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:
JUNE 30, 2015
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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
☐
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
☐
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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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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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
☐
No
x
As of August 7, 2015, the Registrant had
19,981,082
shares of its no par value Common Stock outstanding.
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TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
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Page
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Item 1. Financial Statements
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1 | |
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Condensed Balance Sheets as of June 30, 2015 and December 31, 2014
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1 | |
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Condensed Statements of Operations for the six months ended June 30, 2015 and June 30, 2014
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2
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Condensed Statements of Cash Flows for the six months ended June 30, 2015 and June 30, 2014
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3
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Notes to the Condensed Financial Statements
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4 | |
| Item 2. Management’s Discussion and Analysis of the Financial Condition and Results of Operations | 9 | |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
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13 | |
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Item 4. Controls and Procedures
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13 | |
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PART II - OTHER INFORMATION
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Item 1. Legal Proceedings
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14 | |
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Item 1A. Risk Factors
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14 | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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14 | |
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Item 3. Defaults Upon Senior Securities
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14 | |
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Item 5. Other Information
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14 | |
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Item 6. Exhibits
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15 | |
ii
FINANCIAL INFORMATION
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OMNITEK ENGINEERING CORP.
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Condensed Balance Sheets
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ASSETS
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June 30,
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December 31,
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|||||||
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2015
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2014
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(unaudited)
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CURRENT ASSETS
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Cash
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$ | 350,351 | $ | 498,782 | ||||
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Accounts receivable, net
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93,133 | 56,059 | ||||||
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Accounts receivable - related parties
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17,723 | 15,092 | ||||||
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Inventory, net
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2,215,859 | 2,333,781 | ||||||
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Prepaid expense
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6,050 | 4,200 | ||||||
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Deposits
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130,765 | 92,779 | ||||||
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Total Current Assets
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2,813,881 | 3,000,693 | ||||||
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FIXED ASSETS, net
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73,934 | 88,715 | ||||||
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OTHER ASSETS
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||||||||
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Intellectual property, net
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602 | 1,345 | ||||||
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Other noncurrent assets
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14,280 | 14,280 | ||||||
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Total Other Assets
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14,882 | 15,625 | ||||||
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TOTAL ASSETS
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$ | 2,902,697 | $ | 3,105,033 | ||||
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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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$ | 111,043 | $ | 84,385 | ||||
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Accrued management compensation
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131,567 | 102,096 | ||||||
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Accounts payable - related parties
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7,096 | 3,600 | ||||||
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Customer deposits
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400,736 | 345,844 | ||||||
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Total Current Liabilities
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650,442 | 535,925 | ||||||
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Total Liabilities
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650,442 | 535,925 | ||||||
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STOCKHOLDERS' EQUITY
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Common stock, 125,000,000 shares authorized no par value
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19,981,082 and 19,979,582 shares issued and outstanding,
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respectively
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8,291,411 | 8,289,911 | ||||||
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Additional paid-in capital
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11,208,591 | 11,121,502 | ||||||
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Accumulated deficit
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(17,247,747 | ) | (16,842,305 | ) | ||||
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Total Stockholders' Equity
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2,252,255 | 2,569,108 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$ | 2,902,697 | $ | 3,105,033 | ||||
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The accompanying notes are an integral part of these condensed financial statements.
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Page 1
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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 Six
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For the Six
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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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June 30
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June 30
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June 30
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June 30
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2015
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2014
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2015
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2014
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REVENUES
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$ | 591,185 | $ | 302,385 | $ | 1,041,885 | $ | 622,759 | ||||||||
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COST OF GOODS SOLD
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269,003 | 197,011 | 520,648 | 392,062 | ||||||||||||
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GROSS MARGIN
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322,182 | 105,374 | 521,237 | 230,697 | ||||||||||||
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OPERATING EXPENSES
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General and administrative
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396,841 | 433,083 | 747,893 | 877,604 | ||||||||||||
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Research and development expense
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89,655 | 135,399 | 166,239 | 239,159 | ||||||||||||
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Depreciation and amortization expense
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7,734 | 14,834 | 15,524 | 29,902 | ||||||||||||
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Total Operating Expenses
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494,230 | 583,316 | 929,656 | 1,146,665 | ||||||||||||
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LOSS FROM OPERATIONS
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(172,048 | ) | (477,942 | ) | (408,419 | ) | (915,968 | ) | ||||||||
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OTHER INCOME (EXPENSE)
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Investment income, net
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3,934 | 12,921 | 3,934 | 12,921 | ||||||||||||
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Interest expense
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(172 | ) | - | (172 | ) | - | ||||||||||
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Interest income
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6 | 5,512 | 15 | 26,533 | ||||||||||||
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Total Other Income (Expense)
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3,768 | 18,433 | 3,777 | 39,454 | ||||||||||||
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LOSS BEFORE INCOME TAXES
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(168,280 | ) | (459,509 | ) | (404,642 | ) | (876,514 | ) | ||||||||
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INCOME TAX EXPENSE
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- | - | 800 | 800 | ||||||||||||
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NET LOSS
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$ | (168,280 | ) | $ | (459,509 | ) | $ | (405,442 | ) | $ | (877,314 | ) | ||||
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BASIC AND DILUTED LOSS PER SHARE
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$ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.04 | ) | ||||
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WEIGHTED AVERAGE NUMBER
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OF COMMON SHARES OUTSTANDING
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19,981,082 | 19,762,897 | 19,981,858 | 19,762,897 | ||||||||||||
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The accompanying notes are an integral part of these condensed financial statements.
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Page 2
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OMNITEK ENGINEERING CORP.
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Condensed Statements of Cash Flows (unaudited)
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For the Six
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For the Six
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Months Ended
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Months Ended
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June 30,
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June 30,
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2015
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2014
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OPERATING ACTIVITIES
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Net loss
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$ | (405,442 | ) | $ | (877,314 | ) | ||
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Adjustments to reconcile net loss to
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||||||||
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net cash used in operating activities:
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Amortization and depreciation expense
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15,524 | 16,370 | ||||||
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Amortization of premium on investments
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- | 13,532 | ||||||
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Options and warrants
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87,089 | 91,141 | ||||||
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Stock-based compensation
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1,500 | - | ||||||
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Changes in operating assets and liabilities:
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Accounts receivable
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(37,074 | ) | (29,905 | ) | ||||
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Accounts receivable–related parties
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(2,631 | ) | 16,589 | |||||
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Deposits
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(37,986 | ) | (92,461 | ) | ||||
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Prepaid Expense
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(1,850 | ) | 14,728 | |||||
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Inventory
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117,922 | (194,018 | ) | |||||
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Accounts payable and accrued expenses
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26,658 | 123,031 | ||||||
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Customer deposits
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54,892 | 59,702 | ||||||
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Accounts payable-related parties
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3,496 | 2,538 | ||||||
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Accrued management compensation
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29,471 | (48,250 | ) | |||||
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Net Cash Used in Operating Activities
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(148,431 | ) | (904,317 | ) | ||||
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INVESTING ACTIVITIES
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Maturity of short-term investments
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- | 100,000 | ||||||
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Purchase of property and equipment
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- | (1,459 | ) | |||||
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Net Cash Provided by Investing Activities
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- | 98,541 | ||||||
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FINANCING ACTIVITIES
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Exercise of warrants and options for cash
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- | 13,600 | ||||||
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Net Cash Provided by Financing Activities
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- | 13,600 | ||||||
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NET DECREASE IN CASH
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(148,431 | ) | (792,176 | ) | ||||
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CASH AT BEGINNING OF YEAR
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498,782 | 1,057,836 | ||||||
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CASH AT END OF PERIOD
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$ | 350,351 | $ | 265,660 | ||||
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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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$ | - | $ | - | ||||
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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 financial statements.
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Page 3
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
June 30, 2015
(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, 2015 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, 2014 audited financial statements. The results of operations for the periods ended June 30, 2015 and 2014 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, consisting of the following:
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June 30,
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December 31,
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Location : Vista, CA
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2015
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2014
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Raw materials
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$ | 1,121,426 | $ | 1,122,270 | ||||
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Finished goods
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1,333,703 | 1,403,946 | ||||||
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In transit
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- | 46,835 | ||||||
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Allowance for obsolete inventory
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(239,270 | ) | (239,270 | ) | ||||
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Total
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$ | 2,215,859 | $ | 2,333,781 | ||||
Page 4
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
June 30, 2015
(unaudited)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment at June 30, 2015 and December 31, 2014 consisted of the following:
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June 30,
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December 31,
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2015
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2014
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Production equipment
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$ | 61,960 | $ | 61,960 | ||||
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Computers/Office equipment
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28,540 | 28,540 | ||||||
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Tooling equipment
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12,380 | 12,380 | ||||||
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Leasehold Improvements
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42,451 | 42,451 | ||||||
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Less: accumulated depreciation
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(71,397 | ) | (56,616 | ) | ||||
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Total
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$ | 73,934 | $ | 88,715 | ||||
Depreciation expense for the periods ended June 30, 2015 and December 31, 2014 was $14,781 and $31,204, 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 -0- stock options and warrants that would have been included in the fully diluted earnings per share as of June 30, 2015 and December 31, 2014.
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.
Page 5
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
June 30, 2015
(unaudited)
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, 2015 and December 31, 2014 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 2008.
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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 and held them to maturity. Accordingly, the Company has recorded and has amortized the premium over the life of the bonds. During the year ended December 31, 2014, the Company received proceeds of $900,000 from bonds that matured during the period. During the six months ended June 30, 2015 and 2014, the Company had correlating amortization expense of $-0- and $13,532, 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, 2014, the Company owned a 15% interest in Omnitek Engineering Thailand Co. Ltd. and a 20% interest in Omnitek Peru S.A.C. As of June 30, 2015 and December 31, 2014, the Company was owed $17,723 and
$15,092
, respectively, by related parties for the purchase of products and services.
Revenue recognized from sales to related parties was $11,483 and $47,695 for the periods ended June 30, 2015 and December 31, 2014, respectively.
Accounts Payable – Related Parties
The Company regularly incurs expenses that are paid to related parties and purchases goods and services from related parties. As of June 30, 2015 and December 31, 2014, the Company owed related parties for such expenses, goods and services in the amounts of $7,096 and $3,600, respectively.
Accrued Management Expenses
For the periods ended June 30, 2015 and December 31, 2014, the Company’s president and vice president were due amounts for services performed for the Company. As of June 30, 2015 and December 31, 2014 the accrued management fees consisted of the following:
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June 30,
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December 31,
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2015
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2014
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Amounts due to the president
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$
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107,373
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$
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78,527
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Amounts due to the vice president
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24,194
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23,569
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Total
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$
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131,567
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$
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102,096
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Page 6
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
June 30, 2015
(unaudited)
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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 June 30, 2015 the Company has a total of -0- 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 June 30, 2015 the Company has a total of 790,000 options issued under the plan. During the six months ended June 30,2015 and 2014 the Company issued -0- and -0- warrants, respectively.
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During the six months ended June 30, 2015 and 2014, the Company recognized expense of $87,089 and $91,141, 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 $412,731.
The Company recognizes compensation expense for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value. The Company estimates the fair value of stock options using a Black-Scholes option pricing model which requires management to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock.
A summary of the status of the options and warrants granted at June 30, 2015 and December 31, 2014 and changes during the periods then ended is presented below:
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June 30,
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December 31,
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|||||||||||||||
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2015
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2014
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Weighted-Average
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Weighted-Average
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|||||||||||||||
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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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|||||||||||||
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Outstanding at beginning of year
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3,515,313 | $ | 3.56 | 6,250,313 | $ | 2.30 | ||||||||||
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Granted
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50,000 | 1.13 | 115,000 | 1.95 | ||||||||||||
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Exercised
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- | - | (220,000 | ) | 0.40 | |||||||||||
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Expired or cancelled
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- | - | (2,630,000 | ) | 0.77 | |||||||||||
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Outstanding at end of period
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3,565,313 | 3.51 | 3,515,313 | 3.56 | ||||||||||||
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Exercisable
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3,277,396 | $ | 3.61 | 3,199,896 | $ | 3.67 | ||||||||||
Page 7
OMNITEK ENGINEERING CORP.
Notes to Condensed Financial Statements
June 30, 2015
(unaudited)
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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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|||||||||||
| $ | 1.01-2.00 | 190,000 |
1.83 years
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170,000 | $ | 1.42 | |||||||||
| $ | 2.01-3.00 | 630,000 |
2.56 years
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387,083 | $ | 2.53 | |||||||||
| $ | 3.01-4.00 | 2,720,313 |
3.88 years
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2,720,313 | $ | 3.88 | |||||||||
| 3,540,313 |
3.53 years
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3,277,396 | $ | 3.59 | |||||||||||
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.
Page 8
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ITEM 2
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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.
Results of Operations
For the three months ended June 30, 2015 and 2014
Revenues were $591,185 for the three months ended June 30, 2015 compared with $302,385 for the three months ended June 30, 2014, an increase of $288,800, or 95%, which was primarily due to increased revenue from conversion kit shipments and filter sales.
Our cost of sales was $269,004 for the three months ended June 30, 2015 compared with $197,011 for the three months ended June 30, 2014, an increase of $71,993. Our gross margin was 54% for the three months ended June 30, 2015 compared with 34% in the same period in 2014.
Our operating expenses for the three months ended June 30, 2015 were $494,229 compared with $583,316 in the same period in 2014, a decrease of $89,087 or 15%. General and administrative expense for the three months ended June 30, 2015 was $396,839 as compared with $433,083 for the three months ended June 30, 2014. Major components of general and administrative expenses for the three months ended June 30, 2015 were professional fees of $23,244, rent expense of $45,653, and salary and wages of $129,241. This compares to professional fees of $25,361, rent expense of $35,326 and salaries and wages of $129,602 for the three months ended June 30, 2014. For the three months ended June 30, 2015 research and development outlays were decreased to $89,656 compared with $135,399 for the three months ended June 30, 2014.
Our net loss for the three months ended June 30, 2015 was $168,280, or $0.01 per share, compared with a net loss of $459,509, or $0.02 per share, for the three months ended June 30, 2014. The decreased loss was the result of increased sales and decreased expenses as noted above.
Results for the three months ended June 30, 2015 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $53,486 and depreciation and amortization of $7,734. For the three month period a year earlier, non-cash expenses for the value of options and warrants granted were $45,822, with depreciation and amortization of $14,834.
Page 9
For the six months ended June 30, 2015 and 2014
Revenues increased to $1,041,885 for the six months ended June 30, 2015 from $622,759 for the six months ended June 30, 2014, an increase of $419,126 or 67%.
Our cost of sales increased to $520,648 for the six months ended June 30, 2015 from $392,062 for the six months ended June 30, 2014, an increase of $128,586. Our gross margin was 50% for the six months ended June 30, 2015 compared to 37% in 2014.
Our operating expenses for the six months ended June 30, 2015 were $929,656 compared to $1,146,665 in 2014, a decrease of $217,009 or 18%. General and administrative expense for the six months ended June 30, 2015 was $747,893 as compared to $877,604 for the six months ended June 30, 2014. The decrease is due primarily to lower outside services of $20,905 for the six months ended June 30, 2015 as compared to $ $55,274 for the six months ended June 30, 2014, lower legal expense of $36,937 for the six months ended June 30, 2015 as compared to $69,625 for the six months ended June 30, 2014 and lower group health insurance of $ 29,799 for the six months ending June 30, 2015 as compared to $ 41,837 for the six months ended June 30, 2014. Major components of general and administrative expenses for the six months ended June 30, 2015 were professional fees of $59,787, rent expense of $74,983 and salary and wages of $265,486. This compares to professional fees of $88,125, rent expense of $81,984, and salary and wages of $270,458 for the six months ended June 30, 2014. Research and development outlays were decreased to $166,239 for the six months ended June 30, 2015 compared to $239,159 for the six months ended June 30, 2014.
Our net loss for the six months ended June 30, 2015 was $405,442, or $0.02 per share, compared to a net loss of $877,314, or $0.04 per share, for the six months ended June 30, 2014. The decreased loss was the result of increased sales and decreased expenses as noted above.
Results for the six months ended June 30, 2015 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $87,089 and depreciation and amortization of $15,524. For the six-month period a year earlier, non-cash expenses for the value of options and warrants granted were $91,141 and depreciation and amortization of $29,902.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash provided by operating activities and available working capital. Additionally, from time to time we may raise funds from the equity capital markets to fund our research and development programs, expansion of our business and general operations.
At June 30, 2015, our current liabilities totaled $650,442 and our current assets totaled $2,813,881, resulting in positive working capital of $2,163,439 and a current ratio of 4.32.
We have no firm commitments or obligations for capital expenditures. However, substantial discretionary expenditures may be required to enable us to conduct existing and planned product research, design, development, manufacturing, marketing and distribution of our products. We may need to raise additional capital to facilitate growth and support our long-term product development, manufacturing, and marketing programs. The Company has no established bank-financing arrangements, therefore, it is possible that we need to seek additional financing through subsequent future public or private sales of our securities, including equity securities. We may also seek 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.
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We have historically incurred significant losses, which have resulted in a total accumulated deficit of $17,247,747 at June 30, 2015, of which $5,604,135 is a direct result of derivative expense and change in fair value of derivative liability and is unrelated to, and has no effect on, our operations or cash flow.
Operating Activities
We realized a negative cash flow from operations of $148,431 for the six months ended June 30, 2015 compared with a negative cash flow of $904,317 during the six months ended June 30, 2014.
Included in the net loss of $405,442 for the six months ended June 30, 2015 are non-cash expenses, which are not a drain on our capital resources. During the six months ended June 30, 2015, the non-cash expenses include the value of options and warrants granted in the amount of $87,089 and depreciation and amortization of $15,524. Excluding these non-cash amounts, our EBITDA for the six months ended June 30, 2015 would have been a loss of $302,029.
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.
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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, 2015, 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 2008.
At June 30, 2015, the Company had net operating loss carry forwards of approximately $5,348,732 through 2034. No tax benefit has been reported in the June 30, 2015 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.
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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
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2015.
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, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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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.
None
None
None
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(a) Documents filed as part of this Report.
1.
Financial Statements.
The condensed unaudited Balance Sheet of Omnitek Engineering Corp. as of June 30, 2015 and the audited balance sheet as of December 31, 2014, the condensed unaudited Statements of Operations for the six months periods ended June 30, 2015 and 2014, and the condensed unaudited Statements of Cash Flows for the six month periods ended June 30, 2015 and 2014, 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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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 March 31, 2015 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.
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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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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Omnitek Engineering Corp.
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|||
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|||
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Dated: August 11, 2015
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|||
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By: Werner Funk
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|||
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Its:
Chief Executive Officer
Principal Executive Officer
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|||
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Dated: August 11, 2015
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/s/ Richard L. Miller
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||
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By: Richard L. Miller
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|||
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Its:
Chief Financial Officer
Principal Financial Officer
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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