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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
Revenues were
Cost of sales was
with
Our gross margin percentage was 40% for the three months ended
compared with 29% for the three months ended
three months ended
liquidations in preparations to relocate to our current facility.
Operating expenses for the three months ended
compared with
30, 2022
2021
months ended
months ended
and development outlays decreased to
months ended
Our net loss for the three months ended
per share, compared with a net loss of
three months ended
an increase in the inventory reserve account during the three months ended
30, 2021
Results for the three months ended
expenses, including the value of options granted in the amount of
depreciation and amortization of
earlier non-cash expenses included options granted in the amount of
depreciation and amortization of
For the six months ended
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Revenues increased to
Our cost of sales increased to
from
Our gross margin was 37% for the six months ended
in 2021.
Our operating expenses for the six months ended
compared to
or 9%. General and administrative expense for the six months ended
was
Major components of general and administrative expenses for the six months ended
salary and wages of
rent expense of
ended
for the six months ended
ended
Our net loss for the six months ended
share, compared to a net loss of
ended
extinguishment of liability income realized in the six months ended
2021
Results for the six months ended
expenses, including the value of options granted in the amount of
depreciation and amortization of
earlier, non-cash expenses included the value of options granted of
depreciation and amortization of
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
assets totaled
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
direct result of derivative expense and change in fair value of derivative
liability and is unrelated to our operations or cash flow. Management believes
that based on its operating plan, the projected sales for 2022, 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
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concern. Operating Activities
We realized a negative cash flow from operations of
ended
during the six months ended
Included in the operating loss of
2022
During the period, these non-cash expenses include the value of options granted
in the amount of
Additionally, the operating loss included general and administrative expenses of
Financing Activities
We realized a negative cash flow from financing activities of
months ended
the six months ended
ended
positive cash flow for the six months ended
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
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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).
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 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
Performance Obligations Satisfied at a Point in Time
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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
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.
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.
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