Omnitek Engineering Corp - Quarter Report: 2016 March (Form 10-Q)

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PART I

FINANCIAL INFORMATION

OMNITEK ENGINEERING CORP.
Condensed Balance Sheets
ASSETS
		March 31,				December 31,
		2016				2015
		(unaudited)
CURRENT ASSETS
Cash		$	38,088			$	105,846
Accounts receivable, net			73,338				30,835
Accounts receivable - related parties			22,395				17,257
Inventory, net			2,051,526				2,107,463
Prepaid expense			18,917				6,050
Deposits			18,045				19,745
Total Current Assets			2,222,309				2,287,196
FIXED ASSETS, net			51,851				59,151
OTHER ASSETS
Intellectual property, net			94				281
Other noncurrent assets			14,280				14,280
Total Other Assets			14,374				14,561
TOTAL ASSETS		$	2,288,534			$	2,360,908
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	206,276			$	145,207
Accrued management compensation			219,740				189,163
Accounts payable - related parties			7,381				7,591
Customer deposits			227,185				230,349
Total Current Liabilities			660,582				572,310
Total Liabilities			660,582				572,310
STOCKHOLDERS' EQUITY
Common stock, 125,000,000 shares authorized;
no par value; 19,981,082 shares
issued and outstanding			8,291,411				8,291,411
Additional paid-in capital			11,382,698				11,346,599
Accumulated deficit			(18,046,157	)			(17,849,412	)
Total Stockholders' Equity			1,627,952				1,788,598
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	2,288,534			$	2,360,908
The accompanying notes are an integral part of these financial statements.

OMNITEK ENGINEERING CORP.
Condensed Statements of Operations (unaudited)
		For the Three				For the Three
		Months Ended				Months Ended
		March 31,				March 31,
		2016				2015
REVENUES		$	334,443			$	428,808
REVENUES, related parties			5,139				21,892
COST OF GOODS SOLD			172,178				251,645
GROSS MARGIN			167,404				199,055
OPERATING EXPENSES
General and administrative			312,795				351,052
Research and development			47,407				76,584
Depreciation and amortization			7,487				7,790
Total Operating Expenses			367,689				435,426
LOSS FROM OPERATIONS			(200,285	)			(236,371	)
OTHER INCOME (EXPENSE)
Interest income			-				9
Interest expense			(690	)			-
Other income			4,230				-
Total Other Income (Expense)			3,540				9
LOSS BEFORE INCOME TAXES			(196,745	)			(236,362	)
INCOME TAX EXPENSE			-				800
NET LOSS		$	(196,745	)		$	(237,162	)
BASIC AND DILUTED LOSS PER SHARE		$	(0.01	)		$	(0.01	)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING
- BASIC AND DILUTED			19,981,082				19,980,632

 

OMNITEK ENGINEERING CORP.
Condensed Statements of Cash Flows (unaudited)
		For the Three				For the Three
		Months Ended				Months Ended
		March 31,				March 31,
		2016				2015
OPERATING ACTIVITIES
Net loss		$	(196,745	)		$	(237,162	)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization and depreciation expense			7,487				7,790
Options and warrants granted			36,099				33,603
Common stock issued for services			-				1,500
Changes in operating assets and liabilities:
Accounts receivable			(42,503	)			(49,741	)
Accounts receivable–related parties			(5,138	)			1,427
Deposits			1,700				52,375
Prepaid Expense			(12,867	)			(1,850	)
Inventory			55,938				33,162
Accounts payable and accrued expenses			61,068				30,766
Customer deposits			(3,164	)			52,444
Accounts payable-related parties			(210	)			3,614
Accrued management compensation			30,577				6,202
Net Cash Used in Operating Activities			(67,758	)			(65,870	)
INVESTING ACTIVITIES
			-				-
			-				-
			-				-
FINANCING ACTIVITIES
			-				-
			-				-
NET DECREASE IN CASH			(67,758	)			(65,870	)
CASH AT BEGINNING OF YEAR			105,846				498,782
CASH AT END OF PERIOD		$	38,088			$	432,912
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
CASH PAID FOR:
Interest		$	690			$	-
Income taxes		$	-			$	800
The accompanying notes are an integral part of these financial statements.

 

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

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 March 31, 2016 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, 2015 audited financial statements.  The results of operations for the periods ended March 31, 2016 and 2015 are not necessarily indicative of the operating results for the full years.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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.

The Company has evaluated recent accounting pronouncements and their adoption has not had nor is expected to have a material impact on the Company's financial position, or statements.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and equipment at March 31, 2016 and December 31, 2015 consisted of the following:

Depreciation expense for the three month periods ended March 31, 2016 and March 31, 2015 was $7,300 and $7,391, respectively.

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 March 31, 2016 and December 31, 2015.  

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.

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 March 31, 2016 and December 31, 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.

NOTE 3 - RELATED PARTY TRANSACTIONS

NOTE 4 - STOCK OPTIONS AND WARRANTS

During the three months ended March 31, 2016 and 2015, the Company granted -0- and -0- options for services, respectively. During the three months ended March 31, 2016 and 2015, the Company recognized expense of $36,099 and $33,603, 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 $194,616.

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 December 31, 2014 the remaining 2,590,000 options previously issued under the plan expired. 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 March 31, 2016 the Company has a total of 915,000 options issued under the plan. On September 11, 2015 the Board of Directors adopted the Omnitek Engineering Corp. 2015 Long Term Incentive Plan (the "2015 Plan"), under which 2,500,000 shares of the Company's Common Stock were reserved for issuance of both Incentive Stock Options to employees only and Non-Qualified Stock Options to employees and consultants at its discretion. As of March 31, 2016 the Company has a total of 100,000 options issued under the plan. During the three months ended March 31, 2016 and 2015 the Company issued -0- and -0- warrants, respectively.

 

The Company recognizes compensation expense for stock-based awards expected to vest on a straight-line basis over the requisite service period of the award based on their grant date fair value.  The Company estimates the fair value of stock options using a Black-Scholes option pricing model which requires management to make estimates for certain assumptions regarding risk-free interest rate, expected life of options, expected volatility of stock and expected dividend yield of stock. When determining expected volatility, the Company considers the historical performance of the Company's stock, as well as implied volatility. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant, based on the options' expected term. The expected term of the options is based on the Company's evaluation of option holders' exercise patterns and represents the period of time that options are expected to remain unexercised. The Company uses historical data to estimate the timing and amount of forfeitures.

A summary of the status of the options and warrants granted at March 31, 2016 and December 31, 2015 and changes during the periods then ended is presented below:

 

 

NOTE 5 - SUBSEQUENT EVENTS

 

 

ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the 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.

For the three months ended March 31, 2016 and 2015

Revenues were $339,582 for the three months ended March 31, 2016 compared with $450,700 for the three months ended March 31, 2015, a decrease of $111,118, or 25%, primarily due to year-over-year differences in product mix between filters and conversion sets.

Cost of sales was $172,178 for the three months ended March 31, 2016 compared with $251,645 for the three months ended March 31, 2015, a decrease of $79,467 or 32%. Our gross margin was 49% for the three months ended March 31, 2016 compared with 44% in the same period in 2015 primarily due to year-over-year differences in product mix between filters and conversion sets.

Operating expenses for the three months ended March 31, 2016 were $367,689 compared with $435,426 in the same period in 2015, a decrease of $67,737 or 16%. General and administrative expense for the three months ended March 31, 2016 was $312,795 as compared with $351,052 for the three months ended March 31, 2015. Major components of general and administrative expenses for the three months ended March 31, 2016 were professional fees of $31,385, rent expense of $27,736, and salary and wages of $119,286. This compares to professional fees of $36,543, rent expense of $29,330 and salaries and wages of $136,245 for the three months ended March 31, 2015.  For the three months ended March 31, 2016 research and development outlays decreased to $47,407 compared with $76,584 for the three months ended March 31, 2015, primarily due to a reduction in active research and development projects.

Our net loss for the three months ended March 31, 2016 was $196,745, or $0.01 per weighted average common share, compared with a net loss of $237,162, or $0.01 per weighted average common share, for the three months ended March 31, 2015. The decreased loss was the result of decreased expenses as noted above, offset partially by decreased revenues.

Results for the three months ended March 31, 2016 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $36,099 and depreciation and amortization of $7,487.  For the three month period a year earlier non-cash expenses include options and warrants granted in the amount of $33,603 and depreciation and amortization of $7,790.

 

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 March 31, 2016 our current liabilities totaled $660,582 and our current assets totaled $2,222,309, resulting in positive working capital of $1,561,727 and a current ratio of 3.36.

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.

We have historically incurred significant losses, which have resulted in a total accumulated deficit of $18,046,157 at March 31, 2016, 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 $67,758 for the three months ended March 31, 2016 compared with a negative cash flow of $65,870 during the three months ended March 31, 2015.

Included in the operating loss of $196,745 for the three months ended March 31, 2016 are non-cash expenses, which are not a drain on our capital resources.  During the period, these non-cash expenses include the value of options and warrants granted in the amount of $36,099 and depreciation and amortization of $7,487.  Excluding these non-cash amounts, our adjusted EBITDA for the three months ended March 31, 2016 is a loss of $153,159.

None.

Accounting Method and Use of Estimates

The Company's financial statements are prepared using the accrual method of accounting. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas where significant estimates are required include the following:

 

Accounts Receivable

Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts.

Inventory

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.

Long-lived assets

The Company assesses the recoverability of its long lived assets annually and whenever circumstances would indicate that there may be an impairment. The Company compares the estimated undiscounted future cash flows to the carrying value of the long lived assets to determine if an impairment has occurred. In the event that an impairment has occurred, the Company recognizes the impairment immediately.

Income Taxes

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 likelihood 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 when persuasive evidence of an arrangement exists; products have been shipped; pricing has been determined; and collection of the resulting receivable is reasonably assured.

 

 

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.

  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 March 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

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.

 

Subsequent to the period covered by this report, on April 15, 2016, pursuant to the agreement Werner Funk, the President and CEO of the Company, and in consideration of the exchange and cancellation of $100,000 of deferred salary owing by the Company to Mr. Funk, the Company granted to Mr. Funk a non-qualified stock option to purchase 470,000 shares of common stock, at an exercise price of $0.286 representing 110% of the closing price of the Company's common stock as of April 15, 2016.  Such Option shall be exercisable for a period of seven 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.  As the President and CEO of the Company, Mr. Funk was 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 April 15, 2016, the Company granted to each of Janice Quigley, Vice President and Richard Miller, Chief Financial Officer, a non-qualified stock option to purchase 50,000 shares of common stock, at an exercise price of $0.286 representing 110% of the closing price of the Company's common stock as of April 15, 2016. Such Options shall be exercisable for a period of seven 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.

 

Subsequent to the period covered by this report, on April 15, 2016, the Company granted to each of John M. Palumbo, Gary S. Maier and George G. Chachas, the three outside directors, a non-qualified stock option to purchase 50,000 shares of the Company's common stock at an exercise price of $0.26 per share representing 100% of the closing price of the Company's common stock as of April 15, 2016. Such Options shall be exercisable for a period of seven 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.

 

 

 

Exhibit
Number	Description of Exhibit
3.1	Amended and Restated Articles of Incorporation(1)
3.2	Amended and Restated By-Laws Adopted July 12, 2012 (2)
31.1	CEO certification pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 (3)
31.2	CFO certification pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 (3)
32.1	CEO and CFO certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)
101	The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in Extensible Business Reporting Language ("XBRL"): (i) the balance sheets (unaudited) ; (ii) the statements of operations (unaudited); (iii) the statements of cash flows (unaudited); and, (iv) related notes.

(1)	Previously filed on Form on Form 10 on April 27, 2010

(2)	Previously filed on Form 8-K on August 2, 2012

(3)	Filed herewith

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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