UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20222023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
From ________________ to ________________
ELECTRONIC SYSTEMS TECHNOLOGY INC
(Exact name of registrant as specified in its charter)
| 000-27793 | 91-1238077 | |
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 415 N. Roosevelt St. STE B1 Kennewick WA | 99336 | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
(509) 735-9092
(Registrant's telephone number, including area code)
N/A
(Former name, former address & former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(g) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
| Common Stock, $0.001 par value | ELST | OTCQB |
Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 13 oror☐ 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings for the past 90 days. YesxNO No o¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes xNo NO o¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large Accelerated Filer | Accelerated Filer |
Non-Accelerated Filer | Small Reporting Company ☒ Emerging Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 22, 2022,July 26, 2023, the number of the Company's shares of Common Stock par value $0.001, outstanding was .
| 1 |
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
| ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED BALANCE SHEETS (Unaudited) | ||||||||||||||||
| September 30, | December 31, | June 30, | December 31, | |||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets | ||||||||||||||||
| Cash and cash equivalents | $ | 561,605 | $ | 655,616 | $ | 382,095 | $ | 751,118 | ||||||||
| Certificates of deposit | 400,584 | 400,000 | 400,000 | 251,699 | ||||||||||||
| Accounts receivable | 162,659 | 166,303 | ||||||||||||||
| Accounts receivable, net | 177,868 | 141,394 | ||||||||||||||
| Inventories | 558,434 | 501,833 | 840,573 | 725,478 | ||||||||||||
| Prepaid expenses | 77,764 | 24,387 | 19,726 | 42,627 | ||||||||||||
| Employee retention tax credit receivable (NOTE 7) | 63,000 | 63,000 | ||||||||||||||
| Accrued interest receivable | 829 | 35 | 699 | 808 | ||||||||||||
| Total current assets | 1,761,875 | 1,748,174 | 1,883,961 | 1,976,124 | ||||||||||||
| Property and equipment, net of depreciation | 1,025 | 1,358 | 20,265 | 914 | ||||||||||||
| Right to use – Lease, net of amortization (NOTE 6) | 78,757 | 28,922 | 50,452 | 69,419 | ||||||||||||
| Total assets | $ | 1,841,657 | $ | 1,778,454 | $ | 1,954,678 | $ | 2,046,457 | ||||||||
| LIABILITIES and STOCKHOLDERS' EQUITY | ||||||||||||||||
| Current liabilities | ||||||||||||||||
| Accounts payable | $ | 26,842 | $ | 71,645 | $ | 93,789 | $ | 138,996 | ||||||||
| Accrued wages and bonus | 23,130 | 9,114 | 21,470 | 24,777 | ||||||||||||
| Accrued vacation pay | 15,423 | 28,438 | 26,366 | 16,846 | ||||||||||||
| Lease liability, current (NOTE 6) | 37,937 | 13,613 | 40,878 | 39,120 | ||||||||||||
| Other accrued liabilities | 7,073 | 14,827 | 7,340 | 8,913 | ||||||||||||
| Total current liabilities | 110,405 | 137,637 | 189,843 | 228,652 | ||||||||||||
| Long-Term Liabilities | ||||||||||||||||
| Operating lease liability (NOTE 6) | 40,821 | — | 10,048 | 30,457 | ||||||||||||
| Total liabilities | 151,226 | 137,637 | 199,892 | 259,109 | ||||||||||||
| Stockholders' equity | ||||||||||||||||
| Stockholder equity | ||||||||||||||||
| Common stock, $ par value shares authorized and shares issued and outstanding respectively | 4,947 | 4,947 | 4,947 | 4,947 | ||||||||||||
| Additional paid-in capital | 932,412 | 932,412 | 933,105 | 932,412 | ||||||||||||
| Retained earnings | 753,072 | 703,458 | 816,735 | 849,989 | ||||||||||||
| Total stockholders' equity | 1,690,431 | 1,640,817 | 1,754,787 | 1,787,348 | ||||||||||||
| Total liabilities and stockholders' equity | $ | 1,841,657 | $ | 1,778,454 | $ | 1,954,678 | $ | 2,046,457 | ||||||||
See Notes to Condensed Financial Statements.
| 2 |
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | |||||||||||||
| SALES - NET | $ | 585,206 | $ | 416,892 | $ | 890,295 | $ | 889,035 | ||||||||
| COST OF SALES | (268,636 | ) | (191,437 | ) | (408,196 | ) | (401,321 | ) | ||||||||
| GROSS PROFIT | 316,570 | 225,455 | 482,099 | 487,714 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | 61,492 | 66,747 | 146,257 | 151,522 | ||||||||||||
| Research and development | 28,021 | 45,856 | 56,684 | 91,633 | ||||||||||||
| Marketing and sales | 173,368 | 132,242 | 321,595 | 269,401 | ||||||||||||
| TOTAL OPERATING EXPENSE | 262,881 | 244,845 | 524,536 | 512,556 | ||||||||||||
| OPERATING INCOME (LOSS) | 53,689 | (19,390 | ) | (42,437 | ) | (24,842 | ) | |||||||||
| OTHER INCOME | ||||||||||||||||
| Interest income | 5,181 | 594 | 9,183 | 1,085 | ||||||||||||
| TOTAL OTHER INCOME | 5,181 | 594 | 9,183 | 1,085 | ||||||||||||
NET INCOME (LOSS) BEFORE INCOME TAX | 58,870 | (18,796 | ) | (33,254 | ) | (23,757 | ) | |||||||||
| Benefit (provision) for income tax | — | — | — | — | ||||||||||||
| NET INCOME (LOSS) | $ | 58,870 | $ | (18,796 | ) | $ | (33,254 | ) | $ | (23,757 | ) | |||||
| Basic and diluted earnings per share | $ | $ | ) | $ | ) | $ | ) | |||||||||
| Basic and diluted weighted average shares used in computing income (loss) per share: |
ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) | ||||||||||||||||
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||||||||
| SALES - NET | $ | 487,160 | $ | 256,069 | $ | 1,376,195 | $ | 1,137,848 | ||||||||
| COST OF SALES | (210,056 | ) | (152,834 | ) | (611,376 | ) | (546,568 | ) | ||||||||
| GROSS PROFIT | 277,104 | 103,235 | 764,819 | 591,280 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | 60,784 | 55,574 | 212,308 | 215,528 | ||||||||||||
| Research and development | 40,029 | 46,534 | 131,662 | 153,483 | ||||||||||||
| Marketing and sales | 104,293 | 122,960 | 373,694 | 344,594 | ||||||||||||
| TOTAL OPERATING EXPENSE | 205,106 | 225,068 | 717,664 | 713,605 | ||||||||||||
| OPERATING INCOME (LOSS) | 71,998 | (121,833 | ) | 47,155 | (122,325 | ) | ||||||||||
| OTHER INCOME | ||||||||||||||||
| Gain on forgiveness of CARES Act loan | — | 130,255 | — | 280,373 | ||||||||||||
| Interest income | 1,373 | 555 | 2,459 | 1,981 | ||||||||||||
| TOTAL OTHER INCOME | 1,373 | 130,810 | 2,459 | 282,354 | ||||||||||||
| NET INCOME (LOSS) BEFORE INCOME TAX | 73,371 | 8,977 | 49,614 | 160,029 | ||||||||||||
| Benefit (provision) for income tax | — | — | — | — | ||||||||||||
| NET INCOME (LOSS) | $ | 73,371 | $ | 8,977 | $ | 49,614 | $ | 160,029 | ||||||||
| Basic and diluted net income (loss) per share | $ | 0.01 | $ | 0.00 | $ | 0.01 | $ | 0.03 | ||||||||
| Basic and diluted weighted average shares used in computing net income (loss) per share: | 4,946,502 | 4,946,502 | 4,946,502 | 4,946,502 | ||||||||||||
See Notes to Condensed Financial Statements.
| 3 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended | ||||||||
| June 30, | June 30, | |||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (33,254 | ) | $ | (23,757 | ) | ||
| Noncash items included in net loss: | ||||||||
| Depreciation and amortization | 418 | 222 | ||||||
| Stock based compensation | 693 | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | (36,474 | ) | 6,835 | |||||
| Inventories | (115,095 | ) | (27,252 | ) | ||||
| Accrued interest receivable | 109 | (641 | ) | |||||
| Prepaid expenses | 22,901 | 6,304 | ||||||
| Accounts payable | (45,207 | ) | (31,151 | ) | ||||
| Other accrued liabilities | 4,956 | (1,187 | ) | |||||
| NET CASH USED IN OPERATING ACTIVITIES | (200,953 | ) | (70,627 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | (19,769 | ) | ||||||
| Certificates of deposit redeemed | 751,699 | 300,000 | ||||||
| Certificates of deposit purchased | (900,000 | ) | (300,000 | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | (168,070 | ) | — | |||||
| CASH FLOWS USED IN FINANCING ACTIVITIES: | ||||||||
| Principal payments on CARES Act loan payable (round 1) | — | (5,968 | ) | |||||
| NET CASH USED IN FINANCING ACTIVITIES | — | (5,968 | ) | |||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (369,023 | ) | (76,595 | ) | ||||
| Cash and cash equivalents at beginning of period | 751,118 | 655,616 | ||||||
| Cash and cash equivalents at end of period | $ | 382,095 | $ | 579,021 | ||||
| ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) | ||||||||
| Nine Months Ended | ||||||||
| September 30, | September 30, | |||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 49,614 | $ | 160,029 | ||||
| Noncash items included in net income (loss): | ||||||||
| Depreciation | 333 | 3,867 | ||||||
| Share based compensation | — | 970 | ||||||
| Gain on forgiveness of CARES Act loan | — | (280,373 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | 3,644 | 197,494 | ||||||
| Inventories | (56,601 | ) | 97,428 | |||||
| Accrued interest receivable | (794 | ) | 3,467 | |||||
| Prepaid expenses | (53,377 | ) | (2,209 | ) | ||||
| Accounts payable | (44,803 | ) | 59,027 | |||||
| Other accrued liabilities | (14,525 | ) | 20,231 | |||||
| NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES | (87,459 | ) | 259,931 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Certificates of deposit redeemed | 850,000 | 249,999 | ||||||
| Certificates of deposit purchased | (850,584 | ) | — | |||||
| NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES | (584 | ) | 249,999 | |||||
| CASH FLOWS USED IN FINANCING ACTIVITIES: | ||||||||
| Principal payments on CARES Act loan payable (round 1) | (5,968 | ) | (1,975 | ) | ||||
| Proceeds from CARES Act loan payable (round 2) | — | 130,255 | ||||||
| NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES | (5,968 | ) | 128,280 | |||||
| NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS | (94,011 | ) | 638,210 | |||||
| Cash and cash equivalents at beginning of period | 655,616 | 308,110 | ||||||
| Cash and cash equivalents at end of period | $ | 561,605 | $ | 946,320 | ||||
See Notes to Condensed Financial Statements.
| 4 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
DBA ESTEEM WIRELESS MODEMS
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) | ||||||||||||||||||||
| Common Stock | Additional Paid-In | Retained | ||||||||||||||||||
| Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
| Balances, January 1, 2021 | 4,946,502 | $ | 4,947 | $ | 931,442 | $ | 610,469 | $ | 1,546,858 | |||||||||||
| Net income (loss) | — | — | — | 4,682 | 4,682 | |||||||||||||||
| Balance at March 31, 2021 | 4,946,502 | $ | 4,947 | $ | 931,442 | $ | 615,151 | $ | 1551,540 | |||||||||||
| Net income (loss) | — | — | — | 146,370 | 146,370 | |||||||||||||||
| Balance at June 30, 2021 | 4,946,502 | $ | 4,947 | $ | 931,442 | $ | 761,521 | $ | 1,697,910 | |||||||||||
| Net income (loss) | — | — | — | 8,977 | 8,977 | |||||||||||||||
| Stock based compensation | 970 | 970 | ||||||||||||||||||
| Balance at September 30, 2021 | 4,946,502 | $ | 4,947 | $ | 933,412 | $ | 770,498 | $ | 1,707,857 | |||||||||||
| Balances, January 1, 2022 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 703,458 | $ | 1,640,817 | |||||||||||
| Net income (loss) | — | — | — | (4,961 | ) | (4,961 | ) | |||||||||||||
| Balance at March 31, 2022 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 698,497 | $ | 1,635,856 | |||||||||||
| Net income (loss) | — | — | — | (18,796 | ) | (18,796 | ) | |||||||||||||
| Balance at June 30, 2022 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 679,701 | $ | 1,617,060 | |||||||||||
| Net income (loss) | — | — | — | 73,371 | 73,371 | |||||||||||||||
| Balance at September 30, 2022 | 4,946,502 | $ | 4,947 | $ | 932,412 | 753,072 | $ | 1,690,431 | ||||||||||||
| Common Stock | Additional Paid-In | Retained | ||||||||||||||||||
| Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
| Balances, January 1, 2022 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 703,458 | $ | 1,640,817 | |||||||||||
| Net income (loss) | — | — | — | (4,961 | ) | (4,961 | ) | |||||||||||||
| Balance at March 31, 2022 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 698,497 | $ | 1,635,856 | |||||||||||
| Net income (loss) | — | — | — | (18,796 | ) | (18,796 | ) | |||||||||||||
| Balance at June 30, 2022 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 679,701 | $ | 1,617,060 | |||||||||||
| Balances, January 1, 2023 | 4,946,502 | $ | 4,947 | $ | 932,412 | 849,989 | $ | 1,787,348 | ||||||||||||
| Net income (loss) | — | — | — | (92,124 | ) | (92,124 | ) | |||||||||||||
| Balance at March 31, 2023 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 757,865 | $ | 1,695,224 | |||||||||||
| Net income (loss) | — | — | — | 58,870 | 58,870 | |||||||||||||||
| Stock based compensation | — | — | 693 | — | 693 | |||||||||||||||
| Balance at June 30, 2023 | 4,946,502 | $ | 4,947 | $ | 933,105 | $ | 816,735 | $ | 1,754,787 | |||||||||||
See Notes to Condensed Financial Statements.
| 5 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The condensed financial statements, including notes, of Electronic Systems Technology, Inc. (the "Company") are representations of the Company’s management, which is responsible for their integrity and objectivity. The accompanying unaudited condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, as well as the instructions to Form 10-Q. Accordingly, the financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of SeptemberJune 30, 2022,2023, and its results of operations, cash flows, and changes in stockholders’ equity for the three months and ninesix months ended SeptemberJune 30, 20222023, and 2021.2022. The balance sheet at December 31, 20212022 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. All amounts presented are in U.S. dollars. For further information, refer to the financial statements and footnotes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.
The results of operations for the three month and nine-monthsix-month period ended SeptemberJune 30, 20222023 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period. The Company estimates that for 20222023 the anticipated effective annual federal income tax rate will be 0%.
New Accounting Pronouncements
Accounting standards that have been issued by the Financial Accounting Standards Board that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
NOTE 2 - INVENTORIES
Inventories are stated at lower of direct cost or net realizable value with cost determined using the FIFO (first in, first out) method. Inventories consist of the following:
| Schedule of Inventories | ||||||||||||||||
| Schedule of inventories | ||||||||||||||||
| September 30, 2022 | December 31, 2021 | June 30, 2023 | December 31, 2022 | |||||||||||||
| Parts | $ | 184,459 | $ | 92,751 | $ | 124,215 | $ | 172,190 | ||||||||
| Work in progress | 149,498 | 171,705 | 380,562 | 336,298 | ||||||||||||
| Finished goods | 224,477 | 237,377 | 335,796 | 216,990 | ||||||||||||
| Total inventory | $ | 558,434 | $ | 501,833 | ||||||||||||
| Total inventories | $ | 840,573 | $ | 725,478 | ||||||||||||
| 6 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Basic earnings (loss) per share excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of shares of Common Stockcommon stock outstanding for the period. Diluted earnings (loss) per share reflects potential dilution occurring if securities or other contracts to issue Common Stockcommon stock were exercised or converted into Common Stock or resulted in the issuance of Common Stockcommon stock that then shared in the earnings of the Company. At SeptemberJune 30, 20222023 and 2021,2022, the Company had and outstanding stock options, respectively, that could have a dilutive effect on future periods’ net income. The stock options were not included in the calculation of diluted earnings per share for either period as they were anti-dilutive.
NoOn June 9, 2023, the Board of Directors granted options to employees. The new options have an exercise price of $, a term of years, and vest immediately. The fair value of the options was determined using the Black-Scholes model using the following variables: stock options were issued, exercisedprice of $, volatility of %, expected term of years with a forfeiture rate of %, and a discount factor of %. Share based compensation of $ shares expired($ in marketing and sales and $ in general and administrative in the condensed statement of operations) was recognized during the nine monththree and six-month periods ended SeptemberJune 30, 2022. 2023.
As of SeptemberJune 30, 2022,2023, there were options outstanding with a weighted average exercise price of $ per share, a weighted average remaining life of years and had intrinsic value of intrinsic value.nil.
NOTE 5 – REVENUE
The Company’sCompany product revenue includes industrial wireless products and accessories such as antennas, power supplies and cable assemblies. The Company also provides direct site support and engineering services to customers, such as repair and upgrade of its products. During the three-month periodperiods ended SeptemberJune 30, 20222023 and 2021,2022, the Company’s revenue from products sales was $480,260575,306 and $230,869409,392, respectively. Revenue from site support and engineering services was $6,9009,900 and $25,2007,500 respectively, over the same periods.
During the nine-month periodsix-month periods ended SeptemberJune 30, 20222023 and 2021,2022, the Company’s revenue from products sales was $1,351,495872,895 and $1,100,948871,235, respectively. Revenue from site support and engineering services was $24,70017,400 and $36,90017,800 respectively, over the same periods.
The Company’s customers, to which trade credit terms are extended, consist of United States and local governments and foreign and domestic companies. Domestic sales of products and services for the three-month period ended SeptemberJune 30, 2023 and June 30, 2022 and September 30, 2021 were $419,164575,683 and $227,001378,959, respectively. Sales to foreign customers for the three-month period ended SeptemberJune 30, 2023 and June 30, 2022 and September 30, 2021 were $67,9969,523 and $29,06837,933, respectively.
Domestic sales for the nine-monthsix-month period ended SeptemberJune 30, 2023 and June 30, 2022 and September 30, 2021 were $1,234,793869,591and $1,021,331815,629, respectively. Sales to foreign customers for the nine-monthsix-month period ended SeptemberJune 30, 2023 and June 30, 2022 and September 30, 2021 were $141,40220,704 and $116,51773,406, respectively.
NOTE 5 – REVENUE (continued)
For the three-month period ended SeptemberJune 30, 2022,2023, sales to three customers represented more than 10% of total revenue, one customer represented more than 10% of total revenue for the same period in 2021.
| Revenue | ||||||||||||||||
| 2022 Sales | 2022 %age of Total Sales | 2021 Sales | 2021 %age of Total Sales | |||||||||||||
| Domestic customer A | $ | 60,130 | 12 | % | $ | 70,505 | 28 | % | ||||||||
| Domestic customer B | 58,167 | 12 | % | — | — | |||||||||||
| Domestic customer C | 46,703 | 10 | % | — | — | |||||||||||
For the nine-month period ended September 30, 2022, sales to two customers represented more than 10% of total revenue, twothree customers represented more than 10% of total revenue for the same period in 2021.2022.
| 2022 Sales | 2022 %age of Total Sales | 2021 Sales | 2021 %age of Total Sales | |||||||||||||
| Domestic customer A | $ | 165,621 | 12 | % | $ | 203,623 | 18 | % | ||||||||
| Domestic customer B | 137,346 | 10 | % | 129,798 | 11 | % | ||||||||||
| 7 |
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
| Schedule of revenue | ||||||||||||||||
| 2023 Sales | 2023 %age of Total Sales | 2022 Sales | 2022%age of Total Sales | |||||||||||||
| Domestic customer A | $ | 134,604 | 23 | % | $ | 54,436 | 13 | % | ||||||||
| Domestic customer B | 76,993 | 13 | % | 53,880 | 13 | % | ||||||||||
| Domestic customer C | 56,861 | 10 | % | 49,031 | 12 | % | ||||||||||
For the six-month period ended June 30, 2023, sales to two customers represented more than 10% of total revenue, three customers represented more than 10% of total revenue for the same period in 2022.
| 2023 Sales | 2023 %age of Total Sales | 2022 Sales | 2022 %age of Total Sales | |||||||||||||
| Domestic customer A | $ | 204,694 | 23 | % | $ | 121,715 | 14 | % | ||||||||
| Domestic customer B | 91,821 | 10 | % | 107,505 | 12 | % | ||||||||||
| Domestic customer C | 100,693 | 11 | % | |||||||||||||
As of SeptemberJune 30, 20222023 and 2021,2022, the Company had a sales order backlog of $141,066109,844 and $93,05924,857, respectively.
NOTE 6 - LEASES
On September 19,23, 2022, the Company signed a new two-year lease for its facilities. The base lease is $3,373 and $3,478 per month for years one and two, respectively. There is a leasehold tax applied to the base lease at 12.84%. The Company has the right to terminate the lease with 90 days’ notice. There is no renewal clause contained in the current lease. Upon signing the lease, the Company recognized a lease liability and right of use asset of $78,757 based on the two-year payment stream discounted using an estimated incremental borrowing rate of 4.125%4.125%. At SeptemberJune 30, 2022,2023, the remaining lease term is twenty four15 months. As of June 30, 2023, future payments on this lease of $19,679 and $30,772 will be paid in 2023 and 2024 respectively.
Prior to the new lease on September 19, 2022, the Company’s lease for its facilities was for $3,267 per month.
| 8 |
For the three month and nine-monthsix-month periods ended SeptemberJune 30, 20222023 and 2021,2022, lease expenses of $11,61611,576 and $10,862, and $34,83910,903 and $32,58623,151 and $21,805, respectively, are included in the following expense classifications on the statement of operations:
| Schedule of lease expense | ||||||||||||||||||||||||
| For the three-month period ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Cost of sales | Operating expenses | Total | Cost of sales | Operating expenses | Total | |||||||||||||||||||
| Base rent pursuant to lease agreement | $ | 5,751 | $ | 4,526 | $ | 10,277 | $ | 5,397 | $ | 4,248 | $ | 9,645 | ||||||||||||
| Variable lease costs | 727 | 572 | 1,299 | 704 | 554 | 1,258 | ||||||||||||||||||
| Total lease costs | $ | 6,478 | $ | 5,098 | $ | 11,576 | $ | 6,101 | $ | 4,802 | $ | 10,903 | ||||||||||||
| For the six-month period ended June 30, | ||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Cost of sales | Operating expenses | Total | Cost of sales | Operating expenses | Total | |||||||||||||||||||
| Base rent pursuant to lease agreement | $ | 11,501 | $ | 9,052 | $ | 20,553 | $ | 10,793 | $ | 8,495 | $ | 19,288 | ||||||||||||
| Variable lease costs | 1,454 | 1,144 | 2,598 | 1,408 | 1,109 | 2,517 | ||||||||||||||||||
| Total lease costs | $ | 12,955 | $ | 10,196 | $ | 23,151 | $ | 12,201 | $ | 9,604 | $ | 21,805 | ||||||||||||
NOTE 7 - CARES ACT RETENTION CREDIT
NOTE 6 – LEASES (continued)
As at December 31, 2022 and June 30, 2023, the Company has an employee retention tax credit due of $63,000. The amount to be received is a refund of qualified payroll taxes the Company paid in connection with employee payroll during the COVID 19 pandemic. The credit was received in July 2023.
| Leases | ||||||||||||||||||||||||
| For the three-month period ending September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| Cost of sales | Operating expenses | Total | Cost of sales | Operating expenses | Total | |||||||||||||||||||
| Base rent pursuant to lease agreement | $ | 5,751 | $ | 4,526 | $ | 10,277 | $ | 5,396 | $ | 4,248 | $ | 9,644 | ||||||||||||
| Variable lease costs | 749 | 590 | 1,339 | 682 | 536 | 1,218 | ||||||||||||||||||
| Total lease costs | $ | 6,500 | $ | 5,116 | $ | 11,616 | $ | 6,078 | $ | 4,784 | $ | 10,862 | ||||||||||||
| For the nine-month period ending September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||
| Cost of sales | Operating expenses | Total | Cost of sales | Operating expenses | Total | |||||||||||||||||||
| Base rent pursuant to lease agreement | $ | 17,252 | $ | 13,578 | $ | 30,830 | $ | 16,190 | $ | 12,742 | $ | 28,932 | ||||||||||||
| Variable lease costs | 2,249 | 1,770 | 4,019 | 2,045 | 1,609 | 3,654 | ||||||||||||||||||
| Total lease costs | $ | 19,501 | $ | 15,348 | $ | 34,849 | $ | 18,235 | $ | 14,351 | $ | 32,586 | ||||||||||||
As of September 30, 2022, total future lease payments are as follows:
| Schedule of Future Minimum Lease Payment | ||||
| Remainder of 2022 | $ | 10,118 | ||
| 2023 | 40,790 | |||
| 2024 | 31,304 | |||
| Total | 82,212 | |||
| Less imputed interest | (3,454 | ) | ||
| Net lease liability | 78,758 | |||
| Current portion | (37,937 | ) | ||
| Long-term portion | $ | 40,821 | ||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Management's discussion and analysis is intended to be read in conjunction with the Company's unaudited financial statements and the integral notes thereto for the quarter ended SeptemberJune 30, 2022.2023. The following statements may be forward looking in nature and actual results may differ materially.
| A. | RESULTS OF OPERATIONS |
REVENUES: Total revenues from sales increased to $487,160$585,206 for the third quarterfirst six-months of 20222023 as compared to $256,069$416,892 in the thirdsecond quarter of 2021,2022, reflecting an increase of 90.2%40.4%. Management believes the increase in sales revenues is due to the improvement of supply chain deliveries of materials needed by our customers to compete projects.increase in customer demand. Year to date total revenues from sales increased to $1,376,195$890,295 in 20222023 as compared to $1,137,848$889,035 in 2021,2022, reflecting an increase of 20.9%0.1%. Management believes the increase in sales revenues is due to the CompanyCompany’s increased inventory level and the ability to ship orders in a timely manner.
The Company's revenues have historically fluctuated from quarter to quarter due to timing factors such as product shipments to customers, customer order placement, customer buying trends, and changes in the general economic environment. The procurement process regarding plant and project automation, or project development, which usually surrounds the decision to purchase ESTeem products, can be lengthy. This procurement process may involve bid activities unrelated to the ESTeem products, such as additional systems and subcontract work, as well as capital budget considerations on the part of the customer. Because of the complexity of this procurement process, forecasts with regard to the Company's revenues are difficult to predict.
A percentage breakdown of the Company’s market segments of Domestic and Foreign Export sales for the three- and nine-monthsix-month periods ended SeptemberJune 30, 2022,2023 and 20212022 are as follows:
| Three Months ended September 30, 2022 | Three Months ended September 30, 2021 | Nine Months ended September 30, 2022 | Nine Months ended September 30, 2021 | Three Months ended June 30, 2023 | Three Months ended June 30, 2022 | Six Months ended June 30, 2023 | Six Months ended June 30, 2022 | |||||||||||||||||||||||||
| Domestic Sales | 86 | % | 89 | % | 90 | % | 90 | % | 98 | % | 91 | % | 98 | % | 92 | % | ||||||||||||||||
| Export Sales | 14 | % | 11 | % | 10 | % | 10 | % | 2 | % | 9 | % | 2 | % | 8 | % | ||||||||||||||||
BACKLOG:
As of SeptemberJune 30, 2022,2023, the Company had a sales order backlog of $141,066.$109,844. The Company’s customers generally place orders on an "as needed basis". Shipment for most of the Company’s products is generally made within 1 to 5 working days after receipt of customer orders, with the exception of ongoing, scheduled projects, and custom designed equipment.
COST OF SALES:
Cost of sales percentages for the thirdsecond quarters of 2023 and 2022 were 45.9% and 2021 were 43% and 60%45.9% of respective net sales. The cost of sales percentage decreased in the third quarter of 2022 is the result of the product mix sold during the same quarter of 2021. Cost of sales percentages for the nine-monthsix-month periods ended SeptemberJune 30, 2023 and 2022 were 45.8% and 2021 were 44% and 48%.45.1%, respectively. The cost of sales percentage increase infor the first nine-months of 2022six month period ended June 3, 2023 is the result of the product mix sold during the same period of 2021.2022.
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OPERATING EXPENSES:
The following is a delineation of operating expenses:
| Three Months Ended | Nine Month Ended | Three Months Ended | Six Month Ended | |||||||||||||||||||||||||||||||||||||||||||||
| Sept. 30, 2022 | Sept. 30, 2021 | Increase (Decrease) | Sept. 30, 2022 | Sept. 30, 2021 | Increase (Decrease) | June 30, 2023 | June 30, 2022 | Increase (Decrease) | June 30, 2023 | June 30, 2022 | Increase (Decrease) | |||||||||||||||||||||||||||||||||||||
| General and administrative | $ | 60,784 | $ | 55,574 | $ | 5,210 | $ | 212,308 | $ | 215,528 | $ | (3,220 | ) | $ | 61,492 | $ | 66,747 | $ | (5,255 | ) | $ | 146,257 | $ | 151,522 | $ | (5,265 | ) | |||||||||||||||||||||
| Research and development | 40,029 | 46,534 | (6,505 | ) | 131,662 | 153,483 | (21,821 | ) | 28,021 | 45,856 | (17,835 | ) | 56,684 | 91,633 | (34,949 | ) | ||||||||||||||||||||||||||||||||
| Marketing and sales | 104,293 | 122,960 | (18,667 | ) | 373,694 | 344,594 | 29,100 | 173,368 | 132,242 | 41,126 | 321,595 | 269,401 | 52,194 | |||||||||||||||||||||||||||||||||||
| Total operating expenses | $ | 205,106 | $ | 225,068 | $ | (19,962 | ) | $ | 717,664 | $ | 713,605 | $ | 4,059 | $ | 262,881 | $ | 244,845 | $ | 18,036 | $ | 524,536 | $ | 512,556 | $ | 11,980 | |||||||||||||||||||||||
General and administrative: For the thirdsecond quarter of 2022,2023, general and administrative expenses increased $5,210decreased $5,255 to $60,785,$61,492, due to increaseddecreased wages when compared with the same quarter of 2022. For the nine-monthsix-month period ended June 30, 2023, general and administrative expenses decreased by $3,220$5,265, to $212,308$146,257, due to decreased professional services.payroll and increased services purchased. General and administrative expenses were 12.5%10.5% compared to 16.0% of sales revenue for the thirdsecond quarter of 20222023 and 16.4% compared to 21.7% in the same period 2021 and 15.4%17.0% of sales revenue for nine-monthsix-month period ended SeptemberJune 30, 2022compared to 18.9% in the same period 2021.2023.
Research and development: Research and development expenses decreased $6,505$17,835 to $40,029$28,021 during the thirdsecond quarter of 20222023 due to decreased services purchased expenses related to consulting services when compared with the same quarter of 2021.2022. For the nine-monthsix-month period, research and development expenses decreased by $21,821$34,949 to $131,662,$56,684, due to decreased prototype build costs.services purchased. Research and development expenses were 8.2%expense was 4.8% compared to 11.0% of sales revenue for the thirdsecond quarter of 20222023 and 6.4% compared to 18.2% in the same period 2021 and 9.6%10.3% of sales revenue for nine-monthsix-month period ending Septemberended June 30, 2022 compared to 13.5% in the same period 2021.2023.
Marketing and sales: During the thirdsecond quarter of 2022,2023, marketing and sales expenses decreased $18,668increased $41,126 to $104,293$173,368 when compared with the same period of 2021,2022, due to decreased payroll.increased payroll, benefits expense, and travel. For the nine-monthsix-month period, marketing and sales expenses increased by $29,100$52,194 to $373,594,$321,595, due to increased payroll.payroll, benefits, and travel expenses. Marketing and sales expenses were 21.4%29.6% compared to 31.7% of sales revenue for the thirdsecond quarter of 20222023 and 36.1% compared to 48.0% in the same period 2021 and 27.2%30.3% of sales revenue for nine-monththe six-month period ended SeptemberJune 30, 2022 compared to 30.3% in the same period 2021.2023.
OTHER INCOME:
The Company earned $1,373$5,181 in interest income during the quarter ended SeptemberJune 30, 20222023 and $2,459$9,183 for the nine-monthsix-month period. Sources of this income were money market accounts and certificates of deposit. During the quarter and nine-months ended September 30, 2021, the Company recognized a gain on forgiveness of debt in the amount of $130,555 and $280,373, respectively, for CARES Act loans.
NET LOSS:
NET INCOME(LOSS):
The Company had net income of $73,731$58,870 for the thirdsecond quarter of 20222023 compared to a net incomeloss of $8,977$18,976 for the same quarter of 2021.2022. For the nine-monthsix-month period ended SeptemberJune 30, 2022,2023, the Company recorded a net incomeloss of $49,614$33,254 compared with a net incomeloss of $160,029$23,757 for the same period of 2021.2022. The increasedecrease in net income during 20222023 is the result of increased sales revenues and gross profit.operating expenses.
B. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Corporation's current asset to current liabilities ratio at SeptemberJune 30, 20222023 was 16.09.9 compared to 12.78.6 at December 31, 2021.2022. The increase in current ratio is due to the decrease of accounts payable and increase in inventory at SeptemberJune 30, 20222023 as compared to December 31, 2021.2022.
At SeptemberJune 30, 2022,2023, the Company had cash and cash equivalents of $561,605$782,095 as compared to cash and cash equivalent of $655,616$1,002,817 at December 31, 2021.2022.
Cash providedused from operating activities decreased by $347,389$130,326 for the nine-monthsix-month period ended SeptemberJune 30, 20222023 when compared to the same period in 2021.2022. The decrease is attributable to a decrease in net income for the period being $110,415 lower$9,497 less than the same period in 2021.2022. The reduction from the nine-month period ended September 30, 2021increase in the change in accounts receivable and accounts payableinventory balances contributed ($193,850)$43,309 and ($103,830), respectively, to the decrease.$87,843 respectively.
Net cash used in investing was $250,583 due to the purchase and rollover of certificates of deposits maturing during the nine months of 2022. Cash use from financing activities was $5,968, which were payments paid on the CARES Act loan (round 1).
In management's opinion, the Company's cash and cash equivalents and other working capital at SeptemberJune 30, 20222023 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during 20222023 and through 2023.into the first half of 2024.
FORWARD LOOKING STATEMENTS: The above discussion may contain forward looking statements that involve a number of risks and uncertainties. In addition to the factors discussed above, among other factors that could cause actual results to differ materially are the following: competitive factors such as rival wireless architectures and price pressures; availability of third party component products at reasonable prices; inventory risks due to shifts in market demand and/or price erosion of purchased components; change in product mix, and risk factors that are listed in the Company's reports and registration statements filed with the Securities and Exchange Commission.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to its stockholders.
Item 3.1. Controls and Procedures
UnderAn evaluation has been performed under the supervision and with the participation of our management, including our principal executive officerChief Executive Officer and principal financial officer, we conducted an evaluationPrincipal Accounting Officer, of the effectiveness of the design and the operation of our disclosure"disclosure controls and procedures, asprocedures" (as such term is defined underin Rules 13a-14(c) and 15d-14(c)13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act),1934) as of SeptemberJune 30, 2022.2023. Based on that evaluation, our principal executive officer and our principal financial officer concluded that the design and operation of our disclosure controls and procedures were effective as of SeptemberJune 30, 2022.2023.
The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, management believes that our system of disclosure controls and procedures are designed to provide a reasonable level of assurance that the objectives of the system will be met.
Changes in Internal Control Over Financial Reporting
During the most recent fiscal quarter, the Company added additional personnel that allows for appropriate segregation of duties. Management has determined that this change toThere have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) mitigatedduring the material weaknessmost recent fiscal quarter that existed and, as such, had a materialhave materially affected, or are reasonably likely to materially affect, on our internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
None.
Item 6. Exhibits
| EXHIBIT NUMBER | DESCRIPTION |
| 31.1 | Section 302 Certification, CEO |
| 31.2 | Section 302 Certification, CFO |
| 32.1 | Section 906 Certification, CEO |
| 32.2 | Section 906 Certification, CFO |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 14 |
SIGNATURES
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
By: /s/ Daniel M. Tolley | |
| Date: | Name: Daniel M. Tolley |
| Title: President | |
| (Principal Executive Officer) |
By: /s/ Michael W. Eller | |
| Date: | Name: Michael W. Eller |
| Title: Vice President Administration | |
| (Principal Accounting Officer) |
| 15 |