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OMTK > SEC Filings for OMTK > Form 10-Q on 5-Nov-2012All Recent SEC Filings

Show all filings for OMNITEK ENGINEERING CORP

Form 10-Q for OMNITEK ENGINEERING CORP


5-Nov-2012

Quarterly Report


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

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

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

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

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

A. Results of Operations

For the three months ended September 30, 2012 and 2011

Revenues increased to $562,367 for the three months ended September 30, 2012 from $317,160 for the three months ended September 30, 2011, an increase of $245,207 or 77%. We expect the sales for the remainder of 2012 to be on a par with or somewhat higher than 2011 while we complete additions to our product offerings.

Our cost of sales increased to $281,633 for the three months ended September 30, 2012 from $168,637 for the three months ended September 30, 2011, an increase of $112,996. Our gross margin was 50% for the three months ended September 30, 2012 compared to 47% in 2011. We anticipate our gross margin to be between 40% to 45% for the remainder of the year.

Our operating expenses for the three months ended September 30, 2012 were $443,966 compared to $327,999 in 2011, an increase of $115,967 or 35%. General and administrative expense for the three months ended September 30, 2012 was $353,438 as compared to $265,999 for the three months ended September 30, 2011. The increase is due primarily to the non-cash option issued expense of $108,500 for the three months ended September 30, 2012 as compared to $57,709 for the three months ended September 30, 2011. Major components of general and administrative expenses for the three months ended September 30, 2012 were professional fees of $19,431, rent expense of $33,375, and salary and wages of $78,056. This compares to professional fees of $40,492, rent expense of $31,298 and salaries and wages of $64,130 for the three months ended September 30, 2011. In the three months ended September 30, 2012 professional fees were lower by approximately $21,061 due to reduction in legal expenses incurred. Research and development outlays were increased to $88,922 for the three months ended September 30, 2012 compared to $40,845 for the three months ended September 30, 2011 as work was done on a number of development projects.

Our net loss for the three months ended September 30, 2012 was $142,150, ($0.01 per share) compared to a net loss of $179,475 ($0.01 per share) for the three months ended September 30, 2011. The decreased loss was the result of fewer expenses in the three months ended September 30, 2012 compared to the three months ended September 30, 2011.


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Results for the three months ended September 30, 2012 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $108,500 and depreciation and amortization of $1,606. For the three month period a year earlier, non-cash expenses for the value of options and warrants granted were $114,791 and depreciation and amortization of $21,155.

For the nine months ended September 30, 2012 and 2011

Revenues decreased to $1,249,267 for the nine months ended September 30, 2012 from $1,306,906 for the nine months ended September 30, 2011, a decrease of $57,639 or 4%. We expect our sales for the remainder of 2012 to be on a par with or slightly higher than 2011.

Our cost of sales decreased to $631,694 for the nine months ended September 30, 2012 from $654,005 for the nine months ended September 30, 2011, a decrease of $22,311. Our gross margin was 49% for the nine months ended September 30, 2012 compared to 50% in 2011. We anticipate our margin to be between 42% and 45% for the remainder of the year.

Our operating expenses for the nine months ended September 30, 2012 were $1,959,694 compared to $938,275 in 2011, an increase of $1,021,419 or 109%. General and administrative expense for the nine months ended September 30, 2012 was $1,789,028 as compared to $775,088 for the nine months ended September 30, 2011. The increase is due primarily to the increase in expenses related to the private placement expenses of $413,306 and options issued of $626,915 for the nine months ended September 30, 2012 as compared to $-0- and $184,243, respectively, for the nine months ended September 30, 2011. Major components of general and administrative expenses for the nine months ended September 30, 2012 were professional fees of $144,969, rent expense of $100,127, and salary and wages of $200,185. This compares to professional fees of $118,783, rent expense of $93,594 and salaries and wages of $166,606 for the nine months ended September 30, 2011. In the nine months ended September 30, 2012 professional fees were higher by approximately $26,186 due to legal costs incurred in connection with the private placement which closed on April 9, 2012. Research and development outlays were increased to $166,070 for the nine months ended September 30, 2012 compared to $100,791 for the nine months ended September 30, 2012 reflecting additional development projects underway.

Our net loss for the nine months ended September 30, 2012 was $1,321,155 ($0.07 per share) compared to a net loss of $286,172 ($0.02 per share) for the nine months ended September 30, 2011. The increased loss was mainly the result of higher General and administrative expenses associated with the private placement in the nine months ended September 30, 2012.

Results for the nine months ended September 30, 2012 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $626,915 and depreciation and amortization of $20,974. For the nine month period a year earlier, non-cash expenses for the value of options and warrants granted were $184,243 and depreciation and amortization of $62,396.

B. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Cash Requirements

We believe that we will have sufficient cash from operations to meet our operating requirements for the proximate 12 months.

Liquidity and Capital Resources

Overview

For the nine months ended September 30, 2012 and 2011

At September 30, 2012, our current liabilities totaled $604,776 and our current assets totaled $4,663,046 resulting in positive working capital of $4,058,270 and a current ratio of 8 to1. During the nine months ended


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September 30, 2012, we received $5,536,762 of cash from the issuance of common stock and $40,000 from the borrowing of funds. We repaid the $40,000 during the nine months. We believe that through the collection of accounts receivable and the sale of inventory, in the normal course of business, we will meet our obligations on a timely basis and that our liquidity is sufficient for at least the next twelve months.

We have no firm commitments or obligations for capital expenditures. However, substantial discretionary expenditures will be required to enable us to conduct existing and planned product research, design, development, manufacturing, marketing and distribution of our products and Intellectual Property. We may need to raise additional capital to facilitate growth and support our long-term product development, manufacturing, and marketing programs. The Company has no established bank-financing arrangements and until we have sufficient assets, capital, and inventory or accounts receivable, it is not anticipated that we will secure any bank financing in the near future. Therefore, it is likely that we may need to seek additional financing through subsequent future public or private sales of our securities, including equity securities. We may also seek funding for the development, manufacturing, and marketing of our products through strategic partnerships and other arrangements with corporate partners. There can be no assurance, however, that such collaborative arrangements or additional funds will be available when needed, or on terms acceptable to us, if at all. If adequate funds are not available, we may be required to curtail one or more of our research and development programs.

We have historically incurred significant losses which have resulted in a total accumulated deficit of $7,744,857 at September 30, 2012.

Operating Activities

We have realized a negative cash flow from operations of $1,095,270 for the nine months ended September 30, 2012 compared to a negative cash flow of $255,876 during the nine months ended September 30, 2011.

Included in the net loss of $1,321,155 for the nine months ended September 30, 2012 are one-time cash expenses of $413,305 for the private placement and non-cash expenses which are not a drain on our capital resources. During the nine months ended September 30, 2012, these non-cash expenses include the value of options and warrants granted in the amount of $626,915 and depreciation and amortization of $20,974. Excluding these non-cash amounts, our EBITDA for the nine months ended September 30, 2012 would have been a loss of $673,266.

Financing Activities

During the nine months ended September 30, 2012, we received proceeds of $5,536,762 of cash from a private placement offering and $40,000 from the borrowing of funds. We repaid the $40,000 during the nine months ended September 30, 2012.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policiesand Estimates

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

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


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

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

The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 740, which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized. The Company uses historical experience to determine the likely-hood of realization of deferred tax liabilities and assets.

Revenue Recognition

The Company recognizes revenue from the sale of new natural gas engines and components to convert existing diesel engines to natural gas engines. Revenue is recognized upon shipment of the products, and when collection is reasonably assured.

Accounting for Income Taxes

The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 740, Income Taxes ("Topic 740"), which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized.

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

At the adoption date of November 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of September 30, 2012, the Company had no accrued interest or penalties related to uncertain tax positions.

The Company files an income tax return in the U.S. federal jurisdiction and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2006.

At September 30, 2012, the Company had net operating loss carry forwards of approximately $1,510,000 through 2032. No tax benefit has been reported in the September 30, 2012 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.


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Recently Issued Accounting Pronouncements

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

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