| 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 n
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 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 7% of revenue for the periods ended June 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 93% of revenue for the periods ended June 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 June 30,
2020 and June 30, 2019:
For
the three months ended June
30, For
the three months ended June
30,
2020 2019
Consumer Long-term Consumer Long-term
Segments Products Contract Total Products Contract Total
Domestic $ 187,810 - 187,810 $ 100,568 - 100,568
International 16,157 - 16,157 145,064 18,764 163,828
$ 203,967 - 203,967 $ 245,632 18,764 264,396
Filters $ 52,001 - 52,001 $ 175,736 - 175,736
Components 151,966 - 151,966 69,896 - 69,896
Engineering
Services - - - - 18,764 18,764
$ 203,967 - 203,967 $ 245,632 18,764 264,396
The
following table presents Omnitek’s revenues disaggregated by region and product type for the six months ended June 30, 2019
and June 30, 2018:
For
the six months ended June 30, For
the six months ended June 30,
2020 2019
Consumer Long-term Consumer Long-term
Segments Products Contract Total Products Contract Total
Domestic $ 366,037 - 366,037 $ 220,926 - 220,926
International 68,867 - 68,867 350,344 44,474 394,818
$ 434,904 - 434,904 $ 571,270 44,474 615,744
Filters $ 163,942 - 163,942 $ 415,624 - 415,624
Components 270,962 - 270,962 155,646 - 155,646
Engineering
Services - - - - 44,474 44,474
$ 434,904 - 434,904 $ 571,270 44,474 615,744 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 2020 2019
Raw
materials $ 928,248 $ 935,834
Finished
goods 1,047,007 1,073,623
Work
in progress - 1,800
Allowance
for obsolete inventory (1,038,945) (988,892)
Total $ 936,310 $ 1,022,365 The
Company has established an allowance for obsolete inventory. Expense for obsolete inventory was $50,053 and $50,000,
for the periods ended June 30, 2020 and June 30, 2019, respectively. Property
and Equipment Property
and equipment at June 30, 2020 and December 31, 2019 consisted of the following:
June
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 (146,506) (146,235)
Total $ 1,538 $ 1,809 Depreciation
expense for the periods ended June 30, 2020 and June 30, 2019 was $271 and $296, 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 2,807,223 and 2,978,890 stock options that would have been included in the fully diluted earnings
per share as of June 30, 2020 and June 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. 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, 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 June 30, 2020, the Company had an accumulated
deficit of $21,235,131 and total stockholders’ deficit of $(647,001). At June 30, 2020, the Company had current assets
of $1,124,427 including cash of $107,032, and current liabilities of $1,539,417, resulting in negative working capital of $(414,990). For
the six months ended June 30, 2020, the Company reported a net loss of $259,202 and net cash used in operating activities of $201,204. 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. |
