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:   September 30, 2020

Commission File Number     000-53955

OMNITEK ENGINEERING CORP.

 (Exact name of Registrant as specified in its charter)

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

1333 Keystone Way, #101, 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 November 12, 2020, the Registrant had 21,600,189 shares of its no par value Common Stock outstanding.

TABLE OF CONTENTS
	Page
PART I - FINANCIAL INFORMATION
Item 1.       Financial Statements
Condensed Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	3
Condensed Statements of Operations for the three and nine months ended September 30, 2020 and September 30, 2019 (unaudited)	4
Condensed Statements of Cash Flows for the nine months ended September 30, 2020 and September 30, 2019 (unaudited)	5
Condensed Statements of Stockholders’ Deficit for the three and nine months ended September 30, 2020 and September 30, 2019 (unaudited)	6
Notes to the Condensed Financial Statements	7
Item 2.       Management's Discussion and Analysis of the Financial Condition and Results of Operations	17
Item 3.       Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.       Controls and Procedures	21
PART II - OTHER INFORMATION
Item 1.       Legal Proceedings	22
Item 1A.    Risk Factors	22
Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.       Defaults Upon Senior Securities	22
Item 5.       Other Information	22
Item 6.       Exhibits	23

Page 2

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS 

OMNITEK ENGINEERING CORP.
Condensed Balance Sheets
			September 30,		December 31,
			2020		2019
			(unaudited)
ASSETS
CURRENT ASSETS
	Cash		$	38,542	$	20,236
	Accounts receivable, net			11,574		7,462
	Accounts receivable - related parties			14,521		16,712
	Inventory, net			905,267		1,022,365
	Contract assets			13,221		13,221
	Deposits			24,015		2,501
		Total Current Assets		1,007,140		1,082,497
Property and equipment, net				1,402		1,809
OTHER ASSETS
	Other noncurrent Assets			14,280		30,425
		Total Other Assets		14,280		30,425
	TOTAL ASSETS		$	1,022,822	$	1,114,731
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
	Accounts payable and accrued expenses		$	502,718	$	409,020
	Accrued management compensation			590,735		706,830
	Accounts payable - related parties			122,025		134,077
	Note payable - related party			15,000		27,000
	Note payable			-		15,000
	Contract liabilities			75,000		75,000
	Current portion, long-term debt			57,304		-
	Customer deposits			157,825		163,681
		Total Current Liabilities		1,520,607		1,530,608
LONG-TERM LIABILITIES
Note payable - related party, net of current portion				-		15,000
Loans payable – SBA, net of current portion				241,696		-
Total Long-term Liabilities				241,696		15,000
Total Liabilities				1,762,303		1,545,608
STOCKHOLDERS' DEFICIT
	Common stock, 125,000,000 shares authorized, no par value,
	21,600,189 and 21,339,865 shares issued and outstanding, respectively			8,578,210		8,527,210
	Common stock subscribed			-		20,000
	Additional paid-in capital			12,011,609		11,997,842
	Accumulated deficit			(21,329,300)		(20,975,929)
		Total Stockholders' Deficit		(739,481)		(430,877)
	TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		$	1,022,822	$	1,114,731
The accompanying notes are an integral part of these condensed unaudited financial statements.

Page 3

OMNITEK ENGINEERING CORP.
Condensed Statements of Operations (unaudited)
			For the Three		For the Three		For the Nine		For the Nine
			Months Ended		Months Ended		Months Ended		Months Ended
			September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
REVENUES			$	215,867	$	123,366	$	650,771	$	739,110
REVENUES, related parties				-		13,086		-		13,086
	Total revenues			215,867		136,452		650,771		752,196
COST OF GOODS SOLD				122,624		101,106		402,604		469,318
GROSS MARGIN				93,243		35,346		248,167		282,878
OPERATING EXPENSES
	General and administrative			164,549		179,942		519,300		599,708
	Research and development			17,535		27,512		67,220		79,980
	Depreciation and amortization			136		135		407		431
		Total Operating Expenses		182,220		207,589		586,927		680,119
LOSS FROM OPERATIONS				(88,977)		(172,243)		(338,760)		(397,241)
OTHER INCOME (EXPENSE)
	Other income			-		-		874		-
	Interest expense			(4,392)		(4,677)		(14,685)		(15,148)
		Total Other Expense		(4,392)		(4,677)		(13,811)		(15,148)
LOSS BEFORE INCOME TAXES				(93,369)		(176,920)		(352,571)		(412,389)
INCOME TAX EXPENSE				800		-		800		800
NET LOSS			$	(94,169)	$	(176,920)	$	(353,371)	$	(413,189)
BASIC AND DILUTED LOSS PER SHARE			$	(0.00)	$	(0.01)	$	(0.02)	$	(0.02)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING
-BASIC AND DILUTED				21,561,000		20,424,961		21,414,922		20,421,938
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 Nine		For the Nine
			Months Ended		Months Ended
			September 30, 2020		September 30, 2019
OPERATING ACTIVITIES
	Net loss		$	(353,371)	$	(413,189)
	Adjustments to reconcile net loss to
	net cash used in operating activities:
		Amortization and depreciation expense		407		431
		Options and warrants issued for services		13,767		42,059
		Inventory reserve		49,681		26,667
	Changes in operating assets and liabilities:
		Accounts receivable		(4,112)		2,751
		Accounts receivable–related parties		2,191		(11,845)
		Contract assets		-		(449)
		Deposits		(5,369)		(755)
		Inventory		67,417		94,445
		Accounts payable and accrued expenses		(71,628)		69,927
		Contract liabilities		-		(9,496)
		Customer deposits		(5,856)		33,955
		Accounts payable-related parties		(12,052)		(1,250)
		Accrued management compensation		49,231		153,362
		Net Cash Used in Operating Activities		(269,694)		(13,387)
INVESTING ACTIVITIES
				-		-
		Net Cash Used in Investing Activities		-		-
FINANCING ACTIVITIES
	Proceeds from sale of option for future purchase of common stock			-		25,000
	Payments on convertible note payable			(15,000)		(40,000)
	Proceeds from (payments on) related party note payable			(27,000)		17,000
	Proceeds from stock subscription			31,000		-
	Proceeds from sale of common stock			-		75,000
	Proceeds from loans payable - SBA			299,000		-
		Net Cash Provided by Financing Activities		288,000		77,000
		NET CHANGE IN CASH		18,306		63,613
		CASH AT BEGINNING OF YEAR		20,236		17,060
		CASH AT END OF PERIOD	$	38,542	$	80,673
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
	CASH PAID FOR:
		Interest	$	13,297	$	14,214
		Income taxes	$	800	$	800
NON CASH FINANCING ACTIVITIES:
		Common stock issued for stock subscription	$	51,000	$	-
The accompanying notes are an integral part of these condensed unaudited financial statements.

Page 5

OMNITEK ENGINEERING CORP.

Condensed Statements of Stockholders’ Deficit (unaudited)

					Common	Additional					Total
	Common Stock				Stock	Paid-In			Accumulated		Stockholders’
	Shares	Amount			Subscribed	Capital			Deficit		Deficit
Balance, December 31, 2019	21,339,865	$	8,527,210	$	20,000	$		11,997,842	$	(20,975,929)	$	(430,877)
Value of options and warrants
issued for services	-		-		-			10,408		-		10,408
Deposit – stock purchase agreement	-		-		31,000			-		-		31,000
Net loss for the three months ended March 31, 2020	-		-		-			-		(126,705)		(126,705)
Balance, March 31, 2020	21,339,865	$	8,527,210	$	51,000	$		12,008,250	$	(21,102,634)	$	(516,174)
Value of options issued for services	-		-		-	1,670				-	1,670
Net loss for three months ended June 30, 2020	-		-		-	-				(132,497)	(132,497)
Balance, June 30, 2020	21,339,865	$	8,857,210	$	51,000	$	12,009,920		$	(21,235,131)	$	(647,001)
Value of options issued for services	-		-		-	1,689				-	1,689
Common stock issued for subscription	260,324		51,000		(51,000)	-				-	-
Net loss for three months ended September 30, 2020	-		-		-	-				(94,169)	(94,169)
Balance, September 30, 2020	21,600,189	$	8,578,210	$	-	$	12,011,609		$	(21,329,300)	$	(739,481)
					Common	Additional					Total
	Common Stock				Stock	Paid-In			Accumulated		Stockholders'
	Shares		Amount		Subscribed	Capital			Deficit		Deficit
Balance, December 31, 2018	20,420,402	$	8,427,210	$	-	$		11,923,056	$	(20,255,507)	$	94,759
Value of options issued for services	-		-		-			25,907		-		25,907
Net loss for the three months ended
March 31, 2019	-		-		-			-		(106,226)		(106,226)
Balance, March 31, 2019	20,420,402	$	8,427,210	$	-	$		11,948,963	$	(20,361,733)	$	14,440
Value of options issued for services	-		-		-			10,915		-		10,915
Net loss for the three months ended
June 30, 2019	-		-		-			-		(130,043)		(130,043)
Balance, June 30, 2019	20,420,402	$	8,427,210	$	-	$		11,959,878	$	(20,491,776)	$	(104,688)
Value of options issued for services	-		-		-			5,237		-		5,237
Sale of option for future purchase of common stock	-		-		-			25,000		-		25,000
Sale of common stock	419,463		75,000		-			-		-		75,000
Net loss for the three months ended September 30, 2019	-		-		-			-		(176,920)		(176,920)
Balance, September 30, 2019	20,839,865	$	8,502,210	$	-	$		11,990,115	$	(20,668,696)	$	(176,371)

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

Page 6

OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

September 30, 2020

(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 September 30, 2020 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, 2019 audited financial statements.  The results of operations for the periods ended September 30, 2020 and 2019 are not necessarily indicative of the operating results for the full years.

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

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

Revenue Recognition

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

We recognize revenue on various products and services as follows:

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

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

Page 7

OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

September 30, 2020

(unaudited)

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority

of Omnitek’s contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct.

Performance Obligations Satisfied Over Time

Revenues for Omnitek’s long-term contracts that satisfy the criteria for over time recognition (formerly known as percentage-of-completion method) is recognized as the work progresses. The majority of the revenue is derived from long-term engine development agreements that typically span between 12 to 24 months. Omnitek’s long-term contracts will continue to be recognized over time because our typical contract is for a customized asset with no alternative use and generally the Company has a right to payment for work completed to date. Under the new revenue standard, the cost-to-cost measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as the Company incurs costs. Contract costs include labor and material. Revenue from products and services transferred to customers over time accounted for 0% and 6% of revenue for the periods ended September 30, 2020 and 2019, respectively.

Performance Obligations Satisfied at a Point in Time

Revenue from product sales is recognized at a point in time. These sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risk and rewards transfer. Upon fulfilment of the performance obligation, the customer is provided an invoice demonstrating transfer of control to the customer. Revenue from goods and services transferred to customers at a point in time accounted for 100% and 94% of revenue for the periods ended September 30, 2020 and 2019, respectively.

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

Pre-contract costs are generally not incurred by the Company

Contract Estimates

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

Variable Consideration 

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

Page 8

OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

September 30, 2020

(unaudited)

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Disaggregation of Revenue

The following table presents Omnitek’s revenues disaggregated by region and product type for the three months ended September 30, 2020 and September 30, 2019:

		For the three months ended September 30,				For the three months ended September 30,
		2020				2019
		Consumer	Long-term		Consumer		Long-term
Segments		Products	Contract	Total	Products		Contract	Total
Domestic	$	117,632	-	117,632	$ 99,423		-	99,423
International		98,235	-	98,235	37,029		-	37,029
	$	215,867	-	215,867	$ 136,452		-	136,452
Filters	$	45,561	-	45,561	$ 35,478		-	35,478
Components		170,306	-	170,306	100,974		-	100,974
Engineering Services		-	-	-	-		-	-
	$	215,867	-	215,867	$ 136,452		-	136,452

The following table presents Omnitek’s revenues disaggregated by region and product type for the nine months ended September 30, 2020 and September 30, 2019:

		For the nine months ended September 30,				For the nine months ended        September 30,
		2020				2019
		Consumer	Long-term			Consumer	Long-term
Segments		Products	Contract	Total		Products	Contract	Total
Domestic	$	463,971	-	463,971	$	320,349	-	320,349
International		186,800	-	186,800		387,373	44,474	431,847
	$	650,771	-	650,771	$	707,722	44,474	752,196
Filters	$	209,593	-	209,593	$	452,728	-	452,728
Components		441,178	-	441,178		254,994	-	254,994
Engineering Services		-	-	-		-	44,474	44,474
	$	650,771	-	650,771	$	707,722	44,474	752,196

Page 9

OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

September 30, 2020

(unaudited)

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Inventory

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

	September 30,		December 31,
Location : Vista, CA	2020		2019
Raw materials	$	913,795	$	935,834
Finished goods		1,030,045		1,073,623
Work in progress		-		1,800
Allowance for obsolete inventory		(1,038,573)		(988,892)
Total	$	905,267	$	1,022,365

The Company has established an allowance for obsolete inventory.  Expense for obsolete inventory was $49,681 and $26,667, for the periods ended September 30, 2020 and September 30, 2019, respectively.

Property and Equipment

Property and equipment at September 30, 2020 and December 31, 2019 consisted of the following:

	September 30,		December 31,
	2020		2019
Production equipment	$	64,673	$	64,673
Computers/Office equipment		28,540		28,540
Tooling equipment		12,380		12,380
Leasehold Improvements		42,451		42,451
Less: accumulated depreciation		(146,642)		(146,235)
Total	$	1,402	$	1,809

Depreciation expense for the periods ended September 30, 2020 and September 30, 2019 was $407 and $431, respectively.

Basic and Diluted Loss per Share

The computation of basic earnings per share of common stock is based on the weighted average number of shares outstanding during the periods presented. The computation of fully diluted earnings per share includes common stock equivalents outstanding at the balance sheet date. The Company had 2,857,223 and 2,970,140 stock options that would have been included in the fully diluted earnings per share as of September 30, 2020 and September 30, 2019, respectively.  However, the common stock equivalents were not included in the computation of the loss per share computation because they are anti dilutive.  

Income Taxes

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

Page 10

OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

September 30, 2020

(unaudited)

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of September 30, 2020 and December 31, 2019 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 September 30, 2020, the Company had an accumulated deficit of $21,329,300 and total stockholders’ deficit of $(739,481).  At September 30, 2020, the Company had current assets of $1,007,140 including cash of $38,542, and current liabilities of $1,520,607, resulting in negative working capital of $(513,467). For the nine months ended September 30, 2020, the Company reported a net loss of $353,371 and net cash used in operating activities of $269,694. Management believes that based on its operating plan, the projected sales for 2020, combined with funds available from its working capital will be sufficient to fund operations for the next twelve months.  However, there can be no assurance that operations and operating cash flows will continue at the current levels or improve in the near future. Whether, and when, the Company can attain profitability and positive cash flows from operations is uncertain. The Company is also uncertain whether it can raise additional capital. These uncertainties cast significant doubt upon the Company’s ability to continue as a going concern. Our financial statements have been prepared on a going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of operations. The financial statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities should we be unable to continue as a going concern.     

Recent Accounting Pronouncements

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

NOTE 3 – CONTRACT ASSETS AND LIABILITIES

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

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

	September 30,		December 31,
	2020		2019
Contract assets	$	13,221	$	13,221
Contract liabilities		(75,000)		(75,000)
Net amount of contract liabilities in excess of contract assets	$	(61,779)	$	(61,779)

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OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

September 30, 2020

(unaudited)

NOTE 4 – COMMITMENTS

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

As of September 30, 2020 the outstanding balance was $52,529. The security deposit of $14,000 remained the same.

Per the terms of the Fourth Amendment to the Lease, the lease expired effective September 1, 2020. The Company is currently negotiating a new lease with the landlord.

NOTE 5 - RELATED PARTY TRANSACTIONS

Accounts Receivable – Related Parties

The Company holds a non-controlling interest in various distributors in exchange for use of the Company’s name and logo. As of September 30, 2020, the Company owned a 15% interest in Omnitek Engineering Thailand Co. Ltd. and a 20% interest in Omnitek Peru S.A.C.  As of September 30, 2020 and December 31, 2019, the Company was owed $14,521 and $16,712, respectively, by related parties for the purchase of products and services.

Accounts Payable – Related Parties

The Company regularly incurs expenses that are paid to related parties and purchases goods and services from related parties. As of September 30, 2020 and December 31, 2019, the Company owed related parties for such expenses, goods and services in the amounts of $122,025 and $134,077, respectively.

Accrued Management Compensation

For the periods ended September 30, 2020 and December 31, 2019, the Company’s president and chief financial officer were due amounts for services performed for the Company.

As of September 30, 2020 and December 31, 2019 the accrued management fees consisted of the following:

	September 30,			December 31,
	2020			2019
Amounts due to the president		$	590,735		$	541,504
Amounts due to the chief financial officer			-			165,326
Total		$	590,735		$	706,830

The chief financial officer resigned on January 7, 2020 (effective February 7, 2020). Prior amounts due to the chief financial officer were reclassified to accounts payable and accrued liabilities on the balance sheet at September 30, 2020.

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OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

September 30, 2020

(unaudited)

NOTE 6 – NOTES PAYABLE - RELATED PARTY TRANSACTIONS

Notes Payable – Related Party

On September 11, 2019 the Company borrowed $12,000 from a board member. The loan was evidenced by an unsecured promissory note which bears simple interest at the rate of 8% per annum. The principal amount of the note and all accrued interest was due and payable on or before December 11, 2019. Under the terms of a Promissory Note Extension, the principal amount of the note and all accrued interest is due and payable on or before the extended maturity date of June 30, 2020. On April 29, 2020 the balance of this note was paid in full.

On May 28, 2019 the Company issued a Working Capital Promissory Note to the Company’s CEO for loans made to the Company during the calendar year 2019. The note has an annual interest rate of 5%, is unsecured and had an original maturity date of December 31, 2019. During 2019 the Company’s CEO made cumulative loans to the Company of $15,000. Under the terms of a Promissory Note Extension, the principal amount of the note and all accrued interest is due and payable on or before the extended maturity date of December 31, 2020. On April 29, 2020 the balance of this note was paid in full.

On January 19, 2017 the Company issued a promissory note for $15,000 to the Company’s CEO. The note has an annual interest rate of 5% and is unsecured. The principal amount of the note and all accrued interest is due and payable on or before January 19, 2021. As of September 30, 2020 and December 31, 2019 Notes Payable – Related Party consisted of the following:

	September 30,			December 31,
	2020			2019
Note payable, related party, current portion		$	15,000		$	27,000
Notes payable, related party, net of current portion			-			15,000
Total		$	15,000		$	42,000

NOTE 7 – DEBT

Note Payable

On December 11, 2019, a convertible notes payable matured with an outstanding principal balance of $40,000. The Lender elected to convert $25,000 of the outstanding principal to restricted common stock.  Under the terms of the Allonge to Senior Secured Convertible Promissory Note and Agreement, the remaining principal balance of $15,000 is due and payable with an extended maturity date of May 11, 2020. On April 27, 2020 the balance of this note was paid in full. As of September 30, 2020, and December 31, 2019 Note Payable consisted of the following:

	September 30,			December 31,
	2020			2019
Note payable		$	-		$	15,000
Total		$	-		$	15,000

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OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

September 30, 2020

(unaudited)

NOTE 7 – DEBT (Continued)

Loans payable – SBA

Economic Injury Disaster Loan

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

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

Payroll Protection Program

On May 28, 2020, the Company received funds pursuant to a Paycheck Protection Program loan (the “SBA PPP Loan”) from Riverview Bank, under recently enacted CARES Act administered by U.S. Small Business Administration. The Company received total proceeds of $100,000 from the SBA PPP Loan. In accordance with the requirements of the CARES Act, the Company will use proceeds from the SBA PPP Loan primarily for payroll costs. The SBA PPP Loan is scheduled to mature on May 22, 2022 and has a 1.00% interest rate and is subject to the terms and conditions applicable to loans adminstered by the SBA under the CARES Act. If certain conditions are met, as provided for under section 1106 of the CARES Act, as amended by the PPP Flexibility Act the loan may be forgiven in its entirety.

As of September 30, 2020, and December 31, 2019 Debt consisted of the following:

	September 30,			December 31,
	2020			2019
Loan payable – SBA EIDL		$	199,000		$	-
Loan payable – SBA PPP			100,000
Less current portion			(57,304)			-
Total		$	241,696		$	-

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OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

September 30, 2020

(unaudited)

NOTE 8 -  STOCK OPTIONS AND WARRANTS

During the nine months ended September 30, 2020 and 2019, the Company granted 150,000 and 450,000 options for services, respectively. During the nine months ended September 30, 2020 and 2019, the Company recognized expense of $13,767 and $42,059, respectively, for options and warrants that vested during the periods pursuant to ASC Topic 718. Total remaining amount of compensation expense to be recognized in future periods is $1,946.

On August 3, 2011 the Board of Directors adopted the Omnitek Engineering Corp. 2011 Long-term Incentive Plan (the “2011 Plan”), under which 1,000,000 shares of Company’s Common Stock were reserved for issuance of both Incentive Stock Options to employees only and and Non-Qualified Stock Options to employees and consultants at its discretion. As of September 30, 2020 the Company has a total of 125,000 options issued under the 2011 Plan. On September 11, 2015 the Board of Directors adopted the Omnitek Engineering Corp. 2015 Long Term Incentive Plan (the “2015 Plan”), under which 2,500,000 shares of the Company’s Common Stock were reserved for issuance of both Incentive Stock Options to employees only and Non-Qualified Stock Options to employees and consultants at its discretion. As of September 30, 2020 the Company has a total of 1,915,556 options issued under the 2015 Plan. In October 2017, the Company’s shareholders approved its 2017 Long-Term Incentive Plan (the “2017 Plan”). Under the 2017 plan, the Company may issue up to 5,000,000 shares of both Incentive Stock Options to employees only and Non-Qualified Stock Options to employees and consultants at its discretion.  As of September 30, 2020, the Company has a total of 816,667 options issued under the 2017 Plan.  During the nine months ended September 30, 2020 and 2019 the Company issued -0- and -0- warrants, respectively.

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:

	September 30, 2020	September 30, 2019
Expected volatility	159%	142%
Expected dividends	0%	0%
Expected term	7 Years	7 Years
Risk-free interest rate	0.60%	2.01%

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OMNITEK ENGINEERING CORP.

Notes to Condensed Financial Statements

September 30, 2020

(unaudited)

NOTE 8 -  STOCK OPTIONS AND WARRANTS (CONTINUED)

A summary of the status of the options and warrants granted at September 30, 2020 and December 31, 2019 and changes during the periods then ended is presented below:  

	September 30,		December 31,
	2020		2019
		Weighted-Average		Weighted-Average
	Shares	Exercise Price	Shares	Exercise Price
Outstanding at beginning of year	2,940,556	$ 0.25	2,965,556	$ 0.63
Granted	150,000	0.06	450,000	0.08
Exercised	-	-	-	-
Expired or cancelled	(50,000)	1.13	(475,000)	2.49
Outstanding at end of period	3,040,556	0.22	2,940,556	0.25
Exercisable	2,857,223	$ 0.20	2,672,223	$ 0.23

A summary of the status of the options and warrants outstanding at September 30, 2020 is presented below:

Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life	Number Exercisable	Weighted-Average Exercise Price
$ 0.01-0.99	3,040,556	3.58 years	2,857,223	$ 0.20

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

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

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

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

Results of Operations

For the three months ended September 30, 2020 and 2019

Revenues were $215,687 for the three months ended September 30, 2020 compared with $136,452 for the three months ended September 30, 2019, an increase of $79,415. The increase in revenues for the period relates primarily to sales to new customers (both international and domestic) during the quarter.

Cost of sales was $122,624 for the three months ended September 30, 2020 compared with $101,106 for the three months ended September 30, 2019, an increase of $21,518. Our gross margin percentage was 43% for the three months ended September 30, 2020 compared with 26% in the same period in 2019. The higher margin for the three months ended September 30, 2020 relates primarily to the application of effectively fixed cost of sales costs (manufacturing labor and overhead) being applied to a higher revenue base.

Operating expenses for the three months ended September 30, 2020 were $182,220 compared with $207,589 in the same period in 2019, a decrease of $25,369 or 12%. General and administrative expense for the three months ended September 30, 2020 was $164,549 compared with $179,542 for the three months ended September 30, 2019.  Major components of general and administrative expenses for the three months ended September 30, 2020 were professional fees of $16,100, rent expense of $33,097, and salary and wages of $54,698 This compares to professional fees of $11,831, rent expense of $38,349 and salaries and wages of $67,822 for the three months ended September 30, 2019.  For the three months ended September 30, 2020 research and development outlays decreased to $17,535 compared with $27,512 for the three months ended September 30, 2019.

Our net loss for the three months ended September 30, 2020 was $94,169, or ($0.00) per share, compared with a net loss of $176,920, or ($0.01) per share, for the three months ended September 30, 2019.  The decreased net loss was primarily due to higher revenues during the three months ended September 30, 2020 over the same period a year earlier.

Results for the three months ended September 30, 2020 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $1,689 and depreciation and amortization of $136.  For

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the three month period a year earlier non-cash expenses included options and warrants granted in the amount of $5,237 and depreciation and amortization of $135.

For the nine months ended September 30, 2020 and 2019

Revenues decreased to $650,771 for the nine months ended September 30, 2020 from $752,196 for the nine months ended September 30, 2019, a decrease of $101,425 or 13%. The reduction in revenues for the period relates primarily to the general economic downturn related to the COVID-19 pandemic.

Our cost of sales decreased to $402,604 for the nine months ended September 30, 2020 from $469,318 for the nine months ended September 30, 2019, a decrease of $66,714. Our gross margin was 38% for the nine months ended September 30, 2020 compared to 38% in 2019.

Our operating expenses for the nine months ended September 30, 2020 were $586,927 compared to $680,119 in 2019, a decrease of $93,192 or 14%.  General and administrative expense for the nine months ended September 30, 2020 was $519,300 as compared to $599,708 for the nine months ended September 30, 2019. Major components of general and administrative expenses for the nine months ended September 30, 2020 were professional fees of $62,290, rent expense of $104,519 and salary and wages of $172,073. This compares to professional fees of $55,270, rent expense of 118,084, and salary and wages of $201,449 for the nine months ended September 30, 2019. Research and development outlays were decreased to $67,221 for the nine months ended September 30, 2020 compared to $79,980 for the nine months ended September 30, 2019.

Our net loss for the nine months ended September 30, 2020 was $353,371, or ($0.02) per share, compared to a net loss of $413,189, or ($0.02) per share, for the nine months ended September 30, 2019. The decreased net loss was primarily due to lower operating costs during the nine months ended September 30, 2020 over the same period a year earlier.  

Results for the nine months ended September 30, 2020 reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $13,767, depreciation and amortization of $407 and the inventory reserve adjustment of $49,681. For the nine-month period a year earlier, non-cash expenses included the value of options and warrants granted of $42,059, depreciation and amortization of $431 and inventory reserve adjustment of $26,667.

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 September 30, 2020, our current liabilities totaled $1,520,607 and our current assets totaled $1,007,140, resulting in negative working capital of $513,467.  

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.

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We have historically incurred significant losses, which have resulted in a total accumulated deficit of $21,329,300 at September 30, 2020, of which $5,604,135 is a direct result of derivative expense and change in fair value of derivative liability and is unrelated to our operations or cash flow.

Operating Activities

We realized a negative cash flow from operations of $269,694 for the nine months ended September 30, 2020 compared with a negative cash flow of $13,387 during the nine months ended September 30, 2019.  

Included in the operating loss of $338,760 for the nine months ended September 30, 2020 are non-cash expenses, which are not a drain on our capital resources.  During the period, these non-cash expenses include the value of options and warrants granted in the amount of $13,767, depreciation and amortization of $407 and the inventory reserve adjustment of $49,681. 

Financing Activities

We realized a positive cash flow from financing activities of $288,000 for the nine months ended September 30, 2020 compared with positive cash flow of $77,000 for the nine months ended September 30, 2019. The positive cash flow for the nine months ended September 30, 2020 relates primarily to proceeds from long-term debt. The positive cash flow for the nine months ended September 30, 2019 relates to proceeds from the sale of common stock.  

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.

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Contract assets and liabilities

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

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 6% of revenue for the periods ended September 30, 2020 and 2019, respectively.

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Performance Obligations Satisfied at a Point in Time

Revenue from product sales is recognized at a point in time. These sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risk and rewards transfer. Upon fulfilment of the performance obligation, the customer is provided an invoice demonstrating transfer of control to the customer. Revenue from goods and services transferred to customers at a point in time accounted for 100% and 94% of revenue for the periods ended September 30, 2020 and 2019, respectively.

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

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

Contract Estimates

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

Variable Consideration 

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

Recent Accounting Pronouncements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

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

ITEM 4. CONTROLS AND PROCEDURES 

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as a result of the material weaknesses described below, our disclosure controls and procedures were not effective as of September 30, 2020. 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

Page 21

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 September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS 

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

ITEM 1A.  RISK FACTORS 

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

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

On July 14, 2020, the Company issued an aggregate of 260,324 restricted shares of Common Stock to On Global Investments S.R.L., for total consideration of $51,000 pursuant to the Securities Purchase Agreement dated September 6, 2019. 111,857 of these shares were issued at a purchase price of $0.1788 per share and 148,467 shares were issued at the default purchase price of $0.2088. No underwriters were used and no commissions were paid. The offer and sale of the shares was made by the Company in reliance upon exemptions from the registration provisions of the Securities Act of 1933, as amended, set forth in Section 4(a)(2) and Rule 506 of Regulation D, thereof, relative to the offer and sale of accredited investors, within the meaning of Rule 501 of Regulation D, of the securities of an issuer not involving any public offering.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None

ITEM 5. OTHER INFORMATION

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

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ITEM 6. EXHIBITS

(a)Documents filed as part of this Report. 

1. Financial Statements.  The condensed unaudited Balance Sheet of Omnitek Engineering Corp. as of September 30, 2020 and the audited balance sheet as of December 31, 2019, the condensed unaudited Statements of Operations for the three month periods ended September 30, 2020 and 2019, the condensed unaudited Statements of Cash Flows for the nine month periods ended September 30, 2020 and 2019, and the condensed unaudited Statements of Stockholders’ Equity (Deficit) as of September 30, 2020 and 2019, together with the notes thereto, are included in this Quarterly Report on Form 10-Q. 

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

Exhibit
Number	Description of Exhibit
3.1	Amended and Restated Articles of Incorporation(1)
3.2	Amended and Restated By-Laws Adopted July 12, 2012(2)
31.1	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, 2019 formatted in Extensible Business Reporting Language ("XBRL"): (i) the balance sheets (unaudited); (ii) the statements of operations (unaudited); (iii) the statements of cash flows (unaudited); and, (iv) related notes.

(1)Previously filed on Form on Form 10 on April 27, 2010 

(2)Previously filed on Form 8-K on August 2, 2012 

(3)Filed herewith 

Page 23

SIGNATURES

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

	Omnitek Engineering Corp.
Dated: November 12, 2020		/s/ Werner Funk
		By: Werner Funk
		Its: Chief Executive Officer Principal Executive Officer
Dated: November 12, 2020		/s/ Werner Funk
		By: Werner Funk

Page 24

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14

I, Werner Funk, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Omnitek Engineering Corp.; 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;  

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have, for the small business issuer and have:  

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)         Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)         Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)         Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5.I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):  

(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to  record, process, summarize and report financial information; and

(b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

 

Dated: November 12, 2020___________________________ 

By:  Werner Funk 

Its:  President and Secretary  

EX-32.1

 Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Omnitek Engineering Corp. (the “Company”) on Form 10-Q for the period ending September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Werner Funk, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: 

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. 

 

Dated: November 12, 2020___________________________ 

By:  Werner Funk 

Its:  Chief Executive Officer, 

President and Secretary

 

Dated: November 12, 2020___________________________ 

By: Werner Funk 

Its:  Chief Financial Officer  

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. 

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Nov. 12, 2020
Document and Entity Information [Abstract]
Entity Registrant Name	Omnitek Engineering Corp.
Document Type	10-Q
Document Period End Date	Sep. 30, 2020
Amendment Flag	false
Entity Central Index Key	0001404804
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		21,600,189
Entity Filer Category	Non-accelerated Filer
Entity's Reporting Status Current	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Shell Company	false
Entity Interactive Data Current	Yes
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Entity File Number	000-53955
Entity Incorporation, State Country Code	CA
Entity Address, Address Line One	1333 Keystone Way, #101
Entity Address, City or Town	Vista
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92081
City Area Code	760
Local Phone Number	591-0089

XML

Condensed Balance Sheets (unaudited) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
CURRENT ASSETS
Cash	$ 38,542	$ 20,236
Accounts receivable, net	11,574	7,462
Accounts receivable - related parties	14,521	16,712
Inventory, net	905,267	1,022,365
Contract assets	13,221	13,221
Deposits	24,015	2,501
Total Current Assets	1,007,140	1,082,497
Property and equipment, net	1,402	1,809
OTHER ASSETS
Other noncurrent Assets	14,280	30,425
Total Other Assets	14,280	30,425
TOTAL ASSETS	1,022,822	1,114,731
CURRENT LIABILITIES
Accounts payable and accrued expenses	502,718	409,020
Accrued management compensation	590,735	706,830
Accounts payable - related parties	122,025	134,077
Notes payable - related parties	15,000	27,000
Note payable	0	15,000
Contract liabilities	75,000	75,000
Current portion, long-term debt	57,304	0
Customer deposits	157,825	163,681
Total Current Liabilities	1,520,607	1,530,608
LONG-TERM LIABILITIES
Notes payable - related party, net of current portion	0	15,000
Loans payable - SBA, net of current portion	241,696	0
Total Long-term Liabilities	241,696	15,000
Total Liabilities	1,762,303	1,545,608
STOCKHOLDERS' DEFICIT
Common stock, 125,000,000 shares authorized, no par value, 21,600,189 and 21,339,865 shares issued and outstanding, respectively	8,578,210	8,527,210
Common stock subscribed	0	20,000
Additional paid-in capital	12,011,609	11,997,842
Accumulated deficit	(21,329,300)	(20,975,929)
Total Stockholders' Deficit	(739,481)	(430,877)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 1,022,822	$ 1,114,731

XML

Condensed Balance Sheets (unaudited) (Parenthetical) - $ / shares	Sep. 30, 2020	Dec. 31, 2019
Statement of Financial Position [Abstract]
Common Stock, par or stated value	$ 0	$ 0
Common Stock, shares authorized	125,000,000	125,000,000
Common Stock, shares issued	21,600,189	21,600,189
Common Stock, shares outstanding	21,339,865	21,339,865

XML

Condensed Statements of Operations (unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Statement [Abstract]
REVENUES	$ 215,867	$ 123,366	$ 650,771	$ 739,110
REVENUES, related parties	0	13,086	0	13,086
Total revenues	215,867	136,452	650,771	752,196
COST OF GOODS SOLD	122,624	101,106	402,604	469,318
GROSS MARGIN	93,243	35,346	248,167	282,878
OPERATING EXPENSES
General and administrative	164,549	179,942	519,300	599,708
Research and development	17,535	27,512	67,220	79,980
Depreciation and amortization	136	135	407	431
Total Operating Expenses	182,220	207,589	586,927	680,119
LOSS FROM OPERATIONS	(88,977)	(172,243)	(338,760)	(397,241)
OTHER INCOME (EXPENSE)
Other income	0	0	874	0
Interest expense	(4,392)	(4,677)	(14,685)	(15,148)
Total Other Expense	(4,392)	(4,677)	(13,811)	(15,148)
LOSS BEFORE INCOME TAXES	(93,369)	(176,920)	(352,571)	(412,389)
INCOME TAX EXPENSE	800	0	800	800
NET LOSS	$ (94,169)	$ (176,920)	$ (353,371)	$ (413,189)
BASIC AND DILUTED LOSS PER SHARE	$ (0.00)	$ (0.01)	$ (0.02)	$ (0.02)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED	21,561,000	20,424,961	21,414,922	20,421,938

XML

Condensed Statements of Cash Flows (unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
OPERATING ACTIVITIES
Net loss	$ (353,371)	$ (413,189)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation expense	407	431
Options and warrants issued for services	13,767	42,059
Inventory reserve	49,681	26,667
Changes in operating assets and liabilities:
Accounts receivable	(4,112)	2,751
Accounts receivable-related parties	2,191	(11,845)
Contract assets	0	(449)
Deposits	(5,369)	(755)
Inventory	67,417	94,445
Accounts payable and accrued expenses	(71,628)	69,927
Contract liabilities	0	(9,496)
Customer deposits	(5,856)	33,955
Accounts payable-related parties	(12,052)	(1,250)
Accrued management compensation	49,231	153,362
Net Cash Provided by (Used in) Operating Activities	(269,694)	(13,387)
INVESTING ACTIVITIES
Net Cash Used in Investing Activities	0	0
FINANCING ACTIVITIES
Proceeds from sale of option for future purchase of common stock	0	25,000
Payments on convertible note payable	(15,000)	(40,000)
Proceeds from (payments on) related party note payable	(27,000)	17,000
Proceeds from stock subscription	31,000	0
Proceeds from sale of common stock	0	75,000
Proceeds from loans payable - SBA	299,000	0
Net cash Provided by (Used in) Financing Activities	288,000	77,000
NET CHANGE IN CASH	18,306	63,613
CASH AT BEGINNING OF YEAR	20,236	17,060
CASH AT END OF PERIOD	38,542	80,673
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
Cash paid for: Interest	13,297	14,214
Cash paid for: Income taxes	$ 800	$ 800
NON CASH FINANCING ACTIVITIES:
Common stock issued for stock subscription	51,000	0

XML

Condensed Statements of Stockholders' Deficit (Equity) (unaudited) - USD ($)	Common Stock	Common Stock Subscribed	Additional Paid-In Capital	Accumulated Deficit	Total
Stockholders' Equity, beginning of period, Value at Dec. 31, 2018	$ 8,427,210		$ 11,923,056	$ (20,255,507)	$ 94,759
Stockholders' Equity, beginning of period, Shares at Dec. 31, 2018	20,420,402
Value of options issued for services			25,907		25,907
Net loss				(106,226)	(106,226)
Stockholders' Equity, end of period, Value at Mar. 31, 2019	$ 8,427,210		11,948,963	(20,361,733)	14,440
Stockholders' Equity, end of period, Shares at Mar. 31, 2019	20,420,402
Value of options issued for services			10,915		10,915
Net loss				(130,043)	(130,043)
Stockholders' Equity, end of period, Value at Jun. 30, 2019	$ 8,427,210		11,959,878	(20,491,776)	(104,688)
Stockholders' Equity, end of period, Shares at Jun. 30, 2019	20,420,402
Value of options issued for services			5,237		5,237
Sale of option for future purchase of common stock			25,000		25,000
Sale of common stock, shares	419,463
Sale of common stock, value	$ 75,000				75,000
Net loss				(176,920)	(176,920)
Stockholders' Equity, end of period, Value at Sep. 30, 2019	$ 8,502,210		11,990,115	(20,668,696)	(176,371)
Stockholders' Equity, end of period, Shares at Sep. 30, 2019	20,839,865
Stockholders' Equity, beginning of period, Value at Dec. 31, 2019	$ 8,527,210	20,000	11,997,842	(20,975,929)	(430,877)
Stockholders' Equity, beginning of period, Shares at Dec. 31, 2019	21,339,865
Value of options and warrants issued for services			10,408		10,408
Deposit - stock purchase agreement		31,000			31,000
Net loss				(126,705)	(126,705)
Stockholders' Equity, end of period, Value at Mar. 31, 2020	$ 8,527,210	51,000	12,008,250	(21,102,634)	(516,174)
Stockholders' Equity, end of period, Shares at Mar. 31, 2020	21,339,865
Value of options issued for services			1,670		1,670
Net loss				(132,497)	(132,497)
Stockholders' Equity, end of period, Value at Jun. 30, 2020	$ 8,857,210	51,000	12,009,920	(21,235,131)	(647,001)
Stockholders' Equity, end of period, Shares at Jun. 30, 2020	21,339,865
Value of options issued for services			1,689		1,689
Common stock issued for subscription, shares	260,324
Common stock issued for subscription, value	$ 51,000	(51,000)
Net loss				(94,169)	(94,169)
Stockholders' Equity, end of period, Value at Sep. 30, 2020	$ 8,578,210		$ 12,011,609	$ (21,329,300)	$ (739,481)
Stockholders' Equity, end of period, Shares at Sep. 30, 2020	21,600,189

XML

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

9 Months Ended

Sep. 30, 2020

Disclosure Text Block [Abstract]

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

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 September 30, 2020 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, 2019 audited financial statements. The results of operations for the periods ended September 30, 2020 and 2019 are not necessarily indicative of the operating results for the full years.

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

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2020

Disclosure Text Block [Abstract]

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

Revenue Recognition

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

We recognize revenue on various products and services as follows:

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

Contracts – Revenues are recognized as performance obligations are satisfied over time (also known as percentage-of-completion method), measured by either achievement of milestones or the ratio of costs incurred up to a given date to estimated total costs for each contract. Contract costs include all direct material, labor, subcontract and other costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and associated change orders and 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 6% of revenue for the periods ended September 30, 2020 and 2019, respectively.

Performance Obligations Satisfied at a Point in Time

Revenue from product sales is recognized at a point in time. These sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risk and rewards transfer. Upon fulfilment of the performance obligation, the customer is provided an invoice demonstrating transfer of control to the customer. Revenue from goods and services transferred to customers at a point in time accounted for 100% and 94% of revenue for the periods ended September 30, 2020 and 2019, respectively.

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

Pre-contract costs are generally not incurred by the Company

Contract Estimates

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

Variable Consideration

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

Disaggregation of Revenue

The following table presents Omnitek’s revenues disaggregated by region and product type for the three months ended September 30, 2020 and September 30, 2019:

		For the three months ended September 30,				For the three months ended September 30,
		2020				2019
		Consumer	Long-term		Consumer		Long-term
Segments		Products	Contract	Total	Products		Contract	Total
Domestic	$	117,632	-	117,632	$ 99,423		-	99,423
International		98,235	-	98,235	37,029		-	37,029
	$	215,867	-	215,867	$ 136,452		-	136,452
Filters	$	45,561	-	45,561	$ 35,478		-	35,478
Components		170,306	-	170,306	100,974		-	100,974
Engineering Services		-	-	-	-		-	-
	$	215,867	-	215,867	$ 136,452		-	136,452

The following table presents Omnitek’s revenues disaggregated by region and product type for the nine months ended September 30, 2020 and September 30, 2019:

		For the nine months ended September 30,				For the nine months ended         September 30,
		2020				2019
		Consumer	Long-term			Consumer	Long-term
Segments		Products	Contract	Total		Products	Contract	Total
Domestic	$	463,971	-	463,971	$	320,349	-	320,349
International		186,800	-	186,800		387,373	44,474	431,847
	$	650,771	-	650,771	$	707,722	44,474	752,196
Filters	$	209,593	-	209,593	$	452,728	-	452,728
Components		441,178	-	441,178		254,994	-	254,994
Engineering Services		-	-	-		-	44,474	44,474
	$	650,771	-	650,771	$	707,722	44,474	752,196

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:

	September 30,		December 31,
Location : Vista, CA	2020		2019
Raw materials	$	913,795	$	935,834
Finished goods		1,030,045		1,073,623
Work in progress		-		1,800
Allowance for obsolete inventory		(1,038,573)		(988,892)
Total	$	905,267	$	1,022,365

The Company has established an allowance for obsolete inventory.  Expense for obsolete inventory was $49,681 and $26,667, for the periods ended September 30, 2020 and September 30, 2019, respectively.

Property and Equipment

Property and equipment at September 30, 2020 and December 31, 2019 consisted of the following:

	September 30,		December 31,
	2020		2019
Production equipment	$	64,673	$	64,673
Computers/Office equipment		28,540		28,540
Tooling equipment		12,380		12,380
Leasehold Improvements		42,451		42,451
Less: accumulated depreciation		(146,642)		(146,235)
Total	$	1,402	$	1,809

Depreciation expense for the periods ended September 30, 2020 and September 30, 2019 was $407 and $431, respectively.

Basic and Diluted Loss per Share

The computation of basic earnings per share of common stock is based on the weighted average number of shares outstanding during the periods presented. The computation of fully diluted earnings per share includes common stock equivalents outstanding at the balance sheet date. The Company had 2,857,223 and 2,970,140 stock options that would have been included in the fully diluted earnings per share as of September 30, 2020 and September 30, 2019, respectively.  However, the common stock equivalents were not included in the computation of the loss per share computation because they are anti dilutive.

Income Taxes

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

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of September 30, 2020 and December 31, 2019 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 September 30, 2020, the Company had an accumulated deficit of $21,329,300 and total stockholders’ deficit of $(739,481).  At September 30, 2020, the Company had current assets of $1,007,140 including cash of $38,542, and current liabilities of $1,520,607, resulting in negative working capital of $(513,467). For the nine months ended September 30, 2020, the Company reported a net loss of $353,371 and net cash used in operating activities of $269,694. Management believes that based on its operating plan, the projected sales for 2020, combined with funds available from its working capital will be sufficient to fund operations for the next twelve months.  However, there can be no assurance that operations and operating cash flows will continue at the current levels or improve in the near future. Whether, and when, the Company can attain profitability and positive cash flows from operations is uncertain. The Company is also uncertain whether it can raise additional capital. These uncertainties cast significant doubt upon the Company’s ability to continue as a going concern. 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.

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NOTE 3 - CONTRACT ASSETS AND LIABILITIES

9 Months Ended

Sep. 30, 2020

Disclosure Text Block [Abstract]

NOTE 3 - CONTRACT ASSETS AND LIABILITIES

NOTE 3 – CONTRACT ASSETS AND LIABILITIES

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

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

	September 30,		December 31,
	2020		2019
Contract assets	$	13,221	$	13,221
Contract liabilities		(75,000)		(75,000)
Net amount of contract liabilities in excess of contract assets	$	(61,779)	$	(61,779)

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NOTE 4 - COMMITMENTS

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

NOTE 4 - COMMITMENTS

NOTE 4 – COMMITMENTS

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

As of September 30, 2020 the outstanding balance was $52,529.The security deposit of $14,000 remained the same.

Per the terms of the Fourth Amendment to the Lease, the lease expired effective September 1, 2020. The Company is currently negotiating a new lease with the landlord.

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NOTE 5 - RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2020

Disclosure Text Block [Abstract]

NOTE 5 - RELATED PARTY TRANSACTIONS

NOTE 5 - RELATED PARTY TRANSACTIONS

Accounts Receivable – Related Parties

The Company holds a non-controlling interest in various distributors in exchange for use of the Company’s name and logo. As of September 30, 2020, the Company owned a 15% interest in Omnitek Engineering Thailand Co. Ltd. and a 20% interest in Omnitek Peru S.A.C.  As of September 30, 2020 and December 31, 2019, the Company was owed $14,521 and $16,712, respectively, by related parties for the purchase of products and services.

Accounts Payable – Related Parties

The Company regularly incurs expenses that are paid to related parties and purchases goods and services from related parties. As of September 30, 2020 and December 31, 2019, the Company owed related parties for such expenses, goods and services in the amounts of $122,025 and $134,077, respectively.

Accrued Management Compensation

For the periods ended September 30, 2020 and December 31, 2019, the Company’s president and chief financial officer were due amounts for services performed for the Company.

As of September 30, 2020 and December 31, 2019 the accrued management fees consisted of the following:

	September 30,			December 31,
	2020			2019
Amounts due to the president		$	590,735		$	541,504
Amounts due to the chief financial officer			-			165,326
Total		$	590,735		$	706,830

The chief financial officer resigned on January 7, 2020 (effective February 7, 2020). Prior amounts due to the chief financial officer were reclassified to accounts payable and accrued liabilities on the balance sheet at September 30, 2020.

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NOTE 6 - NOTES PAYABLE - RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2020

Disclosure Text Block [Abstract]

NOTE 6 - NOTES PAYABLE - RELATED PARTY TRANSACTIONS

NOTE 6 – NOTES PAYABLE - RELATED PARTY TRANSACTIONS

Notes Payable – Related Party

On September 11, 2019 the Company borrowed $12,000 from a board member. The loan was evidenced by an unsecured promissory note which bears simple interest at the rate of 8% per annum. The principal amount of the note and all accrued interest was due and payable on or before December 11, 2019. Under the terms of a Promissory Note Extension, the principal amount of the note and all accrued interest is due and payable on or before the extended maturity date of June 30, 2020. On April 29, 2020 the balance of this note was paid in full.

On May 28, 2019 the Company issued a Working Capital Promissory Note to the Company’s CEO for loans made to the Company during the calendar year 2019. The note has an annual interest rate of 5%, is unsecured and had an original maturity date of December 31, 2019. During 2019 the Company’s CEO made cumulative loans to the Company of $15,000. Under the terms of a Promissory Note Extension, the principal amount of the note and all accrued interest is due and payable on or before the extended maturity date of December 31, 2020. On April 29, 2020 the balance of this note was paid in full.

On January 19, 2017 the Company issued a promissory note for $15,000 to the Company’s CEO. The note has an annual interest rate of 5% and is unsecured. The principal amount of the note and all accrued interest is due and payable on or before January 19, 2021. As of September 30, 2020 and December 31, 2019 Notes Payable – Related Party consisted of the following:

	September 30,			December 31,
	2020			2019
Note payable, related party, current portion		$	15,000		$	27,000
Notes payable, related party, net of current portion			-			15,000
Total		$	15,000		$	42,000

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NOTE 7 - DEBT

9 Months Ended

Sep. 30, 2020

Disclosure Text Block [Abstract]

NOTE 7 - DEBT

NOTE 7 – DEBT

Note Payable

On December 11, 2019, a convertible notes payable matured with an outstanding principal balance of $40,000. The Lender elected to convert $25,000 of the outstanding principal to restricted common stock. Under the terms of the Allonge to Senior Secured Convertible Promissory Note and Agreement, the remaining principal balance of $15,000 is due and payable with an extended maturity date of May 11, 2020. On April 27, 2020 the balance of this note was paid in full. As of September 30, 2020, and December 31, 2019 Note Payable consisted of the following:

	September 30,			December 31,
	2020			2019
Note payable		$	-		$	15,000
Total		$	-		$	15,000

Loans payable – SBA

Economic Injury Disaster Loan

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

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

Payroll Protection Program

On May 28, 2020, the Company received funds pursuant to a Paycheck Protection Program loan (the “SBA PPP Loan”) from Riverview Bank, under recently enacted CARES Act administered by U.S. Small Business Administration. The Company received total proceeds of $100,000 from the SBA PPP Loan. In accordance with the requirements of the CARES Act, the Company will use proceeds from the SBA PPP Loan primarily for payroll costs. The SBA PPP Loan is scheduled to mature on May 22, 2022 and has a 1.00% interest rate and is subject to the terms and conditions applicable to loans adminstered by the SBA under the CARES Act. If certain conditions are met, as provided for under section 1106 of the CARES Act, as amended by the PPP Flexibility Act the loan may be forgiven in its entirety.

As of September 30, 2020, and December 31, 2019 Debt consisted of the following:

	September 30,			December 31,
	2020			2019
Loan payable – SBA EIDL		$	199,000		$	-
Loan payable – SBA PPP			100,000
Less current portion			(57,304)			-
Total		$	241,696		$	-

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NOTE 8 - STOCK OPTIONS AND WARRANTS

9 Months Ended

Sep. 30, 2020

Disclosure Text Block [Abstract]

NOTE 8 - STOCK OPTIONS AND WARRANTS

NOTE 8 - STOCK OPTIONS AND WARRANTS

During the nine months ended September 30, 2020 and 2019, the Company granted 150,000 and 450,000 options for services, respectively. During the nine months ended September 30, 2020 and 2019, the Company recognized expense of $13,767 and $42,059, respectively, for options and warrants that vested during the periods pursuant to ASC Topic 718. Total remaining amount of compensation expense to be recognized in future periods is $1,946.

On August 3, 2011 the Board of Directors adopted the Omnitek Engineering Corp. 2011 Long-term Incentive Plan (the “2011 Plan”), under which 1,000,000 shares of Company’s Common Stock were reserved for issuance of both Incentive Stock Options to employees only and and Non-Qualified Stock Options to employees and consultants at its discretion. As of September 30, 2020 the Company has a total of 125,000 options issued under the 2011 Plan. On September 11, 2015 the Board of Directors adopted the Omnitek Engineering Corp. 2015 Long Term Incentive Plan (the “2015 Plan”), under which 2,500,000 shares of the Company’s Common Stock were reserved for issuance of both Incentive Stock Options to employees only and Non-Qualified Stock Options to employees and consultants at its discretion. As of September 30, 2020 the Company has a total of 1,915,556 options issued under the 2015 Plan. In October 2017, the Company’s shareholders approved its 2017 Long-Term Incentive Plan (the “2017 Plan”). Under the 2017 plan, the Company may issue up to 5,000,000 shares of both Incentive Stock Options to employees only and Non-Qualified Stock Options to employees and consultants at its discretion. As of September 30, 2020, the Company has a total of 816,667 options issued under the 2017 Plan. During the nine months ended September 30, 2020 and 2019 the Company issued -0- and -0- warrants, respectively.

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:

	September 30, 2020	September 30, 2019
Expected volatility	159%	142%
Expected dividends	0%	0%
Expected term	7 Years	7 Years
Risk-free interest rate	0.60%	2.01%

A summary of the status of the options and warrants granted at September 30, 2020 and December 31, 2019 and changes during the periods then ended is presented below:

	September 30,		December 31,
	2020		2019
		Weighted-Average		Weighted-Average
	Shares	Exercise Price	Shares	Exercise Price
Outstanding at beginning of year	2,940,556	$ 0.25	2,965,556	$ 0.63
Granted	150,000	0.06	450,000	0.08
Exercised	-	-	-	-
Expired or cancelled	(50,000)	1.13	(475,000)	2.49
Outstanding at end of period	3,040,556	0.22	2,940,556	0.25
Exercisable	2,857,223	$ 0.20	2,672,223	$ 0.23

A summary of the status of the options and warrants outstanding at September 30, 2020 is presented below:

Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life	Number Exercisable	Weighted-Average Exercise Price
$ 0.01-0.99	3,040,556	3.58 years	2,857,223	$ 0.20

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2020

Policy Text Block [Abstract]

Use of Estimates

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

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 6% of revenue for the periods ended September 30, 2020 and 2019, respectively.

Performance Obligations Satisfied at a Point in Time

Revenue from product sales is recognized at a point in time. These sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risk and rewards transfer. Upon fulfilment of the performance obligation, the customer is provided an invoice demonstrating transfer of control to the customer. Revenue from goods and services transferred to customers at a point in time accounted for 100% and 94% of revenue for the periods ended September 30, 2020 and 2019, respectively.

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

Pre-contract costs are generally not incurred by the Company

Contract Estimates

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

Variable Consideration

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

Disaggregation of Revenue

The following table presents Omnitek’s revenues disaggregated by region and product type for the three months ended September 30, 2020 and September 30, 2019:

		For the three months ended September 30,				For the three months ended September 30,
		2020				2019
		Consumer	Long-term		Consumer		Long-term
Segments		Products	Contract	Total	Products		Contract	Total
Domestic	$	117,632	-	117,632	$ 99,423		-	99,423
International		98,235	-	98,235	37,029		-	37,029
	$	215,867	-	215,867	$ 136,452		-	136,452
Filters	$	45,561	-	45,561	$ 35,478		-	35,478
Components		170,306	-	170,306	100,974		-	100,974
Engineering Services		-	-	-	-		-	-
	$	215,867	-	215,867	$ 136,452		-	136,452

The following table presents Omnitek’s revenues disaggregated by region and product type for the nine months ended September 30, 2020 and September 30, 2019:

		For the nine months ended September 30,				For the nine months ended         September 30,
		2020				2019
		Consumer	Long-term			Consumer	Long-term
Segments		Products	Contract	Total		Products	Contract	Total
Domestic	$	463,971	-	463,971	$	320,349	-	320,349
International		186,800	-	186,800		387,373	44,474	431,847
	$	650,771	-	650,771	$	707,722	44,474	752,196
Filters	$	209,593	-	209,593	$	452,728	-	452,728
Components		441,178	-	441,178		254,994	-	254,994
Engineering Services		-	-	-		-	44,474	44,474
	$	650,771	-	650,771	$	707,722	44,474	752,196

Inventory

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:

	September 30,		December 31,
Location : Vista, CA	2020		2019
Raw materials	$	913,795	$	935,834
Finished goods		1,030,045		1,073,623
Work in progress		-		1,800
Allowance for obsolete inventory		(1,038,573)		(988,892)
Total	$	905,267	$	1,022,365

The Company has established an allowance for obsolete inventory.  Expense for obsolete inventory was $49,681 and $26,667, for the periods ended September 30, 2020 and September 30, 2019, respectively.

Property and Equipment

Property and Equipment

Property and equipment at September 30, 2020 and December 31, 2019 consisted of the following:

	September 30,		December 31,
	2020		2019
Production equipment	$	64,673	$	64,673
Computers/Office equipment		28,540		28,540
Tooling equipment		12,380		12,380
Leasehold Improvements		42,451		42,451
Less: accumulated depreciation		(146,642)		(146,235)
Total	$	1,402	$	1,809

Depreciation expense for the periods ended September 30, 2020 and September 30, 2019 was $407 and $431, respectively.

Basic and Diluted Loss Per Share

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 2,857,223and 2,970,140 stock options that would have been included in the fully diluted earnings per share as of September 30, 2020 and September 30, 2019, respectively.  However, the common stock equivalents were not included in the computation of the loss per share computation because they are anti dilutive.

Income Taxes

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 September 30, 2020 and December 31, 2019 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

Liquidity and Going Concern

Historically, the Company has incurred net losses and negative cash flows from operations.  As of September 30, 2020, the Company had an accumulated deficit of $21,329,300 and total stockholders’ deficitof $(739,481).  At September 30, 2020, the Company had current assets of $1,007,140 including cash of $38,542, and current liabilities of $1,520,607, resulting in negative working capital of $(513,467). For the nine months ended September 30, 2020, the Company reported a net loss of $353,371 and net cash use din operating activities of $269,694. Management believes that based on its operating plan, the projected sales for 2020, combined with funds available from its working capital will be sufficient to fund operations for the next twelve months.  However, there can be no assurance that operations and operating cash flows will continue at the current levels or improve in the near future. Whether, and when, the Company can attain profitability and positive cash flows from operations is uncertain. The Company is also uncertain whether it can raise additional capital. These uncertainties cast significant doubt upon the Company’s ability to continue as a going concern. 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

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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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2020

Disclosure Text Block [Abstract]

Schedule of Disaggregation of Revenue

The following table presents Omnitek’s revenues disaggregated by region and product type for the three months ended September 30, 2020 and September 30, 2019:

		For the three months ended September 30,				For the three months ended September 30,
		2020				2019
		Consumer	Long-term		Consumer		Long-term
Segments		Products	Contract	Total	Products		Contract	Total
Domestic	$	117,632	-	117,632	$ 99,423		-	99,423
International		98,235	-	98,235	37,029		-	37,029
	$	215,867	-	215,867	$ 136,452		-	136,452
Filters	$	45,561	-	45,561	$ 35,478		-	35,478
Components		170,306	-	170,306	100,974		-	100,974
Engineering Services		-	-	-	-		-	-
	$	215,867	-	215,867	$ 136,452		-	136,452

The following table presents Omnitek’s revenues disaggregated by region and product type for the nine months ended September 30, 2020 and September 30, 2019:

		For the nine months ended September 30,				For the nine months ended         September 30,
		2020				2019
		Consumer	Long-term			Consumer	Long-term
Segments		Products	Contract	Total		Products	Contract	Total
Domestic	$	463,971	-	463,971	$	320,349	-	320,349
International		186,800	-	186,800		387,373	44,474	431,847
	$	650,771	-	650,771	$	707,722	44,474	752,196
Filters	$	209,593	-	209,593	$	452,728	-	452,728
Components		441,178	-	441,178		254,994	-	254,994
Engineering Services		-	-	-		-	44,474	44,474
	$	650,771	-	650,771	$	707,722	44,474	752,196

Schedule of Inventory

The Company’s inventory consists of finished goods and raw material and is located in Vista, California, consisting of the following:

	September 30,		December 31,
Location : Vista, CA	2020		2019
Raw materials	$	913,795	$	935,834
Finished goods		1,030,045		1,073,623
Work in progress		-		1,800
Allowance for obsolete inventory		(1,038,573)		(988,892)
Total	$	905,267	$	1,022,365

Schedule of Property and Equipment

Property and equipment at September 30, 2020 and December 31, 2019 consisted of the following:

	September 30,		December 31,
	2020		2019
Production equipment	$	64,673	$	64,673
Computers/Office equipment		28,540		28,540
Tooling equipment		12,380		12,380
Leasehold Improvements		42,451		42,451
Less: accumulated depreciation		(146,642)		(146,235)
Total	$	1,402	$	1,809

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NOTE 3 - CONTRACT ASSETS AND LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2020

Disclosure Text Block [Abstract]

Schedule of Costs in Excess of Billings

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

	September 30,		December 31,
	2020		2019
Contract assets	$	13,221	$	13,221
Contract liabilities		(75,000)		(75,000)
Net amount of contract liabilities in excess of contract assets	$	(61,779)	$	(61,779)

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NOTE 5 - RELATED PARTY TRANSACTIONS (Tables)

9 Months Ended

Sep. 30, 2020

Table Text Block Supplement [Abstract]

Schedule of Accrued Management Fees

As of September 30, 2020 and December 31, 2019 the accrued management fees consisted of the following:

	September 30,			December 31,
	2020			2019
Amounts due to the president		$	590,735		$	541,504
Amounts due to the chief financial officer			-			165,326
Total		$	590,735		$	706,830

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NOTE 6 - NOTES PAYABLE - RELATED PARTY TRANSACTIONS (Tables)

9 Months Ended

Sep. 30, 2020

Table Text Block Supplement [Abstract]

Schedule of Note Payable Related Party

As of September 30, 2020 and December 31, 2019 Notes Payable – Related Party consisted of the following:

	September 30,			December 31,
	2020			2019
Note payable, related party, current portion		$	15,000		$	27,000
Notes payable, related party, net of current portion			-			15,000
Total		$	15,000		$	42,000

XML

Note 7 - DEBT (Tables)

9 Months Ended

Sep. 30, 2020

Table Text Block Supplement [Abstract]

Schedule of Note payable

As of September 30, 2020, and December 31, 2019 Note Payable consisted of the following:

	September 30,			December 31,
	2020			2019
Note payable		$	-		$	15,000
Total		$	-		$	15,000

Schedule of debt

As of September 30, 2020, and December 31, 2019 Debt consisted of the following:

	September 30,			December 31,
	2020			2019
Loan payable – SBA EIDL		$	199,000		$	-
Loan payable – SBA PPP			100,000
Less current portion			(57,304)			-
Total		$	241,696		$	-

XML

NOTE 8 - STOCK OPTIONS AND WARRANTS (Tables)

9 Months Ended

Sep. 30, 2020

Table Text Block Supplement [Abstract]

Schedule of Assumptions Used to Estimate the Fair Values of Stock Options Granted

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

	September 30, 2020	September 30, 2019
Expected volatility	159%	142%
Expected dividends	0%	0%
Expected term	7 Years	7 Years
Risk-free interest rate	0.60%	2.01%

Schedule of Stock Options

A summary of the status of the options and warrants granted at September 30, 2020 and December 31, 2019 and changes during the periods then ended is presented below:

	September 30,		December 31,
	2020		2019
		Weighted-Average		Weighted-Average
	Shares	Exercise Price	Shares	Exercise Price
Outstanding at beginning of year	2,940,556	$ 0.25	2,965,556	$ 0.63
Granted	150,000	0.06	450,000	0.08
Exercised	-	-	-	-
Expired or cancelled	(50,000)	1.13	(475,000)	2.49
Outstanding at end of period	3,040,556	0.22	2,940,556	0.25
Exercisable	2,857,223	$ 0.20	2,672,223	$ 0.23

Summary of the Status of the Options

A summary of the status of the options and warrants outstanding at September 30, 2020 is presented below:

Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Life	Number Exercisable	Weighted-Average Exercise Price
$ 0.01-0.99	3,040,556	3.58 years	2,857,223	$ 0.20

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: Revenue Recognition: Performance Obligations (Details)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Performance Obligations Satisfied Over Time [Member]
Revenue percentage	0.00%	6.00%
Performance Obligations Satisfied at a Point in Time [Member]
Revenue percentage	100.00%	94.00%

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES : Revenue Recognition: Disaggregation of Revenue (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Consumer Products	$ 215,867	$ 136,452	$ 650,771	$ 707,722
Long-term Contract	0	0	0	44,474
Revenues	215,867	123,366	650,771	739,110
Domestic
Consumer Products	117,632	99,423	463,971	320,349
Long-term Contract	0	0	0	0
Revenues	117,632	99,423	463,971	320,349
International
Consumer Products	98,235	37,029	186,800	387,373
Long-term Contract	0	0	0	44,474
Revenues	98,235	37,029	186,800	431,847
Filters
Consumer Products	45,561	35,478	209,593	452,728
Long-term Contract	0	0	0	0
Revenues	45,561	35,478	209,593	452,728
Components
Consumer Products	170,306	100,974	441,178	254,994
Long-term Contract	0	0	0	0
Revenues	170,306	100,974	441,178	254,994
Engineering Services
Consumer Products	0	0	0	0
Long-term Contract	0	0	0	44,474
Revenues	$ 0	$ 0	$ 0	$ 44,474

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: Inventory (Details) - USD ($)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Text Block [Abstract]
Expense for Obsolete Inventory	$ 49,681	$ 26,667

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: Inventory: Schedule of Inventory (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Text Block [Abstract]
Raw materials	$ 913,795	$ 935,834
Finished goods	1,030,045	1,073,623
Work in progress	0	1,800
Allowance for obsolete inventory	(1,038,573)	(988,892)
Total	$ 905,267	$ 1,022,365

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: Property and Equipment: Schedule of Property and Equipment (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Less: accumulated depreciation	$ (146,642)	$ (146,235)
Total	1,402	1,809
Production Equipment
Property, Plant and Equipment, Gross	64,673	64,673
Computer Equipment
Property, Plant and Equipment, Gross	28,540	28,540
Tools, Dies and Molds
Property, Plant and Equipment, Gross	12,380	12,380
Leasehold Improvements
Property, Plant and Equipment, Gross	$ 42,451	$ 42,451

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: Property and Equipment (Details) - USD ($)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Text Block [Abstract]
Depreciation expense	$ 407	$ 431

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: Basic and Diluted Loss Per Share (Details) - shares	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Text Block [Abstract]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	2,857,223	2,970,140

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: Income Taxes (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Disclosure Text Block [Abstract]
Accrued interest and penalties	$ 0	$ 0

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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES: Liquidity and Going Concern (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
Text Block [Abstract]
Accumulated deficit	$ (21,329,300)		$ (21,329,300)				$ (20,975,929)
Total Stockholders' Equity	(739,481)	$ (176,371)	(739,481)	$ (176,371)	$ (647,001)	$ (516,174)	(430,877)	$ (104,688)	$ 14,440	$ 94,759
Total Current Assets	1,007,140		1,007,140				1,082,497
Cash	38,542	80,673	38,542	80,673			20,236			$ 17,060
Total Current Liabilities	1,520,607		1,520,607				$ 1,530,608
Working Capital	(513,467)		(513,467)
Net loss	$ (94,169)	$ (176,920)	(353,371)	(413,189)
Net cash used in operating activities			$ (269,694)	$ (13,387)

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NOTE 3 - CONTRACT ASSETS AND LIABILITIES: Net excess billings (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Notes to Financial Statements
Contract assets	$ 13,221	$ 13,221
Contract liabilities	(75,000)	(75,000)
Net amount of contract liabilities in excess of Contract assets	$ (61,779)	$ (61,779)

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NOTE 4 - COMMITMENTS (Details)	9 Months Ended
	Sep. 30, 2020 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Expiration date	Aug. 31, 2020
Lease payment	$ 14,161
Security deposit	14,000
Commitments outstanding balance	$ 52,529

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NOTE 5 - RELATED PARTY TRANSACTIONS (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Accounts receivable - related parties	$ 14,521	$ 16,712
Accounts payable - related parties	$ 122,025	$ 134,077
Omnitek Peru SAC
Noncontrolling Interest, Ownership Percentage by Parent	20.00%
Omnitek Engineering Thailand Co Ltd
Noncontrolling Interest, Ownership Percentage by Parent	15.00%

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NOTE 5 - RELATED PARTY TRANSACTIONS : Schedule of Related Party Transactions (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Accrued management compensation	$ 590,735	$ 706,830
President
Accrued management compensation	590,735	541,504
Chief Financial Officer
Accrued management compensation	$ 0	$ 165,326

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NOTE 6 - NOTES PAYABLE - RELATED PARTIES (Details) - Notes Payable Related Party - USD ($)		1 Months Ended		9 Months Ended
	Sep. 11, 2019	May 28, 2019	Jan. 19, 2017	Sep. 30, 2020
Board Member
Promissory note	$ 12,000
Debt Instrument, Interest Rate During Period	8.00%
Debt Instrument, Maturity Date	Jun. 30, 2020
Chief Executive Officer [Member]
Promissory note			$ 15,000
Debt Instrument, Interest Rate During Period		5.00%	5.00%
Debt Instrument, Maturity Date		Dec. 31, 2020	Jan. 19, 2021
Proceeds from related party				$ 15,000

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NOTE 6 - NOTES PAYABLE - RELATED PARTIES : Schedule of Note Payable Related Party (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Notes to Financial Statements
Notes payable, related party, current portion	$ 15,000	$ 27,000
Notes payable, related party, net of current portion	0	15,000
Total	$ 15,000	$ 42,000

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NOTE 7 - DEBT (Details) - USD ($)	1 Months Ended		9 Months Ended
	May 28, 2020	Apr. 21, 2020	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019	Dec. 11, 2019
Note payable			$ 0		$ 15,000
Proceeds from loan			299,000	$ 0
SBA EIDL Loan
Proceeds from loan		$ 199,000
Interest rate	1.00%	3.75%
Interest payments		$ 970
Maturity date		Apr. 21, 2050
SBA PPP Loan
Proceeds from loan	$ 100,000
Maturity date	May 22, 2022
Convertible notes payable
Note payable			0			$ 40,000
Outstanding principal converted into restricted common stock			$ 25,000

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NOTE 7 - DEBT: Note Payable (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Disclosure Text Block [Abstract]
Notes payable	$ 0	$ 15,000
Total	$ 0	$ 15,000

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NOTE 7 - DEBT: Debt (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Less current portion	$ (57,304)	$ 0
Total	241,696	0
SBA EIDL Loan
Loan payable	199,000	0
SBA PPP Loan
Loan payable	$ 100,000	$ 0

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NOTE 8 - STOCK OPTIONS AND WARRANTS (Details) - USD ($)	9 Months Ended		12 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019	Dec. 31, 2018	Sep. 11, 2015	Aug. 03, 2011
Granted	150,000		450,000
Expense recognized for options and warrants vested	$ 13,767	$ 42,059
Total remaining amount of compensation expense to be recognized in future periods	$ 1,946
Shares outstanding	3,040,556		2,940,556	2,965,556
Warrant
Granted	0	0
2017 Long Term Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	5,000,000
Shares outstanding	816,667
Employee Stock Option
Granted	150,000	450,000
Employee Stock Option | 2011 Long-Term Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized						1,000,000
Shares outstanding	125,000
Employee Stock Option | 2015 Long Term Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized					2,500,000
Shares outstanding	1,915,556

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NOTE 8 - STOCK OPTIONS AND WARRANTS : Schedule of Assumptions Used (Details)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Text Block [Abstract]
Expected volatility	159.00%	142.00%
Expected dividends	0.00%	0.00%
Expected term	7 years	7 years
Risk-free interest rate	0.60%	2.01%

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NOTE 8 - STOCK OPTIONS AND WARRANTS : Schedule of Stock Options and Warrants, Activity (Details) - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Text Block [Abstract]
Outstanding at beginning of year	2,940,556	2,965,556
Outstanding, Weighted Average Exercise Price at beginning of year	$ 0.25	$ 0.63
Granted	150,000	450,000
Granted, Weighted Average Exercise Price	$ 0.06	$ 0.08
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	0	0
Exercised, Weighted Average Exercise	$ 0.00	$ 0.00
Expired or cancelled	(50,000)	(475,000)
Expired or cancelled, Weighted Average Exercise Price	$ 1.13	$ 2.49
Outstanding at end of year	3,040,556	2,940,556
Outstanding, Weighted Average Exercise Price at end of year	$ 0.22	$ 0.25
Exercisable	2,857,223	2,672,223
Exercisable, Weighted Average Exercise Price	$ 0.20	$ 0.23

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NOTE 8 - STOCK OPTIONS AND WARRANTS: Summary of the Status of the Options and Warrants Outstanding (Details) - $0.01-0.99	9 Months Ended
	Sep. 30, 2020 $ / shares shares
Exercise Price Range, Lower Range Limit	$ 0.01
Exercise Price Range, Upper Range Limit	$ 0.99
Number Outstanding | shares	3,040,556
Weighted-Average Remaining Contractual Life	3 years 6 months 29 days
Number Exercisable | shares	2,857,223
Weighted-Average Exercise Price	$ 0.20