Omnitek Engineering Corp - Quarter Report: 2023 March (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: March 31, 2023
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 |
| (I.R.S. Employer |
1345 Specialty Dr. #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 May 19, 2023, the Registrant had 21,948,091 shares of its no par value Common Stock outstanding.
Page 1
TABLE OF CONTENTS
Page 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMNITEK ENGINEERING CORP.
Condensed Balance Sheets
|
| March 31, |
| December 31, |
| 2023 (Unaudited) |
| 2022 | |
ASSETS |
|
|
|
|
CURRENT ASSETS |
|
|
|
|
Cash |
| $71,321 |
| $56,379 |
Accounts receivable, net |
| 14,736 |
| 10,180 |
Accounts receivable – related parties |
| 1,179 |
| 2,252 |
Inventories, net |
| 503,229 |
| 543,353 |
Deposits |
| 4,230 |
| 7,657 |
Total Current Assets |
| 594,695 |
| 619,821 |
|
|
|
|
|
LONG-TERM ASSETS |
|
|
|
|
Property & Equipment, net |
| 6,975 |
| 7,412 |
Operating lease – right-of-use asset |
| 441,168 |
| 472,342 |
Long-term deposit |
| 13,514 |
| 13,514 |
Total Long-Term Assets |
| 461,657 |
| 493,268 |
|
|
|
|
|
TOTAL ASSETS |
| $1,056,352 |
| $1,113,089 |
LIABILITIES AND STOCKHOLDERS' DEFICIT |
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
Accounts payable and accrued expenses |
| $363,644 |
| $353,591 |
Accrued management compensation |
| 638,042 |
| 635,158 |
Accounts payable - related parties |
| 128,965 |
| 127,192 |
Notes payable - related parties, current portion |
| 35,000 |
| 15,000 |
Convertible notes payable – related party |
| 29,911 |
| 32,827 |
Customer deposits |
| 229,318 |
| 231,418 |
Operating lease liabilities - current |
| 120,228 |
| 118,756 |
Total Current Liabilities |
| 1,545,108 |
| 1,513,942 |
LONG-TERM LIABILITIES |
|
|
|
|
Loans payable – SBA, net of current portion |
| 199,000 |
| 199,000 |
Operating lease liabilities – long-term |
| 355,592 |
| 386,207 |
Total Long-term Liabilities |
| 554,592 |
| 585,207 |
Total Liabilities |
| 2,099,700 |
| 2,099,149 |
|
|
|
|
|
STOCKHOLDERS' DEFICIT |
|
|
|
|
Common stock, 125,000,000 shares authorized; no par value; 21,948,091 and 21,948,091 shares, respectively issued and outstanding |
| 8,607,086 |
| 8,607,086 |
Additional paid-in capital |
| 12,054,357 |
| 12,051,795 |
Accumulated deficit |
| (21,704,791) |
| (21,644,941) |
Total Stockholders' Deficit |
| (1,043,348) |
| (986,060) |
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
| $1,056,352 |
| $1,113,089 |
The accompanying notes are an integral part of these financial statements.
Page 3
OMNITEK ENGINEERING CORP.
Condensed Statements of Operations (unaudited)
| For the Three Months Ended March 31, 2023 |
| For the Three Months Ended March 31, 2022 | |
|
|
|
|
|
REVENUES |
| $225,204 |
| $258,851 |
COST OF GOODS SOLD |
| 130,418 |
| 170,605 |
GROSS MARGIN |
| 94,786 |
| 88,246 |
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
General and administrative |
| 130,730 |
| 138,696 |
Research and development |
| 17,939 |
| 16,252 |
Depreciation and amortization |
| 436 |
| 752 |
|
|
|
|
|
Total Operating Expenses |
| 149,105 |
| 155,700 |
|
|
|
|
|
LOSS FROM OPERATIONS |
| (54,319) |
| (67,454) |
|
|
|
|
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
Interest expense |
| (5,531) |
| (5,054) |
Forgiveness of debt |
| - |
| - |
|
|
|
|
|
Total Other Income (Expense) |
| (5,531) |
| (5,054) |
|
|
|
|
|
LOSS BEFORE INCOME TAXES |
| (59,850) |
| (72,508) |
INCOME TAX EXPENSE |
| - |
| - |
|
|
|
|
|
NET LOSS |
| $(59,850) |
| $(72,508) |
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE |
| $(0.00) |
| $(0.00) |
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED |
| 21,948,091 |
| 21,948,091 |
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 Three |
| For the Three |
|
| Months Ended |
| Months Ended |
| March 31, 2023 |
| March 31, 2022 | |
OPERATING ACTIVITIES |
|
|
|
|
Net loss |
| $(59,850) |
| $(72,508) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
Amortization and depreciation expense |
| 437 |
| 752 |
Stock option expense |
| 2,562 |
| 2,562 |
Amortization of ROU asset |
| 31,174 |
| 29,850 |
Changes in operating assets and liabilities: |
|
|
|
|
Accounts receivable |
| (4,556) |
| (3,008) |
Accounts receivable–related parties |
| 1,073 |
| - |
Deposits |
| 3,427 |
| (16,970) |
Inventory |
| 40,124 |
| 38,805 |
Accounts payable and accrued expenses |
| 10,053 |
| 23,266 |
Customer deposits |
| (2,100) |
| - |
Operating lease liability |
| (29,143) |
| (26,048) |
Accounts payable-related parties |
| 1,773 |
| (1,152) |
Accrued management compensation |
| 2,884 |
| 8,077 |
Net Cash Used in Operating Activities |
| (2,142) |
| (16,374) |
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
Net Cash Used in Investing Activities |
| - |
| - |
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
Proceeds from notes payable – related party |
| 20,000 |
| - |
Payments on related party note payable |
| (2,916) |
| (2,696) |
|
|
|
|
|
Net Cash (Used in) Provided by Financing Activities |
| 17,084 |
| (2,696) |
|
|
|
|
|
NET CHANGE IN CASH |
| 14,942 |
| (19,070) |
CASH AT BEGINNING OF YEAR |
| 56,379 |
| 59,674 |
|
|
|
|
|
CASH AT END OF PERIOD |
| $71,321 |
| $40,604 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS |
|
|
|
|
CASH PAID FOR: |
|
|
|
|
Interest |
| $5,796 |
| $2,491 |
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 Stock |
| Additional |
| Accumulated |
| Total | ||
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | |
Balance, December 31, 2022 |
| 21,948,091 |
| $8,607,086 |
| $12,051,795 |
| $(21,644,941) |
| $(986,060) |
|
|
|
|
|
|
|
|
|
|
|
Value of options and warrants |
|
|
|
|
|
|
|
|
|
|
issued for services |
| - |
| - |
| 2,562 |
|
|
| 2,562 |
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended |
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
| - |
| - |
|
|
| (59,850) |
| (59,850) |
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2023 |
| 21,948,091 |
| $8,607,086 |
| $12,054,357 |
| $(21,704,791) |
| $(1,043,348) |
|
| Common Stock |
| Additional |
| Accumulated |
| Total | ||
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | |
Balance, December 31, 2021 |
| 21,948,091 |
| $8,607,086 |
| $12,033,454 |
| $(21,448,232) |
| $(807,692) |
|
|
|
|
|
|
|
|
|
|
|
Value of options and warrants |
|
|
|
|
|
|
|
|
|
|
issued for services |
| - |
| - |
| 2,562 |
|
|
| 2,562 |
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended |
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
| - |
| - |
|
|
| (72,508) |
| (72,508) |
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2022 |
| 21,948,091 |
| $8,607,086 |
| $12,036,016 |
| $(21,520,740) |
| $(877,638) |
The accompanying notes are an integral part of these condensed unaudited financial statements.
Page 6
OMNITEK ENGINEERING CORP.
Notes to Financial Statements
March 31, 2023
(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 March 31, 2023, 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, 2022, audited financial statements. The results of operations for the periods ended March 31, 2023, and March 31, 2022, are not necessarily indicative of the operating results for the full years.
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 generated from the sale of finished product to customers. Those sales 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). Control passes FOB shipping point.
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. Omnitek’s contracts have a single performance obligation.
Page 7
OMNITEK ENGINEERING CORP.
Notes to Financial Statements
March 31, 2023
(unaudited)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Disaggregation of Revenue
The following table presents Omnitek’s revenues disaggregated by region and product type:
| For the three months ended March 31, |
| For the three months ended March 31, | ||||
| 2023 |
| 2022 | ||||
Segments | Consumer |
| Total |
| Consumer |
| Total |
Domestic | $90,319 |
| 90,139 |
| $115,368 |
| 115,368 |
International | 134,885 |
| 134,885 |
| 143,483 |
| 143,483 |
$225,204 |
| 225,204 |
| $258,851 |
| 258,851 | |
|
|
|
|
|
|
|
|
Filters | $155,418 |
| 155,418 |
| $147,518 |
| 147,518 |
Components | 69,291 |
| 69,291 |
| 111,333 |
| 111,333 |
Engineering Services | 495 |
| 495 |
| - |
| - |
$225,204 |
| 225,204 |
| $258,851 |
| 258,851 | |
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:
Location : Vista, CA |
| March 31, |
|
| December 31, |
Raw materials | $ | 826,536 |
| $ | 836,833 |
Finished goods |
| 604,448 |
|
| 634,275 |
Allowance for obsolete inventory |
| (927,755) |
|
| (927,755) |
Total | $ | 503,229 |
| $ | 543,353 |
The Company has established an allowance for obsolete inventory. Expense for obsolete inventory was $-0- and $-0-, for the periods ended March 31, 2023, and March 31, 2022, respectively.
Property and Equipment
Property and equipment at March 31, 2023, and December 31, 2022, consisted of the following:
| March 31, |
| December 31, | ||
2023 |
| 2022 | |||
Production equipment | $ | 68,456 |
| $ | 68,456 |
Leasehold Improvements |
| 4,689 |
|
| 4,689 |
Less: accumulated depreciation |
| (66,170) |
|
| (65,733) |
Total | $ | 6,975 |
| $ | 7,412 |
Depreciation expense for the periods ended March 31, 2023, and March 31, 2022, was $437 and $752, respectively.
Page 8
OMNITEK ENGINEERING CORP.
Notes to Financial Statements
March 31, 2023
(unaudited)
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 3,265,556 and 3,173,889 stock options and warrants that would have been included in the fully diluted earnings per share as of March 31, 2023, and March 31, 2022, respectively. However, the common stock equivalents were not included in the computation because they are anti-dilutive.
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 740, Income Taxes ("Topic 740"), which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized.
Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company's financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
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, 2023, and December 31, 2022, 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 March 31, 2023, the Company had an accumulated deficit of $21,704,791 and total stockholders’ deficit of $1,043,348. At March 31, 2023, the Company had current assets of $594,695 including cash of $71,321, and current liabilities of $1,545,108, resulting in negative working capital of $(950,413). For the three months ended March 31, 2023, the Company reported a net loss of $59,850 and net cash used in operating activities of $2,142. Management believes that based on its operating plan, the projected sales for 2023, 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 substantial doubt upon the Company’s ability to continue as a going concern for a period of 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.
Page 9
OMNITEK ENGINEERING CORP.
Notes to Financial Statements
March 31, 2023
(unaudited)
NOTE 3 – CUSTOMER DEPOSITS
The customers deposit account relates to payments received from customers before product has been shipped. When the product is shipped the Company recognizes the associated revenue by reclassifying the customer deposit to the appropriate revenue account. By contrast, the Contract Liabilities account relates to long-term contracts where revenue is recognized over the term of the contract. For the periods ended March 31, 2023 and December 31, 2022, the balance due under customer deposits was $229,318 and $231,418, respectively.
NOTE 4 – OPERATING LEASES
The Company’s leases consist of an operating lease for general office space and warehouse facilities. The Company recognizes rent expense for this lease on a straight-line basis over the lease term. Because the lease does not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the lease Commencement Date in determining the present value of future lease payments.
On June 3, 2021, the Company entered into a lease for the premises located at 1345 Specialty Drive, Vista, CA, containing approximately 11,751 square feet of rentable area. The lease commenced on 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 under the lease, is $1,175 per month.
During the quarter ended March 31, 2023, cash paid for amounts included in the measurement of operating lease liabilities was $35,259 and the Company recorded operating lease expenses included in operating expenses of $37,290.
Future minimum payments for monthly base rent due under the initial lease term are currently estimated to be as follows:
Years ending December 31, |
| |
2023 (remaining) |
| 105,777 |
2024 |
| 148,074 |
2025 |
| 176,268 |
2026 |
| 88,134 |
Total lease payments | $ | 518,253 |
Less: Imputed interest |
| (42,432) |
Total lease liability |
| 475,821 |
Less: current lease liability |
| (120,228) |
Long-term lease liability | $ | 355,592 |
|
|
|
Weighted average discount rate: |
|
|
Operating leases |
| 4.94% |
Page 10
OMNITEK ENGINEERING CORP.
Notes to Financial Statements
March 31, 2023
(unaudited)
NOTE 5 - RELATED PARTY TRANSACTIONS
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 March 31, 2023, and December 31, 2022, the Company owed a board member’s company for such services in the amounts of $128,965 and $127,192, respectively.
Accounts Receivable – Related Parties
As of March 31, 2023, and December 31, 2022, the Company was owed $1,179 and $2,252, respectively, by an entity controlled by the Company’s CEO for the purchase of products and services.
Accrued Management Compensation
For the periods ended March 31, 2023, and December 31, 2022, the Company’s president was due amounts for services performed for the Company.
As of March 31, 2023, and December 31, 2022, the accrued management fees consisted of the following:
| March 31, |
| December 31, | ||||
| 2023 |
| 2022 | ||||
Amounts due to the president |
| $ | 638,042 |
|
| $ | 635,158 |
Total |
| $ | 638,042 |
|
| $ | 635,158 |
NOTE 6 – NOTES PAYABLE - RELATED PARTY
Convertible Notes – Related Parties
On June 4, 2021, the Company issued an unsecured convertible promissory note for $30,000 to its CEO. Simple interest at the rate of 8% per annum accrues on the unpaid principal balance of the note. The note calls for monthly installment payments of $1,050 commencing on July 4, 2021. The unpaid principal and 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 March 31, 2023.
On June 4, 2021, the Company issued an unsecured convertible promissory note for $20,000 to a board member. Simple interest at the rate of 8% per annum accrues on the unpaid principal balance of the note. The unpaid principal and accrued interest on the note was due on December 4, 2021 (the “Maturity Date”). On December 14, 2021, the Maturity Date of note was extended for by months until March 4, 2022. On March 4, 2022, Maturity Date of note was extended for an additional three months until June 4, 2022. On June 4, 2022, the Maturity Date of note was extended for an additional six months until December 4, 2022. And, on December 4, 2022, the Maturity Date of note was further extended for an additional six months until 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 March 31, 2023.
Page 11
OMNITEK ENGINEERING CORP.
Notes to Financial Statements
March 31, 2023
(unaudited)
As of March 31, 2023 and December 31, 2022 Convertible Notes – Related Party consisted of the following:
| March 31, |
| December 31, | ||
2023 |
| 2022 | |||
Convertible Note payable, related parties | $ | 29,911 |
| $ | 32,827 |
Less current portion |
| (29,911) |
| $ | (32,827) |
Total | $ | - |
| $ | - |
Notes Payable – Related Party
On January 19, 2017, the Company issued a promissory note for $15,000 to a related party. 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, 2024.
On March 23, 2023, the Company issued a Working Capital Promissory Note, in favor of its CEO, evidencing the additional loans to the Company by the CEO, with an Initial Principal Balance of $20,000, and to evidence any future additional loans by the CEO to the Company thereafter. Pursuant to the terms of the note, the unpaid principal and accrued simple interest at the rate of 8.0% per annum (“Applicable Rate”) shall be due and payable on or before March 22, 2024, (the “Maturity Date”). The principal amount of the note shall be increased by the amount of any additional advances of funds made by the CEO to the Company, from time to time, with interest thereon at the Applicable Rate, from the date of such advance.
As of March 31, 2023, and December 31, 2022, Note Payable – Related Party consisted of the following:
| March 31, |
| December 31, | ||||
| 2023 |
| 2022 | ||||
Note payable, related party |
| $ | 35,000 |
|
| $ | 15,000 |
Total |
| $ | 35,000 |
|
| $ | 15,000 |
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 October 21, 2022 (i.e., thirty (30) 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. As of March 31, 2023, accrued interest was $15,127. Current monthly payments are applied to the accrued interest. 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.
As of March 31, 2023 and December 31, 2022, Debt consisted of the following:
| March 31, |
| December 31, | ||
2023 |
| 2022 | |||
Loan payable – SBA EIDL | $ | 199,000 |
| $ | 199,000 |
Less current portion |
| - |
|
| - |
Total | $ | 199,000 |
| $ | 199,000 |
Page 12
OMNITEK ENGINEERING CORP.
Notes to Financial Statements
March 31, 2023
(unaudited)
NOTE 8 – STOCKHOLDERS’ DEFICIT
Options and Warrants
During the three months ended March 31, 2023, and March 31, 2022, the Company granted -0- and -0- options for services, respectively. During the three months ended March 31, 2023, and March 31, 2022, the Company recognized expense of $2,562 and $2,562, respectively, for options that vested during the periods pursuant to ASC Topic 718. As of March 31, 2023, the total remaining amount of compensation expense to be recognized in future periods is $9,792.
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, 2023, the Company has a total of 1,815,556 options issued under the 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 March 31, 2023, the Company had a total of 1,450,000 options issued under the 2017 Plan. During the quarter ended March 31, 2023 the Company issued -0- options.
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:
| March 31, 2023 |
| March 31, 2022 |
Expected volatility | N/A |
| N/A |
Expected dividends | N/A |
| N/A |
Expected term | N/A |
| N/A |
Risk-free interest rate | N/A |
| N/A |
A summary of the status of the options and warrants granted at March 31, 2023, and December 31, 2022, and changes during the periods then ended is presented below:
| March 31, |
| December 31, | ||||||
| 2023 |
| 2022 | ||||||
|
|
|
| Weighted-Average |
|
|
|
| Weighted-Average |
| Shares |
|
| Exercise Price |
| Shares |
|
| Exercise Price |
Outstanding at beginning of year | 3,265,556 |
| $ | 0.15 |
| 3,290,556 |
| $ | 0.19 |
Granted | - |
|
| - |
| 150,000 |
|
| 0.05 |
Exercised | - |
|
| - |
| - |
|
| - |
Expired or cancelled | - |
|
| - |
| (175,000) |
|
| 0.77 |
Outstanding at end of period | 3,265,556 |
|
| 0.15 |
| 3,265,556 |
|
| 0.15 |
Exercisable | 3,165,556 |
|
| 0.15 |
| 3,140,556 |
| $ | 0.15 |
Page 13
OMNITEK ENGINEERING CORP.
Notes to Financial Statements
March 31, 2023
(unaudited)
NOTE 8 - STOCKHOLDERS’ DEFICIT (Continued)
A summary of the status of the options and warrants outstanding at March 31, 2023 is presented below:
Range of Exercise Prices |
| Number Outstanding |
| Weighted-Average Remaining Contractual Life |
| Number Exercisable |
| Weighted-Average Exercise Price |
|
|
|
|
|
|
|
|
|
$0.01-1.00 |
| 3,265,556 |
| 2.03 years |
| 3,165,556 |
| 0.15 |
NOTE 9 - SUBSEQUENT EVENT
On April 14, 2023, options to purchase 570,000 shares of common Stock at an exercise price of $0.286 per share, and options to purchase 150,000 shares of common Stock at an exercise price of $0.26 per share, expired.
On April 18, 2023, in consideration for their services as independent directors, the Company granted to each of Messrs. Gary S. Maier and John M. Palumbo, a Non-Qualified Stock Option pursuant to the 2017 Long-Term Incentive Plan to purchase 50,000 shares of common stock at an exercise price of $0.0361, representing 100% of the closing price of the common stock of the Corporation as of such date. Said Options shall vest and be exercisable immediately and shall be exercisable for a period of seven years from the date of grant.
Also on April 18, 2023, the Company granted to Werner Funk, President and CEO, a Non-qualified Stock Option pursuant to the 2017 Long-Term Incentive Plan, to purchase 50,000 shares of common stock at any exercise price of $0.0397, representing 110% of the closing price of the common stock of the Corporation as of such date. Said Options shall vest and be exercisable immediately and shall be exercisable for a period of seven years from the date of grant.
The securities were issued pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933. The individual receiving the options is 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.
Page 14
ITEM 2MANAGEMENT'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 March 31, 2023 and March 31, 2022
Revenues were $225,204 for the three months ended March 31, 2023, compared with $258,851 for the three months ended March 31, 2022, a decrease of $33,647. The decrease in sales related primarily to reduced domestic sales.
For the three months ended March 31, 2023, total cost of goods sold decreased to $130,418, for a gross margin of $94,786, compared with $170,605 and a gross margin of $88,246 for the three months ended March 31, 2022.
Gross margin as a percentage of sales for the three months ended March 31, 2023, was 42%, compared with 34% for the three months ended March 31, 2022. The increase in gross margin was primarily due to increased sales of higher margin products.
Operating expenses for the three months ended March 31, 2023, were $149,105 compared with $155,700 for the three months ended March 31, 2022, a decrease of $6,595. General and administrative expense for the three months ended March 31, 2023, was $130,730 compared with $138,696 for the three months ended March 31, 2022. Major components of general and administrative expenses for the three months ended March 31, 2023, were professional fees of $21,875, rent expense of $10,959, and salary and wages of $56,040. This compares with professional fees of $32,980, rent expense of $10,959, and salary and wages of $56,352 for the three months ended March 31, 2022. For the three months ended March 31, 2023, research and development outlays were increased to $17,939, compared with $16,252 for the three months ended March 31, 2022.
Our net loss for the three months ended March 31, 2023, was $59,850, or ($0.00) per share, compared with a net loss of $72,508, or ($0.00) per share, for the three months ended March 31, 2022. The decreased net loss was primarily due to increased sales of higher margin products.
Results for the three months ended March 31, 2023, reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $2,562, and depreciation and amortization of $436. For the three months period ended March 31, 2022, non-cash expenses included options and warrants granted in the amount of $2,562, and depreciation and amortization of $752.
Page 15
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 March 31, 2023, our current liabilities totaled $1,545,108 and our current assets totaled $594,695, resulting in negative working capital of $950,413.
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 may need to seek additional financing through subsequent future public or private sales of our securities, including equity securities. We may also seek funding for the development, manufacturing, and marketing of our products through strategic partnerships and other arrangements with corporate partners. There can be no assurance, however, that such collaborative arrangements or additional funds will be available when needed, or on terms acceptable to us, if at all. If adequate funds are not available, we may be required to curtail one or more of our research and development programs.
We have historically incurred significant losses, which have resulted in a total accumulated deficit of $21,704,791 at March 31, 2023.
Operating Activities
We realized a negative cash flow from operations of $2,142 for the three months ended March 31, 2023 compared with a negative cash flow of $16,374 during the three months ended March 31, 2022.
Included in the operating loss of $59,850 for the three months ended March 31, 2023 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 $2,562 and depreciation and amortization of $436. Additionally, the operating loss included general and administrative expenses of $130,730 and research and development expenses of $17,939.
Financing Activities
We realized a positive cash flow from financing activities of $17,084 for the three months ended March 31, 2023, compared to a negative cash flow of $2,696 for the three months ended March 31, 2022.
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:
Page 16
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 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.
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).
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.
Page 17
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, 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 has concluded that our disclosure controls and procedures were not effective as of March 31, 2023. 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 March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Page 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 16, 2022, the Company received a Summons and was named as a cross-defendant in the matter of Olson-Ecologic Engine Testing Laboratories, LLC -v- Michael Naylor, Omnitek Engineering Corp., and Moto Concerto, Inc., filed in the Superior Court of the State of California, County of Orange, Central Justice Center, Case No. 30-2020-01171344. Olson-Ecologic Engine Testing Laboratories, LLC filed the cross-complaint in response to the original complaint filed by Michael Naylor against Olson-Ecologic Engine Testing Laboratories. Omnitek served as a subcontractor to Olson-Ecologic who received a grant in May 2017 from the California Energy Commission. In October 2017, very early in the project and before completion of the project, which was to run into 2020, Olson-Ecologic advised Omnitek that the California Energy Commission had terminated the project. In the cross-complaint Olson-Ecologic alleges that Omnitek participated with Mr. Naylor in overcharging Olson-Ecologic, however, Olson-Ecologic doesn’t provide a specific statement of facts or actions of what Omnitek allegedly did. Olson-Ecologic’s cross-complaint and allegations against Omnitek are without merit and complete nonsense and Omnitek will vigorously defend the cross-complaint.
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. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
Subsequent Events
On April 14, 2023, options to purchase 570,000 shares of common Stock at an exercise price of $0.286 per share, and options to purchase 150,000 shares of common Stock at an exercise price of $0.26 per share, expired.
On April 18, 2023, in consideration for their services as independent directors, the Company granted to each of Messrs. Gary S. Maier and John M. Palumbo, a Non-Qualified Stock Option pursuant to the 2017 Long-Term Incentive Plan to purchase 50,000 shares of common stock at an exercise price of $0.0361, representing 100% of the closing price of the common stock of the Corporation as of such date. Said Options shall vest and be exercisable immediately and shall be exercisable for a period of seven years from the date of grant.
Also on April 18, 2023, the Company granted to Werner Funk, President and CEO, a Non-qualified Stock Option pursuant to the 2017 Long-Term Incentive Plan, to purchase 50,000 shares of common stock at any exercise price of $0.0397, representing 110% of the closing price of the common stock of the Corporation as of such date. Said Options shall vest and be exercisable immediately and shall be exercisable for a period of seven years from the date of grant.
Page 19
The securities were issued pursuant to an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933. The individual receiving the options is 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.
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 March 31, 2023 and the audited balance sheet as of December 31, 2022, the condensed unaudited Statements of Operations for the three month periods ended March 31, 2023 and March 31, 2022, the condensed unaudited Statements of Cash Flows for the three month periods ended March 31, 2023 and March 31, 2022 and the condensed unaudited Statements of Stockholders’ Equity (Deficit) as of March 31, 2023 and March 31, 2022, 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 |
| |
3.2 |
| |
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 September 30, 2022 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 10 on April 27, 2010
(2)Previously filed on Form 8-K on August 2, 2012
(3)Filed herewith.
Page 20
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: May 19, 2023 |
| /s/ Werner Funk |
| |
|
| By: Werner Funk |
| |
|
| Its: Chief Executive Officer Principal Executive Officer |
| |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Dated: May 19, 2023 |
| /s/ Werner Funk |
| |
|
| By: Werner Funk Its: Chief Financial Officer Principal Financial Officer |
| |
Page 21