| NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition In general, revenue is recognized when control of the promised goods is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for the goods or services. In order to achieve that core principle, a five-step approach is applied: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue allocated to each performance obligation when we satisfy the performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue recognition. We recognize revenue on various products and services as follows: Products Contracts NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) claims, including those changes arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good Performance Obligations Satisfied Over Time Revenues for Omnitek’s long-term contracts that satisfy the criteria for over time recognition (formerly known as percentage-of-completion method) is recognized as the work progresses. The majority of the revenue is derived from long-term engine development agreements that typically span between 12 to 24 months. Omnitek’s long-term contracts will continue to be recognized over time because our typical contract is for a customized asset with no alternative use and generally the Company has a right to payment for work completed to date. Under the new revenue standard, the cost-to-cost measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as the Company incurs costs. Contract costs include labor and material. Revenue from products and services transferred to customers over time accounted for 0% and 0% of revenue for the periods ended June 30, 2021 and 2020, 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 100% of revenue for the periods ended June 30, 2021 and 2020, 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 Variable Consideration NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Disaggregation of Revenue The following table presents Omnitek’s revenues disaggregated by region and product type for the three months ended June 30, 2021 and June 30, 2020: For the three months ended June 30, For the three months ended June 30, 2021 2020 Consumer Long-term Consumer Long-term Segments Products Contract Total Products Contract Total Domestic $ 101,088 - 101,088 187,810 - 187,810 International 127,220 - 127,220 16,157 - 16,157 $ 228,307 - 228,307 203,967 - 203,967 Filters $ 106,051 - 106,051 52,001 - 52,001 Components 122,257 - 122,257 151,966 - 151,966 Engineering Services - - - - - - $ 228,307 - 228,307 203,967 - 203,967 The following table presents Omnitek’s revenues disaggregated by region and product type for the six months ended June 30, 2021 and June 30, 2020: For the six months ended June 30, For the six months ended June 30, 2021 2020 Consumer Long-term Consumer Long-term Segments Products Contract Total Products Contract Total Domestic $ 233,869 - 233,869 366,037 - 366,037 International 212,551 - 212,551 68,867 - 68,867 $ 446,420 - 446,420 434,904 - 434,904 Filters $ 210,407 - 210,407 163,942 - 163,942 Components 227,543 - 227,543 270,962 - 270,962 Engineering Services 8,470 - 8,470 - - - $ 446,420 - 446,420 434,904 - 434,904 NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Inventory Inventory is stated at the lower of cost or market. The Company’s inventory consists of finished goods and raw material and is located in Vista, California, consisting of the following: June 30, December 31, Location : Vista, CA 2021 2020 Raw materials $ 849,473 $ 917,567 Finished goods 884,145 962,608 Work in progress - - Allowance for obsolete inventory (969,354) (1,058,309) Total $ 764,264 $ 821,866 The Company has established an allowance for obsolete inventory. Expense for obsolete inventory was $50,542 and $50,053, for the periods ended June 30, 2021 and June 30, 2020, respectively. Property and Equipment Property and equipment at June 30, 2021 and December 31, 2020 consisted of the following: June 30, December 31, 2021 2020 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 (147,049) (146,778) Total $ 995 $ 1,266 Depreciation expense for the periods ended June 30, 2021 and June 30, 2020 was $271 and $271, 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 3,023,889 and 2,807,223 stock options that would have been included in the fully diluted earnings per share as of June 30, 2021 and June 30, 2020, 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 June 30, 2021 and December 31, 2020 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 June 30, 2021, the Company had an accumulated deficit of $21,555,217 and total stockholders’ deficit of $(949,835). At June 30, 2021, the Company had current assets of $867,014 including cash of $20,652, and current liabilities of $1,533,588, resulting in negative working capital of $(666,574). For the six months ended June 30, 2021, the Company reported a net loss of $89,576 and net cash used in operating activities of $189,751. Management believes that based on its operating plan, the projected sales for 2021, 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 for one year from the issuance of these financial statements. 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. |
