10-Q: Omnitek Reports Q3 Profit Amid Revenue Growth, Liquidity Concerns Persist

Omnitek Engineering Corp. reported a significant shift to net profit for the nine months ended September 30, 2025, driven by substantial revenue growth, despite ongoing negative working capital and a material weakness in internal controls.

Summary

• Omnitek Engineering Corp. achieved a net profit of $240,968 for the nine months ended September 30, 2025, a significant improvement from a net loss of $207,655 in the prior year.
• Revenues for the nine-month period increased by 61% to $1,261,765, up from $781,412 in the same period last year, primarily due to product mix.
• Gross margin percentage improved to 42% for the nine months ended September 30, 2025, compared to 40% in the prior year.
• Operating expenses decreased by 5% to $483,489 for the nine-month period.
• The company continues to operate with negative working capital, totaling $(1,030,615) as of September 30, 2025.
• Cash at the end of the period decreased to $39,241 from $104,445 at December 31, 2024.
• Net cash used in operating activities increased to $(137,204) for the nine months ended September 30, 2025, compared to $(26,295) in the prior year.
• Management has concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to a material weakness related to a lack of proper segregation of duties.
• The company faces a legal proceeding with a trial date set for December 8, 2025, where it is a cross-defendant in a dispute alleging overcharging.

Sentiment

Score: 6

Explanation: The company demonstrated strong financial performance with a significant shift to net profit and substantial revenue growth. However, persistent negative working capital, declining cash reserves, increased cash burn from operations, and a disclosed material weakness in internal controls, coupled with a going concern warning, temper the overall positive sentiment.

Positives

• Shifted from a net loss of $207,655 to a net profit of $240,968 for the nine months ended September 30, 2025.
• Achieved substantial revenue growth of 61% for the nine-month period, reaching $1,261,765.
• Improved gross margin percentage to 42% for the nine months ended September 30, 2025, up from 40% in the prior year.
• Operating expenses decreased by 5% for the nine-month period, contributing to improved profitability.
• Reduced total stockholders' deficit to $(1,102,360) from $(1,347,464) at December 31, 2024.

Negatives

• Maintained negative working capital of $(1,030,615) as of September 30, 2025.
• Cash balance decreased significantly to $39,241 from $104,445 at the beginning of the year.
• Net cash used in operating activities increased to $(137,204) for the nine months ended September 30, 2025, indicating higher cash burn.
• Management identified a material weakness in internal controls over financial reporting due to a lack of proper segregation of duties.
• Accrued management compensation increased to $639,196 from $636,311.
• Notes payable to related parties increased to $116,940 from $44,940.

Risks

• Substantial doubt exists regarding the company's ability to continue as a going concern for a period of one year from the issuance of these financial statements.
• The company may need to raise additional capital through equity sales or strategic partnerships, with no assurance of availability or acceptable terms.
• A material weakness in internal control over financial reporting, specifically a lack of proper segregation of duties, creates a reasonable possibility of material misstatements not being prevented or detected.
• The company is a cross-defendant in a legal proceeding alleging overcharging, with a trial date set for December 8, 2025, which could result in adverse financial outcomes.

Future Outlook

Management believes that based on its operating plan and projected sales for 2025, combined with available working capital, funds will be sufficient to cover operations for the next twelve months. However, there is no assurance that operations and cash flows will continue at current levels or improve, and the company is uncertain whether it can raise additional capital, casting substantial doubt on its ability to continue as a going concern.

Management Comments

• Management believes that based on its operating plan, the projected sales for 2025, combined with funds available from its working capital will be sufficient to fund operations for the next twelve months.
• There can be no assurance that operations and operating cash flows will continue at the current levels or improve in the near future.
• The company is also uncertain whether it can raise additional capital.
• The material weakness, which relates to internal control over financial reporting, that was identified is: due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process.

Industry Context

Omnitek Engineering operates in the alternative fuels engines industry, developing technology to convert diesel engines to various alternative fuels like CNG, LNG, RNG, Hydrogen, and LPG. This sector is driven by increasing demand for cleaner energy solutions and regulatory pressures for reduced emissions in transportation and stationary applications. The company's revenue growth, particularly in international markets, suggests a positive trend in the adoption of its alternative fuel technologies, aligning with broader industry shifts towards sustainable power solutions.

Management Changes

Corporate Governance

Legal Proceedings

• The company is a cross-defendant in the matter of Olson-Ecologic Engine Testing Laboratories, LLC -vMichael Naylor, Omnitek Engineering Corp., and Moto Concerto, Inc., filed in the Superior Court of the State of California, County of Orange, Central Justice Center, Case No. 30-2020-01171344.
• Olson-Ecologic alleges that Omnitek participated with Mr. Naylor in overcharging Olson-Ecologic related to a grant project from the California Energy Commission.
• Omnitek denies the allegations, stating they are without merit, and intends to vigorously defend the cross-complaint.
• The trial date for this proceeding is set for December 8, 2025.

Related Party Transactions

• Accounts payable to related parties decreased to $38,502 as of September 30, 2025, from $139,834 at December 31, 2024.
• Accounts receivable from related parties increased to $18,167 as of September 30, 2025, from $3,088 at December 31, 2024, owed by an entity controlled by the company's CEO.
• Accrued management compensation due to the president increased to $639,196 as of September 30, 2025, from $636,311 at December 31, 2024.
• Notes payable to related parties increased to $116,940 as of September 30, 2025, from $44,940 at December 31, 2024, primarily due to additional loans from the CEO.
• A convertible promissory note for $10,000 to a board member was extended until December 4, 2025.
• A non-cash financing activity involved trade payable forgiveness from a related party totaling $(106,450).

Stakeholder Impact

• Shareholders face potential dilution if the company pursues equity capital raises to address liquidity needs.
• Shareholders are exposed to risks associated with the ongoing legal proceeding and the material weakness in internal controls.
• Employees, particularly management, have significant accrued compensation and related party notes, which could be a point of concern regarding corporate governance and cash flow.
• Creditors, including the SBA and related parties, face risks due to the company's negative working capital and going concern uncertainty.

Next Steps

• Vigorously defend against the cross-complaint in the legal proceeding, with a trial date set for December 8, 2025.
• Address the material weakness in internal controls over financial reporting related to segregation of duties.
• Potentially seek additional financing through equity capital markets or strategic partnerships to support growth and operations.

Key Dates

Recommendation

While Omnitek Engineering Corp. demonstrated a significant turnaround to net profitability and strong revenue growth for the nine-month period, these positives are substantially offset by critical concerns. The company's persistent negative working capital, declining cash reserves, increased cash burn from operations, and an explicit 'going concern' warning indicate severe liquidity challenges. Furthermore, the disclosed material weakness in internal controls over financial reporting due to a lack of segregation of duties raises serious governance and financial reporting reliability issues. An ongoing legal proceeding adds another layer of uncertainty. For existing investors, holding the stock might be justified by the recent profit and revenue growth, hoping for a resolution to the liquidity and control issues. However, for new investors, the high level of risk associated with the going concern warning and internal control deficiencies makes a 'buy' recommendation inappropriate at this time. A 'sell' recommendation is not warranted given the positive shift in profitability, but the risks are too substantial to ignore.

Keywords

Omnitek Engineering, alternative fuel engines, CNG, LNG, RNG, Hydrogen, LPG, diesel conversion, SEC filing, 10-Q, financial results, profit, revenue growth, liquidity, going concern, internal controls, related party transactions, stock options