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| EXCEL - IDEA: XBRL DOCUMENT - Omnitek Engineering Corp | Financial_Report.xls |
| EX-31.01 - EXHIBIT 31.01 - Omnitek Engineering Corp | ex3101.htm |
| EX-31.02 - EXHIBIT 31.02 - Omnitek Engineering Corp | ex3102.htm |
| EX-32.01 - EXHIBIT 32.01 - Omnitek Engineering Corp | ex3201.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2012
Commission File Number: 000-53955
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OMNITEK ENGINEERING CORP.
(Exact name of Registrant as specified in its charter)
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California
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33-0984450
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1333 Keystone Way, Suite 101, Vista, California
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92081
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: 760-591-0089
1945 S. Rancho Santa Fe Road, San Marcos, California
(Former Address)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, No Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No x
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o
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 pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o
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 oNo x
Issuer’s revenues for its most recent fiscal year: $1,899,740
The aggregate market value of the voting and non-voting common equity on June 30, 2012 held by non-affiliates of the registrant based on the price last sold on such date was approximately $18,355,438. Shares of common stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. Without acknowledging that any individual director of registrant is an affiliate, all directors have been included as affiliates with respect to shares owned by them.
As of March 15, 2013, there were 19,749,582 shares of the registrant’s Common Stock outstanding.
ii
Report on Form 10-K
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PART I.
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PART II.
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PART III.
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PART IV.
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FORWARD-LOOKING STATEMENTS
This report contains statements that constitute “forward-looking statements.” These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology like “believes,” “anticipates,” “expects,” “estimates,” “envisions” or similar terms. These statements appear in a number of places in this report and include statements regarding our intent, belief or current expectations and those of our directors or officers with respect to, among other things: (i) trends affecting our financial condition or results of operations, (ii) our business and growth strategies, and (iii) our financing plans. You are cautioned that any forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Factors that could adversely affect actual results and performance include, among others, the effect of inflation and other negative economic trends and developments on the business of our customers and other barriers, government regulation and competition. All forward-looking statements attributable to us are expressly qualified in their entirety by this foregoing cautionary statement.
Unless otherwise noted, references in this report to the “Company,” “we,” “our,” or “us” means Omnitek Engineering Corp.
General Development of Business
Omnitek Engineering, Corp., a California Corporation, began operations on October 10, 2001, and was a spin-off from Nology Engineering, Inc., a manufacturer in the automotive aftermarket parts industry and the developer/manufacturer of the patented “HotWires” spark plug wires. We currently conduct our business activities at our offices at 1333 Keystone Way, Suite 101, Vista, California, 92081, which consists of approximately 25,000 square feet of industrial space.
On November 3, 2006, Omnitek acquired Pensare, Inc., via the merger of Pensare with and into Omnitek, which included related technology and a customer list in exchange for the issuance of 300,000 shares of the Company’s common stock. Omnitek continued as the surviving corporation and the separate existence of Pensare ceased. The acquired technology is used on new engines and diesel-to-natural gas conversions.
The Company has never filed for bankruptcy and has never been subject to receivership or similar proceedings.
Omnitek’s common stock is currently trading on the OTC Bulletin Board under the symbol OMTK.
Financial Information
The audited financial statements for the fiscal year ended December 31, 2012 are attached hereto as Item 8 in this annual report.
Business of Issuer
Omnitek is in the alternative fuels engines industry. Omnitek Engineering Corp. develops and sells proprietary diesel-to-natural gas engine conversion systems and complementary products, including new natural gas engines. Omnitek products are available for both stationary applications (generator sets) and the global truck and bus markets, including light commercial vehicles, minibuses, heavy-duty trucks and municipal buses.
As the price of crude oil remains high and the threat of global warming and air pollution remain a public concern, the search for cheaper cleaner burning alternative fuels has become more important. Natural gas has emerged as an attractive option to address these challenges. Readily available in many countries from indigenous
sources, natural gas is relatively inexpensive and clean burning compared with gasoline or diesel. Worldwide, on average compressed natural gas (“CNG”) is 40% - 70% less than the cost of diesel per similar unit volume. The average CNG equivalent in the United States is currently priced approximately 50% less than its diesel counterpart. Omnitek has developed a system to convert any existing diesel engine to an engine that will operate on natural gas at a cost lower than that required to purchase a new natural gas engine.
With a service life of up to 20 years, thousands of diesel engines undergo routine engine overhauls every year. A viable option is to “overhaul/convert” into natural gas engines utilizing Omnitek’s diesel-to-natural gas conversion kits. The cost to convert a diesel engine to operate on natural gas using our conversion kit is an additional $6,000 to $8,000 to the cost of a straight engine overhaul, depending on the size and power requirements of the engine. Around the world, more than 5,000 Omnitek diesel-to-natural gas engine conversion kits have been installed since 2001.
Omnitek can deliver complete new natural gas engines as well when local emission standards, or other conditions, require the use of a new engine.
(1) Principal Products or Services.
Omnitek sells three main products at this time.
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A conversion kit for converting rich-burn natural gas engines to lean-burn;
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A conversion kit for converting diesel engines to run on natural gas; and
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New complete natural gas engines.
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Conversion Kits (Rich-to-Lean Burn Natural Gas) - Omnitek offers conversion kits which convert rich burning natural gas engines to lean burning natural gas engines. The terms “rich-burn” and “lean-burn” refer to the air-to-fuel ratio under which an engine is operating. An engine which is operating under rich-burn conditions uses more fuel and is more polluting than an engine tuned to lean-burn. Therefore it is desirable to tune an engine to lean-burn, which supplies less fuel to the engine and reduces emissions.
Conversion Kits (Diesel-to-Natural Gas) - Omnitek offers a solution to convert any diesel engine to operate on natural gas. This diesel-to-natural gas conversion kit is the primary product offered by Omnitek. This product is packaged in kit form and is offered in two basic variations. One is designed to work on engines with a turbocharger and the other is designed to work on engines without a turbocharger. Both kits are made up of more than 20 individual components.
Subsequent to the period covered by this report, on January 22, 2013, the U.S. Environmental Protection Agency approved the Company’s diesel-to-natural gas conversion technology for the widely operated line of heavy-duty Navistar DT466E and DT530E engines under the specific and rigorous criteria related to the agency’s Outside Useful Life definition.
In addition to the Conversion Kits, Omnitek sells the individual component replacement parts for the conversion kits. The high-pressure natural gas filter is our top-selling replacement part.
The key to our technology is a patented device and an electronic control unit which senses engine parameters in real time and instantly adjusts to deliver the correct amount of fuel and the correct ignition timing.
Omnitek does not perform installation of the conversion kits directly, but rather trains dealers and sub-dealers around the world to perform the conversions using the Omnitek Conversion Kits. It takes four to five days to train a dealer or sub-dealer to perform the conversion. Approximately ten dealers and sub-dealers have received training to date. Training sessions at the Company’s facilities cost approximately $500 each, training sessions in other domestic locations or Countries cost between $2,000 and $4,000 each.
Any diesel engine can be converted by using one of our conversion kits, however, there is no assurance that diesel vehicle owners will elect to convert their diesel engines to operate on natural gas. Additionally, while the Company is not aware of any other complete conversion kits for heavy duty diesel engines being manufactured at
this time, one could be developed by a competitor and there are no guarantees that the owners of the engines would choose the Omnitek kit to convert their engines.
New Natural Gas Engines - Under certain conditions it is not cost effective, or technologically feasible, to convert a diesel engine to operate on natural gas. Also, there are times when local emission standards may dictate the use of highly sophisticated technology that cannot be easily retrofitted to an older engine. Under those conditions, Omnitek can deliver new purpose built natural gas engines.
Omnitek is an original equipment manufacturer for several major engine producers and engine parts manufacturers including: TEDOM Engine Co., TATA Motors of India and Deutz AG of Norcross Georgia, just to name a few.
(2) Markets.
The Company has the ability to sell and deliver its products anywhere in the world through Omnitek distributors, engine manufacturers, system integrators, fleet operators, engine conversion companies and directly to its end-users. The Company's conversion kits are currently being used to convert heavy-duty diesel engines to operate on natural gas and to date Omnitek has sold over 5,000 kits worldwide. The Company’s sales in these markets are all prepaid purchase order driven sales, and, as such, there are no ongoing written agreements in place. The Company's diesel-to-natural gas conversion technology has been successfully adapted to work with many different engine designs, and can meet both current and future emissions standards.
The majority of our markets can best be divided into two groups:
1. Countries not requiring compliance with emissions standards, or no standards are in place (therefore emissions certification is not necessary - shorter time to market); or,
2. Countries that require compliance with emissions standards (emissions certification is necessary - longer time to market and costly).
Our primary market to date has been those Countries not requiring compliance with emissions standards, or where there are no standards in place.
Additionally, within both of those two market groups above, we can further segregate the marketplace into the following categories:
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Countries that have to import diesel (crude oil) and natural gas; or,
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Countries that have to import diesel (crude oil), but have their own supply of natural gas.
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The governments of many countries with natural gas supplies mandate that businesses and government vehicles convert to use their domestic fuel supply. Probably the most widely known example of a mandate in the natural gas vehicle industry is the public bus system in Delhi, India, which is required to use compressed natural gas. This has resulted in more than 10,000 compressed natural gas buses on Delhi's roads and has been credited with making significant improvements to Delhi's air quality. The mandates in force in India are unusual, in the sense that they have been imposed by the Supreme Court of India, rather than as a result of Government policy. The Supreme Court decision arose from civil suits brought in relation to the right of citizens to breathe clean air. (http://www.iangv.org/policy.html)
Some governments offer incentives to convert the fleets currently running on diesel. In February 2006, the President of Peru made a declaration that affirmed relaxed financing laws to allow for easier access to conversion finance in relation to natural gas vehicles. (http://www.ngvglobal.com/peruvian-policy-favors-ngvs-0207)
Omnitek has in the past focused primarily on countries not requiring compliance with emissions standards and secondarily on countries requiring compliance with emissions standards. The designing and development of our primary products for sale in these markets is complete and no further expenditures in this regard are expected. When
a customer asks to have a conversion kit developed for a specific engine, we are compensated in advance. Regular and ongoing updates to our conversion kits and the component parts are paid for through cash flow.
However, recent legislative enactments in the U.S. have led to a more favorable domestic regulatory environment which supports significant opportunities for our technology in the United States.
In 2011, the U.S. Environmental Protection Agency (“EPA”) announced new regulations applicable to certifying and converting diesel and gasoline engines to operate on natural gas. This was a milestone for the alternative fuel industry and a significant advancement in lessening dependence on foreign oil. Converting diesel engines to operate on either liquefied natural gas or compressed natural gas provides an economical and environmental solution to new engine replacement. This EPA amendment will now enable our company to certify and convert diesel engines in a cost-effective manner and introduce the technology to the U.S. market.
Subsequent to the period covered by this report, on January 22, 2013, the U.S. Environmental Protection Agency approved the Company’s diesel-to-natural gas conversion technology for the widely operated line of heavy-duty Navistar DT466E and DT530E engines under the specific and rigorous criteria related to the agency’s Outside Useful Life definition.
The Navistar DT466E and DT530E engines were produced in 130 different configurations from 1996 through 2003, representing an estimated addressable market of 1.5 million potential conversions. Industry sources estimate the total number of heavy-duty diesel trucks in the U.S. exceeds eight million and the large majority of these trucks could benefit from Omnitek’s patented technology.
It is anticipated that Omnitek will develop two to four conversion kits for the US market every year, with the first two now available. Each new kit development and certification will cost approximately $125,000. The Omnitek technology has already been utilized outside the United States since 2001, with more than 5,000 engine conversions currently in operation.
Compressed natural gas provides significant advantages over diesel fuel, including reduced emissions, plentiful supplies and favorable economics. Industry observers believe that up to eight million heavy-duty vehicles in the U.S. could benefit from conversion to natural gas. Replacing old diesel trucks with new natural gas-powered trucks is certainly an option, but it is much more expensive.
When contacted, we approach this issue of “converting or replacing” high-polluting diesel engines by offering two main options, which in large part is influenced by the level of technological capabilities within the country and financial feasibility.
The first option is focused on working with local companies in an effort to convert diesel engines to natural gas. Alternatively, we can supply new dedicated natural gas engines as a second option.
To achieve the conversions, Omnitek supplies engineering support to rebuild the engines locally to our specifications. This offers an economic benefit to the local economy by keeping the rebuild work in the community. The engines are then equipped with our CNG fuel system, allowing for the engines to be tuned to meet most emission standards.
In the second scenario, Omnitek supplies a complete, low-polluting, alternative fuel engine in either a four or six cylinder configuration. This may be the better option when the existing engines are based on old and outdated technology or when strict emissions standards are in place.
(3) Distribution Methods of the Products or Services.
The Company currently has distributors in more than 12 countries which market and distribute its products. The Company is continuously seeking additional global distribution partners to expand its distribution network. The Company currently competes against other companies, both domestic and foreign, with greater resources, more established distribution channels and other competitive advantages, and the success of these competitors may harm
our ability to generate revenues, please see the section entitled “Competition” at item 5 below and also the relevant Risk Factors below.
Representation Agreement. From time to time, Omnitek enters into exclusive or non-exclusive representation agreements with its dealers, distributors or authorized diesel-to-natural gas engine conversion kit installation centers.
Most recently, and subsequent to the period covered by this report, we selected Nat Gas Solutions, based in Houston Texas, as a dealer and authorized installer of our diesel-to-natural gas conversion systems in that region.
Internet. All of our product offerings are available online at our website, www.omnitekcorp.com, as well as information regarding new product introductions and company news.
(4) Status of any publicly announced new product or service.
Subsequent to the period covered by this report, on January 22, 2013, Omnitek received EPA approval for its diesel-to- natural gas engine conversion kits. Our domestic conversion ramp up will begin with the popular Navistar dt466e and dt530e engines.
On October 22, 2012, the Company announced the shipment of diesel-to-natural gas conversion kits to our Peruvian partnership-demonstration conversion program for buses in Mexico.
On September 18, 2012, the Company appointed a diesel-to-natural gas conversion dealer and installer for the New York region.
On August 29, 2012, a Peruvian transportation company acquired a position in the Company’s diesel-to-natural gas conversion center partnership – this joint venture is expected to accelerate expansion throughout Peru.
On June 25, 2012, the Company entered into an agreement with a national refuse collection company to convert diesel engines to natural gas
On January 19, 2012, the Company expanded its business with Tata motors. The Company’s high-pressure natural gas filter was selected as an OE component for passenger vehicles.
(5) Competitive business conditions and the Company’s competitive position in the industry and methods of competition.
The Company believes that the products it has developed have many important advantages over the products of its competition, some of which are performance, ease of use and lower cost. Omnitek competes in only a small segment of the transportation and energy arena. Most of the multinational corporations do not offer a complete solution for the market the Company services. Omnitek believes that competition in these areas is principally based on the quality of the product in terms of performance, reliability, service, deliverability, and price. Because of the Company’s limited financial resources, Omnitek is at a competitive disadvantage with most other suppliers of competitive products and services.
Competition pertaining to Complete Kits for Conversion from Diesel-to-Natural Gas.
Several companies offer individual components that can be used on such engines, but these companies are not offering “complete kits.”
As of today, no direct competitors to Omnitek’s Diesel-to-Natural Gas Conversion Technology for heavy-duty engines have emerged. Suppliers like Fuel Systems Solutions, Bosch and Keihin supply mainly original equipment engine manufacturers and do not offer systems to convert diesel engines. Cummins only offers a new natural gas engine, not engine conversions. The Company’s system can be programmed by the end user and can be used to convert gasoline or diesel engines to operate on natural gas.
There are numerous companies, such as BRC, Landirenzo, Tartarini, OMVL, Tomasetto, supplying natural gas components for use on gasoline cars and small trucks. These technologies have been on the market for many years and millions of vehicles have been converted worldwide using these technologies. However, this technology is not suitable for heavy-duty diesel engines, and is not in direct competition with Omnitek’s technology. At this time Omnitek is not planning to compete in the small-engine market.
Competition pertaining to Dualfuel technology
The dual fuel technology, where natural gas is mixed with diesel and both fuels are used at the same time, offers low-money savings potential and is not considered a competing technology.
Competition pertaining to New Natural Gas Engines.
Under certain conditions it is not cost effective, or technologically feasible, to convert a diesel engine to operate on natural gas. Emission standards sometimes dictate the use of highly sophisticated technology that cannot be easily retrofit onto an engine. Under those situations, Omnitek offers purpose built new alternative fuel engines which can be used in cars, trucks, generators and other stationary industrial engines. Omnitek can supply complete alternative fuel engines in 4 and 6 cylinder configurations and with up to 280 horsepower. These dedicated alternative fuel engines can be configured to meet all current Emissions Standards.
The Company believes that additional competitors will emerge as this market matures.
(6) Sources and availability of raw materials and the names of the Principal Suppliers.
The Company does not utilize any specialized raw materials. All necessary required materials, if any, are readily available. We rely on nonaffiliated suppliers for various standard and customized components and on manufacturers of assemblies that are incorporated into our products. We do not have long-term supply or manufacturing agreements with suppliers and manufacturers. In some instances alternative sources may be limited. If these suppliers or manufacturers experience financial, operational, manufacturing capacity, or quality assurance difficulties, or cease production and sale of such products, or if there is any other disruption in our relationships with these suppliers or manufacturers, we will be required to locate alternative sources of supply. Our inability to obtain sufficient quantities of these components, if and as required in the future, may subject us to:
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delays in delivery or shortages in components that could interrupt and delay manufacturing and result in cancellations of orders for our products;
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increased component prices and supply delays as we establish alternative suppliers; inability to develop alternative sources for product components;
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required modifications of our products, which may cause delays in product shipments, increased manufacturing costs, and increased product prices; and,
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increased inventory costs as we hold more inventory than we otherwise might in order to avoid problems from shortages or discontinuance, which may result in write-offs if we are unable to use all such products in the future.
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During the year ended December 31, 2012, four suppliers accounted for 29% of products purchased compared with the year ended December 31, 2011, where one supplier accounted for 20% of products purchased.
See Risk Factors Item “Dependence on a limited number of qualified suppliers of components and equipment could lead to delays, lost revenue or increased costs.”
(7) Dependence on one or few major customers.
The Company believes that the diversity of the product line offered alleviates the dependence on any customer. Through a widespread use of the Company's product line, the Company is striving to develop a wide base of customers. During the year ended December 31, 2012, eight customers accounted for approximately 64% of sales compared with the year ended December 31, 2011, where seven customers accounted for approximately 65% of sales.
(8) Patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts, including duration.
The Company holds the following Patents and Trademarks:
US Patents:
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REG NO.
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TITLE
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FILING DATE
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JURISDICTION
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6,374,816
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Apparatus and Method for Combustion Initiation
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04/23/2001
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United States
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7,019,626
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Multi-fuel Engine Conversion System and Method
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03/03/2005
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United States
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7,426,920
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Fuel Mixer Apparatus and Method
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06/06/2007
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United States
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Trademarks:
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MARK
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REG. NO
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CLASS
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REG. DATE
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OWNER
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JURISDICTION
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Omnitek
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2811269
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40
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2/3/2004
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Omnitek
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United States
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The protection of proprietary rights relating to the Company's products and expertise is critical for the Company's business. The Company intends to file additional patent applications for each product as it is developed to protect technology and improvements that are considered important to the development of its business. The Company also intends to rely upon trade secrets, know-how, continuing technological innovation and licensing opportunities to develop and maintain its competitive position.
Although the Company intends to seek patent protection for its proprietary technology and products in the United States and in foreign countries, the patent positions of the Company’s products, are generally uncertain and involve complex legal and factual questions. Consequently, the Company does not know whether any of the patent applications that it has and will consider filing will result in the issuance of any patents, or whether they will be circumvented or invalidated. There can be no assurance that all United States patents that may pose a risk of infringement can or will be identified. Additionally, the Company has not sought to identify foreign patent applications that might affect existing patent applications currently on file with the Unites States Patent and Trademark Office. If the Company is unable to obtain licenses where it may have infringed on other patents, it could encounter delays in product market introductions while it attempts to design around such intellectual property rights, or could find that the development, manufacture or sale of products requiring such licenses could be prevented. In addition, the Company could incur substantial costs in defending suits brought against it on such intellectual property rights or prosecuting suits, which the Company brings against other parties to protect its intellectual property rights. Competitors or potential competitors may have filed applications for, or have received patents and may obtain additional patents and proprietary rights relating to, compounds or processes competitive with those of the Company. See number 5 above, “Competitive business conditions and the Company’s competitive position in the industry and methods of competition.”
The Company intends to rely upon certain patented and unpatented trade secrets for a significant part of its intellectual property rights, and there can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to the Company's trade secrets or disclose such technology, or that the Company can meaningfully protect its rights to its unpatented trade secrets. The Company intends to require each of its employees, consultants and advisors to execute confidentiality agreements either upon the commencement of an employment or consulting relationship with the Company or at a
later time. There can be no assurance, however, that these agreements will provide meaningful protection for the Company's trade secrets in the event of unauthorized use or disclosure of such information.
The Company does not believe that any of its products or other proprietary rights infringe upon the rights of third parties. However, it cannot assure that others may not assert infringement claims against the Company in the future and recognize that any such assertion may require the Company to incur legal and other defense costs, enter into compromise royalty arrangements, or terminate the use of some technologies. Further, the Company may be required to incur legal and other costs to protect its proprietary rights against infringement by third parties.
Licenses and Royalty Agreements
The Company has not entered into any license and royalty agreements which have resulted in royalty payments.
Other Agreements
As the build-out of the U.S. dealer network continues, the Company has entered into the following agreements:
Subsequent to the period covered by this report, on January 22, 2013, the Company announced the appointment of Nat Gas Solutions, based in Houston, Texas, as a dealer and authorized installer of its diesel-to-natural gas conversion systems in the region.
On September 18, 2012, the Company appointed a diesel-to-natural gas conversion dealer and installer for the New York region.
On June 25, 2012, the Company entered into an agreement with a national refuse collection company to convert diesel engines to natural gas
On January 19, 2012, the Company expanded its business with Tata motors – the Company’s high-pressure natural gas filter was selected as an OE component for passenger vehicles.
On February 24, 2011, Omnitek announced it had appointed PT Bayu Buana Energy as the master distributor for the Company’s products in Indonesia, with a particular focus on diesel-to-natural gas conversion kits for truck, bus and power generator applications.
On July 7, 2011, Omnitek announce it had appointed D. Rampersad & Company Limited as the master distributor and exclusive installation center for the Company’s diesel-to-natural gas conversion kits in Trinidad & Tobago. The primary focus will be on the conversion of heavy-duty trucks and buses, as well as conversions of power generators in industrial zones.
On July 13, 2011, Omnitek announced it had appointed Seraph Energy, LLC as the exclusive marketing agent for the Company’s diesel-to-natural gas conversion kits in Pennsylvania.
On September 19, 2011, Omnitek appointed W.W. Engine & Supply, Inc. as an Authorized Omnitek Installation Center for the Company’s Technology and Products in Pennsylvania.
(9) Need of any governmental approval of principal products or services.
The Company's products are presently sold to commercial users. The Company’s technology as applied in the United States is subject to approval from the U.S. EPA as well as state agencies such as the California Air Resources Board (“CARB”). At this time, the EPA has approved the Company’s diesel-to-natural gas conversion technology for the widely operated line of heavy-duty Navistar DT466E and DT530E engines under the agency’s Outside Useful Life definition. As such, the Company currently does limited business in the United States. It is the intent of the Company to seek approval of any and all products with the appropriate governmental agencies if and when the costs justify the benefits which the Company will incur from such approval.
In 2011, the EPA announced new regulations applicable to certifying and converting diesel and gasoline engines to operate on natural gas. This was a milestone for the alternative fuel industry and a significant advancement in lessening dependence on foreign oil. This EPA amendment will enable our Company to certify diesel-to-natural gas engine conversion kits for the U.S. market.
It is anticipated that Omnitek will develop two to four conversion kits for the U.S. market every year, with the first two now available. Each kit development and certification will cost up to $125,000.
(10) Effect of existing or probable governmental regulations on the business.
See item number 9, immediately above, for a discussion of EPA and CARB regulation.
The Company is subject to the requirements of Regulation 13A under the Exchange Act, which require us to file with the Securities and Exchange Commission (the “Commission”), annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and all other obligations of the Exchange Act applicable to issuers with stock registered pursuant to Section 12(g). We are also subject to Regulation 14A of the Securities Exchange Act of 1934, as amended (the “1934 Act”), which regulates proxy solicitations.
Management believes that these reporting obligations increase the Company’s annual legal and accounting costs by an estimated $25,000 and $30,000, respectively.
Other than as set forth above, the Company is not aware of any other governmental regulations now in existence or that may arise in the future that would have an effect on the business of the Company.
At this time, there are no other costs, borne by the Company or directly by the customer, associated with research and development.
(11) Research and Development.
Research and development expenditures for the last two fiscal years, 2012 and 2011, were $285,745 and $143,304 respectively, and were comprised of certain equipment, parts and the cost of personnel in the development of products and services.
In some cases, a foreign customer will send an engine to our location in California and pay to have a conversion kit developed for this specific engine and/or application. In this case, we require an up-front payment from the customer of at least 50% of the development cost.
As was stated above, it is anticipated that Omnitek will develop 2 to 4 conversion kits for the U.S. market every year, with the first two becoming available subsequent to the period covered by this report in 2013. Each kit development and certification will cost up to $125,000.
At this time, there are no other costs, borne by the Company or directly by the customer, associated with research and development.
(12) Costs and effects of compliance with environmental laws.
Except as discussed above in item number 9, the Company’s business activities are not subject to any environmental laws nor does it anticipate that its future business activities will subject the Company to any environmental compliance regulations.
(13) Number of total employees and number of full-time employees.
As of the date of this report, the Company employs a total of 14 persons all of which are full-time employees. These full-time employees include, Werner Funk and Janice Quigley who are also officers and directors of the Company. We believe we have a good working relationship with our employees, who are not represented by a collective bargaining organization, and there exist no organized labor agreements or union agreements between the Company and any employees.
The Company is additionally outsourcing certain services that are not proprietary in nature. We intend to continue to use the services of independent consultants and contractors to perform various professional services. We believe that this use of third-party service providers will enhance our ability to contain general and administrative expenses.
Reports to Security Holders
The public may read and copy any materials the Company files with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. Eastern Time. Information may be obtained on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Moreover, the Company maintains a website at http://www.omnitekcorp.com that contains important information about the Company, including biographies of key management personnel, as well as information about the Company’s business. This information is publicly available (i.e., not password protected) and is updated regularly.
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FORWARD-LOOKING STATEMENTS
This report contains statements that constitute “forward-looking statements.” These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology like “believes,” “anticipates,” “expects,” “estimates,” “envision” or similar terms. These statements appear in a number of places in this report and include statements regarding our intent, belief or current expectations and those of our directors or officers with respect to, among other things: (i) trends affecting our financial condition or results of operations, (ii) our business and growth strategies, and (iii) our financing plans. You are cautioned that any forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Factors that could adversely affect actual results and performance include, among others, the effect of inflation and other negative economic trends and developments on the business of our customers and other barriers, government regulation and competition. All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement.
Business, political and economic factors may affect our operations, the manner in which we conduct our business and our rate of growth.
The U.S. economy has deteriorated significantly over the last two years. If economic conditions and unemployment rates continue to deteriorate or do not improve, our target consumer base may be disproportionately affected. In addition, a large proportion of our target customers work in industries that may be disproportionately affected by a downturn in the U.S. economy. Stagnant economic growth and high unemployment are likely to negatively affect our customers' ability to purchase our goods. The resulting impact of such economic conditions on our customers and on consumer spending could have a material adverse effect on demand for our products and on our business, financial condition and operating results.
Our performance is influenced by a variety of economic, social, political factors
Our performance is influenced by a variety of economic, social, and political factors. Economic uncertainty, unfavorable employment levels, declines in consumer confidence, increases in consumer debt levels, increased commodity prices, and other economic factors may affect consumer spending on our products and adversely affect the demand for our products. Economic conditions also affect governmental political and budgetary policies. As a result, economic conditions can have an effect on the sale of our products to our customers.
The global economic crisis could result in decreases in customer spending
The Company operates in competitive and evolving markets locally, nationally and globally. These markets are subject to rapid technological change and changes in demand. In seeking market acceptance, the Company will encounter competition from many sources, including other well-established and dominant larger providers such as Bosch, Siemens, Cummings, Volvo and Mercedes. Many of these competitors have substantially greater financial, marketing and other resources than does Omnitek. The Company’s revenue could be materially adversely affected if it is unable to compete successfully with these other providers. The current economic climate has resulted in a decrease in customer spending, and the Company is facing more competition as a result.
There is uncertainty relating to the ability of the company to enforce its rights under the content partner agreements
Many of the partner agreements are with foreign entities and are governed by the laws of foreign jurisdictions. If a partner breaches a partner agreement, then the Company will incur the additional costs of determining its rights and obligations under the agreement, under applicable foreign laws, and enforcing the agreement in a foreign jurisdiction. Many of the jurisdictions to which partner agreements are subject do not have sophisticated and/or impartial legal systems and the Company may face practical difficulties in enforcing any of its rights in such jurisdictions. The Company may not be able to enforce such rights or may determine that it would be too costly to enforce such rights. In addition, some of the partner agreements contain arbitration provisions that
govern disputes under the agreements and there is uncertainty with respect to the enforceability of such arbitration provisions under the laws of related foreign jurisdictions. If a dispute were to arise under a partner agreement and the related arbitration provision was not effective, then the Company would be exposed to the additional costs of settling the dispute through traditional legal avenues rather than through an arbitration process.
The Company may be subject to other third-party intellectual property rights claims
Companies in our industry often own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement or other violations of intellectual property rights. As The Company faces increasing competition, the possibility of intellectual property rights claims against it grows. The Company’s technologies may not be able to withstand third-party claims or rights against their use. Intellectual property claims, whether having merit or otherwise, could be time consuming and expensive to litigate or settle and could divert management resources and attention. In addition, many of the Company’s agreements require the Company to indemnify them for third-party intellectual property infringement claims, which could increase the Company’s costs as a result of defending such claims and may require that the Company pay the damages if there were an adverse ruling in any such claims. If litigation is successfully brought by a third party against the Company in respect of intellectual property, the Company may be required to cease distributing or marketing certain products or obtain licenses from the holders of the intellectual property at material cost, redesign affected products in such a way as to avoid infringing intellectual property rights, any or all of which could materially adversely affect the Company’s business, financial condition and results of operations. If those intellectual property rights are held by a competitor, the Company may be unable to obtain the intellectual property at any price, which could also adversely affect the Company’s competitive position. An adverse determination could also prevent the Company from offering its products. Any of these results could harm the Company’s business, financial condition and results of operations.
The Company is subject to foreign business, political and economic disruption risks
The Company contracts with various entities from around the world. As a result, The Company is exposed to foreign business, political and economic risks, which could adversely affect the Company’s financial position and results of operations, including:
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·
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difficulties in managing partner relationships from outside of a partner’s jurisdiction;
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political and economic instability;
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less developed infrastructures in newly industrializing countries;
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susceptibility to business interruption in foreign areas due to war, terrorist attacks, medical epidemics, changes in political regimes, and general interest rate and currency instability;
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exposure to possible litigation or claims in foreign jurisdictions; and,
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competition from foreign-based providers and the existence of protectionist laws and business practices that favor such providers.
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Early stage of the Company and its products
The Company has generated limited revenue from operations, and may not generate any significant or sufficient revenue from its current operations to continue future operations. A very limited number of Company products are currently in the marketplace. However, to achieve profitable operations, the Company, alone or with others, must successfully initiate and maintain sales and distribution of its products. The time frame necessary to achieve market success for any individual product is uncertain. There can be no assurance that the Company's efforts will be successful, that any of the Company's products will prove to meet the anticipated levels of approval or effectiveness, or that the Company will be able to obtain and sustain customer as well as distribution approval.
The Company’s results can also be affected by the ability of competition to introduce new products that have advantageous technology or the competition's ability to adjust its pricing to reduce our competitive advantage. Results will also be affected by strategic decisions made by the management regarding product volume, mix, and timing of orders received during operations. See Item 1 “Description of Business.”
Uncertainty of future profitability
The Company will require the commitment of substantial resources to increase its advertising, marketing and distribution of its existing products. While the Company believes that the additional advertising, marketing and distribution will further enhance the Company's profitability, there can be no assurance the Company's products will meet the expectations and effectiveness required to be competitive in its market place, that the Company will enter into arrangements for commercialization, market its products successfully, or achieve customer acceptance.
Future capital requirements; uncertainty of future funding
Substantial expenditures will be required to enable the Company to conduct existing product research, manufacturing, marketing and distribution of its products and Intellectual Property. The Company may need to raise additional capital to facilitate growth and support its long-term manufacturing, and marketing programs. The Company has no established bank-financing arrangements and until the Company has sufficient assets, capital, and inventory or accounts receivable, it is not anticipated that the Company will secure any bank financing in the near future. Therefore, it is likely that the Company may need to seek additional financing through subsequent future public or private sales of its securities, including equity securities. The Company may also seek funding for the manufacturing, and marketing of its 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 the Company, if at all. Any such additional financing may result in significant dilution to existing stockholders. If adequate funds are not available, the Company may be required to curtail one or more of its programs. The Company's future cash requirements will be affected by the revenue generated from the sale of its products, the costs of production and marketing, as well as relationships with corporate partners, changes in the focus and direction of the Company's programs, competitive and technological advances, and other factors.
Dependence on others; manufacturing capabilities and limited distribution capabilities
An important element of the Company's strategy for the marketing and release of its products is to enter into various arrangements with distribution and retail partners. The success and commercialization of the Company's products will be dependent, in part, upon the Company's ability to enter into such arrangements and upon the ability of these third parties to perform their responsibilities. Although the Company believes that parties to any such arrangements would have an economic motivation to succeed in performing their contractual responsibilities, the amount and timing of resources to be devoted to these activities may not be within the control of the Company. There can be no assurance that any such arrangements will be available on terms acceptable to the Company, if any at all, and that such parties will perform their obligations as expected, or that any revenue will be derived from such arrangements. If the Company is not able to enter into such arrangements, it could encounter delays in introducing its products into the market. See “Business.”
The Company plans to assemble its product line in-house after receiving components from outside vendors. Other products or components for future products may be produced or manufactured by outside companies for the Company. Therefore, the Company may be dependent on contract manufacturers for the production and manufacturing of certain products or components for products. In the event that the company is unable to obtain or retain the necessary manufacturers for components or products on acceptable terms, it may not be able to continue to commercialize and market its products as planned. The manufacture of the Company's products will be subject to current good manufacturing practices (“GMP”) requirements prescribed by the Company in order to meet the specifications and other standards prescribed by Company to satisfy the anticipated and appropriate levels of operations and effectiveness when in use. There can be no assurance that the Company will be able to i) obtain adequate supplies of its products in a timely fashion at acceptable quality and prices, ii) enter into arrangements for the manufacture of its products with manufacturers whose facilities and procedures comply with the Company's GMP or other regulatory requirements, should any such regulatory requirements arise, iii) or that manufacturers will continue to comply with such standards, or iv) that such manufacturers will be able to adequately supply the Company with its product needs. The Company's dependence upon others for the manufacture of its proposed products may adversely affect the Company's ability to develop and deliver products on a timely and competitive basis.
In addition, the Company does not now have, nor does it have current plans to acquire or obtain, the facilities, or personnel necessary to conduct its own full-scale distribution of its products. Consequently, the Company will have to rely on existing commercial distribution channels for the sale of its products. There can be no assurance that the Company will be able to secure sufficient distribution of any of its products on acceptable terms.
Approximately eight customers accounted for 64% of revenue for the year ended December 31, 2012, and loss of any of these customers could adversely affect our results of operations, financial condition, and profitability
These customers are free to purchase conversion kits and new natural gas engines from our competitors who may have more established distribution channels and other competitive advantages, such as price. In addition, our customers’ need for our conversion kits and new natural gas engines depends on the worldwide and regional fuel prices, and the various governmental regulations. If any of the latter factors change significantly, our customers’ demand for our products might decline substantially.
The loss of any of these customers would be expected to have a materially adverse effect on our results of operations and financial condition. At the minimum, it would have a materially adverse effect on our operations during the short-term until we are able to generate replacement customers. For more information about dependence on a few major customers, please see Item 1. Description of Business - “Dependence on One or Few Major Customers.”
Dependence on a limited number of qualified suppliers of components and equipment could lead to delays, lost revenue or increased costs.
Our future operating results may depend substantially on our suppliers’ ability to supply us with components in sufficient volumes to meet our production requirements. Some components that we use are available from only a single or limited number of qualified suppliers. If there is a significant simultaneous upswing in demand for such a component from several high volume industries resulting in a supply reduction, if a component is otherwise in short supply, or if a supplier has a quality issue with a component, we may experience delays or increased costs in obtaining that component. If we are unable to obtain sufficient quantities used in the components, or other necessary components, we may experience production delays which could cause us loss of revenue. If a component becomes unavailable, we could suffer significant loss of revenue.
Each of the following could also significantly harm our operating results:
• an unwillingness of a supplier to supply such components to us;
• consolidation of key suppliers;
• failure of a key supplier’s business process;
• a key supplier’s, or sub-supplier’s, inability to access credit necessary to operate its business; or
• failure of a key supplier to remain in business.
Risk of technological obsolescence and competition
The Company operates in an ever-evolving field. Developments are expected to continue at a rapid pace in the industry in general. Competition from other large companies, joint ventures, research and academic institutions and others is intense and expected to increase. Many of these companies and institutions have substantially greater capital resources, research and development staffs and facilities than the Company, and many have substantially greater experience in conducting testing, manufacturing and marketing of products. These entities represent significant long-term competition for the Company. There can be no assurance that developments by others will not render the Company's technologies and future products obsolete or noncompetitive. In addition, the Company's competitors might succeed in developing or purchasing technologies and products that are more effective than those that are being developed by the Company or that would render the Company's technology and products obsolete or noncompetitive. See “Business – Competition.”
Dependence upon key personnel
The Company's success in developing marketable products and achieving a competitive position will depend, in part, on its ability to retain qualified engineers, management and marketing personnel and in particular, to retain the services of Werner Funk, whose services the Company is totally reliant on for the development of products for the Company. In the event of the death, incapacity or departure of Mr. Funk from the Company, it is unlikely that we would be able to continue conducting our business plan. Even if we are able to find additional personnel to replace Mr. Funk it is uncertain whether we could find someone who could develop our business along the lines described in this report. We will fail without Mr. Funk or an appropriate replacement. We have acquired “key–man” life insurance on the life of Mr. Funk naming the Company as the beneficiary however there is no guarantee that this policy would be adequate to allow the Company to continue to operate in the event Mr. Funk should be unable to continue in his current position due to death, incapacity or some other unforeseen event. Additionally, Janice Quigley provides financial management expertise to the Company. In the event of the death, incapacity or departure of Mrs. Quigley from the Company, the Company would suffer a material hardship until such time as an appropriate replacement can be hired.
The Company has Employment Agreements in place with Mr. Funk and Ms. Quigley that provides for continued service in their current capacities through November of 2012 and thereafter on a year to year basis. See “Narrative Disclosure to Summary Compensation Table” for details of Employment Agreements.
Changes of prices for products
While the prices of the Company's products are projected to be in line with those from market competitors, there can be no assurance that they will not decrease in the future. Competition may cause the Company to lower prices in the future. Moreover, it is difficult to raise prices even if internal costs increase.
Creditworthiness of distributors is an ongoing concern
The Company may not always be able to collect all of the funds owed to it by its distributors. Some distributors may experience financial difficulties which may adversely impact our collection of accounts receivable. We regularly review the collectability and creditworthiness of our distributors to determine an appropriate allowance for credit to such distributors. If our uncollectible accounts exceed that amount for which we have planned, this would adversely impact our operating results. The Company tries to minimize this concern by selling most of its products by way of prepaid purchase orders.
C Corporation tax status
The Company is presently a C Corporation under the Internal Revenue Code of 1986. All items of income and loss of the Company are taxed first at the corporate level and any dividends distributed to shareholders are taxed at the shareholder level as well.
Limited current sales and marketing capability
Though the Company has key personnel with experience in sales, marketing and distribution to market its products, the Company must either retain and hire the necessary personnel to distribute and market its products or enter into collaborative arrangements or distribution agreements with third parties who will market such products or develop their own marketing and sales force with technical expertise and supporting distribution capability. There can be no assurance that the Company will be able to retain or hire the personnel with sufficient experience and knowledge to distribute and market its products or be able to enter into collaborative or distribution arrangements or develop its own sales force, or that such sales and marketing efforts, including the efforts of the companies with which the Company has entered into collaborative agreements, will be successful.
Trading and limited market
At the present time, the Company’s common stock is traded on the OTCBB under the symbol OMTK.OB. There is currently a limited public market for the Common Stock and there can be no assurance that an active trading market will develop or, if one does develop, that it will be maintained. However, should such a market arise, the possibility or actual sale into the market of shares of the Company's Common Stock as permitted under Rule 144 of the Securities Act of 1933 may adversely affect prevailing market prices, if any, for the Company's Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. In order to qualify for unrestricted resale of Common Stock under Rule 144, certain holding periods must be met and a legal opinion setting forth the exemption from registration must be provided. Further, there is no assurance that Rule 144 will be applicable to the Company and investors may not be able to rely on its provisions now or in the future. In addition, sales of significant amounts of Common Stock by the Company subsequent to this offering could have an adverse effect on the market price, if any, for the Company's securities.
No dividends
No cash dividends have been paid. Payment of dividends on the Common Stock is within the discretion of the Board of Directors, is subject to state law, and will depend upon the Company's earnings, if any, its capital requirements, financial condition and other relevant factors.
Possible volatility of stock price
The market price of the Company’s securities is likely to be highly volatile. Factors such as the market acceptance of the Company's products, success of distribution channels or its competitors, announcements of technological innovations or new commercial products by the Company or its competitors, developments in trademark, patent or other proprietary rights of the Company or its competitors, and fluctuations in the Company's operating results may have a significant effect on the market price of the Common Stock. In addition, the stock market has experienced and continues to experience extreme price and volume fluctuations which have affected the market price of many companies and which have often been unrelated to the operating performance of these companies. These broad market fluctuations, as well as general economic and political conditions, may adversely affect the market price, if a market develops, of the Common Stock. See “Description of Capital Stock.”
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934 which require us to incur audit fees and legal fees in connection with the preparation of such reports. These additional costs could reduce or eliminate our ability to earn a profit.
We are required to file periodic reports with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder. In order to comply with these requirements, our independent registered public accounting firm has to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist in the preparation of such reports. The costs charged by these professionals for such services cannot be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will have a major affect on the amount of time to be spent by our auditors and attorneys. However, the incurrence of such costs will obviously be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit. We may be exposed to potential risks resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of 2002. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended by SEC Release 33-8889 on February 1, 2008 we will be required to include in our annual report our assessment of the effectiveness of our internal control over financial reporting as of the end of the year ending December 31, 2012. Furthermore, in the following year, our independent registered public accounting firm will be required to report separately on whether it believes that we have maintained, in all material respects, effective internal control over financial reporting. We have not yet completed any assessment of the effectiveness of our internal control over financial reporting. We expect to incur additional expenses and diversion of management’s time as a result of performing the system and process evaluation, testing and remediation required in order to comply with the management certification and auditor attestation requirements.
We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees. During the course of our testing, we may identify other deficiencies that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
Management believes that these reporting obligations will increase the Company’s annual legal and accounting costs by an estimated $25,000 and $30,000, respectively.
Penny stock regulations
If the Company's stock is below $5.00 per share, or the Company does not have $2,000,000 in net tangible assets, or is not listed on an exchange or on the NASDAQ National Market System, among other conditions, the Company's shares may be subject to a rule promulgated by the Securities and Exchange Commission (the “SEC”) that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and institutional accredited investors. For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written consent to the transaction prior to the sale. Furthermore, if the price of the Company's stock is below $5.00, and does not meet the conditions set forth above, sales of the Company's stock in the secondary market will be subject to certain additional new rules promulgated by the SEC. These rules generally require, among other things, that brokers engaged in secondary trading of stock provide customers with written disclosure documents, monthly statements of the market value of penny stocks, disclosure of the bid and asked prices, and disclosure of the compensation to the broker-dealer and disclosure of the sales person working for the broker-dealer. These rules and regulations may affect the ability of broker-dealers to sell the Company's securities, thereby limiting the liquidity of the Company's securities. They may also affect the ability of shareholders to resell their securities in the secondary market.
The Company owns no real property and currently has a lease for its principal executive offices and related engineering and assembly facilities located in approximately 25,000 square feet of space at 1333 Keystone Way, Suite 101, Vista, California 92081. We are currently on a five year lease with our landlord. We were located in a different facility for the fiscal year ended 2012 under which we paid $133,577 in rent during the fiscal year ended December 31, 2012. The new space should be adequate for our needs for the next few years, however as the Company enters the U.S. market, there is the possibility we will need to expand our facilities again.
The Company received notice November 27, 2011 that it was named as a defendant in lawsuit brought in the Superior Court of Kern County California, case number S-1500-CL-259981. The claim was that the Company was responsible for damages to an engine. The damage was caused by an installation error and not by any of the materials that Omnitek provided. As such, it was determined that the Company was not the proper party to the lawsuit; the Company was dismissed from the suit, with prejudice, on February 28, 2012.
On January 10, 2012, the Company was named as a defendant in a lawsuit brought in small claims court in San Diego County California, case number 37-2012-00011005-SC-SC-NC. Thornburg & Litteken, LLC, the plaintiff, brought forth a claim for payment of services rendered in the hiring of an officer for Omnitek. The case was heard on March 2, 2012 and the court rendered a decision in favor of the plaintiff for $5,000 and legal fees of $118.
Other than as set forth above, we are not a party to any pending legal proceeding. No federal, state or local governmental agency is presently contemplating any proceeding against the Company. No director, executive officer or affiliate of the Company or owner of record or beneficially of more than five percent of the Company's common stock is a party adverse to the Company or has a material interest adverse to the Company in any proceeding.
Market Information
Our common stock is traded on OTCQB under the symbol “OMTK” The CUSIP number for the Issuer’s common stock is 68215W 10 7. The following table sets forth, in U.S. dollars the high and low sale prices for each of the calendar quarters indicated, as reported by the OTCBB. The prices in the table may not represent actual transactions and do not include retail markups, markdowns or commissions.
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Company Common
Stock Prices
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High
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Low
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|||||||
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2012
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||||||||
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Quarter ended December 31
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$ | 1.93 | $ | 1.02 | ||||
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Quarter ended September 30
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3.12 | 1.60 | ||||||
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Quarter ended June 30
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4.39 | 1.79 | ||||||
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Quarter ended March 31
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6.55 | 1.84 | ||||||
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2011
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Quarter ended December 31
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$ | 2.44 | $ | 1.70 | ||||
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Quarter ended September 30
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3.00 | 1.75 | ||||||
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Quarter ended June 30
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4.75 | 0.45 | ||||||
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Quarter ended March 31
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0.52 | 0.11 | ||||||
There is currently a limited public market for the Common Stock and there can be no assurance that an active trading market will develop or, if one does develop, that it will be maintained. However, should such a market arise, the possibility or actual sale into the market of shares of the Company's Common Stock as permitted under Rule 144 of the Securities Act of 1933 may adversely affect prevailing market prices, if any, for the Company's Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. In order to qualify for unrestricted resale of Common Stock under Rule 144, certain holding periods must be met and a legal opinion setting forth the exemption from registration must be provided. Further, there is no assurance that Rule 144 will be applicable to the Company and investors may not be able to rely on its provisions now or in the future. In addition, sales of significant amounts of Common Stock by the Company subsequent to this offering could have an adverse effect on the market price, if any, for the Company's securities.
The market price of the Company’s common stock will likely fluctuate significantly in response to the following factors, some of which are beyond the Company’s control: variations in its quarterly operating results; changes in financial estimates of its revenues and operating results by securities analysts; changes in market valuations of similar companies; announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; additions or departures of key personnel; future sales of its common stock; stock market price and volume fluctuations attributable to inconsistent trading volume levels of its stock; commencement of, or involvement in, litigation.
On March 18, 2013, the last bid and ask of our common stock as reported on the OTCBB was $2.20 and $2.24, respectively.
Holders
There were approximately 42 holders of record of the Company's Common Stock as of March 15, 2013.
Dividends
Common Stock - No dividends have ever been paid on the Common Stock and the Company does not currently anticipate paying any cash or other dividends on the Common Stock. Future dividend policy will be determined by the Board of Directors of the Company in light of prevailing financial need and earnings, if any, of the Company and other relevant factors.
Preferred Stock - Under our articles of incorporation, our Board of Directors is authorized, without stockholder action, to issue preferred stock in one or more series and to fix the number of shares and rights, preferences, and limitations of each series. Among the specific matters that may be determined by the Board of Directors are the dividend rate, the redemption price, if any, conversion rights, if any, the amount payable in the event of any voluntary liquidation or dissolution of our company, and voting rights, if any. As of the date of this report, no shares of preferred stock were issued and outstanding.
Payment of dividends on the Common Stock and Preferred Stock is within the discretion of the Board of Directors, is subject to state law, and will depend upon the Company's earnings, if any, its capital requirements, financial condition and other relevant factors.
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Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information as of December 31, 2012 with respect to our equity compensation plans previously approved by stockholders and equity compensation plans not previously approved by stockholders.
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Equity Compensation Plan Information
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Plan Category
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Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
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Weighted average
exercise price of
outstanding options,
warrants and rights
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Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
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(a)
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(b)
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(c)
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Equity compensation plans approved by stockholders
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6,085,313 | $ | 2.27 | 3,914,687 | ||||||||
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Equity compensation plans not approved by stockholders
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0 | 0 | 0 | |||||||||
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Total
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6,085,313 | $ | 2.27 | 3,914,687 | ||||||||
On September 1, 2006, the Board of Directors adopted the Omnitek Engineering Corp. 2006 Long-term Incentive Plan (the “2006 Plan”), under which 1,000,000 shares of Company’s Common Stock were reserved for issuance by the company to attract and retain employees and directors of the Company and to provide such persons with incentives and awards for superior performance and providing services to the Company. The 2006 Plan is administered by a committee comprised of the Board of Directors of the Company or appointed by the Board of Directors, which has broad flexibility in designing stock-based incentives. The Board of Directors determines the number of shares granted and the option exercise price, pursuant to the terms of the Plan. On November 30, 2007, the Board of Directors authorized the increase of shares available under the 2006 Plan to 10,000,000 post-split adjusted shares.
Issuer Purchases of Equity Securities
There were no stock repurchases during the year ended December 31, 2012.
Recent Sales of Unregistered Securities
On February 2, 2012, the Company issued 9,524 restricted shares of its common stock upon receipt of a capital contribution of $20,000 in cash to one accredited investor. No underwriters were used. The securities were issued pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933. The individual receiving the common stock was intimately acquainted with the Company’s business plan and proposed activities at the time of issuance, and possessed information on the Company necessary to make an informed investment decision. A report regarding this transaction was filed on Form 8-K with the SEC on February 7, 2012.
On February 15, 2012, and concurrently with the execution of a Credit Agreement, Note and Stock Pledge Agreement, the Company issued a Warrant as a financial accommodation for the extension of credit to the Company, to purchase 5,000 shares of its common stock at an exercise price of $2.68 per share. The Warrant is exercisable for a period of five years expiring on February 15, 2017. No underwriters were used. The securities were issued pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933. The entity receiving the common stock was intimately acquainted with the Company’s business plan and proposed activities at the time of issuance, and possessed information on the Company necessary to make an informed investment
decision. A report regarding this transaction and a copy of all related documents was filed on Form 8-K with the SEC on February 17, 2012.
On April 9, 2012, pursuant to a Securities Purchase Agreement, we issued to 32 Investors, an aggregate of 2,602,246 shares of our common stock and Warrants exercisable into 2,602,246 shares of our common stock for total subscription proceeds of $5,516,762. The Warrants have an exercise price of $3.88 per share and are exercisable for a period of five years expiring on April 8, 2017. The number of shares of common stock to be received upon the exercise of the Warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the common stock that occur after the Closing Date.
Pursuant to the terms of the Engagement Agreement, the Company also issued to the Placement Agent at the Closing Date warrants to purchase 78,067 shares of common stock of the Company, which is equal to 3% of the aggregate number of shares sold to Investors, which shall have the same terms, including exercise price and registration rights, as the Investor Warrants issued in the private placement. We also paid a cash placement fee of $413,305, which is equal to 7% of the aggregate purchase price paid by Investors that were sold in the private placement.
The issuance of securities to the Investors and the Placement Agent were not registered under the Securities Act. Such issuance of securities was exempt from registration under the safe harbor provided by Regulation D Rule 506 and Section 4(2) of the Securities Act. We made this determination in part based on the representations of Investors, which included, in pertinent part, that such Investors were an “accredited investor” as defined in Rule 501(a) under the Securities Act, and upon such further representations from the Investors that (a) the Investor is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the Investor agrees not to sell or otherwise transfer the purchased securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption or exemptions from such registration are available, (c) the Investor either alone or together with its representatives has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in us, and (d) the Investor has no need for the liquidity in its investment in us and could afford the complete loss of such investment. Our determination is made based further upon our action of (a) making written disclosure to each Investor in the Securities Purchase Agreement prior to the closing of sale that the securities have not been registered under the Securities Act and therefore cannot be resold unless they are registered or unless an exemption from registration is available, (b) making written descriptions of the securities being offered, the use of the proceeds from the offering and any material changes in the Company’s affairs that are not disclosed in the documents furnished, and (c) placement of a legend on the certificate that evidences the securities stating that the securities have not been registered under the Securities Act and setting forth the restrictions on transferability and sale of the securities, and upon such inaction of the Company of any general solicitation or advertising for securities herein issued in reliance upon Regulation D Rule 506 and Section 4(2) of the Securities Act.
Additionally, on April 9, 2011, the Company issued warrants to purchase 40,000 shares of common stock of the Company to two accredited investors for consulting services provided to the Company. The Warrants have an exercise price of $3.88 per share and are exercisable for a period of five years expiring on April 8, 2017. The number of shares of common stock to be received upon the exercise of the Warrants are subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the common stock that occur after the Closing Date. The issuance of the Warrants was exempt from registration under the safe harbor provided by Regulation D Rule 506 and Section 4(2) of the Securities Act. The consultants receiving the Warrants were accredited investors, were acquainted with the Company’s business plan and proposed activities at the time of issuance, and possessed information on the Company necessary to make an informed investment decision. No underwriters were used in the issuance of the securities.
On July 26, 2012, the Company granted its CEO, President and Secretary, Werner Funk, a Stock Option pursuant to the 2011 Long-Term Incentive Plan, to purchase 400,000 shares of common stock, at an exercise price of $2.56 per share representing 110% of the average of the closing price of the common stock as reported on the OTCBB for the prior 30 day period. One-sixtieth (1/60) of the total number of shares subject to the Options shall vest and become exercisable at the end of each month following the Effective Date on the same day of each month
as the Effective Date, so that all shares subject to the Options will be fully vested on the fourth anniversary of the Effective Date. The Options will be exercisable for a period of seven years from the Effective Date.
Additionally on July 26, 2012, the Company granted its CFO and Vice President, Janice M. Quigley, a Stock Option pursuant to the 2011 Long-Term Incentive Plan, to purchase 50,000 shares of common stock, at an exercise price of $2.56 per share representing 110% of the average of the closing price of the common stock as reported on the OTCBB for the prior 30 day period. One-twenty-fourth (1/24) of the total number of shares subject to the Options shall vest and become exercisable at the end of each month following the Effective Date on the same day of each month as the Effective Date, so that all shares subject to the Options will be fully vested on the second anniversary of the Effective Date. The Options will be exercisable for a period of seven years from the Effective Date.
On August 3, 2012, the Board of Directors of the Company appointed Gary S. Maier and George G. Chachas to serve as outside Directors of the Company. In conjunction with their appointment the Company granted to Mr. Maier and Mr. Chachas, each, a non-qualified stock option grant to purchase twenty-five thousand (25,000) shares of the Company’s common stock at an exercise price of $1.79 per share (i.e. eighty-five percent (85%) of the closing price of the Company’s common stock as of August 3, 2012). Such Options shall be exercisable for a period of five years. The Option shall vest and be exercisable immediately.
Additionally, on August 3, 2012, the Company granted a non-qualified stock option grant to the Company’s engineering group manager, to purchase forty thousand (40,000) shares of the Company’s common stock at an exercise price of $1.79 per share (i.e. eighty-five percent (85%) of the closing price of the Company’s common stock as of August 3, 2012). Such Options shall be exercisable for a period of five years. The Option shall vest and be exercisable with regard to 25% of the total shares subject to the Option, at the end of each year following the Date of Grant, so that all shares subject to the Options will be fully vested on the fourth anniversary of the Date of Grant.
No underwriters were used. The securities were issued pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933. The individuals receiving the options were intimately acquainted with the Company’s business plan and proposed activities at the time of issuance, and possessed information on the Company necessary to make an informed investment decision.
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.
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 twelve months ended December 31, 2012 and 2011
Revenues increased to $1,899,740 in 2012 from $1,546,723 in 2011, an increase of $353,017 or 23%.
Our cost of sales increased to $971,927 in 2012 from $793,293 in 2011, an increase of $178,634. Our gross margin was 49% in 2012 compared to 49% in 2011. We expect that our gross margin will continue to range between 45% to 49% until our operations grow sufficiently to allow us to negotiate better pricing for our components.
Our operating expenses for 2012 were $2,333,924 compared to $1,194,042 in 2011, an increase of $1,139,882, or 95%. General and administrative expense for 2012 was $2,041,447 as compared to $980,228 in 2011. The increase is due primarily to the increase in expense related to stock options issued for services of $653,856 in 2012 as compared to $208,706 in 2011 and stock offering expense of $416,441 related to the stock offering. Major components of general and administrative expenses during 2012 were professional fees of $203,734, rent expense of $135,577, and salary and wages of $287,136. This compares to professional fees of $96,965, rent expense of $124,892 and salaries and wages of $227,088 during 2011. In 2012, professional fees were higher by approximately $106,769 due to legal, accounting and investor relations expenses incurred in connection with the stock offering. Research and development outlays were increased to $285,745 in 2012 compared to $143,304 in 2011.
Our net loss for the twelve months ended December 31, 2012 was $1,371,453, compared to a net loss of $441,555 in 2011. The increased loss was the result of higher professional fee and stock offering expenses in related to the private placement.
Results for the twelve months reflect the impact of non-cash expenses, including the value of options and warrants granted in the amount of $653,856 and depreciation and amortization of $6,369. For the twelve month period a year earlier, non-cash expenses for the value of options and warrants granted were $208,706 and depreciation and amortization of $70,484.
Sales in 2012 were aided by a number of research and development projects that should continue into 2013.
B. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cash Requirements
We believe that we will have sufficient cash from operations to meet our operating requirements for the proximate 12 months.
Liquidity and Capital Resources
Overview
For the twelve months ended December 31, 2012 and 2011
At December 31, 2012, our current liabilities totaled $765,932 and our current assets totaled $4,812,558, resulting in positive working capital of $4,046,626 and a current ratio of 6.28. During the twelve months ended December 31, 2012, we received $5,536,762 of cash from a private placement offering. We believe that through the collection of accounts receivable and the sale of inventory, in the normal course of business, we will meet our obligations on a timely basis and that our liquidity is sufficient for at least the next twelve months.
We have no firm commitments or obligations for capital expenditures. However, substantial discretionary expenditures will be required to enable us to conduct existing and planned product research, design, development, manufacturing, marketing and distribution of our products and Intellectual Property. We may need to raise additional capital to facilitate growth and support our long-term product development, manufacturing, and marketing programs. The Company has no established bank-financing arrangements and until we have sufficient assets, capital, and inventory or accounts receivable, it is not anticipated that we will secure any bank financing in the near future. Therefore, it is likely that we may need to seek additional financing through subsequent future public or private sales of our securities, including equity securities. We may also seek funding for the development, manufacturing, and marketing of our products through strategic partnerships and other arrangements with corporate partners. There can be no assurance, however, that such collaborative arrangements or additional funds will be available when needed, or on terms acceptable to us, if at all. If adequate funds are not available, we may be required to curtail one or more of our research and development programs.
We have historically incurred significant losses which have resulted in a total accumulated deficit of $7,795,155 at December 31, 2012.
Operating Activities
We have realized a negative cash flow from operations of $1,142,331 for the twelve months ended December 31, 2012 compared to a negative cash flow of $272,777 during the twelve months ended December 31, 2011.
Included in the net loss of $1,371,453 for the twelve months ended December 31, 2012 are non-cash expenses which are not a drain on our capital resources. During 2012, the expenses include the value of options and warrants granted in the amount of $653,856 and depreciation and amortization of $32,922. Excluding these non-cash amounts, our EBITDA for the twelve months ended December 31, 2012 would have been a loss of $684,675.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policiesand Estimates
The Company's financial statements are prepared using the accrual method of accounting. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas where significant estimates are required include the following:
Trade receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts.
Inventory is stated at the lower of cost or market. The Company’s inventory consists of finished goods and raw material. The Company identifies items in its inventory that have not been sold in a timely manner. Accordingly, the Company has established an allowance for the cost of such obsolete inventory.
The Company assesses the recoverability of its long lived assets annually and whenever circumstances would indicate that there may be an impairment. The Company compares the estimated undiscounted future cash flows to the carrying value of the long lived assets to determine if an impairment has occurred. In the event that an impairment has occurred, the Company recognizes the impairment immediately.
The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 740, which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized. The Company uses historical experience to determine the likely-hood of realization of deferred tax liabilities and assets.
Revenue Recognition
The Company recognizes revenue from the sale of new natural gas engines and components to convert existing diesel engines to natural gas engines. Revenue is recognized upon shipment of the products, and when collection is reasonably assured.
Accounting for Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 740, Income Taxes ("Topic 740"), which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized.
Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company's financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
At the adoption date of November 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.
The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of December 31, 2009, the Company had no accrued interest or penalties related to uncertain tax positions.
The Company files an income tax return in the U.S. federal jurisdiction and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2006.
At December 31, 2012, the Company had net operating loss carry forwards of approximately $2,900,715 through 2032. No tax benefit has been reported in the December 31, 2012 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
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.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
OMNITEK ENGINEERING CORP.
FINANCIAL STATEMENTS
December 31, 2012 and 2011
C O N T E N T S
| Report of Independent Registered Public Accounting Firm | F-29 |
| Balance Sheets | F-30 |
| Statements of Operations | F-31 |
| Statements of Stockholders’ Equity | F-32 |
| Statements of Cash Flows | F-33 |
| Notes to Financial Statements | F-34 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Omnitek Engineering Corporation
We have audited the accompanying balance sheets of Omnitek Engineering Corporation as of December 31, 2012 and 2011, and the related statements of operations, stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all material respects, the financial position of Omnitek Engineering Corporation as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Sadler, Gibb & Associates, LLC
Salt Lake City, UT
March 18, 2013
|
OMNITEK ENGINEERING CORP.
|
||||||||
|
Balance Sheets
|
||||||||
|
ASSETS
|
||||||||
|
December 31
|
December 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
CURRENT ASSETS
|
||||||||
|
Cash
|
$ | 3,192,761 | $ | 31,196 | ||||
|
Accounts receivable, net
|
120,547 | 13,506 | ||||||
|
Accounts receivable -related party
|
26,455 | 16,715 | ||||||
|
Inventory
|
1,133,595 | 1,020,117 | ||||||
|
Prepaid expense
|
7,440 | 2,512 | ||||||
|
Deposits
|
331,760 | 41,943 | ||||||
|
Total Current Assets
|
4,812,558 | 1,125,989 | ||||||
|
PROPERTY AND EQUIPMENT, net
|
14,560 | 13,249 | ||||||
|
OTHER ASSETS
|
||||||||
|
Long-term investments, net
|
1,201,671 | - | ||||||
|
Intellectual property, net
|
5,218 | 8,256 | ||||||
|
Total Other Assets
|
1,206,889 | 8,256 | ||||||
|
TOTAL ASSETS
|
$ | 6,034,007 | $ | 1,147,494 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Accounts payable and accrued expenses
|
$ | 317,106 | $ | 57,828 | ||||
|
Accrued compensation-related parties
|
264,717 | 351,580 | ||||||
|
Accounts payable - related parties
|
- | 2,568 | ||||||
|
Customer deposits
|
184,109 | 286,608 | ||||||
|
Total Current Liabilities
|
765,932 | 698,584 | ||||||
|
Total Liabilities
|
765,932 | 698,584 | ||||||
|
STOCKHOLDERS' EQUITY
|
||||||||
|
Common stock, 125,000,000 shares authorized no par value
|
||||||||
|
19,749,590 and 17,137,812 shares issued and outstanding,
|
||||||||
|
respectively
|
8,196,061 | 2,659,299 | ||||||
|
Additional paid-in capital
|
4,867,169 | 4,213,313 | ||||||
|
Accumulated deficit
|
(7,795,155 | ) | (6,423,702 | ) | ||||
|
Total Stockholders' Equity
|
5,268,075 | 448,910 | ||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 6,034,007 | $ | 1,147,494 | ||||
|
The accompanying notes are an integral part of these financial statements.
|
||||||||
|
OMNITEK ENGINEERING CORP.
|
||||||||
|
Statements of Operations
|
||||||||
|
For the Year
|
For the Year
|
|||||||
|
Ended
|
Ended
|
|||||||
|
December 31,
|
December 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
REVENUES
|
$ | 1,899,740 | $ | 1,546,723 | ||||
|
COST OF GOODS SOLD
|
971,927 | 793,293 | ||||||
|
GROSS MARGIN
|
927,813 | 753,430 | ||||||
|
OPERATING EXPENSES
|
||||||||
|
General and administrative
|
2,041,447 | 980,228 | ||||||
|
Bad debt expense
|
363 | 26 | ||||||
|
Research and development expense
|
285,745 | 143,304 | ||||||
|
Depreciation and amortization expense
|
6,369 | 70,484 | ||||||
|
Total Operating Expenses
|
2,333,924 | 1,194,042 | ||||||
|
LOSS FROM OPERATIONS
|
(1,406,111 | ) | (440,612 | ) | ||||
|
OTHER INCOME (EXPENSE)
|
||||||||
|
Interest expense
|
(490 | ) | (145 | ) | ||||
|
Interest income
|
35,948 | 2 | ||||||
|
Total Other Income (Expense)
|
35,458 | (143 | ) | |||||
|
LOSS BEFORE INCOME TAXES
|
(1,370,653 | ) | (440,755 | ) | ||||
|
INCOME TAX EXPENSE
|
800 | 800 | ||||||
|
NET LOSS
|
$ | (1,371,453 | ) | $ | (441,555 | ) | ||
|
BASIC AND DILUTED LOSS PER SHARE
|
$ | (0.07 | ) | $ | (0.03 | ) | ||
|
WEIGHTED AVERAGE NUMBER
|
||||||||
|
OF COMMON SHARES OUTSTANDING
|
19,092,975 | 16,503,731 | ||||||
|
The accompanying notes are an integral part of these financial statements.
|
||||||||
|
OMNITEK ENGINEERING CORP.
|
||||||||||||||||||||
|
Statements of Stockholders' Equity
|
||||||||||||||||||||
|
Additional
|
Total
|
|||||||||||||||||||
|
Common Stock
|
Paid-In
|
Accumulated
|
Stockholders'
|
|||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
||||||||||||||||
|
Balance, December 31, 2010
|
15,659,829 | $ | 2,374,799 | $ | 4,004,607 | $ | (5,982,147 | ) | $ | 397,259 | ||||||||||
|
Value of options and warrants
|
||||||||||||||||||||
|
issued for services
|
- | - | 208,706 | - | 208,706 | |||||||||||||||
|
Common stock issued for cash
|
300,000 | 150,000 | - | - | 150,000 | |||||||||||||||
|
Exercise of warrants and options for cash
|
800,000 | 134,500 | - | - | 134,500 | |||||||||||||||
|
Exercise of warrants for services
|
377,983 | - | - | - | - | |||||||||||||||
|
Net loss for the year ended
|
||||||||||||||||||||
|
December 31, 2011
|
- | - | - | (441,555 | ) | (441,555 | ) | |||||||||||||
|
Balance, December 31, 2011
|
17,137,812 | 2,659,299 | 4,213,313 | (6,423,702 | ) | 448,910 | ||||||||||||||
|
Common stock issued as
|
||||||||||||||||||||
|
collateral for note payable
|
100,000 | - | - | - | - | |||||||||||||||
|
Common stock issued for cash
|
2,611,770 | 5,536,762 | 5,536,762 | |||||||||||||||||
|
Common stock cancelled as
|
||||||||||||||||||||
|
collateral for note payable
|
(100,000 | ) | - | - | - | - | ||||||||||||||
|
Value of options and warrants
|
||||||||||||||||||||
|
issued for services
|
- | - | 653,856 | 653,856 | ||||||||||||||||
|
Net loss for the year ended
|
||||||||||||||||||||
|
December 31, 2012
|
- | - | - | (1,371,453 | ) | (1,371,453 | ) | |||||||||||||
|
Balance, December 31, 2012
|
19,749,582 | $ | 8,196,061 | $ | 4,867,169 | $ | (7,795,155 | ) | $ | 5,268,075 | ||||||||||
|
The accompanying notes are an integral part of these financial statements.
|
||||||||||||||||||||
|
OMNITEK ENGINEERING CORP.
|
||||||||
|
Statements of Cash Flows
|
||||||||
|
For the Year
|
For the Year
|
|||||||
|
Ended
|
Ended
|
|||||||
|
December 31,
|
December 31
|
|||||||
|
2012
|
2011
|
|||||||
|
OPERATING ACTIVITIES
|
|
|||||||
|
Net loss
|
$ | (1,371,453 | ) | $ | (441,555 | ) | ||
|
Adjustments to reconcile net loss to
|
||||||||
|
net cash used by operating activities:
|
||||||||
|
Amortization and depreciation expense
|
6,369 | 70,484 | ||||||
|
Amortization of premium on long-term investments
|
26,552 | - | ||||||
|
Allowance for bad debt
|
5,000 | - | ||||||
|
Options and warrants granted
|
653,856 | 208,706 | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(112,041 | ) | 14,611 | |||||
|
Accounts receivable–related parties
|
(9,740 | ) | (16,715 | ) | ||||
|
Deposits
|
(289,817 | ) | 31,469 | |||||
|
Prepaid expense
|
(4,928 | ) | (2,512 | ) | ||||
|
Inventory
|
(113,478 | ) | 34,930 | |||||
|
Accounts payable and accrued expenses
|
259,279 | (79,108 | ) | |||||
|
Customer deposits
|
(102,499 | ) | (47,279 | ) | ||||
|
Accounts payable-related parties
|
(2,568 | ) | (1,500 | ) | ||||
|
Accrued compensation-related parties
|
(86,863 | ) | (44,308 | ) | ||||
|
Net Cash Used in Operating Activities
|
(1,142,331 | ) | (272,777 | ) | ||||
|
INVESTING ACTIVITIES
|
||||||||
|
Purchase of long-term investments
|
(1,228,223 | ) | - | |||||
|
Purchase of property and equipment
|
(4,643 | ) | (15,471 | ) | ||||
|
Net Cash Used in Investing Activities
|
(1,232,866 | ) | (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 (DECREASE) IN CASH
|
3,161,565 | (3,748 | ) | |||||
|
CASH AT BEGINNING OF YEAR
|
31,196 | 34,944 | ||||||
|
CASH AT END OF YEAR
|
$ | 3,192,761 | $ | 31,196 | ||||
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
|
||||||||
|
CASH PAID FOR:
|
||||||||
|
Interest
|
$ | 490 | $ | 145 | ||||
|
Income taxes
|
$ | 800 | $ | 800 |
F-33
OMNITEK ENGINEERING CORP.
Notes to the Financial Statements
December 31, 2012 and 2011
NOTE 1- ORGANIZATION AND BUSINESS ACTIVITY
Omnitek Engineering, Corp. (Omnitek) was incorporated on October 9, 2001 as a California corporation. Omnitek develops and supplies new natural gas engine and advanced engine management systems for gaseous fuels and is the manufacturer of a proprietary technology used to convert old or new diesel engines to operate on natural gas, propane or hydrogen. Omnitek began operations on October 10, 2001, and was a spin-off from Nology Engineering, Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Methods
The Company's financial statements are prepared using the accrual method of accounting. The Company has elected a December 31, year-end.
b. Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
c. 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. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. Allowance for doubtful accounts for the years ended December 31, 2012 and 2011 was $15,000 and $10,000, respectively.
d. Reclassification
Certain balances in the 2011 financial statements have been reclassified to be consistent with the 2012 presentation.
e. 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 2,169,855 and 2,339,081 stock options and warrants that would have been included in the fully diluted earnings per share as of December 31, 2012 and 2011, respectively. However, the common stock equivalents were not included in the computation of the loss per share computation because they are anti dilutive.
F-34
OMNITEK ENGINEERING CORP.
Notes to the Financial Statements
December 31, 2012 and 2011
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e. Basic and Diluted Loss Per Share (Continued)
|
December 31,
|
December 31,
|
|||||
|
2012
|
2011
|
|||||
|
Numerator - loss
|
$ | (1,371,453 | ) | $ | (441,555 | ) |
|
Denominator - weighted average number of shares outstanding
|
19,092,975 | 16,503,731 | ||||
|
Basic and diluted loss per share
|
$ | (0.07 | ) | $ | (0.03 | ) |
f. Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization are calculated on the straight-line method over the shorter of the lease term or the estimated useful lives of the assets ranging from three to five years.
g. Newly 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 financial statements.
h. Provision For Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification Topic 740, Income Taxes ("Topic 740"), which requires the recognition of deferred tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount that is more likely than not to be realized.
Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company's financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
At the adoption date of November 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized. The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of December 31, 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 2008.
F-35
OMNITEK ENGINEERING CORP.
Notes to the Financial Statements
December 31, 2012 and 2011
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
i. 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.
j. Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred. During the year ended December 31, 2011 and 2010, the Company expensed $28,672 and $36,118, respectively.
k. Revenue Recognition
The Company recognizes revenue from the sale of new engines for use with compressed natural gas and engine components to convert existing engines to compressed natural gas use. Revenue is recognized upon shipment of the products, and when collection is reasonably assured.
l. Concentration of Risks
Customers
During the year ended December 31, 2012, eight customers accounted for approximately 64% of sales.
For the year ended December 31, 2011, seven customers accounted for approximately 65% of sales.
Suppliers
During the year ended December 31, 2012, four suppliers accounted for 29% of products purchased.
During the year ended December 31, 2011, one supplier accounted for 20% of products purchased.
m. 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 will recognize the impairment immediately. No impairment expense was recognized as of December 31, 2012.
n. Research and Development
The Company expenses the costs of researching and developing its products during the period incurred. During the years ended December 31, 2012 and 2011, the Company incurred research and development expenses of $285,745 and $143,304, respectively.
F-36
OMNITEK ENGINEERING CORP.
Notes to the Financial Statements
December 31, 2012 and 2011
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
o. Liquidity
Historically, the Company has incurred net losses and negative cash flows from operations. As of December 31, 2012, the Company had an accumulated deficit of $7,795,155 and total stockholders’ equity of $5,268,075. At December 31, 2012, the Company had current assets of $4,812,558 including cash and cash equivalents of $3,192,761, and current liabilities of $765,932, resulting in working capital of $4,046,626. For 2012, the Company reported a net loss of $1,371,453 and net cash used by operating activities of $1,142,331. Management believes that based on its operating plan, the projected sales for 2013, 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. If the Company is unable to continue profitable operations and obtain positive operating cash flows, it may require additional funding or be forced to scale back its development plans or to significantly reduce or terminate operations.
p. Stock- Based Compensation
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.
NOTE 3 - 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 December 31, 2012 and 2011 consisted of the following:
|
December 31,
|
December 31,
|
|||||||
|
Location : San Marco, CA
|
2012
|
2011
|
||||||
|
Raw materials
|
$ | 806,700 | $ | 946,762 | ||||
|
Finished goods
|
684,273 | 674,198 | ||||||
|
Peru (finished goods)
|
- | 18,454 | ||||||
|
In transit
|
270,151 | 8,232 | ||||||
|
Allowance for obsolete inventory
|
(627,529 | ) | (627,529 | ) | ||||
|
Total
|
$ | 1,133,595 | $ | 1,020,117 | ||||
The Company has established an allowance for obsolete inventory. Expense for obsolete inventory was $-0- and $-0-, for the years ended December 31, 2012 and 2011, respectively.
F-37
OMNITEK ENGINEERING CORP.
Notes to the Financial Statements
December 31, 2012 and 2011
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2012 and 2011 consisted of the following:
|
December 31,
|
December 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Research and development equipment
|
$ | - | $ | 41,159 | ||||
|
Tooling equipment
|
5,300 | 27,753 | ||||||
|
Manufacturing Equipment
|
14,814 | 10,171 | ||||||
|
Computer equipment
|
- | 2,721 | ||||||
|
Less: accumulated depreciation
|
(5,554 | ) | (68,555 | ) | ||||
|
Total
|
$ | 14,560 | $ | 13,249 | ||||
Depreciation expense for the years ended December 31, 2012 and 2011 was $3,250 and $2,221, respectively.
NOTE 5 - INTELLECTUAL PROPERTY
The Company’s patents and trademarks at December 31, 2012 and 2011 were as follows:
|
December 31,
|
December 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Patents
|
$ | 42,295 | $ | 42,295 | ||||
|
Trademarks
|
1,920 | 1,920 | ||||||
|
Intellectual property and customer list
|
474,000 | 474,000 | ||||||
|
Less: accumulated amortization
|
(517,997 | ) | (509,959 | ) | ||||
|
Total
|
$ | 5,218 | $ | 8,256 | ||||
Amortization expense for the years ended December 31, 2012 and 2011 was $3,119 and $68,263, respectively.
NOTE 6 - CUSTOMER DEPOSITS
The Company may require a customer deposit from domestic and international customers. As of December 31, 2012 and 2011 the Company had customer deposits of $184,109 and $286,608, respectively.
NOTE 7 - PURCHASE COMMITMENTS
As of December 31, 2012 and 2011, the Company had outstanding purchase commitments for inventory totaling $787,419 and $166,166, respectively. Of these amounts, the Company had made prepayments of $331,760 as of December 31, 2012 and $41,943 as of December 31, 2011 and had commitments for future cash outlays for inventory totaling $455,659 and $124,223, respectively.
F-38
OMNITEK ENGINEERING CORP.
Notes to the Financial Statements
December 31, 2012 and 2011
NOTE 8 - RELATED PARTY TRANSACTIONS
Accounts Receivable – Related Parties
During the years ended December 31, 2007 through 2010, the Company held 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 December 31, 2012 and 2011, the Company was owed $26,455 and $16,715 respectively, by 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 December 31, 2012 and 2011, the Company owed related parties for such expenses, goods and services in the amounts of $-0- and $2,568, respectively.
Accrued Compensation – Related Parties
During the year ended December 31, 2012 and 2011, related parties were due amounts for services performed for the Company. As of December 31, 2012 and 2011 the related parties’ payables consisted of the following:
|
December 31,
|
December 31,
|
|||||
|
2012
|
2011
|
|||||
|
Amounts due to the president
|
$ | 197,398 | $ | 271,253 | ||
|
Amounts due to other officers of the company
|
67,319 | 80,327 | ||||
|
Total
|
$ | 264,717 | $ | 351,580 | ||
NOTE 9 - NOTE 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 year ended December 31, 2012, the Company borrowed a total of $40,000, and accrued interest expense of $490. As of December 31, 2012 the Company has repaid all of the outstanding debt and now owes $-0- under the revolving line of credit. As stipulated by the note the 100,000 shares of common stock were issued in the Lender’s name. The note was repaid in full during the year ended December 31, 2012 and the shares were cancelled. The Company granted 5,000 stock purchase warrants as consideration for the funding of the revolving line of credit resulting in an expense of $15,428.
NOTE 10 – STOCKHOLDERS’ EQUITY
Common Stock
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 were $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.
F-39
OMNITEK ENGINEERING CORP.
Notes to the Financial Statements
December 31, 2012 and 2011
NOTE 10 – STOCKHOLDERS’ EQUITY (Continued)
Common Stock (Continued)
On February 2, 2012, the Company issued 9,525 shares of its common stock in consideration of the capital contribution of $20,000.
On February 13, 2012, the Company issued 100,000 shares of its common stock as collateral for cash advances received from a note lender. The note was repaid in full during the year ended December 31, 2012 and the shares were cancelled.
On May 20, 2011, the Company issued an aggregate of 300,000 shares of its common stock in consideration of the capital contribution of $150,000 and 700,000 shares of its common stock in consideration of the capital contribution of $87,500 upon the exercise of a warrant. On May 20, 2011, the Company issued an aggregate of 377,983 shares of its common stock upon the cashless exercise of warrants issued for services.
Options and Warrants
During the years ended December 31, 2012 and 2011, respectively, the Company granted 2,725,313 and -0- warrants for services and capital contributions, respectively. During the years ended December 31, 2012 and 2011, respectively, the Company recognized expense of $517,550 and $12,997 related to warrants that vested, respectively.
During the year ended December 31, 2011, the Company granted 700,000 previously expired options to a consultant. The fair value of the options granted was estimated on the date granted using the Black-Scholes pricing model, with the following assumptions used for the valuation: risk-free interest rate of 0.97%, expected dividend yield of zero, expected lives of one and one half years and expected volatility of 196.7%.
In connection with the Private Placement, the Company issued 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 further granted 5,000 stock purchase warrants as consideration to a note lender for the funding of the revolving line of credit. The Company recognized $517,550 of compensation expense for the warrants issued.
During the years ended December 31, 2012 and 2011, the Company granted 540,000 and -0- options for services, respectively. During the years ended December 31, 2012 and 2011, respectively, the Company recognized expense of $136,306 and $195,709 related to options that vested during the years, respectively.
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 December 31, 2012 the Company has a total of 3,160,000 options issued under the plan.
F-40
OMNITEK ENGINEERING CORP.
Notes to the Financial Statements
December 31, 2012 and 2011
NOTE 10 – STOCKHOLDERS’ EQUITY (Continued)
Options and Warrants (Continued)
A summary of the status of the options and warrants granted at December 31, 2012 and 2011, and changes during the years then ended is presented below:
|
December 31,
|
December 31,
|
|||||||||||||||
|
2012
|
2011
|
|||||||||||||||
|
Weighted-Average
|
Weighted-Average
|
|||||||||||||||
|
Shares
|
Exercise Price
|
Shares
|
Exercise Price
|
|||||||||||||
|
Outstanding at beginning of year
|
2,820,000 | $ | 0.73 | 5,870,000 | $ | 0.52 | ||||||||||
|
Granted
|
3,265,313 | 3.64 | - | - | ||||||||||||
|
Exercised
|
- | - | (1,177,983 | ) | 0.15 | |||||||||||
|
Expired or cancelled
|
- | - | (1,872,017 | ) | 0.43 | |||||||||||
|
Outstanding at end of year
|
6,085,313 | 2.29 | 2,820,000 | 0.73 | ||||||||||||
|
Exercisable
|
5,612,813 | $ | 2.09 | 2,820,000 | $ | 0.73 | ||||||||||
A summary of the status of the options and warrants outstanding at December 31, 2012 is presented below:
| Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life | Number Exercisable | Weighted-Average Exercise Price | |||||||||||
| $ | 0.01-0.50 | 200,000 |
1.78 years
|
200,000 | $ | 0.38 | |||||||||
| $ | 0.51-0.75 | 1,580,000 |
1.85 years
|
1,580,000 | 0.63 | ||||||||||
| $ | 0.76-1.00 | 1,040,000 |
1.85 years
|
1,040,000 | 0.94 | ||||||||||
| $ | 1.01-2.00 | 90,000 |
5.48 years
|
50,000 | 1.79 | ||||||||||
| $ | 2.01-3.00 | 455,000 |
6.81 years
|
22,500 | 2.59 | ||||||||||
| $ | 3.01-4.00 | 2,720,313 |
4.27 years
|
2,720,313 | 3.88 | ||||||||||
| $ | 0.01-1.00 | 6,085,313 |
3.35 years
|
5,612,813 | $ | 2.27 | |||||||||
F-41
OMNITEK ENGINEERING CORP.
Notes to the Financial Statements
December 31, 2012 and 2011
NOTE 11 – INCOME TAXES
The provision (benefit) for income taxes for the year ended December 31, 2012 and 2011 consists of the following:
|
December 31,
|
December 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Federal
|
||||||||
|
Current
|
$ | - | $ | - | ||||
|
Deferred
|
- | - | ||||||
|
State
|
||||||||
|
Current
|
800 | 800 | ||||||
|
Deferred
|
- | - | ||||||
| $ | 800 | $ | 800 | |||||
Net deferred tax assets consist of the following components as of December 31, 2012 and 2011:
|
December 31,
|
December 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net operating loss carryover
|
$ | 2,900,715 | $ | 815,946 | ||||
|
Depreciation
|
(94,454 | ) | (91,970 | ) | ||||
|
Research and development carry forward
|
136,465 | 136,465 | ||||||
|
Related party accruals
|
130,538 | 131,540 | ||||||
|
Inventory reserve
|
249,299 | 249,299 | ||||||
|
Allowance for doubtful accounts
|
33,605 | 33,605 | ||||||
|
Accrued compensation
|
47,090 | 80,967 | ||||||
|
Deferred tax liabilities:
|
||||||||
|
Valuation allowance
|
(3,403,258 | ) | (1,355,852 | ) | ||||
|
Net deferred tax asset
|
$ | - | $ | - | ||||
F-42
OMNITEK ENGINEERING CORP.
Notes to the Financial Statements
December 31, 2012 and 2011
NOTE 11 – INCOME TAXES (Continued)
The income tax provision differs from the amount of income tax determined by applying the estimated U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the year ended December 31, 2012 and 2011 due to the following:
|
December 31,
|
December 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Book loss
|
$ | (534,867 | ) | $ | (172,206 | ) | ||
|
Meals and entertainment
|
634 | 476 | ||||||
|
State tax deduction
|
312 | 312 | ||||||
|
Related party expense
|
(1,002 | ) | 17,865 | |||||
|
Stock/Options for services
|
255,004 | 81,395 | ||||||
|
Depreciation
|
(2,484 | ) | 21,111 | |||||
|
Accrued compensation
|
(33,877 | ) | - | |||||
|
Inventory reserve
|
- | - | ||||||
|
Research and development
|
(2,484 | ) | - | |||||
|
Net operating loss carryover
|
318,764 | 51,047 | ||||||
|
Income Tax Expense
|
$ | - | $ | - | ||||
At December 31, 2012, the Company had net operating loss carry forwards of approximately $2,900,715 through 2032. No tax benefit has been reported in the December 31, 2012 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
NOTE 12 – SUBSEQUENT EVENTS
On January 10, 2013, the Company entered into an operating lease for its operating facilities in California. Future payment obligations under the terms of the operating lease are as follows:
|
2013
|
$ | 139,568 | ||
|
2014
|
143,759 | |||
|
2015
|
148,071 | |||
|
2016
|
152,515 | |||
|
2017
|
157,080 | |||
|
Total
|
$ | 740,993 | ||
Management has evaluated subsequent events and has determined there are no additional material subsequent events to report.
AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Based on an evaluation as of the date of the end of the period covered by report, our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted 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 in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the internal control over financial reporting as of December 31, 2012, using the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting were effective as of the end of the period covered by this report.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of management’s assessment, management has determined that there is no material weakness
This Annual Report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter (our fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, 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 and includes those policies and procedures that:
|
|
(a)
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
|
|
|
(b)
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
|
|
|
(c)
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements.
|
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
Identify of directors and executive officers
Our current directors and executive officers are as follows:
|
Name
|
Age
|
Positions and Offices
|
Directorship Term
|
Period of Service
as a Director
|
||
|
Werner Funk
|
54
|
President, CEO, Secretary and Director
|
One Year
|
May 2001 to Present
|
||
|
Janice M. Quigley
|
65
|
Chief Financial Officer and Director
|
One Year
|
August 2003 to Present
|
||
|
George G. Chachas
|
50
|
Director
|
One Year
|
August 2012 to Present
|
||
|
Gary S. Maier
|
59
|
Director
|
One Year
|
August 2012 to Present
|
All of the Company’s directors hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified. The officers are appointed by our Board of Directors and hold office until their earlier death, retirement, resignation or removal.
Significant Employees
There are no significant employees other than Mr. Funk and Ms. Quigley.
Family Relationships
There are no family relationships between any directors or executive officers of the Company, either by blood or by marriage.
Business Experience
The business experience during the past five years of each of the persons presently listed above as an Officer or Director of the Company or a Significant Employee is as follows:
Werner Funk – Mr. Funk was born in Germany. He has been a Director and the CEO of Omnitek since its formation in May of 2001. Mr. Funk has over 30 years of experience in international business, manufacturing, engineering, marketing and internet commerce. He is responsible for management, marketing and new product design. Mr. Funk was educated in Germany where he attended high school and vocational college for automotive technology and graduated with honors receiving a bachelor degree in automotive technology. While living in Germany, he worked for Mercedes-Benz and was the assistant crew chief of a Porsche factory sponsored racing team. Mr. Funk moved to the United States in 1978, where upon he started Nology Engineering Inc., a California Corporation, which designs, manufactures and markets automotive products for the performance aftermarket. Mr. Funk is currently the CEO of Nology and Performance Stores. Mr. Funk is also the inventor of 7 registered and pending patents.
Janice M. Quigley – Mrs. Quigley was appointed as a Director and Chief Financial Officer of the Company on August 26, 2003, and is responsible for the financial reporting and personnel management of the Company. Mrs. Quigley, a native of San Francisco, California, had worked in the electronics industry for 27 years prior to relocating to San Diego in 1992. Mrs. Quigley joined Advantage Lift Systems, Inc. (a manufacturer of heavy-duty vehicle hoists) in 1993 as its controller. She was promoted to Chief Financial Officer in 1997 when the company acquired Globe Lifts (a manufacturer of light-duty vehicle hoists). She remained in that position until October of 2000 when the company was sold. Mrs. Quigley is also the CFO for Nology Engineering, Inc.
George G. Chachas – Mr. Chachas was appointed as a Director of the Company on August 3, 2012, and is the principal of Chachas Law Group with experience in the area of corporate law, securities, and mergers and acquisitions. Prior to establishing Chachas Law Group in 2006, Mr. Chachas was a partner of Wenthur & Chachas, LLP from 1993 through 2005. Mr. Chachas received a J.D. from California Western School of Law in 1987, and also holds a B.A. (Economics) from San Diego State University in 1985. Mr. Chachas was admitted to the California Bar in 1987, the District of Columbia Bar in 1989 and the State Bar of Colorado in 1994.
Gary S. Maier - Mr. Maier was appointed as a Director of the Company on August 3, 2012, and is an investor relations veteran with more than 25 years of industry experience. Prior to establishing Maier & Company, Inc. in 2003, he was a principal of another Los Angeles-based investor relations firm. He has counseled diverse clients ranging in size from multi-billion dollar organizations to emerging growth public and private companies across the country. His career includes positions with an international public relations firm and a proxy solicitation firm offering investor relations services, both based in New York, as well as a Chicago-based financial relations agency. He is a long-time member of the National Investor Relations Institute. His experience also includes local and national political campaigns – including serving as the Illinois deputy press secretary for Walter Mondale’s 1984 presidential campaign. Maier served as a board member for 18 years, including a term as president, of Veterans Park Conservancy, a non-profit community public/private partnership dedicated to the enhancement and preservation of four hundred acres of federal land to honor our nation’s veterans. He served for several years on the board of Southern California’s Colony Theater Company. Maier holds bachelor and master of philosophy degrees from Ohio University and completed course work toward a Ph.D. in philosophy at DePaul University. He served on the adjunct faculties of DePaul and LoyolaUniversity in Chicago and is a graduate of New York University’s Graduate School of Business Administration’s Careers in Business program.
Directorships
No Director of the Company or person nominated or chosen to become a Director holds any other directorship in any company with a class of securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of section 15(d) of such Act or any other company registered as an investment company under the Investment Company Act of 1940.
Involvement in Certain Legal Proceedings
During the past ten years, no present or former director, executive officer or person nominated to become a director or an executive officer of the Company has been or filed:
|
|
A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
|
|
|
Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
|
Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
|
|
|
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
|
|
|
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
|
|
|
Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
|
|
|
Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
|
|
|
Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
|
|
|
7.
|
Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
|
|
|
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
|
|
|
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
|
Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
Promoters and Control Persons
None.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and persons who own more than ten percent of the Company's Common Stock, to file initial reports of beneficial ownership on Form 3, changes in beneficial ownership on Form 4 and an annual statement of beneficial ownership on Form 5, with the SEC. Such executive officers, directors and greater than ten percent shareholders are required by SEC rules to furnish the Company with copies of all such forms that they have filed.
Based solely on its review of the copies of such forms filed with the SEC electronically, received by the Company and representations from certain reporting persons, the Company believes that for the fiscal year ended December 31, 2012, all the officers, directors and more than 10% beneficial owners complied with the above described filing requirements.
Code of Ethics
On August 3, 2012, the Company in accordance with Section 406 of the Sarbanes-Oxley Act of 2002 adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, and principal accounting officer that is reasonably designed to deter wrongdoing and to promote:
|
·
|
Honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest between personal and professional relationship;
|
|
·
|
Full, fair, accurate, timely and understandable disclosure in SEC reports and in other public communications;
|
|
·
|
Compliance with applicable governmental laws, rules and regulations;
|
|
·
|
Prompt internal reporting of violations of the code of ethics to appropriate person or persons identified in the code of ethics; and
|
|
·
|
Accountability for adherence to the code of ethics.
|
The description of the Code of Ethics contained in this report is qualified in its entirety by reference to the full text of the Code of Ethics filed as Exhibit 14.01 to that certain Current Report on Form 8-K filed August 7, 2012. The Code of Ethics shall be available on the Company's website at www.omnitekcorp.com
Audit Committee and Audit Committee Financial Expert
Our board of directors is comprised of four directors, two of which are outside independent directors, and as of the date hereof we have not established an audit committee. Accordingly, our board of directors presently performs the functions that would customarily be undertaken by an audit committee.
Summary Compensation Table
The following table sets forth the compensation paid to our Chief Executive Officer and those executive officers that earned in excess of $100,000 during the twelve month periods ended December 31, 2012 and 2011 (collectively, the “Named Executive Officers”):
|
Name and Principal Position
|
Year Ended Dec. 31
|
Salary
($)
|
Stock
Award(s)
($)
|
Option Awards $
|
Non-Equity Incentive Plan Compen-sation
|
All Other Compen-sation ($)
|
Total ($)
|
||||||||||||
|
(a)
|
(b)
|
(c)
|
(e)
|
(f)
|
(g)
|
(i)
|
(j)
|
||||||||||||
|
Werner Funk
|
2012
|
$ | 107,692 | $ | 18,556 | $ | 73,856 | $ | 200,104 | ||||||||||
|
Chairman, President,
|
2011
|
$ | 100,000 | $ | 38,192 | $ | 138,192 | ||||||||||||
|
CEO and Secretary
|
|||||||||||||||||||
|
Janice M. Quigley
|
2012
|
$ | 60,312 | $ | 4,359 | $ | 13,007 | $ | 77,678 | ||||||||||
|
Director and CFO
|
2011
|
$ | 57,027 | $ | 6,115 | $ | 63,142 | ||||||||||||
(1) These amounts represent previously accrued unpaid salary owed from prior fiscal years.
Narrative Disclosure to Summary Compensation Table
On July 26, 2012, the Company entered into an Employment Agreement with, and to continue the employment of, Werner Funk, the President and CEO of the Company. The term of Employment Agreement shall begin on November 1, 2012, (the “Effective Date”) following the expiration of the current employment agreement on October 31, 2012 and shall continue for a period of five years until October 31, 2017, unless terminated earlier pursuant to other provisions of the Agreement. During the Employment Period, the Company agrees to pay Mr. Funk a Base Salary as follows:
November 1, 2012 through October 31, 2013 ……… $150,000 per year;
November 1, 2013 through October 31, 2014 ……… $175,000 per year;
November 1, 2014 through October 31, 2015 ……… $200,000 per year;
November 1, 2015 through October 31, 2016 ……… $225,000 per year; and
November 1, 2016 through October 31, 2017 ……… $250,000 per year.
In addition, the Company shall grant Mr. Funk a Stock Option pursuant to the 2011 Long-Term Incentive Plan, to purchase 400,000 shares of common stock, at an exercise price of $2.56 per share representing 110% of the average of the closing price of the common stock as reported on the OTCBB for the prior 30 day period. One-sixtieth (1/60) of the total number of shares subject to the Options shall vest and become exercisable at the end of each month following the Effective Date on the same day of each month as the Effective Date, so that all shares subject to the Options will be fully vested on the fourth anniversary of the Effective Date. The Options will be exercisable for a period of seven years from the Effective Date.
On July 26, 2012, the Company also entered into an Employment Agreement with, and to continue the employment of, Janice M. Quigley, the Vice President and Chief Financial Officer of the Company. The term of Employment Agreement shall begin on November 1, 2012, (the “Effective Date”) following the expiration of the current employment agreement on October 31, 2012 and shall continue for a period of two years until October 31, 2014, unless terminated earlier pursuant to other provisions of the Agreement. During the Employment Period, the Company agrees to pay Mrs. Quigley a Base Salary of $60,000 per year.
In addition, the Company shall grant Mrs. Quigley a Stock Option pursuant to the 2011 Long-Term Incentive Plan, to purchase 50,000 shares of common stock, at an exercise price of $2.56 per share representing 110% of the average of the closing price of the common stock as reported on the OTCBB for the prior 30 day period. One-twenty-fourth (1/24) of the total number of shares subject to the Options shall vest and become exercisable at the end of each month following the Effective Date on the same day of each month as the Effective Date, so that all shares subject to the Options will be fully vested on the second anniversary of the Effective Date. The Options will be exercisable for a period of seven years from the Effective Date.
Copies of Mr. Funk and Mrs. Quigley’s Employment Agreements were filed as Exhibit 10.01 and 10.02 on Form 8-K dated August 1, 2012. The foregoing descriptions of the Employment Agreements are qualified in its entirety by reference to the full text of such agreements.
No Named Executive Officer exercised any options or SARs during the last completed fiscal year or owned any unexercised options or SARs at the end of the fiscal year.
There are no agreements or understandings for any executive officer to resign at the request of another person. None of our executive officers acts or will act on behalf of or at the direction of any other person.
Compensation of Directors
There was no compensation paid to any director who was a Named Executive Officer during the year ended December 31, 2012. The two outside independent directors received each, a non-qualified stock option grant to purchase twenty-five thousand (25,000) shares of the Company’s common stock at an exercise price of $1.79 per share (i.e. eighty-five percent (85%) of the closing price of the Company’s common stock as of August 3, 2012). Such Options shall be exercisable for a period of five years. The Option shall vest and be exercisable immediately.
There are no employment contracts, compensatory plans or arrangements, including payments to be received from the Company with respect to any Director that would result in payments to such person because of his or her resignation with the Company, or its subsidiaries, any change in control of the Company. There are no agreements or understandings for any Director to resign at the request of another person. None of our Directors or executive officers acts or will act on behalf of or at the direction of any other person.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2012.
The following table provides information for the named executive officers on stock option holdings as of the end of 2012.
|
Name
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity Incentive
plan awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
|
Option Exercise
Price
($)
|
Option
Expiration Date
|
|
Werner Funk
|
400,000
|
0
|
0
|
$0.5250
|
11/7/2014
|
|
Werner Funk
|
400,000
|
0
|
0
|
$0.6250
|
11/7/2014
|
|
Werner Funk
|
400,000
|
0
|
0
|
$0.7500
|
11/7/2014
|
|
Werner Funk
|
400,000
|
0
|
0
|
$0.8750
|
11/7/2014
|
|
Werner Funk
|
400,000
|
0
|
0
|
$1.00
|
11/7/2014
|
|
Werner Funk
|
13,333
|
0
|
386,667
|
$2.56
|
7/26/2019
|
|
Janice M. Quigley
|
120,000
|
0
|
0
|
$0.5250
|
11/7/2014
|
|
Janice M. Quigley
|
120,000
|
0
|
0
|
$0.6250
|
11/7/2014
|
|
Janice M. Quigley
|
120,000
|
0
|
0
|
$0.7500
|
11/7/2014
|
|
Janice M. Quigley
|
120,000
|
0
|
0
|
$0.8750
|
11/7/2014
|
|
Janice M. Quigley
|
120,000
|
0
|
0
|
$1.00
|
11/7/2014
|
|
Janice M. Quigley
|
4,166
|
0
|
45,834
|
$2.56
|
7/26/2019
|
On September 1, 2006, the Board of Directors adopted the Omnitek Engineering Corp. 2006 Long-term Incentive Plan (the “2006 Plan”), under which 1,000,000 shares of Company’s Common Stock were reserved for issuance by the company to attract and retain employees and directors of the Company and to provide such persons with incentives and awards for superior performance and providing services to the Company. The 2006 Plan is administered by a committee comprised of the Board of Directors of the Company or appointed by the Board of Directors, which has broad flexibility in designing stock-based incentives. The Board of Directors determines the number of shares granted and the option exercise price, pursuant to the terms of the Plan. On November 30, 2007, the Board of Directors authorized the increase of shares available under the 2006 Plan to 10,000,000 post-split adjusted shares.
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 by the company to attract and retain employees and directors of the Company and to provide such persons with incentives and awards for superior performance and providing services to the Company. The 2011 Plan is administered by a committee comprised of the Board of Directors of the Company or appointed by the Board of Directors, which has broad flexibility in designing stock-based incentives. The Board of Directors determines the number of shares granted and the option exercise price, pursuant to the terms of the Plan.
Security Ownership of Certain Beneficial Owners
The following table sets forth the amount and nature of beneficial ownership of any class of the Company’s voting securities of any person known to the Company to be the beneficial owner of more than five percent, as of the close of business on December 31, 2012.
|
(1)
|
(2)
|
(3)
|
(4)
|
|||
|
Title of
Class
|
Name and
Address of
Beneficial
Owner
|
Amount and
Nature of
Beneficial
Owner
|
Percent of
Class
|
|||
|
Common Stock
|
Werner Funk Trust UDT 9/25/07
1333 Keystone Way, Suite 101
Vista, CA 92081
|
10,383,325(1) (2)
|
52.6%
|
|||
|
Common Stock
|
Garber Family Trust U/D/T 07/30/1992
78-166 Bovee Circle
Palm Desert, CA 92211
|
3,133,965(3)
|
15.9%
|
(1) This amount includes currently vested options to purchase 2,013,333 shares of Common Stock.
(2) Werner Funk, the Trustee of the Werner Funk Trust UDT 9/25/07 has sole voting and dispositive power of said shares.
(3) John Garber, the Trustee of the Garber Family Trust U/D/T 07/30/1992, has sole voting and dispositive power as to all of the shares.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
Security Ownership of Management
The following table sets forth the amount and nature of beneficial ownership of any class of the Company’s voting securities of all of the Company’s current directors and executive officers, as of the close of business on December 31, 2012.
|
(1)
|
(2)
|
(3)
|
(4)
|
|||
|
Title of
Class
|
Name and
Address of
Beneficial
Owner
|
Amount and
Nature of
Beneficial
Owner
|
Percent of
Class
|
|||
|
Common Stock
|
Werner Funk Trust UDT 9/25/07
1333 Keystone Way, Suite 101
Vista, CA 92081
|
10,383,325 (1) (2)
|
52.6%
|
|||
|
Common Stock
|
Janice M. Quigley
1333 Keystone Way, Suite 101
Vista, CA 92081
|
769,166(3)
|
3.9%
|
|||
|
Common Stock
|
George G. Chachas
3033 Fifth Avenue
San Diego, CA 92103
|
145,000(4)
|
0.7%
|
|||
|
Common Stock
|
Gary S. Maier
815 Moraga Drive, Suite 306
Los Angeles, CA 90049
|
45,000(4)
|
0.2%
|
|||
|
Common Stock
|
Directors and Executive
Officers as a Group (4 persons)
|
11,342,491
|
57.4%
|
(1) This amount includes currently vested options to purchase 2,013,333 shares of Common Stock.
(2) Werner Funk, the Trustee of the Werner Funk Trust UDT 9/25/07 has sole voting and dispositive power of said shares.
(3) This amount includes currently vested options to purchase 604,166 shares of Common Stock.
(4) This mount included currently vested options to purchase 45,000 shares of Common Stock.
Changes in Control
To the best of the Company’s knowledge there are no present arrangements or pledges of the Company's securities, which may result in a change in control.
Transactions with Related Persons
Werner Funk, the President and CEO of Omnitek, is the principal shareholder and the President, CEO, Secretary and a Director of Nology Engineering, Inc., a non-public California corporation that designs, manufactures and markets automotive products for the performance aftermarket Mr. Funk is also a shareholder, the President, CEO, Secretary and a Director of Performance Stores, Inc., a Nevada corporation, which is an internet based e-commerce site selling automotive performance parts.
Jan Quigley, the CFO of Omnitek, is a shareholder and also serves as the CFO and a Director of Nology Engineering, Inc.
The Company has not been a party to any transactions between persons who were executive officers, directors, or principal stockholders of our corporation during the fiscal years ended December 31, 2012 and 2011.
Except as set forth above, none of the following parties have, since our date of incorporation, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us.
Review, Approval or Ratification of Transactions with Related Persons
Not Applicable.
Promoters and Certain Control Persons
There have been no material transactions, series of similar transactions, currently proposed transactions, or series of similar transactions, to which the Company is to be a party, in which any promoter or founder, or any member of the immediate family of any of the foregoing persons, had a material interest.
Director Independence
The Board has determined that two of the Company’s Directors have met the independence requirements based upon the application of objective categorical standards adopted by the Board. In making a determination regarding a Director’s independence, the Board considers all relevant facts and circumstances, including the Director’s commercial, banking, consulting, legal, accounting, charitable and familial relationships and such other criteria as the Board may determine from time to time.
Audit Fees
During the fiscal year ended December 31, 2012, we incurred approximately $22,000 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended December 31, 2012.
During the fiscal year ended December 31, 2011, we incurred approximately $33,266 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended December 31, 2011.
Audit-Related Fees
The aggregate fees billed during the fiscal years ended December 31, 2012 and 2011 for assurance and related services by our principal independent accountants that are reasonably related to the performance of the audit or review of our financial statements (and are not reported under Item 9(e)(1) of Schedule 14A was $0 and $0, respectively.
Tax Fees
The aggregate fees billed during the fiscal years ended December 31, 2012and 2011 for professional services rendered by our principal accountant tax compliance, tax advice and tax planning was $573 and $785, respectively.
All Other Fees
The aggregate fees billed during the fiscal years ended December 31, 2012 and 2011 for products and services provided by our principal independent accountants (other than the services reported in Items 9(e)(1) through 9(e)(3) of Schedule 14A was $8,265 and $6,787, respectively.
PART IV.
(a) Financial Statements.
(i) The Balance Sheet of Omnitek Engineering Corp. as of December 31, 2012 and 2011, the Statements of Operations for the years ended December 31, 2012 and 2011, the Statements Stockholders’ Equity (Deficit) from December 31, 2009 to December 31, 2012, and of Cash Flows for the years ended December 31, 2012 and 2011, and together with the notes thereto and the reports of Sadler, Gibb & Associates thereon appear in Item 8 and are included in this report.
(b) 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
|
|
31.01
|
Certification of CFO Pursuant to Rule 13a-14(a) and 15d-14(a), filed herewith
|
|
31.02
|
Certification of CFO Pursuant to Rule 13a-14(a) and 15d-14(a), filed herewith
|
|
32.01
|
Certification Pursuant to Section 1350 of Title 18 of the United States Code, filed herewith
|
All exhibits are numbered with the number preceding the decimal indicating the applicable SEC reference number in Item 601 and the number following the decimal indicating the sequence of the particular document.
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: March 18, 2013
|
|
 |
|
| By: Werner Funk | |||
| Its: President and Secretary | |||
| CEO and Principal Executive Officer | |||
|
Dated: March 18, 2013
|
|
/s/ Janice M. Quigley | |
|
By: Janice M. Quigley
|
|||
|
Its: Chief Financial Officer
|
|||
| and Principal Accounting Officer | |||
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
|
Dated: March 18, 2013
|
|
|
|
|
Werner Funk, Director
|
|||
|
Dated: March 18, 2013
|
|
/s/ Janice M. Quigley | |
|
Janice M. Quigley, Director
|
|||
|
Dated: March 18, 2013
|
/s/ George G. Chachas | ||
| George G. Chachas, Director |
Page 56 of 56