30, 2013 were professional fees of $32,550, rent expense of $44,627, and salary and wages of $123,114. This compares with professional fees of $19,431, rent expense of $33,375, and salary and wages of $78,056 for the three months ended September 30, 2012. In the three months ended September 30, 2013 salary and wages were higher on a year-over-year basis by approximately $45,058 due primarily to additions to staff in preparation for domestic sales of conversion kits. Research and development outlays increased to $104,991 for the three months ended September 30, 2013 compared with $88,922 for the three months ended September 30, 2013 as we develop diesel to natural gas conversion kits for additional engines.
Our net loss for the three months ended September 30, 2013 was $467,895, or $0.02 per share, compared with a net loss of $142,150, or $0.01 per share, for the three months ended September 30, 2012. The increased loss was the result of lower sales and higher general and administrative expense in the three months ended September 30, 2013 compared with the three months ended September 30, 2012.
Results for the three months ended September 30, 2013 reflect non-cash expenses, including the value of options and warrants granted in the amount of $139,185 and depreciation and amortization of $14,503. For the three month period a year earlier, non-cash expenses for the value of options and warrants granted were $108,500 and depreciation and amortization of $1,606.
For the nine months ended September 30, 2013 and 2012
Revenues decreased to $827,460 for the nine months ended September 30, 2013 from $1,249,267 for the nine months ended September 30, 2012, a decrease of $421,807 or 34%. This was mainly due to the disruption caused by the move to the company’s new and larger facility, as well as lower sales volume in certain international markets due to the increase in natural gas prices in those regions and the appreciation of the U.S. Dollar against local currencies. The company is focused on increasing domestic sales and expanding its EPA-approved engine model offerings, which is expected to more than offset the impact of the factors noted above in foreign markets and enable Omnitek to accelerate its growth.
Our cost of sales decreased to $528,035 for the nine months ended September 30, 2013 from $631,694 for the nine months ended September 30, 2012, a decrease of $103,659. Our gross margin was 36% for the nine months ended September 30, 2013 compared to 49% for the nine months ended September 30, 2012. Gross margin for the nine months was impacted by lower sales volume and product mix, as well as fixed overhead and labor costs that could not be absorbed due to the revenue decrease.
Our operating expenses for the nine months ended September 30, 2013 were $1,442,098 compared with $1,959,694 in 2012, a decrease of $517,596 or 26%. General and administrative expense for the nine months ended September 30, 2013 was $1,193,132 compared with $1,789,028 for the nine months ended September 30, 2012. The decrease is due primarily to option and warrant expense of $200,141 for the nine months ended September 30, 2013 compared with $626,915 for the nine months ended September 30, 2012 and private placement expenses of $-0- for the nine months ended September 30, 2013 compared with to $413,306 for the nine months ended September 30, 2012. Major components of general and administrative expenses for the nine months ended September 30, 2013 were professional fees of $85,981, rent expense of $125,411, and salary and wages of $348,580. This compares to professional fees of $144,969, rent expense of $100,127, and salary and wages of $200,185 for the nine months ended September 30, 2012. In the nine months ended September 30, 2013 professional fees were lower by approximately $58,988 due to legal costs incurred in connection with the private placement, which occurred in 2012. Research and development outlays were increased to $207,127 for the nine months ended September 30, 2013 compared to $166,070 for the nine months ended September 30, 2012 as we develop diesel to natural gas conversion kits for additional engines.
Our net loss for the nine months ended September 30, 2013 was $1,087,709, or $0.06 per share, compared with a net loss of $1,321,155, or $0.07 per share, for the nine months ended September 30, 2012. The decreased loss was the result of lower general and administrative expenses in the nine months ended September 30, 2013 compared with the nine months ended September 30, 2012.
Results for the nine months ended September 30, 2013 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $200,141 and depreciation and amortization of $41,837. For the nine month period a year earlier, non-cash expenses for the value of options and warrants granted were $626,915 and depreciation and amortization of $20,974.
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 nine months ended September 30, 2013 and 2012
At September 30, 2013, our current liabilities totaled $505,794 and our current assets totaled $4,769,142, resulting in positive working capital of $4,263,348 and a current ratio of 9.43. 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.
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 $8,882,864 at September 30, 2013.
Operating Activities
We have realized a negative cash flow from operations of $1,857,243 for the nine months ended September 30, 2013 compared with a positive cash flow of $1,095,270 during the nine months ended September 30, 2012.
Included in the net loss of $1,087,709 for the nine months ended September 30, 2013 are non-cash expenses, which are not a drain on our capital resources. During the nine months ended September 30, 2013, these non-cash expenses include the value of options and warrants granted in the amount of $200,141 and depreciation and amortization of $41,837. Excluding these non-cash amounts, our EBITDA for the nine months ended September 30, 2013 would have been a loss of $844,931.
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.
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 September 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 September 30, 2013, the Company had net operating loss carry forwards of approximately $1,312,703 through 2034. No tax benefit has been reported in the September 30, 2013 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.
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 September 30, 2013, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of September 30, 2013, 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 September 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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 August 3, 2013, the anniversary date of their appointment to the Board of Directors, the Company granted to Gary S. Maier and George G. Chachas, 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 $1.81 per share (i.e. eighty-five percent (85%) of the closing price of the Company’s common stock as of August 2, 2013). Such Options shall be exercisable for a period of five years. The Option shall vest and be exercisable immediately. 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.
On September 16, 2013 (“Date of Grant”), the Company granted to its CFO, Alicia Rolfe, a Stock Option to pursuant to the 2011 Long-Term Incentive Plan, to purchase 100,000 shares of common stock, at an exercise price of $2.74 per share representing 110% of the average of the closing price of the common stock as reported on the OTCBB for the prior 15 trading day periods. One-forty eight (1/48) of the total number of shares subject to the Option shall vest and become exercisable at the end of each month following the Date of Grant the same day of each month as 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. The Options will be exercisable for a period of seven (7) years from the Date of Grant will be incentive stock options to the extent permitted by applicable law. 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.
Subsequent to the period covered by this report, on October 23, 2013, the date of his appointment to the Board of Directors, the Company granted to John M. Palumbo, 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 $2.33 per share (i.e. eighty-five percent (85%) of the closing price of the Company’s common stock as of October 23, 2013). Such Options shall be exercisable for a period of five years. The Option shall vest and be exercisable immediately. 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.
(a) Documents filed as part of this Report.
1.
Financial Statements.
The condensed unaudited Balance Sheet of Omnitek Engineering Corp. as of September 30, 2013 and the audited balance sheet as of December 31, 2012, the condensed unaudited Statements of Operations for the three months and nine-month periods ended September 30, 2013 and 2012, and the condensed unaudited Statements of Cash Flows for the nine-month period ended September 30, 2013 and 2012, 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.
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Exhibit
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||
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Number
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Description of Exhibit
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3.1
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Amended and Restated Articles of Incorporation
(1)
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3.2
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Amended and Restated By-Laws Adopted July 12, 2012
(2)
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31.1
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CEO certification pursuant to Section 302 of The Sarbanes – Oxley Act of 2002
(3)
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31.2
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CFO certification pursuant to Section 302 of The Sarbanes – Oxley Act of 2002
(3)
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32.1
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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)
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101
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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.
(4)
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(1)
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Previously filed on Form on Form 10 on April 27, 2010
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(2)
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Previously filed on Form 8-K on August 2, 2012
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(3)
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Filed herewith
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(4)
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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.
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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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Omnitek Engineering Corp.
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Dated: November 14, 2013
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By: Werner Funk
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Its:
Chief Executive Officer
Principal Executive Officer
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Dated: November 14, 2013
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/s/ Alicia A. Rolfe
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By: Alicia A. Rolfe
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Its:
Chief Financial Officer
Principal Financial Officer
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Page 14
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 - Stock Options and WarrantsNote 4 - Stock Options and Warrants (continued)Note 5 - 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 5. Other InformationItem 6. Exhibits