Omnitek Engineering Corp - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Omnitek Engineering Corp	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - Omnitek Engineering Corp	ex312.htm
EX-31.1 - EXHIBIT 31.1 - Omnitek Engineering Corp	ex311.htm
EX-32.1 - EXHIBIT 32.1 - Omnitek Engineering Corp	ex321.htm

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, 2011

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.)

1945 S. Rancho Santa Fe Road, San Marcos, California 92078

(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 x 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 (§ 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 x 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	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No x

As of October 30, 2012, the Registrant had 19,749,582 shares of its no par value Common Stock outstanding.

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
Balance Sheets as of September 30, 2012 and December 31, 2011		1
Statements of Operations for the three months ended September 30, 2012 and September 30, 2012, and for the nine months ended September 30, 2012 and September 30, 20120		2

Statements of Cash Flows for the nine months ended September 30, 2011 and September 30, 2010		3
Notes to the Financial Statements		4-8
Item 2. Management’s Discussion and Analysis of the Financial Condition and Results of Operations		9
Item 3. Quantitative and Qualitative Disclosures About Market Risk		13
Item 4 Controls and Procedures		13

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		13
Item 1A. Risk Factors		13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		14
Item 3. Defaults Upon Senior Securities		14
Item 5. Other Information		14
Item 6. Exhibits		14

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PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

OMNITEK ENGINEERING CORP.
Condensed Balance Sheets

ASSETS

	September 30,				December 31,
	2012				2011
	(unaudited)
CURRENT ASSETS
Cash		$	3,240,057			$	31,196
Accounts receivable, net			218,065				13,506
Accounts receivable -related party			30,876				16,715
Inventory			912,384				1,020,117
Prepaid expense			10,628				2,512
Deposits			251,036				41,943

Total Current Assets			4,663,046				1,125,989

FIXED ASSETS, net			15,338				13,249

OTHER ASSETS
Long-term investments, net			1,211,845				-
Intellectual property, net			5,979				8,256

Total Other Assets			1,217,824				8,256

TOTAL ASSETS		$	5,896,208			$	1,147,494

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable and accrued expenses		$	70,411			$	57,828
Accrued expenses - related parties			277,343				351,580
Accounts payable - related parties			25				2,568
Customer deposits			256,997				286,608

Total Current Liabilities			604,776				698,584

Total Liabilities			604,776				698,584

STOCKHOLDERS' EQUITY
Common stock, 125,000,000 shares authorized no par value
19,749,582 and 17,137,812 shares issued and outstanding,
respectively			8,196,061				2,659,299
Additional paid-in capital			4,840,228				4,213,313
Accumulated deficit			(7,744,857	)			(6,423,702	)

Total Stockholders' Equity			5,291,432				448,910

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	5,896,208			$	1,147,494


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

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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,				September 30,				September 30,			September 30,
	2012				2011				2012			2011

REVENUES		$	562,367			$	317,160		$	1,249,267		$	1,306,906
COST OF GOODS SOLD			281,633				168,637			631,694			654,005
GROSS MARGIN			280,734				148,523			617,573			652,901

OPERATING EXPENSES

General and administrative			353,438				265,999			1,789,028			775,088
Research and development expense			88,922				40,845			166,070			100,791
Depreciation and amortization expense			1,606				21,155			4,596			62,396

Total Operating Expenses			443,966				327,999			1,959,694			938,275

LOSS FROM OPERATIONS			(163,232	)			(179,476	)		(1,342,121	)		(285,374	)

OTHER INCOME (EXPENSE)

Interest expense			-				-			(490	)		-
Interest income			21,082				1			22,256			2

Total Other Income (Expense)			21,082				1			21,766			2

LOSS BEFORE INCOME TAXES			(142,150	)			(179,475	)		(1,320,355	)		(285,372	)
INCOME TAX EXPENSE			-				-			800			800

NET LOSS		$	(142,150	)		$	(179,475	)	$	(1,321,155	)	$	(286,172	)

BASIC AND DILUTED LOSS PER SHARE		$	(0.01	)		$	(0.01	)	$	(0.07	)	$	(0.02	)

BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING			19,749,582				17,055,203			18,872,509			16,290,048



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

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OMNITEK ENGINEERING CORP.
Condensed Statements of Cash Flows
(unaudited)
	For the Nine			For the Nine
	Months Ended			Months Ended
	September 30,			September 30,
	2012			2011
OPERATING ACTIVITIES
Net loss	$	(1,321,155	)	$	(286,172	)
Adjustments to reconcile net loss to
net cash used by operating activities:
Amortization and depreciation expense		4,596			62,396
Amortization of premium on long-term investments		16,378			-
Options and warrants granted		626,915			184,243
Changes in operating assets and liabilities:
Accounts receivable		(204,559	)		(32,499	)
Accounts receivable–related parties		(14,161	)		(11,903	)
Deposits		(209,093	)		27,325
Prepaid expense		(8,116	)		-
Inventory		107,733			(399	)
Accounts payable and accrued expenses		12,583			(102,304	)
Customer deposits		(29,611	)		(57,992	)
Accounts payable-related parties		(2,543	)		(3,033	)
Accrued expenses-related parties		(74,237	)		(35,538	)

Net Cash Used in Operating Activities		(1,095,270	)		(255,876	)

INVESTING ACTIVITIES
Purchase of long-term investments		(1,228,223	)		-
Purchase of property and equipment		(4,408	)		(15,471	)

Net Cash Used in Investing Activities		(1,232,631	)		(15,471	)

FINANCING ACTIVITIES
Issuance of common stock for cash		5,536,762			150,000
Repayment of note payable		(40,000	)		-
Exercise of warrants and options for cash		-			134,500
Proceeds of note payable		40,000			-

Net Cash Provided by Financing Activities		5,536,762			284,500

NET INCREASE IN CASH		3,208,861			13,153
CASH AT BEGINNING OF PERIOD		31,196			34,944

CASH AT END OF PERIOD	$	3,240,057		$	48,097

SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
CASH PAID FOR:
Interest	$	490		$	-
Income taxes	$	800		$	800


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

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OMNITEK ENGINEERING CORP.

Condensed Notes to Financial Statements

September 30, 2012

(unaudited)

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

The accompanying 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, 2012, 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, 2011 audited financial statements. The results of operations for the periods ended September 30, 2012 and 2011 are not necessarily indicative of the operating results for the full years.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

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.

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 San Marcos, California at September 30, 2012 and December 31, 2011 consisted of the following:

	September 30, 2012			December 31, 2011
Raw materials		1,189,455			946,762
Finished goods		332,004			674,198
Peru (finished goods)		18,454			18,454
In transit		-			8,232
Allowance for obsolete inventory		(627,529	)		(627,529	)
Total	$	912,384		$	1,020,117

The Company has established an allowance for obsolete inventory. Expense for obsolete inventory was $-0- and $-0-, for the periods ended September 30, 2012 and December 31, 2011, respectively.

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OMNITEK ENGINEERING CORP.

Condensed Notes to Financial Statements

September 30, 2012

(unaudited)

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basic and Diluted Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. As of September 30, 2012, 677,380 warrants and options were excluded from the Diluted EPS calculation as their effect is anti-dilutive.

Income Taxes

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

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

At the adoption date of November 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized. The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of September 30, 2012 and December 31, 2011 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 2007.

Held to Maturity Investments

During the nine months ended September 30, 2012, the Company purchased various corporate bonds. The Company intends to hold the bonds to maturity. Accordingly, the Company has recorded and is amortizing the premium on the bonds over the remaining life. As of September 30, 2012, the Company has amortized $16,378 of the premium leaving amortized cost basis remaining of $1,211,845.

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OMNITEK ENGINEERING CORP.

Condensed Notes to Financial Statements

September 30, 2012

(unaudited)

NOTE 3 - RELATED PARTY TRANSACTIONS

Accounts Receivable – Related Parties

During the years ended December 31, 2007 through 2010, the Company a minority interest in various distributors in exchange for use of the Company’s name and logo. As of December 31, 2011, the Company owned a 15% interest in Omnitek Engineering Thailand Co. Ltd., a 20% interest in Omnitek Peru S.A.C., and a 5% interest in Omnitek Stationary, Inc. As of September 30, 2012 and December 31, 2011, the Company was owed $30,876 and $16,715, respectively, by these related parties for the purchase of products.

Accounts Payable – Related Parties

The Company regularly incurs expenses that are paid for by related parties and purchases goods and services from related parties. As of September 30, 2012 and December 31, 2011, the Company owed related parties for such expenses, goods and services in the amounts of $25 and $2,568, respectively.

Accrued Expenses – Related Parties

During the periods ended September 30, 2012 and December 31, 2011, related parties were due amounts for services performed for the Company. As of September 30, 2012 and December 31, 2011 the related parties’ payables consisted of the following:

	September 30,			December 31,
	2012			2011
Amounts due to the president		$	214,628		$	271,253
Amounts due to other officers of the company			62,715			80,327
Total		$	277,343		$	351,580

NOTE 4 - NOTES PAYABLE

Line of Credit Payable

On February 15, 2012 the Company entered into a revolving line of credit agreement with a shareholder for $50,000 for an initial period of 6 months. During the six months ended September 30, 2012, the Company borrowed a total of $40,000, and accrued interest expense of $490. As of September 30, 2012 the Company has repaid all of the outstanding debt and now owes $-0- under the revolving line of credit. The Company granted 5,000 stock purchase warrants as consideration for the funding of the revolving line of credit resulting in an expense of $15,450.

NOTE 5 - STOCK OPTIONS AND WARRANTS

In April 2007, the Company’s shareholders approved its 2006 Long-Term Incentive Plan (“the Plan”). Under the plan, the Company may issue up to 10,000,000 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, 2012 the Company has a total of 5,635,313 options and warrants issued under the plan. During the nine months ended September 30, 2012 the Company issued an additional amount of 2,810,313 options and warrants.

During the nine months ended September 30, 2012 and 2011, the Company recognized expense of $626,915 and $126,534, respectively, for options and warrants that vested during the periods pursuant to ASC Topic 718.

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OMNITEK ENGINEERING CORP.

Condensed Notes to Financial Statements

September 30, 2012

(unaudited)

NOTE 5 - STOCK OPTIONS AND WARRANTS (CONTINUED)

A summary of the status of the options and warrants granted at September 30, 2012 and December 31, 2011 and changes during the periods then ended is presented below:

	2012				2011
	Shares		Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of period		2,820,000	$	0.73		5,870,000		$	0.52
Granted		2,815,313		3.29		-			-
Exercised		-		-		(1,177,983	)		0.15
Expired or canceled		-		-		(1,872,017	)		0.43
Outstanding at end of period		5,635,313		2.30		2,820,000			0.73
Exercisable		5,635,313	$	2.30		2,820,000		$	0.73

A summary of the status of the options and warrants outstanding at September 30, 2012 is presented below:

		Total Outstanding				Total Exercisable
				Average				Weighted
		Number		Remaining		Number		Average
Range		O/S		Life (Yrs)		Exercisable		Exercisable
$	0.01 - 0.50		200,000		2.03		200,000	$	0.38
$	0.51 - 0.75		1,580,000		2.35		1,580,000	$	0.63
$	0.76 – 1.00		1,040,000		2.10		1,040,000	$	0.94
$	1.01 – 2.00		90,000		2.69		90,000	$	0.99
$	2.01 – 3.00		5,000		4.37		5,000	$	2.68
$	3.01 – 4.00		2,720,313		4.52		2,720,313	$	3.88
$	0.01 – 4.00		5,635,313		3.24		5,635,313	$	2.24

NOTE 6 - SIGNIFICANT EVENTS

On April 9, 2012, the Company closed a private placement (the “Private Placement”) with select accredited investors (the “Investors”) related to the sale and issuance of an aggregate of 2,602,246 shares of common stock (the “Common Stock”) of the Company (the “Shares”) and warrants to purchase an aggregate of 2,602,246 shares of Common Stock (the “Warrants”). The aggregate gross proceeds raised by the Company was $5,516,762 million. Each Share was be sold to the Investors at $2.12 per Share. The Warrants will expire five (5) years from the date of issue and may be exercised at $3.88 per Share, subject to adjustment in certain circumstances.

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OMNITEK ENGINEERING CORP.

Condensed Notes to Financial Statements

September 30, 2012

(unaudited)

NOTE 6 - SIGNIFICANT EVENTS (Continued)

In connection with the Private Placement, the Company paid its placement agents (the “Placement Agents”) an aggregate cash commission equal to $386,173. In addition, the Company will reimburse the Placement Agents $23,632 for costs and expenses incurred in connection with the Private Placement, and issue to the Placement Agents five-year warrants to purchase an aggregate of 78,067 shares of common stock, at an exercise price of $3.88 per share, subject to adjustment in certain circumstances (the “Placement Agent Warrants”). The Company also issued to two consultants, five-year warrants to purchase an aggregate of 40,000 shares of common stock, at an exercise price of $3.88 per share. The Company recognized $502,965 of compensation expense for the warrants issued.

NOTE 7 - SUBSEQUENT EVENTS

In accordance with ASC 855-10, the Company’s management has reviewed all material events there are no material subsequent events to report.

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ITEM 2

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

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

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

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

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

A. Results of Operations

For the three months ended September 30, 2012 and 2011

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

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

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

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

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

For the nine months ended September 30, 2012 and 2011

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

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

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

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

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

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

Cash Requirements

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

Liquidity and Capital Resources

Overview

For the nine months ended September 30, 2012 and 2011

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

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

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

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

Operating Activities

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

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

Financing Activities

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

Off-Balance Sheet Arrangements

None.

Critical Accounting Policiesand Estimates

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

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

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

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

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

Revenue Recognition

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

Accounting for Income Taxes

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

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

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

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

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

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Recently Issued Accounting Pronouncements

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

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

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officer), as appropriate to allow timely decisions regarding required disclosure.

Our management evaluated, with the participation of our Certifying Officer, the effectiveness of our disclosure controls and procedures as of September 30, 2012, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of September 30, 2012, our disclosure controls and procedures were effective.

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, 2012 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.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Documents filed as part of this Report.

1. Financial Statements. The unaudited Balance Sheet of Omnitek Engineering Corp. as of September 30, 2012 and the audited balance sheet as of December 31, 2011, the unaudited Statements of Operations for the three months and six-month periods ended September 30, 2012 and 2011, the Consolidated Statements Stockholders’ Equity, and the unaudited Consolidated Statements of Cash Flows for the six-month periods ended September 30, 2012 and 2011, 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
31.1	CEO certification pursuant to Section 302 of The Sarbanes – Oxley Act of 2002 (1)
31.2	CFO certification pursuant to Section 302 of The Sarbanes – Oxley Act of 2002 (1)
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 (1)
101	The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended S, 2011 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. (2)

(1)

Filed herewith

(2)

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files submitted under Exhibit 101 are not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

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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 5, 2012
		By: Werner Funk
		Its: Chief Executive Officer Principal Executive Officer



Dated: November 5, 2012		/s/ Janice M. Quigley
		By: Janice M. Quigley
		Its: Chief Financial Officer Principal Financial Officer

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