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OMTK > SEC Filings for OMTK > Form 10-K on 18-Mar-2013All Recent SEC Filings

Show all filings for OMNITEK ENGINEERING CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-K for OMNITEK ENGINEERING CORP


18-Mar-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

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


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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 twelve months ended December 31, 2012 and 2011

Revenues increased to $1,899,740 in 2012 from $1,546,723 in 2011, an increase of $353,017 or 23%.

Our cost of sales increased to $971,927 in 2012 from $793,293 in 2011, an increase of $178,634. Our gross margin was 49% in 2012 compared to 49% in 2011. We expect that our gross margin will continue to range between 45% to 49% until our operations grow sufficiently to allow us to negotiate better pricing for our components.

Our operating expenses for 2012 were $2,333,924 compared to $1,194,042 in 2011, an increase of $1,139,882, or 95%. General and administrative expense for 2012 was $2,041,447 as compared to $980,228 in 2011. The increase is due primarily to the increase in expense related to stock options issued for services of $653,856 in 2012 as compared to $208,706 in 2011 and stock offering expense of $416,441 related to the stock offering. Major components of general and administrative expenses during 2012 were professional fees of $203,734, rent expense of $135,577, and salary and wages of $287,136. This compares to professional fees of $96,965, rent expense of $124,892 and salaries and wages of $227,088 during 2011. In 2012, professional fees were higher by approximately $106,769 due to legal, accounting and investor relations expenses incurred in connection with the stock offering. Research and development outlays were increased to $285,745 in 2012 compared to $143,304 in 2011.

Our net loss for the twelve months ended December 31, 2012 was $1,371,453, compared to a net loss of $441,555 in 2011. The increased loss was the result of higher professional fee and stock offering expenses in related to the private placement.

Results for the twelve months reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $653,856 and depreciation and amortization of $6,369. For the twelve month period a year earlier, non-cash expenses for the value of options and warrants granted were $208,706 and depreciation and amortization of $70,484.

Sales in 2012 were aided by a number of research and development projects that should continue into 2013.

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.


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Liquidity and Capital Resources

Overview

For the twelve months ended December 31, 2012 and 2011

At December 31, 2012, our current liabilities totaled $765,932 and our current assets totaled $4,812,558, resulting in positive working capital of $4,046,626 and a current ratio of 6.28. During the twelve months ended December 31, 2012, we received $5,536,762 of cash from a private placement offering. 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 $7,795,155 at December 31, 2012.

Operating Activities

We have realized a negative cash flow from operations of $1,142,331 for the twelve months ended December 31, 2012 compared to a negative cash flow of $272,777 during the twelve months ended December 31, 2011.

Included in the net loss of $1,371,453 for the twelve months ended December 31, 2012 are non-cash expenses which are not a drain on our capital resources. During 2012, the expenses include the value of options and warrants granted in the amount of $653,856 and depreciation and amortization of $32,922. Excluding these non-cash amounts, our EBITDA for the twelve months ended December 31, 2012 would have been a loss of $684,675.

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 December 31, 2009, 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 December 31, 2012, the Company had net operating loss carry forwards of approximately $2,900,715 through 2032. No tax benefit has been reported in the December 31, 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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