`UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ 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)
Washington | 000-27793 | 91-1238077 |
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(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
415 N. Roosevelt St.STE B1KennewickWA | 99336 | |
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(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)
Indicate by check mark whether the registrant (1) has filed all documents and reports required to be filed by Sections 13 or 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. YESx ☒ NO ¨☐
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). YESxNO¨
YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 (Do not check if a smaller reporting company) | 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. £☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ NoxYES ☐ NO ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of September 30, 2017,April, 19 2022, the number of the Company's shares of common stock par value $0.001, outstanding was 4,986,048. .
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
FORM 10-Q
September 30, 2017
Index
PART I - FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Evaluation of Disclosure Controls and Procedures.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
PART I -
FINANCIAL INFORMATION
Item 1. Financial Statements.
ELECTRONIC SYSTEMS TECHNOLOGY, INC. | |||||||||||
BALANCE SHEETS | |||||||||||
ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED BALANCE SHEETS (Unaudited) | ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED BALANCE SHEETS (Unaudited) | ||||||||||
March 31, | December 31, | ||||||||||
| September 30, 2017 (Unaudited) |
| December, 31, 2016 | 2022 | 2021 | ||||||
ASSETS |
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Current assets |
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Cash and cash equivalents | $ 257,112 |
| $ 502,971 | $ | 850,664 | $ | 655,616 | ||||
Certificates of deposit investments | 1,000,000 |
| 1,000,000 | ||||||||
Accounts receivable | 94,506 |
| 71,202 | ||||||||
Certificates of deposit | 250,000 | 400,000 | |||||||||
Accounts receivable, net | 141,326 | 166,303 | |||||||||
Inventories | 813,970 |
| 703,147 | 434,836 | 501,833 | ||||||
Prepaid expenses | 40,896 | 24,387 | |||||||||
Accrued interest receivable | 5,784 |
| 6,903 | 305 | 35 | ||||||
Prepaid expenses | 20,322 |
| 8,405 | ||||||||
Total current assets | 2,191,694 |
| 2,292,628 | 1,718,027 | 1,748,174 | ||||||
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Property and equipment, net | 36,428 |
| 51,383 | ||||||||
Property and equipment, net of depreciation | 1,247 | 1,358 | |||||||||
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Deferred income tax asset, net | 244,092 |
| 244,092 | ||||||||
Right to use – Lease, net of amortization (NOTE 6) | 19,378 | 28,922 | |||||||||
Total assets | $ 2,472,214 |
| $ 2,588,103 | $ | 17,38,652 | $ | 1,778,454 | ||||
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LIABILITIES & STOCKHOLDERS' EQUITY |
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LIABILITIES and STOCKHOLDERS' EQUITY | |||||||||||
Current liabilities |
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Accounts payable | $ 54,709 |
| $ 15,114 | $ | 49,704 | $ | 71,645 | ||||
Accrued liabilities | 27,005 |
| 22,693 | ||||||||
Refundable deposits | 7,247 |
| 4,527 | ||||||||
Accrued wages | 5,480 | 9,114 | |||||||||
Lease liability, current portion (NOTE 6) | 19,694 | 28,438 | |||||||||
Accrued vacation pay | 18,630 | 13,613 | |||||||||
Other accrued liabilities | 9,288 | 14,827 | |||||||||
Total current liabilities | 88,961 |
| 42,334 | 102,796 | 137,637 | ||||||
Total liabilities | 88,961 |
| 42,334 | 102,796 | 137,637 | ||||||
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COMMITMENTS (NOTE 6) |
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Stockholders’ equity |
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Common stock, $0.001 par value 50,000,000 shares authorized 4,986,048 and 5,060,903 shares issued and outstanding, respectively | 4,986 |
| 5,061 | ||||||||
Stockholders' equity | |||||||||||
Common stock, $ | par value shares authorized and shares issued and outstanding respectively4,947 | 4,947 | |||||||||
Additional paid-in capital | 944,160 |
| 972,609 | 932,412 | 932,412 | ||||||
Retained earnings | 1,434,107 |
| 1,568,099 | 698,497 | 703,458 | ||||||
Total stockholders’ equity | 2,383,253 |
| 2,545,769 | ||||||||
Total liabilities and stockholders’ equity | $ 2,472,214 |
| $ 2,588,103 | ||||||||
Total stockholders' equity | 1,635,856 | 1,640,817 | |||||||||
Total liabilities and stockholders' equity | $ | 1,738,652 | $ | 1,778,454 |
(See "NotesNotes to Financial Statements")Statements.
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ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
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Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2022 | 2021 | |||||||
SALES - NET | $ | 472,143 | $ | 424,775 | ||||
COST OF SALES | (209,883 | ) | (180,536 | ) | ||||
GROSS PROFIT | 262,260 | 244,239 | ||||||
OPERATING EXPENSES | ||||||||
General and administrative | 84,776 | 93,503 | ||||||
Research and development | 45,777 | 52,700 | ||||||
Marketing and sales | 137,159 | 94,215 | ||||||
Total operating expenses | 267,712 | 240,418 | ||||||
OPERATING INCOME (LOSS) | (5,452 | ) | 3,821 | |||||
OTHER INCOME | ||||||||
Interest income | 491 | 861 | ||||||
Total other income | 491 | 861 | ||||||
NET INCOME (LOSS) BEFORE INCOME TAX | (4,961 | ) | 4,682 | |||||
Benefit (provision) for income tax | 0 | 0 | ||||||
NET INCOME (LOSS) | $ | (4,961 | ) | $ | 4,682 | |||
Earnings (loss) per share – basic and diluted | $ | 0.00 | $ | 0.00 | ||||
Weighted average shares – basic and diluted | 4,946,502 | 4,946,502 |
(See "NotesNotes to Financial Statements")Statements.
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ELECTRONIC SYSTEMS TECHNOLOGY, INC. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) | ||||||||
Three Months Ended | ||||||||
March 31, | March 31, | |||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | (4,961 | ) | $ | 4,682 | |||
Noncash items included in net income (loss): | ||||||||
Depreciation | 111 | 1,288 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | 24,977 | (33,510 | ) | |||||
Inventories | 66,997 | 74,479 | ||||||
Accrued interest receivable | (270 | ) | 4,219 | |||||
Prepaid expenses | (16,508 | ) | 8,738 | |||||
Accounts payable | (20,983 | ) | 18,301 | |||||
Other accrued liabilities | 1,653 | 28,173 | ||||||
NET CASH PROVIDED IN OPERATING ACTIVITIES | 51,016 | 106,370 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Certificates of deposit redeemed | 150,000 | 249,999 | ||||||
NET CASH PROVIDED FROM INVESTING ACTIVITIES | 150,000 | 249,999 | ||||||
CASH FLOWS USED IN FINANCING ACTIVITIES: | ||||||||
Principal payments on CARES Act loan payable (round 1) | (5,968 | ) | 0 | |||||
Proceeds from CARES Act loan payable | 0 | 130,255 | ||||||
NET CASH USED IN FINANCING ACTIVITIES | (5,968 | ) | 130,255 | |||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 195,048 | 486,624 | ||||||
Cash and cash equivalents at beginning of period | 655,616 | 308,110 | ||||||
Cash and cash equivalents at end of period | $ | 850,664 | $ | 794,734 | ||||
(See "NotesNotes to Financial Statements")Statements.
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ELECTRONIC SYSTEMS TECHNOLOGY, INC.
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Shares | Amount | Additional Paid-In Capital | Retained 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 | |||||||||||||||
BALANCES AT March 31, 2021 | 4,946,502 | $ | 4,947 | $ | 931,442 | $ | 615,151 | $ | 1,551,540 | |||||||||||
Balances, January 1, 2022 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 703,458 | $ | 1,640,817 | |||||||||||
Net income (loss) | — | — | — | (4,961 | ) | (4,961 | ) | |||||||||||||
BALANCES AT MARCH 31, 2022 | 4,946,502 | $ | 4,947 | $ | 932,412 | $ | 698,497 | $ | 1,635,856 | |||||||||||
See Notes to Financial Statements.
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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"), presented 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 thisaccordance 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 10Q are unaudited10-Q. Accordingly, the financial statements do not include all of the information and reflect, infootnotes required by U.S. GAAP for complete financial statements. In the opinion of Management, a fair presentationmanagement, the accompanying unaudited condensed financial statements contain all adjustments, consisting of operations for the three and nine month periods ended September 30, 2017 and September 30, 2016. All adjustments of aonly normal recurring nature andadjustments, necessary for a fair presentationstatement of its financial position as of March 31, 2022, and its results of operations, cash flows, and changes in stockholders’ equity for the three months ended March 31, 2022 and 2021. The balance sheet at December 31, 2021 was derived from audited annual financial statements but does not contain all of the results forfootnote disclosures from the periods covered have been made. Certainannual financial statements. All amounts presented are in U.S. dollars. For further information, and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuantrefer to the applicable rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the audited financial statements and notesfootnotes thereto included in the Company'sCompany’s Annual Report on Form 10K10-K for the year ended December 31, 2016 as filed with Securities and Exchange Commission.2021.
The results of operations for the three and nine monthsthree-month period ended September 30, 2017 and September 30, 2016,March 31, 2022 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period. The Company estimates that for 2022 the anticipated effective annual federal income tax rate will be 0%.
New Accounting Pronouncements
In July of 2015Accounting standards that have been issued by the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-11 “Simplifying the Measurement of Inventory” an updatethat do not require adoption until a future date are not expected to Inventory Topic 330. The ASU simplifies the concept of lower of cost or market to the lower of cost and net realizable value and more closely align the measurement of inventory in Generally Accepted Accounting Principles (“GAAP”) with the measurement of inventory in International Financial Reporting Standards (“IFRS”). This update was adopted and did not materiallyhave a material impact on the financial statements.statements upon adoption.
Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations, cash flows or financial position of prior period amounts.
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:
Inventories | ||||||||||
| September 30, 2017 | December 31, 2016 | March 31, 2022 | December 31, 2021 | ||||||
Parts | $ 147,379 | $ 185,911 | $ | 87,795 | $ | 92,751 | ||||
Work in progress | 240,557 | 216,859 | 136,326 | 171,705 | ||||||
Finished goods | 426,034 | 300,377 | 210,715 | 237,377 | ||||||
| $ 813,970 | $ 703,147 | ||||||||
Total inventory | $ | 434,836 | $ | 501,833 |
Basic incomeearnings (loss) per share excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted incomeearnings (loss) per share reflects potential dilution occurring if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. At September 30, 2017,March 31, 2022 and 2021, the Company had 150,000 and outstanding stock options, respectively, that could have a dilutive effect on future periods. However, at September 30, 2017 there was no dilutive effect ofperiods’ net income. The stock options onwere not included in the calculation of diluted earnings per share or weighted average shares outstanding. for either period as they were anti-dilutive.
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ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
As of September 30, 2017, theThe Company hadhas outstanding stock options, which have been granted periodically to individual employees and directors with no less than three years of continuous tenure withdirectors. On September 2, 2021, the Company. The Board of Directors has not awarded stockgranted options during the nine months ended September 30, 2017.to employees. The Boardnew options have an exercise price of Directors may consider issuing stock options later in 2017. Shareholders approved the 2015 Stock Incentive Plan on June 3, 2016 for 250,000 stock options. 150,000$ , a term of the approved amount were granted to certain management employees as part of the 2015 Stock Incentive Plan. The options were dated effective August 7, 20155 years, and have a five year exercise period. The company recognized an expense of $1,841 for the quarter ending September 30, 2016 in which the options were approved by the Shareholders and were fully vested at that time.
vest immediately. The fair value of each option award is estimated on the date of the grantoptions was determined using the Black-Scholes option-pricing model withusing the following weighted-average assumptions used for grants in 2015variables: stock price of $ , volatility of %, expected term of years with a forfeiture rate of 95%, and approved bya discount factor of 0.77%. Share based compensation of $ was recognized during the Shareholders in 2016.year ended December 31, 2021. shared based compensation was recognized during the three month periods ended March 31, 2022 and 2021.
As of March 31, 2022, there were options outstanding with a weighted average exercise price of $ per share, a weighted average remaining life of years and intrinsic value.NOTE 5 – REVENUE
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The Company uses historical dataproduct 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 estimate option exercise rates. The option exercise rate for option grants in 2005 through 2016customers, such as repair and upgrade of its products. During the three month period ended March 31, 2022 and 2021, the Company’s revenue from products sales was 5.2%.
A summary of option activity during$461,843 and $421,675, respectively. Revenue from site support and engineering services was $10,300 and $3,100 respectively, over the nine months ended September 30, 2017 is as follows:
| Number Outstanding | Weighted-Average Exercise Price Per Share | Weighted-Average Remaining Life (Years) | Approximate Aggregate Intrinsic Value |
Outstanding and Exercisable at December 31, 2016 | 220,000 | $0.40 |
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Granted (Approved) | -0- |
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Expired | (70,000) | 0.41 |
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Outstanding and Exercisable at September 30, 2017 | 150,000 | $0.40 | 2.9 | $28,500 |
NOTE 5 - RELATED PARTY TRANSACTIONSsame periods.
DuringThe Company’s customers, to which trade credit terms are extended, consist of United States and local governments and foreign and domestic companies. Domestic sales for the quarterthree month period ended September 30, 2017,March 31, 2022 and March 31, 2021 were $436,670 and $362,115, respectively. Sales to foreign customers for the Company accrued total directors’ fees of $1,200, or $300 per director for board meetings attended. For the nine-monththree month period ending September 30, 2017, the Company paid or accrued a total of $3,600 for directors’ fees.
NOTE 6 - COMMITMENTS
The Company leases its facilities from a port authority for $5,445 per month for three years, expiring in September 2020, with annual increases based upon the Consumer Price Index.
ELECTRONIC SYSTEMS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 - SEGMENT REPORTING
Segment information is prepared on the same basis that the Company's management reviews financial information for operational decision-making purposes. ended March 31, 2022 and March 31, 2021 were $35,473 and $62,660, respectively.
DuringFor the quarterthree month period ended September 30, 2017, Domestic customers represented approximately 88% of total net revenues. Domestic sales revenues increased to $283,239 for the quarter ended September 30, 2017 compared to $275,709 for the quarter ended September 30, 2016. Year to date domestic sales revenues decreased to $893,277 as of September 30, 2017 compared to $1,020,831 for the same period of 2016. Foreign customers represented approximately 12% of total net revenues. Foreign sales revenues decreased to $39,523 for the quarter ended September 30, 2017 compared to $45,759 for the quarter ended September 30, 2016. Year to date foreign sales revenues decreased to $188,884 as of September 30, 2017 compared to $229,407 for the same period of 2016. During the quarter ended September 30, 2017,March 31, 2022 and 2021, sales to one customer comprisedthree customers representing more than 10% of total revenue were as follows:
Revenue | ||||||||||||||||
For the three month period ended March 31, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Sales | %age of Total Sales | Sales | %age of Total Sales | |||||||||||||
Domestic customer A | $ | 75,505 | 16 | % | $ | 71,038 | 17 | % | ||||||||
Domestic customer B | 72,683 | 15 | % | 52,851 | 12 | % | ||||||||||
Domestic customer C | 53,625 | 11 | % | 51,368 | 12 | % |
As of March 31, 2022 and 2021, the Company’sCompany had a sales revenues. Revenues from foreign countries during the third quarterorder backlog of 2017 consist primarily of revenues from product sales to Mexico, Peru, India.$116,461 and $91,064, respectively.
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NOTE 6 - LEASES
NOTE 8 – Stock Repurchase
On January 13, 2016,September 23, 2020, the Company’s BoardCompany signed a new two-year lease for its facilities. The base lease is $3,162 and $3,267 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 Directors approved a resolution authorizinguse asset of $74,005 based on the repurchasetwo-year payment stream discounted using an estimated incremental borrowing rate of up to $100,000 of4.0%. At March 31, 2022, the Company’s common stock at the price of $0.38 per share. On March 2, 2016, the Company’s Board of Directors approved a resolution authorizing the repurchase of up to an additional $150,000 of the Company’s common stock at the price of $0.38 per share.remaining lease term is six months. As of September 30, 2017, $184,405 remainsMarch 31, 2022, future payments on this lease of $250,000 approved by the board. 97,764 shares were repurchased for $37,191 in 2016, bringing the total number of shares repurchased to 172,619 through September 30, 2017. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. The following table shows the Company’s activity and related information for the nine-month period ending September 30, 2017.
| Purchase Period End Date | Number of Shares | Average Repurchase Price Per Share | Amount(1) |
January 2017 | January 31, 2017 | 1,000 | $0.38 | $ 390 |
March 2017 | March 31, 2017 | 7,725 | $0.38 | $ 2,962 |
April 2017 | April 30, 2017 | 45,601 | $0.38 | $ 17,343 |
July 2017 | July 31, 2017 | 8,500 | $0.38 | $ 3,237 |
August 2017 | August 31, 2017 | 12,029 | $0.38 | $ 4,592 |
Total |
| 74,855 | $0.38 | $ 28,524 |
(1) Amount includes commissions paid of $79.
The trading price of the Company’s shares as of September 30, 2017, was $0.59.
NOTE 9 – Income Taxes
No Income Tax has been recognized due to the net operating loss. The current year’s net operating loss tax impact has been reserved, as the estimated effective tax rate for 2017$19,604 will be zero.paid in 2022.
The Deferred Tax asset that is recognizedFor the three month periods ended March 31, 2022 and 2021, lease expense of $10,903 and $10,861, respectively, are included in the following expense classifications on the Balance Sheets consists primarilystatements of prior years’ net operating loss and R&D credits. We believe that the Company will be generate net operating income and utilize the asset in future periods.operations:
Leases | ||||||||||||||||||||||||
2022 | 2021 | |||||||||||||||||||||||
Cost of sales | Operating expenses | Total | Cost of sales | Operating expenses | Total | |||||||||||||||||||
Base rent pursuant to lease agreement | $ | 5,397 | $ | 4,247 | $ | 9,644 | $ | 5,396 | $ | 4,247 | $ | 9,643 | ||||||||||||
Variable lease costs | 704 | 555 | 1,259 | 682 | 536 | 1,218 | ||||||||||||||||||
Total lease costs | $ | 6,101 | $ | 4,802 | $ | 10,903 | $ | 6,078 | $ | 4,783 | $ | 10,861 |
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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’sManagement's discussion and analysis is intended to be read in conjunction with the Company’sCompany's unaudited financial statements and the integral notes thereto for the quarter ended September 30, 2016.March 31, 2022. The following statements may be forward looking in nature and actual results may differ materially.
A. Results of OperationsRESULTS OF OPERATIONS
REVENUES:
Total revenues from the sale of the Company’s ESTeem wireless modem products and servicessales increased to $322,763$472,143 for the thirdfirst quarter of 2017, compared to $321,468 for the third quarter of 2016. Gross revenues, including interest income, increased to $325,721 for the quarter ended September 30, 2017, from $324,514 for the same quarter of 2016. Year to date sales decreased to $1,082,161 as of September 30, 2017,2022 as compared to $1,250,238 as$424,775 in the first quarter of September 30, 2016. Year to date gross revenues, including interest income, decreased to $1,090,657 as2021, reflecting an increase of September 30, 2017, compared to $1,259,155 as of September 30, 2016.11.2%. Management believes the increase in quarterly sales revenues is due to increased product demand forfrom the new products introduced atDomestic market during the beginningfirst quarter of 2017.2022 when compared with the same quarter of 2021.
The Company's revenues have historically fluctuated from quarter to quarter due to timing factors such as customer order placement and product shipments to customers, as well ascustomer 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 inwith regard to the Company's revenues becomeare difficult to predict.predict.
During the three month period ending March 31, 2022, orders have not been impacted by COVID-19. We are experiencing some disruptions in the supply chain, but at this point do not see it having a material impact on sales.
A percentage breakdown of EST'sthe Company’s market segments of Domestic and Foreign Export Sales,sales for the thirdfirst quarter of 20172022 and 20162021 are as follows:
| For the third quarter | |||
| 2017 | 2016 | 2022 | 2021 |
Domestic Sales | 88% | 86% | 93% | 85% |
Export Sales | 12% | 14% | 7% | 15% |
Domestic Revenues
During the quarter ended September 30, 2017, the Company’s domestic operations represented 88% of the Company’s total sales revenues. Domestic operations sell ESTeem modem products, accessories and service primarily through domestic resellers, as well as directly to end users of the Company’s products. Domestic sales revenues increased to $283,239 for the quarter ended September 30, 2017 compared to $275,709 for the quarter ended September 30, 2016. Management believes the increase in sales revenues is due to increased domestic sales for water/waste water and mining industrial automation projects during the three-month period ending September 30, 2017. During the quarter ended September 30, 2017, one customer, comprised more than 10% of the Company’s sales revenues.
For the nine-month period ended September 30, 2017, the Company’s domestic operations represented 83% of the Company’s total sales revenues. Year to date domestic sales revenues decreased to $893,277 as of September 30, 2017 compared to $1,020,831 for the same period of 2016. Management believes the decrease in year to date sales revenues is due to decreased engineering services and related product sales during the first half of 2017.
Foreign Revenues
The Company’s foreign operating segment represented 12% of the Company’s total net revenues for the quarter ended September 30, 2017. The foreign operating segment is based wholly in the United States and maintains no assets outside of the United States. The foreign operating segment sells ESTeem modem products, accessories and service primarily through foreign resellers, as well as directly to end customers of the Company’s products located outside the United States.
During the quarter ended September 30, 2017, the Company had $39,522 in foreign export sales, amounting to 12% of total net revenues of the Company for the quarter, compared with foreign export sales of $45,759 for the same quarter of 2016. Management believes the decrease in foreign sales revenues was due to decreased automation needs in Oil & Gas and Mining industries. Revenues from foreign countries during the third quarter of 2017 consist primarily of revenues from product sales to Mexico, Peru and India. No foreign sales to a single customer comprised 10% or more of the Company's product sales for the quarter ended September 30, 2017. Products purchased by foreign customers were used primarily in industrial automation applications. We believe the majority of foreign export sales are the results of the Company’s Latin American sales staff, EST foreign reseller activity, and the Company’s internet website presence.
For the nine-month period ended September 30, 2017, the Company had $188,884 in foreign export sales, amounting to 17% of total sales revenues of the Company for the period, compared with foreign export sales of $229,407 for the same period of 2016. Management believes the decrease in foreign sales revenues is due end of life product purchases in 2016 to Croatia and slow acceptance of product released in 2017 in Latin America.
BACKLOG:
The CorporationAs of March 31, 2022, the Company had a sales order backlog of approximately $22,707 as of September 30, 2017.$116,461. 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 155 working days after receipt of customer orders, with the exception of ongoing, scheduled projects, and custom designed equipment.
COST OF SALES:
Cost of sales percentagepercentages for the third quarterfirst quarters of 20172022 and 2016 was 40%2021 were 44% and 36%,42% of respective net sales and are calculated excluding site support expenses of $6,312 and $2,079 respectively. The cost of sales percentage increase forin the thirdfirst quarter of 20172022 is the result of the product mix for items sold during the period.same quarter of 2021.
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OPERATING EXPENSES:
Operating expenses for the thirdfirst quarter of 2017 decreased $10,8572022 increased $27,294 from the thirdfirst quarter of 2016.2021 levels. The following is an outlinea delineation of operating expenses:
For the quarter ended: |
| September 30, 2017 |
| September 30, 2016 |
| Increase (Decrease) |
General and Administrative |
| $ 59,367 |
| $ 67,792 |
| ($8,425) |
Research/Development |
| 55,511 |
| 59,624 |
| (4,113) |
Marketing and Sales |
| 114,902 |
| 113,221 |
| 1,681 |
Total Operating Expenses |
| $ 229,780 |
| $ 240,637 |
| ($10,857) |
March 31, 2022 | March 31, 2021 | Increase (Decrease) | ||||||||||
General and administrative | $ | 84,776 | $ | 93,503 | $ | (8,727 | ) | |||||
Research and development | 45,777 | 52,700 | (6,923 | ) | ||||||||
Marketing and sales | 137,159 | 94,215 | 42,944 | |||||||||
Total operating expenses | $ | 267,712 | $ | 240,418 | $ | 27,294 |
GENERAL AND ADMINISTRATIVE:
DuringGeneral and administrative: For the thirdfirst quarter of 2017,2022, general and administrative expenses decreased $8,425$8,727 to $59,367 from the same quarter of 2016,$84,776, due to decreased professional services and bank fees.purchased services when compared with the same quarter of 2021.
RESEARCH AND DEVELOPMENT:
Research and development: Research and development expenses decreased $4,113$6,923 to $55,511$45,777 during the thirdfirst quarter of 20172022 due to decreased expenses related to prototype build costs when compared with the same quarter of 2021.
Marketing and sales: During the first quarter of 2022, marketing and sales expenses increased $42,944 to $137,159 when compared with the same period in 2016 due to fees paid for type acceptance and prototype builds of new product.
MARKETING AND SALES:
During the third quarter of 2017, marketing and sales expenses increased $1,681 to $114,092 from the same period in 2016,2021, due to increased services purchased.payroll, taxes and benefits during the first quarter of 2022.
INTEREST AND DIVIDEND INCOME:
The CorporationCompany earned $2,958$491 in interest and dividend income during the quarter ended September 30, 2017.March 31, 2022 compared to $861during the same period in 2021. Sources of this income were money market accounts and certificates of deposit.
NET INCOME (LOSS):
The Company had a net loss of $37,781($4,961) for the thirdfirst quarter of 2017,2022 compared to a net lossincome of $42,497$4,682 for the same quarter of 2016. For the nine-month period ended September 30, 2017, the Company recorded a net loss of $133,992, compared with a net loss of $55,114 for the same period of 2016.2021. The decrease in the Company’s net lossprofits during 2022 is the result of increased sales revenues, decreased gross marginspayroll in Marketing and reduced operating expenses during the third quarter of 2017.Sales due to adding one additional person.
B. Financial Condition, Liquidity and Capital ResourcesFINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Corporation'sCompany's current asset to current liabilities ratio at September 30, 2017March 31, 2022 was 24.6:116.7 compared to 54:112.7 at December 31, 2016. 2021. The increase in current ratio is due to the decrease in accounts payable liability at March 31, 2022 as compared to December 31, 2021.
At September 30, 2017,March 31, 2022, the Company had cash and cash equivalents of $257,112;$850,664 as compared to cash and cash equivalent holdings of $502,971$655,616 at December 31, 2016. The Company had certificates2021, primarily reflecting decreases in Accounts Receivable, Certificates of Deposit, and Inventory.
For the three-month period ended March 31, 2022, cash provided by operating activities was $51,016 compared to cash provided of $106,370 for the same period in 2021. This change was driven by a net loss of $4,961 during the three months ended March 31, 2022 compared to net income of $4,682 in the three months ended March 31, 2021. Change in operating assets and liabilities was $55,866 during the three month period ended March 31, 2022 compared to 100,400 in 2021.
Cash provided from investing was $150,000 due to the redemption of a Certificate of deposit investments induring the amount of $1,000,000 at September 30, 2017 and $1,000,000 at December 31, 2016.
Accounts receivable increased to $94,506 as of September 30, 2017 from December 31, 2016 levels of $71,202, due to sales revenue timing differences between the thirdfirst quarter of 2017 and year-end 2016. Inventories increased2022. With 12 month yields currently at a rate comparable to $813,970 asrates offered by Money Market accounts, maturing CDs are being deposited in these type of September 30, 2017, from December 31, 2016 levels of $703,147, due primarily to an increase of finished goods. The Company's fixed assets, net of depreciation, decreased to $36,428 as of September 30, 2017, from December 31, 2016 levels of $51,383.accounts.
As of September 30, 2017, the Company’s accounts payable balance was $54,709 as compared with $15,114at December 31, 2016, and reflects amounts owed for inventory items, contracted services, and state tax liabilities. Accrued liabilities and refundable deposits as of September 30, 2017 were $34,252 compared with $27,220at December 31, 2016, and reflect items such as accrued vacation benefits and payroll tax liabilities
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In Management'smanagement's opinion, the Company's cash and cash equivalent reserves,equivalents and other working capital at September 30, 2017March 31, 2022 is sufficient to satisfy requirements for operations, capital expenditures, and other expenditures as may arise during the next 12 months.2022.
The Company did not declare or issue any cash dividends during 2016 or 2017.
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’sCompany's reports and registration statements filed with the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicableThere is no established market for trading the common stock of the Company. The market for the Company’s common stock is limited, and as such shareholders may have difficulty reselling their shares when desired or at attractive market prices. The Common Stock is not regularly quoted in the automated quotation system of a registered securities system or association. Our common stock, par value $0.001 per share, is quoted on the OTC Markets Group QB (OTCQB) under the symbol “ELST”. The OTCQB is a network of security dealers who buy and sell stock. The dealers are connected by a computer network which provides information on current “bids” and “asks” as well as volume information. The OTCQB is not considered a “national exchange”. The “over-the-counter” quotations do not reflect inter-dealer prices, retail mark-ups commissions or actual transactions. The Company’s common stock has continued to trade in low volumes and at low prices. Some investors view low-priced stocks as unduly speculative and therefore not appropriate candidates for investment. Many institutional investors have internal policies prohibiting the purchase or maintenance of positions in low-priced stocks.
Item 4. Evaluation of Disclosure Controls and Procedures.
Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report on Form 10-Q, anAn evaluation was carried outhas been performed under the supervision and with the participation of the Company'sour management, including the Presidentour Chief Executive Officer and Principal ExecutiveAccounting Officer, ("PEO") and Principal Financial Officer ("PFO"), of the effectiveness of the design and operationsthe operation of the Company's disclosureour "disclosure controls and proceduresprocedures" (as such term is defined in Rule 13a – 15(e) and Rule 15d – 15(e)Rules 13a-15(e) under the Securities Exchange Act).Act of 1934) as of March 31, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have determined that evaluation, the PEOthere was a material weakness affecting our internal control over financial reporting and, the PFO have concludedas a result of that as of the end of the period covered by this report, the Company'sweakness, our disclosure controls and procedures were not effective as itof March 31, 2022.
The material weakness is as follows:
We did not maintain effective controls to ensure appropriate segregation of duties as the same officer and employee was determinedresponsible for the initiating and recording of transactions, thereby creating segregation of duties weaknesses. Due to the (1) significance of segregation of duties to the preparation of reliable financial statements; (2) the significance of potential misstatement that there were material weaknesses affecting our disclosure controls and procedures.
Management of the company believes that these material weaknesses arecould have resulted due to the small sizedeficient controls; and, (3) the absence of the company's accounting staff. The small sizesufficient other mitigating controls; we determined that this control deficiency resulted in more than a remote likelihood that a material misstatement or lack of the company's accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As the Company grows, management expects to increase the number of employees, which will enable us to implement adequate segregation of dutiesdisclosure within the internal control framework.annual or interim financial statements will not be prevented or detected.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting.
There have been no changesreporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the most recent fiscal quarter ended September 30, 2017 in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.
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PART II - II—OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not involved in any material current of pending legal proceedings
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 Defaults Upon Senior Securities
None
Item 4 Mine Safety Disclosure
Not Applicable
Item 55. Other Information
None
Item 6. Exhibits
EXHIBIT NUMBER | DESCRIPTION |
|
|
| |
31.2 | |
32.1 | |
32.2 | |
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 |
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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.
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