| NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition I We
recognize revenue on various products and services as follows: Products Contracts Performance Obligations A
performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account
in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized
as revenue when, or as, the performance obligation is satisfied. The majority of Omnitek’s contracts
have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable
from other promises in the contracts and, therefore, not distinct. Performance
Obligations Satisfied Over Time Revenues
for Omnitek’s long-term contracts that satisfy the criteria for over time recognition (formerly known as percentage-of-completion
method) is recognized as the work progresses. The majority of the revenue is derived from long-term engine development agreements
that typically span between 12 to 24 months. Omnitek’s long-term contracts will continue to be recognized over time because
our typical contract is for a customized asset with no alternative use and generally the Company has a right to payment for work
completed to date. Under the new revenue standard, the cost-to-cost measure of progress continues to best depict the transfer of
control of assets to the customer, which occurs as the Company incurs costs. Contract costs include labor and material. Revenue
from products and services transferred to customers over time accounted for 0% and 6% of revenue for the periods ended September
30, 2020 and 2019, respectively. Performance
Obligations Satisfied at a Point in Time Revenue
from product sales is recognized at a point in time. These sales predominantly contain a single delivery element and revenue is
recognized at a single point in time when ownership, risk and rewards transfer. Upon fulfilment of the performance obligation,
the customer is provided an invoice demonstrating transfer of control to the customer. Revenue from goods and services transferred
to customers at a point in time accounted for 100% and 94% of revenue for the periods ended September 30, 2020 and 2019, respectively. Assurance-type
warranties are the only warranties provided by the Company and, as such, Omnitek does not recognize revenue on warranty-related
work. Omnitek generally provides a one-year warranty for products that it sells. Warranty claims historically have been insignificant. Pre-contract costs are generally not incurred
by the Company Contract Estimates Accounting
for long-term contracts involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts,
Omnitek estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete
a contract and recognizes that profit over the life of the contract. Variable
Consideration The
transaction price for contracts may include variable consideration, which includes increases to transaction price for approved
and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. Variable consideration
historically has been insignificant. Disaggregation of Revenue The following table presents
Omnitek’s revenues disaggregated by region and product type for the three months ended September 30, 2020 and September 30,
2019:
For the three months
ended September 30,
For the three months
ended September 30,
2020 2019
Consumer Long-term Consumer Long-term
Segments Products Contract Total Products Contract Total
Domestic $ 117,632 - 117,632 $ 99,423 - 99,423
International 98,235 - 98,235 37,029 - 37,029
$ 215,867 - 215,867 $ 136,452 - 136,452
Filters $ 45,561 - 45,561 $ 35,478 - 35,478
Components 170,306 - 170,306 100,974 - 100,974
Engineering Services - - - - - -
$ 215,867 - 215,867 $ 136,452 - 136,452
The following table presents Omnitek’s
revenues disaggregated by region and product type for the nine months ended September 30, 2020 and September 30, 2019:
For the nine months ended September 30, For the nine months ended September 30,
2020 2019
Consumer Long-term Consumer Long-term
Segments Products Contract Total Products Contract Total
Domestic $ 463,971 - 463,971 $ 320,349 - 320,349
International 186,800 - 186,800 387,373 44,474 431,847
$ 650,771 - 650,771 $ 707,722 44,474 752,196
Filters $ 209,593 - 209,593 $ 452,728 - 452,728
Components 441,178 - 441,178 254,994 - 254,994
Engineering Services - - - - 44,474 44,474
$ 650,771 - 650,771 $ 707,722 44,474 752,196 Inventory Inventory is stated
at the lower of cost or market. The Company’s inventory consists of finished goods and raw material and is located
in Vista, California, consisting of the following:
September 30, December 31,
Location : Vista, CA 2020 2019
Raw materials $ 913,795 $ 935,834
Finished goods 1,030,045 1,073,623
Work in progress - 1,800
Allowance for obsolete inventory (1,038,573) (988,892)
Total $ 905,267 $ 1,022,365 The Company has established an allowance
for obsolete inventory. Expense for obsolete inventory was $49,681 and $26,667, for the periods ended September 30,
2020 and September 30, 2019, respectively. Property and Equipment Property and equipment at September 30, 2020
and December 31, 2019 consisted of the following:
September 30, December 31,
2020 2019
Production equipment $ 64,673 $ 64,673
Computers/Office equipment 28,540 28,540
Tooling equipment 12,380 12,380
Leasehold Improvements 42,451 42,451
Less: accumulated depreciation (146,642) (146,235)
Total $ 1,402 $ 1,809 Depreciation expense for the periods ended
September 30, 2020 and September 30, 2019 was $407 and $431, respectively. Basic and Diluted Loss per Share The computation of basic earnings per share
of common stock is based on the weighted average number of shares outstanding during the periods presented. The computation of
fully diluted earnings per share includes common stock equivalents outstanding at the balance sheet date. The Company had 2,857,223
and 2,970,140 stock options that would have been included in the fully diluted earnings per share as of September 30, 2020 and
September 30, 2019, respectively. However, the common stock equivalents were not included in the computation of the
loss per share computation because they are anti dilutive. Income Taxes The Company accounts for income taxes in accordance
with Accounting Standards Codification Topic 740, Income Taxes ("Topic 740"), which requires the recognition of deferred
tax liabilities and assets at currently enacted tax rates for the expected future tax consequences of events that have been included
in the financial statements or tax returns. A valuation allowance is recognized to reduce the net deferred tax asset to an amount
that is more likely than not to be realized. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED) Topic 740 provides guidance on the accounting
for uncertainty in income taxes recognized in a company's financial statements. Topic 740 requires a company to determine whether
it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position.
If the more likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the
financial statements. The Company includes interest and penalties
arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of September
30, 2020 and December 31, 2019 the Company had no accrued interest or penalties related to uncertain tax positions. The Company
files an income tax return in the U.S. federal jurisdiction and the state of California. With few exceptions, the Company is no
longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2012. Liquidity and Going Concern Historically, the Company
has incurred net losses and negative cash flows from operations. As of September 30, 2020, the Company had an accumulated
deficit of $21,329,300 and total stockholders’ deficit of $(739,481). At September 30, 2020, the Company had current
assets of $1,007,140 including cash of $38,542, and current liabilities of $1,520,607, resulting in negative working capital of
$(513,467). For the nine months ended September 30, 2020, the Company reported a net loss of $353,371 and net cash used in
operating activities of $269,694. Management believes that based on its operating plan, the projected sales for 2020, combined
with funds available from its working capital will be sufficient to fund operations for the next twelve months. However,
there can be no assurance that operations and operating cash flows will continue at the current levels or improve in the near future. Whether,
and when, the Company can attain profitability and positive cash flows from operations is uncertain. The Company is also uncertain
whether it can raise additional capital. These uncertainties cast significant doubt upon the Company’s ability to continue
as a going concern. Our financial statements have been prepared on a going concern basis, which assumes the realization of assets
and liquidation of liabilities in the normal course of operations. The financial statements do not include any adjustments relating
to the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities should we be
unable to continue as a going concern. Recent Accounting Pronouncements The Company has evaluated recent accounting
pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position,
or statements. |
