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 - The Company recognizes revenue from the sale of products (e.g., filters and engine components) as performance obligations are satisfied. This type of revenue is primarily generated from the sale of finished product to customers. Those sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks and rewards transfer (i.e., the performance obligation has been satisfied). Contracts  Revenues are recognized as performance obligations are satisfied over time (also known as percentage-of-completion method), measured by either achievement of milestones or the ratio of costs incurred up to a given date to estimated total costs for each contract. Contract costs include all direct material, labor, subcontract and other costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, estimated profitability and associated change orders and 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 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 Omniteks 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 Omniteks 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. Omniteks 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 6% and 0% of revenue for the periods ended September 30, 2019 and 2018, 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 94% and 100% of revenue for the periods ended September 30, 2019 and 2018, 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 Omniteks revenues disaggregated by region and product type for the three months ended September 30, 2019 and September 30, 2018: For the three months ended September 30, For the three months ended September 30, 2019 2018 Consumer Long-term Consumer Long-term Segments Products Contract Total Products Contract Total Domestic $ 99,423 - 99,423 $ 108,160 - 108,160 International 37,029 - 37,029 172,407 - 172,407 $ 136,452 - 136,452 $ 280,567 - 280,567 Filters $ 35,478 - 35,478 $ 180,549 - 180,549 Components 100,974 - 100,974 100,018 - 100,018 Engineering Services - - - - - - $ 136,452 - 136,452 $ 280,567 - 280,567 The following table presents Omniteks revenues disaggregated by region and product type for the nine months ended September 30, 2019 and September 30, 2018: For the nine months ended September 30, For the nine months ended September 30, 2019 2018 Consumer Long-term Consumer Long-term Segments Products Contract Total Products Contract Total Domestic $ 320,349 - 320,349 $ 414,373 - 414,373 International 387,373 44,474 431,847 595,280 - 595,280 $ 707,722 44,474 752,196 $ 1,009,653 - 1,009,653 Filters $ 452,728 - 452,728 $ 622,165 - 622,165 Components 254,994 - 254,994 387,488 - 387,488 Engineering Services - 44,474 44,474 - - - $ 707,722 44,474 752,196 $ 1,009,653 - 1,009,653