Omnitek Engineering Corp - Quarter Report: 2021 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2021

Commission File Number 000-53955

OMNITEK ENGINEERING CORP.

(Exact name of Registrant as specified in its charter)

California	33-0984450
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1345 Specialty Drive, #E, 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 ☒ 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 (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ 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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbols(s)	Name of each exchange on which registered
N/A

As of August 16, 2021, the Registrant had 21,600,189 shares of its no par value Common Stock outstanding.

Page 1

TABLE OF CONTENTS
	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020	3

Condensed Statements of Operations for the three and six months ended June 30, 2021 and June 30, 2020 (unaudited)	4

Condensed Statements of Cash Flows for the six months ended June 30, 2021 and June 30, 2020 (unaudited)	5

Condensed Statements of Stockholders’ Deficit for the three and six months ended June 30, 2021 and June 30, 2020 (unaudited)	6

Notes to the Condensed Financial Statements	7

Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations	17

Item 3. Quantitative and Qualitative Disclosures about Market Risk	21

Item 4. Controls and Procedures	21

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	22

Item 1A. Risk Factors	22

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3. Defaults Upon Senior Securities	22

Item 5. Other Information	22

Item 6. Exhibits	23

Page 2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OMNITEK ENGINEERING CORP.
Condensed Balance Sheets
			June 30,		December 31,
			2021		2020
			(unaudited)
ASSETS

CURRENT ASSETS
	Cash		$	20,652	$	60,729
	Accounts receivable, net			5,977		9,455
	Accounts receivable - related parties			18,553		17,345
	Inventory, net			764,264		821,866
	Contract assets			13,221		13,221
	Prepaid expenses			11,164		-
	Deposits			33,183		38,610

		Total Current Assets		867,014		961,226

Property and equipment, net				995		1,266

OTHER ASSETS
	Security Deposits			27,794		14,280
		Total Other Assets		27,794		14,280

	TOTAL ASSETS		$	895,803	$	976,772

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
	Accounts payable and accrued expenses		$	459,714	$	468,839
	Accounts payable - related parties			128,552		121,527
	Accrued management compensation			611,888		595,158
	Note payable - related party			15,000		15,000
	Convertible notes payable – related party			32,600		-
	Contract liabilities			75,000		75,000
	Current portion, long-term debt			4,024		69,551
	Customer deposits			206,810		276,381
		Total Current Liabilities		1,533,588		1,621,456
LONG-TERM LIABILITIES
Convertible note payable - related party, net of current portion				17,400		-
Loans payable – SBA, net of current portion				294,650		229,449
Total Long-term Liabilities				312,050		229,449

Total Liabilities				1,845,638		1,850,905

STOCKHOLDERS' DEFICIT
	Common stock, 125,000,000 shares authorized, no par value, 21,600,189 shares issued and outstanding			8,578,210		8,578,210
	Additional paid-in capital			12,027,172		12,013,298
	Accumulated deficit			(21,555,217)		(21,465,641)
		Total Stockholders' Deficit		(949,835)		(874,133)

	TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	895,803	$	976,772

The accompanying notes are an integral part of these condensed unaudited financial statements.

Page 3

OMNITEK ENGINEERING CORP.
Condensed Statements of Operations (unaudited)

			For the Three		For the Three		For the Six		For the Six
			Months Ended		Months Ended		Months Ended		Months Ended
			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020

REVENUES			$	228,307	$	203,967	$	`446,420`	$	434,904
COST OF GOODS SOLD				`161,572`		144,860		`290,883`		279,980
GROSS MARGIN				`66,735`		59,107		`155,537`		154,924

OPERATING EXPENSES

	General and administrative			`132,424`		168,786		`298,877`		354,750
	Research and development			`17,099`		17,547		`33,555`		49,686
	Depreciation and amortization			`136`		136		`271`		271

		Total Operating Expenses		`149,659`		186,469		`332,703`		404,707

LOSS FROM OPERATIONS				`(82,924)`		(127,362)		`(177,166)`		(249,783)

OTHER INCOME (EXPENSE)

	Other Income			`67`		`274`		`67`		874
	Gain on extinguishment of liability			`-`		-		`100,655`		-
	Interest expense			`(5,524)`		(5,409)		`(12,332)`		(10,293)

		Total Other Income (Expense)		`(5,457)`		(5,135)		`88,390`		(9,419)

LOSS BEFORE INCOME TAXES				`(88,381)`		(132,497)		`(88,776)`		(259,202)
INCOME TAX EXPENSE				`800`		-		`800`		-

NET LOSS			$	`(89,181)`	$	(132,497)	$	`(89,576)`	$	(259,202)

BASIC AND DILUTED LOSS PER SHARE			$	`(0.00)`	$	(0.01)	$	`(0.00)`	$	(0.01)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING -BASIC AND DILUTED				`21,600,189`		21,339,865		`21,600,189`		21,339,865

The accompanying notes are an integral part of these condensed unaudited financial statements.

Page 4

OMNITEK ENGINEERING CORP.

Condensed Statements of Cash Flows (unaudited)

	For the Six		For the Six
	Months Ended		Months Ended
	30-Jun-21		30-Jun-20
OPERATING ACTIVITIES
Net loss	$	(89,576)	$	(259,202)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation expense		271		271
Options issued for services		13,874		12,078
Gain on extinguishment of liability		(100,655)		-
Change in Inventory reserve		(88,956)		50,053
Changes in operating assets and liabilities:
Accounts receivable		3,478		(28,698)
Accounts receivable–related parties		(1,208)		30
Prepaid expenses		(11,164)		-
Deposits		(8,088)		(7,983)
Inventory		146,558		36,002
Accounts payable and accrued expenses		(8,469)		(40,949)
Customer deposits		(69,571)		6,480
Accounts payable-related parties		7,025		(14,094)
Accrued management compensation		16,730		44,808
Net Cash Used in Operating Activities		(189,751)		(201,204)

INVESTING ACTIVITIES
Net Cash Used in Investing Activities		-		-

FINANCING ACTIVITIES
Payments on convertible note payable		-		(15,000)
Payments on note payable		(326)		-
Proceeds from convertible note payable-related party		50,000		-
Payments on related party note payable		-		(27,000)
Proceeds from stock subscription		-		31,000
Proceeds from loans payable - SBA		100,000		299,000
Net Cash Provided by Financing Activities		149,674		288,000

NET CHANGE IN CASH		(40,077)		86,796
CASH AT BEGINNING OF YEAR		60,729		20,236

CASH AT END OF PERIOD	$	20,652	$	107,032
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
CASH PAID FOR:
Interest		8,716		11,857
Income taxes	$	800	$	-

The accompanying notes are an integral part of these condensed unaudited financial statements.

Page 5

OMNITEK ENGINEERING CORP.

Condensed Statements of Stockholders’ Deficit (unaudited)

					Common	Additional				Total
	Common Stock				Stock	Paid-In		Accumulated		Stockholders’
	Shares	Amount			Subscribed	Capital		Deficit		Deficit

Balance, December 31, 2020	21,600,189	$	8,578,210	$	-	$	12,013,298	$	(21,465,641)	$	(874,133)

Value of options issued for services	-		-		-		11,283		-		11,283

Net loss for the three months ended March 31, 2021	-		-		-		-		(395)		(395)

Balance, March 31, 2021	21,600,189	$	8,578,210	$	-	$	12,024,581	$	(21,466,036)	$	(863,245)

Value of options issued for services	-		-		-	2,591			-	2,591

Net loss for three months ended June 30, 2021	-		-		-	-			(89,181)	(89,181)

Balance, June 30, 2021	21,600,189	$	8,878,210		51,000	$	12,027,172	$	(21,555,217)	$	(949,835)

					Common	Additional				Total
	Common Stock				Stock	Paid-In		Accumulated		Stockholders'
	Shares		Amount		Subscribed	Capital		Deficit		Deficit


Balance, December 31, 2019	21,339,865	$	8,527,210	$	20,000	$	11,997,842	$	(20,975,929)	$	(430,877)

Value of options issued for services	-		-		-		10,408		-		10,408

Deposit – stock purchase agreement	-		-		31,000						31,000

Net loss for the three months ended March 31, 2020	-		-		-		-		(126,705)		(126,705)

Balance, March 31, 2020	21,339,865	$	8,527,210	$	51,000	$	12,008,250	$	(21,102,634)	$	(516,174)


Value of options issued for services	-		-		-		1,670		-		1,670

Net loss for the three months ended June 30, 2020	-		-		-		-		(132,497)		(132,497)

Balance, June 30, 2020	21,339,865	$	8,527,210	$	51,000	$	12,009,920	$	(21,235,131)	$	(647,001)

The accompanying notes are an integral part of these condensed unaudited financial statements.

Page 6

OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

June 30, 2021

(unaudited)

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

The accompanying condensed financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at June 30, 2021 and for all periods presented herein, have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2020 audited financial statements. The results of operations for the periods ended June 30, 2021 and 2020 are not necessarily indicative of the operating results for the full years.

In December 2019, a novel strain of coronavirus disease (“COVID-19”) was first reported in Wuhan, China. Less than four months later, on March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The extent of COVID-19’s impact on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company’s business. However, if the pandemic continues to evolve into a severe worldwide health crisis, the disease could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

In general, revenue is recognized when control of the promised goods is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for the goods or services. In order to achieve that core principle, a five-step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue allocated to each performance obligation when we satisfy the performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue recognition.

We recognize revenue on various products and services as follows:

Products - The Company recognizes revenue from the sale of products (e.g., filters and engine components) as performance obligations are satisfied. This type of revenue is primarily generated from the sale of finished product to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks and rewards transfer (i.e., the performance obligation has been satisfied).

Contracts – Revenues are recognized as performance obligations are satisfied over time (also known as percentage-of-completion method), measured by either achievement of milestones or the ratio of costs incurred up to a given date to estimated total costs for each contract. Contract costs include all direct material, labor, subcontract and other costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and associated change orders and

Page 7

OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

June 30, 2021

(unaudited)

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

claims, including those changes arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of Omnitek’s contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.

Performance Obligations Satisfied Over Time

Revenues for Omnitek’s long-term contracts that satisfy the criteria for over time recognition (formerly known as percentage-of-completion method) is recognized as the work progresses. The majority of the revenue is derived from long-term engine development agreements that typically span between 12 to 24 months. Omnitek’s long-term contracts will continue to be recognized over time because our typical contract is for a customized asset with no alternative use and generally the Company has a right to payment for work completed to date. Under the new revenue standard, the cost-to-cost measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as the Company incurs costs. Contract costs include labor and material. Revenue from products and services transferred to customers over time accounted for 0% and 0% of revenue for the periods ended June 30, 2021 and 2020, respectively.

Performance Obligations Satisfied at a Point in Time

Revenue from product sales is recognized at a point in time. These sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risk and rewards transfer. Upon fulfilment of the performance obligation, the customer is provided an invoice demonstrating transfer of control to the customer. Revenue from goods and services transferred to customers at a point in time accounted for 100% and 100% of revenue for the periods ended June 30, 2021 and 2020, respectively.

Assurance-type warranties are the only warranties provided by the Company and, as such, Omnitek does not recognize revenue on warranty-related work. Omnitek generally provides a one-year warranty for products that it sells. Warranty claims historically have been insignificant.

Pre-contract costs are generally not incurred by the Company

Contract Estimates

Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, Omnitek estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognizes that profit over the life of the contract.

Variable Consideration

The transaction price for contracts may include variable consideration, which includes increases to transaction price for approved and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. Variable consideration historically has been insignificant.

Page 8

OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

June 30, 2021

(unaudited)

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Disaggregation of Revenue

The following table presents Omnitek’s revenues disaggregated by region and product type for the three months ended June 30, 2021 and June 30, 2020:

		For the three months ended June 30,			For the three months ended June 30,
		2021			2020
		Consumer	Long-term		Consumer	Long-term
Segments		Products	Contract	Total	Products	Contract	Total
Domestic	$	101,088	-	101,088	187,810	-	187,810
International		127,220	-	127,220	16,157	-	16,157
	$	228,307	-	228,307	203,967	-	203,967

Filters	$	106,051	-	106,051	52,001	-	52,001
Components		122,257	-	122,257	151,966	-	151,966
Engineering Services		-	-	-	-	-	-
	$	228,307	-	228,307	203,967	-	203,967

The following table presents Omnitek’s revenues disaggregated by region and product type for the six months ended June 30, 2021 and June 30, 2020:

		For the six months ended June 30,			For the six months ended June 30,
		2021			2020
		Consumer	Long-term		Consumer	Long-term
Segments		Products	Contract	Total	Products	Contract	Total
Domestic	$	233,869	-	233,869	366,037	-	366,037
International		212,551	-	212,551	68,867	-	68,867
	$	446,420	-	446,420	434,904	-	434,904

Filters	$	210,407	-	210,407	163,942	-	163,942
Components		227,543	-	227,543	270,962	-	270,962
Engineering Services		8,470	-	8,470	-	-	-
	$	446,420	-	446,420	434,904	-	434,904

Page 9

OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

June 30, 2021

(unaudited)

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Inventory

Inventory is stated at the lower of cost or market. The Company’s inventory consists of finished goods and raw material and is located in Vista, California, consisting of the following:

	June 30,		December 31,
Location : Vista, CA	2021		2020
Raw materials	$	849,473	$	917,567
Finished goods		884,145		962,608
Work in progress		-		-
Allowance for obsolete inventory		(969,354)		(1,058,309)
Total	$	764,264	$	821,866

The Company has established an allowance for obsolete inventory. Expense for obsolete inventory was $50,542 and $50,053, for the periods ended June 30, 2021 and June 30, 2020, respectively.

Property and Equipment

Property and equipment at June 30, 2021 and December 31, 2020 consisted of the following:

	June 30,		December 31,
	2021		2020
Production equipment	$	64,673	$	64,673
Computers/Office equipment		28,540		28,540
Tooling equipment		12,380		12,380
Leasehold Improvements		42,451		42,451
Less: accumulated depreciation		(147,049)		(146,778)
Total	$	995	$	1,266

Depreciation expense for the periods ended June 30, 2021 and June 30, 2020 was $271 and $271, 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 3,023,889 and 2,807,223 stock options that would have been included in the fully diluted earnings per share as of June 30, 2021 and June 30, 2020, 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.

Page 10

OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

June 30, 2021

(unaudited)

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company's financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of June 30, 2021 and December 31, 2020 the Company had no accrued interest or penalties related to uncertain tax positions. The Company files an income tax return in the U.S. federal jurisdiction and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2012.

Liquidity and Going Concern

Historically, the Company has incurred net losses and negative cash flows from operations. As of June 30, 2021, the Company had an accumulated deficit of $21,555,217 and total stockholders’ deficit of $(949,835). At June 30, 2021, the Company had current assets of $867,014 including cash of $20,652, and current liabilities of $1,533,588, resulting in negative working capital of $(666,574). For the six months ended June 30, 2021, the Company reported a net loss of $89,576 and net cash used in operating activities of $189,751. Management believes that based on its operating plan, the projected sales for 2021, combined with funds available from its working capital will be sufficient to fund operations for the next twelve months. However, there can be no assurance that operations and operating cash flows will continue at the current levels or improve in the near future. Whether, and when, the Company can attain profitability and positive cash flows from operations is uncertain. The Company is also uncertain whether it can raise additional capital. These uncertainties cast significant doubt upon the Company’s ability to continue as a going concern for one year from the issuance of these financial statements. Our financial statements have been prepared on a going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of operations. The financial statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities should we be unable to continue as a going concern.

Recent Accounting Pronouncements

The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.

NOTE 3 – CONTRACT ASSETS AND LIABILITIES

The timing of revenue recognition, billings and cash collections results in billed accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) on the balance sheet. For Omnitek’s long-term contracts, amounts are generally billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, Omnitek sometimes receives advances or deposits from its customers, before revenue is recognized, resulting in billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities).

The table below reconciles the net excess billings to the amounts included in the balance sheets at those dates:

	June 30,		December 31,
	2021		2020
Contract assets	$	13,221		13,221
Contract liabilities	$	(75,000)		(75,000)
Net amount of contract liabilities in excess of contract assets	$	(61,779)		(61,779)

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OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

June 30, 2021

(unaudited)

NOTE 4 – COMMITMENTS

Effective September 1, 2019, the Company entered into the Fourth Amendment to the Lease for its facility, reducing the size of the leased space to 21,786 square feet and extending the lease term to August 31, 2020, at which time the lease expired. The current lease payment is $14,161 per month, plus common area maintenance expenses (CAM). Under the amended lease, past due rent is payable at monthly installments of $10,000, until such time as the past due rent has been paid in full. The lease is not subject to the right-of-use asset rules under ASU 2016-2 because it qualifies for the short-term lease exception under that pronouncement.

As of June 30, 2021 the outstanding balance of back rent, included in accounts payable, was $42,529 and the security deposit of $14,000 remained the same. In agreement with the landlord, the Company vacated the premises effective July 15, 2021. See Note 9 regarding the lease entered into by the Company effective July 1, 2021.

NOTE 5 - RELATED PARTY TRANSACTIONS

Accounts Receivable – Related Parties

As of June 30, 2021 and December 31, 2020, the Company was owed $18,553 (net of allowance for doubtful accounts of $6,714) and $17,345, respectively, by an entity controlled by the Company’s CEO for the purchase of products and services.

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, 2021 and December 31, 2020, the Company owed a board member’s company for such expenses, goods and services in the amounts of $128,552 and $121,527, respectively.

Accrued Management Compensation

For the periods ended June 30, 2021 and December 31, 2020, the Company’s president was due amounts for services performed for the Company.

As of June 30, 2021 and December 31, 2020 the accrued management fees consisted of the following:

	June 30,			December 31,
	2021			2020
Amounts due to the president		$	611,888		595,158
Total		$	611,888		595,158

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OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

June 30, 2021

(unaudited)

NOTE 6 – NOTES PAYABLE - RELATED PARTIES

Convertible Notes – Related Parties

On June 4, 2021 the Company issued a convertible promissory note for $30,000 to its CEO. The note has an annual interest rate of 8% and is unsecured. The note calls for monthly installment payments of $1,050 commencing on July 4, 2021. The unpaid principal amount of the note and all unpaid accrued interest is due and payable on or before June 4, 2023. The note has a conversion feature, wherein, at the maturity date the lender may convert the remaining principal balance and any unpaid accrued interest into shares of the Company’s common stock. The number of shares of common stock to be issued upon such conversion shall be equal to the quotient obtained by dividing (i) the remaining unpaid principal balance and any unpaid accrued interest of this note by (ii) 90% of the average closing price of the common stock of the Company, for the five (5) trading days (between days 15 and 10 days) before the maturity date. Due to this provision, the Company considered whether the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging.” As the note isn’t convertible until maturity, no derivative liability was recognized as of June 30, 2021.

On June 4, 2021 the Company issued a convertible promissory note for $20,000 to a board member. The note has an annual interest rate of 8% and is unsecured. The principal amount of the note and all accrued interest is due and payable on or before December 4, 2021. The note has a conversion feature, wherein, at the maturity date the lender may convert the remaining principal balance and any unpaid accrued interest into shares of the Company’s common stock. The number of shares of common stock to be issued upon such conversion shall be equal to the quotient obtained by dividing (i) the remaining unpaid principal balance and any unpaid accrued interest of this note by (ii) 90% of the average closing price of the common stock of the Company, for the five (5) trading days (between days 15 and 10 days) before the maturity date. Due to this provision, the Company considered whether the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging.” As the note isn’t convertible until maturity, no derivative liability was recognized as of June 30, 2021. As of June 30, 2021 and December 31, 2020 Convertible Notes – Related Party consisted of the following:

	June 30,			December 31,
	2021			2020
Convertible Note payable, related parties		$	50,000		-
Less current portion			(32,600)		-
Total		$	17,400		-

Notes Payable – Related Parties

On January 19, 2017, the Company issued a promissory note for $15,000 to the Company’s CEO. The note has an annual interest rate of 5% and is unsecured. The principal amount of the note and all accrued interest is due and payable on or before January 19, 2022. As of June 30, 2021 and December 31, 2020 Notes Payable – Related Party consisted of the following:

	June 30,			December 31,
	2021			2020
Note payable, related party		$	15,000		$	15,000
Total		$	15,000		$	15,000

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OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

June 30, 2021

(unaudited)

NOTE 7 – DEBT

Loans payable – SBA

Economic Injury Disaster Loan

On April 21, 2020, the Company obtained a loan (the “SBA EIDL Loan”) under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) adminitstered by the U.S. Small Business Administration. The Company received total proceeds of $199,000 from the SBA EIDL loan.

The SBA EIDL Loan is evidenced by a Loan Authorization and Agreement, a Secured Promissory Note (the “Note” and Security Agreement. Interest on the unpaid principal balance of the Note shall accrue at the rate of three and 75/100 percent (3.75%) per annum. Pursuant to the terms of the Note, commencing May 21, 2021 (i.e., twelve (12) months from the Note date), the Company shall make principal and interest payments in the amount of $970 every month, with any unpaid principal and accrued interest due and payable on April 21, 2050. In April 2021, the SBA announced that they were extending the first payment due date for all loans until 2022. For COVID-19 EIDL loans made in calendar year 2020, the first payment due date is extended until 24 months from the date of the note. The obligations under the Loan Authorization and Agreement, and the Note shall be secured pursuant to the Security Agreement and a first position lien and security interest in the Collateral (as defined in the Security Agreement). The collateral in which the security interest is granted includes all tangible and intangible personal property, including, but not limited to: (a) inventory, and (b) equipment.

Payroll Protection Program

On May 28, 2020, the Company received funds pursuant to a Paycheck Protection Program loan (the “SBA PPP Loan”) from Riverview Bank, under recently enacted CARES Act administered by U.S. Small Business Administration. The Company received total proceeds of $100,000 from the SBA PPP Loan. In accordance with the requirements of the CARES Act, the Company will use proceeds from the SBA PPP Loan primarily for payroll costs. The SBA PPP Loan was scheduled to mature on May 22, 2022 but allowed for forgiveness if certain conditions were met. On January 30, 2021, the Company was notified by the SBA that the loan had been forgiven in its entirety, including outstanding principal of $100,000 and accrued interest of $655.

On March 3, 2021 the Company received funds pursuant to a Paycheck Protection Program loan (the “PPP loan”) from LIBERTY CP2, SPV, LP, under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the SBA. The Company received total proceeds of $100,000 from the PPP loan. The loan carried an interest rate of 1.00%. Pursuant to the terms of the note, the first payment shall be determined based on the deferment period and time required to process any application for forgiveness. The Note shall be due on March 1, 2026, or as determined by the SBA and Department of the Treasury.

As of June 30, 2021, and December 31, 2020 Debt consisted of the following:

	June 30,			December 31,
	2021			2020
Loan payable – SBA EIDL		$	198,674		199,000
Loan payable – SBA PPP			100,000		100,000
Less current portion			(4,024)		(69,551)
Total		$	243,026		229,449

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OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

June 30, 2021

(unaudited)

NOTE 8 - STOCK OPTIONS

During the six months ended June 30, 2021 and 2020, the Company granted 400,000 and 150,000 options for services, respectively. During the six months ended June 30, 2021 and 2020, the Company recognized expense of $13,874 and $12,078, respectively, for options that vested during the periods pursuant to ASC Topic 718. Total remaining amount of compensation expense to be recognized in future periods is $27,983.

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, 2021 the Company has a total of 75,000 options issued under the 2011 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 June 30, 2021 the Company has a total of 1,915,556 options issued under the 2015 Plan.

In October 2017, the Company’s shareholders approved its 2017 Long-Term Incentive Plan (the “2017 Plan”). Under the 2017 plan, the Company may issue up to 5,000,000 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, 2021, the Company has a total of 1,008,333 options issued under the 2017 Plan.

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

The following table presents the assumptions used to estimate the fair values of the stock options granted:

	June 30, 2021	June 30, 2020
Expected volatility	201%	159%
Expected dividends	0%	0%
Expected term	7 Years	7 Years
Risk-free interest rate	1.20%	0.60%

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OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

June 30, 2021

(unaudited)

NOTE 8 - STOCK OPTIONS (CONTINUED)

A summary of the status of the options granted at June 30, 2021 and December 31, 2020 and changes during the periods then ended is presented below:

	June 30,		December 31,
	2021		2020
		Weighted-Average		Weighted-Average
	Shares	Exercise Price	Shares	Exercise Price
Outstanding at beginning of year	2,890,556	0.20	2,940,556	0.25
Granted	400,000	0.11	150,000	0.06
Exercised	-	-	-	-
Expired or cancelled	-	-	(200,000)	0.87
Outstanding at end of period	3,290,556	0.19	2,890,556	0.20
Exercisable	3,023,889	0.19	2,882,223	0.20

A summary of the status of the options outstanding at June 30, 2021 is presented below:

Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life	Number Exercisable	Weighted-Average Exercise Price

$ 0.01-0.99	3,290,556	3.46 years	3,023,889	0.19

NOTE 9 - SUBSEQUENT EVENTS

Effective July 1, 2021, the Company entered into a lease for the premises located at 1345 Specialty Drive, Vista, California, consisting of Suites D & E, containing approximately 11,751 square feet of rentable area. The lease commences July 1, 2021 and expires on June 30, 2026. The monthly base rent under the lease is $9,988 per month and monthly operating expenses during the term of the lease, subject to adjustment per the lease, of $1,175 per month.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed financial statements and related notes to the condensed financial statements included elsewhere in this periodic report. Some of the statements under “Management’s Discussion and Analysis,” “Description of Business” and elsewhere herein may include forward-looking statements which reflect our current views with respect to future events and financial performance. These statements include forward-looking statements both with respect to us specifically and the alternative fuels engines industry in general. Statements which include the words “expect,” “intend,” “plan,” “believe,” “project,” “anticipate,” “will,” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise. The safe harbor provisions of the federal securities laws do not apply to any forward-looking statements contained in this registration statement.

All forward-looking statements address such matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise.

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements you read herein reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our written and oral forward-looking statements attributable to us or individuals acting on our behalf and such statements are expressly qualified in their entirety by this paragraph.

Results of Operations

For the three months ended June 30, 2021 and 2020

Revenues were $228,307 for the three months ended June 30, 2021 compared with $203,967 for the three months ended June 30, 2020, an increase of $24,340. The increase in revenues for the period relates primarily to an increase in filter sales.

Cost of sales was $161,572 for the three months ended June 30, 2021 compared with $144,860 for the three months ended June 30, 2020, an increase of $16,712. Our gross margin percentage was 29% for the three months ended June 30, 2021 compared with 29% in the same period in 2020.

Operating expenses for the three months ended June 30, 2021 were $149,659 compared with $186,469 in the same period in 2020, a decrease of $36,362 or 20%. General and administrative expense for the three months ended June 30, 2021 was $134,424 compared with $168,786 for the three months ended June 30, 2020. Major components of general and administrative expenses for the three months ended June 30, 2021 were professional fees of $6,998, rent expense of $32,218, and salary and wages of $53,088. This compares to professional fees of $13,713, rent expense of $39,283 and salaries and wages of $53,198 for the three months ended June 30, 2020. For the three months ended June 30, 2021 research and development outlays decreased to $17,099 compared with $17,547 for the three months ended June 30, 2020.

Our net loss for the three months ended June 30, 2021 was $89,181, or ($0.00) per share, compared with a net loss of $132,497, or ($0.01) per share, for the three months ended June 30, 2020. The decreased net loss was primarily due to lower general and administrative expense during the three months ended June 30, 2021 over the same period a year earlier.

Results for the three months ended June 30, 2021 reflect the impact of non-cash expenses, including the value of options granted in the amount of $2,591, depreciation and amortization of $136 and the inventory reserve adjustment of $27,813. For the three month period a year earlier non-cash expenses included options granted in the amount of $1,670, depreciation and amortization of $136 and the inventory reserve adjustment of $25,000.

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For the six months ended June 30, 2021 and 2020

Revenues increased to $446,420 for the six months ended June 30, 2021 from $434,904 for the six months ended June 30, 2020, an increase of $11,516 or 3%.

Our cost of sales increased to $290,883 for the six months ended June 30, 2021 from $279,980 for the six months ended June 30, 2020, an increase of $10,903. Our gross margin was 35% for the six months ended June 30, 2021 compared to 36% in 2020.

Our operating expenses for the six months ended June 30, 2021 were $332,703 compared to $404,707 in 2020, a decrease of $72,004 or 18%. General and administrative expense for the six months ended June 30, 2021 was $298,877 as compared to $354,750 for the six months ended June 30, 2020. Major components of general and administrative expenses for the six months ended June 30, 2021 were professional fees of $34,971, rent expense of $65,015 and salary and wages of $104,314. This compares to professional fees of $46,190, rent expense of $71,422, and salary and wages of $117,375 for the six months ended June 30, 2020. Research and development outlays were decreased to $33,555 for the six months ended June 30, 2021 compared to $49,686 for the six months ended June 30, 2020.

Our net loss for the six months ended June 30, 2021 was $89,576, or $0.00 per share, compared to a net loss of $259,202, or $0.01 per share, for the six months ended June 30, 2020. The decreased net loss was primarily due to the gain on extinguishment of liability income realized in the six months ended June 30, 2021 over the same period a year earlier.

Results for the six months ended June 30, 2021 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $13,874, depreciation and amortization of $271 and the inventory reserve adjustment of $50,542. For the six-month period a year earlier, non-cash expenses included the value of options and warrants granted of $12,078, depreciation and amortization of $271 and inventory reserve adjustment of $50,053.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash provided by financing activities and available working capital. Additionally, from time to time we may raise funds from the equity capital markets to fund our research and development programs, expansion of our business and general operations.

At June 30, 2021, our current liabilities totaled $1,550,026 and our current assets totaled $867,014, resulting in negative working capital of $(683,012).

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 $21,555,217 at June 30, 2021, of which $5,604,135 is a direct result of derivative expense and change in fair value of derivative liability and is unrelated to our operations or cash flow.

Operating Activities

We realized a negative cash flow from operations of $189,751 for the six months ended June 30, 2021 compared with a negative operating cash flow of $201,204 during the six months ended June 30, 2020.

Included in the operating loss of $89,576 for the six months ended June 30, 2021 are non-cash expenses, which are not a drain on our capital resources. During the period, these non-cash expenses include the value of options and warrants granted in the amount of $13,874, depreciation and amortization of $271 and the inventory reserve adjustment of $88,956.

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Financing Activities

We realized a positive cash flow from financing activities of $149,674 for the six months ended June 30, 2021 compared with a positive cash flow of $288,000 for the six months ended June 30, 2020. The positive cash flow for the six months ended June 30, 2021 relates primarily to proceeds from long-term debt. The positive cash flow for the six months ended June 30, 2020 relates primarily to proceeds from long-term debt.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies and Estimates

Accounting Method and Use of Estimates

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

Accounts Receivable

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

Inventory

Inventory is stated at the lower of cost or market. The Company’s inventory consists of finished goods and raw materials. The Company identifies items in its inventory that have not been sold in a timely manner. Accordingly, the Company has established an allowance for the cost of such obsolete inventory.

Long-lived assets

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

Contract assets and liabilities

Revenue Recognition

Page 19

We recognize revenue on various products and services as follows:

Performance Obligations

Performance Obligations Satisfied Over Time

Performance Obligations Satisfied at a Point in Time

Pre-contract costs are generally not incurred by the Company.

Contract Estimates

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Variable Consideration

Recent Accounting Pronouncements

The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our 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, as a result of the material weaknesses described below, our disclosure controls and procedures were not effective as of June 30, 2021. The material weakness, which relates to internal control over financial reporting, that was identified is: due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis.

Changes in Internal Controls

There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

We are not a party to any pending legal proceeding. No federal, state or local governmental agency is presently contemplating any proceeding against the Company. No director, executive officer or affiliate of the Company or owner of record or beneficially of more than five percent of the Company's common stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.

ITEM 1A.RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 2.UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.OTHER INFORMATION

Subsequent Events.

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ITEM 6. EXHIBITS

(a)Documents filed as part of this Report.

1. Financial Statements. The condensed unaudited Balance Sheet of Omnitek Engineering Corp. as of June 30, 2021 and the audited balance sheet as of December 31, 2020, the condensed unaudited Statements of Operations for the three and six month periods ended June 30, 2021 and 2020, the condensed unaudited Statements of Cash Flows for the six month periods ended June 30, 2021 and 2020, and the condensed unaudited Statements of Stockholders’ Deficit as of June 30, 2021 and 2020, together with the notes thereto, are included in this Quarterly Report on Form 10-Q.

3. Exhibits. The following exhibits are either filed as a part hereof or are incorporated by reference. Exhibit numbers correspond to the numbering system in Item 601 of Regulation S-K.

Exhibit 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)
31.01		CEO certification pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 (3)
31.02		CFO certification pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 (3)
32.01		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 June 30, 2020 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

Page 23

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		Omnitek Engineering Corp.


Dated: August 18, 2021		/s/ Werner Funk
		By: Werner Funk
		Its: Chief Executive Officer Principal Executive Officer


Dated: August 18, 2021		/s/ Werner Funk
		By: Werner Funk

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